I am a new Mustachian who has always been interested in money. I have recently paid off a $10,000 credit card bill incurred when I was laid off due to a company acquisition. I am working part time now and my SO works full time. We are forty-somethings that have zero credit card debt, no car loans (we do need a new-to-us car!!), and $50,000 left on our mortagage with a 4.75% interest rate. At our current payment schedule, the house will be paid off August 2018. We did not refi recently as most of the interest is paid at the beginning of a loan and because we have a short time left on our current loan. Did we make the right choice in not refinancing or should we still be considering that option? Our credit is excellent so getting a loan is not a problem. Combined salary is around $70000 with emergency savings around $10,000. I do not have a 401k at my current job, but about $155,000 in my previous employer's 401k plan. SO has a retirement account with about $5,000 and is contributing about $70/mo. SO has a county pension in addition to the retirement account. Should I start paying down the mortgage principal or should I open an IRA or investment account? Currently, saving for a new-to-us car. WOW!! Talk about letting everything hang out!! Thanks for any and all comments!!
Welcome!
In short, I personally would invest the money. I asked this very question, I think, a few months back when I was trying to figure out the answer. At the time, I was paying $200 more per month in order to pay off the house earlier.
After I did the math and viewed the whole picture, I determined that my decision to pay $200 more per month was not rational. Then, I kept doing it despite it not being rational. Then, I decided to stop pre-paying and to invest the money in the stock market.
Why? Because I can make more $$ in the stock market than I will get back from pre-paying my mortgage.
For me, the answer was in the math.
I suggest using the refinance and mortgage pre-payment calcs on this website to calculate how much savings you would gain from paying off the mortgage early.
http://www.mtgprofessor.com/CalculatorArticles/Refinance%20Calculators.htmlKeep in mind that future savings is in future dollars and not today's dollars. Those future dollars will be worth less due to inflation.
Is your PT work for yourself in your business or for someone else? If it's for you, look into a SEP IRA and see if that is something you can do. If you are working PT for someone else's company, then definitely put the max into your IRA since you can't take advantage of using pre-tax dollars in a 401K.
Gosh, it drives me nuts that people who work at companies without 401ks can't save pre-tax dollars. Urgh!
What are your expenses? How expensive is your geo area?
I ask because I'm wondering if your SO could be putting away more than $70/month. Saving that little is a bit worrisome.