Author Topic: What Should I do w/ $60k Lump Sum?  (Read 11023 times)

Broadway2019

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What Should I do w/ $60k Lump Sum?
« on: May 10, 2017, 09:24:22 AM »
So here's the situation. I am selling a property and will walk away with roughly $60k at closing. I have the following debt/situations:

1) Current house - only put 3% down on a $362k house so I pay PMI. The PMI is $192 a month and my interest rate is 3.5% for 20 years. There is no length of time I need to keep PMI.

2) Student loans - I owe $45k in student loans and my interest rate is 4%. I currently pay $472 for 10 years.

3) Car loan - I have a car loan originally of $36k with $27k left. I pay $550 a month and interest rate is 1.9%.

4) I have $10k on a zero percent credit not due till August 2018. I am confident I could just pay this off monthly.

Some thoughts I have are to pay of my student loan and put another $10k in my savings. I don't have much of an emergency fund right now. Another option was to take $10k and buy a car outright and get rid of my auto loan.

Thoughts?

Rimu05

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Re: What Should I do w/ $60k Lump Sum?
« Reply #1 on: May 10, 2017, 09:40:28 AM »
If it were me, I would rid myself off the student loans because they have the highest interest rate and also the most balance, plus I have student loans and I can't wait for the sweet release of freedom that will come with paying them off.

However, I suspect there will be comments on the investing side as on average you get the 6% return which trumps the interest rates on the debt.


radram

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Re: What Should I do w/ $60k Lump Sum?
« Reply #2 on: May 10, 2017, 10:24:08 AM »
I would eliminate the PMI ASAP. The full $60,000 should be very close. Then put the added cash flow into the highest interest loan that remains ( the student loan).

I would also drive around in a good quality used car worth less than $10,000, never in a $35,000 depreciating liability.

If I could get a guaranteed 4% rate now, I would take it. With debt, you have that opportunity, but eliminating the PMI would be worth it when comparing 3.5% to 4%.

Once you have 20% equity, look into a HELOC that acts as your emergency fund. I hate staching money in cash when I have debt costing 4%.

Keep us posted.

sequoia

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Re: What Should I do w/ $60k Lump Sum?
« Reply #3 on: May 10, 2017, 10:27:15 AM »
The 60k might be enough to get rid of PMI.  Check with your lender - getting rid of that $192 per month would be nice as it's adding equivalent of about 0.6% onto your mortgage.  Its a tough call between that and eliminating the student loans. 

Personally I'd get rid of the student loans, and use the remainder to sell the car and get into something that costs under 15k instead with no loan.

1. ^ this. Take out the loan with the highest interest rate first.
2. Does it make sense to sell the car and get into cheaper one? My guess is yes.
3. RE PMI. Has the property value go up since you bought it? If yes, maybe a new appraisal can reduce or eliminate PMI?

Dicey

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Re: What Should I do w/ $60k Lump Sum?
« Reply #4 on: May 10, 2017, 10:51:37 AM »
The PMI is costing you over $2300 a year. Hope that some combination of appreciation and principal paydown lets you get rid of it. Invest anything else you have left over. Pay off everything else via cash flow. If you throw the extra $192/mo. at your SL's, they'll be dead in far less than 10 years.

I don't care about the car, as long as you take excellent care of it and drive it for at least another decade, assuming of course, that it's not a McStupidmobile. Not saying you couldn't save money by selling it, but it looks like you've taken the biggest depreciation hit, so keeping it a long time would mitigate that loss, so it's kind of a toss-up.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #5 on: May 10, 2017, 11:42:16 AM »
Thank you everyone for the comments! I really am struggling with deciding. Paying down the mortgage sounds great in theory, however, I am worried about my house value decreasing essentially wiping out any money I put in. If I pay my student loans those are gone forever.

As for my car, I regret buying such an expensive car. I am looking into getting rid of it. It's hard to find something with decent miles, AWD, and an SUV for under $15k. My current car is a Subaru Outback w/ the crash detection which I like a lot from the safety aspect.

Dicey

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Re: What Should I do w/ $60k Lump Sum?
« Reply #6 on: May 10, 2017, 11:47:51 AM »
Thank you everyone for the comments! I really am struggling with deciding. Paying down the mortgage sounds great in theory, however, I am worried about my house value decreasing essentially wiping out any money I put in. If I pay my student loans those are gone forever.

As for my car, I regret buying such an expensive car. I am looking into getting rid of it. It's hard to find something with decent miles, AWD, and an SUV for under $15k. My current car is a Subaru Outback w/ the crash detection which I like a lot from the safety aspect.
Dunno, Subies have a pretty good reputation and are popular. I'd seriously consider going the 15 year route with the one you have.

As to the house losing value: doesn't matter. You'll still need a place to live. The only people who get hurt during a real estate slump are the ones who sell. If your jobs are secure and the house suits your current and long term needs, it will not matter one bit if the value dips. In the meantime, you're wasting $2300+ little green soldiers per year on PMI.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #7 on: May 10, 2017, 12:35:22 PM »
Thank you everyone for the comments! I really am struggling with deciding. Paying down the mortgage sounds great in theory, however, I am worried about my house value decreasing essentially wiping out any money I put in. If I pay my student loans those are gone forever.

As for my car, I regret buying such an expensive car. I am looking into getting rid of it. It's hard to find something with decent miles, AWD, and an SUV for under $15k. My current car is a Subaru Outback w/ the crash detection which I like a lot from the safety aspect.
Dunno, Subies have a pretty good reputation and are popular. I'd seriously consider going the 15 year route with the one you have.

As to the house losing value: doesn't matter. You'll still need a place to live. The only people who get hurt during a real estate slump are the ones who sell. If your jobs are secure and the house suits your current and long term needs, it will not matter one bit if the value dips. In the meantime, you're wasting $2300+ little green soldiers per year on PMI.
i would keep the PMI it adds such a small percentage to the loan and will go away when he gets their naturally too.  better to not tie that up.

dump 62k into VTSAX and keep all loans and sell the car take the equity and buy something reasonable on a low fixed interest rate and put that cash into VTSAX too.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #8 on: May 10, 2017, 01:11:43 PM »
Yikes Boarder - that's some pretty aggressive advice considering all the debt including low home equity, PMI and no emergency fund presented in this example.

what does having high home equity get you.  a bunch of money tied up in a fixed asset that increases at inflation and since you need a place to live likely wont be accessed again if you subscribe to a high home equity life.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #9 on: May 10, 2017, 01:32:28 PM »
Yikes Boarder - that's some pretty aggressive advice considering all the debt including low home equity, PMI and no emergency fund presented in this example.

what does having high home equity get you.  a bunch of money tied up in a fixed asset that increases at inflation and since you need a place to live likely wont be accessed again if you subscribe to a high home equity life.

The freedom to move if needed without having to write a huge check!  Some in this situation get trapped in a home in a housing market downturn.  They end up stuck in their home and job.  It's hard to follow a great opportunity if you can't move (renting some homes isn't always feasible either).  Even in a flat market, 3% equity will have you writing a check at closing if you need to move.  Then where's the down payment for the new place coming from? 

I'd advocate getting the home equity to 20% to get some financial security in terms of housing and getting rid of PMI before dumping a lump sum like that into the market.

there is no feedom in this either way tying up piles of cash in a primary residence is the opposite of freedom.  if you really think you're going to be in this situation then renting vs buying a home is better.. if the opportunity is that great elsewhere then the home would have to be sold either way regardless of the equity you have in it. 

this isnt even logcial .

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #10 on: May 11, 2017, 06:08:19 AM »
I should mention the student loan is variable 4% rate - was the only way I could get less than 6%. So I am more inclined to just knock out that debt and try to pay more on the mortgage each month. Also, could get a home appraisal when we get close to get rid of the PMI. I have only had my current house for 4 months so right now it probably has not gone up at all.


Dicey

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Re: What Should I do w/ $60k Lump Sum?
« Reply #11 on: May 11, 2017, 08:23:01 AM »
I should mention the student loan is variable 4% rate - was the only way I could get less than 6%. So I am more inclined to just knock out that debt and try to pay more on the mortgage each month. Also, could get a home appraisal when we get close to get rid of the PMI. I have only had my current house for 4 months so right now it probably has not gone up at all.
This would have been helpful tof know athat the beginning. In light of this, I'm changing my answer to do whatever you want.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #12 on: May 11, 2017, 08:35:58 AM »
I should mention the student loan is variable 4% rate - was the only way I could get less than 6%. So I am more inclined to just knock out that debt and try to pay more on the mortgage each month. Also, could get a home appraisal when we get close to get rid of the PMI. I have only had my current house for 4 months so right now it probably has not gone up at all.
This would have been helpful tof know athat the beginning. In light of this, I'm changing my answer to do whatever you want.

yeah i dont know that there is a best path forward here personally i'd still keep my PMI its not inhibiting wealth building.  and i'd sell my car.  what you do with the 60k as far as investing or paying down an SL is up to you. i'd keep my loan and invest still.

tyort1

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Re: What Should I do w/ $60k Lump Sum?
« Reply #13 on: May 11, 2017, 11:14:38 AM »
I'd pay off the student loans, as it frees up cashflow and that debt will be gone for ever.  The extra will pay off most of your car loan too.  Use the extra cash flow every month to pay down the rest of the car loan aggressively.  Once that's done, pay off the 0% loan.

Once ALL of that is taken care of, then I'd re-evaluate whether to go after PMI or aggressively save/invest.  I'm kind of with boarder22 that it's better to save/invest vs pay down the house.  The nest egg will grow faster.  Once it's large enough, you have the option to pay PMI all at once in cash, or keep building the nest egg. 

That's the approach I take - eliminate bills, free up cash flow, invest hard.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #14 on: May 11, 2017, 11:41:36 AM »
I'd pay off the student loans, as it frees up cashflow and that debt will be gone for ever.  The extra will pay off most of your car loan too.  Use the extra cash flow every month to pay down the rest of the car loan aggressively.  Once that's done, pay off the 0% loan.

Once ALL of that is taken care of, then I'd re-evaluate whether to go after PMI or aggressively save/invest.  I'm kind of with boarder22 that it's better to save/invest vs pay down the house.  The nest egg will grow faster.  Once it's large enough, you have the option to pay PMI all at once in cash, or keep building the nest egg. 

That's the approach I take - eliminate bills, free up cash flow, invest hard.

Thank you for the advice! This makes a lot of sense. Right now debating getting a used car and pay out of pocket vs keeping my current. I work at home so don't necessarily need the car I have, however, I do need a car. I was thinking a used luxury vehicle as I saw some entry BMW's used for about $15k-$18k.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #15 on: May 11, 2017, 11:44:15 AM »
I'd pay off the student loans, as it frees up cashflow and that debt will be gone for ever.  The extra will pay off most of your car loan too.  Use the extra cash flow every month to pay down the rest of the car loan aggressively.  Once that's done, pay off the 0% loan.

Once ALL of that is taken care of, then I'd re-evaluate whether to go after PMI or aggressively save/invest.  I'm kind of with boarder22 that it's better to save/invest vs pay down the house.  The nest egg will grow faster.  Once it's large enough, you have the option to pay PMI all at once in cash, or keep building the nest egg. 

That's the approach I take - eliminate bills, free up cash flow, invest hard.

why are we paying off a 1.9% car loan? not worth it.

best choice - sell the car
second best choice - keep the loan
third choice - pay it off.

tyort1

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Re: What Should I do w/ $60k Lump Sum?
« Reply #16 on: May 11, 2017, 12:11:03 PM »
I'd pay off the student loans, as it frees up cashflow and that debt will be gone for ever.  The extra will pay off most of your car loan too.  Use the extra cash flow every month to pay down the rest of the car loan aggressively.  Once that's done, pay off the 0% loan.

Once ALL of that is taken care of, then I'd re-evaluate whether to go after PMI or aggressively save/invest.  I'm kind of with boarder22 that it's better to save/invest vs pay down the house.  The nest egg will grow faster.  Once it's large enough, you have the option to pay PMI all at once in cash, or keep building the nest egg. 

That's the approach I take - eliminate bills, free up cash flow, invest hard.

Thank you for the advice! This makes a lot of sense. Right now debating getting a used car and pay out of pocket vs keeping my current. I work at home so don't necessarily need the car I have, however, I do need a car. I was thinking a used luxury vehicle as I saw some entry BMW's used for about $15k-$18k.

Uh, never buy a BMW or Audi or any other German (or French or British) luxury car.  You are saddling yourself with very high maintenance costs and high insurance costs.  No point getting rid of debt if you're just going to blow it on a European luxury car. 

Hondas and Toyotas are the way to go - low price, low insurance, low maintenance costs, ultra reliable.  If you MUST have a luxury version, Acura and Lexus are better than the German brands because they are basically just fancy Hondas and Toyotas. 

Re: What Should I do w/ $60k Lump Sum?
« Reply #17 on: May 11, 2017, 12:14:08 PM »
Go to the roulette table in Vegas and put it all on red

sorry couldn't resist :)

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #18 on: May 11, 2017, 12:17:41 PM »
Yes I will probably just get a used Rav4 or something else practical. I really hate spending so much on my current car, however, I love subarus, especially since i have crash detection. I guess I will just drive safer :P.

tyort1

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Re: What Should I do w/ $60k Lump Sum?
« Reply #19 on: May 11, 2017, 12:25:59 PM »
Yes I will probably just get a used Rav4 or something else practical. I really hate spending so much on my current car, however, I love subarus, especially since i have crash detection. I guess I will just drive safer :P.

Or you could sell the car, buy a $15k used honda.  That will get rid of that $550 per month car payment immediately plus give you $10k in your pocket. 

Then your $60k windfall would pay off your student loans entirely, pay off your personal loan, and leave another $5k left over to put into your pocket. 

That gets rid of all your debt PLUS have $15k left over for investing and NO PAYMENTS, freeing up a ton of cash flow, immediately.

Is "crash protection" really worth giving up all that?

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #20 on: May 11, 2017, 12:45:47 PM »
Yes I will probably just get a used Rav4 or something else practical. I really hate spending so much on my current car, however, I love subarus, especially since i have crash detection. I guess I will just drive safer :P.

Or you could sell the car, buy a $15k used honda.  That will get rid of that $550 per month car payment immediately plus give you $10k in your pocket. 

Then your $60k windfall would pay off your student loans entirely, pay off your personal loan, and leave another $5k left over to put into your pocket. 

That gets rid of all your debt PLUS have $15k left over for investing and NO PAYMENTS, freeing up a ton of cash flow, immediately.

Is "crash protection" really worth giving up all that?

or you could sell your car

pay off your SLs

and put alll that money in to market thats left

buy a 5-6k used car and get a low fixed interest loan at 1.9%.

Bicycle_B

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Re: What Should I do w/ $60k Lump Sum?
« Reply #21 on: May 11, 2017, 01:11:44 PM »
I vote with Tyort on the car, but side with paying off the PMI because $2300 is about 3.8% of $60,000 - the return from paying off the mortgage jumps from 3.5% to 7.3% once the PMI kicks in (3.5% plus 3.8%).  Unlike the stock market, this gain is stable and can be reliably predicted.

I've read that PMI can be removed once the mortgage is 20% lower than appraisal.  Whether you're there yet depends partly on how much principal you've already paid.  Could you get out of the PMI immediately?

Side note on safe cars.  Death rates for Subaru are best in class according to Insurance Institute for Highway Safety (not sure if I compared correct model though).  Honda Accord and Volkswagen CC are close, though, and might be cheaper?  The CC's predicted or estimated rate is actually better - look at the confidence intervals in the link below, for mid-size four door cars.  You can buy 2010 CC for 8k to 9k cash (not selling mine at present).

http://www.iihs.org/iihs/topics/driver-death-rates

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #22 on: May 11, 2017, 01:26:52 PM »
Hi Bicycle_B. Thank you for your suggestion. After looking this afternoon, I would probably stick with a Subaru which in this case, there is not much cheaper since they hold their value.

Another thought I just had is paying off my wife's car and us just continuing to pay the Subaru. So right now we each just pay our own car, however, she has a 2015 Mazda and she owes $9k. This would take away her payment and we could just pay off the Subaru faster. That way we have one car and one SUV. I was looking and to get a decent SUV would be about $15-20k. I like having an SUV because I have a dog and its good to transport larger items and such.

radram

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Re: What Should I do w/ $60k Lump Sum?
« Reply #23 on: May 11, 2017, 01:38:15 PM »
I'd pay off the student loans, as it frees up cashflow and that debt will be gone for ever.  The extra will pay off most of your car loan too.  Use the extra cash flow every month to pay down the rest of the car loan aggressively.  Once that's done, pay off the 0% loan.

Once ALL of that is taken care of, then I'd re-evaluate whether to go after PMI or aggressively save/invest.  I'm kind of with boarder22 that it's better to save/invest vs pay down the house.  The nest egg will grow faster.  Once it's large enough, you have the option to pay PMI all at once in cash, or keep building the nest egg. 

That's the approach I take - eliminate bills, free up cash flow, invest hard.


Thank you for the advice! This makes a lot of sense. Right now debating getting a used car and pay out of pocket vs keeping my current. I work at home so don't necessarily need the car I have, however, I do need a car. I was thinking a used luxury vehicle as I saw some entry BMW's used for about $15k-$18k.


So... you are talking about getting a used $15,000 car... and it is not even for work. It is just to have? Are you serious? Someone with $500,000 in debt should NEVER utter the word "luxury". I think you are either asking for advice in the wrong place, or are deserving this much needed face punch.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #24 on: May 11, 2017, 01:58:12 PM »
I vote with Tyort on the car, but side with paying off the PMI because $2300 is about 3.8% of $60,000 - the return from paying off the mortgage jumps from 3.5% to 7.3% once the PMI kicks in (3.5% plus 3.8%).  Unlike the stock market, this gain is stable and can be reliably predicted.

I've read that PMI can be removed once the mortgage is 20% lower than appraisal.  Whether you're there yet depends partly on how much principal you've already paid.  Could you get out of the PMI immediately?

Side note on safe cars.  Death rates for Subaru are best in class according to Insurance Institute for Highway Safety (not sure if I compared correct model though).  Honda Accord and Volkswagen CC are close, though, and might be cheaper?  The CC's predicted or estimated rate is actually better - look at the confidence intervals in the link below, for mid-size four door cars.  You can buy 2010 CC for 8k to 9k cash (not selling mine at present).

http://www.iihs.org/iihs/topics/driver-death-rates

this isnt how this math works. 

MDM

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Re: What Should I do w/ $60k Lump Sum?
« Reply #25 on: May 11, 2017, 02:14:09 PM »
The closer you are to eliminating PMI, the greater the ROI for doing so.  If you need exactly $60K, that saves $192*12/$60K = 3.84%.

If $30K would do it, the return would be $192*12/$30K = 7.68%.  Etc.

If you can deduct SL interest, your effective SL interest rate is 4% * (1 - marginal_tax_rate * (SL interest deducted)/(SL interest paid)).  I.e., if you can deduct all the interest it is simply 4% * (1 - marginal_tax_rate), but if you hit the $2500 upper limit then you have to account for that.

Just a couple things to stir in the mix....

Jaayse

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Re: What Should I do w/ $60k Lump Sum?
« Reply #26 on: May 11, 2017, 03:46:58 PM »
So here's the situation. I am selling a property and will walk away with roughly $60k at closing. I have the following debt/situations:

1) Current house - only put 3% down on a $362k house so I pay PMI. The PMI is $192 a month and my interest rate is 3.5% for 20 years. There is no length of time I need to keep PMI.

2) Student loans - I owe $45k in student loans and my interest rate is 4%. I currently pay $472 for 10 years.

3) Car loan - I have a car loan originally of $36k with $27k left. I pay $550 a month and interest rate is 1.9%.

4) I have $10k on a zero percent credit not due till August 2018. I am confident I could just pay this off monthly.

Some thoughts I have are to pay of my student loan and put another $10k in my savings. I don't have much of an emergency fund right now. Another option was to take $10k and buy a car outright and get rid of my auto loan.

Thoughts?

My thoughts are as follows:

    a)  Your PMI is the following yearly rate on $61,540 (or 362000*.17 assuming you need 20% equity):   192*12 = 2304 or 3.74%

    b)  Your Student loan is the following yearly rate on $45,000:  45000*.04 = 1800 or 4%

    c)  Your car loan is the following yearly rate on $27,000:  27000*.019 = 513 or 1.9%

    d)  Your credit card is the following yearly rate on $10,000:  10000*.00 = 0 or 0%

If you want to get the most use out of your money you should do the following:

1)  Sell your expensive car and buy a new used car in cash.  You admitted that you work from home and although you need a car of some sort, you don't really need the car you have.  This is not a license to go buy a luxury vehicle when there are plenty of nice and functional options out there.

2)  Pay off your student loan.  Although the yearly rate seems less than that of your student loan, it is on a smaller amount of money.  You can pay it off entirely and immediately stop paying interest.

3)  Either put the remaining amount into your home loan to increase equity or invest it. 
              -Putting the money immediately into your house equity protects it from the variability of the market in the event of a downturn in the short term.  However, my understanding is that your PMI will not be reduced even with the greater equity, so it will not provide immediate returns.
              -Investing the money is more risky, but has the possibility of greater returns in the long term.  This is the better option and will grow your money unless you are not comfortable with the risk or feel like having it available will tempt you to spend it.

4)  Ensure you pay off that $10,000 0% credit before it begins to accrue interest!!!

If you follow these steps, you will see the immediate effect of reducing your interest payments by 1800+513 = $2,313.  Also you will either have an additional 15,000 + whatever is left over from your new car choice invested or put into your home loan.  The 15,000 alone could potentially earn you an additional $1,050 per year using 7% returns. 

Edited to add Link:  http://www.investopedia.com/articles/personal-finance/062014/how-get-rid-private-mortgage-insurance.asp
« Last Edit: May 11, 2017, 04:18:00 PM by Jaayse »

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #27 on: May 12, 2017, 06:53:42 AM »
Hi Jaayse! Thank you for advice and I have definitely been doing research on selling my car. I can't believe I made the mistake of buying a $37k car and still owe $27k. Luckily Subarus keep their value and the kbb trade in is basically what I owe. Its a 2015 Subaru Outback w/ eyesight and loaded which I love but it comes at a price. I have been thinking of getting a Toyota Rav4 and paying for it cash. The ones I researched are between $10k-15k depending on year and mileage.

Also, I just started a Betterment account so anything left after paying student loans will be going into that. Thanks again for all the advice.
« Last Edit: May 12, 2017, 06:58:47 AM by kwarden13 »

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #28 on: May 12, 2017, 07:24:51 AM »
Hi Jaayse! Thank you for advice and I have definitely been doing research on selling my car. I can't believe I made the mistake of buying a $37k car and still owe $27k. Luckily Subarus keep their value and the kbb trade in is basically what I owe. Its a 2015 Subaru Outback w/ eyesight and loaded which I love but it comes at a price. I have been thinking of getting a Toyota Rav4 and paying for it cash. The ones I researched are between $10k-15k depending on year and mileage.

Also, I just started a Betterment account so anything left after paying student loans will be going into that. Thanks again for all the advice.

why did you start a betterment account?

have you maxed out all taxadvantaged accounts.

The only benefit betterment brings to the table is tax lost harvesting in Taxable accounts.  you'd likely be better off with vanguard.  And i assume you have some kind of 401k with work that hsould be maxed out assuming you have good options <-- betterment cant do this for you so you need to learn the basics anyways. 

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #29 on: May 12, 2017, 07:59:28 AM »
I liked the ease of the Betterment website. I currently invest 10% into my 401k at work which is through Vanguard plus have a pension. My plan is to max out that retirement account and I have been slowly raising my contribution yearly by 1-2%.

Dicey

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Re: What Should I do w/ $60k Lump Sum?
« Reply #30 on: May 12, 2017, 08:13:50 AM »
I liked the ease of the Betterment website. I currently invest 10% into my 401k at work which is through Vanguard plus have a pension. My plan is to max out that retirement account and I have been slowly raising my contribution yearly by 1-2%.
Puh-leeze go read the JLCollinsnh Stock Series. Betterment is not for you and is damn expensive to boot. MMM only put 100k of a considerably larger amount of assets into B'ment. Tax loss harvesting might prove worth it for a guy with a huge income, but it is NOT advantageous in your (and most people's) situation. That funny smell is money burning in your B'ment account. Your future self will thank you for cutting off all ties to this firm.  Really, jlcollinsnh is your new best friend.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #31 on: May 12, 2017, 08:39:28 AM »
No need to make me feel bad about trying to invest money. It might not be the best way, but it is better than it sitting in a checking or savings account. I will look into Vanguard's options. Also, I came to this board for help in making a decision and some of you on here are very judgemental. Yes, I made some mistakes, however, I am trying to correct them while I am in my 20s.

Dicey

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Re: What Should I do w/ $60k Lump Sum?
« Reply #32 on: May 12, 2017, 09:11:59 AM »
No need to make me feel bad about trying to invest money. It might not be the best way, but it is better than it sitting in a checking or savings account. I will look into Vanguard's options. Also, I came to this board for help in making a decision and some of you on here are very judgemental. Yes, I made some mistakes, however, I am trying to correct them while I am in my 20s.
If you're referring to my B'ment/JLCollinsnh thoughts above, may I please remind you that you're on the MMM Forums, where facepunches are doled out like Halloween Candy?

This is Judgement Central, because we're all trying to help each other reach Freedom. If feeling "bad" helps you make better choices, that's good, right? It means you'll get there. And to be clear, nothing was said with the intent of making you feel "bad". The fact that you're responding so actively to other's advice/suggestions is perhaps a most excellent indicator of your future success.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #33 on: May 12, 2017, 09:37:42 AM »
I really am trying to set myself up for success in the coming years. I know some about finance and do actively look at my investments in my 401k, however, have never invested besides that. So it is all new to me. I was looking for something relatively easy to get started.

I am definitely listening to the advice on selling my car. Not sure I will get one 10 years old, but definitely will be paying cash and no more than $15k. Right now looking at Toyota Rav4's or Venza with 30-40k miles.

tyort1

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Re: What Should I do w/ $60k Lump Sum?
« Reply #34 on: May 12, 2017, 11:28:40 AM »
Agree with the others, Betterment is too costly unless you make quite a lot of $$.  Vanguard is what you want.  The golden rule is put 80% of your $ into VTSAX (total stock market) and 20% of your $$ into VBTLX (total bond market).

Every month, put 80% of your savings into VTSAX and 20% of your savings into VBTLX.  Do this methodically until you have enough $$ to retire. 

Re-balancing:  Once per year, look at the balances.  If stocks have grown and are more than 80% (very likely), sell some of your VTSAX shares and buy a few more VBTLX shares until it balances back out to 80/20.

That's it. 

Only other advice - build a 3 months expenses emergency fund for when sh!t happens (because it will), but after that start maxing out your 401k, which lets you put in $18k per year (if you have one) and then your Roth IRA, which lets you put in $5500 per year.  Both give you the best ROI because of their tax exempt and deferred status. 

Then sign up for Personal Capital, link your investment accounts to it, and watch your money grow :)

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #35 on: May 13, 2017, 12:47:26 PM »
Do you know how to open an account on Vanguard to invest in VTSAX? I tried today, however, it is asking me to transfer an amount. There was no stock selection. Do you transfer the amount then select the stock?

I am worried I did something wrong?

radram

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Re: What Should I do w/ $60k Lump Sum?
« Reply #36 on: May 13, 2017, 01:22:28 PM »
Do you know how to open an account on Vanguard to invest in VTSAX? I tried today, however, it is asking me to transfer an amount. There was no stock selection. Do you transfer the amount then select the stock?

I am worried I did something wrong?

For me it was a 3 step process.

1. Create the account.
2. Fund the account. This could be via a rollover, a direct transfer from your bank, a check written and sent to them, etc.
3. Buy the stuff you want once the funds are in the account.

Sounds like you are on step 1, and they are now asking for where the funds are coming from. Once it is funded, you can then buy what you want.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #37 on: May 13, 2017, 01:33:12 PM »
Ok thank you Radram. I just wanted to make sure before signing up fully since it says it cannot be changed or canceled.

boarder42

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Re: What Should I do w/ $60k Lump Sum?
« Reply #38 on: May 13, 2017, 07:50:41 PM »
You can call them and they will help you

Jaayse

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Re: What Should I do w/ $60k Lump Sum?
« Reply #39 on: May 14, 2017, 02:15:08 PM »
I created my Vanguard account online and after the account was funded I had to call them in order to get my account number before I could log in.  I don't receive paper mail right now so I don't know if they sent the account number that way or if it is just common to have to call for it.  Good luck, you're on the right course!

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #40 on: May 23, 2017, 06:57:17 PM »
So here's the situation. I am selling a property and will walk away with roughly $60k at closing. I have the following debt/situations:

1) Current house - only put 3% down on a $362k house so I pay PMI. The PMI is $192 a month and my interest rate is 3.5% for 20 years. There is no length of time I need to keep PMI.

2) Student loans - I owe $45k in student loans and my interest rate is 4%. I currently pay $472 for 10 years.

3) Car loan - I have a car loan originally of $36k with $27k left. I pay $550 a month and interest rate is 1.9%.

4) I have $10k on a zero percent credit not due till August 2018. I am confident I could just pay this off monthly.

Some thoughts I have are to pay of my student loan and put another $10k in my savings. I don't have much of an emergency fund right now. Another option was to take $10k and buy a car outright and get rid of my auto loan.

Thoughts?

My thoughts are as follows:

    a)  Your PMI is the following yearly rate on $61,540 (or 362000*.17 assuming you need 20% equity):   192*12 = 2304 or 3.74%

    b)  Your Student loan is the following yearly rate on $45,000:  45000*.04 = 1800 or 4%

    c)  Your car loan is the following yearly rate on $27,000:  27000*.019 = 513 or 1.9%

    d)  Your credit card is the following yearly rate on $10,000:  10000*.00 = 0 or 0%

If you want to get the most use out of your money you should do the following:

1)  Sell your expensive car and buy a new used car in cash.  You admitted that you work from home and although you need a car of some sort, you don't really need the car you have.  This is not a license to go buy a luxury vehicle when there are plenty of nice and functional options out there.

2)  Pay off your student loan.  Although the yearly rate seems less than that of your student loan, it is on a smaller amount of money.  You can pay it off entirely and immediately stop paying interest.

3)  Either put the remaining amount into your home loan to increase equity or invest it. 
              -Putting the money immediately into your house equity protects it from the variability of the market in the event of a downturn in the short term.  However, my understanding is that your PMI will not be reduced even with the greater equity, so it will not provide immediate returns.
              -Investing the money is more risky, but has the possibility of greater returns in the long term.  This is the better option and will grow your money unless you are not comfortable with the risk or feel like having it available will tempt you to spend it.

4)  Ensure you pay off that $10,000 0% credit before it begins to accrue interest!!!

If you follow these steps, you will see the immediate effect of reducing your interest payments by 1800+513 = $2,313.  Also you will either have an additional 15,000 + whatever is left over from your new car choice invested or put into your home loan.  The 15,000 alone could potentially earn you an additional $1,050 per year using 7% returns. 

Edited to add Link:  http://www.investopedia.com/articles/personal-finance/062014/how-get-rid-private-mortgage-insurance.asp

So I contacted my bank about the PMI again and they are saying I need to do a $450 appraisal prior to even considering eliminating PMI, then mail them the amount to cover 20%, and then they will determine if they can remove it. It seems like a lot of money to give them without knowing 100% upfront. I am worried they will not take it off or I will have to fight back and forth. Looks like student loans may just be the easier option.

MDM

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Re: What Should I do w/ $60k Lump Sum?
« Reply #41 on: May 23, 2017, 07:02:15 PM »
So I contacted my bank about the PMI again and they are saying I need to do a $450 appraisal prior to even considering eliminating PMI, then mail them the amount to cover 20%, and then they will determine if they can remove it.
Is this what it says in the contract you signed when you received the loan?

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #42 on: May 23, 2017, 07:19:05 PM »
So I contacted my bank about the PMI again and they are saying I need to do a $450 appraisal prior to even considering eliminating PMI, then mail them the amount to cover 20%, and then they will determine if they can remove it.
Is this what it says in the contract you signed when you received the loan?

I need to dig up the contract and read it again. I am fine paying for another appraisal, but a little put off by the fact the bank won't say if they can remove it. I would like to know 100% before I sent in the funds after the appraisal. But from what the bank says is I have to send the funds and then they make a determination. Seems sketchy and I have heard of banks not wanting to get rid of the PMI or giving loan holders a hard time.

MDM

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Re: What Should I do w/ $60k Lump Sum?
« Reply #43 on: May 23, 2017, 07:24:08 PM »
Seems sketchy and I have heard of banks not wanting to get rid of the PMI or giving loan holders a hard time.
Agreed.  Best wishes for finding more favorable language in your legal agreement.

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #44 on: May 23, 2017, 07:26:28 PM »
Seems sketchy and I have heard of banks not wanting to get rid of the PMI or giving loan holders a hard time.
Agreed.  Best wishes for finding more favorable language in your legal agreement.

Thank you for taking the time to comment!

Karinajane8

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Re: What Should I do w/ $60k Lump Sum?
« Reply #45 on: May 23, 2017, 07:39:30 PM »
Congratulations on thinking critically and seeking out advice regarding what to do with your lump sum.  The variable part of the student loans would make me nervous.
Regarding the car situation, I can't believe they sell an Outback for that amount!  Mine was 24k (bought in cash in late 2010 before I realized I was giving up a small fortune in opportunity cost).  I'm wondering why you aren't considering another Outback?  While you may have to give up your "eyesight," you can get a great Outback for under $15k. And if you don't drive all that much, just driving more carefully seems like the way to go.  Win, win you keep what you are used to and still free up cash.
Good luck with your decisions!

Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #46 on: May 23, 2017, 07:47:08 PM »
Congratulations on thinking critically and seeking out advice regarding what to do with your lump sum.  The variable part of the student loans would make me nervous.
Regarding the car situation, I can't believe they sell an Outback for that amount!  Mine was 24k (bought in cash in late 2010 before I realized I was giving up a small fortune in opportunity cost).  I'm wondering why you aren't considering another Outback?  While you may have to give up your "eyesight," you can get a great Outback for under $15k. And if you don't drive all that much, just driving more carefully seems like the way to go.  Win, win you keep what you are used to and still free up cash.
Good luck with your decisions!

Thanks! So I can refinance my student loans at no cost for 3.5%, however, I just want some of this debt gone. I now started really looking into how much I spend and how much debt I have. It's driving me crazy. I wish I found this blog earlier!

Karinajane8

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Re: What Should I do w/ $60k Lump Sum?
« Reply #47 on: May 23, 2017, 09:14:15 PM »
I now started really looking into how much I spend and how much debt I have. It's driving me crazy. I wish I found this blog earlier!
[/quote]

I agree!  You are ahead of most though.  I already had a kid and was in my 30s when I found MMM.  Have you also discovered MadFientist?  I started using his FI spreadsheet a couple years ago and it has made a huge difference in our bottom line.  Read Your Money or Your Life, start tracking your expenses with Personal Capital/Mint, input the info in the spreadsheet and watch the magic happen!  (Re investing, I also agree the JLCollins stock series is a must or at least his book The Simple Path to Wealth.)

mpcharles

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Re: What Should I do w/ $60k Lump Sum?
« Reply #48 on: May 24, 2017, 09:27:49 AM »
Yes I will probably just get a used Rav4 or something else practical. I really hate spending so much on my current car, however, I love subarus, especially since i have crash detection. I guess I will just drive safer :P.
You love crash detection?

Spend $100 on a driving course and learn to drive.

Boom no crashes :)

Sent from my ASUS_Z00AD using Tapatalk


Broadway2019

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Re: What Should I do w/ $60k Lump Sum?
« Reply #49 on: May 26, 2017, 07:47:40 AM »
Thanks to everyone's help on here I have decided to trade in my car for a 2014 certified subaru legacy w/ 50k miles for $15k out the door. While I know I could have gone cheaper, I feel this is a step in the right direction and should last a long time.