Author Topic: What to do next???  (Read 3365 times)

freeazabird

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What to do next???
« on: August 30, 2014, 03:12:27 PM »
So thanks to tips and encouragement from the MMM community I've just finished paying off $65K in student loans, woo hoo!!!!! Now my problem is I don't know what to do with my extra cash. Any advice is greatly appreciated. Here's a rundown of my financials:

1) Monthly HHI $8,000 plus additional $2,500/mth in bonus income (BONUS INCOME IS NOT GUARANTEED)
2) $25,000 in credit card availability (we never carry a balance)
3) Mortgage balance of $170,000 @3.75%
4) Retirement savings of $35,000
5) Monthly expenses of $3,800
6) Cash savings $25,000
7) No debt outside of mortgage

We are a HH of two with a baby on the way.

PLEASE HELP, HOW DO WE MOVE FORWARD? We are not big fans of stocks.

RichMoose

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Re: What to do next???
« Reply #1 on: August 30, 2014, 04:18:54 PM »
At this point, I would recommend putting everything into retirement savings in tax-advantaged accounts and then purchase low-cost index funds / ETF's inside those accounts. If you're really not at all into any form of stocks I would say read some Bogle books. For easier reading I recommend the Little Book on Common Sense Investing available at your local library. After reading that if you still are 100% sure you don't want anything to do with the stock market then I hope you live in an area where you can purchase good rental property. General rule #1 is that monthly rent is at least 1% of the purchase price of the property. But arebelspy and Another Reader are better help in this area.

dividendman

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Re: What to do next???
« Reply #2 on: August 30, 2014, 04:25:02 PM »
Um... obviously the basic shit. You have a surplus of 4200/mo assuming you can't reduce your expenses more (hint: you can). So...

1) If you're not a big fan of stocks, use that 4200 to get a 3.75% return by paying down your mortgage in advance.
2) Become a big fan of stocks, or if you really can't ever buy a stock fund, at least buy a blended vanguard target date fund that is close by so it gives you a 50/50 split. This guy's blog http://assetbuilder.com/scott_burns/exactly_how_to_be_a_couch_potato_portfolio_manager is pretty good at showing you why you should be a big fan of at least some stocks and how easy it is, I personally use the 10-speed portfolio (or an approximation of it: http://assetbuilder.com/lazy_portfolios/)
3) 401k max out - should take ~ 3 months if there is just one earner and 6 months if there is two
4) IRA max out (another ~2 months if there are two people earning)
5) HSA max out
6) back to #2 but in non-tax sheltered accounts
7) Set up the education fund for the kid... i forget what these are called off hand but it's just another tax sheltered account

freeazabird

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Re: What to do next???
« Reply #3 on: August 30, 2014, 06:44:06 PM »
We live in a city with good rental potential. We could charge 1.5-2% of the purchase per month for rent, though our city has crazy high property taxes. Given current low interest rates do you think it makes sense to put money into a down payment for a rental mortgage than to pay down our current mortgage?

dividendman

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Re: What to do next???
« Reply #4 on: August 30, 2014, 06:59:46 PM »
Well... if you're not comfortable with stocks, why are you comfortable with a super leveraged investment like real estate?

Cheddar Stacker

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Re: What to do next???
« Reply #5 on: August 30, 2014, 08:15:36 PM »
Well... if you're not comfortable with stocks, why are you comfortable with a super leveraged investment like real estate?

Control.

Quote from: freeazabird  date=1409445846
We live in a city with good rental potential. We could charge 1.5-2% of the purchase per month for rent, though our city has crazy high property taxes. Given current low interest rates do you think it makes sense to put money into a down payment for a rental mortgage than to pay down our current mortgage?

Yes. Paying down your mortgage is not your best option. Stock mutual funds in a retirement vehicle are a good bet (this. Is my main strategy). Since you said you don't like stocks, next best bets IMO, in this order are:

-rental real estate you own directly.
-REITs.
-flipping properties.
-starting your own business.
-lending tree/prosper.
-bonds, but at that point it's better to pay off your house first.

Just my opinion. Many investment options though outside the stock market.

RichMoose

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Re: What to do next???
« Reply #6 on: August 30, 2014, 10:02:14 PM »
We live in a city with good rental potential. We could charge 1.5-2% of the purchase per month for rent, though our city has crazy high property taxes. Given current low interest rates do you think it makes sense to put money into a down payment for a rental mortgage than to pay down our current mortgage?

From what I've read online in the past Baltimore in general is quite a good location for owning rental properties. I'm sure you could do quite well in real estate if you pick good neighbourhoods / properties. Maybe try start a Baltimore thread under the Real Estate section of this forum?

With your mortgage rate at 3.75%, I wouldn't be in a super rush to pay it down. Rental mortgage would be the better way to go from an investment perspective.