Author Topic: What to do with my bat mitzvah money  (Read 6326 times)

mozar

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What to do with my bat mitzvah money
« on: March 28, 2014, 07:54:05 PM »
Hello, this is my first year of full mustachianism which means putting my financial house in order. I have about $7000 in a mutual fund that I got as bat mitzvah money in 1995.
« Last Edit: May 10, 2018, 11:32:43 AM by mozar »

Comella

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Re: What to do with my bat mitzvah money
« Reply #1 on: March 28, 2014, 08:17:43 PM »
Other people might disagree, but I would pay off that student loan in a heartbeat.  Knowing after this you only have $7k left... especially from $135K (Nice work by the way). Get her done and get her out of your life.  That's an extra $100/month going towards savings once you pay that thing off.  And just to get it out of your life. 

Good luck.

Comella

johnintaiwan

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Re: What to do with my bat mitzvah money
« Reply #2 on: March 28, 2014, 08:27:01 PM »
I am not an expert, but I think people will want to know the interest rates on your loans before they can really give you any advice

mozar

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Re: What to do with my bat mitzvah money
« Reply #3 on: March 28, 2014, 09:07:30 PM »
Sallie Mae
9,000 at 5%
5,000 at 3%

johnintaiwan

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Re: What to do with my bat mitzvah money
« Reply #4 on: March 28, 2014, 09:24:15 PM »
You say you put 10% down, do you have PMI. I have never been a homeowner, but it sounds like that can be pricey. How close would you be to getting rid of PMI if you put all 7K towards the mortgage?

Personally I felt really good when I finished paying off my student loans even though I would have ended up with more money if I had invested instead. But I liked the idea of being debt free. It was a purely emotional choice, but I stick by it.

I think you will need to look into what your taxes would be on the 7K when you take it out. Someone else would have to tackle that question.

ch12

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Re: What to do with my bat mitzvah money
« Reply #5 on: March 28, 2014, 09:43:08 PM »

I think you will need to look into what your taxes would be on the 7K when you take it out. Someone else would have to tackle that question.

started at 2k, realizing at 7 k = 5 k in cap gains. Long term cap gains held for more than a year is 15% in your tax bracket. That's $750.

Paying off your student loan debt is an emotional victory. You're still going to pay your mortgage, but it will be nice to have fewer holes in your pocket. :)

Take home (2 week paycheck * 26) = 33,280
401k contribution = 17,500
Total incoming cash flow=50,780
Annual expenses (1712*12) = 20,544

((Take home+401k)-expenses)/(take home + 401k) = 59.5% savings rate

I'm ignoring your income from your roommate, but I'm also ignoring lumpy expenses like car registration. You have an enormous savings rate.
« Last Edit: March 28, 2014, 09:45:08 PM by ch12 »

Emg03063

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Re: What to do with my bat mitzvah money
« Reply #6 on: March 29, 2014, 01:23:09 AM »
What's the rate & term on your mortgage?

mozar

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Re: What to do with my bat mitzvah money
« Reply #7 on: March 29, 2014, 08:34:22 AM »
Hello,
I don't have PMI because I bought a co-op. Thought it might be nice to have more than 10% equity. The rate on my mortgage is 5.1% 30yr
I don't own a car. I am saving so much to try to catch up after 10 years of prioritizing debt. So far the verdict is that I should pay off my student loans.


Emg03063

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Re: What to do with my bat mitzvah money
« Reply #8 on: March 29, 2014, 11:05:53 AM »
Your mortgage rate is far enough above market that I would look at refinancing first.  If you can't get market rates without 20% down, that would be my first priority.

mozar

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Re: What to do with my bat mitzvah money
« Reply #9 on: March 29, 2014, 11:29:37 AM »
Say I was able to refinance at 4.3%. I would have to pay refinance fees.
Using a mortgage calculator online it says I will pay 82k in interest. In my current loan I would pay 98k in interest. That's a savings of 16k. The mortgage additional payment calculator says I would pay 79k in interest if I made an additional payment of 7k this year. I would think refinancing is not worth it unless I am missing something.

Emg03063

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Re: What to do with my bat mitzvah money
« Reply #10 on: March 29, 2014, 08:50:35 PM »
That's an apples/oranges comparison.  The savings from refinancing and prepaying principal aren't mutually exclusive.  You should look at a 7/1 ARM for about 3% and applying the interest savings to additional principal paydown.

fixer-upper

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Re: What to do with my bat mitzvah money
« Reply #11 on: March 29, 2014, 09:16:29 PM »
I'd pay off the student debt.  It's the worst of the bunch because it isn't dischargeable.

mozar

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Re: What to do with my bat mitzvah money
« Reply #12 on: March 30, 2014, 09:53:57 AM »
Re: Emg03063
Say my number one priority is to pay off my mortgage in 7 years. I could do the 7 year ARM at 3% and pay the refinancing fees with a payment of 1400 a month. Or for the next 7 years I could pay 1400 on my mortgage every month w/o refinancing and apply only to principal and pay it off. So how is refinancing better? This is something I think about a lot actually. Would the interest savings make that much of a difference?
Thanks.

Emg03063

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Re: What to do with my bat mitzvah money
« Reply #13 on: March 30, 2014, 06:48:08 PM »
I wouldn't say that it should be, but if it was a goal I was really committed to, and I wasn't concerned about my ability to make the payments, I'd get a 10 year fixed mortgage for 2.5%.  Assuming $2500 in closing costs, and you applied the $7000 towards the house, that would leave ~$101,500 financed, and it would take you 78.6 monthly payments of $1400  P&I to payoff, for a total of $110,151 in payments.  With a refi to a 7/1 arm at 3%, it would take you 80.1 $1400 payments for a total of $112,127.  Keeping the 5.1% mortgage on $99,000 of principal, it would take 84.3 monthly payments for a total of $117,995, so even in that scenario, you're about $5800 ahead after 7 years with the 7/1 arm refi vs. keeping your current mortgage.  Should you decide to do something wild and crazy like make the minimum payments on the mortgage instead and invest the difference, the savings with the refi would be larger (assuming your investments outperformed the debt, less the tax benefit).  With the ARM, I'd be sure to prepay enough principal that I could afford the payment if the rates were to reset to their max (unlikely, but you never know).

mozar

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Re: What to do with my bat mitzvah money
« Reply #14 on: March 30, 2014, 08:44:23 PM »
thanks!

Emg03063

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Re: What to do with my bat mitzvah money
« Reply #15 on: March 30, 2014, 11:22:19 PM »
Anytime.  Having said all that, once you're refinanced, pay off the higher rate student loan first (hope that's obvious :).