Author Topic: Thoughts on what to do with 80k?  (Read 11814 times)

migganimon

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Thoughts on what to do with 80k?
« on: November 19, 2014, 11:30:41 AM »
Hey guys,

I just recently moved from Minneapolis to Phoenix for a new job, and in the process I've sold my house. We've got about 80k in cash from the settlement and we're not planning on buying anything down here for at least 2 to 3 years (at which point we'll need the money again for a down payment). I'm wondering what you guys would recommend doing with the money in the meantime... here is a bit more background info.

We've got some debt that we could payoff:
  • 25k in student loans (@~5%, $216/mo payment)
  • Auto loan (@2%, $450/mo, $7k payoff)
  • *Nasty HELOC (@9%, $330/mo, $25k payoff)
*The HELOC is from 2006 when I bought my first property. It was technically the '15%' of an 80/15 loan I got. It has a 15 year balloon payment and pays down sooo slowly. We still own the condo and are currently renting it out (at a $400/mo loss). We plan on selling the Condo in May of next year since we're finally back up to break even on it after the market correction in 2007. So, I'm not sure there is a huge advantage to paying this off now (besides the additional cash flow) if we're planning to sell in a few months.

So, thoughts on what to do? Easy option would be to just throw everything into my brokerage account and buy into VTI. There are some other more conservative investing options out there as well, obviously. We're fairly risk tolerant (age 32) but we'd like to be able to have access to the money in a few years so we can buy another house. Also see lots of talk about a coming market correction. Would it be wise to sit on the money and buy in at the next correction? I understand that this is very difficult to time and may end up costing me more money by missing out on short-term gains.

Should also note we're fairly aggressive savers. We both max out our 401ks and HSAs every year. We're no longer eligible to contribute to our IRAs. We're no longer eligible for student loan interest deductions. Our household income is around $290k / year.

Thanks for any thoughts you might have.

CowboyAndIndian

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Re: Thoughts on what to do with 80k?
« Reply #1 on: November 19, 2014, 11:40:04 AM »
Payoff all your loans.

I do not like your option of investing it for 2-3 years till you buy a house, there is potential for loss as well as gain.
Paying off your loans give you a guaranteed return.

surfhb

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Re: Thoughts on what to do with 80k?
« Reply #2 on: November 19, 2014, 11:54:51 AM »
Yep!   Payoff all your debt....write the checks today!

Congrats!!

waltworks

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Re: Thoughts on what to do with 80k?
« Reply #3 on: November 19, 2014, 12:09:36 PM »
Is this a joke? HH income of $290k/year, "aggressive savers" and you have this sort of debt and need a windfall to kill it?

Assuming it's not a joke, pay off all the debt. Then stick the rest in whatever investment floats your boat. If you can't save enough for a DP in the next few years on $290k/year, you have more serious problems than your asset allocation or buying into the market when it's high.

-W

migganimon

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Re: Thoughts on what to do with 80k?
« Reply #4 on: November 19, 2014, 12:18:52 PM »
Nope, not a joke sorry. We've got plenty of money saved in retirement accounts but we've never had enough to payoff any of those debts outright until now. HH income much higher than it used to be due to a recent promotion, we're a young couple and have paid off most of her other 75k in student debt as we've had extra money each month.

waltworks

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Re: Thoughts on what to do with 80k?
« Reply #5 on: November 19, 2014, 12:26:09 PM »
In that case, kill all the debt, keep saving aggressively, and you should be FI in 3-4 years, congrats!

-W

happyfeet

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Re: Thoughts on what to do with 80k?
« Reply #6 on: November 19, 2014, 03:27:52 PM »
Yes - kill the debt.  That is an automatic return.  Then start saving.  You make a lot of money and should be able to sock a bunch away.

wtjbatman

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Re: Thoughts on what to do with 80k?
« Reply #7 on: November 19, 2014, 03:33:12 PM »
In that case, kill all the debt, keep saving aggressively, and you should be FI in 3-4 years, congrats!

-W

Yeah no kidding.

Well, I'm getting the sense they must have some heinous household expenses, because otherwise I don't understand holding 25k debt @ 9% interest when your household income is $290,000 a year (?!).

migganimon

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Re: Thoughts on what to do with 80k?
« Reply #8 on: November 19, 2014, 03:58:04 PM »
Nothing too heinous, we're definitely not as frugal as some on these boards. We save $2500 a month into retirement accounts. We've got a financial advisor who had advised us not to payoff the loan because she thought having the cash available was more important at the time. At one point we were doubling our payments on that loan but we stopped doing that when we saw we might be able to sell the property in the near term.

I'm not 100% on the side of the financial advisor, which is why I'm posting here. Seems like you guys are confirming what I've been thinking we should do for awhile.

waltworks

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Re: Thoughts on what to do with 80k?
« Reply #9 on: November 19, 2014, 04:04:16 PM »
Half the reason I read the forum is for these kind of WTF stories. 290k/year? I'd be FI basically immediately on that kinda money, and I'm far from a crazy frugal person. Our savings per month is double to triple that of the OP on 1/3 the income.

Maybe WestchesterFrugal re-registed for a new username.

-W

In that case, kill all the debt, keep saving aggressively, and you should be FI in 3-4 years, congrats!

-W

Yeah no kidding.

Well, I'm getting the sense they must have some heinous household expenses, because otherwise I don't understand holding 25k debt @ 9% interest when your household income is $290,000 a year (?!).

Malaysia41

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Re: Thoughts on what to do with 80k?
« Reply #10 on: November 19, 2014, 04:10:07 PM »
Nothing too heinous, we're definitely not as frugal as some on these boards. We save $2500 a month into retirement accounts. We've got a financial advisor who had advised us not to payoff the loan because she thought having the cash available was more important at the time. At one point we were doubling our payments on that loan but we stopped doing that when we saw we might be able to sell the property in the near term.

I'm not 100% on the side of the financial advisor, which is why I'm posting here. Seems like you guys are confirming what I've been thinking we should do for awhile.

Fire her.  Pay off your debt.  Every month take the $1000 you're NOT sending to debt and put it into a high interest savings account until you have 3 months expenses in there. 

Then start putting that extra money into a stock account and buy up a basket of stocks or just VTI. 

Pay off the debt.  Pronto.

wtjbatman

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Re: Thoughts on what to do with 80k?
« Reply #11 on: November 19, 2014, 04:11:27 PM »
Nothing too heinous, we're definitely not as frugal as some on these boards. We save $2500 a month into retirement accounts. We've got a financial advisor who had advised us not to payoff the loan because she thought having the cash available was more important at the time. At one point we were doubling our payments on that loan but we stopped doing that when we saw we might be able to sell the property in the near term.

I'm not 100% on the side of the financial advisor, which is why I'm posting here. Seems like you guys are confirming what I've been thinking we should do for awhile.

You should post a case study so we can really see what's going on with your finances, then face punch you/be jealous of your income. Like Dubya, I could retire off two years of your income :)

migganimon

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Re: Thoughts on what to do with 80k?
« Reply #12 on: November 19, 2014, 04:20:51 PM »
Ha, thanks for the input everyone. We're going to pay off the debts. You guys are brutal, but I guess that's what I expected. We haven't made 290k every year for our entire lives, we're in our low 30's and have gone from making 70k a year combined to 200k+ per year over the course of the last 8 years through job promotions and side businesses. We have over 200k in savings. But you all are right, holding the debt doesn't make a ton of sense, we just never prioritized it over savings in other areas (which have actually outperformed that 9% by quite a bit, luckily.)

waltworks

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Re: Thoughts on what to do with 80k?
« Reply #13 on: November 19, 2014, 04:39:15 PM »
Fire your financial advisor, yesterday. And expect lots of facepunches here. Your savings are about what my wife and I had saved up when we finished grad school, neither having ever earned more than $25. And we're not all that amazing around here.

-W

KC1983

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Re: Thoughts on what to do with 80k?
« Reply #14 on: November 19, 2014, 07:48:43 PM »
Hope you're surviving your facepunches, mig! I think you're getting very consistent, and very smart advice. You're in an enviable place, and very soon you'll be amazed how much lighter you feel with that debt gone.

surfhb

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Re: Thoughts on what to do with 80k?
« Reply #15 on: November 19, 2014, 07:52:22 PM »
Nothing too heinous, we're definitely not as frugal as some on these boards. We save $2500 a month into retirement accounts. We've got a financial advisor who had advised us not to payoff the loan because she thought having the cash available was more important at the time. At one point we were doubling our payments on that loan but we stopped doing that when we saw we might be able to sell the property in the near term.

I'm not 100% on the side of the financial advisor, which is why I'm posting here. Seems like you guys are confirming what I've been thinking we should do for awhile.

Wow!    Your adviser is really looking out for your best interests.     Vultures....every one of them 

fartface

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Re: Thoughts on what to do with 80k?
« Reply #16 on: November 22, 2014, 10:57:38 AM »
Your "financial adviser" is probably in more debt than you and paying higher interest rates which is why the dingbat sees nothing wrong with your situation.

I've got nothing new to add here. Payoff all you debt -- every last penny. Enjoy that feeling and then begin investing via dollar cost averaging in Vanguard index funds. You'll be FIRE in no time - especially if you live well below your means in Phoenix.

Good luck!

rmendpara

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Re: Thoughts on what to do with 80k?
« Reply #17 on: November 22, 2014, 08:56:09 PM »
Yikes. Not sure how anyone could convince you that keeping debt at 9% is a good idea, but that should definitely go.

Next is the student loan. 5% is not bad, but since you already have considerable savings, as well as a robust income, there's no need to keep cash that earns <1% while paying 5% interest.

The auto loan, a little tougher mathematically, but it's only 7k. You're not making a fortune if you keep it or pay it off. That said, just pay it off. It's one week's pay for you. Be done with it.

Now, start investing a heck of a lot more than 2.5k/month.

What exactly do you spend your income on?

Le Barbu

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Re: Thoughts on what to do with 80k?
« Reply #18 on: November 23, 2014, 05:52:55 AM »
I would payoff every loan in decreasing % order. One/weak and enjoy the feeling. Then, fire the FA and enjoy.

How much are you gonna need for your down payment ? Just make sur to put asside this ammount on time for purchase. Invest all the rest in VTI