Getting a Lump Sum of $$

**Telephus44** · 10-23-2006, 05:27 PM

Just wanted to run this by my fellow FV'ers and see if anyone had any comments or suggestions.

Since I'm getting laid off from my job with a hefty severance package, I'm going to be the recipient of a couple of really large checks in November. I'm estimating a total of $7,000 (because of the way the package is structured, it will be 4 checks that are each subject to different taxes - this is an after-tax estimate). Here's what we have going on and how I think we should spend it:

1. Our EF will be around $4100 at the end of this month. This is probably close to 2 months of bare bones expenses.
2. We just received our car insurance bill, which is $2,000 for the entire year. We can pay it all at once or with a first payment of 20% and the rest in 8 equal payments.
3. We need to buy a washer. We're looking in the $600-$900 range (we've decided on a front-loading washer from the local scratch and dent place, so the final price will be subject to whatever they happen to have).
4. We want to buy DH another car. He has a 2000 Chevy Blazer that gets 22 MPG and a 60 miles one way commute (so 600 miles per week, so that's about $70 per week in gas assuming $2.50/gallon). This vehicle does not have latch, and since it's a 2-door manuevering a car seat in it is just about impossible.
5. We'll need to put $4,000 into my ROTH IRA by April 1st.

So here's the plan for the $7,000 :
1. Buy the washer ($900)
2. Pay off the insurance policy after we buy the new car ($2400 - est - new car will increase the bill)
3. Use $2000 towards the down payment for the new car (we're looking in the $13,000 range plus we'll have his trade in, should be good for $2,500)
4. Put the rest in the EF for now, but use it in April towards my Roth contribution

**Start-Living** · 10-23-2006, 05:33 PM

I think you're doing great with the new money

One thing that I would change is the $2,400 towards insurance.
I would put this money in an account that earns interest, and pay monthly for the car insurance. (Unless you'll save more by pay-in-full the insurance).

I rather have this $2,400 earns a few bucks for me than for the insurance company.
.....but that's just me.....

**SHOPGIRL** · 10-23-2006, 07:54 PM

Sara,

Looks good. My insurance company offers a discount if I pay the entire amount early. If your insurance company doesn't ofer that same incentive, then I'd just bank the money and pay them semi-annually or quarterly.

The only thing I would do different is with your Roth IRA. If your planning on putting in $4000 for 2006, I would put a certain amount in monthly rather than in one lump sum. I have $200 a month automatically deposited into two different Roth IRA's so I benefit when the market is down. I believe it's called dollar cost averaging.

**my4littlebuffaloes** · 10-23-2006, 08:31 PM

Well, the first thing I would do is shop around for new car insurance. For both dh and myself we pay around $700 for the year. It is worth a look around.

Do you have to completely fund the IRA? I guess I would rather put more down on a new car, than fund retirement. I am just pretty anti-debt, so think you should go as small a loan as possible. But that is just me.

Also on the washer, I know you are doing cloth diapers with Owen right? I cloth diapered 3 of mine and once I got a front loader, the diapers just didn't get very clean. I was having to do a bunch of prerinses and extra rinses and most times just washing the whole thing 2 times along with the extra rinses and such. And they still didn't always seem the cleanest. I don't know what other people have to say, maybe it was just my brand, but it didn't work out so well for me. And I ended up stopping the cloth and going to disposables. So that is something I would definitely look into before proceeding. $900 is a lot of money for a washer, if it won't even get really dirty things clean, ya know?

Good luck!

**Start-Living** · 10-23-2006, 09:39 PM

One more thing on the car insurance...
I agreed with "my4littlebuffaloes" above

I would shop around.
for the past 5 years, Me and BF used to pay around $2200 every 6 months for our 4 to 5 cars.

A few months ago, I have call around and switch to a new company, we now pay $550 every 6 months for our 4 to 5 cars. That really free up some money to pay towards debt. Shop around, and maybe you can pocket that saving.

**Valerie in WA** · 10-23-2006, 10:15 PM

Re the auto insurance: it varies hugely regionally. Further if you are in or near a large city, you will pay more (because of more thefts).

In general Sara, I think your plan sounds good, but I have one question: Will you need any of that money to live on? Afterall, you're not going to be getting paychecks anymore.

**MTS04** · 10-24-2006, 12:18 AM

Massachusetts insurance is regulated. There aren't any big changes to be had. I wish it would de-regulate so that we could bring in the Geicos and Progressives etc. It would definitely change the market on that.

I think your plan sounds good. Good luck with your car hunt!

**Telephus44** · 10-24-2006, 03:01 PM

Originally Posted by mythreesons2004

Massachusetts insurance is regulated. There aren't any big changes to be had. I wish it would de-regulate so that we could bring in the Geicos and Progressives etc. It would definitely change the market on that.

I think your plan sounds good. Good luck with your car hunt!

Yup - when we moved back from CO, that was one of the hardest things to do - cancel our Geico policy. Since the state sets our insurance rates, they are almost exactly the same from company to company (and I think there are only 3 or 4 companies that will even write a policy in MA). A few places will give minor discounts - for example, we get a $50 discount for getting our renter's insurance and car insurance from the same place. After we buy the new car, we'll get a new policy and I'm also going to go for the discount on my car for low yearly mileage (about a $150 per year).

Also, the insurance charges a $6 "installment" charge if you pay if off in multiple payments ($6 per payment), which is about what I'd make at ING on the interest - so it comes out in the wash. But thanks for thinking about it. I wish I got a discount for paying early!

On the washer suggestion - what brand/model did you get? Although the scratch and dent place doesn't have the best selection, I know that I'd prefer a Frigidaire or a Samsung, and I don't want a Kenmore (my in-laws have one and I really dislike it). I'll see if I can check some reviews and make sure I get one that can handle coth diapers. On the bright side, we don't pay for water or sewer if I end up having to do extra rinses!

And about putting into the Roth monthly - before I got married, I always put in quarterly. DH has a hang-up about just putting it in all at once and not worrying about it, so I kind of don't push the issue as long as the money goes in. Also, I have my account in 4 different funds and I don't always put the same percentage into each fund - since I'm now putting in just once a year I end up re-balancing it when I put the new funds in. I could still do this when I put in quarterly, but if I put in monthly I'd have to actually transfer between funds to re-balance, and that's a pain IMO.

**Dsunny1** · 10-24-2006, 04:02 PM

I have heard the same thing about front loaders and their issues if you are trying to wash cloth diapers. The ladies on www.diaperswappers.com talk about it all the time.

**JustMegan79** · 10-24-2006, 11:00 PM

Hi..

Just my 2 cents but it seems like you should get a larger trade in for a 2000 blazer than 2500. In fact, if you solf it outright, I feel certain you would get more than that.

Meg

**chatterweb** · 10-25-2006, 01:01 AM

Can you elect a higher insurance deductable to save on your insurance premium?

**Kisobel** · 10-25-2006, 02:23 AM

i noticed you have about 6000 left on your student loan. is that your only debt because i would pay that off. i believe get rid of debt before you save for retirement.

**ironmaiden** · 10-25-2006, 08:24 PM

Are you planning on finding a new job?

I'm sure you have figured out your expenses on DH's salary alone, so you know if you should hang onto that extra $4000 for living expenses or not.

You realize that because these check are big lump sumps that they'll be taxed at about 50%. I'd always remind people when bonuses were promised not to keep the eye on the total dollar amount i.e. don't spend those chickens before they hatch. I'd ask HR to make sure.

The better question is would it be better to fund the Roth IRA or put the money toward the house fund? When you were working were you contributing to an 401K with each paycheck? With a 20% downpayment you skip paying monthly PMI. And since house prices are sinking now, now is a great time to be socking away that cash so you are ready when you find the right town, neighborhood and house at the right price. My vote is house fund.

Houses around here (eastern mass.) are falling and staying on the market for many months. Houses we've followed have dropped about $60,000 or more. And the neighbors who put in an insultingly low offer 6 months ago actually got a phone call begging them to buy the house at their price. They didn't and now the house is even lower. This isn't the bottom, but it is a good time to start getting ready, keep an eye on interest rates and to start looking. It's always best to look when you aren't ready to buy. It helps you get a good idea of what you are looking for - far more objective and you learn alot about what your options really are.

**SHOPGIRL** · 10-25-2006, 08:47 PM

I have two different Roth accounts, and I have multiple investments within each account. I just have the bank automatically alternate depositing money into the different acounts each month, and the other one the money is split equally between the two. I never have to rebalance anything.

If you do choose to get a house before you have a 20% down payment, you can avoid PMI insurance by doing an 80/20 loan or an 80/15 loan by taking out a second mortgage.

**ironmaiden** · 10-26-2006, 09:11 AM

You do need to rebalance. Just because you are putting money in equally, doesn't mean that your account is balanced. If you put equal amounts of money into a large-cap, small-cap, REIT, and a bond fund. At the end of the year, they wouldn't all have the same amount anymore. One fund would grow, another would stay pretty much the same, and another might lose money. So pretend you had $500 $400 $450 $525 in the accounts at the end of the year. Next time you put in money, you'd put it into the account that has $400, none into the $525 account. To truly rebalance you'd sell some of the account that has the most.

In my hypothetical case, we're assuming that there are 4 funds and we want all of them to be at 25% of the total with 50% in stocks, 25% in Real Estate Investment Trust and 25% in bonds. This might not be the right mix for you, but it was easy for my example.