Now what?
Results 1 to 12 of 12

Thread: Now what?

  1. #1
    Registered User AGierald's Avatar
    Join Date
    Jan 2006
    Location
    Chicago Area
    Age
    36
    Posts
    114
    Post Thanks / WTG / Hug
    Rep Power
    16

    Default Now what?

    Hi there, haven't posted here in a very long time, but I thought I'd come here for some money management advice. My husband was notified yesterday of a significant raise in salary. Well, we think it's pretty significant. What should we do with it? We've worked very hard to get to where we are right now, our only debt is my $38k student loan and our mortgage that is at $105k at this point. No credit cards, no car payments, etc. We do have just over $1000 in savings (6 months ago, we were behind on everything and had about $65 in the bank so yes this is good at this point.)

    My question is, the extra income - save it, put it on my student loan or add it to the house principal? We have not yet decided if this is the house we will always live in or if we will move at some point.

    I hope this doesn't sound like a brag post, I want to make the best decision so we never get into the difficult financial situation we've been before.

    Budget wise, we're on track without this increase in salary, so this is a very welcome extra for his very hard work. I'm just having difficulty figuring out what the next goal should be.
    Last edited by AGierald; 03-03-2017 at 04:58 PM.

  2. #2
    Registered User NikoSan999's Avatar
    Join Date
    May 2009
    Location
    Florida
    Posts
    9,916
    Post Thanks / WTG / Hug
    Blog Entries
    1
    Rep Power
    59

    Default

    Congratulations on his raise and for digging your way out! If you have $1000 in the bank my suggestion ( and I know a couple others who would disagree so here it comes ) is to get at least 3 months... preferably 6 months effiency fund in place... that's all living expenses including food and gas. If you never need it that's a good thing but it's there in case of job loss or cutbacks. It CAN happen. Otherwise look at it as an excellent emergency fund. After that I'd throw at the student loans. Those you can't even bankrupct on. Do you have retirement set up? That would be mixed in with student loans.
    Again, congratulations
    Bank of America is THE godfather of Hell with Wells Fargo running neck and neck. When the world ends the only things that will be left are cockroaches, Walmart, Wells Fargo and Bank of America. Not necessarily in that order. The order remains to be seen.

    Challenges
    Coupon/Sales Challenge Feb
    $8.00

    Grocery Challenge/Feb
    Goal $250.00
    Total $33.55

    Eat Out No More Feb
    Goal 20
    Accomp/8

    No Spend Challenge/Feb
    Goal 20
    Accomp 4

    Change Jar 2020
    $

    Christmas Fund 2020
    $

  3. #3
    Registered User AGierald's Avatar
    Join Date
    Jan 2006
    Location
    Chicago Area
    Age
    36
    Posts
    114
    Post Thanks / WTG / Hug
    Rep Power
    16

    Default

    Thank you! Yes my husband has a 401k with matching through work. And trust me, we 100% understand the need for backup, it's how we got into our previously very bad financial situation. We bought our house in late july of 2009, after living with my parents for 18 months to save up for it. And at the very end of august, my husband lost his job. He didn't get another for two years. Now, he's been at that job since then and has moved up quickly. I definitely want to have more than the $1000 in savings, I just wasn't sure what should be next. I think the additional emergency fund is probably a good idea!

  4. Remove Advertisements
    FrugalVillage.com
    Advertisements
     

  5. #4
    Super Moderator josantoro's Avatar
    Join Date
    Dec 2011
    Location
    Vermont
    Posts
    1,951
    Post Thanks / WTG / Hug
    Rep Power
    17

    Default

    I agree with adding to the savings. If you run into an emergency, having lower student loans or a more-paid-off house won't help you. You will need cash.
    Make America Kind Again.

  6. #5
    Registered User
    Join Date
    May 2009
    Location
    Raymond, MS
    Age
    66
    Posts
    581
    Post Thanks / WTG / Hug
    Rep Power
    15

    Default

    I also agree with increasing the savings account. After that, pay more on the student loan.

  7. #6
    Registered User
    Join Date
    Nov 2009
    Posts
    13,930
    Post Thanks / WTG / Hug
    Blog Entries
    25
    Rep Power
    88

    Default

    Another vote for a 6 months cushion,then the student loan esp if its high interest private or something. I also suggest you take a small bit to celebrate. Maybe a small nice dinner out or cook an expensive food at home. 1 small thing will keep you on your path. It makes the scrimping parts more palatable.

  8. #7
    Registered User
    Join Date
    Apr 2015
    Age
    81
    Posts
    423
    Post Thanks / WTG / Hug
    Rep Power
    7

    Default

    save it, put it on my student loan or add it to the house principal?
    DON'T prepay your home mortgage - 2 reasons:
    1. Safety. If you had $105,000 in savings and you spent it on your mortgage, you'd have no cash. So if a job loss hit, no money for groceries, gas, bills, job hunting - ie, an instant emergency. And a lender couldn't give you a loan cuz you'd have no income. But if you had kept your $105,000, you could make house payments for a couple years, buy groceries, job hunt, etc.
    2. Wealth building. In the US, mortgages provide some of the cheapest capital in the world, most people can get a 4%, fixed rate, 30 year, home loan. (Very few other countries do that). That loan rate is locked in for 30 yrs, it can't be called in. So you can use your borrowed money to build wealth for your family's far future.
    So - definitely do NOT add to your new income to your house equity.

    The thing that has the biggest far-future effect for your family is your longterm investing (401k, etc). If you invest $500/month at the US market average of 11%/yr, that will be $1,300,000 in 30 yrs. We did that many years ago - we made it a family priority - as long as we met out monthly investment, then we could spend the rest on whatever we wanted, safe in the knowledge that we were on track to be millionaires. (And it helps you avoid family money arguments). When I retired 18 yrs ago, my 401k had almost a million in it - and it's still growing.

    I would keep the mortgage, keep the student loan, and bump up the 401k - and maybe start a Roth IRA for you. And select the SP500 Index for 100% of our investing, no individual stocks, no bonds, yada. Some day that $1,300,000 account will be way more important than whether or not you spent your income to prepay a $38,000 student loan.

  9. #8
    Registered User AGierald's Avatar
    Join Date
    Jan 2006
    Location
    Chicago Area
    Age
    36
    Posts
    114
    Post Thanks / WTG / Hug
    Rep Power
    16

    Default

    Thank you so much for all the thoughts and ideas! I definitely will continue building the savings. My concern with adding more to the house is what if my house becomes worse less than I owe? (Unlikely but still stranger things have happened!) then it's like I added money to something I can't get back out of it.

    And considering I am 32 and my husband just turned 34, a million dollars in 30 years sounds like a great idea, lol.

  10. #9
    Registered User
    Join Date
    Apr 2015
    Age
    81
    Posts
    423
    Post Thanks / WTG / Hug
    Rep Power
    7

    Default

    And considering I am 32 and my husband just turned 34, a million dollars in 30 years sounds like a great idea, lol.
    Yes, great idea! We're in our 70's now, retired 18 years ago - and that first $M keeps on compounding. (not boasting, just pointing out that it actually works - even my own kids and grandkids respond with "yeah but it won't work for me").

  11. #10
    Registered User
    Join Date
    Jul 2013
    Location
    Norway
    Posts
    412
    Post Thanks / WTG / Hug
    Rep Power
    9

    Default

    There are a few people in the world, like old guy here, who are able to think 100% logically about their economical choices. But research shows that most of us don't. The more stressed we feel, the worse choices we make. And the more strongly we feel about reaching a goal, the better able we are to sacrifice to reach it. What stresses you the most? The lack of emergency savings, or the student loan? It sounds like the house loan can stay, since you mentioned you can get out of the house if the economy turns.

    We prioritize money based on level of annoyance. Stupid high interest rates, and loosing out on growth in the market play part in my annoyance meter, but sometimes other things take presedence: paying down on a tiny student loan for ages when it would feel so much better to just get rid of it, burning massive amounts of electricity just to see it disappear out leaky window, paying 12 different toll road bills each month when I could get a cheap electric car and pay 0, etc. Of course, this method will get you nowhere if you feel more strongly about having a better car than your neighbour, than having a debt free car. You have to turn your focus on economy, and find ways to celebrate your victories.
    Debt: -$60 000
    Savings: $43 200
    Net total: -$16 800

  12. #11
    Registered User
    Join Date
    Jan 2011
    Age
    77
    Posts
    553
    Post Thanks / WTG / Hug
    Rep Power
    15

    Default

    I agree with adding to savings and to paying down the student loan. Possibly doing both at the same time depending on how much the raise is.

    I also agree with not making extra mortgage payments until the student loan has been paid off. Does it matter if you are suddenly upside down on your mortgage? If you plan to stay in your house, then you can continue mortgage payments and wait out the market. In most markets, the last crash in real estate values has corrected itself and values are actually higher than ever. There are always going to be ups and downs and the key to that is not to panic and to ride it out. According to the county assessor the value in my home increased over $16,000 last year which is based on comparable sales over the last year.

  13. #12
    Registered User larabelle's Avatar
    Join Date
    Sep 2007
    Location
    North Texas
    Age
    58
    Posts
    2,280
    Post Thanks / WTG / Hug
    Rep Power
    22

    Default

    1,) Savings
    2.) Student Loan
    3) House
    Blessed and Highly Favored!!!!
    From $78K in debt to debt free and purchased a house and used car with 100% cash...God is sooo Good!!!

    Goals:
    New to me vehicle

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •