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Old 01-12-2015, 08:44 PM
 
5,121 posts, read 5,558,964 times
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Quote:
Originally Posted by jms493 View Post
If your plan is to live off Social Security...you need a new plan...lol.

OP...
Emergency fund
Max out Roth IRA then 401k ~15% of your gross income.
Everything Extra goes towards the house.

Pay that mortgage off as fast as possible! Good luck and congrats for paying attention!

After no mortgage save some more...retire with a smile when YOU WANT! Social Security will be peanuts compared to your nest egg.

What people fail to factor with debt is the RISK factor. If something happens debt can ruin your life.
Well, I am working on the emergency fund (like I said, I am thinking at least 6 months there... maybe a year's worth of expenses). If I do a year's worth, I am seriously considering something like a CD ladder (or some other strategy so my money isn't sitting, wasting away to inflation at 1%). But I need to keep it liquid enough that I can use it in the worst of times.

I am at 16% right now with retirement savings. Maxed out on my ROTH IRA and also have some going in to a 401k. But I can put more in my 401k.

And I hate debt... a lot. LOL, it's probably a big part of the reason I am looking to own a house outright. I will definetly own my home completely before I retire (I plan to move to something smaller, and pay cash, around age 55 or so).
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Old 01-12-2015, 08:48 PM
 
Location: New York
1,096 posts, read 962,588 times
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Quote:
Originally Posted by jillabean View Post
Well, I am working on the emergency fund (like I said, I am thinking at least 6 months there... maybe a year's worth of expenses). If I do a year's worth, I am seriously considering something like a CD ladder (or some other strategy so my money isn't sitting, wasting away to inflation at 1%). But I need to keep it liquid enough that I can use it in the worst of times.

I am at 16% right now with retirement savings. Maxed out on my ROTH IRA and also have some going in to a 401k. But I can put more in my 401k.

And I hate debt... a lot. LOL, it's probably a big part of the reason I am looking to own a house outright. I will definetly own my home completely before I retire (I plan to move to something smaller, and pay cash, around age 55 or so).
1 year emergency fund is kind of rich...do you not have a stable job?
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Old 01-12-2015, 08:54 PM
 
Location: Texas
43,549 posts, read 52,647,623 times
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Quote:
Originally Posted by ncole1 View Post
The simple answer is "to save money on interest".

The more complex answer is that when you do that, you are forgoing other uses of the money, but if you otherwise would put the money in a mix of assets (e.g. stocks and bonds), then each asset individually must be a better choice than mortgage prepayment in order for it to make sense to buy it rather than using that portion of your funds to pay down the mortgage.
I see what you are saying.
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Old 01-13-2015, 06:29 AM
 
5,121 posts, read 5,558,964 times
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Quote:
Originally Posted by jms493 View Post
1 year emergency fund is kind of rich...do you not have a stable job?
I do, but I am also a single mom (divorced). First off, I am fairly frugal. So for me, a year's worth of expenses really isn't that much. I also have investment income from a trust. That's pretty much never going away unless something really catastrophic happens to the economy (and we are all living like Mad Max). Then, I save a third of my take home pay (for retirement and emergencies... and some college fund for my daughter). And the biggest expense I have after the mortgage is after school care which runs me about $600 per month (and I won't need that anymore if I am not working).

So I only need to save what my expenses are, minus the trust income, minus the savings, and minus the after school care. It ends up not being that much money.

With what I have saved already and at my current savings rate (and assuming no emergencies come up), I will be at 6 months emergency money stashed away by July. If I decide to save a year's worth, I will be saving for it for about another year on top of that (if I continue to put money in my emergency fund at my current rate). But I also don't have to maintain that current rate either. Maybe once I get to six months, I can just set aside a smaller amount to add to the emergency fund each month (and put most of my savings into the retirement, the house, or something else).
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Old 01-13-2015, 07:27 AM
 
Location: New York
1,096 posts, read 962,588 times
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Great job! Good luck and the fact that you are very aware of everything is what will keep you out of trouble.
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Old 01-13-2015, 09:23 AM
 
Location: Boise, ID
8,043 posts, read 23,715,811 times
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Honestly, I don't think 1 years' expenses for a single parent is excessive at all. Usually I recommend 2 years as the ultimate (long term) goal for someone in that situation. I think everyone who is a homeowner should have close to 1 year worth. My husband and I have about 1 year worth now, even though it is unlikely that we would ever BOTH lose our jobs at the same time. If only one of us did, we could get by almost indefinitely. It is amazingly freeing to have that financial stability.

But like the OP, our expenses are very low. 1 year's expenses for us is only about $24k.

When the market crashed about 6 years ago, my husband lost his job. Since he was technically a temp, even though he'd been there for more than a year, he didn't qualify for unemployment. At that point in time, we had much less saved up (only about $10k), and our expenses were higher (car payment, credit card balance, and student loans). Because I still was working, our savings stretched, but even so, we went through almost all of them before he found a new job. Since then, I don't feel comfortable with less than $20k in savings (about 10 months' expenses for us).
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Old 01-13-2015, 09:48 AM
 
2,303 posts, read 2,258,556 times
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Quote:
Originally Posted by Lacerta View Post
Honestly, I don't think 1 years' expenses for a single parent is excessive at all. Usually I recommend 2 years as the ultimate (long term) goal for someone in that situation. I think everyone who is a homeowner should have close to 1 year worth. My husband and I have about 1 year worth now, even though it is unlikely that we would ever BOTH lose our jobs at the same time. If only one of us did, we could get by almost indefinitely. It is amazingly freeing to have that financial stability.

But like the OP, our expenses are very low. 1 year's expenses for us is only about $24k.

When the market crashed about 6 years ago, my husband lost his job. Since he was technically a temp, even though he'd been there for more than a year, he didn't qualify for unemployment. At that point in time, we had much less saved up (only about $10k), and our expenses were higher (car payment, credit card balance, and student loans). Because I still was working, our savings stretched, but even so, we went through almost all of them before he found a new job. Since then, I don't feel comfortable with less than $20k in savings (about 10 months' expenses for us).
I think that's the key. 6 months single is fine because your expenses are lower, and married you typically have either a second income or at least a person who can start looking. When you have children and you're the only source of income, you need to be a bit more conservative when it comes to financial risk since expenses are higher and there's a lot more on the line than just your own situation. Kids can get unexpectedly expensive from time to time.
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Old 01-13-2015, 01:57 PM
 
Location: Tennessee at last!
1,886 posts, read 2,037,294 times
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Guess I would pay off the mortgage for two reasons:

1. In retirement if your home is paid off it makes all the other expenses affordable, and even if the house is sold then the equity follows you and should be put on your next house.

2. Even though the interest rate is low on the mortgage, the amount borrowed is generally high--hundred thousand dollars, plus is typical. At least at the beginning of the mortgage the interest is where much of the money paid on the payments goes. For example on my current mortgage, less than 200 goes towards paying off the principle, and more than $400 goes towards the interest. So if I pay $200 extra towards the principle I can 'forgo' the more than $400 payment on the interest for a future payment. There is NOWHERE that I can safely make $400 on $200, so it makes sense to me to pay that mortgage down. Just look at your amortization schedule and you can see how much principle goes against a payment and if you can pay the principle for the next payment then do it...it saves the interest on that payment as you then move on up to the following line of the schedule. You can save tons in interest payments, especially in the first 2/3 of the mortgage term.
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Old 01-13-2015, 02:06 PM
 
Location: DFW
6,800 posts, read 11,767,775 times
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Assuming you have a decent emergency fund and retirement is many decades away, I'd prioritize retirement savings and investing over paying off the mortgage. Why?

Stocks (and even some bonds), over the long run, will very likely and easily beat the current mortgage rates. (Over the short run, anything could happen but you won't be touching your retirement money soon so it's a non-issue whether the market crashes again in the near future.)

You could always elect to pay off your mortgage in retirement once you start withdrawing your retirement funds if you like the idea of having a paid off house then.
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Old 01-13-2015, 02:26 PM
 
Location: SoCal desert
8,093 posts, read 13,229,344 times
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Quote:
Originally Posted by jillabean View Post
Well, I am working on the emergency fund (like I said, I am thinking at least 6 months there... maybe a year's worth of expenses). If I do a year's worth, I am seriously considering something like a CD ladder (or some other strategy so my money isn't sitting, wasting away to inflation at 1%). But I need to keep it liquid enough that I can use it in the worst of times.

I am at 16% right now with retirement savings. Maxed out on my ROTH IRA and also have some going in to a 401k. But I can put more in my 401k.

And I hate debt... a lot.
Quote:
Originally Posted by jillabean View Post
I do, but I am also a single mom (divorced). First off, I am fairly frugal. So for me, a year's worth of expenses really isn't that much. I also have investment income from a trust. That's pretty much never going away unless something really catastrophic happens to the economy (and we are all living like Mad Max). Then, I save a third of my take home pay (for retirement and emergencies... and some college fund for my daughter).
We could be related, except I'm not a Mom and I had the emergency fund in a CD ladder.
Hate debt with a passion.
I decided to pay off the house first (no other debt), since my retirement savings was on-track.
Started throwing everything I had at the mortgage. Final payment was in 2011.

It is flat-out astounding what happens to your bank accounts when you aren't making a house payment

Then I started throwing everything I had into a combination of regular savings and retirement savings.
I retired April Fool's Day in 2013
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