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thanks again, the diverse viewpoints are really an eye opener. so far, I think everyone here agrees that both us absolutely must make the highest contribution to our 401K, which will be $35K a year - and then make contribution to Roth IRA. I also have a brokerage account, so I am thinking now would be a good idea to start building a portfolio, little by little. and then if spare money left, put it towards the mortgage as extra payments, am I getting it correct?
Here is a thought as well, and I think others have mentioned this. Let me explain the details though.
When you have money in the bank it is really easy to get a loan. It is much easier to keep your credit score up when you don't need the credit. Not that you are planning on borrowing money, just the ability to do so is a better feeling than if you can not borrow money. As an example the Healthcare organization that I work for took on a $345million project to build a new hospital. We were able to sell a bond issue to raise the money. We have favorable terms on the money. Originanally we had saved and invested close to $150million which we had planned on using for this new hospital. what a big down payment that would be. Our investor friends told us that it would be better to keep the money and borrow 100% from the bond issue. That is what we did. Instead of having a smaller debt and no money we now have a growing investment fund and a large debt. Our anticipation is that we will be able to pay off the debt in a 20 year period and will hold on to the cash. Investment income from the money and our remaining income is more than we need to service the debt load, paying off the bonds.
It is always good to hold cash. Invest what you would have used to pay off the mortgage. Maybe if you want create a side account and call it Mortgage pay off money or something. If it comes down to it use that cash to get you out of a bind or over time pay off your mortgage. Look at it this way, when you invest the money grows, when you pay off your mortgage that just eliminates the debt. Both are a good thing, but you will eliminate the debt anyway over time.
Others have mentioned an emergency fund. A friend that I know had over a years worth of money just incase. He ended up losing his job and had to live on it for a period of time. Turns out that a year turned into 18 months and they were able to ride it out. He has since rebuilt that fund and is doing very well. They learned how to live on as little as possible and have continued to do that.
You asked for advice from people who have had house payments for years or decades. You found him! (Been paying on mortgages for 40+ years!) You have a very nice income. Get your retirement fund fattened up as much as possible as quickly as possible. Use a good investment consultant.
Be wary of getting into the spending game that many of us do. I like having the plan to have $X in VERY liquid assets ready for emergency situations first. For you, this should probably be $50K minimum, $100K maximum -- wherever in that range you feel comfortable. Maybe the first $50K in cash, the rest in stocks or something that you can dump if necessary. Keep after your retirement investment, but after that throw all you can at the mortgage.
The main thing is that you don't SPEND that hefty income on "stuff" for fun. Once your goal of paying off the mortgage is completed, you'll have an extra grand each month for fun.
I give this advice to you because I didn't give it to myself when I was your age. At mid-30s (late 1970s) I was a millionaire and making big money -- about what you're earning, except that was in late 70s dollars. I spent money like it grew on trees -- sports cars, airplane, boat, vacations, etc, etc,. Most stayed in the company that was growing at the rate of 30% per year. Then it all fell in on me. All. Sometimes, despite our best efforts and plans, life throws us a curve. Then another. And another. It can happen to anyone. Illness. Injury. Death. Divorce. (Be sure you have ample life insurance, OP.)
But this I don't agree with. For someone earning ~$200K per year, he's bound to have spending habits in which $10 or $20K won't do much.
The variable costs can be cut in an emergency and at any rate, why are you assuming OP has such a high income? 'Tis uncommon.
Quote:
Originally Posted by WyoNewk
It's VERY important that he has ample cash/liquid assets to fall back to in an emergency. He may have a rich relative that can help him out if necessary... or he might not at that point. It's best to make plans that will allow you to emerge on the other side of an emergency without needing help. And a big, fat checking/savings account at the bank is golden. Really. It's great to have.
Yes, but don't overdo it and if you think you need $70k your fixed expenses are out of control and should be trimmed.
Just closed on my first house ever today - feeling ecstatic, and scared at the same time!
It's not an expensive house by any shot - but in a great location with great school assignments, in west end of Richmond, VA(for the people who know this area). $324K Purchase Price, made a down payment of $66K. 30 years fixed@3.875%.
I have been looking at the amortization table since I came back from closing :-)It appears to me that first 5-7 years really is when I make insane interest payments. This is the time period where banks suck all the money out of me.
I hate paying interest to bank! My thought is, I should try to save every penny possible, without stressing out, and affecting my lifestyle and make as many extra payments as I can initially. I am even thinking to request for a personal loan from one of my wealthy relatives, like $50K in a few years, and dump it to the mortgage. once my principal to interest ratio is like 75:25, I will just make the minimum payment and invest my savings elsewhere. since from that point, the interest will be negligible.
Am I thinking in a logical way? Am I missing something obvious? or there is a better way to attack your mortgage?
Looking forward to all your valuable advise!
thanks again.
SB
Have you considered the tax effect of being able to itemize your mortgage interest and property taxes on your personal income taxes?
Have you considered the tax effect of being able to itemize your mortgage interest and property taxes on your personal income taxes?
that's the biggest puzzle I could never resolve. everyone talks about how you can save on taxes, but that is only if you do itemize deductions, and it the deduction is over $12500 for household, isn't it? how many people can really take advantage of this?
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