Hoping to get your collective wisdom on how best to allocate my cash. I know that invest v. save v. debt has been done a million times, but I would appreciate your tailored advice nonetheless.
Demographics: Married, 30 years old, two young kids, single income. High cost of living area.
Income: Approximately $200k. Stable company, good performance reviews, but demanding job and "employee attrition" is part of the business model. In the event of job loss, reasonable chance of securing new job at same salary, very good chance of securing new job at 60-80% of salary. Would almost surely get 3 months notice/severance.
House - $525k
Two Roth IRAs - $60k
Pre-tax 401k - $6k
Cash - $10k
Mortgage - $417k
@ 3.625% fixed
HELOC - $50k
@ 4.5% variable
Student loans - $115k
($23k @ 7.65%, $20k @ 6.5%, $6k @ 6%, $21k @ 5.5%, $21k @ 4.5%, $19k @ 4%, $5k @ 2.8%)
Family loan - $19k
Car loan - $15k
I have, up to now, been laser focused on getting rid of some limited-time 0% credit card debt that we racked up last year. (We spent in anticipation of a bonus that ended up smaller than expected. Lesson learned: Never spend bonus money in advance! Just ask Clark Griswold
Now I'm trying to figure out what to work on next:
- Emergency fund.
I have enough saved cash and free cash flow to cover life's little surprises without going into debt. I do not have enough cash to survive long without income, but I can expect to get 3 months notice/severance if laid off. My family has cash to make an emergency gift/loan if there were a long period of unemployment. I have $50k in unused credit card limits that I could access, likely at a 12-month 0% teaser rate. And I can withdraw Roth IRA contributions penalty-free. None of this is as reliable as money in a savings account, but is the extra security worth settling for 0.5% interest?
- Debt repayment.
See above for interest rates, etc. My income is too high to deduct student loan interest, and the rates won't go down in a consolidation. Currently on a 25-year repayment plan in order to maximize free cash flow. On the HELOC: Unlike the other loans, I could pull money back out if I got in a pinch.
- Retirement savings.
No company 401k match. Until Congress closes the door, we can still contribute to Roth IRAs via Roth conversion.
- Car savings.
The current family car (no associated loan) is 10 years old and starting to feel small for the growing brood. Anticipating a replacement will be needed within about 2 years.
- Kids college savings.
I funded my own education (and am still paying for it), so this is not a huge priority for me, but I'd like to get started eventually.
Help! So many competing priorities! Do I focus on maximizing liquidity for security? Do I get money into retirement savings to take advantage of compounding interest? Do I focus on the guaranteed return of repaying the higher-interest student loans? Do I repay the HELOC first, letting it double as an emergency fund? Do I save for anticipated future expenses, to reduce the need for future debt?
Please tell me in what order you would focus on things. Or, if you would split between a few different goals, in what percentages?
[edited to fix an error in the mortgage interest rate]