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 Post subject: I think I'm doing good, but there is always room to improve.
PostPosted: Fri Jan 25, 2013 11:01 am 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 38
Since I have been lurking and reading other peoples finances for a while, I figure I should put myself out there.

I am single, 32, with a salary a bit over 80K, no bonuses or 401K match.

Current Debts Summary:
Mortgage: 38K, $4.625%
Student Loan: $28.5K, 4%
401K Loan: $2150, 4.25%
Car Loan 1: $6050, 2.24%
Car Loan 2: $3350, 5.48%
Credit Card: $0, N/A%

Current Debt descriptions.

Mortgage: I bought the house in May of 2009, and have been paying ahead on this 15 year mortgage. Double principal rounded up to nearest $100, currently paying $900/month, no escrow. Less than 4 years remaining.

Student Loan: Making minimum payment. OK interest rate, and due to it being a federal stafford loan I get to take a tax deduction on interest. I do earn to much to take the full bennefit, curse the bad luck. :)

401K Loan: Took out to free up cash at home purchase time. Money came from the portion of my 401K that was in T-bills, so no locking in of losses. Also allowed me to have 20% down for a traditional mortgage without PMI or escrow. Not to worried about interest as I am paying myself. Will be gone in another 18 months or so.

Car Loan 1: Took to upgrade my good car, and the deal was truely to good to pass up. About half of NADA value, long story but all worked out. No it is not a salvage title. As it is at the lowest interest rate of all my loans, I have no interest in paying ahead. Money from the sale from my older car went to emergency fund, and buy a few items I was saving for.

Car Loan 2: This one I took as a way to lower interest and free up cash as I was planning on buying a house within a year and did. It is a private loan from my parents, yes they are charging me interest. Quarterly payments with only three of the original 20 (5-year loan) left. From a mathematical standpoint, I should be paying ahead on this as it is the highest interest with no tax break. Since the interest is going to my parents that were willing to help me when I asked, I have no issue with paying them the interest.

Assets in first reply.


Last edited by toolcrib on Tue Feb 12, 2013 1:26 pm, edited 1 time in total.

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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Fri Jan 25, 2013 11:24 am 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 38
Assets:

401K: 65K in traditional and 9K in wroth.
Home: no real Idea but the tax accessor figures about $130K. I bought it as a bank owned fixer upper, so the price was pretty fair for my neighborhood.
E-fund: 11K with $250 being added each month.
Checking: Currenly at $2500, I target a $5K float, but some unexpected expenses (and frivilous purches) have eaten into that. Should be back in 3 to 4 months.
Car: KBB puts it around 14K, 2008 Mazdaspeed3 (45K miles) Plan on keeping until it is not worth anything.
Other three cars: My estimate is about $5K. My hobbie is competative driving so I have more cars than necessary. 1998 Chevrolet Metro, this keeps my Mazda off of the salted roads in the winter (160K miles): 1089 Suzuki Swift GT, currently being restored and prepped for racing (240K miles): 1996 Chevrolet Astro, for draging my cars home when I break them. See Competative driving.

Now for questions and guidance,
I have been focused on debt for a while, but added to it with the purchase of my home and upgrading my good car. I have still reduced my total liability from $107K to 78K in the past three years, including the addition of car loan 1. Debt reduction/elimination is my main focus, as I find carying debt to be stressful.

I have not put much effort into investigating options related to investment, as my assets seemed to be to low to wory about. Now that I am seeing the end of my debts around the corner, I figure I need to focus more on strategies for long term savings. I am contributing 11% to my Wroth 401K, but this is a lazy way to save for retirement as I am not putting much effort into allocation choices. From reading this forum, I figure I should put more effort into educating myself to find a good mix of risk vs. reward.

I want to have a good idea of my next step when my Car Loan 2 is finnished, (10-1-2013) as otherwise I will simply snowball that payment into 401K loan, and then mortgage. I also need to put some effort into tracking my expenses, as my average monthly cash flow includes about $1200 for food, gas, dining, hobbies, miscelanea. Historically, I have simply maintained a minimum checking balance and decided that was good enough.

I expect a trip to the local library for some reading is in order, and I should really put some effort into tracking my budget.

Thanks,
Andrew


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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Fri Jan 25, 2013 1:59 pm 

Joined: Tue Aug 21, 2012 1:33 pm
Posts: 21
If I were in your position, I would be putting all or most of my debt re-payment fund into the 401K loan. I wouldn't pay extra on the mortgage or the car loans until that was done. Yes, the car loan is higher interest. However, the 401K loan can be called back if something happens with your job, right? That would stress me out way more than the mortgage or the car loans, that have assets attached to them (and therefore could be liquidated in a crisis to pay off some debt) or the student loan that could be deffered.

You said you are doubling your mortgage payment, so that is an extra $450 that could go to the 401k loan. If that loan is really $2,150 you could pay it off in 4 months without changing anything else. It might cost you slightly more in interest over paying off the car first, but I would think the peace of mind is worth it.


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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Sat Jan 26, 2013 8:04 am 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 38
Thanks for the feedback. I tend to forget about the pay back requirement on the 401K loan, although that did have me worried when I first took it. Original 401K loan was 8K. I am fortunate enough to have an EF that could cover the remaining balance, so in the event of a job loss it would not be to terrible.

Your suggestion got me thinking about eliminating that debt, but I am a bit timid about putting extra money into stocks when they are at the highest they have been in five years. I would be willing to take the $250/month contribution to my EF and rerout it toward this until it is gone. The $250 plus the $148/moth automatic payment would have this loan gone in six months. At the end I would want to put the $250 plus the $148 per month into my EF until I recoup the offset, about 10 months. Then I would go back to my $250/month contribution.

From a psychological standpoint, the debt I really want paid off is my home. I know there are arguments for why a mortgage is the best way to carry debt, but I simply want to own it outright. Mainly to free up cashflow to do the remodeling I want and be able to focus more directly on saving for my future.

I guess I will ask if my EF seems appropriate for where I am in life. I believe that my job is secure, and with a Masters in Mechanical Engineering have a fairly marketable degree. I supose that without my budget, this is not to easy to answer.

Minimum to stay current on debt; $500/month Mortgage, $175/month SL, $175/month Car-1, $1150/quarter Car-2. $150/month 401K.

Thanks,
Andrew


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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Wed Feb 13, 2013 2:26 pm 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 38
I have not made any changes to my plan yet, however after filing my taxes for 2012 I am looking at my debts in a slightly different light.

I now have a direct question for the people on this forum. Should I switch my debt prepayments from my mortgage to my SL?

I am considering this due in large part to my sallary driving a phase out of the student loan interest deduction, and the fact that state income tax and property tax cover my federal standard deduction allowing my mortgage interest to be duducted.

If I stick to my current mortgage repayment schedule I will have that debt paid in 44 months, and my student loan debt will be around $23K. If I switch the prepayment to my student loans I will have that loan paid off in 48 months. At that time my mortgage would have a balance of around $20K, and snowballing the SL payment+prepayment would have this gone in another 22 months.

Either plan has only a minimal effect on when I will be done with debt, but I see more of a tax advantage by attacking the SL.

Thanks,
Andrew


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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Wed Feb 13, 2013 3:55 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
IMHO student loans should get bumped up a spot or two on the payoff list, above where they would be on interest rate alone. The reason is, they are not dischargeable in bankruptcy. It's as if (alluding to another thread) they are "secured" with your physical person and all your assets, whichever lasts longer. It is absolutely positively higher priority than a home mortgage at an even sort of similar interest rate.


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 Post subject: Re: I think I'm doing good, but there is always room to impr
PostPosted: Thu Feb 14, 2013 7:14 am 

Joined: Wed Nov 16, 2011 1:26 pm
Posts: 38
I agree that the SL should have some priority as it is an unsecured debt that can not be discharged. I will change the course of the extra payments on my debt to the SL.

One effect of this is that it will extend the length of my Mortgage, so refinancing to a lower rate may have some benefit. When my plan was to have it paid off in less than five years, the cost of refinancing would be difficult to recoup in interest stavings. I guess I can spend some time talking to my local banker, calculator and notebook in hand of course.


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