2017 Goals...What should we do?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
cashisking500
Posts: 22
Joined: Fri Dec 02, 2016 1:08 pm

2017 Goals...What should we do?

Postby cashisking500 » Tue Jan 10, 2017 3:27 pm

Hi Everyone,

I'm looking for some input on what to do next. Two financial goals at the top of my list for 2017 are to pay off my car and to get my wife and I in position to contribute 15% of gross income to retirement each month.

Currently, we have $20,000 in savings (EF). We have two car loans (our only debts outside of mortgage), but the one I'm looking to pay off has a very low interest rate (0.9%) with a balance of $12,200 left on it. We are one year in to a five year loan. Payment is $270 a month.

We are currently contributing 11% of our monthly gross income to a combination of 401K's and Roth IRA's. On the average month, after all expenses and retirement contributions are made, we have approx. $900 left over to do something with.

What should be our next step? Pay off the car quickly with extra cash flow? Dip in to savings to pay it off? Bump up retirement to 15% using extra cash flow?

Thanks!

J295
Posts: 1032
Joined: Sun Jan 01, 2012 11:40 pm

Re: 2017 Goals...What should we do?

Postby J295 » Tue Jan 10, 2017 3:32 pm

OP. What is your perspective on applying some or all of the excess to your mortgage? And (sorry if I'm not reading carefully enough to know this) .... are you maxing out your retirement contributions?

cashisking500
Posts: 22
Joined: Fri Dec 02, 2016 1:08 pm

Re: 2017 Goals...What should we do?

Postby cashisking500 » Tue Jan 10, 2017 4:46 pm

I'm on board with putting more towards the mortgage, just not sure if that should happen now or wait until cars are paid off?

We are not maxing out retirement. Currently 5% towards 401K (w/ 5% match), wife 3% towards 401K (w/ 3% match), I'm maxing out Roth IRA and wife is putting $150 per month towards Roth.

bloom2708
Posts: 2240
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: 2017 Goals...What should we do?

Postby bloom2708 » Tue Jan 10, 2017 4:57 pm

With your username as it is, have you read "The Total Money Makeover" by Dave Ramsey?

Read through the various debt payoff threads using the Search box. There is a wide variety of opinions on the topic. Dave Ramsey's "7 Baby Step" plan is one plan if you are serious about getting out of debt.

He would have you set your Emergency Fund at $1,000. Use the other $19k to pay off one car and apply to the next smallest loan. One potential option is to sell one of the cars. Apply all extra funds to the smallest loan left. Once you get to just the mortgage, you build your Emergency Fund back up. Then you save 15% or more for retirement. Anything left can go against the mortgage.

Even if you don't use Dave's plan it will give you a plan to compare other plans to. The book talks about how much value in cars you have. You could have too much car as compared to your income.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

Lou354
Posts: 412
Joined: Sun Apr 03, 2016 10:51 pm

Re: 2017 Goals...What should we do?

Postby Lou354 » Tue Jan 10, 2017 5:15 pm

First I'd max out wife's Roth IRA contributions.

Hukedonfonix4me
Posts: 47
Joined: Thu Oct 13, 2016 3:00 pm

Re: 2017 Goals...What should we do?

Postby Hukedonfonix4me » Tue Jan 10, 2017 5:22 pm

With such a low interest rate, I would increase retirement savings. I would fund both ROTH accounts first.

cashisking500
Posts: 22
Joined: Fri Dec 02, 2016 1:08 pm

Re: 2017 Goals...What should we do?

Postby cashisking500 » Tue Jan 10, 2017 5:44 pm

Thank you everyone. Appreciate the feedback received thus far.

Yes I have read TTMM. I am not a fan of running our savings all the way down to $1,000 though. Seems crazy to do so.

User avatar
Pranav
Posts: 140
Joined: Thu Aug 25, 2016 11:25 am
Location: Austin, Texas, United States

Re: 2017 Goals...What should we do?

Postby Pranav » Tue Jan 10, 2017 6:02 pm

Checkout Boglehead wiki on Prioritizing investments. I would max out tax-sheltered accounts and then target the loan with the highest interest rate.
Pranav

rr2
Posts: 1005
Joined: Wed Nov 19, 2008 10:04 pm

Re: 2017 Goals...What should we do?

Postby rr2 » Tue Jan 10, 2017 6:17 pm

If it were me, my first priority would be to max both Roth IRAs. I would not rush to pay off the 0.9% debt unless you are really debt averse. It would be very beneficial to come up with a long term investment plan.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: 2017 Goals...What should we do?

Postby Novine » Tue Jan 10, 2017 6:54 pm

"We are not maxing out retirement. Currently 5% towards 401K (w/ 5% match), wife 3% towards 401K (w/ 3% match), I'm maxing out Roth IRA and wife is putting $150 per month towards Roth."

I was happy to get rid of our car loans. But long-term, getting your retirement money working for you now is going to be a bigger payoff than paying off a car loan with a 0.9% interest rate.

mortfree
Posts: 523
Joined: Mon Sep 12, 2016 7:06 pm

Re: 2017 Goals...What should we do?

Postby mortfree » Tue Jan 10, 2017 7:11 pm

I would increase wife's Roth to max it out.

If she hasn't maxed 2016 add to that first
Until April 18, 2017.

I would bump up 401k for each of you as well if you have good funds to choose from.

I'd also look closely at the mortgage to see if you can make headway there with extra payments.

Alternatively:
Round up car payment to $300 or something a little higher.

If you're short on cash each month you could always dip into the 20k to cover.

Adjust accordingly as time goes by.

Ace$
Posts: 32
Joined: Wed Jan 11, 2017 11:07 am

Re: 2017 Goals...What should we do?

Postby Ace$ » Wed Jan 11, 2017 12:30 pm

The TMMO plan of Ramsey's has served our family well for over 8 years now. We're debt free including the house after learning the program and applying it's principals. That said, a common sticking point is that starter emergency fund of $1k. Why not payoff the $12.2k car, keep the remaining $7.8k in the EF, then payoff the remaining car out of cash flow? It's amazing how many more options you have when you have no consumer debt payments?

cashisking500
Posts: 22
Joined: Fri Dec 02, 2016 1:08 pm

Re: 2017 Goals...What should we do?

Postby cashisking500 » Wed Jan 11, 2017 3:19 pm

Thanks Ace. What your proposing is what I'd like to do. I am struggling with taking our EF down to $8,000 to pay off a 0.9% car loan though. Paying this car off frees up $300 a month, which ironically, if put towards my wife's Roth, allows it to be maxed out at $458 per month.

Maybe I'm just being ultraconservative with our EF?

mortfree
Posts: 523
Joined: Mon Sep 12, 2016 7:06 pm

Re: 2017 Goals...What should we do?

Postby mortfree » Wed Jan 11, 2017 3:52 pm

cashisking500 wrote:Thanks Ace. What your proposing is what I'd like to do. I am struggling with taking our EF down to $8,000 to pay off a 0.9% car loan though. Paying this car off frees up $300 a month, which ironically, if put towards my wife's Roth, allows it to be maxed out at $458 per month.

Maybe I'm just being ultraconservative with our EF?


maybe you need to look at the math differently. instead of taking 12k to payoff the car, just take 5.5k (or less depending) from your EF and contribute to the Roth. EF would be 14.5k or so, instead of 8k.

funny how others have no problem spending other people's money. they won't be there to bail you out when you have an emergency.

Disclosure: I have 30k EF and 1.9% car loan with 9k left.

pasadena
Posts: 143
Joined: Sat Jul 02, 2016 1:23 am

Re: 2017 Goals...What should we do?

Postby pasadena » Wed Jan 11, 2017 4:10 pm

I would also bump your wife's savings to max out her Roth, then bump up both 401(k) contributions.

The idea of rounding up the car loan payment is nice as it seems this loan is weighing on you - but mathematically, it doesn't make sense to pay it off by taking money out of retirement savings or EF. You'll make more money just with the tax savings on the 401(k), unless you're not paying taxes at all.

Finally, I wouldn't touch the EF.

Gropes & Ray
Posts: 1040
Joined: Wed Jul 16, 2014 7:28 am

Re: 2017 Goals...What should we do?

Postby Gropes & Ray » Wed Jan 11, 2017 5:14 pm

Your EF should based on some # of months' expenses. I keep 3 months, and to me that is the bare minimum. Only having a $1,000 EF in order to avoid 0.9% interest is lunacy.

At 0.9% interest, I would not pay off the debt before you met your retirement savings goal of 15%. It is fair to expect most any investment to return more than 0.9% in the next 4 years. Heck, you can buy CDs that would return more than that. At the same time, inflation in most years is more than 0.9%.

Finally, if you aren't maxing your Roth IRA every year, look int he wiki for info about using your Roth to hold your emergency fund. You basically just buy a stable value fund in your Roth. Then, when times are bad, you can withdraw the contribution. If times never get bad and your income increases, then you build a new emergency fund and redirect the money in the Roth to retirement investing.


Return to “Personal Finance (Not Investing)”

Who is online

Users browsing this forum: Liveware Problem, Yahoo [Bot] and 51 guests