Save? Invest? Pay off Mortgage?

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Frugalbear
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Save? Invest? Pay off Mortgage?

Post by Frugalbear » Sat Sep 21, 2019 6:46 pm

I've come to a fork in the road and I am not sure which way to go.

First of all, I work in Sales so I can make anywhere from $55k/ year(low end) to $110K/year(high end). My job is very centered around the economy. When businesses are doing well, I am doing well because they want to spend money automating and streamlining back office processes. However, I've never worked in this industry in a 08-09 economy which scares me a bit. Right now I save $2400/ year in my Ally Savings, max my Roth IRA out, and pay an extra $15.15 on my mortgage to bring it to an even $1100/month(total mortgage owed $126,948).

No Debt besides the mortgage (thank you again Bogleheads)....3-4months of salary saved....

Yes, I am fearful that I may lose my job if the economy takes a downturn.


What would you do? Thoughts?

mortfree
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Re: Save? Invest? Pay off Mortgage?

Post by mortfree » Sat Sep 21, 2019 6:51 pm

I would save more to reach 12 months of salary saved. (Keyword is “I”)

You might be able to get away with 6 months.

dandinsac
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Re: Save? Invest? Pay off Mortgage?

Post by dandinsac » Sat Sep 21, 2019 7:30 pm

If you have $300,000 in Roth + Ally, then you should pay off the mortgage. Otherwise, save more, either in Ally or a taxable brokerage account.

Goal33
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Re: Save? Invest? Pay off Mortgage?

Post by Goal33 » Sat Sep 21, 2019 7:33 pm

Depends on what skills you have. Most likely you just deal with and try to keep your expenses low. People like you generally benefit psychologically from lowering their expenses. I.e paying off mortgage.
A man with one watch always knows what time it is; a man with two watches is never sure.

sport
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Re: Save? Invest? Pay off Mortgage?

Post by sport » Sat Sep 21, 2019 7:52 pm

If you are afraid of a layoff, you want to have liquidity to tide you over until you find another job. This would preclude paying extra on your mortgage. Increasing your emergency fund would be consistent with this.

ASpenderInRecovery
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Re: Save? Invest? Pay off Mortgage?

Post by ASpenderInRecovery » Sat Sep 21, 2019 8:53 pm

Nice work on the minimal debt and coming here to ask for advice. I’ve been in sales my whole career and only got serious saving/investing over the past 4 years. It really depends on your personal comfort, but because our income tends to fluctuate my suggestion is gradually save up an emergency fund/cash reserve of 10-12 months. It helped me sleep better at night. Be opportunistic and save the majority of your large commission checks to get there quicker. Ideally, if you have access to a 401k you could also up your contribution right before larger commission checks to build tax deferred investments quickly.

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willthrill81
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Re: Save? Invest? Pay off Mortgage?

Post by willthrill81 » Sat Sep 21, 2019 10:21 pm

Given the variability in your income and uncertainty about the future, I would recommend that you save as much as you can in your Ally savings account. When you get to the point that you can pay off the mortgage in one fail swoop, you can determine if/when to do so. This enables you to retain the liquidity of the funds before the mortgage is paid off. Once it's paid off, your need for liquidity will drop.

I agree that in your situation, a six month or bigger EF probably makes sense.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

IMO
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Re: Save? Invest? Pay off Mortgage?

Post by IMO » Sat Sep 21, 2019 11:02 pm

Frugalbear wrote:
Sat Sep 21, 2019 6:46 pm
I've come to a fork in the road and I am not sure which way to go.

First of all, I work in Sales so I can make anywhere from $55k/ year(low end) to $110K/year(high end). My job is very centered around the economy. When businesses are doing well, I am doing well because they want to spend money automating and streamlining back office processes. However, I've never worked in this industry in a 08-09 economy which scares me a bit. Right now I save $2400/ year in my Ally Savings, max my Roth IRA out, and pay an extra $15.15 on my mortgage to bring it to an even $1100/month(total mortgage owed $126,948).

No Debt besides the mortgage (thank you again Bogleheads)....3-4months of salary saved....

Yes, I am fearful that I may lose my job if the economy takes a downturn.


What would you do? Thoughts?
I'm confused?

You pay an extra $15.15 month on your mortgage. That's all fine but yearly that is $181.80 extra on your mortgage. That helps in the long term a little, but in no way equates to paying off your mortgage? Even if you diverted that $181.80 to your savings account it would take a long time to save enough to pay of your mortgage.

I'd be looking at my budget to see where I could cut/save more and try to keep living like your only make $55K. When you make more, put it towards your emergency fund (or other accessible investments) because if times are tough, you could easily go through 3-4 months of your salary. When you get to $125,948, then you'll have to decide if PERSONALLY in your situation would it be best to eliminate the mortgage, even knowing that possibly in the long term it would be better to keep your mortgage (pending the interest rate and other factors) and continue to invest in index funds. I stress decide personally, because having your house paid off may take away the stress of making your month to month expenses should you get laid off. This is a bit more of the Dave Ramsey style of planning for the future, and while not optimum by many boglehead recommendations concerning paying off one's mortgage, it may be best in your personal particular life situation. You could then immediately divert what you'd have paid on P&I on your mortgage into additional retirement investments and this would offset some of the opportunity cost lost from paying off your mortgage. If your job/income were stable that would be a different thing.

The mistake I've seen most in sales types of jobs with varying income is they splurge on lifestyle choice things when times are good and forget about the slow/bad times.

If my salary variation was 100% like yours, I'd also be continually looking to improve my career skills via classes, etc.

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Watty
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Re: Save? Invest? Pay off Mortgage?

Post by Watty » Sat Sep 21, 2019 11:59 pm

Frugalbear wrote:
Sat Sep 21, 2019 6:46 pm

First of all, I work in Sales so I can make anywhere from $55k/ year(low end) to $110K/year(high end).

......
What would you do? Thoughts?
Getting any 401k match always makes sense.

I would try to live as if I was making $55K and then save up a year or two expenses to get me through the eventually lean times. I have never work in sales but one thing I have noticed with real estate agents is that the high earning ones frequently were the ones that were able to stay in the field through a long downturn.

Once I had a much larger than normal emergency fund I would then save up maybe $25K and then call my lender and ask if they will "recast my mortage"(Google this) if I make a large prepayment. They are not required to do this but they usually will for a processing fee of a couple of hundred dollars. The way this works is if you pay the loan down by 20%(or whatever makes sense) then your required mortage payment is reduced by the same percentage. This could be important if you have lean years or interest rates go up a lot.

Maxing out your Roth may still make sense because in an emergency you can withdraw your contributions, but not your earnings. Some people even use a Roth as an emergency fund.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

If you are above the 12% federal tax bracket then it would be good to consider if a deductible IRA might be a better choice.

https://www.bogleheads.org/wiki/Traditional_versus_Roth

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grabiner
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Re: Save? Invest? Pay off Mortgage?

Post by grabiner » Sun Sep 22, 2019 10:14 am

What is your mortgage rate? Rates have gone down, so it may well improve your cash flow as well as your finances if you refinance. If you are considering paying early, you probably want to refinance to a 15-year mortgage, so that you pay less interest while making the larger payments.

Since your job is highly tied to the economy, it makes sense for you to have a more conservative asset allocation than most investors, with a larger emergency fund (which can be money in a short-term bond fund in your Roth IRA). And for similar reasons, even though you could come out ahead by selling bonds to make extra mortgage payments, you probably don't want to do that because you need the liquid funds; if you lose your job, you won't be able to get the money back out of your home except by selling it.
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Compound
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Re: Save? Invest? Pay off Mortgage?

Post by Compound » Sun Sep 22, 2019 10:48 am

I’ll add to the chorus: keep expanding liquid funds (emergency funds/conservatively invested funds that you can withdraw from — savings account, Roth principle, etc). With a cyclically tied job, you never know when you’ll need that extra liquidity. It pays to save for a rainy day.

Topic Author
Frugalbear
Posts: 76
Joined: Sun Jun 02, 2019 7:35 am

Re: Save? Invest? Pay off Mortgage?

Post by Frugalbear » Sun Sep 22, 2019 6:53 pm

Thank you all for your input and help on this. Maybe I over think things, but ultimately I agree. Thank you!

mav12
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Re: Save? Invest? Pay off Mortgage?

Post by mav12 » Sun Sep 22, 2019 11:48 pm

dandinsac wrote:
Sat Sep 21, 2019 7:30 pm
If you have $300,000 in Roth + Ally, then you should pay off the mortgage. Otherwise, save more, either in Ally or a taxable brokerage account.
IMHO, Alliant Credit Union is better, easier to work with, less restrictions on same day EFT, same are as Ally.

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