What to do with extra money?

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Topic Author
cashisking500
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Joined: Fri Dec 02, 2016 1:08 pm

What to do with extra money?

Post by cashisking500 » Wed Apr 29, 2020 11:47 am

I hope all the BH community is staying healthy!

I am currently on furlough from my job due to Covid 19 and will hopefully be back to work no later than the end of May. My wife has continued to work full time, being paid at 100% during this time. Between her take home pay and unemployment money, we have been very fortunate thus far to not have to dip into our savings. Assuming I get back to work on schedule, I project we will have $88,000 sitting in high yield savings. Approx. $60,000 represents one year of expenses for our EF.

What should we do with the extra $28,000?

- We have $11,000 left on a 0% car loan. Pay it off?
- We owe $330,000 on our mortgage at 3.75%. Throw a chunk at mortgage? Refinance and put some towards mortgage?
- Keep stockpiling cash thru the end of the year in case Covid (and job instability) returns?
- Something else?

We are currently maxing Roth IRA’s for both of us and contributing $250 a month to our 2 year old’s 529 plan.

Thanks for your guidance!

theorist
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Re: What to do with extra money?

Post by theorist » Wed Apr 29, 2020 11:50 am

Unless you are 100% sure about employment, I would stockpile the cash. Having a larger emergency fund would allow me to sleep better, and you will have time later to invest more. Hopefully you are both making regular deposits to 401Ks through your jobs when employed? That would mean you’re investing some even beyond the IRAs and 529 anyway, during this crisis. In any case maxing the IRAs is good enough for this stressful time!

Topic Author
cashisking500
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Re: What to do with extra money?

Post by cashisking500 » Wed Apr 29, 2020 11:56 am

Thanks, Theorist. Yes, we both regularly contribute to 401K’s with our jobs.

retiredjg
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Re: What to do with extra money?

Post by retiredjg » Wed Apr 29, 2020 12:08 pm

Since you are on furlough, you may not be contributing to your plan at work right now. First, make that up so that you will max it out this year. You can use your extra cash to live on while deducting more from your salary.

If you feel your emergency fund is large enough, invest the money in a taxable account (total stock index and/or total international index) and call it good.

Jack FFR1846
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Re: What to do with extra money?

Post by Jack FFR1846 » Wed Apr 29, 2020 12:10 pm

Until you're back at work, I'd absolutely stop all 529 contributions. You can always get those on track when your employment gets back. I might also change the 401k to maybe 1% for both of you until things are back to normal. Again, you can up that amount when you're back to work.

You want to treat this as if you won't be going back to work. What if the company goes belly up? Or sells itself and the new owner decides he doesn't want to keep your part of the business? Plan for the worst and if things go well, you can make up for retirement and college savings later.

You are quite premature asking what to do with extra money at this point. Worry about it later. You can always pay some towards the mortgage or the car. It doesn't make that much difference, really. Do either or do both.
Bogle: Smart Beta is stupid

Dottie57
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Re: What to do with extra money?

Post by Dottie57 » Wed Apr 29, 2020 12:12 pm

theorist wrote:
Wed Apr 29, 2020 11:50 am
Unless you are 100% sure about employment, I would stockpile the cash. Having a larger emergency fund would allow me to sleep better, and you will have time later to invest more. Hopefully you are both making regular deposits to 401Ks through your jobs when employed? That would mean you’re investing some even beyond the IRAs and 529 anyway, during this crisis. In any case maxing the IRAs is good enough for this stressful time!
+1000. Dr Fauci believesthere May be a really tough CV season in fall and winter. Protect yourselves.

Ron Ronnerson
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Re: What to do with extra money?

Post by Ron Ronnerson » Wed Apr 29, 2020 12:58 pm

Under your current circumstances, your username is quite apt. When there is greater stability, you might not need to have so much cash on hand.

I think funding a Roth IRA is fine since you can access your contributions without penalty if you needed to do so. I would not be contributing toward a 529 for the time being. Also, I would not be in a hurry to pay off a 0% car loan if my job situation looked uncertain. You can likely refinance your mortgage and get a lower rate. I would definitely look into that.

Olemiss540
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Re: What to do with extra money?

Post by Olemiss540 » Wed Apr 29, 2020 2:46 pm

I would hold on tight until you are secure in a new paycheck. Consider a low cost or no cost refi to improve cash flow and reduce your mortgage rate. A few grand to refi to 3% would be great.

Once that's locked in, I would reduce my EF to 6-9 months (due to dual income household), payoff the car loan to improve cash flow, and plow the rest into maxing all tax advantaged retirement accounts.

Money is fungible. I dont see the need for 1+ years of cash paying high tax burdens of 22-24% (more if state tax) all to ensure you do not have to pay 10% in penalty (and 0 or 10% in income tax) during a doomsday scenario.

Realize the retirement account money is real money and it doesnt get put into a dragon guarded cave until retirement.....
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Toons
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Re: What to do with extra money?

Post by Toons » Wed Apr 29, 2020 4:08 pm

Pay Off The Auto
Then start on the home
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Thegame14
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Re: What to do with extra money?

Post by Thegame14 » Wed Apr 29, 2020 5:08 pm

Id keep the cash if the auto is 0% interest, and wait for the job situation to get better.

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gr7070
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Re: What to do with extra money?

Post by gr7070 » Wed Apr 29, 2020 5:22 pm

Once you feel you're in the clear put that $28k in the mortgage or in a total stock fund. You could funnel some of it into your 401k when you're back at work.

Hard to really go wrong with any typical chosen long term savings plan with excess funds.

I'd also take $30k, minimum, of the EF and put it into a total stock fund in a taxable account. I only keep 3 months EF in actual cash.

As you've found you don't even need any of your EF with a job loss; you certainly don't need to access months 6-12, which are more like, what, months 12-18 or 24.

ddurrett896
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Re: What to do with extra money?

Post by ddurrett896 » Wed Apr 29, 2020 5:32 pm

cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
I project we will have $88,000 sitting in high yield savings. Approx. $60,000 represents one year of expenses for our EF.
Does the $60,000 one year expense cover ALL expenses in the event you both lost your job? If so, I think you are way good here.

I like to think that my wife and I won't ever be out of work at the same time and her being a nurse (she's very stable) so I calculate our spend - her salary to get the emergency amount.
cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
What should we do with the extra $28,000?

- We have $11,000 left on a 0% car loan. Pay it off?
- We owe $330,000 on our mortgage at 3.75%. Throw a chunk at mortgage? Refinance and put some towards mortgage?
- Keep stockpiling cash thru the end of the year in case Covid (and job instability) returns?
- Something else?
Keep stockpiling.
Car is a no brainer at 0% to pay monthly.
Mortgage is low enough that I would keep the cash.

Mr.BB
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Re: What to do with extra money?

Post by Mr.BB » Wed Apr 29, 2020 5:44 pm

I would sit on that cash for an extra six months. First you have to see if you will get your job back, also what if there is a second wave of shut downs. Having that extra cash in hand for six months will do more for you then paying down your car or mortgage. If everything starts getting back to normal in October then use it for paying down some of your bills. It's all risk/reward.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

reln
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Re: What to do with extra money?

Post by reln » Wed Apr 29, 2020 5:55 pm

cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
I hope all the BH community is staying healthy!

I am currently on furlough from my job due to Covid 19 and will hopefully be back to work no later than the end of May. My wife has continued to work full time, being paid at 100% during this time. Between her take home pay and unemployment money, we have been very fortunate thus far to not have to dip into our savings. Assuming I get back to work on schedule, I project we will have $88,000 sitting in high yield savings. Approx. $60,000 represents one year of expenses for our EF.

What should we do with the extra $28,000?

- We have $11,000 left on a 0% car loan. Pay it off?
- We owe $330,000 on our mortgage at 3.75%. Throw a chunk at mortgage? Refinance and put some towards mortgage?
- Keep stockpiling cash thru the end of the year in case Covid (and job instability) returns?
- Something else?

We are currently maxing Roth IRA’s for both of us and contributing $250 a month to our 2 year old’s 529 plan.

Thanks for your guidance!
Keep it in cash.

frankie1800
Posts: 29
Joined: Sat Oct 28, 2017 7:53 am

Re: What to do with extra money?

Post by frankie1800 » Wed Apr 29, 2020 6:00 pm

Olemiss540 wrote:
Wed Apr 29, 2020 2:46 pm


Money is fungible. I dont see the need for 1+ years of cash paying high tax burdens of 22-24% (more if state tax) all to ensure you do not have to pay 10% in penalty (and 0 or 10% in income tax) during a doomsday scenario.

Realize the retirement account money is real money and it doesnt get put into a dragon guarded cave until retirement.....
Excellent point.

Dottie57
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Location: Earth Northern Hemisphere

Re: What to do with extra money?

Post by Dottie57 » Wed Apr 29, 2020 6:14 pm

theorist wrote:
Wed Apr 29, 2020 11:50 am
Unless you are 100% sure about employment, I would stockpile the cash. Having a larger emergency fund would allow me to sleep better, and you will have time later to invest more. Hopefully you are both making regular deposits to 401Ks through your jobs when employed? That would mean you’re investing some even beyond the IRAs and 529 anyway, during this crisis. In any case maxing the IRAs is good enough for this stressful time!
+1

Topic Author
cashisking500
Posts: 82
Joined: Fri Dec 02, 2016 1:08 pm

Re: What to do with extra money?

Post by cashisking500 » Wed Apr 29, 2020 9:24 pm

Thanks everyone. All good points and lots to consider.

BlackcatCA
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Re: What to do with extra money?

Post by BlackcatCA » Wed Apr 29, 2020 9:39 pm

You can put 10k in ibond today earning a bit more than 2%, and in 1 year you can count that as part of your EF.

Topic Author
cashisking500
Posts: 82
Joined: Fri Dec 02, 2016 1:08 pm

Re: What to do with extra money?

Post by cashisking500 » Thu Apr 30, 2020 6:30 am

Yes, the $60,000 covers if both of us were out of work. The only thing it doesn’t cover is our Roth IRA contribution each month. My wife is in the healthcare field, so less likely she will lose her job.
ddurrett896 wrote:
Wed Apr 29, 2020 5:32 pm
cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
I project we will have $88,000 sitting in high yield savings. Approx. $60,000 represents one year of expenses for our EF.
Does the $60,000 one year expense cover ALL expenses in the event you both lost your job? If so, I think you are way good here.

I like to think that my wife and I won't ever be out of work at the same time and her being a nurse (she's very stable) so I calculate our spend - her salary to get the emergency amount.
cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
What should we do with the extra $28,000?

- We have $11,000 left on a 0% car loan. Pay it off?
- We owe $330,000 on our mortgage at 3.75%. Throw a chunk at mortgage? Refinance and put some towards mortgage?
- Keep stockpiling cash thru the end of the year in case Covid (and job instability) returns?
- Something else?
Keep stockpiling.
Car is a no brainer at 0% to pay monthly.
Mortgage is low enough that I would keep the cash.

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gr7070
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Re: What to do with extra money?

Post by gr7070 » Thu Apr 30, 2020 9:40 am

cashisking500 wrote:
Thu Apr 30, 2020 6:30 am
Yes, the $60,000 covers if both of us were out of work.
You have multiple years of an EF wasting away in cash. You're out of work and not even running a deficit.

A $20k EF for you would last a year, probably a lot longer, with one unemployed. Put the rest into a total stock fund - it's still part of your EF, and not like it'll go close to zero in a crash.

Make certain to fund your Roths this year. You can always take it out... If you're still unemployed 4 years from now.

MiloMoney
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Re: What to do with extra money?

Post by MiloMoney » Thu Apr 30, 2020 10:48 am

cashisking500 wrote:
Wed Apr 29, 2020 11:47 am
- We have $11,000 left on a 0% car loan. Pay it off?
I may be showing my financial inexperience by asking this, but how did you get 0% auto?

Respectfully sent,

Milo.

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