We're Debt Free (Except our House)!

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
cashisking500
Posts: 106
Joined: Fri Dec 02, 2016 12:08 pm

We're Debt Free (Except our House)!

Post by cashisking500 »

First off, thanks to everyone on the forum. Reading how many of you have found success with your finances is inspiring. It has really helped my wife and I with our journey.

I feel kind of weird bragging about this to anyone else outside of BH, so I'm excited to share that we are debt free except for our house. We have one paid off car, one company car (that allowed us to sell our second car), we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.

We are currently evaluating what our next steps should be. We will have about $2,000 left over each month, so do we increase our retirement to more than 15%? Pay more towards our mortgage? Open a taxable investment account?
User avatar
peterinjapan
Posts: 605
Joined: Fri May 15, 2015 8:41 am
Location: Japan!

Re: We're Debt Free (Except our House)!

Post by peterinjapan »

Congrats! I'm counting down to paying off my mother's house, then one more rental unit I own, in 4~5 years.
User avatar
climber2020
Posts: 2709
Joined: Sun Mar 25, 2012 8:06 pm

Re: We're Debt Free (Except our House)!

Post by climber2020 »

Congrats on paying off the debt.

Do you enjoy your job enough to do it for a really long time? If not, you can bump the savings rate up and shave many years off your working life.
WhyNotUs
Posts: 2610
Joined: Sun Apr 14, 2013 11:38 am

Re: We're Debt Free (Except our House)!

Post by WhyNotUs »

Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
I own the next hot stock- VTSAX
Topic Author
cashisking500
Posts: 106
Joined: Fri Dec 02, 2016 12:08 pm

Re: We're Debt Free (Except our House)!

Post by cashisking500 »

climber2020 wrote: Tue Oct 03, 2017 11:55 am Congrats on paying off the debt.

Do you enjoy your job enough to do it for a really long time? If not, you can bump the savings rate up and shave many years off your working life.
I do enjoy it a lot. It's basically my dream job. That being said, bumping up the savings rate is never a bad idea. Thanks!
snoopdoug1
Posts: 263
Joined: Mon Jul 23, 2007 10:53 am

Re: We're Debt Free (Except our House)!

Post by snoopdoug1 »

If it was me, I'd bump up your savings rate in a heartbeat. You should have more tax protected space to contribute to, right?
mortfree
Posts: 2968
Joined: Mon Sep 12, 2016 7:06 pm

Re: We're Debt Free (Except our House)!

Post by mortfree »

cashisking500 wrote: Tue Oct 03, 2017 11:40 am we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.
putting 15% towards retirement vs maxing out your retirement are two different things.

I would strive to max out the 401k and Roth IRA (for at least one person).

See where that puts you.
Mid-40’s
LEB1230
Posts: 49
Joined: Tue Aug 08, 2017 7:19 pm

Re: We're Debt Free (Except our House)!

Post by LEB1230 »

I struggled with the save more vs payoff mortgage myself. I know that mathematically its best to save more with the assumption that the stock market average return will be greater than the loan rate. The other part of me can see the financial peace that a paid off home would bring.
User avatar
Toons
Posts: 14467
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: We're Debt Free (Except our House)!

Post by Toons »

" Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :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
LEB1230
Posts: 49
Joined: Tue Aug 08, 2017 7:19 pm

Re: We're Debt Free (Except our House)!

Post by LEB1230 »

mortfree wrote: Tue Oct 03, 2017 12:25 pm
cashisking500 wrote: Tue Oct 03, 2017 11:40 am we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.
putting 15% towards retirement vs maxing out your retirement are two different things.
I guess that would all depend on your income.
Nearly A Moose
Posts: 1237
Joined: Fri Apr 22, 2016 5:28 pm

Re: We're Debt Free (Except our House)!

Post by Nearly A Moose »

Congrats!! Suggest putting that money into long term savings. $24k per year is real money! Or if you feel good about where you are and your path, allow yourselves to grow into the cash flow *just a little bit*. Maybe increase your discretionary budget $250 or $500 a month and save the rest. Really depends on where you are financially and how you feel about your quality of life.

FWIW, when we paid off our student loans, we directed the monthly payments 100% to long term savings. Will be doing the same when the car gets paid off. I don't miss the money because I never "saw it" in the past, but I do enjoy checking my Vanguard account on the 5th of each month!
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
User avatar
fiverus
Posts: 154
Joined: Wed Jan 04, 2017 10:56 am

Re: We're Debt Free (Except our House)!

Post by fiverus »

Currently I contribute 9% and company matches 5% so, total 14% to my 401k. What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?
Topic Author
cashisking500
Posts: 106
Joined: Fri Dec 02, 2016 12:08 pm

Re: We're Debt Free (Except our House)!

Post by cashisking500 »

Nearly A Moose wrote: Tue Oct 03, 2017 1:22 pm Congrats!! Suggest putting that money into long term savings. $24k per year is real money! Or if you feel good about where you are and your path, allow yourselves to grow into the cash flow *just a little bit*. Maybe increase your discretionary budget $250 or $500 a month and save the rest. Really depends on where you are financially and how you feel about your quality of life.

FWIW, when we paid off our student loans, we directed the monthly payments 100% to long term savings. Will be doing the same when the car gets paid off. I don't miss the money because I never "saw it" in the past, but I do enjoy checking my Vanguard account on the 5th of each month!
Thanks! I would guess we will absorb just a bit of the cash flow into our lifestyle, but no more than $200 or $300 at most.
mptfan
Posts: 7218
Joined: Mon Mar 05, 2007 8:58 am

Re: We're Debt Free (Except our House)!

Post by mptfan »

cashisking500 wrote: Tue Oct 03, 2017 11:40 am We are currently evaluating what our next steps should be. We will have about $2,000 left over each month, so do we increase our retirement to more than 15%? Pay more towards our mortgage? Open a taxable investment account?
That depends on the interest rate of your mortgage, and whether you itemize your tax deductions, and, if you itemize, the total amount of your itemized deductions after excluding mortgage interest.
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: We're Debt Free (Except our House)!

Post by Duckie »

fiverus wrote:What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?
If under age 50 you are allowed to contribute $18K (not including matching) to most employer plans plus $5.5K to personal IRAs. If 50 or over the numbers are $24K and $6.5K. So $18K + $5.5K = $23.5K or $24K + $6.5K = $30.5K. Depending on your income that could be a lot of money and not everyone can do it, but that's maxing out.
Last edited by Duckie on Tue Oct 03, 2017 5:24 pm, edited 1 time in total.
User avatar
JupiterJones
Posts: 3624
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: We're Debt Free (Except our House)!

Post by JupiterJones »

Congrats! :sharebeer

Is $26,000 the correct size for your emergency fund? If not, I'd throw that extra two grand there until it is.

Are there any expected costs on the horizon? Do you have a vacation planned? Is your HVAC on its last legs? How are your vehicles doing? Anyone planning to go back to school? Assuming you have a fully-funded emergency fund, I'd make this my next step: Saving for things that aren't technically "emergencies" (because you know about them in advance), but you're going to have to pay for them anyway.

In our case, we have "sinking funds" for both of our cars that we contribute to, plus funds for property tax (we don't escrow), upcoming trips, etc. These aren't literally separate funds--they're just earmarked portions of our savings beyond the level of our (eight-month) emergency fund.

Once that's all settled, if you still have any money left over, then yes... max out those tax-advantaged retirement accounts.

(All of the above is IMHO, of course.)
"Stay on target! Stay on target!"
denovo
Posts: 4808
Joined: Sun Oct 13, 2013 1:04 pm

Re: We're Debt Free (Except our House)!

Post by denovo »

Duckie wrote: Tue Oct 03, 2017 4:22 pm
fiverus wrote:What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?
If under age 50 you are allowed to contribute $18K (not including matching) to most employer plans plus $5.5K to personal IRAs. Since you are married that's $18K + $18K + $5.5K + $5.5K = $47K. That's a lot of money and not everyone can do it, but that's maxing out.
I agree with the Duckie. If you can, MAX out all your tax-sheltered accounts.

Congrats on being mostly debt-free.
"Don't trust everything you read on the Internet"- Abraham Lincoln
ThePrince
Posts: 451
Joined: Sun Aug 20, 2017 9:15 pm
Location: U.S.A.

Re: We're Debt Free (Except our House)!

Post by ThePrince »

Toons wrote: Tue Oct 03, 2017 12:35 pm " Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :happy
+1
User avatar
SmileyFace
Posts: 9186
Joined: Wed Feb 19, 2014 9:11 am

Re: We're Debt Free (Except our House)!

Post by SmileyFace »

If you are this excited being debt free and carrying a mortgage, imagine how excited you will be when 100% debt free with no mortgage. Pay more towards the mortgage. Guaranteed interest savings.
Topic Author
cashisking500
Posts: 106
Joined: Fri Dec 02, 2016 12:08 pm

Re: We're Debt Free (Except our House)!

Post by cashisking500 »

WhyNotUs wrote: Tue Oct 03, 2017 12:05 pm Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.
User avatar
Elsebet
Posts: 1606
Joined: Mon Feb 08, 2016 1:28 pm
Location: Erie, PA

Re: We're Debt Free (Except our House)!

Post by Elsebet »

Congrats! Great work!

The only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca
indexonlyplease
Posts: 1571
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: We're Debt Free (Except our House)!

Post by indexonlyplease »

I like having the house paid off. Nice not making a monthly payment and it feels good!! You are putting in the recommended 15%.

Why not do a little of both.

Increase percent to 401k, to max if possible, depends on your Salary and what amount you are paying now.
Pay extra on the house each month.

You are now a low percent of Americans not in debt. Maybe the only one on your block.
soccerrules
Posts: 1380
Joined: Mon Nov 14, 2016 3:01 pm

Re: We're Debt Free (Except our House)!

Post by soccerrules »

Cash-
I think you have options which is good. I would be aware of having enough liquidity. If you dump all of your money into House and 401K's you might be short on liquidity/cash. What happens if you lose your job and it takes 12 months to find a new one, will $26K be enough?

I would do the following (on the limited details you provided)
1) Pump up EF to 9-12 mo, or higher if you want a little more liquidity.
2) Increase Max yearly 401K and IRA contributions to hit maximum
3) For now don't let spending creep. Having $2K /mo to save is more important than where you actually put it, right now.

Once you have done #1 and #2, I would consider putting some toward the mortgage. It depends on if being completely debt free is really important to you.
Don't let your outflow exceed your income or your upkeep will be your downfall.
User avatar
peetsperk
Posts: 372
Joined: Wed Feb 04, 2015 3:02 pm

Re: We're Debt Free (Except our House)!

Post by peetsperk »

Elsebet wrote: Wed Oct 04, 2017 3:02 pm Congrats! Great work!

The only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.
Elsebet, I don’t believe Emergency Funds should be used for anything other than a true emergency. However, you may want to consider this alternative. I built our Emergency fund from the ground up by compiling all of our expenses in an average month. We wanted our Emergency Fund to be able to cover 6-months of these expenses just in case I became incapacitated and couldn’t work or I lost my job. If your Emergency Fund is based on “expenses,” then you could take the dollars you set aside to cover your truck payments in case of job loss and reallocate those funds at the end of the process to pay off your truck even earlier. For example, as we were working to pay-off our house, we knew our Emergency Fund included enough money to cover 6 months of mortgage payments, plus all of our other expenses during that period. We used the “mortgage” dollars to pay-off our house even earlier and when all was said and done, we still had a fully funded 6-month Emergency Fund and no house payment. Perhaps this might be a consideration on your truck.
guitarguy
Posts: 2191
Joined: Mon Dec 20, 2010 3:10 pm

Re: We're Debt Free (Except our House)!

Post by guitarguy »

cashisking500 wrote: Wed Oct 04, 2017 1:54 pm
WhyNotUs wrote: Tue Oct 03, 2017 12:05 pm Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.
Congrats OP! We found ourselves in literally this exact same situation in Feb 2017 when we paid off the remaining balance on student loans. It's a great feeling!! :beer

Re: the mortgage...what is your rate? Ours is a 2.8% 15 year fixed...no hurry to pay extra to the mortgage in our financial house.

We chose to up our savings rate instead. We've gone from 15% to 17.5% since February (got a raise it it basically went right into 401k). When my next raise comes early in 2018, we'll be up over 20%.

Another thing to think about is your tax implications. As my side business has made more substantial money, even with Mrs. Guitarguy quitting her full time job and going back to school while working a few hours a week as an intern in her new field, our tax bills have increased. Increasing 401k savings will hedge against that. When she finishes her program in May 2018 and starts her new full time career, we'll be re-starting her 401k and essentially looking to dump 30-40% or more of her salary in there, which will up our savings rate and help our tax burden even more.

Really though...you can't go wrong if you dedicate the extra money to building your net worth in some way, shape, or form.
User avatar
djpeteski
Posts: 1078
Joined: Fri Mar 31, 2017 9:07 am

Re: We're Debt Free (Except our House)!

Post by djpeteski »

Congratulations! Well done eschewing rugged consumerism.

One thing you may want to look at is another refi. What we did is get a 7 year, fixed rate home equity loan in first position and was the only loan on the house. The interest rate was lower then the advertised teaser rate, at the time 2.32 or something like that. There were no closing costs, which makes it very worthwhile. It will be a great use of your 2K left over.

The loan underwriter(s) tried to push us to take cash out, go for a longer term to make the payments more affordable, etc... However we were fortunate that we had a the banker understand what we wanted: The lowest rate possible, on the lowest balance possible. We were looking to get the home paid for.

Meeting and and exceeding financial goals with you and your spouse working together is worth far more than actually meeting the goal. You have done some great things and will continue to do so.
rustymutt
Posts: 4001
Joined: Sat Mar 07, 2009 11:03 am

Re: We're Debt Free (Except our House)!

Post by rustymutt »

Yessssssssssssssssssssssssssss, I love to hear these victories for staying debt free! Push on master of your own destiny, and keep the banks out of your life. Learn to love life below your means, and you'll be a happier person, family, business, or country. Now join with us teaching others this important concept. :moneybag

Congratulations are in order.
Last edited by rustymutt on Thu Oct 05, 2017 7:33 am, edited 2 times in total.
Even educators need education. And some can be hard headed to the point of needing time out.
rustymutt
Posts: 4001
Joined: Sat Mar 07, 2009 11:03 am

Re: We're Debt Free (Except our House)!

Post by rustymutt »

Toons wrote: Tue Oct 03, 2017 12:35 pm " Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :happy
Agreed!
Even educators need education. And some can be hard headed to the point of needing time out.
Topic Author
cashisking500
Posts: 106
Joined: Fri Dec 02, 2016 12:08 pm

Re: We're Debt Free (Except our House)!

Post by cashisking500 »

Thanks all! We're really excited!
spammagnet
Posts: 2481
Joined: Wed Apr 27, 2016 9:42 pm

Re: We're Debt Free (Except our House)!

Post by spammagnet »

Elsebet wrote: Wed Oct 04, 2017 3:02 pmThe only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.
You describe my situation exactly, including the year of the truck. I could pay it off using emergency funds today but, for purposes of mental accounting, want to delay a couple months until I have invested a bit more.

The reason is that I don't include the truck or loan in my net worth which is at a certain comfortable threshold. (The truck is worth far more than the loan, so that's a wash.) If I spend cash to pay the truck, I'll drop below that threshold. I will have invested enough by the end of this year that the loss of cash won't cause me to go below my target.

We may differ in proximity to retirement and, therefore, need for an emergency fund. Because I'm fairly close, a financial event that would cause a need for emergency fund may well be the cue to bag it and retire. I do plan to replete it and work a little more but it's not a requirement for survival.
spammagnet
Posts: 2481
Joined: Wed Apr 27, 2016 9:42 pm

Re: We're Debt Free (Except our House)!

Post by spammagnet »

cashisking500 wrote: Tue Oct 03, 2017 11:40 amI feel kind of weird bragging about this to anyone else outside of BH, so I'm excited to share that we are debt free except for our house.
Congratulations. I recall that feeling, and it's good. I currently do have a car loan, but it's elective and soon will be paid off.
User avatar
Elsebet
Posts: 1606
Joined: Mon Feb 08, 2016 1:28 pm
Location: Erie, PA

Re: We're Debt Free (Except our House)!

Post by Elsebet »

spammagnet wrote: Thu Oct 05, 2017 11:27 am You describe my situation exactly, including the year of the truck. I could pay it off using emergency funds today but, for purposes of mental accounting, want to delay a couple months until I have invested a bit more.

The reason is that I don't include the truck or loan in my net worth which is at a certain comfortable threshold. (The truck is worth far more than the loan, so that's a wash.) If I spend cash to pay the truck, I'll drop below that threshold. I will have invested enough by the end of this year that the loss of cash won't cause me to go below my target.

We may differ in proximity to retirement and, therefore, need for an emergency fund. Because I'm fairly close, a financial event that would cause a need for emergency fund may well be the cue to bag it and retire. I do plan to replete it and work a little more but it's not a requirement for survival.
I'm 41 so have at least until 59.5 unless my portfolio is big enough to go earlier. In addition to my emergency fund I have empty credit cards, a small taxable account, and HELOC, so even if I had an emergency immediately after paying off the truck I'd have coverage. However the emotional security of having that big emergency fund is hard to give up which is why I'm fretting over the decision.

My emergency fund is 32k. I should owe about 25k on the truck next Feb. I usually get a 2-3k refund, so I would still have around 10k in the emergency fund after paying off the truck in addition to my taxable and HELOC. I pay $1000 on the truck per month, so I'd fill the fund back up in 22 months.
It's scary though to think about not having that cash available.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca
User avatar
Meg77
Posts: 2835
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: We're Debt Free (Except our House)!

Post by Meg77 »

cashisking500 wrote: Wed Oct 04, 2017 1:54 pm
WhyNotUs wrote: Tue Oct 03, 2017 12:05 pm Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.
Awesome! Definitely max out the 401k(s) before starting taxable investing. And max out or at least run medical expenses through a Health Savings Account too if you don't already. After that I'd probably bump cash up to $35k or so ($25K plus any foreseeable expense like a new car on the horizon), and THEN decide between taxable investing or paying extra on the mortgage. You can always split the difference if you aren't sure too.
"An investment in knowledge pays the best interest." - Benjamin Franklin
User avatar
JupiterJones
Posts: 3624
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: We're Debt Free (Except our House)!

Post by JupiterJones »

Elsebet wrote: Fri Oct 06, 2017 3:19 pm I usually get a 2-3k refund
Sounds like you may need to adjust your withholding. That's up to $250 more on your paycheck each month that you could've been using this whole time to pay extra on your truck, instead of loaning it to the government interest-free while your truck loan racks up interest.
"Stay on target! Stay on target!"
Not Law
Posts: 270
Joined: Sun Sep 14, 2014 8:05 am

Re: We're Debt Free (Except our House)!

Post by Not Law »

I suggest considering the following:

First, anything in taxed deferred funds, including whatever earnings, capital gains and dividends (even tax free government bonds) are taxed as ordinary income.
Second, most earnings on taxable accounts are taxed at a lower long term capital gain/dividend rate. A married couple with less than about $75k in taxable earnings pays NO tax on these.
Third, Roth accounts are never taxed, but are funded with post income tax dollars.

Think about where you want your funds at or after retirement:

Tax deferred funds require RMDs (Required Minimum Distributions) beginning at age 70.5, which could bump your income up to the point that your Social Security becomes taxed as ordinary income.
Taxable accounts provide funds with a generally lower tax rate when cashed out for consumption.
Roth funds incur no tax when cashed out for consumption.

Depending on your income level at retirement, age 70.5, etc., you may want a mix of the three types of accounts so you can manage your tax rate upon withdrawal. Takes some long term thinking, but considering the long term tax issues might affect your decision about where to allocate extra funds.
Post Reply