What would you do? New to this stuff

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Topic Author
JBEB
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What would you do? New to this stuff

Post by JBEB » Thu Oct 03, 2019 6:54 pm

If you were me...what would your blueprint be moving forward.

Here is my current situation. I know we are in a good spot (good is always relative), but not sure the next move to make, or what "buckets" to put money in. We just got married and would love to get some systems in place to set us up for the long run. Im going to use rough numbers for the sake of simplicity. If you have any other questions or I was confusing, Ill try my hardest to clarify

-Im 35, wife is 33. Would like to have a kids sometime soon.
-Combined gross income is around 120k
-Our monthly take home pay is about 6k
-Our monthly expenses are about 4k

-I am currently giving $350 a month to a 403b (no employer match), and hope to have a pension.. Wife is about the same boat.
-4 Fed Student loans, each about 6%, totaling 40kish
-2 Mortgages (1 primary, 1 rental) (each have low rates, so don't bother me currently)
-About 50k as emergency fund in a MM. This is a number that we are happy with even if it is high. (Is MM "too risky" for emergency fund?)

So long story short,
We currently have about 15k "free money", as well as saving 2k a month. So what would you do? Which steps would you take first? Some random thoughts that I am struggling with
-Do we snowball the student loans before thinking about any extra investing? Or a hybrid of investing/paying of debt early?

The two types of investing we are thinking about is saving for another rental or index funds. I get rentals. I like them, but if we decide to go to a more hands off approach with index funds, should we do so in a Roth IRA? I think I understand the tax benefits, but also, I would like access to this money as liquid, so not sure if just use a taxable account.

Any thoughts would be appreciated or how you would move forward.

Again new to this stuff, but Im a quick learner. Be gentle....and thanks

TNWoods
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Re: What would you do? New to this stuff

Post by TNWoods » Thu Oct 03, 2019 7:48 pm

I suggest paying off those 6% student loans tomorrow in full.

You'll still have $10,000 in the emergency fund, plus the $15,000 free cash, plus $2000 each month to build back up the emergency fund (which could stop at 6 months expenses instead of 12 and still be a pretty good e-fund).

With monthly expenses of only $4000, you would still be covered for 6 months.

A 6% return guaranteed is a pretty good investment.

TNWoods

Flyer24
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Re: What would you do? New to this stuff

Post by Flyer24 » Thu Oct 03, 2019 8:44 pm

Take the $15K free money and knock out a good portion of your student loans. Put the monthly $2K towards it also. You will be free of the student loans in under a year. Won’t that be an awesome feeling? Even more if you use part of your emergency fund (personal choice).

HomeStretch
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Re: What would you do? New to this stuff

Post by HomeStretch » Thu Oct 03, 2019 9:01 pm

Agree on paying off student loans either all at once or over the next few months.

Are you/spouse currently contributing anything to savings above His $350/mo to a 403b? Do you/spouse contribute to the pensions?

After the student loans are paid off, consider increasing your/spouse’s 403b contributions and each contributing the max to a Roth IRA each year.

With debt and low savings, I would hold off on another rental property. Focus on maxing out the 403bs and Roth IRAs first.

Topic Author
JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Fri Oct 04, 2019 6:50 pm

Thanks for the replies everyone.
I guess where I am at is deciding to just go for debt first or do a hybrid.

the 6% return of paying it off is a good point

Grt2bOutdoors
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Re: What would you do? New to this stuff

Post by Grt2bOutdoors » Fri Oct 04, 2019 7:47 pm

JBEB wrote:
Fri Oct 04, 2019 6:50 pm
Thanks for the replies everyone.
I guess where I am at is deciding to just go for debt first or do a hybrid.

the 6% return of paying it off is a good point
Forget the hybrid, take the bird in hand. Who is providing a guaranteed 6% return to you today with zero risk, anywhere? No one, except the student loans. Take the money and pay down those loans tomorrow.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Sat Oct 05, 2019 6:04 am

I guess Im surprised at all the similar responses.

Its def appreciated

Sconie
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Re: What would you do? New to this stuff

Post by Sconie » Sat Oct 05, 2019 6:20 am

Yep----another one for paying down the student loans.
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

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hariseldon74
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Re: What would you do? New to this stuff

Post by hariseldon74 » Sat Oct 05, 2019 6:29 am

I recommend paying off the student loans

My best idea was to pay off my student loans in the late 90s ($10K) in the 6 months grace period and I was able to get my loans interest free

The next step after that was I had children so I wasnt maxing out my 401k and Roth's but that has been my best idea for the last 4 years

If you have your student loans paid off then you can maximize and prioritize investments or if you wife stays home with kids you have that option as well

livesoft
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Re: What would you do? New to this stuff

Post by livesoft » Sat Oct 05, 2019 6:34 am

If the interest rates on the student loans are about 6%, then please pay them down with this money instead of saving or investing it.
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JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Sat Oct 05, 2019 8:26 am

Really do appreciate the posts.

Just to play devils advocate, does anyone else have a different pov?


JGoneRiding
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Re: What would you do? New to this stuff

Post by JGoneRiding » Sat Oct 05, 2019 12:10 pm

JBEB wrote:
Sat Oct 05, 2019 8:26 am
Really do appreciate the posts.

Just to play devils advocate, does anyone else have a different pov?
My SL was sitting at just under 5% so I chose to invest first. I put a lot more than you are saying into my retirement and rental investments . I mostly dont regret it but you are sitting on 50k in cash for no good reason. I would take that and pay off the SL asap and then build it back up and then invest. Unless you have been eyeing a house or something that you are wanting to buy with that cash.

I never had a pile of cash because it always had something to do.

SanAntionetta
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Re: What would you do? New to this stuff

Post by SanAntionetta » Sat Oct 05, 2019 1:45 pm

Also agree with paying off student loans! Great to do BEFORE you have kids. Don’t be like me and delay it until you are staring Dow the barrel of a $2500/mo daycare bill 😬

Olemiss540
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Re: What would you do? New to this stuff

Post by Olemiss540 » Sat Oct 05, 2019 1:52 pm

I would prioritize debt paydown and ensuring you fill your RothIRA buckets each year even if you have to stash your emergency fund there temporarily. Contributions to your Roth IRA can be withdrawn tax and penalty free if needed until you refill your efund.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

LittleMaggieMae
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Re: What would you do? New to this stuff

Post by LittleMaggieMae » Sat Oct 05, 2019 2:13 pm

Here are just some ideas/suggestions/"let's pretend" kind of things.

It's time to start reviewing your and your spouses health insurance benefits - with an eye towards having and "maintaining" children. One of your employers plans might be better than the others. (also look at What kind of maternity/paternity leave do you get? Can you supplement with PTO or is it ONLY PTO? Will one of you be a stay home spouse (drop to one income)? etc..) Now is the time to review this as it will help you make good financial decisions to get you to the future you want. (Don't forget to review and see what other pretax benefits your employer offers that you can use... using $300 or $500 in pretax money from an FSA for eye/dental/copays or whatever you WILL spend money one no matter what sounds small/inconsequental but it's the long game... That's 3k or 5K pretax money over 10 years... just make sure you don't forfeit the $$ you put in the FSA... :) )

Next, generally, you don't need 50K (or even 10K) in a suitcase by midnight tomorrow... I'd think about 'restructureing" your 50K EF - maybe keep 10K in the MM and then move the rest to something safe with a higher interest rate (I've got a couple of 15K CDs at 2.5% for example). You want to have easy access to the money - but you won't need it all at once in a lump sum.

Depending on what your "having kids" future looks like - coming up with an excellerated paydown plan for the SL's probably isn't a bad idea... I might not pay them off in a lump sum from your EF right now - but would maybe come up with a 36 or 48 month plan to pay them off.

I'm all about flexibility - as one never knows what the future holds: 6% interest charges for a decade is too long... 6% for 2 or 3 or 4 years (depending on what else is also on my plate for the time frames could be worth the expense to have the flexibility in my spending plan.)

KandT
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Re: What would you do? New to this stuff

Post by KandT » Sun Oct 06, 2019 7:19 am

How much monthly are your student loans? Do you have any vehicle debt?

Topic Author
JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Sun Oct 06, 2019 4:24 pm

littlemaggiemay, thanks so much for the food for thought

...little less than 600 a month and no car debt

GlacierRunner
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Re: What would you do? New to this stuff

Post by GlacierRunner » Sun Oct 06, 2019 10:34 pm

I'm another fan of paying off the student loans.

Some other things that might affect responses:
1) You have quite a bit coming out of your checks each month if you gross $10k but net $6k. Is some of this retirement savings that you haven't reported in your description? Are you having more than you need withheld for taxes? Is your health insurance expensive? Do you live in a high tax state?

2) Having a rental would justify a higher emergency fund. Do the $4,000 monthly expenses include the mortgage and upkeep on the rental?

3) Where did the $15k in "free money" come from? Is this money gifted from your wedding, part of the $50k emergency money, or some other savings or gift?

basspond
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Re: What would you do? New to this stuff

Post by basspond » Sun Oct 06, 2019 11:15 pm

Our portfolio went on steroids once we cleaned up our consumer debt. It really accelerated once our house was paid off, especially since it was several years before our 2 kids went off to college. But that was only gravy to the feeling of freedom of not owing any money.

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Re: What would you do? New to this stuff

Post by nisiprius » Mon Oct 07, 2019 5:50 am

I agree with paying down the student debt first, but I'm not so sure about using the emergency fund to do it.

Since I didn't notice others' comments on this, I thought I'd address
About 50k as emergency fund in a MM. This is a number that we are happy with even if it is high. (Is MM "too risky" for emergency fund?)
First, one must always distinguish between two utterly different things with confusingly similar names.

1) A money market "fund," full name money market mutual fund, which you buy and sell at a brokerage.

2) A so-called "money market account," full name money market deposit account, which is a kind of bank savings account.

I'm assuming you are talking about #1.

I don't think $50K is too much for an emergency fund. The whole topic of emergency funds is difficult to address rationally. However, the conventional description is usually "six months' income." Sometimes you will see "three to six months' income." People who think they are sophisticated about investing, who try to optimize everything, hate emergency funds because they are a drag on your total return. Nobody really likes them because they are boring eat-your-vegetables thing. And since there is never any real way to justify any specific number--you can't calculate whether it should be $50,000 or $46,683--it is always tempting to find reasons to have less.

It is my personal opinion that a money market fund is not too risky. There are two issues with an emergency fund. 1) You don't know when you'll need it, so it shouldn't be anything volatile because, if it fluctuates, you might need to sell it when it is down. What that really means is "not stocks." Money market mutual funds are not volatile at all.

2) There shouldn't be any serious risk of losing the money. But, more, there shouldn't be any serious risk that "something will happen" that freezes the money and makes it inaccessible for a long time. I don't worry about that with a money market fund, but everyone should be aware that there was a single event, once in history so far, the collapse of the huge $60 billion Reserve Primary Fund in 2008. Investors were locked out of their money for many months, and got it back slowly in chunks.

3) When you do need it, you might need it quickly. The issue here is, how many hours between when you need the money, and when you have it in a kind of cash that is acceptable to the person you need to pay. People who take checks--e.g. institutions like hospitals--usually will accept the pseudo-checks that come with a money market fund. People like my home improvement guy, who literally presents my checks at my bank for payment, might not. "Money in the bank" showing as "available funds" is right there now. Anything at a brokerage, even a wire transfer, might take 24 hours or more before it shows up at your bank as "available funds."

To make a long story short, I think a (brokerage) money market mutual fund is fine as an emergency fund for most "emergencies," but the biggest issue isn't risk as it is "who accepts money market fund checks, and how quickly can you get money out of your money market fund and into a bank as available funds?" If, as is presently the case, there isn't that much higher an interest rate between a money market fund, and one of the higher-interest savings accounts in a convenient local brick-and-mortar bank, then, yes, I'd go with the bank.

As I write this, for example, the SEC yield on the Vanguard Federal Money Market fund is 1.93%, and the nothing-special local bank's "high yield" account, $10,000 minimum, is 1.49%. On a total deposit of $50,000, that's $220/year. For an emergency fund, is it worth paying $220 for the vague psychological issues of having it right there in the bank (I can get it in physical cash as soon as the bank opens) versus having it "out there" somewhere at a brokerage? Uh... maybe. Different people will give different answers.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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nisiprius
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Re: What would you do? New to this stuff

Post by nisiprius » Mon Oct 07, 2019 5:51 am

As for paying down student loans:

Image

(I've seen that boulder, by the way. It's in Gloucester, MA.)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: What would you do? New to this stuff

Post by CurlyDave » Mon Oct 07, 2019 7:43 am

JBEB wrote:
Fri Oct 04, 2019 6:50 pm
Thanks for the replies everyone.
I guess where I am at is deciding to just go for debt first or do a hybrid.

the 6% return of paying it off is a good point
I am probably one of the black sheep of the board, but I would not pay off the student loans.

Why not? The 10 year CAGR on nothing more spectacular than SPY (which can be bought at any of the newly commission-free brokerages houses) is 13.12%. This is over twice what the money is costing you.

Is it guaranteed? NO, some years you will do better, some years you will do worse, but at this point of your life you can afford a year or two of underperformance (if it happens) in order to reap the average benefit of a much higher return. For instance, last year SPY return was 4+%. You would have lost 2%, but this year so far you would be up 20%. IMHO this is a far better use of your spare funds right now.

* * * * * * * *

Now as far as your EF goes, there is no legal emergency that requires $50k in cash overnight. The last time I needed $50k I knew about the requirement months in advance and could take my time getting the money from the most beneficial source.

I have real estate also, and the only quick cash necessary in that business might be a couple thousand in a "cash for keys" deal as a move out incentive for an unruly tenant. Emergency repairs can always be done on credit due to mechanics lien laws. The repair person knows he will be paid. If you have the funds somewhere it takes a week to get access, so what? The guy is going to be paid in what he considers a very prompt manner. Pay tradesmen in week every time and you will be high on their list of preferred customers.

Essentially, if you stay away from drugs, drug deals, loan sharking, and gambling (both legal and illegal) you are not going to have to go down to the bank and withdraw $50k on a moment's notice.

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JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Tue Oct 08, 2019 6:19 pm

nisiprius wrote:
Mon Oct 07, 2019 5:50 am
I agree with paying down the student debt first, but I'm not so sure about using the emergency fund to do it.

Since I didn't notice others' comments on this, I thought I'd address
About 50k as emergency fund in a MM. This is a number that we are happy with even if it is high. (Is MM "too risky" for emergency fund?)
First, one must always distinguish between two utterly different things with confusingly similar names.

1) A money market "fund," full name money market mutual fund, which you buy and sell at a brokerage.

2) A so-called "money market account," full name money market deposit account, which is a kind of bank savings account.

I'm assuming you are talking about #1.

I don't think $50K is too much for an emergency fund. The whole topic of emergency funds is difficult to address rationally. However, the conventional description is usually "six months' income." Sometimes you will see "three to six months' income." People who think they are sophisticated about investing, who try to optimize everything, hate emergency funds because they are a drag on your total return. Nobody really likes them because they are boring eat-your-vegetables thing. And since there is never any real way to justify any specific number--you can't calculate whether it should be $50,000 or $46,683--it is always tempting to find reasons to have less.

It is my personal opinion that a money market fund is not too risky. There are two issues with an emergency fund. 1) You don't know when you'll need it, so it shouldn't be anything volatile because, if it fluctuates, you might need to sell it when it is down. What that really means is "not stocks." Money market mutual funds are not volatile at all.

2) There shouldn't be any serious risk of losing the money. But, more, there shouldn't be any serious risk that "something will happen" that freezes the money and makes it inaccessible for a long time. I don't worry about that with a money market fund, but everyone should be aware that there was a single event, once in history so far, the collapse of the huge $60 billion Reserve Primary Fund in 2008. Investors were locked out of their money for many months, and got it back slowly in chunks.

3) When you do need it, you might need it quickly. The issue here is, how many hours between when you need the money, and when you have it in a kind of cash that is acceptable to the person you need to pay. People who take checks--e.g. institutions like hospitals--usually will accept the pseudo-checks that come with a money market fund. People like my home improvement guy, who literally presents my checks at my bank for payment, might not. "Money in the bank" showing as "available funds" is right there now. Anything at a brokerage, even a wire transfer, might take 24 hours or more before it shows up at your bank as "available funds."

To make a long story short, I think a (brokerage) money market mutual fund is fine as an emergency fund for most "emergencies," but the biggest issue isn't risk as it is "who accepts money market fund checks, and how quickly can you get money out of your money market fund and into a bank as available funds?" If, as is presently the case, there isn't that much higher an interest rate between a money market fund, and one of the higher-interest savings accounts in a convenient local brick-and-mortar bank, then, yes, I'd go with the bank.

As I write this, for example, the SEC yield on the Vanguard Federal Money Market fund is 1.93%, and the nothing-special local bank's "high yield" account, $10,000 minimum, is 1.49%. On a total deposit of $50,000, that's $220/year. For an emergency fund, is it worth paying $220 for the vague psychological issues of having it right there in the bank (I can get it in physical cash as soon as the bank opens) versus having it "out there" somewhere at a brokerage? Uh... maybe. Different people will give different answers.
Thanks for the in depth post. I did double check, it is not a mutual fund, just a money market account. Were those frozen as well in 08?

soccerrules
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Re: What would you do? New to this stuff

Post by soccerrules » Tue Oct 08, 2019 6:23 pm

Grt2bOutdoors wrote:
Fri Oct 04, 2019 7:47 pm
JBEB wrote:
Fri Oct 04, 2019 6:50 pm
Thanks for the replies everyone.
I guess where I am at is deciding to just go for debt first or do a hybrid.

the 6% return of paying it off is a good point
Forget the hybrid, take the bird in hand. Who is providing a guaranteed 6% return to you today with zero risk, anywhere? No one, except the student loans. Take the money and pay down those loans tomorrow.
+1
Don't let your outflow exceed your income or your upkeep will be your downfall.

Topic Author
JBEB
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Re: What would you do? New to this stuff

Post by JBEB » Tue Oct 08, 2019 6:23 pm

CurlyDave wrote:
Mon Oct 07, 2019 7:43 am
JBEB wrote:
Fri Oct 04, 2019 6:50 pm
Thanks for the replies everyone.
I guess where I am at is deciding to just go for debt first or do a hybrid.

the 6% return of paying it off is a good point
I am probably one of the black sheep of the board, but I would not pay off the student loans.

Why not? The 10 year CAGR on nothing more spectacular than SPY (which can be bought at any of the newly commission-free brokerages houses) is 13.12%. This is over twice what the money is costing you.

Is it guaranteed? NO, some years you will do better, some years you will do worse, but at this point of your life you can afford a year or two of underperformance (if it happens) in order to reap the average benefit of a much higher return. For instance, last year SPY return was 4+%. You would have lost 2%, but this year so far you would be up 20%. IMHO this is a far better use of your spare funds right now.

* * * * * * * *

Now as far as your EF goes, there is no legal emergency that requires $50k in cash overnight. The last time I needed $50k I knew about the requirement months in advance and could take my time getting the money from the most beneficial source.

I have real estate also, and the only quick cash necessary in that business might be a couple thousand in a "cash for keys" deal as a move out incentive for an unruly tenant. Emergency repairs can always be done on credit due to mechanics lien laws. The repair person knows he will be paid. If you have the funds somewhere it takes a week to get access, so what? The guy is going to be paid in what he considers a very prompt manner. Pay tradesmen in week every time and you will be high on their list of preferred customers.

Essentially, if you stay away from drugs, drug deals, loan sharking, and gambling (both legal and illegal) you are not going to have to go down to the bank and withdraw $50k on a moment's notice.
finally an opposing view lol

TravelforFun
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Re: What would you do? New to this stuff

Post by TravelforFun » Tue Oct 08, 2019 6:37 pm

I didn't read all the replies but these would be my first few steps.

- Stop contributing to your employer's plan since there is no matching. I bet their plan's investment options are limited and fees are high.

- Each of you contributes $6,000 to a Roth this year since your current tax brackes are probably low. Use some of the $15k if necessary.

- Make sure each of you have sufficient life insurance.

- Attack student loans. Pay as much as you can on the highest interest loan first. Keep doing that until all the loans are gone.

- Build up your emergency fund, and funds for home down payment.

TravelforFun

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Re: What would you do? New to this stuff

Post by Grt2bOutdoors » Wed Oct 09, 2019 4:55 am

JBEB wrote:
Tue Oct 08, 2019 6:19 pm
nisiprius wrote:
Mon Oct 07, 2019 5:50 am
I agree with paying down the student debt first, but I'm not so sure about using the emergency fund to do it.

Since I didn't notice others' comments on this, I thought I'd address
About 50k as emergency fund in a MM. This is a number that we are happy with even if it is high. (Is MM "too risky" for emergency fund?)
First, one must always distinguish between two utterly different things with confusingly similar names.

1) A money market "fund," full name money market mutual fund, which you buy and sell at a brokerage.

2) A so-called "money market account," full name money market deposit account, which is a kind of bank savings account.

I'm assuming you are talking about #1.

I don't think $50K is too much for an emergency fund. The whole topic of emergency funds is difficult to address rationally. However, the conventional description is usually "six months' income." Sometimes you will see "three to six months' income." People who think they are sophisticated about investing, who try to optimize everything, hate emergency funds because they are a drag on your total return. Nobody really likes them because they are boring eat-your-vegetables thing. And since there is never any real way to justify any specific number--you can't calculate whether it should be $50,000 or $46,683--it is always tempting to find reasons to have less.

It is my personal opinion that a money market fund is not too risky. There are two issues with an emergency fund. 1) You don't know when you'll need it, so it shouldn't be anything volatile because, if it fluctuates, you might need to sell it when it is down. What that really means is "not stocks." Money market mutual funds are not volatile at all.

2) There shouldn't be any serious risk of losing the money. But, more, there shouldn't be any serious risk that "something will happen" that freezes the money and makes it inaccessible for a long time. I don't worry about that with a money market fund, but everyone should be aware that there was a single event, once in history so far, the collapse of the huge $60 billion Reserve Primary Fund in 2008. Investors were locked out of their money for many months, and got it back slowly in chunks.

3) When you do need it, you might need it quickly. The issue here is, how many hours between when you need the money, and when you have it in a kind of cash that is acceptable to the person you need to pay. People who take checks--e.g. institutions like hospitals--usually will accept the pseudo-checks that come with a money market fund. People like my home improvement guy, who literally presents my checks at my bank for payment, might not. "Money in the bank" showing as "available funds" is right there now. Anything at a brokerage, even a wire transfer, might take 24 hours or more before it shows up at your bank as "available funds."

To make a long story short, I think a (brokerage) money market mutual fund is fine as an emergency fund for most "emergencies," but the biggest issue isn't risk as it is "who accepts money market fund checks, and how quickly can you get money out of your money market fund and into a bank as available funds?" If, as is presently the case, there isn't that much higher an interest rate between a money market fund, and one of the higher-interest savings accounts in a convenient local brick-and-mortar bank, then, yes, I'd go with the bank.

As I write this, for example, the SEC yield on the Vanguard Federal Money Market fund is 1.93%, and the nothing-special local bank's "high yield" account, $10,000 minimum, is 1.49%. On a total deposit of $50,000, that's $220/year. For an emergency fund, is it worth paying $220 for the vague psychological issues of having it right there in the bank (I can get it in physical cash as soon as the bank opens) versus having it "out there" somewhere at a brokerage? Uh... maybe. Different people will give different answers.
Thanks for the in depth post. I did double check, it is not a mutual fund, just a money market account. Were those frozen as well in 08?
No. The only money market frozen was The Reserve Fund run by Bruce Bent. It madethe untimely investment in Lehman Brothers commercial paper which was defaulted upon. Since that investment represented more than 1% of total holdings and was illiquid, panic ensued leading to a “run” on the fund - more redemptions than inflows. That led to them “breaking the buck”. The death cross of money market mutual funds which claim to stay at stable net asset value of $1 per share at all times. Today, you should read the prospectuses carefully, only US Treasury only funds are not subject to a “gate” in the event of a market event that leads to severe dislocation of values. The Vanguard Federal Money Market fund i believe is subject to the gate. It’s not a US Treasury only fund.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Silence Dogood
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Joined: Tue Feb 01, 2011 9:22 pm

Re: What would you do? New to this stuff

Post by Silence Dogood » Wed Oct 09, 2019 8:23 am

Without a doubt, I would recommend using the $15K in "free money" to pay down your student loan debt.

Since you have 4 loans, start with the highest interest rate loan first.

That will bring you down to about $25K in student loan debt.

After that, I would recommend either:

1. Use your emergency fund to pay off the remaining $25K in student loan debt (leaving you temporarily with an emergency fund of $25K). Then use your $2K a month savings to replenish your emergency fund.

2. Keep your emergency fund intact, but use the $2K a month to pay down the student loan debt, until it's paid off in full.

gr7070
Posts: 324
Joined: Fri Oct 28, 2011 10:39 am

Re: What would you do? New to this stuff

Post by gr7070 » Wed Oct 09, 2019 8:43 am

Give you and your wife a personal allowance that you can each do whatever you wish with.

scottr08
Posts: 10
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Re: What would you do? New to this stuff

Post by scottr08 » Wed Oct 09, 2019 8:49 am

I would recommend refinancing your student loans (mine were just refinanced to 3.9%) and then max out your ROTH for the year. You could then pay the monthly payment plus the monthly interest to pay them off faster.

Alternative options would be to open/max out a HSA if you have a high deductible plan.

I would consider also maxing out your 403b contributions. Some people have not suggested any hybrid plans, but refinancing your loans might make this more practical.

TSR
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Re: What would you do? New to this stuff

Post by TSR » Wed Oct 09, 2019 10:09 am

A few thoughts:

1. I like having "too much" money in my emergency fund. I agree with others that there's no reason to hang on to your student loan debt, but I think you'll find that there is very little difference between (1) paying it off all in one go and (2) paying down $15,000 now and then knocking it out over the course of the next year and a half. If you feel like holding cash is beneficial, you can do the second. If you don't have strong feelings about it you can do the first. Either way it's a good use of your money.

2. Do you understand the ways that a Roth IRA can be used as a quasi-emergency fund? You can read the wiki here about it (https://www.bogleheads.org/wiki/Roth_IR ... gency_fund). I agree that you should immediately fund two Roths, and there's absolutely no reason not to use your emergency fund for that.

3. We do not have enough information about your 403b plan to meaningfully comment. What funds are available? Are there any hidden/extra fees? My guess is that the pre-tax savings will be such a benefit to you that you should really be using that extra $2000 per month to fund that. The lack of a match is basically irrelevant. Congress is already giving you a gift of not taxing your income on the front end. This is an immediate tax savings for you guys -- basically a raise. Only if your plan is terrible would I change my mind on this.

4. Some people get rich off of rental properties, some lose their shirts, some putter along and sort of break even. Since it's impossible to know which one you are, I'd be ensuring your future through other means before putting my energies toward that. I'm not saying you shouldn't consider this in the future, but you don't have enough honest to goodness retirement savings to do this just yet, IMO.

Best of luck!

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scubadiver
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Re: What would you do? New to this stuff

Post by scubadiver » Wed Oct 09, 2019 1:01 pm

With the $50K emergency fund and $15K in additional cash, I would eliminate the $40K in student loans and max Roth IRAs ($12K total) for you and spouse for 2019. That will leave you with $13K in a dedicated emergency fund but you have more monthly free cash flow and $12K in Roth accounts that you could tap in a crisis.

Use that monthly $2K+ to build you emergency fund back up for the remainder of 2019, but starting in 2020, put $1K+ per month in the emergency fund and contribute $1K per month combined to Roth IRAs for you and your spouse.

Scubadiver

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JBEB
Posts: 11
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Re: What would you do? New to this stuff

Post by JBEB » Fri Oct 11, 2019 7:02 pm

Just wanted to say thanks to everyone for the thoughts and tips.

I really like this place lol

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