No. of Recommendations: 0
For the last 3.5 years I have been a stay at home mom and my husband's salary has been supporting the family. On his salary alone we are able to meet all of our expenses, save a little for retirement, and put $500 away into savings/e-fund. I am not in a position of having some freelance work. It won't necessarily be consistent, and I don't know how much money I'll make. But I am able to do it at home so I will not incur any childcare expenses or other expenses to do my job. (Except maybe needing a better laptop, but that's a one time expenditure I will only make if it looks like I'll be getting a lot of work.) So I'm trying to decide what to do with the money, and I know there are some very wise people on here.

Here's our basic financial situation. We have a mortgage with a fixed rate of 5%. We have student loans. Some fixed at 2.5%, some at 3%, and some variable but right now are at about 2.5%. We have no consumer debt. We have about 2 months of living expenses readily available, and about 6 more months worth in investments. DH and I both drive reliable but aging cars, and while we plan to drive them until they die, that could be next year or ten years from now. We have not put enough away for retirement, so I know that needs to be addressed.

Here's what I'm thinking. All of our debt is at really low interest rates and most of the interest is tax deductible, so I don't think it makes sense to aggressively pay down our debt right now. I think we should put all of the money into easily accessible savings until we have enough to replace at least one of our cars. Once that is accomplished I will max out our IRA's and put anything left into easily accessible savings until we have enough to replace both cars. If, in the meantime, the variable rate student loans creep up I will reconsider diverting extra money to pay those down.

So, what do you think? Good plan? Am I missing something?

Thanks

DEG
Print the post Back To Top
No. of Recommendations: 4
So, what do you think? Good plan? Am I missing something?

Income & Self Employment taxes. You need to either have DH's withholding increased, or make estimated tax payments for the additional income.

Also, if the IRAs that you are funding are Roth IRAs, I think I would prioritize a Roth IRA contribution over 'easily accessible savings' since Roth contributions can be withdrawn. You may want to invest that part of the Roth in some type of CD, money market account, etc. to keep the money more easily accessible until you build up your other savings, but not miss out on the possibility of maxing your Roth.

AJ
Print the post Back To Top
No. of Recommendations: 0
Good plan!

In the past few months several big corporations have issued bond debt for billions they probably don't even need. Johnson & Johnson, and Google, to name two.

Why would they do this?

Obviously, because they think interest rates are going up and they can either use the bond proceeds in their business or invest the money at a higher rate than they will be paying.

If you had credit card debt, the cards could raise interest rates on you. The interest rate on your mortgage and student loans I hope is fixed, so they can't do that to you. You may well be able to invest the money at a higher rate than you are paying--a good deal for you!

Best wishes, Chris
Print the post Back To Top
No. of Recommendations: 0
Thank you. Yes, I do know I need to make estimated tax payments, I just forgot to include that.

I did forget that you can withdraw from roth IRAs, so I'll change the plan to max those out and put whatever is left into our savings.

DEG
Print the post Back To Top
No. of Recommendations: 3
If it were me, I'd divide half for the saving for a replacement car, half for retirement.

Because as you've said in your post you know you haven't been saving enough for retirement; with the time-value of money putting away retirement savings this year is "worth" more than what you can put away for retirement future years from now (as it has longer to grow if you save now), and if you're putting off saving for retirement for saving for a replacement car, you could be putting off that retirement savings too long while saving for a more expensive car than you otherwise would if you're putting 1/2 towards retirement from the get-go.

And from reading my mom's AARP magazine - a high percentage of people end up "retiring" sooner than they originally planned due to things like layoffs and health issues. So you and your husband may have less years to work than you think.
Print the post Back To Top
No. of Recommendations: 0
And from reading my mom's AARP magazine - a high percentage of people end up "retiring" sooner than they originally planned due to things like layoffs and health issues. So you and your husband may have less years to work than you think.

That is a good point. We do have some retirement savings, just not enough. But yes, we may not have as many working years ahead of us as we think we do.

Regarding the car, we're pretty frugal. So we won't be saving for expensive cars at all. I just don't want to have to empty our savings to buy a new one, so I'd like to have a cushion there.

DEG
Print the post Back To Top