What to do with $120K in cash???

[Broken Arrow]

Brigs: Just wanted to say good job on managing your money well. It is truely an enviable position.

[greedy4chips]

Originally Posted by disneysteve

For every $100 you pay in mortgage interest, you only save $25 in taxes if you are in the 25% tax bracket. You are paying $100 interest to save $25 in taxes, so you still end up behind by $75.

Correct me if I am wrong, but don't you only save $25 if you are itemizing and have enough other deductions to reach the standard deduction level.

[brig2221]

Broken Arrow,

Thanks for the compliment. More than any specific dollar amount that we have been able to save, I am most proud of where I came from. I was your typical overspender, credit cards, splurged on expensive big ticket items on a whim, all of that. Before I got married, I promised myself that I wouldn't bring any debt into our marriage and was able to get my credit cards paid off.

My wife has been a very good influence on me. For lack of a better term, she and her family are cheapskates. I used to say that with a little disdain and make fun of it. I now see the light and am thankful she was raised that way. We balance each other out pretty good. I think sometimes it is the wiser decision in some instances to spend more on something and not go the cheapest route, or buy something when you otherwise might not. That is where I believe I come in. That said, she has really helped ground me and make me realize that new things don't make you happy, if anything, they do the exact opposite most of the time.

[TBH]

brig2221,
Just a thought--if your wife's career is going gangbusters and yours is not, have you considered being the stay-at-home parent? Alternately, you could try to find a part time job in your field so you keep your skills and your contacts fresh. I know for many men it's important to be the breadwinner, and your wife may not want to miss out on all those long days of changing diapers, but I think it's worth considering under the circumstances.

And yes, what a great feeling to have the mortgage paid off before having kids. We bought our house when our son was an infant and it was very stressful adjusting to all the costs of having a baby (esp. daycare) and the costs of being new homeowners at the same time.

3 years later, we are doing much better, but if I had it to do over again I would try to get where I am now before having a baby. (where I am now= modest house with affordable mortgage, modest but paid-off car, no consumer or student debt, healthy emergency fund, adequate if not spectacular retirement account balances, etc).

[LivingAlmostLarge]

I would definitely have been maxing out the retirement for all these years of employment when you were able to save like gangbusters. The compounding is phenomenal. I've been doing the max since we were eligible, wish I had started even earlier. But I didn't have the cash and DH wasn't eligible as a non-resident.

But that aside, why prepay the mortgage? Will 16% max out the 15.5k/year? If not bump it up higher and max it out first. Then do the Roth when your eligible and do the non-deductible if you are not! Because in 2010 you can roll it over into a Roth if you chose, it may not be worth it though depending on your income bracket.

As for staying at home? I won't mind staying at home with a mortgage. I pretty much work for free now because I make enough to barely cover our taxes (federal and state and SS and medicaid). So I just built our "budget" able to afford our home on DH's income now (which is entry level position) and he's getting a very nice raise/bonus for his first year. In say 2 years when we have kids we'll be in an even nicer position.

Why not invest the money instead and if you are laid off or have an EF, just pull from your invested pot? It'll probably make more than a cheap 6% mortgage? Plus cash in hand is better.

[brig2221]

TBH,

It would be a possibility for me to be a stay at home dad, but would pretty much be a last resort. I would imagine that we would opt for both of us working and daycare before I would be a stay at home Dad. I pretty much hold on to the old archetype of a man working and the woman staying at home with the child, not to mention I know my wife would want to be the one home with the child if either one of us was going to do it. That said, if the only way we could make it work financially would be for her to continue to work and me stay at home, I would certainly do it, it just wouldn't be our preference and would be a last resort.

I am currently 6 months into a new sales job at a major corporation and seem to be doing pretty good. I have been in commissioned sales positions ever since I graduated college (going on 10 years now, ouch!!) I started to become very burned out on the whole sales thing, cold calling, constant monthly/weekly quotas, job evaluation by the days results (i.e. micromanaging), etc. Ultimately I will be getting out of sales as I know in my heart that it isn't something that I can successfully sustain for any appreciable amount of time. My goal at this point is to be successful in what I am doing now for a good year, and then hopefully parlay that into another non-sales position within the company. If that doesn't work, or if this position doesn't work, then I am left with the option of re-training for another career, or just changing careers as is and probably taking a fairly large cut in pay to start out. Neither are very pleasant scenarios when trying to have a baby and thinking of the future.

Those reasons above are why I am really starting to cut my personal spending hardcore, something I have never done before, as I know this dual income situation will not last forever. If we are able to get our house paid off and aggregate a fairly large retirement base at 32 years old (which I believe we have), even if we do move into tight times for years to come, we will have the time needed for our money and investments to continue to grow even if we aren't able to continually fund them like we once were able to.

[smartatmoney]

OK... this is what I would do. I would leave 3-6 months of expenses in a liquid MMA account. ALL extra cash I would use to pay down the mortgage. Then I would take all recurring free cash (after contributing to your 401k) and continue to drive down the mortgage.

Thinking about how the interest is a tax deduction is flawed. You still pay more in interest than you save in taxes.

That's what I would do. At any rate, this is a "good" problem to have.

[sweeps]

Originally Posted by smartatmoney

OK... this is what I would do. I would leave 3-6 months of expenses in a liquid MMA account. ALL extra cash I would use to pay down the mortgage. Then I would take all recurring free cash (after contributing to your 401k) and continue to drive down the mortgage.

Thinking about how the interest is a tax deduction is flawed. You still pay more in interest than you save in taxes.

That's what I would do. At any rate, this is a "good" problem to have.

I second this post.

[Broken Arrow]

Originally Posted by brig2221

I was your typical overspender, credit cards, splurged on expensive big ticket items on a whim, all of that.

Me too! Was being the operative word. I still have to be careful though, because I still have those impulses sometimes. I guess maybe it's like smoking? Maybe one never really quits for good so to speak.

I think sometimes it is the wiser decision in some instances to spend more on something and not go the cheapest route, or buy something when you otherwise might not.

Actually, you'll find that many on here, including myself, feel the same way! Sometimes, being too cheap is actually going to end up costing more in the end, and possibly in more ways than one. Sometimes, it's actually better off paying a little more for better quality. Cheap is not the same as frugal.

That said, she has really helped ground me and make me realize that new things don't make you happy, if anything, they do the exact opposite most of the time.

Good for you.

[TBH]

Thanks for your thoughtful response to my question, brig2221.

This is a good thread. It's nice to read about somebody who's doing really well. Very inspiring.

[LivingAlmostLarge]

Cool, but then I wouldn't keep a mortgage for the tax deduction. I'd keep it because I'd rather max out retirement first, then taxable accounts, then mortgage. With an even split between taxable accounts and mortgage. But I'd take advantage of all retirement accounts before the mortgage, because the return on that (401k or IRA) is better than the mortgage.

[QueenOphelia]

My accountant always says you should never buy a tax deduction. It isn't worth it

Bingo!

Pyschologic/comfort level aside, a mortgage is not a horrible thing if the rate is low and you can comfortably afford to save for retirement as well as the present. I never considered paying off my mortgage, which I could have done and still have a nice cash pile. (I started hoarding my bonuses when I discovered I was being let go so I already decent savings)

In 2004 I was downsized from a job I had for 15 years. The severance payout was substantial (I netted around 150k). I went to a financial advisor and put 1/4 in mutual funds, 1/2 in CDs and 1/4 in the stock market.

I felt comfortable taking a risk with the stocks and they are holding their own. The mutual fund is doing 11% and the CDs are all in 5% + now. My retirement investments are kicking butt (thank goodness for the international market...that is where I making 40%+ returns) so I can withstand the markets fluctuations for the non-retirement stocks.

I was thinking of getting involved with bonds and treasury funds but I like a higher yield. Does anyone invest in treasury funds?

[scfr]

Originally Posted by QueenOphelia

[i]


I was thinking of getting involved with bonds and treasury funds but I like a higher yield. Does anyone invest in treasury funds?

I purchase Treasuries directly. I think of them as an alternative to CDs. You're probably not going to beat CD rates but there are advantages: I can't think of an investment that is safer, the US Treasury's web site makes buying a snap, and there is zero amount of time that your money ends up in limbo earning no interest.

[savvy06]

I would say pay off the house and get a small equity loan for any emergency while you accumulate your savings. We did that 2.5 yrs ago, were left with less than $1000 in our account and so far have saved more than $50K, plus we never had the need to use out equite loan.