Financial Make Over

[Tiffy2006]

Hello everyone,

I am new to the forum and in desperate need of financial advise. I'd call Suzie Orman but her lines are a little tied up! I need a financial makeover big time. I recently came in to some money due to company buy out (30,000) and am not sure what I should do with it. I also don't know if it's worth refinancing my mortgage or just pay it down? Should I move more money out of savings and in to something else? In order to refinance I need to pay another 20K toward PRIN plus closing costs. Help! Here is my current standing

$190,000 PRIN on 30 year mortgage at 6.25% (only 4 years in to it)
no other debts

maxing out 401 and IRA
150,000 in savings earning a measily .90%

Any advise would be GREATLY appreciated. I've been stressing over this for the past several months.

Thank you!!

[kork13]

First of all, welcome!

We need some more detail of your full financial picture to help give you more specific, helpful advice. Initially, I'd ask for the following:
- Age and family (married, kids, etc?)
- Annual (or monthly) gross and net income
- Average monthly expenses (if you know them)
- Average monthly savings/investments
- Are your only savings/investments the 401k, IRA, and savings account? What type of IRA?
- What are your financial goals?
- What makes you feel like you're in desperate need of a financial makeover? What are your concerns?

At first glance, you seem to be doing fairly well. It's excellent that you have no debt besides your home, you're maxing your 401k and IRA, and have a significant amount in cash savings.

As for my initial thoughts, I'd say you should ABSOLUTELY refinance your home. Rates right now are as low as they probably ever will be (as low as 4.5% or better if you have good credit), which could save you a boatload of interest charges over the remaining 25 years of your mortgage -- easily $75k or more. If it takes $20k of spare cash that you have on-hand, then all the better--you'll only save that much more on the loan.

Also, you should look at investing that $150k sitting stagnant (falling behind inflation, actually) in a savings account. If you're familiar with investing, follow your established investment plan. If not, you should start out with something simple, like an S&P 500 mutual fund, learn about investing from there, and expand outward once you have a solid plan in place.

Anyway, if you can provide that information above, you'll get some great advice from everybody here. Just keep asking questions!

[Tiffy2006]

Hello,

Thanks for responding! I guess I should have provided more info so here it is.
Another issue at hand is that I am not even sure if I want to keep the place I bought and have thoughts of selling and going back to renting. I feel really tied down now that I own and have not been able to enjoy life as I did when I was renting (cheaper), unfortunately if I do decide to sell, I will take a hit. All my money now goes to the money pit. That being said, here are the answers to your questions.


Age and family (married, kids, etc?) = 40, single as they come
- Annual (or monthly) gross and net income = 85K
- Average monthly expenses (if you know them) without mortgage payment? 2,000K
- Average monthly savings/investments
- Are your only savings/investments the 401k, IRA, and savings account? What type of IRA? yes, 401 and ROTH IRA = 160K
- What are your financial goals? To live debt free and retire early!
- What makes you feel like you're in desperate need of a financial makeover? What are your concerns? For my age, I feel I am behind on what I should have. In the past I didn't always max out 401k and recently just started a ROTH (3 years).

You meantioned that I should absolutely refinance on my home though that means I would have to drop another 20K plus additional costs which means I would have to stay here another 4-5 years just to break even, again not sure if I want to stay where I am for that long . I know you are thinking then why did you buy in the first place? Good question.

[humandraydel]

Your 401k and IRA are in cash earning 1%? If so, that's not going to help you retire early!

[Tiffy2006]

No, I my 401k and IRA is separate from my savings account.

401K and IRA = 160K between the 2
Super MM at .90% = 168K

Since I am max'ing out my 401K and IRA, where can I put say, 100K from my SMM? Someone on here mentioned CD's but they aren't worth much more than what I am getting now. Do I call up say Fidelity and tell them I want to invest my money in...?????

I am a pretty frugile spender and am conservative as far as portfolio is concerned because I have anxiety about losing my money. due to some possible health issues, I may not be able to work until retirement which is why I am concerned with saving as much as I can now.

Again, thanks for your help

[Like2Plan]

Originally Posted by Tiffy2006

I recently came in to some money due to company buy out (30,000) and am not sure what I should do with it....

What type of buy out is this? I am assuming they are buying you out and you resign your position/retire early? Do you have another job lined up (or have you already transitioned to a new job)?

[PatientSaver]

Keeping all your savings in accounts earning less than 1% is not being "safe." You're losing money because inflation is now rising; it's well over 3%. Educate yourself about mutual funds. You don't need anything fancy. One of the best things you could do is buy 2 or 3 Vanguard index funds: 1 US growth stock, 1 US bond fund and 1 international. Call Vanguard for help and they can walk you through it.

[kork13]

Not expecting to stay 4-5+ years definitely changes things... I don't know enough about home buying/selling/ownership though (I'm just a numbers guy ), so I'll have to leave that to others.

Is it correct that you're able to save approximately $3k/mo then? If so, I think you'll be just fine, depending on when you plan to retire. Just some quick figures to consider (I am making some assumptions, so if they're inaccurate, just say so):
~~~~~~~~~~~~~~~~~~~~
Retire at age 60
Save $3000/mo
Invest $120k of current cash holdings (in a standard taxable investment account)
Plan to retire on a $75k/yr income
Average 4% real growth (above inflation) per year while saving (from now until age 60)
Average 2% real growth per year while in retirement

With all of those factors, you would end up with around $1.65M (value of today's dollars) at age 60. You would then be able to retire and live off of that money for approximately 30 years.
~~~~~~~~~~~~~~~~~~~~
As for how to invest your cash, do exactly as you said: call up whatever investment company you use (I'd recommend the same one as your IRA, if their funds are good), and tell them you're looking to set up a balanced portfolio based around whatever allocation you're comfortable with. Since you're rather risk averse, but still need to make that 4% real growth, I think you might consider doing something like 50%-60% stocks, 40%-50% bonds. Balance that out between S&P 500 stock funds, international stock funds, treasuries, muni and corporate bond funds, or whatever other options you would like.

All of that said, please don't take this all as gospel... it's just general ideas to get you in the right direction. I'm just a 24 y/o interested in personal finances. You should call your investment company, and ask for an advisor. Many of the mainstream mutual fund companies offer financial advisor services for free, and they'll be happy to help build a solid retirement plan for yourself. Be careful that they don't try to sell you expensive products you don't need, but definitely listen to their advice and develop a plan you can be comfortable with.

[Tiffy2006]

My biggest mistake was not investing my savings. They say one should have an emergency fund to cover 3-6 months, I guess my old school mentality of keeping my money in safe keeping has cost me probably alot. I'll look in to those mutual funds that you mentioned. Thank you

[Ima saver]

There is a credit union in New York that I am using to keep my cash earning the maximum. It is called Melrose credit union and anyone can join. Their phone number is 800 758 9781.
I have quite a bit of money there in a 5 year C.D. earning 2.9% interest. Call them and ask for an application to join. I also agree with putting some money in a Vanguard Index fund.

[humandraydel]

How is your 401k invested? At least 50-60% stocks I hope? You've done a great job saving, but like a lot of savers, you've focused on the risk of losing principal and ignored the risk of inflation. If I were you, I'd invest 40-50% of your money market in a Vanguard index fund like the Total Stock Market Index. I'd also invest approximately half of the remaining amount in a bond fund like the Total Bond Market Index. Leave the rest in a MM fund and/or CDs to reduce risk and help you sleep at night.

[Tiffy2006]

here is my current 401k standings

20% (stable value)
25% large cap stock growth
25% mid cap stock value
40% INT stock blend

for the first quarter of this year, my return is 3.72%..is this too conservative