What to do with extra money left over at the end of each month?

[Goldy]

First of all, can someone tell me what the DH abbreviation stands for?

My wife and I recently purchased our first house and took out a 5/1 arm on 262,000 because we dont see ourselves being in this state for more than 7ish years. Our arm is capped at 8.5% and that payment is affordable (but tight) at our current salaries so we figured we would still be able to afford it after 5 years of raises and promotions. Even if the loan increases to the max after the 5 years our break even point is in year 9.

With all that said, we have some extra money at the end of each month that is usually about 1-1.5k and I'm trying to decide if we should put 500 bucks of that down to the house each month or if we should start funding some non-retirement funds. Below is the breakdown of our current holdings.
Age: 27 & 27
Salary: 145,000 + ~12000 in bonuses
Combined 401k: 100k with 13% contribution rate matched at 6%
Combined Roth: 60k with 10k contribution annualy
Non-retirement funds: 25k
Stocks: 22k
EF: 20k

Take home pay: 4900/mo

There are 3 options as I see it.
1) Put extra money towards house
2) Put extra money into non-retirement accounts
3) Save extra money with the intention of drawing on that if our rate should max at 8.5% to reduce the possible strain.
3b) Save extra money and make one annual lump deposit into non-retirement fund.

Thoughts?

[timbuckley10]

DH stands for "Dear Husband."

My 10 cents is that putting at least 500 towards the mortgage would be a very good idea at least for now since you said to make the payments are tight. Other than that everything else looks pretty solid as far as your retirement and EF which are the essentials.

The next best thing I think would be to save extra to put towards in the case your rate maxes.

Hope that helps!

[LivingAlmostLarge]

keep it in cash period. You can always refinance in 5 years. I did the same thing at the same age. got a 7/1 arm at 4.25% and 5 years later refied to a 5/1 arm at 3.625% and just refied again this summer to another 5/1 arm at 3.125%. I've paid it down as payments, but everything else has gone into cash and other stuff.

Cash is always king. The mortgage only nets you 3.5% and no flexibility. What if you want to stay at home with kids? Car accident? Etc?

[thedubb333]

First of all, it looks like you guys are doing a great job. I agree with LivingAlmostLarge by saying to keep the extra in cash. In this economy, I feel like we should all keep a little extra cash...just in case.

You didn't mention whether or not you have kids or if you and your spouse both work or if that is just your salary.

[mcfroggin]

DON'T pay down that mortgage. You got a good cheap mortage. Ride it out.

I would put the money in non-retirement investments. That or start a business that would allow you to open a solo 401k so that you can tax shelter more of your money.

[Goldy]

Originally Posted by thedubb333

First of all, it looks like you guys are doing a great job. I agree with LivingAlmostLarge by saying to keep the extra in cash. In this economy, I feel like we should all keep a little extra cash...just in case.

You didn't mention whether or not you have kids or if you and your spouse both work or if that is just your salary.

Sorry about that, no kids. That income figure is both my wife and myself.

I agree with keeping the cash on hand, would you guys just keep it in a savings account or bonds or in a market?

[jpg7n16]

Originally Posted by Goldy

There are 3 options as I see it.
1) Put extra money towards house
2) Put extra money into non-retirement accounts
3) Save extra money with the intention of drawing on that if our rate should max at 8.5% to reduce the possible strain.
3b) Save extra money and make one annual lump deposit into non-retirement fund.

Thoughts?

Do $250 towards the house (option 1), and $250 to the non-retirement accounts (option 2).

It doesn't have to be all-or-nothing.

There's no sense in option 3a or 3b. In 3a your eventual intention would be to reduce the mortgage, so you may as well pay it down today and save interest in the meantime (you'd save more on the house, than you'd make in an account). In 3b your intention would be to increase the investments, so why sit on the sidelines for 12 months then rush in? You could have been dollar cost averaging in the entire year.

[jack Davies]

Never put all you eggs in one basket try to diversify that $500 into your retirement plan, and some bonds. you don't have any kids so you do not have to worry about college investments for right now. But if you did I would recommend putting a portion into that.

[sternchen]

i would suggest try investing the extra cash in small businesses that would help you earn modest revenue