Order of Importance

[Guest]

What would be the order of importance (saving, vs paying off) of the following items?

• Mortgage
• Two Car Loans
• Saving for A House
• Saving for Retirement (Currently Allocate 10% of our Income to Retirement)

My guess would be:

1. Pay off the two car loans
2. Increase retirement savings to 15% of income
3. Save for house

I left off pay down mortgage, just because I am not sure it is the best place to dump money in to at this point.

The only issue with my proposed order (if it is even in fact the correct order) is that that puts off buying our next house for 4-5 years. While we could do that, we are already in some what of a cramped situation.

[MonkeyMama]

Depends, depends, depends...

We personally got into a house first because it was what made the most financial sense in our shoes. (I don't think this means anything as to anyone else's situation; we had a unique situation).

In general, savings and paying down debt are all worthy goals. If there is any advantage to speeding up one over the other, then those advantages should be considered. I think your age would also be another factor. How long you have contributed to retirement/how much/if you are on track for that. Interest rates and balances on car loans. Rent you are paying versus housing prices you are looking at. Etc.

I think this is a hard question to answer without more information.

[Mesem]

What would be the order of importance (saving, vs paying off) of the following items?

• Mortgage
• Two Car Loans
• Saving for A House
• Saving for Retirement (Currently Allocate 10% of our Income to Retirement)

My guess would be:

1. Pay off the two car loans
2. Increase retirement savings to 15% of income
3. Save for house

I left off pay down mortgage, just because I am not sure it is the best place to dump money in to at this point.

The only issue with my proposed order (if it is even in fact the correct order) is that that puts off buying our next house for 4-5 years. While we could do that, we are already in some what of a cramped situation.

I personally would put my debts as the most important. so something like this:

pay two car loans
mortgage
then the two savings

If you pay the debt off faster, the less money you lose from interest accumulated by the loans, but it really depends on ur situation.

[Guest]

Depends, depends, depends...

We personally got into a house first because it was what made the most financial sense in our shoes. (I don't think this means anything as to anyone else's situation; we had a unique situation).

In general, savings and paying down debt are all worthy goals. If there is any advantage to speeding up one over the other, then those advantages should be considered. I think your age would also be another factor. How long you have contributed to retirement/how much/if you are on track for that. Interest rates and balances on car loans. Rent you are paying versus housing prices you are looking at. Etc.

I think this is a hard question to answer without more information.

Age: 33 and 32 - contributed 10% of our income for 4 years...6% for 6 years before that
Balances: 20k on her car loan - 1.49% interest
14k on my car loan - 0.89% interest
Our current mortgage is about 75% of what the new one would be - 3.9% rate

[Petunia 100]

Age: 33 and 32 - contributed 10% of our income for 4 years...6% for 6 years before that
Balances: 20k on her car loan - 1.49% interest
14k on my car loan - 0.89% interest
Our current mortgage is about 75% of what the new one would be - 3.9% rate

Would you sell your current house or turn it into a rental?

Why do you want to move? Closer to work? Bigger place? Other?

[Guest]

Would you sell your current house or turn it into a rental?

Why do you want to move? Closer to work? Bigger place? Other?

Sell.

Multiple reasons really. It was our starter home when we got married. We have 2 kids and a 3rd on the way. We could make it work but would be cramped.

I commute 45 miles to work, my wife commutes 35, we would like to get closer.

We are really just looking for a place that we would be happy with for a long period of time (20+ years, thinking kids off to school).

[snafu]

I'm of the same view as Petunia, depends on your specific circumstances. Is your employment stable? Is DW working and does she see herself going back to work after maternity benefits with 3 children? How expensive is quality daycare in your community? I'm guessing you have considerable equity in your current house to cover 20% DP; will you fund housing on just your salary under @ 30%?

I'd fight for the lowest mortgage rate, every part of a point off translates to lots of $$$ over the life of a mortgage.

[MonkeyMama]

Sell.

Multiple reasons really. It was our starter home when we got married. We have 2 kids and a 3rd on the way. We could make it work but would be cramped.

I commute 45 miles to work, my wife commutes 35, we would like to get closer.

We are really just looking for a place that we would be happy with for a long period of time (20+ years, thinking kids off to school).

I could see that getting into a house sooner would be of high priority given your commute. Assuming your jobs are stable and such.

How much do you need to save to get into a home? I presume you would sell the first home and then purchase a new home?

How much money do you have monthly to throw at debt and savings?

OF course, moving comes with a lot of unknowns, so I'd probably tend to over-save up front. Whatever you don't end up needing could be thrown at the car loans.

As to the car loans - whew!! The way I see it, your retirement is suffering because you owe so much on the cars. It's just something to think about because you have so many competing financial goals. Maybe downgrading one or two cars could help you reach your financial goals sooner. Lord knows that is how we made it work. So, what gives? The more modest home? The bigger commute? The cars? I don't think retirement is a wise option to "give" on, is all.

[Guest]

I could see that getting into a house sooner would be of high priority given your commute. Assuming your jobs are stable and such.

How much do you need to save to get into a home? I presume you would sell the first home and then purchase a new home?

How much money do you have monthly to throw at debt and savings?

Jobs are both stable. My salary increases 3-6% a year, hers about 2.5% a year.

After we sold our home, we would need an additional 15k to put towards the downpayment. We would not move until the sale was complete and we had the cash from the sale.

That answer depends. If the recommendation is to increase our retirement from 10% to 15% as the first priority, then it would be less. However, assuming that the recommendation was to keep retirement at 10% for now, we would have about $1250 to throw at one of the following:

• Paying down car loans
• Saving 15k for house

The other option would be to increase our retirement to 15% first then use the remaining for debt/savings.

Normally I would automatically say the car loans first, but due to the fact that the interest is so low (0.89 on mine, 1.49 on hers) I think moving might be better.

[emanon1501]

Normally I would automatically say the car loans first, but due to the fact that the interest is so low (0.89 on mine, 1.49 on hers) I think moving might be better.

Agree. Should have not got it in first place even with those low rates, but the damage is done. But, let’s look at the bigger picture. How much will you save if you live closer to work on gas? Gas is unpredictable as it spikes up and down. Car payments are fixed, something you can budget and tackle later.

[kork13]

Interesting situation. How pressing is your desire/need for moving into a larger home closer to work?

In general, I'm a big proponent of working toward multiple goals at once -- save for retirement while saving for the house and paying down your cars. The savings strategy comes into play with where you put the weight of effort. From what you've said, it sounds like you really want to get into the new home fairly soon. So based on that motivation (because following your motivations will make this easier for you), I'd recommend going this way:

- For now, I would leave retirement at 10%. I hate to say this, but in your early 30's, there's still time to catch up starting 2-ish years from now.
- I think I would put most of your monthly savings into saving for the next home purchase, perhaps $1000/mo for the next 18 months (because you always want to have extra cash available going into a home purchase, just in case).
- In the meantime, take the remaining $250/mo and make some monthly principle payments on both cars ($100/mo on your's, $150/mo on her's). I understand and agree that the loan rates are great and not hurting you badly, but I just naturally cringe at the idea of owing nearly $35k on car loans.
- After you've saved up the necessary cash for your home purchase (and while you're house-hunting and marketing your current home for sale), you can bump your retirement savings up to 15%, and send any residual monthly cash toward your car loans.
- Once the car loans are paid off, evaluate your retirement situation in relation to your goals and timeline, then possibly consider a further increase in your retirement savings to make up for lost time over the last 10-15 years of 6% and 10% retirement saving rates.

All of that will put you into your new home in about 2 years, with your car loans much closer to being paid off, and retirement savings at a healthy level. Once the car loans are paid off and your retirement is doing great, you'll be set with a nice home, paid off cars, on track for a comfortable retirement, and plenty of cash to spare each month for other future savings goals.

These questions haven't been asked, but you seem to have your finances well under control... So all of those recommendations are based on the assumptions that you already have (and will maintain) a good 6 month emergency fund, and that your other expenses are well-controlled. Even still, you might take another hard look at your budget to see what can be trimmed out to increase your savings elsewhere.

[MonkeyMama]

Agree. Should have not got it in first place even with those low rates, but the damage is done.

I don't know if I agree the "damage is done." Downgrading is a very viable solution.

[MonkeyMama]

I still kind of feel like I am flying pretty blind on giving advice. So, not much more to add. I am not getting a strong sense if the house move is reasonable or if your retirement is suffering. Income, home prices, assets, square footage, etc., etc. are helpful information; but I understand being vague and not wanting to disclose all that.

[Guest]

Interesting situation. How pressing is your desire/need for moving into a larger home closer to work?

In general, I'm a big proponent of working toward multiple goals at once -- save for retirement while saving for the house and paying down your cars. The savings strategy comes into play with where you put the weight of effort. From what you've said, it sounds like you really want to get into the new home fairly soon. So based on that motivation (because following your motivations will make this easier for you), I'd recommend going this way:

- For now, I would leave retirement at 10%. I hate to say this, but in your early 30's, there's still time to catch up starting 2-ish years from now.
- I think I would put most of your monthly savings into saving for the next home purchase, perhaps $1000/mo for the next 18 months (because you always want to have extra cash available going into a home purchase, just in case).
- In the meantime, take the remaining $250/mo and make some monthly principle payments on both cars ($100/mo on your's, $150/mo on her's). I understand and agree that the loan rates are great and not hurting you badly, but I just naturally cringe at the idea of owing nearly $35k on car loans.
- After you've saved up the necessary cash for your home purchase (and while you're house-hunting and marketing your current home for sale), you can bump your retirement savings up to 15%, and send any residual monthly cash toward your car loans.
- Once the car loans are paid off, evaluate your retirement situation in relation to your goals and timeline, then possibly consider a further increase in your retirement savings to make up for lost time over the last 10-15 years of 6% and 10% retirement saving rates.

All of that will put you into your new home in about 2 years, with your car loans much closer to being paid off, and retirement savings at a healthy level. Once the car loans are paid off and your retirement is doing great, you'll be set with a nice home, paid off cars, on track for a comfortable retirement, and plenty of cash to spare each month for other future savings goals.

These questions haven't been asked, but you seem to have your finances well under control... So all of those recommendations are based on the assumptions that you already have (and will maintain) a good 6 month emergency fund, and that your other expenses are well-controlled. Even still, you might take another hard look at your budget to see what can be trimmed out to increase your savings elsewhere.

Thanks for the suggestions. To respond to the questions, We have a 9 month EF, and I think we have done a pretty good job squeezing the budget, although we are due to take another look though to make sure.

[FrugalSensei]

I agree with your about knocking out those auto loans asap. As for other items it depends on where the savings for retirement is held and how close you are to retiring. Usually retirement accounts lock up your money with big penalties for early withdrawal. This also depends on your view of owning a home. In times past the unequivocal answer was 'property is value' but now days, well, who knows.