Have money, have mortgage, baby on the way...What to do?

[ponotte]

Hi everyone,
Looking for some advice.
My husband and I owe 125,000euros on our 5.25% fixed APR mortgage. (We don't live in the US, we live in France, and the government reimburses us 40% of the interest we pay in tax credit for the first five years of our loan (which is one year old now)- not tax deduction, tax credit. So if we owe 1000euros in income taxes for the year, but 40% of our interest is 1800euros we get 800 euros back at the end of the year...that's all just to say that paying interest isn't that bad of a thing for now.)
We have 38,000euros just sitting in a checking account and we're about to get an after-tax inheritance of 50,000euros.
Currently we are not saving anything for retirement, we're both 30.
And I'm pregnant.
Our monthly income is about 3000euros.
Our mortgage is 800euros per month, but besides that we're not even really sure what our monthly expenditures are. Maybe 800euros or so for groceries, gas, insurance, utilities. So, we have extra every month.
I would like to know what you advise us to do.
Should we pay down our mortgage or buy a rental property? (In our university town a rental student apartment might cost about 65,000euros, we could get 300euros per month in rental income and would have to pay about 1000euros/year in taxes on it.)
Or should we put a big chunk (20,000euros?) in a CD with a 4% interest rate, which is about what banks are offering around here if you don't touch you money for 10, 15, 20 years...
How much money should we be saving per month for retirement?
And I'd like to set up a savings fund for our soon-to-be baby, but I'm not sure what is the best solution.
We don't live in the US, but I'm American. Since I no longer work in the US I have no access to Roth IRAs, but do I still have access to traditional IRAs? I assume this non-income earning (in the US) status affects our college savings options, too... (I just want to make sure that if my child decides s/he wants to go to college in the US that it could be possible for him/her.)
I have about $25,000 in US mutual funds, $10,000 of which is in a regular account and $15,000 of which is in traditional IRAs. As far as my research has shown, there's no equivalent of mutual funds where we live.
Also, I have $11,000 in student loan debt which I pay for each month with money from my American checking account. Maybe it would be better to pay this off?
We don't have any credit card debt.
I guess the good news is that we have some cash.
But I am totally confused as to what to do with it.
I thought I was starting to understand how the American system worked, but now I live, work, pay taxes and have a mortgage in France and it all seems so complicated. I know we should do SOMETHING with our money, but I don't know what.
You can probably tell by how unorganized this e-mail is how scattered my thoughts are!
Thanks for ANY advice you might have,
Ponotte

[cschin4]

If it were me, I would simply pay down the mortgage and then continue throwing extra at it. And, if you do so, you would have your mortgage paid off well before 40. I think taking on a rental property with a new baby on the way is a big mistake. That takes time, effort , and money that is best spent with your child. I personally would avoid rental property. But, that is me.

[maat55]

In general, you would want to payoff any high interest debts like CC debt and other debts like personal loans and auto loans. Your student loan is optional depending on its interest rate, if it is more than you can earn in a typical money market, paying it off would not hurt you in your current position.

With that said, you should apply at least 10%(15% preferable) of your income towards retiremnt investments. Whether you choose stocks, mutual funds or real estate should be based on your knowledge of those investments. One thing to keep in mind is that our knowledge of tax implications are largely limited to american taxes and not that of France, you should research your tax implications on investments.

Getting out of debt and saving are simple logic. Determining how much of your income should be allocated towards housing, auto's, retirement and other is as important as what you do with existing funds and debts.

I recommend you read The Total Money Makeover by Dave Ramsey. This book gives a good basic financial plan at which to follow and possibly expand on. Your in great shape now, good luck with your future.

[Ima saver]

I also would reccommend that you NOT investment in rental property. I tried it when I was much younger and wound up selling each rental (3) at a large loss.

[snafu]

What maternity benefits do you expect? Will you remain in France or do you anticipate returning to USA? Retirement benefits in France are more generous than those in the USA. Do you anticipate retiring in USA? Do you get a deduction for interest on your university loan?
Sorry, more questions than answers. Your current circumstances depends on your future plans.

[isralexba]

hi,
have you thought of consolidating some of your loans and paying them off so you will have somewhat more order (in your accounts and thus in your emails..)

[BlackDiamond]

****Our mortgage is 800euros per month, but besides that we're not even really sure what our monthly expenditures are. Maybe 800euros or so for groceries, gas, insurance, utilities. So, we have extra every month. ***

You should also try to come up with a clear idea of where your money goes each month. Making a budget will not only de-stress your life but also give you a perfect idea of where you really stand and what you can cut back on.

[snshijuptr]

Making a budget will not only de-stress your life but also give you a perfect idea of where you really stand and what you can cut back on.

If I may recommend that the easiest and most telling budget for me was a Needs/Wants/Savings budget. I have these three columns and under each I record the date of purchase, the type of thing (Gas, Groceries, Video Game, etc) and the amount. I used to try to budget for each of the categories, but it was too confusing and didn't actually help me any. If I overspend on my Needs, I just take money away from my Wants. I figure the cause is probably "hidden wants" like nicer groceries (I'm a sucker for fancy cheese).

First I would keep any cash on hand until after the baby is born. You just never know what might be coming up in the next few months. You might need bed rest, baby might need special medicine, and you will certainly be doing a lot more laundry Then you can start to think about paying down your debts. The best thing is to start with the highest interest debt after factoring in any tax reductions.

I would not enter into any risky investments, like a rental, without first getting rid of non-tax deductible debt like the student loans.

[cni2010]

I would not pay down your mortgage because you get a tax benefit from it by writing off the interest and the interest rate is not very high to begin with.

I would focus on paying down your high credit card/student loan debt first.

I would also go and get the rental property. In the US you can get a tax break from property depreciation- I'm assuming you would get a similar break in France.

[laura2733]

First of all, I’m sorry for my English, it’s my 3rd language.
I lived several years in France and there are a few things to be considered that are not mentioned. First of all, European mortgages are often different than American ones: we pay most of the interests the first years by paying early you don’t save much money, you can actually be losing money comparing with the possibility of investing it.
The other thing is about rental proprieties, small ones (studios) which are for students. In France its actually a pretty good deal since the government pays most of them so you don’t have the risk of someone not paying. If you rent to someone who doesn’t have government help, you can ask a dossier with recommendation letters, tax papers and proof of a stable income (of the person or the students parents who pay the rent).