Who wants to help me spend (or save!) my bonus?

[riverwed070707]

Got notification of my bonus today. First time I’ve ever not had something I needed it for or already have planned how to spend it and it was bigger than I anticipated. I have no CC debt, no car payments. I’m comfortable with where my mortgages (rental property and main house) are right now because I have both on a 15 year mortgage and I pay extra on both of them each month so they are on track to be paid off in 10-12 years. Only debt besides that is student loans which seems like the obvious place to apply it. My efund is also lacking. No major house projects planned this year, except MAYBE doing windows next fall (so that’s one idea – save for that). I will put my normal 10% into retirement pre-tax because work matches it so that leaves me with $5,400 to play with.

So here are my ideas.

1)Boost efund. This is a definite, I just don’t know how much. Currently only have about $3k. I think I’d like to have $5k. Its probably worth noting, since I mentioned the rental house, that the efund for the rental is separate from my personal and that is much higher. TECHNICALLY, if I had a real emergency, I could tap into that as well but keeping it in a business account keeps me from unnecessary spending. Out of sight out of mind thing.

2)Pay down student loans. Again, makes sense but I don’t know how much to put towards it. Frustrating because if I do it I want to just wipe a whole loan out and I don’t quite have enough to do that and boost my efund. Current situation is something like this:
DH- $6100 @ 6.8%, $3100 @ 4.5%,
Mine - $3000 @ 6.5%, $1,500 @ 2%

3)Car. I’d like to replace my car next December. Not sure yet what I’m going to get but I want to pay cash and I think I will spend in the ballpark of $12-15k. At this point in time, my plan was for this to be entirely dependent on DH getting a PT job and whatever he is making was going to go to car savings. Putting $5k in there would be a great jump start. My current car is an 01 civic -- its not dead but its getting there and its terribly uncomfortable to drive, impossible to get in and out of and needs some work like shocks and struts that I'm not really willing to put into it until I know how much longer I'm going to have it.

4)Savings for new windows. I estimate this is going to cost about $5-6k. On a normal month, when I have a basement renter, I can put away about $1k for normal savings, house projects, etc. My brother moved out last week so this will be less until we get it filled again. We're hoping for that to take place around Jan. 1. We can usually fill it pretty quickly.

5)Retirement. As noted, 10% ($610) will come off the top and go to my 401k and my work will contribute another $366. Currently I contribute 10% of every check to my account and another $100/mo to DH's Roth IRA, which means I’m nowhere near maxing his for the year, just not sure this is the best use given we are a bit ahead on retirement savings anyway with about 1.5 times my income already socked away. He's a SAHD with no income presently and we are 27 and 32.

Thoughts on how to divide it up? Other ideas??

[TheKayla]

Looks like you're in a great place for everything, so I think it would be for whatever makes you feel most confident. You could pay off your loans and be completely done with them, only being able to allocate more money towards your efund from now on. One less thing to worry about in my opinion. After all, even though the interest rates are good, all they're doing is still collecting interest. That's personally what I would do, and then in a linear way save where needed based on the timeline for what you need the cash for everything else.

Mathematically though, you're situation is pretty sound. I'm just more prone to always choose the option that will simplify my finances the most!

[klarose]

If it were me I'd put $2,000 towards your EF.

Then I'd put $3000 on your student loan with 6.5% to get rid of that.

Then I'd probably go out to dinner or shopping and treat yourself with $100.

Then I'd just put the other $300 on one of the other loans. Preferably the one with the highest interest.

[TheKayla]

If it were me I'd put $2,000 towards your EF.

Then I'd put $3000 on your student loan with 6.5% to get rid of that.

Then I'd probably go out to dinner or shopping and treat yourself with $100.

Then I'd just put the other $300 on one of the other loans. Preferably the one with the highest interest.

I didn't even see that 6.8% one listed before. Agreed ^

[snafu]

No need to rush. Late January & February are usually the best time of year price-wise to buy a 2-3 y/o car. After the holidays I'd start working out what features/brand/model you need in a newer car, what is available in your region and KBB/CarFax prices + insurance. What value for your Civic? Is there a technical school auto repair program in your community that would be cost effective to repair car to make it sellable? Would it be Craig'sList sellable to a teen who would like it as a fix-up project?

I'd run the numbers on the various SLs. What cost avoidance in interest if it were the focus of 2014? Putting sums in ROTH allows you to take out capital gains without penalty. Do you carry disability insurance? How many months of bare bones Basic expenses does your EF cover?

[riverwed070707]

Looks like you're in a great place for everything, so I think it would be for whatever makes you feel most confident. You could pay off your loans and be completely done with them, only being able to allocate more money towards your efund from now on. One less thing to worry about in my opinion. After all, even though the interest rates are good, all they're doing is still collecting interest. That's personally what I would do, and then in a linear way save where needed based on the timeline for what you need the cash for everything else.

Mathematically though, you're situation is pretty sound. I'm just more prone to always choose the option that will simplify my finances the most!

This is pretty in line with my normal strategy and what I'm leaning toward.

No need to rush. Late January & February are usually the best time of year price-wise to buy a 2-3 y/o car. After the holidays I'd start working out what features/brand/model you need in a newer car, what is available in your region and KBB/CarFax prices + insurance. What value for your Civic? Is there a technical school auto repair program in your community that would be cost effective to repair car to make it sellable? Would it be Craig'sList sellable to a teen who would like it as a fix-up project?

I'd run the numbers on the various SLs. What cost avoidance in interest if it were the focus of 2014? Putting sums in ROTH allows you to take out capital gains without penalty. Do you carry disability insurance? How many months of bare bones Basic expenses does your EF cover?

Can prob sell the car for $3k (book for fair condition is $3300). I'd likely plan to sell it after I'd purchased the new car.

Not really planning on buying until the end of next year, or maybe early 2015 if that's a better time of year. I've toyed with the idea of purchasing in Jan, getting a small $10k-ish loan and paying it off during the course of the year but I'm not sold on the idea. Its VERY tempting especially knowing keeping the car another year is going to cost more to maintain than the interest on a 1 year loan but seems less responsible than knocking out a student loan #feelingconflicted

[asdf]

Regarding the EF, what are your sources of income and your typical monthly expenses? That'd give me a better idea as to what to recommend to aim for.

As for the next car, although it's admirable that you want to pay for it with cash, I'm not sure if that should come at the expense of those ~6% SLs. As snafu said, we'd have to run the numbers on them to make sure, but there might be a chance that financing the next car down the road and paying off the SLs now comes out on top if you can secure a reasonable interest rate.

[riverwed070707]

Regarding the EF, what are your sources of income and your typical monthly expenses? That'd give me a better idea as to what to recommend to aim for.

As for the next car, although it's admirable that you want to pay for it with cash, I'm not sure if that should come at the expense of those ~6% SLs. As snafu said, we'd have to run the numbers on them to make sure, but there might be a chance that financing the next car down the road and paying off the SLs now comes out on top if you can secure a reasonable interest rate.

Take home after health, retirement, etc, including $1250 in rental income is $4200 not including OT which I get almost monthly and averages about $500/mo (but its not guaranteed so I don't count it). Expenses usually come in about $3,500. We've been doing a lot of updating to our house this year so most of this year's excess was funneled to that and a vacation last month.

[asdf]

Take home after health, retirement, etc, including $1250 in rental income is $4200 not including OT which I get almost monthly and averages about $500/mo (but its not guaranteed so I don't count it). Expenses usually come in about $3,500. We've been doing a lot of updating to our house this year so most of this year's excess was funneled to that and a vacation last month.

Alright, so if you somehow lost your employment (but still had your rental income coming in), you'd be $2250 in the red monthly. A 6-month EF to indemnify against that would be $13,500, while a 3-month EF would be $6750. The latter is doable with your bonus, so I'd go with putting $3750 to add to the existing EF of $3000. Then, with the remaining $1650, I'd put it toward whichever of the ~6% SLs makes more sense (not sure how much you could snowball by getting rid of the smaller balance's minimum monthly payment).

[riverwed070707]

Alright, so if you somehow lost your employment (but still had your rental income coming in), you'd be $2250 in the red monthly. A 6-month EF to indemnify against that would be $13,500, while a 3-month EF would be $6750. The latter is doable with your bonus, so I'd go with putting $3750 to add to the existing EF of $3000. Then, with the remaining $1650, I'd put it toward whichever of the ~6% SLs makes more sense (not sure how much you could snowball by getting rid of the smaller balance's minimum monthly payment).

This is only kind of true. If I lost my job, we wouldn't spend the way we spend now -- things like entertainment and dining out would be cut. Also there are annual payments that I budget for monthly but that savings could be deferred until new work was found. Additionally, we have an HSA which, while it isn't technically an efund becuase i can't use it for any emergency, there is enough there to cover our full deductible for a year ($5k). With all that, I feel pretty comfortable with $4-5k in the efund. Anything on top of that seems like it could be better used elsewhere.

I do agree I should probably focus on getting rid of student loans though. Snowballing them is hard because the payments are low already and I've been seriously lacking motivation to knock them out since they *only* cost $200/mo. <-- not a good excuse but its prevented me from paying them off thus far. Maybe I need to do our 2014 budget to strike up some motivation.

[asdf]

This is only kind of true. If I lost my job, we wouldn't spend the way we spend now -- things like entertainment and dining out would be cut. Also there are annual payments that I budget for monthly but that savings could be deferred until new work was found. Additionally, we have an HSA which, while it isn't technically an efund becuase i can't use it for any emergency, there is enough there to cover our full deductible for a year ($5k). With all that, I feel pretty comfortable with $4-5k in the efund. Anything on top of that seems like it could be better used elsewhere.

Fair enough, as long as you know how much could be instantly cut if an income shock does hit.

[BMEPhDinCO]

I'd put the 10% in retirement then I'd pay off the $3,100 loan. Then I'd put the rest into the EF. Then take the loan payments and put them in the EF and you should have that to $5k in a few months.

[danielhermann]

best to be debt free

dear congrats for the bonus. What I feel is that you can continue with your mortgage which will be repayed in 10 to 12 years time. But with the money after covering your expenses I will suggest you to pay back the educational loan you are having. This will bring down the debt burden on you. this will help you to have a good credit rating and also will help you in taking further loans.

[LivingAlmostLarge]

Are you sure you don't want to beef up the EF to 3 months?

[DisciplinedSaver101]

I would put the money into an S&P 500 Index Fund (Charles Schwab has a very low cost one). This gives you the best chance of letting the money work for you (it's up 25% this year), and in an emergency it is easily accessible.

Good luck!