Help me financial wizards! What to do with bonus.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What I would do: Pay off the student loan. Put the rest in your emergency fund. Use the increased cash flow to pay off auto loan quicker.

Do this, not the car loan. The car loan is a (very slightly) higher interest rate, but the SL will free up more money per month. Use that $550 to beef up your EF and pay down your auto loan.

With the extra $550 I would do the following:

$250 - pay extra on car loan
$250 - emergency fund
$50 - 529

Once you've paid off your car loan I would use that money towards the emergency fund and increase the 529 to at least $250 per month.

[Anonymous]

Anonymous wrote:In the next few days I will be receiving a bonus of 30K (so about 20K after taxes). I need help deciding what to do with it, as I am not particularly financially savvy. The possibilities:

- Use it to pay off my student loans. I currently owe $14,300 at 3.6% interest. I also owe a small loan (about 1K) at 2%, but not planning to pay that off. Payment on big chunk is $550 a month.

- Use it to pay off car loan. We currently owe $17,300 at 3.76% interest. Payment is $430 a month.

- Keep it as cash emergency fund. We currently have only about 15K, which assuming we lost the higher paying job, and immediately got rid of childcare expenses, would keep us afloat for about 3 mos, assuming serious cutback and deferring student loans. So not enough. That said, odds of job loss for either of us in next couple years are very low, and I think we should get a tax refund shortly that will let us dump in another 10K.

- Put it in a stock index fund (the lowest fee Vanguard was my thought). We currently have no investments outside of work 401Ks, which we max.

- Put it in 529s. We currently don't have 529s for our 3 young children. For various reasons this is not a super high priority for us, but the tax savings might make it worthwhile. However, I'm not clear if we will get tax saving - could any deduction get taken away by the Alt min tax? We bounce back and forth between paying and not paying Alt min, and I'm not sure what makes the difference. Last year I think our tax rate ended up being 28%. We have self-managed rental property, so I think that helps. I figure we'd have to ask our accountant if contributing to the 529 could make a serious dent in our taxes. But also, I'm reluctant to tie up cash in a way that is not liquid, and won't get rid of any monthly payments.

- Use it on home improvement. Our porch is practically falling down, and connects to a badly done addition. We could use the 20K plus maybe a HELOC to renovate. Not a necessity by any means but would improve our quality of life a lot, plus is long term likely a good investment -- property values in our neighborhood have risen substantially since we bought, and our home is considered very desirable. That said, we plan for this to be our forever home, so not like we plan to flip the house and make a profit.

- Something else I'm not thinking of? Put it toward our mortgage (4.25% interest?)? Use it to improve our rental properties? Even if we improved them, we wouldn't raise the rent on our current tenants.

Very grateful for any advice.

Ok here's some unsolicited advice - this is a large car loan considering you don't have 529s or other significant savings. Can't you find a less expensive car?

Also - why do you have an accountant? That's most certainty a waste of money at your income level and unnecessary. Do your own taxes.

I personally would offload one of the rental properties if I were you and would pay off the car loan, student loan, beef up my emergency fund and start saving for college with three 529s. It doesn't make sense to have rental properties but not even have regular investments outside of retirement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What I would do: Pay off the student loan. Put the rest in your emergency fund. Use the increased cash flow to pay off auto loan quicker.

Do this, not the car loan. The car loan is a (very slightly) higher interest rate, but the SL will free up more money per month. Use that $550 to beef up your EF and pay down your auto loan.

With the extra $550 I would do the following:

$250 - pay extra on car loan
$250 - emergency fund
$50 - 529

Once you've paid off your car loan I would use that money towards the emergency fund and increase the 529 to at least $250 per month.

Whichever of the loans you decide to tackle first (and I agree that the loans are you first priority), you need to be sure to divide up that payment between these buckets. Once the emergency fund has a full 6 months in it, then you can increase the 529 a bit and look into opening an investment account outside of your retirement accounts.

Did you say that your DH also has a lot of educational debt? Could selling one of your rental properties generate enough cash to wipe out most of it? If so, consider doing it. Make yourself and amortization schedule to see how much debt you carry as a family and what it costs you each month. Selling even one property might save you a lot of money in the long run.

Please get going on those 529 accounts. do what you can to reduce your kids' burden while saving for your own retirement at the same time.

I bet they have the accountant because of the rental properties.

[Anonymous]

Anonymous wrote:

Anonymous wrote:In the next few days I will be receiving a bonus of 30K (so about 20K after taxes). I need help deciding what to do with it, as I am not particularly financially savvy. The possibilities:

- Use it to pay off my student loans. I currently owe $14,300 at 3.6% interest. I also owe a small loan (about 1K) at 2%, but not planning to pay that off. Payment on big chunk is $550 a month.

- Use it to pay off car loan. We currently owe $17,300 at 3.76% interest. Payment is $430 a month.

- Keep it as cash emergency fund. We currently have only about 15K, which assuming we lost the higher paying job, and immediately got rid of childcare expenses, would keep us afloat for about 3 mos, assuming serious cutback and deferring student loans. So not enough. That said, odds of job loss for either of us in next couple years are very low, and I think we should get a tax refund shortly that will let us dump in another 10K.

- Put it in a stock index fund (the lowest fee Vanguard was my thought). We currently have no investments outside of work 401Ks, which we max.

- Put it in 529s. We currently don't have 529s for our 3 young children. For various reasons this is not a super high priority for us, but the tax savings might make it worthwhile. However, I'm not clear if we will get tax saving - could any deduction get taken away by the Alt min tax? We bounce back and forth between paying and not paying Alt min, and I'm not sure what makes the difference. Last year I think our tax rate ended up being 28%. We have self-managed rental property, so I think that helps. I figure we'd have to ask our accountant if contributing to the 529 could make a serious dent in our taxes. But also, I'm reluctant to tie up cash in a way that is not liquid, and won't get rid of any monthly payments.

- Use it on home improvement. Our porch is practically falling down, and connects to a badly done addition. We could use the 20K plus maybe a HELOC to renovate. Not a necessity by any means but would improve our quality of life a lot, plus is long term likely a good investment -- property values in our neighborhood have risen substantially since we bought, and our home is considered very desirable. That said, we plan for this to be our forever home, so not like we plan to flip the house and make a profit.

- Something else I'm not thinking of? Put it toward our mortgage (4.25% interest?)? Use it to improve our rental properties? Even if we improved them, we wouldn't raise the rent on our current tenants.

Very grateful for any advice.

Ok here's some unsolicited advice - this is a large car loan considering you don't have 529s or other significant savings. Can't you find a less expensive car?

Also - why do you have an accountant? That's most certainty a waste of money at your income level and unnecessary. Do your own taxes.

I personally would offload one of the rental properties if I were you and would pay off the car loan, student loan, beef up my emergency fund and start saving for college with three 529s. It doesn't make sense to have rental properties but not even have regular investments outside of retirement.

Ridiculous short sighted advice. The OP is not swimming in debt. She can paybofd thr SL, pay the remainder of whats left to thr car and then quickly chip away double payments towards the car.

As long as she doesnt take on more debt she will ne in a good place here soon.

Dump a rental in favor of 529s? Dumb dumb dumb

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:In the next few days I will be receiving a bonus of 30K (so about 20K after taxes). I need help deciding what to do with it, as I am not particularly financially savvy. The possibilities:

- Use it to pay off my student loans. I currently owe $14,300 at 3.6% interest. I also owe a small loan (about 1K) at 2%, but not planning to pay that off. Payment on big chunk is $550 a month.

- Use it to pay off car loan. We currently owe $17,300 at 3.76% interest. Payment is $430 a month.

- Keep it as cash emergency fund. We currently have only about 15K, which assuming we lost the higher paying job, and immediately got rid of childcare expenses, would keep us afloat for about 3 mos, assuming serious cutback and deferring student loans. So not enough. That said, odds of job loss for either of us in next couple years are very low, and I think we should get a tax refund shortly that will let us dump in another 10K.

- Put it in a stock index fund (the lowest fee Vanguard was my thought). We currently have no investments outside of work 401Ks, which we max.

- Put it in 529s. We currently don't have 529s for our 3 young children. For various reasons this is not a super high priority for us, but the tax savings might make it worthwhile. However, I'm not clear if we will get tax saving - could any deduction get taken away by the Alt min tax? We bounce back and forth between paying and not paying Alt min, and I'm not sure what makes the difference. Last year I think our tax rate ended up being 28%. We have self-managed rental property, so I think that helps. I figure we'd have to ask our accountant if contributing to the 529 could make a serious dent in our taxes. But also, I'm reluctant to tie up cash in a way that is not liquid, and won't get rid of any monthly payments.

- Use it on home improvement. Our porch is practically falling down, and connects to a badly done addition. We could use the 20K plus maybe a HELOC to renovate. Not a necessity by any means but would improve our quality of life a lot, plus is long term likely a good investment -- property values in our neighborhood have risen substantially since we bought, and our home is considered very desirable. That said, we plan for this to be our forever home, so not like we plan to flip the house and make a profit.

- Something else I'm not thinking of? Put it toward our mortgage (4.25% interest?)? Use it to improve our rental properties? Even if we improved them, we wouldn't raise the rent on our current tenants.

Very grateful for any advice.

Ok here's some unsolicited advice - this is a large car loan considering you don't have 529s or other significant savings. Can't you find a less expensive car?

Also - why do you have an accountant? That's most certainty a waste of money at your income level and unnecessary. Do your own taxes.

I personally would offload one of the rental properties if I were you and would pay off the car loan, student loan, beef up my emergency fund and start saving for college with three 529s. It doesn't make sense to have rental properties but not even have regular investments outside of retirement.

Ridiculous short sighted advice. The OP is not swimming in debt. She can paybofd thr SL, pay the remainder of whats left to thr car and then quickly chip away double payments towards the car.

As long as she doesnt take on more debt she will ne in a good place here soon.

Dump a rental in favor of 529s? Dumb dumb dumb

Depends on the rental return. OP is most likely unable to deduct most expenses and interest/mortgage for the property. They may be better served investing in something else and something more liquid.

Op is doing a bad job managing her money. She has student loans and a car loan. She decided to have three children but hasn't even saved for their college.

In terms of being in a better place soon - probably not. The same behavior that led her to buy an overpriced car and take out a loan will probably cause her to do it again. She's only a few years away from needing a new car and will end up with another loan.