How would you pay for these things?

[Anonymous]

This is the scenario:

HHI $180K, two relatively stable jobs.

No debt other than mortgage. We have $100Kish left to pay on it, but are paying very little interest now (and therefore have few tax deductions). We will be done paying in five years.

We have a HELOC loan for$22K, for two cars. Until a few months ago we had almost paid off that loan but then DH totalled a car last month and we had to replace unexpectedly. We went with HELOC rather than paying with emergency fund.

Emergency fund is $45K liquid.

We max out retirement funds and are in good shape there.

College savings $240K in 529s and (conservative) mutual funds.

Kids are 15 and 12.

We don't have much wiggle room for saving more because we max out retirement, save for college each month, and pay on the HELOC each month. We do save some, however.

Recent inheritance from my mother: $130K cash.
...

We intend to see a financial planner about how to use the money inherited from my mother, which isn't much in DCUM Land but which is a lot for us. We want to be careful with the money and make smart/considered decisions (and not fritter it away). I'm thinking it could bolster retirement and college funds.

We need to re-do our front walk area and the original/1960 hall/kids' bath. The front walk looks terrible and the grading posed problems during Hurricane Sandy, and the bathroom has become non-functional and is very unpleasant to use. Total amount needed for these two projects is about $20K.

Would you add to the HELOC to pay for these? We could use the interest deduction, but OTOH a loan is still a loan.

Or would you use the inheritance to pay for these projects?

Or would you use the inheritance to pay for both these projects and the HELOC amount?

My hesitation to use the inheritance is that it seems frivolous to spend that money on these sorts of things. Am I being too conservative in thinking this way?

WWYD?

[Anonymous]

You skipped the most important figure... how much do you have saved for retirement?

What rate is the heloc?

The 'technically smart' answer here is to use the heloc if the interest rate is lower than that which you have historically seen in your portfolio.

Assuming you have a good amount saved for retirement (based on everything else it sounds like you do), I'd go ahead and take the $20K to redo the things you want to redo (enjoy life a little), I'd then likely consider paying off the cars, and I'd put the balance into retirement savings.

[Anonymous]

Anonymous wrote:You skipped the most important figure... how much do you have saved for retirement?

What rate is the heloc?

The 'technically smart' answer here is to use the heloc if the interest rate is lower than that which you have historically seen in your portfolio.

Assuming you have a good amount saved for retirement (based on everything else it sounds like you do), I'd go ahead and take the $20K to redo the things you want to redo (enjoy life a little), I'd then likely consider paying off the cars, and I'd put the balance into retirement savings.

Retirement savings - about $1.4M. DH will get a pension.

Don't recall the HELOC rate, will look and report back.

Thanks for your advice re: the home improvements and cars. We are considering setting aside some of the inheritance to pay for a trip to Europe before DS1 graduates from high school. You are probably right about the rest going into retirement savings. Would you not add to the college funds?

[Anonymous]

Anonymous wrote:This is the scenario:

HHI $180K, two relatively stable jobs.

No debt other than mortgage. We have $100Kish left to pay on it, but are paying very little interest now (and therefore have few tax deductions). We will be done paying in five years.

We have a HELOC loan for$22K, for two cars. Until a few months ago we had almost paid off that loan but then DH totalled a car last month and we had to replace unexpectedly. We went with HELOC rather than paying with emergency fund.

Emergency fund is $45K liquid.

We max out retirement funds and are in good shape there.

College savings $240K in 529s and (conservative) mutual funds.

Kids are 15 and 12.

We don't have much wiggle room for saving more because we max out retirement, save for college each month, and pay on the HELOC each month. We do save some, however.

Recent inheritance from my mother: $130K cash.
...

We intend to see a financial planner about how to use the money inherited from my mother, which isn't much in DCUM Land but which is a lot for us. We want to be careful with the money and make smart/considered decisions (and not fritter it away). I'm thinking it could bolster retirement and college funds.

We need to re-do our front walk area and the original/1960 hall/kids' bath. The front walk looks terrible and the grading posed problems during Hurricane Sandy, and the bathroom has become non-functional and is very unpleasant to use. Total amount needed for these two projects is about $20K.

Would you add to the HELOC to pay for these? We could use the interest deduction, but OTOH a loan is still a loan.

Or would you use the inheritance to pay for these projects?

Or would you use the inheritance to pay for both these projects and the HELOC amount?

My hesitation to use the inheritance is that it seems frivolous to spend that money on these sorts of things. Am I being too conservative in thinking this way?

WWYD?

First and foremost - a front walkway and a working bathroom are smart investments and necessary. You're not being frivolous. You're retaining/ensuring the value of your home. Good use of money.

Some simple strategies:

1) assuming 5% return on an investment - you will repay the $20K in 4 years if you were to invest the $130K. Therefore pay the $20K (or less...if you shop around for contractors/fix it guys) out of your emergency fund (that makes low/no interest). Hope that in 4 years you will "repay" it.
2) simply think that you got a $110K inheritance instead (and $20K to fix the property).


Good luck.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You skipped the most important figure... how much do you have saved for retirement?

What rate is the heloc?

The 'technically smart' answer here is to use the heloc if the interest rate is lower than that which you have historically seen in your portfolio.

Assuming you have a good amount saved for retirement (based on everything else it sounds like you do), I'd go ahead and take the $20K to redo the things you want to redo (enjoy life a little), I'd then likely consider paying off the cars, and I'd put the balance into retirement savings.

Retirement savings - about $1.4M. DH will get a pension.

Don't recall the HELOC rate, will look and report back.

Thanks for your advice re: the home improvements and cars. We are considering setting aside some of the inheritance to pay for a trip to Europe before DS1 graduates from high school. You are probably right about the rest going into retirement savings. Would you not add to the college funds?

You're doing fine on the savings side - good for you. I agree with the above poster - the expenses are not frivolous -they are smart.

At $1.4 million - you're going to make about $50K this year alone.

Spend your emergency fund since it is just cash. You're being smart. Can't save every penny - but you're doing a great job.

[Anonymous]

I would add to keep the inheritance in your own name. You never know. I think you're doing great, especially with 1.4 million saved.

[Anonymous]

Anonymous wrote:First and foremost - a front walkway and a working bathroom are smart investments and necessary. You're not being frivolous. You're retaining/ensuring the value of your home. Good use of money.

Some simple strategies:

1) assuming 5% return on an investment - you will repay the $20K in 4 years if you were to invest the $130K. Therefore pay the $20K (or less...if you shop around for contractors/fix it guys) out of your emergency fund (that makes low/no interest). Hope that in 4 years you will "repay" it.
2) simply think that you got a $110K inheritance instead (and $20K to fix the property).


Good luck.

OP here. This is a very good point; I had not considered that. Where/how can I invest the $130K to earn 5% (to enable us to pay ourselves back)? Ideally at least some of it should remain liquid since if I dip into the emergency fund for the home improvements, we will no longer have access to that in case of emergency.

So you would use $20K of the emergency fund for repairs, and take the other $20K from the inheritance?

I agree that we should shop around for the best deal on the front walk/bathroom work.

Thank you!

Anonymous wrote:You're doing fine on the savings side - good for you. I agree with the above poster - the expenses are not frivolous -they are smart.

At $1.4 million - you're going to make about $50K this year alone.

Spend your emergency fund since it is just cash. You're being smart. Can't save every penny - but you're doing a great job.

Thank you. I had not previously seriously considered the emergency fund as a source for this money, because, well, it is an emergency fund for emergencies. We have always had a hands-off attitude towards that account.

If we do that, then how do we invest the $130K to enable us to get to at least some of it in case of emergency (job loss or the like)?

Anonymous wrote:I would add to keep the inheritance in your own name. You never know. I think you're doing great, especially with 1.4 million saved.

You are right. I currently have it in a plain-vanilla savings account in my name alone, and need to do something about that (because it is earning virtually nothing). Leaving it in my name alone is causing some tension with DH, but I feel strongly about keeping it that way because as you say, you never know. I think our marriage will last but frankly I don’t always feel that way. And his parents may leave him something at some point, in which case he is free to do the same of course.

[Anonymous]

I think a 5% return for a 4 year timeline in a liquid and safe account would be very hard to find these days. 5-7% is more what i'd expect with a 20-25 year horizon and investments in the stock market.

I think 1-2% is more realistic. Honestly with that inheiritance money I would pay off the heloc because you are paying more in interest on it than you are making (unless the heloc is somehow 2% or less in interest??) AND do the house repairs, and keep the money in a money market fund in your name only with what's left (90k).

[Anonymous]

Pay off the HELOC and necessary repairs with the inheritance. Pay off your home with the rest/emergency fund. Put all your monthly mortgage payment into savings/investments going forward and plan ahead for future car purchases so you can pay cash for them instead of borrowing on your home.

[Anonymous]

PP here -- forgot to mention, PPs assuming you will make 5% on investments in this market are living in a dream world. That is not the market we are currently in. Safe investments bringing 1-2%, thus better to pay off all your liabilities with this money.

[Anonymous]

Do you have enough in your emergency fund? How many months of living expenses is that for you? If it were me, I'd like to have 6-8 months worth.

[Anonymous]

Anonymous wrote:I think a 5% return for a 4 year timeline in a liquid and safe account would be very hard to find these days. 5-7% is more what i'd expect with a 20-25 year horizon and investments in the stock market.

I think 1-2% is more realistic. Honestly with that inheiritance money I would pay off the heloc because you are paying more in interest on it than you are making (unless the heloc is somehow 2% or less in interest??) AND do the house repairs, and keep the money in a money market fund in your name only with what's left (90k).

The previous poster said $50K based on $1.4 million = 3.5% Aren't you guys saying the same things?

S&P this past ytd is 6.5%

[Anonymous]

Anonymous wrote:Do you have enough in your emergency fund? How many months of living expenses is that for you? If it were me, I'd like to have 6-8 months worth.

We have $45K in our emergency fund, which is about 6-7 months' worth of expenses. If we were to experience a job loss, however, it would likely be just one job loss and not both - so the fund would last longer.

[Anonymous]

Anonymous wrote:Pay off the HELOC and necessary repairs with the inheritance. Pay off your home with the rest/emergency fund. Put all your monthly mortgage payment into savings/investments going forward and plan ahead for future car purchases so you can pay cash for them instead of borrowing on your home.

Thanks. I don't see the logic, however, in paying off our home with the inheritance, because it would leave us with few cash reserves, and because it would cause me to lose sole claim to the inheritance as mine (rather than as marital property).

We can pay cash for car purchases if we wish - as you can see from the above posts, we are conservative and diligent about saving. We thought (and still think) it made more sense to use the HELOC.

[Anonymous]

OP, don't touch the emergency fund. I'd pay for the house repairs out of the inheritance. What's the interest rate on the HELOC? The deduction really can't be that much to make a difference on your taxes. I'd consider paying that off too. You're doing great on your retirement. If I were you, my focus would be on college savings for the kids. You're 2-3 years away from the first tuition payments.

And, yes, take that trip to Europe - you'll never get the chance again.