mustang100[at]yahoo.com (Drummer of The Vibe) wrote in message news:<358117b3.0403031037.799355a1[at]posting.google.com> ...
- quote -

can save this amount, I would have 6 months worth of bills in laddered
6 month CD's (one CD matures each month, then roll over into new 6
month CD and repeat the next month when the second CD matures). do
this if CD beats rates on savings account. I'm half way to this in my
savings acoount (I have 3 months of bills in mine now), when I hit 7
months of bills in my savings account next year, I plan on
implementing this.

I would assume $40,000 would cover this need. Possibly less. This
would be 6 CD's of $6000, with a $4000 savings account for immediate
emergencies.

I would make sure my wife and I were taken care of with life insurance
next. My wife and I are currently planning a family and 30 year level
term costs us about $20/month for $300,000 in coverage. I would
assume this cost of insurance could come from paychecks and not
savings.

I would find a way to get the other $80,000 should be put into tax
sheltered investments (IRA/permanent insurance products/401k).
Because it would take several years to do this (put money in to tax
deferred accounts), money would still be accessible over next 10 years
or so while you were investing it.

I would consider having the 80k fully invested in stocks in taxable
accounts while I slowly converted it to IRA type investments. This
would trigger taxes when selling stocks, and require maintainance, so
it might not be for all people.

my ideas. I have lots of respect for someone who can save $120,000.

jim

In article <ikbe40p9cfv9p2l4bpkk3q87kl5i1c7cmc[at]4ax.com> , HW \"Skip\"
Weldon <skip5700removethis[at]hotmail.com> wrote:

- quote -

I recently heard someone say:

The status symbol of the 1980's was a pair of BMW's in the garage.

The status symbol of the 1990's was the $800K house with 3 mortgages.

The status symbol of the 2000's is being debt free with no mortgage.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

Tad Borek <borekfm[at]pacbell.net> wrote in message news:<Xnu1c.5620$lo6.2752[at]newssvr27.news.prodigy.com> ...
- quote -


I appreciate all the comments so far. It looks like I left some
details out. First, I havn't had 130k sitting around in savings for
years or anything, I just recently came into this coming from selling
a house, getting married, and adding in my wife's savings. I put the
80K into the "high yield" 2% account until I decided what to do with
it. I supposed that 2% is crap but 1% is worse even in the short term.

It appears that since we got married last year, my wife and I are
consistently living below our means so I'm adding more cash to the
accounts monthly.

My life insurance and disability is what I would consider adequate (at
least while I'm still employed here). I may suppliment both as soon as
we have a baby.

My 401k isn't maxed out, but it's slightly above max company match. I
have it in about 70% aggressive growth funds, 30% company stock.

I was considering using some of my capital for rental property
investment because I'm extremely handy in quick fixups, but at first
glance, there aren't many positive-cash-flow opportunities in my
inflated area.

The other alternative is to dedicate more time to company research and
get focused in stocks. I don't really want to go the fund route
outside of my 401k. I'd rather be more hands on and try to understand
the companies I'm investing in.

I'm not completely adverse to risk because I'm still in my mid 20's.
However, I'm sure I'll have to change that a little once I start my
family.

Bob

On Wed, 3 Mar 2004 14:45:32 CST, "John A. Weeks III"
<john[at]johnweeks.com> wrote:

- quote -

My view is not so much agreement or disagreement with the above as it
is an observation.

I've noticed that folks who get out of debt once are much more
debt-averse from then on. They either enjoy spending the old
payments, or saving the old payments, or not owing anyone anything,
but whatever, they are loathe to go back to debt and tend to live on a
cash basis.

I've also noticed that most of those who ultimately achieve real
financial security and who didn't get lucky somewhere along the way
(win it, inherit it, marry it, etc.) are not only debt-free, but have
been that way for some time.

Again, this is not a suggestion that you use all of your money to pay
off/down debts. I don't know you - it's just an observation.

-HW "Skip" Weldon
Columbia, SC

- quote -

With an interest rate of 5.875%, it sounds like a great deal for 30 years. I
would not pay down the mortgage. Keep the cash. It sounds like you know what
you are doing with your money having saved $130,000 so far plus $80,000 in
retirement. You can use the cash for so many other things you might need. If
you pay down the mortgage $80,000 , the monthly payment will still be the same
afterwards. The only thing that changes is your mortgage will end sooner than
30 years.

Drummer of The Vibe wrote:
- quote -

You've got some general money decisions to look at, before getting to
the mortgage.

I understand that some investors consider themselves conservative, but
keeping $120k in cash is hardly low/no risk. That's OK for your
short-term money, such as your emergency fund and dollars being saved
for a known purchase. But a money market fund & savings account do carry
risks over the long term - if you keep the cash parked there it's
entirely possible that you'll end up with fewer "real" dollars 10, 15,
etc. years from now.

If that sounds like an endorsement for John's idea of using the $130k to
pay off your mortage, it isn't. Nobody should put all of their
accessible savings into a home - that's a risky thing to do. And there
are so many other alternatives out there that even the most risk-averse
investor can find a more productive place for their money than
savings/money-market. If you decide to put the cash into your house,
it'll be out of your hands, unless you sell the house or borrow the
money back. With anything but two-year goggles on, THAT looks like a
risky financial transaction - you might need to borrow at significantly
higher rates than 5.8%, just to get your hands on cash you now have free
& clear.

And it sounds like you might have some cash needs coming up. New child -
bigger car? Pay for it with cash and you won't have an auto loan to deal
with. Any desire to set up a college fund? If so you'll need cash to put
in it, perhaps several $10ks or more. Is your life and disability
insurance adequate & if not, what will be required to buy the right
policies? What about "accessible" savings, running alongside your
retirement-oriented 401k plan?

If you've already figured that stuff out, and you truly won't do
anything else with the dollars, then you might consider paying down the
mortgage. At the end of the day it does amount to a horse race between
the cost of your mortgage (5.875% less tax benefit, if any) and whatever
else you do with the money. But there are so many other things you can
do with those dollars that it's not really worth addressing the mortgage
question until you've taken a stab at the bigger ones.

-Tad

Bob (a.k.a. mustang100[at]yahoo.com (Drummer of The Vibe)), you asked:

<< <I> I owe 260,000 (30 year fixed at 5.875%) on a home valued at about
$375,000 (purchased it last year). Since then, I sold my previous home
and saved additional money. I currently have $80,000 in a money
manager account collecting 2.01% APR, $40,000 in a 1% savings account,
and approx $10,000 in mixed mutual funds and stock holdings (Also have
401k valued at $80k but it's not money I'd want to borrow against). It
seems to me there aren't many low/no risk alternatives to what we're
already doing.

<b> So back to the original question, would paying the mortgage down about
$80,000 make sense right now?</b> We're probably going to lose 1/3 of our
family income when my wife has our first child, but we don't know when
that will happen. Even so, I think $130,000 is a little more than an
emergency reserve.</i> >
IMHO . . . no, it would not make sense to me, even if I could see your whole
picture it's not likely I would come to any different conclusion.

Base only on what I see above, here what I might do . . .

· Refinance the house and pull another $40,000 out using an Option ARM
loan based on either CODI or COSI (give you options for payments when you don't
know what's going to happen). Make the guaranteed minimum payments, which
would be about 1/3 of what they were for a while and invest the difference. In
5 years, I might do the same thing all over again.

· Max out the 401(k) and Roth IRA's (if you qualify) - investing with a
good aggressive asset allocation for capital growth.

· Establish the amount for an Emergency Fund to handle 6 months living
expenses, maybe a little more for the period when the first child arrives and
the wife is not working.

· Since there is probably some need/use/want for some life insurance,
buy a small Equity Index Universal Life contract and fund it to its MEC limit
for 5 to 7 years with the emergency fund money. It's still available of
emergency use only now, any earning is not being taxed every year and the
returns can be much higher than a taxable 1% to 2%. . . not to forget that
future insurance costs can now be paid for on a before tax basis.

· If more of the total asset allocation is to be "safe" and conservative,
do the same with a larger policy. If it's a large enough policy, a 10-pay
whole life policy from a good mutual company might be a better option. Make
of the difference in life insurance needs/wants with term insurance.

· Increase all insurance deductibles to $1,000 or more (reducing
insurance expenses).

· Invest the balance of the portfolio for capital growth in
well-diversified asset allocation of mutual funds (maybe indexes to help keep
things simple).

This is just one way of many way to looking at it. Give 10 planners a set of
data and objectives for a financial plan and you'll wind up with 11 different
plans - the 11th being the one you decide to go with. There's no one "right
way" of doing things. The one that's best for you is the one you like, the one
you're most comfortable with that actually leads you to accomplishing YOUR
goals.

My preference is to never pay down the mortgage until much later in life (if at
all) and to use it as leverage. And yes ARM loans will more than likely
they'll go up and they'll fluctuate. But in the end, one tends to pay less
interest using them than using 30 yr. fixed (mainly because people are so
mobile these days and so often pull cash out for one reason or another anyway).
I just think this makes financial sense.

The more you can keep emotions out of financial decisions, the better the
decisions will become. This is not an easy task and is certainly much harder
for some to do than others and is an important consideration. You're the owner
of YOUR financial business. So treat this like a business decision a business
owner would do as you try to find an answer to your question.

In article <358117b3.0403031037.799355a1[at]posting.google.com> , Drummer
of The Vibe <mustang100[at]yahoo.com> wrote:

- quote -

After taxes, that loan rate is maybe 4% (depending on your tax
situation). To me, it sounds like paying down your mortgage would
net you a 4% rate of return with no risk. I'd put the whole $130K
in there.

Once you pay it down, check into doing a re-fi. You should be able
to get a better rate given the smaller loan value and the high equity.
If you are going to lose income due to a baby, then the re-fi can be
used to lower your payment by spreading out the term for the remaining
$130K that you owe. That would more than make up for the loss of
income.

Finally, with all this equity, consider getting a home equity line
of credit. This can be used as your emergency fund. Granted that
it will cost interest to use it, your plan is to not use it.

The other alternative is to use this $130K (and pull out your equity
from the house with a H/E loan) for investing. This should only be
done if you (1) have a high risk tollernace, (2) a concenting wife,
(3) know what you are doing, and (4) can find a better investment
than your house. Some people can do this. With a baby on the way,
chances are that you will be too busy to try this stunt.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

I know this question has been asked a million times. However, I have a
question about regarding the typical answers I see.

I owe 260,000 (30 year fixed at 5.875%) on a home valued at about
$375,000 (purchased it last year). Since then, I sold my previous home
and saved additional money. I currently have $80,000 in a money
manager account collecting 2.01% APR, $40,000 in a 1% savings account,
and approx $10,000 in mixed mutual funds and stock holdings (Also have
401k valued at $80k but it's not money I'd want to borrow against). It
seems to me there aren't many low/no risk alternatives to what we're
already doing.

So back to the original question, would paying the mortgage down about
$80,000 make sense right now? We're probably going to lose 1/3 of our
family income when my wife has our first child, but we don't know when
that will happen. Even so, I think $130,000 is a little more than an
emergency reserve.

Bob