In article <yobacy5tj38.fsf[at]panix2.panix.com> ,
<BreadWithSpam[at]fractious.net> wrote:

- quote -

With the cash flow that those kids will have after paying off
these loans, they can quickly save more money to keep as an
emergency fund. Second, it is unlikely that they will both
lose their jobs at the same time, and they should have no
problem carrying a $150K mortgage on one income. Finally,
if worse comes to worse, they can always deliver pizza's.
Granted, that isn't a glamor job, but with unemployment
insurance and pizza money, they should have no problems.
They are young and can still work hard.

My major point is that it is silly to keep 2% money when you
have 6% and 8% loans. It is worth the risk to streach to pay
off and pay down these loans to save the interest money.

A good insurance policy would be to take out a home equity
line of credit now while things are good. That would allow
them to borrow against their home by writing a check if they
did have some emergency. I don't like borrowing against a
home, but in this case, it is OK. Since they used savings to
pay down the mortgage, pulling it back out with a H/E is just
borrowing back your own money, except that you made a better
rate of return on it than the money market account. Again,
this is good insurance, but insurance that you hope one never
needs to use.

-john-

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

Thanks everyone for the advice!

I definitely will concentrate on the 7.25 mortgage. I am thinking I
will pay half of it off, and make large payments to it each month.

I think I want to keep about 10k on hand liquid. I shouldn't have any
home emergency expenses, as it is a new construction (reputable
builder) and under warranty for the next year. But still, I am a
cautious person and having that money there makes me feel better.

hoops4ever wrote:

- quote -

In Houston, how hot it gets is more likely to be the issue <grin> ,
and an air conditioner compressor is the big and potentially
expensive problem that won't necessarily wait. Once the heat gets
above a certain level, some form of cooling tends to become close to
a necessity rather than a "luxury" as it might be viewed in some
cooler climates.

In Phoenix, heating in the winter is somewhat useful <grin> , but
there's little question I'd find being without heat for a week in
January to be a lot more tolerable than being without cooling of
some sort for a week in July.

--
Ed Zollars, CPA
Phoenix, Arizona

Ron Peterson <ron[at]shell.core.com> writes:
- quote -

Only once it's paid off _completely_ or if one refinances.

- quote -

I'd certainly concentrate on retiring that 18k before paying
a single cent extra towards the primary mortgage.

In fact, given the low rate on that primary mortgage, the
comfort of your cashflows which are substantially greater
than your required payments, etc, I'd probably lean towards
not paying down principal on that primary mortgage at all.
Max out the 401k first (beyond the employer match - max
it out completely. That's long-term money and, long-term,
it may be more likely grow at a better rate than the 6%
of your mortgage interest.)

After maxing out long-term investments, completely maxing
them out, and paying off that second mortgage, then the
question of whether saving additional outside-the-401k
money versus paying down the primary mortgage becomes a
trickier question.

Actually, in addition to the 401k, keep maxing out the
IRAs, too. You can't deduct contributions to a traditional
IRA (due to your income and the 401ks) but you may be
able to have Roth IRAs which have some advantages over
traditional IRAs, particularly when one cannot deduct the
contributions.



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"John A. Weeks III" <john[at]johnweeks.com> writes:
- quote -

That's an awfully tight "emergency" fund. With a $150k
mortgage, if they lost their jobs, they'd have a serious
cashflow problem in only a month or two.

Admittedly, the "emergency fund" doesn't need to be all
in a savings account earning a pitiful fraction of a
percent. But liquidity is key. Paying down one's primary
mortgage makes one's capital very illiquid. (And counting
on, say, a home equity loan in the event of an emergency
is a very dangerous strategy - such a credit line may be
cut off right when one needs it - ie. if one loses one's
job).

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Here's what I would do:

1. Keep 6 months of expenses in a liquid form. This can be in a
money market or savings. Just somewhere that you have access to it
should you need it.

2. Pay off the smaller mortgage that is at 7.25%. I'm assuming that
you're not paying PMI, since you did an 80/10/10, but if you are, try
to have that removed after paying off the smaller loan.

3. The next set of actions depends on your tolerance for debt. You
can either make the minimum payments on your other debt and invest the
excess, or you can maximize your payments on your debt to get rid of
it. IMHO, this is purely a matter of personal preference. Lots of
people will tell you that you can get a better return by keeping the
"good" debt (home loan, student loan), since those rates (6% and 4.5%)
are low and the stock market historically averages around 10%.
Personally, I don't like debt, but I won't pay down my mortgage early
until everything else is funded (though my mortgage is 4.375% fixed).

4. I'd start saving for new cars now, so that you can use cash to buy
them when the time comes.

5. Start saving for typical house maintenance issues. Even a little
bit each month will soften the blow of a new roof or furnace, should
the need arise (don't know how cold it gets in Houston in the winter).

6. Maybe even start a "Kids" fund, so that if / when they arrive,
you've prepared yourself financially. If they never do, you'll have a
little bit of a windfall at that time.

Other advice that isn't bad would be to max out your 401K and Roth IRA
possibilities. The 401K can be tricky, though - make sure you're
comfortable with the choices that are available in your 401K plan. To
me, it does no good to have 15% or more of my income going into a plan
where I don't like the investment choices, even on a pre-tax basis.

Above all else, it's not how much you earn, it's how much you spend.
Control you're spending and you'll do fine. (though you seem to have
a good handle on that already)

pls

"John A. Weeks III" <john[at]johnweeks.com> writes:

- quote -

I personally do not like debt either, but to me it makes more sense
to pay off a 7.25% debt (the second mortgage) before a 4.5% one (the
student loan).

- quote -

Whoa. I think a homeowner needs significantly more than $3K as an
emergency fund. (What if you have to replace the roof or the heating
system, on top of being laid off?)

-Sandra

In article <prk3f01dlf66spafbd50bqg8t1p9u2ecuj[at]4ax.com> , SJE
<s-eide*NO--SPAM*[at]*NO--SPAM*usa.net> wrote:

- quote -

I personally do not like debt. I'd take that 33K and pay off
the student loans, then pay down the mortgage. This will leave
you with a $150K mortgage, no student loan payments, and $3K in
a money market as an emergency fund. Doing the paydowns doubles
and triples the return that you are getting on this money.

Next, I'd check into IRA's to see what your options are. If you
have cash flow left over, then I'd start looking at mutual funds,
or Exchange Traded Funds that are based on indexes. You are young,
so you have time for the market to work in your favor. Don't pass
up that chance.

-john-

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

SJE <s-eide*NO--SPAM*[at]*no--spam*usa.net> wrote:

- quote -

You might need 6 months, but it doesn't have to be that liquid. You
could buy bonds and sell them if you get short.

- quote -

Paying off the mortgage reduces your need for cash flow.

- quote -

That's a good idea, it will give you $900 a year in savings.

--
Ron

SJE <s-eide*NO--SPAM*[at]*NO--SPAM*usa.net> writes:

- quote -

Yup. A general rule of thumb is that you should pay off the
highest-rate debt first. What other kind of investment pays a 7.25%
return, risk-free? Plus, if you're paying PMI now, you'll get an
extra "bang" for your buck if you can get rid of it.

Beyond that, you seem to be in reasonable financial shape. I'd say
you probably don't need a bigger emergency fund than you have now and
that it would be better to sock any more extra money away in long-term
investments (which includes paying down your mortgage). A home equity
line of credit can supplement your existing emergency fund, too.

Anyway, if I were in your shoes, I'd max out the 401(K)s and then put
any extra money towards retiring the 7.25% mortgage, and once that's
done I'd divide the extra money between paying off the 6% mortgage and
a few good mutual funds in a taxable investment account.

-Sandra

Hey everyone, thought I would spill my details and see what I can do
better with my money. So, here we go!

Goal : Retire at a reasonable age (50-55 or so) and live reasonably
well in the meantime (no worse than how I live now).

The facts :

-I am 27, wife is 26.
-No kids. Still undecided whether we will, but its 3 years away at
the minimum.
-Live in Houston, TX

Assets and Income :

-Combined income is around 95k, no plans for either of to stop working
anytime soon. Jobs are with large successful companies and look to be
pretty stable (though who knows, eh?). We can count on small cost of
living type raises as time goes on, probably more, but nothing super
dramatic.
-About 15k combined in each of our IRAs. We now both contribute the
maximim.
-We both contribute about 10% of our incomes into each of our 401ks
(maximum company match benefit met). Current 401k value is around 50k
or so.
-33k in a savings account earning 2%

Debts :

-Just bought a new house. 165k mortgage on a 185k house. Doing an
80/10/10 mortgage 30 years fixed at 6.0%. We are currently paying an
extra $400 a month to the principle balance. I actually don't plan on
living here for more than 5-6 years, but don't plan a big upgrade
either...just turns out I know this isn't my "forever house"
-Only debts are college loans...about 15k at 4.5%. Paying an extra
200 a month or so on these. Interest rate is low, but I hate debts.
-No auto loans, both cars are paid for and should last another 3-6
years.
-No CC debt.

Right now we aren't saving much because of all the new home expenses
(wife going a little nuts), but that should calm down within the next
6 months. We basically breaking evening while we furnish the place,
but we're not touching much of our savings.

Anyway, I want advice on what we can do better. I think we're doing
okay by trying to remain relatively debt-free, but having 33k in a
savings account isn't smart I imagine. At the least I plan to ladder
some CDs with some of it. But how much liquid savings does the
average consumer like us need?

Once we start saving again (maybe 1k to 1200 a month) it smarter for
us to pay down our mortgage, put money in savings, or contribute more
to our 401ks?
Should we pay off the second loan of our 80/10/10 mortgage (18k or so
at 7.25%) in its entirety?
Any other advice?

Thanks for any advice!