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Post by mattahawk on Jan 28, 2009 18:00:32 GMT -6
My wife and I are in a situation that can be described as good but not without it's headaches. I am coming into about 35grand here over the next couple of months and we are at a loss what to do with it. We have narrowed it down to 3 choices with those being.
1) Pay off the main mortgage on the house ($31,000) and pay off a bunch on the 2nd loan through the bank on the house($5,000). This would leave us with not a dime in the bank but about a year away from owning our house. Valued in the low-mid 50's. If we can finish off the basement that would put us in the $60,000+ range. We do intend to put it on the market this spring.
2) Pay off this loan on credit cards at 360 a month($5,800 left) Pay off the 2nd loan to the bank on the house($7,500) buy a really nice vehicle (around 12-13,000) a good 2nd vehicle for me(around 3-4,000) and bank the rest, (about $5,000) due to the economy. The wife and really like this option.
3) Pay off loan to the bank, credit cards($5,800) and as much as possible on the loan to the USDA for house about ($29,000 out of $31,000) which we would have $2,000 left to pay but would have it payed off in a year for sure. This option would be about a year, not quite, from giving us an extra 700 a month which we also like.
All 3 options are very appealing to us. We really like the idea of being very close to owning our own house and then going out and using the house as collateral to buy a vehicle we really want. If we did this we would have the loan to the bank, $5,800 paid off within a year also. Next spring for sure although we have been saying we are going to pay that one off for 2 years now. What sayeth the board?
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Post by NOTTHOR on Jan 28, 2009 18:23:52 GMT -6
Pay off all credit cards first. Pay off the second mortgage second. Keep an emergency fund with at least 6 months of living expenses. You should never let your bank account dip too low.
Be very wise about buying cars -- why do you need a second car? Why do you need a nice car? Are you going to be hit with any surprise taxes on the $35k in 2010? If so, you better set some of it aside for that.
Do you have a Roth IRA or retirement account? If you don't, you might want to go that route with part of the money. I wouldn't sweat the primary mortgage too much, it is nice to have it go away, but you can keep paying on that without too much pressure, right? I'd rather have cash and tax deductible mortgage debt (especially if it's at a really low rate) when I'm young so I have security if anything happens and I need cash immediately (sickness, job loss, family issues, etc.). If you need cash ASAP, it's way easier to withdraw it from the bank than to go down and get a HELOC, but it's really up to you to decide what makes you the most comfortable - maybe you'd rather get the mortgage down to zero and then allocate the $700 a month toward retirement then. Just make sure retirement is a high priority - you're a young guy and the likelihood of the state taking care of you when you're old is slim.
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Post by socal on Jan 28, 2009 18:34:15 GMT -6
First off, if it's inheritance - don't begin spending it until you actually get it. I've been excited too many times, then end up having to wait a year.
Pay off the CC's/loan - then close the accounts so you don't use them again.
Then plan on keeping at least half of it in the bank --- look at some basic CD's, etc. as there is too much chaos everywhere else.
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Post by twinegarden on Jan 28, 2009 18:49:50 GMT -6
I'd definately pay of the CC's first since you are most likely paying the highest interest rate on those. I would try to resist going out and blowing half of it on a car. Even if you need a new car very badly you can find a pretty good deal on something that is not going to dent you very badly financially and will still be a quality vehicle.
You could even consider refinancing your mortgage with current interest rates being low. With paid of CC's and a paid off second loan your credit rating should jump enough that you would be a likely candidate for refinancing.
Like BTR said, if you want to put into retirement that may not be a bad idea and you could dollar cost average your maximum contribution for yourself and a wife. Doing that would help a great deal toward retiring comfortably while share prices are low and you are at a young age. Then again, paying off your mortgage would free up money to do this in the future.
Keeping at least 10,000 in an emergency fund is also a great idea. Having that kind of cushion would provide not only financial but emotional benefits as well in these trying times.
You have alot of good options, I would firstly suggest paying off the CC's and try to avoid spending more than you need if you are looking to buy a car or anything like that. That stuff is meant to be enjoyed after you have taken care of life's other obligations, not before.
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Post by Iowafan1 on Jan 28, 2009 19:14:36 GMT -6
Pay off all credit cards first. Pay off the second mortgage second. Keep an emergency fund with at least 6 months of living expenses. You should never let your bank account dip too low. Be very wise about buying cars -- why do you need a second car? Why do you need a nice car? Are you going to be hit with any surprise taxes on the $35k in 2010? If so, you better set some of it aside for that. Do you have a Roth IRA or retirement account? If you don't, you might want to go that route with part of the money. I wouldn't sweat the primary mortgage too much, it is nice to have it go away, but you can keep paying on that without too much pressure, right? I'd rather have cash and tax deductible mortgage debt (especially if it's at a really low rate) when I'm young so I have security if anything happens and I need cash immediately (sickness, job loss, family issues, etc.). If you need cash ASAP, it's way easier to withdraw it from the bank than to go down and get a HELOC, but it's really up to you to decide what makes you the most comfortable - maybe you'd rather get the mortgage down to zero and then allocate the $700 a month toward retirement then. Just make sure retirement is a high priority - you're a young guy and the likelihood of the state taking care of you when you're old is slim. I don't think Dave Ramsey himself could have done better. This is great advice. |
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Post by mattahawk on Jan 28, 2009 19:26:22 GMT -6
Pay off all credit cards first. Pay off the second mortgage second. Keep an emergency fund with at least 6 months of living expenses. You should never let your bank account dip too low. Be very wise about buying cars -- why do you need a second car? Why do you need a nice car? Are you going to be hit with any surprise taxes on the $35k in 2010? If so, you better set some of it aside for that. Do you have a Roth IRA or retirement account? If you don't, you might want to go that route with part of the money. I wouldn't sweat the primary mortgage too much, it is nice to have it go away, but you can keep paying on that without too much pressure, right? I'd rather have cash and tax deductible mortgage debt (especially if it's at a really low rate) when I'm young so I have security if anything happens and I need cash immediately (sickness, job loss, family issues, etc.). If you need cash ASAP, it's way easier to withdraw it from the bank than to go down and get a HELOC, but it's really up to you to decide what makes you the most comfortable - maybe you'd rather get the mortgage down to zero and then allocate the $700 a month toward retirement then. Just make sure retirement is a high priority - you're a young guy and the likelihood of the state taking care of you when you're old is slim. Technically we own a 00' Town and Country with 122k on it. My wife works out of town and we go to Rochester a lot for my kidneys. It is at best an average vehicle for as much as we are on the road. We also own a 92' olds with 150k on it but the damn thing keeps running so we have decided we are going to run it until it dies. It is fairly necessary to have 1 VERY dependable vehicle. We have my 401k which I am probably going to be getting from work to do getting fired/laid off. (long story) nothing bad on my part but it is inevitable. We are thinking about taking the money from my 401k, not much left after the last 3 months slide, about 10 grand before taxes. Had close to 20k. We thought about doing what you said, paying off these bills and we could sock a few hundred a month away into retirement and add up quickly, we hope. The money is not an inheritance, it's a combination of things. Compensation for a work injury 20grand/ Tax returns about 8grand and my 401k. The credit cards aren't Credit cards per se'. My grandma gave us a loan with her CD as collateral and we are down to the last 5,800 bucks. What a haul this last 3 years has been. We have them at about 6% interest right now and with rates dropping we can probably get it cheaper. That's why we are thinking about continuing that loan for another year. We don't want to refinance the loan to the house as we intend to sell. God willing this year but it probably won't happen. It's not the interest rate that is killing us really, it's the bank, hate them F*****S!!! and the size of the loan, 360 a month. It would be nice not to make it. I should explain the house loan. I bought the house before I met my wife in 99' for 43,500. Being a first time home buyer and otherwise not a dime to my name I went with the USDA and they gave me a 80% loan and made me go to the bank for the other 20%. The 20% loan balloons to like 35grand in 4 years if I don't have it paid off. Thanks for the advice. Keep it coming.  |
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Post by NOTTHOR on Jan 28, 2009 19:45:39 GMT -6
Dude, listen - DO NOT CASH OUT YOUR 401(k). Get a financial advisor ASAP for that - even though your company might try to cut you a check for it or say you can't keep it with them, I think you have 60 days to do an IRA Rollover. Do that. DO NOT CASH IT OUT. You will have to pay ordinary income tax on it AND a 10% penalty. Do not pay the gov more than you have to in taxes.
Use whatever else you can to get your loan and second mortgage down, don't let that second mortgage balloon under any circumstances, I'd probably pay that first since it sounds scarier than the loan. I'd put a new car pretty low down on my list, especially if you are close to getting laid off. Keep that 401K or IRA rollover in your back pocket as your emergency fund and only tap it if it is necessary to prevent your second mortgage from ballooning.
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Post by germaine on Jan 28, 2009 20:23:03 GMT -6
Pay off all credit cards first. Pay off the second mortgage second. Keep an emergency fund with at least 6 months of living expenses. You should never let your bank account dip too low. Be very wise about buying cars -- why do you need a second car? Why do you need a nice car? Are you going to be hit with any surprise taxes on the $35k in 2010? If so, you better set some of it aside for that. Do you have a Roth IRA or retirement account? If you don't, you might want to go that route with part of the money. I wouldn't sweat the primary mortgage too much, it is nice to have it go away, but you can keep paying on that without too much pressure, right? I'd rather have cash and tax deductible mortgage debt (especially if it's at a really low rate) when I'm young so I have security if anything happens and I need cash immediately (sickness, job loss, family issues, etc.). If you need cash ASAP, it's way easier to withdraw it from the bank than to go down and get a HELOC, but it's really up to you to decide what makes you the most comfortable - maybe you'd rather get the mortgage down to zero and then allocate the $700 a month toward retirement then. Just make sure retirement is a high priority - you're a young guy and the likelihood of the state taking care of you when you're old is slim. I don't think Dave Ramsey himself could have done better. This is great advice. Agreed, though I'd need a list of all debts (in order of smallest to largest) to give better advice. ;-) You don't need to spend $12k to get a very reliable vehicle. $5k is plenty, especially when you have debts. Look around, be patient, look into salvage title vehicles (I had one that definitely did its job...lasted almost 90k miles in just over 6 years...paid $5k). Save $1000 for an emergency fund (maybe $2k depending on your situation). Put the rest towards non-mortgage debt (including HELOC). If there is anything leftover, put that in the emergency fund, follow BTR's advice about investing, and put whatever money you were paying each month towards the other stuff (CC, loans, whatever) towards the mortgage and saving up for a new-to-you car. I won't go so far as to say that Dave Ramsey is a god, but I do think he offers some very practical advice...the most important, I think, is creating and following a budget. Thanks to the whole budget thing, I'll be debt free (car loan) much, much, much sooner than I originally thought (all on my very prole-ish paychecks)...and I'm even breaking the rules by taking a few vacations. |
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Post by germaine on Jan 28, 2009 20:26:50 GMT -6
Were there large life changes/circumstances that would result in an $8k tax return? If not, adjust your withholdings...8000/12 = 666.66. That's how much more money you could potentially have each month.
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Post by NOTTHOR on Jan 28, 2009 20:52:16 GMT -6
follow BTR's advice about investing WRONG - short everything I recommend. I own the financial blackbox zombie portfolio of "blue chip stocks" that "should be the cornerstone of every portfolio" according to the "experts" and it will take me years of gains to wipe off these capital losses, I'm long 1500 AIG, bought all the way down starting at $48, over 1,000 Citibank, bought all the way down starting at $29, 500 BAC, bought all the way down starting at $35, had Wachovia til it got converted into WFC, long AHR, mortgage REIT that is in decent shape but seeing cost of capital pushed through the roof (still kicking, but I have 1200 shares at an average cost of $4 something and it's down around $1 now). Buy the index. SSO is a 2x leverage S&P fund that I have traded in and out of for a few months when we get big dips. DIG and DUG are my two other short term traders - those are long and short oil, they swing violently and you can make a few hundred bones a day either way on them pretty easily, I figured I will need to trade them successfully for about 2 years to get out from under my zombie blackbox losses. Moral of the story - don't listen to my advice about investing. The only difference between Wall Street and Vegas is that Wall Street investment houses won't let average Americans see the marble floors and sinks their hard earned wasted dollars have built, but Vegas will. |
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Post by iammrhawkeyes on Jan 28, 2009 21:34:51 GMT -6
Moral of the story - don't listen to my advice about investing. The only difference between Wall Street and Vegas is that Wall Street investment houses won't let average Americans see the marble floors and sinks their hard earned wasted dollars have built, but Vegas will. Plus you get a watered down free drink! |
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Post by mattahawk on Jan 28, 2009 22:03:22 GMT -6
follow BTR's advice about investing WRONG - short everything I recommend. I own the financial blackbox zombie portfolio of "blue chip stocks" that "should be the cornerstone of every portfolio" according to the "experts" and it will take me years of gains to wipe off these capital losses, I'm long 1500 AIG, bought all the way down starting at $48, over 1,000 Citibank, bought all the way down starting at $29, 500 BAC, bought all the way down starting at $35, had Wachovia til it got converted into WFC, long AHR, mortgage REIT that is in decent shape but seeing cost of capital pushed through the roof (still kicking, but I have 1200 shares at an average cost of $4 something and it's down around $1 now). Buy the index. SSO is a 2x leverage S&P fund that I have traded in and out of for a few months when we get big dips. DIG and DUG are my two other short term traders - those are long and short oil, they swing violently and you can make a few hundred bones a day either way on them pretty easily, I figured I will need to trade them successfully for about 2 years to get out from under my zombie blackbox losses.
Moral of the story - don't listen to my advice about investing. The only difference between Wall Street and Vegas is that Wall Street investment houses won't let average Americans see the marble floors and sinks their hard earned wasted dollars have built, but Vegas will. That is something I was considering. How the hell would I go about investing me in some freaking oil? I know it's starting to go back up thanks to those money hungry arabian freaks that cut production back 2.5 million barrels but it just started going up. It is going to hit 175-200 a barrel, that I am sure. Each summer it goes up a little higher than the year before. I actually keep track of these things. Sort of. Germaine, it's kind of funny laying out your bills on-line. Your basically baring your soul. We tried a salvage vehicle once, bought it from the state at an DOT auction. THE biggest piece of shit we ever owned. Bar none. I would highly doubt I can talk my wife into traveling down that road again. The tax return is probably the last big one we will see for quite some time, if ever. We are done with the child tax credit of 1,100. I'm not working or at least working much but I have my disability checks for work for another 3 weeks. We have medical expenses we can deduct but that wasn't near as much as we thought we would get for the amount we had. Then things will get a little dicey for 3 months with no check until they either fire me or lay me off in which case I will get unemployment. Which is why we want to pay off some of these bills. If we can cut down the bills we can live off the wifes income until mid-may. 120 daycare 360 loan to bank. 6%. x 340 house loan 6 or 7% x 72 house loan 7% x 300 utilities (water/electric/heat etc.) x 65 Directv x 50 phone/internet x 100 cell phones x 300 food x 170 van x 75 car/van insurance x 150 gas x ----- 2,100 total give or take. See the thinking is if we pay off the bank loan for CC's/ the small house loan for 72 that will leave us with the big house loan which is tax deductible. Or pay off the CC's and as much of the big house loan and save us 700 a month. Coupled with me not driving to work and saving us 100-200 a month in gas and 800 in daycare, we would come out even at worst. Beyond that all we have to pay is our regular monthly bills. That's it. And we would still have $5 grand in savings for when things get tighter. Which there MAY be more money coming later, hopefully by this fall or winter depending on how things play out. But we can't count on it so we aren't including it in our future plans, as of yet. |
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Post by germaine on Jan 28, 2009 22:28:14 GMT -6
How many people are you feeding? It's possible to spend about $25/person/week with some planning. This may vary if you have certain dietary needs. Limit eating out.
Car auctions are hit or miss (assuming it's the type of auction where you can't have the car inspected). There are dealers who get salvaged cars and fix them up, so you can have your mechanic look at it before buying it.
I would say pay off the bank loan (360/month) and house loan (340/month) right away, so those are done and you free up a lot of money. Put the rest in savings for the time being (and put the $700/month into savings as well), that way if the worst case scenario happens, you'll be prepared. Then, after things stabilize, you can throw the extra money at the rest of the loans.
"Van"...is that a loan for the van? What's the balance? If it's only a few thousand dollars, pay it off. If it's a lot more, hang on to the money for now (see worst case scenario above).
Maybe set aside $1000 in a separate account for car repairs (this is in addition to the BEF...baby emergency fund). After the loans are paid off, you can save towards buying a new-to-you car so you don't have to take out another loan (no new debt!).
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Post by germaine on Jan 28, 2009 22:37:07 GMT -6
www.llnoe.comThis is a Dave Ramsey message board. You do have to register to read it, but it's free. Some of the stories are incredible (100k+ in CC debt, plus 80k in student loans). But there are a lot of people who give fantastic advice (sometimes very bluntly). If you're not familiar with DR, his plan is based on baby steps. pre-BS1: Get current and build a budget BS1: Save $1000 in the bank (easily accessible for emergencies...this is your BEF) BS2: Pay off all non-mortgage debt BS3: Finish the emergency fund (at least 3-6 months of expenses...note expenses, not necessarily salary) BS4: Save for retirement BS5: Save for college BS6: Pay off mortgage BS7: Build wealth and give it away BS4, 5, and 6 are often done at the same time. Good luck! You definitely have a great opportunity.
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Post by Iowafan1 on Jan 28, 2009 22:47:57 GMT -6
www.llnoe.comThis is a Dave Ramsey message board. You do have to register to read it, but it's free. Some of the stories are incredible (100k+ in CC debt, plus 80k in student loans). But there are a lot of people who give fantastic advice (sometimes very bluntly). If you're not familiar with DR, his plan is based on baby steps. pre-BS1: Get current and build a budget BS1: Save $1000 in the bank (easily accessible for emergencies...this is your BEF) BS2: Pay off all non-mortgage debt BS3: Finish the emergency fund (at least 3-6 months of expenses...note expenses, not necessarily salary) BS4: Save for retirement BS5: Save for college BS6: Pay off mortgage BS7: Build wealth and give it away BS4, 5, and 6 are often done at the same time. Good luck! You definitely have a great opportunity. Excellent website |
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Post by mattahawk on Jan 28, 2009 23:03:55 GMT -6
How many people are you feeding? It's possible to spend about $25/person/week with some planning. This may vary if you have certain dietary needs. Limit eating out. Car auctions are hit or miss (assuming it's the type of auction where you can't have the car inspected). There are dealers who get salvaged cars and fix them up, so you can have your mechanic look at it before buying it. I would say pay off the bank loan (360/month) and house loan (340/month) right away, so those are done and you free up a lot of money. Put the rest in savings for the time being (and put the $700/month into savings as well), that way if the worst case scenario happens, you'll be prepared. Then, after things stabilize, you can throw the extra money at the rest of the loans. "Van"...is that a loan for the van? What's the balance? If it's only a few thousand dollars, pay it off. If it's a lot more, hang on to the money for now (see worst case scenario above). Maybe set aside $1000 in a separate account for car repairs (this is in addition to the BEF...baby emergency fund). After the loans are paid off, you can save towards buying a new-to-you car so you don't have to take out another loan (no new debt!). We have 5 in the family. Us and our 3 girls. 5/3/ and 1. We are usually in the $75 range per week. That goes up and down depending on if we spend $20 on garbage bags, 8 for laundry soap, etc. We usually buy that stuff about every 3 weeks I think. As far as my dietary needs, I do have some but I have been really shitty at following doctors orders the last month or so and it has shown up in my blood tests. Cars, I hate buying them but I love looking and "fantasizing" about which won we are going to get and what we can afford. If we pay off the 360 dollar loan and the 340 dollar mortgage we won't have anything left and will still owe about 2 grand on that mortgage. But we would/should have it payed off within a year. If we pay off the 360 dollar loan and the little mortgage ($72) we will have a bunch left over, about 22 thousand depending on what we do with a vehicle. Yes, the 170 is for the van loan. That's something else, if we sell the POS and get a newer one, around 06'/07' for about 12/13 grand we could conceivably put half down and keep the 170 payment. That's a thought. And we would own a nice van in 2/3 years. My wife actually had a good idea, not that she usually don't, but she said to pay off the loan and the house by next year, then go out and we could afford to buy 2 newer/new vehicles, pay them off since we have no other loans and then move and get the house we want. I like the idea of putting 6-8 grand in the bank for a rainy day. It's not a bad idea. The $69,000 question is would we be ok paying off the big bills now and just getting by until I get back to work? |
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Post by NotMyKid on Jan 29, 2009 9:32:06 GMT -6
Dude, listen - DO NOT CASH OUT YOUR 401(k). Get a financial advisor ASAP for that - even though your company might try to cut you a check for it or say you can't keep it with them, I think you have 60 days to do an IRA Rollover. Do that. DO NOT CASH IT OUT. You will have to pay ordinary income tax on it AND a 10% penalty. Do not pay the gov more than you have to in taxes. I agree 100%. Find someone that you look up to and trust and ask them who they use for their Financial advisor. Call that person and meet with them and see what you think. They should be able to help you with a lot of these question and set up a plan to accomplish the things you want to do. |
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Post by twinegarden on Jan 29, 2009 10:42:28 GMT -6
Dude, listen - DO NOT CASH OUT YOUR 401(k). Get a financial advisor ASAP for that - even though your company might try to cut you a check for it or say you can't keep it with them, I think you have 60 days to do an IRA Rollover. Do that. DO NOT CASH IT OUT. You will have to pay ordinary income tax on it AND a 10% penalty. Do not pay the gov more than you have to in taxes. I agree 100%. Find someone that you look up to and trust and ask them who they use for their Financial advisor. Call that person and meet with them and see what you think. They should be able to help you with a lot of these question and set up a plan to accomplish the things you want to do. I would also agree %100. While I'm sure you are frustrated with the loss of value you have seen in your account keep in mind that you still own the same # of units in the seperate accounts you are invested in (or shares of the mutual fund). By moving them into a mutual fund IRA you will still be buying those shares with your rollover while the prices or low. What you currently see in your account is an unrealized loss due to the fact that you still have ownership. Sure, when rolling them you will sell the units/shares at a low price but you will buying similar investments as well while the market is down so it is a wash as far as that is concerned. There are no tax penalties as long as you roll it within 60 days of taking it out of the prior account and most companies will allow a direct rollover where company A will send a check directly to company B. Some other reasons why it is a bad idea: A. The fluctuations you see in your account are an unrealized loss, take the money out now and you secure those losses. B. By taking the money out before 59 and a half you have an additional 10% early withdrawl penalty from the IRS as well as the fact that you are probably taxed at a higher rate now than you will be during retirement. C. If you purchased some collectible items as an investment at a price of $10,000 three years ago then found out that they are currently worth $5,000 would you really want to sell them right away if all historical data shows it will eventually exceed the original $10,000 by a considerable amount. That is basically what you would be doing. D. Part of the reason to keep investing in a 401 or IRA is because the prices are low. When the markets were doing very well a couple years ago everyone considered them a great investment. Alot of people are considering investing a poor idea because they have seen losses over the last year. Here is the tricky thing about that; when people were putting their money in a couple of years ago while the markets were up they were purchasing their shares at a price much higher than right now (an example would be a fund that was then $15 per share). The reason so many accounts have lost money is because the market was over valued at that time. Now, while the returns are low the share prices are alot lower (the $15 share would probably be around $8 now). Now consider a situation where the market goes back up to where it was 2 years ago, which SHOULD happen before you reach retirement. A $1000 investment two years ago would have bought about 67 shares. The same $1000 investment right now at $8 would buy 125 shares, nearly twice the amount. If the share price goes back up to where it was 2 years ago, your investment at $15 would be a wash at $1000. With current share prices, if the market gets back to the $15 amount, your $1000 purchase today would increase to a value of 1875, which is a pretty good return and these numbers are pretty modest too. Just some food for thought, I talk to people pulling their money out all of the time at my job but with a little explaining of what is really going on you can understand why it is not a good idea. Remember, the turtle wins the race. Be patient and you will be glad you didn't take any reactionary moves with you RETIREMENT plan. |
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Post by thunderhawk on Jan 29, 2009 11:30:36 GMT -6
HSBC has a nice online savings account with a 3% return with no transaction fees, time-limits or minimum deposit. That's where I park chunks of cash until I decide where to put it long-term.
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Post by NotMyKid on Jan 29, 2009 11:45:09 GMT -6
HSBC has a nice online savings account with a 3% return with no transaction fees, time-limits or minimum deposit. That's where I park chunks of cash until I decide where to put it long-term. Those online savings accounts are a great place to keep your emergency fund and a lot better return then the pennies in interest you can get in a normal savings account. |
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Post by mattahawk on Jan 29, 2009 16:34:35 GMT -6
Thanks twine and all above.
It sounds like my wife is dead set on paying off the small 72 dollar mortgage as we have been paying on that for 9 years and have only paid $1,200 in principal. Only like $6 or $7 each month goes toward the actual principal and that drives us both nuts.
I actually had another idea this morning that I shared with my wife. Why not take the whole 35 grand and put it in a savings account for a year or two and see which bank around here will offer us the highest interest rate? I have heard of people with a lot of money, probably more than I have, doing this and getting the bank to guarantee them at least 5 or 6%. I don't think they would do it but if they guaranteed me 5% would it be worth it and just leave it in there for a year or two?
Another thought on the 401k. If I get laid off I am good with my 401k but if I let my job fire me, as the lawyer suggests, then I lose a chunk of it. It won't be worth anywhere near the 10 grand it is now. My wife had to remind me of that this morning. So I guess I won't actually have 35grand it will be a couple thousand less.
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Post by twinegarden on Jan 29, 2009 17:15:17 GMT -6
If you get fired you should be entitled to the entire amount including your employer match as long as you are fully vested. This depends on how long you have worked there. I am unaware of any other reason you wouldn't be entitled to the money in your 401k. If you were not vested and you get laid off you will be automatically vested. If you are in a position where they are going to fire you to avoid fully vesting you then they are setting themselves up for a lawsuit. If you are fully vested the money is your's no matter what.
Before you put your money in a bank to get a higher interesst rate you would be better off paying your credit card debt. Think of it this way, if you are paying 20% interest on a credit card and making 5% interest on a saving account (which would honestly be hard to find given current interest rates) you are still losing a net amount of 15% by choosing the savings account over paying off your debt.
Once you have your credit card paid off you are no longer losing the additional 20% in interest that you are giving the lender and it is in your own pocket, which could be used for whatever you wanted to spend it on. If you had 10,000 in debt that will save you $2000 per year.
Don't forget about the emergency fund either.
Also, over the long run you rate of return on your retirement should be higher than that on a savings account. Not to mention the fact that you would be securing your losses by selling out of your retirement account while the stock market is down.
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Post by roxxstar on Jan 30, 2009 9:18:25 GMT -6
I agree 100%. Find someone that you look up to and trust and ask them who they use for their Financial advisor. Call that person and meet with them and see what you think. They should be able to help you with a lot of these question and set up a plan to accomplish the things you want to do. I would also agree %100. While I'm sure you are frustrated with the loss of value you have seen in your account keep in mind that you still own the same # of units in the seperate accounts you are invested in (or shares of the mutual fund). By moving them into a mutual fund IRA you will still be buying those shares with your rollover while the prices or low. What you currently see in your account is an unrealized loss due to the fact that you still have ownership. Sure, when rolling them you will sell the units/shares at a low price but you will buying similar investments as well while the market is down so it is a wash as far as that is concerned. There are no tax penalties as long as you roll it within 60 days of taking it out of the prior account and most companies will allow a direct rollover where company A will send a check directly to company B. Some other reasons why it is a bad idea: A. The fluctuations you see in your account are an unrealized loss, take the money out now and you secure those losses. B. By taking the money out before 59 and a half you have an additional 10% early withdrawl penalty from the IRS as well as the fact that you are probably taxed at a higher rate now than you will be during retirement. C. If you purchased some collectible items as an investment at a price of $10,000 three years ago then found out that they are currently worth $5,000 would you really want to sell them right away if all historical data shows it will eventually exceed the original $10,000 by a considerable amount. That is basically what you would be doing. D. Part of the reason to keep investing in a 401 or IRA is because the prices are low. When the markets were doing very well a couple years ago everyone considered them a great investment. Alot of people are considering investing a poor idea because they have seen losses over the last year. Here is the tricky thing about that; when people were putting their money in a couple of years ago while the markets were up they were purchasing their shares at a price much higher than right now (an example would be a fund that was then $15 per share). The reason so many accounts have lost money is because the market was over valued at that time. Now, while the returns are low the share prices are alot lower (the $15 share would probably be around $8 now). Now consider a situation where the market goes back up to where it was 2 years ago, which SHOULD happen before you reach retirement. A $1000 investment two years ago would have bought about 67 shares. The same $1000 investment right now at $8 would buy 125 shares, nearly twice the amount. If the share price goes back up to where it was 2 years ago, your investment at $15 would be a wash at $1000. With current share prices, if the market gets back to the $15 amount, your $1000 purchase today would increase to a value of 1875, which is a pretty good return and these numbers are pretty modest too. Just some food for thought, I talk to people pulling their money out all of the time at my job but with a little explaining of what is really going on you can understand why it is not a good idea. Remember, the turtle wins the race. Be patient and you will be glad you didn't take any reactionary moves with you RETIREMENT plan. Sounds like you have that one rehearsed a bit twine..........been saying that alot on the phone lately? LOL |
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Post by twinegarden on Jan 30, 2009 10:27:13 GMT -6
Yeah, I say the same thing almost word for word every time. My mind is pretty much on auto pilot here at work.
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Post by mattahawk on Jan 30, 2009 16:08:33 GMT -6
We got a helluva deal on the bank credit card loan from the bank. Actually my grandma used her CD as collateral and we are getting it at 6% I believe.
I just paid off the 7,800 for the 2nd house loan at noon today. I'm FREE, I'm FREE, ok, not really, I still have the 31,000 dollar one but I got that little POS taken care of anyway.
I have been at my job for 12 years on the 6th of January. I should call JP Morgan and ask them what's going on with that.
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