Wondering if the FW finance gurus will throw a little advice my way.
Okay, so we're married and have excess income at the end of the month.
Current liabilities -
2nd car loan (13,000 - expensive, but taking advantage of 0% financing, balance will be paid off in 3 years) Student loan (15,000)
Credit Husband - approximately 17 years of credit card history through AU . Husband and me - car loan (mentioned above), Me - 2 years as AU on an unsecured card (currently with a 1,000 balance on an 8000 limit, but will be gone next month.)
Questions:
1) Is my credit (2 year history, with recently paid off balance) good enough for a card in my own name?
2) What is the best plan of action for long term savings/investment?
- Funnel money into a Roth while we are in a low tax bracket, but that makes the money inaccesible for homebuying or student loan payments.
- Pay off the student loans aggressively, and make saving/investment a lower priority.
- Dump the money into a savings account (I have an eMigrant) against a home purchase in 3 years time at the end of the car loan.
- Dump the money into a savings account against the eventuality that our first car gives up the ghost and avoid having to finance a vehicle -or, at least, have better financing terms.
1. Good for you, to live such that you have extra money left over. Keep that up. 2. Quit buying stuff on credit. Pay cash for cars in the future. 3. I assume you could get a card. You could certainly apply! 4. You're taking the first steps. Now, you need to sit down and determine when you're going to need money (you mentioned homebuying as a specific target), and how much you'll need. Other possibilities include having children, sending them to college, and your own retirement. Starting up a business is another possible expense in the future. 5. If you do want to keep next-car money in something liquid enough that you could buy one next day if you had to, use money market funds. But an alternative is to put the money in CDs and put a new car on a loan, and then pay off the loan 100% when the CD matures. 6. Once you have an idea of what cash outflows you'll need to accommodate and when, you'll be able to match your investment inputs with the outflows, and see what sort of returns you'll need. 7. I recommend starting with using whatever savings plans are available at work. If your employer matches a 401K, jump on it. After that, try a CD while learning about mutual funds. Use your 401K to learn a bit about how MFs work.
mariojm
Senior Member - 2K
posted: Oct. 10, 2006 @ 12:42p
You can't be that big of an idiot if you have excess income that you need to decide to do something with. I agree with StevenColorado, especially with putting the money in CDs while rates are high. I think next year there's a good chance you'll see your Emigrant account rate dropping. By the way, e is uppercase and M lowercase... although, I think your spelling of it is very imaginative, perhaps ED should adopt it.
Get a free trial from a "credit monitoring" site. Privacyguard.com gives a two month trial for $1. If your FAKO numbers are in the 700's apply for a Chase card and see if you get instant approval. If so, you might manage an AOR.
The Roth money isn't entirely locked up, you can W/D $10k for first time homebuyer. If you do this, it will mess up your retirement savings credit (Form 8880) for a few years. If your joint AGI is over $30,000, then the 8880 credit isn't that important. The $10,000 hole in your IRA might be very important in another 40-50 years.
eloh said: Is my credit (2 year history, with recently paid off balance) good enough for a card in my own name? Yes, assuming there are no black marks.
you have debt and youre asking what to do with 'excess' income?
Uh, he's not 35, and I'm not 20.
As for debt, I don't see why I should pay off a car loan that's not accruing interest when that money could be growing in a bank account or investment over the 3 years it would take to pay it off. We would pay taxes on that return, but I think we would still be up in the end.
You also haven't answered the question re: student loans - student loans would accrue interest faster than any savings or investments would return. However, federal student loans are more forgiving than other conventional loans if we have a sudden need for cash. If we pay off that debt, then we run the risk of having to borrow more money under less favorable conditions if an unexpected event happens - hospitalization, car accidents, family events.
So, yes, we have excess income, but I'm not sure if it's in our best interests to apply it towards debt or invest it. Additionally, student loan interest is tax deductible, as would a home loan (should we do that), and while a Roth wouldn't give us a tax break NOW, it represents a significant tax break in the long term.
So, molecule an zzyzzx, I eagerly await your glimmering pearls of wisdom as to why I'm an idiot. I'm well aware of that fact, (see title of thread), but it'd be nice to know why, so I can learn how not to be one.
taxmantoo said: Get a free trial from a "credit monitoring" site. Privacyguard.com gives a two month trial for $1. If your FAKO numbers are in the 700's apply for a Chase card and see if you get instant approval. If so, you might manage an AOR.
I'm a little nervous about the AOR - as well as withdrawing from IRAs. We won't be eligible for 8880 credit coming up soon, which is why we're considering dumping money in a Roth while the tax bracket is still in our favor. If we withdraw for homebuying, would be able to put 10,000 back into the IRA later, or would the standard yearly contribution limit that?
Invest with me. I will pay you money market rates just 1% below ING's rate (I have a reason for that. Most of you should know what it is). You can withdraw the money at any time.
33% Vanguard Roth Target Fund 33% Emigrant Direct or ELoan savings 33% ETF (buy in bulk purchase for lower fees)
Don't consider me your financial advisor.
zzyzzx
Senior Member - 3K
posted: Oct. 11, 2006 @ 12:29p
eloh said: So, molecule an zzyzzx, I eagerly await your glimmering pearls of wisdom as to why I'm an idiot. I'm well aware of that fact, (see title of thread), but it'd be nice to know why, so I can learn how not to be one.
I did not call you an idiot, or anything else?? I implied that since you have the student loan debt that you are presumably paying interest on, that you do not have excess cash and should pay off that loan. I'd pay off the car loan after that, but at this point yes the car loan payoff is more of a personal preforance.
wffsoccer
Senior Member - 1K
posted: Oct. 11, 2006 @ 12:33p
adiganifatwallet said: Rent a helicopter and throw your money from 500 feet. It will satisfy your eyes seeing money-rain
lmfao, havent cried laughing that hard in a long time.
zzyzzx said: I did not call you an idiot, or anything else?? I implied that since you have the student loan debt that you are presumably paying interest on, that you do not have excess cash and should pay off that loan. I'd pay off the car loan after that, but at this point yes the car loan payoff is more of a personal preforance.
Yes, but what are the benefits of closing out a student loan account? How will that affect my credit standing, and what are the penalties for keeping it open? How does that weigh against saving that money as a hedge against future debt or retirement? Are there any hidden risks in having assets (savings/investments) and carrying debt at the same time?
sprintuser said: What the hell is excess income? I don't know what it means to you. To me, it means income in excess of what we need to spend to meet our budgeted expenses (save xxx every month, pay bills, invest xxx, etc.) Income for which we never alloted a 'purpose', I guess.
jack07002
Senior Member - 1K
posted: Oct. 11, 2006 @ 1:45p
sprintuser said: What the hell is excess income?
Pay off the student loans aggressively,...
excess income when you have a good amount of debt above? huh?
Sorry if I hijack this thread, but I've seen so many of these lately I didn't want to start a new one.
My situation:
1. income of $1.5 million / year 2. unsecured debt $800k @ 0% invested at 7.5% return 3. house value 5 million mortgage $750k left 4. $10MM liquid assets
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
Members of our community may attach files to a post in accordance with the User Agreement. FatWallet is not responsible for the content, accuracy, completeness or validity of any information contained in any attached file. Files have *not* been scanned for viruses. Be especially wary of Excel files which may contain malicious content.
