Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into online savings accounts or similar safe investments that earn 4-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am have not been as active in this “game” recently. My credit score remains high enough that I haven’t seen any negative actions.
Retirement and Brokerage accounts
Markets went up, although as usual I don’t know why. I’ve been swearing off CNBC so I’m especially detached from all the buzz. Most of our retirement accounts rose about 10% the last month, which was over a $10,000 gain. I actually wish it stayed down so I could start investing some of my new cashflow at lower prices. However, waiting for it to drop again is not logical behavior, or so I keep reminding myself…
Cash Savings and Emergency Funds
We did still save a good deal of cash from our income this month, but I shifted about $10,000 of it into my brokerage account so that I can start investing in taxable accounts, which skewed the values above a bit. We still have a year’s worth of expenses in our emergency fund, which always gives me the warm fuzzies.
Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions. These sites are really wonky. Last month I was actually up, but this month my home’s estimated value dropped over $32,000 in a month. Shrug. I’m lucky that our work situation is doing well and we have no plans on moving.
According to my quick and dirty plan for financial freedom I should start paying extra towards my mortgage, but I’m having a hard time pulling the trigger on this one as well. I feel inflation coming. Should I just invest in stocks, and keep my 5% mortgage as long as possible?
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This is always contentious. I am continuing my extra principal payment every month until inflation arrives. 🙂
I had those same thoughts over the last few years, but am really glad that I stuck to the debt-free plan. It actually worked better than expected for me, with the market troubles.
My strategy was to continually review rates and chase them as long as I could make close to or more than my mortgage interest, but only in FDIC insured accounts. I did not want to risk losing the money that I saved to pay off debt.
With your mortgage, you should still be able to find some online accounts that will mostly offset the mortgage interest, and allow you to retain that cash until either inflation kicks in and you enjoy it, or you decide to pull the trigger and pay the house off (also enjoyable).
I wonder which one among Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) gave you the highest and lowest estimations.
Just remove your home valuation from the whole net worth calculation. I don’t include my home in my net worth, since the value is so unstable now and it is only worth what someone is willing to pay for it *when you want to sell it*.
I try to focus only on what I can control, contribution rate, taxes, and asset allocation. Since the wildly fluctuating value of your home does not offer any real insight, why include it?
Yikes!
Mortgage > home value
My thoughts is that you might want to pay extra on your mortgage until you’re back to 80% LTV. Then just continue paying the regular mortgage payment and invest the extra.
Jonathan, which brokerage are you using these days? i remember that zecco is no longer free anymore from one of your recent posts so i wasn’t sure if you switched?
underwater now?
I would suggest that getting your LTV improved could be helpful in the future if rates drop a lot and you ant to refi
How did your Brokerage go up 178%???
You’re sitting on $100K in cash — that must be nice! I just bit the bullet and spent $5K refinancing my great mortgage (that was 4.625%/20 yrs) in order to get money out for a real emergency fund (I took out $65K), just in case anything happened to our jobs. I now have a 5.00/30 yr, which seems really dumb, but I couldn’t live with the uncertainty anymore. I always said I would use my retirement (pre-tax 403b) as an emergency fund, but with the market tanking and all the penalties it would be really bad news if I had to use that.
I really feel much better having all this cash around now. Money seems to attract more money too — I feel like I’ve been saving more and my regular checking account (which used to only have about $2K extra in it), now has about $6K extra. yeah, I’m cash rich now, only problem is now I have to work for 30 more years (well, maybe not really)!
JT – read what he wrote, it is all explained in the details.
I didn’t even notice that FMF! I am now upside down on my house. (I think this is the first time.) I guess this proves that a house certainly can be a poor short-term investment.
You’re not the only one who doesn’t know why the market is up.
I don’t think the monthly average of multiple website valuations of your home is giving you the desired smoothing. I think that, for estimating your home value, you should go to a moving average of 3-6 months so that your net worth doesn’t swing so much with volatility in housing prices. You could reasonably do the same with stocks, too. Considering you don’t have plans to sell any of those things anytime soon, I think that a moving average is probably a better measure.
You want to make additional payments after inflation arrives, correct? Make those payments when the dollars are cheaper.
Johnathan
What bank do you use for your cash? Emigrant direct is now 1.55 which is pretty lame.
why make the extra payments now?
if you are not selling, might as well sit on the cash for security’s sake.
if you can find reasonable interest rates somewhere, start piling that money in and collect whatever you can – when you have a nice chunk, maybe in a year, reassess your situation and consider a lump sum payment. if things go south (recession isnt over yet) then you have more safety net (which could help you if you want to stick to a schedule for having kids) or if things get better, then you can just pay it in.
i doubt you would refi much lower than where you are (seems unlikely to be worth the cost), so paying down to 20/80 LTV seems to have little use to you.
of course, if there is inflation ahead, then perhaps you want to spend your money on other things now, before it loses value…
In March I would have said yes, but stock performance from here is likely to be average at best, at least domestically.
Inflation is sort of the best case scenario now in terms of economic growth.
My wife and I are pretty much in the same situation. We both agree to pay off our mortgage next but, she convinced me to save up the cash rather than pay to principal monthly. She pointed out that paying principal down does not reduce risk, your monthly payment is not reduced. Since I think it will take 6-7 years to save this money it is being stored in taxable brokerage accounts.
“She pointed out that paying principal down does not reduce risk, your monthly payment is not reduced. Since I think it will take 6-7 years to save this money it is being stored in taxable brokerage accounts.”
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It is where i landed too. I like the idea of paying off my mortgage early and be debt-free. But at the same time, I figure that since paying principle down doesn’t affect my monthly payment, I’d rather put the extra money in another account and save it until I have enough to pay off the mortgage in a lump sum payment. This way, if something happens, I have a second source of emergency fund. The only potential downside is that I might not have the financial discipline to keep accumulating the cash pile intended for the mortgage lump sum payment.
My paying down mortgage maxim: If you can buy a risk free (FDIC/government guaranteed) investment for a higher rate than your mortgage – then don’t pay down your loan. In all other situations, allocate excess capital toward debt.
I pay an extra $200 a month because my payment went down $200 through a refi 4 years ago but I never changed the amount of the auto payment as we had budgeted for it. It took our 30 year loan and made it a 25 year loan. Only 20 years to go now!
As much as including your house value in your net worth sucks @ times, I find it incredibly important. You might not be able to control it as a commenter has mentioned, but you sure do control the debt side of it!
I wonder if those who don’t include it also skip out on including the mortgage side of it? I hope not, that’s a huge part of your financial life and net worth.
DO NOT PAY DOWN DEBT AT LOW RATES! Inflation is just around that corner which means interest rates will skyrocket. You will be kicking yourself in 5 to 10 years wondering why you did not borrow more at these rates. Plus, equity doesn’t provide a return.
Debt is also psychological. Also, salaries do not usually keep up with inflation and it is a lot easier to build up a cash reserve without large payments.
The market has been up from march 9th because the banks used the TARP money to buy each other’s stocks to issue more shares at a higher price. Once they paid it back, the upward move stopped on a dime and now they call it “consolidating”.
This is unsustainable without a real recovery. Eye of the storm are we in as Yoda would phrase it. Sep/Oct we’re headed back down.
The best part of this post is it will be lost in the shuffle while coming true! Cassandra! Cassandra! Where art though?
Can you tell us your personal saving rate?
Personal Savings Rate = (disposable income – consumption) ÷ disposable income
Where Disposable Income = personal income – tax payments
What is your net worth goal, and at what age?
Rgds,
RB
Why is that we are over half-way through the year and you’re only 26% funded in your 401k? Don’t you make regular contributions?