What to do with extra money each month?

[disneysteve]

I have two more monthly tuition payments to make in March and April and then college expenses will be complete.

Once that happens, we will have at least 3K/month extra in our pockets. We owe 13K on our HELOC so my first order of business will be to pay that off. That will take about 4 months. So once September rolls around, I need to figure out what to do with the extra funds going forward.

I'm currently contributing 10% to my 401k. Along with funding our Roths, we're putting about 17% into retirement accounts. I could bump up the 401k contribution which would reduce our taxable income.

I could accelerate paying off what's left of the mortgage - 28K. At 3K/month, we could be mortgage-free in about 9 more months.

I do want to direct at least some of the excess into cash savings for short term stuff like my next car. My current car is 12 years old and although it's still under 100,000 miles, it has some issues that will either warrant repair or replacement probably sooner than I'd otherwise want to get another car.

There's also a some maintenance on our house that will need attention at some point. I know our roof is nearing the end of it's lifespan, for example. So building up the cash reserve definitely needs to be part of the plan.

Any thoughts on what you would do in this situation? I know that it doesn't have to be an either/or kind of thing. With 3K/month to deal with, I can certainly split it up and address several things.

[Jluke]

After the Heloc is paid.

Given the info above I would contribute more to the 401k (18.5 plus the catch up is too good to pass up assuming you have good funds with low expenses in the 401k) and build up your cash reserves for car and a new roof/home improvements.

Knowing your finances/savings/investments I would not accelerate the mortgage payments until you accomplish the above. Plus you are thinking of moving at some point so why tie up more cash in the house.

[scfr]

I'd lean towards something like the roof replacement, for a few reasons:
1. After the new roof is put on, it is likely that your homeowner's insurance costs will go down. (You can call your insurer and ask.) When we had our new roof put on, I was surprised by how much our insurance premium went down. Since you are going to have to replace the roof before your sell the house anyway, why not recover part of that cost in the form of reduced premiums for as long as you remain in the house?
2. When the roof is replaced, the roofer may find other issues that need to be dealt with before you can put your house on the market. The sooner you learn about other issues the more time you will have to save for and arrange other repairs that need to be made.
3. Give yourself a time cushion to make the best possible deal on a good quality roof. Get quotes when roofers are hungry for work. If you wait until just shortly before you want to list your house for sale, and a storm blows through your extended area creating lots of demand for new roofs, you are going to wind up paying top dollar for that new roof.

On a separate note, remember that if you pay off your mortgage, you may be able to reduce your homeowner's insurance even more by raising your deductible. You will get to decide what your deductible is, not the mortgage company.

[Fishindude77]

Sounds like a real good problem to have
Why don't you spread that money out and do all of the items you mentioned:
* Stash some away for a new car.
* Stash some away for the roof.
* Pay extra on the mortgage principal.

I know a lot of the investment savvy folks highly recommend putting extra money in the market vs paying off a low interest mortgage. I am a firm believer in getting your house paid for and living mortgage free as soon as possible. Once that is paid off, you'll have a bunch more every month to do something with, and the piece of mind is worth a lot as well.

[disneysteve]

I'd lean towards something like the roof replacement, for a few reasons:
1. After the new roof is put on, it is likely that your homeowner's insurance costs will go down.

I wasn't aware of that. I will definitely keep that in mind. Thanks.

[snafu]

Following scfr's thinking, I suggest you investigate some longer term ideas. If you are truly planning to move as part of your over all retirement plan, I suggest you start looking at information available on homes being offered for sale in your immediate area. Have they been updated/upgraded or do they have the original flooring, windows, appliances, decor, paint pallet?

If the renovators have skipped your district just fix or replace the roof as needed and anything else that a home inspector will identify. Possibly write a few notes about how to rearrange the Lv Rm to 'show' as more traditional to prospective buyers in the future. Talk to a painter as to how many days it will take for a fresh coat.

If a significant percentage of homes have upgraded kitchen and bathrms, I'd seriously consider making a few changes so that DW can enjoy new appliances and freshly painted space until you are ready to list. The listing period is so disruptive with strangers trooping through your home it needs a mind set readjustment.

The worst thing that will happen with this as yet unallocated sums, is that you'll top up ROTH if space, or regular, investment vehicle until you've identified the need to buy a different car. As a retiree, do you need two cars?

[Jluke]

I know a lot of the investment savvy folks highly recommend putting extra money in the market vs paying off a low interest mortgage. I am a firm believer in getting your house paid for and living mortgage free as soon as possible. Once that is paid off, you'll have a bunch more every month to do something with, and the piece of mind is worth a lot as well.

The increase in 401k is recommended to minimize the tax burden (assuming at least 22%) and is not strictly an invest in the market mindset.

OP has 1 million invested and owes a measly 28k on the mortgage for a home he will probably sell at retirement.

Paying that off will free up maybe $500/month (P&I)?

That advice would be good for most everyone else, but not DisneySteve (IMO).

[disneysteve]

Paying that off will free up maybe $500/month (P&I)?

$658.07 to be exact.

[corn18]

I'll pull a DS on ya and say a little of everything. $1k to the mortgage, $1k to 401k and $1k to house/car fund. Easy Peasy.

[Jluke]

I wasn't aware of that. I will definitely keep that in mind. Thanks.

Regarding insurance and a new roof you should check into that with your insurance company.

I remember telling my agent that I got a new roof at our last house (one they paid for through insurance claim) and I think I got a small discount. Coincidentally on the BH site someone posted a question about new roof and insurance not giving them a discount for it.

[Gailete]

A lot of good ideas for sure, but one thing that is rare here is hearing about giving to charity. Is there a cause you would like to help support more than what you have been doing? I'm not talking the whole $3K, but even $250-500 would be a big help to a responsible charity, whether religious, medical, supporting museums/libraries, or supporting causes that have meaning to you and your family.

[kork13]

First off, I think corn18 has a great idea... Some of everything would be a great way to go, and totally you.

If it were me, I think I would pay off the HELOC and mortgage first, then max out whatever retirement accounts you have (retirement is really your next, last, and only major life event left), then take the rest and save it in cash or near-cash (CDs, I-Bonds, maybe even a short-duration bond fund). That cash can serve many purposes, whether that is for buying a new car, renovating/repairing your current home, or saving up a down payment for the retirement home in Florida that you have been talking about (though I forget your timeline for that move). You're always the first to preach about money being fungible, so I would just put everything into a big pot, and use it as appropriate at the time that it becomes needed.

If all else fails, I'm happy to give you my PayPal address.

[sblatner]

One thing we are trying to do now that college and the mortgage is done is to save money outside of retirement so that we have a three legged approach during retirement. Social security, pre-tax and post tax. We do have Roths that are post tax (or really tax free) but like the thought of money that is unrestricted by age, taxes, etc.

[disneysteve]

like the thought of money that is unrestricted by age, taxes, etc.

Since the only retirement account I had until 2016 was my Roth, we actually have a lot of taxable investments - roughly 400K (a little less after the recent market correction). So we're pretty well set with money that has unrestricted access.

[tripods68]

I definitely agree with others have suggested.

But here's what I would do.

1st) Max 401K for 2018. That reduces your taxable income. Less taxable income less in paying 2018 taxes.

2nd) Set aside $1000 towards buying next car

3rd) Set aside the remaining money towards home renovation.

That's a good mixer's there.