Hi Money Minder,
How can I assist you with your financial needs today?
So, here’s the deal: Me and my partner have been hustling hard for six years, stacking up some savings and rolling our 401k into an IRA. We check on it like once a year ’cause we’re all about that “set it and forget it” life, and it’s been working out pretty well for us.
But, life threw us a curveball and now we’ve got a mortgage to worry about. That’s taking top priority. Did some digging and heard that by late 2024 or early 2025, the US Housing Market might chill out a bit. That would be perfect for us to negotiate a better interest rate – fingers crossed! Our current rate is 8%, and we’re looking to knock that down with a new lender and maybe get a better escrow deal too. We’re managing to make double payments on the mortgage, but we’ve also got this loan from my partner’s parents to pay off. They were super cool about helping us out so we didn’t have to juggle a mortgage and another loan on our credit. My goal is to clear that parental loan ASAP and with any luck, we’ll have the house paid off in 7 years and the family loan squared away in a year.
Here’s my big question: Should I take $500 a month and throw it into Savings CDs or the Stock Market (still kinda learning the ropes there)? Or should I just slap that cash on the mortgage and worry about investing later? I get antsy not putting money away regularly, but we do have some savings set aside and both of us have solid 401k/pension plans from work. This is more about having a backup for my partner, who’s been amazing staying home while I worked but is now heading back to the job scene. I want to keep money more accessible than in our IRAs, so if we need it, we can grab it without those nasty penalties. Was thinking about short-term Savings CDs at our local credit union, but wondering if maybe, just maybe, the stock market could be better as long as we don’t get taxed to oblivion. I’m not into high-risk investments, but being in my mid-thirties, a bit of risk for a better return isn’t completely off the table. Someday, I’d love to dive into a Target Date Mutual Fund, but that’s a “later” thing – gotta deal with the house and loans first.
– Trying to Keep Up
Response from THE MONEY MINDER:
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<strong>Hello There,</strong>Congratulations on the hard work and dedication you and your partner have put into saving and managing your finances over the past several years. It’s commendable to see such diligent planning and foresight, particularly in these uncertain economic times.
Given your current circumstances, focusing on paying off your mortgage and your loan from your partner’s parents is a sensible priority. Reducing your debt burden will not only decrease your financial stress but also improve your financial flexibility in the long run, especially considering you have an 8% interest rate on your mortgage.
Your idea of potentially refinancing your mortgage when the market cools down is sound. If lower interest rates become available, that could certainly reduce your monthly payments and overall interest costs, allowing you to redirect funds more effectively towards other investments or expenses.
When it comes to deciding whether to invest in CD’s or the stock market, it’s important to consider your risk tolerance and the liquidity needs you’ve mentioned. Short-term Savings CDs are a more conservative approach, offering predictable returns and easy access to funds when they mature, which can be useful given your preference for having funds readily available.
On the other hand, investing in the stock market, while potentially offering higher returns, comes with greater risk and volatility. Since you’re still learning about non-IRA investing and prefer a lower-risk strategy, this might not align perfectly with your current comfort level, especially with significant debt obligations still in place.
You mentioned an interest in target date mutual funds, which are a great hands-off investment once your financial situation allows for a longer-term focus. However, until your immediate debt is handled, maintaining more liquid and less volatile investments might be prudent.
Given these considerations, a balanced approach could be beneficial: continue making those extra payments to chip away at your mortgage and loan, which would significantly lower your debt load over time. Simultaneously, allocate a portion of your $500 monthly to a high-yield savings account or short-term CDs. This way, you maintain liquidity and can access these funds if necessary, while still earning a bit more interest than a standard savings account. As your financial situation stabilizes and the major debts are paid off, you can then gradually shift towards more aggressive investments like stock market options or target date funds.
Ensuring that you have a strong emergency fund is also critical. This fund could cover unforeseen expenses without needing to dip into your retirement accounts or taking on further debt. Generally, having 3-6 months of living expenses in an easily accessible account is advisable.
In conclusion, stick to your strategy of paying down high-interest debt first while simultaneously building up an accessible savings buffer. Once your debts are more manageable, transitioning to more growth-oriented investments will become a more viable option. Continue educating yourself about investing, as your knowledge will empower you to make more informed financial decisions in the future.
Best of luck with your financial journey, and kudos again on your foresight and dedication so far.
Warm regards,
THE MONEY MINDER
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