.

[VeloClone]

I misread the title to say "Selling Socks to Pay Off Debt" and started thinking that would be a much more fun thread.

https://www.cnbc.com/video/2018/10/22/22-year-old-with-down-syndrome-founded-johns-crazy-socks.html

 

[brianhos]

Option 3:

sell stock, pay off mortgage. Take a home equity loan for the max amount. re-invest in stocks. make a few bucks. sell stocks again. pay off mortgage. keep the cycle going

If you want to get real fancy add in: start an LLC (a investment company), expense the interest on the loan (since you won't on your personal taxes) and other expenses related to the business.

Nice way to go bankrupt too if the market turns at all.

 

[VeloClone]

On the cars note, we don't necessarily pay cash for ours, but we never have more than one car loan at a time and usually accumulate a good portion of the car cost in savings between when we pay off the loan on one car and we pull the trigger on replacing the other. We also have never bought a new car since we got our first new car years ago. I'd rather someone else pay that premium off the lot and break it in for me.

 

[usedcarguy]

The only reasons to pay off the mortgage early are peace of mind with the resulting increased cash flow, or because you believe the market is near a top. If trying to get out of debt, I'd start with the cars because you'll free the most amount of monthly cash flow for the amount of stock you'll have to sell. You argued that the cars aren't really costing you anything, but in that regard neither is the mortgage. Take the money you were using for your car payments and either throw it on the mortgage or invest it.

As for what to do with the stocks, I'd be looking at which stocks I owned to figure out if they're fairly or overvalued, and more importantly how secure is the dividend. If the dividends look stable, I'd hang on to them (because they will decline less in a pullback) and keep paying the cheap money on the mortgage and cars.

I don't believe the stock market has ever ended down on a presidential election year.... so you have some time to contemplate if we're looking at a market top.

 

[dmclone]

I know that I could probably earn a few percent more by not paying off low rate loans early or taking 0% loans on cars but I sleep better at night knowing that I have zero debt besides a mortgage and when that is paid off in 5 years, I'll sleep even better. I'm nearing 50 and I know that if I lost my job I would struggle to find something with a similar wage. On the other hand, the chances of both my wife and I losing our job at the same time is VERY low. With no debt, we could easily survive until retirement. Everyone is in a different position though. My plan is something like this:

1. Contribute enough to 401k to get max for both my wife and myself plus a little more. Mix between pre and post tax.
2. Max out HSA every year-Embarrassingly just started this last year.
3. Max out Roth IRA every year for both
4. Don't ever touch 6 month emergency fund (2% savings account)
5. Max out employers 15% ESPP and sell as soon as possible and put in savings. Use that money for things like cars, big household stuff (roof, AC, etc)
6. Pay extra to Mortgage-I've never gotten to this point but only have 5 years left.

There are probably a lot better ways to handle my money but this is what has worked for me. The best thing I did was start my 401k as soon as I got out of school. At this point, there are certain years where our 401k's earn more per year than our salary. Of course in the bad years it's very difficult to see hundreds of thousands emptied out of our retirement.

 

[Bipolarcy]

If you're having trouble making your house payment every month, by all means, cash in your stocks, but if you are OK after making monthly payments, it's never a good idea to cash in investments to pay off bills. Rich people never spend their own money. They spend the bank's money.

 

[Rabbuk]

Is your remaining mortgage more than 12.5 + 8.5 = $21K? Maybe it would be better to use a smaller chunk of the brokerage to pay off the vehicle balances first instead? Redirect all (or some) of what would've been your monthly car payments toward the mortgage. Presumably you'd still have a larger % in your brokerage to direct toward growth, and that might make you happy or at least more at ease with your overall situation.

No reason to pay off a 0% loan faster than you have to.

 

[CascadeClone]

Rich people never spend their own money. They spend the bank's money.

I don't agree with this.

WRT business investments, yes, you can leverage bank financing to grow your business. But don't kid yourself, the bank wants to know you have your own money to pay them back, before they will give you a dime.

But I don't think "rich" people borrow money and pay interest to fund their lifestyles. Maybe some people that are crazy in debt up to their eyeballs, spending $250k per year, but living paycheck to paycheck. But not people with actual high net worth and positive cash flow.

 

[isufbcurt]

Nice way to go bankrupt too if the market turns at all.

It's a plan for someone who isn't risk adverse.

 

[Gunnerclone]

I don't agree with this.

WRT business investments, yes, you can leverage bank financing to grow your business. But don't kid yourself, the bank wants to know you have your own money to pay them back, before they will give you a dime.

But I don't think "rich" people borrow money and pay interest to fund their lifestyles. Maybe some people that are crazy in debt up to their eyeballs, spending $250k per year, but living paycheck to paycheck. But not people with actual high net worth and positive cash flow.

I took that as they just spend the interest they get.

 

[CascadeClone]

The best thing I did was start my 401k as soon as I got out of school. At this point, there are certain years where our 401k's earn more per year than our salary. Of course in the bad years it's very difficult to see hundreds of thousands emptied out of our retirement.

This times 1,000,000. Or should I say, times $1,000,000?

If you want to get "rich", start ASAP. Start in your teens if you can, put $1000 in a Roth every year. I got a bit lucky and started at 23, and have been an aggressive saver with that. Without checking the math, I have ~4x my personal contributions in that, and it should double again (maybe twice) before I retire.

 

[BCClone]

I have zero incentive to pay off my $8,500 car loan at 0% interest. It costs me $200/month and has no long-term negative consequences of NOT paying it off early. My other car note is $12,500 at 2.9% I'm earning 2.2% in my emergency savings account and more than that in dividends every year so while I might decide to pay that off, it really isn't the end of the world. it costs about $25/month in interest. The mortgage, at 4% also doesn't really hurt me but there is some attraction to pay it off and be done with it. It would save about $4,500 in interest but reduce my dividends by $4,000 by no longer having that money invested. I think the markets will go down eventually (probably not in the next few months or so due to a fed interest rate cut) but having the extra cash floe each month *seems* awesome.

You just answered your mortgage question here.

 

[kirk89gt]

Looking through all of this, I would get rid of the vehicle loans. While they aren't exactly killing you, it would free up some cash flow that you can immediately funnel back into your investment accounts (or into other areas to invest, pay down debt, etc.). I am soooooooooo over having a car payment, and after our last truck (purchased in 09 with a small loan), I swore that I wouldn't do it again, and I plan to keep that promise. The funny thing is, if I was tracking our net worth, about the time that it was paid off (12ish), is when things started trending upward at a higher clip.....this despite some bad "investments". I would be perfectly content to drive a beater the rest of my days, and I probably will. I would rather have the "cattle" instead of the "big hat".

I saw another poster said that if you pay cash for your vehicles, you think twice about the vehicle you are buying (and don't overspend as much). This is absolutely true as we are in the middle of this right now. We have an 02 Yukon (owned since 03) that is close to being on its last leg. To replace it with something 2-3 years old with low miles is probably going to cost somewhere around $45K-$50K. Mrs. GT (who is pretty darn frugal herself) has definitely had moment(s) of pause thinking about the thoughts of writing that check, and what that means to the total pot of gold.

Having said all of this, does anyone have a need for a slightly used HR guy?

 

[247cy]

No reason to pay off a 0% loan faster than you have to.

Agreed, the 0% is not "costing" you anything.

However, you are still making a monthly payment. The opportunity cost of that monthly cash flow is not zero.

 

[Rabbuk]

Agreed, the 0% is not "costing" you anything.

However, you are still making a monthly payment. The opportunity cost of that monthly cash flow is not zero.

I'd rather have money to invest today than future money. I think your logic is backwards.

 

[Bipolarcy]

I don't agree with this.

WRT business investments, yes, you can leverage bank financing to grow your business. But don't kid yourself, the bank wants to know you have your own money to pay them back, before they will give you a dime.

But I don't think "rich" people borrow money and pay interest to fund their lifestyles. Maybe some people that are crazy in debt up to their eyeballs, spending $250k per year, but living paycheck to paycheck. But not people with actual high net worth and positive cash flow.

Come on. It's a well known saying. I just used it to illustrate the point.