Submitted by JoExoticTigerKing t3_z5jq29 in personalfinance
I'm a 30 year old male. Full time job already. Already investing 40% of my income into my 401K.
Already have a house, paying $1400 a month on it and paying off a $27,000 car at $400 a month for 2.5% interest.
Do I invest in an IRA, buy another property, invest in CDs or pay off my car or a good chunk of my house?
Yes if that includes mortgage, car and food and utilities
It does
And health insurance! And any taxes if you're not including escrow in that mortgage amount.
Start an IRA. Invest 6k this year; and the new maximum (I think $6500?) on Jan 1.
My condolences to you on the loss of your parents.
Since you already have a six-month emergency fund already, I would recommend paying off the car and then start applying the $400/month to your other savings and investing goals.
Honestly I would put some of it on the car but with the interest payment so low you might be better off putting a bit of it in a HYSA. Decent HYSA rates right now from like 3-4.5% with easy liquidity.
Thank you kind stranger.
Pay off the car in full? Would i not want to keep some line of credit open besides my home to avoid hurting my credit score?
Honestly the 2.5% is dumb to pay off when you can get guaranteed higher returns.
Leave the account open and keep those payments going .
Yup, get a CD or t-bills and you'll make more than that 2.5%. If rates drop below that 2.5% rate, feel free to kill the loan.
That said, if you'd get much cheaper insurance without the loan, paying it off could be the better move because you'll get more than the 2.5% of value from it.
Generally if there’s still a loan on the car it’s worth keeping it insured. I have a mini van that’s been paid off for several but I’m paying for full coverage because value is still higher than it should be since people are overpaying for used.
Math is shifting to basic coverage though as it’s getting older.
Most auto loans require comprehensive insurance, so it's not just a good idea, it's mandatory if you don't want the bank to call your loan.
Whether you should get comprehensive or liability depends on your ability to cover damages that comprehensive would cover. I get liability only because my cars are essentially worthless (both under $5k even in this crazy market) and i can replace both of them with cash. That may not be true for you.
I would also. Pay off the car and free up the payment next year for your 2023 ira. Use the remaining balance to fund your 2022 ira after paying off the car this year.
I would. Do you have any credit cards open? If so, they will continue to build your credit as the length of time they are open grows. Best case scenario is that they are paid off each month. The ratio of credit used / credit available also affects your score. The lower the ratio the better.
Roth Ira right now and another on Jan 1. That takes care of 12k. I would also buff the emergency fund, maybe get something nice for yourself or family and dollar cost average the remainder into the market.
Some have said it already…Roth this year prior to filing taxes…again each year (max) if you can.
And max out your 401k (20.5k)
I would consider putting money into an ETF like the SPY500. You cannot take out of 401k $ without penalty(typically) Google what the SPY500 has had for gains over the last 100 year versus Google gaming 401k return over the last 100 years. Now consider you can pull out of your own equities but not 401k without extra hoops. Then, if you want to roll that money over into something like property it will be easier for you being so much more liquid.
However, I saw this as we are Ina recession and look like we are going g into depression. I would only put maybe half that money in right now, and save half the money to reduce dollar cost average in 2023 if we go into a depression. The aim is to come out of depression ahead.
Honestly even big money manager firm makes some pretty narley mistake when they do not consider thier own liquidity. Considering your financial position try and stay liquid while using that money. You are a head of the game, the hard part is over friend, just stay liquid so you do not risk your castle/empire.
Also consider most of the working class can not afford to stay liquid, once you can afford to be liquid you almost can not avoid staying some form of liquid to keep stability.
I’m sorry your parents passed away. Be strong and know that there is no deadline in grieving.
I think you should first clear your debt with the higher interest. If you have surplus, continue to pay off the next higher interest debt.
Suppose you don’t have debt, and you want to invest, I think you can consider index funds . But speak to a professional and make an informed decision
You may find these links helpful:
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
[removed]
[removed]
Not real advice, but I would pay off the car loan if I already had some saving for a rainy day / months. Loan is a negative investment.
At 2.5% that loan is golden. You'd see better returns interesting in government bonds than paying down that loan.
This is what my friend was saying. The interest rate is so low that it's not worth paying it off all at once. I pay an extra $100 just to pay it off faster
Not even that, you're actively losing money if you pay off your car loan early. Each $100 you pay off your car loan saves you $2.50 in interest each year. But that same $100 could earn you $4.50 in interest via 12 month government bonds.
For every $100 you pay off on your car loan you are giving away a free $2 each year.
While that's true, don't sleep on cashflow. You're out 500 a month with that car payment. That's nearly enough to max a roth ira. An option could be max this year and next roth ira and pay down the car with the rest.
Or you could just max the IRA every year for the life of the loan ($33k is enough for ~5 years). Just stick it in t-bills for now and invest $6k of it or whatever in an IRA each year.
Cash flow is nice, but it's worse than getting a better return.
The main exception is if OP would switch to cheaper insurance without the loan, which would probably be better value than the higher returns in t-bills.
33k is no much (under 100k, i would not do anything). just keep it in cash for 6 months and you will see.
If you want to free up some more cash, I’d pay off the car, although 2.5% interest is pretty good. You can take the extra $ and invest it in the S&P. I don’t think more than 40% is necessary for retirement. I do 15% and it’s plenty. Another property to rent out is a good idea but it’s a lot of work and I’ve heard it’s not always cash flow positive for at least a few years.
bros402 t1_ixwjee9 wrote
Do you have a 6 month emergency fund?