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Old 10-05-2017, 10:18 AM   #1
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Hello from the friendly little ghost town

Hi,
I recently found this page by way of Root of Good and I am glad to be here. It's inspiring to be in the midst of like minded individuals who are accomplishing their financial goals.
For myself, I am soon to be 29 father of 4 married for approximately 8.5 years. Id guess Ill earn about 90K this year from my job while my wife stays home with the kids. We have everything paid for except the mortgage but have quite a bit remaining on that since we're in the process of moving to a safer neighborhood. My work 401(k) is around 103k in a growth style mutual fund, I have a moderately conservative Roth IRA through Vanguard at about 11k and we have almost 20k in savings for emergencies.
I've been following a lot of Dave Ramsey's teachings and it's seemed to help so far. Paying off the house has been a goal for the past 4 years but it's been slower than Id like, my initial " plan" has been to throw all extra income at the house payment but now I'm second guessing that. I have a 4% fixed rate of 30 yrs. Id really like to start getting aggressive with my savings so would it be better to switch gears to investment growth and let compound interest do its thing rather than pay extra on the house? I feel torn because I'd like to save on paying interest on the house. Also, I had just started college in 07-08 and remember hearing stories about money people lost in the correction so thats in the back of my mind. I would appreciate any input I can get, let me know if you need more information about my case. Thanks gang.
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Old 10-05-2017, 10:34 AM   #2
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Welcome. You are well ahead of most 29 year olds. A search (use the Google search) here will turn up many discussions regarding paying off the mortgage vs investing the money.
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Old 10-05-2017, 10:37 AM   #3
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Welcome! I used to listen to Dave Ramsey daily. Although I believe having a credit card is a good thing, his philosophy is very sound. We have no debt. It's interesting as he says credit is meaningless, buy everything with cash. That way you know you can afford it.

You are on the right path, although you are young, it sounds like you understand the meaning of frugal living. The goal is to FIRE. Best of luck.
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Old 10-05-2017, 10:40 AM   #4
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Some of the decision to pay off the mortgage vs invest the money depends upon the tax benefits of each.
If you can itemize, and the interest is low (like yours) then don't accelerate the payoff.

The worry about the housing market falling again, is just like the worry about the stock market falling again. The housing issue also varies depending upon whether your State is a recourse State or not and how much you already have in the house.

You sound like you are doing great, but remember to enjoy life as you go along, even if it means you save less some years.
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Old 10-05-2017, 12:10 PM   #5
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You're so far ahead of your peers, whatever you decide will work out fine.

The "no debt" theory is a great starting point. Frankly whether you put your money into your house or investments, either way it's working for you in the long run.

My own preference, were I in your shoes, would be to plan to pay off the house a couple of years before your hoped-for retirement date.

Meanwhile, don't forget to enjoy life with your family, while you can. Sure, teach the kids the value of frugality, but don't waste the opportunity you have to give them positive experiences, too.

There will be future corrections, in both stocks and housing. Make sure you're in a position to wait them out and you'll be fine.
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Old 10-05-2017, 02:26 PM   #6
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FWIW....I've been funneling $500 principal per month toward my mortgage since 2010. In hindsight, I should have put half of that in the 529 for my kids. With one in college and another starting in 2020, I wish I had some of that cash available now.
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Old 10-05-2017, 02:38 PM   #7
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I have been on the Ramsey house program for a few years. Almost there. It's slow and painful but going to be nice to break the chains. In my opinion, stay the course, you're young.
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Old 10-05-2017, 02:51 PM   #8
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I was torn between paying the house off and putting it in investments. I LOVE the idea of a paid off house and being completely debt free. It somehow signifies freedom for me. What I finally ended up doing was adding a couple hundred ($300) a month to my mortgage and investing everything else. This kills the mortgage quicker and satisfies that itch. Besides, in this market, with my investments I almost have gains from the last two years alone that would pay off my house. That was a real eye opener for me. I'm sticking with my plan and everything is going to investments.
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Old 10-05-2017, 02:52 PM   #9
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Great job on being debt free (mortgage excluded). A mortgage is one a a few "acceptable debts" to carry. You'll find that early payoff (with a low interest loan) is often an emotional decision. It's a good "problem" to be faced with. If the difference is modest, do whatever helps you sleep better.

Don't panic if we have we have major (or minor) market downturn. That would be the worst thing you could do. I stayed the course during the great recession, but was almost physically ill as my 401K became a 201K with less that ten years to retirement . But, it recovered and then some.

As others have counseled, don't forget to live in the moment from time to time. But yeah, day to day frugality is your best friend.
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Old 10-05-2017, 03:25 PM   #10
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Welcome to the forum. You have done a good job so far. As others have stated, the decision to pay off the home or invest more depends mostly on you and your spouse's perspective/situation (read the previous threads on this topic). The good news is, you are deciding between two very good options. You can't go wrong. Most folks your age don't do either.

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Old 10-05-2017, 06:49 PM   #11
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You are in great shape and in my opinion either pay off house or not is a win either way.

Seeing your age reminded me that when I was your age 29 that was the year I paid off my home. My wife and I built our home and we had a mortgage for 2 years and we just decided to pay it off. Of course this loan was in 1981 can't remember the interest on the borrowed money but the total loan was about 20K. Lol We saved a lot of money building that home by ourselves. We are still in that home today. It worked out very good for us to pay it off early and we stuck a lot of money in stocks each month and in to savings accounts for the next 35 years. Make a plan and set a goal and do what you think will do you the best.
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Old 10-06-2017, 08:18 AM   #12
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Originally Posted by Ready2Go View Post
FWIW....I've been funneling $500 principal per month toward my mortgage since 2010. In hindsight, I should have put half of that in the 529 for my kids. With one in college and another starting in 2020, I wish I had some of that cash available now.
Thanks for the input, I've sat down with the intent of setting up a 529 or an ESA for my oldest but couldn't decide between the two. I definitely need to set something up while time is still on my side.
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Old 10-06-2017, 09:02 AM   #13
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Another thought is that the OP is only 29, so the magic of compound interest is very strong at this point. I'd lean toward investing the money to boost that nest egg which will compound, then later turn toward paying off the mortgage.
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Old 10-06-2017, 09:53 AM   #14
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Welcome, welcome, and thrice welcome!

You are way ahead of me in a bunch of ways. You are father of 4. When I was 29 I had only 3 kinder; didn't top out at 5 until 9 years later.

Also, my net worth consisted primarily of the sticky crumbs beneath the child safety seats in the back of the minivan. You have way over 100k already, and you're adding to it. I didn't get serious about saving until about age 42.

You have a 4% mortgage. If that's a fixed rate, then I'd keep it and not worry about paying it down early. I fully understand the attraction of not having that monthly house payment. But consider that you might have a relocation or two in your future which could entail taking out a fresh mortgage so you'd be restarting the payoff clock anyway.

If you do end up buying a different house, consider going with a 15 year term next time. It's typically worth about a half point reduction in the interest rate. But in the long run, equities should outpace a 4% return.

There was some discussion upthread about credit cards. I recommend them. They have better protection against fraud than debit cards, they provide a cushion against emergency expenses so you don't have to maintain 20k in cash, and many of them offer travel miles and cashback benefits. The key is having the discipline to pay them off every month! It doesn't take long for 18.99% interest to negate their advantages. But you certainly sound like a disciplined individual, so I don't sense any danger that would affect you.

It's been 16 years since I took control of my FIRE future, and I'm in the final 1.x years now. Had I started at 29, or in your case even earlier, I'd already be so long retired it would be funny. Props to you for getting an awesome start!
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Old 10-06-2017, 02:07 PM   #15
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IMHO, with any extra money your focus should be on investing. Paying off the house early can still be an objective. One way is to always take out a new loan (re-fi or new house) for fewer years than you have left on the current loan. Don't fall in to the trap of taking another 30 year loan to lower the payments. And also don't fall into the trap of refinancing in order to extract equity. Just my opinion.
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Old 10-06-2017, 03:55 PM   #16
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Thanks to all of you for the nice words, I especially need to hear the reminder of living in the moment with the little ones, some times I get hyper focused on a goal and don't enjoy what I have, this is something I will continue to work on.

@Mdlerth: I work in O&G and at the start of last year people were getting laid off left and right and I was very comforted by the amount in our savings in case I lost my job also. I recognize its probably not very financially saavy to keep money sitting around instead of making more money in an account somewhere, however that feeling I had last year is what keeps me from investing most of my emergency fund. Any suggestions on a means to invest but also know it will be there should I need it?
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Old 10-06-2017, 05:29 PM   #17
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......... Any suggestions on a means to invest but also know it will be there should I need it?
Money in a Roth can be withdrawn with no penalty, except for earnings. Of course, you'd need to invest it in a more stable investment than stocks to ensure it was there when you needed it.
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Old 10-06-2017, 06:52 PM   #18
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Quote:
Originally Posted by RicterScale88 View Post

...I work in O&G and at the start of last year people were getting laid off left and right and I was very comforted by the amount in our savings in case I lost my job also. I recognize its probably not very financially saavy to keep money sitting around instead of making more money in an account somewhere, however that feeling I had last year is what keeps me from investing most of my emergency fund. Any suggestions on a means to invest but also know it will be there should I need it?
Okay, that's new data I hadn't gleaned before. You have a good income, but it arises from a feast-famine industry. In that case, I probably would do what you are already doing, keeping some powder dry in the event of a cyclic layoff.

Maximizing total return isn't always the objective. If it were, then we'd only ever invest in equities. Over a long time they return more than debt instruments (bonds, CDs, MMs, IOUs) but their downside is more volatility. Murphy's Law predicts that stock prices will be down just at the time you most need to sell.

That's why the smarter posters here (I'm not one of them; I have to get by on my good looks! ) have long discussions about Asset Allocation. AA means your money is directed in predetermined percentages into three categories: equities, bonds/fixed, and cash. Exactly what your AA should be will spur lots of controversy, so I won't recommend one for you, other than there is broad consensus that some portion of your dough be in each of the three categories. That gives you the flexibility to buy stocks when they're low, sell bonds when they're high, etc. Cash functions as a shock absorber. They call this "rebalancing".

Perhaps you should think about how your emergency cash stash figures in your overall AA. I didn't see much in the way of ordinary taxable investments, which many folks here rely on to carry them from early retirement to one of the milestone ages (59.5, 62, 65, etc). With 15% of your pile already in cash, consider whether you might want to move from a "moderately conservative Roth IRA" to a more "aggressive" stance in that particular sub-pile. Your 401k in a "growth style mutual fund" suggests there's not a lot of cash in that one.

The idea of "rebalancing" to maintain your AA is hampered if all your cash is concentrated in one of two buckets: all in after-tax and none in pre-tax (IRA/401k). The buckets are non-fungible, meaning that money doesn't move between them.

Therefore, if the market tanks you can't buy equities in your 401k with after-tax cash. If your cash AA category is accounted for by the after-tax bucket, then you'll want some bonds/fixed in the other buckets (IRA/401k) so you have room to maneuver among the categories.

So, I will offer this suggestion. Consider your portfolio to be the sum of all your different piles: IRA + Roth + 401k + taxable + bonds/CD/MM + unmarked Benjamins stuffed in the mattress. Select an AA and then let maintaining that allocation guide your decisions. When one category of your AA drifts (which it inevitably will) off-aim, then you "rebalance" by selling assets in the category that is overweighted and buying into the categories which are underweighted.

Caution: Don't get trigger-happy about rebalancing. You don't want to churn, sending all your profits to some broker. Once per year is probably sufficient.

That's about all I can offer. I claim no special expertise, and am perfectly willing to be told by some of the giant brains on this forum that my eyes are brown because I'm full of excrement. Obviously my own story is NOT one of flawless expertise, otherwise I'd be writing this from my yacht instead of from my house. But I'm trying to pass on what I have learned, because mostly it's pretty good. It certainly has been of value to me.

Once again, you're doing a great job. You will be able to retire at a significantly earlier age than I will. More power to you. Also, what others have said about enjoying life with your wife and kids being more important than anything else - they're right.
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Old 10-06-2017, 07:07 PM   #19
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Essentially in a boom bust industry, one might just want to increase the size of ones emergency fund to compensate for boom bust possibilities. Of course if you luck out you just might get severance about the time you wanted to ER. (As I did from a supermajor, they were having staff cuts in 2004 and I volunteered to leave and got 1 years pay as part of the deal)
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