JustEm Posted February 23, 2014 Share Posted February 23, 2014 My best friend will be moving in with us at the beginning of May in order to save significant amount of money on rent. We'll be charging her $350/ month. It's a mutually beneficial arrangement since she'll be saving hundreds of dollars in rent each month and we'll have some extra income coming in. So I've been thinking about what we should do with the extra money. I can't decide what to do with this money. So far I have 3 ideas for where the money could go. 1. Putting it toward the mortgage each month to pay the house down faster. 2. Sticking it into savings in order to save up enough to pay cash for a bigger vehicle sooner. 3. Start investing it in the stock market (this is something I've wanted to start doing but all are money now is designated to something else. Since this money isn't yet this is an option.) So what would you do with extra rent money each month? Quote Link to comment Share on other sites More sharing options...
MomtoCandJ Posted February 23, 2014 Share Posted February 23, 2014 100.00 for each :) Quote Link to comment Share on other sites More sharing options...
Mergath Posted February 23, 2014 Share Posted February 23, 2014 I would go with one or two. If the bigger vehicle was something I really, truly needed asap and not just something that would be nice to have, I'd save toward that. Otherwise, I'd put it toward the mortgage. Quote Link to comment Share on other sites More sharing options...
Garga Posted February 23, 2014 Share Posted February 23, 2014 Do you have any long term savings at all? 401k? Do you have any debt other than the mortgage? Do you have some money set aside that's not tied up for retirement? Quote Link to comment Share on other sites More sharing options...
Paige Posted February 23, 2014 Share Posted February 23, 2014 I would save it for education or retirement. Quote Link to comment Share on other sites More sharing options...
Desert Strawberry Posted February 23, 2014 Share Posted February 23, 2014 We have recently received an increase in income. We have decided to split it up into categories $x to each, home improvements, school expenses, car repair/New car, etc. We will sort it all out tomorrow, but we have settled on creating categories for as many needs as possible, even if each one only receives a few dollars. Quote Link to comment Share on other sites More sharing options...
jewellsmommy Posted February 23, 2014 Share Posted February 23, 2014 Some of that $350 will need to go toward the increase in bills. Your water bill will be a little higher for example. I would leave $50 in my budget for that. Is she paying for her own food? I would put $150 in savings each month and $150 toward paying down any debt. Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 23, 2014 Author Share Posted February 23, 2014 Do you have any long term savings at all? 401k? Do you have any debt other than the mortgage? Do you have some money set aside that's not tied up for retirement? We don't have long term savings yet. 401k isn't an option with dh's job. We are actually starting to contribute to a Roth IRA with other funds that have come in recently so that's why that isn't on my radar. No other debts aside from the mortgage. We have a healthy emergency fund in our savings account. Quote Link to comment Share on other sites More sharing options...
regentrude Posted February 23, 2014 Share Posted February 23, 2014 Whether paying off the mortgage sooner is a good financial move depends on your interest rate. If you have a high interest rate, paying off the mortgage makes the most sense. If you have a low interest rate, invest for education or retirement. Quote Link to comment Share on other sites More sharing options...
alef Posted February 23, 2014 Share Posted February 23, 2014 I wouldn't invest in the stock market outside of a reliable retirement fund (I.e., investing in a good mutual fund within a 401k or Roth IRA) unless those are already fully funded. Personally I would probably split the money--maybe 100 toward the mortgage and 250 toward the vehicle. Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 23, 2014 Author Share Posted February 23, 2014 Some of that $350 will need to go toward the increase in bills. Your water bill will be a little higher for example. I would leave $50 in my budget for that. Is she paying for her own food? I would put $150 in savings each month and $150 toward paying down any debt. I've taken into account the bills. She's actually paying us $400/month. She is paying for her own food. Splitting it up would probably be the best option actually. Quote Link to comment Share on other sites More sharing options...
ThatHomeschoolDad Posted February 23, 2014 Share Posted February 23, 2014 Big emergency fund. Like the hundred year flood takes out your first floor sort of big. 5 figures. It's 16 months post-Sandy, and some people in NJ are still not home because of red tape. Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 23, 2014 Author Share Posted February 23, 2014 Whether paying off the mortgage sooner is a good financial move depends on your interest rate. If you have a high interest rate, paying off the mortgage makes the most sense. If you have a low interest rate, invest for education or retirement. Our interest rate is 5.75%. Hopefully we'll be able to refinance that down once some home renovations are completed. I've considered that but this property is also a potential permanent rental property but I will not do it if I'm holding 2 mortgages so paying off this fast is key for that future plan. Saving for retirement is becoming a front runner. Its fun getting all this advice and very helpful. Thank you all. Ok now just for fun, what would you do with that money if it was purely 'fun money?' I would save it up for a trip to Ecuador and the Galapagos Islands or possibly China. Quote Link to comment Share on other sites More sharing options...
LucyStoner Posted February 23, 2014 Share Posted February 23, 2014 Remember to pay taxes on the rental income. I only mention it because I was just doing someone's back taxes for rents received that they "forgot" to report. Quote Link to comment Share on other sites More sharing options...
QueenCat Posted February 23, 2014 Share Posted February 23, 2014 Some of that $350 will need to go toward the increase in bills. Your water bill will be a little higher for example. I would leave $50 in my budget for that. Is she paying for her own food? I would put $150 in savings each month and $150 toward paying down any debt. Very important point............. She'll be using water, and you really can't tell a renter how much they can use! And food too, right? Quote Link to comment Share on other sites More sharing options...
RanchGirl Posted February 23, 2014 Share Posted February 23, 2014 1. If you are not fully funding your retirement through 401k or IRA, I would do that first. 2. Then kids' college fund 3. Then stock market outside of retirement/college funds This is assuming you have no credit debt and already have adequate, accessible emergency cash fund and adequate vehicle savings. If #1 and #2 are covered, but you need to save for a car, I would split it between that and #3. Quote Link to comment Share on other sites More sharing options...
Melissa in Australia Posted February 23, 2014 Share Posted February 23, 2014 I would split it $150 extra off the mortgage and the rest into a savings account as an emergency buffer and to save up for big things. Quote Link to comment Share on other sites More sharing options...
Tap Posted February 23, 2014 Share Posted February 23, 2014 For me.....I would say vacation fund or start saving for a graduation trip for dd15 (she wants to go to Africa LOL), because with the lack of privacy you may want a break sooner than you expect. Of your choices, car fund. You say you have a good savings. In my mind that is 6 mths+ of expenses. If your is less than this, I would put it in savings until 6mths is saved. Quote Link to comment Share on other sites More sharing options...
DawnM Posted February 23, 2014 Share Posted February 23, 2014 With this information.......save for home repairs!!!!!!! We have a 2.37% interest rate on a 15 year mortgage and I can't tell you how wonderful it is! When we see that about 3/4 of the amount we pay goes to PRINCIPAL and not to interest, it is a sigh of relief. Dawn Our interest rate is 5.75%. Hopefully we'll be able to refinance that down once some home renovations are completed. I've considered that but this property is also a potential permanent rental property but I will not do it if I'm holding 2 mortgages so paying off this fast is key for that future plan. Saving for retirement is becoming a front runner. Its fun getting all this advice and very helpful. Thank you all. Ok now just for fun, what would you do with that money if it was purely 'fun money?' I would save it up for a trip to Ecuador and the Galapagos Islands or possibly China. Quote Link to comment Share on other sites More sharing options...
mytwomonkeys Posted February 23, 2014 Share Posted February 23, 2014 I would bank it all to savings personally :) Quote Link to comment Share on other sites More sharing options...
Pawz4me Posted February 23, 2014 Share Posted February 23, 2014 I'd max out the Roth IRA. If you have any left over after that's done then start saving. In the meantime start researching and asking around about financial advisers you can consult once you save enough (some of them require a minimum initial investment). I'd want to get some serious retirement accounts set up as soon as possible. I would NOT recommend investing in stocks on your own. An adviser can get you started in some mutual funds, which are typically much safer investments than individual stocks. There are very good financial advisers out there, but you do have to be careful finding them and it might cost you a bit. I can tell you from personal experience that a good one is worth every single penny. Once I had some retirement funds started, then I would use some of the money for home repairs and a new car fund. Paying off the house would be the very last thing I'd do considering the current real estate market, unless you're absolutely sure you're going to keep it for the very long term. I would look into refinancing. Quote Link to comment Share on other sites More sharing options...
Pippen Posted February 23, 2014 Share Posted February 23, 2014 If you don't already have an emergency fund/long-term savings, I'd build that and also get disability insurance on the primary wage earner in the household. My income disappeared overnight due to a medical situation with one of my kids a few months ago and I'll likely be out of work for 9 months by the time treatment is completed. Quote Link to comment Share on other sites More sharing options...
bolt. Posted February 23, 2014 Share Posted February 23, 2014 $150 into short term savings (car repair, home impr, home repair, emergencies, medical, job transition, travel, etc.) $75 into retirement $75 into "living better" -- an extra/increase charity, then... fancier groceries, dates, kids' activity fees, sports equipment, toys, stylish clothes. Set the short-save, retirement, and chosen charity on automatic payments, put the rest into your monthly cash budget. ... Future notes... Once the short-save is funded to "3 months of expenses, living small" reduce it's monthly chunk to $75 and begin putting $75 towards college funding -- unless college is very soon, or you have plentiful and closely-spaced kids... In that case, do the 75-75 split from the first. When short-save hits "3 months of expenses, living small, plus a vacation" -- then you can be a family that takes a vacation, but don't drop it below 3 mos for something like that. Similarly, when it hits "3 months plus a vehicle upgrade" -- get your vehicle, but don't empty it below the minimal (3 month) level. Filling it $75 per month allows for $900 of discretionary major expenses per year... But only after it's filled to a comfortable minimum. If an emergency or repair-need happens, that's when you spend into the "3 months" -- it's not just for job loss, it's for any, "Oh, crud! How on earth will we pay for that?" -- situation. Quote Link to comment Share on other sites More sharing options...
marbel Posted February 23, 2014 Share Posted February 23, 2014 You've gotten some good ideas. I just wanted to say that I hope it all works out well for you and the friend who is moving in. Our house is too small to have anyone else living here but sometimes when I hear of a student needing to rent a room I think, oh, if only we had some extra space. So, hope it goes well! Quote Link to comment Share on other sites More sharing options...
plansrme Posted February 23, 2014 Share Posted February 23, 2014 Run a couple of those "how much money will I need to live in retirement," realize that a brand new Roth is not enough, and them put every dime in the Roth. Quote Link to comment Share on other sites More sharing options...
LMA Posted February 23, 2014 Share Posted February 23, 2014 Good for you to be helping out your friend. Not be a party pooper, but remember it's taxable so set aside a portion each month. And I would check with your homeowner's insurance to be sure there are no increases. Be sure she gets renter's insurance. Quote Link to comment Share on other sites More sharing options...
FaithManor Posted February 23, 2014 Share Posted February 23, 2014 Dh just got a nice pay raise and a generous bonus. The pay raise went straight to retirement and the bonus was split between beefing up college savings and international travel fund. As a general rule, I usually recommend investing in retirement and emergency savings. but if there is a good chance you would not have the house paid off before the primary breadwinner reaches the age at which continuing to work could be dicey, then I do recommend paying down the mortgage because no one wants to reach health crisis plus retirement/ greatly reduced income and still have a mortgage. Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 24, 2014 Author Share Posted February 24, 2014 You've gotten some good ideas. I just wanted to say that I hope it all works out well for you and the friend who is moving in. Our house is too small to have anyone else living here but sometimes when I hear of a student needing to rent a room I think, oh, if only we had some extra space. So, hope it goes well! Our house isn't huge and giving up one bedroom will be difficult but very doable. I've lived with her before so I know her habits and know that she wouldn't bother us one bit and vice versa. She lived at my parents' house in college instead of a dorm to save money since the college was in walking distance. Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 24, 2014 Author Share Posted February 24, 2014 With this information.......save for home repairs!!!!!!! We have a 2.37% interest rate on a 15 year mortgage and I can't tell you how wonderful it is! When we see that about 3/4 of the amount we pay goes to PRINCIPAL and not to interest, it is a sigh of relief. Dawn We have all the money for the repairs already and everything should be done by the end of Spring so hopefully after that we can refinance. It drives me insane knowing how much money I could be saving. If I could refinance today it would be a $440 monthly saving since the payment would go down and we'd drop pmi!!! Thats a lot of money just waiting to be back in my pocket! Quote Link to comment Share on other sites More sharing options...
JustEm Posted February 24, 2014 Author Share Posted February 24, 2014 Dh just got a nice pay raise and a generous bonus. The pay raise went straight to retirement and the bonus was split between beefing up college savings and international travel fund. As a general rule, I usually recommend investing in retirement and emergency savings. but if there is a good chance you would not have the house paid off before the primary breadwinner reaches the age at which continuing to work could be dicey, then I do recommend paying down the mortgage because no one wants to reach health crisis plus retirement/ greatly reduced income and still have a mortgage. the only reason paying the mortgage off faster is in my mind is because this house will be a rental property if and when we are ready to move to a bigger one. However, I don't ever want to risk holding 2 mortgages. Quote Link to comment Share on other sites More sharing options...
Ravin Posted February 24, 2014 Share Posted February 24, 2014 Stop stressing so bad about the utility bills. Quote Link to comment Share on other sites More sharing options...
StephanieZ Posted February 25, 2014 Share Posted February 25, 2014 If you don't have a 6 months of expenses emergency fund, I'd put it ALL into that until it is funded. If you only have one main income (as is the case with most hs'ing families), then 12 months is actually recommended by many folks, and I think that is smart. It'd take me a lot of $350 payments to add up to 6-12 months of expenses, so that's what I'd do with it for a very long time. :) I'd put the emergency fund in a Vanguard Money Market, or possibly, once you have it up to 3-5k, I'd leave 3 months expenses in the Money Market, and put the rest in a Vanguard Index Fund (either the Total Market or the 500), but that's just because I am generally pretty comfortable with risk, and I am fine to not look at the funds as they bounce around. If you'd panic and sell when the market inevitably hits a bad year and loses 20-30%, then you should NOT invest in the market. :) (Otherwise, you'll miss the great years like last year when the market went up 30% . . .) If you don't want to open a Vanguard account, put the emergency fund in some other money market (slight interest bearing) account at your bank, or in CDs with short maturation dates (say, put 1/3 of the funds in a CD that matures in 3 months, then the next 1/3 next month in one that matures in 3 months, etc, That way, you can always access 1/3 of it within 30 days. And, of course, your general checking/savings account should always have 1-2 months expenses in it as a buffer. Quote Link to comment Share on other sites More sharing options...
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