I've decided it's time to sit down and work out a budget and stick to it. Just looking for a couple opinions on what direction to head.

The info

33yr old, single, no kids.
Have 10 months or so worth of necessary bills in savings
Have 10,700 sitting in a simple IRA that I'm not contributing to. Company switched us to a 401K plan and I never rolled it over or did anything. It has out performed the 401K so I just let it be.
Investing 6% into Roth 401K to get max company match (3%)  That's sitting around 28k

Debt
15yr home mortgage 76K @ 3%
10yr heloc 15,800 @.27% introductory rate. That goes up to 5.74% in May or June. I have been doubling up on this one to take advantage of the intro rate.
harley 6,700 @ 2.04%
Don't carry any CC balance and student loans are long gone.

Currently paying an extra $4400/yr towards the debts. The majority of that going to the heloc and the bike. Almost nothing to the mortgage.
I am also looking to sell my truck (second vehicle) I'm guessing that will be 10-12K

Now the part where I am wanting opinions.
What to do with the money from the truck. Pay debt or invest? If invest where should I look?
Besides that should I continue paying extra on the debt or use that money to start a Roth IRA and try to max it out each year.  
Where's a good place to go for IRAs? I know my Credit Union, who holds all my other accounts, has IRAs through CUNA brokerage services. I think that would simplify contributing to it, but I'm sure I can set up automatic contributions with any company.
What should I do with my existing IRA, if anything?

I'd start saving the money. Your debts are such low interest that you will make more in interest than you will save by paying down debt. I did the math in a different thread. The earlier you start saving, the greater the effects. The math looked something like this. Paying down a 30 year, 4% mortgage in about 10 years, then taking all that money and saving it over the next 20 years would give you 980k in the bank after 30 years, while taking the extra money you were paying and just investing it for 30 years would give you 1.2 million after 30 years.

That is kind of what I have been seeing. Although things aren't looking good right now with rates of return It seemed like as good of time as any to up my contributions. I'm not retiring any time soon.

What do you think is the best thing to do with the old IRA i am no longer contributing to, and the money I get when I sell my truck?

Link to the other thread?

V

It's in the pay off student loan thread on page 1 of business and investing sub forum.

lifetime market average of 7%. not including dividends.

Mathematically assuming the 7% historical return rate you are better off to invest but that doesn't really take into account risk. Sure the markets on average have gone up over time but they have also had long periods of going down. I invest in the markets but not with borrowed money. If you don't pay your debts down and invest you are essentially investing with borrowed money. One thing about it the interest you are paying on those loans is guaranteed. You are going to pay it regardless. Your gains in the market are not guaranteed.

Would I think you are dumb to invest it instead? Not really but it is not what I would like to do. I hate debt and I hate risk. If you think investing with borrowed money is a good idea why not borrow more and invest it? See if you can get another 100k on that HELOC and put it in the market. Does that thought of that sound scary to you?

Lets play the what if game. What if the economy goes into the shitter and the stock market tanks. Huge drops maybe 40%. Because of the bad economy you lose your job, You still have your debts to take care of and burn through your savings. Do you then sell your investments at a huge loss to pay your debts?

I would definitely continue to contribute to your 401k, leave your IRA alone, and throw extra money you come across from selling the truck or whatever at your debts in this order Harley, HELOC, mortgage.

I don't have an issue with some amount of risk. I also don't see what I am considering as investing with borrowed money. My borrowed money is tied to the house and bike and I am far enough ahead on those that I would be be comfortable backing off if it means a more comfortable future. These aren't loans that are accumulating a large amount if interest. The heloc money was invested into the house, and I'm at what I consider to be a safe loan to value ratio which I feel is plenty comfortable with. I would never take a loan against my house and dump it into the market. You're really reaching to the far end of the risk spectrum with that example.
I would be investing with discretionary income. I think if I get to the point where I am maxing out a roth IRA each year, and I still have the means to comfortable pay more on the debt I think I would then do that before making additional investments. The compounding interest really seems like something worth taking advantage of at this time in my life.

Here's a different angle.

If you listened to the Democratic debate last night both candidates said they are coming after your money.  This may or may not happen but if the Dems win the tax on capital gains will most likely go up.  Also, they may decide to tax your IRA, ROTH and 401k.  This may take away any advantage of using this vehicle.  (Since you are maxed out on the employee match the other advantages may disappear or be severely reduced.)

Once the money is in one of these accounts it can be difficult to access if the rules change.

Your greatest assest is TIME and your earning potential.  What you need is compounding interested for years with the liquidity to sell and move the money if needed.

I would avoid locking up money in a retirement account at this point since you already have one (two actually) and you are getting your match (free money).

My recommendation is to buy ETFs with a Dollar Cost Averaging strategy.  This is one of the best strategies out there for those with TIME.

Diversify your ETFs over different sectors and choose ones with low costs.  Use the GOOGLE for this.

This method requires the least amount of guess work and takes advantage of time.  

Do not pay more toward your house or loans at this point.  

How much equity do you have in your house?

Can you borrow as much as you can on your house and pay of heloc?

Max out the equity at a low rate.  Refinance the whole mortgage for as much as you can at a low rate +/- 3% or home equity loan depending on which is a better rate overall.  Use that cash to pay off the heloc.  Pay the minimum on the Harley and the house.

Anything left over goes into ETFs.

Look at your life as a business. You have assets and you have debts. On your balance sheet at the bottom of the page you have the debts on your mortgage,hello, bike and your investments. What difference does it make which item they are associated with and how you got there? Let me ask it another way as I think you are missing my point. Look at the big picture and don't treat each item individually.  

You have 76k owed on a mortgage and 15.8k on the heloc and are going to sell a truck for 11k and wonder what to do with the money. If you invest it you will have 11k more in investments and still owe 76k and 15.8k - Right?

If you paid that 11k towards the heloc your investments would be unchanged but you would owe 75k on the house and 4.8k on the heloc - Right?

Now lets look at it backwards. If you woke up tomorrow with no truck to sell and had 75k owed on your house and 4.8k on the heloc would you borrow 11k more on the heloc to invest it?  If not that is exactly what you are doing if you invest the money and don't pay it to the debts. If you look at your life as a whole by not paying debts and investing instead you are essentially investing borrowed money. What difference does it make what you owe it on at the end of the day it is all the same thing.  

I don't think that part of the plan is for me. I will have to look more into ETFs though. Never even heard of them.

If I'm getting to the point of being comfortable with my debts and the rate they are declining why wouldn't I want to invest more for a better future?

What is your hangup with using money borrowed on a house to get a return? Its not an uncommon thing. Id bet a few million small business owners put their house up. Ive never not had my house up for collateral on loans.

You can phrase it anyway you want. When money is free or close to it ( mortgage rates are damn near equal the historical inflation rate) and you can make a better return from investments then i would argue that you are endangering your financial well being by not investing more.

Unless you have unlimited earning potential, you cant outsave inflation, its mathematically impossible.

If a guy is close to his financial goals then im not saying he should keep borrowing and lose liquidity but if he isnt, then borrowing shouldnt be feared.

I couldnt sleep at night if i had untapped equity sitting there losing value. Well more than the required 20% anyway.

For me If it were something like me starting a small business in the future, yes I would be willing to take a loan against the house to pursue that. But at this point and with my current financial situation and goals I wouldn't feel comfortable adding more debt for the purpose of investing more into the market.

Look at it this way, if tomorrow he sold his bike and invested the 11k in the market, then later that afternoon was laid off, he would still have that 11k to make payments on his mortgage and heloc, while if he paid off his heloc he would still be out the money and not have the cash to pay his mortgage.

What are you more comfortable with? Having less debt but more savings, or having less savings and more debt. I'm more comfortable with the former. Each person is different. I was trying to explain my theories about investing vs paying off debt to a boss at work. His mortgage was 2% and he was dumping every spare cent he had to pay off his house. He wanted as little risk as possible and didn't care about the prospect of having more money for retirement.

My hangup is that debt equals risk. I know lots of people use money borrowed on a house to get a return and it works well for many but for others it doesn't. I myself am a small business owner and I avoid debt like the plague. How many people that get foreclosed on do you think planned on losing their house? I am not implying that I think OP is going to lose his house I am just saying no one ever plans on it but shit happens and people do.

My house is paid for. It is the best thing I ever did financially. I have very few worries now and any lost gains I had from missing out on that investing I am sure I have made up for by now. The big fallacy I see in the "keep your mortgage invest instead" theory is that they assume it is a long term thing but it isn't. Assuming you didn't buy too much house in the first place if you get pissed off about it you can pay it off in 5 years or less. I did.  During that time I still made minimal retirement contributions but every extra penny went to the house. Now I can and do invest a shit ton a month with no mortgage to worry about. It is hard to explain until you have been there but there is nothing like not oweing anyone anything. It is a really amazing place to be.  

That why they call it "personal" finance. You get to do what makes you feel good. What confuses me is you posted "But at this point and with my current financial situation and goals I wouldn't feel comfortable adding more debt for the purpose of investing more into the market".

Where you are at today is not carved in stone. I think you are caught up on your debts you already have and not looking at them objectively. If you have an extra 11k fall in to your lap from the truck sale and don't pay it on your debts but instead invest it that really is no different than borrowing money to invest. What makes the numbers you have now magical? Is the 75k an 15.8k some magical number of debt you are ok with or is it just where you happen to be and think it is ok? If your Heloc was 25k would you think differently ?  It is like you are saying the 75k and 15.8k are ok amounts of debt but you don't want more. How did you arrive at that?

I will ask again. If you had only 4.8k on your heloc would you borrow 11k more on it to invest? If not why would you invest the 11k you have coming and not pay down the heloc to 4.8k?

In my opinion getting out of debt is the best thing you can do for your future. Investing is great. I invest every month and I recommend continuing investing in your 401k or whatever I am just saying personally I would apply any windfalls to debts before I invested them.

Just based on the value of the house vs the debt against it. ,And yes that's current situation and the housing market could collapse and that wouldn't be the case. But like anything else there is a risk. In this case I think the risk is fairly low and I think I am comfortable channeling more or my money into investments instead of focusing on the debt.

Everyones plan is different.

For me, no debt = retirement. I dont lay down and nap in the middle of a foot race. I run until the end then stop. Every extra year you spent feeling comfortable is one more year you spend going to work and not doing things you want to do.

If a man has a proper safety net like he should, the mortgage is little risk. I can pay it if i have to.

Consider that you already have some amount of risk exposure in the 401k and the IRA.  You probably don't know what those fund managers are investing in, so the risk may be substantial.   I'd say Doodlebug gave some solid advice.

I agree everyone's plan is different and I certainly would not say your plan is dumb buut I would argue that I am not laying down and napping. I worked like a mad man paying off the house and now am investing aggressively. I started down this debt free road about ten years ago and in that time I have seen my net worth go from negative to well over a million. With zero debt I am able to invest thousands per month and I am on my way to an early retirement. Look at a normal family with say a $1500 mortgage, $500 car payment, $350 student loan payment, credit card payments, etc. How fast could they grow investments if they were investing an extra $2500 a month instead of servicing debt? Lots of different ways to skin a cat but but being debt free reduces the risk in your life exponentially.

Then why did you create this thread? It is not meant to be a smart assed question. You seem like you made up your mind to invest from the very beginning but maybe you created the thread because your gut feeling was that paying the debt was the smart thing to do? I agree paying debt is boring and it isn't as sexy as investing in the stock market but it is the safer choice.

Maybe look at a compromise? The Roth IRA contribution limit for 2016 is $5500. Maybe fund that with half the truck money and then pay the other half to your debts?

When you have a large amount of debt it is like eating an elephant. The amount is so big it doesn't seem like you you can ever pay it so you just say fuck it I will make the monthly payments until I am done. I know this was my strategy when I graduated college and had 70k in student loans. I felt like it would be impossible to ever pay that off so I just made the minimum payments. Then I got in attack mode and started knocking out debts and began to see significant downward movements in balances. The lower they got the more motivated I got and when the end was in sight I was like a runner charging towards the finish line. If you pay off your debts and decide you don't like it you can always borrow money again. You got your heloc once if you pay it and don't like it borrow the money again.

Max out a Roth Ira for the year, then pay the rest towards the HELOC.

Just trying to help you OP.

Why are you willing to take risk on a small business that may fail and prevent retirement and not take risk (presumably less) to invest in your future? Now if you need your assets to finance a business that's another topic but you asked about retirement planning.









No debt does not equal retirement.  Having the finances to support your retirement lifestyle (including all costs of living) = retirement.

Remember that you will have to live somewhere and pay for it.  Do you plan to stay in your home after it's paid off?  If so stop thinking of your house and an investment.  It is a cost of living. How old will that house be then?  What will it cost to maintain?
If you are planning on staying there it doesn't matter if it's paid off or not.  You can pay it off when you retire with the capital you accrued from investing.

If you plan on selling the house at some point,  any equity the house accrues is still capital gains to you whether you pay off your house or not.  So paying off the mortgage does not really increase the value, it only saves you the interest on the principal.

The risk is difficult to asses.  However, if the market crashes you would lose your investments.  If you had paid off your house you would still have it.  You probably couldn't sell it because with the crash the housing market would most likely suffer. So if there is a crash (permanent or one you can't wait out) then you (and most others are screwed).

Now if the market just does average like the historical 7%.  You would do way better in the market.  Not just the 7% market - 3% mtg = 4% better.  
4% difference with compounding interest and reinvesting dividends of ETFs better!


Four things I recommend

1. Sell the truck and pay off the heloc or refinance the heloc to a lower interest rate.
2. Dollar cost averaging invest in ETFs.
3. Work hard and save.  Your earning potential and youth are your greatest assets.
4.  Read this book! The Truth About Money. Best $14 you'll ever spend on yourself.  It worked for me.

I had just started researching the "what if's" when I made the post. Some of the other comments led me towards more information and examples including yours. I hadn't made up my mind, and still haven't figured out the exact path I'll take. I will probably take a path more in the middle just because that is more of the risk that I would be comfortable with. Max out an IRA each year and  once I pay off one debt use that against another debt instead of investing more. The rate I am currently going at it I would be debt free in 5 years or so. I'd have to run the numbers, but I think backing off SOME, to max out an IRA each year would only add a couple years to the plan, but put me further ahead with funds invested.

I have been hammering away at debt. Student loans paid off, truck paid off, and a good chunk off my mortgage because, like you, I didn't want that debt hanging over my head. Like I said, now I'm more comfortable with where I'm at I started exploring other ideas on things.

Right now I wouldn't take a risk on a small business, That would be way down the road when I think I am sitting well enough to handle that amount of risk. I'm not there yet.
I am not opposed to investing in my future, that is exactly why I started this topic. What I'm not comfortable with at this particular point in life is adding even more debt to do so. That's something I would look into when it comes to long term, but it's not for me right now.

What industry are you in?  Is it subject to huge market shifts accompanied by giant layoffs (like defense or oil)?  If so, 10 months of cash savings may not be enough.  Personally, I'm sitting at about 12 months, and I'm slowly trickling another $50/week into it just to grow it a little over time as my expenses also grow, so that the emergency cash fund stays relevant.  



Your mortgage (3%) and bike (2%) are low enough interest rates that I would not pay a single extra cent on them, ever.  My mortgage is 3.5% and I plan to ride that debt for the full 30 years while I'm putting money away in better paying investments.  The HELOC, @ 5.7%, needs to be paid off quicker than its original term.



Does your company provide you with an HSA account?  It's pre-tax, and you'll need it eventually.  As a single guy, the yearly contribution limit is around $3200; you should be maxing that since it's essentially pre-tax emergency savings, if your emergency is medical in nature.



In your situation with a windfall coming from selling your truck, I'd do the following in this order:



1. Bump cash savings up to 12 months of all living expenses.  Be honest with yourself when determining what this number needs to be.

2. Find out how much money you need to put in your HSA each week to max it.  See if your benefits department will let you make that change now.  If they do, make an additional deposit to make up for what you missed putting in to it during the first 3.5 months of this year.  If they wont let you make a change to your weekly contributions, put the whole ~$3200 for the year into it now.  My HSA provider lets me make deposits with post-tax dollars, and I can deduct them later when I do my taxes.

3. Put the remaining money towards paying off the HELOC.



In the long run you should spend your raises for the next 5 years on increasing your contributions to your retirement savings.  $39k in retirement savings at 33 is a slow start.

Small CNC job shop. We are subject to market shifts, but we have a decent distribution of companies and industries we do work for that we've been able to handle slow times pretty good. We have had a few lay offs since 08, but my position keeps me pretty safe. If the company closes I would be out, but other than that I've made myself pretty necessary to keep things running.

The company doesn't offer HSA.  That is another thing I have recently learned about, and been reading up on. I'm going to approach my employer to see if it would be something they would consider. The great obamacare has made our insurance costs sky rocket, and I am guessing a high percentage of the employees we have would benefit more from that type of plan.

I'm realizing 39k is a slow start, and why I am focusing on changing that now instead of later.  I got into the IRA plan at work as soon as I could. Then 2008 came and that was discontinued completely. It wasn't even set up where I could contribute to it without an employer match. and I wasn't smart enough to start something on my own during that period. It was several years before we had any type of retirement plan again.  I would be quite a bit further ahead if I had done something during that period.

Or, you are paying 3% in interest to hopefully make a return that is greater than 3%. Some years, that will be a GREAT bet, some years it will be a bad bet. But when people offer me cheap money, I will often times use it to preserve my liquidity and flexibility. Just because I CAN pay cash for a car doesn't mean I am unwilling to pay 1-1.5% interest to keep that same amount of money in the bank.

Debt/credit isn't terrible, it is a tool to be leveraged.

In OPs case, I would probably pay off that debt first though because:
1. He has savings.
2. The rate on the HELOC is about to spike to something that is approaching market returns.
3. The Harley is depreciating - which Harley's didn't use to do.

-shooter

HELOC/Mortgage/Invest

Good stuff on using that intro rate, but that secondary rate is nasty. Try and chip at principle as much as you can before it kicks in. Mortgage is self explanatory.

Transfer that IRA to Vanguard, start utilizing their ETFs. Super low expense ratios, proven rate of return. You can set up a DRIP plan to make it super low maintenance. A Roth would be advisable, but only put in what you can afford, the taxes sneak up on you come April.

I got a few thousand off the principle on the heloc before the interest rate jumped. I'm going to look into refinancing that heloc and my mortgage to a 15yr. When I looked the other day the APR on a 15 was 2.75 or 2.875. Now it looks like it's just over 3 now. I think if I can catch it under 3 the numbers make sense to refi.

I'll take a look at vanguard for investing. I've seen it come up a few times in threads now.

Debt is the currency of a slave

1. Use your savings to pay off the Harley and the HELOC.

2. Build your emergency fund back up to 6 months expenses.

3. Invest 15% or more of your income.

4. Use extra money to pay off your house early.

Posted Via AR15.Com Mobile

It can be. For sure. I know people who are absolutely beholden to huge mortgages, student loan debt, credit card debt, and various other forms of debt.

I also know plenty of people that use debt as a tool. If dealers will lend me money at 1/4 the rate of return I get by keeping my money invested, I am not taking money out of my long-term planning to pay cash for a car.

But, I also buy reasonable cars, drive them a long time, and don't rack up credit card debt.

Like all things, it is about moderation and knowing what you are doing.

-shooter

please explain your method(s) of doing this.
be sure to include the costs.

ar-jedi

buy this book:
http://www.amazon.com/About-Asset-Allocation-Second-Edition/dp/0071700781/ref=dp_ob_title_bk
and see
https://www.ar15.com/forums/t_1_5/1739597__ARCHIVED_THREAD____The_average_amount_of_money_in_an_American_s_bank_account_is__9_023.html&page=9#i54026109


read ALL of these and follow the links within:
http://www.ar15.com/forums/t_1_5/1737565__ARCHIVED_THREAD____Got_a_Roth_IRA.html&page=1#i53017017
http://www.ar15.com/forums/t_1_5/1737565__ARCHIVED_THREAD____Got_a_Roth_IRA.html&page=1#i53017099
https://www.ar15.com/forums/t_1_5/1672620__ARCHIVED_THREAD____Vanguard__Fidelity__TD_Ameritrade_or_another__For_IRAs__small_time_investing_and_speculating_for_fun.html&page=1#i49699589


consolidate all your IRAs with one IRA custodian -- Fidelity, Vanguard, or T.R. Price.
you will thank me later.
see
https://www.ar15.com/forums/t_1_5/1669572__ARCHIVED_THREAD____If_you_had_1k_to_invest.html&page=3#i49571729

ar-jedi

You should always pick whichever has the highest guaranteed rate of return.  Anything else can, and probably will, make you cry in the future.

lol.

https://www.ar15.com/forums/t_1_5/1757574__ARCHIVED_THREAD____Extremely_short_term_investment_options_for__25_000_.html&page=2#i54059994
and
https://www.ar15.com/forums/t_1_5/1757574__ARCHIVED_THREAD____Extremely_short_term_investment_options_for__25_000_.html&page=2#i54060149

pretty much your exact quote is in the second link above -- and not in a good light.

ar-jedi

I had a big response typed to the slave comment but I decided against it.

If I hear the term slave in a financial discussion, it's best to walk away.

Unless we are talking about the economic effects of abolishing slavery in early american history. Which is a valid discussion we've had in some threads.