$90,000 bonus at work. where and how to spend?

Compare the interest rate of your debts with what you could achieve with an investment... if the latter gives you more, invest, otherwise pay off debt.

Likely the debt on the car has a hight interest rate (~ 10%) and must be payed off. If the other debt is a fixed-rate mortgage it may be close to 0% in real terms and it shouldn't be paid off in that case.

This guy has started several weak troll threads about wealth. No originality.

paisano wrote:

completely out of the blue and unexpected. after taxes it's going to be like $55,000 but still, how should I spend this scratch?

income: 150k

debt: 70k

rent apartment

owe about 5k on my car.

Debt is a killer.

What to do NOW:

1) Throw all of it at your DEBT category (not the car).

2) Pay the rest of that debt (now just $15,000) off with your income in the next 6 months.

3) Just keep making payments on your car. Pay if off sooner if you want to, but with $5,000 left, that's not a big deal.

What to do for the future:

1) Buy your next car with cash. Some will say, "what about a zero percent interest loan?" Well, those are USUALLY given with some other choice too, like $2000 cash back. Don't want to miss out on free money with the cash back. And, NO, people who take zero percent car loans aren't immediately putting all that money into the market to make more. They just tell themselves it's a good idea. You should already be putting 15% or more into the market via retirement accounts. If you aren't, you need to.

2) Build wealth. Hopefully that big debt was student loan debt or some other debt that is past and not the result of spending behavior on your part. Start with 15% going to retirement accounts, and then if you need to save more, open a non-retirement mutual fund(s) and dump money in there.

3) Used to be that I would tell someone to buy a house, because that allows you to limit outgo ultimately, but I realize that these days not everyone wants to own a home, so I get that. If you aren't going to buy a home, make sure you aren't paying too much for rent, and set up a "housing" mutual fund where you regularly invest so that you can eventually buy if you want or that it earns so much over time that you can rent the rest of your life.

I don't get the whole "pay off your debt" thing if the debt is below 4% interest.

My car loan is 2% and mortgage is 3.375%. I'm not paying those off since I can invest the money and get a spread. I have more money because of this debt now, and I will have a lot more money in the future because of it since I'm investing the money I would otherwise use for paying off the debt.

The 30 year mortgage is one of the key forces that drives wealth creation in the U.S. It is kept cheap by the government with their implicit guarantees of FNMA and FMCC, the two companies that buy most of the mortgages in this country.

I would certainly go for a debt payoff strategy if:

(1) LTV is over 80% and you have PMI...pay the mortgage to 80% LTV and then refi out of the PMI requirement

(2) You have a high interest rate (prioritize longer term, higher interest debt and that will hurt you the most)

Otherwise, use the debt to finance your investments. You'll make way more money that way over time due to the immense compounding factor.

Zzzzz...you sound like the sort of person people avoid talking to. You boring fart.

This would be relevant if OP didnt RENT

Flagpole wrote:

3) Used to be that I would tell someone to buy a house, because that allows you to limit outgo ultimately, but I realize that these days not everyone wants to own a home, so I get that. If you aren't going to buy a home, make sure you aren't paying too much for rent, and set up a "housing" mutual fund where you regularly invest so that you can eventually buy if you want or that it earns so much over time that you can rent the rest of your life.

This is what my wife and I looking are doing, Flagpole. We paid roughly $90k for our condo in 2006 (I think). Now it's worth about $100k. Between the money we've paid in interest and repairs to various things (New AC unit was $5k, Windows another $5k, plus various wood repairs that we are responsible for, in addition to garbage disposal, etc), we aren't going to get out of it nearly what we put in. We are looking to sell and going to rent.

and you sound like a child. now get me some fries with that burger.

Hi OP,

I'd need a lot more financial information from you before making a determination, but these are the general principles I'd follow:

1) defer as much tax as possible. You'll be paying at a much higher income bracket than usual for this bonus, so make sure your 401k/whatever other tax-advantaged retirement accounts you have are maxxxed out.

2) determine what's more valuable to you: not having debt, or creating wealth. This will depend on the interest rates of your debt and your comfort with risk. Some rules of thumb:

-Pay off credit card debt first. High interest rates!

-personal debt (money owed to friends and family) is challenging to hold and you probably should pay this back immediately as well.

-student loan debt is a more contentious subject. private loans with high (7% +) interest rates should get paid off immediately. lower rate loans are more subject to debate, especially at the 4% or under range. if you decide to invest and just pay the minimum on these you'll need to return the interest rate PLUS any capital gains tax you might incur (since youve already maxed out your tax advantaged accounts). This isn't hard to do (s&p average is ~10% long term w/o considering inflation), but it would be a short-term risk if you're looking to have that cash available to purchase a home or do something else soon. also remember that student loans are an unsecured debt and are usually not discharged in bankruptcy (though there's absolutely no reason you should go bankrupt). bond returns are probably not going to beat your student loan interest rates but IDK.

-car loans are usually very low interest rates and it's generally considered safe to invest instead of accelerating payment schedule.

-since you don't own a home, earlier poster's comment about paying down your mortgage and refinancing so that you don't have to pay PMI doesn't apply. but for others, this is valuable advice.

-take a nice vacation!

-save the rest for a down payment on a house. maybe invest it in intermediate-term bonds for the time being, or try to ride the tail end of the equities wave. try to save 20% so you can avoid pmi immediately

if you have kids and want them to be able to build on your success and create more long-term familial wealth, consider contributing heavily to a 529 plan. tax advantages & you should be paying for your kids' educations. this isn't 1970. school is expensive and necessary.

i would invest most of the money in a pretty vanilla way (index funds) until you have no debt and a paid off house. then you can go HAM

grow up wrote:

Boredom monster wrote:

Zzzzz...you sound like the sort of person people avoid talking to. You boring fart.

and you sound like a child. now get me some fries with that burger.

You can lick my crusty hole as I unload my processed burger. Do you see the inadvertent irony in your post? I call t-ard.

1) If you get yourself debt free and stay debt free, you WILL have more money in the future.

2) You do not get rid of debt INSTEAD OF investing. You get rid of debt WHILE investing. Part of a diversified financial plan.

3) Home loans are acceptable, but pretty much nothing else is (other than a HUGE student loan if you are making big coin as a result of that loan).

4) His DEBT is likely not at 2% or 3.375%. Student loan debt will be higher, and credit card debt will be higher unless in a period of time where you have 0%, but USUALLY you have to pay a fee to transfer money to a card that allows you to do that for a year.

Living debt free is the way to go though ultimately.

People look at a 2% car loan or a 3.375% mortgage loan and then tell themselves that they can make more money in the market. While this is usually true, most then DON'T actually go invest that extra money in the market. You should ALREADY be investing 15% or more into retirement accounts made up of stock mutual funds. So, with your way of thinking, that means you would NEED to have money for a car that you could pay for cash but you decide to get a loan and then you dump all that money that would be needed for that car into the market (above and beyond the 15% or more that should be going in regularly) or that you decided to put the car loan amount (in addition to the loan payment) extra into the market during the purchase period of the car. That is NOT what people do, and I suggest not what you have done.

People take loans so they can get what they want now and pay for it over time, not so that they can make more money in the market. People also take a loan and justify it by saying they could make more in the market, but then they don't go do that.

I have been 100% debt free including owning my home outright for over a year now (paid the house off early). I was 50 when that happened. I have also been investing in the stock market since 1989. Because I have never wavered investing, I have more than enough to retire on now. I also now have a house I own outright and no debt whatsoever, so I have more disposable income today than ever by far.

I own three cars outright.

If I had to make payments on the house and three cars right now, here's how that would stack up monthly:

Mortgage - $1100

Car 1 - $265

Car2 - $113

Car 3 - $275

$1753 total per month that no longer is outgo for me. With that money, I can buy something I want, invest more if I want (no need to now), make sure my kids graduate from college debt free (I will).

Yeah, this is a viable option these days. People don't want to have to deal with maintenance of a house or mow a yard, etc. The PROBLEM financially is that if you ultimately own a home, your outgo goes down drastically. If you plan to always rent, that rent can and will go up even beyond the time where you have an income, so to prepare for that, you need to make sure you are investing enough not just for a regular retirement (someone who owns their home outright) but also enough to handle rent increases until you die. All about priorities, so if you want to do that, then sounds good to me...just make sure you have saved/invested enough to ensure your housing when you are old.

3 mil in the bank wrote:

100% to Vanguard Index funds. I've done this with every bonus since college (max $350K). I'm in my mid 30s. See username for results.

This unless you are paying high interest on your debt which will pretty much cancel out any gains made from stocks

under a bridge wrote:

This guy has started several weak troll threads about wealth. No originality.

Says the guy posting on page 2 of this thread.

Thanks Flagpole. Seriously. You are the first person (including a few financial advisors) that has mentioned that sometimes renting is better than owning...and none of them mentioned putting aside money for housing for retirement .

I'll make this short and simple. Pay off your debt as quickly as possible (starting with the highest interest rate). This unexpected bonus puts you in a position to (financially) move forward with your life. I would be focused on debt rather than contributing to a 401(k).

If you're debt is 50% of your income - and not secured by an asset (i.e. a house), PLEASE don't ask the question again of how to "spend" your bonus, you should be thinking about how to "allocate" it.

lr career advisor wrote:

paisano wrote:

completely out of the blue and unexpected. after taxes it's going to be like $55,000 but still, how should I spend this scratch?

income: 150k

debt: 70k

rent apartment

owe about 5k on my car.

Butt-implants and penis-enlargement. Your boyfriend will appreciate it plus you'll earn more tips while working the streets.

L

M

A

O

end of thread

paisano wrote:

completely out of the blue and unexpected. after taxes it's going to be like $55,000 but still, how should I spend this scratch?

income: 150k

debt: 70k

rent apartment

owe about 5k on my car.

If you are smart enough to get a $90K bonus, you probably have some good ideas what to do. Pay off that car loan, pay down any other high-interest debt, a mutual fund, purchase a home, nice Christmas gifts for the wife and kids, buy a 70" 4K TV and take a vacation. - It's not that complicated.

Flagpole wrote:

So, with your way of thinking, that means you would NEED to have money for a car that you could pay for cash but you decide to get a loan and then you dump all that money that would be needed for that car into the market (above and beyond the 15% or more that should be going in regularly) or that you decided to put the car loan amount (in addition to the loan payment) extra into the market during the purchase period of the car. That is NOT what people do, and I suggest not what you have done.

That is actually precisely what my wife and I did. House was 20% down to avoid PMI and we financed the rest, leaving money in the bank (could have put another 20-30% in probably). Car was 2% financed and the money I would have used was put into a college fund. All that cash I didn't use is now earning money for me and it comes at a very very cheap price given the additional return I can get.

If you want to talk about HOW to invest, that's a different story and one I imagine we have a lot of common ground on. But I don't think your opinions on what "most people do" matter here. The financial math matters. Instead of paying down debt, I am using it to invest. Up to a point (i.e. an unservicable debt burden), there is a tremendous financial advantage to using cheap financing to make money.