[Jess]

with an extra $60,000/yr. where would you put your money?
– mortgage
– fully funded emergency fund
– tax advantaged retirement accounts
– my wife also has $43,000 in student loans

Question. My wife (33) and I (37) have been together 10+ years and are now starting a family, so of course starting to think more seriously about FI.

We bring in just over $200k/yr. and the lifestyle creep to go with it.

We never carried consumer debt until recently (we had a wedding & honeymoon, bought a “new to us” used car and put it in a new HVAC system).

All-in-all about $40k we scheduled to aggressively pay off (0% interest).

That said, it’ll all be paid off here shortly freeing up about $4000/mo.

Which leads me to a few questions:
1) I can’t seem to find anything about calculating FI (both the number and the timeline) with a mortgage?

It’s not something we’ll have indefinitely, but it IS something that’s currently a HIGH monthly expense ($2,900/mo.) – includes escrow. We owe $308k on a house now worth $536k (we recently had it appraised for a HELOC)

2) That said, should our focus be on using that $4k/mo. to pay off our mortgage early (it would be paid off in about 5 years) OR should that $4k/mo. be going towards investments?

3) The caveat is our interest rate is a refi over covid at 2.75% it’s hard to justify dumping into that when we can see returns in the current market much higher.

4) Another caveat is we paused retirement investing all together while we paid back this debt, so the $4k/mo. could also go towards maxing out our 401(k)s?

5) Fun Fact we also drained our emergency fund for the above expenses, so we could use the $4k to build that back up?

We have approx. $80,000 in retirement, $10,000 in brokerage accounts, $10,000 in the bank

Thanks for any and all thoughts and opinions!

[Jenny]

Contribute to 401k, build up emergency fund, pay off student loans if there is no chance of loan forgiveness.

Keep the mortgage, you can have better returns investing the money.

[Travis]

I would start by getting your company 401K match if you’re not already doing that. That’s an easy 100% return. Might as well take it.

After that I would focus on the student loans and anything else besides the mortgage. Leave the mortgage alone.

The rate is so low it’s better to ride out the entire 30 years.

That’s all less than a year! After that you’ll have even more than $60K/year freed up to put towards retirement/investing! Automate that as much as you can so you don’t have to “choose” to save/invest each paycheck.

For me that helps a ton with lifestyle creep.

My paycheck stays small and I “can’t afford” to get myself in trouble.

[Amy]

Rebuild the emergency fund. The mortgage interest rate is low so I wouldn’t prioritize paying that off early.

[Sallie]

If starting a family involves having children in the near future, I would keep a decent amount of money liquid for the costs of birth, child care, child-related emergencies, and then planned college savings.

If it doesn’t involve kids, then feel free to disregard.

[Sarah]

Don’t put a dime extra into your house PLEASE. I beg you. Pay off debt and invest.

[Scott]

In your case I WOULD work the Dave Ramsey baby steps in an “ish” way.
– keep the $10k in the bank.

It’s not enough to be a full emergency fund but it would be your Baby Step 1 starter.

– student loans and HELOC are your baby step 2. Try to cut back on that lifestyle creep and get these paid off asap.

– fully funded 6 month emergency fund
– then resume investing

I agree with the consensus that I would not pay off a 2.75% mortgage early, and it’s actually a reasonable payment for your income.

I would start focusing on investing as soon as I had a better cash position / emergency fund in place.

[Yona]

Starting a family means kids? Build up the emergency fund, 401k and loans. Have you looked in cost of pregnancy/delivery/childcare expenses (I’d roll some of that in your emergency fund too.)

[Rick]

1. Learn about, create, and fund sinking funds for the known unknowns. You seem to get in a cycle of oops life happened and now we stop good uses of money to pay back that oops.

Get ahead of that stuff and stay ahead of it.

2. Don’t stress over housing in retirement. It always will exist. Rent will be there.

Or if you decide to tie up a large chunk of money, you have opportunity cost which is fairly nasty long term and increasing non mortgage costs like property tax and insurance and maintenance and repairs and probably an upgrade.

So, include a housing expense amount that makes real sense long term but don’t stress over what form it will take years from now.

[Lisa]

I’d pay off the student debt and put the rest in your emergency fund. Paying off that student debt will be a huge relief and as to your cash flow avail to put more to savings and investing each month.

I wouldn’t touch the mortgage except paying it monthly with that beautiful rate.

[Nick]

To me if you can find a way through investments to generate the 4k a month, that would then pay down the house at 4k a month, I’d go for that bc you’re not likely to see that IR on the mortgage for a long time.

Even if you can’t get 4k a month, I’d still throw that into investments which then would be used to pay down the mortgage.

Just a thought.

[Stef]

I’d leave the mortgage at that rate. Fully fund your emergency fund. Getting pregnant isn’t as easy or cheap as it sometimes looks.

Make sure you have adequate life insurance, not connected to employment, BEFORE getting pregnant, especially your wife as some pregnancy-related complications could make her uninsurable.

After replenishing the EF, I would resume retirement savings and/or pay off those student loans – run the numbers to see what the true cost is next of tax impacts for each.

[Endri]

You need to seriously check your lifestyle, earning that much is no excuse to have saved that little.

The past is gone but focus on the now and future and work on your savings rate, budget, and reduce a lot of unnecessary expenses, especially now with a family where you will need more money.

[Author]

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