I recently sold my car and have $12,000 sitting in my bank account. I will also receive a small tax refund from the IRS, so I’ve been running the numbers in my favorite excel spreadsheets, trying to determine what on earth to do with this money.
As I mentioned in a previous post, I’ve been quite sick for about a year now, so I’m considering putting the money into a savings account in case I’m unable to return to work on a full-time basis.
Savings Accounts
Savings accounts are the safest place to store money I may need soon. I’m leaning towards saving the money in a high yield savings account, but I know it won’t earn much interest there. However, it is the easiest way to keep my money safe while I continue to get better.
Emergency Fund
If I didn’t have a sizable emergency fund, I would use the money to build one. $15,000 would take care of all sorts of unexpected expenses that are bound to pop up.
Funding a Roth IRA
I’ve already funded my Roth IRA for the year. If I didn’t, I think a Roth IRA is the very best place to stash a portion of this money. A Roth IRA can grow tax-free, and you can withdraw your contributions at any time without penalty. You can use a Roth IRA as a place to store your emergency fund, which takes care of two birds with one stone.
Pay Off Credit Card and Student Loan Debt
If I had credit card debt or student loan debt, I would dump $15,000 into paying those off. Luckily I don’t have either of those, but I do have two rather large mortgages.
Pay Off The Mortgage
My first mortgage has $200,000+ remaining, but it’s a 15-year mortgage at only 4.875%. So it would be pretty crazy to add that lump sum toward the mortgage. It would only reduce the total interest by $11,000+. I can buy a CD for just a little under the 4.875% rate.
My second mortgage is just under $500,000 at 6.0% for 30 years. Yes, I realize that’s an insanely large mortgage, but it’s on a beach property in NC, so if I put $10,000 towards that mortgage’s principal, it will save me $36,00+ in interest over the life of the loan. That also removes 1 1/2 years of mortgage payments.
What to Do With $15,000?
So what do you think I should do? Should I use the money to pay down my very, very large mortgage?
I am only 28, so I fear that I am losing out on the beauty of compounding interest by paying down the house. At the same time, though, I’m looking at a current interest payment each month of $2,400+ a month.
*take this advice with a grain of salt- im not a financial planner or anything fancy like that…plus my wife thinks i’m a moron – end disclaimer*
seriously, if you’re ill and think you’ll need the cash in a relatively short period of time, DO NOT pay extra on either mortgage
It’s like stuffing that cash in the walls…you’ll never be able to access it. especially if you start working only part time…try getting a HELOC with a part time / no job…won’t happen.
I’m a safety nut, so i recommend the safe side.
you’ve got 4 options:
– under the matress (not recommended)
– high yield online savings account (good)
– CD (better)
– treasury bills (best)
personally, Im a Tbill fan, I would recommend a 3 or 6 month bill (or 1 month, depending on your situation)…remember, the rate is state-tax free, so the actual yeild is a little higher than you think
http://www.treasurydirect.gov
its really easy
anyway, just my 2 cents…remember, my wife thinks I’m a moron though… 😉
ok, just read your other post about your hefty emergency fund…sounds like you’ve done your homework! 😉
if you think you’re covered there, option 5 would be a stock mutual fund / index fund…still very liquid if you need the cash, but has the possibility to rise more than a CD or T bill (but also has the possibility to fall).
but again, if you still think you will need access to that cash anytime soon, a stock fund is not a good short term place to park your money…they’re for long term investing.
so, its your call….but if in doubt, i would go with the T bills on treasury direct
Maybe ‘lend’ your money at higher interest rates than what CDs offer you….