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The $20,000 Answer

by J. Money on Tuesday, August 28, 2012

mr. finger question

So I started writing this post today to let you know I had made a final decision on that $20k profit from last month (Hint: it was gonna be #2 below), but mid-way through I changed my mind yet AGAIN ‘cuz I had totally forgot about one of my yearly – and most favorite – goals. Which unfort. doesn’t have anything to do with investment properties or other exciting new adventures I’m afraid. Although equally as sexy ;)

I don’t know what you would do in my case, but read on to see where my thought process took me… maybe I’m a bit too conservative?

Option #1: The Investment Property idea

The last time we chatted about this, I was gung-ho on picking up an investment property with this money. The idea of virtually trading in my online property for a “real” physical one was fascinating the Dickens out of me, and after reading all of YOUR responses to it, and other bloggers’ posts who are getting into the game too, I was 80% sure I was about to bite. In theory it would be pretty simple – I use the $20k for a down payment on a $100k condo around here, and then rent it out and have them pay off my mortgage FOR ME and eventually turn a steady profit for years and years to come! The whole “have your money work for you” type of deal, yeah? (Donald Trump nods “yes”)

The thing of the matter though, was that I was ALREADY gonna be a landlord here in a handful of months anyways! By default! Cuz when we find our next place to move here in the next 6-12 months, we’re gonna be forced to move out of our house and rent it out as we’re still way too under water to sell the thing (like, $40,000 underwater). So why rush the experience and take the risk now, when it’ll fall in our lap next year?  And with a house I’m already 100% comfortable with?

It became a no brainer to cross this one off our list and move on to the next best route for our money… one which I was CERTAIN would be the decision I was gonna announce to y’all today once the dust had all settled!

Option #2: The “Less Debt, Less Worries” Route

AKA get rid of all my expenses so I don’t NEED as much income anymore! AKA continue paying off my mortgage and knock down that (now) 9 year plan even lower! The less you owe, the less you need to make later, right? And $20,000 would do some major damage to our house debt – no doubt about it.

Combine that with all our other changes lately – merging of our accounts, combining all our savings – and we’re well on the one way to financial simplicity. Which means more time to think clearly and enjoy what the rest of this world has to offer (family, friends, babies!), as well as less stress and managing properties all over the place. There’s something to be said for more freedom, even if it means less money :)

We finally decided this was the best course for us – and I was JUST about to pull the trigger and make it happen – when all of a sudden I had an epiphany and totally realized we had FORGOTTEN about maxing out our IRAs this year! $hit!!  That’s one of the most important goals!

(And thus created option #3…)

Option #3: The “Max Out All Your IRAs” Route

Between the extra mortgage pay offs and the baby stuff all over the place, it had absolutely slipped my mind that we’ve GOT to max out those bad boys just like we do every year.  It’s the foundation of our retirement plans! (A friend once told me that his only financial goal is to max out his 401(k) and Roth ever year because after 30-40 years of doing that he would be one financially happy camper.  And it’s true – do you know how much $20,000+ a year adds up to over time? A LOT. And that’s not even taking into consideration growth and dividends, etc!)

And because I got so carried away with life this year that I hadn’t been setting money aside each month for this, it means this may be our only opportunity to continue on with the mission of maxing these guys out this year.  It’ll be hard to come up with another $20k on the side, that’s for sure. Unless someone else wants to buy one of my sites? ;)

So for the fourth time in a row, and the answer to today’s $20,000 question, we’ll be maxing out both of our Roths and half of my SEP Ira with the money – Woohoo!  We have a winner!!!

Our Roths will each get $5,000 (the legal maximum), and then my SEP will get the remaining $10,000 plus more once I figure out how much I can dump into it at the end of the year (SEP’s are like 401(k)s for small biz owners who don’t have access to them, and the max you can put in is determined by a % of your year-end profit). It’ll probably slow down Operation Mortgage Payoff for the 2nd time this year, but right now I think it makes the best sense for us going forward.  At least until I can come up with the next big thing ;)

And now I’m decision-making free too! Woo! I suck at making the big ones – takes me forever…

What do you think about this? Smart move? Safe move? What would YOU do with an extra $20,000 check if you sold something of your own? We obviously had a ton of going back and forth here ourselves, but ultimately I think it was the best one we could have landed on. They all had some damn good benefits, though, that’s for sure.

————–
PS: Just an fyi that I wasn’t just handed this money either – I had to work my balls off for it over the years, which is why it took so long for us to finally come up with a solid plan for it. When you deal with winnings and other similar situations, I feel like it’s much easier to figure out what to do with it since it hits you at one time and hadn’t been building up over the years, ya know?  Nothing against those who pick out lucky lottery numbers like a rock star :)

 (Funny finger man by Tsahi Levent-Levi)


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{ 22 comments… read them below or add one }

1 William @ Drop Dead Money August 28, 2012 at 6:39 am

That would have been my option. Of course, that makes you a very smart man! :-)

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2 Budget & the Beach August 28, 2012 at 7:16 am

I think that sounds like a solid plan! For me it would be my emergency fund, because that is how much I’d like to have in mine. That way I can start saving for other things.

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3 K @ Get Worth August 28, 2012 at 9:24 am

That’s the route I would go too. Get all the tax-advantaged retirement savings you can. Actually just realized a similar thing, that we weren’t maxing our 401(k)s. So we’re going all-in the rest of the year to try and make it up.

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4 J. Money August 28, 2012 at 9:27 am

@William @ Drop Dead Money – Haha, good! I’m glad we’re on the same page then ;)
@Budget & the Beach – That’s a great idea indeed. It would be my 1st choice too if I didn’t have one already topped off and all. A chunk of savings helps you sleep soooo much better at night, so I’m glad you’re working towards it! :)
@K @ Get Worth – AWESOME! Go for it dude! I think these should always be the first choice to put the money if you have enough extra to part with… That fact that we can’t touch it for dozens of years makes it even better so we don’t get tempted!! :)

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5 tom August 28, 2012 at 9:38 am

Of the 3 options, you definitely picked the best one.

Any thoughts as to what you’ll be doing for a higher education fund for Baby J$? If you plan to contribute to one, I’d suggest putting a small portion in there.

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6 Ginger August 28, 2012 at 10:32 am

I think your pick was the best of the lot. Retirement savings comes first.

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7 Sean @ One Smart Dollar August 28, 2012 at 10:56 am

I think you are probably making the best choice. It’s a close call with #3. Doing as much as you can for your retirement is also near the top of my priority list.

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8 Joe @ Retire By 40 August 28, 2012 at 11:13 am

I would do the same as well in your position. Owning rental property is good, but if you’re going to rent out your old place already, then there is no point picking up another property. It’s a lot of work to manage even one property.

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9 Samantha August 28, 2012 at 11:56 am

Well, in my life, we’ve chosen Option #2, Less Debt, Less Worries. We’re paying off the mortgage to the detriment of maxing out retirement, but this is a short term option. Once the debt’s gone, maxing out retirement will be easy.

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10 DebtsnTaxes August 28, 2012 at 12:05 pm

I think you made the right decision for you. If it was me earning the extra $20k I would have put it towards my mortgage as it would decrease our debt by a ton. Although seeing a $20k increase in the retirement accounts would be pretty sweet also. Either way, nice to see your hard work pay off, literally.

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11 Jen @ Master the Art of Saving August 28, 2012 at 12:48 pm

Out of the 3 options, I think you picked the best one for you guys. :-) I don’t even know what I would do if we earned $20k from something. Probably something responsible and then either get a 2nd car or shove it into my Europe Fund.

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12 Bryan August 28, 2012 at 12:54 pm

With that new IRA money, you might consider investing in ARR and MFA (I own shares of both). As long as the fed keeps rates low, and only as long as that’s the case, I think these are really profitable plays in the short term.

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13 Mrs. Pop @ Planting Our Pennies August 28, 2012 at 1:11 pm

The MintLife Blog actually had a pretty cool piece this morning (last night?) about a personal 401K… We haven’t had much use for a SEP IRA or a personal 401K, but the personal 401K sounded interesting and possibly better than a SEP IRA.

Glad you guys are maxing out the Roths, we love ours!

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14 Aaron Hung August 28, 2012 at 4:43 pm

I would go “less debt, less worries” route myself. Knock down that debt and you’ll feel better when that balance goes down. that’s just me :)

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15 Jacob @ iheartbudgets August 28, 2012 at 7:22 pm

You’re creating more income in the future, with a better ROI. I agree with your decision. Though it is much more fun to speculate real estate, I think you will have a chance in the very near future to do that. :)

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16 Donna Thompson August 28, 2012 at 7:48 pm

Thanks, J$… after you showed me how you thought it through, I agree with that decision… and, just want to say that sometimes decisions are best after thinking them over without the pressure of spur of the moment choices! Congrats on the new family member and God Bless you all. I thank you for your newsletters and thoughts!

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17 LB August 28, 2012 at 10:10 pm

In my own life I took some birthday money and gift money and stuck it in my retirement. The only difference is I don’t have any debt, so tough call. Either way I think you would be fine. :)

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18 J. Money August 29, 2012 at 10:13 am

Thanks for all the comments and reassurance I probably did the right thing :) It’s not as exciting to me like either of the first two options would have been, but overall I’m pretty happy with the decision and think it’ll serve us well over the years. So another chapter closed out!

@tom – Yup! Def. thinking about it more, just haven’t agreed 100% yet and pulled the trigger… still want to poke around a little, but it’s on the top of my list :) I already have a little set aside specifically for it once we’re ready.
@Ginger – I think so too, though it still kills me not to knock away more of that mortgage :(
@Sean @ One Smart Dollar – Yeah, at least it’s a good problem to have though, eh? :)
@Joe @ Retire By 40 – That’s what I’m thinking too… and if I DO fall in love with it and want to expand my empire more, I can easily just do so either in that same area, or the new one we have since moved to. So probably best to start with baby steps :)
@Samantha – I’m halfway jealous of you too :) I wish I could keep my foot down and just plow forward without any other goals in mind like retirement, but I just can’t do it quite yet…
@DebtsnTaxes – Thanks :) You’re right, in both areas it’ll look good so it’s just a matter of which is most important to you at the time!
@Jen @ Master the Art of Saving – Haha… the old me would have had more fun with it too ;) Now I’m an old fart and my Net Worth has become my playground!
@Bryan – Thanks, I’ll check them out :) Though I’m not that good at making a lot of changes once I’m invested in something, so it may not be that good if things DO change and I forget to cash out, haha… but I’ll look into them here in a few once I post this up. Thanks.
@Mrs. Pop @ Planting Our Pennies – Roths are awesome!! I don’t know much about the Personal 401(k) myself, but I can bring it up to my accountant and ask her what she thinks. She was the one who thought the SEP was the best option at the time (2 years ago) but maybe things have changed?
@Aaron Hung – You’re so right, I’m not gonna deny it! It WOULD make me feel a ton better than the IRA route, but financially this is one of the times I’m gonna stick with what makes the most sense and close out my emotions… which is SUPER hard for me to do. I swear though, if I get another chunk of money anytime soon you better believe it’s going right to those mortgages! ;)
@Jacob @ iheartbudgets – Me too :) And I’m looking forward to it!! Worst case I hate it and then we just sell and take the loss once and for all and be done with it. But best case? I get addicted to renting out properties and just build up my own litle empire as time goes on, haha… only time will tell!
@Donna Thompson – Awww, thanks Donna! You totally made my morning :) Baby $ would wave back to you if he wasn’t a slobbering pile of cuteness!
@LB – Yeah, each option had its own set of pros that’s for sure. Good job on investing some of that birthday money too – it’ll be the gift that keeps on giving over time! ;)

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19 Brent Pittman August 29, 2012 at 4:24 pm

That’s too funny that you had already pre-decided earlier in the year how you’d spend the money. Good thing you did a goals review before making any decisions. I agree funding those retirement accounts was a wise decions.

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20 J. Money August 30, 2012 at 9:01 am

Maxing out my accounts have been my #1 goal every year for 5 years now :) Even though I tend to get off track and come up with new plans and ideas, haha… but as long as I do that one thing every year I feel like it’s a success. And I almost slipped up!

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21 Pauline September 1, 2012 at 9:35 am

I manage my properties from abroad and although they are low maintenance, it can become a hassle with needy tenants. In your case I would keep the money and use it for a downpayment on your next home, if you are moving.
It is so nice to be home and not rent, especially with a little one, unless your next move is a short term one.

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22 J. Money September 1, 2012 at 3:39 pm

We’ll def. be moving, but probably not buying as it will be a short term thing for probably only one or two years. After that we’ll see if we want to stay put (and we’ll then buy), or pick up and go somewhere new… It’s kinda exciting not knowing what’s next :)

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