11–20 of 31 posts
Once you get that out of the way, use the money to fund activities that will add to your well being. Careful with adding stuff to your life. Ultimately you will need to take care of it. Many people become slaves to it and the more you have the more you will have to take care of.
Haven’t seen much advice like this on HN but there are financial sub reddits related to this, which I would recommend looking into if you haven’t before. Typically the order of operations, from a high level, for a windfall or large cash flow increase is: Pay off all debt Edit: the above didn’t really answer your specific question about “how much” to allocate to saving vs spending. Kind of a tough thing to put a numbe…
6 months seems like too much. You're sacrificing long-term market returns that could be invested.
Haven’t seen much advice like this on HN but there are financial sub reddits related to this, which I would recommend looking into if you haven’t before. Typically the order of operations, from a high level, for a windfall or large cash flow increase is: Pay off all debt Edit: the above didn’t really answer your specific question about “how much” to allocate to saving vs spending. Kind of a tough thing to put a numbe…
6 months seems like too much. You're sacrificing long-term market returns that could be invested.
Haven’t seen much advice like this on HN but there are financial sub reddits related to this, which I would recommend looking into if you haven’t before. Typically the order of operations, from a high level, for a windfall or large cash flow increase is: Pay off all debt Edit: the above didn’t really answer your specific question about “how much” to allocate to saving vs spending. Kind of a tough thing to put a numbe…
6 months seems like too much. You're sacrificing long-term market returns that could be invested.
Also medical bills tend to be twice as expensive as what you'd think they are, so a single medical incident can wipe out a solid chunk of that 6mo net.
If you have a new-ish mortgage, then overpaying it is OP. If you're only overpaying the principal, it reduces not only the repayment period, but also interest the bank would accrue.
You'll almost always be better off putting your extra cash into index funds instead of overpaying a mortgage.
Index funds historically return ~7% long-term, while your mortgage will likely be 3-5%. By overpaying a mortgage, you're missing out on an extra 2-4%: it's better to pay ~4% in order to get a gain of ~7% elsewhere.
Not to mention that every cent you put in to your mortgage is now locked in to your home equity, meaning it's difficult to access that money if you need it. You can sell your stock holdings and have the cash in a matter of days. Accessing the money you put in to mortgage repayment probably means taking out a HELOC or similar, which takes time and requires getting approved for the loan. If you're in a particularly bad situation, this might not even be plausible. And you'll pay extra interest for the privilege of accessing your own wealth.
On top of all of that, the tax implications are bad too. Long-term capital gains rates are low. Mortgage interest you pay is deductible. You lose both those benefits by overpaying your mortgage instead of investing the cash.
Of course, in fairness, early repaying a mortgage is a guaranteed return of 4%, while investing in the markets carries risk. However, in OP's situation—where they likely won't need any of this extra cash on short notice—you can ride out down markets and sell once they've recovered.
Maybe enjoy some extra travel but otherwise I try to be pretty anti-consumption soas not to get swept up in the hedonistic treadmill involved with keeping up with the Joneses.
If you have a new-ish mortgage, then overpaying it is OP. If you're only overpaying the principal, it reduces not only the repayment period, but also interest the bank would accrue.
This very much depends, and probably isn't a good idea. Mortgages are some of the cheapest loans you can get. You'll almost always be better off putting your extra cash into index funds instead of overpaying a mortgage. Index funds historically return ~7% long-term, while your mortgage will likely be 3-5%. By overpaying a mortgage, you're missing out on an extra 2-4%: it's better to pay ~4% in order to get a gain of…
Also, people often say that you shouldn't invest money that you don't need in less than five years. The present time is a good example of that. So, treating securities investments as liquid in periods smaller than that is dangerous.
Assessing potential risk is just as important as assessing gains.
If you start spending, you'll keep spending. Once you taste the fancy butter and breakfast on organic non-bleached sourdough, going back to margarine on toast makes you unhappy.
Money, like food, is dangerous. If you're comfortable, more of it just makes you 'fat'. It's harder to dial back to being acsetic later.
However, going through the journey of opulence is something people should try. Buy the expensive chocolates, eat the steaks with gold leaf, sleep at top hotels for absolutely no reason, buy flights to visit the crowded wonders of the world. Just manage expectations that this indulgence is not the peak of your life, but rather a low point.
Haven’t seen much advice like this on HN but there are financial sub reddits related to this, which I would recommend looking into if you haven’t before. Typically the order of operations, from a high level, for a windfall or large cash flow increase is: Pay off all debt Edit: the above didn’t really answer your specific question about “how much” to allocate to saving vs spending. Kind of a tough thing to put a numbe…
6 months seems like too much. You're sacrificing long-term market returns that could be invested.
Not even bonds/CDs - just a high yield account. It is instantly accessible when I need it.
If and when the market ever drops 30+% and a recession starts to loom (seems pretty close to what's going on now) - I never have to worry will I be okay, what if I lose my job, what if I get hit with some massive unexpected expense.
I have money in the bank to get me through it all. I won't be forced to sell any equity at a time when its worth a lot less, I won't have to change my lifestyle one iota.
That security is worth the potential loss of future gains. I already have a lot in the market anyway and I keep adding more.
I'm also single with no kids so 1+ year in cash looks very different for me vs someone married with kids and all the associated costs. Even so, it's an approach I find very comforting and I hope to maintain when I'm further along.