What to do with $125K right now?

[nick220]

I'm sitting too heavy in cash right now after selling a rental property and I'm not sure what to do with about $125K. What say you, Reddit?

Here's some background on my situation.

• 35 yrs old, married, 3 kids
• Single income family
• Active duty military (enlisted) with about 6 years until military retirement (approx. $2,700/mo)
• Investments: $580K in Roth accounts (401(K) & IRAs maxed out)/ $87K in taxable account
• Debt: $163K mortgage @ 3% (will sell home, worth $280K, within next 6 years)
• Vehicles are paid off (2019 & 2020 models)
• Finishing masters degree in December, no desire to get a PhD.
• Kids' college is already covered under both Federal and State G.I. Bills

The million dollar question, what should I do with the $125K sitting in cash right now?

 

[chiole]

@nick220 First of all, you are crushing it. The question is, what is your purpose for the $125k? If it is for retirement or an expense 10+ years away, I would put it all in a low fee index fund and forget about it until you want to use it.

 

[nick220]

@chiole That's a valid question and one I struggle with. Part of me thinks it would be nice when I retire from the military to buy a house outright (or close to it), and then my military pension would go further since I wouldn't have principal and interest on a mortgage to cover. Mathematically, I understand that unless interest rates spike it doesn't make sense to "lock in" a 3% return by paying cash for a home.

 

[chiole]

@nick220 I wrestle with the same decision. I understand the mathematical benefit of making a payment on a low interest home loan, but financial freedom to me is having low expenses and no debt. If I were you, I would invest the $125k in an index fund and decide what to do with it after you retire. That is what I plan to do with the proceeds of selling my house in a few years. I will invest it and trust that it will grow over the long run.

 

[mario82]

@nick220 Dscr loan an investment property, rent it out, ride the appreciation wave while cashflowing and reduce your tax burden by depreciation on your house. Solid plan with inflation coming.

 

[kikelomo]

@nick220 Good God! Congrats haha! When I taught English overseas, plenty of the American teachers were mid-30’s, single, still paying college loans and without retirement or savings… still paycheck to paycheck.

Moving on…
My dad was in the same position as you (Air Force) single income.. mortgage.. retirement… cars…etc. really very similar to you.

He invested into a tax advantaged college fund for me. Whatever I didn’t use for college, he rolled over into a non tax advantaged mutual fund that I could use to better my life.
Could be a nice idea for your young’uns aside from stocks, crypto, personal non tax advantaged funds, or additional RE.

 

[mcgili]

@kikelomo His kids college is already covered by GI bills

 

[kikelomo]

@mcgili Oh shoot! This guy is just winning life haha.

Guy is 35 living better than most 50+ people.

 

[resjudicata]

@mcgili All of the kids can't have it though right? Only one?

 

[nick220]

@resjudicata The state G.I. bill offers 128 college credits or 8 full-time semesters for each kid if I separate/retire with > 30% VA disability. Due to some medical conditions which have creeped up over the past 4-5 years I should exceed that 30% VA disability rating pretty easily.

 

[resjudicata]

@nick220 Thank you! I did not know that.

 

[worshiplady3]

@resjudicata You can portion them out

 

[mcgili]

@resjudicata State GI bill might add more coverage

 

[resjudicata]

@nick220 This is more of a flex post

 

[black_square]

@resjudicata I could be hating but I think you’re right.. i mean what can this sub offer to a guy that clearly knows what to do with his money

 

[activelywaiting]

@black_square i wanna know how they manage to save 3k a month, with 3 kids, on a single income for a year. that's the million dollar question.

 

[nick220]

@activelywaiting So, in a nutshell it goes like this. Housing makes up our largest expense and I never spend more than 25% of my gross income on housing. Right now, it's even less. As an E-7, I gross roughly $7K per month (including base pay, BAH, BAS, and a $400/mo special pay). My mortgage is $1,176/mo including principal/interest/taxes/insurance (PITI), or roughly 17% of my gross income. This leaves a lot of room (~$5,800) to support the wife and kids, fully fund retirement accounts, etc. For the last three years, we also had a rental property which netted an extra ~$700/mo.

I keep transportation costs low. This year I finally sold my 12 year old Toyota which I had bought new back in 2009. In August, I bought a certified used Toyota (in cash) with 21K miles on it and I will probably drive that for another 10 years. Our family car is a minivan, and both cars are cheap to insure.

Food costs are probably the third highest expense. We try not to eat out too often, but thanks to a bunch of UberEats credits from the Amex Platinum and Gold cards we can still do so occasionally and do so affordably. The wife and I don't really drink so I imagine that helps too, both with dining out and with the cost of groceries.

We usually only buy toys/books/etc for the kids for their birthdays or Christmas. Most everything else we get for the kids (clothing, toys, etc) from either second hand stores or from people giving things away. Likewise, we give away what we don't use or what the kids grow out of to others through our local "Buy Nothing" group.

Our other fixed costs are pretty low as well. We spend about $170/mo on internet, cell phone service, and Netflix/Hulu combined. We also have a YMCA membership for $68/mo. Our utility bills range from $0-$115 depending upon the season, thanks to solar panels that came installed on our house. That's about it for our recurring monthly expenses.

It's really about keeping your housing and transportation costs down and avoiding any bad debt (student loans, high interest car loans, credit card interest, etc). If you can do those things you'll find more money for discretionary spending or investing.

 

[seeker47]

@nick220 Wait, the Uber credits on Amex plat are also for Uber Eats???

 

[nick220]

@seeker47 Yes indeed. $15/mo for each platinum card and $10/mo for each gold card. Annual fees waived for both wife and me. There's also been $20/mo restaurant credit on the Hilton Aspire card and $15/mo restaurant credit on the Amex Delta Platinum card thanks to the pandemic.

 

[pasofinodude86]

@black_square Option he didn't yet consider