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I am looking for advice on what to do with some extra money I have. Currently, I have about $23k in my savings account, gradually increasing. I am (currently) employed, making good salary ($70k/yr), but I don't receive 401k until a year of employment. Car is paid off, student loans payed off, only bills are mortgage payments, cell phone bills, other small things. I don't really find myself spending much on anything besides food. My wife still owes a total $13K on car and student loans. I might also mention I have about $80k in a low risk CD portfolio that I admit I don't know much about, I just intend to let the money sit as I don't need it. I am thinking of going back to school, as I don't much like my current career. I am 23 yrs old, if that is important.

  • Should I pay off wife's loans with my money?
  • Should I look into other investments (Roth IRA, etc?)
  • Should I hold on to the money in case I decide to go back to school?
  • Is it important to do something with the money in savings since I already have the portfolio?

Right now I feel as though it is just sitting, and while it is nice to have for 'just in case', I feel perhaps I could utilize it better.

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    Is your wife working? When the 401(k) is available, does it offer a match? How much? – JoeTaxpayer Sep 23 '15 at 21:00
  • Yes, she is working. I'm not sure on the match, but not sure if I will still be with the company that long. – wizloc Sep 24 '15 at 13:44
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You should certainly look into investments. If you don't expect to need the money until retirement, then I'd put it in an IRA so you get the tax advantages. It makes sense to keep some money handy "just in case", but $23k is a very large amount of money for an emergency fund. Of course much depends on your life situation, but I'm hard pressed to think of an unexpected emergency that would come up that would require $23k.

If you're seriously planning to go back to school, then you might want to put the money in a non-retirement fund investment. As I write this -- September 2015 -- the stock market is falling, so if you expect to need the money within the next few months, putting it in the stock market may be a mistake. But long term, the stock market has always gone up, so it will almost certainly recover sooner or later. The question is just when.

Investing versus paying off debts is a difficult decision. What is the interest rate on the debt? If it's more than you're likely to make on an investment, then you should pay off the debt first. (My broker recently told me that over the last few decades, the stock market has averaged 7% annual growth, so I'm using that as my working number.) If the interest rate is low, some people still prefer to pay off the debt because the interest is certain while the return on an investment is uncertain, and they're unwilling to take the risk.

  • +1, but I believe the "7%" standard figure is supposed to be after inflation, so it isn't quite technically the appropriate comparison for loan interest. It's close enough to work, though. Also, OP might want to consider paying off a loan even if it's a bit lower, since the guaranteed return from paying off a, say, 6% loan may be valuable, even if the expected return is a little less than the stock market. – Mike Haskel Sep 24 '15 at 0:21
  • @MikeHaskel Frankly I'm not sure if that 7% is before or after inflation. I've been meaning to check on that. Regardless, yes, I absolutely agree about guaranteed return, that's what I was trying to say in my last sentence. Which is better, a guaranteed return of 6%, or a return that we estimate will probably be 7% but may be 5%, or may even be negative? It all depends on how much risk you are comfortable with, both emotionally and in terms of your larger financial picture. – Jay Sep 24 '15 at 3:45
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529 College Savings Plans exist, which allow for tax-free savings for educational expenses, but I think you expect to go back to school too quickly for them to be worth the hassle. (They're more designed for saving for college for your kids.)

Other than an IRA, you don't have many options for tax-advantaged accounts. In addition, since you plan to return to school, you should keep money around for that. Don't put that money in anything too volatile or hard to access.

Since you don't plan on doing anything with the 80k in CDs right now, you can get away with higher risk with that money.

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OK: here are some thoughts:

  1. ROTH IRA, for you now- the max. And for your wife if she has no employment/retirement options. Low cost mutual funds (equities mostly).
  2. You are young (23), and I assume your wife is young also (no?). If you married when she had the car & student loan debt, let her deal with it. And "let her" make her own decisions when she has $$ of her own (as you do now). It's good to keep track of mine/yours/ours- good fences make good neighbors.
  3. yea, keep some money aside for school in a segregated account
  4. Savings money- I wouldn't touch it... you've done well to create & maintain a backstop.
  5. Once your 401-k window opens, max out....your take-home will go down, and you might find a use for some of the remaining cash.
  6. If still flush, start systematic investing in a low cost equity fund, adding the same amount each month with automatic deductions from your checking account....think of it as after-tax retirement account. or house account. but think long term, as you don't want to be forced to sell when markets are down in order to raise cash.

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