I am trying to calculate how best to apply my income to my various goals. For the sake of simplicity, I'm interested in the balance between three specific goals:
- Paying down my mortgage
- Building my emergency fund
- Saving for retirement
I'm a 27-year old male supporting a wife and two children. I make around $90k annually ($72k after payroll deductions such as taxes and insurance). I have no credit card debt or student loans - the only consumer debt I have is a $4,000 car loan with a 3.25% interest rate, which I am paying $200/mo on.
I am almost four years into a 30-year, $235,000 mortgage with a 3.75% interest rate. I have made about $10,000 in extra payments in the last four years, with a current balance of $206,000. I am paying $200/mo in PMI, which will be removed in two years if I continue paying at the current rate (an additional fifteen months if I cut back my payments to the monthly minimum). This is an FHA loan, so I will not be able to remove the payments earlier than the five-year mark.
We've done some significant remodeling, and I believe that after our most recent project the town placed out tax evaluation at around $285,000. For whatever it's worth, a couple of online calculators estimate my home to be worth $300,000.
At the moment, I am paying an extra $300/mo towards my principal balance. My current plan is to keep paying at the same rate when the PMI is lifted, which will leave my paying $500/mo over the required monthly payment.
Based on my amortization schedule, and assuming my insurance and taxes remain the same, I can:
- Make minimum payments from October 2015 to November 2039, extending my PMI by 15 months ($3,000) and paying $110,000 in interest.
- Continue the extra payments ($300/mo) until my PMI drops out in November of 2017, then make minimum payments until July 2038, paying $100,000 in interest.
- Continue the extra payments ($300/mo) until my PMI drops out in November of 2017, then keep paying at the same level (now $500/mo) until April 2030, paying $60,000 in interest.
I am currently allocating $100/mo into a designated Savings category on my budget spreadsheet. The balance currently stands at $10,000, but it has been more of an 'undesignated and mostly unused' fund than an 'emergency' fund. That money is currently sitting in a High-Yield Savings Account, with a 0.90% APY.
I also have a $7,000 Fidelity individual investment account, which was opened for me as a child by my grandfather and turned over to me when I became an adult. I have neither added to or withdrawn from that fund, but mentally I have marked that money towards a future home project (e.g., kitchen remodel).
My efforts up to now have been mostly focused on my mortgage, so I do not have any retirement-specific savings or plans.
My employer contributes 9% of my annual salary into a retirement plan, which I will be vested in after three years of employment (I have been here for a little over a year). The employer does not offer any kind of matched retirement account.
Without straining my budget, I could fairly easily shift around roughly $500/mo in "extra" money to apply to one or more of these goals. Currently, $300 is going towards my mortgage, $100 is going towards savings, and $100 is going towards extra car payments and various "plan-ahead" funds.
When the PMI is removed from my loan in another two to three years, that will free up another $200 (the $200 going towards the car payment now will be redirected to saving for the next car).
How could I best direct that money?