Hey everyone, it’s Finance Fridays again. Today we’re going to take a bird’s eye view of things and think about options… or as I like to think about it “Potayto Potahto Finance“.

Potayto Potahto?

Yea.

For those who don’t know, it’s different ways of saying the same word “potato”. However, in the end, it doesn’t really matter.

What does that have to do with Finance Fridays?

Well, if you’ve been reading my blog or other finance blogs for awhile, you probably have a pretty good grasp on your “plan”. Obviously, my plan is a 20 Year Career, but others may want to Retire Early, etc.

At some point in your “plan” you’re probably going to get to the point where you feel “comfortable” — or at least not uncomfortable anymore. Usually this coincides with having a little more money left over in your budget every month. Now, in general, I don’t really use a budget. I have a pretty good idea of the money that goes into and out of my accounts on a weekly/monthly basis. However, you may look at your bank account one day and see that there is some extra money in there.

Now what do you do with it?

Usually, when I say “extra money”, I am talking about money that you didn’t originally account for. For example, let’s say you got a raise at your job, or your car is now paid off, or now the kids are in public school. Basically, there is this extra amount of money in your account every month that you haven’t allocated anywhere.

The usual suspects for what to do with this money is most likely going to be to just pay down your student loans. It’s relatively easy to take that extra money and send it off to Aunt Sallie Mae (now Navient). However, what if your student loans are already paid off?

Well, then you look at your other big cost items. You could see if you pay off a car earlier or maybe think about doing an extra mortgage payment. Or maybe because your student loans are gone, you have a significant amount more money each money to allocate. Should you refinance from a 30 year to 15 year? Throw some money into a taxable account? Maybe do a little bit of dividend stocks? Maybe try your hand at buying/renting some real estate? Beef up your 529s?

Of course, this isn’t an all-inclusive list, this is just things I thought of off the top of myhead. There are a lot of options to choose from, and to be honest, most of them are pretty good. What to do with this extra money primarily has to do with you.

What is your risk tolerance? Are you conservative or aggressive? How important is paying for college for your kids? Would paying down your mortgage in 15 years instead of 30 change your retirement plans?

Could you make more in a taxable account over paying down your mortgage earlier? Maybe.

However, which one would make you feel more comfortable?

These are all questions which are unique to you.

That said, if it was me, my priorities would be this:

• Student Loans
• 529s
• Mortgage
• Taxable Account
• Dividend Stocks
• Real Estate

In general, I’m a pretty conservative guy. I think my wife and I have done ok in terms of our 401k and because our jobs have pensions, I don’t really feel the need to put too much extra money toward a taxable account or dividend stocks. I would prefer to take any extra money and reduce our current debt burden which is primarily our student loans. Then I’d focus on getting the kids’ 529s to where I want them to be. After that, it would be nice to be able to pay down our mortgage a few years sooner. If I could get the mortgage payoff to coincide with the end of my 20 Year Career, that would be the most optimal plan for me.

At the current time, I don’t really plan to dabble in any real estate. There are many reasons, but in general, my reason is that I simply have too many liabilities currently. Also, buying property in Hawaii is very expensive. Any return on investment will likely be many years in the future while putting significant strain on me and my family financially. Long story short, it’s not a risk I’m willing to take. However, if I had less liabilities and no debt, this would be something I would probably consider.

I would love to have a second house to rent out. Then, my kids could live in it after coming back from college to get on their feet. However, that just doesn’t seem to be in the cards.

Also, you don’t have to choose just one thing. If you want to, instead of refinancing your home to 15 years and being “locked in”. You can just allocate a few extra payments a year and then also allocate some money into a taxable account or something else. Be flexible.

TL;DR

Potayto Potahto Finance.

There are a lot of things you can do with “extra money” you have, outside of your original retirement plan.

Do some reflection and see which option(s) fits you best.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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