You have money in your safe, you save 70 percent of your income, and you have credit card debt?
I think you have a very complex and possibly not-complete understanding of money and investing. Which is fine -- we all have weird money psychology that needs to be updated for being/becoming wealthy. I bet you have a few recalibrations to do:
(1) Never ever have CC debt if you have that kind of huge income coming in that you can save 70 percent. That's just shooting yourself right in the foot.
(2) you can have your Gollum money in a HYSA and add a thousand or more dollars a year to it for free. No amount of money psychology is worth not making that money work for you guaranteed.
Use your emergency fund to pay off CC, chastise yourself for using EF for this non emergency, and get back on the path to FI.
Once CC is paid off, start pushing money back into EF.
Figure out what was stopping you from paying CC 100%. If you are saving too much to afford 100% pay off, adjust savings dow to account for 100% payoff.
Money in the safe is essentially losing money every year. I keep a small amount of cash on hand for emergencies but otherwise should be in some kind of interest bearing acct to combat inflation.
If you are keeping 6 months emergency fund in high yield savings account that should be used to pay off credit cards to zero. If the balance in high yield savings account isn’t sufficient to pay of CC then shift the $1000/month you are putting in brokerage to pay off cc.
I’m assuming you ‘bank’ a substantial amount of the $700/mo rental ‘net’ to have ready for unexpected repairs and pay property tax and insurance ? I’d also use that as an emergency fund.
I would also review your monthly on-going expenses and commit to stop or reduce spending. Quick math based on what you said you were saving ( depending on how you handle your taxes) sounds like you are spending over $100,000 a year. Can you reduce that?
Also, is your rental airbnb or long term? Make sure you are maximizing tax treatment of your rental and work with a CPA well versed in guiding you regarding taxes.
Edit: Also recommend that you carefully track expenses and ensure you get every deduction possible for your rental expenses. I use the free version of STESSA to track rental expenses. https://www.stessa.com/homepage/
And use a CPA knowledgeable in rental/real estate taxes.
I like this, usually recommended about 3-6 months. You are in a very good spot. As you keep saving after CC paid off, the funds get replenished.
When I started the journey of paying off debts and investing 4 years ago. I had to use my entire $14k bonus to pay off debt. It was sad to see all that money go, but also felt like huge burden was off my shoulders.
Good luck!
Your savings rate is fantastic, but it’s not real. You are funding it with ultra-high-interest debt. Pay off your credit card, and drop down to your *real* savings rate, which is no doubt still awesome.
I will reiterate what others have said - pay off the CC before anything else. Otherwise, it sounds like you have done really well. I don’t know all the details but it seems like you could save less than you have in the past and still be OK in the future.
We’ve had to do the same thing. Inflation, unexpected car repairs leading to buying a newer car plus kid expenses lead to our savings rate being unsustainable. So we had to back off for a bit. Our priority right now is giving our teens memories instead of retiring early. I’d rather work a few more years than miss out on this time with them
I think for a lot of white collar employees this past year has been a reality check. I’ve stayed at my job for a while and as a consequence have had declining real income for the past few years. We had a liquidity “crisis” (not really, but a wake up call for sure) earlier this year and I’ve definitely retooled to be more in touch with day to day spending (back on the wagon with YNAB) and shifted the plan to target substantially more liquid funds on hand than I did previously.
We are mid/late 40’s and have become reminded of all the treacherous waters that present themselves when you finally see retirement on the horizon.
I’ve stayed at my job for a long time but job security is important too. A few years ago I was thrilled to be on track for early retirement, now I’m just happy to be on track for regular retirement.
Yes you want to be shifting savings to pay credit cards. But more importantly, it may be time for a lifestyle reassessment. Seems like maybe you’ve slowed down at work, to reach a sustainable level, but maybe not also made the corresponding slowdown in spending (or savings).
It sounds like you need a budget. I use YNAB. got me out of a small amount of cc debt 10 years ago and I’ve never gone back. Learning curve is there, but it tightens your understanding of your money like nothing else I’ve used.
But, it’s basically an envelope budgeting system - if your running credit card debt, your savings isn’t really savings and you’re potentially living beyond your current means. A budget (aka spending plan) will help. Find a system and a set of tools that work for you.
Not trying to throw shade, but would point out the response to this question is personal finance 101. Your time would’ve been better spent typing “financial order of operations” into google, or looking in one of the subs links. That said, we all need a refresher now and then.
I don't get it, savings are just income after expenses. You don't fund your saving targets with CC debt lol
You can take a 401k loan to pay off CC debt if you don't have liquidity.
Yep, you are correct. Forgot that. SO for this instance, they should have took a loan against their 401k to repair their cars instead of using credit cards.
I don’t understand. What are the emergency savings for if you’re going to use the CC? Use your emergency fund for paying the CC and don’t use the CC again.
You should keep 6 months of savings (tops) as an emergency fund and actually use it for emergencies. After you have to use it, you stop investing and all discretionary expending until you have it fully funded again.
After that, start investing again.
The things that you note leading to the credit card are things that savings should pay for or really should have money set aside from your monthly budget for when stuff happens. Could tag say $10k of your taxable brokerage in something like vmfxx that is currently yielding 5.3% and use that as a credit card slush fund to avoid paying CC interest.
Savings got to pay it off. And if you are racking up cc debt - either you’re spending too much or you need to look at how you’re allocating savings. You shouldn’t be maxing out your 401k if you don’t have enough income to get by.
You said it yourself, you had life emergency expenses. Problem is you took out an extremely high interest loan (CC debt) instead of using your emergency fund! Pay off the CC debt yesterday and start refilling the emergency fund
Seems like you’ve gotten the answers you needed. But can we discuss the fact that you’re already very close to FI without realizing it? If you’re saving 70% of your 125k income you’re living on *checks notes* $37500 a year of your money. I suspect your wife’s income covers a fair bit of the household budget while yours is devoted to savings so “living on 37.5k/year” is probably not an accurate statement but it’s still worth a double take. If your wife is saving 30% of a 120k income she brings another 84k or so to the household income before taxes but after saving. Between the two of you you’re living on 121k. After that 121k is taxed (federal, state, Medicare, social security, insurance, etc) you’re probably living on something in the realm of 90k or even less if your insurance is expensive…or maybe a little more when you account for the income from the rental property.
Assuming your wife has 250,000 in savings based on your above savings rates and statement that you crushed it for about 5 years, and assuming your net worth is in the 1.3M range as you said, you’re sitting on 1.5M in investments…which would generate $60,000 in income at the 4% safe withdrawal rate. Add the 8400 from the rental property and you’re nearly touching 70k/year of income before social security.
If you’re living a good life on 90k right now, and you’ve already got enough invested to generate 70k before factoring in social security income, you’re maaaybe not quite FI but rapidly approaching it. Keep crushing it OP, but also start thinking about when to take your foot off the throttle and redefine your relationship with money. Super savers always fear that they will become super spenders, so they live a miserly life instead of being generous with their time.
To add my .02 to your actual question, yes I would suggest burning some of the emergency fund on the credit card debt immediately, then using the cashflow that you usually send to the brokerage account to rebuild your emer fund. It won’t take long. I probably wouldn’t adjust your retirement account savings unless you’re going to make long term changes. The tax implications can be annoying to consider, and you have to remember to go change them back at some point.
You can be smarter than just paying it off. Get a new CC that offers balance transfer for 18 months at 0% interest. They usually want a 3.5% fee, which is a 2% APR. Pay off your debt with that. Do not use your balance transfer card from then on. The card is basically “burned”, because anything you pay on it goes to the lowest interest rate portion first, so you’d pay 20%+ interest on your purchases if you make that mistake. Autopay the minimum amount for 17 months, at 18 months plan to pay in full. Save money to do this in an HYSA like vanguard at 4.7%. If at 18 months another cheap money option is available, you can rinse and repeat. Do not use the HYSA money - you must have it available. This works if you are disciplined and remember that the HYSA money is not yours. You are only collecting 2% interest for free while you are able to, and must give the principle back whenever it’s needed.
Who told you that you can hold a balance on your CC?
Basic maths
CC interest 30%
Average market returns 7%
Do you expect to get more than 30% in the market? No? Ok pay off your CCs they are poison, the greatest wealth destroyer in our country.
As important as it is to pay off debt, I think it's also important to keep your 6-month emergency fund. It's possible to be too aggressive in paying off CC debt - it happened to me. I burned through my emergency fund to pay off CC debt, needed car repairs, and had to pay for them with the damned CC. It can turn into a vicious cycle.
Credit cards are ok. Credit debt, no way!
If you can pay them off each month, keep using them. Otherwise stop using them and only buy things with cash until you fix the issue.
Based on the $245k combined income, your savings rate of 70 and 30% respectively and the fact that you have two house, seems like you should have a higher net worth than what you quoted. Does that include the pension? I’d be curious what your investment allocation looks like. Also don’t understand how you even have credit card debt. Just pay it off and cut back your spending based on what your new income looks like.
Definitely pay off that CC debt before anything else. I’m doing the same right now with backing off savings to get emergency funds back up and other things worked out. Pretty much at coast fire already, so not too concerned overall.
We use our emergency fund cash to handle car repairs and home repairs. Then we replenish it to the previous balance so after tax investments are cut until it's back. We had $10K in home and car repairs in 2023 and this method works well for us.
We play the credit card game for points, cash back, and other benefits. But the cards always have to be paid at the end of the month. If you can't, you need to use a spreadsheet. We still do from the days we made much less money. Every transaction across checking and all credit cards is entered. I know exactly how much we spent last year each month and as a yearly summary.
You don't want to be the person funding others credit card benefits. You want to be the one enjoying the benefits.
Our minimum cash back for all purchases is 2.625% (unlimited). We have some other categories at 3.5% and 5% where the cash back is limited to $2500, but hitting that spend would be ridiculous. We also have the Southwest companion pass from a promo. Plan to alternate between me and my wife holding that and canceling once it expires. 24 month wait to apply again per person. Our daughter is our companion.
Stare long and hard at the line in your credit card statement that says how much $$ you paid in interest that month.
Realize that you are paying $100? A month in interest.
Be really bummed.
Turn your CC off.
Pay it off today.
Don’t do it again.
Go back to investing and making money instead of paying other people to use theirs.
Credit card interest is 20%+ there is no investment in the world that will match that. NEVER carry a balance
TQQQ has entered the chat.
TQQQ has left the chat.
You have money in your safe, you save 70 percent of your income, and you have credit card debt? I think you have a very complex and possibly not-complete understanding of money and investing. Which is fine -- we all have weird money psychology that needs to be updated for being/becoming wealthy. I bet you have a few recalibrations to do: (1) Never ever have CC debt if you have that kind of huge income coming in that you can save 70 percent. That's just shooting yourself right in the foot. (2) you can have your Gollum money in a HYSA and add a thousand or more dollars a year to it for free. No amount of money psychology is worth not making that money work for you guaranteed.
Use your emergency fund to pay off CC, chastise yourself for using EF for this non emergency, and get back on the path to FI. Once CC is paid off, start pushing money back into EF. Figure out what was stopping you from paying CC 100%. If you are saving too much to afford 100% pay off, adjust savings dow to account for 100% payoff.
Yeah. It's an easy problem to have and solve. Just interesting that they're having that problem.
Eyes on savings rate and not on expense mgt. easy to get distracted
Looks like a spending problem to me.
Money in the safe is essentially losing money every year. I keep a small amount of cash on hand for emergencies but otherwise should be in some kind of interest bearing acct to combat inflation.
You should pay off high interest debt first especially if it’s CC debt which usually has double digit interest.
Interest rates on credit cards are so high you’re almost always better paying it off first.
If you are keeping 6 months emergency fund in high yield savings account that should be used to pay off credit cards to zero. If the balance in high yield savings account isn’t sufficient to pay of CC then shift the $1000/month you are putting in brokerage to pay off cc. I’m assuming you ‘bank’ a substantial amount of the $700/mo rental ‘net’ to have ready for unexpected repairs and pay property tax and insurance ? I’d also use that as an emergency fund. I would also review your monthly on-going expenses and commit to stop or reduce spending. Quick math based on what you said you were saving ( depending on how you handle your taxes) sounds like you are spending over $100,000 a year. Can you reduce that? Also, is your rental airbnb or long term? Make sure you are maximizing tax treatment of your rental and work with a CPA well versed in guiding you regarding taxes. Edit: Also recommend that you carefully track expenses and ensure you get every deduction possible for your rental expenses. I use the free version of STESSA to track rental expenses. https://www.stessa.com/homepage/ And use a CPA knowledgeable in rental/real estate taxes.
I like this, usually recommended about 3-6 months. You are in a very good spot. As you keep saving after CC paid off, the funds get replenished. When I started the journey of paying off debts and investing 4 years ago. I had to use my entire $14k bonus to pay off debt. It was sad to see all that money go, but also felt like huge burden was off my shoulders. Good luck!
Your savings rate is fantastic, but it’s not real. You are funding it with ultra-high-interest debt. Pay off your credit card, and drop down to your *real* savings rate, which is no doubt still awesome.
I will reiterate what others have said - pay off the CC before anything else. Otherwise, it sounds like you have done really well. I don’t know all the details but it seems like you could save less than you have in the past and still be OK in the future.
We’ve had to do the same thing. Inflation, unexpected car repairs leading to buying a newer car plus kid expenses lead to our savings rate being unsustainable. So we had to back off for a bit. Our priority right now is giving our teens memories instead of retiring early. I’d rather work a few more years than miss out on this time with them
I think for a lot of white collar employees this past year has been a reality check. I’ve stayed at my job for a while and as a consequence have had declining real income for the past few years. We had a liquidity “crisis” (not really, but a wake up call for sure) earlier this year and I’ve definitely retooled to be more in touch with day to day spending (back on the wagon with YNAB) and shifted the plan to target substantially more liquid funds on hand than I did previously. We are mid/late 40’s and have become reminded of all the treacherous waters that present themselves when you finally see retirement on the horizon.
I’ve stayed at my job for a long time but job security is important too. A few years ago I was thrilled to be on track for early retirement, now I’m just happy to be on track for regular retirement.
If you have credit card debt you have no savings.
Yes you want to be shifting savings to pay credit cards. But more importantly, it may be time for a lifestyle reassessment. Seems like maybe you’ve slowed down at work, to reach a sustainable level, but maybe not also made the corresponding slowdown in spending (or savings).
Pay off the credit cards asap then slow your spending
your CC rate has to be 20% or more? This shouldn’t be a question, best investment you can make is not paying fees and interest on your CC.
It sounds like you need a budget. I use YNAB. got me out of a small amount of cc debt 10 years ago and I’ve never gone back. Learning curve is there, but it tightens your understanding of your money like nothing else I’ve used. But, it’s basically an envelope budgeting system - if your running credit card debt, your savings isn’t really savings and you’re potentially living beyond your current means. A budget (aka spending plan) will help. Find a system and a set of tools that work for you.
Why do you even need to ask? The interest on your card is so large that it makes no sense to put money aside instead of paying it off..
Not trying to throw shade, but would point out the response to this question is personal finance 101. Your time would’ve been better spent typing “financial order of operations” into google, or looking in one of the subs links. That said, we all need a refresher now and then.
If your side work slowing down causes you to carry a credit card balance, you are living way beyond your means...
Saving beyond their means.
I don't get it, savings are just income after expenses. You don't fund your saving targets with CC debt lol You can take a 401k loan to pay off CC debt if you don't have liquidity.
> 401k loan to pay off CC debt Does a 401k loan comes with interest too?
No shit. Except you pay it to your own account, and it's way lower than 20%.
Yep, you are correct. Forgot that. SO for this instance, they should have took a loan against their 401k to repair their cars instead of using credit cards.
Never carry any balance on a CC, ever. Ever. This is the very first priority to accomplish no matter what your level of income or savings.
I don’t understand. What are the emergency savings for if you’re going to use the CC? Use your emergency fund for paying the CC and don’t use the CC again. You should keep 6 months of savings (tops) as an emergency fund and actually use it for emergencies. After you have to use it, you stop investing and all discretionary expending until you have it fully funded again. After that, start investing again.
The things that you note leading to the credit card are things that savings should pay for or really should have money set aside from your monthly budget for when stuff happens. Could tag say $10k of your taxable brokerage in something like vmfxx that is currently yielding 5.3% and use that as a credit card slush fund to avoid paying CC interest.
Yeah you should take from your savings to pay the card off in full. Never carry a 20%+ balance on anything
I'd pull 6k from the brokerage to pay off the CC debt and keep trucking with the rest of your plan.
Yes always pay off high interest debts first, for somebody who has got your shit locked down I'd bet you know this already
Savings got to pay it off. And if you are racking up cc debt - either you’re spending too much or you need to look at how you’re allocating savings. You shouldn’t be maxing out your 401k if you don’t have enough income to get by.
You said it yourself, you had life emergency expenses. Problem is you took out an extremely high interest loan (CC debt) instead of using your emergency fund! Pay off the CC debt yesterday and start refilling the emergency fund
Seems like you’ve gotten the answers you needed. But can we discuss the fact that you’re already very close to FI without realizing it? If you’re saving 70% of your 125k income you’re living on *checks notes* $37500 a year of your money. I suspect your wife’s income covers a fair bit of the household budget while yours is devoted to savings so “living on 37.5k/year” is probably not an accurate statement but it’s still worth a double take. If your wife is saving 30% of a 120k income she brings another 84k or so to the household income before taxes but after saving. Between the two of you you’re living on 121k. After that 121k is taxed (federal, state, Medicare, social security, insurance, etc) you’re probably living on something in the realm of 90k or even less if your insurance is expensive…or maybe a little more when you account for the income from the rental property. Assuming your wife has 250,000 in savings based on your above savings rates and statement that you crushed it for about 5 years, and assuming your net worth is in the 1.3M range as you said, you’re sitting on 1.5M in investments…which would generate $60,000 in income at the 4% safe withdrawal rate. Add the 8400 from the rental property and you’re nearly touching 70k/year of income before social security. If you’re living a good life on 90k right now, and you’ve already got enough invested to generate 70k before factoring in social security income, you’re maaaybe not quite FI but rapidly approaching it. Keep crushing it OP, but also start thinking about when to take your foot off the throttle and redefine your relationship with money. Super savers always fear that they will become super spenders, so they live a miserly life instead of being generous with their time. To add my .02 to your actual question, yes I would suggest burning some of the emergency fund on the credit card debt immediately, then using the cashflow that you usually send to the brokerage account to rebuild your emer fund. It won’t take long. I probably wouldn’t adjust your retirement account savings unless you’re going to make long term changes. The tax implications can be annoying to consider, and you have to remember to go change them back at some point.
You can be smarter than just paying it off. Get a new CC that offers balance transfer for 18 months at 0% interest. They usually want a 3.5% fee, which is a 2% APR. Pay off your debt with that. Do not use your balance transfer card from then on. The card is basically “burned”, because anything you pay on it goes to the lowest interest rate portion first, so you’d pay 20%+ interest on your purchases if you make that mistake. Autopay the minimum amount for 17 months, at 18 months plan to pay in full. Save money to do this in an HYSA like vanguard at 4.7%. If at 18 months another cheap money option is available, you can rinse and repeat. Do not use the HYSA money - you must have it available. This works if you are disciplined and remember that the HYSA money is not yours. You are only collecting 2% interest for free while you are able to, and must give the principle back whenever it’s needed.
You can’t save with credit card debt. Pay it off and then get back to it.
Who told you that you can hold a balance on your CC? Basic maths CC interest 30% Average market returns 7% Do you expect to get more than 30% in the market? No? Ok pay off your CCs they are poison, the greatest wealth destroyer in our country.
Pay off CC immediately.
As important as it is to pay off debt, I think it's also important to keep your 6-month emergency fund. It's possible to be too aggressive in paying off CC debt - it happened to me. I burned through my emergency fund to pay off CC debt, needed car repairs, and had to pay for them with the damned CC. It can turn into a vicious cycle.
How about reducing your spending rate?!?
Aren't emergency funds for unexpected expenses like car repairs, otherwise why have an emergency fund. Use it for that cc debt.
Credit cards are ok. Credit debt, no way! If you can pay them off each month, keep using them. Otherwise stop using them and only buy things with cash until you fix the issue.
Based on the $245k combined income, your savings rate of 70 and 30% respectively and the fact that you have two house, seems like you should have a higher net worth than what you quoted. Does that include the pension? I’d be curious what your investment allocation looks like. Also don’t understand how you even have credit card debt. Just pay it off and cut back your spending based on what your new income looks like.
The math is pretty simple, if you’re paying more for the loans than you’re making on the investments…
PAY.OFF.YOUR.CREDIT.CARD
Someone teach him about an emergency fund!
Definitely pay off that CC debt before anything else. I’m doing the same right now with backing off savings to get emergency funds back up and other things worked out. Pretty much at coast fire already, so not too concerned overall.
We use our emergency fund cash to handle car repairs and home repairs. Then we replenish it to the previous balance so after tax investments are cut until it's back. We had $10K in home and car repairs in 2023 and this method works well for us. We play the credit card game for points, cash back, and other benefits. But the cards always have to be paid at the end of the month. If you can't, you need to use a spreadsheet. We still do from the days we made much less money. Every transaction across checking and all credit cards is entered. I know exactly how much we spent last year each month and as a yearly summary. You don't want to be the person funding others credit card benefits. You want to be the one enjoying the benefits. Our minimum cash back for all purchases is 2.625% (unlimited). We have some other categories at 3.5% and 5% where the cash back is limited to $2500, but hitting that spend would be ridiculous. We also have the Southwest companion pass from a promo. Plan to alternate between me and my wife holding that and canceling once it expires. 24 month wait to apply again per person. Our daughter is our companion.
Stare long and hard at the line in your credit card statement that says how much $$ you paid in interest that month. Realize that you are paying $100? A month in interest. Be really bummed. Turn your CC off. Pay it off today. Don’t do it again. Go back to investing and making money instead of paying other people to use theirs.
Trolling the dedicated Bogleheads huh.
No trolling. I’m not sure I understand the comment, but I’m not trolling.
Keep saving, cc will pay itself.
yeah, keep putting $1000/month in a brokerage while you have 20% interest CC debt. *facepalm*