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What should I do with my extra savings?

I am 30 years old and have no debt besides a mortgage and car payments. I may need money in the near future for an addition to our house that would cost around $150,000. I have a 6 month emergency fund and an extra $30,000 in cash. I also started a 529 plan for my 6 month old daughter paying $100 a month. With my career, I have a pension but also put $900 a month into my deferred compensation. Should I pay a down mortgage early, (at 3.8%) or start a Roth IRA? Should I consider putting money in a CD?

Financial Planning, Personal Finance
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August 2016

To accurately answer your question, I’d need to know a little more about your goals for the future.  For example:

  • When do you want to retire?
  • What size pension do you have and how long do you plan on working there?
  • How much do you plan on spending when you retire?
  • How much do you currently earn?
  • How do you plan to fund the addition?
  • How much do you plan on paying towards your daughter’s education?

That being said, here are my initial thoughts:

Given that you know you have a $150,000 expense on the horizon, it would likely make sense to keep the excess cash liquid so you don’t have to dip into the emergency reserves. 

A lot of high yield savings accounts are currently paying more than short-term CDs and wouldn’t require that you lock up the cash.   

Paying down the 3.8% mortgage wouldn’t make sense if the financing costs of the addition are going to be higher than 3.8%. 

The Roth account may be a good option if you are eligible to contribute and the funds are invested for the long term, but if your retirement goals are being covered by your other accounts, it may make sense to put the money towards nearer term goals that are underfunded.    

Good luck. 

August 2016
August 2016
August 2016
August 2016