August has come and gone. I am crazy amazed how time is flying. Here is my financial update for last month – with mostly covering one specific financial topic. A lot of stuff is in motion and I am looking forward to the next 2 weeks to complete what we started just a few weeks ago.
The biggest news is that we are taking advantage of the lower interest rates to refinance our house. We moved into this house in April 2017 using a 30-year mortgage to finance a portion of the purchase. We have been making extra payments here and there and made good progress to get this sucker paid off earlier.
Now with the re-fi we will shave off even more years. We are switching from the 30-year mortgage to a new 15-year mortgage and reducing our interest rate an entire percent (1 percent) at the same time. Our monthly payment will go up by about $550, but it is totally worth it – especially as we were making that type of payment per month anyway. Now it just becomes part of our regular mortgage payment. But the part I am even more excited about is the fact that extra payments now make an even bigger impact. We are planning to make additional payments of about $10K per year which could mean we have this house paid off in less than years – especially if we could add even a little more.
A lot of things are aligning to potentially allow early retirement in about 6-8 years. We do not know yet what we do in retirement – well, we do but I am referring to our housing situation. California is super-expensive to live at – especially in retirement. We want to mostly travel for a few years and that way reduce our cost of living – allowing our investments to grow even more during that time. We have two options:
- Rent out the house
- Sell the house
Option #1 would be super-interesting if we could manage to have the house paid off by the time we hit the road. Currently we could rent out this property for about $2,800/month (=$33,600/year ./. ~$8,000 taxes/insurance ./. $5,000 maintenance). This would leave us with about $20,000 of net income from the house. That’s a good portion to finance our life on the road. We’re aiming at needing about $45,000 – $50,000 per year to live. We would only have to take about $25K – $30K from our investments. I assume that it will equal about 2 percent of our investments at that time. If we use historical averages of stock market returns and the infamous 4 percent rule to fund retirement we would be in excellent shape.
Option #2 is interesting as well. We could sell the house and take the proceeds and invest them in broad-market index funds – matching up with our current way to invest our money for retirement. We would have to up our percentage of what we take out to finance our life. Again, I would put average historical stock market returns and the infamous 4 percent rule to work. With additional $600,000 from the house boosting our savings/investments our investments should grow nicely and we would actually not need the full 4 percent. We could then travel the country and find a lower cost of living area to purchase our final (?) home for a more traditional retirement.
So, that is where we are. We have 2 great options at hand. We do not know yet what our son will do when comes out of high school and if we want to maintain a home-base for all 4 years of college. If he goes to college locally, he could live in our house and we rent out 2 rooms. We would see a slightly lower income from collecting rent, but it would still be a good portion of what we need when hitting the road. We could always come back and camp out in the drive way or near by until he is done with college.
The re-fi will cost us about $3,500 and we are going to pay this out of pocket. We are not rolling fees into the loan and pay for it over 15 years. This will slow our August savings a little bit, but that is fine. We are “saving” the September mortgage payment to re-fill our savings as this money comes out of our short-term savings account that we use to cover up and downs of our checking account. As I travel a lot my expense reimbursements from travel do not always match up with our bills and we use a local savings account to balance these fluctuations. So, in October things will return to normal.
The Stock Market in August
The stock market has had quite a few up and downs this last month. The president’s threats to global markets by increasing tariffs with goods coming from other countries (mostly China) leaves a lot of people guessing what to do. We are still putting the same amount of savings into our investment accounts, but I have slowed down to purchase broad index funds like VTSAX or FSKAX. I kind of do a dollar cost averaging approach and continue to do so until there is a bit more clarity before resuming my direct investments the moment the funds hit Fidelity or Vanguard.
But most importantly it is important to maintain course and not to panic.