Originally Posted by Dave K.
I am in need of some financial advice.
Okay, never trust the financial advice from random folks on the internet.
Here is my situation, I am losing my current job at the end of April. At that time, I will be receiving a separation bonus that equals my current annual salary. As of today, it appears that I might have a new job lined up right away.
I need advice for what to do with this bonus?
My wife and I currently have very little debt. We are in the position that if we take the majority (but not all) of our saving combined it with this bonus we can pay off our mortgage. I know that there are some negatives for doing this (i.e., losing the income tax deduction).
We also talked about putting a large amount into our boys Section 529 plans or other general investments, but with the way the market has been, I am so sure this would be the best place for this money.
Any suggestions would be appreciated.
I won't tell you what YOU should do. I will tell you what I did:
- Sit on the money until I was sure that my new job was stable. The last to be hired is often the first to get laid off. In this market the stability of all businesses are suspect.
- Maintained more than a few months of expenses in liquid assets. Most as a CD ladder.
- Avoided 529s in favor of general investments...although in this market cash is king.
- Took that "getting laid off" paranoia as an opportunity to divest ourselves of some unneeded recurring expenses. Cable TV, cell phones, gym memberships, etc add up so canceling them for a few months until things looked solid gave us the chance to see what was really needed/desired and what was just stuff we paid for and hardly used.
If you accept the assumption that cash is king and you adhere to advice #1 then you have a few months in which to decide what to do as you put less than $100,000 in each different bank looking for less bad CD rates.
You then have breathing space in which to talk to a real financial advisor that can help you determine that at your current stage of life whether the tax benefits matter at all to you. How much do you exceed that standard deduction? If you are younger then there may be less benefit to paying off your mortgage.
Then consider this article and see if it makes sense to you:http://www.dallasnews.com/s/dws/bus/...RT0.90109.html
The obvious downside in paying off your mortgage today is that it's not liquid at all in an emergency. So you have to determine if the delta between mortgage rate and what meager interest you can get is worth staying liquid.
The upside is that inflation won't really hurt you between keeping the money liquid or paying off your house. Regardless of the value of the dollar, your mortgage is dollar for dollar equal to that money sitting in the bank since they rise and fall together.
You know, thinking about it...I'd keep it liquid. The ability to pick up and move to a new job is worth a lot in this economy. With a year's salary in the bank you can soak up two mortgages until your current house sells if you both lose your jobs and the only job either of you can find is somewhere else. Or just try to tough it out on one salary until the economy recovers.