Do any of you adults know WTF you're doing?

I ask this because while I'm an adult (45 laps) male, I often feel like I have no idea what I'm doing with most things, but especially finance.  

I have a good long term job with a 401k, and I save some money outside of this, but probably not as much as I should be. One lease payment on my wife's car, and no major debt aside from one credit card balance around $3k which I'm working on. I've been driving the same car for 3 years that my wife drove for 10 years prior. Having kids, a mortgage, etc only allows for so much savings  it seems. We have 12.5 year left on our mortgage, and I was thinking about possibly refinancing it due to low rates, but again I don't know what I'm doing, so I'm not sure if that's a good idea. We also would like to do a bunch of updates/repair to the house, but don't have $30k(guesstimate) sitting around.  Imagine how many vintage Mazda's I could have bought with that sorta cash?!!

To add to the madness, our oldest son is graduating this year, and has no idea what he wants to do in the future. We looked at a couple of colleges, but he's just not sure. Therefore I don't know what to do with regard to possibly refinancing the mortgage. The reason being if all of a sudden he chooses to go to school next year or in the near future where does it put us financially. My brother told me to just take money from my 401k, but that seems dumb. It's been tanking anyway, but seems better now. We're in the weird place that we have 12.5 years left on the mortgage, don't want to start over at 30 years, and can't afford to go to 15 year mortgage it seems. Our current rate is 3.5%.

Why don't they have a class in HS for this sort of stuff? Any advice?

I make it up as i go along

Not a clue. Make up every day as I go along. Sending two of my kids off in the fall to colleges to that they too can make it up as they go along. 

Whether or not you hold off on the house thing depends on how you feel about your responsibility (if any) to finance your kid's education. Feels kind of E36 M3ty to say "we can't pay for school, but look at the new tile!" 

Patrick (Forum Supporter) said:

I make it up as i go along

Apparently so do I.

Not a berkeleying clue. Did make it to 60 with no debt and kids college paid for so luck has been on my side. See signature line.

Think about it this way: 

EVERY decision we make about the future is technically a gamble, since we cannot predict the future. Should I bring my umbrella today? What major should I study in school? If I eat this gas station tuna sandwich will I be ok?

But finances are money decisions. So they FEEL more like direct gambling. Many (most?) of us are taught that gambling is likely not a winning game. Also, our success with personal finances CAN have large consequences. Combining those two feelings makes personal finance seem really messed up. 

What is my advice? Same as trying to make any other future decision. Educate yourself as best as you can, do the best with what you have at any given time, realize that pure luck plays a large factor for everyone, and don't beat yourself up for being wrong. It works on the umbrella, college, and tuna sandwich examples at least.

Funny this comes up right now, I am 35 and attending an all day retirement training offered by work.  Looks like I am eligible to retire at 62 and have it better than I thought. I guess its because I am technically a millennial that I figured I was hosed and would basically never be able to retire on what pittance there would be. Theres some semblance of hope!

The one I need to figure out is investments, I have a chunk of money sitting in a savings account and should probably do something better with it. My dads answer was CDs, but with interest rates on those being about 1-1.2%, it doesnt seem worthwhile to tie it up in that. 

I took an "Intro to personal finance" class in college and thought it would cover this kind of stuff, what options to look at, how to evaluate, etc...  NOPE, turned out to be rehashing basic interest formulas, balancing a checkbook, and we spent two solid weeks on how to fill out a 1040EZ. I actually wrote the dean an email about how disappointing the class was. 

basically, you aint alone brotha.  I dont know WTF I am gonna do for my kids aged 2 and -4months when it comes to college. Hell, I'm not sure on the public schools in my area for the more immediate. 

A Refi is generally a matter of running the numbers. How much is the balance? How much will you be paying in interest at X rate vs. Y rate?  Is that difference enough to offset the refi costs?  Personally, unless you have quite a bit left to pay off, I have to wonder how much less interest you would pay vs. the 3.5% you're paying now.

FWIW, paying a little more towards the principle with each payment can really knock months and even years off your end date.

As far as your son goes, sometimes taking time off to figure things out is good.  There's nothing quite like spending some time in the rat race to make you go from being a "meh" student to sitting at the front of the class and paying attention. More so when every minute in that college seat represents who knows how much money. I would just say make sure he doesn't do anything that would incur debt and thus keep him in a job with limited options, but he needs to pay bills.  

First, would you really want a school teacher  taking responsibility for teaching important things to your children?  Math, science, sure.  Day to day responsibility? I know teachers with way too much credit card debt who vote socialist and are profoundly pro union.

That stuff is a problem for me.

Second- expenses increase proportionally with income.  Add 10% to your income, and suddenly you have 11% more expense.  Get a little unexpected bonus?  Roof leaks.  Lose 10% of your income?  Cable tv isn't as important anymore.

You will never have enough to retire as well as you want.

Just a few nights ago I was explaining to SWMBO I don't feel at all like an adult. I've made a solid 40 laps myself, and it still amazes me sometimes. Like, am I allowed to buy a car? Is this a thing I can do? I can go to the liquor store? I will admit I led a sort of...disparate childhood where I wasn't allowed to do anything and WAS NOT taught anything about adulting (bills? Car insurance? Don't go the arcade every day? ) and as soon as HS was over, I moved out and I was on my own. I didn't know how to grocery shop, or budget, or even like, pick out my own clothes. Never shopped at a store that required interaction with a sales person. Even going to the mall on my own to get some shirts or a coat was not a thing. 

I had to learn the basics, completely on my own- I didn't even have the internet until I was like 24. Even now as i'm sitting here I look around going "what the berkeley should I be doing right now? I get the sense that watching south park and typing on my laptop isn't it" 

To say the least, I have no clue what I'm doing and half the time I'm reasonably certain I should not be doing it. 

You don't "Start over" with mortgages.  You pay whatever the APR/12 is times the loan value in interest per month.  Your loan term is simply how big your principal payment is.  So if you refinance from a 12.5 year to a 30 year your payment is going to be lower but for longer.  If you got say a 2.5% interest rate you would end up paying more over the 30 years but only because you would have a loan balance for a longer duration.  The whole "interest is front loaded" line that mortgage people like to tell you is just how math works with a fixed payment amount.  Since the interest payment will get lower and lower as the loan balance decreases the amount of $$ you pay per month on actually reducing the loan balance increases as you get closer to the end of the loan.   Since you have 12.5 years left your payment curve would look exactly the same if you originated a new loan for the same balance for the same duration.  Obviously you will eat closing costs with the new loan.  So you need to consider that, but a 1% reduction in loan APR will cover that.  

Your best bet would be to do a 15 year fixed rate.  My guess is with the current rates of 2.5% the 2.5 years of longer loan term would probably get you your 30K cash out for a very similar $$/mo to whatever your paying now (Assuming your loan balance is ~100k and payments around $850, if it's higher than either of those your 30k cash out will actual come with a lower monthly payment).

As to the kids college I would apply for Financial Aid, Have them apply for EVERY SCHOLARSHIP ON EARTH, pick a school intelligently (local, in state, ideally close enough to stay with you), work part time during school, pay whatever you can cashflow and student loan the rest.   DO NOT take a loan out against your 401K unless it is the only thing between you starving and getting evicted.  Repayment terms are not great and your borrowing against your future.  

Mndsm said:

Just a few nights ago I was explaining to SWMBO I don't feel at all like an adult. I've made a solid 40 laps myself, and it still amazes me sometimes. Like, am I allowed to buy a car? Is this a thing I can do? I can go to the liquor store? I will admit I led a sort of...disparate childhood where I wasn't allowed to do anything and WAS NOT taught anything about adulting (bills? Car insurance? Don't go the arcade every day? ) and as soon as HS was over, I moved out and I was on my own. I didn't know how to grocery shop, or budget, or even like, pick out my own clothes. Never shopped at a store that required interaction with a sales person. Even going to the mall on my own to get some shirts or a coat was not a thing. 

I had to learn the basics, completely on my own- I didn't even have the internet until I was like 24. Even now as i'm sitting here I look around going "what the berkeley should I be doing right now? I get the sense that watching south park and typing on my laptop isn't it" 

 

To say the least, I have no clue what I'm doing and half the time I'm reasonably certain I should not be doing it. 

Sometimes I feel like the characters in Step Brothers when they're in therapy.What if there is inclement weather?

Mazdax605 said:

I ask this because while I'm an adult (45 laps) male, I often feel like I have no idea what I'm doing with most things, but especially finance.  

 

I have a good long term job with a 401k, and I save some money outside of this, but probably not as much as I should be. One lease payment on my wife's car, and no major debt aside from one credit card balance around $3k which I'm working on. I've been driving the same car for 3 years that my wife drove for 10 years prior. Having kids, a mortgage, etc only allows for so much savings  it seems. We have 12.5 year left on our mortgage, and I was thinking about possibly refinancing it due to low rates, but again I don't know what I'm doing, so I'm not sure if that's a good idea. We also would like to do a bunch of updates/repair to the house, but don't have $30k(guesstimate) sitting around.  Imagine how many vintage Mazda's I could have bought with that sorta cash?!!

 

To add to the madness, our oldest son is graduating this year, and has no idea what he wants to do in the future. We looked at a couple of colleges, but he's just not sure. Therefore I don't know what to do with regard to possibly refinancing the mortgage. The reason being if all of a sudden he chooses to go to school next year or in the near future where does it put us financially. My brother told me to just take money from my 401k, but that seems dumb. It's been tanking anyway, but seems better now. We're in the weird place that we have 12.5 years left on the mortgage, don't want to start over at 30 years, and can't afford to go to 15 year mortgage it seems. Our current rate is 3.5%.

 

Why don't they have a class in HS for this sort of stuff? Any advice?

 

Easy answer for a question like this is www.daveramsey.com.  many dont agree with his ideals, but it's an easy plan you and your wife and your kids can all follow and understand and it works.  

Mazdax605 said:

I ask this because while I'm an adult (45 laps) male, I often feel like I have no idea what I'm doing with most things, but especially finance.  

 

I have a good long term job with a 401k, and I save some money outside of this, but probably not as much as I should be. One lease payment on my wife's car, and no major debt aside from one credit card balance around $3k which I'm working on. I've been driving the same car for 3 years that my wife drove for 10 years prior. Having kids, a mortgage, etc only allows for so much savings  it seems. We have 12.5 year left on our mortgage, and I was thinking about possibly refinancing it due to low rates, but again I don't know what I'm doing, so I'm not sure if that's a good idea. We also would like to do a bunch of updates/repair to the house, but don't have $30k(guesstimate) sitting around.  Imagine how many vintage Mazda's I could have bought with that sorta cash?!!

 

To add to the madness, our oldest son is graduating this year, and has no idea what he wants to do in the future. We looked at a couple of colleges, but he's just not sure. Therefore I don't know what to do with regard to possibly refinancing the mortgage. The reason being if all of a sudden he chooses to go to school next year or in the near future where does it put us financially. My brother told me to just take money from my 401k, but that seems dumb. It's been tanking anyway, but seems better now. We're in the weird place that we have 12.5 years left on the mortgage, don't want to start over at 30 years, and can't afford to go to 15 year mortgage it seems. Our current rate is 3.5%.

 

Why don't they have a class in HS for this sort of stuff? Any advice?

 

Yes, that would be a bad idea. Best thing you can do is find a mortgage originator and have them run the numbers. 

I don't like to think about how off track my retirement became about 5 years ago. I've read a good rule of thumb is that you should have 3x your annual salary in your 401k by the time you're 40. 

Even if I absolutely no living expenses and put the next two years salary straight in to my 401k I would barely hit that number. But of course, that's not possible.

Of course- playing the big ridiculous simulation game "Life"

I try to do just enough of the main quest to keep my credits high enough to do as many of the fun side quests as possible.  The main quest is berkeleying boring, who wrote this game?  Bad level design too, and some of the NPCs seem way overpowered while others barely have any thought put into them.  Graphics are impressive and it's really immersive though.

Streetwiseguy said:

First, would you really want a school teacher  taking responsibility for teaching important things to your children?  Math, science, sure.  Day to day responsibility? I know teachers with way too much credit card debt who vote socialist and are profoundly pro union.

That stuff is a problem for me.

Second- expenses increase proportionally with income.  Add 10% to your income, and suddenly you have 11% more expense.  Get a little unexpected bonus?  Roof leaks.  Lose 10% of your income?  Cable tv isn't as important anymore.

You will never have enough to retire as well as you want.

With regard to having a school teacher teaching me some of this stuff as a 16 year old? It would probably have helped.I'm not sure I would've appreciated it at the time, but now all these years later I think I would.  Not necessarily day to day responsibility, but teaching kids about finance is pretty important I think. I'm also pro union as I'm a union member. I'm not sure what you meant by this, as having credit card debt, and being pro union don't seem to be mutually exclusive. Weird connection. Thanks for the response though. The remark regarding not having enough to retire is sadly accurate I believe.

In reply to Mndsm :

That's funny - you shouldn't be doing that.  

I'm almost 58 years old with a senior in high school and I'm telling her we can't do things cause its a "work night" which was previously a "school night" when I was a child. 

Stay up until midnight?  No way, I gotta be up at 5am for work.   We don't do that on work nights.  

The whole "what you're doing thing"...

My wife is a school teacher.  She spent 8 years teaching in Houston, right out of college, and then moved back to Ohio.  She has been teaching for 25 yrs now.  She very often makes a statement similar to...

"Oh, this damn small town.  The school administration here has no idea what they're doing.  This would have never happened in Houston."

I often remind her that when she was in Houston she was a young teacher in her 20's.  She believed that the "people in power" earned and deserved that power.  Now, she is a teacher in her 50's.  These "people in power" have less experience than she does.  It is a harsh reality when you realize that the "people in power" are just winging-it...and always have been.  They were even winging it back when you thought they had a solid plan.  You were just naive.  

In general, it is like seeing behind the cloak of The Wizard of Oz.  

I hope you're not calling me an adult!

Regarding your mortgage...

Its likely that refinancing will not be much of an improvement over just increasing your monthly payments. 
 

Pay a few hundred dollars extra per month, and get it over with. 

I agree with Patrick, most of us make this sh..., ahem, stuff up as we go along.

I don't know what current mortgage rates are, but are you sure that you can't go down to 15 years for the mortgage?  When we refinanced, the difference in interest rates and the lower loan balance meant that our 15 year payment was actually less per month than our original 30 year payment.

You're more than halfway through your original 30-year term, so you should be starting to get some equity in the house.  Given your debt load (and I assume a correspondingly healthy credit score), it shouldn't be a real problem to refinance and pull the extra $30k you want to invest in the house.  I don't know your circumstances of course, but that seems pretty feasible.

Are 20 year mortgages still a thing?  I would talk to a mortgage broker and see what they can do.

On the topic of the child unit, it's going to be what it is.  I would not borrow money against my house to finance an education, especially not for a young adult who is unsure if they even want to go.  If your assets are pretty well committed, they can be FAFSA-invisible, meaning potentially more need-based financial aid.

Your absolute LAST course of action should be to take money out of retirement savings.  That's an "...otherwise we're going to lose the house" scenario, not a "...but we could do something else with that money" scenario.

SVreX (Forum Supporter) said:

Regarding your mortgage...

Its likely that refinancing will not be much of an improvement over just increasing your monthly payments. 
 

Pay a few hundred dollars extra per month, and get it over with. 

Depends - have you seen how low 15 year refi's are right now?

Hell, I'm in the middle of refinancing a 30 year at 2.75%! Actual APY is just a tick over 3.

Mazdax605 said:

Why don't they have a class in HS for this sort of stuff? Any advice?

 

Its mind blowing that personal finance (Stock Market, Investing, Compound interest, credit cards, tax sheltering, loans, etc.) is not a core HS level course.

Are you planning on staying in the house for a long time (i.e. is it worth doing updates)?  Will they increase the home's value?  Either way, I would focus on repairs over updates first.

IMO, this is a perfect situation for a HELOC.  You can also do that, then refinance with the updated appraised value.

As others have said, its critical you understand the math.  Don't take anyone's advice without running the numbers yourself to see where you will end up in the future.

I have some perspective here having put my son and daughter through college.  My son is currently in a grad program at A & M, most of that is on him no but we're still helping fill the gaps. Both of them are excellent / driven students and we had no issues doing what was necessary to make it happen for them.   That said, they both attended state schools not private colleges.

First question, what are your son's interests?   It's hard to expect a 17 year old to make what could be a lifelong decision.  Sure some of them really know the answer but they tend to be the exception.    I'd start with that and expand out from there.   I would not recommend taking on any additional debt without a clear plan forward and would especially recommend against doing anything with your retirement funds.

Second and especially under the "current situation" consider having him look into community college programs.   I'm in MA too, many of the state universities actually encourage this and it can save quite a bit of money.   Spend a year or two at the community level, transfer into the MA university program and still graduate with the same degree.   The first two years of most programs are spent taking requirement courses, with some research the community level course credits will meet those and the credits transfer.   With the whole Covid thing making in person classes and dorm living a question at the moment it makes the community college programs (online) even more of an option.

Finally, if your son is handy / mechanically inclined don't forget about one of the skilled trades.   Electrical / plumbing / HVAC all pay very well and if you have any relationships with the organized trades, add excellent benefits on top of that.  Most of the current union apprenticeship programs in the Boston area qualify for an associates degree on completion of the five year apprenticeship at no cost for example.    

Ian F (Forum Supporter) said:

A Refi is generally a matter of running the numbers. How much is the balance? How much will you be paying in interest at X rate vs. Y rate?  Is that difference enough to offset the refi costs?  Personally, unless you have quite a bit left to pay off, I have to wonder how much less interest you would pay vs. the 3.5% you're paying now.

FWIW, paying a little more towards the principle with each payment can really knock months and even years off your end date.

As far as your son goes, sometimes taking time off to figure things out is good.  There's nothing quite like spending some time in the rat race to make you go from being a "meh" student to sitting at the front of the class and paying attention. More so when every minute in that college seat represents who knows how much money. I would just say make sure he doesn't do anything that would incur debt and thus keep him in a job with limited options, but he needs to pay bills.  

You only mentioned part of the formula with regard to refinancing.  Totally neglected the way mortgage loads the early payments with interest leaving the last payments virtually interest free.  
Only a very tiny percent of your first years payments applied to the principle.   But as your paying off your loan more and more goes towards the principle. 
The  OP had 12 years left of his mortgage.   Even if the interest rate is 50% of his current interest rate. He's paying off more and more as it gets near the end.  
Talking in math terms his effective rate now might be lower than a reduced rate that's restarted. 
Then to add complexity. There is the tax consequences. Is he better off having a lot of interest payments to write off his taxes.  Or to take the standard deduction?