What to do with unexpected money ...

Garson007 said:
Car is only 6.2%. That's a ridiculously low interest rate. It makes no sense to try and get rid of that debt.
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6.2 oh I didn't see that on the front now I looked. That is very low and it does change the whole scenario. I was thinking more of the normal vehicle loan rate.
 
Thanks for all the responses.

lcbxx said:
Odds are that the classic itching off the arse will start (urge to buy a new car).
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I"m worried about this too but(t) I think my current car is nice enough to last a few years and I got such a good deal that replacing it with equivalent or better now is very difficult without taking a big financial loss.

So far though it's pretty clear I should leave the car as is and not pay it off which is also my gut feeling.

lcbxx said:
The expense is already there and OP is used to paying it. I'd leave it at that - it a living cost. Since this is and unexpected cash inflow, get it to work for you ASAP. Buy another property as an income opportunity, invest it aggressively or put it into your existing property.
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This is where my thinking gets stuck a lot. If I pay off my current bond (80% of it) I can quickly cover the remaining 20% by keeping monthly repayments constant - it'll be within a year. Then I own the place I live and can start investing.
But
I could also start investing now. A second property is the most logical to me. Buy and rent it out. I'm nervous because I don't have experience and feel it's high risk / higher gearing that if I owned my 1st free and clear wouldn't be there. I'd hate an investment to turn bad and end up losing both.

The other thing bugging me is retirement and general saving. I'm 41 so am thinking I should increase my retirement saving but investing is kinda of the same thing as saving long term .... kinda.
 
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The moment you have everyone doing the same thing (ie buy a property to rent it out) you know it's a bad idea and way past its sell by date.
 
Waaib said:
This is where my thinking gets stuck a lot. If I pay off my current bond (80% of it) I can quickly cover the remaining 20% by keeping monthly repayments constant - it'll be within a year. Then I own the place I live and can start investing.
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^ This would be my first choice. After the first one is paid, you get a bond on the second property and pay your current monthly installment + rental income into the second bond, you will break even in no time at all, at which point you should buy the 3rd.
 
lcbxx said:
More good advice! Personally I'd go for this option and reap the rewards later on in life, especially for people 45 years or younger.
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I'd also be inclined to do this. While it's true that paying off bond is also a good idea, i consider the property you stay in & bond associated as a living expense so prefer paying this off with income at a rate greater than bank required (to reduce interest charges maybe 150%). That way instead of basically just easing your load, you will allow money to work for you which is a position not many get to easily. If the property was squared up, how long would you remain there before moving to another? will it be bigger? When i think back at my parents and siblings, they just moved after XX years and then in debt again till its paid up. Point being that I reckon people generally keep moving through out their lives (till the last 15-20 prior to retirement) and typically its inline with income or circumstance much like some guys do with cars i.e. keep reselling as you move on to better things (tho with car's you make a loss based on yrs you had it, while housing it sorta keeps value vs inflation mostly).

So for me, i think investment vehicles are better because then its like you have this kind of insurance for the future(markets not too great right now tho) but thats me.. i just always prefer longer term strategies. I guess it depends on age, i'd say if you under 40yrs old it might not be worth it as a debt relief. Yes it won't impact your life in a way as you never really see the money but if things go well when you retire you will be a much much better position than the majority of folk.
 
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A lot of people say the markets pretty expensive now, some say it will still go up. As this may or may not be true, I'd rather pay off debt.

Pay them off in order of highest interest rates, so unless you have other debt you're not listing, pay your house off first. Later you can kick your own ass for buying a car on credit, and then pay that off too.
 
cerebus said:
If the car is the highest interest debt that he has, and higher than expected return on investments, wouldn't it make sense to get rid of that first so that on relative terms he can redirect his money elsewhere for better ROI? I'm just asking, and aware of course that vehicle debt is a badly depreciating asset - but if he'll end up paying double the amount over the next 3 years it could be a significant discount.
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And he ends up writing off the car the following week after settling...
 
ice_cubes said:
And he ends up writing off the car the following week after settling...
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And..? Then he'd get the insurance payout, or if not, he'd still be up a creek with the repayments. But as someone pointed out the car interest rate is so low that it wouldn't be the best option. Rather hit the bond first in my opinion.
 
Six months on and the cash has finally hit my bank account so now I need to decide what to do.
The scenario is still pretty much as described in the OP and I still feel it's best to pay off as much of the home loan as possible but in checking all the paperwork I noticed there's a residual on the car loan. I knew about it when buying the car but never really paid it much attention because I'd always planned to pay the car off quicker than the original term.

So my choice is now:
Pay off most of home loan. - Financed at 9,5% (prime).
Pay off car in full. - Financed at 6,25% (prime - 3%).
Pay off residual only. This will become a new deal at end of term with no garuntee of interest rate.
 
Waaib said:
Six months on and the cash has finally hit my bank account so now I need to decide what to do.
The scenario is still pretty much as described in the OP and I still feel it's best to pay off as much of the home loan as possible but in checking all the paperwork I noticed there's a residual on the car loan. I knew about it when buying the car but never really paid it much attention because I'd always planned to pay the car off quicker than the original term.

So my choice is now:
Pay off most of home loan. - Financed at 9,5% (prime).
Pay off car in full. - Financed at 6,25% (prime - 3%).
Pay off residual only. This will become a new deal at end of term with no garuntee of interest rate.
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why do you say you got such a good deal on the car if you got a residual? I thought residuals are the devil's work.
 
akescpt said:
why do you say you got such a good deal on the car if you got a residual? I thought residuals are the devil's work.
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Good point! ... but it's done now and wasn't top of mind when I wrote the original post.

My gut feeling is to pay off the house but keep the residual amount available int he bond for when it's due in 3 years. That way the amount sits in the bond until it's needed.
 
Yup, put it in the bond. Higher interest rate than the car.
I'd be inclined to increase repayments on the car if you have a bit of spare cash, that way you can chip away at the residual?
 
No need to chip away if I can pay it off in one go.
 
Taking into account the current economic climate, and also your age, I'd settle the bond. It will ensure that you have a roof over your head if things do go south. I'd then pump the money I would have spent on the bond into an investment vehicle.

This is the safer route to take, but any decision you make would also depend how employable you will be in the next 10 years, how many dependents you have, etc. Do you have skills and/or qualifications that are in demand? Will they still be in demand within the next 10 years when you're in your 50's? Is there a chance that you could be replaced with someone younger than you for a fraction of your salary? Do you have kids that will be going to university, etc.....

These are the questions you should be asking yourself. It's not the easiest thing to do, so it might be best to get assistance from someone who's financially savvy.

All the best man. Good luck with the decision making.
 
lcbxx said:
Never pump money into a depreciating asset, such as a car. Never, no matter what. You can pay extra every month on your installments rather.
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But what about the saving in interest since you will pay it off much sooner by pumping a lump sum? And is paying extra every month not "pumping money into a depreciating asset"?
 
Galactica said:
But what about the saving in interest since you will pay it off much sooner by pumping a lump sum? And is paying extra every month not "pumping money into a depreciating asset"?
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Yeah that's the worst advice ever. Well not quite, but almost :D

The depreciation of the asset doesn't change whether you owe a million on it or owe zero on it. It's all about the interest cost.
Normally car interest > bond interest, but not in this case though.
 
There should not be much discussion here :D
Slap in in the Bond,you'll be smiling a few years down the line. Think long term.
Nothing wrong with doing the Car and the Bond but as others said the house is an asset and the car is not.

Me personally, I would slap most of it in the bond, pay off most of the car and keep a few k for something nice.
 
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