Financial Fitness - FREEDOM!!!

Back in February I wrote a piece regarding financial fitness for gen-X/Y/Z. In general, I wanted to continue to benchmark our personal performance through time. While I have not had time to recompute our numbers lately (too busy with B-Day parties and getting ready for the upcoming move) what I can say is that Jen and I have officially kicked all of our non-house related debt!!! That's right....we now own both our cars outright (got the title for our Nissan Maxima just a few weeks ago) and have completely paid off all our student loans (we payed off Jen's back in 1998 but mine hung around a little longer). It feels absolutely great to know that those monthly payments will now be moving into the savings account instead of heading out the door (~$750/mo)! Since Jen and I have always harbored strong negative feelings about carrying credit card debt, we have never had to deal with that common ailment thankfully. So all in all, the only remaining monthly payment we will be making from here on out will be our house (which we hopefully will sell in the next few months). Note: if we were staying at our current residence, our next move would be to refinance our mortgage and put even more monthly $$$ into our pockets.

Something I should point out here: Up until 2006 the interest rates on my loans have been very low (~4%) but so were the interest rates on safe investments like CDs, MMAs and savings accounts (~2%). This meant that there really was no incentive to either pay off my loans (as they were already cheap) or to put my money "under the mattress" (to make no money). This really only left one option: to put our money to work in the equities markets with some risk to principal. Consequently, that is where a lot of our savings have been - in the equity markets. To be honest, that has payed off relatively well seeing as how our index funds have gone up ~10% each year for the last 4 years. As most of you are aware, over the past 1.5 years interest rates have been steadily moving up. Thus the incentive to take the risk in the equity market has been dwindling. Option 1: I can pay off my loans and make a sure 7%. Option 2: I can put my money "under the mattress" and make 5%. Assuming the market holds course at 10%, the incentive to be in the market has dropped from ~6% to only about 3%. Now, how much risk are you willing to take to realize that last 3%? My vote was to take the 7% and run...and sleep well at night.

Now that our debt is all cleared out...and we have cashed in our 7% gains...we have more money each month to "put back to work". This time the math is not quite as easy, seeing as the equity market premium is now at 5% (10% Equities vs. 5% MMA). So here we are again, at another fork in the road... I will write more about this decision process over the coming weeks...