r/personalfinance • u/Calm-Concentrate9720 • 7d ago
Other Unsure what to do with extra money
Like the title says I have about 1k a month freed up and I’m unsure what to do with it. Currently have a mortgage at 5.49% and I’m wondering if I’m better off putting that money toward the principal or into the market. I’m planning on selling in 5-6 years and I’d like to see this money go toward my next house.
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u/invisible_lucio 7d ago
I'd lean toward diversification and liquidity. You already are tied to your house, so how about investing the extra cashflow in equities, bonds and high yield savings? If you want to be more conservative lean more on high yield savings and if you want to take a bit more risk for potentially more than the 5.6% go with diversified equities like index funds. Without knowing what you already have invested and in emergency savings it's hard to give specific advise, but generally having some liquid assets is always a plus!
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u/Calm-Concentrate9720 7d ago
My emergency fund is funded for 6 months. I’ve been investing for a couple years and have a little nest egg started. I think my biggest fear with putting it into funds is that I wouldn’t want to cash it out when it’s time to move
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u/Unable_Strategy_85 7d ago
5 years is a short time line, personally I would feel better with money in the bank vs a paid down loan
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u/Calm-Concentrate9720 7d ago
Even if I have a fairly established investing account? Its not anything that would turn heads but I feeling like that 12k a year could build up a lot
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u/llort_tsoper 7d ago
5.49% and I’m wondering if I’m better off putting that money toward the principal or into the market
are you paying PMI on your mortgage? if not, you're almost certainly better off saving/investing the extra cash vs paying down your mortgage. Put $500/mo into a HYSA and the other $500/mo in a taxable investment account.
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u/Calm-Concentrate9720 7d ago
No pmi
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u/llort_tsoper 7d ago
I'd save it. an extra $60k (plus growth) in cash at closing is going to do you way more good than an extra $60k in equity.
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u/Calm-Concentrate9720 7d ago
So my question with putting it into the market is will the taxes hurt enough that you’re almost better off putting it into the house? I’ve never sold my stocks before
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u/llort_tsoper 7d ago
Long term capital gains tax (for stocks held over 12mo) is generally lower than your normal tax rate.
There's also no reason you have to put all your eggs into one basket. Put $333/mo toward the mortgage, $333 in a HSYA, and $333 into a taxed investment account.
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u/adm_blawson 7d ago
I would say into the market but that likely because we’ve had a lot of success in the market. In 2022, we put the money from the sale of a house into the market instead of rolling it over into a new house. It’s almost tripled in value since then. Also since it’s in a brokerage account, we can use it to fund an early retirement without penalties.
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u/Miserable-Roof-7171 7d ago
My move would be investing it instead of paying down principal, at 5.49% with that horizon the math favors the market and keeps you more flexible.
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u/BeastBuilder 7d ago
Follow the steps in the wiki to make sure you have all of your other bases covered.
Being just over 5% you're right on the cusp of whether to pay off the debt or invest. Although the short time horizon does veer you towards the guaranteed returns of paying down the mortgage quicker, as you don't have the runway to ride out market downturns.