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Cashflow v.s. Loans v.s Investing

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  • Cashflow v.s. Loans v.s Investing

    Hello WCI forum,

    I would like to know how I should move forward with this personal finance situation. I've outlined the scenarios below. Please let me know what would be the best case scenario.

    • I work in California and my spouse goes to medical school in California
    • We're both in our mid-twenties
    • We have a car payment of 40k with a 3.99% interest ($717/month)
    • We have a medical school loan at 40.5k with a 6.06% interest rate (payment deferred unit graduation in 2022)
    • We live with family and do not pay rent
    • We have a 6 month emergency fund
    • Retirement accounts are currently on track to be maxed out for 2020
    • All monthly expenses are minimal and our annual tax bill is negligble
    Scenario #1 - Focus on cashflow
    • Pay off the car loan
    • Drop cash reserve by 40k
    • Cashflow gain of $717/month
    • Guaranteed 3.99% return
    Scenario #2 - Focus on high interest student loan
    • Pay off 1 medical student loan for spouse
    • Drop cash reserve by 40.5k
    • No change in monthly cashflow
    • Guaranteed 6.06% return
    Scenario #3 - Focus on investing
    • Don’t pay off either loan for now
    • Begin paying back student loans in 2 years after spouse has graduated medical school in 2022 and while we earn dual income in residency years
    • Put cash reserve of $40.5k in a high yield savings account (1.84% interest yield) and have it sit with our current 6 month emergency fund
    • Dollar cost average over the next 2 years with current W-2 employer, max out 401(k), Roth 401(k), and Roth IRA accounts.
    • Take aggressive risks, such as stock market investing (build up for tax loss harvesting), open up the option for moonlighting or build a business on the side over the course of 2 years while spouse is finish medical school
    Please let me know which scenario I should pick or if there are a combination of scenarios I should pick for the best outcome.

  • #2
    "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓


    • #3
      exactly what does "maxing retirement accounts" mean? It seems that you are working and your spouse is not. You don't tell us your salary. But I would first put $6k in your Roth IRA and then another $6k in her Roth IRA and count that for 2019 (if you haven't already). Then I'd do it for 2020, same amounts. Stocks are on sale. Then I'd max your Roth 401k plan for the year ($19.5k). BTW, you can't max a 401k and a Roth 401k as the limit is $19,5k across both.

      As you do that kill that car loan now. Don't do that'll start bad habits if you do. Your wife is still in med school so won't her loan amount increase? Instead of paying off her current loan, as you are working, I'd just focus on keeping her student loan borrowed as low as possible for now until she's out of medical school and in residency.

      You are mid-20s so you have plenty of time to focus on investing beyond the Roth IRA and your 401k once you get rid of all other non-mortgage debt.