What if I pay down the mortgage until the remaining payments would automatically end it in 2017? Well, I can’t really afford that. But I can do it to where my emergency fund would definitely squish the mortgage at the end of 2017.
The first 3 months have about $23k in “extra money”:
Jan: $5000 bonus + $5000 savings
March: $5000 + $3000 tax return?
(1) I could put that on the mortgage, leaving me with $27k. -$11k (normal payments) = $16k by the end of the year, and that’s without touching my $11k emergency fund. In this scenario, the February, March, and April payments would all be pretty big, and after that all my money would go to 401(k) / HSA maxing. That would keep me pretty locked into the current job. Of course, if I leave the job early, I lose the HSA contributions. This option is appealing because it lets me guarantee early on that my mortgage won’t leak that much into 2018. It’s bad because if financial things come up later in the year, potentially I won’t be maxing the 401(k). It’s also appealing because the discipline period is only 3 months, and historically I’m pretty good at saving money in that time period. Also known as the “don’t fuck up the bonus and spend it before vacations start tempting” plan.
(2) I could put the money into savings. Then I’d have $34k in savings, and I’d feel more comfortable about job shopping. Historically though, I don’t need that much in savings. That would be about 12 months of living expenses. Having that much emergency fund does feel good though…
(3) I could max out the HSA and 401(k) asap. Also some points for job shopping comfort there. The 401(k) is also one of the least emotionally appealing options, so this one is kind of like eating my vegetables first.
Let’s look at it from the perspective of future me. What will Louis think on December 22, 2017 (knock on wood don’t die). Well, I imagine I’d think much like the Louis of today. I’d want my 401(k) maxed. I’d want to be making as much money as possible. I’d want an emergency fund. I’d want the mortgage balance to be as low as possible. But in what order? Well, if the 401(k) isn’t maxed then potentially I can contribute to the 2017 one in 2018, and my tax refund should arrive before the April 15 deadline, so The 401(k) would be nice to max, but mainly I just want it to be mostly in the bag (say $10k?). Same with the 2017 HSA and IRA. If Dec 22, 2017 Louis would be sitting here with his mortgage completely gone… well, then he’d know it would be easier to make up those retirement payments b/c he had an extra $1000 a month. Maybe that Louis prefers to pay down the mortgage, but only if he is certain it will be gone by a certain date.
Okay, so this has me only keeping $6k in emergency fund, but it has the mortgage killed at the 6 month mark. It assumes a $3k tax refund and 6 very unpleasant months at the beginning of 2017. But! The last 6 months of the year have no mortgage payment, and therefore the $6k emergency fund goes from being a 2 month to a 3 month fund immediately.