Great stuff. That is very informative. All of the things Dave mentions are on my radar. We'll be pretty loose with the 3-6 months expenses savings (great job security), but will certainly have $1000 liquid for emergencies.
I think we will avoid any traditional "college funds" for our 2 kids. I just don't like pigeon holing children into thinking they have to attend college. I'd rather invest this money in other lower-medium risk stuff I can access if they need it when they are 10 or 16 or whenever. Feel free to talk me out of this. It's just my gut reaction to these types of funds.
I want to refi out of our 30yr mortgage ASAP. Especially if rates keep breaking into the 4's. I've done the math many times and it still amazes me the amount of interest you can save with a shorter term. Saving that $50-100k on the mortgage is like a huge gain we could feel years before retirement age. Only prob is we didn't put much down when we bought in 11/07 and, with the economic crisis, are probably a little underwater (maybe even if we're lucky). So I guess we'll just keep making extra payments as often as we can until we are able to do a refi. I wish we could somehow get out of PMI in the meantime.
Are you saying you don't want to go into a plan 529 or don't want to be stuck with a small selection of funds in there? If you're pretty sure your kids will be going to college, I think you are better off investing in a 529 rather than outside of it, since all gains are tax-free as long as they are used for educational expenses. Here's what a link off the state treasurer's site (don't know if you are in MO or elsewhere, but think all states have a 529) says:
Owners of MOST accounts are able to make a deduction for contributions of up to $8,000 per year per taxpayer from their Missouri income taxes.
Contributions can grow free from federal and Missouri income tax until withdrawn. When it is time for the beneficiary to go to college, withdrawals used for qualified higher education expenses, including any earnings the investments may have yielded â€“ also will be exempt from federal and Missouri income taxes.
As for the house, don't sweat the mortgage at first. We had a 30-year when we bought our house and refi'd to a 15 after my wife got out of nursing school and our income went up. We put an addition on, had a construction loan, then had to get some weird first/second because Fannie Mae or whomever was going to buy our loan didn't like something about it all being on one mortgage, but were able to keep it a 15. After having that for a couple years, we refi'd to our current loan, which I had the bank do as a 12-year so I can make sure it's paid off before the older boy is ready for college. I think we'll probably have it paid off after about 21 years in the end, what with the different mortgages listed above, although I'm hoping to start banging out some massive payments when my professional student wife gets her masters in a couple years and starts making more than me (and not due to me being laid off like the last time that happened).
I think as long as you and the wife prepare to hit it in the next couple of years and refi you should be OK. Just don't be in the mindset of thinking it's a good tax deduction and that's why you should keep the mortgage:
QUESTION: Diana and her husband make $288,000 a year and her husband is a contractor in Afghanistan. They are in a 33% tax bracket. Should they pay off their house with the excess money, or take their accountantâ€™s advice and keep the mortgage to get the tax deduction?
ANSWER: You donâ€™t keep a house to get a tax write-off. Youâ€™re paying $7,680 in interest per year, so you have that as a tax deduction. When you have that, it saved you $2,500 in taxes. Your accountant is telling you to send $7,680 to the bank to keep from sending $2,500 to the government. Thatâ€™s stupid! You can pay the house off, give $7,680 to a charity and keep the tax deduction without the debt.