Tuesday, March 22, 2011

One 401K loan is paid off!

I am very, very excited to finally be able to say that my 401K loan is paid off! It took forever for the money to clear various places & for Fidelity to finally show a zero balance on the loan/and credit my 401K with the funds, but it's all straightened out. Yes!

Loan History:
As background, we each took out a loan in March of last year for $49,500 (x2 - one out of each 401K) and we used that money to prepay part of our home mortgage, so we could combine both home loans (vacation property & primary residence) into one loan to secure a far better rate. The loans were absolutely the right choice from a financial perspective, but I hated having it around. Unfortunately, the loan terms did not allow for any additional payments unless you had enough to pay the entire remaining balance, which made it hard to chip away at it.

Paying it off:
The payment for paying off the loan (a little over $41K) was made by cobbling together money from various sources. I had a savings account where I stashed all extra funds, which totaled about $15K. But, the big money came from an unexpected bonus M received. The money I was able to save came directly from cutting spending in other areas: hair cuts for me, random shopping, meals out, trimming back groceries, and really just paying much closer attention to where our money went. I'm shocked by how much we were able to save just by really tracking how we were spending our income.

Net worth update:
Paying off this loan is a double whammy for our net worth. Not only does it decrease our liabilities by a huge chunk, but it also immediately transfers over to our assets, because the funds were automatically applied to my 401K, resulting in a $80Kish growth in our net worth. Now that's the kind of progress I like to see!

What's up next:
Next up on our list of financial goals is to pay off M's 401K loan. It's for the same amount, and the same rules apply with regard to pre-payment. His balance is currently hovering around $41K. We're going to apply the same savings principles that we used for my loan, and also apply any unexpected funds (from work, investments, etc) to our savings account until we have enough to pay it off.

After that, our goal is to clear our 2nd mortgage, which has a current balance of $185K.

Our financial situation will be undergoing a few shifts in the next several years. One of our biggest expenses at the moment is child care for the boys (we're paying about $2K/month - down from an all time high of $4K/month when they were infants). My oldest son will enter Kindergarten in the fall, and my youngest son will be in Kindergarten in fall of 2012. Both of these things will eventually reduce our childcare payments to about $600/month, as we will still need after school care. We're toying with the idea of purchasing a rental property once we clear the 401K loans & our second mortgage. I'd like to create other income streams, and now seems like an excellent time to invest in real estate. We qualify for excellent rates, we have stable incomes, and property value has dropped drastically.

Our ultimate goal is to hit a net worth of $1M by the end of 2012. If we pay off M's 401K loan soon, that will create another increase of $80K (again, the reduction in our liabilities combined with the money immediately transferring to our assets), which makes the number look doable.

Wrap Up:
I'll be posting a big end of the month wrap up as usual, but I couldn't resist updating our net worth for today.

Net worth as of 3/1 - $815,065
Net worth as of 3/22 - $896,594

Total change in net worth: +$81,529!!

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