Best Use of Unlocked Cash Flow

Hello everyone!  Today, I went on a run outside and had a nice deep thought about what to do with an unlocked source of cash flow.  No, no this isn’t coming from my INCREASE in housing expenses or a pay raise.  This actually goes back to relate to paying off my auto loan earlier, rather than later.  This won’t be moving mountains, by any means, however this unlocks a new cash flow for me and now the debate is what to use the additional capital that will be available on a monthly basis going forward!

Cash, Flow, Cash Flow, Cycle, Money

Unlocked Cash Flow

Even though I’m having an increase in housing costs, as I had written a little bit ago, I still will be in a net positive once the auto loan is paid off in full within the next few months (currently less than $4K, and I have a maximum 4 months left to pay it off OR sooner!).  My auto loan currently is $284 per month, to which that will be the amount of my new cash flow going forward.  If paid off by September, that will be an additional $852 for the last 3 months and will unlock $3,408 of cash flow in one year.  Would you tend to agree with me, that this is quite a bit of new cash flow that will be coming in every month?  I’m excited for finding the maximum usage of this out of the opportunities that are out there, to say the least.

The new future unlocked cash flow has allowed the potential for a significant purchase of $3,000 or more (that linked article was about the benefits of doing so) or then could even lead me down the path of investing or paying down the mortgage, the endless question/debate.  With a few of these questions, and the long run ensuing – I felt it was time to get thoughts on paper and to then receive back from the community!  Everyone okay with that?  Perfect, haha… like you had a choice (kidding, of course).

Cash flow uses

$284 per month… almost as if “lions, tigers & bears, oh my” is ringing through my head on this run.  The options and what can be used for it are interesting.  Interesting thoughts such as…

1.) Save that for a year & go on a European excursion for two weeks, at least.  Sipping cappuccinos, sleeping in hostels and visiting place after place.  That is always an option, right?  More than likely not the use of the new cash flow, but it’s worth a thought, right?  Unless someone wants to comment below about it… haha

2.) The Mortgage – With an extra $284 coming in per month – should I allocate all or some of that to the mortgage on a monthly basis?  Should I start knocking that down, reducing the # of months/years left.  My rate is only 4.375%; and rates are rising – does it make sense to allocate portions of this to the mortgage at all?  I believe these questions ultimately depend on how the stock market and other investment opportunities are showing out there.

3.) Invest into the Stock Market – Should I take that extra $284 to do what a dividend diplomat does best and buy dividend paying stocks?  I could add that to a purchase I’d make, but the market is still riding fairly how, ALTHOUGH – a few opportunities have started to pop their head up in Realty Income (O), Johnson & Johnson (JNJ) Archer-Daniels (ADM) and Grainger (GWW).  So many long-term dividend paying companies are coming back with gravity and I could stock pile the capital and use it for that.  Another idea popped in my head as I was churning the corner to finish the run – I could save, at a minimum $1,000 and invest into a dividend income ETF; and just use the new capital for that.  Thoughts??

4.) Real Estate – I could always save more cash on my own and then add this new source of cash flow to add to the capital for a rental real estate investment property.  The homes in my area have experience low to moderate real estate price increases since the crisis, and it is a strong market for rentals, as I am near two universities and two major hospitals in the Cleveland-area.  This new cash flow can be used to save for the down payment, to add a source of cash flow to the overall portfolio.

FInal Thoughts

At the moment I am leaning towards option #3, will think about #4, and if the market isn’t doing much out there, will come to a conclusion on #2 if it makes sense to.  I know how lucky I am to be able to have an additional $284 per month going forward and I know I need to do what’s right to achieve the goals I set in 2017.  It will be nice be done for good for an auto payment, and it will never be a plan for me to ever have one again, pending any emergent situation.

The whole goal here, of course, is to get a few inches closer to financial freedom.  I have caught myself saying the phrase, “I’m sick and tired of being sick and tired” and that has to change.  I want the freedom so bad, that I feel like I can taste just an ounce of what it would be like.  If this helps me get there, then perfect, I know I am doing something more positive than not.

What do you think of these options and the overall goal here?  What would you do with your “now paid off” auto loan?  One idea that I left off the table was to create an account specifically for that savings, and then to use that for a newer car much later on/down the road.  In my eyes – my damn Honda Accord is going to last a very, very long time or I messed up haha.  But I understand if that’s an idea that one may have.  In all, very curious to see what you would do and why!  Appreciate the insight and guidance, talk soon freedom hunters, dividend investors and the like!

-Lanny

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34 thoughts on “Best Use of Unlocked Cash Flow

  1. Lanny, I’m in a similar dilemma. I have a car payment of about 260/month that I’d like to pay off soon. It’s really tempting to put that all towards my dividend portfolio. I also would have the option to put the additional funds toward my mortgage which has a rate of 3.99%. Seems like a pretty solid return there.
    Another option may be to split that amount in half and put it towards either investments or mortgage, and the other half in a separate income producing instrument for a future car purchase.
    Either say, additional cash flow is a good problem to have!

    • Larry –

      Thanks for the comment and do like the bifurcated approach – a little down on the mortgage, little extra for investing and a little extra for savings. The door is open to all suggestions. Very interesting and glad I’m not the only one!

      -Lanny

  2. If that’s not your only debt then you should use it to attack the remaining consumer debt. If there isn’t any, then great, use it to pile up six months of expenses in an emergency fund.If you’ve done that then split it up between college for kids, investing, giving, house principle and spending. And please don’t ever buy a new car on credit again. That’s beyond crazy unless you are already a millionaire. I’m way past that marker and only buy used cars with cash.

    • Seveark –

      Buying a car on credit will NEVER happen again on my end, trust me.

      I will more than likely find opportunities to invest and then side tackle the mortgage debt when the market doesn’t provide opportunities. A balanced approach through it all, which in the ends – brings me to a better position regardless.

      -Lanny

  3. sounds like a great run. Its always exciting realizing the extra money coming in and thinking of all the stuff u can do with it.
    Option 1 – sounds good. Have you went on a vacation recently? If not why not. I say you got to enjoy life now. But of course every $ you invest now compounds for your future.
    Option 2 – I used to do this and it felt great.But I’m in the process of refinancing to get some of my equity to create better passive income. But our mortgage rate is 5 yr fixed 2.59% Clearly our rates in Canada are way lower at 4% it might be worth throwing more money to the principle.
    Option 3 – I like this one. Why not use that previous “wasted” money to produce for ya. Increase in dividends and net worth!
    Option 4 – meh……. why save in a saving account? stack up on stocks and if market pulls back just don’t buy the rental at the moment. If market keeps going up or sideways and you have enough for a rental cash out at least you got the capital gains and dividends as you saved.

    Either way other then option 1 its all increasing your financial independence! keep it up

    • PCI –

      Haha, love the comment. Be aggressive and have the FU mentality to stack up on dividends & net worth sounds like the direction to go; with bifurcating additional pay downs when the market just doesn’t look as nice. Would you do what you normally do – i.e. buy individual stocks – OR would you stack up on dividend ETF?

      -Lanny

      • haha I definitely prefer individual stocks for their higher yield. also with the market so high I think you can find more value in individual stocks vs the whole market in a etf. I read you can pay off your mortgage in 3 years. That would be tempting. Us house prices are a dream here.

        On a side note how do you always have these Russian dating site ads? You probably have a high click rate……. Its not me…. I swear haha

        • PCI –

          HAHA Russian dating site ads?!?! What the heck!? I am dying laughing – are those really being published?

          And right.. I know the “northern” markets of real estate are extremely difficult, especially in Toronto, for real estate pricing, I can’t imagine how tough that is to try to be debt free.

          I see your point with an overall ETF, that is more than likely overvalued if the market is; I can easily see your point.

          Hm… this drawing board…

          -Lanny

  4. It sounds almost like a gaming incentive: “You’ve received the unlocked cash flow badge”!

    In all seriousness, you might have given your own answer: do what a dividend diplomat does best, investing in dividend stocks. It’s a nice sum of money, that will spit out a fairly dividend paycheck every once in a while.

    Personally, we are allocating money for our real estate adventure. If you would go down that road. You could always mix #3 and #4 and invest in an ETF, and use that money to buy a rental property.

    • Can you suggest a good canadian etfs…i invested on index fund u.s. it has
      A good return so far but banks take is 2.1 % ive checked etfs it has low management fees but has low returns…

    • Divnomics –

      Thanks for sharing what your plan is. I love increasing the income on the hustle side of things with my dividends, of course. Love getting closer to my 2017 goal of $10K forward income. Honestly, just weird/exciting thinking I’ll have $284 extra.

      But yes – I see this article has brought on some great discussion points. Dividend investing to take advantage of yield + market return; but then there’s the negative cash flow for the mortgage. I could realistically pay that off in under 36 months I believe, if needed. Not sure how much stock investing would happen if I did do that, but I’d unlock even more cash flow… hmm & agh; frustrating!

      No clear answer from a textbook. Emotions can be built into this, as psychologically – no debt sounds incredible, but having a more robust portfolio paying more income is very palatable as well : )

      -Lanny

  5. I agree with the Realty Income idea. I just bought more at $55.83. It seems there was a general selloff in anything connected to retail because of bad quarterly reports from companies that aren’t even among Realty Income’s tenants. I also think there’s a decent chance we don’t get the expected rate hike in June.

  6. I’d pay down the mortgage. I understand the argument that many make, which is that the money will make more money in the market. But, I like to be debt free. Mortgages are usually the single largest loan most people have. Eliminating this debt, alleviates so much stress. If I can get my mortgage out of the way, even if I lose my job and cannot find work for a year, I’d still be fine. This is the mindset I want to be in.

      • William –

        Love the comment, as well. There will be quite a bit of new cash flow if I get rid of the mortgage. Very interesting and you & others are pumping me up, not going to lie! Could I start this incredible mortgage pay off plan?!?!

        -Lanny

    • Turn the question around . Would you barrow money to play in stock market? That is what you are doing if you don’t pay off your house. Pay off the house so no one can tack it away. Then your cash flow is even bigger.

    • First – love the comments on your comment DH.

      Secondly – you are right.. agh, you are right. If I lose my primary source of income – with the mortgage being “away”/put to rest – that’s another payment that would be off the books; and think that my dividend income alone would sustain my living expenses.

      Luckily, my mortgage balance is SO small… I can probably pay for it in 2-3 years, clean and free, if I really wanted to. I was lucky and bought my house in 2011, where prices were still depressed a ton and fortunate that I bought a house for a price that was FAR less than 2x MY individual annual salary. Let’s just say my mortgage is now FAR below my current year salary…

      -Lanny

  7. Mortgage interest is simple interest and your rate is relatively low. And, unless the tax code changes, you can deduct the mortgage interest. That is a tremendous benefit. On the other hand, by investing in dividend-paying stocks and reinvesting your dividend income, you’re using the power of compounding to grow your portfolio and your passive income stream.

    All the best and I look forward to seeing what you decide to do.

    • Ferdi –

      Thank you and yep – facts are facts; simple interest, easy to calculate, etc.. I started the mortgage at age 23 and as of now – payoff will be in 22 more years (i.e. 27 years total) due to extra payments.

      The market is started to show a few shakes here and there for opportunities, would love to see capital build and then start firing at the best target, eh?

      -Lanny

  8. I struggle with decisions like this as well. I’m not sure about the different US accounts (I’m from Canada), but I made the decision to max out investments in my tax free and tax deferred registered accounts (TFSA or Tax Free Savings Account and RRSP or Registered Retirement Savings Plan). With those investments maxed out for the year, I’ve decided to focus on paying down the mortgage. After the tax implications for dividend income, the return between investing and paying down the mortgage was pretty similar. Plus there’s something to be said for getting rid of debt (even if it’s a mortgage at a low rate) – and it will open up a much larger stream of free cash flow once the mortgage is paid off.

    • FLoon –

      Great comment and thank you very much. Yep – we do have the tax-advantaged accounts and those are currently being maxed out to the utmost that I am able to. It’s funny with the tax implications on the dividend investing, there also are tax implications on the mortgage interest, currently and they are VERy close to the same haha. As the mortgage interest is saved at 25% and my dividends that are qualified have been taxed at 15%…

      I plan on making at least one+ extra mortgage payment this year, pending how the stock markets are looking once this loan is paid off. I have over 3+ months still before this one is guy, but it’ll be here soon. Still have time to plan.

      -Lanny

  9. I definitely agree with #3 although #2 is an amazing feeling when you pay off your mortgage and can take #1 without any debt. It’s a wonderful feeling 🙂

    I have been watching some of the major dividend players fall into some interesting pockets. I am definitely watching O, PSA and UHAL. They all seem like solid companies that won’t be going anywhere anytime soon.

    • Mustard –

      Thanks for the comment and cannot wait to be no strings attached and able to live life in a more “full” way!

      I am more than likely going to allocate most to dividend investing, but may squeeze in an extra payment on the mortgage just once, if the market isn’t showing opportunities, instead of letting cash go completely idle.

      Every dollar matters, right?!

      -Lanny

  10. Wow, that is such a good problem to have. #2 and #3 are definitely very tempting options. On the one hand, since you’re so close to paying off your mortgage, it would make sense to focus on that. Then, you’re cash flow would be higher and you could devote even more to the stock market. Definitely, not a bad option. However, if you really aren’t struggling to make your mortgage payment and your salary is relatively stable, I vote for #3. Then, you get the best of both worlds. You get the benefit of compounding and increased net worth. You also will get a paid off house, eventually. Sure, it’s going to cost you more to pay off your house in the long run, but every option has an opportunity cost.

    I have a somewhat similar problem. I should be able to pay off one of my student loans in about a month or two. Then, I’ll have a decision to make. Should I take the extra money to pay off my other student loan early ($20,000 at 2.25%) or invest. We’ll see if I take my own advice then. Good luck with your decision.

    • DP –

      Ah! I used to have the student loan debate, as well. I’ll say this – you can only deduct so much interest in a year and yours doesn’t seem to be material in a way. I would set a timeline to that loan and destroy it, while still investing/saving, if you can. That way you are building assets and tackling the debt. Thoughts?

      You’re right with the mortgage – it honestly won’t take me long to get rid of that and it would be expedited once the lady and I become married and set the plan to elbow drop it. I do like to make extra payments early on in the process and instead of doing a balls to the wall tackle debt, I may do one extra payment this year, to “get one of those” in. The rest – may be the market, pending how the stocks are playing out : )

      -Lanny

      • By the way, that’s what I’m doing now. Any increased payment to the student loan will only be made after my current levels of investments to my 401k, IRA, and dividend portfolio, are met. So, it’s really a matter of whether I should take that increase and add it to my dividend portfolio or towards the student loan. But I hear what you’re saying. Setting a date is definitely a possibility. At my current levels of student loan payments, I could get rid of that last remaining loan in about 2 years or maybe 2.5 years since it’s going to be difficult but not impossible to maintain my current levels of payments.

        I like your idea of making one extra payment a year towards your mortgage. You will get rid of it that much quicker, but will also allow you to maintain the flexibility of investing in the stock market.

  11. I would definitely invest in stock market. Or at least in a bond fund. VBMFX yields 2.38%. The current mortgage rate is 4.0%. The difference is 1.62% and it will keep going down.

    There is also realty investments via realtyshares, realtymogul etc. I guess these are diversification strategies. I am not sure how they work or how safe they are.

    • Geek –

      Love the post. I do know of the few realty sites; some you need to be a sophisticated or an accredited investor others you may start investing (I think Realty mogul?); I’d have to do more research on the entities. Other lending sites – I may not be able to, due to being in Ohio and they prohibit it, agh!!

      Luckily – I have a few months, still, before the auto loan is paid off and I have this cash flow. Maybe then the market will realize that it’s been riding high for so long with the overall P/E in the 23-24 range… This article seems to be timed well with allowing for 90+ days to begin the tackle.

      -Lanny

  12. I would take that extra cash flow and put it towards paying off that mortgage. The savings you get for paying off the mortgage early would be a guaranteed return. Not to mention, an investment that is fully insured.

  13. If you haven’t traveled internationally, take the $3,000 and go to a cheap European country like Czech or Croatia. Consider it part of an education to see how the world lives.

    After that in the first year, pre-pay the mortgage. Div stocks are yielding 3%, and likely those yields will increase with the Fed and an eventual stock market correction.

    And while your mortgage is cheap, paying it off is insurance. You never know what can happen, and getting rid of that payment will increase your cash flow and peace of mind. Yes, you lose 3 years of compounding, but on 2% div stocks, that pales in comparison to the benefits.

  14. Our home has a 4.375% interest rate as well! I’m just going to keep maxing 403b and Roth IRA contributions and consider taxable account investing after that. Agree with the others, get debt free if you can! Our mortgage is the only thing left.

    I also want financial freedom so bad that I can taste it. Go give my blog a look if you’re so inclined! Good luck! 🙂

  15. When travel experience is important, why not go for that. Europe is relatively cheap now for USD people, it adds to the experience, you get to see now what future FI might be.
    It does not have to be an expensive EU country, plenty of choice here.

    Eavh time we got to stop paying the 600/month day care, we used the money once to go on a great food experience, a treat for ourselve. In my book, focus is good, too much focus is bad… IT is a thin line

  16. An option I suggest when you pay off your auto loan is to continue making “payments”, except to yourself into a “car fund” so that by the time you need a new car you won’t need to take out another auto loan. That’s exactly what we did when we bought our new van! http://bit.ly/2gyij1c

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