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The Geezer
The Geezer , Successful careers
Category: General
Satisfied Customers: 1387
Experience:  Retired Civil Engineer, USC Professor & Realtor, financier
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I recently inheritted some money, not a huge amount. I have ...

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I recently inheritted some money, not a huge amount. I have paid off all debts except my home loan which is on a 15 yr note and I have only 11 yrs left it was at a 5.25% interest rate. I also have a car loan, I owe 21,000 still and it is on a 6.5 % rate. Since paying all the other stuff off, I only have 12,000 left. Should I keep that on hand as an emergency fund, invest it or pay it towards my house or car? I do have a savings of 2500. which is seperate of this. Please help me decide what the best thing to do is. Thank you - Beth
Submitted: 9 years ago.
Category: General
Expert:  The Geezer replied 9 years ago.
Your home loan is at an excellent rate. It would not be a good idea to pay it off, even partially. That would be exactly like investing the money at 5.25% in something you couldn't easily get the money out of if you needed it.

The same goes for your car loan, 6.5% is an excellent rate, and there are probably "Rule of 72" or some other punitive provisions in your car loan documents that would cost you money if you prepaid it.

It is prudent to maintain a liquid reserve of at least three months' worth of expenses, as an emergency "rainy day" fund. You were wise to pay off all your other debts, now you need to maintain a emergency reserve fund.

There is one investment you can make with a very small portion of your reserve fund, and that would be in what I like to call "mental capital".

The challenge to all who work hard and save their money is to find investment returns that exceed the rate of inflation. No matter what your initial investment and periodic additions to principal, the safest investments usually earn the lowest interest rates.

Practically speaking, if one judges inflation by real prices of real commodities and not by the "adjusted" official government numbers, if one doesn't earn more than about 6% on your money, one actually LOSES GROUND to inflation.

So what did I tell my own son, now 25 and off to law school? "Invest in MENTAL CAPITAL". That means learn all you can about another investment vehicle other than your regular job. Mental capital is immune to inflation, can't be taxed, and is always available to work on your behalf.

Easy enough to say. But what to learn about?

I have always been interested in vacant land. I surveyed it as a kid in my dad's business, went to engineering school partly as a result, and have just retired from a career based in part on that knowledge. I have learned a large fraction of all there is to know about buying and selling low-priced vacant land in my state. Tax sales, probate sales, writing to owners, options, creative financing, with and without real estate agents... there are not a lot of folks who have done that.

What are YOU interested in. Cars? Even within the field of cars there are subfields. Classic cars, exotic cars, restoring cars, buying and selling cars...

Jewelry? You can buy jewelry in pawnshops, at local "jewelry marts", some vendors will sell to you on consignment. You pay $10 for a piece and sell it for $30... $10 down, $10 next month, and $10 the last month... and do it over and over...

Whatever it is that you are truly interested in, your task is to become more knowledgeable about it than anyone else. Whatever "it" is - learn where to buy it, how to sell it, what gives it value, why people want it, unique ways to sell it to them, ... start small but start.

Anything that costs money and that people want is a candidate for investment of mental capital. This is not "get rich quick" advice - but it is sound advice. Mental capital is the only reliable way to improve your financial state of affairs.

Truly blessed are people who, even part-time, can do what they love and get paid for it. That is the best, XXXXX XXXXX safest way to grow money, and it provides the best satisfaction as well.
The Geezer, Successful careers
Category: General
Satisfied Customers: 1387
Experience: Retired Civil Engineer, USC Professor & Realtor, financier
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