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What to do with extra cash

Today’s guest post comes from Melanie. She is a Human Resources professional in the Toronto area who is married, with two young children.  She blogs about financial life as a family of four and the challenges that come with it at Finance For Four.

I know – it’s hard to feel bad for someone when they tell you that they have extra cash, and they’re not sure how to spend it.  If someone had presented me with this scenario while I was paying down all my consumer debt, I would have had a hard time trying to keep a straight face while trying to help them with their tough “scenario”.  And if I was still paying down my debt, the answer is that it all would have gone straight to the debtor of choice!

But, fortunately, now that I have paid down all of my consumer debt, and my husband will be receiving his annual bonus from his company, we are faced with that very question – what to do with the extra money.  Both of us agree that it cannot be absorbed into our regular cash flow.  But we are unclear as to what we want to do with it.  A big part of us wants to spend something on the house – we desperately need new couches, we would love to replace our ripped linoleum kitchen floor with ceramic tile (and add a backsplash while we’re at it), and we were so strict while we were paying down our debt that we hadn’t been spending anything to improve the inner appearance of our house.  But the other part of us feels that we should be acting “responsible” with this money, and choosing to either pay down the mortgage, or invest the extra cash.  We could also do a combination of both the reno and the responsible part.  But how to decide?!

Currently we are “between” financial advisors.  With two small children, I have neither the time nor the energy to learn how to manage my own investments on an active daily basis.  This doesn’t mean that I don’t know what’s going on with our financial picture – but I don’t have the knowledge to actively invest our dollars on a daily or weekly basis.  We have been asking friends to recommend their financial advisors and going through sort of an interview process to determine which one best fits our needs, and can help us maximize our savings potential.  This is a question that I love to ask them to see what their response is.  I don’t think that there is necessarily a right or wrong answer – but I really like to see the reasoning behind the answer that they give.

The argument towards prepaying the mortgage is pretty obvious – pay extra towards the principal on your mortgage, and you save a boatload of interest. Especially true in the first five years of paying down a mortgage, when you are primarily paying interest rather than principle (Usually I need to have had at least one glass of wine before I venture to look at my annual mortgage statement!)  However, there are also many who feel that paying down the mortgage versus putting the money in your RRSP (read: similar to 401K but Canadian Style) is not the best long term investment.  Depending on the return that your investment can achieve, over the course of the next ten years, this extra cash may work harder for me in an investment capacity.

In some ways, I have to think: What Would Ninja Do?

After some serious pondering, we decided to spend about half of the bonus on our house.  The new leather couches are awesome, and the kitchen renos, as you can see below turned out amazing….

Now we have about half of the bonus left and are leaning towards going with the mortgage payment this time around.  Since this is an annual salary, maybe we could split it up – invest one year, prepay the mortgage the next?  I will leave it open to Ninja’s wise readers to provide their input and opinion on what they would recommend.  Have you faced this situation before? Which did you choose? Which would you choose if you had the option, and why?



  1. Before I saw your pictures, I thought you were going to ask what to do with it all, and my response was going to be “spend half on your house and half on your mortgage”.

    So yay, I’ll stick with that answer, lol.

    Your counter-tops and backsplash look awesome btw! New sink too? Love the design.

  2. your kitchen looks great, obvisouly worth the investment if you are so proud that you posted pics online =)

    if i had been in your situation i would have done the kitchen renovation and whatever other fixes you have neglected over the past few years as i think its important to be happy wherever you live. in regards to mortgage vs retirement i would have paid down the mortgage. i would rather be broke with no debt than all set with debt, but thats just me =) thanks for the post

  3. Kitchen looks great! How’s your emergency fund looking?

    I may opt for the mortgage, knocking off so more debt is always a good feeling!

  4. We did all the major renovations on our home before we got serious about paying down the mortgage.

    I think the stupidest thing in the world are those people who do nothing to their house the whole time they live there, then dump a bunch of money in it when it’s time to sell. Wouldn’t it have been nicer to have that nicer kitchen all along?

    You did the right thing. I struggle with what the best mix of investments is these days. After this last crash I’ve gotten more conservative and have been funneling more money into the sure mortgage balance. I know I save 5.75% interest no matter how I slice it.

  5. With the remainder of the money, I’d probably split it 50/50. 50% to a mortgage prepayment, and the other 50% to RRSP or emergency fund savings. I think you did great with the kitchen renovations. That was a great way to spend that 50%.

  6. My wife and I have some home renovations on our wish list, but we are paying off the mortgage first. We set ourselves a five-year goal but may (knock on wood) finish early. Though we don’t have the most beautiful kitchen in the world, we are still able to prepare some delicious meals in it. And when we have zero debt left, we’ll be able to pay for home renovations, in cash, interest free. That makes more sense to me.

    Get serious about paying your mortgage off quickly and this won’t be such a hard choice to make. What is more valuable: granite countertops, or thousands of dollars of interest savings?

    • I think we bought a little too much of a fixer-upper to adopt this approach. We figured we could take out a smaller mortgage and build equity tax free, then pay off the loans next.

  7. Start a college fund for your children! How long do you plan on living in this house? If this is a forever house then it might make sense to pay down the mortgage, but life happens and paying it down faster might not make any difference in the end. An education for your children will make a big difference in the end. And the extra interest earned if they are still young will make an even bigger difference.

    • @ me in millions – we do have Education funds for both of our children! I agree that their education is incredibly important!

  8. We’re waiting to redo our kitchen until “after tenure.” We can afford small fixes now, like putting in gas stove or making the countertops something other than the cheapest most difficult to clean white surface on the face of the planet (seriously– bleach turns it yellow)… BUT the kitchen also has impossible to work with triangles and the sink is a really bad height for DH etc. so at some point we need to tear out the whole thing and put in something we can work with, at which point a few thousand spent on granite counter tops is wasted. So we don’t do anything until we know we’re going to be staying put for a while. It *looks* like a nice kitchen if you’re not actually trying to work in it, and it is great if you have a lot of catered parties… I think that’s what it was set up for.

  9. I find it crazy that people think a mortgage is acceptable. The thousands in interest one pays on a 30 year mortgage is sickening. Granted very few can pay cash for a house but still one should do their best to pay off a mortgage quickly. Nothing beats a guaranteed return IMHO 🙂

    As far as trying to figure out what to do with extra money it’s been a struggle for me. The balancing act of saving for the future and living in the now is such a challenge. J.D. Roth’s latest post in Get Rich Slowly regarding the third stage of personal finance is a great read, you might be able to glean something off of it.

    As far as financial advisers go, be paranoid. Most are determined to make money off of you instead of making money for you. I kept it simple, I just put it in a savings account. No risk no gain but no losses either 🙂

    • If you see my next post on the blod, i have a ten year plan to pay an extra $100K to my mortgage, which should leave us mortgage free at the end of that ten year period (cutting 12 years off my 25 year amortization). it’s a lofty goal but definitely achievable, in my opinion!

  10. Pay off the mortgage, having no debt in retirement is a guaranteed multiplier on your retirement, plus you can predict the return on your investment, unlike stocks.

  11. Thanks everyone for contributing to my guest post for Ninja – I have definitely decided to put the extra money down on my mortgage. Your opinions were all much appreciated! Thank you for taking the time to comment!!

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