Saturday, December 26, 2009

A Mental Bucket problem

I'm the first to admit that I have issues with my financial "buckets" or compartments. In my mind, there are many different buckets. I've already told you about the bucket of money given to me by my Dad.

Defining these buckets is not always a bad thing. When I've gotten distributions from employer pension plans, I've never had a problem rolling over 100% to an IRA because in my mind it was pension money. Therefore, my brain thinks it should always and forever remain pension money.

The problem I'm having now has resulted from a comment SS4BC made on this post. Mathematically, I know she's right about not paying extra on the Rental HELOC (4.99% for 15 years) while I still have credit card interest at much higher rates (ranging from 4.99% to 11.99%). Why does my mind make me want to use the rental income only for expenses that relate directly to the rental property?

I have an extra $205 in the rental "account" this month that I'll be sending to a savings account that was set up solely as an Emergency Fund for that property. My goal is to fully fund that account with 6 months of rental property expenses (including annual property taxes) plus the tenant deposit that I might have to return at the end of the lease. Right now, I'm about $1,500 shy of the goal so the $205 will help with that shortfall. But I'm already tormenting myself with the decision I'll have to make if that Emergency Fund ever reaches fully funded status.

Will I be able to actually use any extra rental income to pay off the credit card bills? I'm not sure, but I'd love to know if anyone else struggles with decisions that aren't mathematically correct but give you peace of mind.

1 comment:

  1. I think we all struggle with the choices. I tend to even float back and forth. This drives me crazy. I will save the money, like you have planned out and see it earning....nothing. Then take it all out and pay off a higher rate mortgage.

    I guess I just can't help. Good Luck!