Author Topic: HELP: Finishing grad school, Married with kid, dogs, chickens, and a horse.  (Read 3248 times)

MOC

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Hi!

I am seeking the guidance of wiser-more seasoned Mustachians to aid my life planning post law school.

I am in my last year of grad school, married, with a baby, two dogs, chickens, and a horse.
We live in a semi rural-area (think two small college towns with lots of very small towns surrounding) and we plan to stay here. We do not have much stored away and have not been very mustachian in the past.

Here is our financial situation once I graduate:

INCOME:
* Next year our income will be about 85k, but within 3 years it should be more like 150k. Once I graduate I'll make about 50k (small area = smaller pay). But within 3 years my income will be closer to 100k (it's a weird situation, but you'll just have to trust me). My wife takes home about 38k as a teacher and PT horse trainer.

INVESTMENTS/SAVINGS
*10k currently being rolled over from 401(k) to Roth IRA
*5k in savings
* Wife 401(k): 3% match. We do the minimum to get the employer match
* Me once I start working: Employer does 12% contribution to my IRA. (my employer will be doing a SEP (simplified employee pension plan) IRA system for retirement, which will give me 12% of my salary ON TOP of my salary)

DEBT
* 110k in student loans @ approximately 6% (but plan to consolidate at graduation and hopefully lower rate)
* 15k pickup payment @ 5% (a truck is necessary for PT horse venture)

MONTHLY EXPENSES total about 3500
* 850 rent
* 350 car payment
* 120 vehicle/horse trailer insurance
* 500 day care
* 300 groceries
* 35 cell phones (thanks to Ting)
* 85 heat/electric
* 40 internet
* 500 Student loan payments
* 275 horse board
* 150 gas
* 70 dog insurance
* 100 in animal feed etc..
* 100 miscelaneous

I think we have done a good job of trimming our smaller expenses, but we are going to find a way to cut the bigger ones (rent, car payment). We also produce lots of food through our garden and our chickens. We have the horse expenses, but my wife's PT horse training work basically pays for that (and getting rid of the horse is a deal breaker for her)

We live in an area where rents are somewhat high, the only thing we can get for less is a small 2br apt. The only comparable place we could get is through buying, and there are some pretty inexpensive houses around here. There are also some duplexes for sale.  There is one in particular that is very cheap, in sound condition and with the rents it currently produces we would net about $200/month immediately with only 15% down.  We've thought about trying to buy one and live in half or stay where we're at and use the income to offset our rent.

My questions are these:

1. Should we buy or continue to rent? If we were going to buy, I'd take the 10k out of the IRA to help with the down payment (first time homebuyer  - no penalty up to 10k principal in a Roth IRA)
2. How should we manage our finances - attack the debt in a "snowball fashion", contribute to IRA/Vanguard Index, or something altogether different.
3. any other ideas/thoughts - all would be appreciated.


« Last Edit: October 20, 2014, 02:46:38 PM by MOC »

4alpacas

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Re: Help Wanted for Post-School Planning
« Reply #1 on: October 20, 2014, 02:30:30 PM »
1. Should we buy or continue to rent?
Rent!  You have $5k in savings.  I wouldn't buy a place until you have a cash cushion and a 20% down payment saved in non-retirement accounts.  I would also be hesitant to get tied down to a house if you have to move (while transitioning from the $50k to $100k position). 

2. If we continue to rent, what should we do - attack the debt in a "snowball fashion", contribute to IRA/Vanguard Index, or something altogether.
    Max out your retirement matching through work
    Pay off your highest interest debt first
    After all debt with interest above 4% is paid off, I would start maxing out your tax-advantaged accounts.  401ks, IRAs, HSAs, etc.

3.      Your horse expenses (truck payment, trailer insurance, horse boarding, animal feed, etc.) are insane!  I estimated about $805/month (car payment, 2/3 of your insurance, boarding, feed), which is almost $10k/year. 

Also, $70/month in dog insurance seems very high.  I have a dog, but I opt to self-insure (i.e. no pet insurance).  $840/year.


thedayisbrave

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I agree mostly with 4alpacas.  You are nowhere near a financial position to be able to buy.  Which is good, because it means you can attack your debt like a mo-fo! I'd do it exactly how #2 is laid out... Contribute to the company match in employer sponsored retirement vehicles, then go for the throat on the student loans.  Once those are paid off you can either funnel that money toward a house downpayment or investments, or a healthy mixture of the two.

No comment on the horsie expenses... $275 is actually REALLY cheap for board, especially if it's full stall board.  I used to ride so I know what that's like.  At least your wife is doing some training on the side! That always helps.  But yeah, I'd get rid of dog insurance pronto. 

MOC

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Thanks! I have some nuances that I didn't include above, but I will now:

I forgot to note that my employer will be doing a SEP (simplified employee pension plan) IRA system for retirement, which will give me 12% of my salary ON TOP of my salary. My wife's is a standard 401k, and we do minimum necessary to get the match.

Also -  was thinking about taking the principal out of my Roth IRA to use for down payment (no penalty for first time home buyer). The houses we're looking at are about 150k. I think buying with about 15k down would put us at a payment (insurance etc...included that is about the same as rent) Do you still think rent is best from a mustachian POV?

CU Tiger

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Yes, I still think renting is your best bet until you pay off your debts and get on a more stable financial footing. I am not sure what your career is, but what you THINK you are going to make in the future may/may not come to pass.

Don't put the cart before the horse! Work on your debt while finishing school. There will always be houses to buy.

Thegoblinchief

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$850 rent that still lets you garden is a pretty great deal for most parts of the county. I'd stick with that until you have much larger cash reserves for a downpayment AND better cashflow.

Outside of the horse your expenses are solid. As your income ramps up, take as much advantage of tax deferred vehicles as you can. Keeping your taxable income low will give you the biggest boost towards ER.

Try to avoid lifestyle inflation as the income increases, but obviously realize the journey is just as important as the destination.

retired?

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I just want to say that your life sounds good......educated, married, kids, pets, and farm animals.  You have it all.

georgialiving

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I don't think it matters if you are a first time home buyer. You can withdrawl contributions from a Roth IRA without penalty- no matter what it's for

retired?

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I don't think it matters if you are a first time home buyer. You can withdrawl contributions from a Roth IRA without penalty- no matter what it's for

http://www.rothira.com/taking-early-withdrawals-your-roth-ira

Not true.  There are a couple exceptions, but otherwise there are penalties to withdraw if the $$ has not been in the account for at least fie years.

MOC

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Thanks for all the replies all!

Does anyone think it makes sense (psychologically and logically) to pay the car off first (and thereby free up $350/month and get lower car insurance) even though it is 1% less than the student loans? The car is only 15k and I could pay it off in about 6 months, but the loans will be 100k+.

Also - Re: @retired? and @georgialiving: It appears you're both right. I can take the contributions (the money I put into the Roth IRA) out at anytime. I can withdraw the earnings without penalty for a home purchase penalty-free only after the 120 months (5year) period.

georgialiving

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I don't think it matters if you are a first time home buyer. You can withdrawl contributions from a Roth IRA without penalty- no matter what it's for

http://www.rothira.com/taking-early-withdrawals-your-roth-ira

Not true.  There are a couple exceptions, but otherwise there are penalties to withdraw if the $$ has not been in the account for at least fie years.

The article confirmed what I said/meant. The principle or the money you put in, can be taken whenever, for whatever, with no penalty. You could keep an emergency fund in a Roth. The only thing is the limit per year that you can put in (5500) so if you withdraw 3k, and put it back (say an emergency comes up) you are only left with 2500 for the year