Author Topic: Help me optimize in 2015!  (Read 3096 times)

hoodedfalcon

  • Bristles
  • ***
  • Posts: 441
  • Location: Deep and Dirty
Help me optimize in 2015!
« on: December 19, 2014, 10:09:21 AM »
Sorry this might be a tad long....
Since finding MMM about 18 months ago, I have made a lot of progress. I am not sure I am optimized though, and was hoping for some MMM expertise on my situation.

Details:
Job: 36 yo Attorney for a non-profit in low COL area. Single. No kids.
Salary (starting Jan. 2015): $72000/year – Job is very stable and for the most part quite tolerable :)
Efund: 10K
403b: 38K (good options, Vanguard, etc)
Roth: 10K
Student Loans:
-   Federal: 90K @ 4.75% (on IBR, min. payment around $400, 6 years remaining until PSLF)
-   Private: 49K @ 3.13% (variable, minimum payment $258)
Mortgage: 50K remaining @3.25%
Living expenses before loan expenses: ~$1800/month, $21,600/year
Total Net Worth: -$41K, saving rate around 50%

For purposes of this discussion, let’s assume the living expenses will stay the same in 2015. My goal for 2014 was to reduce my AGI as much as possible for both tax purposes and IBR calculations. This may or may not be the optimal move going forward, but I don’t know. That is why I need you all!

In 2014 I divided my income ($63000/year) as follows:

Living Expenses: $1800/mo
Loan Payments/emergency fund savings: $1400/mo ($800 to private, $400 to fed, rest to Efund)
403b contribution: $1000/mo + emp. cont.

Here are some options for 2015. I am not entirely sure what my new paycheck will look like at this point.

1. Maintain 1K contribution to 403B (employer matches 5%) – should I increase?
2. Increase private student loan payment from $800 to $1K/month or more – kill loan?
3. Reduce private student loan payment to $500/month or less and invest leftover funds in taxable accounts, since interest rates are so low on SLs?
4. Take half of emergency fund and remaining $500 if I do #3 and invest in Vanguard Lifestrategy Fund as joint emergency/taxable account (moving away from large emergency fund)
5. Other options?

I would like to get rid of the private loans, but I also want to put my money to work. I would like to increase my taxable/efund accounts a bit, but I am not married to the idea.  I have a 20K credit card I could use in case of true emergency, but I also will need access to cash for a variety of things in the next 5 years or so (new used car, electrical/plumbing work for house, etc). I also have family support in case of true emergency. So my emergency fund is really a sinking fund for future expenses.

What would you do? How do I optimize my income, loan payments, and savings?

FLBiker

  • Pencil Stache
  • ****
  • Posts: 985
  • Age: 43
Re: Help me optimize in 2015!
« Reply #1 on: December 19, 2014, 10:21:47 AM »
Sounds like you're off to a good start.  You've got a great salary and reasonable expenses.  A 50% savings rate is great.

Here's what I would do (based on what I did).  I wouldn't worry about the loans that are <4%, and if the one that is >4% will be forgiven I'd probably just keep paying the minimum on that, too.  When my wife and I got together, she had about 30K of student loans.  Half were at 6%, half were at 2-3%.  We paid off the 6% ones immediately, and continue to pay the minimum on the 2-3% ones.  If you're super gungho about being debt free, though, that's a fine priority.  Personally, my first priority is to fully fund all tax deductible retirement, then I worry about extra payments towards low interest mortgage / student loans.

As far as emergency fund, you can't really consider a life strategy fund to be that.  It could be a "high-interest" money market, but once you get into stocks and bonds I don't think it's really an emergency fund.  Personally, we tend to keep 20-30K in cash (a combo of regular use money and emergency fund).  We'll have less at the beginning of the year (when we fund our IRAs) and more towards the end.  10K is a dedicated SmartyPig emergency fund, but I'm thinking about just getting rid of that because the interest is so terrible.  Plus, like you, I'm not super worried about emergencies.  We've both got stable jobs, and my family has enough money to loan us 10-20K (or take us in) in a pinch.  We also have credit cards, if it came to that.

Also, in looking at your budget, that's only ~50K.  So you should have more than enough to fully fund the 403b (and an IRA on top of that).  That's my take, anyways.

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4751
Re: Help me optimize in 2015!
« Reply #2 on: December 19, 2014, 10:22:10 AM »
I would increase your 403b contributions.  Honestly, I would not add to the EF, except if you want to fund a Roth as an EF.  I would not increase SLs from where you are, personally, the rate is so low I just would not. 

hoodedfalcon

  • Bristles
  • ***
  • Posts: 441
  • Location: Deep and Dirty
Re: Help me optimize in 2015!
« Reply #3 on: December 19, 2014, 10:33:09 AM »
@FLBiker - I really should use a term other than "emergency fund" but it was the best I could come up with. The money is currently in Ally, so  it's not really doing anything. I could fully fund my 403b in 2015 as well as a Roth/Trad IRA if I decided to reduce private student loan payments to the minimum. Part of the thought with the Lifestrategy fund was as a hedge in case the private loan rate, which is variable, decides to go nuts in the next few years and I wanted to have funds to pay it down if necessary. I would like to be debt free, but I really do think you are right about the loans that are <4%

@Gin1984 - Would you decrease to the minimum payment of $258 or maintain the $800/month? or something in between.

Thanks! I am counting this as 2 votes for fully funding the 403b...

FLBiker

  • Pencil Stache
  • ****
  • Posts: 985
  • Age: 43
Re: Help me optimize in 2015!
« Reply #4 on: December 19, 2014, 10:40:22 AM »
Interesting.  If the loans are variable, paying them off early makes a bit more sense.  I still wouldn't worry about it now, though.

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4751
Re: Help me optimize in 2015!
« Reply #5 on: December 19, 2014, 10:57:16 AM »
@FLBiker - I really should use a term other than "emergency fund" but it was the best I could come up with. The money is currently in Ally, so  it's not really doing anything. I could fully fund my 403b in 2015 as well as a Roth/Trad IRA if I decided to reduce private student loan payments to the minimum. Part of the thought with the Lifestrategy fund was as a hedge in case the private loan rate, which is variable, decides to go nuts in the next few years and I wanted to have funds to pay it down if necessary. I would like to be debt free, but I really do think you are right about the loans that are <4%

@Gin1984 - Would you decrease to the minimum payment of $258 or maintain the $800/month? or something in between.

Thanks! I am counting this as 2 votes for fully funding the 403b...
Basically, it depends.  Once you have maxed out your retirement options, if there is money left over I might keep hitting the variable loans because variable loans make me twitchy.  However, is that sound via the #s, maybe not.  It may be better to just accumulate wealth in taxable instead of killing the loans. 

hoodedfalcon

  • Bristles
  • ***
  • Posts: 441
  • Location: Deep and Dirty
Re: Help me optimize in 2015!
« Reply #6 on: December 19, 2014, 12:59:20 PM »
So, it seems the general consensus is to max out 403b, so that is what I am going to do. I am going to set my private loan payment at $300 and let that ride for now. It will probably make me somewhat uncomfortable to be not-as-aggressively paying it down, but I will just defer to math in those moments.

So then the question will be how much surplus will I have...I can't seem to find a calculator that matches my current paystub, so I might just have to wait until I get my first check around January 15th to see how it will all play out.

If anyone has any other thoughts, don't be shy!

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4751
Re: Help me optimize in 2015!
« Reply #7 on: December 19, 2014, 01:16:50 PM »
So, it seems the general consensus is to max out 403b, so that is what I am going to do. I am going to set my private loan payment at $300 and let that ride for now. It will probably make me somewhat uncomfortable to be not-as-aggressively paying it down, but I will just defer to math in those moments.

So then the question will be how much surplus will I have...I can't seem to find a calculator that matches my current paystub, so I might just have to wait until I get my first check around January 15th to see how it will all play out.

If anyone has any other thoughts, don't be shy!
Why not just fill out a 2013 tax form for state and federal substituted 2014 #s instead a calculator or waiting till Jan 15th?

hoodedfalcon

  • Bristles
  • ***
  • Posts: 441
  • Location: Deep and Dirty
Re: Help me optimize in 2015!
« Reply #8 on: December 19, 2014, 01:29:37 PM »
So, it seems the general consensus is to max out 403b, so that is what I am going to do. I am going to set my private loan payment at $300 and let that ride for now. It will probably make me somewhat uncomfortable to be not-as-aggressively paying it down, but I will just defer to math in those moments.

So then the question will be how much surplus will I have...I can't seem to find a calculator that matches my current paystub, so I might just have to wait until I get my first check around January 15th to see how it will all play out.

If anyone has any other thoughts, don't be shy!
Why not just fill out a 2013 tax form for state and federal substituted 2014 #s instead a calculator or waiting till Jan 15th?

I mean, I don't know what my 2015 paycheck is going to look like after my raise and maxing out the 403b. If there was a paycheck calculator that accurately depicted my current paycheck, I could just change the numbers to see what 2015 would look like. But I can't find the right paycheck calculator for some reason. Or my employer is doing payroll all wrong.