Author Topic: How screwed am I?  (Read 10028 times)

zigzag

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How screwed am I?
« on: January 13, 2015, 02:15:45 PM »
I'm a total finance procrastinator. Nothing has brought me more stress, headaches and worry over my life than trying to wrangle my finances. I've been doing *better* over the past few years, but have been doing a ton of research over the last few months and have decided 2015 is the year I take control of all this. I just need advice on where to start.

Current situation:

Age: 28

Assets:
Basically, nothing. I've worked for startups most of my career and just started contributing 6% to a 401k that was just set up by my work, but I'm currently at the "default" contribution setting and selection.
3k shares of the current company I work for, pretty worthless at this point, might be profitable in the future

Annual Salary:
$100k

Total take-home income - Around $6,145

Debts (Balances):

Credit Card #1 - $2300 at 12.9%
Credit Card #2 - $4300 at 14.2%
Student Loans $52,000 at 3.3%

Monthly Expenses (currently):
Rent - $1650 (Seattle - no way to really lower this without commuting)
Utilities - $25
Car Insurance - $130
Car payments - $330
Cell phone - $119
Payments on student loans (min) - $718
Payments on CC (min) - $123
Gas - $50 (if that)
Cable - $70

I live in the city, so I barely use my car and will be downgrading to something much cheaper and more practical this month to save money there - that'll also decrease my insurance costs so a double-savings. I'm also researching ways to bring my cell phone payment WAY down, and I can definitely cut my cable and gas. I use public transit to go most places, including work.

My main questions are:

1. After doing the steps outlined above, how do I really start? Obviously paying down the CC first, but how do you determine how much money you should save per paycheck in case of emergency or something? Anything?

2. After I get my CC paid off, do I wait and pay off my student loans completely before I start investing anywhere else? I've been reading all the suggestions about the Vanguard accounts but not sure when I approach that as an option?

Just looking for a little guidance on first steps.

Thank you!
A

frugaliknowit

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Re: How screwed am I?
« Reply #1 on: January 13, 2015, 02:19:00 PM »
You say you have a car payment of $330, but do not list it as a debt....?

4alpacas

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Re: How screwed am I?
« Reply #2 on: January 13, 2015, 02:22:02 PM »
Your car loan isn't listed in the debts section.  What is the interest rate?  How much more do you have to pay off? Do you know how much you could sell your car for?

Assuming your car loan isn't crazy high,
1. I would focus on paying off your credit cards first. 
2. I would sell your car and look for a lower cost car, which will cost less to insure. 
3. Max out your 401k. ($18k/year)
4.  Backdoor Roth IRA ($5500/year)
5. Brokerage account



**This assumes you don't have access to a HSA.

zigzag

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Re: How screwed am I?
« Reply #3 on: January 13, 2015, 02:23:24 PM »
Sorry - forgot to put the car loan - it's $13k at 3.3%

The car is worth around $14k if I sell it privately according to KBB.

Future Lazy

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Re: How screwed am I?
« Reply #4 on: January 13, 2015, 02:24:52 PM »
How far do you live from where you work? Can you walk or ride the bus there? Do you currently pay for parking as part of your commute?

surfhb

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Re: How screwed am I?
« Reply #5 on: January 13, 2015, 02:25:09 PM »
Get a roommate, sell the car and use public transportation.   

You could be debt free in 2 years or less .   If not, then it will take 5-6 or more.   Your choice :)
« Last Edit: January 13, 2015, 02:27:05 PM by surfhb »

4alpacas

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Re: How screwed am I?
« Reply #6 on: January 13, 2015, 02:25:47 PM »
Sorry - forgot to put the car loan - it's $13k at 3.3%

The car is worth around $14k if I sell it privately according to KBB.
I would spend a few months considering what kind of car you want to "upgrade" to while paying off your credit cards.  After your credit cards are paid off, save enough cash to buy a reasonable car in cash and sell your current car.  You'll save money by not having a car payment and with decreased insurance costs.

zigzag

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Re: How screwed am I?
« Reply #7 on: January 13, 2015, 02:26:22 PM »
@Kayla - Yes! And I do. I have a free bus pass luckily - I really only use my car for grocery shopping, emergencies or driving to see my parents who live a couple of hours away.

MDM

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Re: How screwed am I?
« Reply #8 on: January 13, 2015, 02:28:56 PM »
zigzag, welcome to the forums.

You have an emergency: 13-14% interest rate on $6600 debt.  Pay those ASAP.

Then establish an e-fund with ~$10K in an online bank or credit union that pays at least 1% interest, e.g. GE Capital, Ally, etc.

Up to you what to do with the car.

SL interest isn't bad - I'd go with 4alpacas items 3-5 at this point.

Good luck!

jopiquant

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Re: How screwed am I?
« Reply #9 on: January 13, 2015, 02:31:33 PM »
Congrats on your decision to get your finances in order! Based on the expenses you've listed, you should have nearly $3000 extra per month just waiting for you to drop it on your credit card debt, BUT I see groceries, recreation, etc are unaccounted for. That credit card debt is definitely number one on the hit list.

Based on what you've said above, and in response to others, I would recommend you sell your car now and do without a car completely for a while. Save your money and buy a 10+ year old Civic or Corolla cash if you have to have a car, and I'm not sure you do.

Whatever you do, don't pick up another car payment, and don't add to your existing credit card debt.

Good luck!

Future Lazy

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Re: How screwed am I?
« Reply #10 on: January 13, 2015, 02:37:35 PM »
@Kayla - Yes! And I do. I have a free bus pass luckily - I really only use my car for grocery shopping, emergencies or driving to see my parents who live a couple of hours away.

How often do you visit your parents? How often do you have emergencies?

When you go grocery shopping, could you easily carry your groceries in a large bag on public transport/walking, or use a small personal cart for them?

Getting rid of that car loan/payment and $50 in gas/mo would be a huge step in the right direction. 

Edit -

RE: Rent - Anything wrong with these numerous studio and 1 bedrooms apts under 1000/mo?
http://www.zillow.com/homes/for_rent/Seattle-WA/house,condo,apartment,duplex,townhouse_type/16037_rid/0-276064_price/0-1000_mp/paymenta_sort/47.780174,-122.076988,47.449683,-122.703896_rect/10_zm/

Savings: $650/mo or more, to the tune of $7800/yr. That's enough to pay off both your credit cards..
If invested, it turns into...
$122,575 after 10 years
$483,310 after 25 years
« Last Edit: January 13, 2015, 02:44:31 PM by KaylaEM »

zigzag

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Re: How screwed am I?
« Reply #11 on: January 13, 2015, 02:58:11 PM »
Sorry - forgot to put the car loan - it's $13k at 3.3%

The car is worth around $14k if I sell it privately according to KBB.
I would spend a few months considering what kind of car you want to "upgrade" to while paying off your credit cards.  After your credit cards are paid off, save enough cash to buy a reasonable car in cash and sell your current car.  You'll save money by not having a car payment and with decreased insurance costs.

So you would recommend keeping my car currently even if my new car payment would be several hundred a month less (about $120 from what I estimated) and I could put that extra money toward paying on the principal of the car loan/paying it off sooner?

Eric

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Re: How screwed am I?
« Reply #12 on: January 13, 2015, 02:59:42 PM »
Sell the car.  You don't need it and it's wasted money.  Do not buy another one that you're not going to use without looking into ZipCar or another car sharing service.  They would seem to fit your usage pretty well.

Your rent is out of control.  Despite your disclaimer, you can absolutely cut this.  Probably in half if you're willing to live with someone else.  I live in Silicon Valley which is comparable if not more expensive and pay 40% of what you do on rent.  It just depends on your priorities.

As you know, pay off the CC debt ASAP.  Then, I'd figure out what your take home pay is per month after cutting your expenses, and put half of towards your SLs and save the other half in a savings account until you have at least 3 times the minimum payments on your SL plus your other expenses.  (i.e. a 3 month emergency fund)

Once the emergency fund is built up, you'll have some flexibility as to the best plan of attack.  The interest rate on your SL are low, but it's a lot of money.  So I'd recommend a blended approach.  Personally, I'd max out my 401k at $18K per year (and for god's sake, take a look at your plan and see what the default setting is and switch if it's not something optimal -- some defaults are just money market accounts and you definitely need to be invested in actual stocks and bonds) which will lower your taxable income and save you a lot of money.  The remainder of my take home I'd put towards the SL.  But you could also choose to fund an IRA or taxable account if you're okay with that large debt hanging over your head.

Future Lazy

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Re: How screwed am I?
« Reply #13 on: January 13, 2015, 03:02:21 PM »
Sorry - forgot to put the car loan - it's $13k at 3.3%

The car is worth around $14k if I sell it privately according to KBB.
I would spend a few months considering what kind of car you want to "upgrade" to while paying off your credit cards.  After your credit cards are paid off, save enough cash to buy a reasonable car in cash and sell your current car.  You'll save money by not having a car payment and with decreased insurance costs.

So you would recommend keeping my car currently even if my new car payment would be several hundred a month less (about $120 from what I estimated) and I could put that extra money toward paying on the principal of the car loan/paying it off sooner?

RE: How screwed am I?

That's up to you. If your response to 4alpaca's advice is "Wait, I SHOULDN'T go spend money on a car right away? Isn't spending the answer?" then you might have a fundamental misunderstanding of frugality/cutting back....

dunhamjr

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Re: How screwed am I?
« Reply #14 on: January 13, 2015, 03:06:10 PM »
i live near seattle so i can see the market.

rent IS expensive.  but you are lying to yourself if you dont think you can find a place in seattle for less than $1650.
http://seattle.craigslist.org/see/apa/4845666330.html

that took me seconds to find and saved you $200+/mo  ;)

as for commuting, it sucks.  BUT.  if you live in a couple of key areas in/near seattle you can easily cut your rent a ton by bus/bike commuting 20 minutes or so.

also.  if you dont really drive.  you dont need a car.  especially with $60k in other debt to worry about.  borrow, get a zipcar or rent a car, if/when you need one.

zigzag

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Re: How screwed am I?
« Reply #15 on: January 13, 2015, 03:06:42 PM »
Sell the car.  You don't need it and it's wasted money.  Do not buy another one that you're not going to use without looking into ZipCar or another car sharing service.  They would seem to fit your usage pretty well.

Your rent is out of control.  Despite your disclaimer, you can absolutely cut this.  Probably in half if you're willing to live with someone else.  I live in Silicon Valley which is comparable if not more expensive and pay 40% of what you do on rent.  It just depends on your priorities.

As you know, pay off the CC debt ASAP.  Then, I'd figure out what your take home pay is per month after cutting your expenses, and put half of towards your SLs and save the other half in a savings account until you have at least 3 times the minimum payments on your SL plus your other expenses.  (i.e. a 3 month emergency fund)

Once the emergency fund is built up, you'll have some flexibility as to the best plan of attack.  The interest rate on your SL are low, but it's a lot of money.  So I'd recommend a blended approach.  Personally, I'd max out my 401k at $18K per year (and for god's sake, take a look at your plan and see what the default setting is and switch if it's not something optimal -- some defaults are just money market accounts and you definitely need to be invested in actual stocks and bonds) which will lower your taxable income and save you a lot of money.  The remainder of my take home I'd put towards the SL.  But you could also choose to fund an IRA or taxable account if you're okay with that large debt hanging over your head.

Super helpful Eric! Thank you!

zigzag

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Re: How screwed am I?
« Reply #16 on: January 13, 2015, 03:09:45 PM »
i live near seattle so i can see the market.

rent IS expensive.  but you are lying to yourself if you dont think you can find a place in seattle for less than $1650.
http://seattle.craigslist.org/see/apa/4845666330.html

that took me seconds to find and saved you $200+/mo  ;)

as for commuting, it sucks.  BUT.  if you live in a couple of key areas in/near seattle you can easily cut your rent a ton by bus/bike commuting 20 minutes or so.

also.  if you dont really drive.  you dont need a car.  especially with $60k in other debt to worry about.  borrow, get a zipcar or rent a car, if/when you need one.

I think you're right - working on my living situation soon is a definite must. I'm in a lease, but it's up soon and I can start looking for cheaper alternatives.

dunhamjr

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Re: How screwed am I?
« Reply #17 on: January 13, 2015, 03:10:44 PM »
Rent - $1650 (Seattle - no way to really lower this without commuting)
Utilities - $25
Car Insurance - $130
Car payments - $330
Cell phone - $119
Payments on student loans (min) - $718
Payments on CC (min) - $123
Gas - $50 (if that)
Cable - $70
-----------


rent.. i have posted a reply.  find a cheaper place, get a roommate or two.
car insurance... holy hell.  i pay $89/mo for 2 drivers and 2 cars with full coverage.  shop around.. geico, esurance, metromile, progressive.  OR better yet... this will be completely gone when the car is gone.
car payments.  it didnt really sound like you need a car.
cell phone. $120 a MONTH?  i pay JUST over that for a 3 smartphone plan with unlimited everything.  check out republic wireless, ting, cricket, others...
gas - gone when the car is gone.
cable.  really? ;)  owing $75k this should be gone.  get your tv via hd antenna, hulu+, maybe netflix.

« Last Edit: January 13, 2015, 03:12:36 PM by dunhamjr »

dunhamjr

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Re: How screwed am I?
« Reply #18 on: January 13, 2015, 03:17:23 PM »
Assuming your car loan isn't crazy high,
1. I would focus on paying off your credit cards first. 
2. I would sell your car and look for a lower cost car, which will cost less to insure. 
3. Max out your 401k. ($18k/year)
4.  Backdoor Roth IRA ($5500/year)
5. Brokerage account
**This assumes you don't have access to a HSA.

OP, you asked for a how to start... do this ^.

being conservative...
Paying off CC #1 should happen by end of Feb at the latest. (using standard 15/31st pay periods that is 3-4 paychecks)
Paying off CC #2 will then follow in March.. another 2-3 paychecks.

Sell off that car.  Lots of money savings ensues...

Hammer on that student loan.

zigzag

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Re: How screwed am I?
« Reply #19 on: January 13, 2015, 03:45:23 PM »
Assuming your car loan isn't crazy high,
1. I would focus on paying off your credit cards first. 
2. I would sell your car and look for a lower cost car, which will cost less to insure. 
3. Max out your 401k. ($18k/year)
4.  Backdoor Roth IRA ($5500/year)
5. Brokerage account
**This assumes you don't have access to a HSA.

OP, you asked for a how to start... do this ^.

being conservative...
Paying off CC #1 should happen by end of Feb at the latest. (using standard 15/31st pay periods that is 3-4 paychecks)
Paying off CC #2 will then follow in March.. another 2-3 paychecks.

Sell off that car.  Lots of money savings ensues...

Hammer on that student loan.

Those seem like some good goals! Really appreciate the feedback - I feel like I have a game plan now.

Future Lazy

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Re: How screwed am I?
« Reply #20 on: January 13, 2015, 03:48:00 PM »
Hey Zigzag, how are you currently tracking your expenses? Are you using a program like Mint or YNAB, or did you type out your expenses from memory?

I notice that some things are missing, like groceries or dining out, etc. Are these things you normally track?

Would recommend picking up a program to track your expenses, that way you have a good understanding of where the money is going and no surprises.

zigzag

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Re: How screwed am I?
« Reply #21 on: January 13, 2015, 04:13:57 PM »
Hey Zigzag, how are you currently tracking your expenses? Are you using a program like Mint or YNAB, or did you type out your expenses from memory?

I notice that some things are missing, like groceries or dining out, etc. Are these things you normally track?

Would recommend picking up a program to track your expenses, that way you have a good understanding of where the money is going and no surprises.

I have started tracking them - I have used Mint in the past but it seemed like it took a long while for my accounts to update, however I'll give it a shot signing up again. I'll have to look at my current budget when I get home to see the eating out/random spending levels, but they're WAY too high and I plan to cut back drastically. :) Thanks for the suggestion!

Exflyboy

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Re: How screwed am I?
« Reply #22 on: January 13, 2015, 04:15:54 PM »
Well your not "screwed", but you need to get with the program.

See my link for an extended discussion of my journey.. in 17 years I went from minus $160k to plus $1.4M roughly on a salary similar to yours.

So the sooner you start the sooner you'll get there.

Frank

FranzJoseph

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Re: How screwed am I?
« Reply #23 on: January 13, 2015, 04:24:00 PM »
Lots of good advice here.  I would mention that maxing out your 401k also lowers your AGI so at tax time it's a double win.  Do it in conjunction with paying off the cc debt.  Definitely research your investments and pay close attention to the fees - don't pay over 1% or the fees will eat a surprising percentage of your gains. 

Regarding your phone bill - I switched from a $95/month Verizon plan to Ting which cut the bill in half for the same plan.  It's a flexible plan so if I use fewer minutes, data or texts I pay less.  Check it out, they were still doing a promo a few months ago where they pay up to $75 of your early termination fee and, if you don't have a Sprint or T-Mobile phone, they will pay the difference for the same manufacturer/model phone you have when you get a replacement (you have to sell and buy on their partner site).  Coverage is good since they use Sprint and Verizon networks.  They even have an app where you can track your minutes/text/data, set up alerts, or even turn off data if it hits 500 mb so you don't go over.  It's a great deal!

Definitely focus on 401k, cc debt, apartment and getting rid of that car first as those have better returns!

zigzag

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Re: How screwed am I?
« Reply #24 on: January 13, 2015, 04:24:35 PM »
Well your not "screwed", but you need to get with the program.

See my link for an extended discussion of my journey.. in 17 years I went from minus $160k to plus $1.4M roughly on a salary similar to yours.

So the sooner you start the sooner you'll get there.

Frank

Sounds like you've had quite the journey! Thanks for weighing in - I'm enjoying reading your thread!

dunhamjr

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Re: How screwed am I?
« Reply #25 on: January 13, 2015, 04:26:23 PM »
Those seem like some good goals! Really appreciate the feedback - I feel like I have a game plan now.

now report back as soon as you hit some of those milestones... cc#1 gone, cc#2 gone... etc... so that we can celebrate progress. :D

dunhamjr

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Re: How screwed am I?
« Reply #26 on: January 13, 2015, 04:29:02 PM »
I have started tracking them - I have used Mint in the past but it seemed like it took a long while for my accounts to update, however I'll give it a shot signing up again. I'll have to look at my current budget when I get home to see the eating out/random spending levels, but they're WAY too high and I plan to cut back drastically. :) Thanks for the suggestion!

mint is pretty solid now.  begun there about 2 months ago after using a manual excel and yodlee combination for a long time.

mint pretty much updates all my accounts within minutes of logging in, unless there is a comm hiccup on some accounts.

zigzag

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Re: How screwed am I?
« Reply #27 on: January 13, 2015, 04:31:24 PM »
I have started tracking them - I have used Mint in the past but it seemed like it took a long while for my accounts to update, however I'll give it a shot signing up again. I'll have to look at my current budget when I get home to see the eating out/random spending levels, but they're WAY too high and I plan to cut back drastically. :) Thanks for the suggestion!

mint is pretty solid now.  begun there about 2 months ago after using a manual excel and yodlee combination for a long time.

mint pretty much updates all my accounts within minutes of logging in, unless there is a comm hiccup on some accounts.

Oh don't you worry - I'll be reporting back to celebrate. And signing up for Mint!

caliq

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Re: How screwed am I?
« Reply #28 on: January 13, 2015, 04:31:37 PM »
I have started tracking them - I have used Mint in the past but it seemed like it took a long while for my accounts to update, however I'll give it a shot signing up again. I'll have to look at my current budget when I get home to see the eating out/random spending levels, but they're WAY too high and I plan to cut back drastically. :) Thanks for the suggestion!

mint is pretty solid now.  begun there about 2 months ago after using a manual excel and yodlee combination for a long time.

mint pretty much updates all my accounts within minutes of logging in, unless there is a comm hiccup on some accounts.

Same here!

Exflyboy

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Re: How screwed am I?
« Reply #29 on: January 13, 2015, 04:38:01 PM »
Oh yeah... what wrong with a PTel $5 a month cell phone plan?

I mean Really?.. 10 years ago we didn't know what cell phones were!..:)

JLee

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Re: How screwed am I?
« Reply #30 on: January 13, 2015, 04:44:40 PM »
Chase Slate was running 0% for 15 months and no fees on balance transfers. If you can't knock out your CC's in the next 2-3 months for some reason, I would consider opening a Slate card and transferring it at 0%.

Are you able to take in a roommate at your current place? Splitting with someone at $700ish plus utility split would make a huge impact as well.

I'm not sure where you live, but there are people looking for rooms-
http://seattle.craigslist.org/see/sha/4845485549.html
http://seattle.craigslist.org/see/sha/4845543845.html

Or you could rent a room:
http://seattle.craigslist.org/see/roo/4839004358.html

zigzag

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Re: How screwed am I?
« Reply #31 on: January 13, 2015, 05:00:27 PM »
Chase Slate was running 0% for 15 months and no fees on balance transfers. If you can't knock out your CC's in the next 2-3 months for some reason, I would consider opening a Slate card and transferring it at 0%.

Are you able to take in a roommate at your current place? Splitting with someone at $700ish plus utility split would make a huge impact as well.

I'm not sure where you live, but there are people looking for rooms-
http://seattle.craigslist.org/see/sha/4845485549.html
http://seattle.craigslist.org/see/sha/4845543845.html

Or you could rent a room:
http://seattle.craigslist.org/see/roo/4839004358.html

The SO and I have been discussing moving in together (more for love reasons than financial reasons, which I think is a good thing ha ha) - so I'm anticipating a change to my living situation shortly.

Check2400

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Re: How screwed am I?
« Reply #32 on: January 13, 2015, 05:47:25 PM »
First time poster, long time reader (any other Paul Finebaum mockers out there?? No?  ok...)

I am writing because you are in a situation much like mine, albeit with a half decade head start on this.  When I project out where I want to go, it seems like I am screwed.  When I look back at where I came from, I realize I'm on the right path.  But, I could have made some better choices. 

The important thing here is to not become a stereotype of a New Years Resolutioner who won't be at the gym after Feb. 1.  The brief posts and summarized plans are all great to type out-it doesn't take more than a few minutes.  The real test is in the daily implementation.  That's where the tiny rationalizations and 'unimportant' concessions add up; focusing on the micro instead of the macro. 

Here's my two cents (which compounded annually at 5% will be five cents in less than 20 years, that's a 150% return on investment!!)

Credit card is number one. That dead horse has been beaten.

The second most important thing is after you pay off the Credit card debt, max out the 401K.  This is important for two reasons.

1) It starts accumulating capitalizing resources for you to build on.  Taking my snark about two cents and moving the decimal point to where the amount is $20,000 (assuming a 2% employer match) and in 20 years you have $50,000 from that one year of investment.   In isolation that is not retirement money, but do it for five years (i.e. to get in my shoes) and you're looking at almost a quarter million dollars in retirement at age 48.  For practical purposes, the amount will be $400,000 by the time you can withdraw it--or $20,000 in gains each year to live off of for life at 5%.  Pretty nice.  A fun way to put it (for me) is that if you don't put another dime in retirement after those five years, from age 33 to 60 you'll still have a $20,000 "pension" to live off of.  And we all know that is only the last safety net. 

2) You will artificially reduce your disposable income.  This is the more important reason in the beginning.  With your newfound Mint account, you'll come to despise those little red bars showing you've broken a budget, and will become more cost conscious by artificial necessity.  Consider it a safeguard for your spending, and a treat for any pay raise you will receive in the future as it will all come back to you. 

Once you have those two, even with your reduced take home income, you should still have money to spare.  If your student loans are new (in the first few years of interest to principal reductions) and not consolidated, then by all means give yourself a "raise" with every payment you knock out from your post tax income.  If you're 5 years into your payments on a 3.3% loan, you're probably so deep into principal v. interest payments that the money is best invested elsewhere.  Plus side, you are working off another artificial reduction in income that magically disappears in xx years! 

I personally wrestle with this one-loans v. investing.  Yeah, not owing Freddie and Fannie sound great, but is 43 grand for $2400 in interest savings worth it?  What about the $2200 in savings next year?  Would it be better served in a Vanguard account on the chance I earn that amount in gains (that then continue to capitalize long after the loan payments have gone away?)  Should I get my first slum rental property to see if it fits me (are you going to stay in Seattle?)? 

I disagree on getting rid of a car all together.  Get rid of the payments, yes, but make attainable short term goals, then continue to make new goals.  A car is the bane of this site, but also an unfortunate effect of living in 'merica and its suburban sprawl.  The best middle ground may be to nominalize use to make getting rid of it a choice instead of a sacrifice.  That being said, never buy a car you can't buy in cash.  Also never buy a Jeep, Volvo, or anything new, but that is my automotive background speaking...

Screwed?  No sir.  You're sitting pretty, and I am jealous.


zigzag

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Re: How screwed am I?
« Reply #33 on: January 14, 2015, 10:32:25 AM »
First time poster, long time reader (any other Paul Finebaum mockers out there?? No?  ok...)

I am writing because you are in a situation much like mine, albeit with a half decade head start on this.  When I project out where I want to go, it seems like I am screwed.  When I look back at where I came from, I realize I'm on the right path.  But, I could have made some better choices. 

The important thing here is to not become a stereotype of a New Years Resolutioner who won't be at the gym after Feb. 1.  The brief posts and summarized plans are all great to type out-it doesn't take more than a few minutes.  The real test is in the daily implementation.  That's where the tiny rationalizations and 'unimportant' concessions add up; focusing on the micro instead of the macro. 

Here's my two cents (which compounded annually at 5% will be five cents in less than 20 years, that's a 150% return on investment!!)

Credit card is number one. That dead horse has been beaten.

The second most important thing is after you pay off the Credit card debt, max out the 401K.  This is important for two reasons.

1) It starts accumulating capitalizing resources for you to build on.  Taking my snark about two cents and moving the decimal point to where the amount is $20,000 (assuming a 2% employer match) and in 20 years you have $50,000 from that one year of investment.   In isolation that is not retirement money, but do it for five years (i.e. to get in my shoes) and you're looking at almost a quarter million dollars in retirement at age 48.  For practical purposes, the amount will be $400,000 by the time you can withdraw it--or $20,000 in gains each year to live off of for life at 5%.  Pretty nice.  A fun way to put it (for me) is that if you don't put another dime in retirement after those five years, from age 33 to 60 you'll still have a $20,000 "pension" to live off of.  And we all know that is only the last safety net. 

2) You will artificially reduce your disposable income.  This is the more important reason in the beginning.  With your newfound Mint account, you'll come to despise those little red bars showing you've broken a budget, and will become more cost conscious by artificial necessity.  Consider it a safeguard for your spending, and a treat for any pay raise you will receive in the future as it will all come back to you. 

Once you have those two, even with your reduced take home income, you should still have money to spare.  If your student loans are new (in the first few years of interest to principal reductions) and not consolidated, then by all means give yourself a "raise" with every payment you knock out from your post tax income.  If you're 5 years into your payments on a 3.3% loan, you're probably so deep into principal v. interest payments that the money is best invested elsewhere.  Plus side, you are working off another artificial reduction in income that magically disappears in xx years! 

I personally wrestle with this one-loans v. investing.  Yeah, not owing Freddie and Fannie sound great, but is 43 grand for $2400 in interest savings worth it?  What about the $2200 in savings next year?  Would it be better served in a Vanguard account on the chance I earn that amount in gains (that then continue to capitalize long after the loan payments have gone away?)  Should I get my first slum rental property to see if it fits me (are you going to stay in Seattle?)? 

I disagree on getting rid of a car all together.  Get rid of the payments, yes, but make attainable short term goals, then continue to make new goals.  A car is the bane of this site, but also an unfortunate effect of living in 'merica and its suburban sprawl.  The best middle ground may be to nominalize use to make getting rid of it a choice instead of a sacrifice.  That being said, never buy a car you can't buy in cash.  Also never buy a Jeep, Volvo, or anything new, but that is my automotive background speaking...

Screwed?  No sir.  You're sitting pretty, and I am jealous.

Thank you for your thoughts on this! It's always great to hear from someone who is/was/has been in a similar situation. I've just truly taken a "head in the sand" approach to my finances my entire life and I'm to the point where I'm so miserable that it's pretty great motivation to make a move and stick with it.

I'm planning to get the CC balances knocked out as soon as I possibly can, and then trying to reduce my miscellaneous spending and get to a point where I'm living a more "mustachian" lifestyle. Not sure I can go 100% 'stache, but I'm going to give it my very best effort. This includes trading in my car for something smaller that I can afford and putting that extra car payment and insurance payments into those balances and getting them off my radar.

I think you're right on maxing out the 401k as well. Unfortunately, my company doesn't have a matching percentage, so I'll max out just from my personal contributions. I'm going to do some poking around in that account today to see if I can change my default settings and put my money somewhere interesting that wasn't automatically picked for me. Any suggestions on that?

It's personally important to me that I start to make a dent in my student loan amount, but maybe putting a certain amount into reducing my student loans (above and beyond the minimum payment I'm currently making) and then another set amount into a Vanguard account might be the way to go?

dunhamjr

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Re: How screwed am I?
« Reply #34 on: January 14, 2015, 11:26:38 AM »
Chase Slate was running 0% for 15 months and no fees on balance transfers. If you can't knock out your CC's in the next 2-3 months for some reason, I would consider opening a Slate card and transferring it at 0%.

not a bad option if he can't get them paid in 2-3 months... but if he doesn't there is a triple M face punch in his future ;)

another thought would be to use this BT offer to pull some of those student loans from 3.3% down to 0%.

unfortunately Chase Slate (banks in general) have a limitation on providing this balance transfer ONLY to CC's until the account has 'seasoned" about a year, when they finally send out transfer offer checks, or are allowed to perform and ACH BT for you on the phone.

i was looking into this when recently trying to decide what to do with my wifes student loans that sit at 8.25% ugh.

we ended up just doing a 2% balance transfer onto my Chase Freedom card, since we are planning to pay the loan off in 13 months... had to pay $300, but still ends up as an overall interest savings over the 13 month term.

zigzag

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Re: How screwed am I?
« Reply #35 on: January 14, 2015, 11:56:22 AM »
You're far from screwed, just off to a late start.

Now that you've converted to the MMM program, you'll easily have a positive net worth by your 30th birthday. Then work hard for 10 years and you'll be good to retire at 40. Much later than I would want to retire myself, but not bad by the standards of "work every day, all day until you're 65 or older".

I like the sound of that. :)

caseyzee

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Re: How screwed am I?
« Reply #36 on: January 14, 2015, 01:14:38 PM »
You make a bunch of money but you have over 6 grand in credit card bills.  Barring a medical situation, you appear to have a spending problem.  Where does all of your money go?  Drinking?  Clothes?  Movies?  Food?  Travel?  It's impossible to tell from your post.  I totally agree with the folks telling you to get those credit cards paid off!  Now!  But, why do you have them, and how are you going to fix them?  What specifically are you going to cut out to funnel the cash to them?

You need to very carefully go through those credit card statements and figuring out where you're blowing all your money.

Tetsuya Hondo

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Re: How screwed am I?
« Reply #37 on: January 14, 2015, 01:29:44 PM »
You've received a lot of good advice so far and some well deserved face punches, so I'll offer some encouragement.

You're only 28! You're still young and you're figuring this out now. At your age I was worse off! I didn't start pulling it together until my thirties and now I've gone from six figures in the red (without a mortgage) to being on track to $1M in a few years. With a high income you can swing things quickly by cutting out the stupid shit. Once you finish destroying your debts, you'll be surprised at how quickly it snowballs once you start throwing that cash towards savings and investing. FIRE at 40 is easily attainable for you.

RapmasterD

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Re: How screwed am I?
« Reply #38 on: January 14, 2015, 01:52:54 PM »
Get a roommate, sell the car and use public transportation.   

You could be debt free in 2 years or less .   If not, then it will take 5-6 or more.   Your choice :)

+1

Although in my book you're allowed to have a car. You are allowed to have a 10 year old car you pay cash for. And if you don't have that cash, then no, you can't have a car.

And...your biggest issue is one of mindset. Look at how negatively phrased your original post is, not to mention your title.

Congrats for wanting to get it straighter, but....you are only 28. Give yourself a break and be positive! You make a decent salary.

Position yourself, all around, for at least the next 25 years. 25 years ago I had $12,000 to my name. Now I have...a lot more.

iknownothing

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Re: How screwed am I?
« Reply #39 on: January 14, 2015, 01:56:57 PM »
You make a bunch of money but you have over 6 grand in credit card bills.  Barring a medical situation, you appear to have a spending problem.  Where does all of your money go?  Drinking?  Clothes?  Movies?  Food?  Travel?  It's impossible to tell from your post.  I totally agree with the folks telling you to get those credit cards paid off!  Now!  But, why do you have them, and how are you going to fix them?  What specifically are you going to cut out to funnel the cash to them?

You need to very carefully go through those credit card statements and figuring out where you're blowing all your money.

What he said!

zigzag

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Re: How screwed am I?
« Reply #40 on: January 14, 2015, 02:25:49 PM »
You make a bunch of money but you have over 6 grand in credit card bills.  Barring a medical situation, you appear to have a spending problem.  Where does all of your money go?  Drinking?  Clothes?  Movies?  Food?  Travel?  It's impossible to tell from your post.  I totally agree with the folks telling you to get those credit cards paid off!  Now!  But, why do you have them, and how are you going to fix them?  What specifically are you going to cut out to funnel the cash to them?

You need to very carefully go through those credit card statements and figuring out where you're blowing all your money.

What he said!

I actually don't even spend on my credit cards at all - these were left over debts that I just procrastinated paying back in the overall "debt procrastination" lifestyle I was living. I have had some medical expenses over the last few months that I paid in cash, leading to me not being able to put as much on the credit card payments as I would have wanted, but those are cleared up and I'm in a good position to get them out of my life now.

aschmidt2930

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Re: How screwed am I?
« Reply #41 on: January 14, 2015, 03:39:10 PM »
You're not screwed at all. Yes, you have a large amount of debt, some with brutal interest, but you also have a very strong income.  Changes I would focus on:

1) Sell your car. Sounds like you're already on top of this one but clearing that car debt and freeing up the monthly payment cash flow is a fantastic quick win.
2) Downgrade your cell phone to a company such as Republic Wireless.  Unlimited talk, text, and data (3G, 4G is a little more expensive) for $25/month.
3) Get to work on that housing expense.  Plenty of us live in major cities and manage to find suitable housing for far less than that.  There's studios and one bedrooms cheaper than that in decent neighborhoods in nearly every city, and worst case scenario find a roommate.

Good luck, this debt will disappear in no time. 

Alukien

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Re: How screwed am I?
« Reply #42 on: January 15, 2015, 01:15:44 AM »
I've lurked here for a while, but I registered just to reply to this. You are not screwed at all. You'll have to do some work but you EASILY have it made.

Background: I was in almost exactly your situation 6 months ago - Living/Working in Seattle, same age, roughly the same income as you (+married on only my income, so if you're single even better). My wife and I decided to embrace the badassitude, and paid off over $20k worth of student loan debt out of my monthly income over the past 6 months. If anything below here sounds harsh, please just interpret it as a "YOU CAN DO IT!" thing.

Car: Sell it. Get a cheaper one if you want, but you're paying nearly $100/month to insure it, and nearly as much again to park it, no matter how cheap the car is. Just don't bother. Local transit isn't bad, and you can bike year-round (It's how I've gotten to work every day since August - still alive if occasionally chilly - rain gear encouraged). Despite what others say about suburban sprawl, Seattle is pretty compact.

Cell phone: I expect to get flak for it here, but I'm still stuck on my ridiculous old unlimited-data-for-two AT&T money-pit. If you can drop yours, great. If you can't/won't, that alone isn't going to be what stops you from either being completely out of debt or having a nice start of a 'stash (your choice) by this time next year.

Rent: Others have said it, but you can absolutely get lower rent here, with some legwork. Either go with roommates, relocate, or both. I took over a lease for a 900sqft 1BR+Den at <1300/mo, which would have increased to 1300 and change this year had I renewed. Assuming you work near SLU/Belltown I do recommend looking in Magnolia - I found several places at lower rates over here when I last moved. It looks like a bad commute, but the reality is that from here I spend approximately 10 minutes longer to bike to South Lake Union for work than I would spend driving, and since that ride is almost entirely on trails (Ship canal -> Cheshiahud Loop), I get to skip traffic and avoid risking my neck too frequently. Lastly, if you feel you REALLY need a car, Magnolia is one of the few neighborhoods left where street parking doesn't make me pull my hair out (it's also free here, so another $50-100/mo saved). You can get cheaper/closer to downtown housing, but you'll find the apartments get very small very quickly as you do.

Debts: Others have also said this - pay off the credit cards before you increase 401k or anything. With your income you can easily pull this off in 2-3 months.  My student loans were at a much higher rate than yours, so I paid them off immediately. Whether you want to do the same is up to you. I'm sure others here can give better advice than I can on this part.

Investing: Totally leaving this one up to those with more experience - I just got to this point myself.

Food: If you're anything like I was, you will download Mint, and promptly weep bitter tears when you see just how much you spend buying lunch at work every day. Get used to cooking breakfast/dinner and packing lunches, and enjoy the magical $500 a month that suddenly manifests in your account. It was probably the hardest change for me to get used to, but was easily the single biggest payoff.

Again, you are the opposite of screwed. I'm positive that you can easily get to a point where you have $3000+ after tax available to pay debts, and it just gets better if you put some of that income into pre-tax investments when the expensive debts are paid off. In short: You have it made. Go forth. Kick Ass. Retire by 40*

*40 being an arbitrary number that I just now made up. But 12 years investing over $30000/year isn't a bad start.

zigzag

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Re: How screwed am I?
« Reply #43 on: January 15, 2015, 10:11:23 AM »
I've lurked here for a while, but I registered just to reply to this. You are not screwed at all. You'll have to do some work but you EASILY have it made.

Background: I was in almost exactly your situation 6 months ago - Living/Working in Seattle, same age, roughly the same income as you (+married on only my income, so if you're single even better). My wife and I decided to embrace the badassitude, and paid off over $20k worth of student loan debt out of my monthly income over the past 6 months. If anything below here sounds harsh, please just interpret it as a "YOU CAN DO IT!" thing.

Car: Sell it. Get a cheaper one if you want, but you're paying nearly $100/month to insure it, and nearly as much again to park it, no matter how cheap the car is. Just don't bother. Local transit isn't bad, and you can bike year-round (It's how I've gotten to work every day since August - still alive if occasionally chilly - rain gear encouraged). Despite what others say about suburban sprawl, Seattle is pretty compact.

Cell phone: I expect to get flak for it here, but I'm still stuck on my ridiculous old unlimited-data-for-two AT&T money-pit. If you can drop yours, great. If you can't/won't, that alone isn't going to be what stops you from either being completely out of debt or having a nice start of a 'stash (your choice) by this time next year.

Rent: Others have said it, but you can absolutely get lower rent here, with some legwork. Either go with roommates, relocate, or both. I took over a lease for a 900sqft 1BR+Den at <1300/mo, which would have increased to 1300 and change this year had I renewed. Assuming you work near SLU/Belltown I do recommend looking in Magnolia - I found several places at lower rates over here when I last moved. It looks like a bad commute, but the reality is that from here I spend approximately 10 minutes longer to bike to South Lake Union for work than I would spend driving, and since that ride is almost entirely on trails (Ship canal -> Cheshiahud Loop), I get to skip traffic and avoid risking my neck too frequently. Lastly, if you feel you REALLY need a car, Magnolia is one of the few neighborhoods left where street parking doesn't make me pull my hair out (it's also free here, so another $50-100/mo saved). You can get cheaper/closer to downtown housing, but you'll find the apartments get very small very quickly as you do.

Debts: Others have also said this - pay off the credit cards before you increase 401k or anything. With your income you can easily pull this off in 2-3 months.  My student loans were at a much higher rate than yours, so I paid them off immediately. Whether you want to do the same is up to you. I'm sure others here can give better advice than I can on this part.

Investing: Totally leaving this one up to those with more experience - I just got to this point myself.

Food: If you're anything like I was, you will download Mint, and promptly weep bitter tears when you see just how much you spend buying lunch at work every day. Get used to cooking breakfast/dinner and packing lunches, and enjoy the magical $500 a month that suddenly manifests in your account. It was probably the hardest change for me to get used to, but was easily the single biggest payoff.

Again, you are the opposite of screwed. I'm positive that you can easily get to a point where you have $3000+ after tax available to pay debts, and it just gets better if you put some of that income into pre-tax investments when the expensive debts are paid off. In short: You have it made. Go forth. Kick Ass. Retire by 40*

*40 being an arbitrary number that I just now made up. But 12 years investing over $30000/year isn't a bad start.

Alukien - thank you for this! I found this post really inspiring! And how ironic - I went through my Mint last night and categorized everything and did shed several tears for all my eating out/lunches at work (Postmates killed me). I think awareness is certainly the first step! All you've accomplished is so awesome!