Author Topic: Case Study: 35 year old born again mustache  (Read 990 times)

Jagnole

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Case Study: 35 year old born again mustache
« on: July 14, 2017, 09:55:23 PM »
Topic Title: 35 year old who grew up lower middle class and was raised in low spending home. Got a good job and started spending, married a doctor and started spending more. Had an epiphany, found Mr. Mustache and am looking for advice with an action plan.

Life Situation: Married. Me 35, Wife 35. No Kids, 2 dogs. Atlanta, GA.

Gross Salary/Wages: Me $90,000 Salary, Wife $250,000 salary.
Total Salary 340,000

Individual amounts of each Pre-tax deductions
My 401k- $127,000. I contribute 7% which is what company matches.
Wife 403b- 25,000. She contributes 3% to get company match.

Other Ordinary Income: no other source of income

Qualified Dividends & Long Term Capital Gains: none

Rental Income, Actual Expenses, and Depreciation: Rental property- receive $900 in rent. mortgage payment is $765 including taxes and insurance. Still owe $58,000 on this property


Current expenses: Primary home- Owe $394,000 on 30 year mortgage at 3.875%. 28 years remaining. 2500/month payment (P&I is $1960).

Wife Student loans- Owe $112,000.   30,000 at 6.5%(fixed)  82,000 at 3.1%(variable interest rate). $1,500/month minimum payment

Rental Property- Owe $58,000. Mortgage is $765

Expected ER expenses: (optional, if relevant)

Assets:
Cash-$50,000 ( $35,000 emergency savings, $15,000 in checking for regular expenses.)
Primary Home Est Value-$550,000
Rental home est value- $70,000
My 401k-$125,000
Her 403b-$25,000

Total-$820,000


Liabilities:
Primary Mortgage-$394,000 Original loan $417,000 3.875% 2+ years into a 30 year mortgage
Student Loan-$112,000 Not sure original loan. Was $155,000 when we started paying 2 years ago after 7 years of deferral through residency and fellowship.  $30,000 at 6.5% $82,000 at 3.1% (variable rate- just went up from 2.85 to 3.10)
Rental Home-$58,000 Original loan $120,000 at 6.8% for 30 years. 12 years in.
401K loan-$15,500 at 3.25% for 5 years. Original loan 30,000 for down payment on primary house. 2.5 years into loan.
Total $579,500


Total Assets $820,000
Total Liabilities $579,500

Net Worth $240,500

Specific Question(s): I am looking for guidance on strategy. Right now my plan is to pay off the $30,000 6.5% student loan first. This will take 5-6 months. I feel like that is a no brainer (please correct me if im wrong!). After that I am not sure. Should we keep attacking the lower interest student loans? the rental property? the 401k loan? Max out retirement accounts? start investing? a combination of things? Any advice would be greatly appreciated to someone who is attempting to get the 'stache going.

marty998

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Re: Case Study: 35 year old born again mustache
« Reply #1 on: July 14, 2017, 10:14:33 PM »

Specific Question(s): I am looking for guidance on strategy. Right now my plan is to pay off the $30,000 6.5% student loan first. This will take 5-6 months. I feel like that is a no brainer (please correct me if im wrong!). After that I am not sure. Should we keep attacking the lower interest student loans? the rental property? the 401k loan? Max out retirement accounts? start investing? a combination of things? Any advice would be greatly appreciated to someone who is attempting to get the 'stache going.

Case study is missing quite a bit of detail regarding your day to day living expenses. Without knowing this it is hard for us to know whether 6 months is reasonable for paying off the $30k of fixed interest student loans.

At your household income, I'd be suggesting 3 months is probably an achievable timeframe. $5k a month sounds lazy to me if you're pulling in over $20k(?) per month. If your other debts are costing $4k per month, how are you managing to spend $11k per month on living costs?


MDM

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Re: Case Study: 35 year old born again mustache
« Reply #2 on: July 14, 2017, 10:32:14 PM »
Specific Question(s): I am looking for guidance on strategy. Right now my plan is to pay off the $30,000 6.5% student loan first. This will take 5-6 months. I feel like that is a no brainer (please correct me if im wrong!). After that I am not sure. Should we keep attacking the lower interest student loans? the rental property? the 401k loan? Max out retirement accounts? start investing? a combination of things? Any advice would be greatly appreciated to someone who is attempting to get the 'stache going.
Consider doing Monday July 17:
1) Paying the $30K loan
2) Increasing 401k/403b contributions so you will each contribute $18K by year end.

Longer term, see Investment Order for some ideas.

PapaBear

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Re: Case Study: 35 year old born again mustache
« Reply #3 on: July 15, 2017, 08:46:04 AM »
For the investment order and the payback priorities of your loans, you would need to calculate the effective interest after taxes of your rental loan (it is tax deductible, right?).
The calculation should be somewhat along the lines of (6.8% - marginal tax rate in percent of interest), if I'm not completely off.
However, I have no experience in the tax specifics for loans for rentals, so you might want to cross-check that with the folks in the landlording and real estate sub-forum.

+1 on paying the student loan and maxing the 401k/403b contributions now. No need to feed the IRS with more than necessary :)
« Last Edit: July 15, 2017, 08:51:57 AM by PapaBear »

Abe

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Re: Case Study: 35 year old born again mustache
« Reply #4 on: July 15, 2017, 03:11:30 PM »
You should pay off the student in 1-2 months. You have plenty of money to do so and there is almost no scenario short of complete societal collapse or major health issue where you couldn't re-build the emergency savings within a few months.

Next would definitely be maxing retirement accounts. That's a free 33% * 36 =
$12k tax savings per year right there (minus some amount in the future when it'll be negligible).

Also make sure your wife is not eligible for a second retirement option, like a deferred compensation plan. Almost all non-profits provide these, and depending on the rules you can put up to $18k in that too.

Jagnole

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Re: Case Study: 35 year old born again mustache
« Reply #5 on: July 15, 2017, 05:26:51 PM »
Thank you everyone so much for the great advice!

I did not post a monthly budget because we are still fairly new at this and I am having a tough time convincing wifey of the impact that comes with cutting wasteful spending. We have a ton of waste to work on including:
subscriptions/memberships-gym, massage, music and tv
 food- take out, delivery--this is the one that i know i can impact the most directly
 clothing - anyone ever hear of something called Stitch Fix---good lord its a lot of money
home expenses- bug guy, weeds guy, alarm company,  directv bill

At least we have no credit card debt and both drive paid off cars which we intend to keep until the wheels fall off.

We are setting a budget this month and can hopefully stick to it and still find room for improvement. I will post it here when we are further along because I would love to get your guys thoughts.

Well I am off to send a $30k payment to get that student loan out of our hair! Feels crazy to say that.  I know its the right thing to do but I was scared of depleting our emergency savings. Thank you for the encouragement and telling me what I needed to hear.

Lepetitange3

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Re: Case Study: 35 year old born again mustache
« Reply #6 on: July 15, 2017, 06:50:14 PM »
Post your full spending.  Tons of people here who had to get spouse on board slow and steady.  I don't have the link but it's sticky and it's the 50 awesome steps or some such to convert your spouse by lifejoy.  It's pure gold.

When you post your spending, tell us if the culprit is you or wife and be prepared.