Author Topic: A four year update. What next?  (Read 1572 times)

dippydoo

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A four year update. What next?
« on: October 01, 2018, 06:53:06 PM »
Hello all,
I posted here four years ago seeking advice as a dual low-income earning couple.  Everyone here agreed we had reeled in the spending well and the biggest hurdle was earning more money. Since then, many things have changed. I switched jobs and Iím now earning 40% more, we purchased a house in Philadelphia, paid off all student debt, and both took on second jobs.  By paying additional on our mortgage principal, we recently had the PMI removed and now have 23 years left.
Our biggest challenge at the moment is deciding what to do about a car and whether to invest or payoff our house early. My car is on its last leg and taking the train or bus to work is not a possibility (when we purchased our home, I was really hoping we could both find jobs in an area that was accessible by public transport). Any advice about this would be greatly appreciated. I believe the smartest thing to do would be for my husband to find a job in the city so we could essentially be a one car family, but let me know if there could be a better approach.
Below, the numbers.  Can someone take a look and advise on what our next steps should be? A New job? Decrease expenses? Continue making extra payments on the house, or invest more in Roth? Thanks!!!

Income:
My Take Home Pay: 40k
My 401k balance: 35k (will have 17,500 yearly contribution)
My Roth IRA: $0 (to be set up soon)
My Pension: 5k (cashed out of prior job)
My Stock Option: 12k (with prior job)
Husband Take Home Pay: 25k (looking for higher paying job)
Husband 401k balance: 80k (has 17,500 yearly contribution)
Husbandís Roth: 1k (just setup recently)
Husband Pension: 25k
Husband funded HSA: 15k (with 4k yearly contribution, will max next year)
Combined Take Home Pay from p/t jobs: 12k
Average Take Home/mo: $5900

Expenses:
House: (3.49% interest rate) $1,200/mo includes property taxes/homeowners insurance, bought in 2016
Cable TV/Internet: $160/mo (soon to be internet only; approx. $80/mo)
Electric: $70/mo
Natural Gas: $90/mo
Water/Sewer: $50/mo
Cell Phones: $40/mo
Spending Money: $500/mo
Food (Takeout/Restaurants): $400/mo
Food (Groceries): $250/mo
Gasoline (combined): $190/mo
Auto Insurance: $100/mo (2006 Civic & 2008 Altima Ė liability only)
Misc Vehicle Expenses:  $175/mo (inspection/repairs etc. averaged over multiple months)
Holiday/Birthdays: $115/mo
Vacation: $150 (averaged over multiple months)
Clothing: $120
Haircuts: $50/mo (I cut my husbandís hair myself)
Average/mo: $3,580

MDM

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Re: A four year update. What next?
« Reply #1 on: October 01, 2018, 07:32:43 PM »
Welcome back, and nice progress!

All else equal, earning more and spending less are good things, so much depends on "all else."

If you haven't seen it, Investment Order might be useful for answering the thread title.

One note: having "miscellaneous" (aka "spending money") more than 20% of your non-housing expense probably means there are opportunities there....


Watchmaker

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Re: A four year update. What next?
« Reply #2 on: October 02, 2018, 07:40:50 AM »
I think you seem to be doing very well (congratulations!), but a few thoughts:

-$465 a month is a lot to be spending on cars, particularly when that doesn't include a car payment. If the car is really costing that in maintenance, it could really make sense to replace it with a newer, more reliable car. But reducing your driving would be even better. How much of your driving is for your commutes? What about 2nd job commutes?

-If you are maxing out the 401ks, yes, I'd start directing your savings towards the IRAs. At your income, traditional IRAs might make more sense though, have you run those numbers?

-$115 a month for gift giving ($1380 a year) seems like a lot for your overall spending level. Is this gifts for each other, extended family, etc?

-Equally, $4800 a year eating out is a significant amount of your total spending-- 11.1% of it. I'd try to reduce that.

ysette9

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Re: A four year update. What next?
« Reply #3 on: October 02, 2018, 08:22:47 AM »
Just a minor note, you can put $18.5k into a 401(k) this year and get the tax deduction on your taxes. Your plans may also allow you to do post-tax 401(k) contributions and the total federal limit of what you can put into your 401(k) between you and your employer is $55k. I don’t think this is the right thing for you to do in this case, I merely mention it as so many (me included not long ago) think that you can’t put in more than $18.5k.

erutio

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Re: A four year update. What next?
« Reply #4 on: October 02, 2018, 08:27:31 AM »
You two have done really well over the past few years, congratulations.

A few thoughts:
"whether to invest or payoff our house early. " 
You guys have an amazing mortgage interest rate, and a longer investment horizon, so I would put extra money into investments.  It may seem counterintuitive, but since you are a "low income" couple, if you were to lose your jobs, you would be out of a home in a few months if you had put all your extra money into the mortgage, but if you have funds invested, they can always be liquidated to float your mortgage for awhile until you find jobs again.

I would max our your respective 401ks (max is $18500 this year), then start pumping more into your Roths.

Do you have an emergency fund?  It may be worth keeping about 3-6 months of expenses in a money market account.  You guys won't need very much in there, because if you need funds, you can decrease your 401k contributions for a month or two.   

A couple good ideas above to reduce your expenses further from some other folks here.

Unique User

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Re: A four year update. What next?
« Reply #5 on: October 02, 2018, 12:37:43 PM »
Congrats at making $17,500 401k contributions each at your income level that is awesome!  You probably have extremely low taxes anyway, so a Roth probably makes sense over a traditional IRA, but you might want to run the numbers to be sure.  Don't forget about the savers credit on your taxes, you probably qualify for that. 

I'd look for a job that does not require a car, we've been a one car family for several years.  Your spending money/takeout/clothing line items are high.  Are those high because of the second jobs?  Have you looked at how much you earn from the second jobs and how much extra it costs you? 

Ditto on below posters that mention to put money in IRAs before paying off your house.  Your rate is low, I would direct excess funds to investments rather than paying off my house. 

ItsALongStory

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Re: A four year update. What next?
« Reply #6 on: October 04, 2018, 08:50:17 PM »
I would think that it'd have to be fairly easy to find a job closer by that pays your DH at least $25k or more per year. That just seems absurdly low for a full time job.

Agree with misc spending being a bit outrageous for your overall spending, what is part of this category?