Author Topic: About to Hit my 30ís and Need Some Advice  (Read 1539 times)

poetdereves

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About to Hit my 30ís and Need Some Advice
« on: August 04, 2017, 09:28:39 AM »
Life Situation:
Married filing jointly, 28H and 26W DINKís in Mississippi. No debt other than student loans.

Gross Salary/Wages:
Wife just started a new job at $45,000.
Husband works part time in ER Trauma and full time school. Limited to 20 hrs a week PRN, so no benefits, overtime, or health insurance offered: $14,000
Total: $59,000

Pre-Tax Deductions:
At the moment we donít have any pre-tax investment contributions. My wife will be eligible for 401k and HSA contributions that will be matched at 3% after her first year at her company, but since there was no match we did not contribute.
We did just sell a home in CO and moved to MS, so out of the funds that we have from the sale (about $50k) we maxed out our Rothís for the year in a Betterment account.
Medical insurance: $437 (covers medical, dental, and vision)
HSA: $84

Other income, dividends, rental income, etc.:
We do not have any other income at the moment. With the amount of time I am in school and working I do still have time for a side gig or another part time job. Wife has also voiced interest in the possibility of a part time job and is doing free classes online to get more certifications for getting a raise at her current job.

Adjusted Gross Income:
$52,762

After Taxes:
$43,919



Current Expenses:
Monthly Average Expenses:      Monthly      Annually
Rent                                            $1,105     $13,260
Home/Rent Insurance                $15       $180
Car Insurance                              $96       $1,148
Car Maintenance, Registration, etc.$106       $1,272
Dining (Lunch/Dinner/Etc.)              $200       $2,400
Electricity                                      $100       $1,200
Fuel/Public Transport                      $150       $1,800
Groceries                                      $500       $6,000
Internet                                      $40       $480
Life Insurance                              $35       $420
Miscellaneous (Spending Money)      $150       $1,800
Pets                                              $100       $1,200
Phone (cell)                              $65       $780
Wife's Student Loan                      $248       $2,979
Husband's Student Loan              $135       $1,620
            
Total Expense                              $3,645       $43,739
Available for taxable investment:    $15       $180

A couple things to clarify from the spreadsheet: Electricity is the only utility we pay in our apartment. The spending money/miscellaneous category usually covers things like my wifeís haircuts, replacing broken parts on my bike, etc. It is not money that we usually just blow. Most things we do have I will repair it DIY, so $75 each would repair about everything we use.

Assets:
Emergency Savings/Home Down Payment: $45,000
Wifeís IRA: $15,000
Wifeís Roth: $5,500 (2017 contribution)
Husbandís Roth: $5,500 (2017 contribution)
2009 Toyota Corolla: No payments and worth around $5,000
1996 Toyota Tacoma: No payments and worth around $4,000
Total Assets: $80,000

Liabilities:
Wifeís Student Loan: $22,435.53 at 5.5%
Husbandís Student Loan $8,729.68 at 3.5%
Total Liabilities: $31,165.21

Questions:
Our biggest concern is where to allocate a chunk of our $45,000 in savings. We have just moved and committed to living where we are for somewhere around 10 years at least. Renting in our area is really high in comparison to buying. It is a LCOL area, so we could get a home comparable to our apartment in the $150k range with PITI less than $900. That would take $30k and leave $15k in our emergency savings for unknown repairs on the house or if we lost a job. That amount left could cover us for 6 months if we both lost our jobs. I am very handy and have the ability to completely remodel and repair what would be necessary minus a few things (foundation repairs, etc.). We currently have two 60lb dogs in a small apartment, but there is no chance of my wife parting with the dogs. Some of you understand that, some of you wonít.

We are not uncomfortable with the student loan amount we have currently, but willing to consider all options and face punches for having them. I am also in school full time in an accelerated BSN program to be an RN. We will have $70k total in loans by the end, but I already have a job guaranteed at the place I work when I finish school and will be making around $60-70k, which is about the average for nursing with some experience in the field. Our plan would be to pay off all the remaining student loans within a year of finishing school so that we could contribute 50% or more toward savings.

Just for what it is worth, my wife is uncomfortable in the apartment here. She grew up in split family with both sides being on the top 1% of income earners, so she is not used to shared spaces, noise, no yard, etc. I, on the other hand, grew up at poverty level my entire life and have lived in small apartments almost the entire time, so I could stay here if it was the best idea. I am trying to find a compromise if buying a home is a bad idea.

Any help would be appreciated and I am an open book, so please drill me!

Laura33

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Re: About to Hit my 30ís and Need Some Advice
« Reply #1 on: August 04, 2017, 10:50:23 AM »
When you say "committed" to the area for 10 years, what does that mean?  To the jobs, to each other?

Generally speaking, it does sound like buying may be better than renting -- there are a ton of downsides and costs with buying, but $1100 in rent is ridiculous given the overall COL in your area.  Some things that may weigh against that, though:

1.  Will you for sure be there for 10 years?  That's a big move, you want to be completely sure you are happy and settled in the new area before you tie yourself down with a mortgage.

2.  If your DW is used to a higher standard of living, will she be happy long-term with a house that is comparable to the apartment she hates?  If not, it might be better to rent at least until you are out of school and have the debt tackled, then buy, when you can afford a place she will be happy with long-term and you can still save your 50%.  Can you rent a SFH in the area for the same/less than your apartment?  Maybe cut a deal with a landlord to use your fix-it skills to do some maintenance on the house in return for a break in the rent?  IOW, expand your horizons a little beyond "stay where we are now or buy a $150K house now."

3.  If you do decide to buy now, I'd keep the total house-plus-reno budget to that $150K cap.  If buying the house takes you down to $15K in your EF, and then you'll need some immediate fix-ups (drapes, carpet, that stove that doesn't work, etc.), now you're down $5-10K, and you can't tackle the real reno work you plan to do.  If you have skills, use 'em on something even cheaper!

4.  Are kids in the future?  Consider their costs and needs (e.g., schools) when evaluating how much house you can "afford."  You don't want to buy and then find out in 2-3 years that your DW wants to move to give the kids a bigger yard, or because the school system is wrong, or whatever -- or that you can't afford your $150K house and savings because now DW wants to stay home, etc.
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poetdereves

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Re: About to Hit my 30ís and Need Some Advice
« Reply #2 on: August 04, 2017, 11:14:01 AM »
1. I guess committed is a loosely used term in this case. A little background might help. We got married in October 2013, immediately moved away from our parents in California and got a home in Colorado, owned it for almost four years and it appreciated over 25%. We bought for 158k with no down payment (DUMB) and sold for 239k. I realized how lucky we got without putting much thought into what could have happened. All that to say, we wanted to be smarter and willing to commit enough time somewhere that we would not lose money if we decided to buy a house.

2. DW isn't really flashy given her upbringing, so she is comfortable with the homes we can get in the 150k range here. (3b/2br, 1800 sq ft. .5 acre, hardwood floors, etc.) The SFH here rent for 1300+, so it would be higher than our apartment, and most of them won't take two large dogs. I am open to doing fix-it trade offs if I can find one. My dad did that growing up, so I will chat with him about it.

3. I agree with your cap and the idea that $15k is a low amount of wiggle room for home repairs and possible emergencies.

4. Kids are in the future, but not for 5+ years. DW is set on improving her career, which has huge upside potential in the first few years, and unfortunately for women the job market is not very forgiving when you get pregnant. The 3b/2br home we get would be plenty of room for kids if we had them, giving that we stay in the area long enough.

bhleigh

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Re: About to Hit my 30ís and Need Some Advice
« Reply #3 on: August 04, 2017, 01:48:32 PM »
Right now both of you make $59,000 combined income. When you finish school you will make approximately the same amount by yourself, correct? How long until you finish schooling?

Food for thought:

Option 1: Your wife is no longer going to school, so pay off her loans now with your cash on hand. Leaves you with $22,500 in cash and $248 more in the budget. Put this $248 towards your IRAs so you get in the habit of contributing to retirement. If you can swing it, get that side gig to help build up the cash savings again. My principle is when you pay off a debt, that monthly payment goes towards retirement. I never missed the money because I "never" had it anyways.

Option 2: I would seriously think hard about living on one salary when you finish school. You won't fall into the "keeping up with the joneses" DINK lifestyle and if the wife wants to stay home with the future kids, there isn't a change in lifestyle. Second, the entire other income can be put towards retirement accounts (401k, IRAs) and paying down the mortgage of the house you will eventually get.

Imagine that its 6 years down the road, you have finished school for the last 4 years making a combined income of $120,000 and bought a $150,000 house 6 years ago. You live off of $60,000, stash $29,000 in retirement accounts, and have paid down the mortgage by $31,000 each of those years. $150,000 house you would have paid it off ($150k - $30k (20% down) - $120k (4 years @ $31k)), put $149k into retirement accounts, and still have the ability to have your wife stay home with the kids because you you only live on one salary anyways. BONUS: $1100 mortgage payment can now go towards accelerating FIRE! 

Just my two cents...



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NeonPegasus

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Re: About to Hit my 30ís and Need Some Advice
« Reply #4 on: August 04, 2017, 02:07:40 PM »
I have three things to add:

1. When comparing the cost to rent versus buy, you need to include not only the mortgage but also property taxes, property insurance and maintenance. And don't forget about opportunity cost from not keeping the down payment in the market. So, after saving up a 20% down payment of $30k, you'd be paying $575/mo for a 30 year mort at 4%, property taxes of maybe $200/mo (you'd need to look that up), home insurance of an additional $50/mo and 1% of the home value/mo for maintenance, which would be $125/mo. That equals $950/mo. Don't forget you'll be on the hook for more utilities so add another $100/mo for that. Now you're up to $1050/mo. The opportunity cost of using your $30k as a down payment rather than investing it is approximately 7% (typical annualized return in the market). That comes to $175/mo. So now your total cost to own is $1225, which is more than renting. Some of the figures may be too high (return on investments) or too low (home insurance) but the point is - there is more to comparing the cost of owning versus renting than just PITI.

2. Your dining + grocery costs are pretty high for just the two of you. Your grocery costs are only a little less than what we spend for a family of 5. You could tighten that up and use the difference for savings.

3. You shouldn't really need life insurance right now. Unless you've got a term policy that will carry you another 20 years from now (long enough to cover your future kids while they're minors), I'd let it go right now and only get it again when you've got kids to protect. You and your spouse should be able to get by without the other, especially since you don't have a mortgage right now.

poetdereves

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Re: About to Hit my 30ís and Need Some Advice
« Reply #5 on: August 04, 2017, 03:22:08 PM »
NeonPegasus:
1. I am right there with you on the rent vs buy issue. Your numbers are pretty correct, but there are things that the apartment costs us that the house wouldn't have. For example, we just got invited on a day trip to New Orleans with family and have had to think about boarding the dogs at $35 a day a piece because our apartment has no way to just let them out of a dog door to use the bathroom. That is $70 right there for only one day out and a major inconvenience anytime we want to leave for a long day trying to make friends in a new city. All in all it is about even. I did talk to DW and she is very open to renting a house and offering to fix it with a possible decrease in rent. I did check and already found a couple rentals about the same quality as our apartment for around $1200. It fixes the dog/yard issue without having to use any of the money we have sitting in the bank. I do have a question for you. Do you think it is smart to invest the $45k if we would end up using it on a down payment after school is over? I haven't ever had that much cash sitting around, but I do read and invest in mutual funds, but don't know if that is long term enough.
2. I agree that our dining and grocery budgets are high for 2 people. We committed to not eating out or using the dining budget unless we were invited by new friends. If it is just the two of us, then we are at home for meals. We recently switched shopping and cooking duties, so I will do my best to cut spending in that high area.
3. I think I am with you on the life insurance thing, but it is a 30 year term policy. It gives my wife a little peace because I tend to pick hobbies on the less modest spectrum.

bhleigh:
1. It does sound appealing to pay off the loans and is something we discussed. We decided to give ourselves a month or two to discuss our options of what to do with that $45k sitting in the bank because once we use it it is gone. It does free up a lot of monthly savings, which is something we lack with my super low paying job while in school. Any extra money in the pocket would be nice when our incomes are this slim.
2. Our plan has always been to live off of only one salary, and probably even less than that. I finish school in 2 years from now and am in a program that guarantees me a job as an RN where I currently work. They start out at around $60k, so yes, we will double our income even if the wife gets no raises or promotions within the next two years. We are not unhappy with our current standard of living and really want to be around a lot for our kids, so I don't really see us having much lifestyle creep beyond owning a modest home. It is nice to see some math, albeit simple, to show where we could be in just a few short years. Living with slim income during school has seemed like a long road, so to see those higher investment numbers and a paid off house is inspiring.

« Last Edit: August 04, 2017, 03:49:37 PM by poetdereves »

With This Herring

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Re: About to Hit my 30ís and Need Some Advice
« Reply #6 on: August 04, 2017, 08:59:46 PM »
Please max out the HSA!  It is the MOST tax-advantaged account I know, as HSA contributions that go through payroll are exempt not just from income taxes but also from Social Security and Medicare taxes as well!  See this Bogleheads article.

If you have the funds, consider putting away money in the 401(k) even without the match, once you have that high-rate student loan paid off.
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NeonPegasus

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Re: About to Hit my 30ís and Need Some Advice
« Reply #7 on: August 04, 2017, 09:24:24 PM »
I have no qualms about investing money in a Vanguard mutual fund or with Betterment while you wait. Interest rates are so low that you lose money to inflation.

Of course, my risk tolerance may be higher than yours. I watched my accounts lose so much money in 9/11 that I could have bought a luxury car with what I lost and I realized that I got through it. And then '09 happened and I got through that too.

I would invest it at least in the short term and consider moving it to cash as you finally accumulate enough to buy a house.


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poetdereves

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Re: About to Hit my 30ís and Need Some Advice
« Reply #8 on: August 05, 2017, 12:16:40 AM »
With this Herring:
We do plan on putting money into DW 401k, but without finding places to cut spending or increase income there's no way to do that at the moment. Any that we do cut will definitely be put in there (dining out, groceries, etc) or applied to the student loans. Why the HSA though? I find benefits in having them, but being so young, healthy, and having such a low tax bracket and current income it seems like there are better ways to use those funds at the moment. We put enough in there to cover copays and deductible. Please explain why allocating more funds there would outweigh the other options given our goals if you have them!

NeonPegasus:
I would be comfortable putting my funds in betterment or vanguard just for the ability to hopefully beat inflation. Anything else is gravy. My risk tolerance is fine and I know the risks and losses than can occur and am not really emotionally driven by any turns of the market. Our current Roths are at 90/10 split because we are young, dual income, and have good tolerance for risk. Would you suggest a similar allocation or something more conservative? I know it's not a huge amount of money and the chances of huge losses or gains are minimal between different allocations, but I just wanted to see your input.
« Last Edit: August 05, 2017, 12:18:14 AM by poetdereves »

With This Herring

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Re: About to Hit my 30ís and Need Some Advice
« Reply #9 on: August 05, 2017, 09:16:56 AM »
With this Herring:
We do plan on putting money into DW 401k, but without finding places to cut spending or increase income there's no way to do that at the moment. Any that we do cut will definitely be put in there (dining out, groceries, etc) or applied to the student loans. Why the HSA though? I find benefits in having them, but being so young, healthy, and having such a low tax bracket and current income it seems like there are better ways to use those funds at the moment. We put enough in there to cover copays and deductible. Please explain why allocating more funds there would outweigh the other options given our goals if you have them!

I was serious when I told you to read that link, you know.

Okay, here goes.
.
Ö..HSA
.
ÖÖ...Trad 401(k) or IRA
Payroll taxes on contributions.
None!
.
Taxed
Income tax on contributions.
None!
.
None!
Earnings taxed when earned.
Nope!
.
Nope!
Withdrawals for medical expense taxed.
Nope!
.
Taxed
Non-medical withdrawals after 65 taxed.
Taxed
.
Taxed
Penalized for non-med w/draw before 65.
Yes
.
Yes
Can invest funds.
YES!
.
YES!

So, an HSA is MUCH BETTER tax-saving space than a Traditional 401(k) or Traditional IRA!  You save payroll taxes forever!  You aren't taxed on withdrawals for medical expenses!  Some people are saving up receipts for medical expenses they have over their working years and then will reimburse themselves from the HSA years later when they draw it down to cover living expenses.

Note that our MDM, a well-respected poster, recommends filling the 401(k) enough to max the company match (because that match is free money and better even than the payroll tax savings), then filling up the HSA before continuing with the 401(k).

*snip*
See below for one defensible prioritization order.  The current 10-year Treasury note yield is ~2.2%.  Differences of a few tenths of a percent will be insignificant over a few years, so using a coin toss (or gut feel) when options are that close is fine.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial
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trollwithamustache

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Re: About to Hit my 30ís and Need Some Advice
« Reply #10 on: August 05, 2017, 10:46:30 AM »
what do you expect your future income to be post school? It sounds like HSA and ROTH are the way to go.

how zesty do you want to get? (and how certain are you of post school riches?) if you can max out both ROTH IRA's even by essentially drawing down house equity to fund the ROTH dolalrs you may end up in an interesting place. This would require some spreadsheet mojoing before you go all in...

poetdereves

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Re: About to Hit my 30ís and Need Some Advice
« Reply #11 on: August 05, 2017, 11:41:41 AM »
With this Hereing:
My bad for not reading that article before questioning. I got home at 1am and read your comment before reading the article and posted a quick response, but read through it this morning. I get it now and it's pretty convincing that it is a great way to go. I need to do a bit more studying apparently on HSA accounts because I didn't know about their investment potential and kind of thought they just sat for healthcare costs. Thanks for breaking it down for me. I think you're correct about maxing it out while there is no match for wife's 401k if we can squeeze some funds out of our budget or get some side income flowing.

Trollwithamustache:
Assuming my wife's stays the same, which it will probably increase (she's already in process of obtaining certificates that guarantee extra income at her job), and assuming that I am hired at the standard rate for all beginning RN's at my current job our combined income will be right around $110k, which is a conservative estimate. Of course nothing is guaranteed, but I have put a lot of effort into searching the going rates given our experience, training, and everything else within our power to get those numbers. I'm down to get zesty and have the benefit of being young with no children to get potentially risky. What are the benefits of maxing roths by drawing down equity? It's not really something I have looked into.

fuzzy math

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Re: About to Hit my 30ís and Need Some Advice
« Reply #12 on: August 08, 2017, 06:28:02 AM »
It sounds like you are already working / have worked as an RN (?)
Is your employer paying for your schooling? Is the new job offering the absolute best pay rate in the area? Many hospitals will pay off a chunk of your loans if you agree to stay for X years, and it's something you need to heavily consider when taking that first out of school job (if you qualify considering you may have already worked in the field)

poetdereves

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Re: About to Hit my 30ís and Need Some Advice
« Reply #13 on: August 08, 2017, 08:19:19 AM »
Fuzzy math:
I have worked as an emt as and am now in school to become an RN on my way toward nurse practitioner. My current job in the ER will contribute toward my school if I choose. They will give $2,000 per semester in return for a six month period of work. So, if I take it, I would get $8,000 for school and promise 2 years back, but would be guaranteed a job once school ended. The pay would be better than other hospitals around, but not as much as other HCOL areas since I live in one of the LCOL around. They are the only level 1 trauma center in the state and have opportunities available that would be difficult, if not impossible, to find elsewhere. I have not committed to taking the money yet and am not sure if committing 2 years after school is worth it. I have a year to decide.