Author Topic: Case Study: Mid-30s, Low Debt/Low Savings  (Read 6009 times)

jennigens

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Case Study: Mid-30s, Low Debt/Low Savings
« on: October 31, 2017, 01:37:10 PM »
History: DH divorced. Former bricklayer with good retirement that was cashed out and split in divorce. Paid off debt and spent  money going back to school to finish degree. Has been underemployed until recently.

I was a money moron until I discovered DR and MMM a few years ago and took control. Parents always had money issues and major health issues throughout my childhood. They both taught in public school and never had enough money to teach us what to do with it. Both retired (one for health reasons), and their money situation causes me severe anxiety (they lost everything in Harvey...I may post a separate case study for them). I've worked hard to separate my emotions from my money, and while we don't have much, I'm ready to start making it work for us.

Life Situation: Married 1.5 years, filing separately. No dependents. Live in inexpensive southeast Texas. Both mid 30s.

Gross Salary/Wages: Me: $52k/DH: Unsure as he started new job and works multiple jobs. Should be ~$42k

ME:
$5,095 gross monthly
$36.55 dental
$88 health
$392.22 TRS (retirement)
$88 HSA
$366 taxes
$308 FICA
$72 Medicare
$6  Parking
$3739 net monthly

DH:
$600 church pianist (after tax)
$950 piano lessons (after tax)
$3000 teaching jazz band (contract work, no taxes or other deductions)
$4550 net monthly

TOGETHER:

$8289 monthly for 9 months - both our pay changes for summer months

[Husband also plays jazz gigs for additional income, but I don't include this as it's variable.]

Current expenses:

Mortgage P&I: $350
Mortgage T&I: $486
Electric: $120
Gas: $60
Water: $50
Internet: $84 (DH is a gamer and insists)
Phone: $60-80 Project Fi
DH Student loan: $95
DH ACA health: $10 (will be adding him to my insurance @ $350/mo now that he's fully employed)
Food Bank Donation: $150
Other Donations: $150
Hulu: $11
Netflix: $12
Gym: $42
Car insurance: $178
TOTAL Bills: $1878

Groceries: $400
Gasoline: $80
Toiletries: $50
Pets: $100
Entertainment: $300 (eating out, movies, drinks, etc.)
Personal expenditures: $300 (clothing, etc. - we rarely spend this)
TOTAL Expenses: $1310

TOTAL Monthly: $3178

Remaining allotment (per month, for 9 months):

Taxes: $1000 (since husband is contract worker, we pull this out to pay later)
Home/car: $1000 (114-year old house, adding improvements for quality of life and upkeep)
Travel: $1000
Retirement: $1000
Emergency Fund: $1000

Assets:

Home: Equity for original purchase price $11k; however, current house value is closer to $100k
2010 Kia Soul: $5200
2015 Kia Soul: $8500
TRS Retirement: $25k
HY Savings: $14,000
Regular savings: $1000
TOTAL: $64,700

Liabilities:
Mortgage: OPP: $72,000/Owe $59,000/30-year FAPR at 5.5%
DH Student loan: $7000 (unsure but low interest rate)
Credit Card: $0 (pay off each month)

Wish we could be one car. Our community is NOT bike friendly. Both cars paid off.

1. We are about to each fund a Roth with some of that $14k and then re-build up an e-fund after doing so. However, if it closes in April (as I've read here), that's still months of money that we can either save up each $5500 and fund or put in something else. Any idea what we should be doing beyond that?

Because of my family history, I'm extremely anxious about being so behind in retirement savings. I know DH thinks I'm paranoid, but we're approaching 40 and have nearly nothing in the way of retirement. So I'm looking to amplify that and throw as much money as possible that way.

2. Also curious what to do with leftover tax funds (potentially extra house payment?) and/or excess travel/home/car funds. Ideally, we'll keep money in the house/car fund, but once we hit a certain amount, it feels silly to just leave it in a high yield savings. We love to travel and got the Chase Sapphire card to amp up our travel, but, again, realistically, we'll hit an amount and not need to continue funding the travel account for the year.

3. Even though I have read the MMM blog and others, the different types of accounts and funds are still way over my head, so I'd also appreciate any resources that would help someone with little understanding of finance.

MDM

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #1 on: October 31, 2017, 10:27:52 PM »
1. We are about to each fund a Roth with some of that $14k and then re-build up an e-fund after doing so. However, if it closes in April (as I've read here), that's still months of money that we can either save up each $5500 and fund or put in something else. Any idea what we should be doing beyond that?

Because of my family history, I'm extremely anxious about being so behind in retirement savings. I know DH thinks I'm paranoid, but we're approaching 40 and have nearly nothing in the way of retirement. So I'm looking to amplify that and throw as much money as possible that way.
Especially for any deductions until you drop out of the 25% bracket, traditional is likely better for you than Roth.  See Traditional versus Roth - Bogleheads.

Quote
2. Also curious what to do with leftover tax funds (potentially extra house payment?) and/or excess travel/home/car funds. Ideally, we'll keep money in the house/car fund, but once we hit a certain amount, it feels silly to just leave it in a high yield savings. We love to travel and got the Chase Sapphire card to amp up our travel, but, again, realistically, we'll hit an amount and not need to continue funding the travel account for the year.

3. Even though I have read the MMM blog and others, the different types of accounts and funds are still way over my head, so I'd also appreciate any resources that would help someone with little understanding of finance.
See Investment Order for general prioritization.

The 'Basic Terms' tab of the case study spreadsheet may be useful.

Some reading material that may also be useful:
Stock Series
Getting started - Bogleheads
www.etf.com/docs/IfYouCan.pdf

And welcome back!

Nick_Miller

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #2 on: November 01, 2017, 08:57:10 AM »
What do June, July, and August look like?

I was going to suggest slashing your $9000 in vacation funds down to $4000, and throwing that $5000 into retirement savings if you're really so stressed about retirement savings. But I'm not clear on how you pay the bills during the summer months. Do you dip into your savings each year or what?

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #3 on: November 01, 2017, 09:01:25 AM »
Sorry, I meant to add that and forgot. My pay is cut for those months, so we pay bills but can only save about $500 or so after bills for those months.

And yes, that was exactly my question re: vacation funds. We are far from extravagant but do love to travel. I just wasn't sure WHAT to add the excess to. But I'm working my way through the great resources @MDM posted and learning a lot.

KCM5

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #4 on: November 01, 2017, 09:34:22 AM »
Why do you file separately?

I'm looking at your situation (income, student loans, etc) and don't see a reason to do that - you'd probably pay less and have more deductions available to you if you file joint.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #5 on: November 01, 2017, 09:46:49 AM »
@MDM I now have a list of books for the library thanks to that PDF. Thank you! This clarified a lot for me, but it also gave me a place to start, and that helps.

@KCM5 I did our taxes both ways, and we would have had to pay much more filing jointly because husband was underemployed and had ACA healthcare. (Husband was underemployed until two months ago.) Jointly, we would have been penalized.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #6 on: November 16, 2017, 01:05:02 PM »
It just so happens that the day I posted this, we met with a financial advisor. He did a presentation on permanent life insurance and and IRA through Matson. I was already skeptical, but I just felt unequipped to make these decisions without talking to anyone. The life insurance sounded off to me, and after some research, we've decided not to do that.

The IRA, similar, since I feel really comfortable with Vanguard. I feel guilty that the guy drove an hour to us but not necessarily guilty enough to go through him.

Husband and I have decided we'll each set up a traditional IRA through Vanguard and are planning on doing the target retirement method. Would anyone recommend anything different? We'll contribute the max each year, but we're also considering doing VSTAX after we've amassed a bit more.

Neither of us has access to matching except for my teacher retirement, and I can't find much info on fees for the 403b that I do have access to.

Does this sound reasonable?

GlassStash

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #7 on: November 16, 2017, 01:18:06 PM »
Looks reasonable. Also look into investing in a 457. These are superior to 403b accounts because of flexibility and often offer low fee index funds as investment options. 

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #8 on: November 20, 2017, 12:48:45 PM »
These are my options for the 457. The top is what the plan administrators have chosen. The section below shows the options I have, though of course I know they have different fees associated with each. I have zero idea of how I would distribute funds among them. Suggestions?

GlassStash

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Case Study: Mid-30s, Low Debt/Low Savings
« Reply #9 on: November 20, 2017, 12:54:32 PM »
The LifePath Target date retirement funds are good choices. They have higher fees than the individual vanguard index funds, but they are also a bit more hands off (I.e., funds of funds that automatically rebalance). From what I see online, most of the life path funds should have a 50 basis point or lower expense ratio. The specific fund you choose should be based on your risk tolerance and your retirement window.
« Last Edit: November 20, 2017, 03:24:51 PM by GlassStash »

KCM5

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #10 on: November 20, 2017, 03:03:16 PM »
I personally have most of my retirement funds in the Lifepath 2060 and think it is the best/laziest choice for what I have offered to me. My employer has a table with all of the fees associated with each fund - ask HR. I think ours ends up at .4%, .2% for the plan plus .2% for the fund. The Vanguard funds offered by another provider were actually more, so YMMV.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #11 on: November 21, 2017, 11:49:48 AM »
Thank you both @GlassStash and @KCM5 - I'm feeling more confident about this now, and I appreciate your help. Now to sit down with the husband and get this all done.

harvestbook

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #12 on: November 21, 2017, 01:00:14 PM »
Yes, I'd recommend going with a simple target retirement fund while you learn. Good starter choice and nothing wrong with keeping it throughout. You can always change later if you think something else is better for you.

With a 5.5 percent mortgage,  I'd be tempted to put some of the retirement money toward paying it down, but it sounds right now like you need the psychological boost of seeing a retirement fund grow. Good luck. And remember it's not how you start, it's how you finish.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #13 on: November 22, 2017, 07:49:14 AM »
Yes @harvestbook - I've been thinking and reading about that since it's above 5%, and we certainly could afford to put a certain amount extra to principle each month. I think we'll cut down on travel savings and put it there. Thanks for affirming what I was already thinking about.

Finances_With_Purpose

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #14 on: November 22, 2017, 11:00:25 PM »
It just so happens that the day I posted this, we met with a financial advisor. He did a presentation on permanent life insurance and and IRA through Matson. I was already skeptical, but I just felt unequipped to make these decisions without talking to anyone. The life insurance sounded off to me, and after some research, we've decided not to do that.

The IRA, similar, since I feel really comfortable with Vanguard. I feel guilty that the guy drove an hour to us but not necessarily guilty enough to go through him.

Husband and I have decided we'll each set up a traditional IRA through Vanguard and are planning on doing the target retirement method. Would anyone recommend anything different? We'll contribute the max each year, but we're also considering doing VSTAX after we've amassed a bit more.

Neither of us has access to matching except for my teacher retirement, and I can't find much info on fees for the 403b that I do have access to.

Does this sound reasonable?

Run from that guy.  Perm life is generally a huge waste of money - but a huge commission for him.  I'm sure he omitted that part.  Plenty of stuff on this forum elsewhere re: life insurance, so I won't jump into the weeds. 

Salesmen sometimes (the not-great ones) thrive on guilt.  Makes you likelier to make an enormous financial mistake - to their gain.

Call and ask re: 403(b) - have them send you the plan, and answer your questions.  It's your money, you're entitled to know.  Tell them if not, then you're simply transferring it to ___.  (You can transfer to Vanguard, by the way, if you've left the employer.  It'll morph into a traditional IRA there - virtually identical for most people.  And almost universally cheaper.) 

I would play with some retirement calculators like the one at networthify.com to see how much (as a percentage of your income) you need to save for how long to get to where you need to be.  Play with your expenses and your savings rate and see where you are, and where you need to be. 

That has a huge upside - from what you've said: you won't have to have as much fear/worry/uncertainty.  You will have numbers, and know where you need to be (roughly) and how to get there.  Then you can reevaluate through the years based upon your past performance and adjust.  But it takes away all that emotion - which can be rough in a relationship.  (You probably know all that.)  I'd use networthify - it's simple and tells you what you need at a glance.   

Ouch, that mortgage is tough at 5.5%.  No way to refi to a lower rate, especially with the extra equity? 

One great thing: you're doing really well and moving in the right direction.  You're looking in the right places, too.  I highly recommend sticking around these parts - you'll find some not-too-nerdy folks who can explain things for you.  And the answers you get here will be more legit and less self-interested than just about anywhere else you look, especially in real-life.  Advisors, etc. all have strong incentives to take your money away in clever ways.  There are some great ones, but the field is heavily tilted against finding great ones, so I would stick to places where you know someone isn't making money off of you.  At any rate, good job so far! 

Finances_With_Purpose

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #15 on: November 22, 2017, 11:03:33 PM »
As for the 457, I would listen to the others.

FYI: the Vanguard Institutional Index Instl is a super-low-cost S&P 500 fund.  Basically, similar to the VTSAX fund that you mentioned.


NoStacheOhio

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #16 on: November 27, 2017, 09:43:20 AM »
You might be able to get that internet bill lower without downgrading service. We have two providers in our area, and switch between them every few years for the "intro rates." Sometimes just calling and telling them you want to cancel can get you a lower bill.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #17 on: November 27, 2017, 10:13:32 AM »
@Finances_With_Purpose Thank you so much for the vote of confidence. It really means a lot because I do feel like I've had to come so far. And yes, DH is much less worried about money, and my paranoia has caused friction, but I do think he's beginning to understand (he made a joke last week that we only had $20 in our checking account - which I should have known was a joke, unless we were hacked - and I burst into tears. I think that was the first time he realized that I do have such big insecurities with money).

I've wondered about refinancing the house with that rate, but I know so many people say it's a huge pain with high closing costs, so it's made me nervous. Any recs for how I'd go about looking for a good, reputable company?

And thanks @NoStacheOhio - I hadn't really thought about that but will talk to DH. Our current provider did start out much lower but jumped up past the one-year mark.

NoStacheOhio

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #18 on: November 27, 2017, 10:20:19 AM »
I've wondered about refinancing the house with that rate, but I know so many people say it's a huge pain with high closing costs, so it's made me nervous. Any recs for how I'd go about looking for a good, reputable company?

Start with the banks where you already hold accounts and see if they have any incentives, etc. I know there are also sites online that let you compare various lenders, but I don't have any experience with any of them.

Also, check with your employers to see if you're eligible for any special deals. We got a 5% down, no PMI, fixed 30-year mortgage because of where I work.

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #19 on: September 28, 2018, 10:44:52 AM »

Gross Salary/Wages: Me: $52k/DH: Unsure as he started new job and works multiple jobs. Should be ~$42k

ME:
$5,206.99 gross monthly
$38.19 dental
$477.34 health (husband on my ins this month only/will have paid-for insurance through work)
$400.94 TRS (retirement)
$88 HSA
$243.93 taxes
$285.41 FICA
$66.75 Medicare
$6  Parking
$3598 net monthly

DH:
$600 church pianist (net pay)
$2100 community college (net pay) 
$2700 net monthly

TOGETHER:

$6298 monthly for 9 months - both our pay changes for summer months

[Husband also plays jazz gigs for additional income, but I don't include this as it's variable.]

Current expenses:

Mortgage P&I: $350
Mortgage T&I: $486
Electric: $120
Gas: $40
Water: $50
Internet: $60 (DH is a gamer and insists)
Phone: $60-80 Project Fi
DH Student loan: $95
Food Bank Donation: $150
Other Donations: $150
Hulu: $11
Netflix: $12
Gym: $42
Car insurance: $0 (paid for 6 months)
TOTAL Bills: $1647

Groceries: $400
Gasoline: $80
Toiletries: $50
Pets: $100
Entertainment: $300 (eating out, movies, drinks, etc.)
Personal expenditures: $300 (clothing, etc. - we rarely spend this)
TOTAL Expenses: $1230

TOTAL Monthly: $2877

Remaining allotment (per month, for 9 months):$3400 (maybe a bit more once DH insurance removed from my check)

Home/car: HOLD UNTIL RETIRE & ER FUND FULL (114yo house, upkeep) CURRENT: repair hurricane damage
Travel: Fully funded at $5000 (and travel hacking to make it last)
Retirement: $2000
Emergency Fund: $1500 (fully funded by November 2018 - redirect $1000 to Retirement)

Assets:

Home: Equity for original purchase price $12k; however, current house value is closer to $100k
2010 Kia Soul: $5200
2015 Kia Soul: $8500
TRS Retirement: $27k
Roth IRA (His): $7800 (Vanguard)
Roth IRA (Hers): $7900 (Vanguard)
HY Savings: $14,820
Regular savings: $500
TOTAL: $83,720

Liabilities:
Mortgage: OPP: $72,000/Owe $58,000/30-year FAPR at 5.5%
DH Student loan: $7000 (unsure but low interest rate)
Credit Card: $0 (pay off each month)
TOTAL: $65,000

Since last posting:

- Opened and funded his and hers Vanguard funds - maxed for 2017; will max for 2018
- Rebuilt savings in HY account/funded two house projects (half bath install & subfloor replacement/laundry; replaced dishwasher)/partially funded brief vacation
- Tax fund in place and ready for 2018 taxes (estimated based on last year)
- Husband has potential full-time job offer. Pay is low, but we're hoping job will get him some experience to vault him to another position. He also has benefits, so after this month, my take-home pay should increase. He will also have a 403(b). Not sure of details yet.

Goals:

- Fund ER fund by November
- Fully fund retirement IRA accounts by December
- Build up house account & get bids for hurricane damage repairs
- Refinance house - I've had a tough time with this one because places seem unwilling to refinance for such a low amount/have been advised a home equity loan may be smarter, but I haven't researched
- Begin putting extra money on DH student loan



ItsALongStory

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #20 on: September 29, 2018, 08:18:30 AM »
Looks like you are making some solid progress.

Not sure I would accelerate the student loan over the mortgage since it seems mortgage rate is higher and starting this year the standard deduction will mean that most people probably won't be itemizing and don't get the tax benefit from mortgage.

Are you sure that taking a potentially significant paycut is worth it for your DH's potential future income potential? Will it hinder his ability to combine his full time job with those side jobs?

Finances_With_Purpose

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #21 on: September 30, 2018, 03:04:06 PM »
Actually, in the current market, you may not get much of a break.  The government just raised rates again this week.  But be on the lookout as soon as rates drop again though - that's easy savings for you.

I use the tool at Box Home Loans to get a rough idea of where the market's at, as they're pretty competitive and you know what you're getting: they'll give you a good rate, then repackage and sell your loan.  In my experience, many "relationship-based" lenders offer worse rates and may sell your loan off anyway.  But you're always better off shopping around if you're thinking about it, and comparing the costs. 

You have good instincts if you were a bit put off by the insurance salesman and the IRA sales pitch - good for you. 

jennigens

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Re: Case Study: Mid-30s, Low Debt/Low Savings
« Reply #22 on: October 03, 2018, 08:59:00 AM »
You're both right, and I didn't clue in about the fed raising the rates even though I've heard it on NPR all week. Also, thanks for pointing out the obvious (I get in my own way a lot) about paying down the higher interest rate.

As for the lower income - it's a struggle for me. I'm trying to be supportive and look at the big picture, i.e. he needs this type of work on his resume and is learning some skills that could be used outside of education. However, the pay is SO LOW. At least he will have retirement and benefits, which he did not have before, and his taxes will be taken out, which they weren't last year, so his net was far less than what it appears. He will still be pulling in side jobs, and this should ramp up in the next couple of months, as everyone wants to hire musicians around the holidays.

Progress. You're right that we are making progress, and I'm going to focus on that for now.