Author Topic: Case Study: Nearly 35, moderate debt, practically no savings  (Read 5347 times)

latearriving

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Hello,

- 34 year old male, live with girlfriend, no dependents, reside in mid-size city in Northeast
- Annual salary is $53,000 USD (generally receive a 4-5% bonus payable each February)
- Monthly net pay is $2915 after all employer medical/dental deductions

Assets:

- $900 mini emergency fund in Capital One 360 savings account
- $1100 in 401k (I know, yikes!)
- $4700 in employer cash balance retirement plan (fully vested)

Total: $6700

Note on 401K: My employer will match dollar for dollar up to 5%. I'm currently only contributing 2%.

Within the last five years, a lot of poor financial choices, two separate medical issues, and a 6 month stretch of unemployment led me to deplete virtually all savings and 401K.
 
Liabilities:

- $43,000 Federal student loan at 7.25%
- $1450 credit card at 12%
- $1150 credit card at 13.5%
- $2100 left on a 5.5% car loan I took out in 2015 (monthly payment is $175 and final payment would be in April 2018)

Total: $47,700

Budget:

Rent + Internet: $730 (my share; girlfriend pays equal amount)
Food (groceries + restaurants): $400
Student loan: $245
Car payment: $175
Car insurance: $120
Household/personal: $120
Gas: $50
Phone: $55
Gym: $20

Total: $1925

Budget notes:

- This is only my second month of co-habitating. For the last several years, I've lived alone and spent too much money on rent. This greatly contributed to me incurring credit card debt and failing to save. Honestly, being able to split rent is a huge win for me. It immediately puts me in the best cash flow position I've been in.

- We don't split the car/transportation costs. I pay that alone. My girlfriend doesn't have a car and doesn't want me to add her to my insurance policy because she had a past DUI. If we could be a one car household and split the costs, I'd be thrilled. Unfortunately, this is not something she plans to get on board with.

- We spend way too much on food. We're eating or drinking out 2-4 times per week. This is the easiest and most efficient category to trim some fat.

I obviously didn't include credit card payments in my budget. Currently, my minimums total about $95 per month. However, my plan is to wipe out the credit card debt within 60 days. Even if I made no changes at all to my budget, I'll have about $950-1000 to work with, so the credit cards will be paid off and then I'm committed to not using them again.

With all that outlined, I need advice on how to smartly approach tackling the remainder of my debt (student loan) while also building a bigger emergency fund and making up a lot of ground on retirement savings. How much should I allocate to the 401K? Should I open a Roth and try to max that out yearly? Or should I stick with just 5% in the 401K and use every available dollar to pay off my student loan?

I can add more details and give you an idea of a plan I had in mind, but curious to see what other people's initial thoughts are.
« Last Edit: July 09, 2017, 10:16:07 AM by latearriving »

TheStachery

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #1 on: July 09, 2017, 10:31:41 AM »
You should shop around for car insurance.  That's high.   Look at you insurance bill, take of stuff like car rental, and if you need that fund it from you efund.

I will add that if your credit is decent, try to find a 0% card to balance transfer and knock out that debt.  Keep raising you 401k percentage until you get to the full match.  You're throwing free money away otherwise.

Forget the roth until your debt is paid. 

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« Last Edit: July 09, 2017, 10:38:00 AM by TheStachery »

Lady SA

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #2 on: July 09, 2017, 05:31:09 PM »
See investment order:

0. Establish an emergency fund to your satisfaction           
1. Contribute to your 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 Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, 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.

So for your specific situation:
First, is the $900 emergency fund adequate? I would say no. That's not even a month's worth of expenses.
Second, immediately stop only contributing 2% to your 401k. That should be AT LEAST 5%. You are leaving free money on the table every week.
Pay of the credit cards asap, those interest rates are pretty hefty. Close second is that student loan. Any chance of refinancing it with Earnest or Sofi to get a lower rate?
« Last Edit: July 09, 2017, 05:33:25 PM by Lady Smartass »
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

DarkandStormy

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #3 on: July 10, 2017, 08:50:40 AM »
Just some minor notes, take them as you wish.  Working backwards up your list:

-Consider ditching the gym for now.  Do you have anything you can do in your apartment/condo?  Can you run outside for cardio?  There are plenty of non-equipment workouts -> chair dips, burpees, push-ups, sit-ups, etc.  Beachbody.com/P90X style - and that's not counting if you have a pull-up bar, resistance bands, etc.  Could you reasonably stay in shape without the gym?  That frees up $240 over the next year for you.
-$55 is fairly reasonable for a phone (I've seen a lot worse).  Could you switch to Republic Wireless or Project Fi?  Depends on your phone and whatnot.  But if your device is paid off (i.e. you are only paying for service) you could reduce that down to $30/month or even less.
-I'd shop around on the car insurance.  That seems pretty high, even for a "mid-size city."  That is, unless this includes a renter's insurance premium.
-Do you two pay for cable?  Netflix? Hulu?  Or nothing for any sort of television entertainment?
-You included internet with rent so I don't know the exact amount, but you could always shop around internet - if you aren't streaming a ton, gaming, video conferencing, etc. you should be fine with 10 Mbps or 15 Mbps, which should come in under $40/month.
-Like you said, food could be less.  See if you guys can do once a week eating out - if you don't mind, an easy way to cut down the "eating out" costs is to split a dish when you're out.  Take advantage of happy hours if you still want to be "out" and socializing.  You could go extreme and do no eating out at all.  Take advantage of coupons when you can.  I don't know all your details on groceries, but see if you have a Costco or Sam's Club in your area - buying bulk (assuming you eat all the food) is much cheaper than your local grocery store in the long run.

So there are some minor points in the budget.  I'd pay the minimum on the car loan for now.  I'd throw the rest at the highest CC debt (13.5% first) then the 12% one - obviously pay the minimums on the student loan and car loan so you don't default.  But most importantly, get the 5% match on the 401(k)!  That's free money you're leaving on the table.

You're not in terrible shape - splitting rent/utilities is helpful.  If you need to have a discussion with your gf, I'd do that.  Hopefully she'll understand what you're trying to do and that being frugal will help you get out of debt.  If that budget is true, you're at ~$23K in annual expenses.  You could go ultra frugal and get that down below ~20K.  You're bringing in ~$35K (perhaps more if you discounted the 3 paycheck months) post-tax.  So doing nothing leaves you with ~$12K/year to throw at debt.  Even if you bump up your 401(k) contributions to 5%, you should easily offset that with some expense reductions.  So ~$12K/year to throw at ~$48K in debt, some with high interest rates.  I think you're on your way if you can stick to that budget.  Good luck and let us know how it goes!
« Last Edit: July 10, 2017, 10:12:49 AM by DarkandStormy »
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latearriving

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #4 on: July 10, 2017, 09:46:17 AM »
Thanks for the replies so far!

To address a few budget questions that have come up (in no particular order):

- My girlfriend pays for Netflix and has an Amazon Prime membership. I don't pay for cable or any other subscription services (luckily, I can use my parents' login credentials for HBOGo). We don't travel, spend money on movies, concerts, etc. Our only entertainment expenses are generally going to a few hockey or basketball games.

- I'll start shopping around for cheaper internet and cell phone (my device is paid off, so something like Republic is an option).

- I've shopped around for new auto insurance, but have yet to find a cheaper policy. As it is, I'm uncomfortable with only $50/100/50 liability. The credit union that originated my car loan also requires $500 collision/comp deductibles. I would normally go with $1000, but that's not an option until I pay off the car. I don't have rental coverage, just roadside assistance (very cheap and well worth it). I might have to live with the higher cost until April 2018 payoff date.

- I go back and forth on cancelling the gym membership. I was previously paying $50 and negotiated a cheaper plan. I'm inclined to keep it because I do use the gym 5 times per week. There are limited options to work out at home, and either too hot or too cold weather can be an issue 6 months out of the year. I'd rather cut the $20 from my food budget. The food budget is really crucial for me. If I'm being honest, I can cut it to $300 or less without a lot of sacrifice. It's really just about avoiding mindless decisions ($4 latte, $3 donut, $2 soda at lunch, etc).

Back to the bigger issues:

- CC debt is gone by mid-September. I've already committed to paying that off. In fact, just made a $650 payment yesterday towards the first card. Even though I could potentially use that money to boost my emergency fund, I think the psychological benefit of ridding myself of the CC debt will be more important for me. So, we can check that off the list. From there, it really gets back to balancing the student loan debt repayment with my EF and long-term savings goals. I know everyone will agree that my 401K contribution needs to increase to 5% (which I will do effective next pay period), but I'm still curious about thoughts on the Roth. Could I open one and use it as an ER? Could I take the money I would normally expect at bonus time and use that as a contribution and then use the other two months where I receive an extra paycheck to hopefully get close to the max contribution limit? Or do I just stick with the 5% 401K contribution and throw the kitchen sink at the student loan? If nothing changed with my income and expenses, I'd realistically be looking at being almost 40.

For me, the real anxiety is just figuring out the order of operations in a way that makes sense for me, keeps me motivated and provides tangible results. I think a big thing is also realizing that I'm going to have to postpone home ownership, buying a nicer car and having kids until I clean up this mess and get back on track.
« Last Edit: July 10, 2017, 09:49:21 AM by latearriving »

DarkandStormy

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #5 on: July 10, 2017, 10:20:56 AM »
I know everyone will agree that my 401K contribution needs to increase to 5% (which I will do effective next pay period), but I'm still curious about thoughts on the Roth. Could I open one and use it as an ER? Could I take the money I would normally expect at bonus time and use that as a contribution and then use the other two months where I receive an extra paycheck to hopefully get close to the max contribution limit? Or do I just stick with the 5% 401K contribution and throw the kitchen sink at the student loan? If nothing changed with my income and expenses, I'd realistically be looking at being almost 40.

For me, the real anxiety is just figuring out the order of operations in a way that makes sense for me, keeps me motivated and provides tangible results. I think a big thing is also realizing that I'm going to have to postpone home ownership, buying a nicer car and having kids until I clean up this mess and get back on track.

On the Roth - most people will say eliminate the high-interest debt first.  I.e. if you're going to earn ~8% ROI in a Roth, is it worth it if you have 12% debt accumulating on a CC?  No.  But it sounds like you're making progress on that CC debt (nice!) and have a plan to get them off the books in a couple months.  The question then becomes is it worth it to start contributing to a Roth or put that money towards the student loans.

http://www.rothira.com/roth-ira-withdrawal-rules

^There is a good overview of the withdrawl rules.  You can take out the principal you've invested at any time.  If you withdraw the earnings before 59 and 1/2 and you're not using it for a first-time home purchase or college expenses, then you get hit with a penalty.  So yes, in essence you could use it as an emergency fund.  Mind you, this is taking assets out of your nest egg.  Some people think of it as their emergency fund, or part of it.

You have 15.5 months to contribute to your Roth IRA.  So for the 2017 tax year, you can make contributions up to April 15, 2018.  Keep that in mind with varying bonuses and whatnot - the contributions do not have to occur only in the 2017 calendar year.
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Hargrove

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #6 on: July 10, 2017, 10:52:34 AM »
- CC debt is gone by mid-September. I've already committed to paying that off. In fact, just made a $650 payment yesterday towards the first card. Even though I could potentially use that money to boost my emergency fund, I think the psychological benefit of ridding myself of the CC debt will be more important for me. So, we can check that off the list. From there, it really gets back to balancing the student loan debt repayment with my EF and long-term savings goals. I know everyone will agree that my 401K contribution needs to increase to 5% (which I will do effective next pay period), but I'm still curious about thoughts on the Roth. Could I open one and use it as an ER? Could I take the money I would normally expect at bonus time and use that as a contribution and then use the other two months where I receive an extra paycheck to hopefully get close to the max contribution limit? Or do I just stick with the 5% 401K contribution and throw the kitchen sink at the student loan? If nothing changed with my income and expenses, I'd realistically be looking at being almost 40.

For me, the real anxiety is just figuring out the order of operations in a way that makes sense for me, keeps me motivated and provides tangible results. I think a big thing is also realizing that I'm going to have to postpone home ownership, buying a nicer car and having kids until I clean up this mess and get back on track.

The gym sounds like it's as worth it to you as it could possibly get. Here's how to wrap your head around the savings priorities:

401k company match: you deposit $10. Your company deposits, then, $10. That is an instant 100% return on your money, then it grows in the stock market. With some outrageous 401k fees, that's like a 110% first-year return on your money up to the company match, as it's ((your money)*(your money grows)+(company match)*(company match grows))/(original contribution).

No other savings vehicle at all will compete with that. You could do a Traditional or a Roth IRA after that if you had a surplus... however, here's why you wouldn't:

Stock market return before inflation (rough 30yr annual average): 10%
Credit card interest rate: 12%, 13.5%
That's a guaranteed loss.

Your student loan is on the cusp. If it helps you psychologically to be rid of the student loan, kill that before starting an IRA for sure.

401k match: 110% returns (most GUARANTEED)
Credit card paid: 12-13.5% returns GUARANTEED
Student loan paid: 7.5% returns GUARANTEED
Stock market: 7% returns, after inflation, not guaranteed and projected from a 30yr average
Car loan: 5.5% returns GUARANTEED

Lady SA

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #7 on: July 10, 2017, 11:34:33 AM »
Again, look into refinancing the student loans once your CC debt is paid off in a few months. If you can get the rate down then it might make sense to instead do half-and-half student loan repayment and saving.
EDIT: on another thread today another poster just refinanced his loan with earnest (see my sig for a referral link) and reduced his rate by 1.5%. With your federal loan at 7%+ I would really prioritize getting that rate lower, unless you saw a need for the benefits that come from a federal loan (income based repayment, deferral, etc).

Here's what my DH and I are doing. We have a higher income, but we also had $150k in loans (yikes!). We both refinanced and got rates between 4.6-5.3%, at those rates it was really a wash between paying them off and investing in the market. In the end we like the idea of being debt free but also didn't want to miss out on time in the market, so we opted to max our tax advantaged accounts first and pay the loans aggressively with whatever was leftover. At this point, we will be debt free 2 years from now, and when we make our last payment we will also have a solid position with our assets. Those extra few years of compound interest working for us instead of against us (like with debt) will make our lives a LOT easier down the road.

Being 35 and no assets, I would personally put a higher premium on retirement savings because waiting until all loans are gone to start saving makes it that much harder. Let compound interest work for you for as long as possible.
To do that effectively, get the smallest rate on the SLs as possible after you get rid of the CCs. Then pay at least the minimums, then max your tax advantaged accounts as much as possible, then pay more toward loans with the leftover.
« Last Edit: July 10, 2017, 05:07:04 PM by Lady Smartass »
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

latearriving

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #8 on: July 11, 2017, 12:05:40 PM »
Just a few quick notes:

- Called Verizon and asked if they had any cheaper internet options. I was able to get a 2-year promotional offer that will lower the total cost by $15 per month. Small victory.

- Looked into refinancing the student loan with SoFi and Earnest. I'm not eligible for Earnest because they don't do business in my state. Rate I got with SoFi was 6.25%. I think I'm going to jump on that as soon as my credit cards are paid off in September. I'll hold off until then because the minimum payment is actually higher (currently on graduated repayment with the Fed Loan). Once the credit cards are paid off, I'm going to aim to allocate an extra $400-500 per month to the loan.

- Did more research on my company's retirement offerings. Found out they also offer a Roth 401K with the same 5% match provision. That might be attractive, although I'm still trying to learn more about the differences between a Roth and Roth 401K. Can I still withdraw contributions tax free?

DarkandStormy

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #9 on: July 11, 2017, 12:15:00 PM »

- Did more research on my company's retirement offerings. Found out they also offer a Roth 401K with the same 5% match provision. That might be attractive, although I'm still trying to learn more about the differences between a Roth and Roth 401K. Can I still withdraw contributions tax free?

Roth IRAs and Roth 401k's work very similarly - except the Roth 401k is obviously through your employer.  Contributions are mode post-tax today but can be withdrawn tax-free in the future.  You can withdraw it tax-free if you are over 59.5 OR you meet the five-year rule (5 years after the first day of the calendar year in which you first made a Roth contribution to the retirement plan.) - initial contributions (i.e. "principal) only if you're under 59.5.

Note - the company match will still be considered "pre-tax."  So if you go to roll them into an IRA, the Roth 401(k) - i.e. your contributions - will go to a Roth IRA account and the company match portion will need to go to a Traditional IRA, which will be taxed upon taking distributions.
« Last Edit: July 11, 2017, 01:03:26 PM by DarkandStormy »
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latearriving

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #10 on: July 11, 2017, 12:53:30 PM »

- Did more research on my company's retirement offerings. Found out they also offer a Roth 401K with the same 5% match provision. That might be attractive, although I'm still trying to learn more about the differences between a Roth and Roth 401K. Can I still withdraw contributions tax free?

Roth IRAs and Roth 401k's work very similarly - except the Roth 401k is obviously through your employer.  Contributions are mode post-tax today but can be withdrawn tax-free in the future.  You can withdraw it tax-free if you are over 59.5 OR you meet the five-year rule (5 years after the first day of the calendar year in which you first made a Roth contribution to the retirement plan.).

Note - the company match will still be considered "pre-tax."  So if you go to roll them into an IRA, the Roth 401(k) - i.e. your contributions - will go to a Roth IRA account and the company match portion will need to go to a Traditional IRA, which will be taxed upon taking distributions.

Interesting. I'll have to consider it. Not sure if it's worth it because I'm not overly thrilled with my plan's fund offerings (it's a Wells Fargo plan). If I do open a Roth, I'd like to go with Vanguard or Fidelity. Then again, I wouldn't be getting the free money that the match gives me.

Lady SA

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #11 on: July 11, 2017, 01:25:46 PM »
Looked into refinancing the student loan with SoFi and Earnest. I'm not eligible for Earnest because they don't do business in my state. Rate I got with SoFi was 6.25%. I think I'm going to jump on that as soon as my credit cards are paid off in September. I'll hold off until then because the minimum payment is actually higher (currently on graduated repayment with the Fed Loan). Once the credit cards are paid off, I'm going to aim to allocate an extra $400-500 per month to the loan.

I would reapply at sofi after the CCs are paid off because your debt load vs income will be much lower at that point and they are likely to offer you an even lower rate. Bummer about Earnest.
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

TheStachery

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #12 on: July 11, 2017, 02:54:34 PM »
I would stop focusing on the Roth so much and contribute to the 401k at 5%.  Pay off debt.  Worry about the Roth once you have additional money to add to it.

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #13 on: July 11, 2017, 07:42:13 PM »
Until your debt is gone, plan to have a roommate who splits the costs with you.   Your girlfriend is ideal, but you need a roommate to make really fast progress.

So if you don't have a live-in girlfriend, then find a roommate.  You don't have to like them, you just have to trust them.  Those costs cut in half are making it possible for your to be out of debt in less than 4 years.

After you are out of debt you can pour all that extra cash into investments and get yourself set up financially.   

In the meantime, work on skills that make you a better catch for a girlfriend and skills that will keep you employed and at better paying positions.

Best of luck!

clarkfan1979

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #14 on: July 26, 2017, 08:49:24 PM »
Until your debt is gone, plan to have a roommate who splits the costs with you.   Your girlfriend is ideal, but you need a roommate to make really fast progress.

So if you don't have a live-in girlfriend, then find a roommate.  You don't have to like them, you just have to trust them.  Those costs cut in half are making it possible for your to be out of debt in less than 4 years.

After you are out of debt you can pour all that extra cash into investments and get yourself set up financially.   

In the meantime, work on skills that make you a better catch for a girlfriend and skills that will keep you employed and at better paying positions.

Best of luck!

If it doesn't work out with your girlfriend, you need a roommate. I had roommates from 18-31, until I moved in with my wife. I never lived by myself. That is probably the biggest budget item. The rest of your budget looks reasonable.

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #15 on: July 27, 2017, 04:59:10 AM »
This is not a specific advice but a general one. Read some of the other case-stories. Especially the ones with a lot of debt. It is really interesting and sad to see people really fired up and all like "bring on the face-punches!" and then a few weeks/months in they just stop responding and the thread dies out. This might seem weird that I am writing this when you're so motivated and pumped. But it will get hard and you will question the path you're treading. But whatever you do - don't give up. If you find yourself annoyed at the forum and the advice theres a good chance that its tough love and people are spot on. This will not be easy - but it will be so worth it. (and the cool thing is you find out along the way that "easy" isn't even desirable. Badass is. )

latearriving

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #16 on: July 27, 2017, 12:54:17 PM »
This is not a specific advice but a general one. Read some of the other case-stories. Especially the ones with a lot of debt. It is really interesting and sad to see people really fired up and all like "bring on the face-punches!" and then a few weeks/months in they just stop responding and the thread dies out. This might seem weird that I am writing this when you're so motivated and pumped. But it will get hard and you will question the path you're treading. But whatever you do - don't give up. If you find yourself annoyed at the forum and the advice theres a good chance that its tough love and people are spot on. This will not be easy - but it will be so worth it. (and the cool thing is you find out along the way that "easy" isn't even desirable. Badass is. )

Definitely agree. Haven't posted any updates, but everything is going well. First credit card balance is down to $450. I'll be paying off the remainder of that one next Friday. Still on track to knock out the other card in September. I also got an email from Geico with an offer to come back for a lower rate. I was skeptical, but I completed the quote and ended up saving $35 per month AND increasing my liability coverage. I'm hoping my premium doesn't increase after the first 6 month policy period expires, but I'll take the savings for now. Overall, I'm happy with the first month's progress. I have a much better handle on my budget and the motivation to get out of debt and accelerate my retirement savings is only going to continue.
« Last Edit: July 27, 2017, 12:57:52 PM by latearriving »

ysette9

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Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #17 on: July 27, 2017, 03:39:03 PM »
Nicely done! Having concrete wins like paying off a credit card or two is a great way to stay motivated as you built new and better habits.
"It'll be great!"

vawt

  • Bristles
  • ***
  • Posts: 287
  • Location: Visalia, CA
    • Early Retirement Ahead
Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #18 on: July 28, 2017, 04:34:29 PM »
Keep posting updates.  They are fun to read.  You aren't too late to the game to achieve a huge turnaround and the steps you are already making will help you get there.  Just think how much extra cash flow you will have as you increase your income AND have less debt to pay each month!  Good luck.

zoe2dot

  • 5 O'Clock Shadow
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  • Posts: 18
Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #19 on: September 19, 2017, 06:41:45 PM »
How's the  stache looking?
What's your 401k contribution % now?

Just starting my own financial realignment so curious about ppl a few months in.

jamccain

  • Stubble
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  • Posts: 112
  • Location: Los Angeles
Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #20 on: September 21, 2017, 10:38:01 AM »

- Did more research on my company's retirement offerings. Found out they also offer a Roth 401K with the same 5% match provision. That might be attractive, although I'm still trying to learn more about the differences between a Roth and Roth 401K. Can I still withdraw contributions tax free?

Roth IRAs and Roth 401k's work very similarly - except the Roth 401k is obviously through your employer.  Contributions are mode post-tax today but can be withdrawn tax-free in the future.  You can withdraw it tax-free if you are over 59.5 OR you meet the five-year rule (5 years after the first day of the calendar year in which you first made a Roth contribution to the retirement plan.).

Note - the company match will still be considered "pre-tax."  So if you go to roll them into an IRA, the Roth 401(k) - i.e. your contributions - will go to a Roth IRA account and the company match portion will need to go to a Traditional IRA, which will be taxed upon taking distributions.

Interesting. I'll have to consider it. Not sure if it's worth it because I'm not overly thrilled with my plan's fund offerings (it's a Wells Fargo plan). If I do open a Roth, I'd like to go with Vanguard or Fidelity. Then again, I wouldn't be getting the free money that the match gives me.

If you're not getting the match, what's the point?  If you're going to invest in the Roth, suck it up and invest in the WF account and get the match.  You can transfer it to Vanguard, or whoever, at a later time. 

To answer your other question, Yes, you can withdraw Roth contributions (contributions only) tax free because you've already paid taxes on the money.  Roth IRA earnings (earnings on your contributions through interest, dividends, etc) are not eligible for tax free withdrawal. 


jamccain

  • Stubble
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  • Posts: 112
  • Location: Los Angeles
Re: Case Study: Nearly 35, moderate debt, practically no savings
« Reply #21 on: September 21, 2017, 10:43:02 AM »
Best advice I can offer is to make more money (like Swordfish mentioned earlier in this post)

...sure saving $20 bucks on whatever is nice, but invest in yourself (whatever that means in your field) and get a raise at work.  Can you get a certification in the next 3-12 months, or whatever else you need to boost your pay.  Can you network yourself into a new job just with better pay?  I am not saying to spend $100K on an MBA, I'm talking about a quick win.  This is where I would be focusing my attention.