Author Topic: CASE STUDY-Please help me lower our budget and save more  (Read 7661 times)

Rphfire

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CASE STUDY-Please help me lower our budget and save more
« on: January 31, 2017, 01:33:52 PM »
Hello,
I am 39 years old female, I need help with my financial situation. I earn roughly $103K (Gross) per year. I have 68K in student loans. I have 2 kids (ages 4, 2). I live in Maryland with high cost of living

401K: $24K (company contributes 4%, won't allow matching)
403b: $96K (Contributes 11% yearly)
Paycheck: $4450/month (After Taxes)
Rent: $1700/ month
Student loan: $806/month (5.75% interest rate)
Tuition (for pre school for the 4yr old): $600/month
BGE: $100/month
Groceries: $600/month
Car insurance (for 2 cars 2007 Toyota Camry and 2013 Toyota Camry): $160/month
Rental insurance: $30/month
Gas for 2 cars: $320/month
Life insurance (World financial group): $270/month-for 3 people
Comcast:$140/month
Cell phone for 2 people(Att & Verizon): $230/month
Miscellaneous:~ $1000/month (help both moms with part of rent, 2yr old son has chronic health issues that we pay some things out of pocket)

My husband is not working full time (due to personal issues, he does odd jobs (uber, contract) and earns between $600-$2000/month)

Questions: Should I use my 403b to pay off my student loan?
Where else can we cut to pay off debt?
We are looking to buy a house with the same mortgage we are paying in rent. Should we hold off until student loan is paid off or buy a house now? What else can I do to accelerate my retirement.
 Thanks

« Last Edit: January 31, 2017, 04:22:41 PM by Solayide »

dandarc

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #1 on: January 31, 2017, 01:45:05 PM »
You may want to check out the spreadsheet here: https://drive.google.com/file/d/0B45krBaG0b6KTWZDeXEySVBHVXc/view?usp=sharing

Off the top of my head: $230 for 2 cell phones is insane.  Wife and I pay $25.36 for 2 without data.
Comcast - you could cut back to internet only and pick up netflix and cut this by half or more.
Life insurance - need details, but that is a lot of money for life insurance.
Gas - since your husband Uber's, guessing a lot of this is going toward that?  If not, where are you driving so much?

Kids will be going to public school?  Then pre school is ok.  Who takes care of the 2 year old during the day?

Misc. - need more detail there.

Sailor Sam

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #2 on: January 31, 2017, 01:49:00 PM »
Hi Solayide, welcome to the forums. My broad advice is to reduce your spending, and kill that hair on fire debt. Here are some ways to accomplish that.

1. Your SL is above 4%, which means you should stop contributing to your 403b and redirect the payments to your student loan.

2. Rent is 37% of your takehome pay. Research ways to reduce this. Cashflow larger houses, that would let your rent 1-2 rooms.

3. Groceries actually seem basically okay for 2.5 omnivores, but I know there are ways to improve. Look into price books, or going vegetarian, etc

4. Car insurance seems very high. Renegotiate. Consider dropping Comprehensive, if you haven't already.

5. Gas is very high. Can you clarify why it's so high? If driving for Uber is driving the need for gas, be sure and cashflow that out your husband's profits.

6. Who's the 3rd person on the life insurance? If it's your kid, consider dropping.

7. Combination of Comcast and cell phones are killing you. That's 8% of your take home pay. Read I.P. Daley's thread of Communications. He's the local guru.

8. Your misc category is large. Start tracking every penny.

9. General advice on your approach towards money. Learn how to live off your paycheck alone. The great news is you're a high earner, and living on a solo check is completely possible. Take all monies your husband brings in, and put it towards your loan.

marty998

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #3 on: January 31, 2017, 02:34:27 PM »

My husband is not working full time (due to personal issues, he does odd jobs (uber, contract) and earns between $600-$2000/month)


Appreciate this may be too sensitive a topic for you to elaborate on but this will be the biggest inhibitor to "accelerating your retirement" as you put it.

Being healthy and maintaining capacity to earn a living should be #1 priority. Sort that out and the rest follows much easier.

Rphfire

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #4 on: January 31, 2017, 02:44:18 PM »
You may want to check out the spreadsheet here: https://drive.google.com/file/d/0B45krBaG0b6KTWZDeXEySVBHVXc/view?usp=sharing

Off the top of my head: $230 for 2 cell phones is insane.  Wife and I pay $25.36 for 2 without data.
Comcast - you could cut back to internet only and pick up netflix and cut this by half or more.
Life insurance - need details, but that is a lot of money for life insurance.
Gas - since your husband Uber's, guessing a lot of this is going toward that?  If not, where are you driving so much?

Kids will be going to public school?  Then pre school is ok.  Who takes care of the 2 year old during the day?-

Misc. - need more detail there.

My contract with verizon will end in June and I'm planning to cut my plan and get something cheaper. Since hubby drives for uber he needs a plan with unlimited date (Att), any suggestion for cheaper companies he can switch to for unlimited data.
-Life insurance (part life insurance and part savings)
-Gas-mainly from hubby driving, but I have 25 minutes commute to work also.
-my MIL takes care of the 2 yr old
-Misc (mostly taking care of both mums, car maintenance, etc)

MandyM

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #5 on: January 31, 2017, 02:47:05 PM »
We are looking to buy a house with the same mortgage we are paying in rent. Should we hold off until student loan is paid off or buy a house now?


I would definitely NOT buy a house with a matching mortgage/rent payment. As Sailor Sam noted, your rent is a pretty high percentage of your take home pay and you should consider reducing it. Additionally, a home is going to have expenses above and beyond the mortgage payment (maintenance and repairs) and would push your costs even higher. I'm a big fan of this page for looking at the details of rent vs own: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

dandarc

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #6 on: January 31, 2017, 02:51:15 PM »

My contract with verizon will end in June and I'm planning to cut my plan and get something cheaper. Since hubby drives for uber he needs a plan with unlimited date (Att), any suggestion for cheaper companies he can switch to for unlimited data.
-Life insurance (part life insurance and part savings)
-Gas-mainly from hubby driving, but I have 25 minutes commute to work also.
-my MIL takes care of the 2 yr old
-Misc (mostly taking care of both mums, car maintenance, etc)
OK, look into switching to term life insurance.  You're probably paying way, way more for that than you actually need to be.

Turns out, driving for Uber doesn't require that much data:
https://www.reddit.com/r/uberdrivers/comments/3v6agk/how_much_data_does_uber_use/

So, if you don't use cell data much, you could get onto a plan with an MVNO in the $10-20 range, husband maybe $30.

And seriously, do not buy a house with the mortgage at same amount you're paying in rent.  That house will cost much, much more than your rent, and you're already spending a ton of your income on housing.

MandyM

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #7 on: January 31, 2017, 02:59:17 PM »
Have you considered having your MIL move in with you? She is already helping with childcare and you are helping her pay her rent. Perhaps you can find something that consolidates those things and reduces costs.

MDM

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #8 on: January 31, 2017, 03:15:14 PM »
I earn roughly $103K (Gross) per year.
Paycheck: $4450/month (Gross)
Those two numbers are not consistent...?

Quote
401K: $24K (company contributes 4%, won't allow matching)
403b: $96K (Contributes 11% yearly)
Your company contributes ~$4K/yr to a 401k, regardless of what you do, and you are contributing ~$11K/yr to a 403b - is that correct?

Quote
Student loan: $806/month (5.75% interest rate)
Your effective rate is somewhat lower due to the deductibility of SL interest.  If you are not using all your tax-advantaged space (and it appears you are not), continuing to pay the minimum on this is OK.

Rphfire

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #9 on: January 31, 2017, 04:24:32 PM »
I earn roughly $103K (Gross) per year.
Paycheck: $4450/month (Gross)
Those two numbers are not consistent...?

The paycheck is after taxes, not gross

Quote
401K: $24K (company contributes 4%, won't allow matching)
403b: $96K (Contributes 11% yearly)
Your company contributes ~$4K/yr to a 401k, regardless of what you do, and you are contributing ~$11K/yr to a 403b - is that correct?

Quote
Student loan: $806/month (5.75% interest rate)
Your effective rate is somewhat lower due to the deductibility of SL interest.  If you are not using all your tax-advantaged space (and it appears you are not), continuing to pay the minimum on this is OK.

Rphfire

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #10 on: January 31, 2017, 04:43:28 PM »
I earn roughly $103K (Gross) per year.
Paycheck: $4450/month (Gross)
Those two numbers are not consistent...?

Quote
401K: $24K (company contributes 4%, won't allow matching)
403b: $96K (Contributes 11% yearly)
Your company contributes ~$4K/yr to a 401k, regardless of what you do, and you are contributing ~$11K/yr to a 403b - is that correct?

Quote
Student loan: $806/month (5.75% interest rate)
Your effective rate is somewhat lower due to the deductibility of SL interest.  If you are not using all your tax-advantaged space (and it appears you are not), continuing to pay the minimum on this is OK.

The company contributes 4%, we are not allowed to contribute anything to the 401K, and I'm contributing 11K/yr to a 403b

kpd905

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #11 on: January 31, 2017, 05:20:51 PM »
Definitely look into getting term life insurance for you and your husband, it will be maybe $80/month I think.

Go to internet only with Comcast.

The car insurance seems high, do you have accidents on your record?  We pay about $60/month to cover two cars with full coverage.

Don't use the 403b to pay off the loans, you'll pay taxes plus the 10% penalty and end up working until 70.

MDM

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #12 on: January 31, 2017, 05:42:02 PM »
I earn roughly $103K (Gross) per year.
Paycheck: $4450/month (Gross)
Those two numbers are not consistent...?
The paycheck is after taxes, not gross

Something still doesn't add up.  Perhaps you are severely over-withholding, or I misinterpreted your OP, or...?  See below (from the spreadsheet dandarc mentioned) for (with some guesswork) what I see - how does it differ from what you know?

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$8,583$103,000
Pretax Health Ins.$500$6,000
FICA base salary/wages$8,083$97,000
401(k) / 403(b) / TSP / etc.$917Room to increase?$11,000
Employer Match$333$4,000
Income subject to IRS tax$7,167$86,000
Schedule C net profit$1,300$15,600
Federal Total Income$8,467$101,600
Federal tax$6212016 rates, MFJ, stand. ded., 4 exempt.$7,452
State/City tax$345Guess, using 5.00% * (AGI - Exempt'n)$4,145
Soc. Sec.$501Assumes 1 earner paying$6,014
Medicare$117$1,407
Self-employment Tax$184$2,204
Total income taxes$1,768$21,222
Income before other expenses  $6,698$80,378
Monthly Average Expenses:
Rent$1,700$20,400
Home/Rent Insurance$30$360
Car Insurance$160$1,920
Electricity$100$1,200
Fuel/Public Transport$320$3,840
Groceries$600$7,200
Internet$140$1,680
Life Insurance$270$3,240
Miscellaneous$1,000$12,000
Phone (cell)$230$2,760
School Tutition/Books/Etc.$600$7,200
Non-mortgage total$5,150$61,800
Loans:
Student Loan$806$9,672
Total Expense$5,956$71,472
Total to invest$742$8,906
Summary:
"Gross" income$9,883$118,600
Income taxes$1,768$21,222
After-tax income$8,115$97,378
IRA+401k/403b/TSP/457 (Savers' credit)$917$11,000
Living expenses$5,650$67,800
Non-mortgage loans$806$9,672
After-tax investable$742$8,906


Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions4
# Children <172
# Children for EIC2
Adult #1
Age30
Full-time student?30
# of earners1
Total Income$101,600
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$16,200
Deductible SE tax$1,102
SL int. (approx.)$2,500
AGI$97,998
MAGI$100,498
Taxable$69,198
1040 Tax$9,452
AMT adder$0
Saver's credit$0
Tax after n-r credit$9,452
NIIT$0
EIC$0
Child Tax Cred.$2,000
Net Tax$7,452
Monthly$621
State tax$4,1455.00%
Item. Deduct.$4,145
VersionV8.12

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Student Loan$73,42510$68,00095.750%

ETA: Fix MAGI number
« Last Edit: January 31, 2017, 06:20:18 PM by MDM »

Laura33

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #13 on: January 31, 2017, 07:25:36 PM »
You may want to check out the spreadsheet here: https://drive.google.com/file/d/0B45krBaG0b6KTWZDeXEySVBHVXc/view?usp=sharing

Off the top of my head: $230 for 2 cell phones is insane.  Wife and I pay $25.36 for 2 without data.
Comcast - you could cut back to internet only and pick up netflix and cut this by half or more.
Life insurance - need details, but that is a lot of money for life insurance.
Gas - since your husband Uber's, guessing a lot of this is going toward that?  If not, where are you driving so much?

Kids will be going to public school?  Then pre school is ok.  Who takes care of the 2 year old during the day?-

Misc. - need more detail there.

My contract with verizon will end in June and I'm planning to cut my plan and get something cheaper. Since hubby drives for uber he needs a plan with unlimited date (Att), any suggestion for cheaper companies he can switch to for unlimited data.
-Life insurance (part life insurance and part savings)
-Gas-mainly from hubby driving, but I have 25 minutes commute to work also.
-my MIL takes care of the 2 yr old
-Misc (mostly taking care of both mums, car maintenance, etc)

So this is whole life, or some variant.  Switch to term.  It makes no sense to be considering using your tax-favored 403(b) to pay down debt, while "saving" through a whole life policy.  Switch to term, keep your 403(b), throw the (significant) savings at your student loan.

Also, why do you have insurance on 3 people?  At most you need you and your husband; I'd even consider cutting his back to a minimal amount given his smaller contribution to your income right now, unless there may be reason to fear that he won't be insurable later.

Rphfire

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #14 on: February 01, 2017, 06:48:05 AM »
Definitely look into getting term life insurance for you and your husband, it will be maybe $80/month I think.

Go to internet only with Comcast.

The car insurance seems high, do you have accidents on your record?  We pay about $60/month to cover two cars with full coverage.

Don't use the 403b to pay off the loans, you'll pay taxes plus the 10% penalty and end up working until 70.

I will look into different car insurance companies to get a lower deal and also switch to term life insurance.
My company allow borrowing up to 50% of my 403b with a rate of 4.75% and paid off in 5yrs (for general purpose) or 15 yrs (for residential loan), without paying taxes or penalty.

MandyM

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Re: CASE STUDY-Please help me lower our budget and save more
« Reply #15 on: February 01, 2017, 10:43:31 AM »
My company allow borrowing up to 50% of my 403b with a rate of 4.75% and paid off in 5yrs (for general purpose) or 15 yrs (for residential loan), without paying taxes or penalty.

This is still a bad idea if you are able to deduct the interest paid on the SL (https://www.irs.gov/publications/p970/ch04.html). If it is deductible, that effectively reduces the SL interest rate as MDM noted above, which may put it lower than the 4.75% that you can borrow from your 403b.

I know everyone gets antsy to throw every penny at their loans, but it doesn't always make good financial sense to do that. Remember that nobody is going to give you a loan for your retirement (early or otherwise) so those savings should almost always be the top priority.