Author Topic: Case Study - Help Me Meet my Goals Please  (Read 729 times)

jmssk323

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Case Study - Help Me Meet my Goals Please
« on: December 18, 2018, 02:20:46 PM »
I am a new federal employee currently overseas and can stay indefinitely. This change has brought with it a substantially higher income and the chance for me to really get serious about retirement and ER at that. I am and was a single parent who is owed over 65k in back child support. So, no face punches about debt please. My goal is to get rid of the debt and save as much as possible.
I think I have ironed out most of the details but would like some “what would you do” answers. I am 46 in a month and am shooting for a 11-13-year retirement goal. Sooner if doable.
I have one dependent in college in the states, one that just finished college, and one child with me in Europe who is 12.
How retirement looks now, with me planning on SSI: 
I receive a $650 a month VA payment
I am fully vested in my state pension and at @62 should receive $950 a month.
I will fully vest in a federal pension and @62 should receive approx. $1000 a month. Lower if I RE sooner.
I have calculated that my SSI payment @62 would be about $1600 if my income goes up as projected.
At age 62, I am fine and have over 50k in income which is more than enough. I worry about the years between when I want to stop working and that magic age.
Housing Questions:
My biggest decision is about housing. My housing and utilities are currently paid tax free, but I can purchase a home with this money. I would be responsible for taxes and interest payments but not the principle or my utilities. I need about 10k to start this process.  It seems like a no-brainer to make this leap. 
I sold my home and paid off a lot of my debt when I moved but the move incurred some new debt but I do plan to return to the states and have a large portable homestead property tax exemption that I need to put into a house within two years. The clock is ticking and I am thinking condo for one of the kids (so I can keep the exemption.) which they would pay majority of expenses on or I would offset what I pay.  I may lose the exemption also and that might be fine. I would need down payment money for this also but not losing it could lose me a substantial savings on property taxes in retirement and I would have to purchase before Jan.1 2020.
$73,220 income +650 monthly payment $7800 (nontaxable)
Current Deductions (annual) FOR 2019:
TSP contributions: $19,000 (currently have $2500) I just got started!
Health FSA: $2800.
Medical Ins. $4620. (not needed after my youngest ages out)
SSDI/medicaid: $5600
Fed tax: $4725
Pension: $3222 (mandatory 4.4% income)
FEGLI: $420
Net income of $40,633  $3386.00 a month.

Housing/Utilities:  I budget $100 a month due to exchange rate fluctuation
Student loan payment: $283.00 (6.5 more years on income-based repayment which will fluctuate. I am also on PSLF so the balance doesn’t really matter but its about 115k)
Prepaid college fund: $86.00 (setup to maintain in-state tuition for my youngest)
College housing for child: $747.00 (dorm housing 3 more years)
Amazon Prime: $13.00
Cobra (vision and dental): $46.00
Adobe software: $20.00 (my youngest is learning editing & graphic design)
Cell Phones plans stateside: $168.00 (This is for 6 people and $50 is reimbursed to me each month includes Netflix)
Life Insurance: $71.00 (400k policy VGLI which I hope to phase out as savings increase)
Seemingly non-negotiable debt totals: $1534 monthly

Other debt (monthly):
Loan: $445   9800.00 balance 11.99%
CC#1 $103    $5120 @ 20.99% which was all 0% but the promo expires January
CC#2  $97      $7803 @ 0.0% for 18 months
CC#3  $111     $4300 @ 12.29%
CC#4 $86        $2900@ 23.99%
Car payment   $176    $5400 @ 4.49%
$1018 monthly No good debt.

Europe bills:
87.00 car insurance
56.00 internet
20.00 Aldi Talk (German phone line)
I have been sending 500 to my Euro account to cover the Euro bills above and local expenses. Groceries, toiletries, day trips, auto maintenance, haircuts, and intend on saving any unused funds.
I also take out $300 USD cash for groceries, gas, one $35.00 brunch a month, one night bowling, and occasional youth programs for my son.
So my monthly budget puts me at $3352.00

I am really interested in how I could efficiently get rid of this debt and start considering my goals. I can move some of the debt around to 0% interest that is being offered on a card that I have $8k available. I could also get another 0% card if it makes sense.
Things I also need to consider are a trip to the states each year to see my children just the flights I have a place to stay. I have a surgery I need to get for my vision which is about $8k but it can wait at least a year.
Help me please with some best ideas to get debt-free and retire ASAP!  The house bought here if feasible would be sold to purchase in the states probably 1-1 exchange so going that route would possibly leave me mortgage free in retirement. No taxes here if I live in it for ten years.

« Last Edit: December 18, 2018, 02:54:46 PM by jmssk323 »

Finances_With_Purpose

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Re: Case Study - Help Me Meet my Goals Please
« Reply #1 on: December 18, 2018, 08:42:54 PM »
There's a lot going on here.  But you don't mention your net assets, and, from the rest, I'm assuming they're not huge. 

Also, you don't mention your emergency fund or cash savings. 

Suggestions, based upon what you gave us:

1.  First things first: save up an emergency fund.  If you don't have one, get one, and get up to 6 mos. expenses.  Put this ahead of investing.

2.  Also first: you have hair-on-fire debts.  Not face-punching here, or criticizing how you got here (best to look ahead), but pointing out the obvious.  Focus on paying them.  This is your obvious next step.

Cut up all credit cards.  The CC debt and lack of a mention of savings are what make me think you may not have an emergency fund, and may be counting on credit.  But that violates the first rule of holes: stop digging. 

3.  Don't even think about thinking about buying a home until you've nailed most of your debts in step 2.  Houses involve all kinds of unexpected large expenses, not to mention all the temptations towards spending more to make it home-y, etc.  (See many threads on that, including one I started a while back - and can now vouch for those who posted explaining how expensive that leap really is.) 

I'll grant you that it may look like a great financial decision (I didn't get into details, and there's not enough here), but even if it were theoretically, you're running far too much risk and debt to take on more.  You could end up upside-down far too quickly.  You need to focus on basics first and get the debt destroyed. 

No house is likely to offer you a 21% or 12% annual compounding return -- but you can acheive that return right now merely by paying your highest-rate debts. 

4.  Cut all retirement savings until you kill the worst debts.  Cut TSP to 0 this year and next at least.  It won't help you if you get so far underwater you can't get out, and with that much debt, it's easy to get there.  Also won't help you if you have to take it out with penalties, etc. 

5.  Cut the kid's dorm loose.  You're drowning in debt while handing out money you desperately need to even balance. 

I'm sure you have emotional reasons for it, but it's killing you financially.  And even *IF* you paid it ALL on debt for the next three years, it looks like you'll still be in debt. 

I can't emphasize this enough: you can't take care of others unless your own house is together, and from your post, it looks like you're on the brink. 

Moreover, the kid can likely get loans for that - and at a WAY better rate than the 20+% you're now paying!  Do that and pay the kid's loans if/when you can, not the other way around: paying for this as you go while letting sky-high interest mount. 

6.  Again, to emphasize, on housing: don't think about it.  You'd have to compare what you spend now to what you'd require for a house.  Plus taxes, maintenance ($500-$800/mo. often), etc.  Renting is almost *always* cheaper, almost every time someone proposes it or runs the numbers.  Not to mention a lot less risky financially.  If you ran the numbers, I would run them very liberally, then assume Year 1 will cost 2x as much for everything but the mortgage.  AND, I would have a large sinking fund, going into it.

You're in a far tougher spot than someone who buys a house with zero debt and emergency savings who could eat a $20-$30k repair in year one, if necessary, or at absolute worst, get ultra-cheap financing.  For you, that would be a catastrophic event resulting in the house being sold (under duress and needing repairs) or you going under completely. 

I don't say all of that to scare you: I'm sure you'll get to a point where a house isn't a problem.  But your cash flow is so incredibly tight - not like you have an extra $4k/month you could shift around if things got rough.  Moreover, when your cash flow is that tight, any mistake can ruin you.  If the house costs an extra $300/month, you're in trouble.  If it's a lot more, you're completely sunk. 

In short, it's a very, very bad idea right now or anytime soon.

--

Step 1 for you is to just focus on those debts.  Do a spreadsheet and kill it - use it as motivation until you get them all knocked out.  Then come back and re-evaluate. 

zoe2dot

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Re: Case Study - Help Me Meet my Goals Please
« Reply #2 on: December 26, 2018, 01:03:03 PM »
Like the last poster said, there is a lot going on here.

I can't even comprehend you buying a condo when you have CC debt at 24%.

I have to ask whether your youngest kid can pay the $20 monthly Adobe cost.
Could they babysit, mow lawns, etc?
I know that is likely the last thing on your to-do list but every $10 counts.

What is on your mind right now?  Are you willing to tell the college kid they need to take out loans for the dorm costs?