No surprises here, your biggest money suck is your two vehicles. Both financed, both originally $28k loans. The monthly cost of running that stable is considerable ( $900 in payments?? +>$100 insurance + ~$75 fuel?). You are paying about as much for your cars than you are for your home. It's time to be responsible and sell the jeep and replace it with something used and fuel efficient. Drop comprehensive insurance on your cars and your insurance should go down considerably.
The other categories you say you are making progress on... meals from $300 to $50, getting better internet (though $70 is still high). Groceries down from $1000 to $500 (could still drop that to $400 with proper planning).
that $8k in credit card debt is worrisome - what will the rate become after August?
tl/dr: now is the time to get your financial house in order. Sell the jeep, continue cost cutting and eliminate that $8k CC debt before the rates spike. Your Jeep and Honda are not truly assets unless you sell them. Sell the Jeep for the $33k you say its worth, pay off the $7.5k note, buy a cheaper car for ~$8k and wind up with ~$13k you can use to eliminate the CC debt and boost your tax-advantaged contributions. This will improve both cash-flow and your net worth. If you are serious about becoming FI consider selling the Honda too.
I would look hard at selling both vehicles, then using the left over money to pay off the credit card and then buy 2 cars with the remaining $17.5k. You eliminate both payments, lower your insurance, and most likely lower your gas costs.
Do you also have Amazon Prime? I noticed that you listed January's expenses. If you have any annual subscriptions that are paid in different months then you have some hidden costs you aren't accounting for. I would recommend losing at least one of the streaming services.
The $500 for groceries/household items seems high to me for two people. You can probably make a little effort here to drop it by $100-$200 a month.
You also have an ESPP. Are you required to keep that stock for any set length of time? If not, purchase the max that you can and immediately sell it off, and pocket the extra 15% plus anything it has grown.
You have to get rid of that credit card debt before the rates kick in.
Lets say you get rid of the vehicles (900), drop groceries by only (100), save on insurance (~40), fuel let's go low and say (20), and whatever you were paying on the credit card. There's an easy $1060 a month, potentially more.
You might also want to look into Geico for auto/home insurance. They partner with Liberty Mutual for the home. If you don't already have that, it could save you some more money.
Congratulations on the little one!
It takes some looking, but you can find quality used cars in the $6k-8k with tons of life left on them.
Thanks for your response! I have made some not so great decisions with vehicles. In reference to replacing the Jeep, where do people find sub $10k vehicles that aren't beaters? I plan to get out this weekend and look around some but looking online I don't see anything that isn't well over 100k miles and looking a little rough in that price range in my area.
Life Situation:
Me – 29
DW – 27
Married filing jointly
No current dependents but 1 on the way September 5th!
State: NC (5.75% tax)
Gross Salary/Wages:
Me = $2180 bi-weekly ($57k/year)
DW = $2225 bi-weekly ($58k/year)
DW is hourly and often ends up with overtime but this is based off of a normal paycheck. I am eligible for up to 10% bonus per quarter; it’s not hard to get but is completely dependent on project assignments which is out of my control; got full 10% in Q3 2017, 0% in Q4, and will most likely get full 10% in Q1 2018.
Individual amounts of Pre-tax deductions:
Me:
401k = $237 +$97 employer match (4.5%)
HSA = $50 +$250 from employer semi-annually
Health/Dental/Vision = $87
DW:
403b = $178
Health/Dental/Vision = $27
Adjusted Gross Income:
Me = $1806 ($47k/year)
DW = $2020 ($52k/year)
Taxes:
Me:
Federal - $162
SS - $126
Medicare - $30
State - $82.00
DW:
Federal - $319
SS - $136
Medicare - $32
State - $94
After-tax deductions:
Me:
ESPP = $43 (employee stock plan, purchase every 6 months at 15% of lowest price)
AD&D Ins = $6 ($750k coverage)
Supp Life Ins = $4 ($260k coverage)
Accident Ins - $4 (pays variable amounts for costs associated with acute injuries)
DW:
Supp Life Ins = $5 (not sure on exact amount but around $250k)
Emp Fitness Center = $5
Net Salary/Wages:
Me = $1349 bi-weekly
DW = $1429 bi-weekly
Current Expenses:
This is one area that needs some serious work. I took a fairly significant pay cut to switch industries in early 2016 to improve both work/life balance and long term career opportunities. I got a 20% raise this past summer which gave us some breathing room back but unfortunately fell into the trap of lifestyle inflation. I haven’t been tracking expenses by category but overall they have averaged around $5.5-6k per month over the last 6 months of 2017. We scaled back in January and our total will be approximately $4k; I think going forward we can easily hit around $3.5k per month without feeling much of a hit and have the ability to go lower if needed. Good news is DW is on board with this and doesn’t mind being frugal.
For January:
Mortgage: $1211 (P&I: $885, Taxes/Insurance Escrow: $326)
Vehicle Loans: $900
Vehicle Fuel, Insurance, Maintenance: $630 (This is high due to $563 semi-annual insurance payment)
Electricity: $223 (High in Jan and Feb due to sustained record low temps, usually averages about $150)
Water: $0 (pay $100-125 bi-monthly)
Cell phones: $107 (switched plans – will be $88/month going forward)
Cable/Internet: $120 (switched to internet only plan – will be $70/month going forward)
Misc Bills/Utilities: $46
Subscriptions: $37 (Netflix, Hulu, SlingTV)
Groceries/household items: $500 (was $800-1000 over the last 6 months)
Eating out: $52 (was $300+ over the last 6 months)
Pets: $47
Donations: $30
Hobbies: $25
Misc shopping/spending: $90
Assets:
Cash (Emergency fund): $5k
Roth IRA: $42k
401k: $40k
403b: $18k
Home: $230k (this is an approximation from my realtor based off of comps)
Jeep: $33k (per KBB)
Honda: $16k (per KBB)
Liabilities:
Mortgage: $163k @ 4.75% (original loan was $170k)
Jeep loan: $7.5k @ 2.1% (originally $28k)
Honda loan: $16k @ 4.14% (originally $28k)
Credit Card: $8k @ 0% until 8/18 (originally $13k)
Net Worth:
$188k
Additional Thoughts/Questions:
I know it’s a lot of info and just wanted to say thank you if you made it this far. Been having a lot of thoughts going through my head since I found out the little one is on the way. We aren’t in bad shape by any means but were sitting right on the borderline of sustainable with minimal safety net. Below are some specific thoughts/concerns.
We had a perfect storm of events last year when we had to replace our HVAC and refrigerator, and had some major water damage from a broken supply line to our kitchen sink within a few months. HVAC and refrigerator brought our emergency fund down from $10k to $5k. We had to replace a large portion of our kitchen and over 1000 sq ft of flooring due to the water damage. We used the opportunity to do some upgrades and paid the difference between the insurance which is where the $13k credit card debt came from. Insurance covered almost $25k and we definitely ended up with more than $13k in home equity so all-in-all it was a good deal especially given that I haven’t paid any interest on that money. Having credit card debt is such a huge psychological hit to me though; it’s definitely time for that to go.
I’ve been doing some serious thinking about trading in my Jeep; I really love it and for as little driving as I actually do the poor gas mileage isn’t a huge deal but it looks like I could get a pre-owned Subaru Outback or mid-sized SUV and walk away from the deal with no more loan. That would free up $500+ per month to tackle other debt and build back the emergency fund pre-baby. Otherwise, it will be paid off in about a year. Thoughts/recommendations?
Looking for any criticism on current expenses; January was a good start and I think we’ll have a few more months of continued trending downwards but I could definitely still benefit from some impartial 3rd party opinions. Especially since we will have approximately $3-3.5k in out-of-pocket expenses for the pregnancy and new expenses once the baby is born; plus want to be able to start saving for college.
DW is a nurse and works three 12-hour night shifts per week; she self-schedules so has some control over her schedule. Luckily, she has enough PTO to have a fully paid, 12 week maternity leave. Ideally she would only work two days per week once she goes back until the kids (we want 2-3) start school. With that arrangement we would have minimal child-care needs; most of which will probably be covered by her family who are moving to town this year. With the new tax changes I would have to do some math but estimate that this would reduce our monthly take home pay about $700-800; this includes adding the baby to her insurance. I will also most likely get another raise in this period too but don’t want to rely on that.
Lastly, I just want some accountability which is the big reason for posting this. It’s not always easy and having a little support, even from strangers on the internet :), is huge. Thanks again!
First of all, congratulations! My wife and I are in a similar situation, she is officially in the 3rd trimester with our first, so we are in the same boat. You are moving in the right direction; good work! Personally, we decided to back off on the budgeting a little bit because the need to be frugal was adding unnecessary stress to my wife's life- I'm trying to say pick your battles and remember why you are trying to optimize :)
1. You don't mention your current HSA balance, so I'm going to assume it is lower. I would contribute your expected deductible and out of pocket expenses to this. Every super pre-tax HSA dollar is basically a FICA, SALT, and Federal Tax deduction on your medical costs, likely saving you 15% or better versus paying after tax. Ideally, this would be out of the paycheck, but even if you need to contribute directly to your HSA and then get the tax deduction next year, that is better than post tax.
2. Are both of your life insurance policies tied to work? If yes, consider looking into term life insurance- I went with Banner. I would rank this higher than college savings.
3. I would discontinue contributing to the ESPP until your credit card debt is gone and emergency fund is sufficient. This is just a personal opinion- I am against investing outside tax incentivized accounts until your budget is in order.
4. Try to get your emergency fund up to 3-6 months of living expenses- this is pretty important with a baby on the way, and I would probably not contribute past the 401k match until this is done.
5. Sell the jeep, buy a $10-15k vehicle, and pay off your CC. Drive it for 5ish years, and when your mustache has grown, if you still want a Jeep or Outback, pick it up then. I would consider keeping the Honda if it is a good family vehicle-CRV, van, or Accord sedan. This goes against mustachian principles, but I'm willing to make a financially less than optimal decision for the peace of mind knowing mom/baby is in a safe, reliable vehicle.
Good work on the changes you have made!
Why do you have sling, Netflix and Hulu? That's a shit ton of tv. If you absolutely must have sling for hockey season then quit the other 2 for a few months. Then just resubscribe to 1 of the other services, watch everything you've been waiting for, cancel it, then subscribe to the other. I don't know if sling has contracts or if it operates like Netflix and Hulu where there's no penalty to quit for a few months.
Do max your HSA for the year - you should be able to pay for your child's birth from it (check w accountant since you have diff insurance). After baby is born they are automatically covered on mom's insurance for 30 days, but this is a qualifying event so both of you are eligible to reevaluate what you want. Depending on the single vs family deductible on your HSA and whatever your wife has, it might be wise to have all the same insurance. Check out the costs and if there are any penalties for not taking your own insurance.
Please delete your jeep and Honda as assets. They are depreciating assets and do not count towards your net worth. Definitely sell your jeep. It's super easy to find a $10k used car if you aren't trying to buy vehicles that originally cost $40k new. There are plenty of $20-25k brand new vehicles, that depreciate to about $10-15k before they become beaters.
Your tax burden will go down with the addition of a child into your family. It seems like your wife is currently paying a lot. If you up your deductions a bit it will give you the wiggle room to put that extra cash into your 401ks, which will further reduce your tax burden.
Why do you have sling, Netflix and Hulu? That's a shit ton of tv. If you absolutely must have sling for hockey season then quit the other 2 for a few months. Then just resubscribe to 1 of the other services, watch everything you've been waiting for, cancel it, then subscribe to the other. I don't know if sling has contracts or if it operates like Netflix and Hulu where there's no penalty to quit for a few months.
Congratulations on the baby!!
Lots of good points here already about selling the Jeep, cutting down to one streaming service, etc.
Why are you looking at an Outback when you already have a CRV? Do you even have snow in NC? Can you get by with one vehicle? What are your commutes like? Can one or both of you bike to work? If your wife is keeping the CRV and you must have a second vehicle it should be something small and fuel efficient. Babies don't take up that much space.
On childcare, do you have a guarantee that you will have it when you need it? I worked the same schedule as your wife until my first child was 18months old, and I absolutely could not watch him all day and then work all night. What worked best was to group my shifts together so that on the day of my first night I could sleep a little in the afternoon (do not count on baby to nap when you want him to, it ain't gonna happen). Then between shifts I would sleep 9-5, and after the last shift I would sleep 9-1. My DH cut his work hours because there is no part-time childcare in our area (nurse salaries are much higher here though) and we have no nearby family. Finally, I will say that I physically felt a lot better after switching to a day job (still 3 12s), even though I don't like the workflow as much. Also at my hospital the self-scheduling is not always honored.
Congratulations and good luck with the new baby. My two toddlers have changed my life profoundly, and I can't tell you how much it means for us to embark on the adventure of raising our kids as a financially independent family.
As I see it, your issue is definitely on the consumption side of the ledger. Why so much house? Why so much car? Those two things alone are killing you in terms of reaching financial independence.
You and your wife are both under 30 and your gross income totals $115k. That is a fantastic income but perhaps it doesn't feel that way because your nest egg is not growing all that fast, and that is because of all the consumption.
You have way more than enough income, and more importantly you have enough time, to achieve FI as young people. But you must take opportunity cost into account when making your consumption decisions.
Example, the Jeep. I like Jeeps too but I would never borrow money to own one. You mention that gas mileage isn't an issue because you drive so little. So that means.....down payment, 28k loan with interest, taxes, and mandatory comp & collision insurance just to have that thing parked in your driveway? Think of the opportunity cost:
Had you taken half the cost of the Jeep, say $15k, and put it in a mutual fund that pays 5%, and then contributed $100 per month to that fund for 25 years ($100 = savings in interest, tax on expensive vehicle, comp/collision insurance and better mileage from a different car), the total would be over $110,000. Would you pay $110k cash for that Jeep? Because that is the opportunity cost of owning new cars and replacing them with new cars.
Your vehicle loans total $900 a month. If you sell the expensive cars, buy cheaper but reliable ones with no loans, you could put that $900 per month in a mutual fund. Again assuming 5% return, in 25 years you would have over $541k saved. Are those cars (with new ones every few years) really worth $541,000 to you?
And that is just the cars. Take a similar approach to your housing consumption, and all the rest of your consumption decisions, and the amounts piling up will be so fun to watch you will find yourself wanting to be more disciplined not only in your finances but in your health and personal habits too. Discipline begets discipline. My financial discipline makes me want to do push-ups.
You can't live for free. But every dollar consumed is a dollar that you have given away to someone else instead of put to work for you and your growing family. People crunch numbers all day long in personal finance, but they often overlook two basic things that aren't readily apparent from the numbers on the page (1) philosophical understanding of what and why they consume, and (2) opportunity cost of consumption.
I wish you every success.
Why do you feel we have too much house? We bought a foreclosure shortly after getting married and paid considerably less than the average home price for our area; We've gained approximately $60k in equity in a little over two years and we have enough room that our family will be able to grow into the house without if being so big that utilities and maintenance are unreasonable. Home prices in our area are climbing rapidly so it wouldn't really be feasible to downsize and rental prices are more expensive than owning.
Paycheck frequency: | Biweekly | Biweekly | |
Paycheck Items | Earner #1 | Earner #2 | Annual |
Gross Salary/Wages | $2,180 | $2,225 | $114,530 |
Pretax Health/Dental/Vision Ins. | $87 | $27 | $2,964 |
Employer-sponsored HSA | $113 | $0 | $2,950 |
FICA base salary/wages | $1,980 | $2,198 | $108,616 |
401(k) / 403(b) / TSP / etc. | $712 | $712 | $37,000 |
W-2 Box 1 | $1,268 | $1,486 | $71,616 |
Employer Match | $19 | $0 | $500 |
1040 AGI | $71,616 | ||
Other Specific Investment Types | Annual | Annual | Annual |
Roth IRA | $2,500 | $2,500 | $5,000 |
Payroll Taxes | Biweekly | Biweekly | Annual |
Social Security | $123 | $136 | $6,734 |
Medicare | $29 | $32 | $1,575 |
Income Taxes | |||
Federal tax | $128 | 2018, MFJ, std., 1 dep | $3,333 |
State+local tax | $120 | NC state calc'n | $3,112 |
Total income taxes | $567 | $14,754 | |
Monthly | |||
Income before other expenses | $4,322 | $51,862 | |
Monthly Average Expenses | Comments | ||
Mortgage | $885 | Input to Item. Ded. | $10,623 |
Property Tax | $276 | Input to Item. Ded. | $3,312 |
Home/Rent Insurance | $50 | $600 | |
Car Insurance | $100 | $1,200 | |
Charitable contributions | $30 | Input to Item. Ded. | $360 |
Dining (Lunch/Dinner/Etc.) | $50 | $600 | |
Electricity | $150 | $1,800 | |
Emergency Fund | $175 | $2,100 | |
Entertainment | $37 | $444 | |
Fuel/Public Transport | $70 | $840 | |
Groceries | $500 | $6,000 | |
Household; Maintenance | $46 | $552 | |
Internet | $70 | $840 | |
Miscellaneous | $90 | $1,080 | |
Pets | $47 | $564 | |
Phone (cell) | $88 | $1,056 | |
Sports/Recreation | $25 | $300 | |
Water/Sewer | $60 | $720 | |
Non-mortgage total | $1,864 | $22,368 | |
Loans | |||
Jeep | $285 | $3,416 | |
Honda | $622 | $7,460 | |
CC | $667 | $8,000 | |
Total Expense | $4,322 | $51,866 | |
Total to invest | $0 | -$4 | |
Summary: | |||
"Gross" income | $9,544 | $114,530 | |
Income taxes | $1,229 | $14,754 | |
After-tax income | $8,315 | $99,776 | |
IRA+401k/403b/TSP/457 | $1,750 | $1,750 | $42,000 |
HSA | $246 | $0 | $2,950 |
Living expenses | $2,996 | $35,955 | |
Non-mortgage loans | $1,573 | $18,875 | |
After-tax investable | $0 | -$4 | |
Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
# Dependents | 1 | ||
# Children <17 | 1 | ||
# Children <13 | 1 | ||
# Children for EIC | 1 | ||
Adult #1 | Adult #2 | ||
Age | 29 | 27 | |
Full-time student? | 0 | 0 | |
AGI | $71,616 | ||
Std. Deduct. | $24,000 | ||
Act. Deduct. | $24,000 | ||
Exemption | $0 | ||
Taxable | $47,616 | ||
1040 Tax | $5,333 | ||
Non-refund. CTC | $2,000 | ||
Tax after n-r credit | $3,333 | ||
Net Tax | $3,333 | ||
Mtg. Int. (approx.) | $7,665 | 1000000 | |
State tax | $3,112 | NC | |
Prop tax | $3,312 | ||
Charity | $360 | ||
Item. Deduct. | $14,449 | ||
Version | V10.07 |
Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
Mortgage | $169,700 | 30 | $163,000 | 28 | 4.75% |
Jeep | $7,500 | 2.25 | $7,500 | 2.25 | 2.1% |
Honda | $16,000 | 2.25 | $16,000 | 2.25 | 4.14% |
CC | $8,000 | 1 | $8,000 | 1 | 0.0% |
What do you think about each of you contributing
- $18,500 to 401k/403b
- $2500 to Roth IRAs?
See tables below for how that might fit with the numbers in the OP.
Might not have been what you had in mind, but...? Good luck with the new baby!
Paycheck frequency: Biweekly Biweekly Paycheck Items Earner #1 Earner #2 Annual Gross Salary/Wages$2,180 $2,225 $114,530 Pretax Health/Dental/Vision Ins. $87 $27 $2,964 Employer-sponsored HSA $113 $0 $2,950 FICA base salary/wages$1,980 $2,198 $108,616 401(k) / 403(b) / TSP / etc. $712 $712 $37,000 W-2 Box 1$1,268 $1,486 $71,616 Employer Match $19 $0 $500 1040 AGI$71,616 Other Specific Investment Types Annual Annual Annual Roth IRA $2,500 $2,500 $5,000 Payroll Taxes Biweekly Biweekly Annual Social Security $123 $136 $6,734 Medicare $29 $32 $1,575 Income Taxes Federal tax $128 2018, MFJ, std., 1 dep $3,333 State+local tax $120 NC state calc'n $3,112 Total income taxes $567 $14,754 Monthly Income before other expenses $4,322 $51,862 Monthly Average Expenses Comments Mortgage $885 Input to Item. Ded. $10,623 Property Tax $276 Input to Item. Ded. $3,312 Home/Rent Insurance $50 $600 Car Insurance $100 $1,200 Charitable contributions $30 Input to Item. Ded. $360 Dining (Lunch/Dinner/Etc.) $50 $600 Electricity $150 $1,800 Emergency Fund $175 $2,100 Entertainment $37 $444 Fuel/Public Transport $70 $840 Groceries $500 $6,000 Household; Maintenance $46 $552 Internet $70 $840 Miscellaneous $90 $1,080 Pets $47 $564 Phone (cell) $88 $1,056 Sports/Recreation $25 $300 Water/Sewer $60 $720 Non-mortgage total$1,864 $22,368 Loans Jeep $285 $3,416 Honda $622 $7,460 CC $667 $8,000 Total Expense$4,322 $51,866 Total to invest $0 -$4 Summary: "Gross" income $9,544 $114,530 Income taxes $1,229 $14,754 After-tax income $8,315 $99,776 IRA+401k/403b/TSP/457 $1,750 $1,750 $42,000 HSA $246 $0 $2,950 Living expenses $2,996 $35,955 Non-mortgage loans $1,573 $18,875 After-tax investable $0 -$4
Filing Status 2 1=S, 2=MFJ, 3=HOH # Dependents 1 # Children <17 1 # Children <13 1 # Children for EIC 1 Adult #1 Adult #2 Age 29 27 Full-time student? 0 0 AGI $71,616 Std. Deduct. $24,000 Act. Deduct. $24,000 Exemption $0 Taxable $47,616 1040 Tax $5,333 Non-refund. CTC $2,000 Tax after n-r credit $3,333 Net Tax $3,333 Mtg. Int. (approx.) $7,665 1000000 State tax $3,112 NC Prop tax $3,312 Charity $360 Item. Deduct. $14,449 Version V10.07
Loans: Orig. Prin. Orig. Length Curr. Prin. Yrs left Rate Mortgage $169,700 30 $163,000 28 4.75% Jeep $7,500 2.25 $7,500 2.25 2.1% Honda $16,000 2.25 $16,000 2.25 4.14% CC $8,000 1 $8,000 1 0.0%
Ok, you came, you asked, and we shall deliver.
First, kudos to you for taking responsibility and seeing the need for some changes. A kid has that impact - I feel you there. So I'll start with that. And, also: congratulations! Children are a blessing.
But these are the MMM forums, and it's face-punch time. Wake up: your hair is on FIRE (https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/)!!!
You sense this: you hate the credit card debt. So points for that. But not too many. See that post.
I am going to challenge you, since you asked for accountability:
Your debt payments total 75%+ of your total take-home pay! That's my quick, back-of-the envelope figure. I didn't even see the amount for your credit card payment, which I assume you must pay (and seem like you are paying quickly).
I second the input above about cars: consolidate if at all possible, reduce your debt load however possible. See Dave Ramsey re: cars - literally type in your situation (car debt + Dave Ramsey) and dozens of great calls will pop up with people in similar situations. Dave is solid on that. Of course you should get out of car debt if at all possible. And get serious about your debts: that's a given. You should be looking at ways to go even cheaper. One car, no cars, cheap cars, and so on.
Now I'm going to take on some of your statements, because you don't have a numbers issue - numbers don't lie - you have a need to shift your perspective about money.
As for the statements above, let's start with the worst: you spent your entire emergency fund on your house and then spent another $13k even on things like "upgrades" and walk away from that thinking that is "all-in-all a good deal." That's $13k that you didn't have.
You're asking the wrong questions. You should be asking: do I have this money? If the answer is no, that's the end of the story. Fin. Find another way. Wait. Be patient. It's cheaper when you don't have to pay interest. Compound interest is a strong force.
That's as basic as MMM gets, or finance gets. Don't spend what you don't have. Especially on consumer-y stuff, like upgraded appliances and countertops and so on.
I could next take on the "traded into 13k of home equity" but it's the same story: you didn't have that cash to fritter away, even if you somehow think it was a good trade to spend somewhere between $43k-$48k (I'm a little fuzzy on whether you burned through the whole emergency fund) to end up with $13k of equity - but $13k into a liability that is losing value over time (fridges, etc. need to be replaced). Home upgrades like that are usually not great equity returns if they are equity returns at all, especially the longer you sit on them, and especially if the only person purchasing/using the house is you. It's just more consumption.
But rephrasing it, you decided to spend money that you didn't have and run out your family's only financial buffer while taking on more debt. You've got to shake that - realize you made a bad decision (forgive yourself!) and then turn away from that. And turn away from the bad thinking, influences, and whatever else helped you make that decision.
You might be right that someone with $1M in the bank could opt for the upgrades and think it's a good plan because they really wanted to anyway, and that saves the effort of doing it later, plus it's at a normal cost. For that person, it might make sense to be OK spending that much. But that person has the money. Even if it's out of the nest egg - which still reduces all future consumption - it's something that person can actually afford. You weren't there yet. You need to learn that lesson and learn it now - or it will continue to bite you financially, and you will wonder why you don't make any progress.
You justified spending $13k in debt and wiping out your emergency fund while something like 75% of your money goes to debt service and you have a kid on the way. This path is not sustainable. E.g., what if the kid needs $10-15k in medical? Or has special needs early on? Or simply drains your wife to the point where she can't work for much longer?
I don't say that to scare you, but I say it because you are living closer to the edge than it seems. You are floating, for now, but you have to break the debt and consumption habits.
There's one more statement I'm going to take on, and that's the lie that this was "a perfect storm." We see variations of that on this forum all the time - this was just a bad circumstance that happened to me. (And sometimes it's true: cancer at 27 or loss of a spouse at 30 is a giant, unpredictable, godawful storm. Buying too much house with too little savings is not.)
You bought a house. You knew (or at least you now know) that houses require substantial maintenance, especially older ones. Around here, folks budget roughly 1%/year maintenance cost, and they go in knowing it may be far more in earlier years - because you need to start off with a solid sinking fund. These costs are routine and predictable. Sure, you might not predict that those three things would happen at once, or in year one, but you could expect some significant home maintenance costs, or the loss of a car, or other things that happen in life that will sap your sinking fund or emergency fund. And there's a decent chance of it - better than usual even - right after you buy a house. That's life.
(On the topic of storms coming, that reminds me of one of my favorite TED talks re: productivity (https://www.youtube.com/watch?v=CHxhjDPKfbY&t=1s), which makes that same point.)
To put it another way, you should think of life as a series of storms. There are beautiful sunrises and days too, but we know storms will come. You have yet to master the plan and execution of it - but you're at least reaching out for the right direction. You can either learn to command the waves and roll through the storms, or you can let these "storms" throw you around.
You're living beyond your means, and it sounds like you have been for a while. That's entirely typical, especially in your 20s(!!!), but you can do far better. You clearly want to, because you're on this forum.
The good news is that you're young. You have a decent income - better than the vast majority of the working world. You have some flexibility. (As another mentioned, you can always downsize the house significantly.) You may well have lots of time left on earth, and much more you can enjoy. The more you right this ship and hold it, the better your financial future will be.
Finally, one other note - to second some other comments: the kid is your responsibility. It's pretty tough to ask what you're really asking of your family: will you please watch this kid because we bought cars we couldn't afford with money we didn't have, followed by luxury appliances we couldn't afford, and so on, so that we now need you to watch our kid for free? Even when you ask that humbly, odds are it won't go well. Regardless though, the kid is yours, and it is a bad plan to build in expectations of family as a way of bolstering your financial picture, especially when you're more than able to get by on what you actually make. Toughen up now - as you say you want to - so you're ready when that day comes. Consider this the kick in the pants (facepunch?) you asked us for.
The more of these things you buy and consume, the less you can buy and consume in the future. It's math - compound interest - and it is currently working against you.
You have to change your mindset or you will never have enough saved. In fact, you will be cashing out those 401ks somewhere down the line when that really big "perfect storm" hits and you are operating without good options. When you're starving, all kinds of bad things start to look appetizing. But you don't need to do that.
You will, though, if you don't reign in those material desires and spending habits.
So, since you asked us: yes, you need to work - work hard - to reduce your debt and make up for your overconsumption. As important: Stop. The. Consumption. Find ways to deal with your desires. Also, ditch all the subscriptions and cable; get rid of high-speed internet. Visit the library - it's like free redbox. Listen to more podcasts. Etc. The less you feed your material desires, the less you will have them. Be mindful of what you're putting into your senses: garbage in, garbage out. If you watch people buy fancy things on a fancy TV and talk with your friends about fancy things to buy...you are going to want fancy things, and that desire will be hard to shake. If you live a fulfilling life and insulate yourself from those material pressures, you will find your path much easier - and more fulfilling. Here's another trick I like: ask yourself whether this will be worth paying (amount of item)/0.04 for - for the rest of my life (or merely the next 20 years)? For pretty much everything non-vital, the answer is no. Find things like that that put your spending choices in perspective, and then use them as a discipline before you spend money. Force yourself to use cash/envelopes if that works - it's harder for most people watching those hard-earned greenbacks leave.
One big takeaway: take the Dave Ramsey FPU course. He excels at motivating you, providing community/accountability, and giving you a solid start. His program is aimed right at where you are. The best part is that it combines foundational things - like don't overspend - with the motivational pieces and practical tools. I would really recommend you both run through it, especially where you are now. It will be eye-opening when you see people twenty years older than you who made decisions just like you're making now - you get a very personal window into where your choices will lead. You can listen to what people say who are really in hard places - and realize they've been listening to some of the same lies that you're buying into. And then you hear people who do it well - and realize they're living a little differently, but not that differently - you, too, can do it. So I would start with that.
There's tons and tons around to help you on your way, both here and around the blog(s). I wish you well - and hopefully this was the kick in the pants you wanted, or at least the one you needed.
Sell the Jeep. ASAP.
You know this, but you don't seem to have fully internalized that, now that you'd cleaned up a bunch of the small stuff (excessive eating out, cable TV, etc.) it's basically the one thing that makes the difference between barely treading water vs. making fast progress on financial stability and independence. And you don't have a lot of time to lose, with baby on the way.
Assuming you clear $30,000 on the sale (I'm discounting KBB a bit), you'll retire the associated car loan, set aside $16,000 for a new car, and pay the remaining $6,500 towards the credit card, which means it will be no sweat to have that gone by August.
Why $16,000 for a new car? That's the value of your wife's CR-V, which you both consider an excellent, safe, reliable car. So you ought to be able to get the same thing at the same value. In truth, you get get a perfectly good if slightly beater-ish car for less than $5,000 (I personally try to keep my car purchases in the three-figure range), but I'll meet you in the middle.
Which brings me to my short philosophical and psychological digression: By the tone of your posts, you don't seem to have too much "early retirement" gleam in your eye or fire in your belly. Which is fine. The tone I get is of someone who wants stability and comfort and to be more secure than the average consumer sucker, but also wants a fair portion of normal everyday comforts and conveniences and is willing to work long term at a paying job. At your superior (but not doctor/lawyer/hedge-fundian) family income level, it isn't that hard to split the difference in an effective manner and build reasonable wealth while enjoying some creature comforts, but you need to be concrete and realistic with your numbers. So you can have non-beater cars... just not a fleet of cars worth almost half your family's gross annual income.
With $500 a month freed up, I'd suggest you max out your HSA first. You already know you will be spending $3,000+ in out-of-pocket medical costs on the pregnancy and childbirth. Others have suggested this and I've checked: You can use your HSA to pay for medical expenses for your spouse and child, even if he or she is not on your health plan. If you built up your cash emergency savings it would have basically the same effect, but you'd lose out on all the tax benefits, which probably amount to around 28%.
Beyond the HSA, I'd suggest splitting excess cash flow between maxing out 401ks and building your cash savings to $10,000. I wouldn't bother pre-paying the loan on the Honda -- the interest rate is low and the loan will self-amortize quickly enough. It's not worth giving up the tax benefits you'd get with 401k contributions. You'll need to pull out a calculator, but once you've put enough into deductible HSAs and 401ks that your taxable income is back in the 12% bracket, you're probably better off then switching to Roth IRA contributions for further savings, but that's a fairly minor consideration in your circumstances. Your home loan interest rate also seems a bit high -- don't know if that can still be refinanced downward, or if it's just an excuse eventually to route extra cash into mortgage paydown once you are fully taking advantage of all your other tax-advantaged savings avenues.
When baby comes along there will inevitably be some major shifts in the household -- things you're thinking about and things that will take you by complete surprise. Spend the next six months laying up some savings and getting things ship-shape, because one the infant comes along the last thing you and your wife will want to be doing is juggling shaky finances or, on the flip side, stressing out due to some overly-ambitious savings goals.
Congratulations on the upcoming new addition to the family and good luck!
Notwithstanding the helpful and generous people on this forum, when it comes to your problems the great vast majority of people couldn't care less, the rest are glad you have them.
Just for reference, unless you are doing a fix/flip, you aren't really gaining significant home equity by doing most "upgrades". By the time you go to sell the house, the floor and kitchen will be dated again (or the people who look at buying it don't like your taste, or whatever).
In the *most* optimistic scenarios, you might get 40-50% of your input back in equity. But even that is rare.
You chose to have a nicer (at least subjectively) kitchen counters/floor in exchange for $13k you didn't have. You did not gain anything financially here, you spent money on a very rapidly depreciating lifestyle item. Period.
-W
Wow! Thank you for taking the time to run this. I can't say I completely understand it all but it looks like we can significantly increase our 401k and 403b savings without having to alter things too much. Will definitely be something I look into once we've eliminated debt and built the emergency fund back up.It might be worth the time to reach a complete understanding. That's up to you, but if you have any questions just ask.
Just wanted to say thank you again to everyone who took the time to respond to this thread and give a quick 2 month update:
Liabilities:
Mortgage: $163k to $162k
Jeep loan: $7.5k to ZERO
Honda loan: $16k to $14.5k
Credit Card: $8k to NADA
Difference = $18k less!
Not too shabby for 2 months work; I will boast a little and say most of it was paid off in less than 1.5 months though. Spending is still a work in progress but has remained stable around $4k average per month January through March; much improved over the $5.5-6k/month we were averaging in 2017.
Current goal is to continue to reduce expenses and get the emergency fund to $15k then will revisit retirement contributions; I did increase HSA contributions to max this year though. I have a small bonus coming and just got a promotion and 10% raise last week which is awesome and will help jump start those savings.
DW is feeling much better in the second trimester and the pregnancy is tracking right along. We found out that we're having a little girl and now we're just trying to find a name we both agree on!
Again thank you all; it's not always easy but your tough love is much appreciated and my family is in a much better position today because of it!
Net Worth:Very nice for ~2.5 years! Keep up the good work!
$313k: $174k increase if you remove the autos (how I calculate now) from my initial calculation
Nice update. Did you sell the vehicle(s)?
Nice update. Did you sell the vehicle(s)?
No, we've still got both (2013 CR-V and 2014 Forester); just both paid off and I don't include their value in net worth calculations anymore.
Nice update. Did you sell the vehicle(s)?
No, we've still got both (2013 CR-V and 2014 Forester); just both paid off and I don't include their value in net worth calculations anymore.
Thought is was a Jeep. Needless to say, congrats on the progress.
I've been lurking again for the past few weeks and thought I would give a quick (just shy of) 3 year update from my original post and say thank you again for everyone who took the time to offer advice.
Me - 32
DW - 30
2 dependents now
- DD1 turned 2 in August
- DD2 is 6 months old
Assets:
Cash (EF): $10k
401k: $90k
Roth: $51k
403b: $40k
529s: $17k
Home: $260k
Liabilities:
Mortgage: $155k
Net Worth:
$313k: $174k increase if you remove the autos (how I calculate now) from my initial calculation
401(k) really grew! Nice thread to read.
Care to update us on changes you have made over the last 4 years of this thread in thinking and habits. That might be really helpful for somebody new who comes here in your situation back in February of 2018 and is looking for inspiration to make a change.