Author Topic: Under $50k Income & Future Planning  (Read 1781 times)

farmGirl14

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Under $50k Income & Future Planning
« on: June 21, 2018, 10:04:30 AM »
Hey all!

We are normally a save and pay cash kind of family. I have NEVER paid interest on a CC or carried a balance. 2017/2018 was weird and hectic because we did a major addition and remodel of our house, hence the new mortgage. We financed some of the cost on 0% interest credit cards (at bankers recommendation) due to our good credit we should hopefully be able to balance transfer whatever is left to new 0% cards once the 21 month free period is over. As a worst case scenario we would get a small personal loan from the bank.

It is hard to be exact with our budget because we have been cash flowing so MANY home related expenses this year. These numbers are my best guess at our normal budget.

We are hoping to have children in the near future and want to get our ducks in a row. What goals should we aim for before starting a family?

Life Situation:
Mid Twenties Married Couple
No children
Living in a LCOL in the Midwest
Paid cash for my college degree

I have severe health conditions. We are both currently still on our parents insurance. Mine is very good and covers nearly every medical expense. I have more than a year until I will be kicked off due to age. Husband has cheap personal insurance he can use, but the family insurance is crazy high. He is looking for a new job with better benefits. Anyone have any experience with the health care marketplace?

Gross Salary/Wages: $45k/yr

Deductions:Putting 3% of husband's income into 401K plus match, 15% federal tax bracket, state taxes.

Net Income: $38k/yr
Him: $25k/yr
Me: $13k/yr

EXPENSES

Housing
Principle &  Interest          $7, 200     ($600 / month)     
Taxes & Insurance            $1,800      ($150/ month)
Electricity:                        $2,700       ($225 / month)
Propane :                        $1,260       ($105 / month)
Water & Trash:                $840          ($70 / month)
Internet:                          $900          ($75 / month)
Prime:                              $100          ($8.25 / month)
Cell Phones:                    $660          ($55 / month)
_____________________________________________
Housing Subtotal            $15,460


Transportation
Gas:                                   $1,800      ($150 / month)
Car insurance:                   $1,080      ($90 / month)
Car Saving Fund:               $1,440      ($120 / month)
Car Maintenance:              $600         ($50 / month)
____________________________________________
Transportation Subtotal:   $4,920 / yr


Recreation
Date Night:                       $480        ($ 40 /month)
Eating Out:                       $1,200     ($100 / month)
Spending:                         $2,400     ($200 / month)
___________________________________________
Recreation Subtotal      $4,080 / yr   


Other
Charity:                                  $3960      ($330 / month)
Groceries/House Products:     $4,200     ($350 / month)
Pets/Vet:                                $840        ($70 / month)
Home CCs:                             $2,400      ($200 / month)
Vacation:                                $1,200      ($100 / month)
Miscellaneous:                       $940         ($80 / month)
_____________________________________________
Other Spending Subtotal      $ 13,540 / yr


ASSETS

Cash:                        $4,000
House:                      $150,000 (Apprasied Value)
Roth IRA                   $13,500
Roth 401K                 $17,300
Two older cars
_____________________________________________
Assets Total: $184,800


LIABILITIES
Mortgage:              $115,594.76    (4.75%, 360 months remaining.)
0% Credit Cards:   $14,650 - Home CCs
_____________________________________________
Total Liabilities: $130,244.76

NOTES:
We put our yearly tax refund in our Roth IRAs.

I have highly variable income so I have listed the minimums/average I take in. I have potential to make sporadic large sums. We use these for savings, retirement, or paying down debt. I don't like to count or budget them because they are unpredictable.

Current plan is pay down the CCs like crazy until they are dead.

vae

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Re: Under $50k Income & Future Planning
« Reply #1 on: June 21, 2018, 11:41:30 AM »
Twenty – something here as well! For me, before starting a family I would want a substantial emergency fund – think 1 year of essential expenses. As I’m sure you know kids are expensive (I don’t have them yet!) but I would be worried starting a family with 4k in cash after you’re done paying off the 0% card.

Honestly… I would split 50/50 between paying off the 0% CCs and adding to your “cash” savings in preparation for starting a family. This may or may not be the popular opinion here, but I like to balance. The extra money for savings would need to come from somewhere, but that depends on how much you’d be willing to sacrifice (eating out, vacation, Prime subscription, miscellaneous spending, cutting back on charity). Also, hopefully the husband can pull off a pay increase at the next job he gets to add to savings and your variable income will be generous :)

Otherwise, it’s great to hear you’ve been able to cash flow so many expenses and best of luck to your husband in his job search!

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #2 on: June 21, 2018, 11:54:36 AM »
Thanks for your response!

I would definitely like to save up money before having a kid. I was thinking like $3k put back for unexpected costs and medical problems? Plus a healthy emergency fund?

We had much more cash but it was wiped out this year with the house. For our EF I haven't usually kept aside more than $2k in cash. I put extra monies in the Roth IRA because I qualify for the savers credit. I don't really want a heap of cash sitting around doing nothing.

As a side note: I think a gold healthcare plan would cost me around $260 a month. It is very possible I could convince my employee to pay for this. So I am not super worried about future insurance.

diapasoun

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Re: Under $50k Income & Future Planning
« Reply #3 on: June 21, 2018, 12:02:38 PM »
It looks like you're currently spending your net, with your investments and savings coming from tax refunds and not out of your regular paychecks -- is that correct? If so, I'm guessing your savings rate is pretty low, since currently it's pretty much that 3% plus the match. You don't mention goals other than having kids, but if you want to have kids on your current income, you're going to need to decrease expenses or increase income -- kids ain't cheap, after all. ;) Plus, I'm assuming you have other goals that you want to meet, too.

Before going forward, let me point you to the investment order sticky, which is incredibly helpful.

I don't have kids, but were I planning to have them, what I'd focus on right now:

1. Those credit cards.
2. A healthy emergency fund.
3. The medical insurance.

The credit cards -- obviously you want them out of the way, and I agree with you that the looming possibility of high interest on a large sum is something to be avoided. Paying off debt is also a guaranteed return, which is nice.

That being said, you also only have a little over one month's of expenses in your savings. I am somewhat risk-averse, so I keep four-six months myself, and also have a small sinking fund for known expenses like car insurance and travel for family. If I were planning for children, that emergency fund would get upped to eight months to a year, most likely.

For the medical insurance -- ACA plans unfortunately vary by state. I was on the ACA in California in 2014/2015; I grossed about $4k a month and paid about $300 a month for a Bronze level plan. If you have real health problems and are looking to have a baby, you might want a higher level plan than that. If your state is anything like California, you should be able to make an account on the online marketplace and review plans and pricing without actually signing up for anything -- I'd check that out ASAP. You should also be able to contact people with the marketplace if you need help understanding the plans.

*****

My questions for you:

1. What are your minimal debt payments? How much extra are you usually paying?

2. What's your timeline for kids?

3. What's your baseline risk tolerance?

4. How likely is it that you will be able to transfer that CC balance to other zero interest cards?

If you are very positive that you can transfer that balance (I know nothing about balance transfers -- never done one), then I would focus on boning up your emergency fund to a level that you are satisfied with first. I know the CCs will be an itch that you want to scratch, but especially if you want kids sooner rather than later, having liquid cash available can make a real difference.  Once your emergency fund is funded to a level you're comfortable with, then you can start moving cash towards those cards. (This could be a stepped system, too; you throw all your extra into the emergency fund until it hits three months, then you start throwing half into the emergency fund and half at the cards until it hits five months, then you start throwing it all at the cards, etc.)

Another Q -- are you leaving money on the table with that 401k match? Most companies match up to 6% of salary or more. This isn't an immediate concern, but it does bear on your far-off future!

As far as spending goes, yours certainly isn't super high. Your charity spending is high, but I'm not a person who's going to knock you for that at all. However, I'm guessing you have ideas of where you might be able to or want to economize. If you give us some ideas of that, people here can definitely help you figure out how to shave off some $ that you could then use for your debt or for emergency savings.

Super rooting for you!

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #4 on: June 21, 2018, 02:29:25 PM »
Thanks Diapasoun!

To answer your questions:

1. Minimum payments on the cards are $200, and that is what we currently have budgeted. Obviously it would take forever to pay them down like that. (Side income will be allotted here)

2. Timeline is still undecided. But likely within 2 years.

3. I'm sort of risky-ish. As I said in my first post I actually have/had? a much larger emergency fund that I transferred to my Roth IRA. The money is still there if I absolutely have to have it, but it is working more for me than it would be sitting in the bank. Plus it is harder to access and withdraw so it discourages using it except in absolute dire situations. So far I have been able to cash flow emergencies, or pick up extra hours without ever pulling from the IRA.

4. Chances are good. I am already getting balance transfer offers in the mail and I just opened these a couple months ago. lol.

5. Husband's employer will match 100% up to 3% and 50% up to 5%. So we are leaving money on the table. They just started this 401k in the last couple months and with all our construction bills husband wanted to try it out first. Now that our life has settled a bit, I'm sure we will up it to the 5% soon.

I do have and save into sinking funds. Such as for vacation, car fund, etc. Those are in the budget above. I also did look on the online health insurance marketplace and it looks like I can get a gold plan for $260 a month. I think my employer would pay for this.

As you caught on most of our saving and investments are not budgeted for. We simply add to them when we get a windfall. Definitely not the best plan, but since I have variable income it seems to work okay for us. I'm not sure we could cut down our budget anymore. Our problem is mostly a lack of income. Hopefully my husband will have luck finding a better job and we will have more breathing room.

I guess I was just looking for advice on how much I need to put back before considering children. It appears that splitting our extra money between savings and paying down the credit cards wouldn't be a bad idea. My husband is itching for kids and doesn't understand when I tell him we need to save first. A lot of couples we know have kids that are a lot worse off than us, so it is hard to convince him that's not the sensible way to do things.

rdaneel0

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Re: Under $50k Income & Future Planning
« Reply #5 on: June 21, 2018, 04:22:59 PM »
First I think you need to kill that CC debt, then you need to establish an actual savings plan and stop leaving that money on the table ASAP. It's hard to advise you because you're just using windfalls for savings and that's extremely risky. I also notice you count your house appraisal as an asset, but that's misleading because your home is not paid off and still belongs to the bank, plus you need a place to live and can't just cash out that amount.

Your real assets are $34,800, and of that only $4,000 is easily accessible. DH and I don't have kids but our cash buffer in savings is $10k minimum, and we don't own a home so we are way lower risk (i.e. we never have to replace to roof or water heater). With kids I would want an even bigger savings buffer, including one kid and a house, I think I'd want access to a minimum of $20k for the house, and $20k for the family.

I think you should also look at how much everything will cost with children, what will your childcare cost? Without knowing how much you'll have to spend when you have kids it's tough to say how much you need and how far away you are from reaching your goal.

I think you need to focus on that CC debt and making more money. Even if you can't work more actual hours, you can try to up the amount you make. I empathize with you because I have a health issue that prevents me from working full-time hours, but I have managed over the years to up my hourly rate, so I am currently able to work just 20 hours a week and gross around $25k a year. DH makes most of our income, and has worked his way up out of minimum wage jobs to do so.

Having been where you are financially I know how tight things are in terms of real savings happening, you've got to kill the debt and make more before you even think about kids or you'll end up living on credit and racking up even more debt.
I write about my $300 a month food and household budget in a HCOL area. I also post photos of my groceries and meals, and lots of meal plans, plus musings and $ tracking: https://forum.mrmoneymustache.com/journals/journey-to-the-center-of-the-'stache/

rdaneel0

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Re: Under $50k Income & Future Planning
« Reply #6 on: June 21, 2018, 04:32:26 PM »
Here's where I see fat in your spending:

Housing
Principle &  Interest          $7, 200     ($600 / month)     
Taxes & Insurance            $1,800      ($150/ month)
Electricity:                        $2,700       ($225 / month) - why is this so high?
Propane :                        $1,260       ($105 / month)
Water & Trash:                $840          ($70 / month)
Internet:                          $900          ($75 / month) ditto, this is high
Prime:                              $100          ($8.25 / month) are you really saving this much by paying for prime?
Cell Phones:                    $660          ($55 / month) do you both need cell phones?
_____________________________________________
Housing Subtotal            $15,460


Transportation
Gas:                                   $1,800      ($150 / month)
Car insurance:                   $1,080      ($90 / month)
Car Saving Fund:               $1,440      ($120 / month)
Car Maintenance:              $600         ($50 / month)
____________________________________________
Transportation Subtotal:   $4,920 / yr


Recreation
Date Night:                       $480        ($ 40 /month) - ditto, you need this to be $0, you have very little savings and cannot afford date nights that cost money, do free stuff together)
Eating Out:                       $1,200     ($100 / month) -nope, this should be $0, you can't afford to eat out.
Spending:                         $2,400     ($200 / month) is this recreational spending??? ditch this down to $0 a month.
___________________________________________
Recreation Subtotal      $4,080 / yr   


Other
Charity:                                  $3960      ($330 / month) - is this for religious reasons? if so i understand.
Groceries/House Products:     $4,200     ($350 / month) - i live in nyc and spend less than this, I spend $300 so I don't see why in a LCOL area you couldn't get it down to $250.
Pets/Vet:                                $840        ($70 / month)
Home CCs:                             $2,400      ($200 / month)
Vacation:                                $1,200      ($100 / month) - sorry to be harsh again, but you can't afford a vacation when you still have CC debt. this should all go to paying off those CC.
Miscellaneous:                       $940         ($80 / month) - what is this? track it!
_____________________________________________
Other Spending Subtotal      $ 13,540 / yr


So, I'd have you ending up with an extra $540 a month, and that's without ditching a phone, without ditching prime, without getting rid of $80 a month miscellaneous, and without minimizing your electric bill. I'd do this immediately and pay off that cc debt, then transfer this savings amount partially to pre-tax savings to get all the $ on the table, and the rest into your savings account for a buffer. Just for reference this is $6,480 in savings a year.
« Last Edit: June 21, 2018, 04:35:03 PM by rdaneel0 »
I write about my $300 a month food and household budget in a HCOL area. I also post photos of my groceries and meals, and lots of meal plans, plus musings and $ tracking: https://forum.mrmoneymustache.com/journals/journey-to-the-center-of-the-'stache/

Finances_With_Purpose

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Re: Under $50k Income & Future Planning
« Reply #7 on: June 22, 2018, 01:29:07 AM »
You're at the MMM forum, so I'm going to (1) commend you for paying off your credit cards ASAP while realizing that's a problem, and (2) then give you the obligatory face-punches. 

First, pay off the credit cards.  Your banker didn't tell you this - he just wants to close a deal and get you what he thinks you want - but you've just taken a gamble that we won't hit a recession before you pay that off.  If we do, good luck getting a bank loan or a CC refi.  You'll be paying the market rates on your card, and rates are currently going up.  Your worst case scenario is not being able to refinance it at all.  (I won't get into the probabilities of a recession over the next few years - just note that it's been longer than virtually any time in American history since the last one.) 

Pay that off, and now.  Cut things to make it happen ASAP. 

I'll leave expenses mostly to others, but @rdaneel0 covered the highlights: ditch vacation savings, ditch prime/etc., and put it all on your debts.  If you want kids, ditch even more. 

Second, you already have *another* high-interest debt that you didn't mention and that nobody has pointed out yet (that I saw): your mortgage interest.  You're paying $100/month, I'm guessing, ($1,200/year) for the privilege of borrowing the $15k you need to get to 20% equity.  (I get that from the numbers you gave; the actual figures may vary slightly.)  When you refinanced, you decided to spend $100/month for the privilege of owning whatever the remodel/appliances/etc. you bought were. 

So, the first year, that's 8% interest on top of the 4.75% you're paying, so about 13%.  And that will increase each year as the principal goes down but your mortgage insurance remains $100/mo.  Maybe it's $50/month.  Either way, it's a lot for what you're getting. 

Thus, you need to pay the mortgage to 20% next.  I might even do that *before* you have a full six-month emergency fund.  That's a lot of interest you'll save.  (If you had control of your debt/spending, I might recommend paying this first, in fact, before fully repaying the CCs, depending upon your rates.) 

There's another omission in your budget: you have budgeted $0 for maintenance.  You're already carrying $15k in home expenses, "cash flowing" things re: your home, and say you pay as you go...these things do not add up.  You are not, in fact, paying as you go anymore.  You need to begin budgeting for your maintenance costs.  Unless it's a brand new house, a good rule would be 1%/year, or $1,500/year.  Start saving it now. 

On that note: quit buying anything that except what will prevent your house from falling down.  You've done $15k of remodels on credit, so I assume you're not just cash-flowing rafters that are breaking, you're cash-flowing (i.e. spending away) the money that should be paying your debts and avoiding a financial catastrophe. 

Before buying a house, I would have recommended saving *more* (above down payment) so you have a sinking fund for emergency house/maintenance expenses.  If your A/C goes out in year one or two, it won't be fun, and that credit card debt may be doubling... 

Had you asked beforehand, I think most here would have advised you not to buy a $150k house (or any house), nor any house without 20% equity - the math doesn't work well if you aim to save much for retirement.  Your margins are tighter.  Your situation is doable, but barely, and it's not possible to do that *and* save significantly.  You're just treading water right now.  You've priced in those outside payments you get now - you need them. 

Your costs have increased, permanently.  Costs explode once you buy a home.  Your temptation to buy more and spend more also explodes: nobody sits around and ponders spending thousands of dollars on kitchen countertops or refrigerators for their rented apartment...

I love home ownership personally (I watch the baby fawns play in my yard every night), but it costs far more than renting.  And that's before counting things like mowing or the half day I spent fixing a garbage disposal on my day off this week because I'm too cheap to hire it out when I can fix it - and learn how so I can fix it next time. 

Unless those work payments are very substantial and likely, you're financially in a worse position than your budget implies. 

Your heart leans the right way: you want to be a save and pay cash family, and you have done it before with college, apparently.  That may not be where you are now, but you can get there again.  You do want to be honest with yourself, though: that's not who you are right now.  You have been making other choices, whether you fully realized it or not.  We humans like to convince ourselves of things even though the facts say otherwise, and with finances, facts are facts...it's not just you, and your identity shouldn't be built upon whether you save X% or not anyway. 

Because of the debt, and the holes in your budget, I recommend doing the Dave Ramsey course if you haven't, just to cover the basics re: debt, credit cards, and so on - to help remove the temptation, or, at the very least, improve your budgeting so you don't take on so much again without accounting for it ahead of time. 

For instance, whoever said this is right: your house has no business on this balance sheet.  You're not going to sell it after remodeling.  It's not really on the table today, nor are you going to sell it anytime soon, if ever, I'm guessing.  You'll need a place to live.  Instead, focus on your financial assets.  (Though bonus points to you if you rent a room out.)  And your net financial assets are about $20k - the cash/IRAs minus your CC debt.  And that $20k should be your emergency fund.  Incidentally, that's almost exactly 6 months' expenses.  I would have at least that much on hand if you own a home. 

You asked about kids, but that's beyond the expertise of this forum: your most valuable asset is not money, it's time.  Then health.  We don't know enough to advise you how it might play out now versus if you wait to have kids, and so on.  That question is much more detailed/relationship-specific/fact-specific.  For all we know, that might impact your odds of having kids, or increase the chances you'd have to pay more to make it happen (I have seen many couples go through that).  We also don't know whether you'll be the couple that gets pregnant on the first few tries - like some friends of ours, even with adverse health news - or whether you'll be one of those who takes more than a decade to get pregnant, like my mother, despite being healthy. 

I'll face-punch you on finances, sure, but I'm not about to recommend that you save a few hundred (or thousand) more while you actually miss your shot at kids, or have to do high-cost treatments for kids, or would have had a budget-wrecking firstborn anyway...these are things way beyond what any of us here should be recommending based upon a budget or a balance sheet. 

We just can't say.  I suspect that it's also hard for you to know.  Kids are one of those things where prayer is more useful than plans. 

What I can suggest is to kill your debt as soon as possible so you're in the best possible position before you have kids.  You're living on margins right now.  Dig yourself back out.  In general, you'll be better off the more savings you have and the lower your expenses are.  You already have plenty of other reasons to work on that. 

In an ideal world, sure, you'd want a full emergency fund and probably even a little to spare, but who's to say whether you should put off kids until you get there?  Not me.   

Back to finances, I would go ahead and cut expenses severely so you get a feel for what life with kids (and with budgeting for maintenance!) may be like.  Otherwise, you may well go into more debt before you have to make those choices anyway, and for longer. 

You have some hard choices to make if you want kids, so start making them now.  Hard choices now, easy life later.  Easy choices now (or putting choices off), hard life later. 

Kids can be expensive - nobody knows whether your kid will be the kid who ends up in the NICU for a week, like one of my best friends' kids - so do as much as you can NOW so that you can be more comfortable when you pull the trigger. 

Another tip: be careful what you invest those Roth accounts in - you *need* them to be there for emergencies, because you don't have a significant emergency fund right now.  If it were me, I would stick to CDs and such - cash equivalents.  If we call those accounts your emergency fund, which I think you suggested, rather than investments, your balance sheet looks almost workable.  But that only works if you're not invested in things that can be held there when the market drops (mutual funds, stocks, even money market accounts) and things that are easily convertible to cash. 

As a practical matter, you have about $0 for non-cash investments, and that should remain so (except maybe 401k matches) until you reach 20% equity on the house.  You need to build your savings for a host of reasons. 

Your emergency fund is your own personal safety net.  I don't want to scare you, because I hope this doesn't become your story, but you want to be aware that you're more likely to be unable to refi when you lose your job when you lose your extra income.  These things are correlated, which means you (and everyone else) need a little cushion to weather life's bumps without destroying the wealth you have begun accumulating.  You also lost a lot of flexibility (financially) when you bought the house, and you'll lose still more with a kid, so you want to be more conservative re: your savings, starting now. 

Finally, you hinted at this, but I would do whatever I could to increase my income and my husband's income in this situation, at least until you improve your balance sheet some. 

OK, that's enough face-punches and so on.  I wish you well on your journey.  I hope to see you back here soon, killing it, with a timeline re: kids, and well on your way to being debt free...

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #8 on: June 22, 2018, 08:00:37 AM »
rdaneel0 I will try to answer some of your budget questions. :) It's hard because the budget is not completely accurate due to my side income. Not all of these categories are funded from our normal checks, but I didn't want to leave them out because I knew people would ask why I didn't have xyz listed.

Electricity is high because I live in a rural area, with extreme hot and cold temperatures, and in a large old house. We have replaced all windows, siding, insulation, even added exterior insulation. Our electric bill can not and will not go down anymore. We don't even have air conditioning except a window unit in our bedroom! My house is a balmy 90 degrees in the summer. This number is estimated high ie. this month it was $150. I like to overshoot rather than be short.

Internet is high because it is the only one offered. We have the slowest 6mbs plan. Giving this up is not an option at all. I am a web designer and need internet to make money.

Prime is well worth it. Especially with the home remodel this year I have been buying things weekly.

Cell phones. Yes we both need phones. We have long commutes and have no home phone. We only have one carrier to use in our back country location. Husband is still grandfathered in on a $10 a month flip phone. I need a smart phone for my job.

Date night is a cheap and non negotiable. I will admit eating out is my problem area. I've been working on cutting it down but definitely need to try harder.

Spending we are both pretty cheap and I would not say we actually budget any spending money. This category is more for purchasing home related items at the current time. We need some furniture, new sheets, etc. Like this week I had to buy a mirror for our new bathroom. Expenses like these will go down over time.

Charity is non-negotiable for religious reasons.

Groceries include cat food, oil changes (which we do ourselves), gifts, etc.

Vacation, again I don't actually budget for this at all. Our vacations are always cheap camping. I use side income to fund small weekend trips, but I figured this is probably a high estimate of what we spend in a year normally.

Realistically we probably have $200 - $300 extra  month that I use on savings or debt pay off.

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #9 on: June 22, 2018, 08:09:41 AM »
Finances_With_Purpose

We do NOT pay PMI. Our house is appraised at $150k and our mortgage is only $115k so we have 26% equity.  Not sure where you got your figures from?

To both of you saying not to count the house... I personally do not count my house in net worth or as an asset. I simply copied and pasted another case study on this forum, and thought you guys would want to know the full numbers. I definitely wouldn't depend on the house in an emergency.

I feel like your advice was centered around PMI, so maybe you could report back with new advice once you change your figures?

Re: the kids. We live close to our parents and they will be happy to do all baby sitting duties.

ETA: I want to clarify the house situation. We bought a "tear down" farm with acreage 6 years ago. We paid only $55k for it, and had over $20k in cash that we spent making it livable. Since then we paid down the loan to $45k and saved more cash. We did a complete remodel this year, and added an addition. Everything in the house is brand new. We could have waited more years to pay for it in cash like we did the phase 1 of the remodel. BUT the house had some major and necessary structural issues that needed addressed asap. We decided to just do one big hurrah and get it over with so the house would be complete and finished and we could start a family without dealing with a continual decade of construction. We have always paid cash in the past. Unfortunately we picked our contractors wrong and they went double their budget. By the time we fired them and finished the work ourselves we were too far in to stop. The original plan was a $100k mortgage. But we ended up about $30k over.  Hence the CC debt. We are at our tightest time right now. In the past we were able to save a lot more monthly.

Trying to squeak back to our comfortable zone. We are way tighter than I like to be.

I work two jobs and one is variable side income. In addition I do make money on the farm, which I prefer to keep separate.
« Last Edit: June 22, 2018, 08:34:38 AM by farmGirl14 »

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #10 on: June 22, 2018, 11:36:37 AM »
BTW thank you for the face punches guys!

You have reminded me that my savings is sorely lacking. I refreshed my YNAB today and will be working on cutting costs so I can save for our future.

Finances_With_Purpose

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Re: Under $50k Income & Future Planning
« Reply #11 on: June 23, 2018, 12:01:54 AM »
Finances_With_Purpose

We do NOT pay PMI. Our house is appraised at $150k and our mortgage is only $115k so we have 26% equity.  Not sure where you got your figures from?

To both of you saying not to count the house... I personally do not count my house in net worth or as an asset. I simply copied and pasted another case study on this forum, and thought you guys would want to know the full numbers. I definitely wouldn't depend on the house in an emergency.

I feel like your advice was centered around PMI, so maybe you could report back with new advice once you change your figures?

Re: the kids. We live close to our parents and they will be happy to do all baby sitting duties.

ETA: I want to clarify the house situation. We bought a "tear down" farm with acreage 6 years ago. We paid only $55k for it, and had over $20k in cash that we spent making it livable. Since then we paid down the loan to $45k and saved more cash. We did a complete remodel this year, and added an addition. Everything in the house is brand new. We could have waited more years to pay for it in cash like we did the phase 1 of the remodel. BUT the house had some major and necessary structural issues that needed addressed asap. We decided to just do one big hurrah and get it over with so the house would be complete and finished and we could start a family without dealing with a continual decade of construction. We have always paid cash in the past. Unfortunately we picked our contractors wrong and they went double their budget. By the time we fired them and finished the work ourselves we were too far in to stop. The original plan was a $100k mortgage. But we ended up about $30k over.  Hence the CC debt. We are at our tightest time right now. In the past we were able to save a lot more monthly.

Trying to squeak back to our comfortable zone. We are way tighter than I like to be.

I work two jobs and one is variable side income. In addition I do make money on the farm, which I prefer to keep separate.

You have a good attitude. 

Awesome, and great point.  I misread that as a $130k mortgage, but it's $115k + 15k CC/other.  (This is what happens when I read posts after midnight, and my mistake.  I'm sorry.)

Also great re: your parents and kids.  I'll pass along the advice we've received from many: don't take it as a guarantee, even though it's an asset.  You might get a year down the road and things change, their health situation is different, or they just don't want to be as tied down.  But you're in the best possible place at least re: child care starting off.  And if it all goes well, you'll save tons.

Good point re: house info - I didn't think about what the form on here asks for.  So just take that as-is; I wouldn't count it in your net worth for non-academic purposes.  (Which is sad, personally, since we have substantial equity in ours.)  It sounds like you had a rough experience with the remodel/repair...

To update what I said (as you asked), most of my input remains the same, especially things like the Roth, but you're in a better position than it seemed without the PMI.  You don't need to rush to pay down the mortgage without PMI - that's definitely different.  So you can hopefully get caught up on the CC debt even faster, then build savings sooner.

As an aside, you have confirmed, once again, my severe desire to avoid all significant home construction projects.  I have yet to have anyone who has done one tell me that they came in on time and under budget (except for DIY).  A relative of mine got taken advantage of on one a few years back, too, though thankfully it was a much more minor project and didn't impact the person's overall finances.  Those projects are difficult to budget for because you can assume you will be overbudget by some percentage, but it's open-ended and the contractors know they have a tremendous negotiating advantage unless you're all-cash going in.  It's something I won't manage or budget out myself, as I am not an expert in home rebuilding, and would be at the mercy of a lot of people who have a financial stake in taking my money.

Speaking of which, and back to the update: you need to budget for maintenance.  If not, it will come back to bite you, and you will be back in debt.  You just had a rough lesson in why to always overbudget for home repairs...

Related to that, I would make a (tight) budget for further home purchases and strictly stick to it.  As it is, it sounds like you're viewing all (or at least many) new purchases for the house as necessary.  (At least from what's said here.)  Many things can be deferred and/or found at a discount, even if it's not what you most want/think the house needs.  You took a huge loss on house-related costs, and this is one area where you can lock down expenses today until you have shored up your finances (fully-funded emergency fund and able to save again), and then re-evaluate.

My wife is a bit of a designer, actually, but she has adjusted well to deferring and shopping around/secondhand for those types of things, knowing she can slowly add/improve over the years, which she does.  It works out well.  We got very creative about ways to defer things that could be deferred to spread that spending out over time and save money.  My wife ultimately gets what she wants, but we don't spend nearly as much, and when do spend a good bit, we have budgeted it out and it is available to spend without impacting our long-term plans or goals. 

Also, consider future expenses that you may need to start budgeting for: how will a 90-degree house work with one room air-conditioned work with an infant or two?  How will you retire/deal with future job/health/kid hurdles with a savings rate below 10%?  (45k x 10% = 4.5k/year.) 

See the calculator and adjust it to your situation: going off your rough numbers (40k spending, 5k saving, let's say), it would take you 47.5 years to retire. 

I stand by the suggestion to halt all house spending unless it's absolutely vital maintenance until your debt is gone.

Your ability to save will likely suffer once kids enter the picture, so I would begin planning now to be in great shape as soon as you can. 

People who have big cash flow (100k+/year) can weather big changes, such as healthcare cost changes or kid-related craziness (injuries, illnesses, so on) without it tanking them.  It cost us more than $500/month to add the first kid to insurance (the cheapest option, even than various alternatives).  You run on a tighter budget with tighter margins, so it's even more important to notch up your savings rate and bolster your financial position.  You can do it, though. 

One other tip: read the Millionaire Next Door.  Maybe hang around and compare yourself to folks who only make $20-$30k/year and manage it really well...it's far too easy to get caught up trying to live a lifestyle above what your income affords when your margins are tight.  (I've been there, and have many family who are still there.)  FWIW, I follow this same advice re: our own situation.

Thankfully, that large of a remodel/build is something that's easy to avoid going forward.  Now you just have to dig out of that hole...

Best of luck with it!

rdaneel0

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Re: Under $50k Income & Future Planning
« Reply #12 on: June 25, 2018, 02:09:10 PM »
Ah, ok. Your numbers make way more sense to me now knowing that you're in a super rural area. I know this is a major life change, but I figured I'd toss it out there just in case having lived in both rural and urban areas myself.

Have you considered moving to a slightly more central area? You may live in a LCOL area, but your cost of living is astronomical compared to your income. In fact, if you add in your high internet and everything you consider housing, your housing costs are eating up a little over 40% of your income. That's huge!

I think living rural is decimating your budget, big time, because it doesn't stop there. All of your cost are inflated because of where you live. Vehicles are an absolute necessity (I'm assuming there's no public transit) and you're far out which means more spent on gas and wear and tear as well. Your internet costs will always be inflated. You have to pay for Prime just to have shopping delivered. Rural living looks like a good deal on the surface, for example I'm sure you have square footage and space I can only dream of! But with your income these numbers don't make sense to me.

To give you some perspective, my housing costs (if I include all the categories you include in your case study) are about $300 more a month than yours, and I live in New York City and have a six figure household income. I also don't have a car, my internet is lower, my electric is lower, etc. Obviously I'm not saying you should move here, but would you consider a move that could lower your housing costs and give you more options? Just brainstorming here!
I write about my $300 a month food and household budget in a HCOL area. I also post photos of my groceries and meals, and lots of meal plans, plus musings and $ tracking: https://forum.mrmoneymustache.com/journals/journey-to-the-center-of-the-'stache/

Dabnasty

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Re: Under $50k Income & Future Planning
« Reply #13 on: June 25, 2018, 02:58:39 PM »

Electricity is high because I live in a rural area, with extreme hot and cold temperatures, and in a large old house. We have replaced all windows, siding, insulation, even added exterior insulation. Our electric bill can not and will not go down anymore. We don't even have air conditioning except a window unit in our bedroom! My house is a balmy 90 degrees in the summer. This number is estimated high ie. this month it was $150. I like to overshoot rather than be short.


I won't believe this until you hit $0 :)

But seriously, there must be something going on here. Does the AC unit in your bedroom run full time? Do you have any outdoor refrigerators or freezers? Maybe some sort of fan in your heating system that runs continuously? A well/water pump of some sort running too much? TVs or consoles that stay powered on?

Do you know what your average cost/kWh is or maybe just an average kWh/month? I doubt it's a high electric cost at fault but I am curious.

« Last Edit: June 25, 2018, 03:01:10 PM by Dabnasty »

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #14 on: June 26, 2018, 07:55:14 AM »
Finances_With_Purpose

My in-laws already have multiple grandchildren they love and watch nearly daily. But even in the rare event they are unable to do so anymore, my parents would be happy to babysit as well. We should be pretty good on child care thankfully.

Home remodel is not for the faint of heart that is for sure! We went enormously over budget and we did MOST of the work ourselves! We hired professionals only for the foundation, framing, plumbing and siding. We did all interior work (minus plumbing) ourselves. In our bathroom we were told it would be $7,000 to tile our shower... So we bought a $100 tile saw and I learned how to do it myself. This project has been a long, stressful, and tiring job. I am VERY happy it is about over. I don't regret it though. We just moved into our new bedroom a couple days ago and our quality of life has increased tenfold.

In regards to the house expenses some are needs (such as you can't have a bathroom without a mirror, or a cabinet without handles) but most are wants. We have a ton of furniture/decor we would like. But we have purchased pretty much all the needs at this point. Our spending will scale back now, and we will live with what we have until our budget is healthier. Just to be clear though most of furniture has been given to us, and everything I buy is used. I will shop for months on local sellers clubs and craigslist until I find that perfect deal. We have never went out and purchased designer furniture from a store. I think the most I have spent on a piece is $200.

I have heard of that book several times and have been wanting to read it. I will have to find a copy. :)

farmGirl14

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Re: Under $50k Income & Future Planning
« Reply #15 on: June 26, 2018, 08:02:12 AM »
rdaneel0

We will never move. Our families are here, our home we built is here, we enjoy farm living.  Living in a rural area definitely has downsides though. You are correct there is no public transit. Heck, there is no cabs, no Uber, nothing. The closest Super Walmart is 30 minutes away.

Dabnasty

Haha. The AC cycles, we don't have any additional freezers, no well, etc. We have a sump pump with the addition that runs a lot but our bills have surprising not increased since the remodel. (Probably because the changes were offset by the new siding/exterior insulation we added.) We always turn off lights and appliances when we leave. I don't have an electric bill in front of me but I'll see if I can find one. I'm not sure if it is our usage that is high, or the kWh cost. I think our bill is pretty average for this area though. My parents have paid up to $400 a month in the summer with their AC running. 

rdaneel0

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Re: Under $50k Income & Future Planning
« Reply #16 on: June 26, 2018, 03:30:35 PM »
Gotcha, just thought I'd throw it out there but I totally understand.
I write about my $300 a month food and household budget in a HCOL area. I also post photos of my groceries and meals, and lots of meal plans, plus musings and $ tracking: https://forum.mrmoneymustache.com/journals/journey-to-the-center-of-the-'stache/

Finances_With_Purpose

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Re: Under $50k Income & Future Planning
« Reply #17 on: June 26, 2018, 07:41:52 PM »
Finances_With_Purpose

My in-laws already have multiple grandchildren they love and watch nearly daily. But even in the rare event they are unable to do so anymore, my parents would be happy to babysit as well. We should be pretty good on child care thankfully.

Home remodel is not for the faint of heart that is for sure! We went enormously over budget and we did MOST of the work ourselves! We hired professionals only for the foundation, framing, plumbing and siding. We did all interior work (minus plumbing) ourselves. In our bathroom we were told it would be $7,000 to tile our shower... So we bought a $100 tile saw and I learned how to do it myself. This project has been a long, stressful, and tiring job. I am VERY happy it is about over. I don't regret it though. We just moved into our new bedroom a couple days ago and our quality of life has increased tenfold.

In regards to the house expenses some are needs (such as you can't have a bathroom without a mirror, or a cabinet without handles) but most are wants. We have a ton of furniture/decor we would like. But we have purchased pretty much all the needs at this point. Our spending will scale back now, and we will live with what we have until our budget is healthier. Just to be clear though most of furniture has been given to us, and everything I buy is used. I will shop for months on local sellers clubs and craigslist until I find that perfect deal. We have never went out and purchased designer furniture from a store. I think the most I have spent on a piece is $200.

I have heard of that book several times and have been wanting to read it. I will have to find a copy. :)

That's outstanding, then - the childcare plan will be a huge savings. 

Yes, I didn't want to assume about what you do as I assumed you economize that already based upon other things you said.  Just sharing our experience in case it's helpful since that's an area a lot of homeowners (us included) struggle with. 

Good luck getting ahead!

ColoHiker

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Re: Under $50k Income & Future Planning
« Reply #18 on: June 27, 2018, 02:25:19 PM »
Good luck to you.