Author Topic: Where to start?  (Read 3357 times)

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Where to start?
« on: December 31, 2017, 11:52:38 AM »
Hello all! I am an new Mustachian and ready to get serious about growing our stache!  I have been reading the blog for a month now and just joined the forum. Well..here it goes...

My husband owns a small construction business in the middle of no where (No big money here). I am homeschooling the last kiddo for the next year and half to get him graduated.

My dh income is about $45,000 per year after taxes. He is 48.
I have no income but I started a side hustle so I hope to add $2000 pretax a month soon. I am 43.

Student loan debt $30615.00 @ 6.76%!! (HOLY COW!)
No credit card debt
No car debt
Mortgage - $31,000 @ 3.1%
Savings $24,000.00 just a standard savings account (yes I know bad bad bad) (took us forever to save this)
We have a roth IRA worth $11,000.00
A property that has been in the family for over 150 years with a house on it (house is gutted) No money is owed on this. We want to move there at some point. We pay yearly taxes about $2000.00 per year.

No business loans! They were all paid off this year!!

My question is where do we start? Both my dh and I are MOTIVATED to retire. We do not have the luxury of unemployment so we need to have at least 3 months for emergency put aside. Do we tackle the student loan and to do so do we cash in our Roth? Do we start investing for retirement? Do we do both and if so how? Then what? HELP!!!

MDM

  • Walrus Stache
  • *******
  • Posts: 8590
Re: Where to start?
« Reply #1 on: December 31, 2017, 01:29:35 PM »

marty998

  • Walrus Stache
  • *******
  • Posts: 5721
  • Location: Sydney, Oz
Re: Where to start?
« Reply #2 on: December 31, 2017, 01:54:04 PM »
What are you saving the $24,000 for? What are your student loan monthly payments?

Why earn < 1% on 24,000 and pay 6.76% on $30,000?

Noting that you need a 3 month emergency fund, why not simply put the rest towards the loan?

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #3 on: December 31, 2017, 02:20:22 PM »

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #4 on: December 31, 2017, 02:23:41 PM »
What are you saving the $24,000 for? What are your student loan monthly payments?

Why earn < 1% on 24,000 and pay 6.76% on $30,000?

Noting that you need a 3 month emergency fund, why not simply put the rest towards the loan?

I know it is crazy but my dh gets nervous if we dip below $20000 in savings. I believe we only need 3 months emergency cash. In the winter months we always stack enough cash for Jan-March/April. I am for putting it toward loans. My student loan payments are $220 a month.

Wayward

  • Stubble
  • **
  • Posts: 100
  • Age: 34
  • Location: USA
  • Doubt kills more dreams than failure ever will
Re: Where to start?
« Reply #5 on: January 02, 2018, 10:27:18 AM »
If you don't already, start tracking your spending!  Once you do, see where there is room to improve/cut costs.

The $24,000 savings needs to be working harder for you. Perhaps have a conversation with the DH about his concerns and see if there could be a compromise of keeping only 3-6 months of expenses in savings?  I recommend Ally for the emergency fund (1.25% APY) and NetSpend/Insight for 5% savings.  Any leftover I would use on the student loans.  Also, have you looked into refinancing them for a better rate through SoFi, Earnest, etc.? 

YoungGranny

  • Pencil Stache
  • ****
  • Posts: 509
  • Age: 28
Re: Where to start?
« Reply #6 on: January 02, 2018, 02:01:28 PM »
What is your annual spending? How much are you able to save? That's the information that will help people on this forum give you more specific advice.

I would not touch the IRA that's using long-term money for a short term problem. I would focus on paying off the student loan debt - you could pay off a large chunk of it with the money sitting in your savings account (reserve enough for 3 months or so). Then every additional dollar you get could be thrown at it and I bet you could free yourself of that this year. You should also be putting more money in an IRA to save for retirement.

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #7 on: January 02, 2018, 05:04:03 PM »
If you don't already, start tracking your spending!  Once you do, see where there is room to improve/cut costs.

The $24,000 savings needs to be working harder for you. Perhaps have a conversation with the DH about his concerns and see if there could be a compromise of keeping only 3-6 months of expenses in savings?  I recommend Ally for the emergency fund (1.25% APY) and NetSpend/Insight for 5% savings.  Any leftover I would use on the student loans.  Also, have you looked into refinancing them for a better rate through SoFi, Earnest, etc.?

We have started tracking our spending this month. Hopefully we can figure out where we can cut and save.  Thanks for the recommendation for the savings. I have not looked into refinancing for a better rate yet. I want to take some of the savings and pay off one loan in a quick swipe and throw everything else at the second to get it paid for by the end of the year. DH is not on board with this. He says it spreads us too thin (even with 3 months savings in emergency fund) Ugh.

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #8 on: January 02, 2018, 05:05:35 PM »


I would not touch the IRA that's using long-term money for a short term problem. I would focus on paying off the student loan debt - you could pay off a large chunk of it with the money sitting in your savings account (reserve enough for 3 months or so). Then every additional dollar you get could be thrown at it and I bet you could free yourself of that this year. You should also be putting more money in an IRA to save for retirement.
[/quote

This is what I want to do but dh is not on board with this idea.

tinylittlemonkey

  • 5 O'Clock Shadow
  • *
  • Posts: 59
Re: Where to start?
« Reply #9 on: January 02, 2018, 06:22:56 PM »
Id keep 3 months of savings and put the rest towards student loans.

Im in the same boat as you (although a lot larger). What are your payments, for how many years, and are they consolidated?

Im in the process of refinancing with SOFI.  If I were in your situation financially (but my life), Id pay a lump sum to the loan, then refi at a lower rate and aggressively pay on it with everything I had.

CrispKale

  • 5 O'Clock Shadow
  • *
  • Posts: 30
    • FinancialKale.com
Re: Where to start?
« Reply #10 on: January 02, 2018, 06:24:08 PM »
Hi Suzziesnow welcome to the tribe!

Everyone has to start somewhere in their journey so don't feel to overwhelmed. You gave a fair bit of information but some pieces are missing that could help you better decide what to do.

1. What are your current monthly expenses? If your not currently tracking I'd start tracking for at least two to three months. There are plenty of examples in the forum case studies or I also have a link to my format in my bottom signature. Once you have an average monthly or annual expense amount it's not to hard to calculate the number of years till FIRE.

2. Don't remove funds from the IRA. At the stated ages the time to recover the account back is too great to risk meaning expenses can always ebb and flow lost time is irrecoverable.

3. Are you wanting to rent out your current house and move to the new property? If so, How much in rent are you expecting?

4. How much in renovations do you expect to pay (on gutted house)? What's the renovation timeline?
« Last Edit: January 02, 2018, 06:25:54 PM by CrispKale »

Wayward

  • Stubble
  • **
  • Posts: 100
  • Age: 34
  • Location: USA
  • Doubt kills more dreams than failure ever will
Re: Where to start?
« Reply #11 on: January 03, 2018, 08:04:08 AM »
If you don't already, start tracking your spending!  Once you do, see where there is room to improve/cut costs.

The $24,000 savings needs to be working harder for you. Perhaps have a conversation with the DH about his concerns and see if there could be a compromise of keeping only 3-6 months of expenses in savings?  I recommend Ally for the emergency fund (1.25% APY) and NetSpend/Insight for 5% savings.  Any leftover I would use on the student loans.  Also, have you looked into refinancing them for a better rate through SoFi, Earnest, etc.?

We have started tracking our spending this month. Hopefully we can figure out where we can cut and save.  Thanks for the recommendation for the savings. I have not looked into refinancing for a better rate yet. I want to take some of the savings and pay off one loan in a quick swipe and throw everything else at the second to get it paid for by the end of the year. DH is not on board with this. He says it spreads us too thin (even with 3 months savings in emergency fund) Ugh.

Perhaps your DH is not on board because he's unsure of how much is really needed to cover your monthly expenses.  I would suggest tracking your spending for the next few months to get a good idea of your normal expenses.  Beware, it can be shocking at first to see how much you actually spend on "necessary" things!  Once you get a better feel for your spending you can create a 2018 spending plan (I make a simple Excel speadsheet) to project approximately how much you will spend over the year, including mortgage, utilities, food, personal care and things like annual subscriptions (Costco, car insurance, antivirus computer program, etc.), gifts, car maintenance, and clothing as well as any planned purchases (new laptop, hot water heater, etc.) along with projected income. 

It might make him feel more comfortable with letting go of some of the savings if he can actually see a budget/monthly expenses.  Have you asked him for his suggestions/ideas or perhaps read some MMM articles together and have a deep conversation about your financial goals?  I would suggest not making it all about debt, but what kind of life you want for the future and creating steps together on how to get there.

If you haven't already, read https://forum.mrmoneymustache.com/ask-a-mustachian/how-to-convert-your-so-to-mmm-in-50-awesome-steps/

Then perhaps read together http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ or http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

In the interim definitely check out the savings accounts so your money is working for you!  (I always keep enough in checking for upcoming expenses + a buffer, everything leftover goes to service debt or save)

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #12 on: January 04, 2018, 04:54:40 PM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!

YoungGranny

  • Pencil Stache
  • ****
  • Posts: 509
  • Age: 28
Re: Where to start?
« Reply #13 on: January 05, 2018, 06:34:20 AM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!


Awesome progress!!! Glad your DH is on board!! You'll make progress so quickly.

Wayward

  • Stubble
  • **
  • Posts: 100
  • Age: 34
  • Location: USA
  • Doubt kills more dreams than failure ever will
Re: Where to start?
« Reply #14 on: January 05, 2018, 06:39:37 AM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!

Wow, that's awesome!  Congratulations, I'm sure you will have that student loan gone in no time!! 

A word of caution though, I personally realized recently I've been so laser focused on paying debt, that I've neglected investing.  I forget who it was on this forum that asked another case study if they wanted to be a debt free worker bee or financially free living off their investments?  I would suggest knocking out that one loan and depending on the refi interest rate, start investing also, especially if there's any employer match on the 401k as per https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153!

Please update us or perhaps make a journal to track your progress!  Best wishes for a happy, healthy, and prosperous New Year!!   

suzziesnow

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Re: Where to start?
« Reply #15 on: January 05, 2018, 03:55:52 PM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!

Wow, that's awesome!  Congratulations, I'm sure you will have that student loan gone in no time!! 

We son't h

A word of caution though, I personally realized recently I've been so laser focused on paying debt, that I've neglected investing.  I forget who it was on this forum that asked another case study if they wanted to be a debt free worker bee or financially free living off their investments?  I would suggest knocking out that one loan and depending on the refi interest rate, start investing also, especially if there's any employer match on the 401k as per https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153!

Please update us or perhaps make a journal to track your progress!  Best wishes for a happy, healthy, and prosperous New Year!!

We don't have any employer matched 401k but we are going to knock this out while investing in our Roth also. Thanks!!

Finances_With_Purpose

  • Pencil Stache
  • ****
  • Posts: 500
    • Finances With Purpose: deploying resources wisely to live vigorously
Re: Where to start?
« Reply #16 on: January 07, 2018, 04:26:13 AM »
So I've been through the loan thing (with my biggest loans at rates at and above 8.5%) and feel for you.

My tips:

1.  Refinance if possible.  Try services like this (referral), which allow you to compare rates.  The better your credit, the better the chances of this working out.

I could write a whole post on refis, and probably will sometime, but the short of it: just check that your individual loans don't have benefits that you're losing without getting similar ones (or enough value) to be OK with losing them if you refinance.  (For example, some loans have various interest-rate breaks after you pay 12, 24, 36 payments or so on.)  In other words, you may want to dig into to more than just the standard rate, but in general, the bigger the rate reduction (e.g. 8.5% down to 5.5%), the better chance that refi is a good idea. 

I'm sad that it wasn't an option when I was where you are.

2.  The spouse: It's great to try and talk to your spouse and show DH the ways of Mustachianism, but it's also way more complicated than just communicating facts, and may well (1) take time and (2) come in small steps.  Or it may just not work well.  But odds are good that, over time (and gently!), you'll have some influence. 

E.g., on here, people will suggest you push DH to reduce the emergency fund, but I would be careful, as that may be important to him for psychological reasons.  Maybe he feels he needs that buffer b/c his income varies, his family was bad with money - who knows.  I would tread lightly, and instead focus on things where you can make concrete gains.  Instead of starting with a financial goal for DH, see if you can show him new ways of thinking in general, about money, and then the particulars will work themselves out.  But it's not an easy or immediate process, and I take your question as "what do I do right now?"  So right now, I would focus on these other particulars.

3.  The house: rent a house, sell a house, or, whatever you do, consolidate down to one house.  You're paying a big chunk of your cash each year to float a house that's returning $0 in financial value.  It's a dead weight right now. 

I get that it may have sentimental value.  But here's homework: calculate how much of your after-tax income that sentiment is costing you annually.  Then, of course, add the 6.76% kicker since you're paying interest on it, too. 

To put it another way: right now, you can't afford the house.  It's costing you debt + interest annually (that you can't repay).  It's beyond your means.  No need to facepunch here, but figure out what to do with it in order to reduce your outlay, and do it. 

Figure out that path: rent or sell.  Don't hold.  Since you're well in debt now (even with student loans), I would advise being conservative and not dumping more money into another house, in general, unless it's a project that you're both already comfortable with and have expertise at (e.g. husband builds houses).  Others may disagree.  I just wouldn't pour much money into it while you have bigger priorities.

In fact, I would lean against any big real estate investment ideas whilst in debt and struggling with saving much.  It's a bad time to be taking on lots of risk.  Dumping savings into a market fund is one thing - it can't cost you more cash behind it.  With real estate, you may be tempted towards the sunk cost fallacy: you'll be unwilling to give up on the house even when, financially, you really should.  Your post suggests as much - it has sentimental value.  It's hard to give up now, but will you really be willing to walk away after dumping $10-20k in it, losing that, and thinking it'll only take another $5-10k in debt to save it?  I submit: that is a path to bad decisionmaking. 

And I don't say that to pick on you at all - that's human nature.  I do that too.  Sunk costs are a thing.  It's even harder when your emotions get tied into the finances such that something you're invested in becomes personal.  Ironically, economists all study this, and yet, in studies, economists still fall for the sunk cost fallacy time and time again.  We're hard-wired that way.  (OK, I'm going on a tangent, and this is waxing long, so on to the final point . . . )

4.  Investments: You make a guaranteed 6.76% on all repayment of your loan.  Even the stock market doesn't beat that by a ton, and it's a far cry from guaranteed, especially over the short term.  That debt can follow you the rest of your life - not to scare you, but to emphasize how guaranteed your return is.  The debt IS your investment for now, until you knock out that student loan.  You're winning the compounding battle either way, because right now, interest compounding is working against you.  Daily. 

With that said, I would be open to a 401k or other type account if you had a high income such that it was a tax advantage (and paying your debts was going to be very quick and very easy), or if your employer were matching you - that's a guaranteed immediate 50% return right there.  But if not, then forget it.  The loan is an investment, especially at that rate. 

As a sidenote, I agree w/ others to just leave the Roth in place. 

--

To recap, and to clarify, I would hit these things first and especially:
1.  Refinance, or at least look into it.
2.  Invest - by paying off that student loan.
3.  Consolidate the houses.  (This could really be #2, as you're already doing #2, and this is a top priority.) 

Best wishes to you on your new journey!  You're in the right place, and you're off to a great start already. 

ginjaninja

  • Stubble
  • **
  • Posts: 199
    • My Journal
Re: Where to start?
« Reply #17 on: January 10, 2018, 09:59:17 AM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!

Congratulations on getting him to see the light!  The other thing that MMM blog talks about as far as an emergency fund is using a home equity line of credit.  This could be worth looking into for true emergencies because it will have a lower interest rate but still allow you to keep less cash on hand.  Also, if you want to keep that much cash around make sure it is in a savings account making at least 1% interest.  There are so many online banks that have at least this (capitalOne, Discover, etc).

dreams_and_discoveries

  • Pencil Stache
  • ****
  • Posts: 932
  • Location: London, UK
Re: Where to start?
« Reply #18 on: January 11, 2018, 12:17:33 PM »
Today my dh had an eye opening experience! We are currently doing the Frugalwoods challenge. Today the email was about how small investments can become a large over time. She had a link to a calculator for index funds. I put the monthly payment in that we are paying for the student loan over 15 years. He could believe it! He said to pay off that S.O.B! so we can start investing that money! Yay! He seen it my way!! We are going to pay off the one loan and knock out the rest by the end of the year. We are also going to refi the one just so we stop getting hit with such a high interest rate!!

Congratulations on getting him to see the light!  The other thing that MMM blog talks about as far as an emergency fund is using a home equity line of credit.  This could be worth looking into for true emergencies because it will have a lower interest rate but still allow you to keep less cash on hand.  Also, if you want to keep that much cash around make sure it is in a savings account making at least 1% interest.  There are so many online banks that have at least this (capitalOne, Discover, etc).

Great news on that one, sounds like you are making progress together.

2Birds1Stone

  • Magnum Stache
  • ******
  • Posts: 4423
  • Age: 31
  • Location: Earth
  • K Thnx Bye
Re: Where to start?
« Reply #19 on: January 12, 2018, 11:55:21 AM »
I would advise against cutting down to 3 months of spending for the EF.

You have 1 income, and it's sporadic due to the nature of your husbands work. Unlike many DINK couples here, husband losing his income due to illness, bad luck, etc may take longer than 3 months to recoup from. Once your side hustle starts earning $2k/month, or heck even half of that I would lower the EF.

Best of luck! You came to a great place for motivation and advice.

civil4life

  • Bristles
  • ***
  • Posts: 286
    • My Journal
Re: Where to start?
« Reply #20 on: January 12, 2018, 02:16:16 PM »
Kind of out there suggestion.

If husband insists on keeping large emergency fund consider a home equity loan to payoff the student loan.  That would be a much lower interest rate and still be able to deduct the interest on taxes.

If you refinance the student loan on MMM there is a referral link to SOFI.  You get $300 for using the link.