Author Topic: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?  (Read 8397 times)

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
*UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« on: August 12, 2015, 08:56:40 AM »
Hello folks. I have been a reader of the forum off and on for the last year or so and recently changed jobs. This change has led to a significant increase in income and a desire to become more in tune with my saving/spending. This is my first post and below is my case study outline. I am open to any and all help you all can provide. If you need more info or I need to make changes to the outline please let me know.

Life Situation:
Single, Male, 25, No dependents


Gross Salary/Wages:
$75,000/Year, Paid Weekly

Pre-tax deductions:
$12,749.88 (me)
$2,999.88 (4% company match)
$15,749.76/year into 401k

Dental 6.19/pay=321.88/year
Disab 4.41/pay=229.32/year
Life 4.41/pay=229.32/year

$13,530 in pre-tax deductions

Other Ordinary Income:
I have an expense account through work that reimburses me for mileage, landowner meetings/lunches, etc.
approximately $1,000/month (high=1,200 low=800)
$12,000/year

Qualified Dividends and Long Term Capital Gains:
N/A

Rental Income, Actual Expenses, and Depreciation:
N/A

Adjusted Gross Income:
73,470.00

Taxes:
$19,076.72

Current Expenses:
Mortgage payment: 15 year @ 3% fixed Paid 73,500 owe 58,000
P&I 406.06
T&I 87.87
$493.93/month

Student Loans: Original balance $27,000 owe 6,900 scheduled to be paid off in December
~4,200 @ 3.4%
~2,700 @ 6.8%
Pay $1,400/month

Auto Loan: $20,000 @ 2.9% fixed
Payment 564/month
This will most likely get some eyebrows raised but my job requires me to have a truck (work in the coal industry, hauling tools, people, driving to mine sites, 4x4 required weekly)
Also get reimbursed monthly (see above). Drive approximately 150 miles/day, sometimes much less. Really depends on the day.

Food: 400/month (into weight lifting, living a healthy lifestyle, and eat a high protein diet, moderate carb, moderate fat diet all from whole foods. Zero processed food)
Utilities(gas, electric, water, sewage, trash): ~175/month (have not lived in this house a full year and have not been through a winter yet)
Cable: 65/month
Internet: 36/month
Gym: 30/month
Auto Insurance: 102.58/month (paid annually)
Life Insurance: 2 term life insurance policies for a combined 51.58/month (paid annually)
Entertainment/Misc: 150
total monthly expenses $3,468.09
total monthly take home pay $3,261.00
total monthly take home pay with expense check $4,261.00

ER expenses:
Not yet Relevant but hopefully much less than monthly expenses currently

Assets:
3,500 cash in TD Ameritrade Account
small amount of company stock owned
~11,000 in my 401k account. (could use help with the allocations)
Liabilities:
$20,000 truck
$58,000 mortgage
$6,900 Student Loans


Again, if you all need more info please let me know. I would like to be debt free but also realize I need to be investing. This is where I am looking for suggestions. My student loans will be paid off in December at the rate I am going so I will soon have 1,400 extra dollars a month to either invest or put towards debt. My first thought would be to max my 401k (I have been at my current job less than a year and was only contributing enough to get the company match at my last job. This explains why it is as low as it is.) After that is maxed out I am not sure what I should do. Long term goal is to be financially independent. I work in a volatile industry and do not want to have to worry if I was to get laid off. Also, my monthly take home pay is 3,261 plus expense check every month comes out to be 4,261 (some variation depending on size of expense check). By my quick math I have roughly 790 dollars a month going somewhere? I would assume clothes, hunting/fishing gear (A hobby that I spend a large portion of my free time doing), small vacations (I like to take weekend trips hunting/fishing) andI need some serious help here unless I have calculated something wrong. I would like any advice you all care to give on the best way to allocate my money after my monthly expenses have been paid. Thanks in advance.




« Last Edit: September 11, 2015, 01:23:00 PM by keith2210 »

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #1 on: August 12, 2015, 09:11:06 AM »
Hello there

Thanks for the detailed case study.
Your taxes are higher than they need to be with your income.  Two things I would do right now - i) contribute $5500 to a tIRA and increase your 401(k) contributions (you can contribute up to $18k pre-tax).  Both will reduce your tax burden for 2015.  I realize you are aiming to be debt free ASAP, but I would do this even if it means scaling back on your SL payments (particualrly on the loan with a 3.4% rate) - if you don't fill those buckets this year you'll loose the ability.  You can still have the SL's paid off by next year and be in a stronger position once they are paid off.

Second - while I understand a truck might be a necessity for work, does it need to be a 'new' truck?  Could you do the same job purchasing a 3-5 year old truck for half as much?  Use the reimbursement to make yourself wealther instead of just plugging the monthly drain on your cash flow. 

FLBiker

  • Pencil Stache
  • ****
  • Posts: 973
  • Age: 43
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #2 on: August 12, 2015, 09:16:48 AM »
Re: asset allocation -- you're young, so I'd be aggressive.  Personally (I'm 38, w/ a wife and kid, but still pretty aggressive) my allocation looks like this:

50% - US Stock
33% - INT Stock
5% - REIT
10% - Bond
2% - Other

For you, I'd forget REIT and Other, and all look for the lowest cost index funds you can find (Vanguard is a good place to start).

And I totally agree with the previous poster about contributing to a traditional IRA and 401k.  Maxing these out makes a huge difference w/ your taxes.

Also, if I were you, I'd lose the life insurance.  It isn't a lot of money, but without dependents there's no need.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #3 on: August 12, 2015, 09:24:34 AM »
Thanks for the responses so far. As far as the truck is concerned I probably could find one cheaper. Does it make any difference that this is a 2009 with 60,000 miles? Or does that just mean I didnt do enough homework when I bought it and simply paid too much for it? And for the allocations..I will look into switching things up. Thanks and looking forward to more input.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #4 on: August 12, 2015, 10:19:57 AM »
Thanks for the responses so far. As far as the truck is concerned I probably could find one cheaper. Does it make any difference that this is a 2009 with 60,000 miles? Or does that just mean I didnt do enough homework when I bought it and simply paid too much for it? And for the allocations..I will look into switching things up. Thanks and looking forward to more input.
hard to say without knowing exactly what your work requirements are, but it does seem like you overpaid.  It's relatively easy to find a competent used pickup for ~$10k if you're willing to skip the heated seats, 22 speaker stereo, etc and have one that is... you know... an actual work truck.
MMM even wrote a blog post about work trucks: http://www.mrmoneymustache.com/2015/04/28/what-does-your-work-truck-say-about-you/

If you change your vehicle, the ~$1k/month expense check will be funding your retirement instead of your truck loan.

Do yourself a favor and spend 30 minutes looking at better truck options on Craigslist.  You might be able to fully fund an IRA *and* max out your 401(k) every single year without any additional changes.

KittyFooFoo

  • Stubble
  • **
  • Posts: 112
  • Age: 32
  • Location: NYC
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #5 on: August 12, 2015, 11:00:08 AM »
I interpreted the title to mean, "my student loans are crushing."  Then I came in here and saw the tiny balance and was  confused until I realized the alternative meaning of the word crushing :)

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing Student Loans, What next?
« Reply #6 on: August 12, 2015, 11:22:52 AM »
Looks like the truck is hindering me the most. I'll start looking. As far as investing goes...would you all recommend maxing out the 401k and IRA and paying off debt or should I be doing more? As to the title, I can see how that could be misleading. But hey it got your attention!

Catbert

  • Handlebar Stache
  • *****
  • Posts: 1698
  • Location: Southern California
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #7 on: August 12, 2015, 01:01:18 PM »
If you are now eligible for your companies 401k I would start contributing NOW even if that means paying off student loans slower.  Once 2015 is over you'll never have the opportunity to contribute that particular 18k again.  Most of your SL are at a decent interest rate.

Personally I'd hang on to the truck since you need it for work for more than just commuting.  (But I drive a Lexus SC.  13 years old, but still a Lexus so I'm not very hard core.)   

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1723
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #8 on: August 12, 2015, 01:21:35 PM »
Drop the life insurance if you don't have anyone relying on you for income.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #9 on: August 13, 2015, 08:11:49 AM »
Drop the life insurance if you don't have anyone relying on you for income.

This has come up a couple of times. This may be a dumb question but I'm asking because I don't know. If I were to pass away tomorrow and didn't have life insurance who would be responsible for my debts (home, auto, and student loans)?

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8855
  • Location: Oregon
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #10 on: August 13, 2015, 08:42:03 AM »
I'm surprised no one has pointed out the leak in your budget! If you're "missing" $750/month, while still accounting for $150 in entertainment/misc, that is a BIG leak. You need to know where that money is going. You're talking $10k/year there, which as mentioned, should be going into tax advantaged accounts.

Do you tend to pay with cash or card? If you use CC, use Mint to capture every transaction. Cash is a bit harder, but you can just do the notebook method.

Spending a bunch on hunting/fishing gear is fine if it reflects your joys and priorities, but you need to be doing it with full knowledge of how much is being spent and where. MMM is all about intentionality, and you can't be intentional if you aren't informed.

Congrats on crushing your loans though- must feel great!

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #11 on: August 13, 2015, 08:57:43 AM »
I pay for everything I possibly can with a credit card and pay it off in full every month.

Axecleaver

  • Magnum Stache
  • ******
  • Posts: 3370
  • Location: New York
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #12 on: August 13, 2015, 09:14:51 AM »
You are doing really well. I think you will see the best results by maximizing your deferred tax retirement accounts, establish an emergency fund, and pay off remaining, low interest rate debts last.

1. The $12k in expense reimbursement you receive should not be counted as taxable income, or should be offset as an expense on your taxes. You may need to itemize using Form 1040 Schedule A. More info on deductible employment expenses is available here: http://www.irs.gov/taxtopics/tc514.html. You might also want to post on the tax forum, we have some great CPA resources and others well versed in tax topics here who can help.
2. As Nereo suggested, adding contributions to a traditional IRA in addition to your 401k will allow you to save while also reducing your taxable income. The benefit of an IRA is that you can keep your expenses very low and manage it without restrictions that normally come with a 401k. You can probably get the saver's credit, too.
3. You do not have an emergency fund, but you said your industry is volatile, so I recommend an emergency fund be higher on your priority list.
Quote
I work in a volatile industry and do not want to have to worry if I was to get laid off.
4. Drop the life insurance.
Quote
If I were to pass away tomorrow and didn't have life insurance who would be responsible for my debts (home, auto, and student loans)?
When you die, all your stuff goes to your estate. If you do not have a will, the state has rules to determine who gets what. Your creditors are paid out of your assets. In your case, any money owed to you from your job, your savings, your taxable account, your truck, would all be liquidated to pay your debt. Your retirement accounts are subject to special rules in most states - those usually can be passed on to someone (a beneficiary) and avoid going to your estate to satisfy debt. I'll let others address this in more detail because I'm not an expert on it.

Here are my suggestions for prioritizing your income. Your interest rates for most of your loans are very low, with the exception of one part of your student loan. Your emergency fund is important, too, given your concern about your job. Expenses are about $2100/month (excluding 401k savings). So a three month ER fund is 6300. Allocate funds in this order:

1. Save $6300 for a three month emergency fund. You can put this in a savings account and forget about it, or you can look to invest it in your taxable brokerage account to maximize your returns. Just be sure you can liquidate it quickly in the event of a problem with your job. Stocks/bonds/etc can usually be turned into money within a few days. This way you can avoid being tempted to raid your retirement accounts, which carries negative tax consequences as well as a 10% tax penalty on the withdrawal.
2. Allocate $5500 to a traditional IRA. At 75k gross, filing single, you're in the 25% tax bracket, so this step will save you $1375 on your year end tax bill. Might be a bit more if you can claim the saver's credit, too. You must open the account before 12/31/2015 but you have until 4/15/2016 to contribute for this tax year.
3. Allocate $18k to your 401k for the year. This will save you $4500 on your taxes.
4. Kill the $2700 of student loan debt at 6.8%.
5. Pay off remaining debt according to highest interest rate. But, this is lowest priority because the rates are really low, and you save a lot more on taxes.

2Cent

  • Pencil Stache
  • ****
  • Posts: 644
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #13 on: August 13, 2015, 09:16:47 AM »
You could cut the cable and rely on netflix or other online options for a 700/year saving. And if you buy some weights you could cut another 360/year in gym membership although 30 a month is not that bad.

And your groceries are a bit on the high side with 400 for a single guy. If by protein you mean meat, you could find alternatives that are cheaper and have the same protein.

So you could cut some more, but overall I think you're doing very well.

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3272
  • Location: The Other Side
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #14 on: August 13, 2015, 09:24:45 AM »
I may have missed it, but how much are you spending per month on gas for the truck and other reimbursable expenses?  You are showing the reimbursement as income but not showing the expenses?  The expenses offset at least a portion of the reimbursement.  That may explain the apparent gap between your income and expenses.  Also, you listed dental and disability but how about health insurance?

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2348
  • Location: Sacramento, CA
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #15 on: August 13, 2015, 01:49:46 PM »
Many federal student loan programs feature loan forgiveness if the student who took them out dies. Your house should more than cover your mortgage if you were to die young. That leaves your truck loan (selling the truck probably wouldn't quite cover it) and funeral expenses as possible burdens on your estate/loved ones. I imagine that your loved ones would not feel that you have been a financial burden on them if your emergency fund takes care of any remainder on the auto loan and your retirement accounts pay for the funeral. You really don't need life insurance unless someone is depending on your income/assets. Save the $600/yr for now and reconsider you needs vs. your stash as your situation changes.

BeardedLady

  • 5 O'Clock Shadow
  • *
  • Posts: 87
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #16 on: August 13, 2015, 02:20:46 PM »
I don't see a line item for gas. If you are counting the reimbursement for mileage as income, you need to include fuel in your expenses. I have a feeling that can account for a lot of the missing cash.

I also would add another vote for ditching life insurance. As someone with no dependents, you don't need it.

Do you have health insurance? You should get a HDHP and then you can fund an HSA that you can treat as a traditional IRA. It is essentially an additional retirement account that you can also use for health expenses. This will save you more on your tax bill once you are maxing out your 401k.

I personally do not mess with dental insurance. My dentist gives a cash discount, and most dental plans max out at $1000 anyway. You are responsible for the rest. If this is not the case for yours, it might be worth keeping.

Is there a less expensive truck that will still get the job done? Maybe get one that is 2-5 years old next time instead of going new.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #17 on: August 17, 2015, 11:50:54 AM »
I don't see a line item for gas. If you are counting the reimbursement for mileage as income, you need to include fuel in your expenses. I have a feeling that can account for a lot of the missing cash.

I also would add another vote for ditching life insurance. As someone with no dependents, you don't need it.

Do you have health insurance? You should get a HDHP and then you can fund an HSA that you can treat as a traditional IRA. It is essentially an additional retirement account that you can also use for health expenses. This will save you more on your tax bill once you are maxing out your 401k.

I personally do not mess with dental insurance. My dentist gives a cash discount, and most dental plans max out at $1000 anyway. You are responsible for the rest. If this is not the case for yours, it might be worth keeping.

Is there a less expensive truck that will still get the job done? Maybe get one that is 2-5 years old next time instead of going new.

Ah yes, fuel! How could I forget. Fuel is approximately $550/month. That leaves the rest of the "missing" money ($200) going towards other entertainment/misc. items such as clothes, home improvement, outings with friends for a total of 350/month. I do not have a very good handle on exactly where this 350/month is going. I need to keep better track of this. I am looking into MINT. I will make these changes to my original post.

As far as health insurance is concerned. It is provided through work and there are zero monthly premiums. I am needing to get my wisdom teeth removed soon, hence the reason for paying the extra for dental insurance right now. The small price I pay will cover this procedure. Once that is complete I will take your advice and drop the coverage.

I believe i have addressed everything. Any other suggestions? Anything else I may have missed or may want to consider?

Thanks in advance for all of the help! It is greatly appreciated.

Fuzz

  • Bristles
  • ***
  • Posts: 331
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #18 on: August 17, 2015, 12:28:26 PM »
I think Vanguard might be a better fit than TD Ameritrade. But looks good!

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #19 on: August 17, 2015, 12:32:01 PM »
I think Vanguard might be a better fit than TD Ameritrade. But looks good!

This seems to be pretty popular here. Any particular reason or reasons why? Not opposed to it at all, just trying to learn.

Thanks

Abe

  • Handlebar Stache
  • *****
  • Posts: 1264
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #20 on: August 17, 2015, 01:42:15 PM »
Vanguard has the cheapest annual fees for their index funds. Also, the company is geared towards index funds in particular, not fancy high-risk nonsense.  I have found their customer service to be very good. The website is somewhat lacking in tools and organization compared to other firms, but sufficient for basic tracking of earnings, investment amounts, statements, etc.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #21 on: August 21, 2015, 02:07:53 PM »
I am open to more suggestions on my 401k allocations. I am pretty lost here as to what I should be investing in. I have 73 options. Would it help to list those options here for you all to take a look at?

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8855
  • Location: Oregon
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #22 on: August 21, 2015, 02:13:43 PM »
I am open to more suggestions on my 401k allocations. I am pretty lost here as to what I should be investing in. I have 73 options. Would it help to list those options here for you all to take a look at?

Try to break them into category type first, and then decide within the categories. That'll make it easier for people to help you, rather than having to read 73 entries.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #23 on: August 24, 2015, 10:55:04 AM »
I am open to more suggestions on my 401k allocations. I am pretty lost here as to what I should be investing in. I have 73 options. Would it help to list those options here for you all to take a look at?

Try to break them into category type first, and then decide within the categories. That'll make it easier for people to help you, rather than having to read 73 entries.

I have Large Cap (12 options), Mid-Cap (4 options), Small Cap (3 options), International (6 options), Specialty (7 options), N/A as the category type but blended investments as the asset class (20 options), Income (17 options), Other (4 options).

I believe this is what you meant by breaking them into categories. Any and all help is appreciated.

Merrie

  • Bristles
  • ***
  • Posts: 465
  • Location: Midwest
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #24 on: August 24, 2015, 07:56:57 PM »
The only case I could see for keeping the life insurance is if you think you may become uninsurable or a much worse risk down the line and need insurance then. If you drop the policy now and reapply in a few years, your premium may be a little bit more, but you have to balance that against having spent several years not paying for it. On the other hand, say you hope to marry and start a family within the next few years, but your parents were both stricken with diabetes/high blood pressure/nasty genetic disorder/whatever in their 20s. If you think you're likely to stay reasonably healthy for the foreseeable future, or if you're childfree and don't want to acquire a stay-at-home spouse, you could probably skip this coverage.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #25 on: August 26, 2015, 09:46:29 AM »
Let me see if I can be a little more specific and maybe that will help. Below are my current allocations for my 401K as well as three options that I am considering switching to.

Currently Invested:
VHIAX 36.53%
PHLAX 52.47%
FHFAX 11.01%

Considering:
PEOPX
NTIAX
NMSAX

I just put their symbols up so if you need any more info let me know and I will get it. Any input is appreciated.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #26 on: August 26, 2015, 11:55:52 AM »
Let me see if I can be a little more specific and maybe that will help. Below are my current allocations for my 401K as well as three options that I am considering switching to.

Currently Invested:
VHIAX 36.53%
PHLAX 52.47%
FHFAX 11.01%

Considering:
PEOPX
NTIAX
NMSAX

These (PEOPX, NTIAX, & NMSAX) are an SP500, mid-cap and small-cap funds with fairly low fees (0.5, 0.45 and 0.44% respectively).  I see nothing overtly wrong with any of these.  What matters is how you want to be invested, which gets back to having an investment policy statement (IPS) and sticking to it.

There would be nothing wrong with putting everything in teh PEOPX (SP500 index fund) - you would own shares in the 500 largest US listed companies.  Or for a bit more diversity, you could split it up between the three based on how much of your wealth you'd like in Large, Medium and Small cap stocks.  There's no "wrong" answer here - it's all about what you are comfortable with.  I tend to like larger more stable companies, so if it were me personally I might allot 50%/30%/20% in PEOPX/NTIAX/NMSAX.  Your allocation might be somewhat different.

 Before you pull the trigger, make sure there are no other similar funds with lower fees available.  Often there will be two funds that track virtually the same market but will have different costs. 

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #27 on: August 26, 2015, 12:36:22 PM »
Definitely some sort of emergency fund would be advised.  you have no one else in the household to help carry bills if you were off work for a month or two even.  I'm super cautious that way, been there done that don't want to go there again.  despite my emergency fund the stress was not fun

since once the student loans are paid you'll have a whopping $1400 to play with, have you thought of allocating even $100 a month extra to your mortgage?  If you have the ability to make extra payments that could shave off 2-4 years from the life of it.  do $150 and it would be done it 10 years from now.  And you'd still have lots of time/money to start aggressively investing now with.

Other than tracking the fine details down with some sort of app/program you're well on way to destroying those student loans.  The life insurance seems not super important, as your net worth will be soon more than any loans against you. 

Also look at netflix vs that cable bill.  or buy a cheap computer if you don't have one and  hook it up to your tv and watch stuff online since you have internet already.  People have mentioned the high truck loan already.  Look for some LED lights on sale as well, the life time savings are huge potentially if you can get them cheap enough

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #28 on: August 26, 2015, 01:52:52 PM »
...
since once the student loans are paid you'll have a whopping $1400 to play with, have you thought of allocating even $100 a month extra to your mortgage?  If you have the ability to make extra payments that could shave off 2-4 years from the life of it.  do $150 and it would be done it 10 years from now.  And you'd still have lots of time/money to start aggressively investing now with.

At this risk of igniting another mortgage payoff debate, I would advise against paying extra on your mortgage right now.  You have a 15 yr loan at a fixed 3%.  A much better use of the OP's money would be to fund an IRA and then increase his/her 401(k) contributions.  Those tax-advantaged vehicles have the double-advantage of reducing the OP's tax burden as well as almost certainly earning more than 3% over the next 15 years.

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #29 on: August 26, 2015, 10:40:11 PM »
It depends on how much risk you like to accept. A lot here i find are very risky.  For me, i'm not, and paying down mortgage was a priority, and something i did before i found MMM due to a not fun experience i had being off work.  Being single and stuck with a big mortgage was a huge stress.  Being mortgage free now i have a lot more money/freedom to invest than i did before AND can also take more risk now than i felt i could before. 

Yes the markets could do much better, but that is a 'could do'.  I just mentioned it because it is a guaranteed return.  As long as he is saving/investing it somewhere at low cost that's the biggest thing.  And yes, of course he will get good return from any tax reducing investing.  I only mentioned a very small portion for that very reason.  Its not a wrong answer, just a different answer.  Everyone has a different life situation and priorities and risk level.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #30 on: August 27, 2015, 04:34:38 AM »
It depends on how much risk you like to accept. A lot here i find are very risky.  For me, i'm not, and paying down mortgage was a priority, and something i did before i found MMM due to a not fun experience i had being off work.  Being single and stuck with a big mortgage was a huge stress.  Being mortgage free now i have a lot more money/freedom to invest than i did before AND can also take more risk now than i felt i could before. 

Yes the markets could do much better, but that is a 'could do'.  I just mentioned it because it is a guaranteed return.  As long as he is saving/investing it somewhere at low cost that's the biggest thing.  And yes, of course he will get good return from any tax reducing investing.  I only mentioned a very small portion for that very reason.  Its not a wrong answer, just a different answer.  Everyone has a different life situation and priorities and risk level.
I hear you, I just disagree with you for this specific case. If it were a question of paying down a large 30 year ARM vs investing in taxable accounts I could at least see it as another sensible option.  But it isn't. 
The OP already has a 15 year fixed mortgage at 3%.
The mortgage is already >60% paid off
The OP has not funded his IRA account.

Those three things combined make allocating more money towards the mortgage a bad financial strategy.  The tax savings alone make funding the IRA a really great move.  It doesn't matter whether it is 'small amounts' ($1800/yr), and it is by no means a 'guaranteed return'; if inflation averages this historical mean of ~3% there will be no 'return' at all. Tax savings are what's guaranteed here.


Potterquilter

  • Stubble
  • **
  • Posts: 113
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #31 on: August 27, 2015, 05:29:59 AM »
Wanted to say how impressed I am with your financial maturity and responsibility at your age.

If diet and gym membership are important to you don't change it. Keeping in good health when you are young reaps great rewards as you age, barring something totally out of your control happening.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #32 on: August 31, 2015, 07:29:00 AM »
I really do appreciate everyone's advice. I failed to mention in any of my previous posts about a paid off four-wheeler that I have and rarely use. I have been doing quite a bit of reading here lately and have started taking the advice of some on this forum and selling off things with value that I no longer use. I was able to sell the quad for $2,100. This money paid of the remaining balance on my student loan at 6.8% plus some. My current balance on all student loans is $4,192. With what I have in my TD Ameritrade account I can have the student loans paid off completely at the end of this month. It would go against the majority of the advice here as far as the order at which I do things but I would love to be out from under these loans. Since I would take my weekly savings plus all of the money in the TD account I would essentially be starting at zero at the end of this month as far as savings is concerned (with the exception of the 401k). But at that point I would be able to allocate at least $1,400/month towards savings (emergency fund would be first as I tend to sleep much better knowing I have very quick access to cash if I need it). Feel free to talk me into or out of this.

I also have another question in regards to my 401k account. Since I am not currently maxing it out (~16,000 out of the possible $18,000) am I allowed to make one large deposit at the end of the year in order to max this account out or does it have to be contributed on a weekly/monthly basis?

Again, I greatly appreciate all the help.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #33 on: August 31, 2015, 07:30:39 AM »
I also have another question in regards to my 401k account. Since I am not currently maxing it out (~16,000 out of the possible $18,000) am I allowed to make one large deposit at the end of the year in order to max this account out or does it have to be contributed on a weekly/monthly basis?

This varies by provider. Give them a call and find out. In my case the answer is no.

Merrie

  • Bristles
  • ***
  • Posts: 465
  • Location: Midwest
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #34 on: August 31, 2015, 07:58:25 AM »
My current balance on all student loans is $4,192. With what I have in my TD Ameritrade account I can have the student loans paid off completely at the end of this month. It would go against the majority of the advice here as far as the order at which I do things but I would love to be out from under these loans.

It may not be the exact right mathematical decision but personally I don't see the point of quibbling over the exact right mathematical decision for 4k. There is value to a psychological boost as well and certainly value to being done with your loans. I would pay the darn things off and be done with it! Congratulations on being so close.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #35 on: August 31, 2015, 09:54:38 AM »
My current balance on all student loans is $4,192. With what I have in my TD Ameritrade account I can have the student loans paid off completely at the end of this month. It would go against the majority of the advice here as far as the order at which I do things but I would love to be out from under these loans.

It may not be the exact right mathematical decision but personally I don't see the point of quibbling over the exact right mathematical decision for 4k. There is value to a psychological boost as well and certainly value to being done with your loans. I would pay the darn things off and be done with it! Congratulations on being so close.

I agree with it being a psychological boost. I'm anxiously waiting for the end of this month to be able to pay it off.
I will give a call to my provider and find out. Thanks again for all of the advice.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #36 on: September 11, 2015, 01:33:37 PM »
Alright here is a one month update since posting my case study:

I took most of the advice here and did the following:
-sold my four wheeler +$2,100
-sold my truck for more than I owed on it and bought a smaller truck and paid cash!
-making my final college loan payment on the 28th of this month!
-cleaned out my garage and sold miscellaneous items I haven't used in ages +$425


Summary: I have no more college loans to pay for (as of the 28th), I have no more truck payment, and I sold enough 'stuff' to almost pay for next months mortgage payment! The only debt I have left is my home.

Next goal is to save an ~8,000 dollar emergency fund. With the newly available cash this should take roughly 3 months. I feel pretty good about all of this. I have always been relatively frugal but needed you all to tell me what I was doing wasn't optimal. I think I am on the right track now and wanted to thank all of you that took the time to reply. So thank you!

I also realize I didn't do things in the order some of you recommended but the debt was keeping me up at night. I will sleep much better knowing it's gone. Once the emergency fund is built up I will be opening a traditional IRA and maxing it out. Thank you all for your advice. If anyone has any more bits of advice I would welcome them.

Easye418

  • Bristles
  • ***
  • Posts: 469
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #37 on: September 11, 2015, 01:38:46 PM »
Alright here is a one month update since posting my case study:

I took most of the advice here and did the following:
-sold my four wheeler +$2,100
-sold my truck for more than I owed on it and bought a smaller truck and paid cash!
-making my final college loan payment on the 28th of this month!
-cleaned out my garage and sold miscellaneous items I haven't used in ages +$425


Summary: I have no more college loans to pay for (as of the 28th), I have no more truck payment, and I sold enough 'stuff' to almost pay for next months mortgage payment! The only debt I have left is my home.

Next goal is to save an ~8,000 dollar emergency fund. With the newly available cash this should take roughly 3 months. I feel pretty good about all of this. I have always been relatively frugal but needed you all to tell me what I was doing wasn't optimal. I think I am on the right track now and wanted to thank all of you that took the time to reply. So thank you!

I also realize I didn't do things in the order some of you recommended but the debt was keeping me up at night. I will sleep much better knowing it's gone. Once the emergency fund is built up I will be opening a traditional IRA and maxing it out. Thank you all for your advice. If anyone has any more bits of advice I would welcome them.

Congrats.  Quite the accomplishment.

JLee

  • Walrus Stache
  • *******
  • Posts: 5574
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #38 on: September 11, 2015, 01:56:42 PM »
Awesome! Congratulations!

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #39 on: September 11, 2015, 03:29:10 PM »
A+!!!!  All fantastic steps taken!

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8855
  • Location: Oregon
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #40 on: September 11, 2015, 06:05:34 PM »
Awesome! Thanks so much for the update. You did some solid work there!

CU Tiger

  • Bristles
  • ***
  • Posts: 461
  • Location: Mid-Atlantic USA
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #41 on: September 11, 2015, 08:37:19 PM »
Congratulations, and well done! So many people will not or cannot change their speedy ways. You are actually making changes in your life that will help you to a life of debt free living at a young age.

Good job!

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10478
  • Age: 61
  • Location: NorCal
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #42 on: September 11, 2015, 10:34:38 PM »
Wow! I thought I was following this thread, but apparently I was just lurking. I'll fix that right now by adding my hearty congratulations.

keith2210

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #43 on: September 12, 2015, 06:43:42 AM »
Thank you all. I definitely wouldn't have done it if it wasn't for the advice I've been given here. The funny thing is I'm starting to get all kinds of crazy comments from my friends and co-workers. The most common one being, "quit depriving yourself and live a little, you could be dead tomorrow". It makes me chuckle knowing that I am slowly ridding myself of the debt while they are slowly adding it. As much as I liked that truck it feels great not having the payment. And the college loans, I'm glad they are about gone. Thanks again all.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10600
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #44 on: September 12, 2015, 08:31:09 AM »
Thank you all. I definitely wouldn't have done it if it wasn't for the advice I've been given here. The funny thing is I'm starting to get all kinds of crazy comments from my friends and co-workers. The most common one being, "quit depriving yourself and live a little, you could be dead tomorrow". It makes me chuckle knowing that I am slowly ridding myself of the debt while they are slowly adding it. As much as I liked that truck it feels great not having the payment. And the college loans, I'm glad they are about gone. Thanks again all.
Lol - we get this a lot too.  Heavily indebted co-workers keep commenting that we should follow their lead and buy the fancy new car, take a European vacation or go out to the bars with them 2x a week.  Then five minutes later they're complaining about how they are overworked, incredibly stressed and can't envision retirement.  Funny thing is, we don't really miss or want those things they're urging us to 'splurge' on.  Our car is old but reliable, we have a list of 20+ regional spots we want to visit on vacations and going out to the bars frequently just feels like we're wasting our lives (particualrly the days after).  Ironic how not 'indulging' ourselves leads to increased security and happiness.

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: *UPDATED* CASE STUDY: Crushing My Student Loans, What next?
« Reply #45 on: September 14, 2015, 02:19:47 AM »
There is a fine line between splurging and enjoying a few small nice things and becoming a miserable miser.  You do need some fun but there's a ton of things out there to do that aren't super expensive and just as fun.  If you can find that right type of balance in your life you will be way happier than they can with the debt monkey on their shoulders. I still think if you have a very important goal or dream that you should work towards it, but its amazing if you do dedicated monthly savings and a lot of research on the best methods/prices how easy your goal can be reached. 

I hate watching home reno or buy this house type shows.  the complaints the walk in closets aren't big enough, or that there's no granite counter tops drives me mad.  Or that its 'only' 3000sq.  I find its an example of the excess that is expected to be 'normal' now.  I did some fixing in my kitchen and avoided replacing the cupboards like everyone always does first thing.  While adding a dishwasher( i know a luxury but it was worth every penny and i got a fanstastic price), i did a new faucet, a cheap granite look a like counter top from home depot and used a gallon of paint and it looks completely new!  A small luxury in my mind, but at reasonable costs and increased home value.  all without the $10k or $20k price tag that usually goes with doing a typical new kitchen.


MrsPfennig

  • 5 O'Clock Shadow
  • *
  • Posts: 83
  • Location: Bavaria, Germany
  • If it were easy, everyone would do it
    • Auf Heller und Pfennig
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #46 on: September 14, 2015, 04:53:37 AM »
You could cut the cable and rely on netflix or other online options for a 700/year saving.

My thoughts exactly. Nowadays, you dont really need cable anymore once you have internet.

JLee

  • Walrus Stache
  • *******
  • Posts: 5574
Re: CASE STUDY: Crushing My Student Loans, What next?
« Reply #47 on: September 14, 2015, 09:51:55 AM »
You could cut the cable and rely on netflix or other online options for a 700/year saving.

My thoughts exactly. Nowadays, you dont really need cable anymore once you have internet.

I think if I run out of things to watch on Netflix, I should probably find better things to do with my time. :P

After being spoiled by Netflix, Google Play/Amazon Music, I can't stand commercials on TV/radio, and no way would I pay for it!