Reader Case Study – Just married and want an evaluation and potential punch in t

[JustMarried]

I have posted on other sites before but for whatever reason I always lie because I don’t want to look like an idiot, this post is going to be 100% the truth so that I can actually get some real advice.
Income: (all based on 2013 total numbers divided by 12 for a monthly amount)

Me:
Net Income – 3198 (total after taxes, 401k, fica etc.)
401k Contribution – 1214
401k Employer Match – 305

SO:
Net Income – 2475 (total after taxes, 401k, fica etc.)
401k Contribution – 230
401k Employer Match – 115

We were just recently married. We are both 24 years old and about 2-3 years in with our employers.

Total net income: 5673
We break all of our expenses into monthly bills and non-monthly bills. Non-monthly are still contributed to monthly by doing: total cost of bill / 12.

Monthly Expenses:

Mortgage (includes PMI of 112) – 1215
Cars – 600
Internet – 50
Electric – 125
Water – 33
Natural Gas – 80
Hosting – 10 (this makes a profit but not enough to include above)
Home Security – 50 (this is a must as I travel a lot and it makes my SO feel safe, I hate this expense and would love to remove it but I can’t)
Gas – 180 (I over estimate all of my bills, this is probably closer to 120. I personally only fill up my gas tank about once every 6 weeks)
Netflix – 9
Cellphone – 50

Total: 2402

Non-Monthly Expenses:

Medical – 100 (this is just for general medical needs, I have seen what medical bills of even just $2000 can do to people and I never want to worry about going to the doctor)
Contacts – 50
Garbage Service: 25
HOA: 66.50
Home Maintenance : 50
Car Insurance: 85
Gifts: 50
Car Tax: 25
Pest: 29 (thinking of getting rid of this)
Fence: 17 (this is for new staining every so often to keep the fence looking nice)
Amazon Prime: 7
Groceries: 300
Termite Warranty on house: 14.50
Car Random: 50 (random repairs and tires etc)
Costco: 50
Domains: 5

Total: 934

General Spending for clothes, dinners, drinking, events, saving for vacation: 800

Total: 800

Grand Total: 4136

Left over: 1537

This money goes between funding a Roth IRA and paying off my SO’s student loans. We also pad our e-fund as well as the IRA/Loans with our tax refunds which normally total around $4000. We also use that money to go towards our vacations.

Assets:

401k 1 – 43642
ESPP 1 – 448
IRA 1 – 11923
401k 2 – 8600
Emergency Fund – 10300
Home – 201000
Non-Monthly Bill Fund: 2000

Debts:
Car 1 – 14000 @ 2.63%
Car 2 – 7770 @ 3.00%
Mortgage – 184200 @ 3.49%
Student Loans – 6700 @ ~5.00%

My SO began with around 30,000 in student loans so you can see that we have been aggressively paying these off and they should be gone in around 6-7 months.

I am really just looking to see where others think we can cut back or if we even should try to. We have a very active social life and love to travel so we spend quite a bit on entertainment.

[jpo]

$600 car payments == consider yourself punched in the face

[Paulie]

$800 on other, not even including gifts; this could definitely be improved!

[thor800]

agreed on the car payments & $800.  How much of this is vacation savings ? 

Assuming half - thats $400, so a $4800 vacation per year which is way too much unless you're used to Mediterranean travel.  Try local trips, camping, visiting and staying with friends abroad, or just areas with lower food / lodging.  That leaves $400 or roughly $100 per week which isn't terrible, but try to limit to one dinner / drinks / happy hour / breakfast / takeout to start.  You could get away with $50 per week / $200 per month.  Halving this gives you an extra $400/month savings.

Trim down the active nightlife and start hosting parties at your home or friends or if you go out, try BYOB restaurants to cut down on expensive drinks.

[chicagomeg]

What are you spending on Groceries, besides $50/month at Costco?

Stain your own fence, it's not hard, just a little time consuming.

Your electric bill seems a little high to me, but it's hard to know; an electric dryer or electric heat could drive it up.

Can you call your home monitoring & threaten to cancel to get a lower rate? Or shop around for a different company? I'm not very familiar on how this works, but I think the alarm will still function if you shut off the service; you just lose the automatic emergency calls. Would your wife consider that?

I've never owned a home, but I've never seen another budget on this site with Pest or Termite treatment/insurance, so hopefully other people can comment on the necessity or lack thereof for that. Likely lack thereof.

Finally, good job paying down your wife's student loans! At this point, I would personally consider maxing out your 401k and ratcheting down your payments to the loans. Of course there is satisfaction in paying them off, but if you are in the 25% tax bracket now, you could probably be in the 15% by putting more into your 401k. That would make the after tax rate on your student loans only 4.25%. That's kind of in the grey area between pay it off or let it ride out, but something consider. There was a long thread recently about calculating the savings, but I can't seem to find it right now...:(

[Cheddar Stacker]

I agree with what everyone else said, but here's a few specific things from my point of view:

1) You already purchased the cars. If you don't want to or can't get rid of them, at least pay off the loans ASAP. You don't need an E-Fund if you have a car loan. It doesn't makes sense to pay interest on car loans when you have cash available.

2) Drop the termite warranty, and cut back a bit on pest control. My first house had termites before we bought it. They had it treated as part of the contract, and we never had another problem.

3) Entertainment budget could go down drastically, but you said yourself you're young and enjoy being actively social so don't eliminate it completely. Look for ways to reduce it with hosting dinners in, or drinking/eating less when you do go out.

Lastly, great job on paying down the student loans, and you have an awesome amount in retirement savings already for being so young. If you can pay off the cars loans and SL debt with your efund and a few more aggressive months, you will be years ahead of most of your peers. This will free up a lot of cash for your efund and aggressive investing. Good luck, and welcome to the forum.

[JustMarried]

$600 car payments == consider yourself punched in the face

Honestly I drive so little I almost consider selling my own car but I am not sure if it is feasible. I fly for work primarily so it would mean taking a cab to the airport instead of driving my own car. I would probably have to pay out of pocket for the difference which may be around $30-$40 a week. Currently I am reimbursed .555 a mile which round trip totals $11.10 and pay $28 for a 4 days airport parking. A cab round trip would be about $80. So about a $40 difference. My car is the more expensive of the two but it has financed service for oil change, tire rotation etc and it has a full 100k mile warranty on all non-wear items. I would love to lower this monthly payment but I am unsure of how to do so outside of selling my car and buying a cheaper one. Note when we go on road trips I always drive as my car gets 35-40 MPG. My SO would not consider selling her car as she loves it, it is only probably worth $10k anyways so it would probably be a net negative for her to consider something else.

agreed on the car payments & $800.  How much of this is vacation savings ? 

Assuming half - thats $400, so a $4800 vacation per year which is way too much unless you're used to Mediterranean travel.  Try local trips, camping, visiting and staying with friends abroad, or just areas with lower food / lodging.  That leaves $400 or roughly $100 per week which isn't terrible, but try to limit to one dinner / drinks / happy hour / breakfast / takeout to start.  You could get away with $50 per week / $200 per month.  Halving this gives you an extra $400/month savings.

Trim down the active nightlife and start hosting parties at your home or friends or if you go out, try BYOB restaurants to cut down on expensive drinks.

Generally we take 2 vacations a year, 1 to Las Vegas and 1 to somewhere we have never been to before. We also take some random weekend trips all over the country as I have an insane amount of points between credit card churning and the travel I do for work. Generally the big expense come from us spending (please don't hurt me) around $400 a day in Las Vegas. We are only in Vegas for 4 day so generally it is about $1600. These are our 4 favorite days of the year that we look forward to more than anything so I find it hard to slim this number down. Generally we fly and stay in Vegas for free so the whole trip is just $1600. The other vacation money generally goes to our other weekend trip or our other big trip, this year is Aruba.

Most of our friends are still currently in college or figuring out what they are going to do with their lives so we pretty much host everything at our house in terms of parties and get togethers. We rarely spend big nights out on the town and if we do a big night will range between 50-150 depending if we eat dinner out. Now that we have officially combined finances it will be a lot easier to see where our leaks are in the section of spending as we track all of our purchases in YNAB. Hopefully I can take some of your advice and slim this down.

What are you spending on Groceries, besides $50/month at Costco?

Stain your own fence, it's not hard, just a little time consuming.

Your electric bill seems a little high to me, but it's hard to know; an electric dryer or electric heat could drive it up.

Can you call your home monitoring & threaten to cancel to get a lower rate? Or shop around for a different company? I'm not very familiar on how this works, but I think the alarm will still function if you shut off the service; you just lose the automatic emergency calls. Would your wife consider that?

I've never owned a home, but I've never seen another budget on this site with Pest or Termite treatment/insurance, so hopefully other people can comment on the necessity or lack thereof for that. Likely lack thereof.

Finally, good job paying down your wife's student loans! At this point, I would personally consider maxing out your 401k and ratcheting down your payments to the loans. Of course there is satisfaction in paying them off, but if you are in the 25% tax bracket now, you could probably be in the 15% by putting more into your 401k. That would make the after tax rate on your student loans only 4.25%. That's kind of in the grey area between pay it off or let it ride out, but something consider. There was a long thread recently about calculating the savings, but I can't seem to find it right now...:(

Groceries are generally about $300 a month, the $50 at Costco isn't budgeted for groceries. It is strictly for things like batteries, alcohol, saran wrap, TP, etc. We eat extremely healthy and one of our main dinners involves Costco's $3/lb chicken. We do not eat any frozen meals or pre-made crap. I cook every meal when I am home including lunch.

Very good idea on maxing out the 401k further. I am stickler on our energy bill, we have a 2800 sq ft house so it is hard to get it any lower. As far as the security we signed a 5 year contract and there is no way out of it short of paying a huge early termination fee.

I agree with what everyone else said, but here's a few specific things from my point of view:

1) You already purchased the cars. If you don't want to or can't get rid of them, at least pay off the loans ASAP. You don't need an E-Fund if you have a car loan. It doesn't makes sense to pay interest on car loans when you have cash available.

2) Drop the termite warranty, and cut back a bit on pest control. My first house had termites before we bought it. They had it treated as part of the contract, and we never had another problem.

3) Entertainment budget could go down drastically, but you said yourself you're young and enjoy being actively social so don't eliminate it completely. Look for ways to reduce it with hosting dinners in, or drinking/eating less when you do go out.

Lastly, great job on paying down the student loans, and you have an awesome amount in retirement savings already for being so young. If you can pay off the cars loans and SL debt with your efund and a few more aggressive months, you will be years ahead of most of your peers. This will free up a lot of cash for your efund and aggressive investing. Good luck, and welcome to the forum.

1. My only concern about using the e-fund to pay off the cars is that if one of us lost a job we would be in bad shape.

2. We bought this house brand new and from what I have read losing your "new home" termite warranty can drop the value of your home by 5%. This may be just bullshit that is spread to keep people renewing so I will look into it further. I would love to drop this if possible.

3. We just recently combined our finances so really I am unsure if this $800 is all that accurate, it was just a high-side guess I made based on my own spending. Hopefully we can trim this down even further.

Thanks for all of the advice everyone, I look forward to learning as much from all of you as I can!

[foobar]

Those car loans are at 3% or less.  I might vote for paying off the student loans first or looking into seeing if paying down the mortgage to avoid PMI is a worthwhile investment.

That 4k tax refund is part of your monthly income.  You might choose to give the government an interest free loan but at the end of the day it is ~350/month that you are choosing to spend on something.

That 800 of "general" spending is your big expense. You can save 10-20/buck on some of the other items but compared to that 800 it is chump change. 60/yr for a domain name is a lot and 120 for hosting isn't cheap either (granted I don't know what you need exactly) but even making those free is just a fraction of that 800 bucks/month.

I agree with what everyone else said, but here's a few specific things from my point of view:

1) You already purchased the cars. If you don't want to or can't get rid of them, at least pay off the loans ASAP. You don't need an E-Fund if you have a car loan. It doesn't makes sense to pay interest on car loans when you have cash available.

2) Drop the termite warranty, and cut back a bit on pest control. My first house had termites before we bought it. They had it treated as part of the contract, and we never had another problem.

3) Entertainment budget could go down drastically, but you said yourself you're young and enjoy being actively social so don't eliminate it completely. Look for ways to reduce it with hosting dinners in, or drinking/eating less when you do go out.

Lastly, great job on paying down the student loans, and you have an awesome amount in retirement savings already for being so young. If you can pay off the cars loans and SL debt with your efund and a few more aggressive months, you will be years ahead of most of your peers. This will free up a lot of cash for your efund and aggressive investing. Good luck, and welcome to the forum.

[SunshineGirl]

Welcome to the forum.

I think you're doing very well for your age, espcecially the amount you have saved in your 401K.

Some of your purchases are a done deal and weren't as thrifty as they could have been - your house and cars - but they're done and you can keep them and still move forward quite rapidly in your first phase of Mustachianism. Just pay everything off as fast as you can, car and student-loan wise. It shouldn't take you too long.

You really have to figure out your goals and what you want from life, and what sort of savings and money choices you need to get there. You can expect to get a lot of bashing for Vegas and your cars and the big house, but it's YOUR life. You just want to be very conscious of the choices you're making and make sure they fit in with your long-term goals. For instance, if you plan to have kids and one of you wants to stay home, then you'll need to learn to live on one paycheck. If you can do that -- keep all your expenses to one paycheck - and save the rest, you'll be doing very well. Once kids do come along, travel gets more and more expensive if you fly, so I think it's great you're taking trips.

Again, welcome!

[zarfus]

Agreed with person above me, some things could have been done better...but they're bought and now you got them.  Time to hit the reset button :)  All in all, it looks like you're doing a good job.

Someone mentioned about using efund towards loans, I agree with this.  Maybe not all of it, but you're young and insured with no kids and new cars...what emergency are you saving for when you have $1500/mo extra cash flow?

I know it's a hard pill to swallow, but if you really only drive as often as you say, look into selling the car and replacing it with a used compact.

Look into ways to save electricity: clothes line for drying, CFL bulbs, maybe turn your water heater down, how often is your fridge(s?) running, or dehumidifier, etc.  There's room to cut maybe $40/mo.

I like the idea of threatening to leave home security for a lower bill...but i have no experience with it. 

Cut that termite/pest shit now.  Do it yesterday. That 5% home value is a load, and what difference does it even make? The home is yours and you're not selling anytime soon..right??

Maybe I missed it, but what is home maintenance? Just stuff like 'home depot trips'? or stuff like lawn service? if it's the latter, cut it! I also don't understand the fence thing?

Track your misc $800 more closely to see where you can cut.  For example, my wife and i love going out.  Rather than going out on fri/sat night to the $50+ bill restaurants, we catch a pub weeknight special and cut it to less than $25 per date night.  For vacations, look into priceline's name-your-price for a hotel (if you're not too picky), or vrbo.  Just some ideas!

Good work on the assets so early, keep it up!

[Travis]

Concur with itemizing that $800 category.  That's 20% of your spending and you need to know where the hell it's going.

[seattlecyclone]

Honestly I drive so little I almost consider selling my own car but I am not sure if it is feasible. I fly for work primarily so it would mean taking a cab to the airport instead of driving my own car. I would probably have to pay out of pocket for the difference which may be around $30-$40 a week. Currently I am reimbursed .555 a mile which round trip totals $11.10 and pay $28 for a 4 days airport parking. A cab round trip would be about $80. So about a $40 difference. My car is the more expensive of the two but it has financed service for oil change, tire rotation etc and it has a full 100k mile warranty on all non-wear items. I would love to lower this monthly payment but I am unsure of how to do so outside of selling my car and buying a cheaper one. Note when we go on road trips I always drive as my car gets 35-40 MPG. My SO would not consider selling her car as she loves it, it is only probably worth $10k anyways so it would probably be a net negative for her to consider something else.

It sounds like you're out of town for work most weeks. Is that accurate? I'll assume it is for the sake of this post. Consider whether you need two cars at all. Your car is already sitting at the airport doing nothing (besides costing your company $7/day) four days per week. What about the weekends? Do you really need two cars then? How often do you and your wife need to be in different places at the same time over the weekend? It's pretty rare for me and my wife, so it's not a problem for us to share a car. In the event where we're both out of the house doing different things, one of us is always able to figure out a way to use transit or walk or get a ride from a friend.

Let's suppose you get rid of the car and don't buy a cheaper one to replace it. You'll need to get to and from the airport every week (4x monthly). You say a taxi ride would cost you $40 extra, or $160/month. When you take road trips you'll be using your wife's car which is not as fuel-efficient, so there's a little extra fuel cost there. How much would this be? I'll assume $40/month on average to make the numbers come out to a nice even $200 in extra expenses monthly.

But what would you save? I think it would be a lot more. Your car payment would be gone. That's about $400/month. Your insurance would be gone. That's another $50/month. You would no longer need to buy gas for the car - another $50/month? That's $500 cut out of your current budget by jettisoning a vehicle.

Even though your airport trips would be more expensive as a one-car family, you're still probably coming out at least $300/month ahead by getting rid of it. Could your wife ever drop you off at the airport or pick you up on the way back? Is there a decent public transit option for this trip? Every time you skip the taxi you save even more!

You might read through this all and think you still might need two cars for some reason or another. I urge you to sell the car and try life without it for a month. See how your airport trips work out, and see how often having only one car on the weekends becomes a hassle. If you decide after a month that you want a second car after all, get a cheap, fuel-efficient used car. Whatever you do, don't take out another car loan! You'll probably be able to get cheaper insurance by going to a liability-only policy, and the lack of the car payment will mean an extra $400/month in your pocket.

1. My only concern about using the e-fund to pay off the cars is that if one of us lost a job we would be in bad shape.

Actually I think you would be all right. Suppose you got rid of your car loans and had to dip into the emergency fund to do it. With those loans gone, your monthly expenses are now $600 lower. Your monthly plus non-monthly expenses would now average $2,736/month (down from $3,336/month). I'm ignoring your $800 of "clothes, dinners, drinking, events, saving for vacation," because these could all easily be eliminated for a while if you lost your job, right?

Your wife is the lower earner, but her after-tax paycheck plus 401(k) contributions adds up to $2,705/month, just $31 lower than your recurring expenses! So if you lost your job and your wife temporarily paused her 401(k) contributions until you found a new one, you would just need to find $31 to cut out of your recurring expenses to make things work, even without an emergency fund!

Isn't it amazing how much flexibility the lack of a car loan can buy you?

2. We bought this house brand new and from what I have read losing your "new home" termite warranty can drop the value of your home by 5%. This may be just bullshit that is spread to keep people renewing so I will look into it further. I would love to drop this if possible.

I really think this is a bunch of FUD that they throw at you to keep you paying for unnecessary coverage. It's not a huge amount of money in the grand scheme of things, but you should still probably cancel it.

You're doing pretty well overall, especially considering your ages. Here are three things I recommend doing this year to put yourself on an even better path:
1) Get rid of the non-mortgage loans. Sell your car and use the proceeds (plus your emergency fund) to pay off your wife's car loan and student loan.
2) Increase your 401(k) contributions. Between the amount you already contribute and your "leftover" $1,537/month, you should both be able to max out your 401(k)s, or at least get very close.
3) Start accelerating your mortgage payments in order to get rid of PMI. Take the money you're no longer spending every month on car loans, plus the extra money you're saving on your taxes because of your higher 401(k) contributions, plus any other money you can cut out of your budget ($800 for discretionary spending is a bit high) to make this happen.