Author Topic: Case Study: 25 & 24 year old newlyweds, $73,200 combined income  (Read 5125 times)

goober

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« on: February 20, 2015, 08:03:20 AM »
Hello Mustachians!

I have been making steps towards FI for about a year, and my wife recently decided to jump on board! We got married last October, and we've been working on combining our finances and discussing our financial goals. We both had some credit card debt, and she had an overdue bill (about $2,500 total) that we have paid off. I have about $50,000 in student loans ranging from 3.4 to 6.8%. My wife has a similar amount of student loans, but luckily her parents are paying it off for her. I am currently working full time in HR while going back to graduate school. The total cost of the graduate program is $17,500, $10,000 of which is being paid by my employer. Normally I'd never go back to school without having other loans paid, but my out of pocket is so low, and I have the time to currently handle the workload. My wife works in marketing research, and has a side gig coaching at a local university. I've been looking into secret shopping or other flexible opportunities for side income as well. I make a little under $40,000, but should be up above it with my annual increase this year. I am pretty underpaid for my job and geography. My wife makes about $34,000.

We live in the Twin Cities in Minnesota. Great job opportunities, but cost of living is a bit higher than is ideal. The weather is also horrific (although this winter has been fairly mild). We're considering relocating to another  Here's our monthly budget:

Rent: $1,150
Student Loan Min.: $450
Car Payment: $199 ($8,600 left at 7%)
Car Insurance: $50
Cell Phone $29
Groceries: $400 (utilizing AMEX blue cash preferred for 6% back on groceries, 3% on gas, paid back immediately)
Gas: $100
Toiletries, cleaning supplies: $50
Cable & Internet: $90
Utilities: 110 (gas & electric)
Entertainment, other spending: $200
TOTAL: $2,828

Monthly combined income after taxes and withholdings: $4,100
Rest is going towards paying down my student debt.

Assets we have:
- Emergency savings: $3,000 (saved in an account with .9 APY)
- 401K through vanguard in target fund: $5,500 (Employer only matches up to 4%, but I'm currently at 5%)
- HSA: $1,000 (all contributed from my employer)
- Wife's 401K: $500 (she just started, employer only matches 1% I believe, she's around 5% as well)
- I have a 2006 civic worth about $6,000, wife has a 2013 Jetta paid for by her family. Both get 30+ mpg, wife's mother pays for her insurance.

Issues:
- Our rent is a little high, just over 25%. Biggest expense by far. Renting is expensive closer to work, and commuting is terrible. We were able to rent this condo from the owner that has new appliances, building was built in 2007, has in-unit washer and dryer, and free parking and a garage spot. We're locked in until February, I negotiated this rate down to sign a 2 year lease. Anything with in-unit laundry will cost $1,000 or more in our area. Both of us are about 10 minutes from work, and 10 minutes from downtown Minneapolis, so the location is about as good as it gets as well.
- Both of our incomes are low for our area. I know that I'm being underpaid at my employer despite great work and reviews. We've been considering relocation as we both feel we can easily make as much in a lower cost area with much lower rent and COL.
- Car payment. My car was hit overnight a year ago and completely totaled during a wonderful MN snowstorm. Car was only worth $2,000, but paid off. I'm glad I got a good mileage vehicle, but I got killed on the payment. I've looked into refinancing, but the extra months would cost more than sitting through the 3 years left.
- Cable. We originally had no cable, but once our internet shot up to $90 after a year, it cost just as much for cable and internet through Comcast. My wife cares for cable much more than me, but we have free access to Netflix and Amazon Prime that our parents graciously allow us to use. I have a friend willing to sell me a chromecast for $15, so we likely will cut this again and go with just internet.
- COL and weather in MN. Although I've lived here forever, I despise snow and winter. Having moved to the largest metro area makes it worse with commuting. It adds additional stress to our lives, and it is constantly busy and backed up during working hours, and going other places always takes a long time. Moving south to a place that is cheaper and warmer sounds nice, but is it worth giving up great employment prospects for and being away from family?

Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get out of debt in about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?


EDIT: Undergraduate loan breakdown as requested:
Subsidized:
$620.03           5.6% Fixed   
$1,494.38   3.4% Fixed
Unsub:
$4,040.08   7.25% Fixed
$1,716.78   7.25% Fixed
$5,863.32   6.8% Fixed   
$7,602.62   6.8% Fixed   
$7,511.43   6.8% Fixed
$5,243.64        5.75% Fixed
$2,670.78   3.2% variable
$1,478.77   3.2% variable   
$2,146.37   3.2% variable   
$1,735.13   3.2% variable
« Last Edit: February 20, 2015, 09:53:43 AM by goober »

MDM

  • Walrus Stache
  • *******
  • Posts: 9619
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #1 on: February 20, 2015, 09:31:25 AM »
Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get this down to about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?
goober, welcome to the forums.

Just glancing at your numbers, it appears you need much more saving to FIRE in 2 years.  E.g., w/o loan payments you have ~$2,200/mo or $26,400/yr spending.  Multiply by 25 and you need ~$660,000 investments for FIRE.

But you should run the numbers yourself in something such as www.cfiresim.com or the case study spreadsheet.

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 5623
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #2 on: February 20, 2015, 09:41:58 AM »
Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get this down to about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?
goober, welcome to the forums.

Just glancing at your numbers, it appears you need much more saving to FIRE in 2 years.  E.g., w/o loan payments you have ~$2,200/mo or $26,400/yr spending.  Multiply by 25 and you need ~$660,000 investments for FIRE.

But you should run the numbers yourself in something such as www.cfiresim.com or the case study spreadsheet.

Pretty sure he meant getting debt free in 2 years, not FIRE.

goober

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #3 on: February 20, 2015, 09:42:27 AM »
Thanks! I should clarify, I want my student loan debt gone in two years so I can start saving toward FIRE. I'll edit my post to clarify. Thank you for the resources mentioned!

ioseftavi

  • Bristles
  • ***
  • Posts: 401
  • Location: NYC
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #4 on: February 20, 2015, 09:42:52 AM »
Goober, welcome to the forums.

...I have about $50,000 in student loans ranging from 3.4 to 6.8%. My wife has a similar amount of student loans, but luckily her parents are paying it off for her...

Can you do me a favor and add this information in, at the very least for yourself?  $50k is a large chunk of debt, and the interest rates you mentioned vary a lot.  List out exact loan balances and interest rates, if you would?

MDM, I'm pretty sure that he's saying he wants to be debt-free in 2 years, not FIRE'd in 2 years.

goober

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #5 on: February 20, 2015, 09:54:19 AM »
Thank you! I have broken the loans down by interest rate in my original post.

ioseftavi

  • Bristles
  • ***
  • Posts: 401
  • Location: NYC
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #6 on: February 20, 2015, 10:07:55 AM »
Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get out of debt in about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?

Undergraduate loan breakdown as requested:
Subsidized:
$620.03           5.6% Fixed   
$1,494.38   3.4% Fixed
Unsub:
$4,040.08   7.25% Fixed
$1,716.78   7.25% Fixed
$5,863.32   6.8% Fixed   
$7,602.62   6.8% Fixed   
$7,511.43   6.8% Fixed
$5,243.64        5.75% Fixed
$2,670.78   3.2% variable
$1,478.77   3.2% variable   
$2,146.37   3.2% variable   
$1,735.13   3.2% variable

If I were you: contribute enough to your 401(k), each, to get the match.  And then stop.

Then I'd start cranking on your debt with everything that's left.  You've got nearly $27,000 in student loans that is costing you around 7%.  You've also got your car loan, as mentioned, which adds another $8,600 at 7%.  These debts are priority one for after-tax moneys.  See if you can reduce expenses to up what you're contributing here even more.  Maybe consider selling a car, as well, if at all possible.

I'd also work on earning more - you said you're underpaid for your skills and location.  Go out and prove it!  If you can make $10,000 more per year, that'll be way better than if you never have a cup of Starbucks again, etc (though small cuts like that will help).  Side gigs are good but EXHAUSTING.  If you should be earning more in your 9-5 job, go out and get it!

Teddy25

  • 5 O'Clock Shadow
  • *
  • Posts: 27
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #7 on: February 20, 2015, 10:28:03 AM »
I live in dt MPLS.

There are places you can rent that is under 1k (rivergate apt). The rent in town is crazy high right now, but with all the new units coming online in the next 18 month there will be some deals out there.

Pay off the highest student loan first.

goober

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #8 on: February 20, 2015, 11:42:57 AM »
If I were you: contribute enough to your 401(k), each, to get the match.  And then stop.

Then I'd start cranking on your debt with everything that's left.  You've got nearly $27,000 in student loans that is costing you around 7%.  You've also got your car loan, as mentioned, which adds another $8,600 at 7%.  These debts are priority one for after-tax moneys.  See if you can reduce expenses to up what you're contributing here even more.  Maybe consider selling a car, as well, if at all possible.

I'd also work on earning more - you said you're underpaid for your skills and location.  Go out and prove it!  If you can make $10,000 more per year, that'll be way better than if you never have a cup of Starbucks again, etc (though small cuts like that will help).  Side gigs are good but EXHAUSTING.  If you should be earning more in your 9-5 job, go out and get it!

Thanks! This was mostly my line of thinking, and it's good to know that it's the right direction. We may sell my wife's car to downgrade a bit, but right now moth of us are too far in opposite directions work wise to go down to one car. I'd like to bike more, but the layout and weather make that difficult in my neck of the cities.

Earning more is a large focus for me right now, I've looked an interviewed a few places, but nothing solid yet. This is definitely the biggest impact I can have to reach my goal. After a few more months, if I am unsuccessful, I may test the waters by applying outside of my state.

I live in dt MPLS.

There are places you can rent that is under 1k (rivergate apt). The rent in town is crazy high right now, but with all the new units coming online in the next 18 month there will be some deals out there.

Pay off the highest student loan first.

It certainly is. We've considered renting a house with a few friends as a means to lower rent cost as well, but if at all possible we prefer to live alone. We really like our place, so if we could up our income to make our rent more reasonable, that would help too.

CougStache

  • 5 O'Clock Shadow
  • *
  • Posts: 14
  • Age: 32
  • Location: Portland, OR
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #9 on: February 20, 2015, 11:45:52 AM »
Created an account simply to note: wow, this is nearly identical to my scenario. Recently married (though a few years older), started 2014 with ~$60k in student loans, similar HH income & rent, Amex preferred, I even work in market research (just no car loan). Will be interested to hear the suggestions.

I will note that in the past 13 months we've reduced what is owed on our student loans by $20k plus the whole wedding thing.I won't give you any advice since our lives are far from uber mustachian, but the feeling of crawling out from beneath those student loans one by one is so worth it!

minimustache1985

  • Stubble
  • **
  • Posts: 202
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #10 on: February 20, 2015, 12:10:34 PM »
Your expenses aren't bad, and you know the focus needs to be on earning more so that's good.

I'd also see if you can refinance that car loan- 7% is crazy, assuming you have decent credit you should be able to get under 3 with a credit union.  I know you said you only have 3 years left, but even if it all went to principal $199/mo*36mo=$7164 so I don't see how that's possible.

Like others have said, only put in what you need to get the match right now for your 401(k)s.  You have a guaranteed 7.25% return right now putting that into loan payoff (6.8% in a few months).  On your subsidized loans check if your grad school status can halt interest from accruing while you have student status.

midweststache

  • Bristles
  • ***
  • Posts: 471
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #11 on: February 20, 2015, 12:27:12 PM »
- Contribute to your 401k to get your match
- Pay off all vehicle and student loan debt over 4%
- Max out your 401k
- Max out your HSA
- Pay off your other student loans as the excess money is available

You have the benefit of being early in your career, so not maxing out your 401k isn't a huge deal - but you want to be there ASAP to enable your FIRE goals and max out your tax-advantaged accounts. It sounds like you guys are young, so if you have plans for future progeny, I would start throwing money in that HSA as well (although kudos on a very nice employer match for that!)

humbleMouse

  • Bristles
  • ***
  • Posts: 298
  • Location: Minneapolis
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #12 on: February 20, 2015, 12:45:40 PM »
Quote
Our rent is a little high, just over 25%. Biggest expense by far. Renting is expensive closer to work, and commuting is terrible. We were able to rent this condo from the owner that has new appliances, building was built in 2007, has in-unit washer and dryer, and free parking and a garage spot. We're locked in until February, I negotiated this rate down to sign a 2 year lease. Anything with in-unit laundry will cost $1,000 or more in our area. Both of us are about 10 minutes from work, and 10 minutes from downtown Minneapolis, so the location is about as good as it gets as well.

I'm going to call you out on this one.  I've lived in minneapolis for 22 years and lived all around uptown and downtown, I know rent prices very well.  There are MANY 1-bedrooms in loring park, elliot park, and uptown that go for between $600-$900.  Also, your claim that this is a high cost place to live is just un-true.  Say you moved to a loring park one bedroom.  You would literally be living in downtown, could walk/bus/bike to work, get rid of your cars, saving tons of money per month.  Minneapolis is a super cheap place to live.  I'm not trying to be a dick but you are claiming many things about the area that are untrue.  This is a very cheap place to live with tons of affordable housing next to/in downtown. 

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1671
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #13 on: February 20, 2015, 01:24:06 PM »
Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get out of debt in about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?

Undergraduate loan breakdown as requested:
Subsidized:
$620.03           5.6% Fixed   
$1,494.38   3.4% Fixed
Unsub:
$4,040.08   7.25% Fixed
$1,716.78   7.25% Fixed
$5,863.32   6.8% Fixed   
$7,602.62   6.8% Fixed   
$7,511.43   6.8% Fixed
$5,243.64        5.75% Fixed
$2,670.78   3.2% variable
$1,478.77   3.2% variable   
$2,146.37   3.2% variable   
$1,735.13   3.2% variable

If I were you: contribute enough to your 401(k), each, to get the match.  And then stop.

Then I'd start cranking on your debt with everything that's left.  You've got nearly $27,000 in student loans that is costing you around 7%.  You've also got your car loan, as mentioned, which adds another $8,600 at 7%.  These debts are priority one for after-tax moneys.  See if you can reduce expenses to up what you're contributing here even more.  Maybe consider selling a car, as well, if at all possible.

I'd also work on earning more - you said you're underpaid for your skills and location.  Go out and prove it!  If you can make $10,000 more per year, that'll be way better than if you never have a cup of Starbucks again, etc (though small cuts like that will help).  Side gigs are good but EXHAUSTING.  If you should be earning more in your 9-5 job, go out and get it!

Echo this, plus:

Why the heck are you running 2 cars when you live so close to work and have all of this debt?  Ditch one car.

KCM5

  • Pencil Stache
  • ****
  • Posts: 869
Re: Case Study: 25 & 24 year old newlyweds, $73,200 combined income
« Reply #14 on: February 20, 2015, 02:19:59 PM »
Right now, assuming no significant pay increases or cost reductions, I'll be debt free by about age 29. We really would like FIRE, so I'd like to get out of debt in about 2 years if possible. What do you Mustachians suggest? Do things look good? Should we consider moving? Do we need to put more into our 401Ks?

Undergraduate loan breakdown as requested:
Subsidized:
$620.03           5.6% Fixed   
$1,494.38   3.4% Fixed
Unsub:
$4,040.08   7.25% Fixed
$1,716.78   7.25% Fixed
$5,863.32   6.8% Fixed   
$7,602.62   6.8% Fixed   
$7,511.43   6.8% Fixed
$5,243.64        5.75% Fixed
$2,670.78   3.2% variable
$1,478.77   3.2% variable   
$2,146.37   3.2% variable   
$1,735.13   3.2% variable

If I were you: contribute enough to your 401(k), each, to get the match.  And then stop.

Then I'd start cranking on your debt with everything that's left.  You've got nearly $27,000 in student loans that is costing you around 7%.  You've also got your car loan, as mentioned, which adds another $8,600 at 7%.  These debts are priority one for after-tax moneys.  See if you can reduce expenses to up what you're contributing here even more.  Maybe consider selling a car, as well, if at all possible.

I'd also work on earning more - you said you're underpaid for your skills and location.  Go out and prove it!  If you can make $10,000 more per year, that'll be way better than if you never have a cup of Starbucks again, etc (though small cuts like that will help).  Side gigs are good but EXHAUSTING. If you should be earning more in your 9-5 job, go out and get it!

Echo this, plus:

Why the heck are you running 2 cars when you live so close to work and have all of this debt?  Ditch one car.

All of this. Move to a cheaper place closer to one of your workplaces. Anything under 3 miles is doable by bike even in a Minnesota winter. And for those total of two weeks a year when you don't want to bike because its 20 below or snowed 10 inches, the spouse that drives to work can pick up/drop off.  Get rid of one of the cars. Seriously. Do it ASAP. Alternately if you don't like to bike, get an apartment that's easily accessible by bus to one of your workplaces.

It seems like you're hung up on having an in unit laundry? Ditch that need and you'll find a place to rent for less. A laundry in the building is nice, but even going to a laundry mat once a week is no big deal. Or, not to suggest mooching of your parents, but when I had no laundry and lived close to my parents we'd go home for a meal once a week and do our laundry, too. They loved seeing us, but obviously we were taking advantage of free food/water/energy, so there's that. 

After you've fixed those issues (I'm assuming you'll sell the car with the loan?) throw money at student loans with abandon.