I found MMM about three weeks ago. I've been an avid reader but am no where near catching up, but I've already learned so much and am starting to be very mindful of all purchases. I am not sure if FIRE is going to be a reality for us since we are starting a little late, but who knows. If anything it would be nice to retire around 50, so maybe another 20-22yrs of work for me? Anyway, here is our situation. I'm a bit scared to post but I really need help and advice. I had a fellow teacher at my school tell me that I am the new 21st century teacher nightmare....
Life Situation:
Married, filing joint, qualifies for Foreign Earned Income Exclusion
Me, 27yrs old, DH 33 years old, no kids
Currently living overseas in Saudi Arabia. I am an overseas teacher. We get pretty lucrative contracts (compared to teachers in the US). DH has been a trailing spouse/house husband for the last 3 years. He was going to school online to finish his BA. He went to school late, but better late than never right? He just landed his first job post-degree at the school where I work. He is considered a local hire, so not quite the same benefits as me or salary as me, but it’s going to put us in a much better place than we have been the last three years on a single income.
We’ve been in very bad places financially. We moved overseas because it was a dream of mine, but also because we knew that it would put us in a great situation to save and pay down debt. You will see that we have a lot, but where we started three years ago was much worse! Neither of us came from families that were good influences when it came to finances so we’ve had to teach ourselves a lot and learn from bad mistakes.
Our salaries and most expenses are in Saudi Riyals, but I will put amounts in dollars for ease.
Gross Salary/Wages:
Me: $3742/mo - raise starting in Sept - $3880/mo
H: $1597 (April pay), $2447/mo for May and June (to finish 2014-2015 school year), raise starting in August - $2170/mo
Combined Total:
April: $5339
May and June: $6189/mo
July: $3742 (no pay for DH, these previous 3 months salary is weird since he is started at the end of a school year, so the salary is prorated for the number of days worked)
August onward: $6050/mo (we will each get 4% yearly raises that will start each August)
Sorry that had to be so difficult…darn school years instead of calendar years.
Pre-tax deductions/Taxes: none of this since we are expats. Our salary is tax free. We don’t have 401ks since we work for a local company, not a US company.
Current expenses:
Rent/Utilities: $0 - housing and all utilities, including internet covered by school
Phone: $40
Maid: $106 (ready for face punches on this, but we both have pretty demanding jobs and this is something we each value)
Transfer fees: $15 (for our international salary transfer to the US)
Groceries: $650 (we eat mostly fresh meats and vegetables. Paleo/Whole30 style. Also, things are not cheap here like they might be in the US)
Fuel: $16 (thankfully gas is dirt cheap in Saudi)
Eating out: $130
Miscellaneous: $130 (vet visits, skype credits, turbo tax – this was much higher because our cat was a kitten and we had to do shots/spay/etc., we expect this to be fairly low)
Clothing: $0 typically, but we buy clothes in the US when we are there in the summer. This goes much higher at that time of year.
Debt:
Student loans: $155
Credit Card: $108 (old closed account in payment plan at 0% interest, to be pay off Aug of this year)
TOTAL: $1350
Income after expenses: $4839
Assets:
Checking account balances: $6635 (this is saving up for summer expenses. We travel to the US during the summers to visit family which usually eats a lot of money. Our family is scattered so we rent a car, no one has space for us to stay or the willingness to host us, so we rent an AirBnB and we stock up on American necessities to bring us through the year. Since finding MMM, we think we will make extreme efforts to be less consumer minded during the summer to help save some here)
Credit cards:
DH – 0$ bal, limit $1000
Me –
1. 0$ bal, limit $3500
2. 0$ bal, limit $12200 (local bank CC)
2006 Volvo S40 – paid for
Liabilities:
Student Loans (this is where we are in serious trouble and confusion)
ME:
1) Balance: $1018 Interest: 8.25% Payment: $50 (Private loan)
2) Balance: $8059 Interest: 10% Payment: $105 (Private loan)
3) Balance: $135,087 Interest: 6.88% Payment: $0 (IBR, since I have no AGI because of FEI, they give me a 0$ payment) does cover an AA, BA, and MA
H:
Combination of subs and unsubs for 4-5 years of school. Just finished school, will probably consolidate these.
Total balance of all: $56546
Interest rates: Ranging from 3.4% - 6.8%
Payment: still in grace period
Total student loans between both of us: $200,710
Questions:
We are just starting out on the savings path. We know that planning for FIRE is not realistic right now, but we want to know next steps and where we should put our excess money.
We really want to start investing. We don’t have any retirement savings at all between the two of us. But we live overseas, so this is really confusing to me about how to do. I’ve tried researching about it and a lot of it really just goes over my head. I think I am not eligible for Roths because we don’t earn US wages. We don’t have 401ks because we work for a foreign company so I think our only option is investments.
Then of course there is the student loan problem but this is where the water gets muddy. First, if we can just ignore the two huge loans and look at the two small private loans. I really want to get these paid off since the interest is really high. DH thinks we should start an investment account first, but MMM basically says that if your interest is higher than the rate of return, you should pay the debt instead, so that’s why I think we should work on tackling those two private loans.
Once those are taken care of, we don’t know if we should pay off the other loans, or put all the other savings into investments. The thing is, I am on Income Based Repayment and DH will be too. Our payments for these astronomical loans are $0/mo because we have zero taxable income in the US, so our AGI is 0. I assume it will remain this way indefinitely until it’s forgiven after 25 years? I asked the rep on the phone if I could make payments anyway and she said if I did then I would pay myself out of the program…so we don’t make payments. Realistically, we don’t know if we will ever return to live in the US, but we may. Do we worry about these loans when that happens? Do we wait for it to be forgiven and pay the taxes? Do we hope something changes in America in the next 25yrs to help? The other thing is that if we do decide to tackle these loans aggressively, then it is at the expense of investing. It will take probably at least 5-10 years to pay them, which means nothing going towards investments and retirement.
We also want to have kids in the next 2-3 years, hopefully and don’t know how that fits into all this. I am really serious about being financially ready with some sort of retirement going before having kids. DH would have kids today if I said yes…
I expect to get lots of flaming for the loans. Yes, it’s terrible. Life happens. I had no parental support. Raised by a single mom, my mom is a waitress who barely gets by. In fact, right now she is unemployed and on unemployment. I got where I am because I worked hard and had determination and took out student loans, and yes, at high rates. I had no support and not even parents or family to be able to cosign for me. Help me dig myself out of this ever-growing hole? I am really new at all this too, so I don’t understand a lot of the investment terminology, so if you can explain or keep it simple, that would be awesome!
Thanks for any and all help!
Follow-Up Questions:
- We seem to be leaning towards aggressively attacking the loans and getting rid of them in the next 5ish years.
- But when it comes to DH's loans - do we consolidate all the small subs and unsubs into one consolidation loan, or do we leave them be and put an extra money towards his high interest loans and then go from there?
- If we decide to do half loans and half investments with our excess money (or after loans are gone), where should we start with investments? I was looking at betterment because it seemed to be more user friendly for absolute investing newbs and vanguard seems more individually driven with less support. However, I know betterment has fees. Is Vanguard easy to figure out even if you are really new to the investment world and don't have a lot of time to manage your portfolio?
-What would taxes look like on investments with zero taxable income? This is where I get so confused because when people start talking tax laws, I really get lost. So hard to comprehend.