Topic Title: Reader Case Study - Could you please help a potential mustachian, currently in the larval phase, set priorities moving forward? I realize we have a pretty ridiculous combined salary for having this kind of problem. We used to be very frugal and got by on a shoestring budget, but things have somehow spiralled out of control and we have just recently realized our Hair Is On Fire and are trying to figure out a game plan moving forward.
Life Situation: IRS filing status Married Filing Jointly, no dependents, early 40's, residing near Seattle, WA. I (#1) work in Healthcare (maybe 75% job security) and my spouse (#2) works in a completely unrelated Transportation field (probably about 95% job security).
Gross Salary/Wages: Before any deductions: about $204,000 total projected for 2015.
Pre-tax deductions: :
#1: about $300/month for healthcare (this is charged whether or not we want the healthcare). Currently no deferred compensation contributions.
#2: about $300/paycheck for deferred compensation plan, $158 in another deferred compensation plan (pension??).
No other significant income, dividends, capital gains, or rental income.
Adjusted Gross Income: Projected $189,340 for 2015.
Taxes: (Edit: Adjusted to monthly), including both of us: Federal $3,754, no state/local tax (but about 10% sales tax), Medicare $214, Social Security $910. Current withholding Married with a total of $1850 extra withheld per IRS calculator.
Current expenses: This is
not how much we plan to spend moving forward, but the average of what was spent the past 12 months for a frame of reference. I know much of this is ridiculous to a true Mustachian, and need help deciding what the budgetary goal for each item should be. Any feedback and help would be greatly appreciated.
Average Monthly Expenses 8/2014-8/2015 (included 1998 numbers for comparison)
Category | 2015 | 1998 | |
Mortgage | $1,295 | | |
Rent | | $478 | |
HOA | | | |
Property Tax | $234 | | |
Mortgage Insurance | | | |
Home/Rent Insurance | $33 | | |
Beauty Shop | | | |
Bicycle Maintenance | | | |
Cable TV | $83 | $28 | (2015 recently reduced to $50) |
Car Insurance | $220 | $162 | |
Car Maintenance, Registration, etc. | $564 | $165 | |
Charitable contributions | $9 | | |
Child activities | | | |
Childcare | | | |
Christmas/Holidays | $199 | | |
Clothing/Shoes | $225 | $156 | |
College costs | | | |
Computer (paper/software/etc.) | $24 | | |
Credit card fees | $46 | | (2015 recently reduced to 0) |
Dental Insurance | | | |
Dentist | | | |
Dining (Pizza, Restaurant, etc.) | $921 | $691 | (1998 includes leisure, movies, etc.) |
Donations/Gifts | | | (already included in charitable contributions) |
Dry Cleaning | | | |
Electricity | $124 | $39 | |
Emergency Fund | varies | | |
Entertainment | $265 | | |
Financial Fees | $46 | $4 | |
Fuel/Public Transport | $416 | $101 | |
Gas/Oil for heating | | | |
Groceries | $1,178 | $493 | |
Hair Care | | $12 | |
Home Alarm System | | | |
Household; Maintenance | $116 | $103 | |
Internet | $60 | | (2015 recently reduced to $50) |
Landscaping/Yard work | | | (included in household maintenance) |
Life Insurance | | | (included in auto insurance plus post-tax deduction of $100 thru employers) |
Lunches | | | (included in groceries and dining out, generally we bring lunch from home) |
Medical (Doctor, Hospital, etc.) | $17 | $47 | |
Medical Insurance | $346 | | |
Medicine (OTC + Prescription) | $21 | | |
Miscellaneous | $200 | $545 | |
Parking/Tolls | $79 | | |
Pets | $80 | $194 | |
Phone (cell) | $139 | | |
Phone (landline) | $35 | $96 | (1998 includes both landline and cell) |
Recycling/Trash | $141 | | |
School Tutition/Books/Etc. | $95 | | |
Sports/Recreation | $43 | | |
Subscriptions (paper/magazines/etc.) | $9 | | |
Travel/Vacation | $1,071 | | ($448/mo excluding a once-in-a-lifetime ridiculous vacation to Vegas) |
Water/Sewer | | | (included in recycling/trash) |
Wine/Beer/Tobacco | | | |
Work/Professional fees | $63 | | |
Total | $8,396 | $3,313 | |
| | | |
Average take-home pay | $12,347 | $2,926 | |
(Please let me know if you need this broken down differently.)
- I KNOW! Groceries have been excessive. However, #2 and I have actually lost about 80 lb combined by eating more fresh fruits, vegetables, and quality meats which are expensive. We also have a bad habit of only buying brand name stuff when available. We are in the process of cutting this down by only buying good-looking meats that are also on sale, and taking a really close look at generics and bulk foods. We'll see how this category looks at the end of September!
- Total does not include student loan or IRA/deferred compensation contributions.
- I cannot tell you how incredibly liberating and giddy it felt to be completely out of credit card debt for the first time in 7 years! It made me realize how much life energy was being depleted and how much stress is generated every single morning when we wake up and realize we have all this debt. Now I want what you have: No debt, including mortgage! I don't mind working, but it would be nice to keep what we earn.
Mortgage refinanced 8/2014, 4.375% interest. Total: $1,330.86, P&I $998.57, County tax $233.72, Hazard Ins $68.83, Escrow overage $29.74. Principal balance $196,446.95, Mature date 9/2044. Current value about $278,000 according to Zillow.
Assets: Savings: A dismal $1,800 in savings, earning 1% interest.
Retirement:#1 does not participate in deferred compensation plan because there is no match, but has about $55,000 in a 401K from a previous employer and $31,000 in a Rollover IRA and $12,000 in a Roth IRA (the IRAs are the company match portion from a previous employer). Pension value of approximately $550/month at age 65, depending on how it is drawn (single life annuity, etc.)
Retirement Allocation: Considering all 3 retirement accounts, 71% in Vanguard Total Stock Market Index, 12.8% Vanguard Extended Market Index, 8.7% Vanguard Total Bond Market Index, 5.2% Vanguard Total International Stock Index, and 2.3% in former employer's stock.
#2 participates in deferred compensation plan through work, $300 per paycheck, current balance $16,000, T Rowe Price Target 2035 Fund. Also has a pension and a Roth IRA, $100/month, current balance $21,800, Vangard Target 2035 Fund. $158 of pre-tax deductions per paycheck goes to a separate retirement fund, we're not sure what that means, maybe pension??
Liabilities: Student Loans: original total $129,000, currently owe $108,000 at 6.55% interest with autopay. First payment on schedule in 2012. Originally set up for 25 year payment plan, currently on 10-year payment plan, but my hair is on fire and this debt is eating away at my well-being every moment it's there. Monthly payment currently $1527.10, payoff date 3/2023.
Car loan: Fancy truck purchased for #2 in 11/2013. Original owed: $39,704.50 at 2.59%, $707.05/mo and $27,079.99 remaining on the 5-year loan. (I am awaiting the expected face punch, but this is currently non-negotiable with anti-mustachian #2.)
Credit cards: Paid off all $39,000 in credit card debt over 9 months (YEAH!!). Available balance: about $89,000 total.
Specific Questions: 1) Taxes. Normally we keep our W4's set to "Married but withhold at the higher single rate" so we get a windfall at tax time, but this year I have been re-adjusting every 3 months or so using the IRS calculator to try to minimize any tax refund or bill. Would it be better to continue as we are, increasing/decreasing income tax withholding, or to boost deferred compensation contributions? How much would that affect our take-home pay? We haven't been able to deduct student loan interest due to income.
2) Priorities. I know we have a dismal amount of savings and this is stressing us out. We are thinking maybe a goal of about $27,000 emergency savings then start paying off student loan, then car loan? What do you think? How much emergency savings would you recommend, and should we start with this or delve right into student loans? I figure the car loan is a very low interest rate and should probably be paid off after the student loan. However, it would be nice to have that extra $707 a month to put toward student loan payments...
3) Transportation. #1's car has 285,000 miles on it (2002 Toyota Camry) and will likely need replacement soon. We are currently shoveling about $4,000 a year into various repairs. It's also a V6 and requires premium gas according to the manual. I tried putting 87 octane in there one time and it ran terribly and seemed to threaten suicide. #2 is concerned about #1's safety and would like something newer and less likely to get its driver killed during their current ridiculous-35-mile-one-way-highway-heavy-traffic commute. #1 would like something with better mileage and/or otherwise lower fuel costs. #1 knows this commute is absolutely ridiculous, but is extremely concerned about what would happen if they switched jobs and it didn't work out, as there was an extremely bad situation at a brief employer in the past. So #1 is currently stuck with the ridiculous commute, at least until the loans are all paid off. #2 has a relatively short commute and the ridiculously fancy gas-guzzling truck is currently non-negotiable. For #1, maybe something 3-year-used? Not sure what to do at this point.
4) Other. Whatever other suggestions you have would be very welcome. Maybe I don't even know what questions to ask...