Author Topic: Case Study Single Guy Questions.  (Read 9959 times)

Sand Dreamer

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Case Study Single Guy Questions.
« on: July 01, 2014, 06:05:32 PM »
Income: Here is a rundown of where I am 31, single with an annual salary of 34k (plus some monthly bonus $150-250). I am working on another degree (debt free this time)   However the 2nd degree I am working on will allow for a raise of around 4-10k ( I know that’s a wide range, but really depends on the department I could be assigned to) a year and also a possibility of working from home or a company car, with either of those options saving me at least 3-4k a year because of the distance I drive. If the world works out then this should be the case within 18-24 month’s time! But for now take home is around 2300-2500

Current expenses:  I have around 4200.00 (120.00 per month 14%) in credit card debt, a little over 14000.00(150.00 per month 15 years 2.75% currently deferred) student loan debt and a mortgage 57,000(440 per month, 20 year fixed 4.375%. Appraised value of 120,000.00). No car payment as of 2 months ago and no cable tv for almost 3 years. My other expenses power/water/cell /internet total about 280-300 per month.  Grocery around $200 per month, gas $300 per month and I allot myself $100 a week for entertainment Total 1760 per month



Specific Question(s): I want the credit card debt  gone and I think I can have that wiped out in 7-8 months  fingers crossed. One of the big questions I have is this…Student loan vs. Mortgage when I look at it, it makes more sense to me to place my extra money on my mortgage opposed to the student loan, I was blessed to get a really excellent house from a family member at a steal that is the reason the mortgage is so low. I always try to look at the worst case scenario and to me is a job loss or illness in the future. The student loans can be deferred a mortgage cannot.

My goal is to have the house paid for by the age of 40 and preferably much sooner. Which I could easily do with the extra snowball funds once the credit card debt is gone and forcing all of my monthly bonus of around 250 per month to the house.

The mortgage v. student loan is one question I have, but also I know a lot of folks here are wanting the early retirement and working toward that goal and that is really inspiring to me.  But, does anyone else here have a pension plan? Would you choose retirement a few years early and give up a promised benefit like as well as a sizeable amount of your healthcare cost covered for working to age 55? If I left any important info out please let me know! Also, I would like any other advice or thoughts anyone here is kind enough to offer to me?  Thanks in advance and sorry for the long winded post!!

« Last Edit: July 01, 2014, 06:57:26 PM by Sand Dreamer »

Snow White

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Re: Case Study Single Guy Questions.
« Reply #1 on: July 01, 2014, 06:18:24 PM »
I'd bite the bullet and get the credit card debt paid off as fast as possible and then start paying off the mortgage. Especially since you can get it done in less than a year.  That's just me though as having CC debt would eat at me.

Your pension question is harder. Both hubby and I worked for state government and he is already collecting his state pension and early SS. I am eligible for a pension too but will postpone collecting for as long as possible to maximize the benefits.  There are websites where you can calculate how much of an investment you'd have to have to generate an amount equivalent to a particular pension. It has long been a debate between my friends and me about the merits of maximizing income (and savings) versus "doing the time" to earn a pension.  It is a personal decision regarding the merits of the trade offs and a clear evaluation of the particular pension.  They are definitely NOT all created equal and some are far more desirable.  Good luck!

okashira

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Re: Case Study Single Guy Questions.
« Reply #2 on: July 01, 2014, 06:37:38 PM »
How can we decide student loan vs mortgage when you didn't list the size or interest rate of the student loan ? Or did I miss it?
And what are you driving to spend $300/mo in gas?

edit: I see it... but no interest rate.

Work on your post and do a better job of listing expenses and you will get more help.

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #3 on: July 01, 2014, 06:43:36 PM »
Thanks for the reply Snow White!

I will be knocking the CC debt out as soon as possible for sure, I had a couple of major home repairs and because I was prepared with a sizable enough emergency fund when they happened they were stuck on the credit card.  So getting the EF a little higher then crushing the CC.

I have the same discussions with some of my co-workers, many want to stay longer to draw a higher pension, but while I like my job and would have no issue with working until 55 to get the pension even if I can retire financially secure without it (which is my goal), I don't want to have to work a second past the day which I can start taking the money I earned even if it is quite a bit less than someone who works only a few more years. I definitely have other plans for my time!

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #4 on: July 01, 2014, 06:54:58 PM »
How can we decide student loan vs mortgage when you didn't list the size or interest rate of the student loan ? Or did I miss it?
And what are you driving to spend $300/mo in gas?

edit: I see it... but no interest rate.

Work on your post and do a better job of listing expenses and you will get more help.

Thanks for catching that Okashira,

I have updated the student loan info in the original post.

As far as the gas budget goes I live in a very rural area, My commute round trip to work is 70+ miles per day. I drive an SUV, I mentioned in my post that I had recently got rid of a car payment 2 months ago.  The SUV is 2nd paid for vehicle that I already owned. So while it gets worse gas mileage that the car I sold I am saving over over 200 a month in car payment/insurance.  The option of trading the car which I assume some would suggest I don't see being an option as this probably has a pretty low trade or sale value, but is in good shape and I can vouch for all the maintenance on it unlike buying a used car with better gas mileage.

jinnapher

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Re: Case Study Single Guy Questions.
« Reply #5 on: July 01, 2014, 06:58:13 PM »
Pay the student loan.  Get out of deferment as quickly as possible.  You are just accruing interest.  Not that you should file bankruptcy by any means, but you can discharge credit card debt and mortgage debt in bankruptcy if things were to go horribly wrong!  You can never get rid of student loan debt... you will have to start paying it eventually, and I'd encourage that day to be today.

I literally signed up for this forum, in the sincere, sincere hope that you will heed my advice on getting out of deferment.

Besides, your mortgage debt is tax deductible, and if you plan on moving out of the house within the next 20 years, I wouldn't be concerned with paying off the mortgage so ear.  You mention fear of job loss or illness... I'd be more concerned about my student loan in that scenario - sick, disabled and just racking on debt, until it spirals crazy out of control!  How much was the original loan that is now $14K?   By not paying it now, you are stealing from your future self by accruing interest you have to pay back later!

You already have good equity in the home... if you plan on moving in the next 20 years, what does it matter if you pay off the mortgage anyway - you'll just transfer equity to another home.  If you plan to stay there, so what?  You have 20 years to pay it back.  Besides the mortgage debt is tax deductible.

If I were you, I would at least get some payments (enough to cover interest and some principal,) on the student loan, throw as much money as possible at my credit card debt, then throw money on the student loan, then after that start throwing money at my mortgage!

Now, on to your question about pension.  I worked for a company that offered the same benefits you described, both health and pension, and they discontinued the program.  I would only count on the cash balance of the benefit that you can claim if you were to quit that day.  You're only 31 and lots can happen before age 55.  I wouldn't worry about it, and just save, save, save as much as I could.

Good Luck and All the Best Dreamer!

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #6 on: July 01, 2014, 07:22:26 PM »
Pay the student loan.  Get out of deferment as quickly as possible.  You are just accruing interest.  Not that you should file bankruptcy by any means, but you can discharge credit card debt and mortgage debt in bankruptcy if things were to go horribly wrong!  You can never get rid of student loan debt... you will have to start paying it eventually, and I'd encourage that day to be today.

I literally signed up for this forum, in the sincere, sincere hope that you will heed my advice on getting out of deferment.

Besides, your mortgage debt is tax deductible, and if you plan on moving out of the house within the next 20 years, I wouldn't be concerned with paying off the mortgage so ear.  You mention fear of job loss or illness... I'd be more concerned about my student loan in that scenario - sick, disabled and just racking on debt, until it spirals crazy out of control!  How much was the original loan that is now $14K?   By not paying it now, you are stealing from your future self by accruing interest you have to pay back later!

You already have good equity in the home... if you plan on moving in the next 20 years, what does it matter if you pay off the mortgage anyway - you'll just transfer equity to another home.  If you plan to stay there, so what?  You have 20 years to pay it back.  Besides the mortgage debt is tax deductible.

If I were you, I would at least get some payments (enough to cover interest and some principal,) on the student loan, throw as much money as possible at my credit card debt, then throw money on the student loan, then after that start throwing money at my mortgage!

Now, on to your question about pension.  I worked for a company that offered the same benefits you described, both health and pension, and they discontinued the program.  I would only count on the cash balance of the benefit that you can claim if you were to quit that day.  You're only 31 and lots can happen before age 55.  I wouldn't worry about it, and just save, save, save as much as I could.

Good Luck and All the Best Dreamer!


Jinnapher, I appreciate you joining just to help me out! 

Those are very valid points about the BK option in worst case scenario situation, I suppose my desire to attack the home debt first is because it is tangible?   But, that has given me something to consider heavily.

As far as the student loan deferment it currently is not accruing interest because I am enrolled in school on a part time basis working on another degree, but with that being said I plan on making payments beginning in September of this year even though it is not required.  And to further answer the question it started out at 18k.

The pension was just revised and new workers as of 2014 are still eligible, but at a much lower rate and with the option of 401k, While I know nothing is guaranteed, it was stated that no changes would be made to workers pensions who began before that time. While I don't put a lot of faith in government I hope this to be the case :)  With that being said I plan to have my own retirement funded and the pension as just a bonus...if its still there!!


jpdcpajd

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Re: Case Study Single Guy Questions.
« Reply #7 on: July 01, 2014, 07:29:29 PM »
Get rid of the $100 a week entertainment and pay off the credit card

DollarBill

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Re: Case Study Single Guy Questions.
« Reply #8 on: July 01, 2014, 07:34:24 PM »
I was in similar position 4 yrs ago (Well some what). Pre-thought, I'm military and my pay check is reliable except in 2010 where Congress was fighting over money. I was on a deployment and focused on paying down debt (mostly the house). I was throwing everything I could to pay it down when they said there might be a chance we won't get paid (WTF?). It scared me because at the time I had everything going to debt even the emergency fund. So I suggest to have a hefty EF before doing anything.

I also cashed out my roth IRA's (Only what I put in so no penalties) to put toward the debt. Hind site I lost out on a lot of money (About $40K). Others would say put it into the stock market because your young and have a long time before you will need that money. I do sleep better at night now that my house is paid for. My mind set at the time was why gamble in the stock market when I have debt. Your payment is fairly low so it could go either way.
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?loanAmount=57000&years=20&terms=240&interestRate=4.375&loanStartDate=07%2F01%2F2014&monthlyPayments=356.78&monthlyAdditionalAmount=275&yearlyAdditionalAmount=0&yearlyPaymentMonth=+Jul+&oneTimeAdditionalPayment=0&oneTimeAdditionalPaymentInMY=+Aug+2014&pDate=Mar+01%2C+2024&show=true
Run your numbers on his bankrate site, it helped me to figure out how fast and how much it will save me. I ran your numbers and you can pay it off in 9 yrs if you paid $275 a month to principle. It could be sooner depending when you started your loan and/or if you are counting (The $57K) as the starting point or what you owe now. The calculator doesn't add in Taxes or PMI if you have it.

They normally say go after the highest interest rate...but I think I would go for the low hanging fruit (The CC debt) then take the money and put it toward the next item. It might feel good to pay the CC debt first because it is an easier goal and will feed you to try to get the next goal.

I know you said the student loan is deferred but is it still gaining interest?

DollarBill

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Re: Case Study Single Guy Questions.
« Reply #9 on: July 01, 2014, 07:44:25 PM »
I've also been a truck or SUV guy my whole life. I recently got a newer and cheaper car with double the gas mileage...and I will say I smile/laugh more now when I'm driving to work @ half the price.

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #10 on: July 01, 2014, 07:45:57 PM »
Get rid of the $100 a week entertainment and pay off the credit card

I knew that answer would be coming, but I will be honest here.  Up until about 2-3 months ago that number was closer to $200 a week. However, there are a couple of things that make going to work and life a little more enjoyable and craft beer and golf are those things for me.  I know the hard-line approach would be to cut all of that out until that debt is clear, but I know me and if I don't have some time and a little cash to enjoy along the way I will never stay motivated.  I am not opposed to it taking just a few more weeks to accomplish a goal if I am still able to enjoy a few spoils along the way.  Thanks for replying and Cheers!

Thedudeabides

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Re: Case Study Single Guy Questions.
« Reply #11 on: July 01, 2014, 08:00:25 PM »
A couple of questions:

1) Is moving closer to work an option?
2) If you were to move would it be possible to rent out your house? How much do you think you could get for it?
3) Could you breakdown your expenses for water/power/internet/cell phone?

DollarBill

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Re: Case Study Single Guy Questions.
« Reply #12 on: July 01, 2014, 08:05:55 PM »
Get rid of the $100 a week entertainment and pay off the credit card

I knew that answer would be coming, but I will be honest here.  Up until about 2-3 months ago that number was closer to $200 a week. However, there are a couple of things that make going to work and life a little more enjoyable and craft beer and golf are those things for me.  I know the hard-line approach would be to cut all of that out until that debt is clear, but I know me and if I don't have some time and a little cash to enjoy along the way I will never stay motivated.  I am not opposed to it taking just a few more weeks to accomplish a goal if I am still able to enjoy a few spoils along the way.  Thanks for replying and Cheers!

I disagree, keep the $100 a week. It's not much...I have the same entertainment fund and if I were to cut more than that I would get frugal fatigue. Your doing great for being 31. Do the numbers, if it would save you a bunch than I can see putting more but if we're only talking about a few dollars than let it ride.

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #13 on: July 01, 2014, 08:31:34 PM »
A couple of questions:

1) Is moving closer to work an option?
2) If you were to move would it be possible to rent out your house? How much do you think you could get for it?
3) Could you breakdown your expenses for water/power/internet/cell phone?

Moving/selling isn't an option, I have completely redone this house, on top of that it was my grandparents old house/farm and I spent a lot of time here growing up. I know people may say you shouldn't  be sentimental about property, but I am.  Also, I work on the farm helping my parents with it.

   I lived in the city in which I now work during college and I was paying rent of $500.00 a month and that was a nothing special apartment building and that was several years ago. So even if I made a choice to move while my gas expense may go down my then rent would at least be  100-200 dollars more than my mortgage payment.

water is 20, power around 160 and cell/internet is 120.00 through Verizon...there is no cable or internet service where I live, I could lower the cell bill, but doing so I would lose my unlimited internet service which I am grandfathered into and would end up most likely paying overage charges.

Thanks for the reply

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #14 on: July 01, 2014, 08:40:29 PM »
I was in similar position 4 yrs ago (Well some what). Pre-thought, I'm military and my pay check is reliable except in 2010 where Congress was fighting over money. I was on a deployment and focused on paying down debt (mostly the house). I was throwing everything I could to pay it down when they said there might be a chance we won't get paid (WTF?). It scared me because at the time I had everything going to debt even the emergency fund. So I suggest to have a hefty EF before doing anything.

I also cashed out my roth IRA's (Only what I put in so no penalties) to put toward the debt. Hind site I lost out on a lot of money (About $40K). Others would say put it into the stock market because your young and have a long time before you will need that money. I do sleep better at night now that my house is paid for. My mind set at the time was why gamble in the stock market when I have debt. Your payment is fairly low so it could go either way.
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?loanAmount=57000&years=20&terms=240&interestRate=4.375&loanStartDate=07%2F01%2F2014&monthlyPayments=356.78&monthlyAdditionalAmount=275&yearlyAdditionalAmount=0&yearlyPaymentMonth=+Jul+&oneTimeAdditionalPayment=0&oneTimeAdditionalPaymentInMY=+Aug+2014&pDate=Mar+01%2C+2024&show=true
Run your numbers on his bankrate site, it helped me to figure out how fast and how much it will save me. I ran your numbers and you can pay it off in 9 yrs if you paid $275 a month to principle. It could be sooner depending when you started your loan and/or if you are counting (The $57K) as the starting point or what you owe now. The calculator doesn't add in Taxes or PMI if you have it.

They normally say go after the highest interest rate...but I think I would go for the low hanging fruit (The CC debt) then take the money and put it toward the next item. It might feel good to pay the CC debt first because it is an easier goal and will feed you to try to get the next goal.

I know you said the student loan is deferred but is it still gaining interest?

DollarBill,


First thank you for your service!

and the replies...I would love to start knocking on Congress right now, but when I get started on that I seem to go on for ever. ha..they make it easy to do.

I love the Bankrate calculators and mess around with them a lot.  My house payment listed includes the taxes and insurance in it, but no PMI since I owe much less than the value of the house.

I totally agree with knocking out the lowest debt first...Im also a Dave Ramsey fan and this tactic just makes more sense to me...except when it comes to the Student Loan and House issue for some reason.

The student loans are not currently accumulating any interest since I am enrolled part time.


I'm glad someone agreed with having a little money to have some fun with!  All work and no fun makes for some long days!

Thedudeabides

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Re: Case Study Single Guy Questions.
« Reply #15 on: July 01, 2014, 09:16:08 PM »

A couple of questions:

1) Is moving closer to work an option?
2) If you were to move would it be possible to rent out your house? How much do you think you could get for it?
3) Could you breakdown your expenses for water/power/internet/cell phone?

Moving/selling isn't an option, I have completely redone this house, on top of that it was my grandparents old house/farm and I spent a lot of time here growing up. I know people may say you shouldn't  be sentimental about property, but I am.  Also, I work on the farm helping my parents with it.

   I lived in the city in which I now work during college and I was paying rent of $500.00 a month and that was a nothing special apartment building and that was several years ago. So even if I made a choice to move while my gas expense may go down my then rent would at least be  100-200 dollars more than my mortgage payment.

water is 20, power around 160 and cell/internet is 120.00 through Verizon...there is no cable or internet service where I live, I could lower the cell bill, but doing so I would lose my unlimited internet service which I am grandfathered into and would end up most likely paying overage charges.

Thanks for the reply


Great thanks for the info. Sounds like an awesome place!

Does your employer provide any tax deferred savings options?

Sand Dreamer

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Re: Case Study Single Guy Questions.
« Reply #16 on: July 01, 2014, 09:26:53 PM »

A couple of questions:

1) Is moving closer to work an option?
2) If you were to move would it be possible to rent out your house? How much do you think you could get for it?
3) Could you breakdown your expenses for water/power/internet/cell phone?

Moving/selling isn't an option, I have completely redone this house, on top of that it was my grandparents old house/farm and I spent a lot of time here growing up. I know people may say you shouldn't  be sentimental about property, but I am.  Also, I work on the farm helping my parents with it.

   I lived in the city in which I now work during college and I was paying rent of $500.00 a month and that was a nothing special apartment building and that was several years ago. So even if I made a choice to move while my gas expense may go down my then rent would at least be  100-200 dollars more than my mortgage payment.

water is 20, power around 160 and cell/internet is 120.00 through Verizon...there is no cable or internet service where I live, I could lower the cell bill, but doing so I would lose my unlimited internet service which I am grandfathered into and would end up most likely paying overage charges.

Thanks for the reply


Great thanks for the info. Sounds like an awesome place
Does your employer provide any tax deferred savings options?

On top of the pension I also have access to a 401k which I contribute, but only to the point which they match. I put in 50 a month and so do they.  Ive read in some opinions that you should only take the match and place the rest into IRA's...thoughts on that?  I haven't done that yet as embarrassing as it is to admit at my age I am just now finding some stable ground to stand on financially. And look forward to making the debt disappear and getting my investments in order. 

okashira

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Re: Case Study Single Guy Questions.
« Reply #17 on: July 01, 2014, 10:19:40 PM »
Okay. Yep, pay the mortgage first. That student loan interest is low and you get a nice deduction for student loan interest, while you cannot deduct the mortgage because you aren't itemizing.
Your income is also low enough to take advantage of the student loan interest deduction without itemizing.

That sounds like a unfortunate situation with the SUV. You're afraid it's too cheap to sell, so you have to keep driving a vehicle that's costing you extra money just to operate? Sounds like a nasty cycle I wouldn't want to get caught in.

it sounds like you are looking for basic financial advice - just a reminder that this forum is about implementing actual life changes to reach heavy savings goals, such as changing car, moving closer to work, rethinking career, etc.
Just sharing to keep in mind that you would get better answers on a finance forum such as FWF (post the mortgage/student loan q and the answer would be unanimous, also the pension question would be better answered there.)
I'm not shooing you off, just pointing out that you will get some serious face punches around here, as we call it.

Rika Non

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Re: Case Study Single Guy Questions.
« Reply #18 on: July 02, 2014, 09:52:37 AM »
Re: Pension

What type of pension are you asking about?  (Private / Government?)  I have a private company pension and know quite a bit about that type of system.  What you need to know to make a decision is the years till vested and the table for accruals.  This information should be sent to you if you request it or available from HR or benefits team.  With my company past the vesting period what is accrued is kept even if you retire early or quit.  But if you do not make it to the company retire date the default start will be 65, also the accruals are set on a table that accelerates by seniority, so under 15 years it is very low, but ramps up at the later years as an incentive for staying.

As far as considering this, it is something to think about, but if you save and invest enough outside the defined benefit plans it does not need to be the deciding factor on age of retirement.  You mentioned that you can do both pension and 401K? (Same here)  If so definitely do both and don't count on the pension.  If there is a vesting factor, it is worth staying through the vesting period (usually ~5 years?)

NewStachian

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Re: Case Study Single Guy Questions.
« Reply #19 on: July 02, 2014, 10:04:14 AM »
If I was in your shoes I'd focus on increasing my income above all else. I would take a hard look at my profession, my field, and either make a move to dramatically increase my salary at my main job or pick up a job at nights and on the weekend as a bartender or something.

SpicyMcHaggus

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Re: Case Study Single Guy Questions.
« Reply #20 on: July 03, 2014, 11:19:00 AM »
1) eliminate credit card debt
2) don't worry about the mortgage. it's deductible.
3) contribute more to 401k. mine is up 17% in the last 12 months.
4) pay down student loan debt
5) if you don't NEED a truck/SUV for hauling things or horrible weather, consider downsizing to more MPG friendly car or bicycle.
6) i don't see $100 / week entertainment as too much, but I do spend much less than that.

okashira

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Re: Case Study Single Guy Questions.
« Reply #21 on: July 03, 2014, 11:27:56 AM »
1) eliminate credit card debt
2) don't worry about the mortgage. it's deductible.
3) contribute more to 401k. mine is up 17% in the last 12 months.
4) pay down student loan debt
5) if you don't NEED a truck/SUV for hauling things or horrible weather, consider downsizing to more MPG friendly car or bicycle.
6) i don't see $100 / week entertainment as too much, but I do spend much less than that.

It's only deductible if he is itemizing.
His student loan interest IS deductible.

My mortgage is 50% larger then his, and we have high property taxes, and I will only barely be able to deduct one year because I am doubling up my taxes in one year.

Thegoblinchief

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Re: Case Study Single Guy Questions.
« Reply #22 on: July 03, 2014, 05:05:13 PM »
I wouldn't bother prepaying either the mortgage or the SLs. Those rates are low, and lower than historical real returns for investing, especially in a Roth or 401(k).

Definitely kill that CC debt as fast as possible.

farmstache

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Re: Case Study Single Guy Questions.
« Reply #23 on: July 03, 2014, 07:47:24 PM »
Okay, I haven't really seen a lot of facepunches, so here goes:

1) $400 a month for entertainment is a LOT. C'mon guys, $4800 a year!
I have a 100/month budget and still manage to have left overs. You learn to find interesting stuff to do for cheap or free! I also have a 50/month alcohol budget (for two). By skipping beer on weekdays and buying beer at Sams Club instead of bars this got pretty well manageable.

2) The SUV also has to go. You didn't put repairs, insurance, oil change on your budget, but I'm sure it's all there. You're probably spending a lot more than 1760 a month. And you keep spending $3600 a year on gas! It's a really easy low hanging fruit that could save you another $1800 to kill your debts faster and grow your stash. Is your car really worth more than $20000 over the next 10 years? I know you don't want to do this right now, but you have to start challenging your "needs".

3) Please tell me you haven't been paying the minimum on the CC debt.

4) Other than this, I think utilities look high for 1 person (try to lower them), cellphone should be separate from utilities, really, and I think there are things you might be forgetting to account for on your budget. You're not too bad on your expenses and kudos on not having cable! But sitting comfortably on your habits when you have HAIR ON FIRE debt is not something the mustachian community accepts. Get up and start moving!

SpicyMcHaggus

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Re: Case Study Single Guy Questions.
« Reply #24 on: July 08, 2014, 12:45:46 PM »
I wouldn't bother prepaying either the mortgage or the SLs. Those rates are low, and lower than historical real returns for investing, especially in a Roth or 401(k).

Definitely kill that CC debt as fast as possible.

Leverage (borrowing) is important to understand. If you can make 8% on an index fund, and your mortgage/student loan APR is less than that, you are better off putting the money into the index fund.

It may be anti-stache for me to say this, but I'm not the slightest bit worried about my credit card balance, or mortgage. I pay the credit card off in full each month, and the mortgage is at a rate lower than my investment returns.

NewStachian

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Re: Case Study Single Guy Questions.
« Reply #25 on: July 09, 2014, 06:26:02 AM »
Leverage (borrowing) is important to understand. If you can make 8% on an index fund, and your mortgage/student loan APR is less than that, you are better off putting the money into the index fund.

It may be anti-stache for me to say this, but I'm not the slightest bit worried about my credit card balance, or mortgage. I pay the credit card off in full each month, and the mortgage is at a rate lower than my investment returns.

+1

While paying off a mortgage quickly is considered Mustachian it can also cost you a lot of money in the long run. If you're disciplined enough to put that extra principal payment into the right index funds/ETFs you will be much better off. Paying off a mortgage in full is great for: the added peace of mind of not having it, the decreased expenses and increase in simplification, in an environment with low inflation. I have a friend who is sitting on about $5M in assets and still took out a 15-year 2.7% loan to buy a house. When I asked him why he said "Money's too cheap to not borrow." He's keeping that $400k in investments and making way more than the 2.7% annually. Neglecting inflation and assuming normal market returns, owning the house outright would essentially mean flushing $17k down the toilet each year.

The added benefit of having some debt is the protection against inflation. The higher inflation goes, the better it is to be carrying debt, as those fixed payments become less and less in real terms. During inflation, your house will be worth more in absolute dollars, but your loan won't change. Carrying 'good' debt is as much of a smart diversification as having the right mix of stock/bonds, large/mid/small cap, and international/domestic.

 

Wow, a phone plan for fifteen bucks!