Author Topic: Case Study: The Leaks...and then some.  (Read 4294 times)

TheInsuranceMan

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Case Study: The Leaks...and then some.
« on: July 17, 2015, 10:14:57 AM »
Alright, posting my first case study.  I'm 27, she's 26. I'm going to post income, bills, and "other bills" - bills being monthly set amounts, other bills are a bit more interchangeable.
About us - Married with a 1 year old.  I work in the insurance industry as an agent, so while I have a base income, it does flucuate with commission checks.  Also, just pointing this out now, budgeting fuel for us is tough, because I can be on the road quite a bit, but I do get reimbursed at a certain set amount per mile I travel for work.
My wife is in the health care field, just passed her boards, and if they told her right, her income should take a 75% hike, which is the number I'm using for her income.
My employer provides my health insurance for $20 a month - we moved dw and daughter to her policy, which is $260 a month (instead of $578 for the three of us on mine)
I file 0 withholdings, she files for 2, if I remember right.  She has a state funded pension, which is awesome to have, but she can't put more into the pension than the amount decided by the state each year.

Income   
DW   $1,600.00
ME $2,300.00
Total   $3,900.00

Bills   - Monthly payments
Mortgage   $650.00
Student Loans   $339.00
Daycare   $500.00
Alliant   $150.00
Car Insurance   $90.69
Life Insurance   $83.00
Cell phone   $110.00
Internet   $45.00 - only provider besides satellite internet
Furniture   $100.00 - 0% interest til July of 2016
Hospital   $50.00 - paying on bills from child birth
Netflix   $7.99
Hulu   $7.99
Amazon Prime   $8.25
Total    $2,141.92

Other Bills   
DD (Dear dog)   $50.00
Groceries   $300.00
Gas   $300.00
Entertainment   $100.00
Total   $750.00
Income Total   $3,900.00

Bill Total   $2,891.92
Difference   $1,008.08

My 401k's
Old job: $30,371.87
New job: $4,105.62 - I contribute 6%, company contributes 3%

Wife's IRA (403b rollover): $1,669.64 - she worked this job for a year before getting into a medical field 2 year schooling program, to obtain the degree she has now
Wife's pension - No idea, I don't have the log ons to it - but it's pretty low, as she's only been in her new roll 3 months.  I think she puts in about 6%, state contributes 9%

Debts Owed
Furniture - $1,182.43 - Finished our basement, wanted furniture, became a spendy pants.  Dumb.
Credit card 1 - $2,534.31
Credit card 2 - $761.14
Total: $4,477.88

Student Loans: $48,260.96 - Word to the wise, don't go to a for-profit school to complete your bachelor's degree.

Yup, terrible - face punch time!  My wife had our child at the beginning of her 2nd year of college, so we were trying to scrap by with one income, and racked up some debt.  There is also a set of tires there were unplanned (poor planning on my part, I'm smart enough to know that she needed tires, but it wasn't safe for her to keep driving on the ones she had, so that's that).

Assets
Two paid off cars, combined worth of $25k
House - we owe 59k on, bought for $83k.  We did a bunch of work to the place, only paid for a bit of HVAC labor for new AC duct work in the basement.  Had our realtor come and look at the house, said she'd list it for $125k-$130k.  So, we have quite a bit of equity in our house.

Total Liabilities: $111,738
Total Assets: $121,147.13 - includes vehicles and equity in the house, along with retirement accounts.
So, roughly a 10k net worth

What we lack is an emergency fund - which is at $2,200 right now - we want that at 5k.
We do have two accounts opened for our daughter which was done by each of our sets of parents - one is a 529, one is an EJ account (which I need to research) - and we have $700 in additional savings account  for her.

In my mind, the first things that need paid off are obviously the credit card/furniture debt.  With a $1k planned surplus every month, that shouldn't be a problem, as long as we reign in our spending.  I do make about $2k-$4k extra every year helping farm, but some of that gets used on LP for our winter heat, so it depends on a few different things.

***Now, here is what our 3-5 year plan is - might get bumped to a 1 year plan - which you'll all hate***
We found an acreage for sale, 20 miles from where we are, and it's EXACTLY where we want to be.  We'd have to build a house on it though.
So, if we can sell our current acreage, which is very doable, for on the low end of $115k, we'd be able to clear the mortgage and student loans, which would leave us with $0 of any serious debt.  Ideal, right?  If we get more for it then that, it could clear us buying the acreage (worth about $20k) with aggressive savings from now til then, plus any surplus from the house sale, and not have to carry a mortgage on the ground.
We'd probably rent for a year ($300-$450 a month estimated), and be able to stock pile, heavily.  This would give us a great ability to get a solid downpayment ready for the house, in which we would be STAYING for the rest of our lives.  We are near both our parents, heavily engrained in our communities, and it's the best place we could choose to raise our children.  Our jobs are both 99% stable, using 99% because something COULD happen, but it'd be pretty slim chances (the agency I work with has been around for 90 years, and she works for a state-run hospital, and it's the only one within 30 miles of where it is.  It isn't going anywhere).

After running numbers with a banker friend, he said that any bank would loan us money (credit credit scores north of 730-750 for both of us) for building a new house.  I just want to make sure we have enough down payment to avoid PMI, and I'd like to be on a 15 year fixed like we are now.

Anyways, that's us in a nutshell.
Face punch away!

« Last Edit: July 17, 2015, 10:18:29 AM by TheInsuranceMan »

ShoulderThingThatGoesUp

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Re: Case Study: The Leaks...and then some.
« Reply #1 on: July 17, 2015, 10:27:37 AM »
I don't hate that plan at all on a first look, I think using the equity in your house to incinerate your debts is a very appealing idea.

CAVEAT: As long as you don't spendy-pants it up again.

KCM5

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Re: Case Study: The Leaks...and then some.
« Reply #2 on: July 17, 2015, 10:35:11 AM »
I'm not going to touch the long term plan, but you have some low hanging fruit that could clean up your budget.

First, of course, pay off that credit card debt. Make it a goal to have it done in two months or something audacious like that. Sell unused stuff, like old text books or bikes/baby things, etc. Throw your money at it.

Then save up more for the emergency fund - 5k seems like a reasonable goal.

Check your cell phones for cheaper plans and think about what you really need. We have cheap plans through Page Plus, which is on the verizon network ($27 mo for both phones) but you might find something that you like better than that.

Alliant - is that just electricity? Seems really high since you said you heat with LP. Ratchet up the AC temp, pay attention to what is on/plugged in all of the time.

Do either of you have a child care flex plan at your work? That can save you quite a bit of money (5k pre tax rather than post).

This isn't costing you much, but do you really need Netflix, Hulu AND Amazon Prime? Seems like a bit much. Consider rotating which you're paying for.

Also, what do you owe the hospital?

TheInsuranceMan

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Re: Case Study: The Leaks...and then some.
« Reply #3 on: July 17, 2015, 10:38:24 AM »
I don't hate that plan at all on a first look, I think using the equity in your house to incinerate your debts is a very appealing idea.

CAVEAT: As long as you don't spendy-pants it up again.

Spendy pants time was dumb, it happened, but it's not typical of my wife and I.  And believe me, if it comes to selling the house, all debts will be zeroed out - and if all goes well in the next month or two (I have a good chunk of commissions coming in), the credit cards will be done, gone, zero.  I'm typically a pay it off as I use it guy, not sure what happened, but something did, that's for sure.

We meet with a builder tomorrow to get an idea on floor plans and pricing of a new house.  I'm a planner when it comes to this stuff - before I make any move on our current residence, I will know, to a T, what the new acreage is going to cost and what building a house is going to cost, before we make ANY decisions.  Any time you're talking about $100k swings, selling/buying/building, a lot of thought must go into it.  Not to mention that my wife is even a bit more interested in finances than she ever has been, which is kinda nice!  She was/is more of a spendy pants than I am, in regards to most things.  But, she knows and likes our long term goal of selling, moving, building (again, I'm going to point out as I have on other threads when people tell me it's a dumb idea, that we aren't going anywhere regardless of if we sell our acreage and move or not - we'll have our same jobs for years and years, and we'll stay in this area til we die.  Guaranteed.). 

I'm intrigued and a bit excited about meeting with people tomorrow to get an idea.  Hell, maybe it'll be more expensive than I could ever believe, and shoot down any thoughts that we have at this point, which would be just fine as well.  But, I have to know, I have to plan, and I have to know if it will be feasible or not.  Not to mentioning talking to my banker about it as well...when that time comes.

TheInsuranceMan

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Re: Case Study: The Leaks...and then some.
« Reply #4 on: July 17, 2015, 10:45:35 AM »
I'm not going to touch the long term plan, but you have some low hanging fruit that could clean up your budget.

First, of course, pay off that credit card debt. Make it a goal to have it done in two months or something audacious like that. Sell unused stuff, like old text books or bikes/baby things, etc. Throw your money at it.

Then save up more for the emergency fund - 5k seems like a reasonable goal.

Check your cell phones for cheaper plans and think about what you really need. We have cheap plans through Page Plus, which is on the verizon network ($27 mo for both phones) but you might find something that you like better than that.

Alliant - is that just electricity? Seems really high since you said you heat with LP. Ratchet up the AC temp, pay attention to what is on/plugged in all of the time.

Do either of you have a child care flex plan at your work? That can save you quite a bit of money (5k pre tax rather than post).

This isn't costing you much, but do you really need Netflix, Hulu AND Amazon Prime? Seems like a bit much. Consider rotating which you're paying for.

Also, what do you owe the hospital?

Thanks for the reply.  We are in a very rural area, and I've looked at coverage maps from these smaller, independent companies, and there just isn't coverage.  Before, when we lived in the city, I was on the Verizon network, and when we moved home I had 0 service.  Bad enough that they let me out of my contract for free as it wasn't a covered service area for them.  There are two carriers in our area, one with contracts, one without, that you buy your phones outright, which is what what we use.

Hospital bill - I've got to check on it again.  I'm hoping at some point before the end of the year be able to settle with a lump payment.
Do we need all 3?  My wife would argue yes, I would argue maybe.  This $23 a month gets us around paying for dish/directTV, which is much more expensive.  Hulu gives my wife the ability to watch all her prime time network shows the next night, she is what she likes to do on occasion, instead of waiting a year for the season to show up.  I'll have to compare hulu to amazon prime, to see what has what shows/movies, and do some thinking there.

Yep - all electricity.  AC is set at 78 when we aren't home, 74 when we are home.  We'd much rather it be at 70, but we know that isn't affordable.  Part of that expense comes from having a well and well pump.  The house is older, not sure how well the walls are insulated, and the windows aren't the best (but they are plasticed).  We did spray an additional 10" of insulation in the attic last year, which has helped - the amount listed above is an average over the last 12 months, our bills are lower this summer than last, that's for sure.

Child care flex plan?  Flex Spending Account I'm assuming?  Yes, we have one - probably something we need to take advantage of, as we could have our daycare money pre-tax instead of after tax.  Not sure why we aren't taking advantage of that.

We have sold quite a bit this year - mostly wedding decorations from our wedding two years ago, and some other stuff.  We don't have any text books to sell.  We've cleaned out/de-cluttered most of our junk.  We will not sell our baby stuff as number two is planned within the next year and half.  Not going to sell at a discount, just to have to buy back, which I think is understandable.

JustGettingStarted1980

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Re: Case Study: The Leaks...and then some.
« Reply #5 on: July 17, 2015, 01:47:25 PM »
What rate are your student loans? $339/month isn't a backbreaker, but at a high rate those loans may be killing you!

Say your interest is at 6.5%, even with the student loan tax deduction, you are still losing 3K a year to interest. This is also known as a full 25% of your current after expenses yearly take-home.

If you wanted to delay your acreage purchase and get out of debt as quickly as possible, I would consider refinancing this with SOFI or DRG or Citizen's, vs consideration of taking out a Home Equity line of credit (doubles as an emergency fund too) on your current home and paying off those student loans NOW "(as well as the credit card and hospital bills), then follow that up with paying off the Helox in 2-3 years.

This would save you oodles interest, and get you to FIRE earlier, I believe.


TheInsuranceMan

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Re: Case Study: The Leaks...and then some.
« Reply #6 on: July 17, 2015, 02:03:26 PM »
What rate are your student loans? $339/month isn't a backbreaker, but at a high rate those loans may be killing you!

Say your interest is at 6.5%, even with the student loan tax deduction, you are still losing 3K a year to interest. This is also known as a full 25% of your current after expenses yearly take-home.

If you wanted to delay your acreage purchase and get out of debt as quickly as possible, I would consider refinancing this with SOFI or DRG or Citizen's, vs consideration of taking out a Home Equity line of credit (doubles as an emergency fund too) on your current home and paying off those student loans NOW "(as well as the credit card and hospital bills), then follow that up with paying off the Helox in 2-3 years.

This would save you oodles interest, and get you to FIRE earlier, I believe.

4.5% and 6.7%, off hand.
SOFI won't refinance with the school that I attended - I've checked that route.
Also checked paying them off w/ our equity in our home, and while that'd save me a bit on interest, it wouldn't save me a whole lot per year.
Payment is low because it's based on income based payments - it goes up to $550 sometime next year - gotta double check the date on that.

We're more looking for FI than RE at this point.  That might change in the future, and we'll stock money away yet, but we don't have any set or planned times that we want to retire. 

Thanks for the post - I need to look into LoC / HEL to pay off the loans - even then, if we were to sell my acreage, I'd still be + money, and have everything paid off.  Wouldn't be the worst thing in the world.

dandarc

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Re: Case Study: The Leaks...and then some.
« Reply #7 on: July 17, 2015, 02:13:31 PM »
She has a state funded pension, which is awesome to have, but she can't put more into the pension than the amount decided by the state each year.
Take a look at her benefits package - she might have access to a 457.  Might be called something like "Deferred Comp".  My wife once asked about adding more to the FRS, and they told her "can't be done".  Which is true.  But they didn't tell her about the deferred comp, which achieves the same end (really better - 457 is friggin awesome for retiring early, all things being equal).

TheInsuranceMan

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Re: Case Study: The Leaks...and then some.
« Reply #8 on: July 17, 2015, 02:22:23 PM »
She has a state funded pension, which is awesome to have, but she can't put more into the pension than the amount decided by the state each year.
Take a look at her benefits package - she might have access to a 457.  Might be called something like "Deferred Comp".  My wife once asked about adding more to the FRS, and they told her "can't be done".  Which is true.  But they didn't tell her about the deferred comp, which achieves the same end (really better - 457 is friggin awesome for retiring early, all things being equal).

We will look into that!  Thanks for the advice!

 

Wow, a phone plan for fifteen bucks!