Author Topic: Case Study - What's the Next Move?  (Read 2341 times)

ontheroaderic

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Case Study - What's the Next Move?
« on: December 28, 2014, 07:00:28 PM »
Income: Net per month
Mine: $3000
Wife's: $2400
Wife's Mileage Reimbursement: $450
Bonuses & Overtime Pay: Variable, so excluded (added up to about 10K this year, but isn't predictable. I treat it as a windfall and apply them to debt or house project, see below)
Total: $5850

Current expenses:
Mortgage: $1100
Food {groceries/restaurants}: $550
Cell Phones {republic, no data}: $25
Internet: $31
Netflix: $8
Power & Nat Gas: Variable with season, 2014 average: $76
Water: $34
Fuel: $190 {40 me, 150 wife - see background for explanation}
Spending Money {books, movies, wife's activities with BigBro/Big Sis little}: $100
Medical: $30
Clothing: $20
Household Supplies: $20
Household Durable Goods: $20
Hygiene: $20
Pet Expenses: $50
Booze: $30
Car Insurance: $110
Home Owner's: $95
Term Life: $21
Property Taxes: $125
Birthdays/Christmas: $140
Trash Service: $20
Vehicle Maintenance: $50
Recreation {ultimate frisbee league dues}: $50
Termite Maintenance Contract: $20
Roof Fund: $50
Baby Fund: $100
Student Loan 1: $270
Student Loan 2: $181
Prius Payment: $236
Total: $3870

Notes: I believe our expenses are pretty well optimized. There is room to bring down our food budget for sure, and our numbers for the 2nd half of 2014 are much better than the average so we are moving in the right direction. I'm going to drop the comp/collision on the Subaru to free up another $300/year and try to convince with wife that we spend way more than necessary on gifts. Might be able to talk her into cutting back our frisbee leagues (we play in two leagues in three seasons). I bike to work 4/5 days a week when the weather allows, but I can't always (especially in winter) so our current situation requires two cars. I also get overtime at 1.5x, as it is also variable I didn't list it above . . . but it is pretty much always available if I want it.


Assets:
House - $237,000 {$113,000 owed, $124,000 equity}
Vehicle 1 - $12,000 - 2010 Prius {owe $3900 at 1.99%, but current payment schedule of $2k/mo will finish this 2/15}
Vehicle 2 - $4000 - 2002 Outback {owned outright}
My Simple IRA - $14,000 {Edward Jones, 3% employer match, currently contributing just enough for match}
My HSA - $8300 {Employer contributes 2K/year, I fund the rest to max. 2k kept in cash (required), rest in WFIOX} We don't regularly use HSA funds at all, just pay out of pocket and save receipts for future payout if needed.
Wife's Traditional IRA 1 - $6300 {Edward Jones, from previous employer, not currently making contributions}
Wife's Traditional IRA 2 - $1100 {Betterment, from previous employer and not currently making contributions}
Wife's 403b - $10,000 {Current employer, not sure of match or contribution she's looking in to it}
Total: $179,700 {$55,700 if you exclude equity in home}

Emergency Fund: We use YNAB and as such have a 1 month buffer, but we don't have any cash set aside specifically for emergencies. We use a rewards credit card for all monthly expenses (auto pay in full each month) so I've considered available credit to be our "squishy" emergency fund.


Liabilities:
Mortgage - $113,000 at 3.99%, 10 years left on 12 year refi, $1100/mo payment
Vehicle 1 - $3900 at 1.99%, currently paying $2k/month, will be complete 2/15
My Student Loans - $74,000 at 5.75%, 5 years in on IBR plan, currently paying $270/mo which doesn't even cover interest
Wife's Student Loans - $54,000 at 5.85%, 2 years in on IBR PLSF plan, currently paying $181/mo which also doesn't even cover interest
TOTAL: $244,900 {$131,900 if you exclude mortgage}

Background: We bought our home as foreclosure in 2011, it was in really bad shape but we've been slowly rehabbing it. We have DIY about 90% of it, but hired out some jobs (like drywall retexturing). It's a bi-level and we've just finished the lower level. The upper level still needs attention (drywall retexturing, flooring, and a sorely needed bathroom remodel). I'd say we have another $10K to put into it before it is presentable, and almost 4 years in now, my wife and I both need it to be presentable. Finishing this project is a major goal for the first half of 2015.

Our house is a 15-30 minute drive (or 35 min bike ride) to my office, although we are in different town altogether. My wife commutes 45-90 min. each way, in addition to her on the job driving (social worker making home visits, thus the mileage reimbursement). My job is secure and ideally I'd like this to be my last employer ever. We are currently looking for a new job for wife that is closer to home and requires less driving. She (and I) hate the driving, but the MPG on the Prius helps us . . . those mileage reimbursements are profitable, even when accounting for vehicle maintenance. I am aware of the "True Cost of Commuting" and we want to fix it.

We would ideally like to live in the same town as my office but were unable to find anything in our price range when we were buying.

We are going to try for a baby late 2015. I'd like to wait, but she's 32 and I'm 37 so it's time to get started. I'd like to achieve FI by age 50 (so 13 years).

Student Loans. Mine are on the IBR plan, so make the adjusted payment amount for 25 years (I'm 5 years in) and the balance is forgiven (but that amount is taxable). My current payment doesn't cover the interest so the balance is growing. My income has been increasing and it is likely that my payment will increase as well. I don't trust that following this plan for 20 years will result in forgiveness (that's a long time to lose a form, or forget a signature or something). I hate having these hang over my head. We have decided that we must pay mine off. The current plan is to take the $2000 we've been throwing at the Prius and destroy my loans. Hers are also on the IBR plan, but she's in the Public Service Loan Forgiveness Program. If we make 120 monthly payments, the balance is forgiven (tax free). We have decided to proceed with that plan for her loans. I believe we're 24 payments into her 120.

Specific Question(s):
I am hoping to move to the same town as where I work. It's a great place to live - very walkable/bikable, good schools, recreation, etc. It's also pricier that where we live now but we could probably get something in the $300-350 range. With that goal in mind I'm trying to figure out how to make it happen and these are the options as I see them:

1) Finish this house, refi to a 30 year while rates are still so low and take out $60-80K for a down payment on the other house. Rent this one (estimate $2,000 monthly rent). Hold long term for monthly cash flow and sell in 30-40 years. I have been reading up on rental properties and I would like to get into it at some point. Help my wife find a job close to my own, so we'll both work/live in the same town and easily get rid of 1 car. Payoff student loans at the min. rate of $2200/mo (about 3 years) and then starting maxing out retirement accounts. Use additional income from rental property to expedite this process.

2) Finish this house, and try to sell it. Comps in our area are selling (fast) and $240,000 seems pretty reasonable. After what we owe and what we'd need to get this house into a sellable state leaves us with about $115,000. This could be used as downpayment on new house, and/or towards student loans. Help my wife find a job close to my own, so we'll both work/live in the same town and easily get rid of 1 car. Use the $2200/mo on student loans and then retirement accounts.

3) Finish this house, and stay put. The house fits our current and future needs well (3bd, 2 ba, 1600 sq ft., big yard for my garden, walking distance to grocery store and a 10 mile bike ride from my office). Focus all efforts towards student loans and obliterate those suckers. Min. $2200/mo, plus as much overtime as I can stomach and of course all bonuses. Finish in 2 years? Help my wife find a new job closer to home, but we may need to keep both cars. Reevaluate relocation plan when my hair fire has been extinguished.

As I type this, the answer seems obvious but I am curious to hear other's opinions. Also - if you have read this entire friggin' thing, I salute you!

MDM

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Re: Case Study - What's the Next Move?
« Reply #1 on: December 28, 2014, 08:19:58 PM »
Income: Net per month
Mine: $3000
Wife's: $2400
Wife's Mileage Reimbursement: $450
Bonuses & Overtime Pay: Variable, so excluded (added up to about 10K this year, but isn't predictable. I treat it as a windfall and apply them to debt or house project, see below)
Total: $5850
...
As I type this, the answer seems obvious but I am curious to hear other's opinions. Also - if you have read this entire friggin' thing, I salute you!
Very well detailed.  Nice work. 

One part missing: the items that take you from gross to net income.  True, they aren't germane to your questions about the house - but then neither are most of the other expenses.  Often there is much fertile ground for comments when one starts with gross income and then lists whatever taxes, pre-tax deductions, etc. lead to net income.

GreatNateVIII

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Re: Case Study - What's the Next Move?
« Reply #2 on: December 28, 2014, 10:02:14 PM »
Curious about the annual expense of $1,500 for birthdays/Christmas. You mentioned convincing your wife to cut down on gifts. I'm all about the giving spirit but this seems quite high. Sit down with her and explain you're going to shell out $15,000 in the next decade on gifts!

rmendpara

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Re: Case Study - What's the Next Move?
« Reply #3 on: December 28, 2014, 11:50:45 PM »
I can't imagine paying minimums for 20 more years. You'll pay more in interest and the increase in accrued balance then if you just work to pay the loans off in the next 5 years which is very doable on your income and budget right now.

I'd move onto full payments to start working down the balances on your loans, and can do the forgiveness for the others if you decide. Hopefully as your income grows over the years and your lifestyle doesn't inflate, then the gap between expenses and income will increase and you'll be able to start investing more.

Solid plan and ideas to cut down in some areas. Work on those a little at a time, and you'll be in a better place every quarter when you review progress.

Good luck