Author Topic: Where to start, student loans, mortgage, saving?  (Read 3274 times)

Thrifty Snail

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Where to start, student loans, mortgage, saving?
« on: March 26, 2016, 04:25:29 PM »
My wife and I are in a high income, high debt situation due to a professional degree. We clear 12k a month after taxes (this just started) and 403b contributions(full matching amount). Our goal is ten or less to fire. The good news is we are both tight. The bad news is that we owe 300k in student loans. Most of that is an interest free family loan. We recently purchased a home and owe 400k, though the house is in a great walkable area where we would like to live for along time. Property taxes are low, schools are good. We are in our late thirties and would like to be done before either of us turns fifty. We have two children, one is still in day care. One commute is minimal, the other long (mine). The job pays well and provides basically free health insurance. I am actively hunting for a local job and have calculated the pay cut that is worth it (8k).

We are maxing out our 403b contributions. The goal is to pare down expenses to the minimum and then shift to part time (we both love our jobs we we work a few days a week).

Monthly:

Mortgage: 2400
Car payments: $1000 (paying double)
Day care: 775
Loan repayment:2000
Gas:300
Heat and electric: 200
Cc:1000 a month 8 payments to go never again!
Food:1000

All of the remaining cash is moved into a savings account at the end of the month.

Car payments are double so we will be done with them in about two years. I know I can do much better with food.

I don't know if i should start trying to bury the mortgage, save or invest.






We are not quite sure where to start other than that we would like to have an emergency fund.

Tjat

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Re: Where to start, student loans, mortgage, saving?
« Reply #1 on: March 26, 2016, 05:32:32 PM »
I'd say the following

1. Discuss with your family an appropriate payment schedule. It's interest free, but you don't want to take advantage

2. Savings - I'm not clear what this is. You mention an emergency fund, but does this also include investments?

3. Mortgage - I wouldn't pay additional principle. Coincidentially, I started a recent thread discussing the merits of prepaying vs not over on the Investor Board. http://forum.mrmoneymustache.com/investor-alley/one-man's-analysis-of-'to-mortgage-or-invest'/


Regarding emergency fund. I'm assuming you're talking cash. How large? I know 6 months is common advice, but given that you have 2 jobs (both well paying?), flexible debt, and presumably a high credit card limit...what good will x months of cash do for you? If a little S hits the fan, you're already fine. If a huge amount of S hits the fan, you're screwed regardless if you have cash or not. Just my .02 :)

Goldy

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Re: Where to start, student loans, mortgage, saving?
« Reply #2 on: March 26, 2016, 11:11:51 PM »
What are the interest rates and balances on the car loan, credit cards, and mortgage?

Assuming the cc debt is higher than the car I would recommend pausing the extra payment on the car and moving it to the credit card.  What you need to do is start a debt snowball to free up cash flow. Focus on the accounts that have small balances or very high rates and pay those down fast.  Once the loan is paid off just roll that payment onto the next debt item and attack that one.

former player

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Re: Where to start, student loans, mortgage, saving?
« Reply #3 on: March 27, 2016, 07:24:50 AM »
You say you are matching the 403b but are you maxing it?  With your income you should be, unless you think your retirement is fully funded.

Yes to paying off the highest interest debt first.  You could kill that credit card in two months if you wanted. 

Then yes, have a sit-down talk about the family loan, its repayment and whether you should be paying interest on it.  The point of this talk is not necessarily to change what is happening, it is to make sure that everyone is happy with what is happening and to agree changes if they are not.  Happy and supportive family is worth far more than the amount of the loan and any interest to be paid on it.  If the loan is free of interest, it may be something you will need to think about paying forwards to the next generation of your family, which will be something to take into account in calculating FIRE.

You say you are tight, but $1000 a month on food for a family of four is not tight.

kpd905

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Re: Where to start, student loans, mortgage, saving?
« Reply #4 on: March 27, 2016, 07:37:33 AM »
We need interest rates to give advice here.  You said most of the student loans are a family loan, but what about the rest?  You may be better off paying toward those than paying double on the car loans.

SwordGuy

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Re: Where to start, student loans, mortgage, saving?
« Reply #5 on: March 27, 2016, 09:01:57 AM »
That interest free family loan was a kindness.   Every day you let it hang around without paying them back is a day they can't earn interest on that money.   So, if market rates for that money were, say, 5%, you are taking 5% compounded interest from them.

Unless they are rolling in dough, pay it back pronto.

Personally, I would be ashamed to buy a $400,000 house when I owed my family $300,000 in an interest free loan.   But that's just me.    Your mileage may vary.   Perhaps where you live that was cheaper than an apartment, in which case, I'm out of line.   And working part time before your family is paid back?  Hell no!   

As others have stated, you will need to provide amounts and interest rates to get better advice.

dess1313

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Re: Where to start, student loans, mortgage, saving?
« Reply #6 on: March 27, 2016, 10:56:25 AM »
your food budget seems high for 2 adults and 2 children, is there any special diet needs there?
you're saving about 3k a month, but why have you not paid off your credit card yet?  you could finish that before summer if you focused on it freeing up cashflow for other things
Do you have an emergency fund?  is that what your savings are for?  How much do you have saved so far?
And interest rates are needed on everything
You don't have cell phones?  internet?  where else are you spending money?  no one ever buys new socks?  i'm surprised you don't have some spending on the kids, they tend to go through things quickly especially when young
have you set up a budget?  Don't pull numbers from the air, tracking your spending will help you see holes you may not otherwise notice

FrugalFan

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Re: Where to start, student loans, mortgage, saving?
« Reply #7 on: March 27, 2016, 11:51:33 AM »
As the others have mentioned, more details would be helpful. To know whether you can FIRE in 10 years or not, you need to know how much money you need on a monthly basis (i.e., you need to have a very good handle on exactly where all your money is going) and how much money you can put toward that goal each month (i.e. paying off debt and then investing).

Thrifty Snail

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Re: Where to start, student loans, mortgage, saving?
« Reply #8 on: March 27, 2016, 03:19:28 PM »
Sword guy, the house is actually cheaper than renting in the area due to seasonal tourism that causes rents to double or triple in summer into the realm of insane. Anything less expensive would require extensive renovation due to serious issues (mold termites structural problems).

Goldy, I will try to get the rates posted shortly.

We have radically reduced spending over the last few months. Food will be tackled next. The primary issue is not coordinating shopping between the spouse and I. I do 90% of the cooking so food will be my responsibility.

The family loan is not at all a source of contention.

From the response, I gather that most who post have a very good handle on monthly expenses. We are still learning to get to bare minimum costs.

By tight, we spend virtually zero on clothes(thrift shop only if needed), no cable, use a very inexpensive phone plan, rarely (two or three times a year, really) eat out, we do not shop for fun, drive around for no reason, etc. I had the same flip phone for years, made my own very inexpensive fishing tackle, and eat what I catch, garden herbs cheaply, fix many things myself, and so on.

dess1313

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Re: Where to start, student loans, mortgage, saving?
« Reply #9 on: March 27, 2016, 03:27:37 PM »
thrifty snail its sad that that is cheaper than renting for your area. look for coupon apps and such to help you reduce your food costs. a small chest freezer can save you big amounts of money when you can buy bulk/sale items and freeze them for later.  there's usually a few facebook groups related to couponing relative to your area

have you considered mint or YNAB to help you track?

SMCx3

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Re: Where to start, student loans, mortgage, saving?
« Reply #10 on: March 27, 2016, 06:42:06 PM »
Bringing home 12k a month will definitely provide you a quick path to FI once you establish your budget.

As stated earlier get up and running on YNAB or Mint.  This will make a huge difference moving forward.  Time to start accounting for every dollar you spend.

Goldy

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Re: Where to start, student loans, mortgage, saving?
« Reply #11 on: March 27, 2016, 09:03:42 PM »
One more clairification, are you contributing the max allowable by law to your 403b or just what the employer will match?

I also agree that you should take a look at Mint as it will give you some great insight into your budget and where money might be slipping away without you knowing it.  Its a wonderful way to track finances with minimal effort on your part.

Even though you pull down 12k a month I think you are going to be hard pressed to retire in 10 years for no other reason than your debt.  Using rough numbers you owe about 750k so even if you were to save half of your take home pay and apply it to your debt it would take you nearly 10 years just to wipe out the debt.  However, this is where investing early will really start to pay dividends. 

If I were you my plan would be as follows

1) make a budget and find extra money
2) reallocate extra payments on car to credit card and scrape all other money you can possibly find to pay that off.  (I'm assuming its your highest interest rate)
3) max out 403b and any other pretax vehicles you have access to like a HSA
4) attack the car loan (assuming it is over 6% interest) with everything you have.  At your income you should be able to hammer those loans out in a short time.

After those actions you have an option to continue paying the minimums on your mortage and student loans in order to invest the rest or you could invest a little less and pay extra towards your mortgage.  In your situation I would recommend investing the max and paying the minimums on the mortgage (assuming a rate <4%) and student loans with the intention of refinancing your mortage after 10-15 years to reduce the payment. 

In short, I dont see it happening in 10 years (but I would love to be proved wrong).  I think 15 years is probably a more obtainable goal and would mesh nicely with your youngest kid leaving the nest for college.  At that point you could sell your hosue and downsize to something more affordable in a LCOL area which would solve a lot of your issues.