Author Topic: Help making finance priorities  (Read 4111 times)

use2betrix

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Help making finance priorities
« on: March 11, 2015, 02:24:38 PM »
I've been reluctant to make this post but I figure I might as well just lay it out. I have spent my entire life being pretty "anti-mustachian," but the last year or so I have been starting to see the light.

Please go easy on me :) 

26 y/o
155k/year income

Savings:
34k (In savings accounts, saving to pay off truck, which is my original plan)
14k 401k
5k Roth IRA

Debt:
5th wheel travel trailer (I live in this full time, travel the country for work) owe about 50k. Financed over 12 years (stupid, I know) at about 4.5%
Student Loans - owe about 12k - financed around 7% or 8%
Truck to tow the 5th wheel and for work - owe 45k financed around 4.5%

So I know the obvious red flag is the truck. First, my company gives me 650/mo which covers a chunk of my payment (I include that in my income). However, my company also pays for 100% of my gas, so the gas mileage I get doesn't matter. Also, I need something very reliable for work, and for towing my trailer all over the country. Diesels with high towing capacities are not cheap. I could "maybe" get a somewhat reliable one for 35k, but it would be out of warranty with way more miles. Maintenance is very expensive so I value my warranty.

I maxed out my Roth IRA last year and will continue so. Right now I am only contributing 5% to my 401k as my employer has a poor match (10% of what I contribute, up to $1500/yr)
While my truck isn't my highest interest debt, it is my highest payment at about $1100 per month. At my savings rate, I can have it completely paid off this summer and free up that extra money. While I haven't been unemployed at all since leaving school at 21, I would like to get my monthly expenses lower just in case I were to be unemployed.


Right now, my current plan is to have both my truck and student loans paid off by the end of the year, as well as propose to my gf (have been together 3 years, she lives, works, and travels with me, also help contribute)

So the real question is, does this plan sound fair enough or should I start investing more now?

I feel like if I just knock those out, then I can start investing harder next year (I'll still max out IRA this year and 5% to 401k)

My longer term goal is to get to the point where I only have to work a few months out of the year, or just find a permanent job someone where and work shorter hours. I do contracting work all around, so I could easily take 6 months off, then work 6 months, and still earn a pretty decent amount. I was a industrial welder prior to moving into management, and am huge into fitness, so could probably make those part time jobs when I'm ready to just do like a partial retirement.
« Last Edit: March 11, 2015, 03:05:46 PM by Trixr606 »

MDM

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Re: Help making finance priorities
« Reply #1 on: March 11, 2015, 02:35:50 PM »
With $155K gross, that's ~$50K in taxes so ~$105K after tax.  That doesn't even account for 401k/IRA deductions, etc.

Have to ask: where is the $105K/yr going...?

Travis

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Re: Help making finance priorities
« Reply #2 on: March 11, 2015, 02:48:55 PM »
If your goal is to be FI 6 months a year, then at a bare minimum you need to be able to live off of half your current income.  That's just a spitball since there's no guarantee you'll make the same amount on the next contract.  From what little you've given us you're spending about $20k a year on your debts, $5k on an IRA, and $7k-$5k on your 401k.  That still leaves $70k a year unaccounted for.  Without a breakdown of your actual budget it's difficult to say anything else.

use2betrix

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Re: Help making finance priorities
« Reply #3 on: March 11, 2015, 02:51:01 PM »
With $155K gross, that's ~$50K in taxes so ~$105K after tax.  That doesn't even account for 401k/IRA deductions, etc.

Have to ask: where is the $105K/yr going...?

That is where the savings has been coming from and paying off a lot in past student loans. In the last 2 years I have paid off about 30k in student loans, and saved another 35k, and maxed out the Roth IRA...

Like I said, I have spent a lot of money over a long time, but I'm doing better now. Now, I'm typically saving around 3000-4000/mo. Once I pay off my truck that will go up another 1100/mo. I have been saving that for about a year now (it was a bit less when my gf wasn't working, but still at least 2500)

I'm 26 and have only been making this kind of money for about 2.5 years or so. I am doing better, just need to get my priorities lined out.

use2betrix

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Re: Help making finance priorities
« Reply #4 on: March 11, 2015, 02:54:00 PM »
If your goal is to be FI 6 months a year, then at a bare minimum you need to be able to live off of half your current income.  That's just a spitball since there's no guarantee you'll make the same amount on the next contract.  From what little you've given us you're spending about $20k a year on your debts, $5k on an IRA, and $7k-$5k on your 401k.  That still leaves $70k a year unaccounted for.  Without a breakdown of your actual budget it's difficult to say anything else.

I agree, I will be at a 50% savings rate (of my take home) once I have my truck and student loans paid off. Actually, I will be saving a bit over 50%, closer to 60%, and that's at my current spending rate, which I could certainly make changes on.. Making baby steps though, I would like to get my long term investment accounts squared away over the next 10 years, along with cash (hopefully) for a house, so when I cut back on the work I will have minimal expenses, i.e. no mortgage and no need for long term investment savings.

MDM

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Re: Help making finance priorities
« Reply #5 on: March 11, 2015, 02:58:24 PM »
I am doing better, just need to get my priorities lined out.
Ok, fair enough.  Do you have any questions for us?

use2betrix

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Re: Help making finance priorities
« Reply #6 on: March 11, 2015, 03:02:13 PM »
I am doing better, just need to get my priorities lined out.
Ok, fair enough.  Do you have any questions for us?

Yes lol.

Does my current plan I mentioned above seem alright?

I.e.

Pay off truck and student loans this year, then focus more on long term investing and saving for a house while just slowly paying off the 5th wheel loan?

Or.. Should I start maxing out my 401k right now and just pay the minimum on the truck, trailer, and student loans?

I have around 30k-35k a year right now I'm not sure what things I should focus the most on.

Retire-Canada

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Re: Help making finance priorities
« Reply #7 on: March 11, 2015, 06:39:01 PM »

Yes lol.

Does my current plan I mentioned above seem alright?

I.e.

Pay off truck and student loans this year, then focus more on long term investing and saving for a house while just slowly paying off the 5th wheel loan?

Your stats as I read them:

- $100k/yr after tax
- $107K debt @ 4.5% - 8%
- $34K cash
- $20K investments
- ~ 50% savings rate with loans [so $50K/yr]

I'd pay off the truck and the student loans like you planned.

Don't propose until you pay off the RV which I would do ASAP unlike a house it's not going to hold its value and is a straight up liability.

The only investing I'd do is to max out any tax advantaged accounts that will reduce your taxable earnings. That's worth doing ahead of paying off the RV.

Once you are debt free and have some money in the bank/investments you are in a position to make a serious life change like getting married.

-- Vik
« Last Edit: March 11, 2015, 06:40:36 PM by Vikb »

MDM

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Re: Help making finance priorities
« Reply #8 on: March 11, 2015, 07:28:43 PM »
I maxed out my Roth IRA last year and will continue so.
Straight Roth or backdoor?  There is an income limit, and it appears you are above that limit, for Roth contributions.  See http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2015.

Quote
Debt:
5th wheel travel trailer (I live in this full time, travel the country for work) owe about 50k. Financed over 12 years (stupid, I know) at about 4.5%
Student Loans - owe about 12k - financed around 7% or 8%
Truck to tow the 5th wheel and for work - owe 45k financed around 4.5%

Right now I am only contributing 5% to my 401k as my employer has a poor match (10% of what I contribute, up to $1500/yr)

So the real question is, does this plan sound fair enough or should I start investing more now?
1) Pay off the student loans tomorrow from your savings.
2) Contribute the full $18K to your 401k.  That will save $5K in federal taxes, plus whatever in state taxes.
3) Do a backdoor Roth for $5.5K
4) Flip a coin between pre-paying on the truck and trailer vs. investing in a taxable account.  4.5% is in between the "obviously do" vs. "obviously don't" pay it off (for most people).

FrugalSpendthrift

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Re: Help making finance priorities
« Reply #9 on: March 11, 2015, 07:55:18 PM »
Right now I am only contributing 5% to my 401k as my employer has a poor match (10% of what I contribute, up to $1500/yr)
Even if there was no match, you should still max out the 401k, because it would still give you a big tax deduction.  I agree with MDM, get rid of the student loans right away, max out the retirement accounts and then use excess income to pay down the lower interest debts or invest in a taxable account.  Start tracking your net worth and cash flow and it'll be easier to make these decisions.

use2betrix

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Re: Help making finance priorities
« Reply #10 on: March 12, 2015, 11:25:32 AM »
Thanks all for the info. I went ahead and paid off my last student loan today! The balance was actually only $11,150, so that's some refreshing news! And, even better(or worse) was the interest rate on it was actually 8.25%! Yuck!

So, now I still have a good padding left over (about 23k)

I just changed my 401k contribution amount up to $15,000 per year so I will get my companies maximum match ($1500)

To answer regarding the Roth IRA, a LOT of my income is not taxable because I travel full time for work. They give me a large weekly per diem and monthly truck allowance which is all tax free (I don't even receive a w-2 or 1099 for) so my taxable income is within the threshold.

Now I'll start saving to pay off the truck or trailer, and also to get married. Sorry to the person who mentioned waiting, but I have already put it off quite a while as my gf and I have lived together for over two years and been together for 3. I'll probably get married within the next year. Fortunately she's fine with a cheap wedding (even mentioned we could just get hitched at the courthouse) plus she contributes financially and I would imagine my income bracket will drop a bit as well.