Just started growing out my 'stash, need help grooming it.

[BSmash]

I just found the blog last week, have been reading ever since. I've already turned the air conditioning in my house and car off, have started driving more responsibly, have stopped taking toll roads to work and have stopped buying crap I don't need. We don't have cable but I'm switching off Netflix and Hulu - we don't need them.

I have questions about what to do about the money I do have though. We have about $45,000 in checking accounts and some small 401k at my spouse's work (employer does not match, we put in about $300/paycheck.) Our monthly income is $10,000+ but our expenses are through the roof. Our credit card which we use for almost all purchases is $5k or more every month. We pay it off every month so we pay no interest for revolving debt, but it's been a struggle to save money because we spend pretty much everything we bring home. We owe $323,000 on a house we bought 6 years ago that recently appraised for $415k but it's market value is more likely $450-475k after the renovations we've done. Our mortgage payment is $2350 at a 4% interest rate. I have about $65,000 in student loans that are half 4.5% and half 6.8% interest rate, it's a $910 monthly payment.

The major problem is that our work is unstable. Spouse is about to quit a job to start a business. I have a weak non-entrepreneurial heart so I feel the need to keep the cash we have on hand as an emergency fund, especially until we can prove ourselves adept at keeping our expenses lower. I am a temp contract employee so most weeks I get a paycheck but it's by no means guaranteed.

So, I come to you to ask what to do. Consolidate student loans and/or try to knock those out ASAP? I don't understand anything about setting up a personal line of credit to serve as an emergency fund. Is that a home equity loan? Even $45k is not six months worth of expenses so I still feel like it's not big enough of an emergency fund but I know my money should be working for me.

[thedayisbrave]

It's great that you're starting to see the light re: frugality, but honestly cutting the large expenses will get you where you're going MUCH faster than saving a dollar here or there on tolls or the like.  If you continue to keep up these spending patterns it'll be more of a "one step forward, two steps back" sort of deal. 

I think you'd benefit greatly from posting a case study.  Generally though, I'd see if you can target paying down the 6.8% interest student loans first with any extra money.  Keep the $45k buffer if it lets you sleep better at night.  Anything over $45k, throw towards loans.  Look at the big expenses - what are you spending the most money on? You're spending $5k/mo outside of your mortgage?!

Why is your spouse quitting their job? Starting a business is AWESOME but you are in a debt emergency.  Not sure quitting right now to start a business (which may or may not fail, no offense, just statistics) is a prudent decision.

[MDM]

I think you'd benefit greatly from posting a case study.  Generally though, I'd see if you can target paying down the 6.8% interest student loans first with any extra money.  Keep the $45k buffer if it lets you sleep better at night.  Anything over $45k, throw towards loans.  Look at the big expenses - what are you spending the most money on? You're spending $5k/mo outside of your mortgage?!

+1

For the case study, see http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/

If you want to keep $45K in cash, at least put it somewhere (e.g., an online bank such as GE Capital) you get >1% interest.

[nereo]

you've got a lot going on and as already mentioned a full case-study would help.

Broadly speaking I would suggest:
1) getting a much tighter grip on your spending (e.g. monthly cc charges of $5k!)
2) taking better advantage of tax-deferred accounts (max out 401(k)s, and contribute to IRAs)
3) putting some or all of that $45k in your checking account towards something more productive.  I'd suggest paying off the ~$32k in SL at 6.8% as a no-brainer move you could do TODAY which will reduce your monthly expenses (cash-flow) as well as give you a de-facto 6.8% return.

those 3 items you can work on now.  A full case-study will allow us to analyze your specific needs more closely.

[BSmash]

Thank you, I will start trying to figure out the case study materials but it is a bit overwhelming for someone just starting to get a picture of my finances. To answer the questions so far: Spouse has already started the business, and won several grants, but the most recent win requires full-time employment status so it can no longer be done in spare time. Business partner quit a job to work at their company full-time last year for the same reason and spouse will be the 2nd full-time employee. There is at least a year's worth of money so far, but government grants have a tricky way of delaying starts or payments. I worry that paying the $30k student loans at 6.8% would mean no longer having access to that money as an emergency fund, as opposed to the advice in early blog posts about opening a line of credit or using Vanguard accounts in lieu of emergency funds since one would still have access to that cash in a true emergency. Our $5k+ monthly expense (which is in addition to the mortgage) is mostly just typical outrageous spending, manicures, books, pool membership, home cleaning, leisure trips, tickets to the circus, eating out, thousand dollar grocery bills. That was just last month. We do have some expenses related to taking care of parents-in-law as well. We have instituted a family-wide austerity plan to tackle big as well as small expenses where we can, although the toll road use is fairly significant at at least $30/week. Spouse grew up in a family and country whereby frugality comes easily, and I'm working on aligning my outlook as well.

Will get started and return with a case plan - thank you for your advice so far.

[nereo]

.... I worry that paying the $30k student loans at 6.8% would mean no longer having access to that money as an emergency fund, as opposed to the advice in early blog posts about opening a line of credit or using Vanguard accounts in lieu of emergency funds since one would still have access to that cash in a true emergency. Our $5k+ monthly expense (which is in addition to the mortgage) is mostly just typical outrageous spending, manicures, books, pool membership, home cleaning, leisure trips, tickets to the circus, eating out, thousand dollar grocery bills.

It's a process and won't happen overnight, but I applaud you for wanting to improve your fiscal situation.
Clearly you have some cash surplus, or you wouldn't have $42k sitting in a checking account loosing value every day to inflation.
Paying off the higher student loan will do things; it will put that money to work and it will reduce your monthly expendatures by ~$400/month.  Your concern over not having an emergency fund is a good one, and everyone needs to decide what amount of a cushion they want to keep around.  Personally, I think the ~$10k left in your checking account, plus a HELOC should be sufficient, but that's up to you.

The biggest fish to fry is the "outrageous" spending you already mentioned.  I suggest using Mint to track where all your spending goes.  By entering in your credit cards it can automatically show you the last several monhts of spending.  Some categories might shock you.

cheers and I hope you stick around the forum
N