Okay Mustachians,
I just discovered the Mr Money Mustache Blog a couple weeks ago and want to join the Badassity but I need some help! My wife and I were living a very anti-Mustachian lifestyle up until the beginning of this year so we're still phasing out some old habits.
We make, together, around $6,250 after Health Insurance and Taxes (Health insurance is about $340 a month).
Currently have $5,000 in an emergency savings account, earning 1% (That's about two months job loss protection for either of us) So far this year we've paid down almost $10,000 of credit card debt and are now credit card free! However we still have debt as follows:
Mortgage - Current Balance $115k (9 years remaining at 4.46% APR) (About 60k in equity)
Student Debt - Current balance $59.4k (Currently in default, Average Interest/Penalties of 5.2% APR)
2012 Toyota Camry - (I know I know, please don't punch me in the face too hard) - Current Balance ($17,500 6.75% APR) (Bought it used last year)
Recurring Expenses:
$1,350 – Mortgage (Principal and Interest)
$771 – Mortgage (Taxes and Insurance)
$860 – Charities (Non-Negotiable, one of our joys)
$334 – Car Payment
$320 – Groceries
$320 – ChildCare (9 Months a Year)
$300 – Gasoline (Can cut this down more I think)
$200 – Electricity (About $100 in non summer months, About $350 in summer months) (Texas heat Ouch!)
$90 – Auto Insurance (Full coverage on the Camry for both of us, loan requires full coverage)
$80 – Dining
$80 – Water and Garbage
$55 – Pool Service (Okay it's embarrassing now that I type it in, I need to in-source this)
$52 – Internet
$50 – Miscellaneous (Pet Food/Litter/Vet/toiletries/cleaning supplies)
$50 – Fitness Membership
$40 – Heating Gas
$35 – Phone Plan
$20 – Wife's Haircut ($40 once every other month) (I use the universal Men's grooming Device myself)
$9 – Netflix (Got rid of Cable)
Total Recurring: $5,016 (Yucky I know, but we're just happy it's less than we make now. Not trying to justify higher spending but the condensed mortgage and our charity giving make up 60% of our spending)
This puts us at $1,234 in savings left over each month.
I ran some basic numbers on early debt payoff calculators and came up with this rough plan from highest interest debt to lowest:
If paying that savings towards the car, it will be paid off in 15 months. Then we get back the car payment and have a margin of $1,568
If we put that towards the student loans next, they will be paid off in 3.5 more years. So 4 years and 9 months from now.
At that point we will have 4 years and 3 months left of house payments. We could potentially pay it off 2 years early if we put all the money into the house and save about $3,000 in interest. When the house is completely paid off we'll have $2,989 left over each month!
If we cut out the pool service and squeeze another $50 a month out of gasoline we’ll be saving right at 50% of our take home pay!! I know that doesn't sound like a lot by Mustachian standards but that's been our goal since we started our new frugal life!
Additional Details:
I know that MMM believes that owning a home is part of investing and we feel good about getting the shorter loan term even though it's a squeeze in the meantime. We don't have any employer matching in our 401k options. My wife is a teacher so our kiddo will go with her to school when she's old enough. We also drive a old Jeep Wrangler that is on "permanent loan" from a family member for free, but don't want it to be our only vehicle in case they decide they need it back all of a sudden. Our commutes are 10 miles and 15 miles each way in opposite directions so we're kind of stuck there but I moved jobs so that my commute is no longer 70 minutes each way!
Okay that's a lot of background to ask a simple question: Does it make more sense to pay down all this debt before we start investing for retirement? I feel bad about not having my green employees working for me but I know I can get a "guaranteed return" by paying off the debt hole that we're currently in.
Okay my face is ready, please be brutal where you need to be. But a little encouragement is nice too! What do you think?