Just Getting Started: What is the Best Course of Action?

[MsChewieBear]

I just found MMM (from a comment someone posted on a recent Jezebel article on being cheap without pissing off your loved ones). I've been loosely following Dave Ramsey for a little while, but I don't have any real financial knowledge otherwise.

I want to start investing, but I am not sure if I should start now or wait until I am debt-free and have a good cash cushion. I have a Roth IRA account, but it just has a few dollars in it to keep it open. My husband is leaving his job at the end of September, and he's going to roll his 401(k) into his own IRA account. We only have a few hundred dollars in savings and quite a bit of debt.

What's the best course of action here?

[ioseftavi]

http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/

If you're willing to post your details, this is a great way to start.  By listing out your income / expenses / assets / liabilities, people can chime in quickly with thoughts on your best course of action.  A consensus will likely emerge.  You'll get an idea of what steps you can do easily / painlessly, and which steps will require some pondering/effort on your part.

[MsChewieBear]

Thanks! I saw the title with "case study" in it, and I was thinking it was for people writing case studies of how they used MMM to change their situations.

Honestly, we're in bad shape. We know we need to make more money, but we're having a hard time. My income is totally variable. I have lupus and chronic kidney failure, so I'm unable to work a traditional job with fixed hours. Working at home as a freelance writer/content marketing specialist gives me the flexibility to work when I feel well and take breaks when I feel ill. Although I don't make a ton (around $35,000 per year), I make more than I ever did working full-time for someone else. My husband currently makes $11.68 per hour working a job he hates. He has a bachelor's degree in illustration and an associate's in graphic design. The job market here is terrible, and my mother-in-law is getting along in age, so we are packing up and moving to where she lives (at the end of September).

Life Situation: We're married and have no children. We currently live in Pennsylvania but we're moving to New Mexico in two weeks. We used to claim zero, but we recently started claiming 2 because we needed more cash in my husband's paychecks.

Gross Salary/Wages: Approximately $50,000 per year.

Pre-tax Deductions: $286 per month for health insurance; we stopped our retirement deductions when we started following Dave Ramsey; $13.66 per month for long-term disability

Other Ordinary Income: None

Adjusted Gross Income: $46,404
After-Tax Income: Approx. $39,444

Current Monthly Expenses:

Rent: $500 (Going to $675 starting October 1)
Debt Payments: $1,084.69
Car Insurance: $112 (Dropping to $80.80 starting October 9)
Phone: $85 per month for two cell phones; no land line
Internet: $67.55 (dropping to $43.21 starting October 1)
Water: Ranges from $40 to $55 per month ($41.60 due this month)
Gas & Electric: Averages $200 per month together; current gas bill is $9.49 and current electric bill is $72.06; the gas bill goes over $300 per month in the winter); these amounts will be evening out when we move, as we're moving from Pennsylvania to New Mexico, which has milder winters.
Trash: $27 per month
Cat Food and Litter: $35 per month
Netflix: $8 per month
Groceries/Restaurants: $350 per month
Gasoline: $100 per month average
Medical Expenses: $500 per month average (medications, coinsurance, medical supplies)

Income: $39,444
Expenses: $37,370.88
Difference: $2,073.12/year

Obviously, debt repayment is our biggest obstacle. As I mentioned in my intro thread, we got hit really hard with medical expenses in 2012. I was out of work for a month, and my husband doesn't make a lot, so we ended up putting utilities and medical payments on credit cards. We cut cable, stopped participating in gift exchanges, quit buying gifts for my in-laws' birthdays, etc. The only thing we kept was Netflix.

Now that I've looked at our income and expenses, there was $2,073 left over last year. I wasn't tracking expenses then, so I  imagine it went to things like clothing and toiletries.

Question: Should I forget about investing and hardcore pay down our debt, or should we put at least a little money aside so it can start earning some interest? Also, how much should we put in our emergency fund before we start knocking out the debt? Dave Ramsey says $1,000, but that doesn't seem like much.

[Cwadda]

being cheap without pissing off your loved ones

Mustachianism =/= cheap
Mustachianism is appreciating what you have and adjusting your lifestyle accordingly, not nickel and diming everything. Arebelspy once said "If I want something I buy it. I don't want much."

Thought I'd clear that up first.

The number one thing that jumps out to me in your Case Study is the income. Do you and your spouse have degrees? Your expenses are quite good for starting out, IMO.

[MsChewieBear]

My husband has an associate's in graphic design and a bachelor's in illustration. I was working on a bachelor's in business administration, but I had to leave my program because of my health/financial difficulties. If we can get into a better financial position, I can go back and finish.

Yeah, we don't have a ton of expenses because we cut everything to the bone when I started having serious medical problems (I'm only 34, but I have the body of someone who's about 80!). In this area, $10 per hour is a "good job," so people probably think we're rich making as much as we do. If we hadn't had a rash of bad luck with no emergency fund in place, we would probably be doing pretty decently.

ETA: Yeah, I understand mustachianism =/ being cheap. I just saw someone mention MMM on the Jezebel article with that title. The comments section was basically a bunch of people complaining that if you don't split checks evenly, you are a cheap jerk (all the while, I was thinking that it's not really fair to split the check if you had an $8 appetizer and a glass of water and the other person had a steak dinner!).

[Cwadda]

My husband has an associate's in graphic design and a bachelor's in illustration. I was working on a bachelor's in business administration, but I had to leave my program because of my health/financial difficulties. If we can get into a better financial position, I can go back and finish.

Yeah, we don't have a ton of expenses because we cut everything to the bone when I started having serious medical problems (I'm only 34, but I have the body of someone who's about 80!). In this area, $10 per hour is a "good job," so people probably think we're rich making as much as we do. If we hadn't had a rash of bad luck with no emergency fund in place, we would probably be doing pretty decently.

ETA: Yeah, I understand mustachianism =/ being cheap. I just saw someone mention MMM on the Jezebel article with that title. The comments section was basically a bunch of people complaining that if you don't split checks evenly, you are a cheap jerk (all the while, I was thinking that it's not really fair to split the check if you had an $8 appetizer and a glass of water and the other person had a steak dinner!).

How much debt do you have left?

It seems to me that there are not many other ways to start long-term saving other than raising your income. Cutting your expenses, like you mentioned, can only get you so far. If your rent is raising by $175/month you're back to break-even for the year.

Check these out if you haven't:
http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/
http://www.mrmoneymustache.com/2013/08/05/50-jobs-over-50000-without-a-degree-part-2/

[Mongoose]

FWIW, my hubby and I did things the Dave Ramsey $1000 emergency fund way. Except we didn't cut up our credit cards thankfully because we had a major series of emergencies literally the month we finished the debt snowball. We're still digging out of that one and decided to change strategies to half towards debt and half towards emergencies until we had at least 6 months of living expenses saved. For us, it worked much better as we had some breathing room when hubby was out of work for 3 months. With your health issues, you might consider if it would ease some potential stress to have a growing cushion while paying down debt.

Do either of you have jobs lined up for your new location?

[Villanelle]

How much debt and at what rates?  Without knowing that, it's hard to say, but likely you are better of skipping investing unless there is some sort of match offered. 

Can you move to a smaller place? 

[MsChewieBear]

We have about $66,000 in student loans, $14,000 in unpaid medical expenses, and another $14,000 in credit card debt. Most of the credit cards have balances of less than $800, so our plan was to pay those off one by one and then tackle the bigger debts. Our student loans have very low rates (mine are at 1.87 percent), so we want to pay the higher-interest stuff first.

Our current rent is $500 per month for a 3-bedroom house. We looked into moving to a smaller place, but our rent is WAY below market. Our landlord hasn't raised our rent in five years to make up for the fact that the place is run-down and he never wants to spend any money on repairs. A 1-BR apartment down the street is $700 per month. Where we're moving, the average rental rate is between $800 and $900 per month. We negotiated our rent down to $675 per month because the woman who owns the house lost her husband and can't collect on his pension yet. She moved in with relatives and is renting us the house at a reduced rate due to her circumstances. There's no way we'd even be able to find a 1-bedroom hovel for less than that.

I am self-employed, so I can work anywhere I have a computer and an Internet connection. My husband plans to apply for a job at the local university when we move. Even if he gets a job cleaning classrooms or mowing the lawn, it would be more than he makes now (we checked the pay rates), and he'd qualify for tuition remission.

[MDM]

In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct.   
Also, differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).   
WHAT   
0. Establish an emergency fund to your satisfaction   
1. Contribute to 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA    
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   
   
WHY   
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/
   if you want even more details on that topic.)
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   

[MsChewieBear]

Love the step-by-step instructions. Thank you! We are working on our EF now. With all of my medical issues, I think I'd be more comfortable at $2,500 than $1,000.

I really appreciate all the answers I've gotten. I feel better just having found this forum.

[MissStache]

Welcome to MMM!  Your situation is tough, but there are people here who have dug out from worse with a lot less, so don't think it is impossible.  You can do it!

This is a somewhat extreme suggestion, but would it be possible to move in with your Mother-in-law?  Presuming your relationship with her is good and she needs the help, maybe it would be beneficial for all of you.  Even if it was for a short time, it would allow you to bank up some savings to keep your emergency fund full, and maybe help you tackle some debts. 

As for your specific question, I would probably work on paying off debts before investing, depending on interest rates.  I like MDM's list!

Hubby needs to start working ASAP, obviously, so don't have him wait around to start applying for jobs.  Start applying right now so he is ready for interviews the day after you move.  Unfortunately you don't have time for him to take any time off.

[MsChewieBear]

My MIL get along, but I know from staying with her for a few holidays that I couldn't live with her without things turning out badly. I'd rather work 15 hours per day and never take a day off so that I can increase my income.

I'm fairly confident that I can increase my income to at least $55K/year by the end of 2016. I dropped my lowest-paying clients and took on a client who pays me a great rate and gives me a lot of work. That new client has asked me to take a bigger role in growing their company, so I am going to be working a mininum number of hours per week for them starting in October.

I also have a prospecting letter I'm going to be sending out to a targeted list of medical practices in our new city. Most of the work I've done has been for physicians and dentists, and I enjoy it a lot, so I want to build up my client base. I've held off on doing a ton of marketing this month because we're moving, so I'll be on the road for four days and will need a few days to get my bearings. I didn't want to attract a potential client and then tell them I can't do any work until October.

[Cwadda]

I'm fairly confident that I can increase my income to at least $55K/year by the end of 2016.

If this is the case and your husband can increase his income to ~40k you're going to be in great shape. Would it be possible for him to go back for a Masters in teaching?

[MsChewieBear]

It's funny you should ask that. He wants to go for a master's so he can teach history at the college level. Honestly, I don't know if that's the best idea. Unless he wants to teach at community colleges (which would be fine; we have nothing against community colleges), I think he'd probably need a PhD to get that type of job. I have several PhD friends who are either unemployed or constantly worried that their funding is going to dry up, so I don't know if his goal is a reasonable one.

He knows more about history than anyone I've ever met, so I have no doubt he'd be a good teacher. I just don't know if it's financially practical.

[MissStache]

It's funny you should ask that. He wants to go for a master's so he can teach history at the college level. Honestly, I don't know if that's the best idea. Unless he wants to teach at community colleges (which would be fine; we have nothing against community colleges), I think he'd probably need a PhD to get that type of job. I have several PhD friends who are either unemployed or constantly worried that their funding is going to dry up, so I don't know if his goal is a reasonable one.

He knows more about history than anyone I've ever met, so I have no doubt he'd be a good teacher. I just don't know if it's financially practical.

Oh man, I have a degree in History and many, many of my friends do as well.  I have a precious few who have master's degrees who teach part time at community colleges and make a few thousand, but also have other full-time jobs.  I have 4 who finished PhD's in the last few years and even they are struggling to find full-time teaching positions.  One just found one a year and a half after finishing his dissertation.  I don't think that is a viable career choice and it is DEFINITELY not worth going into any more debt.    There is a glut of history-degreed folks.  I make easily twice as much as my friends who stayed in the field by going into an unrelated corporate environment and I have more job security. 

This sounds like a great motivator for him to FIRE- so her go back to school and teach as an early retiree!

[MsChewieBear]

I'm so glad you were able to provide that perspective! We just chatted, and I told him that I think being a teacher is admirable, but he should come up with something else he can do for money in the meantime. If he can get a job at the university and get free tuition, fine. Then he gets to learn at someone else's expense, and it doesn't much matter if he gets a job right away afterward. But we're not taking on any more debt. When I'm ready to finish my degree, it's going to be a few classes at a time so that I can pay up front and not take out loans.

He said he meant he wanted to teach as kind of a "we have plenty of money and I can do whatever I want" career, not his money-making career.

[Cwadda]

How about non-college teaching? High schools, etc? I have no idea what the job prospects are but it would make sense to me to spend 1 year getting a Masters (and also working). Then teach for a while with a decent salary, get benefits, etc.

[MsChewieBear]

I suggested that, but we looked into it, and it would be difficult for my husband to pass the required teacher certification tests in our current state. I am not criticizing him, but he is terrible at math. I mean, terrible. I often wonder if he has an undiagnosed LD involving numbers. If you ask him what 20 percent of 100 is, he just gets this terrified look on his face. I have tried explaining fractions and percentages in terms of pizza slices, pieces of pie, etc. but it never seems to sink in.

He's not stupid by any means (had a 3.8 cumulative GPA in college). He is also the most intellectually curious person I know, and has the most general knowledge of anyone I know, but he'd never be able to pass a math test to get a teacher certification. It doesn't matter if you want to teach history or art; you still have to take the reading and math tests before you take your subject-matter test.

[MissStache]

I suggested that, but we looked into it, and it would be difficult for my husband to pass the required teacher certification tests in our current state. I am not criticizing him, but he is terrible at math. I mean, terrible. I often wonder if he has an undiagnosed LD involving numbers. If you ask him what 20 percent of 100 is, he just gets this terrified look on his face. I have tried explaining fractions and percentages in terms of pizza slices, pieces of pie, etc. but it never seems to sink in.

He's not stupid by any means (had a 3.8 cumulative GPA in college). He is also the most intellectually curious person I know, and has the most general knowledge of anyone I know, but he'd never be able to pass a math test to get a teacher certification. It doesn't matter if you want to teach history or art; you still have to take the reading and math tests before you take your subject-matter test.

LOL are you married to me???? Am I your husband residing in a female body halfway across the country?  I do like your idea of pizza math, though!  That's some math I can get behind :)

[Cwadda]

I suggested that, but we looked into it, and it would be difficult for my husband to pass the required teacher certification tests in our current state. I am not criticizing him, but he is terrible at math. I mean, terrible. I often wonder if he has an undiagnosed LD involving numbers. If you ask him what 20 percent of 100 is, he just gets this terrified look on his face. I have tried explaining fractions and percentages in terms of pizza slices, pieces of pie, etc. but it never seems to sink in.

He's not stupid by any means (had a 3.8 cumulative GPA in college). He is also the most intellectually curious person I know, and has the most general knowledge of anyone I know, but he'd never be able to pass a math test to get a teacher certification. It doesn't matter if you want to teach history or art; you still have to take the reading and math tests before you take your subject-matter test.

But if he finds he is passionate about teaching, doesn't it make sense to hunker down and study math for 2-3 months, take the test, and be done with it? And at the same time get closer to the goal of financial independence? If he has a love of the subject of history, it'd seem he'd just have a natural affinity with teaching it.

Just food for thought.

[Hall11235]

It's funny you should ask that. He wants to go for a master's so he can teach history at the college level. Honestly, I don't know if that's the best idea. Unless he wants to teach at community colleges (which would be fine; we have nothing against community colleges), I think he'd probably need a PhD to get that type of job. I have several PhD friends who are either unemployed or constantly worried that their funding is going to dry up, so I don't know if his goal is a reasonable one.

He knows more about history than anyone I've ever met, so I have no doubt he'd be a good teacher. I just don't know if it's financially practical.

Oh man, I have a degree in History and many, many of my friends do as well.  I have a precious few who have master's degrees who teach part time at community colleges and make a few thousand, but also have other full-time jobs.  I have 4 who finished PhD's in the last few years and even they are struggling to find full-time teaching positions.  One just found one a year and a half after finishing his dissertation.  I don't think that is a viable career choice and it is DEFINITELY not worth going into any more debt.    There is a glut of history-degreed folks.  I make easily twice as much as my friends who stayed in the field by going into an unrelated corporate environment and I have more job security. 

This sounds like a great motivator for him to FIRE- so her go back to school and teach as an early retiree!

This +1,000. I am in the same boat. I have two degrees, one in history and one in education. Not surprisingly the job I am at now (at age 22) pays me more than I could hope to make as a teacher without a master's degree. There is no upside in pursuing advanced degrees in history, trust us (one of my other history major friends is a part-time librarian assistant).