Author Topic: In need of some tough love - please help!  (Read 5032 times)

joschmo84

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In need of some tough love - please help!
« on: January 18, 2013, 01:51:35 PM »
Okay.  I'm in a situation right now where I feel like I've completely fucked my life up, all in the name of idealism.  Here's the situation: did my undergrad, came out with some loans, paid them off over the course of a couple years by living with my parents and working my ass off.  I did lots of travelling and lots of partying in my early-to-mid twenties, which I don't regret for a minute, but didn't accrue any debt in the process.  I also built up some savings (nothing much, about 12K) to start graduate school with.  I came out of grad school with 60k in student loans at a 6.55% interest rate in a field that pays very little, especially early on in your career.  This year I believe I made 20k after taxes, but I have a super flexible schedule and essentially work part-time hours every week (not by choice, I would love to work more at my job but the hours aren't there for me), and I absolutely love my job.  My schedule allows me to exercise, pursue hobbies, spend time with friends and family, and spend lots of time outside.  The upper limit of what I could expect to earn is a year is around 80k, and that would involve a shitload of hustle and luck.  This past year, my first year working in my chosen field, I have found myself mired in regret for taking such an altruistic career path so early on in life, and incurring such a massive amount of debt in the process. 

The good news is that somewhere along the way of impractically skipping through my 20's I met my husband.  He has no student loan debt, and makes 100k a year and is due for a major promotion (and a 15% raise) very soon.  Oh, and he has a 150k nest egg in the form of investments, 401k, etc.  At least someone in our relationship is responsible!  Together we have no kids, no property, no credit card debt, 16k in a checking account, and two cars that we own outright.  We have been thinking about doing a super-aggressive paydown of my student loan debt in as brief a time as possible to be able to start building on our nest egg and save up a 20% down payment for a house.  Here's our budget breakdown:

take home pay (combined and after tax, health insurance, and 401K contributions): 6000, hopefully bumped up to ~7000 sometime this year
rent: 985
insurance (car, renters, general liability): 220
professional insurance: 75
gas: 50
electric: 25
cable: 76
cell: 65
gym: 98 (this is for both of us, and we cancel our membership for 6 months of the year)
IRA contributions: 200
dry cleaning: 50
dog: 50
groceries: 400
target: 75
gas (car): 60
total monthly expenses: 2429

Here are my questions:

1) We've been putting 1000/mo towards my student loans and pissing the rest of our money away on groceries, eating out, clothes, and just letting it sit in our checking accounts.  I think, if we stuck to the budget above, we could potentially throw 3k/mo at my student loans or possibly even more.  If we go this route, is it prudent to be saving a small amount on the side "just in case" or should we just throw everything we've got at this loan until it goes away? 

2) What more can we cut from the above?  Our IRA contribution?  Insurance?  We're thinking about selling one of the cars since we both walk or bus to work daily but would not get more that 2 or 3K from the sale. 

3) My income (or lack thereof): I've already started looking for part-time work to supplement my income, but on a larger scale I'm wondering if I should consider just sucking it up and getting a higher-paying full time job for the next couple years and going back to my lower-paying, altruistic career when I have more financial stability and freedom.  I have no corporate experience but have worked many different jobs (some of which were in office environments), have BA and MS degrees, am young (28), reasonably attractive and very presentable, and smart.  Oh, and I'm great with people.  Is this enough to get me a corporate/more lucrative job? 

Sorry for writing such a novel, and thanks in advance for any advice you guys might offer me!

GoStumpy

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Re: In need of some tough love - please help!
« Reply #1 on: January 18, 2013, 02:00:41 PM »
First of all congratulations on all you've achieved so far!

Definitely chuck as much as you can towards your debt, if you have $16k in your chequing account we can assume you have a couple month emergency fund already.

I think your biggest problem with money control is you need to INCLUDE eating-out & entertainment in your budget amounts.  If you're eating out & spending the rest of your $$$ on who-knows-what with nothing to show, it's because you're not telling that money where to go.  Budget yourself $200/mo for restaurants.  Budget $50/mo on clothing.  Otherwise you won't even realize it and you've spent $600 on restaurants and $200 on clothing!

I see you listed your expenses, but are you living on a budget right now?

Let me rephrase...

Are you living on a spending plan right now?

That is one of the most important thing for any household to have, is a written, discussed, and followed budget.  Looking back at how much you spent does little to make you spend less. 

If you're able to put $2000/mo towards your student loans, they should be paid off in just over two years.. if you can put $3000/mo towards them, it will take less than TWO years!



Be thankful you have two card paid-for, most of the time the first job people need to do is sell their car to get rid of the car loan :)


Karl

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Re: In need of some tough love - please help!
« Reply #2 on: January 18, 2013, 02:32:36 PM »
Good-afternoon,

I don't know about your area of the country (I don't see it in your post), but that rent payment looks quite high for where we live (high enough that you could purchase a house for several hundred less per month--PMI).  Might you be able to cut your living expenses more by moving to a different apartment and/or starting to purchase?  Of course, purchasing only makes sense if you plan to stay put for an extended period of tiem.

Karl

joschmo84

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Re: In need of some tough love - please help!
« Reply #3 on: January 18, 2013, 02:59:56 PM »
Good-afternoon,

I don't know about your area of the country (I don't see it in your post), but that rent payment looks quite high for where we live (high enough that you could purchase a house for several hundred less per month--PMI).  Might you be able to cut your living expenses more by moving to a different apartment and/or starting to purchase?  Of course, purchasing only makes sense if you plan to stay put for an extended period of tiem.

Karl

Good point!  Our rent is pretty low for the neighborhood and city that we live in, average rent for comparable apartments to ours is $1200/mo in our area.  We live in a major city and chose a neighborhood that was within walking/biking/bus distance from both of our jobs.  We both have a ten minute commute which makes the slightly higher rent that we pay to live centrally located worth it to us. 

twinge

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Re: In need of some tough love - please help!
« Reply #4 on: January 18, 2013, 03:25:23 PM »

1.  How much are you putting away in your 401k?  The maximum for 2013 for two people is $35,000.  I would try to aim for maxing that out first.  It's a lot less easy to fritter it away when it's taken away without you ever seeing it, and with the tax advantages it's not as much as that gone.  Doing this when you are young has a couple of advantages in that you won't inflate your lifestyle as much, you can scale back on contributions if need be once you have more financial responsibilities (kids, house etc.), and you have the benefit of more time compounding in the market.

2. Once you are maxing out, then I would aim more at the student loan because 6.55% is high enough that it's relatively hard to beat with other investments and it's a clear motivating goal to get rid of this thing.   If you want to keep a mini-emergency fund, one thing you could think about is tucking it away in a Roth IRA in a conservative investment.  If you need it, you can withdraw the contributions at any time without penalty and if you don't need it, it's a good route for tax-free growth.  Your financial obligations don't seem that hefty where I think you need a big emergency fund at this point.

3. I actually think your rent seems reasonable given your combined income and the benefits it provides in terms of location.  I wouldn't race to get a house if they aren't significantly better priced than rent when you figure in location, maintenance, taxes, transaction costs etc.

marty998

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Re: In need of some tough love - please help!
« Reply #5 on: January 18, 2013, 03:43:49 PM »
I think you are being way to hard on yourself.

Some things that stick out are the $16k in the cheque account (earning nothing no doubt). Use it to pay off the student loans for a guaranteed 6.55% return.

And the dry cleaning @$600 a year. Buy clothes that only require a machine wash, no need for fancy shmancy dry-clean only clothes.

Set yourself a goal (say 2 years to pay off the student loans and 2 more years for the house deposit) and just try to absolutely smash it. Think about it, it's an all win situation. You either reach your goal or you get a hell of a lot further than you otherwise would.

joschmo84

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Re: In need of some tough love - please help!
« Reply #6 on: January 19, 2013, 10:17:21 AM »
I think you are being way to hard on yourself.

Some things that stick out are the $16k in the cheque account (earning nothing no doubt). Use it to pay off the student loans for a guaranteed 6.55% return.

And the dry cleaning @$600 a year. Buy clothes that only require a machine wash, no need for fancy shmancy dry-clean only clothes.

Set yourself a goal (say 2 years to pay off the student loans and 2 more years for the house deposit) and just try to absolutely smash it. Think about it, it's an all win situation. You either reach your goal or you get a hell of a lot further than you otherwise would.

Yeah, I think that all things considered we still have it pretty good, although we're likely decades away from finding ourselves in a MMM situation.  And yeah, the drycleaning has to go -- although it will mean more ironing for us to do :(

simonsez

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Re: In need of some tough love - please help!
« Reply #7 on: January 19, 2013, 11:16:24 AM »
What costs $50 a month for a dog?  Or is that averaging in the vet?

Yeah, dry cleaning is a bit high.

How important is cable to you?  For some it is a non-starter while for others they relish not having it as it forces time spent on more productive endeavors (subjective of course).

Just curious, how does the 6 month gym plan work?  What do you do for the other 6 months?  Is the reason just to save money or is there some other rationale?

If you don't use the cars that much anyway, you're better off getting 2 or 3k now rather than later.  You get take all that money and dump it into your loans.  The sooner you do that, the more loan interest you'll be saving long-term.

You cleared 20k but your ceiling is 80k if you bust your butt?  What about making ~30-40 a year?  If your husband will be making 115k soon, a household income of 150k with rent under 1k/month is impressive and you should be able to destroy the debts you have. 

And yes, you are being hard on yourself.  Even if you changed nothing (and your hh income did not increase), I think you would be okay, it would just take awhile.  You can obviously speed that process up.

I just saw you might've double-counted groceries.  You account for them costing $400/month but then also say it is something you piss money away on.  Does this mean it is groceries IN ADDITION to the $400/month?

If your monthly bills/"necessities" are $2500 and take home is $6000 and you spend $1000 on loans, that means you spend $85/day (~2500/30 days) on eating out, buying clothes, and other entertainment between you and your husband?  Yeah, that's a tad excessive I guess.  And if there is a remainder and it just goes into a checking account, then the whole remainder isn't being used optimally.  Throw it at the loans!
« Last Edit: January 19, 2013, 11:24:19 AM by simonsez »

lhamo

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Re: In need of some tough love - please help!
« Reply #8 on: January 19, 2013, 06:41:17 PM »
Sell one of the cars.  Even if you can only get 2-3k for it, there is no need to keep two cars when you both walk to work.  I'd actually consider selling both, depending on how much you use it -- if there is a zipcar service or something similar you can use for errands, etc.  You can always rent something for longer trips, and it will probably work out to being less than what you spend currently on insurance/gas/parking.

I would not cut the IRA contribution -- if anything, I would step it up.  Since your income is so low but your DH's high, you get a significant tax break by bringing down your taxable income. 

Consider cutting cable and reducing phone to pay-as-you-go type cheapo plan.  Phones are relatively low for two people, though, so might not be much of a savings.

Definitely need to get your food spending under control

You should step up efforts to earn more, either by freelancing/stepping up work in current field or taking a more corporate job.  You sound like you would be good in a general executive assistant/high level admin or maybe a sales position.  How hard is your preferred but low-paying field to get back into?  I would think about trying to get a higher paying corporate job where you could build skills that would still be relevant in that field -- project or events management, perhaps, or finance skills, or client relations/customer service (higher end, not phone center type stuff obviously). 

Are you thinking about having kids?  If so then I would really strongly consider the higher paying job now route.  You can build up experience/savings and still have the relatively more flexible low-paying career to fall back on when kids are small. 

I wouldn't beat yourselves up about the 16k in checking -- that is actually a decent emergency fund given your expenses.  Do you guys have Roth accounts?  If not, that would be a good place to park part of it, since you can access the contributions at any time for emergencies, house downpayment, etc. 

Sometimes people get stuck with "either/or" issues when you can always approach it from a "both/and" perspective.  So you if you have an extra 3k to play with after basic expenses you might want to put 2k of it toward your student loans and 1k toward a house downpayment fund.  But you will get more bang for your buck by tackling the student loans.

It sounds to me like you have had a pretty interesting/fun/low stress life for several years now (low key early 20s, grad school, now working part time).  You might find the adjustment to a 40hour/week job kind of stressful, but if you want to get ahead financially now is the time to do it.  It will be harder and harder as you get older, especially if kids are in the picture.  work hard now when you are young, relatively unencumbered and full of energy.  that will give you a good foundation and allow you the luxury of cutting back a bit if/when kids come along.




gooki

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Re: In need of some tough love - please help!
« Reply #9 on: January 20, 2013, 02:23:47 AM »
If you absolutely fucking love your job, keep doing it. Just spend a whole lot less to offset the lower salary.

SunshineGirl

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Re: In need of some tough love - please help!
« Reply #10 on: January 20, 2013, 03:18:37 PM »
If your husband likes his job and you love yours and there's no need for you to make more other than to pay off your loans, keep your job! It sounds like you're already living a very fun and balanced life, so I'd focus on paying off the debt, keeping good balance, and maintaining a happy marriage.

joschmo84

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Re: In need of some tough love - please help!
« Reply #11 on: January 23, 2013, 12:37:25 PM »
Thanks for all the excellent advice.  We've been pissing money away mostly on groceries (we usually spend 700/mo for just the two of us), meals out, concerts, and fancy outdoors gear (we rock climb, ice climb, ski, bike, etc).  It's pretty ridiculous, actually, but we love having adventures outside, and now that we've accumulated all this outdoors stuff we should be able to get by for the next 10-15 years without having to buy new gear. 

It's a great idea to put more money into my IRA, it hadn't really occurred to me that it's reducing my taxable income.  We've cut down to 400/mo on groceries, and are reducing insurance by 600/year in addition to maybe selling one of the cars (I'm trying to convince my DH that this is a good idea.)

The compromise that my DH and I have reached is to throw 1500/mo at the loans and 1500 towards investments and saving for a down payment.  We want to have kids in the next couple of years and although I'd prefer to pay off all our loans before that happens it seems the most feasible for us to do it this way.  (The idea of not investing/saving for 2 years scares the bejeezus out of my DH.)  Anyways, 1500/mo will still eliminate my loans within the next five years, which isn't half bad in my book, and any income gains we make in the future will go entirely towards debt-repayment.

As far as the job/income issue goes, for now I've decided to keep my job and am in the works to start a side business on my own.  This way I can keep my flexible schedule and my habit of wearing jeans to work, and hopefully bring in some more income -- I think I've got a pretty good idea, and it'll fill a niche in a community that I've extensively networked in.

Thanks again, and keep the advice coming! 

gooki

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Re: In need of some tough love - please help!
« Reply #12 on: January 24, 2013, 02:19:48 AM »
Sounds like a smart plan. I like the idea of splitting debt repayment and investing 50/50. Takes the complex decision making out of the process as you are covering both bases evenly.