Author Topic: My Budget  (Read 6740 times)

ranDMC

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My Budget
« on: October 08, 2014, 05:54:01 AM »
I posted in the real estate forum yesterday, but the more I thought about it the more I realized I'm in need in some overall advice on my personal finances. I've been a casual MMM reader for about a year, and I've made some big changes in my life based on the advice in the blog (got rid of a $410 car payment on my 2012 Camero last year), but I'm looking to get more serious in being a finance BAD ASS before embarking on a giant purchase like a home.

I've made some poor choices in my financial past and I'd like to avoid making similar ones going forward. As stated above I pissed away two years of car payments on something that was not a reasonable can for New England driving 3 months a year. I've also got a giant student loan bill that I can't just get rid of. I owe just under $100K in student loans at an average of 3.25%. With this low interest rate I haven't been in a rush to pay it off, but I did target two of my higher interest loans  (~5-6%) and paid those off. The remaining payments eat up about $550 a month out of my income...

As I've stated I'm looking at purchasing a home. I've put together a budget with a  $300K price in mind (attached). If you've read through all of my rambling so far I now have a question for you. Am I insane thinking that I can afford this? My savings would be slightly over 25% not counting 11% 401k contribution (6%+5%match).


Edit: It is worth mentioning that my current rent is $1375, No real chance of convincing the wife to downsize.
« Last Edit: October 08, 2014, 06:07:37 AM by ranDMC »

ranDMC

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Re: My Budget
« Reply #1 on: October 08, 2014, 08:08:52 AM »
Can a mod move this to the Ask a Mustacian forum? I probably posted in the wrong place.

Bob W

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Re: My Budget
« Reply #2 on: October 08, 2014, 08:24:42 AM »
Virtually everything on your budget is hugely above what an MMM follower would consider reasonable.  You should be able to cut your spending by more than half.   Gym membership and 100K in debt!? WTF?  My advice is knock you expenses way, way, way down.   

Then why do you want to buy a home at this point?  You sound single.  IMHO rent a cheap place close to work.   

Your hair is on fire you just don't know it.   By the way,  I'm opposed to paying off the 3.5% student loan.  I am in favor of investing the 100K you save over the next 2 years in a fund labeled "student loan payoff."  Once that is accomplished save like a mad man for your home purchase. 

My theory on homes is to buy a home when you have enough cash investments to do so.   Then (at today's rates)  buy it at a low interest rate and invest the difference in a fund called "home paid off fund."

If you have no kids or spouse then the only pressing issue in your life is to save and invest like crazy.  Not buy, buy, buy. 

 


ranDMC

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Re: My Budget
« Reply #3 on: October 08, 2014, 11:06:09 AM »
You bring up a very good point. I am married, and can't get the wifey to agree to spending cuts on a lot of stuff. I hope to look back at this budget and laugh.

CatchingFire

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Re: My Budget
« Reply #4 on: October 08, 2014, 11:16:21 AM »
$250 per month on clothes?  Do you wear them more than once?

ranDMC

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Re: My Budget
« Reply #5 on: October 08, 2014, 12:03:38 PM »
I don't think that line on clothing spending is accurate so I just googled a number to put in there while trying to make the budget.

Warner, I'm slightly confused on your advice. Are you suggesting that I Invest in index funds or something equivalent and label that portfolio as "Student Loans"? When I have the balance owed in that account what do I do with the funds?

In a separate portfolio after I have the balance owed on my student loans I should begin saving for a home? do you suggest I save for the purchase price of the home?

I really appreciate the feedback everyone, I seriously needed to talk about this with someone to help me realize I am straying way away from what a sane person would do here.

Terrestrial

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Re: My Budget
« Reply #6 on: October 08, 2014, 01:22:26 PM »

As I've stated I'm looking at purchasing a home. I've put together a budget with a  $300K price in mind (attached). If you've read through all of my rambling so far I now have a question for you. Am I insane thinking that I can afford this? My savings would be slightly over 25% not counting 11% 401k contribution (6%+5%match).

Edit: It is worth mentioning that my current rent is $1375, No real chance of convincing the wife to downsize.

If you didn't owe the 100k in student loans it still would be a rather high portion of your income to buy the house, but it wouldn't be totally nuts I guess?  More than I would spend on your income but everyone views it differently.   As is...yikes.

Working off the numbers you provided and interpolating from the principal/interest split...for a 300k house it looks like you're thinking of a ~240k loan for 20 years @ ~3.5%?  That gets you to roughly 700 principal/700 interest per month.  Do you have the 60k to put down for the house to get this financing scenario?...you don't really say what cash assets you have.  If you do have that much cash around, is it more worthwhile to you to buy a house (and increase your housing costs) or get this anchor of debt off from around your neck.

What I would do:
Everything you have listed as 'home expense' adds up to ~2400/mo.  That's a third of your take home and over a thousand more per month than your rent...that's already high even before you consider you have 550/mo of student loans to service (i'm guessing this is a minimum payment?).  100k of loans will take you 20 years to pay off at this rate.  Don't buy the house.  Get smart about your expenses and pay off your student loans...or at least save enough so that you could pay them off and invest it, before you start taking on more debt.
« Last Edit: October 08, 2014, 01:24:10 PM by Terrestrial »

Bob W

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Re: My Budget
« Reply #7 on: October 09, 2014, 11:32:50 AM »
I don't think that line on clothing spending is accurate so I just googled a number to put in there while trying to make the budget.

Warner, I'm slightly confused on your advice. Are you suggesting that I Invest in index funds or something equivalent and label that portfolio as "Student Loans"? When I have the balance owed in that account what do I do with the funds?

In a separate portfolio after I have the balance owed on my student loans I should begin saving for a home? do you suggest I save for the purchase price of the home?

I really appreciate the feedback everyone, I seriously needed to talk about this with someone to help me realize I am straying way away from what a sane person would do here.

Sorry for the confusion --

Student loan 3.5% 100K  --  Open a vanguard 500 fund and save like a mad man in that fund.  On your ledger mark it student loan and continue in this manner until you have 70-100K in there.  The reason -- your loan rate is 3.5 and the market may yield 7-9% long term.  You can take the rest of your life to pay the loan.  If you should die the loan is 100% forgiven yet your vanguard fund still exists.   Some are so anti debt of any kind they would disagree. 

House -  People say "buy" a house when they really mean borrow money and occupy a house.   I am not in favor of this.   I believe people should actually have the money to "buy" the consumer items their hearts desire.   Like above, under the current low interest environment, if you should choose to buy once you have the money, I suggest putting the money in a fund called "paid off house" and then obtaining a low interest mortgage. (because rates are so low)

Convincing your wife will be the hard part.  People feel entitled.   Learn to say "no" to yourself and "no" to your wife.  Women love a strong man.   

I'm pretty blunt.  Please excuse me. 


ranDMC

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Re: My Budget
« Reply #8 on: October 09, 2014, 03:13:19 PM »
I like the bluntness. I also really appreciate being able to talk about finances with the mmm faithful. It helps keep me in perspective. My finances aren't as much of a wreck as it may seem. I do have $70k in my 401k and 55k in an etf targeting the s&p. I like to think I'm ahead of the game compared to most 28yo people, but I'm motivated to kick it up a notch.

Seņora Savings

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Re: My Budget
« Reply #9 on: October 09, 2014, 04:38:06 PM »
I don't think that line on clothing spending is accurate so I just googled a number to put in there while trying to make the budget.

Before buying a house I recommend tracking your expenses.  That's a livable budget for sure.  As many said, the only way I can think of spending $4 per day per person on clothes is throwing them away.  But if it turns out that's not what you spend, things might get pretty tight when you buy a new house.

I like Bob Werners point about having that money set aside before you buy.  The reason (from my perspective) that you want that is for an emergency.  If you end up loosing your job you can avoid foreclosure if you have the money already saved up.

I'm confused on why you want to buy a house.  You comment that your wife doesn't want to downsize, but you seem to be proposing a upsize.  Otherwise I'm not sure why you want to spend an extra $1000 a month.