Author Topic: Case Study - Help Me Grow a Mustache  (Read 3263 times)

GoConfidently

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Case Study - Help Me Grow a Mustache
« on: August 25, 2015, 08:46:42 PM »
I'm new here, but have read enough to expect a lot of abuse. Here goes.

Life Situation: 32 yo, single/no kids, USA
Annual gross income: 74,400
Pre tax deductions: -12,425 (taxes, insurance)
Pre tax deductions: -6,625 (retirement - state teacher system and 403(b))
Adjusted Gross: 55,350 (or $4612/month)

Current Expenses (monthly):
Mortgage - 469
Mortgage (escrow property taxes and insurance) - 513
Mortgage (PMI) - 98
Car Loan - 367
Utilities - 525
Car Insurance - 174 (pay for myself and family member)
Student Loans - 352 (minimum)
Student Loans - 250 (additional)
Gas - 75
Groceries - 250
Restaurants/bars - 160
Debt repayment credit card - 750
Home repairs/maintenance - 200
Hobbies - 150
Misc - 150
Charity/memberships/etc - 100
*Anything "extra" at the end of the month goes toward cc debt - have eliminated over 8,000 since February

Current 403(b) balance - 26,500 (not happy with this and want to transfer the money into something that will do more than act like a glorified savings acct)
Saving acct - 1,500

Background: I took my first "real" job at 24. Lived at home and saved for a year, then bought a home at 25. At that time, I was debt free (other than mortgage) and living well within my means. I was aggressively investing in a 403(b). At 26, I suddenly and overnight took in 3 dependents due to a family situation. For four years, I was supporting 4 people on my teacher's salary. Lots of debt ensued. I knew I was drowning, went back to school for a masters degree, and this past February landed a new job with a 25,000 raise. I am now back to 0 dependents, and slowly working my way out of debt while trying to adjust to my new income. I am determined to never be in a situation where I can not take care of myself, and ideally would like to relocate to another part of the state that has fewer job opportunities but is a significantly better match to my lifestyle/goals/dreams.

I know I have too much house, but the cost of renting would equal or exceed my mortgage in this area and I hesitate to give up the space when I needed it so desperately before. I'm also an artist, and the extra space is used as a studio (see hobbies - art making is expensive but I can't give it up). I refinanced 3 years ago and have a fixed rate 2.3% mortgage. Getting the PMI eliminated will require another 15,000 on the principle. I will also have to pay about $4000 to get some major repairs done in the next year. The new car was a bad decision. I'm thinking about trading it for a nice used alternative. I don't have a gym membership, so that's a plus, right? :)

My priorities right now:
1. Eliminate 10,600 credit card debt (will transfer next month to a new card with a 0% APR for 1 year and hope to pay off in less than 6 months).
2. Eliminate $26,000 student loans ($21,000 is at 6.8%; 5,000 at 2.3%)
3. Transfer 403(b) funds into a better investment opportunity (I'm mentally overwhelmed at the thought of this and need  to educate myself on options)
4. Fight lifestyle creep. After feeling so stressed about money for so long, I want to buy all the nice things for myself (see car loan above).

I think, in general, I just need to know that this is possible and I'm not going to be in debt forever. I'm not super happy in my new job and while I don't have a specific age goal for retirement, it sure as hell ain't 65. I won't last that long. I also have NO CLUE about investing and I need good book recommendations for total beginners. My parents never invested (see family situation above) or taught us about money and I have no one to talk to about how to make big financial decisions IRL. Any advice or thoughts are greatly appreciated! You guys are super inspiring!

RosieTR

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Re: Case Study - Help Me Grow a Mustache
« Reply #1 on: August 25, 2015, 09:44:12 PM »
For the investments: if they have lifecycle funds (retire by 2030, 2040, etc), pick one of them-say, when you'll be 60 or so. If you get compulsive and fearful about things, pick a decade earlier which will be more conservative. If they don't have lifecycle funds, pick a broad index stock fund and a broad bond fund, do a 50/50 split and forget about the finer points for now. When you get a chance, arrange a meeting with a fund advisor (these are usually free through the workplace; ask HR) and go through in more detail. But don't screw around waiting until you know enough, because that's just a mental delay tactic.

For your spending, figure out your habits and tweak them. Bars/restaurants is a good place to start. If you are happy-houring it up, it'll be tough to totally drop that. These are friends you're out with and it may be important to have that social contact. But-quit buying drinks. If you aren't getting food, get and iced or hot tea. Better yet, volunteer to be the DD-other people will buy that $2 soda for you. If you really must get food, do a cost per meal analysis: $12 for pasta that will go for meal out plus meal in as a leftover is $6/meal vs an $8 burger that's just one meal. Figure out small ways to make lots of small tweaks that preserve your habits and it will be easier. Of course, drop any bad habits you want to, and use this as an excuse. Maybe the bar thing involves people you don't actually like all that much-tell them you are broke and you'll have to pass. Blame the house/car/student loans if they press you. You don't have to inform them once the loans are done.
Deal with the car. Thrn think about how much you notice the niceness of your "nice" things. Start adjusting your purchases accordingly. Think about selling some art or yoir talent to make it (teaching an evening class for adults or summer class for kids).
Good luck! You're starting to move in the right direction, and you do have some advantages!

RosieTR

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Re: Case Study - Help Me Grow a Mustache
« Reply #2 on: August 25, 2015, 09:44:51 PM »
Also, think about getting a roommate!

Rezdent

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Re: Case Study - Help Me Grow a Mustache
« Reply #3 on: August 25, 2015, 09:48:34 PM »
Congrats.  You've taken the first step, which is assessing the situation.
Sounds like you are on the right track, kill the CC debt, then attack that big student loan.
You're making decent wages, that helps a lot.

Now, no abuse from me, I recommend you sit down with the beverage of your choice and really think, I mean really...

You've got some serious debt.  It's weighing you down, and it's preventing you from building that stash you'll need to get out of wage slavery.

Your bills are high, especially the housing and car bills. Your utilities at this house look high.

You've also listed some others that you need to examine - here's ~750/month right here:

Restaurants/bars - 160
Home repairs/maintenance - 200
Hobbies - 150
Misc - 150
Charity/memberships/etc - 100

Are you getting so much value from these bills that you would willingly work for years just to keep them?
Because that is what you are going to end up doing if your keep spending on these.  All these dollars could be getting you out of debt now, and would build your stash later, and the amount needed to FIRE would be a lot smaller without them.

Or, you could keep eating out, spending on hobbies and "misc", carrying a big house and it's associated costs - but with your current salary that means working for a long long time.

JJNL

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Re: Case Study - Help Me Grow a Mustache
« Reply #4 on: August 25, 2015, 11:17:24 PM »
+1 on that, Rezdent. Also, if you can house 4 dependents, can't you rent out part of your house? Your housing costs are relatively high for your salary, and this could cut them in half. If I were you, I'd consider doing this at least until you have your CC debt, car and student loans paid off.

Goldielocks

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Re: Case Study - Help Me Grow a Mustache
« Reply #5 on: August 25, 2015, 11:48:00 PM »
Housing cost overall seems ok at $1k. Note I am in HCOL area.  But utilities and pty tax and insurance are way too high unless you have outrageous water rates or oil furnace in upper NY..

Dive into pty taxes, House insurance and utilities to look for savings. If it is Internet, phone and cable you know what to do.

I don't understand the mega cc debt, when you bought, you had none but ended up with $10 k? Man, that was your PMI right there.

Also, I assume your mtg is $100,000?  Guessing you only have 5% equity. You bought a house before you had saved enough. PMI is a bad deal for everyone.

Highly recommend the room mate option, or another way to make money on the home, such as artist lessons for students?  You need to wipe out two of these debts fast.

Normally I say PMI is hair on fire, but your cc debt comes first, then car, then PMI then student loans ( as you may have deferment or consolidation or forgiveness options available in future). Man, I am nauseous just typing it.

Sell the car!  Get a room mate!  Stop killing your life and freedom with debts!

Oh, and your income to home/other expenses mentioned is pretty high (good). You should be in a much better place, financially. And you will be soon if you unlock some of these debts.
« Last Edit: August 25, 2015, 11:51:48 PM by goldielocks »

Mikila

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Re: Case Study - Help Me Grow a Mustache
« Reply #6 on: August 26, 2015, 05:39:40 AM »
If you sell that fancy car and get a cheap one with cash, you will eliminate both the car payment and a chunk of your insurance.  Older, cheaper cars are vastly cheaper to insure.  That should free up $400/ month.

Sibley

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Re: Case Study - Help Me Grow a Mustache
« Reply #7 on: August 26, 2015, 09:20:38 AM »
So you're a teacher? Do you qualify for any of the student loan forgiveness programs? Look into it. If you strike out, then you may want to consider doing a refinance on the student loans. If you do though you'd lose the benefits (other than tax deductible interest) that you currently have, so do your research.

Consider a roommate. All that money could go towards debt.

You do art of some sort. I get that it can add up, but make sure you actually use what you buy. If you have a backlog of projects, finish them before starting a new one. (I'm conflating this with someone who does sewing type stuff, but I'm sure there's parallels). Get creative using bits and pieces of left over stuff. I recently made 50 coasters using small amounts of yarn - it would have gone to waste, but instead I have Christmas gifts for family and friends, spent many happy hours working on them, and saved space on storing the small yarn amounts.

You don't have the money for charity, memberships, etc. Donate time. Art to a silent auction, etc.

If you can sell the car and pay cash for a used one, that will help your cash flow. You don't have to get a junker, plenty of used cars are perfectly nice.

You're paying car insurance for a 2nd person? Who, why, and can they pay their own insurance? (meaning, they should be paying their own insurance)

Restaurants/bars - cook at home. Invite friends over for a potluck. Be more fun, and it's a lot cheaper to drink if you're buying alcohol from the store vs. bar.

Kitsune

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Re: Case Study - Help Me Grow a Mustache
« Reply #8 on: August 26, 2015, 09:51:08 AM »
It's absolutely possible! You just have to (say the MMM refrain) lower your expenses!

My pet joy is eliminating expenses that aren't going to affect the things I really care about. Looking at your list and comparing it to what I spend, I'd personally flag:

Utilities - 525 !!? I have a large house, and heat/electric costs about 150$/month, averaged out over the year. Add a 50$ cell bill, an internet connection... what else are you paying for that accounts for the extra 300$ that doesn't appear on my budget?

Car Loan - 367 Any chance of lowering that and/or biking more to keep the car for longer without paying for a new one?

Car Insurance - 174 Can you shop around for this? I drive a 3-year-old car and my entire family is insured on it, and we still pay less than 70$/month. Even for 2 people and 2 cars that seems a bit high...

Restaurants/bars - 160 I'm assuming this is mostly socializing? Can you try to make a gradual shift in your friends group - for example, instead of meeting at the bar for a few drinks, you meet at a park, or at someone's house, and have a BBQ and a few beers for a fraction of the cost? I recognize the value of socializing, but you can get the same value with different methods... and usually you wouldn't be the only person happy to save money, just the only one who speaks up becuase it's a sensitive topic. Again: socializing has value. DON'T cut this out entirely. But maybe aim for a 1/4 to 1/3 reduction while exploring other avenues of getting the same value for less cost?

In terms of increasing income: have you thought about getting a roommate or, if you have a side access to your house (or a shed with good light, for that matter) renting it out as a shared art studio space? Or, if you're experienced as an artist, maybe giving art classes? I know parents who pay through the nose for a group art class for 8-10-year-olds on the weekend (aka: occupy the children from 1-4pm), even something like that would be good, especially if you're a teacher. Or if you prefer to work with younger kids, a "explore art!" group class aimed at 5-7-year-olds can be a lot of fun, net you way more than babysitting wages, and take up a few hours on Saturdays...

Realistically, though: look. You're throwing 1352$/month directly at debt even without extra income. Assuming 0% interest on the credit card debt for the next year (and stretch that out for the full year and throw the money at the 6% student loan debt!!!), you'll have it paid off in 3 years at your current rate. Make more money and you can pay it off faster. Spend less money and you can pay it off faster. You are NOT in over your head!


NestEggChick (formerly PFgal)

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Re: Case Study - Help Me Grow a Mustache
« Reply #9 on: August 26, 2015, 02:19:51 PM »
Oh yeah, this is totally doable!

First, don't stress about the 403B. You don't need to "move" the money, just invest it from within the 403B. I agree with the investing advice above so I won't bother to repeat it. If you want more knowledge about investing, this should answer all your questions: jlcollinsnh.com/stock-series/  But for now, follow the simple advice above. You can have it done within 1/2 hour and get it off your mind.

It sounds like you were given a tough situation and you handled it the best you could. You were there for people who needed you, which is awesome. It totally sucks that you have to deal with the debt now, but you did the best you could with a difficult situation, so you should feel good about how you handled that.

You also got yourself into a situation where you're earning a lot more money, which is fantastic! You have a lot you can do here. As others suggested, getting a roommate or renting out art space could be a great way to bring in some money. Even an occasional airbnb rental would help, if you're in an area for that.

I question your utilities expense. That's awfully high. Does that include high winter heating costs that go down in the summer? See what you can do to lower that.

Definitely sell the car. You don't need it. What you need is peace of mind from the debt, and getting rid of that car loan will go a long way.

Instead of putting an extra $250 towards the student loans, consider putting it towards the credit card debt. Mathematically, it makes less sense, because the student loans have a higher interest rate. But you would only be doing this for a short time, a few months, and the sooner you pay off the credit card debt the better you'll feel. Look up the snowball method. I've seen it work for many people. The great emotional impact is worth a few extra months of interest.

You're making a lot of debt payments now. Obviously you could do more if you cut back on "extras" like your art and eating out, but you also need to have some fun. Instead, try finding separate ways to fund those activities. For example, I love to crochet, and I sell a lot of what I make. I use those funds to buy more supplies. I also donate a lot of what I make to a local homeless shelter. I can't afford to donate money right now, but the scarves and hats have even more value. Most of the yarn for donated items is given to me by friends who are happy to help out a good cause. What can you do along those lines? As someone else mentioned, you could donate art to a charity's silent auction, or maybe art lessons. You could give your art as gifts instead of buying gifts. You could sell your art and use that to fund more supplies. Get creative. (If you want to open an Etsy shop and you use my link, we'll both get 40 free listings: http://etsy.me/1NV0saf )

You could also do some tutoring of kids on the side. In some areas you can charge a lot of money for that (a teacher friend of mine charges $60 per hour.)

While a lot of people take the extreme side of the MMM approach and try to cut out all unnecessary expenses, I don't think that works for everyone. If you have a hobby that brings a lot of joy to your life, don't give it up, just find another way to fund it.

Again, you're on the right track, so just try and be patient. You'll see a lot of progress over the next year as you pay off that credit card debt and apply those minimum payments to your school loans instead. And coming here is definitely a good move :)