Living with parents to save money - student loans, buying a home.

[jackieg187]

Hello! First time posting on MMM forum here. I figured fellow mustachians may have some great insight into a dilemma. Here's some back story:

My boyfriend recently graduated pharmacy school, I currently work but am also back in school as I hate my career. To save money we rent the upstairs of one of our parents homes for a low amount of money.

Current financial circumstances:

A staggering $245k in student loan debt (if pharmacy school could take your right leg in addition to tuition they'd do it)
Paying off remaining pre-mustachian enlightenment credit card/ auto debt (FIRST PRIORITY!!!!!)
Both making an after tax income of roughly $8800 a month
Total current monthly expenses totaling $5900 (with student loan payment set to 10 yrs standard repayment)

What we're trying to determine is how to tackle the student loan debt while also saving for our own home. The house we're in now is inconveniently out of the way to stay here too long and commute to our jobs, but we've settled on at least doing 2 years worth of heavy duty saving while we can here. So here's what we've determined:

We pay off all the debt in about 4 yrs, but have nothing set aside to buy a house. We would then rent a house to be closer to our jobs, but also never see that money again as you cannot recoup your spending from a rental.

Pay off student loan debt in 5-7 yrs while being able to save a 20% downpayment for a home, however we then have to finance the home and have a mortgage and have accumulated more interest on the student loan debt.

I'd love to hear some other mustachian insight, opinions, etc. as not many people I'm close to have seen the light yet. Thanks! - Jackie

[ender]

• Are you planning on getting married?
• When do you graduate and what do you expect to make? Are you planning on putting your income towards debt payments, too?
• Is the $8800 only his income? You mentioned being in school
• How much do you spend on month outside of debt payments?
• How big of house are you planning on buying? if you save 3 years even just at the rate you are paying off debt now, you're going to have close to $150k -- are you planning on buying a $750k home?

It sounds like you are pretty close to that "we are acting married financially but not and if we breakup are going to have a huge mess" situation.

[Catbert]

Okay, I know you won't like this advice.  You aren't married so there is your debit and his debt not "our" debt.  He has income and you have income, it isn't (shouldn't be) one pot.  Any plan should entail him sorting out his SL and you figuring out yours. Ditto for cc debt.

Imagine how you would feel if in 3 years you split up whether amicably or angrily.  How would you feel if your earnings paid off his SLs?   Or you both paid equally on a car but it's in his name?   You wouldn't be happy.  Remember there are no courts to divide up assets/liabilities of unmarried couples.

[jackieg187]

To clarify, we do plan to get married in the next year or two. However, as of now we have each our own savings accounts and are paying our own debts, but we are looking at a combined financial future eventually. The amount we spend a month at $5900 is between us both debts, rent, utilities etc. and my future income when I graduate will be higher than it is now in about 2 years. As far as a home is concerned we would love to be able to pay for a home in cash, however living outside of Boston it's not super affordable. Reasonably and most realistically we're looking at $350k for a house.

[notactiveanymore]

I don't think it's wrong to plan how you would handle money together and what your goals would be financially when you get married. But you're not engaged or married, so until then, it's probably going to be more helpful for you each to go through this process with your money completely separate even while you work towards joint goals.

Questions I have:

1. Are you on a budget? Even assuming the student loan payment totals up to about 2800, that means you're spending together 3100/month. And that's with a low rent payment to parents. Where is that money going?

2. How much other debt do you have? You mentioned cars and other consumer debt, but how much are those? Are you underwater and could you downgrade vehicles to eliminate that debt.

3. When do you plan to get married and how long do you want to stay with the parents? Do the parents have a time limit on how long you can stay?

4. Are you accumulating more student loans on your current education? Or is that why your expenses are $3100/month?

[LadyMuMu]

If you are making joint financial decisions and planning for your financial future, why wait one or two years to get married? Get married now and keep chugging away at your debt as a joint effort. Otherwise, for goodness' sake, keep your finances separate and cheerlead each other's individual progress. DO NOT MINGLE YOUR DEBT REPAYMENT otherwise. This is such a bad idea for so many, many reasons even if you never break up and do eventually marry for life in a few years.

Also, keep in mind that whoever's parents are the ones subsidizing your housing costs right now is less vulnerable because if your relationship doesn't last, that person still gets to live with Mom and Dad, right? The below cost/subsidized housing is a huge asset that person is bringing to the relationship.

[honeybbq]

Okay, I know you won't like this advice.  You aren't married so there is your debit and his debt not "our" debt.  He has income and you have income, it isn't (shouldn't be) one pot.  Any plan should entail him sorting out his SL and you figuring out yours. Ditto for cc debt.

Imagine how you would feel if in 3 years you split up whether amicably or angrily.  How would you feel if your earnings paid off his SLs?   Or you both paid equally on a car but it's in his name?   You wouldn't be happy.  Remember there are no courts to divide up assets/liabilities of unmarried couples.

I agree. I'm in the camp where I like to co-habit before marriage. So I won't say to just go ahead and get married. Actually the opposite. Stay cohabiting for a few years without co-mingling your finances. It's a good test run. But having BTDT, know that things may not work out - the future can bring strange things. Keep your finances separate, but still work toward a joint goal. That is possible until you both strike out on your own, get married, buy a house, etc.

To answer your actual question - I'd do about 50/50 toward debt repayment and the house fund. You're going to need to live somewhere when you get out of the parents' house. Don't know your ages, but if you're young and just out of school, you'll have the most options with money in the bank rather than 0 student loan debt. If you bring home (each) 8800 a month after taxes, you're going to have a lot of money to play with once your get your debt repaid.

[jackieg187]

I don't think it's wrong to plan how you would handle money together and what your goals would be financially when you get married. But you're not engaged or married, so until then, it's probably going to be more helpful for you each to go through this process with your money completely separate even while you work towards joint goals.

Questions I have:

1. Are you on a budget? Even assuming the student loan payment totals up to about 2800, that means you're spending together 3100/month. And that's with a low rent payment to parents. Where is that money going?

2. How much other debt do you have? You mentioned cars and other consumer debt, but how much are those? Are you underwater and could you downgrade vehicles to eliminate that debt.

3. When do you plan to get married and how long do you want to stay with the parents? Do the parents have a time limit on how long you can stay?

4. Are you accumulating more student loans on your current education? Or is that why your expenses are $3100/month?

So yes, we are on a budget. Combined (for sake of simplicity) our budget is $5900 which includes the student loans (a small portion is mine, the bulk is his), the rent $700, and currently included is credit card debt as well as both auto loans. The rest is cell phone, car insurance, food, health insurance (which I have to pay out of pocket for myself), and some misc items.

My car has about $9000 left owed and is underwater, his is $7000 and the same. We made a very poor and impulsive decision buying poor quality cars at a hefty price, very regrettable. The credit card debt is mine pretty much, $8000 and was not a very smart way to afford my way through my first degree.

Ideally we'd like to spend no more than 3 years at his parents as I'm graduating with my 2nd degree in about 2 yrs and want to be closer to the city. I am accumulating some student loan debt, but am paying for some out of pocket to offset the cost. I'm projected to pay about $300 a month when I'm done.

Hope that answers everything.

[jackieg187]

If you are making joint financial decisions and planning for your financial future, why wait one or two years to get married? Get married now and keep chugging away at your debt as a joint effort. Otherwise, for goodness' sake, keep your finances separate and cheerlead each other's individual progress. DO NOT MINGLE YOUR DEBT REPAYMENT otherwise. This is such a bad idea for so many, many reasons even if you never break up and do eventually marry for life in a few years.

Also, keep in mind that whoever's parents are the ones subsidizing your housing costs right now is less vulnerable because if your relationship doesn't last, that person still gets to live with Mom and Dad, right? The below cost/subsidized housing is a huge asset that person is bringing to the relationship.

Thank you for the advice. I myself had spent 9 yrs in a previous relationship unfortunately intertwining ALL of our finances and it blew up in my face. So, at 30 yrs old and much wiser we are keeping things separate. For the sake of simplicity and looking to plan for a future as a married couple, I was combining everything in the hypothetical. We currently pay our own bills and always have and are also contributing to our own debt and retirement/emergency fund/house savings so things are easy if there is ever a split.

We aren't in a rush to just hurry up and get married right now as he just finished a doctorate program and we think prioritizing paying off our smaller high interest debts is smarter. Once credit cards and cars are paid, THEN we'll start heading that direction. We've been together 4 ½ yrs, another year or so won't kill us.

[jackieg187]

I suppose in short my question in all simple terms is: do we pay off our student loans first and save for a home only after they're completely paid off? We have probably a 3 yr limit for staying with parents. So then, do we prioritize saving for a house at the expense of racking up increased student loan interest?

[Prairie Stash]

Pay off debts now, save later. If you're buying a house after you're married then start saving about 1 year prior to marriage (maybe less). You have $34,800/year extra income currently and it will be more when you start working full time. On a $350K house it will take 2 years to save 20% ($70K), a short time frame.

For myself I needed to clean up some debt (SL) to qualify for a better mortgage deal. Not having CC, auto loans and misc. small debt makes it much easier for a bank to approve a better mortgage rate, they had to account for all my loan payments to see what I qualified for. It also gives more flexibility later on by lowering your monthly mandatory spend rates. Without all the smallish loans I estimate you could save 20% in less than 18 months. With you working it might be under 12 months to save up.

Take a hybrid approach, rarely are decisions all or nothing. Get the loans down to a lower level then switch back to saving.

[jackieg187]

Thank you guys! So I think it's a good idea to just pay off the student loans. They're a burden. And we'll make sure to keep our own emergency funds and still try to put away at least 15% of our income towards retirement. Seems to be the best plan. House savings can come later.

[ketchup]

Without knowing your interest rates, it's hard to say exactly how to handle things.

Credit card is probably the worst rate, kill that first and as fast as you can (stop throwing extra at lower-interest debt if you are doing that).  Then hit the car loans (if >4% or so).

Is there a particular reason you want to buy a house?  Buying a house (contrary to what so many say) is NOT ALWAYS the smartest financial move.  You are NOT "throwing money away" on rent.  In plenty of areas, buying a house is downright stupid.  I did buy a house, and a second house (renting out the first), but I had/have a plan and lifestyle choices (pets) that give me reasons to do it.  I'm not trying to discourage you, just make the choice a deliberate one if you do end up buying.

If your student loan interest rate is above about 4%, I would definitely pay it off before saving for a house.  I would definitely pay off everything else before saving for a house.  If your student loan interest rate is crazy low, I'd hold it, pay the minimums, and save/invest the difference.

Do not buy a house without some extra cash reserves.  If your roof leaks a month in, be able to swallow that bill.  If you need to spend $5,000 to fix a sewer line a month after that, be able to swallow that.  Maintaining/repairing a house is not free.  Your mortgage payment is just the beginning of house expenses.

With that kind of income (and increasing in two years), you should be in great shape once you get everything dialed in.  My girlfriend and I have a household income of about half what you do, and at 25/23 we're on our second house (first rented out and almost paid-off), have two (not financed) cars, and are living a pretty damn good life, if I do say so myself.  Student loans and HCOL will be your main roadblocks, but you've definitely got the income to take care of that.

[biglawinvestor]

Hey @jackieg187, be sure to check out The White Coat Investor if you're not already reading it. He writes about personal finance and medical professionals. I'm sure you will find a lot of good advice there:

http://whitecoatinvestor.com/

Another good doctor blogger (and frequent poster in the forum) is PhysicianOnFIRE:

http://physicianonfire.com/

[Lanthiriel]

As someone who bought a house before paying off the student loans, I would highly suggest paying off the loans first. Houses suck up a lot of time and money, and especially early on you get caught in a bit of magical thinking about all the repairs you need to make and furniture you need to have. I was lucky in that purchasing my house only put me back eight months to getting the debt paid off (shooting for August!), but in that time my husband got laid off. I would very much have liked to only have the debt OR the house (or, honestly, neither which is what I should have done... hindsight) to worry about during this stressful time.

It sounds like you're someone who is used to having debt. As someone who was in that situation, and is almost out of it, not having to worry about one (or five) more bills every month has been an absolute breath of fresh air. Inevitably someone is going to tell you to weigh the interest rate of a mortgage against the interest rate of your student loans. Sure, that's math and it can make some sense. But for me at least, getting out from under the emotional stress of the loans has really improved my mental health. And my ability to up my retirement savings in my 20s, which should help in the pursuit of FIRE.