Middle Age and Negative Net Worth - HELP!

[jax8]

I'm discouraged and feel like I'm out of time with no chance to catch up.  My husband and I, combined, make $98,000 (before taxes) in a LCOL area--but for most of our marriage, we made under $50,000 and racked up credit card and car debt (stupid, stupid, stupid).  We paid all that off in 2014 and finally started sinking money into 401Ks.  BUT IT'S NOT ENOUGH.

Total Net Worth = -$71,100

The Math:

House Value:  $139,000
Mortgage left: $104,000 @ 3.375% fixed / 15 years   

2012 Chevy Cruize Value: $3,600
Paid off

2015 Honda Accord Value: $11,800
Debt left:        $13,500 @ 1.9% fixed (just purchased used in November, makes me sick that I'm underwater!)

Student Loan: $60,000 @ 2.75% fixed

Husband's 401K: $49,000

My 401K: $16,000

Emergency Savings: $5,000

Total Debts = $178,000
Total Assets = $106,900
Difference = -$71,100

This is bad, right?  My husband is 46.  I'm 37.  We have kids in upper elementary school.  Negative net worth is an emergency, right?  So what do I do?

I already refinanced the mortgage to this new lower rate.  I can't refinance the federal student loans.  I have no expectations that my house value with rise (small town Western PA--not a thriving area) and realtors have advised us not to waste money on remodels because we won't get the money back.

All I can do is skimp and try to divert more money to either savings or paying down debts.  Am I missing something?  Anything I can do to fix this?

[Dee18]

Post a case study and you will get many helpful suggestions.

[mm1970]

All I can do is skimp and try to divert more money to either savings or paying down debts.  Am I missing something?  Anything I can do to fix this?

This

And earn more money

[LifeHappens]

OP, you are behind financially, but in a good position to make progress. You have a lot of debt, but your interest rates are reasonable. I don't see any high interest consumer debt there.

The most important thing to do right now is track your spending and see what changes you can make to align with your values. You use the phrase, "All I can do is skimp and try to divert more money to either savings or paying down debts." This leads me to think you feel you will have to deprive yourself and your family to improve your networth. That is probably not the case. At the start of this journey, many of us find we can trim a lot of $$ from our monthly expenditures without feeling any pain.

[caracarn]

You can always do things to make things better.

Certainly negative net worth at any age is suboptimal.  You get this is bad, so I'm not going to pile on and make you feel worse.

The journey of a thousand miles begins with a single step.

There are a lot of unknowns with what you shared, and a formal case study is best with a lot more detail.  No idea what you free cash flow is based on what you said.  You make $98,000 but what do all your expenses look like?  Hard to provide any advice is we do not know what you have to throw at the problem.  Basics without any info are highest interest loan outside your mortgage first as your mortgage rate is not terrible and it gives you a tax deduction most likely so attacking that is not the best option you have, so go after student loan and car loan, though you may want to look at cutting losses and changing the car situation.

Also no idea what you want in retirement, but yes, $65K with a 4% SWR gives you a whopping $2,600 per year.  Assuming you want at least 10 times that, so you need to build a plan between now and then to figure out how you get there, or get the understanding with math that it is unlikely to happen.  Rough numbers assuming your husband would like to retire at 66 or 67 is you need to average around $29-30K increase in your retirement balance for the next 20 years to get to the $650K you need to throw of $26K relatively safely.  On the surface it does look bleak, but let's see what else you can provide to see what else everyone can tell you.

[jwright]

How do you have a house worth $139,000 but total assets of only $106,900?

I get Total Assets: $224,400
        Total Debts: $177,500
       Net Worth: $46,900

[HPstache]

Your net worth calculation is wrong.  As far as I can tell, you are only counting the debt owed on the house, but not adding the value of the house to your net worth.  From what I can see, you have a positive net worth  of almost $50K

[HPstache]

How do you have a house worth $139,000 but total assets of only $106,900?

I get Total Assets: $224,400
        Total Debts: $177,500
       Net Worth: $46,900

Beat me to it, ha!

[jax8]

How do you have a house worth $139,000 but total assets of only $106,900?

I get Total Assets: $224,400
        Total Debts: $177,500
       Net Worth: $46,900

OMG--you're right!  I HAVE POSITIVE NET WORTH!!!!!  I was so upset over this...

[Mr.GrowingMustache]

Well you are better off then you thought but you shouldn't relax.

Definitely do a case study and figure out your monthly and yearly expenditures. Posting your expenses here will give you feedback on where to trim some fat without much sacrifice to your life. For two years now I've been working on trimming unnecessary expenses and optimizing my expenses. It will take a bit of time and discipline, but you might already be living a pretty modest life.

I would probably focus on putting $$ into the 401k's and increasing your Safety Net. The loans are low enough % that you can get better returns from market index funds. Also if inflation picks up it can eat up some of those loans, but the markets are at all time high and there could be another bubble or downturn in the near future. We don't know but be comfortable with your choice.

Someone else on this forum told me something very profound about their family  "we spend time together, not money."

[caracarn]

Yes, positive net worth does nothing to change the numbers I mentioned in my earlier post.  You still have $65K saved.  That has not changed and therefore the work you need to do to get to your retirement, whenever that will be does not change and will still take a lot of work unless you expect to live on less than MMM.

[yachi]

How do you have a house worth $139,000 but total assets of only $106,900?

I get Total Assets: $224,400
        Total Debts: $177,500
       Net Worth: $46,900

OMG--you're right!  I HAVE POSITIVE NET WORTH!!!!!  I was so upset over this...

Some people like to count net worth minus your primary residence.  In that case, I would ignore both your house and your mortgage.  If you do that, you still have positive net worth:

$3,600+$11,800-$13,500-$60,000+$49,000+$16,000+$5,000 = 11,900

[bestname]

I would put $2500 of my emergency fund toward my car loan as I consider being upside-down on car a hair on fire emergency as bad (or worse) than credit card debt.

Then I would trade in my 2015 Honda for like a 2008 Honda. Then I would (after rebuilding emergency fund) put my car payment and the money I was saving on car insurance into my 401K.

[evensjw]

Honestly you have pretty great rates on all your debt.  The highest you have is your mortgage.  Just go check out the "DON'T pay off your mortgage" thread to see all the people who think you should focus on investing your earnings in mutual funds that have averaged 7%+ returns after inflation, rather than paying down low interest debt, the payments on which gradually get smaller in real terms due to inflation.

I don't think any of this constitutes an emergency.  Maximize the tax benefit/employer matching from contributing to your 401(k)s and your net worth should grow quickly.

[aceyou]

Median Net worth of a household in 2017 aged 35-44:  $45,740
Source: https://wallethacks.com/average-net-worth-by-age-americans/
Your net worth: 45-50k

Median Household income: $59,000
Source: http://money.cnn.com/2017/09/12/news/economy/median-income-census/index.html
Your household income: $98,000

Median Household Understanding of Personal Finance: "Hey, check out my new IphoneX...wanna go get sushi?"
Source: My experience living on this rock.
Your current understanding of personal finance:  From what you've written, better than 95% of the population, and you're likely on your way to pushing into the top 1% soon if you stick around. 

If I were you, I'd feel encouraged.  You are already ahead of a typical american...obviously you don't want that to be the bar or you wouldn't be here, but it's good to know.  As long as you make the needed changes, you will be killing it.

[ChpBstrd]

The bright side is that you have a solid combined income for living in a LCOL area and low interest rates on those debts. You should be able to live on $30-40k a year, and stash the other $45-55k or more (roughly post taxes) in savings. I agree with the earlier advice to max out both of your 401(k)s and watch your spending like a money-hungry hawk.

Don't pay off the debts early, even though you hate them. The interest rates are nice and low (assuming they are fixed). Instead, build up a stock index portfolio. Also, if there are any inexpensive professional certifications you could pursue that would lead to even higher earnings, now's the time to pursue them!

IDK if you would save much money trading in the Accord for an older/smaller car. Use the edmunds.com total cost of ownership calculator to see if such a deal makes sense.

Here's a simulation of how you could achieve financial independence in well under 20 years. Tinker with the inputs, observe dramatic results.

https://networthify.com/calculator/earlyretirement?income=98000&initialBalance=0&expenses=53000&annualPct=5&withdrawalRate=4

[Acastus]

You are 37? That's not middle aged. That is when many people get their act together. Maybe hubby is barely middle aged. You are making me feel like an octogenarian.

Unless you have more debt you are not reporting, you are positive net worth, just not a lot. Cars - loan are about 0. You have 35k value in the house. Retirement  savings are larger than the student loan. You are worth about +40k. You have 20 years to sock more money into retirement funds. Take a step back. Take a breath. Create a plan.

[Lanthiriel]

My husband and I paid off $75,000 in student loan debt in four years on your income and with higher expenses (higher cost of living area). I second posting a case study so folks can help you identify how much money you have every month to pay down your debt. It should be very doable for you to be debt free in 3 to 4 years and save for retirement at the same time.

[Bateaux]

I'm discouraged and feel like I'm out of time with no chance to catch up.  My husband and I, combined, make $98,000 (before taxes) in a LCOL area--but for most of our marriage, we made under $50,000 and racked up credit card and car debt (stupid, stupid, stupid).  We paid all that off in 2014 and finally started sinking money into 401Ks.  BUT IT'S NOT ENOUGH.

Total Net Worth = -$71,100

The Math:

House Value:  $139,000
Mortgage left: $104,000 @ 3.375% fixed / 15 years   

2012 Chevy Cruize Value: $3,600
Paid off

2015 Honda Accord Value: $11,800
Debt left:        $13,500 @ 1.9% fixed (just purchased used in November, makes me sick that I'm underwater!)

Student Loan: $60,000 @ 2.75% fixed

Husband's 401K: $49,000

My 401K: $16,000

Emergency Savings: $5,000

Total Debts = $178,000
Total Assets = $106,900
Difference = -$71,100

This is bad, right?  My husband is 46.  I'm 37.  We have kids in upper elementary school.  Negative net worth is an emergency, right?  So what do I do?

I already refinanced the mortgage to this new lower rate.  I can't refinance the federal student loans.  I have no expectations that my house value with rise (small town Western PA--not a thriving area) and realtors have advised us not to waste money on remodels because we won't get the money back.

All I can do is skimp and try to divert more money to either savings or paying down debts.  Am I missing something?  Anything I can do to fix this?

OP.  Breathe in. Breathe out. Move on.

This is not the end of the world.   Control your spending from here on out.   Continue to put money in the 401k especially if you get a match.  Don't sell the car.  It's a good one and you're underwater on the loan.  Pay it off Dave Ramsey style.  Attack the smallest debt first.  That's the car.  I know the math geeks would say no because it's lower interest.   Trust me.  Pay it off first.  That school loan next.  The interest isn't terribly high, but it's significant enough.   The mortage, just the minimum.   In a couple of years you'll probably just have the mortgage.   Then you can ramp up investments.   There is no reason you cant be retired in 10 years if you choose.  Keep working down the debt.  Pick up a side gig if you can.  It's not that bad.

[Exflyboy]

OK I will post this not with the aim of boasting but to show you what is possible.

I started saving at the age of 36 with negative $140,000 net worth.

I am now 56 with just over $2M in investments and $400k (guess) in paid off house, Plus just over $500k in pensions.. ignore if you have no pensions. We also live in a high tax State (Oregon).

My property came with two rentals and we made roughly the same as what you guys make.. no kids though. Rent is a great way to earn more money. Do you have a basement you can rent out?.. Spare bedrooms etc.

I know renting out part of your home would be stressful.. But so is looking at retiring on nothing but Social Security as well.

Anyway, there is a huge amount you can do but like you said.. it means spending a LOT less than you have so far, then investing the rest. Start with before tax savings (401k's. Traditional IRAs and HSA's if you have a high deductible HC plan).

Living cheap can actually be fun.. you're gaming the system and paying less than anyone you know for the same services.. its great! $10/m cell phones, maintain your own cars, never hire a contractor. Its amazing what you can do if you're determined.

My blog has details if you think it might inspire.

All the best.

[MDM]

My husband is 46.  I'm 37.  We have kids in upper elementary school.

Q1. Am I missing something? 
Q2. Anything I can do to fix this?

A1. That you could be just fine.
A2. Follow standard advice given here. :)

E.g., consider the tables below.  Some of the numbers are from the OP, and some are pure guesses.  You could download the case study spreadsheet and enter more correct numbers.

See also Best and/or Recommended Retirement Calculator - Bogleheads.org for some tools to help with "what if?" calculations.

In short, you won't be able to retire in the next few years but, starting now and sticking with it, a comfortable "somewhat early" retirement is very possible.  Good luck!

Paycheck frequency:	Annual	Annual
Paycheck Items	Earner #1	Earner #2	Annual
Gross Salary/Wages	$49,000	$49,000	$98,000
401(k) / 403(b) / TSP / etc.	$11,813	$11,813	$23,626
W-2 Box 1	$37,187	$37,187	$74,374
Subtractions for AGI	Annual	Annual	Annual
SL int. (approx.)			$1,568
1040 AGI			$72,807
Payroll Taxes	Annual	Annual	Annual
Social Security	$3,038	$3,038	$6,076
Medicare	$711	$711	$1,421
Income Taxes
Federal tax	$1,476	2018, MFJ, std., 2 dep	$1,476
State+local tax	$4,053	PA state calc'n	$4,053
Total income taxes	$13,025		$13,025
	Monthly
Income before other expenses	$5,112		$61,349
Monthly Average Expenses		Comments
Mortgage	$737	Input to Item. Ded.	$8,845
Miscellaneous	$3,333		$40,000
Non-mortgage total	$3,333		$40,000
Loans
Student Loan	$572		$6,870
Car	$386		$4,633
Total Expense	$5,029		$60,348
Total to invest	$83		$1,001
Summary:
"Gross" income	$8,167		$98,000
Income taxes	$1,085		$13,025
After-tax income	$7,081		$84,975
IRA+401k/403b/TSP/457	$984	$984	$23,626
Living expenses	$4,070		$48,845
Non-mortgage loans	$959		$11,503
After-tax investable	$83		$1,001

Time to FI?:
Guess at time to FI	18	years
Safe Withdrawal Rate	4.00%	percent
Real return on tax-deferred investments	5.00%	percent
Real, after tax, return on taxable investments	4.25%	percent
Current Savings
Tax-deferred (e.g. trad. IRA/401k)	$65,000
Projected Savings at Retirement
Taxable	$212,317
Tax-deferred (e.g. trad. IRA/401k)	$821,086
Total projected stash	$1,033,403
Projected Expenses in Retirement
Non-loan, non-work expenses	$40,000
Annual non-tax retirement expense	$40,000
Income taxes	$821
Total	$40,821
Stash needed for retirement @4.0% SWR	$1,020,526
	Have $12,877 extra.

Filing Status	2	1=S, 2=MFJ, 3=HOH
# Dependents	2
# Children <17	2
# Children <13	2
# Children for EIC	2
	Adult #1	Adult #2
Age	46	37
Full-time student?	0	0
AGI	$72,807
Std. Deduct.	$24,000
Act. Deduct.	$24,000
Exemption	$0
Taxable	$48,807
1040 Tax	$5,476
Non-refund. CTC	$4,000
Tax after n-r credit	$1,476
Net Tax	$1,476
Mtg. Int. (approx.)	$3,475	1000000
State tax	$2,960	PA
Local tax	$1,092	1.5%
Item. Deduct.	$7,527
Version	V11.02

Loans:	Orig. Prin.	Orig. Length	Curr. Prin.	Yrs left	Rate
Mortgage	$104,000	15	$104,000	15	3.375%
Student Loan	$60,000	10	$60,000	10	2.75%
Car	$13,500	3	$13,500	3	1.9%

[freya]

Dear OP,

Congratulations on your average (not negative) financial situation, AND desire to improve it!  It is very doable.  I started with a $140K student loan at a similar interest rate to yours.  On a salary only slightly higher than yours in a very HCOL area, I paid it down to around $20K in about 4 years, then decided to let it ride with minimum payments for a few years because of the low rate.  Then I finally got tired of it and paid it off.  It felt SO good.

If you continue as you are, I expect you'll be able to retire comfortably at the standard age (67), perhaps a bit earlier depending on the medical insurance situation.  It's your sense of insecurity and your small emergency fund that need immediate attention.  Normally people suggest skimping on the e-fund and paying down loans, but with your low interest rates I would first establish an emergency fund large enough to let you sleep peacefully at night.  Ideally, you also want a pot of savings for large expected expenses, like replacing a car or doing a major home repair.  Credit cards and consumer loans should not be used for such things.

Posting details of your monthly income and expenses would help, along with commuting information.  This may reveal major inefficiencies that could greatly improve your cashflow.  Like, could you get by with just one car, and are you paying too much for services like day care, restaurant meals, cell phones, cable TV, and gym memberships?  Can you optimize finances to take full advantage of the new tax law, by putting just enough into 401Ks to stay under the 22% bracket?  If you can do that, your federal tax bill will be next to nothing (assuming child tax credits of $4K and standard deduction).  Also, your post-tax savings belong in a Roth IRA.  There's still time to contribute for 2017, to get things jump-started.