Author Topic: Need to change my ways  (Read 6703 times)

Unum

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Need to change my ways
« on: October 19, 2012, 10:30:37 AM »
Hey all-

I am pretty active on a lot of forums (Cars, traveling and other expensive hobbies) but recently found my direction has been shifting away from spending, towards savings for my wife and Is future.   I am 27 and she is 26 we are both professionals; I recently finally landed a good entry position at a very good national (soon to be international) company and we have been very optimistic about our future.   She is a dedicated SLP (speech language pathologist) with her graduate degree.  We own our home BUT have some debt issues to resolve and are SEVERELY lacking on the savings side of our lives.  Lets get down to the numbers. 

We bought our home near the bottom of market crash for 299K w/ 20K down in July 2011.  We recently just had our refinancing approved and got rid of our FHA insurance and our home appraisal came back @ 364K we live in very desirable neighborhood and all the homes in a 3 block radius that go up for sale do not last more than 30 days on the market; recently our neighbor just sold for 400K.

I make around 45000 pre tax I am hourly and I always go into overtime BUT this total does not include overtime.
She makes 48000 pre tax

Home Mortgage 284,000 with $1747 each month
CC debt- $2500 18.5%
CC debt $4850 13.7%

CC debt $5000 -17%
Student loan- $ 96,780 -$438 she owes  ~78,000 and her dad owes around 18000 her dad pays 316 in addition to our 438 a month .  AFTER another 2 years of working at her school she will have 17,800 in loan forgiveness from the federal gov.
I take the bus to work 5 days a week which runs $120 a month (this comes out of my paycheck PRETAX)
We recently paid off our car which she drives daily 100 miles RT.  She carpools 3-4 days a week.  So in total only drive at most 3 days a week to school.  Our 03 Audi A4 gets about 26 on the highway (95% of her commute) we DO NOT hardly drive on weekends etc..

Other bills
Every other month bills
214 (trash water sewer)
72  natural gas
Monthly bills
80 TV
50 electric
250 for gas
350 groceries

The ugly
Savings.. 0
My retirement..0
Her retirement 5k

HOWEVER.. Recently we paid off 3 outstanding balances:  the television on a Best Buy credit card, The Car, and my student loan also paid back a small personal loan from my mother that had been outstanding for too long.  So I try to think of these things as small progress?
I know some of our spending habits need to change as by the end of the month we only have around 1K left to put down on CC cards.   I have a goal of saving up 50K for a 6 month emergency fund and then also buying a Condo/ home (200K-250K range) to rent out.     Help me Mustachians,  I want to make my goals be a reality and I know I need to if and how they are feasible.   Seriously open to ALMOST ANYTHING including selling our home.


Retirement goal of 45.

Another Reader

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Re: Need to change my ways
« Reply #1 on: October 19, 2012, 10:47:26 AM »
In your shoes, I would cut everything I could and pay off those credit cards yesterday.  Get side jobs, sell all the toys, and learn how to live well below my means.

What I would do with the student loans depends on how much can be forgiven in total and when. 

Once I paid off the credit cards and had a plan for the student loans (you don't state the interest rates, and that's a factor), I would start looking at my retirement savings.

You have no business buying rental real estate now.  Rentals require substantial cash reserves.  You need to get everything else under control first. 

Unum

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Re: Need to change my ways
« Reply #2 on: October 19, 2012, 10:55:06 AM »
Opps sorry her loans are all between 2-6% (I can get exact figures when I get home today)
 
I have been contemplating selling the car  (only worth about 8K) and getting something older and cheaper.

I wish I had more toys to sell, currently only my vintage motorcycle is up for sale.. 3K (this will be used to pay off CCs) 

Another Reader

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Re: Need to change my ways
« Reply #3 on: October 19, 2012, 11:08:10 AM »
There's really not enough in that car to sell it and buy something equally reliable and have a lot left over for the debt.  The motorcycle sale makes sense to me.   I would get rid of the cable or satellite at $80.00.

What about additional student loan forgiveness at various milestones?

Your job is pretty new.  In your shoes, I would be fairly conservative until I was sure I was going to stay for awhile.  The credit card debt is one risk of unemployment I would want to get rid of ASAP.

Where is the money from the overtime going?  Roughly how much have you been averaging?  Is it likely to last?  I would probably throw most of it at the credit cards for now.  Maybe some to an emergency fund as well.

DoubleDown

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Re: Need to change my ways
« Reply #4 on: October 19, 2012, 11:11:55 AM »
It sounds like you're on the right track/mentality. Congratulations on recognizing that you need to change things, I'd say that's at least half the battle!

Yes, read MMM's columns and follow that advice, and what others here are already saying -- lower your expenses and PAY OFF THAT CC DEBT. It is killing you.

Selling the house sounds like a last option, although if you or your wife are commuting long distances perhaps it's something you should consider just for the sake of sanity. Owning your own home in an up-and-coming neighborhood can bring huge returns over the longer term. It sometimes makes people "rich" by itself in appreciation and paying down the mortgage.

I don't know about your other expenses, since you seemed to list only the very basics like utilities -- but the things that jump out at me in what you listed as way more than should be required for two young professionals: gas and groceries. Those are too high.

Could also cut out "TV" entirely and rely just on over-the-air broadcasts (i.e., antenna) + free downloads from all the various channels/providers. You can actually get a lot of great content for free just from network/public television and free stuff on the internet.

You should be able to cut at least $200 from those three combined expenses, and put it towards your CC payments.

Did we mention paying off the CC debt? :-)

Unum

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Re: Need to change my ways
« Reply #5 on: October 19, 2012, 11:22:58 AM »
What about additional student loan forgiveness at various milestones?

In 2016 June is when she will get 17,800 forgiven.

Your job is pretty new.  In your shoes, I would be fairly conservative until I was sure I was going to stay for awhile.  The credit card debt is one risk of unemployment I would want to get rid of ASAP.

I know we need to attack it, hard. 

Where is the money from the overtime going?  Roughly how much have you been averaging?  Is it likely to last?  I would probably throw most of it at the credit cards for now.  Maybe some to an emergency fund as well.

I have been averaging another $300-$600  in overtime pay each month.  I have been putting that on the CCs.   Should we be putting some cash aside instead?

Bottom line is our spending habits need to change, its pretty much eating out kills our budget.


Selling the house sounds like a last option, although if you or your wife are commuting long distances perhaps it's something you should consider just for the sake of sanity. Owning your own home in an up-and-coming neighborhood can bring huge returns over the longer term. It sometimes makes people "rich" by itself in appreciation and paying down the mortgage.

This is our hope, that we hang on for 10 years and see where the market in our area goes..

I don't know about your other expenses, since you seemed to list only the very basics like utilities -- but the things that jump out at me in what you listed as way more than should be required for two young professionals: gas and groceries. Those are too high.

We do need to get the groceries under control.  We really don't have much other expenses, we walk everywhere when we are home.  I suppose its kind of just part of living in the middle of a major city.. (Seattle)

TV..
Yeah, it needs to go.

Did we mention paying off the CC debt? :-)

Okay! okay! :) 

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Re: Need to change my ways
« Reply #6 on: October 19, 2012, 11:36:01 AM »
In your shoes, I would build up a cash balance in the checking account to cover simple emergencies.  That allows you to avoid using the credit cards to cover these.  I would probably reserve $1,000 to $2,000, given your income and expenses.  I would do this over a few months while throwing everything else at the credit cards.  Then I would slowly build up a few thousand in savings to cover larger items, like the furnace I am probably going to have to replace now.  You can't predict when these things will happen, but over time I would want to improve my ability to handle them.

The one-time student loan forgiveness is the only forgiveness for which your wife is eligible?

I would not sell the house, as your situation seems stable and the neighborhood is appreciating.  Is the mortgage payment you state before or after the refi?

Unum

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Re: Need to change my ways
« Reply #7 on: October 19, 2012, 11:50:02 AM »
In your shoes, I would build up a cash balance in the checking account to cover simple emergencies.  That allows you to avoid using the credit cards to cover these.  I would probably reserve $1,000 to $2,000, given your income and expenses.  I would do this over a few months while throwing everything else at the credit cards.  Then I would slowly build up a few thousand in savings to cover larger items, like the furnace I am probably going to have to replace now.  You can't predict when these things will happen, but over time I would want to improve my ability to handle them.

The one-time student loan forgiveness is the only forgiveness for which your wife is eligible?

I would not sell the house, as your situation seems stable and the neighborhood is appreciating.  Is the mortgage payment you state before or after the refi?


I believe that is the only forgiveness she is eligible for.. :/

As for the cash reserve I can start doing that for sure; I KNOW my water heater is going to give sooner or later..   It seems odd but I have also been on a track to try and liquidate the things we don't need or use.  I pretty much don't want anything in my garage or storage.  Minimalism needs to be my new motto. 

mustachecat

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Re: Need to change my ways
« Reply #8 on: October 19, 2012, 12:55:11 PM »
What are your other expenses? That will help you determine what your goal should be if you want to retire at 45. The bills you've outlined here can't be the only stuff you spend money on. How about: Internet, phone/cellphone, personal care, laundry, entertainment, eating out, etc.? Not that I'm saying that you should be spending money on these things--just that you probably do.

And what's the deal with the student loan that your wife's dad is paying? Is it his, or has he assumed responsibility for one of hers?

It's great that your home is appreciating, although a 100-mile round-trip commute sounds so painful. Do you need as much space as you bought? Is there any location that's closer to your wife's place of work, but would still allow you to take the bus?

A $50K emergency fund seems crazy to me, unless you mean it's an investment fund that you're willing to tap if need be. And for six months... are the two of you really spending or ever need to spend $8,333/month?

galaxie

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Re: Need to change my ways
« Reply #9 on: October 19, 2012, 01:21:35 PM »
I think you need to look at your finances a little bit more.  You two make about $8k/month pretax, and your money breakdown accounts for about $3k.  You say that at the end of the month you have $1k left over for credit card payments.  Even if a big chunk of your gross pay gets eaten up in taxes, where's the other $2k/mo going?  Do you get $100 dinners every weeknight?

I'm just saying, check your spending.  If you know where it goes, you can change it. 

starbuck

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Re: Need to change my ways
« Reply #10 on: October 19, 2012, 01:28:05 PM »
There's a lot of missing information here. Are you tracking your spending? Mint makes this stupid easy now, and it will help you find all the missing money in your budget. Your electric bill seems on the high end, and is your gas bill on a balanced budget plan? Seems on the high side for a non-heating month. Turn the heat down! Turn the lights off! Remember, your debt is an emergency.

I'm going to assume that $350/month does not include eating out, since you say that's where your weakness is. (So how much ARE you spending on eating out?) I honestly don't see too much room in the food budget if you're in a HCOLA area and eating dinner/bringing lunches everyday. BUT you should definitely be planning out each and every meal, and cutting down on expensive meat/fish, prepacked foods etc and switch to cooking basic meals from scratch.

I think you need to really set out your short term goals and how you'll get there. A $50K e-fund is just such a large amorphous goal that it's not really going to be helpful. Why $50k? What would it be used for? Would this also cover home repairs? (I think home repairs need to be their own budget item, especially because you'll continue to have home repairs into early retirement.) I would recommend stashing a couple thousand dollars for short-term emergencies, and then sketch out a plan to pay off the credit card debt. Those CC interest rates are just going to be eroding any progress you're trying to make.

But really, track your spending. No excuses.

Unum

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Re: Need to change my ways
« Reply #11 on: October 19, 2012, 02:26:25 PM »
I have made it my goal tonight to paint a better picture for all of you as to where my $$ is going.  This is really helpful to actually be on a forum where everyone asks these questions.  Almost all of my friends make a tad more than me but all have virtually no savings, no investments and blow a TON of money on bars and food.
They find it amazing we own a home they say things like "wow you guys have your shit together, wish I did"  However this website has been an eye opener.  We do not and we need to get ourselves on a more frugal track. 

Bottom line is I need to make myself very present here so that I keep on track. 

Detailed post coming in about 6 hours when I am home and have had chance to average my debit account.

Unum

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Re: Need to change my ways
« Reply #12 on: November 30, 2012, 10:46:02 AM »
Just a quick update; my wife and I have been drastically cutting back.  I set a mint account with EVERYTHING we owe, and have separated checking accounts one for strictly bills, gas, groceries, and another with 'the remainder' I feel that this will help us keep a closer eye on our finances.  We have begun to look at every dollar we spend, MMM has literally changed my way of thinking and living life.   

 We realized that in the past 3 months we had spent almost $5000 on bars and dinners. (that includes this past month were we cut back to 1 dinner out at $30 dollars total)  You don't even want to hear the 6 month total...

I have begun to revert back to my minimalism days and "craigslisting"/ donating things we no longer need. It feels nice to shed things that are simply just taking up space.  We have begun to aggressively attack our credit cards (we hope to be done by Feb 4th) and have a plan for her student loan.  I know someone brought up my wife's commute before (we live 4 miles from my work) and just yesterday she began looking for jobs MUCH closer to home.   This brings me to the point about her $17,800 in loan forgiveness, the key points here are she must work at a 'title 1 school' for 5 years consecutively to obtain this federal $$.  She is on year 3 right now.   So the key here is..  closer to home shorter commute.. or wait it out for 2 years and get $17,800.

Finally we ditched our expensive car in favor of a car that get 50+ MPG.  Literally saving us over 125 a month on gas ALONE. 

We know this is a start, and our next step is too look deeply at our grocery bill and see how we can take it from 350 down to 150 a month.

Well I suppose it's a start!

PS started my 401K at my new job w/ a 4% matching. 

PJ

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Re: Need to change my ways
« Reply #13 on: November 30, 2012, 12:17:14 PM »
It's a great start, Unum!  To cut down by thousands each month in entertainment costs, clear your space of un-needed items and free them for someone else to use, research and analyze your financial situation to put a plan into place, change your car, and get a 401K set up ... Whew!  Great job!  You'll be debt free in no time at all!

NWstubble

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Re: Need to change my ways
« Reply #14 on: December 01, 2012, 12:14:18 AM »
Well I suppose it's a start!

PS started my 401K at my new job w/ a 4% matching.

Awesome turnaround! Welcome to the light side, may your mustache grow long and allow you to prosper.

Honest Abe

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Re: Need to change my ways
« Reply #15 on: December 01, 2012, 09:39:09 AM »
Good for you bro keep it going

tomsang

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Re: Need to change my ways
« Reply #16 on: December 01, 2012, 10:34:24 AM »
In your shoes, I would build up a cash balance in the checking account to cover simple emergencies.  That allows you to avoid using the credit cards to cover these.  I would probably reserve $1,000 to $2,000, given your income and expenses.  I would do this over a few months while throwing everything else at the credit cards.  Then I would slowly build up a few thousand in savings to cover larger items, like the furnace I am probably going to have to replace now.

I don't understand the need for a cash emergency fund for a couple with dual income and access to credit cards. They would be paying 18.5%(highest interest rate) for this insurance. Throw everything at the credit card debt and when the water heater goes out or anything else, then charge it on the lowest credit card or slow down debt payment for one month.

Stop making 401k or any other investments until the cc debt is paid off.
 I would also shop around for lower credit card rates and transfer the high rate balances to a low rate.
« Last Edit: December 01, 2012, 01:50:53 PM by FrugalToque »

Another Reader

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Re: Need to change my ways
« Reply #17 on: December 01, 2012, 04:17:12 PM »
The need exists because:

1. a job loss (his job is new)

2. access to credit could be reduced or cut off.

I agree balance transfers are a good idea and to throwing as much as possible at the high interest debt.

tomsang

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Re: Need to change my ways
« Reply #18 on: December 01, 2012, 06:07:22 PM »
The need exists because:

1. a job loss (his job is new)

2. access to credit could be reduced or cut off.

I agree balance transfers are a good idea and to throwing as much as possible at the high interest debt.

Again. I think it is expensive insurance. Right now he has cc debt at 18.5%.  Credit Card companies don't pull your credit if you lose a job. Rather than stockpiling cash at .01%, you could draw on your credit card the day you hear about your job loss and pay the high interest when there is true value. With dual income, unemployment insurance, and hopefully some understanding of your job security you should be able to manage the risk well. Paying 18.5% is a a guaranteed losing proposition, whereas the usefulness of a cash reserve has a lot of what ifs.