Hi Everyone,
I'm Ruben from South Florida - Hello!! Started reading the MMM forum about 3 months ago, and to say that my life has changed would be a huge understatement. To quickly sum up, I used to spend 100% of my salary plus the chunks of student loan proceeds left over (just finished grad school 2 months ago) and any money I could get my hands on as soon as I got it completely indiscriminately - Quite shameful for an accounting professional. Luckily, my credit had been in bad shape until recently, so I was unable to rack up credit card debt. Today, my (personal) savings rate has gone up to well over 55% of my $54k/year after tax salary (includes personal and student loan principal debt repayment in savings). I don't (think) I have any current issues with my personal spending (after all, I'm spending around $24k/year, which includes a luxurious $2,500 vacation and $1,800/year incidentals stipend), though please feel free to school me.
I live with my fiancee, whom I'll marry in March of 2014. I've slowly tried to introduce mustachianism to her, and she is really picking it up quick. Haven't showed her the blog yet, but I actually got her to max out her 100% matching 401k and to segment off 20% of her salary to a savings account to which she doesn't have quick access (she increased it to 40% without me saying a word!).
We use a bank account from which we pay all joint expenses, but our finances are for the most part separate. Below is our current financial position:
Salaries:
Mine - $54k after tax (doesn't include variable bonuses which could be very substantial; keeping it conservative)
Hers - $104k before tax
Housing (biggest issue):
My fiancee owns a 2 bedroom condo which is really ridiculously small but in a good area. She bought it at the absolute peak of the 2008 bubble for $240k. The current Zillow estimate for the condo is $94k and our remaining balance on the debt is $196k @ 4.5%. We want to have kids soon and buy our permanent home within the next 2 years (She is 35... if we wait too much for kids, it'll be risky). The current market for the kind of home we'd like is between $270-$320k
Student loans (second largest issue):
Mine: $64k @ 6.25% average
Hers: $140k @ 3%
Other debt:
Mine:
I owe two personal loans (from a dark past... not worth getting into) -
Loan one: $5k current balance @ 4.5%
Loan two: $18k current balance @ 0% (making $100/month payment)
Hers:
10k personal loan @ 5%
I know we have a debt emergency, no question there. My question is what to do with the money I've freed up. One thing I know is I'll pay off the $5k personal loan first (I owe this money to a person I seriously dislike, so not a purely financial decision). After this, the tentative plan is we would focus on saving for a relatively large down payment on the new home. I've gone back and forth questioning the wisdom of moving to a bigger place at this point... it would be very easy for us to get credit at fantastic rates, we could really use the space, etc... plus my fiancee is 100% sold on the idea of moving (biggest motivator in getting her to save more), but we have so much debt! The idea is we would keep the home we currently live in as a rental unit - Current market rent for it is $1,350/month and monthly fixed expenses excluding utilities (which tenant will cover) and loan repayment portion of mortgage are $840. So even if we factor in vacancies and service calls (which I would try to fix myself), the home can be somewhat profitable, especially as the mortgage is paid down and interest expense is reduced. I wanted to see if anyone had experience with severely underwater properties like these and what to do with them in situations where there really isn't any financial distress... Is shortsale an option? how about a deed-in-lieu or something? Getting rid of it right after we secure credit for our new home would be an absolutely ideal solution in my book. All advice would be appreciated.
Second question is, once I pay off my student loans (highest interest), should we focus on investing or paying down mortgages and other debt?
Any other advice or words of wisdom? I would greatly appreciate any bits on getting on the same page with a spouse regarding saving and retirement goals, specially at this "extreme" level :-) Thanks much in advance!!
Ruben F.