Author Topic: New to the boards - Introduction and request for advice :-)  (Read 5100 times)

RubenDF

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New to the boards - Introduction and request for advice :-)
« on: August 23, 2013, 12:29:23 PM »
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.

Jules13

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Re: New to the boards - Introduction and request for advice :-)
« Reply #1 on: August 23, 2013, 04:36:39 PM »
If it were me, I would focus on paying off all the debts first.  Then, save an emergency fund before starting to save for a down-payment on another place..  Nothing derails serious savings more than not having an emergency fund. 

As for the condo...wow, really upside down.  I have been told by a realtor in my area that Zillow is historically wrong though.  Zillow estimates my house at $320k and he says (and I believe him as I follow real estate in my area) that he could easily get over $400k for my house.  So, if you want to sell the condo, I say consult with a real estate agent to get the real scoop on that before making any decisions about that.

Good luck...I'm hoping to post my budget soon too for some pointers.  Trying to organize it all.

Jules


MeForNow

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Re: New to the boards - Introduction and request for advice :-)
« Reply #2 on: August 24, 2013, 02:10:50 PM »
Do you have an emergency reserve fund?  Maybe it is listed in your post and I am missing it?

If not, I would certainly put half of your excess into an emergency reserve rather than into debt repayment.  I'm not sure for how long or how much....  But this is important in order to avoid more deep dark kinds of problems resulting in debt.  Also allows more and better choices.

You plan to pay off the personal debt, then student debt.  What you do next after than is not a pressing issue.  I doubt I'd really have advice, but it seems pretty far it in the future to me at this point.  Especially since you also want to save for down payment.

I feel I'm not being very helpful here, but I would encourage you to do lots of detailed number-crunching with the money you are saving, and splitting it up among 1. Emergency reserve 2. Student loans, personal loans. 3. Saving for down payment
That seems like PLENTY to do, especially since you want the new house quickly.........

Mega

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Re: New to the boards - Introduction and request for advice :-)
« Reply #3 on: August 26, 2013, 08:23:37 AM »
Have the kid, but realize that it will change your life and priorities forever. Kids don't take up to much space until they are older. Buy everything used.

Sweet Betsy

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Re: New to the boards - Introduction and request for advice :-)
« Reply #4 on: August 26, 2013, 09:31:37 AM »
I have to concur that you should stay in your current home for as long as possible.  Throw everything you've got at your personal loans, then an emergency fund.  Once you have a solid emergency fund in place, keep throwing money at the student loans.  When your wife gets pregnant, then start considering the purchase of a new home.  You could have at least 2 years before a baby even shows itself. In the meantime with your salaries and dedication you could have everything paid off. 

I do like your idea of renting out the condo when you are ready to move into a bigger place.  Values will come back eventually and your incomes should make it easy for you to keep up with the payments. 

Frankies Girl

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Re: New to the boards - Introduction and request for advice :-)
« Reply #5 on: August 26, 2013, 09:44:41 AM »
You have a large amount of debt.

If you're seriously asking whether paying off debt or taking on even more debt for a larger/fancier house is a good idea... then I'm not sure you're really getting the basic principles of being mustascian.

Kill the debt. All of it. Stay where you are and make it work until all of that debt is gone. With both of your current salaries, it shouldn't take more than 3-5 years, less if you really buckled down.

That doesn't mean not starting on the kid thing soon, but like someone else has kindly pointed out, babies and toddlers don't take up much space - it's the baby crap that does that and as long as you're not getting suckered into buying every last stupid thing that marketing pros think you need to raise a baby, then you'll be fine. And buy second hand when possible (also already mentioned) babies don't care if it's new or fancy - they just care about warm, dry and comfortable.

If your wife decides to not return to work, or work part time, you'll be even happier that you took out as much debt as possible before spawning.

But seriously, kill the debts. Don't add to them.
« Last Edit: August 26, 2013, 11:24:46 AM by Frankies Girl »

RubenDF

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Re: New to the boards - Introduction and request for advice :-)
« Reply #6 on: August 26, 2013, 01:14:08 PM »
Thanks all for your responses!


Kill the debt. All of it. Stay where you are and make it work until all of that debt is gone. With both of your current salaries, it shouldn't take more than 3-5 years, less if you really buckled down.

That doesn't mean not starting on the kid thing soon, but like someone else has kindly pointed out, babies and toddlers don't take up much space - it's the baby crap that does that and as long as you're not getting suckered into buying every last stupid thing that marketing pros think you need to raise a baby, then you'll be fine. And buy second hand when possible (also already mentioned) babies don't care if it's new or fancy - they just care about warm, dry and comfortable.

If your wife decides to not return to work, or work part time, you'll be even happier that you took out as much debt as possible before spawning.

But seriously, kill the debts. Don't add to them.

This is what every fiber of my being leans toward. Even though I can't decide to do this unilaterally, I know half of the decision is mine to make. My future wife hates talking about money and although she is saving a lot at the moment, she's only doing so because I held out the "let's buy a new house!" carrot at the end of a stick and waved it in front of her...

Even though my initial post was geared toward asset allocation, I think the core of my "issue" is how to get on the same page with her, with the added complication of our relationship still being in the "engaged" stage and fairly new (though we've lived together for almost a year now)... Realistically speaking, we could stay in this apartment until the baby reaches 2-3 or so and needs a room of it's own (second room is home office which I need for telecommuting right now), which would give us 4-6 years in this condo. If we were to be on the same page about spending (and even allowing for a huge $500/month discretionary allowance for her), we could absolutely obliterate our debt in 3-4 years while still maxing out our 401k...

I want to get her on the Mustachian boat. And I'd like for both of us to start combining our finances, just so that we can start working towards a common goal. Can it be done?

Ruben F.

EMP

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Re: New to the boards - Introduction and request for advice :-)
« Reply #7 on: August 26, 2013, 01:29:47 PM »
Thanks all for your responses!


Kill the debt. All of it. Stay where you are and make it work until all of that debt is gone. With both of your current salaries, it shouldn't take more than 3-5 years, less if you really buckled down.

That doesn't mean not starting on the kid thing soon, but like someone else has kindly pointed out, babies and toddlers don't take up much space - it's the baby crap that does that and as long as you're not getting suckered into buying every last stupid thing that marketing pros think you need to raise a baby, then you'll be fine. And buy second hand when possible (also already mentioned) babies don't care if it's new or fancy - they just care about warm, dry and comfortable.

If your wife decides to not return to work, or work part time, you'll be even happier that you took out as much debt as possible before spawning.

But seriously, kill the debts. Don't add to them.

This is what every fiber of my being leans toward. Even though I can't decide to do this unilaterally, I know half of the decision is mine to make. My future wife hates talking about money and although she is saving a lot at the moment, she's only doing so because I held out the "let's buy a new house!" carrot at the end of a stick and waved it in front of her...

So don't talk about money.  Talk about your plans for the future and introduce the idea that how you manage your money today will impact those decisions later. 

Also, I see you have a wedding date up there, but no info about wedding savings.  So (no judgement on the size of your wedding), are your wedding plans in line with your goals for the future?  Her goals? Why or why not?

RubenDF

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Re: New to the boards - Introduction and request for advice :-)
« Reply #8 on: August 26, 2013, 01:52:14 PM »
Putting things in terms of numbers is one of my flaws (always has been, and it's only gotten worse since coming to the Mustachian side of things). Even though it will be difficult, I think I will be able to at least discuss things without touching numbers. The only time I've brought up FI/ER with her, I printed a huge spreadsheet with budgets, estimated net worth, annual growth, budgets, etc. and did it all because I wanted to show her we could "retire early". Now that I've had more time to digest all of this, in hindsight, I think it would have been a much wiser decision to go easy on her, leave out the numbers and just focus on (like you said) the kind of life I see us leading in the not-so-distant future. Since I've already set an expectation with the first conversation, any advice on how to actually revisit the subject? My gut tells me to remain laissez-faire regarding money until after we are married and just talk about my plans for the future, etc... All input is appreciated!

Regarding the wedding, her parents will be paying for most of it, but we will be responsible for about $3,000. I already went through a pretty dirty road trying to suggest cheaper venues, money saving shortcuts, etc. but soon after realized that this was pointless as it wasn't my money, and her parents really want to spend it. Besides, I realized this is something she has dreamed of her whole life, and I do want to make sure she is happy :)

Ruben F.

MeForNow

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Re: New to the boards - Introduction and request for advice :-)
« Reply #9 on: August 26, 2013, 09:13:21 PM »
I'm not sure what the best way to talk to your fiancÚ is. I think if you were to approach it that there are some exciting ideas you are thinking about that are new to you that could be good....  But it's probably too late for that since you already did the chart and diagram session.

Here are my two suggestions and you'll have to decide whether they would work for you:

1. Since you've already done the chart & diagram session and it was a bit on the serious side, try to balance things out a bit by asking her about things... I would suggest you have a few conversations about money in which you do not present any new information about your ideas, and do not try to convince her of anything.  Ask her what she thinks about the charts you showed...
A. Hey honey, Remember those charts i showed you a couple weeks ago that were about saving money and early retirement and stuff. I know i get pretty serious and pretty excited about this stuff so I was wondering if it made any sense....... What was that about? Do you want to ask anything?
B. oh, I was thinking about those charts... It's a lot of information, and numbers, and could be really confusing.  What do you think? Was it boring?
C. So those charts I was showing you, the reason I made those is because I like to plan things. Since I'm gonna be married to you, I'd like to understand how you approach these things too.  Can you tell me about how you have approached money planning or how it was done in your family?
D. Have you ever seen charts like those before? Do You know anyone else who has a charts like that?
E. I know it can be a little overwhelming when I have my ideas all thought out with charts and everything, but I was wondering what you think about money and I want to take time to understand -maybe a little at a time even - for as long as it takes - so that I know what you think about money too. Even though I might have strong ideas, I realize it's about both of us.
F. If I could go slower and listen to you more, are there any of those charts you would like me to go over again or explain?
G. I showed you those charts really fast. I was wondering which parts were interesting to you. If I get the charts out, could you explain one of them to me? Or tell me what it means to you?

2. Stop misrepresenting your ideas about getting a new house anytime soon. You might want to say that you've changed your mind, or you might want to say that you're sorry you ever said that saving for a house was good goal. You can say very simply that you think that the large amount of debt is very serious.  At the very least stop misrepresenting your ideas and goals the way you have been doing.... Continuing to say that you want to save for a house could lead to big trouble later.  You set this idea out, so you need to correct it.  She very reasonably thinks you are both saving for a house. Don't continue this.  And don't pretend you didn't say what you did.


Roses

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Re: New to the boards - Introduction and request for advice :-)
« Reply #10 on: August 26, 2013, 10:13:45 PM »
I had this issue with my husband.  Try asking her what she really wants her life to be like.  That may change once you have kids, and that's fine.  But sometimes thinking about what you really want and how you have to give that up for the sake of buying things (i.e. new house) puts things into perspective quickly.  Now, if she paints a picture of luxury with a large home and lots of spending you might have to dig a lot deeper to figure out why that is.  In my case, my husband and I both realized that his obsession with 'nice cars' stemmed from a need to feel secure.  He was equating having a nice car with having 'made it' and being in a financially secure position (he comes from a country where you pay cash for cars, not credit).  Anyway, maybe that's too much psychology but it works with some people.

+1 to everyone who said don't upgrade the house yet.  Wait for the market to improve and even then make sure it's necessary.  I know many New Yorkers in closet sized apartments with happy little tykes running around!

+1 to paying off debt first!

RubenDF

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Re: New to the boards - Introduction and request for advice :-)
« Reply #11 on: August 27, 2013, 12:18:46 PM »

1. Since you've already done the chart & diagram session and it was a bit on the serious side, try to balance things out a bit by asking her about things... I would suggest you have a few conversations about money in which you do not present any new information about your ideas, and do not try to convince her of anything.  Ask her what she thinks about the charts you showed...
A. Hey honey, Remember those charts i showed you a couple weeks ago that were about saving money and early retirement and stuff. I know i get pretty serious and pretty excited about this stuff so I was wondering if it made any sense....... What was that about? Do you want to ask anything?
B. oh, I was thinking about those charts... It's a lot of information, and numbers, and could be really confusing.  What do you think? Was it boring?
C. So those charts I was showing you, the reason I made those is because I like to plan things. Since I'm gonna be married to you, I'd like to understand how you approach these things too.  Can you tell me about how you have approached money planning or how it was done in your family?
D. Have you ever seen charts like those before? Do You know anyone else who has a charts like that?
E. I know it can be a little overwhelming when I have my ideas all thought out with charts and everything, but I was wondering what you think about money and I want to take time to understand -maybe a little at a time even - for as long as it takes - so that I know what you think about money too. Even though I might have strong ideas, I realize it's about both of us.
F. If I could go slower and listen to you more, are there any of those charts you would like me to go over again or explain?
G. I showed you those charts really fast. I was wondering which parts were interesting to you. If I get the charts out, could you explain one of them to me? Or tell me what it means to you?


Thanks much! These are all great conversation starters and I especially like E - Great insight!


2. Stop misrepresenting your ideas about getting a new house anytime soon. You might want to say that you've changed your mind, or you might want to say that you're sorry you ever said that saving for a house was good goal. You can say very simply that you think that the large amount of debt is very serious.  At the very least stop misrepresenting your ideas and goals the way you have been doing.... Continuing to say that you want to save for a house could lead to big trouble later.  You set this idea out, so you need to correct it.  She very reasonably thinks you are both saving for a house. Don't continue this.  And don't pretend you didn't say what you did.


I can definitely see the importance of this. I have to admit that I too got carried away with the house thing, mainly because I got a major promotion/raise at work which although didn't increase my base salary, entitles me to a rather substantial number of perks - All thanks to Mustachianism and simply by asking confidently, BTW. Anyway, now that the rush from that promotion died down (and no rash decisions were made), I do know I have to be honest about where I stand regarding our debt and the new house situation. Thanks much for pointing this out.

And thanks to all who replied! Extremely helpful stuff, truly.