Author Topic: Reader Case Study: Newlyweds needing a plan  (Read 4252 times)

chemgeek

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Reader Case Study: Newlyweds needing a plan
« on: August 12, 2014, 12:56:28 PM »
Background: I'm 27 and my (new!) husband is 28. He has a BA in finance and makes decent money but is not in love with his current company and thinks getting an advanced degree will get him to the types of positions he would like. His current company offers up to $6k a year educational reimbursement, though you have to stay on for a year afterwards, so we may not be able to take full advantage of this.

 I just finished my PhD in chemistry and am currently doing a govt post-doc, looking to get into an industrial position in 1.5/2 years time, though I'm not optimistic about this time frame given how the first job search went. We're in the greater Boston area and have no interest in moving out of the area because of proximity to family.

Income: Husband, $75,000 (starting Sept 1) with a potential $7k bonus at year end, me $69,500
Do to the nature of my work I have no witholding taken out and am responsible for quarterly tax payments ( which I'm hopefully overestimating). After taxes and his 401k contribution (6% with 3% company match) our take-home pay is approximately $7000/mo.
 

Current expenses:
Rent: $600 ( family discount, we just moved into an apartment my parents own and this is a bargain for the area)
My Health insurance: $487
Car: $250 ( this is an overpayment, see below)
Gas: $120
Tolls: $40
Insurance: $63
Netflix: $8
Groceries: $400. I know this is high based on mustachian standards, but in grad school I was happy to pay for convenience being pressed for time and being tired. I'm cutting us some slack as we learn to meal plan and cook better, so I expect this to drop going forward.
Gym (him): $75
Phone: (him) $90 through At&T, (me) $30 on a family plan through my parents but I am researching MNVOs for us both to switch

We opened a Chase sapphire card ( hello 50,000 bonus points) and charge the majority of our expenses and pay it off at the end of the month.

Fixed monthtly expenses: $2163

Assets:
 401(k): $65,240.70 through Ascensus
Roth IRA: $320, Sharebuilder, opened this when I was close to graduating after someone opened my eyes to compound interest, not a lot but a place to start
Savings for a House: $25,000 in a Capital1 savers account
Random Savings: $2500
Charles Schwabb Investment Account: $3037
Total Assets: $96k

Liabilities:
Auto Loan: $6,247.77, 48 months @ 2.69%. 2008 Manual Honda Civic
Student Debt: $ 16,813.69 ( split over 5 loans, 1.0%, 5% and the rest at 6.8%). These go into full repayment at the end of September.
Total Liabilities: $23,061.46

Questions:

I think we're in a pretty decent position for our age, but I really want to start on a road to financial security for our future. We would like to buy a house as soon as I have a permanent job ( so I can gauge a commute) so potentially in 1.5/2 years time. Our max budget for a house is $315k, which will give us some options but will require careful looking and buying a fixer-upper most likely to get into towns we'd be happy with. So in 1.5 years we'll need a 60-70k downpayment in place, plus closing costs and an emergency fund.

So my questions are:
1) My thought has been to throw money at the student loans to pay them down as fast as possible. This should be easily done within a few months. After that, should we pay off the car entirely or with such a low interest rate, keep it? The minimum required payment is less than half of what we have been paying a month.

2) I opened a Roth IRA without fully appreciating the differences between it and a traditional IRA. Was this the right choice or should I switch to a traditional account, or have one of each?

3) Is there a better place to be investing than Schwabb?

Basically, I'm open to hearing any tweaks you fellow mustachians would make in our situation to maximize your money, with the goals that in the next 2-4 years we want to buy a house, my husband may go back to graduate school part time, and we'd like to be thinking about having some kiddos. Any suggestions would be greatly welcomed!


ZiziPB

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #1 on: August 12, 2014, 02:02:28 PM »
My Health insurance: $487

That seems really high.  Now that you are married, can you get insurance through your husband?  Presumably it would be less than $487 per month.

Gimesalot

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #2 on: August 12, 2014, 02:18:37 PM »
Q1)  This is what I would do: I would pay the 5% and 6.8% student loans.  Then, start researching home financing.  There are a lot of options out there and each one has a limit on income, downpayments, LTV limits, etc.  Then you can determine the best path forward in terms of saving or paying off debt.

Q2) I prefer the ROTH IRA in combination with a 401k.  Although my taxes will most likely go down in retierment, I like the strategy of having tax diversification.  You may also want to look into the self employed 401k or defined benefit plan if you really want to boost your savings.

Q3)  A lot of the people on these forums like Vanguard.  Personally, I buy Vanguard funds through Scottrade and have no issues.  It just depends on how much your fees are for your account and for each trade.

minimustache1985

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #3 on: August 12, 2014, 02:19:33 PM »
Well first off, congratulations on your marriage! 

Honestly I'd stay renting there indefinitely with that sort of rent cost vs looking at 315k for a house, and re-evaluate when you (or both of you) change jobs based on the commute.  Without a firm plan to buy a house I'd focus on the loans and investing in liquid assets that you can always pull if buying turns out to be the best bet.

1) As you're thinking, pay off the student loans, although I might leave the 1% one on autopay of its minimum if you're not debt-averse, that's an incredible rate.  The car it's truly a personal preference, I also have a 2008 civic and paid off a 1.9% financing deal years early just to be done with it, but if you'd rather invest the additional monthly cash flow that makes more sense on paper.

2) Roth IRAs are almost always the best option, you can take contributions out at any time (one of the few retirement accounts you can touch before 59.5 although gains have to be left alone until then), and it sounds like you and your husband may make too much to qualify for the tax breaks associated with a traditional anyways.

3) I'm a big fan of Vanguard and their low fees.  Index investing is what I went with and saved money there, and then when it was time to buy a house I sold a chunk of the funds for the down payment/closing costs.  If the stock market goes down your investments can too so that isn't always a good plan for a short term horizon like 2-4 years, but until you know where your jobs are going to be (and that you like them and want to buy near them!) I wouldn't miss out on potential gains by keeping that down payment fund in a low interest bank account.

Questions:
$487 is a LOT for a healthy person under 30- are you able to sign up on your husbands insurance through his work instead?
Your expenses don't include any fun but netflix.  If you don't spend money on other entertainment/dining/bars that's admirable, but I suspect you're missing an expense chunk here.
Is your internet included in rent?  Utilities?  I don't see those on your expenses list either.

Grocery wise if you're not eating out at all that really isn't bad.  Not that you can't improve it which it sounds like you're working on, but I wouldn't kill yourself on that area, especially if your values tend to increase prices (for example I only buy wild-caught seafood, which costs more than farm-raised) or some of those convenience foods keep you from eating out instead.

chemgeek

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #4 on: August 12, 2014, 02:37:33 PM »
Health Insurance: The premiums to get put on my husband's insurance through his work would have actually been higher, over $600 a month. There were a few cheaper options through one MA health exchange ( somewhere around $200/mo), but my husband was worried about dropping down to a too cheap plan and then regretting it in case of an accident. I am by all means healthy, take no prescriptions, and pretty much avoid doctors at all costs. But, we had a friend last year, my age, have an aneurysm out of the blue, and that has made my husband weary of bare bones health plans. Benefits is one reason I'm anxious to transition to a permanent position as soon as I can.

Renting vs. buying: Our rent situation is a deal and a half. We live in an apartment in a 4-family house that my parents own ( and live in as well). The rental income is part of their retirement plan. My sister and her husband lived in the same apartment for 5 years and just moved into a house, and we took their place. They could easily be getting $2000 a month for the apartment in our market. They're happy that the apartment is serving as a launchpad for their kids, but eventually would like to be taking in market value rent, which I don't blame them for.

I didn't include any other entertainment costs because we're still figuring that out. I just graduated at the end of May and coming off 5 years of a grad student stipend, there wasn't much left over to go out all the time, so our biggest "entertainment" for the past few years has been ordering food in and watching movies. We're old before our time perhaps, but time on the couch was more fun than going out and overpaying for booze : )
« Last Edit: August 12, 2014, 02:39:18 PM by chemgeek »

4alpacas

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #5 on: August 12, 2014, 02:46:09 PM »
1) My thought has been to throw money at the student loans to pay them down as fast as possible. This should be easily done within a few months. After that, should we pay off the car entirely or with such a low interest rate, keep it? The minimum required payment is less than half of what we have been paying a month.
I would pay off the high interest loans quickly.  The lower interest rates (1%) would be stick around (my opinion).

2) I opened a Roth IRA without fully appreciating the differences between it and a traditional IRA. Was this the right choice or should I switch to a traditional account, or have one of each?
You should decide between the traditional and roth based on your own retirement goals.  http://www.bogleheads.org/wiki/Roth_versus_Traditional

3) Is there a better place to be investing than Schwabb?
A lot of people are Vanguard fans.  I'm partial to Fidelity.  Check out jlcollinsnh's stock series http://jlcollinsnh.com/stock-series/

chemgeek

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #6 on: August 14, 2014, 08:39:29 AM »
I'm only half way through, but the jim collins stock series has been incredibly helpful at demystifying a lot of things ( that and the investopedia dictionary). Thanks 4alpacas !

Patrick A

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Re: Reader Case Study: Newlyweds needing a plan
« Reply #7 on: August 14, 2014, 09:47:23 AM »
At your income level, you should be doing whatever you can to reduce your tax burden.  I realize this doesn't answer any of your questions about debt or expenses, but it is probably in your best interest to max out any tax deferred retirement accounts (401k) if you can.