Our budget and general current situation.

[Zoe]

Hello all,

I've been reading MMM for several months now and I am intrigued and excited! We started off as Dave Ramsey fans and started paying off our debts as fast as we could. Monday I will be paying off our final debt, student loans! We will then be debt free!

We are 29 and 25, married, 16 month old child. I work part-time (I carry the health insurance), just bumped my 401K deduction to 15% per paycheck. I was told my company matches like this: You put in $1K, they put in $500. You put in $2K, they put in $500. I currently have about $2,200 in it. I started retirement late.

My husband works though a temp agency for a plant. They keep talking about hiring him on permanently at the plant. He makes decent money through the temp agency, but if he gets hired, he will get about a $6/hr raise which will be very nice. He does not have a 401K through them (and doesn't have one at all), so I was thinking about him opening a Roth IRA and start contributing to that.

We want to start investing and I just read the blog about VTSAX and am really thinking about that! We will have to save up the $10K over the next several months, but I think its' a good option for long term investing.

Our monthly budget looks like this:
Income Total: $3,068
Rent $500
Water ~$80
Natural Gas ~$95
Electricity $201 (equal payment plan) (House is a 4 bedroom. Pretty big, but my in-laws bought it for us to rent from them.)
Life Ins $31.50 (Husband. I have some through work. I need to get an additional policy to have slightly more coverage.)
Renter's Ins $13.17
Car ins $31.50 (paid every 6 months at $189)
Auto gas $200
Netflix $8.47
Cell phone $37.73 (my husband is on a family plan with his parents. This is my Virgin Mobile crappy coverage plan.)
Internet $47.99
Fun Money $100 ($50 each)
Grocery & Household $700 (This is mostly organic foods. We eat a fairly primal diet. Also includes cat food and litter. We do not use paper towels, or commercial cleaners. I use vinegar to clean. I make my own soap. We use Soap Nuts for the laundry.)

We use cloth diapers for our child and he eats the same stuff we do.

That leaves us with $1,016 every month. Well, a little less when we have something come up. Usually less than $100 though. Bigger items get budgeted for when we see them coming up in the future.

Our parents watch our child when our schedules over lap. So, other than a little extra gas, there's no child care expense.

What have I left out? Anywhere we can improve? What should we do with the $1K/mo? We will have about a 6 month E-Fund set aside in case of a lay off (my husband has actually been laid off twice. The longest was 3 months.)

Thanks in advance!

[dorothyc]

We want to start investing and I just read the blog about VTSAX and am really thinking about that! We will have to save up the $10K over the next several months, but I think its' a good option for long term investing.

Have you considered Betterment? You can open a traditional IRA with them and there is no minimum opening balance. The traditional IRA option will allow you to deduct your contributions at your income level, and you can set up an auto deposit schedule that works with your pay days.

See link here
http://support.betterment.com/customer/portal/articles/934703-does-betterment-offer-iras-

[icefr]

He does not have a 401K through them (and doesn't have one at all), so I was thinking about him opening a Roth IRA and start contributing to that.

If his work doesn't have a 401(k) at all, he should be eligible for a Traditional IRA deduction (max $5,000 for 2012 and you can contribute up until April 15th of this year / before you file your taxes and $5,500 for 2013), unless your household Adjusted Gross Income is over $178,000. See this table: http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work

If you don't meet that requirement, a Roth IRA is a good option too.

Note that the boundary is $95,000 if you have a 401(k) at work: http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work So you may be able to use a Traditional IRA for both of you, depending on what your income level is.

We want to start investing and I just read the blog about VTSAX and am really thinking about that! We will have to save up the $10K over the next several months, but I think its' a good option for long term investing.

You don't need to save up the $10k and do it all at once - you can do it in any increment you want. Also, each of you would have your own accounts of each of the following types: Traditional IRA, Roth IRA, 401(k). Have you put any money into IRAs for 2012? If you have the funds to do so before April 15th, I would mark your contributions against the 2012 tax year, rather than 2013.

The suggestion of Betterment isn't bad. Vanguard's target retirement date funds, e.g. for 2050 https://personal.vanguard.com/us/funds/snapshot?FundId=0699&FundIntExt=INT are great as well and have lower expenses than Betterment. What I would do if you want to go that route is to save up $1,000 for one of you, open an IRA into the 2050 (or whichever date you choose) target retirement date fund. Then save up another $1,000 for the other one of you and fund that IRA account. Poof, you can then put in $100 increments into either of your IRA accounts :) You can set it up on automatic transfer, on paycheck direct deposit (my favourite option!), or do so manually.

Auto gas $200

You're spending $200/month on gas? How much do you drive and what kind of fuel consumption do your cars get?

Grocery & Household $700 (This is mostly organic foods. We eat a fairly primal diet. Also includes cat food and litter. We do not use paper towels, or commercial cleaners. I use vinegar to clean. I make my own soap. We use Soap Nuts for the laundry.)

This is the only thing that seems high to me, but I don't know where you live and cat food and litter could possibly also be expensive.

What have I left out? Anywhere we can improve? What should we do with the $1K/mo? We will have about a 6 month E-Fund set aside in case of a lay off (my husband has actually been laid off twice. The longest was 3 months.)

Do you plan on buying a house at some point or continuing to rent from your in-laws? Both are good options, but they do affect what you do with your ~$1k/month.

I would consider using your ~$1k/month to open IRAs for the both of you, marking the contributions for 2012 if possible. You could possibly get $1k in each of your IRAs before the April 15th deadline depending on when this $1k/month appears. Then set up automatic contributions of $500/month to each of your IRAs to cover the 2013 contribution room.

What do the funds look like in your 401(k)? If those are good, I would also consider putting some more money in there since it's pre-tax immediately (you don't get the IRA deduction until you file your tax return) and it's automatic off your paycheck.

[Zoe]

He does not have a 401K through them (and doesn't have one at all), so I was thinking about him opening a Roth IRA and start contributing to that.

If his work doesn't have a 401(k) at all, he should be eligible for a Traditional IRA deduction (max $5,000 for 2012 and you can contribute up until April 15th of this year / before you file your taxes and $5,500 for 2013), unless your household Adjusted Gross Income is over $178,000. See this table: http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work

If you don't meet that requirement, a Roth IRA is a good option too.

Note that the boundary is $95,000 if you have a 401(k) at work: http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work So you may be able to use a Traditional IRA for both of you, depending on what your income level is.

That's good info! Thank you. I will look more into that. We already filed our taxes and got our small refund.

We want to start investing and I just read the blog about VTSAX and am really thinking about that! We will have to save up the $10K over the next several months, but I think its' a good option for long term investing.

You don't need to save up the $10k and do it all at once - you can do it in any increment you want. Also, each of you would have your own accounts of each of the following types: Traditional IRA, Roth IRA, 401(k). Have you put any money into IRAs for 2012? If you have the funds to do so before April 15th, I would mark your contributions against the 2012 tax year, rather than 2013.

Ah, I thought I read for the VTSAX fund (my Vanguard account didn't have it as an option for my 401K) had a $10K minimum. Might have misread that part. Neither of us have IRA's at this point. We wouldn't be able to hit the $5K before April 15th.

The suggestion of Betterment isn't bad. Vanguard's target retirement date funds, e.g. for 2050 https://personal.vanguard.com/us/funds/snapshot?FundId=0699&FundIntExt=INT are great as well and have lower expenses than Betterment. What I would do if you want to go that route is to save up $1,000 for one of you, open an IRA into the 2050 (or whichever date you choose) target retirement date fund. Then save up another $1,000 for the other one of you and fund that IRA account. Poof, you can then put in $100 increments into either of your IRA accounts :) You can set it up on automatic transfer, on paycheck direct deposit (my favourite option!), or do so manually.

The Vanguard 2050 is what my 401K is set at. It's pretty aggressive according to Vanguard. And I think we will definitely be opening the IRA's very soon and add to it every month.

Auto gas $200

You're spending $200/month on gas? How much do you drive and what kind of fuel consumption do your cars get?

Unfortunately, we do drive a bit. I drive about 40 miles round trip/ 5 days a week. '94 Lincoln Town Car. Gets about 24 mpg highway, which is pretty much all I drive. Paid cash for it a year ago. We have a loaner Chevy Tahoe right now that is a beast on gas. We're looking to purchase a more fuel efficient car to replace this at a budget of under $3K. Husband works a weird schedule. He drives a max of 4 days per week, 3 days on the others.

Grocery & Household $700 (This is mostly organic foods. We eat a fairly primal diet. Also includes cat food and litter. We do not use paper towels, or commercial cleaners. I use vinegar to clean. I make my own soap. We use Soap Nuts for the laundry.)

This is the only thing that seems high to me, but I don't know where you live and cat food and litter could possibly also be expensive.

We're in the Upstate of SC. I am actually looking at getting a half cow and a half pork from a local farm this year. I think this will reduce the grocery budget a little. But, I'm not really trying to cut our food budget. We eat well. I mean, I do try to shop stuff on sale, but wouldn't you know, there's never coupons for crap that isn't processed and boxed :/

What have I left out? Anywhere we can improve? What should we do with the $1K/mo? We will have about a 6 month E-Fund set aside in case of a lay off (my husband has actually been laid off twice. The longest was 3 months.)

Do you plan on buying a house at some point or continuing to rent from your in-laws? Both are good options, but they do affect what you do with your ~$1k/month.

We do want to buy a house sooner than later. We want to save a minimum of 20% of whatever the purchase price is (Decent houses around here are $100K or under and we plan on a 15 year mortgage). Seems like it's going to take us quite a while to save up that amount though.

I would consider using your ~$1k/month to open IRAs for the both of you, marking the contributions for 2012 if possible. You could possibly get $1k in each of your IRAs before the April 15th deadline depending on when this $1k/month appears. Then set up automatic contributions of $500/month to each of your IRAs to cover the 2013 contribution room.

What do the funds look like in your 401(k)? If those are good, I would also consider putting some more money in there since it's pre-tax immediately (you don't get the IRA deduction until you file your tax return) and it's automatic off your paycheck.

Vanguard 2050. I just bumped my deduction up to 15%. But taxes are already filed.
Excellent information! Thank you!

[icefr]

Ah, I thought I read for the VTSAX fund (my Vanguard account didn't have it as an option for my 401K) had a $10K minimum. Might have misread that part. Neither of us have IRA's at this point. We wouldn't be able to hit the $5K before April 15th.

Aha, I see your confusion now :) Yes, VTSAX has a $10k minimum. That one's name is Vanguard Total Stock Market Index Admiral Shares. There is another version of it called Vanguard Total Stock Market Index Investor Shares which only has a $3k minimum: https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT

Or you can use a target date fund that only has a $1k minimum.

We do want to buy a house sooner than later. We want to save a minimum of 20% of whatever the purchase price is (Decent houses around here are $100K or under and we plan on a 15 year mortgage). Seems like it's going to take us quite a while to save up that amount though.

If you need $20k for a down payment on a house plus say $5k for closing costs, that would take ~25 months to save up for at your current rate if you skip the IRAs. You can't max out the IRAs and save up for a house though, but you also don't have very much saved for retirement yet. So you're going to have to decide how much you want to put to each. Do you want to buy a house in two years? Or buy a house in 4 years and put some money to retirement along the way?

[Zoe]

Ah, gotcha :)

Here's another question: I got a small inheritance and with what we have in the bank right now, we have about $55K. I was going to pay off my student loans tomorrow to the tune of about $39.5K.  Interest rate is somewhere in the 5.5-6% range I believe. Another thought was that we buy a fixer upper in cash for no more than ~$48K, that way we wouldn't have to worry about paying the rent if my husband got laid off. But, obviously the house would need repairs along the way, and we want to contribute to the IRA's and whatnot. But for instance, the house we were looking at was on a well (no water or sewer bill), was under 1,000 sq ft and has a fireplace. Low utilities. No rent/mortgage. That would save us a good bit. And then we could invest and pay off student loans along the way. Good idea? Bad idea?

Or, should we put a huge chunk of that $55K into IRA's and investments?

What would you do?

[dan]

Hi.

Perhaps I missed it, but I didn't see any mention of an emergency fund.  Do you have one?  It seems prudent, especially if you are worried about your husband being laid off.

[Zoe]

Yes, we have $55.5K sitting in the bank right now (until we decide what to do with it) and then we'd like to keep about $10K for an efund. If we paid cash for a house we could drop the efund down to about $6K.

[icefr]

I'm confused - where are the student loan payments coming from? They weren't listed in your budget.

If it was me, I would probably take $10k of that $55k and open IRAs for the 2012 tax year for both of you. Set aside another $12k for an emergency fund (6 months at $2k/month spending) and throw the remaining $33k at your student loans. 5.5-6% is a reasonably high interest rate when you could borrow a mortgage at 3-4%. If you can save $1k/month, you would have your loans gone in another ~6 months.

So at the end of September, your assets would look like this:
$0 debt
$12k emergency fund
$10k IRAs
$3-4k 401(k)
----------------
$25-26k net worth

Or you could just pay them off completely, leave the rest as an emergency fund and not worry about IRAs for the 2012 tax year.

Then, with no debt, you can choose between saving for a house and IRAs. Are you working part-time to get health insurance for the family instead of staying at home with your child? Can you find a full-time job? If your husband gets that $6/hr raise, that would mean probably around an extra $10k net/year for you guys, which would do wonders for your saving powers.

[Zoe]

Sorry, didn't mean to confuse. Student loans are in deferment right now (payment would be somewhere around $450/mo). I didn't list them initially. We were going to just pay them off with the inheritance, but thought I would as if there was something better we could do with the money.

The first plan of action seems like a reasonable one. We'll probably do that. We'll have to amend our return, right?

I'm working mostly because I love my job, and the other reason is health insurance. Plus, I like being home with my son for the majority of the day. And also, my husband works 12 hours swing shifts (days and nights), so it would be really awful trying to coordinate childcare with our parents if I worked full-time. I am going to be interviewing for a supervisor position later this year that would bring a $2+/hr raise (about 30 hours per week). And I make pretty decent money for a part time job. Did I mention I love my job? :)

I REALLY can't wait for him to get that raise. It will definitely do wonders for our saving power!

[icefr]

Sorry, didn't mean to confuse. Student loans are in deferment right now (payment would be somewhere around $450/mo). I didn't list them initially. We were going to just pay them off with the inheritance, but thought I would as if there was something better we could do with the money.

No worries :) That makes sense. How long are they in deferment for?

The first plan of action seems like a reasonable one. We'll probably do that. We'll have to amend our return, right?

Yes, it looks like the IRA deduction is line 32 on the 1040 and you would take $10,000 for that, which directly reduces your Adjusted Gross Income and then you should get an additional refund which you can use to either put towards a down payment or into IRAs for 2013 :) I'm guessing that should be around $1,500 depending on where you fall in the tax brackets. I don't know anything about state tax returns though.

I'm working mostly because I love my job, and the other reason is health insurance. Plus, I like being home with my son for the majority of the day. And also, my husband works 12 hours swing shifts (days and nights), so it would be really awful trying to coordinate childcare with our parents if I worked full-time. I am going to be interviewing for a supervisor position later this year that would bring a $2+/hr raise (about 30 hours per week). And I make pretty decent money for a part time job. Did I mention I love my job? :)

I REALLY can't wait for him to get that raise. It will definitely do wonders for our saving power!

I can tell you love your job :) Good luck getting those raises and remember to bank them! If you can get them and bank them both, that should be an extra $300/month or so for you guys to save, a 30% increase, which will make a huge difference.

One thing from your expenses. If you're not working from home, you might be able to lower your speed and pay less. I'm with Comcast and I was paying ~$50/month until someone on these forums suggested I call and lower my speed. I'm now paying ~$30/month.

Congratulations on getting through your debt! Now comes the far more fun part - building your stash and watching the numbers grow each month :)

[Zoe]

I think one set is in deferment until July, and the other December. One is ~$19K and the other is ~$20K.

Thanks for the tax info! I was browsing around in TaxAct and found their Help section on it. I'll get on that shortly!

I will see if we can lower our speed. We do use Netflix though, so we need it to be fast enough to support streaming.

Thank you so much for getting us on a 'stache path! I'm so glad I found this forum.

[icefr]

I think one set is in deferment until July, and the other December. One is ~$19K and the other is ~$20K.

I would make sure you pay off the one due in July in full and the partial payment to the other one and you shouldn't end up paying any interest on them at all!

Thank you so much for getting us on a 'stache path! I'm so glad I found this forum.

You're welcome! Come back and let us know when you've paid off the student loans in full :)

[Zoe]

I actually realized one loan was at 6.8%! I paid that one in full this morning. The other one is the one that averages 5-6%. Made a $8,900 payment on that one. Gotta move some money around and will pay about $3K or $4K more in a couple of days. Tonight when I get home from work (and the house is quiet!), I will finish setting up and funding the IRA's. The $12K E Fund transfer is on it's way to ING, well, Capital One. I have a few soap supplies I want to purchase (couple hundred or so) since I sell a few bars here and there. I hope to get that up and running as a legit side hustle this year.

[icefr]

Awesome!!! I can't wait to see that second one gone as well :)