Author Topic: Reader Case Study - Getting to Zero  (Read 3612 times)

jadbgee

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Reader Case Study - Getting to Zero
« on: August 13, 2014, 02:05:50 PM »
Reader Case Study – Getting to Zero

I’m a 29 year old guy working in software, married with my first son arriving any day now.   We have two other wonderful boys from my wife’s first marriage.

I’ve made more than my share of mistakes, and for a long time I wasn’t planning on there being a future to plan for.  I dug myself quite a hole.

My wife came along and pulled me out of it, and now I have a steady job, my health and sanity, and a beautiful family.  It’s more than I could ever deserve.

That’s what brings me to MMM.  Getting up every morning and leaving them gets harder every day.  The kids are growing like weeds and I know I’m missing things right and left.   Here I am, ready to get punched in the face.  So I ask you, dear Mustachians, where should I start?

Income:

15.8 mile commute
Gross Salary - $75,675.60
Net salary after taxes, health insurance, and 1% toward 401k - $4,524.96
Yearly Bonus (very consistent) – 23% of Gross Salary – I’m guessing $10,455 after taxes
Child Support - $375.36 every other week, or if you want to look at it monthly ($375.36 * 26)/12 = $813.28

Total Monthly Income I can count on: $5338

Hopefully I still get the bonus and a tax return every year.

Expenses:
Trash Service - $13.50
Clothing - $250
Cable/Internet - $175
Life Insurance - $37
Utilities - $125
Prescription - $25
Wife Cell Phone - $40 (on her mother’s plan)
Car Insurance - $70
Netflix - $8
My Cell Phone - $73 (with work discount)
Food (groceries, eating out, toiletries) - $1148
Water Bill - $78
Gas - $325
Total: $2367.50

I’ll assume expected ER Expenses are the same:  $2367.50, or $28,410 yearly.

Assets:
2005 Pickup - $14,000
2011 Jeep - $12,000
House - $186,000
My 401k - $2,000 (50% employee match on first 6%, currently at 1% contribution rate)
Her 401k - $2,000 (rolled over, no current contributions)
Checking - $5,800
Savings - $10,000
Total:  $231,800

Liabilities:
Mortgage – 4% for 30 years - $176,000 - $1421 monthly
Wife Student Loan – 2% - $7,757 - $168 monthly
Alimony, sort of (credit card debt of my ex) – 14% - $15,234 - $413 monthly (57 months remaining, unless they’re paid off before then)
My Student Loan #1 – 9.75% - $5,571 - $45 monthly
2011 Jeep – 2% - $9,823 - $208 monthly
Stupid Consumer Loan – 6% - $4,900 - $230 monthly
2005 Pickup – 7% - $19,000 - $430 monthly
My Student Loan #2 – 4% - $15,196 - $105 monthly
Total Liabilities: $253,481
Monthly Liability Payments: $3020
Net Worth: -$21,681


You’ll probably note that expenses + liabilities exceeds income.  A bonus and/or tax return is currently a must to build up and then coast until the next one.

Rollin

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Re: Reader Case Study - Getting to Zero
« Reply #1 on: August 13, 2014, 02:23:41 PM »
I haven't studied your entire post, but the first thing I would do is drop cable (save ~$100 and pay that towards that high interest alimony/cc debt).  That high interest is gonna hurt for a long time.  Kill that debt.

Also, that pick up looks to cost a lot.  My guess is that it also hits you for more insurance too.  In fact, $31,000 in autos/trucks is pricey.  You may want to read some of MMM posts on clown cars and bicycles.

Once you start freeing up some of that money (from paying off that 14% debt and possibly ridding yourself of the pricey cars you can start to pay down others AND pay into your employer match.

Just a start.

shotgunwilly

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Re: Reader Case Study - Getting to Zero
« Reply #2 on: August 13, 2014, 02:28:10 PM »
Your cable and internet is high, reduce that.  A major issue you have is food costs.  Look at ways to reduce this drastically.  With work you can feed your family for more like 500-600 a month.  You may also think about getting rid of your truck.  You could sell it and use savings to pay remaining balance off.

Gimesalot

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Re: Reader Case Study - Getting to Zero
« Reply #3 on: August 13, 2014, 02:50:35 PM »
I would reduce clothing to $50 a month.  No new clothes for you and the wife, thrift stores and hand-me-downs for the kids.  Savings $200
Get ride of Cable and use the library for DVDs.  Savings $100
No more eating out since your hair is on fire.  Cut grocery bill.  Savings $600

With the $900 a month I would pay your debts in this order:
Consumer loan ($230 + $900 = $1130): 4 months
Your Student Loan #1 ($45+$230+$900= $1175): 5 months
Alimony/Credit Card ($413+$45+$230+$900= $1588): 11 months
Pickup ($430+$1588= $2018): 10 months

Note that I didn't start with the highest interest rate as you have a mojor cash flow problem.  As an alternative, you could consider using some of your savings, but I don't think its a good idea with a baby on the way.  With this plan, you could have your high interest debt gone in less than 3 years.

BooksAreNerdy

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Re: Reader Case Study - Getting to Zero
« Reply #4 on: August 13, 2014, 03:01:33 PM »
My husband bikes 30 miles round trip every day to work. So, no excuses there. Get a bike.

Sell the jeep and truck and get a little commuter car for you and the wife to share as needed. We have an 01 Hyundai Elantra hatchback. That is very easy to work on and both reliable and spacious.

Stop going out to eat. You can't afford it. Cut your food spending in half. No more prepackaged foods at the grocery store. You buy meats, veggies, fruits, and grains. Make your own food and you will be healthier and wealthier.

Cut cable and phones. You don't need TV. Republic Wireless is who we use for phones. Less than $24/mo for both of us.

Clothing is seriously $250/mo?! How? Our family of 3 spends $50/mo. Check out local boutique resale stores like Ditto or Plato's Closet if you need to be trendy. Designer jeans are $20. Shirts (often brand new) are $6-8.


Do any of these changes seem like cuts you could make? How does your wife feel about this? Does she understand that you are moving backwards each month? Your current list of expenses is NOT a budget and does not take into account things like new tires, registration, or any other infrequent expenses.

I, also am heavily pregnant and underatand that your wifes head may not be in the game, but your wife needs to understand how dire your situation is.

I wish you the best of luck. You can't afford your debts. You need to be getting the company match on your 401k.

« Last Edit: August 13, 2014, 03:03:16 PM by BooksAreNerdy »

okashira

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Re: Reader Case Study - Getting to Zero
« Reply #5 on: August 13, 2014, 03:02:04 PM »
Your Jeep and Pickup are not assets, they are liabilities. Too much spent on gas. Sell them both and get normal cars. One car, preferably.
Cell phone should go to $10
Next pay off the CC, consumer loan
Everything from there will accelerate.

Thegoblinchief

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Re: Reader Case Study - Getting to Zero
« Reply #6 on: August 13, 2014, 03:04:06 PM »
Your clothing, food, and gas are all pretty insane.

How often are your stepchildren over? Even if they are fully in your custody, you can feed a family of 5 for under $500 especially since your wife appears to be a SAHM, which gives time for things like making bread, etc.

$250 of clothes a month is $3K a year. I hope that's a typo, to be honest. What on earth are y'all buying?

$325 of gas is way higher than it should be, even with your commute.

4alpacas

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Re: Reader Case Study - Getting to Zero
« Reply #7 on: August 13, 2014, 03:08:22 PM »
Good news!  You have a lot of areas to cut back, so you can make progress quickly.  Cut cable (>$100/mo), minimize cell phones ($100), sell both of your vehicles (reduction in car payments, insurance and gas). 

I would also look into how you can bring more money in.  Specfically, can your wife work part time?  Even a few hundred dollars per month would have a huge pay-off at this time due to your high interest debt. 

EarlyQuit

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Re: Reader Case Study - Getting to Zero
« Reply #8 on: August 13, 2014, 06:14:55 PM »
Several people already commented on the clothing budget - it was a huge red flag for me as well. Looking for less expensive clothing is a good idea, but before doing that I would encourage you to analyze what it is you are buying and why. Is this for kids that are growing out of their clothes? Because, imo, adults do not have the need to buy clothes every month. Or every other month. (Unless they lose or gain a lot of weight). Most clothes with the exception of things like socks and underwear should last for years. And you buy a new item when the old one is beyond repair or no longer fits. With this approach even if you buy brand new items at full price, your budget will be a fraction of what you spend today.