Author Topic: Reader Case Study - Help Me Sprout a Mustache!  (Read 4629 times)

livedebtfreeordie

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Reader Case Study - Help Me Sprout a Mustache!
« on: November 17, 2014, 06:19:14 PM »
Income:

His (Every Other Week): $1,538 + $158.02 401k contribution (employer matches 1/2 of first 4%) + $46.02 Roth contribution
Hers (Every Other Week): $1,586 + $67 401k contribution (employer matches 9% of income so total contribution is around $270)
Monthly Take Home: $6248

Current expenses: Provide breakdown and relevant details. Include fixed expenses and variable expenses

Housing(includes ins/tax)  $1,230.00
Student Loans 1             $232.00
Student Loans 2             $53.00
Car Payment (Honda)     $269.00
Auto Maintance (Honda)     $20.00
Gas (Honda)                     $125.00
Car Payments (Saturn)     $0.00
Auto Maintance (Saturn)     $50.00
Gas (Saturn)                     $125.00
Auto Insurance (Both)     $150.00
Life Insurance - G             $30.00
Life Insurance - N             $40.00
DayCare                             $500.00
Groceries                             $350.00
Gym                                     $42.00
Cell Phones                     $135.00
Alliant Energy                     $125.00
MidAmerican Energy             $50.00
Municipal Utilities             $65.00
Cable/Internet                     $135.00
Clothing                             $100.00
Baby Supplies                     $100.00
Personal Care                      $50.00
Pet Food                             $20.00
   
                                    $3,996.00

Expected ER expenses: Not Sure

Assets: Combined Retirement Savings 401k + Roth both parties ~$53k
$4,200 Emergency Fund

Liabilities:

Chase Credit Card     -     $0.00         15.24%
Stafford Loan            -     $2,436.59   6.80%
Stafford Loan 2    -     $1,173.00   6.80%
Stafford Loan 3   -      $750.00       6.80%
ECSI Loan           -      $2,291.00   5.00%
Sub Cons Loan           -      $2,173.00   4.88%
Unsub Cons Loan   -      $2,538.00   4.88%
Hills Home Loan   -      $18,850.05   4.50%
PLP Loan                   -      $5,116.00   2.43%
Honda                   -      $11,303.10   2.39%
Home Mortgage   -      $125,025.48   3.64%
Total                        -      $171,656.22

Specific Question(s):

Ok so just getting started on my mustache. I am 30 and just found MMM 2-3 weeks ago and have already knocked out roughly $800 in student loans and took money out of the emergency fund to kill our $1k credit card debt. We know we still have a lot of cutting we can do with our expenses. Just talked about cutting cable today, actually my spouse suggested that! So she's at least partially on board. I'm locked into the Gym Membership for another year. I will be getting a $3,500 pay bump at the first of the year and would expect 4% a year going forward. The wife will be getting 1% this year as it's a very new job for her. Her job is about a 30 mile drive each way but it has great benefits (we paid $0 out of pocket to have our baby). We could move about 10 miles closer until housing prices go up quite a bit - this would also be closer to my job. Most likely scenario is that we will have 1 - 2 more kids over the next 5 years so daycare expenses won't go down.

So Senior Mustachians guide me in growing my mini stache into a big bold beautiful stache.

Where would you put your extra money at this point? Into debt or savings?
Where else can we cut our expenses?
Could ER be in our future by say 40 or 45?

Thank you in advance!


MDM

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #1 on: November 17, 2014, 06:31:42 PM »
livedebtfreeordie, welcome to the forums.

That's a lot of loans.  You could start by taking your e-fund and drop it to zero by paying off $4200 of the 6.8% loans.  Then maximize your 401k contributions and use whatever is left over each month to pay off all the 6.8%, 5%, and 4.88% debt. 

Meanwhile work on reducing spending.

When you have all the 4.88% and above debt paid, come up for air and look around to see how you stand and what's next.

You can play "what if" with the spreadsheet in http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228.  It isn't set up for as many loans as you have, so you can either add rows on your own or consolidate your loans into groups with "similar" interest and payback.  Projections on "time to ER" have large error bars, so being a little incorrect on the loan situations won't matter much.

Good luck!

livedebtfreeordie

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #2 on: November 17, 2014, 07:59:02 PM »
Yes, lots of loans! My initial thought is to just pay off all debt first include the lower interest ones & home loans. But I guess I need to decide if I want to do that or invest where I would likely get a higher return than many of the lower interest rate loans. Thanks for the link to the "what-if" spreadsheet!

Taran Wanderer

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #3 on: November 17, 2014, 09:29:43 PM »
Looks like your monthly surplus is about $2K?  If it were me, I would spend the next four to six months focusing on the Stafford loans and pay them off. You will get rid of higher rate debt and free up monthly cash flow that can be redirected elsewhere - either to additional savings (401k) or to other debts. Plus each time you pay one of the loans off, you get to feel accomplished. Your monthly surplus appears large enough that I wouldn't touch the emergency fund.

Looking forward, if you are really serious about FIRE, you may want to rethink the 1 to 2 more kids thing. We always wanted 2 and now have 3 - bonus baby!  They are all awesome (except tonight at the grocery store...), but 2 more means a LOT more diapers, day care, clothes, and other expenses.  For us, it also meant a bigger house and a bigger car. Realistically it probably pushed back FIRE from 40 to 50.  We could have chosen differently on the house, but it's done now and we are where we are. Just something to think about as you consider your options.

Whatever you choose on the kid front, it will be wonderful. On the finances, once you take care of those student loans, max out your retirement accounts, especially with the great home loan rate you have.  The bulk of our savings at retirement will have come from contributions in our 20s and 30s that are compounding from now until retirement.  So keep those contributions growing.

Good luck on your decision making!
« Last Edit: November 17, 2014, 09:31:31 PM by Aldercrest »

DCJrMustachian

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #4 on: November 17, 2014, 10:22:23 PM »
Agree that you should spend the next year paying down your loans, other than the mortgage.  You are paying nearly $2000/year in interest, just for the privilege of having that money loaned to you.  I would not touch your emergency fund, and after your debts are paid off, I'd suggest a larger (3-6 month) emergency fund.  Ideally in an investment account.

You might think about pairing down your lifestyle even more in the meantime.  Cut the cable install a terrestrial receiver and save $100/month.  Cut back to internet-only or if possible, share internet with a neighbor. 

Maybe instead of the two cars and the gym membership, you can carpool to work and bike some of your errands?  Cell phones look reasonable, but you may be able to do better with Ting or Republic Wireless.

Think long and hard about keeping the life insurance... that $70/month is $8400 is coming out of your pocket for a decade where you are each very unlikely to die.

marty998

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #5 on: November 18, 2014, 12:09:34 AM »
Isn't it hard work keeping track of all those loans?

Would drive me nuts if I had to make payments on 12 different loans each month. Especially as some of them are so small.

Just be rid of all the ones under $3k and free yourself.

UnleashHell

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #6 on: November 18, 2014, 04:15:16 AM »
start killing those loans. with the budget you posted you have enough spare each money to kill the first 5 loans in 4 months.

while you are doing that have a close look at your cash flow and see what you can and are willing to adjust.

once you get rid of the first few loans the pressure lifts and you can see if finishing the other loans is a priority or saving more. 401k contributions could be the most beneficial because of the tax advantage but the number of leaks out of your budget due to loans have to be addressed. they aren't high interest but you'll find it makes a huge difference.

Monkey Uncle

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #7 on: November 18, 2014, 04:43:06 AM »
A few things I noticed on the spending side:

-- Your combined gas/electric spending ($175/mo) seems high.  Can you use energy more efficiently?  Are rates really high in your area?  Or do you have a big house?
-- Car insurance ($150) also seems high.  I insure three vehicles and three drivers (one of whom is a 21 year old male) for about $100/mo.  And I live in a state that has high insurance rates.  Do you carry collision on the paid-off Saturn?  What's your deductible?  You might want to shop around for better rates.
-- At $0.50/mile, Your wife's 60-mile daily commute is costing you $7,500/year (assuming she takes two weeks off per year).  I don't know enough about your situation to know whether you can/should change this, but just keep this number in mind as you're considering your working and living arrangements.
-- $135/mo on cell phones seems pretty outrageous.  If you have an internet connection at home, you don't need to use data on your phone.  Shop around for bare bones talk/text plans.  Personally, I've had bad luck with the extreme cut-rate carriers that folks on this forum like, but even the big-name carriers are offering some fairly reasonable budget plans these days.
-- What sort of life insurance do you have?  The premium seems high for someone your age.  In your situation you definitely need life insurance, but I would take a close look at how much you have and the length of the term.
-- The cable/internet bill is pretty bad, but you've noticed that already.
-- Great job on the grocery bill!

MrsPete

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #8 on: November 18, 2014, 06:15:23 AM »
I agree with the idea of attacking the loans first -- when you get that raise, use every penny of it to deplete debt.  Once those loans are gone, you're going to be in very good shape. 

You're paying more than I am for insurance and cell phones (and I'm paying for two adults and two teens).  I'd say look around for better prices.

Since you have a child, you should have life insurance (and disability insurance too), but I think you could pay less. 

You say you're locked into the gym for another year.  What happens if you just quit?  Seriously, what are they going to do?  If "whatever" would cost less than $42 x 12 ($504), then just quit.  They may not pursue it at all. 

You say your wife's job is worthwhile because of her great benefits, but her commute is lengthy.  Does she have any option to work from home (even if it's just part time from home)? 

$100 a month for clothing is something you should be able to slash in half.  Yes, the baby is growing and needs larger sizes, but children's clothes are super-easy to find used for next to nothing.  You and your wife probably already have a closet full of clothes; new ones aren't necessary on a regular basis. 

Day care is a big expense, and if you add more children, it'll be even larger -- one more child would probably fit into the budget fine, but if you have two more you might consider whether it's worthwhile for one of you to quit your job.  When you sit down to determine those numbers -- probably years from now -- investigate what the local elementary school charges for before/after school care.  I always felt that I was getting my money's worth from day care, but before/after school care was outrageously priced for the short time my kids were in that program.  The point:  Be sure you're using ALL the numbers in your calculations. 

Finally, I do agree with the poster who says that more children will delay your retirement date, but I say have them anyway.  What's the point of living if you don't have the life you want? 





livedebtfreeordie

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #9 on: November 18, 2014, 06:31:21 PM »
Isn't it hard work keeping track of all those loans?

Not really actually, two mortgage payments, two student loan payments, and a car payment and everything has been on auto pay.  All the student loans except one are through 1 lender and due the same date each month. Sorry if that wasn't clear.

start killing those loans. with the budget you posted you have enough spare each money to kill the first 5 loans in 4 months.

while you are doing that have a close look at your cash flow and see what you can and are willing to adjust.

once you get rid of the first few loans the pressure lifts and you can see if finishing the other loans is a priority or saving more. 401k contributions could be the most beneficial because of the tax advantage but the number of leaks out of your budget due to loans have to be addressed. they aren't high interest but you'll find it makes a huge difference.

Yeah, I've been thinking about this today and this is the direction I'm leaning. Get rid of the higher rate loans and then really upping the 401k contributions.

 
A few things I noticed on the spending side:

-- Your combined gas/electric spending ($175/mo) seems high.  Can you use energy more efficiently?  Are rates really high in your area?  Or do you have a big house?
-- Car insurance ($150) also seems high.  I insure three vehicles and three drivers (one of whom is a 21 year old male) for about $100/mo.  And I live in a state that has high insurance rates.  Do you carry collision on the paid-off Saturn?  What's your deductible?  You might want to shop around for better rates.
-- At $0.50/mile, Your wife's 60-mile daily commute is costing you $7,500/year (assuming she takes two weeks off per year).  I don't know enough about your situation to know whether you can/should change this, but just keep this number in mind as you're considering your working and living arrangements.
-- $135/mo on cell phones seems pretty outrageous.  If you have an internet connection at home, you don't need to use data on your phone.  Shop around for bare bones talk/text plans.  Personally, I've had bad luck with the extreme cut-rate carriers that folks on this forum like, but even the big-name carriers are offering some fairly reasonable budget plans these days.
-- What sort of life insurance do you have?  The premium seems high for someone your age.  In your situation you definitely need life insurance, but I would take a close look at how much you have and the length of the term.
-- The cable/internet bill is pretty bad, but you've noticed that already.
-- Great job on the grocery bill!

Very thorough assessment, I appreciate the detail. Yes, gas/electric is high. I live in the midwest where it's very hot in the summer and very cold in the winter and with a newborn not going to go too extreme with the thermostat. The other problem is that our furnace & ac is 21-22 years old making it much lower efficiency than newer units. For the car insurance, we just switched policies and I didn't have the exact numbers at the time and guessed high. Just looked and it's actually $108/month.

Finally, I do agree with the poster who says that more children will delay your retirement date, but I say have them anyway.  What's the point of living if you don't have the life you want? 

Favorite reply! You're right - you have to keep things in perspective.

Taran Wanderer

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #10 on: November 18, 2014, 10:37:28 PM »
I hope I didn't come across as discouraging about more kids. I was just trying to be realistic. As for us, even though we always wanted two, now that we have three, we love it and can only think of how much love we'd be missing if we didn't have our third. Dogpile on daddy is so much more fun now!

livedebtfreeordie

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Re: Reader Case Study - Help Me Sprout a Mustache!
« Reply #11 on: November 19, 2014, 12:22:34 PM »
I hope I didn't come across as discouraging about more kids. I was just trying to be realistic. As for us, even though we always wanted two, now that we have three, we love it and can only think of how much love we'd be missing if we didn't have our third. Dogpile on daddy is so much more fun now!

No, of course not! Having a family size that suits us is always going to be priority over FIRE.