Author Topic: Reader Case Study: My next step?  (Read 3493 times)

missksaves

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Reader Case Study: My next step?
« on: August 31, 2014, 06:37:09 PM »
Once I read MMM, my primary goal became pay down my student loan debt with my husband 100% on board.

The only thing is I recently started reading up on how if my interest % is below 4%, why not invest it. I don't know much about investing and I also would like to become a homeowner. I am close to paying off the remaining high interest loan I have by the end of this year, so I am trying to formulate a strategy for future monies. I am not perfect MMM (still impulse spending in reaction to stress). My husband does also want a car down the line b/c we are very limited sometimes w/o one.

Household of 3 - 2 FT working adults & 1 preschooler

Income (currently): $4830/mo (guaranteed)
Gross/week: $1720/week, $7453/mo
- Me: $870/week
- DH: $850/week
Net/week: $1115/week, $4830/mo
- Me: $550/week (tax deduction: 3)
- DH: $565/week (tax deduction: 0)

Current expenses: $4657/mo (not counting $1287/mo expenses b/c not part of take home pay how it's set up)
Student Loans: $2500/mo
Rent: $500/mo, living with my in laws, no utilities
Food: $790/mo (I got this # by averaging out monthly food & dining via Mint, large variation month to month.. Still work in progress having to do with our living situation and don't really want to get into particulars about this, but I still deserve face punching for this)
Monthly public transportation for both of us ~$192
Monthly Amazon s&s ~$50
Daughter expenses: A face punching $200/mo (I buy books, toys, clothes, food especially fresh strawberries. This will become higher when we start up daycare again)
Me: $50/mo (my skin care regimen, it is a luxury to some but a necessity to me as I struggled with skin problems and finally I am starting to be clear and I LOVE it, big boost to my confidence)
Gifts: $250/mo (In the annual picture, already spent $500 on my mother in law for mother's day and birthday, my daughter's annual birthday party and Christmas shopping included in this budget set as on monthly basis. This is considered a necessity to establish good will and maintain familial relations.)
Mobile Phone:  $75/mo
Me Republic Wireless <$15/mo
DH Stuck on VZW plan with his friends, urging him to go RW asap once contract expires.
Rainy day fund: $50/mo

All the following expenses taken out of paycheck automatically: $1287/mo
Union Dues: $17/week x 2, approx. ~$148/mo
Medical (deducted from gross pre tax weekly): $74/week, approx ~$321/mo
Dental (see above, has $300 deductible that my husband winds up needing to pay every year): $3/week + annual deductible, approx ~$38/mo
ESPP Stock: $20/week, approx ~$87/mo
Vanguard (pre-tax): $160/week (both of us altogether), approx ~$693/mo

Assets: $24,900
Vanguard: $15,100
Me $9800 - with company matching and my contributions, I think growth has been about 8%/year
DH $5300 - started later than me but growth been about same too, maybe slightly more
ESPP: $2820
Me $1590
DH $1230
Lending Tree: $2080 (been  doing it only for a few months now, <1 yr, and return has been calculated at about 18%? Got back $80+ so far on the principal $2000)
Rainy Day Fund: $600
Savings: $4300

Liabilities: No mortgage or car, only student loans that were originally $100k+, repayment started 2010, MMM initiation last year 2013
Student Loans: $2500/mo, applying the excess beyond min to loan 1 (should be paid off by end of this year)
Loan 1 $4,600 @ 5.88% for monthly min $287
Loan 2 36,700 @ 3.25% for monthly min $268

Net Value -$16,000 approximately

1. I am trying to save up a down payment for a house, 20% for what we are looking for seems to be at least $50k
2. I am also trying to build up retirement funds but wonder at what point should I try and divert funds in them
3. I have 2 loans and the high interest one is going to be paid off soon, my original plan was to also do the same thing to the low interest one b/c it's such a high figure. However, some people argue to just invest the funds that will earn 8% as that means will come out ahead.
Ultimately, what should I do after Loan 1 is paid in full? I have 3 goals and it's hard to do them all at once...
« Last Edit: August 31, 2014, 07:31:21 PM by missksaves »

Krnten

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Re: Reader Case Study: My next step?
« Reply #1 on: August 31, 2014, 08:31:46 PM »
Great work on the loans!  I am really impressed.

A few thoughts:
-You could pay off loan 1 in a couple months, but loan 2 is not so urgent b/c of low interest rate.  Why not divide that $2500 between loan 2 and emergency fund(you need more)/down payment fund?

-I will not cast the first stone re. NYC food spending.  You can get it much lower, but it sounds like you're also paying your in-laws in food and gifts, is that right?  If so you can look at it as added shelter costs.  You should definitely keep the peace there because you have a good housing (and I assume child care?) situation.

-how do you plan on paying for daycare and what will that cost be?  Some combo of the new free pre-k thing and an after school supplement?  When does that start?

-lending club.  I wouldn't do it. I'd just put that in the emergency fund or plain old low-cost index funds.

-daughter expenses.  You can get that to almost zero.  Library for books, parents listservs for clothes and toys.  I'm sure you have one in your neighborhood if you ask around.  They're amazing, I get all sorts of free stuff.  I haven't paid for clothes in ages for my daughter.

-face expenses.  I'm with you on this, BUT: what is the issue you're trying to solve?  For me it is acne and wrinkles.  Science has solved these problems (well, the acne) and you should be able to solve skin problems thru your doctor cheaply with generics.  I don't even bother with the doctor when possible, and ask friends traveling abroad to get me the prescription generic retinol cream I like.  No more than $10/$15 every 6 months or so.  I would avoid the commercial "regimens" you see advertised.  Just go straight to the medical source, it's much cheaper and more effective that way.

Also, I don't understand your assets.  You seem to have a lot of different accounts, and his-and-hers savings accounts?  Could you clarify?
« Last Edit: August 31, 2014, 08:33:46 PM by Krnten »

missksaves

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Re: Reader Case Study: My next step?
« Reply #2 on: August 31, 2014, 08:53:32 PM »
Great work on the loans!  I am really impressed.

A few thoughts:
-You could pay off loan 1 in a couple months, but loan 2 is not so urgent b/c of low interest rate.  Why not divide that $2500 between loan 2 and emergency fund(you need more)/down payment fund?

-I will not cast the first stone re. NYC food spending.  You can get it much lower, but it sounds like you're also paying your in-laws in food and gifts, is that right?  If so you can look at it as added shelter costs.  You should definitely keep the peace there because you have a good housing (and I assume child care?) situation.

-how do you plan on paying for daycare and what will that cost be?  Some combo of the new free pre-k thing and an after school supplement?  When does that start?

-lending club.  I wouldn't do it. I'd just put that in the emergency fund or plain old low-cost index funds.

-daughter expenses.  You can get that to almost zero.  Library for books, parents listservs for clothes and toys.  I'm sure you have one in your neighborhood if you ask around.  They're amazing, I get all sorts of free stuff.  I haven't paid for clothes in ages for my daughter.

-face expenses.  I'm with you on this, BUT: what is the issue you're trying to solve?  For me it is acne and wrinkles.  Science has solved these problems (well, the acne) and you should be able to solve skin problems thru your doctor cheaply with generics.  I don't even bother with the doctor when possible, and ask friends traveling abroad to get me the prescription generic retinol cream I like.  No more than $10/$15 every 6 months or so.  I would avoid the commercial "regimens" you see advertised.  Just go straight to the medical source, it's much cheaper and more effective that way.

Also, I don't understand your assets.  You seem to have a lot of different accounts, and his-and-hers savings accounts?  Could you clarify?

My assets are his and hers so I write the combined and underneath write what is for each of us. We work at the same company so we both started our own 401k accounts and ESPP (Employer Stock Purchase Plans). My Dh just does those 2 but I also dabbled in the Lending Tree account using both our funds with his permission after reading about it on MMM. Then we have joint savings account and then I have what I call a rainy day fund b/c can't really get to it easily but it's appreciating at 1% (doesn't keep up with inflation I know!).

The daycare even with the universal free pre-k will still be a few months. We are planning on starting up in 2015 when winter ends until September I believe is when free pre-k starts. The going rate per month is at least $600/mo. We had good childcare situation but my daughter is becoming too withdrawn so daycare is our best option. It's just extremely expensive b/c she is very prone to getting sick and combined with the upcoming potentially bad winter. That is why we made the decision to pull her out for bad weather season along with other factors at the expensive daycare we were using ($740/mo). I estimate that we may need to pay for daycare for about 4-5 months.

You are correct about the food situation. The household has 8 people total, incl. us. It is also extremely difficult to shop for just yourselves w/out pitching in for the rest of the household... We've been trying though to keep expenses low. Some months are just more successful, it's a slow grueling war.

Face expenses are for acne, $50 is a high estimate b/c I only started the regime 6 months ago but tbh I think supplies for it will last me a good 2-3 years so this is probably really lower. It's only the upfront costs for it that I put in my budget spread out over 12 months. I also factored in my dermatologist copay and including everything concerning beauty such as face wash, razors, face masks, sunscreen so this is more like a Beauty budget, haha. I didn't factor in haircuts because I started cutting my own hair recently and no one noticed!

I know I need face punching for my daughter's expenses. I have a deep, deep weakness for buying her pretty, new clothes... I am working on getting rid of that habit. What are listservs btw??

Loan 2 I know is not that urgent but I feel like it's just stagnant. If I save for down payment, the money essentially just sitting there not making any money, so I feel like I am losing money b/c of that (albeit low) interest on loan 2... I don't feel good putting that money into 401k b/c it's not like I can get at it easily if I need for a down payment too. Hence my conflicted feelings...

Calvawt

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Re: Reader Case Study: My next step?
« Reply #3 on: September 01, 2014, 10:23:34 AM »
I think you are making good progress on the loans.  Many people would not be paying 5x the minimum payment, so kudos for that.  I am concerned about the food and gifts.  I constantly see people that feel gift giving is required and it drives them further into debt or at least keeps them from digging out.  Please make sure you don't feel obligated to spend money on others, you can always find creative ways to show appreciation that cost little or nothing compared to traditional gifts.

With regards to paying off the second student loan, that is a personal choice.  It looks to me like you would rather be rid of the debt than save and let it sit there at minimums.  I would probably keep paying a lot towards it, but start diverting some to a down payment fund once the first loan is paid off.

Also, I would not do P2P lending until you have the debt paid off.  Its more risky and you could pay off your student loans faster.

You are on the right track.  Good luck!

missksaves

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Re: Reader Case Study: My next step?
« Reply #4 on: September 01, 2014, 10:52:43 AM »
I agree on the food and the gift giving but that is something I have to get my spouse on board with along with the idea of FIRE. It is a work in progress... Some of that may be alleviated somewhat when we do establish our household.

I guess I should avoid Lending Tree for now but my money has already been sunk in.

I'll work on paying off Loan 1 as planned and then maybe diverting $1k of the $2500 into a down payment fund or maybe even increasing my 401k deduction as well.

Krnten

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Re: Reader Case Study: My next step?
« Reply #5 on: September 01, 2014, 11:02:48 AM »
What neighborhood are you in?  Almost every neighborhood has a parents email group/yahoo group/meetup group to swap stuff and share info. I would just google it or ask friends who have little kids too.  For a good laugh at insane NYC parenting, Park Slope Parents can't be beat.

Anyways, good luck!

missksaves

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Re: Reader Case Study: My next step?
« Reply #6 on: September 01, 2014, 11:28:00 AM »
What neighborhood are you in?  Almost every neighborhood has a parents email group/yahoo group/meetup group to swap stuff and share info. I would just google it or ask friends who have little kids too.  For a good laugh at insane NYC parenting, Park Slope Parents can't be beat.

Anyways, good luck!
Not sure what my neighborhood is.. I'm originally from Queens so I still think of Brooklyn neighborhood in terms of MTA train stations... I think I am considered near or in Midwood?

frugaliknowit

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Re: Reader Case Study: My next step?
« Reply #7 on: September 01, 2014, 11:54:16 AM »
Great progress!!

These would be my priorities:

1.  Matching 401K, if any (forget unmatched for now).
2.  "Light" (3 month's expenses?) emergency fund
3.  Higher interest rate loan to zero
4.  Lower interest loan to zero (BTW, a 4% NO RISK return is fantastic!! It's not the same risk as stocks.)
5.  Maximum Roth IRA contributions for both (put this in stock index funds-higher risk part of your assets).
6.  Appropriate emergency fund (probably more like 6 months expenses? Think through different what if scenarios...).
7.  Start saving for house (20% down separate from emergency fund, 15 year fixed/no PMI).
8.  Swallow house and all initial expenses (like eating a whale!).
9.  Increase retirement investing (stock funds, higher risk, start flexing for growth!)

This is a kill the debt and build reserves plan so that if you stumble, you don't end up back in debt again.  After 4, you'll start flexing your muscles and will get growth.  Since I do not know exact amounts, you may have to combine several of these (near the top) at the same time.  I would not buy the house until 1-7 are complete.


missksaves

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Re: Reader Case Study: My next step?
« Reply #8 on: September 01, 2014, 09:41:41 PM »
Great progress!!

These would be my priorities:

1.  Matching 401K, if any (forget unmatched for now).
2.  "Light" (3 month's expenses?) emergency fund
3.  Higher interest rate loan to zero
4.  Lower interest loan to zero (BTW, a 4% NO RISK return is fantastic!! It's not the same risk as stocks.)
5.  Maximum Roth IRA contributions for both (put this in stock index funds-higher risk part of your assets).
6.  Appropriate emergency fund (probably more like 6 months expenses? Think through different what if scenarios...).
7.  Start saving for house (20% down separate from emergency fund, 15 year fixed/no PMI).
8.  Swallow house and all initial expenses (like eating a whale!).
9.  Increase retirement investing (stock funds, higher risk, start flexing for growth!)

This is a kill the debt and build reserves plan so that if you stumble, you don't end up back in debt again.  After 4, you'll start flexing your muscles and will get growth.  Since I do not know exact amounts, you may have to combine several of these (near the top) at the same time.  I would not buy the house until 1-7 are complete.

I think my husband thinks the same way but he doesn't believe we can ever be FIRE. I am stressing to him on getting our food budget down and I'm not sure he sees the light yet. I think if we didn't have my loans, we would be saddled with a mortgage and living the typical mainstream/anti-mustachian life. My husband is completely find with working until "acceptable" retirement age. I think because he doesn't have a college degree and his mother would also look down on him for FIRE (seeing it as being lazy).

I think I would be following this b/c it seems a very safe strategy though it seems like a very long time to complete it. I think the fact that it will take a long time and my husband is 34, he loses heart and thinks what's the point. He feels being strict on the budget is depriving joys out of life. Your suggestions though are really right in line with my husband's thinking as he doesn't like debt so he might be unconsciously on the way to being mustachian. I'm going to probably do your suggestion as follows:

1. 0 out higher interest loan
2. Make sure 401k match is maxed w/o forgoing 2500 to loan 1
3. Try to either 0 out lower interest loan or divert 2500 to it to halve it at least before next step
4. Light emergency fund of 3 months
5. Get 6k for Roth IRA contribution started @ Vanguard (I looked into this so it's minimum 3k to open)
6. Bulk up emergency funds to 6 months
7. Start saving up Down payment money, instead of 50k, probably more like 100k to cover any surprise expenses
8. 0 out all loan debt while maxing any contributions

So right now I guess I got my strategy. #1 should be done in 2-3 months. I will try to research #2 to make sure I am getting the max matching and tell my husband to do it too. He is on board with this as I showed him the amounts we each put in, the "free" money from the company along with the growth from the investing a while ago.

I will endeavor to give you guys an update as soon as I can, thank you all for the advice. I am also going to look into the listservs that someone mentioned awhile back. I found website called freecycle, going to look into that or maybe just craigslist, lol.

Thanks again!