Mr. Money Mustache Community
Hello,
We are Nate and Shannon. We have made some mistakes in the past, but are very excited to take a big step to financial independence by paying off our student loans and all other debt.
Our situation:
About 10 months ago, Nate had a great idea – he decided to pay off $10K of his student loans by transferring them to his credit cards for a 3% balance transfer fee and no interest for 12 months for one card, and 15 months for the other. This would save roughly $380 in interest over the year compared to the 6.8% interest of his student loans. At the time we had $10K in cash to match the credit card balances. With some unexpected scenarios: Backing into a neighbors car, repairing an old VW Jetta, and upgrading Shannon’s car for about $3500, the cash no longer matched the credit cards. We have scraped back and we currently owe $2400 more on our credit cards than the cash we have available. This will be covered in January when Nate gets his quarterly and annual bonus. The first credit card needs to be paid off by March.
Before reading MMM, Nate thought it would be a good idea to buy a new car to replace his VW Jetta that was super unreliable. He had never purchased a new car before, but did so with the intent of having it to create additional income by driving for UberX. He has done this, but it has been very sporadic lately as his new job is taking a lot of mental effort.
Currently, Nate and Shannon have two great roommates that provide a total of $998 of rent each month. We plan to start trying to have children soon, so that may put a stop to the extra rental income. It would also cost $135/week for daycare. We have put Shannon's CR-V up for sale since it is paid off, and the Sentra gets much better gas mileage for now since she at this point needs to commute about 17.5 miles each way to work. There are many things we plan to cut/change, but just want to hear the community’s input first.
Let’s start with our debt balances
Student Loan 1 $534 @ 5.75% with a $50/month payment
Student Loan 2 $1016 @ 6.875% with no monthly payments due until 2023
Student Loan 3 $6638 @ 6% with a $145/month payment
Student Loan 4 $48,323 @ 4% interest with a $296/month payment
Nissan Sentra Car Loan $15,111 @ 0.9% interest with a $296/month payment
Mortgage: $215,352 @ 4.75% interest with a $1535/month PITI payment
Credit Cards: $9350 (again, no interest until March, and will be paid off in full)
Total Debt of $296,324 with monthly payments totaling $2322/month.
Assets:
Investments: $43,500 (all but $2000 in life insurance cash value is in employer sponsored retirement plans)
House: $230K (mortgage listed above)
2002 Honda CR-V: $4K
2013 Nissan Sentra: $13.5K
Checking/Savings: $7K
Total Assets: $298K
Net Worth: Roughly $2K-$3K
Now let’s move to our budgeted non-debt monthly expenses.
Life Insurance: $245/month. (Nate used to be a life insurance salesman)
Utility Bill: $150/month (plastic sealing the windows this weekend)
Auto Insurance: $125/month (paid every six months)
Cell Phones: $93/month – Should be cheaper as Nate just switched to Ting from his family plan that he was paying $55/month. Shannon pays her folks $38/month, but we will get her on Ting too in a couple of months.
Pharmacy: $60/month for Nate’s ADD medications
Internet: $45/month
Water Bill: $40/month
Gene’s Disposal: $17/month
Shannon Fitness: $17/month
Netflix: $8.60/month
Total fixed monthly payments: $801
All other spending on gas, groceries, home supplies, potential discretionary (that we may need to completely cut for the time being): $780/month pure cash. Shannon gets $100/week as she has to drive to work while Nate can bus and is considering biking (he gets $80/week). It’s roughly a 40 minute ride and he has done it before, but not in Minnesota winters (bus pass subsidized so he has $52/month taken out of paychecks on a pre-tax basis for unlimited rides). We just started this approach two weeks ago. We have tried different accounts for different spending in the past, and cash envelopes for different spending categories, but everything was too complicated, and we would get lazy.
Total monthly payments: $2322 (debt) + $801 (fixed) + $780 all other cash = $3903/month
Income: Shannon makes $37,000 annually and Nate makes $52,000 annually with a bonus target of $15,000 for $67,000 total. Nate has worked this job for 6 months and received one pro-rata bonus, one full calendar quarter bonus, and an additional unexpected bonus. The two regular bonuses were about 90% of target, and with the additional bonus, he has been paid about the target thus far. To plan conservatively, we will estimate that Nate makes 75% of target bonuses. Adding Shannon’s income ($37K), Nate’s conservative income estimate ($63,250), and total rent income ($11,976), we come up with annual pre-tax, pre-benefit income of $112,226. After benefits, Shannon takes home $2565/month and Nate’s take home is estimated at $3449/month. I’m not sure what to estimate on taxes for our rental income, so I will put it at a 25% tax rate and call that $748.50/month after taxes. This comes to a grand total of $6762.50/month in income.
We really love the Mustachian way of life, and really just need practical advice on changes to make. Initially, we didn’t want to leave our home state of Minnesota; we’re close to family and we like living in St. Paul. However, after the brutal winter we had last year, and a desire to live in a nice area (weather, bikeability, education, outdoors-y activities), we’re warming to moving somewhere else. (Not the South, the East Coast, anywhere with tornadoes or hurricanes…so somewhere in the West). Thanks in advance for your sage advice!
UPDATE $780 breakdown, as requested:
Gas $40/week, $160/month (this is fixed as this is commuting for Shannon to work, in a suburb)
Groceries:$70/week, $280/month (this is a spot we can definitely seek to reduce spending; there's an Aldi nearby and Shannon's work comes with a Sam's Club membership!)
Dog food breaks down to $20/month (a big bag lasts the dog 2 months, costs about $40)
Veterinary visits: $20/month (she doesn't go that much, but averaged out, it's about that much)
Haircuts: $40/month. Nate, every month $15 @ Great Clips, Shannon, every other month @ $50 at a fancy pants place (these are DEFINITELY areas to reduce or cut (haha, get it?) as Nate can get his hair cut by Shannon's mom and Shannon has a friend who isn't bad with scissors. Shannon had a few unfortunate haircuts by her mom as a kid... so she steers clear of those haircuts. The multi-use manly grooming tool is out for Nate.... his head doesn't support a "buzzed" look.
Home supplies: $20/month (cleaning supplies, toiletry items, toilet paper, etc.)
Gifts: $40/month We don't like it, but this time of year seems to come with unwanted gift buying. Other times of the year come with birthdays or weddings. Even when we make gifts, like paintings, supplies aren't free! Even when we tell family that we DON'T want anything (because we don't!) and we won't be buying anything... they throw a huge fit because they're consumerist sukkas.
Booze: $40/month. We aren't huge drinkers, but we like to have friends over instead of going out.
Entertaining friends (food): $50/month (this goes hand-in-hand with the booze mentioned above. We won't go out to eat, but have a couple or a group of friends over a few times a month).
So that's $650, leaving $150/month unaccounted for, or discretionary spending, as Nate calls it. We can cut all discretionary spending.
Though gas might be a bit more, since both of our parents live 40 minutes away and it seems that we are always going down to visit someone. It's not that we don't want to see family, it just gets expensive. How do you tell your family that they're sucking you dry when we go and visit 2x a month?
Also, Nate has a tendency to give people cash or buy them beer for doing nice things like fixing the lawn mower, snow blower, etc., when really the neighbors that help us out would be happy just to chat with us more.
Nissan Sentra: yes, we're well aware that it was dumb to buy it when we didn't have the cash for it. We would be underwater on it if we sold it now, so we'll wait until we're not underwater and then sell it and get something Mustachian. We're trying to sell the CR-V, then we'll put that cash towards debt.
Kids: While it would be ideal to wait... we might not have that luxury at the moment. We'll have to wait a few weeks, but it's possible that a kid might happen sooner rather than later. Daycare costs at $135 is from a woman who runs her own in the town Shannon works in. Nate's mom is retiring in March of this year, so it's likely she could help out. Shannon could possibly move jobs closer to St. Paul and cut off gas expenses because she'd bike or take the bus.
Debt: College was pricey, and Shannon's parents didn't help at all (Nate's helped some). Obviously, hindsight is 20/20 and She'd go to a different and much cheaper school if she had to do it again... and maybe become a plumber instead! However, you cannot change the past and the best we can do is aggressively pay down debt now.