Author Topic: Reader Case Study-- what can I do better?  (Read 6848 times)

lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Reader Case Study-- what can I do better?
« on: January 06, 2016, 02:36:34 PM »
Hi-- a few people on the corporette blog recommended this site and I've been enjoying reading some of the articles.  I'm concerned that I don't have much of a financial game plan and I was hoping to get some pointers. Thanks in advance for reading! And if I've missed relevant information or mis-formatted anything please let me know.



Life Situation: Single (but co-habitating), no children, large east coast city (not NY), 29 years old.  I've been working for 3 years. My first 2 years out of law school my salary was significantly lower, I was on IBR, and I hardly saved any money (was mostly paying off credit card debt).

Gross Salary/Wages: $175,000 plus ~$20,000 yearly bonus pre-tax

Pre-tax deductions: I max out my 401k ($18k/year); also pay health insurance pre-tax (~$1400/year) 

Other Ordinary Income: n/a

Qualified Dividends & Long Term Capital Gains: n/a

Rental Income, Actual Expenses, and Depreciation: n/a

Adjusted Gross Income: $175,600

Taxes: Including FICA, federal, state, and city wage tax, roughly $73,500/year (42% effective rate)

Current expenses (this includes my half of everything I share with my SO):

*$1000 rent
*$150 utilities (internet, cable, gas, electric, water)
*$90 cell phone
*$45 charitable donations
*$2600 student loan payments
*$1600 credit card debt payments
*$200 groceries
*$2000 savings (savings account; no interest earned)
*$1,000 everything else (clothes, eating out, toiletries, travel)
*Total: $8700

Assets: $11,000 in savings; $17,000 in 401(k)

Liabilities:

*Student loans - I recently refinanced my law school loans with SOFI.  Current balance: $200,000 (2.9% variable interest rate)
I'm on a 10-year repayment plan.  Minimum payment is $2,080, I pay $2500/month with the extra toward principal. 

I also have a private bar loan with a balance of $8,120 (original amount was $10,000) that I pay $73/month towards (3% interest rate).

*Credit card debt: I currently have $9,500 in credit card debt (down from about $20,000 after law school). I should be able to pay it off in about 6 months, at which point I aim to increase my monthly cash saving to $3,500. 

*Total: $209,500

Specific Question(s): The only thing I feel I'm doing well right now is maxing out my 401(k).  Is there something else I could be doing? I'd like to save for a wedding and a down payment on a house.  Wedding will probably be in the next year or so and I'd like to have ~$15k saved; down payment will come up in about 2 years and I'd like to contribute half (with SO contributing other half), so I estimate I'll need about ~$30k by then.  I'd also like to not empty my savings when these milestones occur. Or should I be putting more money towards my loans and less toward cash savings?


onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Reader Case Study-- what can I do better?
« Reply #1 on: January 06, 2016, 02:43:04 PM »
Welcome! Mostly posting to follow (have been a corporette reader since it started while I was in law school.  I have a different name there, though.)

But a few thoughts/questions:
  • If you're not in NYC, 2K/month (assuming you each pay half) is a lot in rent. I say this as someone who grew up in Philly and worked in Boston.  I suppose DC might be expensive, but it seems like somewhere you could cut costs given the amount of debt you have.
  • What's the CC interest rate?
  • 42% also seems very high.  I am in BigLaw and looked back at my returns and have never paid more than 30% effective tax rate (at year's end, that is).  Have you considered hiring an accountant or otherwise making sure you're getting the best deal?
  • Why pay extra towards the 2.9% debt?  I assume CC debt interest rate is higher, and there's an argument your emergency fund is way too small.

KCM5

  • Pencil Stache
  • ****
  • Posts: 877
Re: Reader Case Study-- what can I do better?
« Reply #2 on: January 06, 2016, 02:43:38 PM »
What's the rate on the CC? I'd wipe that debt out with your savings. There's no need to keep that hanging around. And then rebuild your savings to a reasonable emergency fund. Be it a month's expenses or 6 months, that's up to you.


lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Reader Case Study-- what can I do better?
« Reply #3 on: January 06, 2016, 02:50:56 PM »
Thanks to you both! The credit card rate is 14.5%

Kelsey, your point is well taken, but we have a dog and 2 cats, so having a larger apartment is necessary for us. Living in the neighborhood we're in also allows both of us to walk to work.

I think you're right that I should get an accountant this year.  As far as the student debt, since the rate is variable I figured I should just throw as much money at those as possible.  Is that not a good strategy?

I've thought about just paying off the credit cards-- but it does scare me to have no cash savings-- would that be the best move?

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Reader Case Study-- what can I do better?
« Reply #4 on: January 06, 2016, 03:00:29 PM »
I'm not sure I'd be comfortable with spending that 2K you have in cushion on the credit cards, but I would definitely take the extra 500 a month you're putting towards the 2.9% debt and move it to the credit card.  Variable is a bit risky, it's true, and I'm not familiar with student loan refinancing but I find it hard to believe it's going to balloon past 15% in the near future.

Walking to work is a definite plus.  Maybe the place to save is somewhere else, then. 

The order is up to you, but I would also start maxing your backdoor IRA contribution ASAP.  I would do it for tax year 2015, or at least get a few grand in there.  If it were up to me, I'd probably pay that extra 500 towards CC debt, then fund an IRA, and then worry about the student loan/bar debt.

EDIT: I just realized you put 2K a MONTH in savings.  11K is enough for now, I think. Start paying off debt instead, I say.  As another poster noted, a more aggressive approach would be to pull from your savings and pay debt.  That's a personal risk thing, but if you're secure in your job, that might make sense.  Or maybe you just withdraw half of your savings and knock down CC debt.
« Last Edit: January 06, 2016, 03:06:27 PM by onlykelsey »

Josiecat

  • Bristles
  • ***
  • Posts: 308
Re: Reader Case Study-- what can I do better?
« Reply #5 on: January 06, 2016, 03:04:47 PM »
Wow to your credit card payments!  Paying those off will give you a huge boost.  Good luck.

KCM5

  • Pencil Stache
  • ****
  • Posts: 877
Re: Reader Case Study-- what can I do better?
« Reply #6 on: January 06, 2016, 03:09:30 PM »
14.5%!? Use your savings to pay those today.

Worst case scenario: you need that $9500 for some huge unforeseen emergency tomorrow and you put it on the credit card, getting you right back to where you started. Seriously, there's no reason not to pay them off. And never ever again get used to the fact that you have credit card debt that you pay interest on. It's crazy and you should have paid them off years ago (before savings, before travel, before extra principle payments on your 2.9% student loans!).

lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Reader Case Study-- what can I do better?
« Reply #7 on: January 06, 2016, 03:14:23 PM »
Thanks, guys-- I'm putting everything in my savings except for $1500 (I don't feel comfortable having no cash at all) toward the credit cards.  What you're saying makes complete sense, I guess I got hung up on the emergency fund thing.  With them paid off, I can put $3,600 towards savings every month and build the fund back up in just a few months.

How does the IRA thing work-- can I contribute until April and have it go toward 2015?

former player

  • Walrus Stache
  • *******
  • Posts: 5524
  • Location: Avalon
Re: Reader Case Study-- what can I do better?
« Reply #8 on: January 06, 2016, 03:21:11 PM »
Congratulations on maxing out the 401(k) and paying health insurance pre-tax.  Carry on with that.

If you wipe out the credit card debt immediately, you are left with $1,500 in savings, but given that you will then have $2,000 +$1,600 each month to add to those savings, in 3 months time you will be more than back where you are now, even if you change nothing else.  Also, you will not have paid the 14.5% interest.  It's a no-brainer, given that your credit card will be there to be loaded up again if you have an emergency in those 3 months.

Without the credit card payments, your fixed expenses of rent, student loans, utilities and groceries add up to just over $4,000.  Once your credit card debt is dealt with, if you cut down your "everything else" budget to $500 a month, you will have $4,000 a month to put towards savings and loan repayments.  I'd suggest that you keep an emergency fund of $25,000, which is 6 months of your bare bones expenses.  Another year of saving at the same rate could cover both your wedding costs and your share of a house deposit, but I would suggest making a deal with yourself: for everything you put towards your wedding and your deposit you put an equal amount as extra payments towards your student loan on top of what you currently pay.  That $200,000 needs to be paid off while interest rates are low, your health is good, your earnings are high and you do not have additional family costs.

lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Reader Case Study-- what can I do better?
« Reply #9 on: January 06, 2016, 03:46:48 PM »
thanks for the tips. paying off my credit cards felt really good, and the fact that I can build my savings back up to where they were in just 3 months makes me feel pretty secure. I'm going to try to limit my discretionary spending and put everything extra towards savings until I hit $25k, at which point I'll shift the extra to student loans. you make a great point about paying them off while I'm young-- I don't know how long this job will last (or how long I'll want to keep doing it).

Villanelle

  • Magnum Stache
  • ******
  • Posts: 3549
Re: Reader Case Study-- what can I do better?
« Reply #10 on: January 06, 2016, 03:47:24 PM »
I'd lower the 401k to only the company match until you get the CCs paid off. 

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Reader Case Study-- what can I do better?
« Reply #11 on: January 06, 2016, 03:50:19 PM »
Quote
I'd lower the 401k to only the company match until you get the CCs paid off.

Unfortunately I know of only one of the top 200 law firms that has a match at all.  It sounds like the CC are paid off, so I'd still do 401K (then IRA).

OP- http://www.vanguard.com/pdf/ISGIRA9.pdf for IRA conversion.

mxt0133

  • Handlebar Stache
  • *****
  • Posts: 1552
  • Location: San Francisco
Re: Reader Case Study-- what can I do better?
« Reply #12 on: January 06, 2016, 05:42:31 PM »
I would recommend reading another member's(couple actually) journal which is similar to you situation.

http://forum.mrmoneymustache.com/journals/stealth-saving-(lentils5eva-ioseftavi)/

They basically killed 100k student loan within two years or so.  Maybe it will inspire you to get creative on how to pay of that loan ASAP.  They are now married and looking for rental property as an investment.  You have 1K for everything else category including eating out and travel.  To most on this forum having 200k in debt and still going on vacation is facepunch worthy.

I would re-evaluate why you think you would need 15k for a wedding and also do the cost-benefit analysis of getting a house, will you have to move to the suburb increasing your commute, having to get a car, ect.

Here is a frequently referenced blog article on why a house might be right for everyone.  Again, I don't know your specific situation and reasons for thinking that you want/need a house.  If you feel that strongly about buying a house, go for it.  But I think most people just assume that to be successful or to be treated as an adult you have to get a house, it's just what people do.  If you are in that camp then I would recommend you re-evaluate if it is aligns with your goals and values.

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

Stasher

  • Handlebar Stache
  • *****
  • Posts: 2292
  • Age: 46
  • Location: Cowichan Valley, Vancouver Island
  • Power through Positivity
    • Mindful Explorer
Re: Reader Case Study-- what can I do better?
« Reply #13 on: January 06, 2016, 06:23:45 PM »
STOP READING the forums immediately and read all the posts by MMM before you receive your brainwashing and face punches :)


Ok now that we hear you promising to read all the website posts , then the indoctrination process can begin by us...
 - you will learn that saying I have cats and dogs so need a big apartment will not fly here, go outside more
 - You will learn that debt is like having your hair on fire!! pay that shit off
 - stop extra principal to student loan, put to CC, put savings to CC
 - a general $1000 whatever account won't fly, break that down and analyze where you can trim and pay off debt
 - do everything you can to kill debt ....I'm sure you sense a trend here

Anyhow, welcome to the forums and remember if people are hard on you it's because they want you to succeed. "Tough Love"
Cheers

csprof

  • Stubble
  • **
  • Posts: 228
Re: Reader Case Study-- what can I do better?
« Reply #14 on: January 06, 2016, 10:14:45 PM »
My 2c:

You've already addressed your biggest short-term issues.  Paying off the CC was a good call.  25k in savings is pretty reasonable -- I maintain something similar when I'm not budgeting for a big expense and/or stashing it for taxes on a high-consulting year, and I've got a kid.  Of course, I also have tenure, so I'm not too worried about suddenly getting laid off, either.  <shameless grin>

I also think you're fine on the student loans.  You could pay them off faster or slower;  doesn't matter.  If the rates suddenly go sky high, you could pay them off by cashing in some of the taxable investments you'll have accumulated in the meantime.  Right now, at 2.9%, you'll be doing slightly better by keeping things in the market, but if it were me, I'd continue a slightly accelerated payoff combined with putting a lot in investments.  I view it as a slight bit of investment diversification, and getting it paid off gives you some cash flow advantages.

You're paying a decent bit of insurance - have you looked into a high-deductible plan w/HSA?  Typically cheaper; you're basically self-insuring for modest (< $1-5k) amounts.  Once you've stuffed your emergency fund back up to 5-10k, you might investigate this as a way to save a few hundred per year.  Ignore me if you have health conditions that require a lot of visits.

(Your cell phone is expensive, btw.  Try Cricket - or Google Fi if you have a compatible plan.  I made a little spreadsheet to compare the different options:  http://da-data.blogspot.com/2015/10/comparing-prepaid-cell-plans-public.html  .  There's very little reason for most people to pay more than $35/month for the plan.)

But I want to address instead a slightly longer-term set of things:

(a)  Tax planning.  You're in a painful range for income taxes, as you've no doubt noticed:  You don't make enough to use the really advanced ways of reducing them, but you make enough that you pay a lot.  Maxing out the 401k is an excellent start.  Given that you're renting, you're probably not itemizing yet, but when you go find/meet with an accountant, make a list of all of the potentially-deductible things you do:  Subscriptions to professional publications;  any CLE you have to pay for yourself.  I assume you bill clients for travel time & mileage & parking at clients; but if you ever don't (or do it pro bono), you can deduct that, but you have to record it with a fine-toothed comb.  Sorry for the mixed metaphor.

If all of your billing is through your firm, you're probably out of luck on things like home office deductions, but if you do any direct work, consider that stuff too.

(b)  Keeping expenses low in the next 5 years.  This is the big one - when people are commenting on the potential price of your wedding, there's a generalization there:  You make a relatively large amount of money;  what can you do to prevent lifestyle inflation as you claw out of your 200k student loan debt?  Cultivating a mindset now of trying to cap some of the major expenses is a pretty good plan, and a very very wise one in your field.  I've known too many lawyers who get burned out but don't quite have the savings to switch tracks or retire, because they raise their spending to be proportional to their income.  On the flip side, if you can keep a lid on the expenses, you'll be in awesome shape in 10 years.

15k isn't extravagant by "normal" standards for a wedding, but you *are* posting here... :-)  You might take on as a small challenge trying to reduce this.  Two of my friends got married in a field at 9000 feet in Colorado, with family & friends all staying at a B&B, and integrated multiple days of hiking, etc., for far less than most spend on a traditional wedding -- and it was one of the most fun and memorable weddings I've been to.  Finding something that's more personally significant to you and your partner can be a great basis for avoiding the insane money-sink that is the traditional wedding industry.  (We had a non-9000-feet wedding because we had some grandparents who couldn't make it otherwise, but, e.g., my wife found an awesome dress at BCBG maxazria for < $200, and we had a multi-day celebration where one of the days was at a picnic spot in the mountains.  I think we paid a whopping $45 to rent it for the day. ;-)

lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Reader Case Study-- what can I do better?
« Reply #15 on: January 07, 2016, 06:44:58 AM »
Thanks to you both for the latest input-- I'm definitely picking up what you're putting down.

One of the reasons I want to save for a down payment is so that bf and I can buy a house in ~2 years which will give me a tax deduction.  Does this make sense? I don't care so much about being a homeowner but it seems ridiculous to be paying so much in taxes.  My firm pays for everything work-related so I don't have any deductions there.

I'll look into getting a cheaper phone plan, and I'm going to start keeping track of all of my spending in the "everything else" category so that I can figure out where to cut down.  Eating out and clothes shopping are definitely my biggest weaknesses, although I don't eat meat or drink much so that helps. Travel is very important to me and I can't take a lot of vacation time, so that's an area I would like to be able to save for. I think if I can eat out less and shop less, I could easily save another $300/month.

As for the wedding budget-- I was actually accounting for our parents contributing about $30k, so the budget I had in mind was closer to $50k.  I take your point though. It seems like everyone we know is getting married and spending at least that much, and it's hard to envision a wedding costing much less (for ~200 people) that would still be fun and memorable.  But I agree we should get more creative.  I don't want to have another run of the mill wedding anyway.

Once I build up my emergency fund to ~$25k, and start more aggressively paying down my student loans, how else should I be saving my money other than just a savings account? Should I just open up a mutual fund at Vanguard for example? That's where my 401(k) is.

Thanks again guys!

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5213
Re: Reader Case Study-- what can I do better?
« Reply #16 on: January 07, 2016, 07:02:28 AM »
Spending $50k on a wedding is insane, given your debt load.  Perhaps your parents would consider a wedding present of $30k to pay down your student loans instead.  That's a much better use of their money than a wedding for 200 people.  Get married at the courthouse or have a very small church ceremony and have a small reception after that.

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Reader Case Study-- what can I do better?
« Reply #17 on: January 07, 2016, 07:05:42 AM »
Thanks to you both for the latest input-- I'm definitely picking up what you're putting down.

One of the reasons I want to save for a down payment is so that bf and I can buy a house in ~2 years which will give me a tax deduction.  Does this make sense? I don't care so much about being a homeowner but it seems ridiculous to be paying so much in taxes.  My firm pays for everything work-related so I don't have any deductions there.

I'll look into getting a cheaper phone plan, and I'm going to start keeping track of all of my spending in the "everything else" category so that I can figure out where to cut down.  Eating out and clothes shopping are definitely my biggest weaknesses, although I don't eat meat or drink much so that helps. Travel is very important to me and I can't take a lot of vacation time, so that's an area I would like to be able to save for. I think if I can eat out less and shop less, I could easily save another $300/month.

As for the wedding budget-- I was actually accounting for our parents contributing about $30k, so the budget I had in mind was closer to $50k.  I take your point though. It seems like everyone we know is getting married and spending at least that much, and it's hard to envision a wedding costing much less (for ~200 people) that would still be fun and memorable.  But I agree we should get more creative.  I don't want to have another run of the mill wedding anyway.

Once I build up my emergency fund to ~$25k, and start more aggressively paying down my student loans, how else should I be saving my money other than just a savings account? Should I just open up a mutual fund at Vanguard for example? That's where my 401(k) is.

Thanks again guys!

If I was you I'd really crunch the numbers on how worth it that tax deduction will be.  That to me is like someone buying a new $7,500 suit because it's on sale from $10,000.   Sure, you can look at it as "saving" money (and many people do), but really you're spending money and getting a slightly better deal on something.  If you weren't already going to buy the suit, you ended up with less money than you started.

I recommend reading the jlcollinsnh link someone above posted, and also playing around with the buy vs rent calculator at http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Plug in all of your info for best and worst case scenario (notice how much the time you stay in the house affects the calculation), and see how much you'll actually be saving compared to renting.  Don't forget to add in $.50/mile for commuting costs (each way) for every day in the month you'd have to drive to work, and consider things like lawn care and repairs.

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Reader Case Study-- what can I do better?
« Reply #18 on: January 07, 2016, 07:09:29 AM »
Spending $50k on a wedding is insane, given your debt load.  Perhaps your parents would consider a wedding present of $30k to pay down your student loans instead.  That's a much better use of their money than a wedding for 200 people.  Get married at the courthouse or have a very small church ceremony and have a small reception after that.

Just got married (in Manhattan) last year, and agree.  It is not normal to spend 50K on a wedding. At all.  If you socked that away and never added another cent you'd have half a million at 65.  You are incredibly lucky to have parents offering to spend 30K, assuming that accepting family money won't make planning hard, you can at the very least have a still VERY decadent wedding for 30K.

I don't think you have to "Get married at the courthouse or have a very small church ceremony and have a small reception after that." as another poster said, and I didn't have a mustachian wedding (I think we spend 18 or 20K, all my cash), but 50K is insane. Don't let the industry tell you what's normal.  They do not have your best interests at heart. It sounds like you're making a lot of your plans and choices on autopilot, without being critical or considering what works for you.  The forum should help with that :)

Quote
One of the reasons I want to save for a down payment is so that bf and I can buy a house in ~2 years which will give me a tax deduction.

Definitely a question for a tax planner, but I think the deduction you're talking about is the mortgage interest deduction.  All that means is that your mortgage rate goes down by your highest federal marginal tax rate (say, 28% here).  So instead of paying 5% for your money, you're "paying" 3.6% if you itemize.  Spending six figures to get a tax deduction is not a good reason to buy.

little_brown_dog

  • Pencil Stache
  • ****
  • Posts: 912
Re: Reader Case Study-- what can I do better?
« Reply #19 on: January 07, 2016, 08:31:04 AM »
My perspective:
In the last five years, we  managed to pay off almost 100k in student loan debt (6.8% interest for most of those years), pay for half of our wedding (15k), pay for multiple surgeries (12k), buy our home in a HCOL area (down payment of 30k), have a baby, and drop to one income. We went on 3 international vacations, one being a long trip to Europe. We also built and maintained a strong efund (20k) and contributed over 10% to our retirement accounts during this time. Our combined household income during these 5 years was approx 100k.

Some mustachians will balk at this – you let your debt sit for 5 years while traveling and having a wedding!? Only 10% retirement savings!?  But others may think – holy crap how the hell did you manage to do all that and pay off massive debt, keep an efund, and contribute to retirement? Figure out who you are – there is no right or wrong answer.  Once you know which camp you are in, you can make your plan. Our moderate approach (spend on some things that are really important to us, while also prioritizing saving/debt repayment) made us happy and very financially stable in a relatively short period of time. Sure we would have been wealthier faster if we had given up many of those things, but we didn’t feel that being debt free a year or two sooner, or having a bigger 401k was worth it. Now that we are almost debt free and have no weddings or houses to save for, we are doubling down on our retirement savings.

Edit: Even in an expensive urban area, 30k should be enough to have a really nice wedding. That is what we spent on ours (split the cost with my parents) and had an awesome gourmet meal, passed apps, open bar, the works. The key for us was a small to moderately sized guest list - we invited around 100 people and 80 attended. Ask yourself - do you really need to invite coworkers, parent friends/colleagues, plus ones or other people who you really could care less about having there? Cut your guest list to only family and close friends.


« Last Edit: January 07, 2016, 08:41:36 AM by little_brown_dog »

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3056
  • Location: Emmaus, PA
Re: Reader Case Study-- what can I do better?
« Reply #20 on: January 07, 2016, 10:26:56 AM »
bf and I can buy a house in ~2 years which will give me a tax deduction.  Does this make sense?

No.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 3549
Re: Reader Case Study-- what can I do better?
« Reply #21 on: January 07, 2016, 09:57:34 PM »
One of the best ways to keep that wedding cost down is to not invite 200 people.  Keep it small and intimate.  You'll probably enjoy it more as you'l get to talk with the people you actually care most about in your life, rather than having to spend 2 minutes each talking  to a bunch of strangers.  Just because someone invited you to their wedding doesn't mean you owe them an invite to yours.

I'd aim for no more than $25k, which can buy you a very, very nice wedding, and ask if your parents will let you keep what you don't spend on the wedding. 

JJNL

  • Bristles
  • ***
  • Posts: 343
  • Age: 41
  • Location: The Netherlands
  • Zuinigheid met vlijt bouwt huizen als kastelen
Re: Reader Case Study-- what can I do better?
« Reply #22 on: January 08, 2016, 01:29:13 AM »
Hi lilybbloom,

Here are my 2  cents:
- what's in the everything else-bucket? That's 1000 dollars per month, i.e. a lot of money, and apparently you only have a general idea where it goes. Saving money starts with knowing where it goes, so if I were you I'd be tracking a lot more thoroughly. My gut feeling is that there's a lot of potential savings here.
- Buying a house just for the tax deduction does NOT make sense. At all. It only makes sense to buy a house if a) you're sure you're going to stay there for at least 5 years and b) you're in an area where buying works out to be cheaper than renting. So check the calculators in the previous posts.
- The American wedding industry is nuts. Really. Don't get suckered into spending a huge amount of money for a wedding when you don't have to. Spend money where it will count towards having a nice day (still this does not have to be expensive), but do NOT spend a lot on things like flowers, centrepieces and other useless crap none of your guests is going to remember. There are a lot of websites about frugal wedding planning in America, google them and lower the bar for spending on your wedding drastically.

Bee21

  • Bristles
  • ***
  • Posts: 474
Re: Reader Case Study-- what can I do better?
« Reply #23 on: January 08, 2016, 03:39:25 AM »

Your numbers are scary.
200k in student loans are very scary. Donít look at the 2.9% interest rate, look at the 200k balance you still need to pay off. It was obviously a good investment into your education, as you are already making good money and in a good position to pay it off, but it is still a massive big liability
And donít just look at the gross income (that one looks great), but look at the net amount you earn, after the taxman takes 42% of it. After you pay your student loans. Credit card interest. Etc, etc. Scary. How many days do you have to work to make that 50k after tax you are planning to spend on your wedding DAY? Is it worth it?
The good news is, you ARE making good money and have all the resources to get out of this financial mess, and to get closer to financial freedom. It all depends on the choices you make. You are young and in a very good position to make it work.

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2169
Re: Reader Case Study-- what can I do better?
« Reply #24 on: January 08, 2016, 06:10:17 AM »
Quote
net amount you earn, after the taxman takes 42% of it.

Agree with this.  I wouldn't necessarily subtract back out the credit card payments, etc, but I ran rough numbers for you (i'm in a similar income/tax position) for both alternatives::

Alternative A:
Earning 175K
-42% tax = 101K
Working 55 hour weeks (low in big law but being generous) and spending another 5 hours commuting, 51 weeks a year (assuming 5 vacation days off) = $33/hour

Earning 175K
-42% tax = 101K
subtracting 8700*12 (for your self-described monthly expenses) makes ... negative 3K.  I think you're counting your tax rate or spending incorrectly.  Probably the tax rate.  Is that your marginal or effective rate?

At any rate, under Alternative A you're earning 33/hour, which means it will take you 1,515 hours of work to pay for the wedding you're contemplating.  And then on top of that, you're making minimal to no progress on your other debt.  If you can't keep the 30K parents are offering in cash, you should at an absolute minimum keep your costs below that.  If you spent that 50K on your debt, you could cut a literal year of your working career, maybe more.

lilybbloom

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Reader Case Study-- what can I do better?
« Reply #25 on: January 08, 2016, 08:06:36 AM »
Thanks for the further input.  I'm hearing what everyone is saying about the wedding.  If it were up to me, I'd elope. But it isn't... my bf is EXTREMELY social and has a large family, so when I say 200 people, that's really family + close family friends + close friends. I'm not talking about inviting people we've never met. And my side of the family will be insistent on inviting cousins (plus their kids) and family friends, for cultural reasons. It kind of sucks actually. We aren't engaged yet (though I think it will happen in the next few months) so the wedding will be in spring/summer 2017 most likely, which is why I wanted to start saving for that now.  I would absolutely rather save my money or at least spend it on a house.  That being said, I will think about just staying within whatever budget my family provides (bf's family will not be contributing for financial reasons) and if they want to invite more people, they'll have to pick up the tab.

My tax rate is really scary but it seems like there's not much I can do about it.  I'm tracking my "other" expenses and am already cutting down on eating out/shopping which is probably 80% of that category.   

Bee21

  • Bristles
  • ***
  • Posts: 474
Re: Reader Case Study-- what can I do better?
« Reply #26 on: January 08, 2016, 12:44:20 PM »
Well, then let's not concentrate on this wedding thing right now. Just a hint: nobody will be upset if you invite only the close family to the wedding. Parents, siblings. Friends can have an after party. I had 11 people @ mine ( including us and our kids) and it was a beautiful weekend on a tropical island. 5k including travel and accomodation for all, the celebrant, the rings, the flowers and a designer dress. I would have just signed the docs at the courthouse but the husband wanted a wedding and that was the compromise.

I think you should be able to mow down that student loan in 4-5 years easily.i would concentrate on that before you start talking babies and houses. The thirties change everything and life is definitely better if you don't have that liability.

freya

  • Bristles
  • ***
  • Posts: 477
Re: Reader Case Study-- what can I do better?
« Reply #27 on: January 08, 2016, 05:01:39 PM »
I'm in a similar situation as you, with living in an expensive area with a high tax burden, and a salary in the same ballpark as you - although much less than you're earning until recently.  You are starting from about where I was 10 years ago, and I'm now sitting here student loan free and with 2/3 equity in my apartment.  It can be done. 

First off, you need VERY much to prioritize optimizing you tax structure over reducing low interest debt.  The yield will be far greater.  You'll need to do your homework and perhaps consult a tax attorney/accountant, but here are some specific suggestions:

- If your company has a high deductible health plan, switch to it as soon as you can, open an HSA, and contribute the maximum every year.  You'll need to compare the tax benefits of the HSA to the possible difference in out of pocket expenses with your current health plan, but the results may surprise you.

- Open a traditional IRA account and use it to make backdoor Roth IRA contributions ($5500 each for 2015 and 2016).  I would maximize this before thinking about paying down the student loans early, it's that important.

- If you have self-employment income or can develop any, even if it's just a small amount, establish yourself as a sole proprietor, open a solo 401K, and file schedule C every year.  This allows you to deduct ALL unreimbursed professional expenses, instead of only those over the 2% floor.  Further, for any self-employment income you get to immediately put 20% "profit-sharing" tax-deferred into the 401K.

- Put a high priority on saving for a downpayment on an apartment or small house.  Paying rent at your income level in a high tax area is a really bad deal.  With high local taxes you'll certainly be itemizing deductions, and you could easily end up paying less monthly (net) than you are now plus building equity. Maybe you could ask your family if they'd like you to put the wedding money into a downpayment instead.  They might well say yes.

There are also many who would advocate not prepaying a 2.9% interest debt and investing savings instead, because the expected returns will be higher.  Only you can make this decision, but it's something to at least think about.