New mustachian looking for advice

[ScubaAZ]

Hi everyone,

     As I mentioned in the 'introduce yourself' section, I am a 30 year old lawyer in Phoenix, AZ.  I've been reading the site for some time now, and really trying to ratchet our expenses down and get serious about this.  I would love any 'stash ninja advice that anyone would take the time to share!

     Background:  New lawyer, work at a large law firm, so I have to be somewhat presentable, which requires a more expensive wardrobe than I would normally wear.  My solution so far has been to buy enough pieces to get through 2 weeks without obviously wearing the same thing (i.e., I can wear 1 black skirt multiple times, but certain shirts are too conspicuous to wear more than every 2 weeks or so).  I live with my boyfriend and his 3 year old daughter.  Right now, my income is our sole income, while he tries to get his business going in the new city.  The upside to that is any income he does bring in is pure savings.

TL;DR:  High income ($120k), somewhat of a commuter lifestyle (14 miles each way), lots of student loan debt ($97k), fairly low (though not Mustachian) living expenses ($1,250 a month ($2780 including mortgage payment).  Details below. 

The good (or at least not bad):

$120,000 annual salary with good upward potential in a fairly short amount of time ($140k in 2-3 years, 180k in 4-6 years, $400k plus in 8-10 years if I make partner).  As a single, high income earner, I pay a ridiculous amount of income taxes (about $23k a year).  So my take home, after taxes is about $88,000.  Yes, I have calculated the tax savings if we were to marry- about $12k.  That is the ultimate goal, but not something I want to rush into for purely financial purposes.

$5,000 in savings

$65,000 in retirement accounts (rollover IRA, and a 401k).  Saving the max in my 401k ($17,500 annually as of this year).

$1,500 in a HSA (trying to get as much income away from the IRS as possible).  This will max out at $3,100 annually (plus inflation), and rolls over (not a use-it or lose it like an FSA).

The bad:

$97,000 in student loans, at 7%, with $718 monthly payments. (Hello, law school.  And that was an in-state school with partial scholarship.  No idea how people do it with tuition at some schools over $40k a year (x3)).  Before anyone gets too down on me, as it does not look like a Mustachian choice at first, getting my JD allowed me to double my income with upward growth potential that would have been near impossible without it.  So, expensive considering tuition and missing 3 years in the workforce, but worth it in the long run, I think.  Ok, now you can comment :)

$9500 in credit card debt at 0%.  This was mostly funding my summers through law school, where unpaid legal work for "experience" is the norm in this economy, and  between law school and work.  Could I have gotten a part time job for the last summer? Probably.  Worth risking failing the bar exam?  Nope.  The good news is its spread over 2 cards with 0% interest for a year.  I've budgeted the $800 (approximate) monthly payments needed to pay this off within the promotional rate (and then freeze the cards for eternity like in Confessions of a Shopaholic).  Or I could pay it off sooner, but I figure why if its not costing me anything extra?

2 car household.  Both are paid for, but insured for full coverage (until we've saved enough to comfortably replace one should anything crazy happen).  One is a 2006 small car that gets about 32 mpg.  The other is a 2003 truck that gets about 16 mpg (ducking the Face Punch).   I'm thisclose to keeping the truck, but getting another small car for driving to and from work (more on that in a minute).  Right now, as I am the only commuter, I drive the other car and my bf keeps the truck for errands closer to home. MMM hit the nail on the head with his review of Phoenix- it is made for driving.  Between the layout and the weather (110+ degrees), its not really bike friendly.  I know, complainypants.   Overall, gas budget is $150 a month.

The Meh (i.e., not great but I don't think it is terrible).

A $248,000 mortgage at 3.25% on a house I bought early this year.  Zillow estimates it has increased almost $15k in value since I bought it (no idea how reliable that is, but that is what Mint links to).  Payment (inclusive of taxes, insurance, etc.) is $1530 a month (including $250 a month in PMI that just chaps my hide-- 5 years and 80% LTV needed for that to go away- or refinance).  The house is 14 miles from my office, all freeway.  I've looked at the Express bus routes, which are actually fairly convenient, except that I routinely get caught up at work until all hours of the night (last bus at 6:30).  One cab ride home and any savings are out the window for the month.  Its also $6 a day, which is more than I spend in gas now.  My schedule is flexible enough that I can generally skip rush hour (go to work later, leave later, so it only takes me about 15 minutes each way.  Rush hour can be 40 mins).

Living expenses outside of mortgage and debt payments are appx $1,250 a month.  This breaks down as follows:
Car insurance:  $60
Gas:  $150
Utilities (internet, electric, cell phones): $410 (I am expected to be reachable at all times for my work, so the prepaid cell thing makes me nervous.  How does it work overseas?  Any issues with coverage/accessibility?  Its not like I travel to the far reaches of the globe, but I don't want an awkward conversation like "Sorry, I can't get cell service in London." Work covers my portion of our data plan ($40) and I get an 18% discount with my cell provider via our corporate discount, which brings 2 bells and whistles cell plans to $110 a month, which isn't too bad ($10 would be awesome though!)
Groceries:  $325 (we switched to a paleo type diet and went WAY over this last month.  I've since brushed up on MMM's grocery post and vow to do better)
Restaurants: $75 (we don't always spend this, but I like to budget it so I'm not going over if we have a meal or two out)
Gym:  $25
Pool guy: $85 (I know, this is an easy one, but I'm terrified of screwing up the pool)
Pets (1 cat):  $25 (he eats better than we do.  There is also a horse that is being leased currently in exchange for feed (saving $250-500 a month, depending on where I'd board him otherwise))
Other: $130 (this is stuff like drycleaning, occasional daycare, etc.)

The Plan

Now that I have $5k in savings, I plan to funnel everything to paying off debt, with credit cards first, and then student loans.  My mortgage is only 3.25%, so I think it makes sense to save/invest after that and pay down the mortgage later.  Thoughts?  On the expenses side, the pool guy is obvious, possibly a cheaper to drive car than the truck, and attack the electric bill, which has been around $150 a month for the past few months.  Its already been in the 100's, so the A/C has been running during the day.  If its cooler outside than the 79 degrees the air is on, I open the windows at night.  I can probably only do this for a couple more weeks.  It will rarely get below 100 as the low once summer is here.  Blah. 

Any Face Punches and/or advice are welcome.  Especially in the macro picture.  I feel like based on the numbers, we should have a lot more left to save ($88k take home should go a lot farther than this!).  My bf is sort of on board with this, in that he's okay with cutting back our spending but he doesn't understand my obsession with it.  Like now, its 1 am and I'm writing you all and reading MMM posts.  Thanks so much for reading, if you've gotten this far!

-C

[punnymustache]

Maybe I am having trouble with my math here, but you should have a pretty considerable amount of money left over each year if you really live on the budget below. I accounted for maxing out retirement accounts and ballparked the HSA... what else am I missing?

[ScubaAZ]

I need to sit down and look at my deductions before I get my paycheck (I have to be at work to log in and pull a paystub but I'll update this tomorrow).  My take home pay is approximately $5300 a month (starting from $10k total net pay).  Add back $1400 for the 401k, and we get $6700.  Assuming $2k a month in taxes (seriously!), that is still only $8700.  I'm not sure where the other $1300 is going.  I have deductions for healthcare (only mine, which is partially subsidized by my employer) and the HSA would be included in that ($135 a month).  I never really thought of it like that (I was focused on the take-home side), but there's essentially $1,000 a month that I have no idea where its going.  I just face punched myself.

So with the $5300 a month take home, it breaks down as:

1530 mortgage
718 student loan
800 credit card
$1325 living expenses (in pondering what else comes out of my check, I realized I wasn't including the pre-tax $75 a month I pay for parking at my office).

Leaves $927 a month left over.  I had been putting that in savings, but I'm fairly comfortable with only $5000 in cash at this point to pay off some of this stuff faster.

The tax issue is a big one, and I plan to meet with a CPA to see how we can lower that.  There has to be something.  I have my mortgage deduction, and the 401k and HSA.  My income is too high to deduct my student loan interest (ridiculous) and too high for a regular IRA.  I also need to see exactly what is being deducted from my paycheck, and where that other $1000 is going.  I also agree I should have a pretty considerable amount left over, but it doesn't work out that way...

BTW, lawyers aren't known for their math skills, so I'm sure your calculations are just fine!

[Another Reader]

Would someone please explain why people with over $100k in debt mostly at 7 percent and newly out of law school think it is perfectly ok to go out and incur another $250k in debt with PMI???  What on earth would you do if you lost your job?  You have no reserves.  Your boyfriend can't make up the slack.  You would have to take money out of retirement to make payments while you sold this albatross.

It sounds like the house and all the expenses are on you.  In your shoes, I would expect the boyfriend to start contributing PDQ.  You have been in town long enough to buy a house, why isn't the business working?  Perhaps he should get a job while he works on the business as a side venture.

What I really would consider doing in your shoes is to unload the house, find a cheap rental, and pay off the debt as fast as possible.  Once the job is stable, the debt is paid off, and the boyfriend is contributing regularly, then and ONLY then would I consider buying a house.

[ScubaAZ]

Very fair points, Another Reader.  We've been here for about 6 months now.  We initially rented a small 3 bedroom apartment (our room, kid's room, and home office, which is necessary for both of us).  Our rent was higher than the current mortgage payment.  I won't say that buying was the most Mustachian decision ever, but my job is very stable and the Phoenix housing market was still on the lower end of the recent increase.  At this point, I'm not inclined to sell and move, but your point is very well taken and I appreciate your comment.

I guess my pre-MMM thinking was if we were going to be paying close to or more than the cost of buying to rent, then it made more sense to buy now while prices were still low-ish and have the same or slightly higher cash outlay every month.  If I had done this post-MMM, I would have crunched the numbers a little bit more for sure.

The boyfriend was working for the Army until his orders were cut off as part of the sequester in March.  So now he is focusing full-time on his business, which he had been dabbling with as a side venture.  We'll see how it goes, but yes, at some point he's going to have to do something to bring in income.   He still has some Army income, and a small amount of child support that cover most of his (very limited) expenses.  Essentially health insurance for him and his daughter, and his car insurance/gas.   The trick is his daughter is too young for school, and so $700-800 a month in daycare eats up a lot of income if he were to work a regular job.  It worked before because his Army pay is fairly high ($3,700 a month).  I'm not sure he'd make that kind of money in the civilian world.

Once the credit cards are paid off, the student loans are going to get everything I've got until they're gone (extra payments, bonuses, raises, etc.)  Hopefully boyfriend's income can offset some of the living expenses, and I can put even more towards them.   I've been back and forth with bumping the savings up to $10k as a minimum, for exactly the reasons you state.  Thoughts on that vs paying down the debt faster?

[Another Reader]

I have 3 bedroom houses in nice neighborhoods in Tempe that rent for a lot less than $1,530.  That's probably around 14 miles from downtown Phoenix, the only place you would likely pay for parking in Central Arizona besides the airport.  And yes, you have a tax benefit that reduces the effective payment, but that's not the point.  The point is you are thinking about the payment, not about flexibility or risk.  Are you an attorney for a government agency?  Are you corporate?  Since you mentioned becoming a partner, I think probably not.  What would another downturn in the business cycle mean for your job?  What if the boyfriend can't find something that will pay his share of the bills?

I don't know how secure your job situation is, but I would want several months of expenses saved up in your shoes because high paying legal jobs are not all that common.  I would get rid of that credit card debt before the zero interest expires and focus on the student loans.  To that end, I would cut out all unneccessary spending.  No pool guy (boyfriend can do that), no eating out, nothing extraneous until the debt is paid.  Once the boyfriend is working again, he can contribute his fair share and you can ease up a little.  That would be the price I would have to pay to keep the house.

[ScubaAZ]

I'm sure a lot of our reasons for choosing this area and this house are many of the complainypants reasons that MMM hates, and I agree with you that there are cheaper houses for rent in the metro area.  For now, I'll take the tradeoffs for keeping the house, and we can talk later if we need to sell and rent.

Yes, I hate hate hate paying for parking, but its so difficult to park anywhere downtown for free.  I spent a little time in DC, where the parking was metered at Target, which seemed so bizarre to me!  I found DC infinitely more friendly toward pedestrian/public transportation, where I didn't even take my car for the time I was there.  Here, even if I take the Express Bus, I can't really get rid of my parking pass, because I will have to drive some days (probably at least once a week), and the max rate in the garage for 4 days is more than paying the monthly fee, and I can't mess with checking parking meters every few hours during the day.  Even the uncovered lot across the street is only $10 cheaper a month.

You are correct, high paying legal jobs are not at all common these days (especially straight out of law school), and I am tremendously lucky that I landed on my feet instead of at Starbucks like some of my classmates.  I'm at a large international law firm.  While I certainly am under no illusion that if the economy totally went to crap again that I could never be affected, I work in a boutique practice area that has been profitable throughout the last downturn.  So yes, there is a some risk of losing my job, but I'm fairly confident that over the short term (next 2-3 years) that my job is stable enough to make this work, short of a catastrophic economic event (I know, I've read the news :).  My goal in Mint right now is have $30k in cash saved as a cushion, I'm just struggling with how to prioritize that over paying down the student loans.  I was thinking $10k to start, but at .9%, it seemed silly to have that cash sitting there with 7% accruing on the other loans.  But the peace of mind might be worth the extra cost on the loans.

Part of the issue for the boyfriend is that I can cover all the bills, so its not a do-or-die thing.  Its just that doing so is at the expense of making headway toward being debt free/FI.  I've slowly been handing back "his expenses" that I took over when his orders got cut, and involving him in this budgeting process of mine so that he can see the numbers, and he's on board.  When I said he was sort of on board, I simply meant that he doesn't stay up all night running various scenarios of how to make this work.  He is, however, very frugal anyway and even more so now that he isn't bringing home any income.  He's not a spendthrift by any means, which makes this a lot easier.  There is no power struggle over cutting expenses where we can (by can, I mean physically able, not only stuff that is super convenient).  He is working hard at getting his business off the ground, and fingers crossed, will have his first contract in a few weeks.

He is also quite handy, and so takes care of most home maintenance/improvement issues.  He said he would do the pool, I said no because I've heard algae horror stories from friends who did their own, spent a fortune to fix it, and then went back to having a professional do it.  I will strongly reconsider this, or at least see if we can scale back to pool guy once a month just to check on everything, and otherwise doing the cleaning part ourselves.

Thanks so much for your time reading this, and your advice.  This Jr. Mustachian really appreciates it.

[Joet]

one minor datapoint:

what salary are you assuming your spouse/partner will have in your 'marriage tax savings' plan? Zero?30-50k?

a lot of dual-income families where salaries are similar to eachother around/above your salary pay a substantial 'marriage penalty' in taxes.

I calculated my household 'marriage penalty' last year to be $4650 in federal alone

[hoodedfalcon]

Reading about $250/month PMI makes my brain hurt. Yikes.

Congrats on landing a high paying legal job in this market. Law school was probably the biggest financial mistake I will ever make (I make far, far less than you).

I don't have any huge words of wisdom. I do agree with the previous posters that the house purchase was probably not the best thing given your circumstances. I am of the opinion that if you have to pay PMI, you probably shouldn't be buying a house.

Hopefully BF will get his business off the ground very soon.

[ScubaAZ]

one minor datapoint:

what salary are you assuming your spouse/partner will have in your 'marriage tax savings' plan? Zero?30-50k?

a lot of dual-income families where salaries are similar to eachother around/above your salary pay a substantial 'marriage penalty' in taxes.

I calculated my household 'marriage penalty' last year to be $4650 in federal alone

Joet- that is a good point.  I calculated this in an attempt to see if we could sort of offset his income with tax savings (and to see how different my taxes would be if I were a married with children versus a single high income earner).  So I calculated it at no income from him, with us getting to claim his daughter, since we have her full time.  There is definitely a point where marriage would actually work against us, instead of for us.  But for now, even if he had moderate income, the higher standard deduction, plus the child credits, plus as a married (with limited income from him) I could contribute to IRAs and deduct some of my student loan interest.  All of those options are unavailable to me now, hence the $2k a month in federal income taxes.   I worked full time in highschool and college and made less money than that.  Just seems absurd to me.

As I said, we aren't rushing into marriage just yet.  There are lots of things to get settled, including his ability to help move us toward a FI future.

[ScubaAZ]

So it looks like my big math error was in the taxes.  Rather than the $24k a year I was thinking, its actually $32,842 in total taxes (state and fed income tax, social security, and medicare).  That is absurd.

Gross pay: $10k
Less taxes of $2736
Equals $7263.14 in net pay

Other withholdings are small ($200 for insurance, parking, etc.)
Less 401k and HSA contributions, take home is what I had calculated as $5400 a month.

But the good news is I'm saving 24% of my net take home pay already, through the 401k/HSA.  That is better than I thought it was going to be.

[Joet]

I dunno what absurd is, when I looked at payroll + fed/state and property taxes for a 2012 tax summary I got to right around 30% of gross income goes to taxes [ignoring sales tax though]

17.x% federal [incl AMT penalty]
6.x% state
throw in another 4% or so for medicare+SS [medicare uncapped, SS capped at like first 110k/ea, I think its 117k this year and back to 6.2% from 4.2%, yay]
another 1% or so for various CA bullcrap payroll taxes
3% or so for property tax
>30% heh

[Jen]

Just a thought on driving/parking vs. commuter bus.  I'm also an attorney with a large international firm and for several years struggled to commit to a bus commute because the last one left at 7:40.  There are definitely evenings that I need to work later than that, and I can't always predict in advance when they might be.  However, I started bus commuting a few months after reading MMM, and it has been fine.  There are still nights I have to continue working, but because I work for a large firm that expects me to be available most anytime, I have the right equipment to make that happen at home.  Not sure if that is possible at your firm, but I've found it is not a big deal here, despite thinking otherwise for quite awhile. 

Also, if you can pay for parking pre-tax, you may be able to pay for bus passes pre-tax as well. 

[ScubaAZ]

Just a thought on driving/parking vs. commuter bus.  I'm also an attorney with a large international firm and for several years struggled to commit to a bus commute because the last one left at 7:40.  There are definitely evenings that I need to work later than that, and I can't always predict in advance when they might be.  However, I started bus commuting a few months after reading MMM, and it has been fine.  There are still nights I have to continue working, but because I work for a large firm that expects me to be available most anytime, I have the right equipment to make that happen at home.  Not sure if that is possible at your firm, but I've found it is not a big deal here, despite thinking otherwise for quite awhile. 

Also, if you can pay for parking pre-tax, you may be able to pay for bus passes pre-tax as well. 

Thanks, Jen!  I generally have the flexibility to leave and work from home later if need be.  But there are nights where its a have to be in the office sort of thing.  As you said, I rarely know when they will be.  I suppose if I had to, I could catch the bus home, then drive back for the night if that happened.  Have you gotten stuck yet?

I appreciate this a lot, especially as a new lawyer, I'm sort of terrified of not being immediately and conveniently available for whatever anyone needs, whenever they need it.  I work in a great office, and its not the stereotypical abuse the associates arrangement that at least I think of for big law.  You are right, I am probably being a wuss about it.  Maybe I'll try it on Fridays, which usually have much less opportunity for crazy and go from there.

Thank you!

[Jen]

I completely understand your mentality.  I was the exact same way the first couple of years and, to some extent, I think it's necessary in this field.  You might try giving it another six months or so and then start trying to bus commute.  I've only gotten "stuck" once, and my husband was nice enough to drive in and pick me up.  I estimate I save about $300/month in parking and gas, so it is worth the occasional inconvenience for me. 

I think it is overall a smart move, however, to convey a can-do attitude at work and be available to the more experienced associates and partners as often as possible.  I've found that I was able to build up some goodwill that way and the few times I have needed some leeway, I have always received it. 

Glad you have found a good legal job right out of school.  So many new lawyers are struggling, so it's great to hear a success story.  Just keep paying attention to your expenses and you'll be able to save more and more each year.