Author Topic: What to target next?  (Read 4846 times)

caracarn

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What to target next?
« on: February 23, 2016, 10:28:09 AM »
I am a new MMM reader and while I thought I was doing well in my trek to retirement, have certainly learned some things here.  I am currently trying to move down my debt list as quickly as possible and am at the point now where I have just two car loans and our mortgage.  The mortgage is 3.75% ($214K, already paid ahead by $6K since refi in December) and one car loan is 0.9% (15.5K 27 mo) and another is 3.39% (18K 54 mo).  I should have enough cash at the end of the week where I could remove either of the car loans and my thought was to remove the higher interest loan first. 

My question is does that make sense or for some reason am I better off just working through the car loans and sending all the extra cash to the mortgage?  I understand the math of targeting the highest interest first, but I am also in a situation where I must change jobs and I want to remove the monthly drain as much as possible and so I think I should target both car loans as aggressively as possible before I focus on the mortgage. 

Looking for some great feedback!

homestead neohio

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Re: What to target next?
« Reply #1 on: February 23, 2016, 11:23:37 AM »
Welcome to the forums.  Congrats on getting your debts reduced to "just" car loans and mortgage.  Sounds like you've already tackled some other debts, and that is great.

The quick and simple answer to all your questions is "It depends".

First questions first.  Do you need 2 cars?  Do they have to be THOSE two cars?  Can you put yourself in a better position to reduce expenses and improve your net worth by cutting losses on those and paying cash for slightly older cars?  Lots of MMM posts on cars, they are a huge drain on household finances.  Lots of people finding MMM have non-mustachian cars and soon get smaller, efficient, and older cars.  Lower gas costs, lower insurance costs, no car payment all leave more money to stash for FI.

You also don't mention anything about investments.  Are you maxing your tax advantaged retirement accounts?  Do you have an emergency fund?  Sounds like you are only considering rapidly paying down mortgage vs. car loans, but there is an opportunity cost associated with either.  All of your rates are pretty low, are they fixed at those rates? IF you plan to keep both of those cars (a huge if) and the house long-term, you may be better off leveraging those low rates by making regular payments and sending all your other funds to index fund investments.  This requires the discipline of actually investing those dollars, and not going on vacation instead.  And enough financial security/stability to be able to do this long term (beyond the 27 and 54 month terms on your loans).  A pending job change may or may not change this.  If you are moving to a higher paying, more stable employer, non-issue.  Lower paying or unstable employment situations would lead to prioritizing getting rid of these loans and revisiting how large an emergency fund you may need.

Are you in the US and itemizing your tax deductions?  Do you have >20% equity such that you are not paying PMI?  If itemizing and no PMI, mortgage interest gets a tax break and is probably the last debt you'd want to extinguish.

You should also take into account your tolerance for complexity.  We have two loans totaling $18k at 0.00% that we have enough cash to pay off.  It is taking a lot of willpower for me to make a monthly payment and leave the extra cash in a savings account that returns a guaranteed 1%.  I get free money this way, but I long to get down to "just the mortgage".  I have a low tolerance for complexity and the $180/yr in interest (taxable) is only borderline worth it to me to carry the loans.

trashmanz

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Re: What to target next?
« Reply #2 on: February 23, 2016, 11:30:08 AM »
Lots of other things to consider as posted above, but for me I'm not a proponent of paying mortgages off early at less than 4% interest.  Are you getting a tax break on the interest payments?  What is your emergency stash? 

If everything is below 4% you could invest the money in a tax deferred account instead, as a third option, but more likely than that I'd pay down that higher % auto loan.  And as above, really figure out why you need so much money worth in automobiles. 


caracarn

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Re: What to target next?
« Reply #3 on: February 23, 2016, 01:21:27 PM »
Thanks for the input!

Homestead, I'm in the NE Ohio area as well, near Cleveland

So to get into a LOT more detail. 

We are a blended family with 6 kids (3 currently of driving age).  We are in our mid (me) to early (wife) forties.  The costs of divorces take a toll but I think we are in a great position given the toll on both sides.  Without the gory details (which friends have told us we need to write books about, maybe as a early retirement career), my wife had to file for bankruptcy after her legal fees got to $60K in a year, and I parted with about $175K in "cash" (retirement funds and home equity) plus the $2,000 in paperwork and fees and 10 minutes in court. 

My current income is $150K and my wife is at $35K.  We do not want to relocate so to get a position in the current job market I am looking at positions that pay around $100K and our spending level can support that hit (we have implemented a lot of the MMM principles to save money, but a family of 8 has higher costs especially when one of the kids is a diabetic and all the care and cost that entails).  My current company is reorganizing my position so there is no chance of staying on at the same pay, just to be clear on that. 

The current house was purchased at $236K and was recently appraised at $275K when we refinanced and that appreciation is in 4 years.  The refi was to get out of an FHA loan with PMI (recall I lost all equity in the divorce so I put 3% down to move myself and the kids to this house.  LTV on new loan was 80% so no PMI and already have it down further with $6K extra in principal payments in the last 3 months). 

I am not maxing out tax advantaged accounts, but am getting the full employer match with my 6% savings which gives me a 3.5% match.  My wife has no retirement accounts at here job.  Our non-Mustachianness certainly has contributed to not doing more.  Our total IRA (old 401(k)s I had left from before divorce) and 401(k) is about $225K right now.  We have about $20K in cash in addition which would be considered the emergency fund.  The car loans total almost $1,000/month at this point. 

We actually have 3 cars with that large family.  We definitely have a car clown position with our jobs (and most likely to get worse given that I am only 8 miles from work now, but no job prospects for what I do are going to be closer than that) and the other car is used for the kids to share and get to and from their jobs, school activities and traveling to the other parents homes.  This is not a life that in any way with any level of creative planning could be dealt with on bikes unless MMM would suggest including where exes live in figuring out where WE should live AND work.   My car (the 3.39% loan) was actually a downsize from an SUV as we felt we did not need two large cars (we each only had one before we were married) and knowing when we bought it that I would most likely have the longer commute, i.e. the highest expenses so we wanted to minimize.  It averages about 28 MPG in my own calculations.   It is a Hyundai Sonata.  The big car is a Honda Odyssey.  The "kids car" is a Kia Forte.  Our challenge is depending on the day of the week we are a family of 2, 5 or 8, so we need to be able to accommodate that.  That will not change substantially until everyone is starting to be "permanently" gone from the house which will not begin until four years from now when the oldest is done with college.  We tend to keep cars until they die (and yes I get that we work hard at killing them early with our non-MMM commuting ways but the cost of legal battles for child custody would easily reach $100K, so we feel that negates any car costs we could save over the next decade) so yes our intent is to hold on to what we got.

We do itemize and the tax filing for 2015 (I usually file my taxes in late January or early February since I do them myself) had us at a 13.8% tax rate so I think we do very well there given our situation. 

I have certainly in the past thought about what you are doing with having a 0% loan and keeping the cash to cover it in 1% or higher accounts and had the same "driving you nuts" feeling.  I just paid off a furniture and Best Buy 0% set of loans this week to get them off the books as they just had $1K between them. 

Until I get a new job I feel like I have no financial security and if I do end up at the $100K level those car loans would be a massive draw.  Plotting our numbers on MMM "Middle-Class to Kickass" spreadsheet we end up at $6,500/month, for the line items he has, of which $1,000 is car loans.  I would love for our property taxes to be non-existent like his but ours are at $470/month versus his $150 and our P+I is only $85 above the target of $1,000 he lists but we currently pay $360 more for principal reduction (to make sure we are mortgage free before 65).  We do have areas we can cut and are working on that.  We have other large "expenses" that MMM does not include like tithing (which is a core of our belief system) and medical (which is obviously a non-negotiable with a diabetic child) that then increase that $6,500 number.  So that is what is driving me to target the car loans as they are by far the largest items outside of our mortgage.

Hope that helps flesh things out some more and lets you revise your input accordingly.

Axecleaver

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Re: What to target next?
« Reply #4 on: February 23, 2016, 02:07:34 PM »
In your situation I would build an emergency fund with 6 months of expenses first. It sounds like job insecurity is the biggest problem you have, and a stash in the bank will help ease your mind. Cancel the extra principle payments on the mortgage for now, you can always go back to that later. To reduce your payments, get the car paid off with the high interest. That combined with the change in mortgage payments will give you another $700-800/month, paired with a six month stash will help you sleep at night.

Before you consider extra mortgage payments, look into maxing your tax deferred retirement accounts. With an average stock market return of 10% (7% after inflation), it's better to invest those dollars and use the proceeds to pay your mortgage after 65, than it is to pay off the mortgage early. Some folks understand this and still pay down the mortgage because it's emotionally satisfying. Just be sure you know why you're doing it - it's not the best mathematical decision.

At $185k a year, you might even be edging into the 28% tax bracket. For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.

Once you max out your retirement contributions for the year, put the rest against the other car, then decide between mortgage and taxable investments.

Mother Fussbudget

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Re: What to target next?
« Reply #5 on: February 23, 2016, 02:33:05 PM »
For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.
+1.  Let *THAT* sink in.

Tax deferred accounts reduce your AGI, and generally, you won't even notice the amount off your check.  An experiment:  try increasing your pre-tax savings (401k) incrementally... saving an additional $500 one paycheck, $1000 the next, etc. until you reach an amount you're comfortable with, or you max out your contributions.



homestead neohio

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Re: What to target next?
« Reply #6 on: February 23, 2016, 02:38:01 PM »
Thanks for additional details.  You have a complex situation going on there, kudos to you for working to improve your finances for the benefit of you and your family.  I'm in the Cleveland area, too.  You have very good income for this low COL area.  Too bad that is changing. 

In your situation I would build an emergency fund with 6 months of expenses first. It sounds like job insecurity is the biggest problem you have, and a stash in the bank will help ease your mind. Cancel the extra principle payments on the mortgage for now, you can always go back to that later. To reduce your payments, get the car paid off with the high interest. That combined with the change in mortgage payments will give you another $700-800/month, paired with a six month stash will help you sleep at night.

Before you consider extra mortgage payments, look into maxing your tax deferred retirement accounts. With an average stock market return of 10% (7% after inflation), it's better to invest those dollars and use the proceeds to pay your mortgage after 65, than it is to pay off the mortgage early. Some folks understand this and still pay down the mortgage because it's emotionally satisfying. Just be sure you know why you're doing it - it's not the best mathematical decision.

At $185k a year, you might even be edging into the 28% tax bracket. For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.

Once you max out your retirement contributions for the year, put the rest against the other car, then decide between mortgage and taxable investments.

+1 to Axecleaver's comments

The job situation sounds scary.  Reorganizing the position can mean less money for less responsibility, less money for same responsibility, or less money for more responsibility.  Or it could mean a layoff. The $20k emergency fund is great if your monthly expenses are low, but if you are at $6500/month that will only last 3 months if you both lose your jobs.  Is the wife's job stable?  Can she cover more than $2k of that family budget with her income?  At $2k from her your emergency fund is only 4.4 months if only you lose your job.  That's not enough for me to sleep at night if my employment situation is rocky.  Since you expect your income to fall, you really need to look at expenses.  Eliminating or reducing a monthly expense pays you EVERY MONTH!

Since you itemize your taxes, stop pre-paying your mortgage.  You are out of PMI territory (good job!) and in the early years where interest payments are higher, so you are getting tax benefits for this.  This is a fixed rate, yes?  If you want to be completely debt free, pre-pay this only after maxing out tax advantaged accounts (tIRA for you and your wife = 11k/year, 401k = 18k/year for you) and paying off all other debt.  Lower your tax bill first and get those dollars working for you like good little employees.  Your house at least has a chance of going up in value, unlike your cars. 

The furniture and best buy loans at 0% are not free.  They bake in financing cost to the sale prices.  Don't buy stuff you don't need, buy used when you can (furniture, electronics) and don't fall for those 0% deals again.  If you can't pay cash, you can't afford it!  The buyer almost always pays for this.

I'm going to have to let some others chime in for auto suggestions.  Out of my league identifying Mustachian cars for large families.  You did not mention model years, though.  With the high balances for the term, they seem like they are new-ish cars.  If they are 3 years old or less, I'd seriously look at trying to find cars that are 5-7 years old and get out of those auto loans.  You'll also get a lower insurance bill.  Shop around for that, too.  Some people here do all their own maintenance and will only buy cars that are 10 years old once their 20 year old car dies.  If you are keeping these cars (again, a big if), pay off the loans, highest IR first.

MDM

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Re: What to target next?
« Reply #7 on: February 23, 2016, 03:59:03 PM »
For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.
+1.  Let *THAT* sink in.

Tax deferred accounts reduce your AGI, and generally, you won't even notice the amount off your check.  An experiment:  try increasing your pre-tax savings (401k) incrementally... saving an additional $500 one paycheck, $1000 the next, etc. until you reach an amount you're comfortable with, or you max out your contributions.
Depending on the exact age of the kids (affects eligibility for the Child Tax Credit), that saving could be 37.5% instead of 28% (or more than 40% if there are also state tax savings).

You might take your current tax return and do a "what if?" you had contributed the full $18K to a 401k, thereby lowering your W-2 income by that difference, and calculate your exact marginal saving rate.

The case study spreadsheet will show you a graph of how the marginal rate might change as your 401k contribution changes.  For some folks it is a very irregular line.  For yours it was perfectly flat, but I didn't spend much time on details (e.g., didn't enter the mortgage).  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228 if interested.

caracarn

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Re: What to target next?
« Reply #8 on: February 23, 2016, 07:24:47 PM »
Thanks for additional details.  You have a complex situation going on there, kudos to you for working to improve your finances for the benefit of you and your family.  I'm in the Cleveland area, too.  You have very good income for this low COL area.  Too bad that is changing. 

In your situation I would build an emergency fund with 6 months of expenses first. It sounds like job insecurity is the biggest problem you have, and a stash in the bank will help ease your mind. Cancel the extra principle payments on the mortgage for now, you can always go back to that later. To reduce your payments, get the car paid off with the high interest. That combined with the change in mortgage payments will give you another $700-800/month, paired with a six month stash will help you sleep at night.

Before you consider extra mortgage payments, look into maxing your tax deferred retirement accounts. With an average stock market return of 10% (7% after inflation), it's better to invest those dollars and use the proceeds to pay your mortgage after 65, than it is to pay off the mortgage early. Some folks understand this and still pay down the mortgage because it's emotionally satisfying. Just be sure you know why you're doing it - it's not the best mathematical decision.

At $185k a year, you might even be edging into the 28% tax bracket. For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.

Once you max out your retirement contributions for the year, put the rest against the other car, then decide between mortgage and taxable investments.

+1 to Axecleaver's comments

The job situation sounds scary.  Reorganizing the position can mean less money for less responsibility, less money for same responsibility, or less money for more responsibility.  Or it could mean a layoff. The $20k emergency fund is great if your monthly expenses are low, but if you are at $6500/month that will only last 3 months if you both lose your jobs.  Is the wife's job stable?  Can she cover more than $2k of that family budget with her income?  At $2k from her your emergency fund is only 4.4 months if only you lose your job.  That's not enough for me to sleep at night if my employment situation is rocky.  Since you expect your income to fall, you really need to look at expenses.  Eliminating or reducing a monthly expense pays you EVERY MONTH!

Since you itemize your taxes, stop pre-paying your mortgage.  You are out of PMI territory (good job!) and in the early years where interest payments are higher, so you are getting tax benefits for this.  This is a fixed rate, yes?  If you want to be completely debt free, pre-pay this only after maxing out tax advantaged accounts (tIRA for you and your wife = 11k/year, 401k = 18k/year for you) and paying off all other debt.  Lower your tax bill first and get those dollars working for you like good little employees.  Your house at least has a chance of going up in value, unlike your cars. 

The furniture and best buy loans at 0% are not free.  They bake in financing cost to the sale prices.  Don't buy stuff you don't need, buy used when you can (furniture, electronics) and don't fall for those 0% deals again.  If you can't pay cash, you can't afford it!  The buyer almost always pays for this.

I'm going to have to let some others chime in for auto suggestions.  Out of my league identifying Mustachian cars for large families.  You did not mention model years, though.  With the high balances for the term, they seem like they are new-ish cars.  If they are 3 years old or less, I'd seriously look at trying to find cars that are 5-7 years old and get out of those auto loans.  You'll also get a lower insurance bill.  Shop around for that, too.  Some people here do all their own maintenance and will only buy cars that are 10 years old once their 20 year old car dies.  If you are keeping these cars (again, a big if), pay off the loans, highest IR first.

Let me clarify the job situation.  I AM leaving the company.  We have agreed to a buyout.  I had agreed to stay on until they found a replacement and that took longer than expected (they have had six people accept the job then change their mind), all of the while I was in the job search.  At this point I can stay until end of March and then I have five months severance on top of that, so I'm not looking at a forced income change until then.  Obviously I am hoping to find something before that (February has been a busy month.  I have six what I would call "active" job leads which means I have at least had the phone screen from HR and in three of these I have had either a a phone screen with the hiring manager and/or in person interviews already, but I've had a couple of these before the holidays too that resulted in the favorite "overqualified" response) so that I can enjoy the double income gravy train and really work on the savings, but that just has not closed up yet.  For the sake of having more options I am willing to step back from a senior leadership role and into smaller roles but it is the old challenge of convincing employers that I am doing it because I really do not need the higher pay (because I control my expenses) rather than just to get a job and keep looking.  I am looking to simplify my life and focus on building those retirement funds, not to keep climbing the ladder.  What MMM refers to as knowing when you have "enough", just in a different way in that a lower level job is "enough" for me at this point in my career.

On the 0% loans we did have the cash, just decided to keep the money and make a little more versus give it over to them.  The purchases were "purposeful", meaning they were not just stuff like TVs.  They were all a result of the new blended family growth of adding my wife and her three kids to me and my three kids (yes you can all start humming the Brady Bunch tune; everybody does).  The furniture was a very high quality large kitchen table to allow us to seat 8 and to expand for entertaining up to 20.  It is an Amish built table so will probably last longer in this world than I will.  Our previous table would only seat 6.  We need a bigger refrigerator than the one that came with the house and a dishwasher that actually did its job.  Yes I know we could have used Muscle over Motor there, but we create a lot of dishes with 8 people and there is still only one sink.  (We did resist the urge to plumb in a new pipe set and purchase a second washer and dryer, we are doing just fine with one set, though it does run a lot).  At this point we have switched to paper plates to only have to run the dishwasher once a day and buy them in bulk so that they are cheap (yes I sadly know we are creating even more trash). 

We did look at used cars and did the math, but unless we could in some way move closer to everything (detailed above the challenges beyond the work locations) it made little sense because things like an Odyssey van still retain their resale value very well and our saving would be maybe $5,000 over the deal we got (used TrueCar) and avoided the fun of dealers.  We picked the Odyssey because we know we can run it forever (or at least much much longer than the alternatives) as we have friends who have these vehicles running at 250,000 miles and still going strong.  The other cars were selected almost solely on reliability ratings from Consumer reports merged with value with the same thoughts in mind.   I also did price insurance (I also just ran all our insurance through an independent broker last month who represents 30 agencies and he could find me no savings over what I had for life, auto or home) and it was weird but a new Kia for example would have been less to insure than the 3 year old Kia we did buy but the $3,000 costs savings was still more than that savings would have been.

These are all wonderful suggestions, just wanted to share where we are at in the hopes of explaining why I think we might not be worthy of too many face punches in these areas (I get I at least deserve a few uppercuts for not going used in all cases (the kids' car is used)).
« Last Edit: February 23, 2016, 07:30:16 PM by caracarn »

caracarn

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Re: What to target next?
« Reply #9 on: February 23, 2016, 07:36:50 PM »
For every 1000 you can put into your tax deferred accounts, instead of against the mortgage, you're saving 280 in federal taxes.
+1.  Let *THAT* sink in.

Tax deferred accounts reduce your AGI, and generally, you won't even notice the amount off your check.  An experiment:  try increasing your pre-tax savings (401k) incrementally... saving an additional $500 one paycheck, $1000 the next, etc. until you reach an amount you're comfortable with, or you max out your contributions.
Depending on the exact age of the kids (affects eligibility for the Child Tax Credit), that saving could be 37.5% instead of 28% (or more than 40% if there are also state tax savings).

You might take your current tax return and do a "what if?" you had contributed the full $18K to a 401k, thereby lowering your W-2 income by that difference, and calculate your exact marginal saving rate.

The case study spreadsheet will show you a graph of how the marginal rate might change as your 401k contribution changes.  For some folks it is a very irregular line.  For yours it was perfectly flat, but I didn't spend much time on details (e.g., didn't enter the mortgage).  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228 if interested.

The kids are 17-11.  We also have the situation where some are not our deduction due to divorce decrees (my middle child goes to my ex).  I will be losing the  exemption for the oldest this year since she turned 18 (although I will have to see if TurboTax says I can claim them through college, though I do not believe so).  Also my wife's ex is saber rattling claiming he plans to go back to court again to try to get the kids over to him for deductions since she has had them for years (even though he is on public assistance he thinks this will save him money). 

I will check out the link.

caracarn

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Re: What to target next?
« Reply #10 on: February 23, 2016, 07:56:17 PM »
OK so as of tonight with everyone's feedback here is what I am thinking, but it leads to a new set of questions?

It makes sense to not panic and take the bonus and pay anything off just yet because there seems to be unanimous consensus that my new little green employees that are starting for me Friday would be best deployed to an investment.  I am considering this route because I am using my Optimism Gun that says that I will get a job before my current income runs out in August.  By simply placing it in my Betterment taxable account I still have a Safety Margin if I need to pull it down and make some payments at the end.  Yes I get I would be subject to short term capital gains if I am selling things in six months, but it is better than assuming the worst and just stuffing it in my 1% savings account or paying off the 3.3% car loan.  Agreed?

Also, the one thing I have been struggling to determine is how much to keep in savings and checking?  Do I move most of the emergency fund over to investments since in most cases I will not need them?  I saw some MMM articles that he only keeps about $3,000 in his bank accounts everything else goes right to investments.  But I assume that is based on a $25,000 annual spend, right?  So I need to adjust that for my spend?  Or since these are cash equivalents as long as I keep them in taxable accounts and I can get them in a week, that is the best place for them and that lower number makes sense and I should also sweep balances over $3,000 into my Betterment account?

dess1313

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Re: What to target next?
« Reply #11 on: February 23, 2016, 09:46:21 PM »
emergency funds tend to need to be liquid and easy to access.  most keep it in some sort of savings account.  does it all need to be there?  that's up to you.   but having 1 or 2 months very liquid then would make sense.  broken appliances, car repairs, medical costs, all can crop up unexpectedly. 
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caracarn

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Re: What to target next?
« Reply #12 on: February 24, 2016, 06:10:46 AM »
emergency funds tend to need to be liquid and easy to access.  most keep it in some sort of savings account.  does it all need to be there?  that's up to you.   but having 1 or 2 months very liquid then would make sense.  broken appliances, car repairs, medical costs, all can crop up unexpectedly.

The thought here is that I could cover any emergency by charging it on my rewards card (and get some money back for my unforeseen troubles) and then within a week or less get the funds out of the bucket in the Betterment account say and pay off the card.  Just not sure if I am missing something, but it seems to make less sense to store $30K in a 1% savings account than to store less there and the bulk of it in an account that has a much better likelihood of return.  I guess the challenge here is that if the Betterment account loses substantial money then the emergency fund has shrunk with it.  But the thought is that we are still adding to the fund with each paycheck so that we are on the ragged edge for a short period of time.

homestead neohio

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Re: What to target next?
« Reply #13 on: February 24, 2016, 08:33:29 AM »
OK so as of tonight with everyone's feedback here is what I am thinking, but it leads to a new set of questions?

It makes sense to not panic and take the bonus and pay anything off just yet because there seems to be unanimous consensus that my new little green employees that are starting for me Friday would be best deployed to an investment.  I am considering this route because I am using my Optimism Gun that says that I will get a job before my current income runs out in August.  By simply placing it in my Betterment taxable account I still have a Safety Margin if I need to pull it down and make some payments at the end.  Yes I get I would be subject to short term capital gains if I am selling things in six months, but it is better than assuming the worst and just stuffing it in my 1% savings account or paying off the 3.3% car loan.  Agreed?

Also, the one thing I have been struggling to determine is how much to keep in savings and checking?  Do I move most of the emergency fund over to investments since in most cases I will not need them?  I saw some MMM articles that he only keeps about $3,000 in his bank accounts everything else goes right to investments.  But I assume that is based on a $25,000 annual spend, right?  So I need to adjust that for my spend?  Or since these are cash equivalents as long as I keep them in taxable accounts and I can get them in a week, that is the best place for them and that lower number makes sense and I should also sweep balances over $3,000 into my Betterment account?

Given your job situation, budget, and unwillingness to change vehicles, I'd pay off the 3.3% car loan first while increasing both the emergency fund and tax-advantaged investments.  I would not insist on maxing the 401k and IRAs this year because you might need the money for regular loan payments if your unemployment is prolonged, but I would begin to max them as soon as I found stable employment.  Once that 3.3% car loan is paid off you have breathing room to live on a lower salary. 

I still recommend older cars to kill those loans, but do what you want.  Car selling and buying is a hassle, and does have modest costs, but the gains are often very much worth it.  It is worth running the numbers instead of dismissing outright.  The fact your models retain resale value means you wouldn't take too big of a hit in an exchange.  If they were selected for reliability and economy, you could move to older model years of the same cars.

I would caution against putting your emergency fund in stocks expecting 10% returns.  That's what the IRA and 401k are for.  The market returns 7% real returns on average, but it does go down and stay down over some periods.  On rare occasions it goes down a lot and stays down a long time.  I had 12.5k that I had set aside for infrastructure improvements intending to use it this year and wanted more than 1% return (losing money given inflation).  It is now 11.5k.  If I had to sell, it would be a loss.  I don't have to build a garage/workshop this year though.  If I hang on I will eventually break even or have some gains.  Your reference to short term cap gains is best case scenario.  You can't put off your mortgage or car payments if you don't find employment before August (or 2017).  The market could go way up in that time and you lose out on a lot of potential gains.  But it could go way down, too, and you lose capital, sleep, cars, etc.

If you hold cash in savings now, you can downsize your emergency fund and invest the difference when you secure a job. Maybe as a 2016 IRA contribution (you have until 4/15/17 to contribute).

caracarn

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Re: What to target next?
« Reply #14 on: February 24, 2016, 09:03:08 AM »
Homestead, all good points.

I tend to have some that "maximize efficiency" drive that MMM has which is why it pains me to think I cannot make a decision on this right now, but you are correct in pointing out that until the job situation is resolved I just need to accept that it is out my control and that the most prudent thing to do it not be overly optimistic and foolish by thinking we might not lose money as you have and then just have a smaller emergency fund.  Realistically unless things dropped 20% the overall impact would probably be minimal but if for some god awful reason things do go into long term unemployment you are correct that having those 6-12 months of investment will not have that much of an impact on the positive side versus the potential downside of things going the other way and the emotional hit on the family.

I am also thinking as much as it pains me that I should wait to pay off the 3.3% loan until the job situation is resolved because again if things go south, I now have a paid off car but much less liquid cash (we could probably get through 2-3 months with the funds paying off the car will take).  The $150 of interest I lose over the next 3 months if it still takes that time to resolve is just the cost of the uncertainty and having made the choices that placed me here to begin with.
« Last Edit: February 24, 2016, 09:05:42 AM by caracarn »

homestead neohio

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Re: What to target next?
« Reply #15 on: February 24, 2016, 10:02:44 AM »
Sounds like a plan to put off repayment until you are sure you don't need that remaining salary/severance for current expenses.  Good luck in the job search for now, that should be the main focus.

*snip*
For the sake of having more options I am willing to step back from a senior leadership role and into smaller roles but it is the old challenge of convincing employers that I am doing it because I really do not need the higher pay (because I control my expenses) rather than just to get a job and keep looking.
*snip*

In your spare time not directed toward the job search, I'd revisit the budget and trim where you can.  $6500/mo in low COL area does not seem to be controlling expenses.  I understand you have some complex stuff, but that is no excuse for leaving it all as-is (not making it better).  My face punches are delivered with loving care. 

You seem open with sharing specifics.  Consider starting a case study thread to reduce your budget (provided you are really wanting to do so).  I drafted one for myself, but found so many obvious things to address that I'm working on fixing those before I post it!  It's a very worthwhile exercise to see your finances from an objective MMM observer perspective.

About your theoretical 20% investment drop, my 401k performance YTD is -18.1%. I don't care because I won't access this for decades and in the meantime I buy more shares.  If I were facing unemployment and this were my emergency fund I would have a new expense.  Adult diapers.

caracarn

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Re: What to target next?
« Reply #16 on: February 24, 2016, 11:53:36 AM »
Face punches gladly accepted as I know a lot of the places we can hit myself.

I will certainly look at a case study.  The honest challenge we face is things we cannot change (such as six kids) easily.  Without just upending their lives (kids because I read a blog you can no longer participate in any activities that cost money even though you have been in your school activities for over ten years) some things we know are just being a waste, like cell phones for each once they were/are 12.  On the one hand, this is an area where volume helps us on a per capita basis (our Verizon plan is actually $23/person while the same Republic Wireless plan is $40) but we are paying it for 7 (8 in 2016) not 2, so we get we are being a little open, and if push comes to shove these things go versus losing a house, food etc.  Others are very obvious, such as eating out.  Again, we have talked about cutting this, and this is really all me and not my wife.  She'd be fine hanging out at home, but with the challenges of the six kids and the antics of the exes I think it is crucial on our weekends without kids to have date nights to stay connected.  I know we can do this at home, but if I am being honest right now it is an expense, but I'm not holding on to it with a death grip, so that would save us $500/month. 

I mentioned the details from MMM Middle Class to Kickass, and here are the numbers in that format

Mortgage P+I    1085
Property Taxes    420
Car Payments      946
Gas, Insurance, other auto
                            472  (252 insurance + 200 gas + 20 reg)
Home                  190   (100 maintenance + 45 sewer and trash + 45 water)
Misc                        0
Groceries           1500 (I estimated this high we are running about $1,100 for the last 3 months, and we had the kids over all winter break for that)
Beer and Wine         0
Restaurants & Work lunches
                            500
Gym                         0
Housekeeper            0
Lawn Service            0
Ivy League Child  250  (school fees + 2 instrument rentals for school band ($49.22))  this may also be high as pay to participate fee is $200 for first child and $50 for each activity after but a couple kids do two things through the school year
Toys and junk for kids
                            100 (basically we budget $100 per child each for birthday and Christmas)
Clothes and shoes150 (another estimate and might be a bit high for there are 8 people and the exes tend to "lose" a lot of the clothes we buy so we have to buy them again and again and again.....)
Outdoor gear            0
Haircuts                    0
Golf                          0
Apple products         0
Music and movies   45  (Netflix DVD and stream, Hulu, and starter cable to drop internet by $25)
Electricity                120 (all utilities are result of averaging 2015 bills)
Gas                         65
Cell phones             230 (this includes adding the 8th line later this year) but will drop to $184
Cable TV                   0 ($10 up above)
Landline                   10 (looking at removing)
Internet                   80 (our only option for high speed internet is TWC (which is what we have) or dial-up (no kidding).  I work in tech so I need a reliable non-throttled connection.  Could save $20 by dropping to a lower speed but we do have a lot of gadgets running on our wi-fi so we can keep the cell data low)
Books and mags       0

Total                     $6,213 (took out the $360 we are currently pre-paying on mortgage which was where our old payment was at before re-fi but that was how I was at $6,500)

So there you have it.  We know we can quickly drop eating out and save a lot there even if we cut it by 90%.  With the kids running around at friends or jobs or other things it is a lot of peace of mind to be able to contact them or for them to call us if they get stuck and not sure we could do a lot to save on cellular as I mentioned here volume does work for us on a per capita basis so unless we just dropped all the kids phones we get this is a splurge.  With five teenagers the grocery bill is big (and I honestly want to see what MMM will see happen to his food bill when his boy actually starts eating) but we go through 5-6 gallons of milk a week for example.  Please feel free to comment and face punch.  I do not want to seem like I am not open to it, just explaining.  I will add that as my wife and I have talked about out expenses after I introduced her to MMM (we built the above numbers together after reading the article) she felt for what have as our reality we are not doing poorly. Certainly areas we can improve as mentioned above, but also a significant amount of 0 where the Middle Class budget and even the MMM budget have a number. 

Bring out the boxing gloves.


homestead neohio

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Re: What to target next?
« Reply #17 on: February 24, 2016, 01:03:46 PM »
You already know the answers. 

Face Punches:
- Autos (loans and insurance) - seriously I insure my 2012, 2011, and 2000 vehicles for 880/yr, which only covers your 3 vehicles for 3.5 mos, and I decided to dump my 3rd vehicle because I can and I view this expense as too high.
- Cell phones - kids are not entitled to cell phones.  this is a lifestyle change.  Do you get meaningful time with your kids with this many cell phones around?  Agree this is a difficult change to make once patterns are established, but again this is no excuse.  My cell cost is $0 (no cell phone!  High five anyone?), so others can chime in about low cost providers.
- Eating out - another lifestyle change, with your other changes I'm surprised this is still this high.
- Groceries should be able to reduce this significantly even while eating in.  My family of four budgets $540/mo which we view as very high since we eat largely organic/fresh/local.  You are not feeding all 8 3x/day, right?  Reduce this below $1100, especially if not doing fresh/organic/local.

Body Blows:
- Netflix, etc.  can go to 0.  Cuyahoga County Public Library is awesome for free everything, use OhioLink and Search Ohio features to get stuff from any library in Ohio for free, delivered to your local library with an email to pick up.
- Clothes/shoes - are you buying them all new?  Do you buy everything for all 6 kids?  If so, seems unfair.  My family of 4 budget is $19/mo.  We get everything used except some outdoor gear that is impossible to find used (kids waterproof/windproof pants, muck boots, some of these double as gifts)
- Internet can go to $35.  We have high speed internet and phone bundled for $45/mo.  NO CABLE. 
- Ivy League Child - can limit to 1 activity per child paid by you, others they pay.  Some of your kids have jobs, yes?

Absent is travel/vacation.  Is that $0?

You will have a gut reaction that all of these are too hard to change.  See if your "explanations" regarding why you "have to" spend these amounts are just excuses, or actually good choices of where you want to spend your life energy (sometimes called money).

Reducing any monthly expense pays you over and over and over again.  All these post-tax dollars can instead be saved pre-tax in your 401k and IRA, reducing your spend on taxes.

- Editing to add that you *ARE* doing well in many areas.  Credit where it is due, no SUV, no PMI and all that.
« Last Edit: February 24, 2016, 01:07:46 PM by homestead neohio »

caracarn

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Re: What to target next?
« Reply #18 on: February 24, 2016, 01:11:18 PM »
The only one that I want to clarify is auto insurance.  Do you have teenage drivers on your policies?  That is what drove up the cost very high.  We have two right now and it will go to three in August and then keep going from there until we have 6.  When it was just my wife and I it was about 33% of what it is now. 

Edit:  I just was reading MMM article from early 2015 that explains the spending values and see that he only includes interest on the mortgage not the principle, so in my case that would change the chart above to 695 instead of 1085, dropping the spending by 390.
« Last Edit: February 24, 2016, 01:39:49 PM by caracarn »

homestead neohio

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Re: What to target next?
« Reply #19 on: February 24, 2016, 02:22:51 PM »
I have no teenage drivers.  That will make a huge difference, though some model cars are cheaper than others (safety features), and newer cars are more expensive than older ones.

Teenagers driving is also not a right, and you are not obligated to cover all these costs.  Consider having working kids pay for some or all of insurance if they want to drive.  And non-working teens can consider getting a job if they want to drive.  Teaches the real cost of things and value of a dollar.  You don't have to insure them if they choose not to drive.  Harder if you've set a precedent and paid for the older ones, but certainly possible.

It is ok to track principal separate from taxes, insurance, but when you are talking about a monthly budget amount you have to pay, the bank wants it all.  I personally count principal as a budget expense, though it is one I can recoup if I sell my house (and it hasn't lost value).  It is not in my RE budget, though, (since my target FIRE # includes no debt) just taxes and insurance.  If I decide to FIRE with a mortgage, the FIRE # goes up as much as the remaining balance.

caracarn

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Re: What to target next?
« Reply #20 on: February 24, 2016, 02:41:40 PM »
They kids are required to pay their insurance but at this point it comes out of their allowance (unless they have a job and want to pay from there), and since the allowance is money that comes from me I am still "paying" the insurance they are just able to buy less.  The two teens cover the "increase" when they are added.  This covers $59 of that $252. 

On the teaching kids good money habits I have used a system based on a little book called The First National Bank of Dad.  I have done this since my oldest was 3, 15 years ago.  This absolutely eliminates the "rights".  They understand the cell phones are a privilege and a responsibility.  One of the kids had their phone stolen.  They had a choice of paying to get a new phone on their own or doing without.  She went ahead and chose to get a replacement phone.  Similarly on vacations we provide a small set amount per child (usually $25 to $50) they we provide for spending money.  Anything else comes out of their Bank of Dad account.  If they spent it all before the trip, then sorry, no money to spend while their sibling might be able to spend $100.  This has taught them some signficant responsibility and it makes going to the store and other things very pleasant.  No whining about wanting something in the checkout aisle.  You want it?  You buy it.    Just like an adult.  And just like an adult they make stupid mistakes and learn from them.  In the process they learn about the banking system (interest) and the stock market (you switch their account from a bank to a stock basis when they truly master the interest piece, which the book recommends at 12 but which I had to do with some of my kids as early as 9 because they has very Mustachian behavior and were not spending anything and the 5% monthly interest on $1,000 'stash was getting a bit too high for dad to carry, so we converted him over to stocks which only make money (or lose it) if they choose to invest.  If they leave it in the "bank" they get 0% now.   

abhe8

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Re: What to target next?
« Reply #21 on: February 24, 2016, 04:58:49 PM »
In error.
« Last Edit: February 24, 2016, 08:03:04 PM by abhe8 »

homestead neohio

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Re: What to target next?
« Reply #22 on: February 24, 2016, 07:54:50 PM »
I'll have to check out First National Bank of Dad.  We have a similar system, though my kids usually don't get an allowance.  They have some seasonally changing chores they do "for the family" (aka they are paid in the pride they get knowing they contribute meaningfully to our success as a family, no money changes hands) and we have a separate list of other age-appropriate chores and amounts they earn each time they do them.  They know we are willing to discuss this list with them if they want changes (negotiate).  They mostly choose not to do them (even after negotiating higher prices) hence no allowance.  Their spending is so low, they'd rather just play outside and wait for some relatives to give them birthday or Christmas money.  I'm looking for tips on transitioning them to more complex financial concepts, so thanks for the recommendation.  They might be ready for a simple stock intro via index ETFs as they have savings in the hundreds. 

Which of the budget line items contains the kids' allowance?  If it's not in there, are there other regular expenses you have not reported because they weren't on the list?  Not trying to add more punches, but sounds like another regular monthly expense to examine.  Until you know them all and track them all, you do not have control.

I hope I'm not coming off as trying to one-up by sharing what we do.  We have been frugal for a long time, Mustachian for about a year and still have a long list of things we want to do to improve savings rate.  I'm trying to offer some concrete examples to break through a mindset that you are doing enough spending "just" $6200/mo to show some other possibilities.

abhe8

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Re: What to target next?
« Reply #23 on: February 24, 2016, 08:07:58 PM »
Op, what is your goal? Your first post mentions pay off debts. Assuming you can be talked out of paying the mortgage early, v that leaves the car payments. That is a fairly short term goal. Could you get the whole family on board, with together, with less spending, maybe more part time work, etc, until the debts are gone? Kids might see it as an adventure or challenge, and learn some new, good habits in the process.

caracarn

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Re: What to target next?
« Reply #24 on: February 25, 2016, 06:50:27 AM »
I'll have to check out First National Bank of Dad.  We have a similar system, though my kids usually don't get an allowance.  They have some seasonally changing chores they do "for the family" (aka they are paid in the pride they get knowing they contribute meaningfully to our success as a family, no money changes hands) and we have a separate list of other age-appropriate chores and amounts they earn each time they do them.  They know we are willing to discuss this list with them if they want changes (negotiate).  They mostly choose not to do them (even after negotiating higher prices) hence no allowance.  Their spending is so low, they'd rather just play outside and wait for some relatives to give them birthday or Christmas money.  I'm looking for tips on transitioning them to more complex financial concepts, so thanks for the recommendation.  They might be ready for a simple stock intro via index ETFs as they have savings in the hundreds. 

Which of the budget line items contains the kids' allowance?  If it's not in there, are there other regular expenses you have not reported because they weren't on the list?  Not trying to add more punches, but sounds like another regular monthly expense to examine.  Until you know them all and track them all, you do not have control.

I hope I'm not coming off as trying to one-up by sharing what we do.  We have been frugal for a long time, Mustachian for about a year and still have a long list of things we want to do to improve savings rate.  I'm trying to offer some concrete examples to break through a mindset that you are doing enough spending "just" $6200/mo to show some other possibilities.

No I do not take your input as one-upping.  I always feel we can improve and that is definitely the goal.  When I say "just", because my chart came from a specific post, I am comparing to that post where the typical Middle Class person is spending $10K/month according to MMM calculations.  We used to be there, and while our income has not changed, our spending has.  I am regularly looking for areas to tighten down on, but I have the situation that many here probably do in that it is not just me and while I might be willing to go to the library to get movies or not have cell phones, the rest of the family is not, so I have to work through the process and reach compromises.  My wife, while on board to a good level (while she was a single mom after her divorce and bankruptcy she had to change careers just to find a job and went from IT paying $90K to home health care paying $14/hour), and she has said if we need to pinch pennies she certainly knows how to do that, but she also feels from the dozens of MMM articles that I read to her, that MMM is a "hippie/yuppie who has no concept of a large family, health care conditions rather than having everyone be wonderful and not visit the doctor once in five years, and thinking that everyone has no monetary consequences to just pick up and move".  She is willing to make cuts and I am confident we will always live within our means, but it is unlikely that we will "convert to Mustaschianism" fully. 

On the flip side, I do not want to come across as making excuses and being unwilling to change, because that is not the case.  I am just pushing back with we are "just" spending and we are "doing well" because at this moment in time that is what we can do as compromises and I am looking for some others knowing that change to income is a comin'.

Yes there are other expenses and we have a solid track on all of it.  I have been budgeting diligently in a spreadsheet for over 15 years tracking and categorizing every receipt and then looking for improvements.  We recently (last December) switched to YNAB once they offered direct import from banks and credit cards to simplify this process.   One very large "expense" that some will look at is tithing, which for us in non-negotiable, at a little over $1,000 month, but that is directly tied to income so if our income drops, that will too, but it does remove 10% from the savings rate according to MMM and while his feeling is that you give to charity after you make money, that's not what our family believes.  So in the #1 rule of Mustashianism, "Will this increase my happiness", tithing absolutely does that.  He also does not have medical in there (because they are the typical young family who do not have health problems yet.  I get the "workout and you will live" view he has, but I also have family members that worked out perhaps more than he did and were the picture of health and keeled over and died of a heart attack at age 50, so these expenses may hit them too) but with a Type 1 diabetic in the family and us getting older, there is at least $5,000 on the high deductible plan each year that always gets spent, and I had to have an emergency gall bladder removal last year and I try to eat well etc, but it still put me in the hospital for 3 days, had surgery and follow up and automatically maxed out our out of pocket at $10,000 by this time last year (made the rest of the year "free") but a MMM budget does leave those out and assume you can cover it other ways.  Typically we run about $400/month in the budget for medical. 

And yes the allowance is missing.  That currently runs at $180/month.  Can it be cut?  Yes.  But since you expressed interest in the FNBD (First National Bank of Dad), I will elaborate more.  Over the 15 years I have shared this concept with dozens of parents.  in virtually 100% of cases they have all come back to me, usually just weeks or months later, and explained how is transformed the financial lives of their children.  It really is an awesome, super simple, concept and I cannot praise it enough.  Again, using Mustachian principles and logic I am fully confident it has saved our family way more than it "costs" per month because of the frugality it has taught the children (granted this is compared to non-Mustachian levels). 

So the overall idea is you want to get your kids to think like an adult about money as quickly as possible.  I started every one of my children on the program as soon as they could communicate well (usually 3) and my three step kids joined the "Bank" when my wife and married four years ago.  I told you the concept is simple, and I hope the fact that a 3 year old gets it speaks for that. 

You set up the bank account in some tracking mechanism (I used Quicken and now use YNAB).  To have them learning you must give them a level of "earning" that is meaningful versus what they could get at a real bank, especially these days, so the author recommends, and I have used, 5% interest PER MONTH (yes 60% per year).  He also recommends that the allowance not be dependent on anything, that earning a paycheck can be taught other ways.  The goal here is to teach responsible money management not the virtues of work.  Therefore the get some base allowance just for being alive on a weekly basis.  This is explained to the kids like a salary that mom and dad get (but without all the "earning it" overtones).  In our case we chose $5 per week per child.  Again it has to be enough that they can buy things or they do not learn anything if they get a quarter a week and have to save up two months to get a trinket.  That time frame is too long to hold a child's attention.  Before you say "this is too high" think of it for what it is, an investment in your child's financial education.  It's toddler tuition (This last part is my addition, in no means what the author implies). 

At the end of each month you sit down with your child and walk them through how they are earning their interest.  So let's say they have their $20 from the month there and you explain how, just by saving, they now have $21.00 because their money worked for them (little green employees in MMM world).  Depending on your child this may take several months for them to understand, or they may get it right away.  Obviously older kids catch on faster. 

Now, this is where parents start to have a hard time.  You are trying to teach THEM to be responsible with money.  It is not YOUR job to tell them anything.  This is how the program works in training.  When you get paid, no one tells you what you can and cannot do with that money.  This is exactly what now happens with the Bank of Dad.  Once the $5 leaves your bank and goes to their "bank", you have no say over it AT ALL.  Now, there are exceptions to family rules, like you cannot buy weapons etc.  You set those limits at the first discussion.  But beyond things that can hurt them, anything else goes, even things you feel are wasteful, stupid and ridiculous.  This is where you let the magic of the world take over educating your child and this is where the thanks I told you about above comes from from 100% of the parents who have started this with their kids.  Next time you are at the grocery store and little Billy sees the shiny plastic toy or the piece of candy and they look at you with those sad eyes, "Daddy, can I have the ?????" the ONLY question you are allowed to ask is "Do you have enough money in your bank account?"  Again, no judgement, not discussion.  When you want to buy that car no one asks you.  Same goes for teaching your child.  Now, if they ask for some help in deciding you can certainly offer advice, but I was always careful to not cross that line of judgement.  My beliefs are not and usually will not become theirs unless they internalize on their own.  If they do not care about the environment, my lording over them will not make them care.  The goal here is to teach good decisions when you are not there to help them, therefore anything they would not think of on their own as advice once you teach them how to weigh pros and cons will not matter.  So getting back to the process.  If they have enough money (obviously with younger ones you need to help them know how much they have and walk them through tax etc. the first few times) it goes in the cart and you buy it and deduct from the bank account.  Very, very quickly they learn if they have no money, they do not get the item.  It is so nice to have the "But Daddy!!!??? PLEEEAAASSEE!!!!???" stop in just a few visits.  The Bank of Dad now becomes the bad guy and all you need to do is say, "Sorry son.  If I did not have money I have to wait too."  When they buy that chocolate bar and eat it in the car and then 10 minutes later want something else and find out they do not have enough, this is where the magic of value judgements comes in.  More importantly when they buy that cheap toy and it breaks in the car on the way home, and they know you will not just get them a replacement because it is up to them now and they have no money, they start to learn very, very fast the concept of quality.  The first question I get from all my kids when they want something now if it is not a family staple is "does this come out of my account?"  Even for clothes and things for the teenage girls, and toys for the boys.  We will get the what they NEED (we do not let the kids go to school without shoes or pants because their old pair is falling apart but they cannot buy them or they outgrew them), but if we bought the items they need and they want another pair of shoes or three extra pairs of jeans or that cool blouse that costs $120, if they have the money, it is not our call even though we would never spend $120 on a shirt for them. 

So the only other part of the program is switching to stocks.  This continues to be maintained in your system (Quicken for us).  At this point they earn 0% interest on any cash balances.  They can only make money by investing.  You are not going out and getting them an actual brokerage account.  They buy and sell real stocks and you divide all the prices by 100.  Disney is selling for $30?  That is now $0.30 per share for them in the Bank of Dad.  They buy what they want (same no judgement as before) and they just let you know any time they want to transact.  It is up to them to keep track of the stock price (much easier now then when I started and they had to go look it up in an actual newspaper, oh the horror!).   It makes it a little more challenging if they are trying to use the last of their funds and they are fully invested in stocks, but they way I work that out is that we need to sell what they have and get it to cash. 

At this point with six of them the Bank of Dad has about $1,700 in it.  Of that one child has an $800 balance and some still burn through money as soon as it hits their account (it is harder on the older kids who are also paying their auto insurance because that only leaves about $5 or $10 each month after they pay that bill and if they are not working that's all she wrote).  Just a few weeks ago that balance was over $2,200 but the daughter who wanted to replace her iPhone had to pay for the stolen unit and decided to just pay it all at once rather than pay it as Verizon takes the charges on a monthly basis for the next two years.  It was completely up to her what to do.  She could have just bought a basic phone for less (which is what I would have done), but it is her money and her decision.  If I start dictating it, I totally ruin the learning that has happened over a decade.  She did sit with me for several hours and we ran numbers in spreadsheets and had a lot of conversations over a couple weeks as she decided her course of action, so I want  to make that clear.  I feel she absolutely made the right choice for her needs and did a great analysis.  She was able to learn a lot of Mustachian ideas like utility and opportunity cost, but in the end she chose to go against frugality in this case, and that's OK.  She is very frugal in other areas (and that's how she had $499 sitting around to just pay for the phone). 

One last thing, is once the kids are 14 we move them to $10 per week because things they would buy have gotten more expensive and we want to keep that learning going while we still have them in the home before they head out after high school.  They get the "income" through high school.  Also when they get gift money from others they can deposit it in the Bank of Dad or do something else.  We have accounts with USAA of CapitalOne360 MONEY accounts for those that are 14 to provide them with a debit card they control and their Bank of Dad money can be moved there to begin learning how those true transactions work. 

So there you have the details of the Bank of Dad process.  Others have tweaked it.  Our CFO, who I taught the program to six months ago when he asked me "How do you keep your kids from feeling entitled and wanting things all the time?", pays his kids for grades, which I do not do.  Others do not increase (which I believe is a recommendation in the book for the same reason I do it) or give more to begin with and do not increase.

Hope that helps, but it is a very simple concept that has massive returns in the speed and quality of the learning I have seen and that I have heard about from the dozens of others who have shared their results with me after I explained the concept to them.

caracarn

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Re: What to target next?
« Reply #25 on: February 25, 2016, 06:57:49 AM »
Op, what is your goal? Your first post mentions pay off debts. Assuming you can be talked out of paying the mortgage early, v that leaves the car payments. That is a fairly short term goal. Could you get the whole family on board, with together, with less spending, maybe more part time work, etc, until the debts are gone? Kids might see it as an adventure or challenge, and learn some new, good habits in the process.

The goal of my post was to determine what to do with a bonus I am getting Friday given that my job situation is changing and I do not know the particulars yet.  It was really do I pay something off, hold the cash or invest and liquidate if needed. 

My wife and I have a long term goal of being able to retire with "enough" and have struggled with that that is, because like MMM I always felt the calculators available set the bar at stupid levels.  We currently make $185K and there was no way I could ever figure out how I would spend $148K annually unless we just traveled the world with 20 friends.  The early post on retirement calculators in 2011 was actually what got me sucked into this blog and reading every post when I found it three weeks ago.  I am now into the 2015 articles and almost caught up.

We always thought we were doing OK, never running any credit card debt and usually only financing one car (the divorce and blending changed the transportation needs a lot which is how we now have two loans, this is not the norm nor the goal) but reading MMM made me see we could be more badass.  I had already cut cable, changed light bulbs and have a very energy efficient house etc. but I am always looking to improve.

Mother Fussbudget

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Re: What to target next?
« Reply #26 on: February 25, 2016, 05:29:10 PM »
In looking over your expenses, the $230/month cell phone bill looks good, but there may be ways to improve.
Does that include payment towards "carrier financed phones"?  Understandable - carriers offer (essentially) 0% financing over 24 months, it would be hard to NOT take advantage of that deal.  BUT... it is a loan.

My son and I pay $55/month for phone + internet.  We pay $23/month for on Airvoice Wireless (AT&T) on their $10/month pay-as-you-go plan for 2x paid-for iPhones + $3/month for Skype unlimited wifi calling (for work).  We really cut back on using cellular data - using wifi 99% of the time - mostly at home, and work/school.  It was never 'painful' as we realized we had lived quite comfortably with ZERO cellular data for years.  Airvoice is 2/text, 4/min calls, and 6/Mb cellular data drawn from the $10 put into the account monthly.  With paid-for-phones, you could get your bill down to $80/month this way.  We also pay $32/month for DSL Internet, but saw having DSL-Internet AND Cellular Internet as a duplication of services. 



caracarn

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Re: What to target next?
« Reply #27 on: February 26, 2016, 08:44:12 AM »
In looking over your expenses, the $230/month cell phone bill looks good, but there may be ways to improve.
Does that include payment towards "carrier financed phones"?  Understandable - carriers offer (essentially) 0% financing over 24 months, it would be hard to NOT take advantage of that deal.  BUT... it is a loan.

My son and I pay $55/month for phone + internet.  We pay $23/month for on Airvoice Wireless (AT&T) on their $10/month pay-as-you-go plan for 2x paid-for iPhones + $3/month for Skype unlimited wifi calling (for work).  We really cut back on using cellular data - using wifi 99% of the time - mostly at home, and work/school.  It was never 'painful' as we realized we had lived quite comfortably with ZERO cellular data for years.  Airvoice is 2/text, 4/min calls, and 6/Mb cellular data drawn from the $10 put into the account monthly.  With paid-for-phones, you could get your bill down to $80/month this way.  We also pay $32/month for DSL Internet, but saw having DSL-Internet AND Cellular Internet as a duplication of services.

Yes, that will include 2 carrier financed phones, so the cost will ultimately drop another $40-$50 (one of the phones is not on the plan yet that would come in July so I was estimating) when those fall off.  We pay the $5/month for the Family Management piece and one of the things it lets me do is cap the data by phone number so there is zero chance of overages.  It also locks down when the phones can be used and if we need to block numbers (which can be critical for us given the outside influences we need to deal with in our exes).  I get an 18% discount on plans because of an employer discount so that helps quite a bit.