Case study - in early 40s, want to retire by mid-50s

[nurseyface]

Hello everyone!

I'm new to MMM and FIRE but I'm very motivated and inspired!

Here's our situation:  I'm 41 and my husband is 40. We live in small town in Western Massachusetts. We have one  5-year-old son.  I am a nurse and my husband is in retail management.  I make $65,400 and he makes $105,000 before taxes.  I will be getting a $3/hour raise as soon as our union contract negotiations are completed. We take home about $8800.  We don't go on fancy vacations nor do we shop a lot or go out much.

Our monthly expenses:
Mortgage: $1604 (30 year mortgage, 4%, 26 years to go)
Mortgage Insurance: $135
Cars: $730/month (considering selling one and bringing our payment down to ~$530/month)
Car Insur: $125/month
Gas: $150/month
Groceries: $500/month (already cut down $300/month)
Alcohol/entertainment: $400/month
Phones: $158/month (I'm switching to Cricket from AT&T tomorrow so we'll see if it decreases our bill. he can't because he just got a new phone from AT&T because his old one died. We're still using smart phones)
Cable: $114.  We just have internet, Netflix and spotify -It's going to decrease to $55/month once our town finishes running the wires for internet.
Electricity: $100/month
Heat/gas: $135/month
Water/sewer: $15
Union dues: $82/month
Life insurance: $58
Clothes: $150 for all of us
Miscellaneous (art supplies - husband's an artist), haircuts, random stuff: $125/month

Debt:
Total credit card debt: 23,300 (currently using snow ball method to pay off debt) - pay around $1000 month
Mortgage: 239,000
HEL: $357 - paid off in 2020
401k personal loan (husband): $21000 (when we bought our house).  It's at 4% for 20 years. They won't let you pay more each month since it's a payroll deduction - you can only just pay it off. $120/month ?
Personal loan for home maintenance: $800 through 2019
Student loans (me): $1049/month, total remaining $54,566
Second small student loan: $20/month - $2500 left (I've been kind of ignoring this and paying the minimum bc the interest rate is like 2%)

Now, retirement is a sore spot.  I have about $16,000 in a 403b and I contribute 3% to get the 2% match.  I've cashed out 401ks in the past because I was young and stupid. I think my husband has about $60,000 in his 401k. 

We are just building up a small savings using YNAB but we're really concentrating on paying off our debt aggressively.  I did start using YNAB and undebit and they are amazing and have helped me rethink and restructure our finances.  MMM helped me really meditate on our expenses and get motivated to get out of debt and retire earlier than I thought I ever could.  According to undebit, we can have all of our debt paid off in about 6-7 years if all goes well.

Tell me what you think!  I am I interested in these questions: debt first and then retirement?  Be less aggressive with debt and put more in retirement?  I was thinking, debt gone, then get really aggressive with retirement.

HALP!

[Kapiira]

I think you'll be able to get better advice if you provide information on the interest rates you're paying on your debt.  Those interest rates will help determine whether it makes more sense to pay down debt or save for retirement more aggressively.

[daverobev]

Please tell me the credit card debt is low interest?

Man... you have so much income... it's hard to believe the debt. Not helpful OP and I'm sorry about that, but wow!

[former player]

I'm adding up your list of expenses plus debt repayments and getting to $7470.  That would leave you an extra $1300 a month to throw at debt.  What have you been doing with it?  It should more than double the amount you are paying off your credit cards.

I don't see childcare as an expense?

You have some facepunchworthy expenses.

Your cars are costing you $1,000 a month.  Madness.

Various forms of entertainment (alcohol, entertainment, cable, misc) is $800 a month.  Also madness, and how do you find the time anyway with both of you working and a five year old?

As Kapiira says, we need to know the interest rates on your debts.  You are talking about taking 6 or 7 years to pay off your debts and then getting aggressive with retirement.  But at 40 and 41 you really need to get on the retirement savings bandwagon immediately.  So although the high interest debts need to be gone soonest, you also both need to be taking advantage of the tax and time advantages of aggressive retirement savings.

[nurseyface]

Ok, credit cars:

BofA1: 14.49
Bofa2: 12
crate and barrel: 0% until September (this one will be paid off this month)
Amex: 17.99 (only have 700 on it)
Lowes: 5%
Paypal: 20%
Personal loan: 4.29%
Student loans: 2.65-6.8
Ford: 3
Subaru: 2.75
Home Equity Loan 2.75

A lot of these big balances on the credit cards are left over from a home renovation we did when we bought our house. 

I'm not sure why it seems like we have so much left over. there are things I didn't put into my post like fun money of $25-50 for both my husband and I every two weeks, and emergency savings and pet stuff like vet visits, grooming, etc.  I'm also saving for xmas and small amounts for gifts, etc. The whole YNAB thing.

Entertainment: ok, my husband and i have $50 each to spend each pay period (every two weeks) on alcohol. I like to have 2 glasses of wine a night and he likes craft beer.  I get cheap wine (2/$10 but he still gets good stuff but only has one a day, maybe two).  So that's $200/month. I know it seems like a lot of money but i don't think having a drink or two a night is bad thing.  We don't really go out at all. I was including the fun money in that $400/month of entertainment and also the 1-2 x month going out to eat to a very reasonably priced place. 

Seriously, be blunt.  I'm into this.  In my defense, I'm just starting to turn around our bonehead, face-punchable ways as of the end of March...

[Laura33]

Mandatory:  knock out any debts over 10%, as quickly as humanly possible.  Leave alone the cars and HELOC and the low-rate student loan(s), those are really low.  Once you get the 10%+ debts paid off, throw a lot of money at your retirement accounts.

Optional:  the debts between 4-6.8% -- you can accelerate them, or conclude that they are low enough to let them ride.  I think the standard advice here is pay off anything that is above 4%.  In your case, however, I am concerned that you have almost nothing in retirement, and I would not want you to go another 6-7 years at your current savings rate -- at least, not if you want to retire before 67 or 70.

[daverobev]

Ok, credit cars:

BofA1: 14.49
Bofa2: 12
crate and barrel: 0% until September (this one will be paid off this month)
Amex: 17.99 (only have 700 on it)
Lowes: 5%
Paypal: 20%
Personal loan: 4.29%
Student loans: 2.65-6.8
Ford: 3
Subaru: 2.75
Home Equity Loan 2.75

A lot of these big balances on the credit cards are left over from a home renovation we did when we bought our house. 

I'm not sure why it seems like we have so much left over. there are things I didn't put into my post like fun money of $25-50 for both my husband and I every two weeks, and emergency savings and pet stuff like vet visits, grooming, etc.  I'm also saving for xmas and small amounts for gifts, etc. The whole YNAB thing.

Entertainment: ok, my husband and i have $50 each to spend each pay period (every two weeks) on alcohol. I like to have 2 glasses of wine a night and he likes craft beer.  I get cheap wine (2/$10 but he still gets good stuff but only has one a day, maybe two).  So that's $200/month. I know it seems like a lot of money but i don't think having a drink or two a night is bad thing.  We don't really go out at all. I was including the fun money in that $400/month of entertainment and also the 1-2 x month going out to eat to a very reasonably priced place. 

Seriously, be blunt.  I'm into this.  In my defense, I'm just starting to turn around our bonehead, face-punchable ways as of the end of March...

Good for you. I think you need to read the blog post, something along the lines of "your credit card debt is hair on fire emergency".

This one will do http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/ :)

[ysette9]

Holy shit, you have got to get rid of both of those cars. You literally cannot afford those massive payments with the rest of your debt and the desire to retire sometime in the next decade or two. That would free up so much monthly cash flow if you dumped them and got a beater or two. An extra $700/month+ to throw at your debt snowball would make a huge difference.

[Lady SA]

time in the market is most valuable. Because of your ages and general lack of savings (and generally low interest rates), I would suggest instead prioritizing savings after paying off everything above 7% interest. then pay a few hundred over the minimums, but the focus should be on saving.

Waiting until you're like 50 to start saving for retirement is a great way to not save for retirement. You will never get those years of compound interest back.

[nurseyface]

Our cars:  we have one pretty cheap one - $263/month and one expensive one - $468/month (I know, dumb). We are thinking of selling the more expensive one and get another used one that's safe and cheap.  I was thinking another car that is about $200-250 a month. Obviously, in our current situation I can't pay for a car outright so we have to finance it.  We talked about going to one car but with a child, it's  hard to be a one-car-family because if he's sick or whatever and needs to be picked up from school, both of us have to have the ability to do it since we never know who can leave work to do so. 

Someone brought up that i'm missing about $1000 from our budget. I actually pay $1615/month on just the credit card debt and I think I said about a thousand. So there's a few other bills and things I didn't account for but we are very, very frugal day-to-day besides the things we have already highlighted.  So basically, we're paying around $6175/month in debt payments (mort, credit cards, cars, etc).  That's 70% of our income! 

So, what i'm hearing is, pay off all of my debt above either 4 or 7% (two different recommendations) and then put the rest into savings/retirement? So that sounds like i'd not worry about paying off the HEL, mortgage, cars and some of the student loans (depending whether you go by 4 or 7%) and then start banking money away toward retirement...?

[daverobev]

Our cars:  we have one pretty cheap one - $263/month and one expensive one - $468/month (I know, dumb). We are thinking of selling the more expensive one and get another used one that's safe and cheap.  I was thinking another car that is about $200-250 a month. Obviously, in our current situation I can't pay for a car outright so we have to finance it.  We talked about going to one car but with a child, it's  hard to be a one-car-family because if he's sick or whatever and needs to be picked up from school, both of us have to have the ability to do it since we never know who can leave work to do so. 

Someone brought up that i'm missing about $1000 from our budget. I actually pay $1615/month on just the credit card debt and I think I said about a thousand. So there's a few other bills and things I didn't account for but we are very, very frugal day-to-day besides the things we have already highlighted.  So basically, we're paying around $6175/month in debt payments (mort, credit cards, cars, etc).  That's 70% of our income! 

So, what i'm hearing is, pay off all of my debt above either 4 or 7% (two different recommendations) and then put the rest into savings/retirement? So that sounds like i'd not worry about paying off the HEL, mortgage, cars and some of the student loans (depending whether you go by 4 or 7%) and then start banking money away toward retirement...?

You have to stop thinking about your cars in terms of payment, but in absolute cost/value. "$x a month" is a salesperson's tactic. The total price is how you should be factoring it, including interest.

[Morning Glory]

What is your nursing job like? I am guessing it is either part time or office hours. Is there any way you could pick up some per diem shifts at a hospital, maybe on weekends so you don't have to pay for daycare? That would greatly increase the size of your shovel, and also get you out of your work rut a little.

Could your husband monetize his art hobby?

How far away is your house from both of your works and your child's school? Is public transport an option? Figure out how many times a year your child has to be picked up and then decide if it is worth it to have a second car.

Other ideas: go nuclear and cut the internet/Netflix for the summer, and frequent the library.  Your son's teacher will appreciate it in the fall, and you might find yourself drinking less alcohol if you are not watching tv. Everything you need to do on the internet can be done at work.

Sell some of your extra junk on Craigslist or eBay

Watch your other spending: you don't need Spotify or pet grooming ever, and you don't need fun money, new clothes, or haircuts while your hair is on fire

[former player]

The cheapest way to pay off your debts is to pay off the highest interest ones first.  In your case -

1.  Paypal at 20%
2.  Amex at 17.99%
3.  BofA1 at 14.49%
4.  BofA2 at 12%

If any of those are large amounts which will not be paid off within a couple of months, look at trying to refinance them at lower rates.  If you succeed, the lower rate debt goes to the bottom of the pile.

How long will it take you to either pay off these four debts or refinance them at a low rate?

On the cars, the problem is not the interest rate its the size of the debts which is making the repayment amounts so high.  Selling the more expensive and replacing it with something much cheaper should be a good way to free up more cash to throw at your other debts.

And sorry, but you are not "very, very frugal day to day".  You are spending more on your monthly "entertainment" budget than some people live on.  Try giving up the alcohol for a month, for starters.  If you can't do that, you've got more problems than just money.

[ysette9]

I completely agree with the other comments about the monthly payment versus true cost of purchasing the car. How long would it take you to save up $2000? Do that and then purchase a solid used Honda or Toyota economy car (Civic, Corolla, etc.) and get rid of your most expensive car payment. Then repeat that and get rid of the other car payment. You'll eliminate $730/month in car payments as well as significantly reduce your insurance since you won't be carrying comprehensive and the cars will cost less to insure as they are worth less.

You don't post enough information about your debts for me to do a calculation on how much faster you would pay them off with an extra $750+/month to throw at them, but it would be substantial. With some of those interest rates being as high as they are (20%! 18%!), I'd almost recommend forgoing retirement savings for JUST the minimum amount of time it takes you to scrape together $2K to buy that beater car and get you out from under the most expensive car payment. This is a serious debt situation but you can definitely get on a great path with a few bold moves.

I agree with former player's comment about entertainment. Personally we have internet because that is vital, but no cable, no Hulu or Netflix. The library is a fantastic place for books (what you really should be doing for entertainment!) as well as television shows on DVD, movies, etc. Best of all, it is free. :) Try cutting all the extras and just using your library or the great outdoors or boardgames or books or family time for entertainment. We noticed an increase in quality of life when we did. Finally, alcohol is nice to have but make sure you are getting good value. Places like Trader Joe's have great wine selections at very reasonable prices, for example. Becoming a lightweight (cutting back on the amount you drink) is also a nice solution. I cut out alcohol in the evening and found that my sleep improved.

[nurseyface]

MrsWolfeRN: I work in a hospital and full-time there is 32 hours -- they do not offer 36 or 40 hour positions. BUT I am picking up an extra shift a week (if they have the time to offer me) and after the contract is settled, I will get at least a $30/hr raise.  Factor in another shift a week and we're talking an additional $24000/year.  That will help tremendously.

Former Player: yes, cutting down on alcohol is a definitely doable.  Here's the situation:  we basically come back from work, eat dinner at home, play for a bit with our child, put him to bed. Then we hang out have a drink, watch some netflix. We do not go to the bars, go out to dinner, take day trips or vacations besides ones that my husband's parents pretty much treat us to.  We spend time outdoors playing, always have library books, etc.  We are pretty introverted people who do like to socialize with friends with kids and we usually do that at someone's house.  We are going to look carefully at the alcohol budget.  Like I said, I get wine that's 2 for $10 and it last me 4-6 days.  My husband will not come around to "buy cheaper beer".  He's the key.  Working on it...

Cars:  we will sell the subaru.

I'm thinking with all of these changes, I should be out of most of my credit card debt by early to mid-2018.  Then we're left with HEL, mortgage, 401k loan, personal loan (house repair and painting), student loans, and Lowe's credit card (cabinets for a kitchen renovation 4 years ago - 5%).  I'm guessing at the point I should start socking retirement savings away?

Thanks for all of your suggestions. I understand all of your comments and realize we made some dumb, repeated financial decisions.  We are woke now!

[ambimammular]

Just some words of encouragement about the car. Being a one-car family with small kids a big step, but it's also very do-able.

Something that has worked well for us was finding another family in the same situation and being the back up plan for each other. My BFF lives right across the street and at random times we can rely on each other for an emergency vehicle. It's kept both of us as single car families, and in a small town in the midwest that's an accomplishment!   

Nice work facing debt and retirement head on! You've got a great income and that will help you get where you want to be.

[nurseyface]

ambimammular: thanks for the words of encouragement!!!  We will have to sit down and think seriously about the 2nd car issue. 

[Timmm]

I've done a couple of things that have mostly been for peace of mind about sharing one car. We get in on a great deal for annual bus passes. The local bus system is fair - decent coverage and access for us, but traffic in general is pretty bad so transfers are often undependable. And I signed up for a local car-share system. That offers cars at hourly rates. The location is not quite as convenient from our home, but workable. I've never actually used it, but there was a one-time registration of about $20. We also have fair coverage from Lyft and Uber - I've used that locally once. For the most part, I bike - I enjoy that and the bike paths here are fantastic. But that's not always a good option depending on weather and the nature of the trip. For weather, I can usually wait it out.

Knowing your options like these - and having everything lined up to make use of them on short notice - helps me avoid any frustration about "not being able" to do something because our car's not available. It turns out, I very rarely use one of these alternatives, but I think having the choice helps keep perspective. Our kids are grown and I generally work from home, so many people would use the alternates more than I do, maybe making them even more valuable.

[Verdure]

Former Player: yes, cutting down on alcohol is a definitely doable.  Here's the situation:  we basically come back from work, eat dinner at home, play for a bit with our child, put him to bed. Then we hang out have a drink, watch some netflix. We do not go to the bars, go out to dinner, take day trips or vacations besides ones that my husband's parents pretty much treat us to.  We spend time outdoors playing, always have library books, etc.  We are pretty introverted people who do like to socialize with friends with kids and we usually do that at someone's house.  We are going to look carefully at the alcohol budget.  Like I said, I get wine that's 2 for $10 and it last me 4-6 days.  My husband will not come around to "buy cheaper beer".  He's the key.  Working on it...

My husband and I like craft beer, too.  One way we get it cheaper is to buy growlers at local breweries. A lot of them have nights where you can fill up for $5, so two of those a week would be much better than the $25 a week he's spending now.  A lot of places you can buy singles (like TJs), so that's a great way to try cheap beers, so you don't waste money buying a 6 or 12 pack only to find you don't like it. You're never going to find cheap beer you like if you only buy the expensive stuff. I noticed at Costco yesterday that have a store brand craft beer 24-pack for $20. I'm curious to try it. it's a mix of four beers, so we might not like them all, but could be good to try for a party and maybe we could trade with friends who liked one if we liked another or something, because that's a great buy.  But obviously just cutting back on how much you drink is a quick way to save, and would be smart to do until you are out of debt.

[Tyson]

I agree with the others - pay debt first, highest interest to lowest.  Do that for ALL your debt.  That will free up your cashflow tremendously. 

Once the debt is gone, you'll feel way, way better (ask me how I know this).  Once the debt is gone, max out 401k's and Roth IRA's for both of you.  Do not pay extra toward your mortgage. 

You should dump as much money into investments as you can.  The house is just a money trap that prevents your little green soldiers from multiplying. 

[nurseyface]

tyort1 - so you're saying just pay off except our mortgage? 

I have picked up another shift every week from this week until the next schedule and plan to do that indefinitely. That will be an additional $24,000/year with the raise we'll be getting soon.  I think things are on their way!

[former player]

Your credit card debt is $23,000.  You should be paying that off at no less than $2,500 a month, and preferably $3,000 a month, to get it gone as soon as possible into next year.

Your household income, with the increase of an extra shift, is nearly $200,000 a year.  That is enormous, and you will have a tax bill to match.  That means that you should be both ramping up towards putting the maximum annual limit into tax-free pension accounts, getting to the maximum as soon as your high interest debts are gone.

Once you have fully paid off the credit cards, you will be 1) maxing out your retirement accounts and other tax-free savings, 2) keeping an emergency fund and 3) setting up a sinking fund for irregular expenses and future purchases.  From now on, you save before you spend, so that you never again have a credit card or loan other than a mortgage that you can't pay off in full at the end of the month.

[Dicey]

tyort1 - so you're saying just pay off except our mortgage? 

I have picked up another shift every week from this week until the next schedule and plan to do that indefinitely. That will be an additional $24,000/year with the raise we'll be getting soon.  I think things are on their way!

Yup. Much more effective to use your green soldiers to fund retirement accounts than to pay off a cheap-ass mortgage early. Your hair is on fire, but your mortgage is not. Ditto for any sub-4% debt, especially if 8f it's tax-deductible.
And stop drinking mindlessly. Make lemonade, or iced tea, or iced coffee, or -gasp- water.

[nurseyface]

FYI - I'm not drinking "mindlessly" and I drink a lot of water.  Thanks for your financial advice, though.

[brooklynmoney]

It doesn't seem like you can afford your house. You had to borrow 20k from retirement to buy it and then you had to borrow again for home maintenance? And then you bought furniture from Crate and Barrel on credit to furnish it? I guess all of that is water under the bridge at this point but the mortgage payment seems like a high ongoing cost as well when taking into account the debt servicing.

[Dicey]

This:

Entertainment: ok, my husband and i have $50 each to spend each pay period (every two weeks) on alcohol. I like to have 2 glasses of wine a night and he likes craft beer.  I get cheap wine (2/$10 but he still gets good stuff but only has one a day, maybe two).  So that's $200/month. I know it seems like a lot of money but i don't think having a drink or two a night is bad thing.  We don't really go out at all. I was including the fun money in that $400/month of entertainment and also the 1-2 x month going out to eat to a very reasonably priced place. 

Seriously, be blunt...

Plus this:

Former Player: yes, cutting down on alcohol is a definitely doable.  Here's the situation:  we basically come back from work, eat dinner at home, play for a bit with our child, put him to bed. Then we hang out have a drink, watch some netflix. We do not go to the bars...We are going to look carefully at the alcohol budget.  Like I said, I get wine that's 2 for $10 and it last me 4-6 days.  My husband will not come around to "buy cheaper beer".  He's the key.  Working on it...

Plus this:

FYI - I'm not drinking "mindlessly" and I drink a lot of water.

Equals:

A very concerned Dicey. I could have used other words, such as perhaps "repetitive" or "habitual". Your defensiveness (alcohol is alcohol, no matter where you consume it), adds to my concern. Consuming 1/3 to 1/2 a bottle of wine a DAY, every day is a LOT. You can defend your drinking forever, but it is still money you could be saving while you dig yourselves out of debt and strive toward financial freedom.

Next, your math looks off. $50 x 2 x 26 = $2600 a year. Since alcohol spending is 100% discretionary, the mustachian thing to do is examine this spending in light of your goals, right?

My concern for your fiscal and your physical health is very real.

Please feel free to ignore it.

[Another Reader]

Dicey got to it first.  You don't display the addiction behavior of alcoholics, but you are drinking too much for your health, not to mention your wallet.  In your shoes, I would have a conversation with your spouse about going cold turkey dry for a month.  If you can't do it successfully, you have one or more problems to deal with before you can get traction in other areas of your life.

[ambimammular]

Nurseyface, I hope you're reading all this alcohol cutting as coming from places of love and concern. Some of us on the forum are more hardcore than others. I sit there somewhere in the middle. There is a moderate path of less extreme saving and more "indulgent" spending on whatever poisons one may enjoy.

But, I would say there seems to be a disconnect from your goals of retiring by the mid-50s and your elective spending. As the delightful Paula Pant says, you can afford anything, but not everything. Think on what you and your DH value most, and see if that shifts your spending. It would be a good conversation for the two of you to have.

[nurseyface]

ambimammular - I came here for honest opinions and that's what I got. I appreciate all of the financial advice.  What I don't appreciate are people who don't know you from a hole in the wall making personal comments about my personal choices. Yes, these choices have a financial outcome which I am taking to heart.  I work with people who have alcohol and drug addiction problems every single day and it's not a because they have 1-2 drinks/day.  That being said, 1-2 drinks a day is definitely costly and doesn't align with FIRE and as a newbie to this concept for about 1 month, I get it now.  I'm learning!  Let's just not get judgmental and persona.  Just the FINANCIAL facts, please! 

[zee dot]

Nurseyface - how goes it?

What did you decide to do about the credit card debts?  Are you paying them off in order of interest rates, balances etc?

This thread got derailed by the alcohol topic.  No comment on that.  Just curious if you made some progress on the debt.

:) z2d

[jking11]

also, just want to say don't pigeonhole yourself into ONLY working for this one employer.  You can pick up PRN work at a SNF, other hospital, home care, etc.  As a PT, I supplement my salary by working PRN at two other hospitals.  It adds 20-25k/yr!

[martyconlonontherun]

What is the house worth? Concerning that the mortgage was $239k, $21k personal loan, and 2 other smaller loans and still paying PMI.

Also, the Sloans seem high for your age. Did you recently change careers to become a nurse? That would explain why the debt/lack of savings is out of whack with your overall income. Your future is a lot brighter if the fact pattern is you just started making good money, versus just spending it over the years.

[TexasRunner]

Nurseyface - how goes it?

nurseyface hasn't posted since this last one.

I hope there is an update, but don't count on it.

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