Case Study: Newlyweds wondering what’s next?! Advice & Questions

[Flyingstache]

My wife & I are 26 & married last summer. We moved to central Ohio, got new jobs, & purchased our first home all in the last 10 months. We currently have no kids (wife eventually wants 4!) but we do have a dog. We likely will stay in this area for many years to come & possibly forever if life allows. I found this blog about 2 months ago & have been trying to implement lifestyle changes. My wife is not as excited about the changes but she is coming around to the idea. She had 30k in student debt after graduation but paid it off within 2.5yrs of graduation by living with her parents. I was lucky enough to go to school on an athletic scholarship so I graduated with no debt. I am hoping we can get some advice/new ideas from this forum & I am very excited to learn from the experts as we would like to reach financial freedom & have the option to retire early ASAP!

Annual Salaries: $60k for me $42k for wife


Monthly Deductions:     Me                       Wife
                           Insurance - $75.55         HSA - $225
                  401k - $461.56                School System Retirement - $100

                    Net Monthly Pay - $3,063.08                    $2,369.46

         Total Monthly Net Pay - $5,432.54


Monthly Expenses:

Mortgage - $715 (We pay $1k each month – taxes & insurance included)
Homeowners Insurance - $100
Taxes - $138
Utilities (water, trash, sewer, storm) - $85
Electric - $75
Gas - $70
Internet - $35
Netflix - $11 (we have now cancelled this as of 5/1)
Apple Music - $4
Food - $400
Phone - $110 (I get $50 a month from work for my phone)
Gas - $100  (We both drive to work as our town isn’t set up very well for biking. I also drive to client meetings throughout the week but get reimbursed a small amount for business mileage.)
Entertainment - $100
Miscellaneous - $100

Total Monthly Expense - $2,043


Bank Accounts:
   Checking – $5,250
   Savings – $8,000
   HSA - $1,800

   Total - $15,050


Investments:
   Vanguard (Total Stock Market Index Fund Admiral Shares) - $16k
   My 401k - $33k
   Her retirement – 3k

   Total - $52k


Assets:
   Home – worth $200k (we owe $145k)
   2013 Honda CRV w/50k miles – worth $15k
   2006 Toyota Corolla w/170k miles – worth $1k


Liabilities:
   Home – Purchased last summer for $190k with 20% down. Original loan amount was $152k for 30yrs at 3.875%. We have 29yrs remaining & a balance of $145k.
   Credit Cards – We pay off our balances in full each month. Typically only use these for points. Currently nothing on them.


Specific Questions:
•   One of our biggest questions is where to keep our money. We just started investing through Vanguard about 2 months ago. Before that we had always kept money in our bank accounts but I feel like that is a waste because of lack of interest gained. Do we just take the risk & invest most of the money & keep enough in the bank for monthly expenses/emergencies? We want to grow our savings as much as possible but don’t see increases in our salaries in the near future so we need to maximize our savings efforts! Any other suggestions on where to put money (IRA’s, other types of investments etc)?
•   HELOC – I read one of MMM’s post about how he uses a home equity line of credit to cover emergencies or larger expenses. Do you recommend getting a HELOC? I have also heard there are some tax benefits to using a HELOC. My biggest concern with this is just taking on another monthly payment & having another “loan”
•   How to balance future goals with wanting to retire early – As stated at the beginning, we currently do not have children but we do want a large family with around 4 kids. In addition we have a few other goals. One is to buy land & someday build our own home. We have always wanted to build something of our own that would be efficient for our family & expenses. The issue here is land is very expensive in this area & the area was just named fastest growing in the state so prices likely will continue to grow. Do we buy now & hold until later? To buy 20 acres you are likely spending $200k. We also want to do some projects/renovations to our current home. The home was built in 1928 & while it has been maintained well, there are some needed updates. We project the costs to be around 10k but we could easily spend much much more on this home. To make things more confusing, I likely will change careers in the near future. I currently work in the business world but have thought about going into education. I know this will reduce my income & I will also have expenses from going back to school to get a different degree. My wife is currently a teacher & is finishing her masters (paid for by the school) so her income will increase over time. How do you balance out these goals/changes while still wanting to have the financial freedom to retire early or just not have to “worry” about money like so many others do?

Thanks so much for your help!

[NoStacheOhio]

Monthly cash flow is your first line of defense for unexpected expenses. Need to repair the furnace for $500? Just don't transfer as much to savings this month.

In general, contribute the most you can to tax-advantaged accounts (401k, 403b, 401a, 457b, IRA, Roth IRA, HSA, etc.). If your employer retirement plans have crappy fees, then you want to get the match, but then prioritize your IRAs over further employer account contributions. Even with a moderate amount of fees, you'll still often come out ahead. After you've filled up all your available buckets there, a taxable account at a low-cost brokerage (Vanguard/Fidelity/Schwab) is a good option. Avoiding/paying down debt is a great way to have money to save.

Read this: http://jlcollinsnh.com/stock-series/ which is also available as a book.

A HELOC as emergency fund isn't a bad way to go, but it won't necessarily be available in all emergencies. For example, if the economy tanks, the bank can pull the credit, which would suck if you just lost your job.

As far as future planning, that's something you need to do as a family. One thing to consider may be to work in your current job until you've got a decent stache, then "FIRE" to a job in education in 5-10 years. If you can't stand your current job/career, obviously that's less appealing, but if you just think you'll like education better, it may be worth waiting.

[prognastat]

My wife & I are 26 & married last summer. We moved to central Ohio, got new jobs, & purchased our first home all in the last 10 months. We currently have no kids (wife eventually wants 4!) but we do have a dog. We likely will stay in this area for many years to come & possibly forever if life allows. I found this blog about 2 months ago & have been trying to implement lifestyle changes. My wife is not as excited about the changes but she is coming around to the idea. She had 30k in student debt after graduation but paid it off within 2.5yrs of graduation by living with her parents. I was lucky enough to go to school on an athletic scholarship so I graduated with no debt. I am hoping we can get some advice/new ideas from this forum & I am very excited to learn from the experts as we would like to reach financial freedom & have the option to retire early ASAP!

Annual Salaries: $60k for me $42k for wife


Monthly Deductions:     Me                       Wife
                           Insurance - $75.55         HSA - $225
                  401k - $461.56                School System Retirement - $100

                    Net Monthly Pay - $3,063.08                    $2,369.46

         Total Monthly Net Pay - $5,432.54


Monthly Expenses:

Mortgage - $715 (We pay $1k each month – taxes & insurance included)
Homeowners Insurance - $100
Taxes - $138
Utilities (water, trash, sewer, storm) - $85
Electric - $75
Gas - $70
Internet - $35
Netflix - $11
Apple Music - $4
Food - $400
Phone - $110 (I get $50 a month from work for my phone)
Gas - $100  (We both drive to work as our town isn’t set up very well for biking. I also drive to client meetings throughout the week but get reimbursed a small amount for business mileage.)
Entertainment - $100
Miscellaneous - $100

Total Monthly Expense - $2,043


Bank Accounts:
   Checking – $5,250
   Savings – $8,000
   HSA - $1,800

   Total - $15,050


Investments:
   Vanguard (Total Stock Market Index Fund Admiral Shares) - $16k
   My 401k - $33k
   Her retirement – 3k

   Total - $52k


Assets:
   Home – worth $200k (we owe $145k)
   2013 Honda CRV w/50k miles – worth $15k
   2006 Toyota Corolla w/170k miles – worth $1k


Liabilities:
   Home – Purchased last summer for $190k with 20% down. Original loan amount was $152k for 30yrs at 3.875%. We have 29yrs remaining & a balance of $145k.
   Credit Cards – We pay off our balances in full each month. Typically only use these for points. Currently nothing on them.


Specific Questions:
•   One of our biggest questions is where to keep our money. We just started investing through Vanguard about 2 months ago. Before that we had always kept money in our bank accounts but I feel like that is a waste because of lack of interest gained. Do we just take the risk & invest most of the money & keep enough in the bank for monthly expenses/emergencies? We want to grow our savings as much as possible but don’t see increases in our salaries in the near future so we need to maximize our savings efforts! Any other suggestions on where to put money (IRA’s, other types of investments etc)?
•   HELOC – I read one of MMM’s post about how he uses a home equity line of credit to cover emergencies or larger expenses. Do you recommend getting a HELOC? I have also heard there are some tax benefits to using a HELOC. My biggest concern with this is just taking on another monthly payment & having another “loan”
•   How to balance future goals with wanting to retire early – As stated at the beginning, we currently do not have children but we do want a large family with around 4 kids. In addition we have a few other goals. One is to buy land & someday build our own home. We have always wanted to build something of our own that would be efficient for our family & expenses. The issue here is land is very expensive in this area & the area was just named fastest growing in the state so prices likely will continue to grow. Do we buy now & hold until later? To buy 20 acres you are likely spending $200k. We also want to do some projects/renovations to our current home. The home was built in 1928 & while it has been maintained well, there are some needed updates. We project the costs to be around 10k but we could easily spend much much more on this home. To make things more confusing, I likely will change careers in the near future. I currently work in the business world but have thought about going into education. I know this will reduce my income & I will also have expenses from going back to school to get a different degree. My wife is currently a teacher & is finishing her masters (paid for by the school) so her income will increase over time. How do you balance out these goals/changes while still wanting to have the financial freedom to retire early or just not have to “worry” about money like so many others do?

Thanks so much for your help!

https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153
This would be a good read to start.

http://jlcollinsnh.com/stock-series/
A good read too.

Max your pre-tax investments before investing an after tax accounts. The only thing you'd want to keep in a bank would be enough to cover bills in checking and enough in savings for an emergency fund.

Putting off having kids is the fastest way to build wealth quickly, but if you want 4 kids this becomes much harder to put off and the farthest you can likely push back having the first would be around 30 and I don't know if I would want to be pregnant the majority of about 5-6 years straight, if this is the case for your wife then you would either have to start sooner or take the risk that you may get to the point where it is very hard getting to the amount of kids you want. If you do agree to put off kids then this is the time to focus on your earnings and savings rate. The more of your stache you can save before having kids, the less you'll have to work on it once you do have kids.

[Flyingstache]

Monthly cash flow is your first line of defense for unexpected expenses. Need to repair the furnace for $500? Just don't transfer as much to savings this month.

Thanks so much NoStacheOhio. One question with this in regards to both unexpected expenses & also expected expenses. If something comes up that is unexpected & requires more than what is brought in by monthly cash flow, would you suggest pulling money from your investments? Or if you have 10k in home repairs you know you need to do, would you simply save up until you could pay cash or sell shares from the Vanguard account to pay for this? I am assuming at this stage we shouldn't touch any money once we have it invested but I want to cover all my bases. These situations are where I thought a HELOC could come in handy but again I am worried about taking on any more debt if it is possible to avoid.

Thanks again for your help!

[Flyingstache]

https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153
This would be a good read to start.

http://jlcollinsnh.com/stock-series/
A good read too.

Max your pre-tax investments before investing an after tax accounts. The only thing you'd want to keep in a bank would be enough to cover bills in checking and enough in savings for an emergency fund.

Putting off having kids is the fastest way to build wealth quickly, but if you want 4 kids this becomes much harder to put off and the farthest you can likely push back having the first would be around 30 and I don't know if I would want to be pregnant the majority of about 5-6 years straight, if this is the case for your wife then you would either have to start sooner or take the risk that you may get to the point where it is very hard getting to the amount of kids you want. If you do agree to put off kids then this is the time to focus on your earnings and savings rate. The more of your stache you can save before having kids, the less you'll have to work on it once you do have kids.


[/quote]

Thank you so much prognastat for your response! I appreciate the advise about waiting to have kids until we have built up more of a stache. I have been thinking about getting a 2nd job to help move things along but need to find a balance of spending enough time with my wife, especially with us being newlyweds! We also will be increasing our contributions to our retirement accounts & her HSA.

Thanks again for your help!

[prognastat]

https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153
This would be a good read to start.

http://jlcollinsnh.com/stock-series/
A good read too.

Max your pre-tax investments before investing an after tax accounts. The only thing you'd want to keep in a bank would be enough to cover bills in checking and enough in savings for an emergency fund.

Putting off having kids is the fastest way to build wealth quickly, but if you want 4 kids this becomes much harder to put off and the farthest you can likely push back having the first would be around 30 and I don't know if I would want to be pregnant the majority of about 5-6 years straight, if this is the case for your wife then you would either have to start sooner or take the risk that you may get to the point where it is very hard getting to the amount of kids you want. If you do agree to put off kids then this is the time to focus on your earnings and savings rate. The more of your stache you can save before having kids, the less you'll have to work on it once you do have kids.

Thank you so much prognastat for your response! I appreciate the advise about waiting to have kids until we have built up more of a stache. I have been thinking about getting a 2nd job to help move things along but need to find a balance of spending enough time with my wife, especially with us being newlyweds! We also will be increasing our contributions to our retirement accounts & her HSA.

Thanks again for your help!
[/quote]

Of course, these are delicate topics as far as having kids and it is something we can give advice on, but in the end it really comes down to you and your wife, what your goals and their priorities are. Kids are tough because putting it off is beneficial financially, but the older you get the harder it is to successfully conceive and the higher the risk for complications. I was assuming similar age for you and your wife, but if your wife is younger than you this may give you a little longer. Of course if she is the older one this would mean less room to put it off.

Reading MMM and being active on this forum are great steps towards FIRE though. Looking at your bills it looks like you are already doing a pretty good job on achieving a decent savings rate. The basics are simple of course, make more money and spend less of it, but these places are great for tips and tricks to achieve these things.

Some other things that might be worthwhile if you aren't already is to track your finances with something like mint to really be able to dig in to where your money is coming fro, where it is going and to make good estimates for places you might be able to improve.

[Mother Fussbudget]

Regarding the HELOC... you're more likely to be able to get a HELOC while you're still working.  Once you go FI, and have low-to-no income, you may find it hard to qualify for a loan.

BUT... that does NOT mean you need to CARRY A BALANCE on the HELOC.  It means you have the ability to borrow against your equity up to the level of your HELOC.  Get the loan, and keep the balance at $0 until you absolutely need it.

[NoStacheOhio]

Monthly cash flow is your first line of defense for unexpected expenses. Need to repair the furnace for $500? Just don't transfer as much to savings this month.

Thanks so much NoStacheOhio. One question with this in regards to both unexpected expenses & also expected expenses. If something comes up that is unexpected & requires more than what is brought in by monthly cash flow, would you suggest pulling money from your investments? Or if you have 10k in home repairs you know you need to do, would you simply save up until you could pay cash or sell shares from the Vanguard account to pay for this? I am assuming at this stage we shouldn't touch any money once we have it invested but I want to cover all my bases. These situations are where I thought a HELOC could come in handy but again I am worried about taking on any more debt if it is possible to avoid.

Thanks again for your help!

Selling investments usually has tax implications, so it's a last resort emergency measure. An unplanned $10k expense is where a HELOC is a really great option, because you can transfer the money to your checking account, then pay it off over the next X months out of cash flow.

If you have a big expense you know is coming, simply saving up ahead of time (in a plain old FDIC savings account) is your best option. Zero percent credit cards are also good, as long as you pay them off before interest kicks in. Many home repairs are predictable, so knowing your house, and knowing what's likely to need replacing ahead of time is really valuable. It gives you plenty of time to price out your options.

[Bee21]

If you are planning 4 kids, look up childcare expenses asap. It might mean that the cost will make it impossible or hard for two working parents, one of you will have to stay at home until the kids start school. If this is what you are planning to do, I would try living on one paycheck from now on to see how you can manage. And save/invest the other paycheck. This way you can build up a nest egg very quickly and you will also have a more realistic picture of what life as a single income family will be. We started saving my pay ( and agressively paying off the mortgage) the moment I found out I was pregnant, and by the time the baby arrived we were in a great financial position. We learnt a lot about money management in those months.

If you want to retrain as a teacher, you better start now. It will be hard to study with 4 little ones around😊 Maybe you can study part time while still working full time to do as much as you can before the family expands.

[Flyingstache]

Thank you all for your wonderful advice I really appreciate it!

I was wondering what your thoughts are on refinancing from a 30yr home loan to a 15yr? I know you save a ton of money on interest over the course of the loan but I want to hear others advice! We purchased the home last summer for 190k & have about 145k left on the loan. We are currently at 3.875% for the 30yrs & our monthly payment including taxes/insurance is about $952 but we pay at least $1,000 every month.

If we were able to get 15yrs at 3.25% our monthly payment would be about $1,300.

Is it worth being extremely aggressive on paying off our home loan now or would we be better served to invest the extra money & build our stache?

Thanks again for your time & expertise!

[Laura33]

Thank you all for your wonderful advice I really appreciate it!

I was wondering what your thoughts are on refinancing from a 30yr home loan to a 15yr? I know you save a ton of money on interest over the course of the loan but I want to hear others advice! We purchased the home last summer for 190k & have about 145k left on the loan. We are currently at 3.875% for the 30yrs & our monthly payment including taxes/insurance is about $952 but we pay at least $1,000 every month.

If we were able to get 15yrs at 3.25% our monthly payment would be about $1,300.

Is it worth being extremely aggressive on paying off our home loan now or would we be better served to invest the extra money & build our stache?

Thanks again for your time & expertise!

1.  What are the fees and costs?  3.875% is a good rate; 3.25% is not that big of a delta on the interest rate; personally, I'd want a larger break on the rate to move to a shorter term.  [IOW, I think your 30-year rate is closer to the historic "best" than the current avaialble 15-year rate, and your lender would probably jump with joy if you paid off that 3.875% loan now, because he can take that same money and lend it to someone else at a higher rate.  Of course, your decision needs to be based on your situation as of now, but at the same time my knee-jerk reaction is that if my choice will make my lender happy, I need to think hard about it.]

2.  More important:  what would you do with that extra $300/mo. otherwise?  Focusing only on what you will "save" in interest ignores what you will *lose* by not using that money elsewhere.  If you would otherwise just blow that extra $300 or stick it in the bank, then yes, by all means, use that money on a 15-year mortgage to minimize the interest you otherwise pay to the bank (because saving 3-4% in interest is better than making 0% on consumption or less than 1% in a savings account).  OTOH, if you would otherwise put that money in an investment account, that alternative would very likely give you a 7-10% average return (depending on how you think the market will perform over the next X years).  So you're giving up a 7-10% return (market gains) for one that is below 4% (avoided interest).  I also note that you are not currently maxing out your 401(k) -- so you are not just giving up the higher returns the market might give you, you are also giving up *tax-sheltered* higher returns.  At current mortgage rates, the math is strongly in favor of keeping a long mortgage and investing the difference. 

3.  That said, there's more to life than math; if you have other reasons for wanting the mortgage paid off quickly, that's fine.  I have a 15-year mortgage myself (to have mortgage paid off at planned FIRE date, + I couldn't pass up a rate below 3%).  Then again, I didn't do that until I had maxed out all of my tax-sheltered savings and established significant post-tax savings beside.  So if you do decide to move to a shorter-term mortgage, do it for those "other" unquantifiable reasons, not because you think it is the best way to maximize your overall 'stache.

[Flyingstache]

More wonderful advice! Thanks so much!

The more I have been reading I have come across a lot of different opinions on Roth IRA/401k vs. traditional. I was wondering if you all could share your thoughts & insights on this situation. I had always heard that Roth was the best way to go for younger people but in the early retirement community it seems as if everyone says go for the Traditional.

Any further insights or advice would be much appreciated! Thanks again & have a great day!

[NoStacheOhio]

More wonderful advice! Thanks so much!

The more I have been reading I have come across a lot of different opinions on Roth IRA/401k vs. traditional. I was wondering if you all could share your thoughts & insights on this situation. I had always heard that Roth was the best way to go for younger people but in the early retirement community it seems as if everyone says go for the Traditional.

Any further insights or advice would be much appreciated! Thanks again & have a great day!

Roth is generally only better if you have very low taxable income. Otherwise, tax-deferred ends up with more money in the long run.

[GizmoTX]

I agree about making a serious effort to live on just your salary & investing your wife's. When the children come along, you'll already be calibrated plus have a large stash.

[Hargrove]

Very good equity and savings for your age!

If your wife wants 4 kids, consider cashflow vs. maximum returns when it comes to your mortgage.

Longer mortgage = greater expense flexibility. If you take 30yr but pay it like it's a 15yr, your negligibly higher rate is an insurance premium for lowering your mortgage payment IF NECESSARY any time you want, while you can pay it off in 15 years or 5. Or, you could instead invest all that extra cash in an index fund for greater net worth over the long-term and pay the minimum all 30 years.

Shorter mortgage = full throttle. All the benefits of paying off that house like a badass for the lowest possible house cost. If that peace of mind is worth something to you, this is a good option, but overall it's worth less to your net worth. The more interesting cash flow consideration is whether you intend to pay for college for those 4 theoretical kids. If so, it may feel less insane to pay off the mortgage in 15 years so you can help with tuition on a HELOC that doesn't destroy your cashflow by coming due in addition to your mortgage, at almost the time they're going to college. You'd probably need all the equity to pay with a HELOC, and you'd actually transfer your savings down the road to the HELOC interest rate instead of student loan rates of around 6 or 7%.

[Flyingstache]

Again, I cannot thank you all enough for the advice.

Reading through the forum has brought up more questions for me!

When it comes to investing, does it make more sense to invest larger chunks every few months, invest a smaller amount each month, or constantly be adding to your account?

We just recently got into the investing game & did 2 separate lump sum transfers to our Vanguard account to buy stock in the VTSAX fund. This was about 2 months ago & we have not added any money since. What are your thoughts/advice about investing on a more consistent basis or if you make a lump sum (a few thousand dollars) every couple months will it pretty much even out? I have also read that now there are apps where you can invest very small amounts (ex: $5) daily into accounts. Again, does this really make a big difference? What are some of your strategies for how often you invest?

Also, I keep hearing how it isn't likely for stocks to continue going up & that there likely will be another recession in the next couple years. I know you cannot time the market but I also hate the feeling that I am buying stock now while it is at all time highs. Are others pulling back from there investments or do you just keep plugging along & stick to the course?

Thanks!

[Hargrove]

Again, I cannot thank you all enough for the advice.

Reading through the forum has brought up more questions for me!

When it comes to investing, does it make more sense to invest larger chunks every few months, invest a smaller amount each month, or constantly be adding to your account?

We just recently got into the investing game & did 2 separate lump sum transfers to our Vanguard account to buy stock in the VTSAX fund. This was about 2 months ago & we have not added any money since. What are your thoughts/advice about investing on a more consistent basis or if you make a lump sum (a few thousand dollars) every couple months will it pretty much even out? I have also read that now there are apps where you can invest very small amounts (ex: $5) daily into accounts. Again, does this really make a big difference? What are some of your strategies for how often you invest?

Also, I keep hearing how it isn't likely for stocks to continue going up & that there likely will be another recession in the next couple years. I know you cannot time the market but I also hate the feeling that I am buying stock now while it is at all time highs. Are others pulling back from there investments or do you just keep plugging along & stick to the course?

Thanks!

Short version: investing every two months is similar enough to investing every month that you don't need to sweat it. Investing more quickly (irrespective of the total amount) is theoretically slightly better but it's really not a huge issue to hold onto it. The problem most have with small-sum investing is that commissions destroy the savings, but with Vanguard in a Vanguard fund, you don't have that problem.

Dollar cost averaging (investing regular periodic amounts) requires you NOT to time the market. The whole point is that you don't suddenly make "common sense" decisions like not buying when the market is at a new record or buying when it is at a new low. You don't care about short term fluctuations. Maybe you could avoid this month's deposit and... what? Save 100 bucks? Save 10? Then when do you go in again? Maybe you miss a hike as it's happening and you would have only lost 2... or you would have gained 200 but you weren't in for the rebound... avoid thinking you know what the market is going to do and just deposit every month or two and stay the course. Index investing has only historically failed when the investor kept screwing with it. What seems like a big fluctuation now will seem hilarious later on down the road, and you will quickly find you don't care whether your 1k deposit goes up or down a few more bucks because you waited 2 days or 2 months.

Long term, the stock market goes up.

[ks135ks]

Is it worth being extremely aggressive on paying off our home loan now or would we be better served to invest the extra money & build our stache?

Regarding switching to a 15 year mortgage from a 30, definitely run the numbers for saving over the whole term of your mortgage.  Don't forget to add in the fees for refinancing including any points.  It may be to your advantage to pay as if you had the 15 year payment of $1300 now.  If life intervenes, you can always drop to the lower monthly payment until things stabilize, but you'd have eaten a huge chunk of your principle thereby effectively shortening your term and reducing your interest payment each month.

Seeing a 6 figure debt in my name was intimidating and I wanted to get that monkey off my back as soon as I could.  So I created my own amortization table in Open Office spreadsheet and played with the numbers there until I had come up with a payment schedule I was comfortable with then adjusted it as things changed.  For instance, I setup weekly payments straight to principle in addition to my full monthly payment plus extra.  I had a 15 year mortgage @ 4.375% that I paid in less than 5 years by making a scheduled payment every Wednesday plus a monthly payment that was greater than the actual full payment amount.  I also enjoyed reaching big milestones like a 6 digit figure becoming 5 digits and then 4, each time celebrating by playing with my numbers to see how soon I could reach the next one.

Good luck! 

[Flyingstache]

What are your thoughts on rolling over my old 401k? I have about 30k in my old 401k from my first job out of college & it is sitting in a Fidelity account now.

Would you advise rolling this into my current 401k or rolling it into an IRA? I currently don't have an IRA but would set one up with Vanguard (still unsure about Roth vs. Traditional) to do so.

If I should go with the roll over route, what should I avoid in the the process to make sure I don't make "rookie" mistakes?

Thanks so much!

[eddie]

Always roll over a 401k into a Traditional IRA.  You have more investment options in an IRA vs a 401k.  You are in control.  If you are a low fee/index investor, Vanguard is probably cheaper than the current 401k investment.  If you use actively managed funds to try to beat the market, you will have more options in an IRA you control.  If you want to roll the Traditional into a Roth you will incur more taxes this year as a result.  Up to you to do the math there.  Most people will have a lower tax rate in retirement though.

[MDM]

What are your thoughts on rolling over my old 401k? I have about 30k in my old 401k from my first job out of college & it is sitting in a Fidelity account now.

Would you advise rolling this into my current 401k or rolling it into an IRA? I currently don't have an IRA but would set one up with Vanguard (still unsure about Roth vs. Traditional) to do so.

If I should go with the roll over route, what should I avoid in the the process to make sure I don't make "rookie" mistakes?

If you think your combined income would ever require a Backdoor Roth IRA, and your 401k options are decent, you should not roll it into an IRA.  Otherwise it depends on the expense ratios.  "Usually" you have lower cost options in an IRA but some 401ks have "institutional" funds which are even cheaper.

[MDM]

The more I have been reading I have come across a lot of different opinions on Roth IRA/401k vs. traditional. I was wondering if you all could share your thoughts & insights on this situation. I had always heard that Roth was the best way to go for younger people but in the early retirement community it seems as if everyone says go for the Traditional.

Age has an effect, but only indirectly.  The short answer is "whichever causes you to pay a lower marginal rate."  Use traditional if your marginal tax rate on withdrawals will be lower; use Roth if your current marginal tax saving rate is lower.

See Should I Prioritize my Traditional or Roth? for a recent thread....

[Flyingstache]

Hi Everyone, as we continue to lower our monthly expenses we have gotten rid of Netflix & our Verizon contract is up next month! We are looking into different phone plan options & I was hoping to get your opinions. We are located in Central Ohio so I don't know if all plans are available in all locations but I have often read about Republic, Ting, Google Fi, Boom, Cricket, etc.

Does anyone have any suggestions &/or experiences that they can share? I typically just use my phone for calls/text, gps, & very rarely do I use apps. My wife loooooves using her phone & uses it often. She also has concerns about getting rid of her beloved Iphone 7! I still have the original Iphone 4 & really could care less about what type of phone I have as long as it gets the job done!

Thanks as always for your thoughts!

[Shanksy]

I switched to Ting about 6 months ago and while I love the low cost I have never been able to get the MMS feature to work properly. I did a work around on it by downloading a free group messaging app, but it wasn't the best solution and eventually when I have time to deal with it I will probably switch to another provider. My phone is on it's last legs (3+ year old smart phone) so I will probably switch when this one bites the dust in the next year or so. FWIW I am not tech savvy at all, so I spent like 2 hours, two separate times on calls and messaging with Ting to try and resolve the issue and I just can't figure it out, so if you're clever with phones, tech savvy etc, you might have a better experience. Just my two cents.

[Lady SA]

My husband and I have used both Ting and Google Fi. Both are fantastic.

Ting was slightly cheaper (for two bring-your-own-phones, we paid ~$45/mo). We set our phones up with google hangouts so our calls and texts would route through wifi which is free, and then mostly kept our data turned off except when needed. Ting generally runs on the Sprint network if I recall correctly. Our home and workplaces and the bus all have free wifi so we used almost no data, which reflected in our bill. We also ported our phone numbers as google hangouts numbers because we wanted the freedom to move carriers and always have google hangouts be our text and phone without having to do much setup. This meant that we had to get Ting numbers for the actual phone (hardware) and forward all calls and such to the phone itself, but if you don't do this it should be much easier. We are both quite tech savvy so it wasn't too much hassle.

Google Fi had slightly better coverage in our area and in areas that we travel to often (visiting family, etc). Google Fi runs on both Sprint and... At&T network?
 I can't remember exactly. Both of our phones died within the same month so we decided to try google fi and get nexus 5xs. We paid for the phones outright and like them a lot. It is slightly more expensive (same set up, we pay ~$53-55 per month). A few times google has reset my call-forwarding to my old ting number and this poor dude named Jordan gets all my calls for a few days until someone tells us and we fix it, which is super frustrating and my biggest complaint but that's just my specific account and not a problem with Google Fi in general. We do the same thing as we did before, use wifi as much as possible, which means we get refunded our unused data each month. That refund is reflected in the $55 we pay, if we actually used data our bill would be like $10 higher, at $60 or so.

Both Ting and Google Fi are super easy to use, view your usage and billing and such. I highly recommend both. Google Fi is a bit more straightforward in my opinion, while Ting needs a bit of setup in the beginning but is cheaper.

[Flyingstache]

I have a question that I cannot decide if the options are very mustachian or very anti mustachian!

Does it make sense to take out loans if the interest rate is low enough that it is below the inflation rate?

For example: I own my car outright & it is currently worth around 15k. I could do a cash out refinance right now & pay anywhere from 1.95-2.95% interest (it would be a fixed rate) spread out over 5yrs & get a check for close to 15k. Would it make it worth while to do that & invest that money? Or use as a down payment on an investment property?

Just a random musing I had & figured I would ask the experts! Thanks so much!

[Hargrove]

I have a question that I cannot decide if the options are very mustachian or very anti mustachian!

Does it make sense to take out loans if the interest rate is low enough that it is below the inflation rate?

For example: I own my car outright & it is currently worth around 15k. I could do a cash out refinance right now & pay anywhere from 1.95-2.95% interest (it would be a fixed rate) spread out over 5yrs & get a check for close to 15k. Would it make it worth while to do that & invest that money? Or use as a down payment on an investment property?

Just a random musing I had & figured I would ask the experts! Thanks so much!

No. Well, theoretically, except for...

A) Loan origination fee kills the real interest rate of the loan
B) People most tempted by something like a car refi are often not sitting on enough savings to handle the debt if they lost a job or had a sudden medical expense, or totaled the car and needed yet another loan
C) Stock return assumptions at the 10% range are based on a 30-year span, not 5
D) Starting an investment property with a guaranteed loss, THEN assuming the mortgage, is even more risk
E) The advantage is usually barely worth it. 15k with a lucky bet on 5 years at 7% gets you 6k. Subtract the origination fee and lost interest and you're a little over 4k ahead. You still won, so to speak, but only provided nothing happened in all 5 years to interrupt it, and that you bet on the right 5 years. If you place an unlucky bet, and stocks are down in that period, you're out. You need a very long time horizon and a bulletproof income to use leverage that way.

It's Mustachian to ask "can I optimize this?" Unfortunately, sometimes the answer is "no - that's just gambling."

[Flyingstache]

We are trying to reduce our monthly expenses so I am asking for any areas that you think we can reduce expenses.

I forgot to include our auto insurance in the initial post & it is around $130 for both of our vehicles. Any advice on how to lower this? What coverage is truly needed for auto insurance?

Any other areas of improvement would be much appreciated!

[Hargrove]

Food - $400
Phone - $110 (I get $50 a month from work for my phone)
Gas - $100  (We both drive to work as our town isn’t set up very well for biking. I also drive to client meetings throughout the week but get reimbursed a small amount for business mileage.)
Entertainment - $100
Miscellaneous - $100
2013 Honda CRV w/50k miles – worth $15k
2006 Toyota Corolla w/170k miles – worth $1k

Well, your flashing red light is your food budget. You spend a huge amount on food. It's the only item in your budget that nears a face punch. It's really easy to overspend on food, but you could definitely bring that down, and you're going to want those habits in place if you ever get to 4 kids. Learn to get to Costco, meal plan, and cook. Phone isn't bad at $50 for two people, though could be slightly lower. Entertainment and Misc are awfully broad, but those pieces could save you a bit more. All together, there's not too much fat here at all.

Your car insurance is pretty weak. I do minimum or near minimum. I wouldn't ask my car insurance to pay for an accident my fault (since I'd pay it back twice in car insurance), and I obviously wouldn't pay if it weren't my fault. I use GEICO myself. I've never been in an accident costing more than $300 anyway, and none were my fault, so your "peace of mind" price may differ. You COULD sell the CRV for a used, more economical vehicle, then pocket the difference.

[Flyingstache]

Hi Everyone,

thanks again for all the great information & responses.

I have a question about real estate investing. My wife & I have talked about this but only in passing & we haven't done any real research. The area we live is growing quickly & is expected to boom in the next few years. It seems like now would be the time to get our foot in the door with investment properties & I was wondering if you all thought that was doable based off of our current financial situation?

Any input is appreciated! Thanks so much!