Learning, Sharing, and Teaching > Case Studies
Case Study - Wedding and Student Loan Mountain
Leonias:
Life Situation:
Single (soon to be married)
No dependents
26 yrs old
Upstate New York
Gross Salary/Wages: ~ $66,000
Individual amounts of each Pre-tax deductions
403(b): ~ $380/mo (plus Employer match ~ $340/mo) 7% contribution + 6.2% match
HSA: $77.00/mo
Health/Dental Insurance: $14.00/mo
Parking at Work: $26.50/mo
Adjusted Gross Income: ~ $56,000
Taxes:
Federal withholding: ~ $700.00/mo
Medicare: ~ $72.00/mo
SS: ~ $307.00/mo
NY Withholding: ~ $234.00/mo
Net Income: ~$40,244 (~$3353/mo)
Current expenses:
Bills
Rent: $670.00/mo*
Car Insurance: $33.00/mo
Internet/Cable: $29.00/mo* (Cheaper as bundle than Internet alone for now.)
Netflix/HBO Now: $18.00/mo*
Cell Phone: $50.00/mo*
Utilities: ~$53.00/mo*
Total Bills: $853.00
Spending:
Groceries: $180.00/mo*
Gasoline: $112.00/mo
Eating Out: $200.00/mo (Was around $400/mo before finding MMM and still dropping)
Car Maint./Repairs: $100.00/mo (Timing belt/Water pump/Electronic Diag. this year)
Entertainment: $35.00/mo
Home brewing: $50.00/mo
Craft Beer: $100.00/mo**
Dog: ~$40.00/mo* (Estimated now that Vaccines and Spaying are done)
Misc.: ~$50.00 (includes home improvement, sports/fitness, etc.)
Total Spending: $867.00
Total Expenses: $1720.00/mo
*My half/portion of total
**After doing my first annual spending report the total number really surprised me. From now on every time I consider buying some I plan to repeat that total out loud to myself and really consider if that particular purchase is worth it to me. This number will come down sharply.
Assets:
Car: $3400.00
Cash: $6000.00
HSA: $570.00
403(b): $21,300
Total Assets: $31,270
Liabilities:
Student Loans Orig. Amt. Interest Current Amt. Payment
Wells Fargo #1: $18,000 7.40%* $20,906.00 $216.76/mo
Wells Fargo #2: $12,000 6.49%* $12,652.22 $124.48/mo
Wells, Fargo #3: $11,000 6.49%* $10,904.78 $107.28/mo
Citibank: $18,000 6.25%* $21,207.50 $174.34/mo
Federal Unsub: $21,175 5.125% $21,089.82 $95.79/mo
Federal Sub: $16,073 5.125% $16,020.54 $72.08/mo
*variable interest rate
Totals: $96,248 --------- $102,780.86 $790.73/mo
Net Cash Flow: $842.00 → Wedding Fund
A little background to start. My fiance and I are in the middle of planning and saving for our wedding in about 9 months. Our current plan at this point is to keep finding ways to spend less each month and throw all of our excess cash flow into savings for the wedding/honeymoon. This isn’t because we don’t have a budget for the wedding or that it's super expensive. It’s more to be sure we can easily cover the expenses and any excess afterwards will be directed at our next respective priorities instead of useless crap.
Now, I found MMM a few months ago and devoured it, really bought into the idea of efficient spending, making money work for you and FI above all else. My fiance hasn’t read any of it and in fact got a little sick of my initially way overzealous head first dive into mustachianism. She isn’t a consumer sucka by any means but I don’t know if frugal is the right word either. She is efficient with her money and generally only uses it to acquire things she truly values without paying top dollar.
My current top priority is saving up for the wedding. It has been very beneficial to have that tangible and relatively short term goal force a change in my spending habits. It is also providing plenty of practice with finding ways to make things more cost effective, using digital save the dates/invitations, cutting guestlist to almost exclusively family, DIY as much as we can think of, etc. Any suggestions on that front would be greatly appreciated.
The real, overarching concern however, is the massive hair on fire, mistake-of-my-life, debt emergency I’m in. I say mistake not because i regret going to college but because the worst case scenario should have been coming out of school with less than half that amount of debt. Up until starting to save for this wedding and the engagement I had diligently paid extra on my debts every month. First with the small loan to buy my car, cutting the term by a third and saving about $100 in interest, and then with a couple hundred extra applied to the principle of my Citibank loan each month. I know now that that was peanuts compared to what will be required to get out from under this debt and have been making a plan for how to attack this in earnest after the wedding.
My first step will be to refinance Wells Fargo #1 and Citibank next month. As soon as my recent big CLI hits my credit report putting my utilization below 10% I will compare Earnest and SoFi for this. One strategy I’ve considered is doing one loan through each company assuming the rates they offer are similar enough. The reason for this is that in the past both have offered much lower rates if I asked to refinance less (Higher rate to refi $42k vs $21k despite total DTI being the same either way.) My assumption is that I will get lower rates if i split the 42K between the two then just dealing with one company. Any thoughts on this? I will most likely talk about this with both before a final decision.
After the wedding I’m estimating I will have $2k-$4k left in the wedding fund. If my car is still running well and doesn’t need replacing that will all go into loans. From then on my goal is to throw at least $1600/mo at them until I’m down to just the Fed. loans and reassess at that point. What I’m not sure about is payoff order. Ideally WF1 and Citi will now be ~5% fixed at that point. I don’t know if it's better to payoff one of those as fast as possible and refi the remaining 2 WF loans and go from there or attack the remaining variable WF loans first. Maybe after refinancing WF1 Wells Fargo will be willing to change the remaining two to fixed rates… I don’t know.
I guess a TL;DR of my requests would be:
Money saving suggestions for a wedding? (venue and food already decided)
Does the amount you ask to refinance affect rates and would using 2 companies change that?
Ideas for an order of attack on these loans?
Sorry for the massive wall of text and thank you even just for reading this far.
*Braces for face punches*
Ayanka:
First suggestion: next time you make a post, please use a singular lineage, so without the spaces in between. It is a bit annoying to read.
Secondly, I would suggest you check out Dave Ramsey. Yes, he isn't the most popular guy on this board, but that is because of his investment advice. Further I am seriously wondering what your wedding budget is. If you and your fiance are both saving 750 USD a month, that is 1500 USD a month, times 9 gives 13500 USD. I know that by upstate New York norms that isn't much. But if I look at your financial data sheet, that is money you simply don't have. Sorry. So I would see if you can find a more budget friendly way of doing that things that aren't absolutely important to you. There is information about how to make a wedding cheaper. I am not saying you shouldn't make it a special day, but it is only one day. And the debt will follow you around.
New York is known as an expensive city and I assume upstate New York isn't cheaper. While your rent seems ok, I would double check if it is possible to move somewhere cheaper, because it is a structural savings that can be not too disruptive.
Why are there to be expected ER expenses? As in what does it mean that they are expected? Someone took a trip to the ER recently and this are the copays?
Drop the beer for now. All of it. Yes, I am Belgian, yes we love beer. You can't afford it.
And one from DR: You don't see the inside of a restaurant unless you work there. Pack lunches, buy snacks in the grocery and make eating anything not home made an emergency only situation.
Lastly, my questions are genuine, I am European and some American things I don't get, so I ask them :). I know my advice is rather harsh, but you are 65k in the hole in networth. This means you have either live on the high end for quite some time (as in more going out than coming in) or you have old unsolved problems. And now is the moment to solve them. Good luck!
notactiveanymore:
--- Quote from: Ayanka on January 23, 2017, 10:59:35 AM ---First suggestion: next time you make a post, please use a singular lineage, so without the spaces in between. It is a bit annoying to read.
Secondly, I would suggest you check out Dave Ramsey. Yes, he isn't the most popular guy on this board, but that is because of his investment advice. Further I am seriously wondering what your wedding budget is. If you and your fiance are both saving 750 USD a month, that is 1500 USD a month, times 9 gives 13500 USD. I know that by upstate New York norms that isn't much. But if I look at your financial data sheet, that is money you simply don't have. Sorry. So I would see if you can find a more budget friendly way of doing that things that aren't absolutely important to you. There is information about how to make a wedding cheaper. I am not saying you shouldn't make it a special day, but it is only one day. And the debt will follow you around.
New York is known as an expensive city and I assume upstate New York isn't cheaper. While your rent seems ok, I would double check if it is possible to move somewhere cheaper, because it is a structural savings that can be not too disruptive.
Why are there to be expected ER expenses? As in what does it mean that they are expected? Someone took a trip to the ER recently and this are the copays?
Drop the beer for now. All of it. Yes, I am Belgian, yes we love beer. You can't afford it.
And one from DR: You don't see the inside of a restaurant unless you work there. Pack lunches, buy snacks in the grocery and make eating anything not home made an emergency only situation.
Lastly, my questions are genuine, I am European and some American things I don't get, so I ask them :). I know my advice is rather harsh, but you are 65k in the hole in networth. This means you have either live on the high end for quite some time (as in more going out than coming in) or you have old unsolved problems. And now is the moment to solve them. Good luck!
--- End quote ---
Oh man.
1. ER means Early Retirement. This calculation of how much you expect to spend in early retirement gives you an indication of when you would be financially independent and have enough saved to retire.
2. The OP is in debt only with student loans. None of his debt is from consumer spending. (Well, he might have taken a little more out than he needed, but still). He certainly wasn't living on the high end for some time, he just borrowed a ton for schooling. He has clearly acknowledged this was a mistake, but there is not much to do at this point.
slb59:
Great progress starting to cut spending, save more, and look critically at everything.
This is all set up from your POV, but are you and your fiance going to be combining expenses after the wedding? Does she have any debt? If so, your long-term plan really needs to account for both of your debt, income, and spending.
It also sounds like she's not as into the ultra-frugality as you, so I can't recommend highly enough figure out where she is at and what she wants for her finances. Getting expenditures you can both agree on long-term will be vital. For example, my husband won't budge on a $200/month gym fee, but I was pretty easily able to get him to stop our $200+/month eating out habit and cutting $250/month from the grocery bill. If I'd pushed too hard on the gym, the rest wouldn't have happened. He hates talking finances, but his biggest priority is to feel financially secure. So, I put less into student loans and more into an emergency fund than I would on my own, but periodically tell him how much we've managed to save, and that keeps him from getting too annoyed at me when I start asking "do we really need that?".
I've never tried seeing what my interest rate would be if I split my loans between two refinancing companies, so I can't speak to that (but will be trying it!). Getting those interest rates down will save you a fortune in interest, and I'd start there rather than worrying about the order in which they got paid off (though I'm a fan of the highest-rate loans first, especially because your highest rate is over a percentage point higher than the next lowest).
For wedding savings, all I can say is look carefully at what matters to you and what doesn't, then think creatively about how to get that. We didn't drink much when we got married, so we saved a fortune by not serving alcohol. I kept the flowers simple, and I know some people who just went to the local farmer's market and got whatever was available the day of the wedding since local and fresh mattered more than specific colors. We kept decorations simple because our outdoor venue was gorgeous on its own. We found tablecloths on sale cheaper than the rental cost, so we bought them and loaned them out later to other friends. Our centerpieces were teapots we got at Goodwill, and our favors were tea cups from the same source. I had friends who asked all of their friends bring a pie instead of serving wedding cake since they loved pie and hated cake. There are so many creative ways to make a wedding your own and save money at the same time, but it really depends on what's important to the couple.
little_brown_dog:
The biggest money saving advice for a wedding is to keep the guest list small/reasonable. Seriously, if you are pushing 100+ guests things are going to get pricey even if you go bare bones. Limit yourself to immediate and 1st degree extended family (aunts/uncles/grandparents/first cousins) and close friends and that’s it. Second cousins, plus ones, coworkers, parents’ friends - all need not apply. I can’t begin to stress this enough. You will not get a bunch of joy from having 50+ extra people you really don’t give a damn about attend your wedding. You won’t even know they are there, and most won't even care all that much about attending or not, but you sure as heck will be paying for them. To do this, enact firm but fair rules that no one can really complain about. Sorry we are having an intimate affair, no we aren't doing plus ones - only long term couples please. Sorry, it's a late evening/adult celebration, it is not a child friendly affair. Sorry mom/dad, we have a tight budget, you can't invite your random friends I have only met once or twice. You get the picture. It sounds like you are already doing this but I wanted to drive the point home - guest lists have this weird habit of magically increasing in size unless you run a really tight ship and stand firm.
For invites, look at places like vistaprint/zazzle/craft stores like Michaels. Their invites are often really adorable and far less expensive than fancy invite designers. Depending on how big your guest list is, you might be able to come in under $100 total including postage.
For decor - I highly recommend candles and twinkle lights. Go with a "light" theme and just immerse the venue in low, soft romantic light from tons of candles and if possible, twinkle lights strung up over the dance floor. It will look gorgeous and no one will ever notice you managed to skip out on super pricey flower decorations. If the venue offers free plain white linens and napkins as they often do, go with that and don't splurge on special colored linens. White is beautiful.
Food - Go with yummy but less expensive options. Trust me, the guests can't tell/don't really care if you have 3 types passed appetizers vs. 4 as long as there are plenty of them and they are good. Calculate out the cost and see if app stations will be cheaper than passed apps and go with whatever is less expensive (sometimes a nice cheese display and crudite display will be less expensive but have more food). Red meat dishes like lamb and beef are almost always more expensive...go healthful and do the chicken and a fish. Forgo any and all desserts except the cake. Keep the cake beautifully simple - plain butter cream with some nice fresh flowers in your colors on top. No extra dessert stations that absolutely no one is going to eat from.
Random extras - skip em. Seriously. No one cares about cute monogramed napkins with your initials or hearts or whatever. Put your funds where it matters most and has the most impact and brutally cut out any of the dumb extraneous stuff. Look into food-based and inexpensive favors - most wedding favors get thrown in the trash anyway. Keep your wedding parties small...those bridesmaid and groomsman gifts can add up.
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