Just Starting to Grow a Mustache...

[joeypants]

Hi everyone!

I've recently started following the Ways of The Mustache over the last month or so. I'd love to show you where I am right now, so that I can learn what I can be doing better/smarter.

First, a little background info about me: I got started being a proper adult a bit later than most... Much of my 20's were spent in bands, making art, and doing other things that weren't so smart with my time or money in hindsight. Far less than ideal, I know, but it's where I am. There's no time like the present to take charge of things!

I recently turned 32, and am married with no kids yet. My wife and I have very different money habits, and if I'm here lurking around the Mustache forums, I'm sure you can guess where she falls on the money-management spectrum. We are aware of our differences, and she's been great about our recent belt-tightening lately. We've worked out a system that does okay for us, given our differences — She has a job that pays her enough money to cover her own student loans every month and then spend on whatever else she wants. That way, her bad money-management habits don't affect our family budget. My income covers rent, bills, groceries, etc. Less than ideal, absolutely, but it's where we are right now. We're working on it. So I'm just going to use my own income for this exercise.

OK, so here we go (this is nerve-wracking!):

Annual gross income: $80,000
Net monthly income after taxes, insurance, and 401k contribution: $4676

Recurring monthly expenses:
$1400 rent (this is sadly pretty average for Seattle. I walk 2 miles to work each way, so this cost is offset a bit by my lack of commuting costs)
~$400 food (includes groceries, going out to eat, & any coffee shop visit)
$220 student loan (total debt: $17k, with ~$14k @ 6.8% and about $3k @ 3.4%. As of this month, I am starting to contribute an extra $500/mo to the higher interest loan as our budget allows)
$150 cell phone (this includes a corporate discount. Currently researching Republic Wireless, but my line of work requires that I be very up-to-speed on the latest iPhone apps and platform. Unfortunately all of Republic Wireless's phones come with an outdated version of Android).
$140 car insurance (wife has a couple of infractions that bump this up)
$55 internet (Just talked Comcast into giving us their introductory rate again for the next year. This is down from $80/mo.)
$77 storage unit on the other side of the country (long story that's not worth getting into, but this is necessary right now)
$50 Utilities
$35 Life Lock subscription — Is this worth it? Or dump this?
$12 portfolio website (very necessary in my line of work)
$8 Netflix (a small luxury, yes, but we own no TV, and as entertaining as we find each other, sometimes other entertainment is necessary)
_________________
$2550 in recurring monthly expenses (54% of net monthly income). This is predictable, recurring monthly expenses. Does not include variable monthly expenses like toiletries and various household needs (like dish soap, paper towels, occasional car maintenance). But I'd say that budgeting $100/mo for those things is more than enough.

Savings:
$20,500 in our emergency fund, divided between 2 banks: $15,500 at Barclays Online w/ 1% interest rate, and $5000 at Chase with a much sadder .01% interest rate. I keep the Chase savings account purely for super-emergency, need-cash-right-now emergencies, as Barclays takes 5 business days to transfer into my checking account.

Current Investments:
Currently $3100 in my Vanguard Roth 401k (including $2100 rolled over from an old 401k. I contribute 6% of my current paycheck. I started this job 4 months ago, and my company only matches 50% of up to 6% only after I've had the 401k for a year. So I have 8 months to go until they start matching.). Theoretically, barring some market catastrophe, this is growing by 6% of my take-home pay each month with my contributions.

Debt:
Just my $17k in student loans, mentioned above. (Again, it's split between ~$14k @ 6.8% and about $3k @ 3.4%. As of this month, I am starting to contribute an extra $500/mo to the higher interest loan as room in our budget allows). Not including my wife's student loans in this, she's paying them off on her own.

One question I have regarding my student loans: The current $220/mo payment means it would be repaid in about 7 years. Right now, $220/mo is pretty easily affordable. But which is smarter: To put an extra $500/mo toward it to pay it off quicker — or — to take that same $500/mo and invest it in something that might grow or shrink and continue to pay $220/mo over the next 7 years?

Overall, I've proud of the financial improvements we've made so far, but I know that we can continue to do better and better. I'm prepared for plenty of face punches, but please punch gently. I'm just getting started on putting us on the right path! Everyone's got to start somewhere, you know?

Thank you!

[MDM]

...taxes, insurance, and 401k contribution...

How much of each?

Savings:
$20,500 in our emergency fund, divided between 2 banks: $15,500 at Barclays Online w/ 1% interest rate, and $5000 at Chase with a much sadder .01% interest rate. I keep the Chase savings account purely for super-emergency, need-cash-right-now emergencies, as Barclays takes 5 business days to transfer into my checking account.

Debt:
Just my $17k in student loans, mentioned above. (Again, it's split between ~$14k @ 6.8% and about $3k @ 3.4%. As of this month, I am starting to contribute an extra $500/mo to the higher interest loan as room in our budget allows). Not including my wife's student loans in this, she's paying them off on her own.

One question I have regarding my student loans: The current $220/mo payment means it would be repaid in about 7 years. Right now, $220/mo is pretty easily affordable. But which is smarter: To put an extra $500/mo toward it to pay it off quicker — or — to take that same $500/mo and invest it in something that might grow or shrink and continue to pay $220/mo over the next 7 years?

Unless you think it likely you both will lose your jobs simultaneously, consider taking your savings and paying off the 6.8% loan immediately. 

[joeypants]

...taxes, insurance, and 401k contribution...

How much of each?

Savings:
$20,500 in our emergency fund, divided between 2 banks: $15,500 at Barclays Online w/ 1% interest rate, and $5000 at Chase with a much sadder .01% interest rate. I keep the Chase savings account purely for super-emergency, need-cash-right-now emergencies, as Barclays takes 5 business days to transfer into my checking account.

Debt:
Just my $17k in student loans, mentioned above. (Again, it's split between ~$14k @ 6.8% and about $3k @ 3.4%. As of this month, I am starting to contribute an extra $500/mo to the higher interest loan as room in our budget allows). Not including my wife's student loans in this, she's paying them off on her own.

One question I have regarding my student loans: The current $220/mo payment means it would be repaid in about 7 years. Right now, $220/mo is pretty easily affordable. But which is smarter: To put an extra $500/mo toward it to pay it off quicker — or — to take that same $500/mo and invest it in something that might grow or shrink and continue to pay $220/mo over the next 7 years?

Unless you think it likely you both will lose your jobs simultaneously, consider taking your savings and paying off the 6.8% loan immediately. 

~$450/mo in health/vision/dental insurance that covers my wife and myself
$400/mo in 401k
$563.67 in federal tax, Social Security, and Medicare tax. There is no state income tax in WA.

And yep, I have considered using my emergency fund to pay off much of my student loan. However, advice is usually to keep 3 to 6 months (some say up to 12 months) of expenses on hand in case of job loss. My wife does not make enough to support us if I were to lose my job, so I'd like to keep as much of a peace-of-mind cushion as possible.

I work in a field where job security is pretty fleeting, and though it's pretty easy to find new work, I have definitely been laid off once before, as have most others in my line of work at some point. Fortunately I was able to find a new job before I even had to leave the one I got laid off from when it happened. But it was absolutely terrifying and I don't want to have to worry about how to feed us that much ever again if I can help it. I work in an industry where it's not a matter of if you get laid off, but when. So a healthy financial cushion is really nice for peace of mind.

[MDM]

$563.67 in federal tax, Social Security, and Medicare tax. There is no state income tax in WA.

Is that biweekly?  Appears AGI ~$69,800 and that (w/ some SL interest deduction) would cause ~$1,000/mo in Fed+SS+Med tax.

Anyway, the 6.8% guaranteed return on getting rid of that SL is your best bet for now.  Kill it ASAP, however you wish to define ASAP.

After that (or even now if you continue to pay $220/mo on the SLs), putting $1,500/mo into your 401k and $11K/yr (between you and your wife) into an IRA might (depending on your wife's income) get you a $400 Saver's Credit and still leave ~$7K/yr left over for taxable investing.

Speaking of your wife's income, it might be worthwhile for you to look at your combined situation instead of his & hers.  That's a whole topic in its own right, so do what is best for you - but if you are filing with MFJ status you should look at your combined situation to make the right moves.  See the reader case study sticky for some thoughts and tools.

[joeypants]

Is that biweekly?  Appears AGI ~$69,800 and that (w/ some SL interest deduction) would cause ~$1,000/mo in Fed+SS+Med tax.

Sorry, I forgot to specify. Yes, that is biweekly, so just north of ~$1000/mo in Fed/SS/Med taxes.

Thanks for your thoughts, especially about looking at our combined income/filing with MFJ status. The state of WA mandates married couples file jointly, actually. So that's what we do. I'll poke around the thread you linked to and see what wisdom and tools I can find regarding that.

I'll definitely give some more consideration to killing the student loan sooner rather than later... It's a scary prospect to lose much of our emergency security money in order to get rid of the student loan, but could be worth it in the long run, assuming we don't need the emergency fund soon. But that's exactly the part that makes me hesitate — we don't know.

Thanks again!

[Retired To Win]

... My wife and I have very different money habits... We've worked out a system that does okay for us, given our differences — She has a job that pays her enough money to cover her own student loans every month and then spend on whatever else she wants. That way, her bad money-management habits don't affect our family budget. My income covers rent, bills, groceries, etc. Less than ideal, absolutely, but it's where we are right now. We're working on it...

Congratulations on getting started on your journey to earlier retirement.

Your money management arrangement with your wife is a start.  It gives you better control of what happens with the "core portion" of your household income.  But I would really like to see your wife contributing something to the household budget.

My wife and I have always maintained separate finances.  But, regardless of which of us made more money at any given time, we BOTH contributed to household expenses.  It just doesn't feel right to me that your spouse gets a total free pass on joint expenses AND gets to blow her income on whatever strikes her fancy.

But, seriously, it's still a good start.  So, good luck.

[joeypants]

Your money management arrangement with your wife is a start.  It gives you better control of what happens with the "core portion" of your household income.  But I would really like to see your wife contributing something to the household budget.

Thanks for the encouragement! And believe me, I'd love to see her start contributing too! In fairness, she hates that she doesn't contribute much to household expenses, and we are working toward it. Slowly, but we're working on it.

Though first I'm trying to teach her some basic money management skills like You don't have to spend all of your paycheck. Very basic things like that. It's shocking that that type of lesson even needs to be taught to some people, but it does.

But let's move on from discussing my wife and get back to our current budget above — From what I gather from the feedback so far, we're doing fairly well for where we are in the process, though we certainly have room to improve as far as how/where we invest our spare cash each month. Currently investigating my options on that front. My 401k is a Vanguard Target Date fund, at a 90/10 stocks to bonds ratio. Thinking about opening a Roth IRA, maybe to add REITs to the overall portfolio.

Anyone have any further thoughts on keeping our emergency fund where it is vs. using most of it to pay off my student loans? While paying them off immediately sounds great on the one hand, losing our security is terrifying, given that layoffs in my profession are a fairly normal part of the job sometimes.

Thanks everyone!

[SwordGuy]

I would recommend a "Financial Emergency Fire Drill".    You know you'll be laid off at some time, and of course, you wife could be laid off also.  Or either of you could get sick and be unable to work.

What steps do each of you take?   What gets cut completely, what gets trimmed, what gets deferred?   Do BOTH of you know and agree?   

One of the nice things about such an exercise is it helps you identify what are truly essential expenses and what are not.  Which, by the way, is a great place to start a budgeting discussion from...

This is a good site for calculating loan repayment schedules.   

https://www.drcalculator.com/mortgage/

You can use it for your SLs, not just mortgages.  It includes the ability to calculate how much interest would be saved on early payments, including somewhat irregular early payments.    One of my friends found he had a way more cooperative spouse once she realized how much money they were throwing away in interest payments to the bank...

That will give you several hard number scenarios to compare against one another so you can balance the risk of lowering your emergency fund vs the interest savings.   Remember, a $1000 early payment TODAY is worth a lot more than a $1000 early payment in several years...

[PencilThinStash]

Anyone have any further thoughts on keeping our emergency fund where it is vs. using most of it to pay off my student loans? While paying them off immediately sounds great on the one hand, losing our security is terrifying, given that layoffs in my profession are a fairly normal part of the job sometimes.

Between his thoughts on investing and belief in a consistent 12% rate of return, I don't generally throw around much Dave Ramsey advice... but the guy does do a solid job of teaching people how to get rid of debt, especially for those who haven't gone down the rabbit hole of personal finance research yet.

If I remember correctly, he advises only holding a $1k emergency fund while you pay down your debt, and then build up the 3-6 months worth of expenses in the emergency fund. At recurring monthly expenses of $2550, $20k is roughly 8 months in your emergency fund. Entirely too much if you're serious about paying off debt.

Since it sounds like you're in a semi-volatile field, I would hold onto something more than the $1k Ramsey recommends... $8k would cover about 3 months worth of expenses. Use the remaining $12500 to knock your $17k debt down to $4500. You said you're paying an extra $500/month on top of your loans now? Keep doing that, and you're completely debt free before the end of THIS year.

Frees up $220/month for the next six years - $15840 out of pocket, just over 20k if you invest it and assume the 7% market average.

There's an argument for paying the minimum on your loans, and investing for rates of return that outperform your loan rates... but personally, I'd prefer to not owe a cent to anybody. Then again, I'm too damn independent for my own good, so the concept of freedom makes me ignore that level of math. Your call, man. The fact that you're even here thinking about this and asking questions is awesome. Puts you head and shoulders above the average. Welcome to the forum!

[Retired To Win]

I would recommend a "Financial Emergency Fire Drill".    You know you'll be laid off at some time, and of course, you wife could be laid off also.  Or either of you could get sick and be unable to work.

What steps do each of you take?   What gets cut completely, what gets trimmed, what gets deferred?   Do BOTH of you know and agree?   

This is an excellent idea. Another great idea is your $20K-plus emergency cash reserve.  If the sh*t hits your fan, you'll have 8 months worth of expenses stashed away to get you over the bad hump.  (I keep one year's worth.)  So, please, don't go shortchanging that emergency reserve fund of yours.  ;)

[MDM]

$20k is roughly 8 months in your emergency fund. Entirely too much if you're serious about paying off debt.

Another great idea is your $20K-plus emergency cash reserve.  If the sh*t hits your fan, you'll have 8 months worth of expenses stashed away to get you over the bad hump.  So, please, don't go shortchanging that emergency reserve fund of yours.  ;)

"And it is also said, 'Go not to the elves for counsel, for they will say both no and yes.'"

[BBub]

Anyone have any further thoughts on keeping our emergency fund where it is vs. using most of it to pay off my student loans? While paying them off immediately sounds great on the one hand, losing our security is terrifying, given that layoffs in my profession are a fairly normal part of the job sometimes.

Since it sounds like you're in a semi-volatile field, I would hold onto something more than the $1k Ramsey recommends... $8k would cover about 3 months worth of expenses. Use the remaining $12500 to knock your $17k debt down to $4500. You said you're paying an extra $500/month on top of your loans now? Keep doing that, and you're completely debt free before the end of THIS year.

Frees up $220/month for the next six years - $15840 out of pocket, just over 20k if you invest it and assume the 7% market average.

There's an argument for paying the minimum on your loans, and investing for rates of return that outperform your loan rates... but personally, I'd prefer to not owe a cent to anybody. Then again, I'm too damn independent for my own good, so the concept of freedom makes me ignore that level of math. Your call, man. The fact that you're even here thinking about this and asking questions is awesome. Puts you head and shoulders above the average. Welcome to the forum!

Couldn't have said it better than pencilthin.. Follow his advice.  annihilate those loans this year - even this summer!  Throw the $12.5 down, then put your extra ~$2k/mo towards them and be done in June.  Then scurry to build your cash back up to a comfortable level & you'll be on a roll by the fall.

If you want to err on the conservative side, throw $8k down and keep 12 cash.  Then apply the $2k to the remaining balance and be done by August.

Either way, get that loan paid off then go take a hot shower to wash off the icky debt grime.

[jmusic]

$150 cell phone (this includes a corporate discount. Currently researching Republic Wireless, but my line of work requires that I be very up-to-speed on the latest iPhone apps and platform. Unfortunately all of Republic Wireless's phones come with an outdated version of Android).

Just because Republic Wireless isn't an option doesn't mean there is PLENTY of room for cuts here.  Most MVNOs can now use the iPhone 6 due to recent 'unlocking' laws. 

$35 Life Lock subscription — Is this worth it? Or dump this?

Dump it!

One question I have regarding my student loans: The current $220/mo payment means it would be repaid in about 7 years. Right now, $220/mo is pretty easily affordable. But which is smarter: To put an extra $500/mo toward it to pay it off quicker — or — to take that same $500/mo and invest it in something that might grow or shrink and continue to pay $220/mo over the next 7 years?

I'd recommend at least paying off the 6.8% student loan before investing.  Heck, take some cash out of the emergency fund...

[PencilThinStash]

$20k is roughly 8 months in your emergency fund. Entirely too much if you're serious about paying off debt.

Another great idea is your $20K-plus emergency cash reserve.  If the sh*t hits your fan, you'll have 8 months worth of expenses stashed away to get you over the bad hump.  So, please, don't go shortchanging that emergency reserve fund of yours.  ;)

"And it is also said, 'Go not to the elves for counsel, for they will say both no and yes.'"

Perfectly timed Tolkien quotes for the win. Nicely done, MDM!

[Calvawt]

I would also be in the camp that recommends paying off the higher rate student loan immediately.  You can still keep a smaller emergency fund, but I would build it back up later.


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