Screwed things up

[Barton20]

Hi forum. I'm brand new here on the advice of a friend. I have to tell you that I'm one of the most financially illiterate people ever. The problem is my parents never had much money and I never really thought much about financial freedom. I expected that I would always live paycheck to paycheck and when that turned out not to be the case, I was completely irresponsible with my money. Completely.

Here's the situation.

Bad news:
I'm 42.
My wife and I have 110K in credit card debt
I have 30K left in student loans
We have about 50K saved for retirement
Wife makes 30K/yr
We live in a high cost of living area due to my job (and we live in the suburbs so commute is long in order to save money)

Good news:
I just graduated school (late bloomer) and making 185K (take home is about 10K/month)
No kids, so salary is just for us.
We have not used a credit card in 6 months and plan to pay for everything with cash or debit card from now on.

Expenses:
Rent/utilities/groceries -- $4500/month (high cost of living area)
Cars -- paid off
Train for commute -- $200/month (parking at work is more expensive)
Life and disability insurance -- $300/month

Plan for future:
Not planning to have kids. Wife on birth control
Want to buy a house at some point, but in no hurry
I hope to retire at age 70 due to late start

My question:
Our debt burden is 140K. I want to pay off the debt like there's no tomorrow while my wife wants to pay off the debt while also putting something away for retirement. I think retirement should wait until we're debt-free. But I'm also concerned that the debt will take a long time to pay off.

[Gremlin]

Welcome to the forum.

It feels like your subject heading is far too melodramatic.  Whilst your not necessarily on track for an early retirement today, you have the potential to get your act together and move forward with the right discipline.

Can I suggest reading the Investment Order thread and posting a detailed case study in the Case Studies subforum?

On face value you have a lot of spare cash to play with and you should be able to set up a plan to smash loans AND save a ton for the future.  However, go thru the case study piece and write up all your spending in detail to make sure nothing is falling thru the cracks.

[Barton20]

Ooohh thank you. Will definitely post in the Case Study. I will locate the investment order thread as well. Subject line does sound melodramatic, doesn't it? I guess I just feel like I'm so behind the game when I read about people in their 20s saving toward retirement and I have all this debt and barely have anything saved. But point taken and will not be so dramatic about it.

[Aegishjalmur]

You made the first step and asked for help. That's a big one.

I would suggest reading this first and then submitting as a case study:

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/


You're going to need to break out you expenses a bit more but here are a few things right off the top:

1. You mentioned your wife's salary, but what is your income?
2. Can you break out your Rent/Utilities/Groceries category more? How much for each?
3. Does the above include cell phone/internet? If not those should be broken out as well.
4. I didn't see auto insurance/gas.(if insurance is annual, divide by 12 so that everything is a monthly expense).
5. What are your monthly minimum payments and interest rates and balances for each credit card.

Do your best to compile a detailed breakdown of your income/expenses/debts and assets. Once we know a bit more we can suggest areas to cut and how to attack the debts.

Don't feel bad if you miss something at first, people here are very good at asking questions if they need more info.

[Alternatepriorities]

Assuming you are in the US? Based on the numbers you shares $215k income and $60k a year in expenses I would suggest maxing out you tax deferred retirement accounts if you have them before paying off debt. Even if you and your wife each put in 19k you should still be out of debt in about two years and you’ll have an extra 80k in retirement accounts. Seems like saving 24% in taxes should make that worth spending a few more months to pay of the credit card debt. If you can keep that kind of focus after the debt is gone you can probably be done working by 50.

[Much Fishing to Do]

My opinion has always been at your stage 99% of whats important is to spend as little as possible.  What you do with what you don't spend no where near as important.  You can do the math (if maximizes efficiency is the most important thing to you) which will probably tell you to put money into your 401k up to any match, then compare your credit card interest rates with your tax bracket to see if you should put even more in before cc payments, etc, but again none of those decisions will make all that much difference compared to just not spending the money.  Not spending the money includes decreasing any current expenses where you (esp. the big ones, obviously if there's a way to turn your Rent/utilities/grocery from 4500 to 3500 would be huge) and then not falling into any new ones (again, esp. the big ones like new cars...)

Best of Luck, with that combined salary and a household of only 2 you've got a great chance of killing it!

[CheapScholar]

I agree that you need a full case study with more info.

Based on what I do see, I agree with above post that you almost certainly need to start maxing out retirement accounts.

It’s all good to say you want to work until 70 but none of us know how the economy will change or your line of work.  I would make a realistic goal of when you can be financially independent.  At 42, with your current numbers, I think you can get there by 55 if you really want to look into the ideas on this forum and have discipline.

[Omy]

I recommend reading the complete list of posts from MMM if you haven't done so already. There's a wealth of information on how to optimize your finances and your life.

One post in particular comes to mind:

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Your savings rate is the key to everything after you payoff your debt. With a savings rate of 50%, you can retire in 16 years. Bump that up to a 64% savings rate and you drop early retirement down to 11 years.

[Bateaux]

I recommend reading the complete list of posts from MMM if you haven't done so already. There's a wealth of information on how to optimize your finances and your life.

One post in particular comes to mind:

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Your savings rate is the key to everything after you payoff your debt. With a savings rate of 50%, you can retire in 16 years. Bump that up to a 64% savings rate and you drop early retirement down to 11 years.

I agree.   Save your ass off.  Invest like a crazy.  You're done by 55 and a multimillionaire.

[Maenad]

I guess I just feel like I'm so behind the game when I read about people in their 20s saving toward retirement and I have all this debt and barely have anything saved.

There's an oft-overused saying that is old hat in the FI communities but may be new to you: "Comparison is the thief of joy." All of us in our 40s can look back 20 years and think about what we should have done then and how much better we'd be doing now, whether it's financially, relationship-wise, our health, whatever. I think it may be part of the midlife crisis.

Don't beat yourself up. You've decided to live differently now, move on from here. (You're doing far better than my FIL, who is in his 70s and never learned to live within his means.)

The Investment Order thread is here: https://forum.mrmoneymustache.com/investor-alley/investment-order/  Keep talking, keep learning, keep asking questions. You can do this.

[Villanelle]

Rent/utilities/groceries" is a huge category.  I've lived in HCOL or VHCOL areas and managed to do better than that.  How much are utilities and groceries? How large is your home?

Also, you are missing a ton of categories.  (Eating out, clothing, travel, gifts...)  As was mentioned, do a case study.  Also, what are you total annual expenses.  Even if you don't track, it should be easy to figure out.  Take your income for each of the last two years, and subtract out however much you increased your savings by, then add the amount by which you credit cards increases. Clearly, you spent all the rest. Adding the For more useful info, you could subtract out what you paid for debt servicing.  So often, people list their expenses by looking and figuring out what they should be.  But when you compare that to salary, there is a huge difference, yet they haven't saved anything, so clearly they are missing expenses. 

[John Galt incarnate!]

I have to tell you that I'm one of the most financially illiterate people ever.

OP, methinks you are too hard  on yourself.

Some Mu$tachian$ were older and their finances worse than yours when they first came aboard.

You've come to the right place for advice and  comprehensive information about successfully managing your personal finances.

Welcome aboard and good luck!

[Barton20]

Thank you everyone for the advice and the warm welcome. I have posted it as a case study with extra details

https://forum.mrmoneymustache.com/case-studies/case-study-pay-off-debt-or-save-for-retirement/

[Loren Ver]

You got this Barton20!  Realizing you can correct course half way though is fantastic.  If you and your wife can pull as a single team you can really launch yourselves forward with awesome momentum!

Loren

[rantk81]

Do you need to be a 2-car-household if you take the train to commute to work?
Maybe consider selling one of the cars, and apply the proceeds (and savings on insurance/gas/maintenance/etc) toward the debt!

[DaMa]

HI, Barton20!
You've come to the right place.  The people here can help you figure out any financial issues.  Try not to get put out by the straight talk.  We all mean well.

I tell people all the time, it's not really about what you save, it's about what you spend.  If you're willing to make the changes, you can be to FI much sooner than you think.

Congrats on finishing school and getting the new job!  It took me 10 years to get my BS and start working, and we had a lot of CC debt and student loans, plus 3 kids, a mortgage, and a car payment.  I fired 23 years later. 
You can do it!

[roomtempmayo]

The problem is my parents never had much money and I never really thought much about financial freedom.

The book "Rich Dad, Poor Dad" does a good job of explaining the differences in class-based understandings of money that help the wealthy stay wealthy and contribute to the poor staying poor.  If you were raised by people who spent everything, it will very likely be useful. 

As others have said, with a household income of over $200k, you can knock this debt out in a couple years by changing your spending.  Your housing looks like the low-hanging fruit; even if you work in lower Manhattan you can find a nice place in Jersey or Queens for $2k or less.