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 Post subject: Finally getting serious about money
PostPosted: Sun Aug 24, 2014 5:09 am 

Joined: Sun Aug 24, 2014 3:19 am
Posts: 14
I am 35 with a wife (age 36) and two kids (age 2&3). I am finally getting myself worked up about getting our finances in order. I have been keeping speadsheets with our expenses and recently signed up with Mint.com. This month, we finally took action and made some major lifestyle changes to cut out spending and start paying down debt.

Cut out cable, cut out coffee (starbucks), cut out house keeping, cut out gym membership, stopped eating out, made a list and shopped with coupons. Finally we are starting to change our behavior and throw every extra penny at our debt and savings.

For some background:
I work full time and my wife works part time (2/3rd time) Our joint AGI is ~$230k per year.
We have a $500k house with 12 years left on a 15 year note, $296k balance. Payment is $3186 per month
We each have good, relatively stable jobs that both have a 401k and pension plan. With IRA's, we have roughly ~$310k in combined cash value towards retirement savings.

We have $1000.00 in emergency fund savings.
We have $110k in debt - $65k HELOC at 5.38% variable rate, $10.8k student loan at 5.69% interest, $34k student loan at 2.9% interest.

If I had to give myself an overall score for personal finances, I would give myself a F or a D. Quite honestly, it is sickening that we are not much better off than we currently are. Both of us could be retired by now had we made different financial decisions in the past. I am still trying to make peace with my financial past. I have made some truly horrible decisions over the years. But you know, the past is the past, all you can do is learn from it and keep moving forward as best as you can. We are extremely fortunate to have equity in our home, some retirement savings, good paying jobs. Still it is a horrible feeling to still have all of that and still for all intents and purposes living paycheck to paycheck.

So long as we keep throwing money at our debt, we should be debt free (except for 1st mortgage) by Jan 2016 and have a good emergency fund set up by Oct 2016.

Our cars are "paid for" in the sense that we have the titles in our office. Seriously considering selling them to help pay down our debts. We could probably get ~$40k for them and get a couple beaters to drive until we get our finances together.


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 Post subject: Re: Finally getting serious about money
PostPosted: Sun Aug 24, 2014 5:24 am 

Joined: Mon Jun 30, 2014 5:28 am
Posts: 159
You seem like you are in a pretty good position mentally and financially. I can't imagine the lifestyle you lived previously if you have that much debt on that income. Wowza.

Looking forward to seeing your progress.

Do you maximize retirement accounts? Do you have a written budget?


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 Post subject: Re: Finally getting serious about money
PostPosted: Sun Aug 24, 2014 6:11 am 

Joined: Sun Aug 24, 2014 3:19 am
Posts: 14
Frequent trips to Vegas, Mexico, Europe among other places kept me from getting out of debt.

Then gambling with stocks and stock options helped me make and then lose sizable amounts of money over the years.

I have a 7% contribution to a 401k with a 100% employer match. I need to look into my wife's plan and see exactly what the defined contribution part of her retirement consists of. I am sure there is room for increased contributions, now that she is down to 2/3rds time.

It is really hard to get wealthy. I have always had money come easily to me. Not to say I was spoiled. We were broke growing up. I never had any trust funds or inheritance. Nobody gave me anything. But still, I have always seemed to end up with an exceptional amount of money coming in. Holding on to that money and putting it to work for me has been my undoing.

And I go back and forth with it. It is still a struggle everyday. I want to buy toys. I still want to go on trips. I want to sit down with $10k and play blackjack for 36 hours straight at a casino (haven't done that for 7 years! thankfully my wife hates gambling).

The bad (scary) part is, I can rationalize doing it too. My aunt worked and saved her whole life. A year before retirement, boom, Leukemia. Dropped dead in 7 months. So how did all her saving and skimping work out? That is my total spendthrift side talking. That has been what has been holding me back over the years, suppressing my militant, frugal saving side.

At the end of the day, I just want to have a better balance. Financial security and independence first and then hopefully time to indulge down the road.


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 Post subject: Re: Finally getting serious about money
PostPosted: Mon Aug 25, 2014 8:13 pm 

Joined: Sun Aug 24, 2014 3:19 am
Posts: 14
I did some checking. My wife is part of a 401(a) supplemental annuity plan defined contribution through the state. She puts in 6.13% and the state matches 6.13% for a total of 12.26% contribution instead of contributions to social security. She is invested in the default option, which is a blended mutual fund (60/30/10 stock/bond/cash) that has returned ~6.7% since inception. First order of business is to put her in a glide path or 'target date' fund, the 2045 fund produces ~14% average return since inception. I don't think she is able to put more in that account, but if she can, she will.

I jacked my 401k contributions from 7% up to 15%. Getting the full match is great, but I need to be maxing out the 401k every year. I am really kicking myself for not being more aggressive with saving over the past 10 years. There is no way to make that time up, except painful hyper-savings now.

Our original plan was to pay off all debt as quickly as possible, build an emergency fund, then max out retirement investments.

After doing some more research and thinking about it more, we are going to pay off the $11k we owe on the student loan with 5.69% interest first, this should be done by the first of October. Getting our total debt under $100k will be a good first goal. After that we really need to get our tax advantaged retirement savings into high gear.

Our remaining debt is a SL for $34k and a HELOC for $65k. Since the rate on the SL is only 2.9% and the interest on the HELOC is 5.38% (and deductible for the first $100k) our plan is to try and make $11k in IRA contributions before the end of the year for 2014. At the beginning of 2015, we would like to get our IRA contributions in quickly as well. From that point, we plan on aggressively saving for a ~$40k emergency fund.


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Aug 26, 2014 7:51 am 

Joined: Tue Jan 22, 2013 6:09 pm
Posts: 80
It sounds like you're on the right track, primus. By focusing on retirement savings at the same time you're tackling debt, you aren't following the advice of most financial gurus, but your debt to income ratio isn't terrible even though your debt it in the six figures. I think your plan is smart, and you've clearly thought it through. Best of luck!


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Aug 26, 2014 8:11 am 

Joined: Mon Jun 30, 2014 5:28 am
Posts: 159
Quote:
We could probably get ~$40k for them and get a couple beaters to drive until we get our finances together.


If I could sell 2 hunks of metal, buy two new hunks of metal and clear 25-30k, I would do it. Especially considering they will be worth less and less as time goes on. Cars are like melting ice cubes, the value goes away so quickly. Especially considering you have 400k in debt.


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Sep 09, 2014 1:26 am 

Joined: Fri Sep 05, 2014 2:32 am
Posts: 4
Your plan sounds really tough, but with all that calculating I think you will do it. I imagine it's really hard to minimize the costs from one day to the next and have a smaller living standard. Good luck!


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Sep 09, 2014 8:24 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 2105
Nowhere in all this is a long term plan. Where do you want to be (financially) in 10 years? 20 years? 30 years? What you need to do is to figure out where you want to go first. Then you can formulate a plan to reach your goals.

Some thoughts about what I've seen so far:

You make a sizable chunk of change. Yes, I agree that you should be further along than you are given your income, but you're still young and have plenty of time to dig yourself out. The thing is, your current plan is only going to work out if you're disciplined and borderline obsessive. You're moving from feast to famine and already struggling. I've seen tons of folks start out with guns blazing and then they kind of drop out and we never see them again. If I were you, I'd go cold turkey on the luxuries for 6 months (just to prove to yourself that you can live without that stuff), then ease a little fun money back into your lifestyle, or you might wind up doing some binge spending. The key is to budget for the fun stuff. That way you have limits on your spending but when you do spend, you can do it without a lot of angst and guilt. Maybe budget in 5% of your income for non-essentials and ramp it up to 10% after you've paid off all your debt.

As for paying down the debt early...I think it depends. There's a lot to be said for being debt-free, especially if you have jobs that aren't secure. However, if job security isn't an issue, I'd consider ramping up the 401(k) savings before pre-paying the debt. Think it through: you're paying 3-6% on your debt. Whatever you put into your 401(k) you get back taxes at your marginal tax rate (33% for the Federal income tax, more if you live in a place with a state income tax). That doesn't even take into account the tax-deferred growth you'll have in that money for whatever you invest in. If I were in your shoes, it'd be a no-brainer as to where I'd be putting my money.

You'll also have to think about having an account in a non-retirement account if you want to retire early. After all, you'll have to have something to live on while you wait for Social Security and your retirement accounts to be accessible.

In short, figure out where you want to be, create a plan on how to get there, have a backup plan in case things go south, and in the meantime, live a pleasant life. Some people can't afford that. You can. Money is for spending, either now or later. Just keep in mind that the earlier you want to retire, the more you have to save. It's not a sacrifice -- it's a conscious decision to put your money in a place that helps you achieve your goals. Somewhere there's a balance between "now" and "later" for spending your money. That balancing point is different for everyone. You'll have to figure out where yours is.


Last edited by VinTek on Tue Sep 09, 2014 9:16 pm, edited 1 time in total.

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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Sep 09, 2014 8:55 am 
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Joined: Thu May 17, 2012 10:05 am
Posts: 1183
primus wrote:
At the end of the day, I just want to have a better balance. Financial security and independence first and then hopefully time to indulge down the road.



Hey Primus! Welcome to the forums. Seems like you are on the right track. Here’s a summary of your situation…

Income:
$230k per year

Assets:
1k Emergency Fund
500k house
310k IRA & 401ks

Liabilities:
296k Mortgage 15 year note at what interest?
65k HELOC at 5.38% interest
10.8k Student Loan at 5.69% interest
34k Student loan at 2.9% interest

A. E-Fund
The most glaring thing I notice is the 1k e-fund. You make over 19k a month. I’d seriously beef that up before tackling the debt don't you think? If you have an emergency you want to be prepared.

B. Budget
What does your budget look like? You could share it with us so we could help you see what could be cut.

C. Expenses
How much are you spending a month? How much did you spend in August 2014? Have you considered using http://www.mint.com to track your spending? Many people on here on the SA site recommend it. We have used it for about 5 years now.

D. Long-Term Plan
I do agree with VinTek you need a long-term plan. When do you plan to retire? How much do you think you’ll need to retire comfortably? Do you plan on saving for your kids education?

_________________
~ Eagle
www.eaglesoaringhigher.com


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Sep 09, 2014 9:18 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 2105
Hmmm...the OP hasn't been here in over a week. I wonder how serious he is.


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 Post subject: Re: Finally getting serious about money
PostPosted: Tue Sep 09, 2014 11:20 pm 

Joined: Sat Jul 19, 2014 10:16 am
Posts: 47
VinTek wrote:
Hmmm...the OP hasn't been here in over a week. I wonder how serious he is.



:D Making 230k a year is there much to worry about?


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 Post subject: Re: Finally getting serious about money
PostPosted: Wed Sep 10, 2014 5:27 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 2105
Wallygator wrote:
VinTek wrote:
Hmmm...the OP hasn't been here in over a week. I wonder how serious he is.



:D Making 230k a year is there much to worry about?

Good point. But then, he was worried enough to post in the first place. I know a lot of folks who make a lot of money...and who still spend all they earn.


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 Post subject: Re: Finally getting serious about money
PostPosted: Thu Jun 25, 2015 2:43 am 

Joined: Sun Aug 24, 2014 3:19 am
Posts: 14
Haven't logged in quite a while...

Update since last August:

Things never go quite as planned. My militant debt payoff strategy didn't take off like I had hoped. My wife and I discussed it quite a bit and we decided to focus more on saving / investing rather than just heaving away at our debt. The interest rates are not huge and the cash flow gained isn't enormous either, but I think we are going to pivot this direction towards paying them down this fall.

So as it sits today:

$279k in mortgage @ 3.62% with just over 10 years remaining on the 15 year note. Payment ~$3150 per month
Still have $33k on a 2.6% interest rate student loan - $200 per month
$8k on a 5.6% interest student loan - $270 month
$64k at 5.37% variable interest on a HELOC. $360 per month

In the past year, my wife added $300 per month to her work sponsored 401k plan (in addition to her defined benefits plan(s). We have socked away ~$30k in savings, and an additional $10k that will be used for a family vacation this fall. We have also contributed $8k last year and $4k so far this year into our IRA's.

As far as long term plans, I really have no desire to have a line in the sand as to when I quit working. My work schedule allows me plenty of time off so I feel like I am already semi-retired. At this point the kids are both still young so we have also started small 529 accounts for their college. We both would like to save up a down payment for a small rental home and build wealth that way.

Really glad I came back to this site and read through and I never did get a chance to thank you guys for the comments... very good wisdom there. We still lack a lot of structure toward our long term goals. One habit that has started to stick is budgeting and developing some cheap hobbies. When we look to buy something, we always wait a week or so before buying and if it is over $200 we have a discussion about where the money is coming from. I have also started to work on my cars myself to save some money. The tools cost and it certainly takes more time to do some of the stuff I want to do, but it is a fun hobby and really quite a bit cheaper hunting for parts on craigslist and at the junk yard and installing them myself rather than taking them to a shop.


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 Post subject: Progressing ...
PostPosted: Sat Jul 04, 2015 7:25 am 

Joined: Fri Jul 03, 2015 7:18 pm
Posts: 9
Good progress. You don't have to be militant, just persistent, and careful to plug leaks before they grow and slow you down.

While I still had debt, I put half of excess to investment and half to debt-paydown, a la David Bach's "Automatic Millionaire" advice. I didn't automate those, so I could switch to all one or all the other, depending on my wife's level/direction of discomfort that particular month.

Did you get around to replacing one of the cars? That would knock out the $8k loan, and bump the emergency-fund -- along with lowering the monthly nut by $300+. Seems like a good quick win to consider. Your change in numbers suggests to me that'd be enough to unleash the snowball of debt pay-down.

Remember to keep a good lid on the "hobby" expenses, and pare down other expenses too. The lower your monthly nut, the longer the emergency fund can last, and the quicker you can melt your debts. It works well, let me tell you. 8)

-- jrb3


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