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 Post subject: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 8:43 am 

Joined: Wed Oct 03, 2012 8:22 am
Posts: 5
I'm new to the forums- was a member on Dave Ramsey's forum but didn't use it enough to warrant the membership fee. Here's my story as to where we came from and where we're at - feel free to comment and keep us motivated on the last leg of what seems like an eternity sometimes...

My wife and I got married at 28 (3 years ago) with $170k in combined student loan debt. We both made about 90k a year (her a nurse, me in medical sales). We had just purchased a $420k house on a 30 year fixed at 4.25% - a home that was valued at $760k just 2 years previously, our dream house. Why we purchased a 4,000 square foot house with that much student loan debt is beyond me looking back, but it's a home we'll pay off by our early forties and stay in for years after.

Once we realized we'd NEVER afford kids with that mortgage AND student loan payments requiring a minimum payment of over $1200 a month we got serious. My family was very conservative with money - paid cash for everything, hers was the opposite. Getting on the same page was tough (and getting BACK to the teachings of my parents). We budgeted, got frugal in every area we could, and over the next 2.5 years paid off over $120k of that debt while also refi'ing the house to a 15 at 3.25% (who wants a payment for 30 when you can get it over with in 15!?), getting a new job that pays closer to $150k (me) and still finding room to have some fun and furnish our home.

Well our goal at the start of 2012 was to have these debts done by the end of this year - this year has been a slippery one. Seems as we have gotten closer to our end goal it's gotten harder to stay focused and finish it out. We had a pretty big landscaping need come up (water drainage issues on our sloped lot) that took us back almost $10k. We purchased my family's boat from my parents after they considered selling it as we're the only ones that use it these days (is what it is - the cheapest boat I'll ever own out right and a complete bargain, but nonetheless money that could have gone on our student loans. It's the source of all of our childhood memories). Now - it's October and we still have $44k left. I have a HUGE commissioned order coming in this month and next that should set us up to still hit our goal of being down to just a mortgage by the end of December (or close).

I'm trying to figure out what to do next once these loans are gone and we have a nice $5k surplus a month moving forward. We did the math and can pay off our home by about 40 instead of 45 by adding $1k a month towards it. We also want to have kids sooner than later, which at that point my wife will go from making 80-90k a year to making about 25-30k a year with few shifts a month. My thought is immediately build up a 6 month savings cushion for "life". Moving forward, each winter max out our ROTH's, take the remaining amount and put 50% extra each month towards the house, and 50% towards future purchase needs such as vehicle replacements and so forth.

What are your suggestions? Where do we begin? It's funny - the light at the end of the tunnel still seems a bit far off but with it getting closer we could use some guidance on where to go next.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 9:34 am 
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Joined: Mon Jun 23, 2008 6:54 am
Posts: 636
I always begin with a balance sheet. Do I understand correctly that right now you have virtually no investable assets of any kind (cash, stocks, bonds), a home valued around $420k, and somewhere around $450k of debt.

And then you earn $240k/year? How much is that after taxes?

Finally, what do your annual expenses look like? Based on your projected surplus of $60k/year once the student loans are eliminated, it sounds like you are spending upward of $100k/year...

Tim


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 10:16 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I think the missing aspect is, what are your goals? do you want to work straight into the grave? do you want to party now and eat cat food later? do you consider retirement age to be the same what SS tells you it is? do you want to retire early? how many kids? etc

We all have goals. As people at work jab me for "brown bagging it," my response is always, the money gets spent one way or another. And my money gets spent the way I want my money to get spent. And you should do likewise.

So, my suggestion would be that you and the Mrs sit down together and discuss what you want to do, how you want to do it and when. You had a goal of decreasing debt, and you seemed to have done pretty well with that. But, what is it you want short-term, long term etc?

I've shared this quote on here before, but it is especially applicable to you on many levels. "growth for growth's sake is the ideology of cancer."

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 10:23 am 

Joined: Fri Jul 29, 2011 8:38 am
Posts: 195
Sounds like you are doing great with paying down your debt!

Do you have an emergency fund? How about retirement savings? You don't want to get so wrapped up in paying off your mortgage that you ignore savings. With your income, just maxing out Roths each year is probably not enough to be preparing for retirement.

I agree with Bichon, I think it will be easier to plan when you know what your goals are.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 3:26 pm 

Joined: Wed Oct 03, 2012 8:22 am
Posts: 5
Thanks for the kind replies.. we have about 150k in 401k so far and under $10k each in each of our IRA's. We held off on contributing more to try and more quickly finish our student loans off. I know so much of it is behavior/habit so limiting our investments while (in the short term) we make ... quintiple payments on our student loans seems ok. We keep an emergency fund of 3 months of bills just to be safe but want to obviously immediately increase that to 6 months once we finish this winter. I guess the big thing is having kids - that's what drove us to put off lavish vacations, dinner and drinks with friends a couple nights a week, and having to have everything NOW versus waiting. Our fixed bills are still quite high though given our house is on a 15. Part of me wants to leave it on a 15 as long as we can knowing if incomes change we can always refi back to a 30 and we've at least made 2-3x the progress on our principal as we would have on the 30. It's a bummer we had the debts we had but it's sure going to feel great when those loans are gone!


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 3:31 pm 

Joined: Wed Oct 03, 2012 8:22 am
Posts: 5
timwalsh300 wrote:
I always begin with a balance sheet. Do I understand correctly that right now you have virtually no investable assets of any kind (cash, stocks, bonds), a home valued around $420k, and somewhere around $450k of debt.

And then you earn $240k/year? How much is that after taxes?

Finally, what do your annual expenses look like? Based on your projected surplus of $60k/year once the student loans are eliminated, it sounds like you are spending upward of $100k/year...

Tim


I get hosed on my income as it's almost entirely commissions - I pay almost 50% to the wonderful government (that I'll never see back once I retire, let's be honest). Our bills before food/entertainment money and "slush" money are about $4500, and average take home per month for us is about $11,500. We budget for $6,000 with the above categories leaving us a solid $5500 a month in student loan bills on an "average" month with some months being better and others being worse. Usually only a give or take of 10-15%.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 4:45 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1609
Location: Seattle, WA
adampdx wrote:
I get hosed on my income as it's almost entirely commissions - I pay almost 50% to the wonderful government (that I'll never see back once I retire, let's be honest).


Commissions are taxed the same as any other wage income. You seem to have confused withholding with tax due. It's a common error.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 4:54 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
adampdx wrote:
\was a member on Dave Ramsey's forum but didn't use it enough to warrant the membership fee.


DR charges a membership fee? Wow, if I didn't think he was a scumbag before I sure do now.

Adam, it sounds like you really have your act together and are making solid progress. I don't think you would beat yourself up by having a little fun buying a boat and such.

I am curious about a few things you said though. You suggest that you pay higher taxes on your earnings because they are commissions. I don't see why that would be so. Maybe I am missing something.

I also think that, because of your income, you and your wife probably are not eligible for any kind of IRA, at least a deductible type. And I would avoid nondeductible and roth contributions if you expect you income to remain fairly high because you'll likely end up with orphaned accounts that are more trouble than their worth. You should though be contributing as much as possible to 401(k) plans you might have available.

At this point, what is your total remaining debt load?


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 6:35 pm 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1141
Location: Illinois
Perhaps his commissions are considered self employment income? If so, he pays both sides of the payroll taxes, and thus a higher rate than regular employees*


*Without getting into the discussion of whether those employees effectively pay the employer's side of the taxes through lower wages


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 7:23 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1609
Location: Seattle, WA
bpgui wrote:
Perhaps his commissions are considered self employment income? If so, he pays both sides of the payroll taxes, and thus a higher rate than regular employees*


Maybe... but then wouldn't the rest of his income get taxed that way as well? I can't imagine a company getting away with paying wages with a w-2 and commissions with a 1099. So either way, the assertion remains true that commissions are taxed the same as other wage income.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Wed Oct 03, 2012 7:32 pm 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1141
Location: Illinois
stannius wrote:
bpgui wrote:
Perhaps his commissions are considered self employment income? If so, he pays both sides of the payroll taxes, and thus a higher rate than regular employees*


Maybe... but then wouldn't the rest of his income get taxed that way as well? I can't imagine a company getting away with paying wages with a w-2 and commissions with a 1099. So either way, the assertion remains true that commissions are taxed the same as other wage income.

Yes. My guess is his statement wasn't clear and all his income is taxed at the higher rate. assuming my guess that it is self-employment income is correct.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Thu Oct 04, 2012 7:26 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Re:kids. If you want them, don't delay. Waiting until everything is perfect will have you dead before you have kids. If you want them, get to work. Some people just look at each other and boom they're pregnant. Others, it can take a year or more. People raise kids in much worse circumstances and significantly less money than the OP presents.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Thu Oct 04, 2012 7:37 am 

Joined: Wed Oct 03, 2012 8:22 am
Posts: 5
I should rephrase a bit on the commissions - my company classifies them as a "bonus" just like my previous company so they're typically taxed at a higher federal rate. Then you throw on our wonderful income tax in Oregon of 10.8% and they get right up there. I do however see some of it back in the spring but on actual payday last I checked it was about 44-46% in taxes up front. Awesome since my base salary is about 10% of my annual income.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Thu Oct 04, 2012 7:51 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1141
Location: Illinois
adampdx wrote:
I should rephrase a bit on the commissions - my company classifies them as a "bonus" just like my previous company so they're typically taxed at a higher federal rate. Then you throw on our wonderful income tax in Oregon of 10.8% and they get right up there. I do however see some of it back in the spring but on actual payday last I checked it was about 44-46% in taxes up front. Awesome since my base salary is about 10% of my annual income.

Bonuses aren't taxed at a higher rate. They just have different withholding requirements which usually cause more to be withheld, but you get the overage back when you file your taxes.


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 Post subject: Re: Our bumpy journey, my introduction to the forums...
PostPosted: Thu Oct 04, 2012 8:45 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
or you can adjust your # of exemptions on the w4.

Have you actually calculated your effective tax rate? I'm skeptical you're paying the rate you think you are. My income is similar to what your household brings in and with payroll taxes, I'm at about 21% on the federal side. Understanding everyone's tax situation is unique...

You may bitch about the state income tax, but you also have no sales tax in Oregon. And you need to look at property taxes as well. I used to live in Texas and I owned a 2000 sq ft home on a 25'x130' lot. Property taxes were over $6500/yr and sales tax was 8.25%.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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