Hello All,
I am new to ERE, I love the concept of it, and gradually adopting some of the principals to my daily life and finances.
What draws me to this lifestyle is developing a better relationship with money. Growing up, my parents had horrible personal finance, they were drowning in credit card debt. I have adopted some of their bad money management but am gradually learning how to manage it better.
I wanted to share the financial situation I am in, and I welcome any suggestions.
I am 30 years old and my SO is 32 (almost 33)
I make $150,000 a year, and my SO makes $35,000 a year. I know it's quite a disparity in income, although he just started his new job, so he should be getting a significant raise soon. I guess it really doesn't matter very much, but our take home pay after taxes, medical deductions, and retirement deductions is $9400. I realize that this is a significant amount of money, but I don't think I am managing it well at all. I have made some changes to decrease my spending over the past 6 months, so this is where I am now.
$2660 / mo mortgage, we took out a $400k loan on a $420k house 1.5 years ago, 30 year mortgage at 4.5%
$1000 / mo student loan payment (total student loan debt is $200,000) I am paying it back via the REPAYE program which caps the monthly payment at 10% of discretionary income, and I have filed for the public service loan forgiveness program which will forgive the unpaid amount after 10 years of payments (i have currently completed 1 of the 10 years )
$750 / mo in Utilities, cell phone, TV/Internet, car insurance
~ $650 / mo credit card debt (so this has to do a bit with my past poor decisions in money, I have $20,000 in credit card debt, 3/4 of it was used when we were saving for our down payment for our house. Long story short, I had to move across the country for a new job, we decided last minute that we wanted to buy a house but didn't have any money in savings, so we lived off of the credit cards and saved up our paychecks for 4 months for the downpayment. In hindsight we should have just rented...
$450 / mo car payment
With all of the expenses above, we should have approximately $4000 left over each month for food, gas, entertainment and savings, which we are actively saving $2,000 each month, which is a huge improvement from 6 mos ago, where we did not save any money each month
Anyway, this is our situation, it's not great, but it's better. I would love any suggestions that you may have.
Thanks for not being too judgmental
Amy
Hello from Minnesota
Re: Hello from Minnesota
Welcome! My DW is from Minnesota so this stood out a little bit.
That mortgage is the first thing you need to get rid of. At 4.5% on 400K your payments are mostly interest at this point, probably something like 60%! That is well over $1,000 / month wasted. Since it sounds like it was sort of an impulse purchase it may be easier for you to make the decision to move. Do you have any other housing options? I personally love owning a house and would never live in an apartment. If that's what you want there's nothing wrong with that but definitely look for something cheaper. I'd say under 100K if you can, located near public transit and biking options.
Also, how 'on the same page' are you with SO with finances? Working together makes it a lot easier.
What is the interest rate on your credit card? If you are paying more in interest than you are making from your savings you should stop putting money into savings until the credit card is paid off.
Having a very high salary like you have puts you in a great position compared to many on here. Its often easier to reduce expenses than it is to raise income so that's definitely the place to focus.
That mortgage is the first thing you need to get rid of. At 4.5% on 400K your payments are mostly interest at this point, probably something like 60%! That is well over $1,000 / month wasted. Since it sounds like it was sort of an impulse purchase it may be easier for you to make the decision to move. Do you have any other housing options? I personally love owning a house and would never live in an apartment. If that's what you want there's nothing wrong with that but definitely look for something cheaper. I'd say under 100K if you can, located near public transit and biking options.
Also, how 'on the same page' are you with SO with finances? Working together makes it a lot easier.
What is the interest rate on your credit card? If you are paying more in interest than you are making from your savings you should stop putting money into savings until the credit card is paid off.
Having a very high salary like you have puts you in a great position compared to many on here. Its often easier to reduce expenses than it is to raise income so that's definitely the place to focus.
Re: Hello from Minnesota
Welcome! It sounds like you have been in a hole, but are digging out slowly but surely.
I agree with cmonkey (must be because we both grew up in Iowa) that you probably have too much house, and would think about trading down, especially if you can do it without taking a financial hit or much of one. When DW and I were in your position, we lived in a house that cost about 1.2x our combined gross salary (at purchase), and that worked out pretty well, even after we stuffed a couple kids in it. You will also save a lot more in house-related expenses like utilities and insurance.
Car payment is out of control as well. Another item to trade down on if possible.
You can do this -- we had similar finances when we started out and were out of debt with substantial savings in about 8 years. But you have to make financial freedom a priority over lifestyle and be jointly committed to it and to each other. Right now it looks like you are probably living pretty much like your peers with similar jobs. A good rule of thumb to start is to spend half of what your contemporaries seem to be spending if that makes sense.
I agree with cmonkey (must be because we both grew up in Iowa) that you probably have too much house, and would think about trading down, especially if you can do it without taking a financial hit or much of one. When DW and I were in your position, we lived in a house that cost about 1.2x our combined gross salary (at purchase), and that worked out pretty well, even after we stuffed a couple kids in it. You will also save a lot more in house-related expenses like utilities and insurance.
Car payment is out of control as well. Another item to trade down on if possible.
You can do this -- we had similar finances when we started out and were out of debt with substantial savings in about 8 years. But you have to make financial freedom a priority over lifestyle and be jointly committed to it and to each other. Right now it looks like you are probably living pretty much like your peers with similar jobs. A good rule of thumb to start is to spend half of what your contemporaries seem to be spending if that makes sense.
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Gilberto de Piento
- Posts: 1949
- Joined: Tue Nov 12, 2013 10:23 pm
Re: Hello from Minnesota
I see a lot of places to cut. Are you trying retire early or just be more responsible? If early, how early?
I'd pay off the credit card. I'd also get rid of the car and buy a $5,000 to $10,000 car in cash. I'd also cut way back on the $750 per month utility/cell/cable/car insurance bill.
I'd pay off the credit card. I'd also get rid of the car and buy a $5,000 to $10,000 car in cash. I'd also cut way back on the $750 per month utility/cell/cable/car insurance bill.
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IlliniDave
- Posts: 3872
- Joined: Wed Apr 02, 2014 7:46 pm
Re: Hello from Minnesota
Welcome from a future Minnesota resident.
Your house and your debt level have you behind the eight ball. > 3X your gross annual income is a lot of debt. I've been in a similar boat and worked my way out of it enough to be in position to achieve early retirement, but not the extreme variety. It is a long process.
If you want to go the extreme route then you're looking at downsizing the house and probably trading down in cars, going super cheap for housing and transportation, and putting a lot of energy to paying off the loans and credit cards. $2,000/mo is a lot for food, gas, and entertainment (I'm thinking there's more in there than just those three items maybe?). Well, I guess you're stuck with the student loans if you are angling for the student loan forgiveness and your application is successful because you have to hang on to the loans for 9 more years to get any benefit.
If you just want to get on sounder financial footing, get the credit cards and car paid off ASAP. And avoid things like "last-minute decisions" to buy a relatively expensive house going forward (be deliberate). Get an emergency fund in place, and start investing on top of that.
A good thing to do would be to come up with some longer range plans for what it would take to achieve FI and when you want to achieve it by, then work the numbers backward from there, adjusting either the plan or your lifestyle costs as required.
Your house and your debt level have you behind the eight ball. > 3X your gross annual income is a lot of debt. I've been in a similar boat and worked my way out of it enough to be in position to achieve early retirement, but not the extreme variety. It is a long process.
If you want to go the extreme route then you're looking at downsizing the house and probably trading down in cars, going super cheap for housing and transportation, and putting a lot of energy to paying off the loans and credit cards. $2,000/mo is a lot for food, gas, and entertainment (I'm thinking there's more in there than just those three items maybe?). Well, I guess you're stuck with the student loans if you are angling for the student loan forgiveness and your application is successful because you have to hang on to the loans for 9 more years to get any benefit.
If you just want to get on sounder financial footing, get the credit cards and car paid off ASAP. And avoid things like "last-minute decisions" to buy a relatively expensive house going forward (be deliberate). Get an emergency fund in place, and start investing on top of that.
A good thing to do would be to come up with some longer range plans for what it would take to achieve FI and when you want to achieve it by, then work the numbers backward from there, adjusting either the plan or your lifestyle costs as required.
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
Re: Hello from Minnesota
So your saving rate is $2k of $9.4k per month = 21%. Therefore it takes you 5 months of work to have 1 month of expenses saved. To have a year's worth of expenses saved, it will take you 5 years.
To the old standard of "save 10% of your income", you're doing outstanding... to the modern standard of "save 20% of your income because there won't be social security and you can't count on pensions", you're on target and avoided being in the poorhouse by having a wake-up call. However, to the standard of "become financially independent so employment is a choice", you're at half-speed, at best.
Doubling your savings rate will do wonders, but the debt is dragging you down. Get 1 month of expenses saved and concentrate on killing the credit card debt. Sell the car, trade down, whatever it takes to get those payments cut in half. Cut the home expense in half, maybe take on roommates instead of trading down. Live close to work if possible so your commuting expenses & time are minimal.
Shop around for a better mortgage as 4.5% interest rate is high unless you bought a condo. If home prices have escalated in your location in the past 1.5 years, see if you can get the lender to remove PMI due to increased equity.
$200k student debt and $150k income and PAYE tells me you're a doctor likely working for VA?
To the old standard of "save 10% of your income", you're doing outstanding... to the modern standard of "save 20% of your income because there won't be social security and you can't count on pensions", you're on target and avoided being in the poorhouse by having a wake-up call. However, to the standard of "become financially independent so employment is a choice", you're at half-speed, at best.
Doubling your savings rate will do wonders, but the debt is dragging you down. Get 1 month of expenses saved and concentrate on killing the credit card debt. Sell the car, trade down, whatever it takes to get those payments cut in half. Cut the home expense in half, maybe take on roommates instead of trading down. Live close to work if possible so your commuting expenses & time are minimal.
Shop around for a better mortgage as 4.5% interest rate is high unless you bought a condo. If home prices have escalated in your location in the past 1.5 years, see if you can get the lender to remove PMI due to increased equity.
$200k student debt and $150k income and PAYE tells me you're a doctor likely working for VA?
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Mimimoon02
- Posts: 4
- Joined: Sat Feb 13, 2016 9:38 am
Re: Hello from Minnesota
Thank you all for the sound advice. I would like to retire early, perhaps in 15 years, or at the very least work part time. I do work in the medical field, and have realized that I don't really enjoy working with patients. I am going to focus my efforts on paying off the credit cards first. I do realize that I need to make significant changes if I want to achieve my goal of retiring early, but I think I am going to have to do it gradually. I think we are going to stay in our house for a few more years, we really like it, but will down size. We will work on reducing our monthly bills and miscellaneous expenses such as clothing and outdoor equipment.