Newbie: Allocation of resources, What to do?

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Newbie: Allocation of resources, What to do?

Postby LadyLopez » Fri Dec 28, 2012 6:25 pm

Hi!

Here's the situation:

Newlywed couple in our late 20s with newly joint finances. I handle the finances for the most part, and need some guidance.


Myself:

$50k annual salary
$2600 monthly take home
$8.5k student loans
-at 4.5% (consolidated)
$15k credit card debt
-$12k at 13.9%
-$1.7k at 0%
-$650 at 0%

Him:
$100k annual salary
$5300 monthly take home
$90k student loans
-$66.5k at 6.8%
-$10.5k at 8%
-$5k at 8.25%
(all unconsolidated up to this point- Sore topic, but we are working on it-)
$3k credit card debt
-$1.8k at 17.25%
-$1.2k at 0%

Monthly expenses:
$2.1k in rent
No car loans
Minimum payments on the CCs: $500
Student Loan Payments: $1042
Other Needs: $1.2k a month (gas, utilities, etc)


I'm looking to return to school for my Masters (waiting for interviews), but I desperately want to get back to the green in terms of at least our credit card debt. If I do, however, I will be accruing just as much student loan debt as he has currently.

I need to know what to focus on over the next year as to what to pay down, what to focus on, and what to do.

We have an emergency fund set aside as well, which is not accounted for in the layout, but is around $2k.

We are putting away savings as well to buy a home in the near future, but only have a thousand and change set aside as well.

I need guidance as to what to focus on first, and what is the best way to put money to the best use.


Thanks in advance!

LL
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Re: Newbie: Allocation of resources, What to do?

Postby DiscoBunny1979 » Fri Dec 28, 2012 7:01 pm

First I'd like to congrat you on your marriage, but I have to throw out some caution. While married folks in the most optimal world setting would like to view all things as equal property . . . the comment:

LadyLopez wrote:but I desperately want to get back to the green in terms of at least our credit card debt


Debts before marriage, money earned before marriage, property obtained before marriage is often viewed as being owned by the spouse that acquired the debt or earned the money. Therefore, be careful, on both your parts, on considering 'debt' to be a joint obligation. You are responsible for the debts you incur, He's responsible for the debts He incurs, unless they are jointly obtained debts. This is true especially in community property states.

The reason I bring this is up is that if you intend on having as much debt as He does, then that debt, even if you're 'married' does not necessarily mean that He's responsible for your debt. It's true that you might pool your funds. That's because anything 'earned' during marriage can be considered community property in many states. But Your debt might not be considered a joint debt, unless both of you have agreed that it is a joint debt...such as signing a pre-nup or some kind of agreement.

This is an important detail because while marriage is a great thing, over 50% of marriages end up in divorce and therefore, what is 'community property' should be written and agreed to ahead of time before the 'need' for a divorce lawyer. This also goes for debts acquired before marriage in which you'd like to pool current income that's joint community property to pay for debts that might be considered the debt of spouse that incurred the debt. So, you might want to agree in writing that all debts prior to marriage is community debt and to be paid from community property funds. Just a thought.
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Re: Newbie: Allocation of resources, What to do?

Postby pkcrafter » Fri Dec 28, 2012 8:54 pm

Welcome LadyLopez. It appears you may have some issues that will cause problems if not addressed right away. But you are here now, and that's correct move No. 1. Comments below

LadyLopez wrote:Hi!

Here's the situation:

Newlywed couple in our late 20s with newly joint finances. I handle the finances for the most part, and need some guidance.


Myself:

$50k annual salary
$2600 monthly take home
$8.5k student loans
-at 4.5% (consolidated)
$15k credit card debt
-$12k at 13.9%
-$1.7k at 0%
-$650 at 0%

Him:
$100k annual salary
$5300 monthly take home
$90k student loans
-$66.5k at 6.8%
-$10.5k at 8%
-$5k at 8.25%
(all unconsolidated up to this point- Sore topic, but we are working on it-) <--Whatever the issue is, work it out now. Money problems are the NO. 1 cause of failed marriages, so don't get into that trap. Take care of CC dept immediately, then the highest rate loan debt next.

$3k credit card debt
-$1.8k at 17.25%
-$1.2k at 0%

Monthly expenses:
$2.1k in rent
No car loans
Minimum payments on the CCs: $500
Student Loan Payments: $1042
Other Needs: $1.2k a month (gas, utilities, etc)

Ok, it sounds like you have about $7900 coming in and about 4800 going out per month, but it sounds like this does not account for home savings, so you need to add that.


I'm looking to return to school for my Masters (waiting for interviews), but I desperately want to get back to the green in terms of at least our credit card debt. If I do, however, I will be accruing just as much student loan debt as he has currently.

I need to know what to focus on over the next year as to what to pay down, what to focus on, and what to do.

I think you absolutely need to get rid of the CC dept, now. And don't let it accumulate again, ever. Live within your means. See link.

http://www.bogleheads.org/wiki/Getting_Started

Next issue, do you have any retirement accounts through work? You will need to establish funding for your future as soon as you can to get the maximum benefit from long term asset building and compounding. Pay yourselves monthly.

We have an emergency fund set aside as well, which is not accounted for in the layout, but is around $2k.

Good, but needs to be a minimum of 3-4 months of basic monthly expenses.

We are putting away savings as well to buy a home in the near future, but only have a thousand and change set aside as well.

Good, but you need to incorporate this into your monthly plan along with savings and paying down student loans. Writing down a plan will help you focus and achieve your goals.

http://www.bogleheads.org/wiki/Paying_down_loans_versus_investing

http://www.bogleheads.org/wiki/Investment_Policy_Statement


Paul


Thanks in advance!

LL
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Newbie: Allocation of resources, What to do?

Postby bdpb » Sat Dec 29, 2012 12:04 am

LadyLopez wrote:I need to know what to focus on over the next year as to what to pay down, what to focus on, and what to do.

We have an emergency fund set aside as well, which is not accounted for in the layout, but is around $2k.

We are putting away savings as well to buy a home in the near future, but only have a thousand and change set aside as well.

I need guidance as to what to focus on first, and what is the best way to put money to the best use.


Where are your assets? How much are you saving?

You need a larger EF.
If you really have no other assets and no current savings you need to cut spending significantly. Cut up the credit cards and live on cash only. It looks like you may not be accounting for all of your spending.
Skip the thoughts about buying a house until later. Pay off your debts, complete your Masters and when you have kids, then plan for a house.
Pay off the debts. Highest rates first.
Borrow against your cars at PenFed for around 2% to pay off the debts.
Do either of you have a 401k at work with with matching contributions? If so, consider saving in 401k to capture the match.
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Re: Newbie: Allocation of resources, What to do?

Postby LadyLopez » Mon Dec 31, 2012 12:20 pm

Thank you for your input.

We are working on our 401Ks, but as of right now I don't have information to share other than we have it, we have matching, and we are putting money in it.

I did a bit more ground work, and found out that we CANNOT consolidate his student loans without making it worse (9-12%+), so we are going to have to stick that out.

The monthly expenses did not completely account for everything, as I have been rifiling thru our data to get averages. Things have changed significantly since the wedding, so having reliable data to share has been difficult. (Utilities and other costs have changed, etc...)

I use Mint to track our spending, and have looked into other avenues as well.

We have decided to put the money in the house savings to pay off another credit card, and work our way into aggresively attacking that debt first, and then the student loans.

The house situation is not a priority at this time, unfortunately.

The money that goes into the house fund will be shuffled into the Emergency Fund to pad it more as well.
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Location: Southern California


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