How're we doing?

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brownie1022
Posts: 14
Joined: Fri Jan 06, 2017 1:40 pm

How're we doing?

Postby brownie1022 » Fri Jan 06, 2017 3:10 pm

My wife and I are in a transition phase: we got married a few months ago, she started a job a few weeks after the wedding, we're saving for a house (fall '17 goal) and plan on starting a family shortly thereafter. We'd like to sort out finances as much as possible, and I feel like we're behind the 8-ball especially with her student loans just kicking in now--hence coming here for help :)

For the next ~8 months we plan on pumping everything (after expenses, of course) into savings for a house, which should get us into the 20% down range. I'm still maxing out 401k in the meantime and putting $400 a month into a pre-tax HSA investment.

Debt:
HER $127K student loans @5.3%
HIS $9K student loans @3.25%
$23K car loan @0.9%
--monthly debt ~$1,900

Tax Filing Status: married filing jointly
Tax Rate:
Federal 28% but will be 33% in 2017
State 5.1%
State of Residence: MA

Age:
HER 29
HIM 36

Current retirement assets
HIS 401K ($84,000) - 3% company match, +2% pension contribution, max out yearly contribution
30% Large Cap Stock Index Fund (.01%).
20% International ACWI Ex-US Stock Index Fund (.05%)
13% Small-Mid Cap Stock Index Fund (.02%)
7% Aggregate Bond Index Fund (.02%)
5% Core Plus Fund (0.15%)

HIS HSA Investment Acct ($1,800) - recently opened;
1% Vanguard Total Stock Market Index Fund (VTSMX) (0.16%)
1% various other funds (ANFFX, DGAGX, GABAX, NAESX)

HER Roth IRA ($8,700) - not contributing currently, we'll start contributing to the max once the house purchase is made
8% Fidelity Freedom 2040 (FFFFX) (0.77%)

HER Brokerage account ($17,500) - we plan on closing this into a savings acct and using the funds for our emergency fund
8% BlackRock Global Allocation Inv C (MCLOX) (1.82%)
7% Ivy Asset Strategy Fund Class C (WASCX) (1.71%)

Questions:
1. We have no true 'emergency fund', just the savings for the house. I hate the brokerage acct she has (opened five years ago, 0.85% annualized return, high expense ratios, high portfolio turnover). My idea is to close that into a savings account as our emergency fund (would amount to ~5 months) - does that make sense?
2. Would you change the asset allocation? I think this is a fairly typical AA for our age and aside from the brokerage acct they're all in low-expense funds.
3. We contributed nothing to the Roth IRA in 2016. Would you put the max into her Roth IRA (after this year we'll be above the contribution limit), if it meant sacrificing some house savings (i.e. might not hit our 20% down payment target in time)?
4. General thoughts...we have a ton of debt, and are just starting into the real expensive stuff - mortgage and kids. It is what it is, can't fix what's been done but do you have any recommendations on what we're doing/where we're investing/where we are?

Thanks in advance!

hawkfan55
Posts: 174
Joined: Thu Apr 03, 2014 9:04 pm

Re: How're we doing?

Postby hawkfan55 » Fri Jan 06, 2017 4:52 pm

Just a quick first look... I would pay off the student loans first, starting with the 5.3% one. Paying down this loan is like earning a guaranteed 5.3%. You should get your debt under control prior to adding more debt, home mortgage.

monsterid
Posts: 97
Joined: Sat Dec 31, 2016 7:10 pm

Re: How're we doing?

Postby monsterid » Fri Jan 06, 2017 4:57 pm

hawkfan55 wrote:Just a quick first look... I would pay off the student loans first, starting with the 5.3% one. Paying down this loan is like earning a guaranteed 5.3%. You should get your debt under control prior to adding more debt, home mortgage.


I agree:

- close brokerage contribute to emergency fund
- take excess from that sale plus savings and aggressively work on the 5.3% debt
- I'd hold off on buying a house until the 5.3% is paid off, makes no sense to me to take on additional debt right now
- I'd only do your 401k to the match
- I'd probably still do your Roths if I could

Once you aren't paying 5.3% on the student loan balance you'll be able to get 20% down plus pay off a house in incredible time. Just means sacrificing the house for a year or two.

Chadnudj
Posts: 604
Joined: Tue Oct 29, 2013 11:22 am

Re: How're we doing?

Postby Chadnudj » Fri Jan 06, 2017 5:10 pm

brownie1022 wrote:Questions:
1. We have no true 'emergency fund', just the savings for the house. I hate the brokerage acct she has (opened five years ago, 0.85% annualized return, high expense ratios, high portfolio turnover). My idea is to close that into a savings account as our emergency fund (would amount to ~5 months) - does that make sense?
2. Would you change the asset allocation? I think this is a fairly typical AA for our age and aside from the brokerage acct they're all in low-expense funds.
3. We contributed nothing to the Roth IRA in 2016. Would you put the max into her Roth IRA (after this year we'll be above the contribution limit), if it meant sacrificing some house savings (i.e. might not hit our 20% down payment target in time)?
4. General thoughts...we have a ton of debt, and are just starting into the real expensive stuff - mortgage and kids. It is what it is, can't fix what's been done but do you have any recommendations on what we're doing/where we're investing/where we are?

Thanks in advance!


A few thoughts:

1. Yes, it makes sense to her the brokerage account into your emergency savings. Is $17.5k enough for 6 months expenses if one of you loses your job?

2. The AA looks fine.

3. I would put the max into her Roth IRA in 2016. At most, we're talking an extra couple months/year on delaying the house purchase, right? Is that REALLY going to cause problems for you? (BONUS: since Roth contributions, but not earnings, can be withdrawn, your Roths serve as de-facto emergency funds, although I wouldn't rely on them as such exclusively).

4. Get rid of your student loan (it's small) quickly. Look into all your options with her's -- can you refinance? Is loan forgiveness a possibility? Etc.

Additionally:
5. I'd actually stop the $400 HSA temporarily if it helps you pay off the car/your student loan/her student loan quicker. HSA's are nice vehicles for extra savings IF you can afford it, but you have student loan debts/aren't yet maxing out all your 401ks/Roths, which should be priorities BEFORE HSAs. I mean, yeah, you may soon be in the 33% bracket, but those loans really are holding you back a bit.

6. Back to the house: do you REALLY need it by fall 2017? What is your living situation right now? I have a 2 year old (with another on the way next month), and we live in a 3 bedroom condo. If you have 2 bedrooms right now, you're probably FINE staying where you are even if you have a kid (kids before 6 months or so don't really move much, then crawl only for the next 6 months, then walk and still require relatively little space, particularly if you have parks, etc. you can take them to nearby)....and keep in mind, there's no guarantee you get pregnant quickly (it took us almost 11 months from the time we "pulled the goalie" so-to-speak to finding out we were pregnant). Why not stay where you currently are UNTIL you get pregnant and/or have the kid, and THEN move when you know a bit more what you want/need in terms of space, etc? In the meantime, you'll be building up a larger down payment, or paying off more debt, or building a bigger emergency fund, or all of the above.

7. If you're in the 33% bracket, you should have a decent amount of monthly extra after paying rent/food/entertainment and the $1900 in debt service. You really should be able to kill all of those debts relatively quickly, if you're careful with your spending/smart about budgeting. And keep in mind, the more you get those debts killed, the easier it will be if your spouse/you take off time to stay home with the kid (my wife's work gives 6 weeks paid maternity leave, but is willing to give her an additional 4.5 months unpaid maternity leave....which she's taking because she/we value the time with the kiddo at that age and we're in a good position to do it). Take your time a bit now, and you could have a bunch of the debt killed so you or your spouse could afford to take more time off and/or have free cashflow when childcare expenses come around (and man, is that stuff crazy expensive....)

brownie1022
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Joined: Fri Jan 06, 2017 1:40 pm

Re: How're we doing?

Postby brownie1022 » Sat Jan 07, 2017 12:02 pm

Chadnudj wrote:1. Yes, it makes sense to her the brokerage account into your emergency savings. Is $17.5k enough for 6 months expenses if one of you loses your job?

We'd need another $8-10K to get to 6 months, but we both have very stable 9-5 jobs, young and healthy. The goal is certainly to have 6+ months in emergency but given our situation I'm not sure we need it as much as we need it elsewhere now.

4. Get rid of your student loan (it's small) quickly. Look into all your options with her's -- can you refinance? Is loan forgiveness a possibility? Etc.

Unfortunately that interest rate on her student loan IS a refinanced rate. She has four federal loans, between 5.7 and 7.2%, we've shopped around and the best fixed rate we can find is 5.3%.

5. I'd actually stop the $400 HSA temporarily if it helps you pay off the car/your student loan/her student loan quicker. HSA's are nice vehicles for extra savings IF you can afford it, but you have student loan debts/aren't yet maxing out all your 401ks/Roths, which should be priorities BEFORE HSAs. I mean, yeah, you may soon be in the 33% bracket, but those loans really are holding you back a bit.

That makes a lot of sense, thanks.

6. Back to the house: do you REALLY need it by fall 2017?

That's the problem. We live in a small 1-bed apartment. It's livable with the two of us and our dog, but add a tiny human to the mix and it'd be tough--not impossible, but tough. There's the emotional element too, I've been here 5.5 years, my wife 2.5, and we've both been sick of the place for a while. Not a great neighborhood, small place, not building equity, etc.

I totally get the idea that knocking that big debt out before signing on for more debt makes the most sense, because it does--financially, on paper. But I'm also 36 and ready for kids and basically want to put ourselves in the best position to make that happen while also not screwing up any retirement goals.

7. If you're in the 33% bracket, you should have a decent amount of monthly extra after paying rent/food/entertainment and the $1900 in debt service.

And that's the thing: if we go with the house first (before paying off her student loans), even with a mortgage + taxes we'd have at least $5k+ a month extra we can pump into the student loans (on top of the regular payment). It might take us a few years longer to knock off the loan but we'd also have built up more equity on the home AND have a more livable situation with a rugrat or two.

brownie1022
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Joined: Fri Jan 06, 2017 1:40 pm

Re: How're we doing?

Postby brownie1022 » Sun Jan 08, 2017 8:03 am

The thing I find interesting is only contributing to 401K to the company match and putting the rest toward debt repayment. I understand getting the company match is the most important but we'll never get to contribute that $18K again if we don't do it this year. Yes, it's a guaranteed 5.3% return if we take the 401K money and put it toward the loans but it's also after-tax, so really it's closer to a 4% return, and once the loan is paid off that money is gone. If we instead continue to max out the 401K (and my wife isn't offered one at her company until she's worked there for a year, so we only have one tax-deferred vehicle we can contribute to) we pay off the loan later, but we have that $18K in retirement for life.

Any thoughts on that, am I missing something?

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Toons
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Location: Hills of Tennessee

Re: How're we doing?

Postby Toons » Sun Jan 08, 2017 8:10 am

HER $127K student loans @5.3%
HIS $9K student loans @3.25%
$23K car loan @0.9%
--monthly debt ~$1,900


Attack it with a vengence.
Lase like focus.
Even if it means foregoing some investing.
Too much debt.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

angelescrest
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Location: The Third Coast

Re: How're we doing?

Postby angelescrest » Sun Jan 08, 2017 9:36 am

I definitely agree with the idea of waiting to have a child first before you decide what home you want. It's not easy because there is a nesting instinct in high gear, but until they're older it's hard to know what you actually need. Nice you settle in, you realize you can do a lot with a smaller space. With 100k+ in debt I would not be funneling all my money into a down payment that will give me more debt! The year I bought my home I also paid off all my school debt. And get that life insurance asap!

printer86
Posts: 56
Joined: Mon Apr 25, 2016 8:45 am

Re: How're we doing?

Postby printer86 » Sun Jan 08, 2017 9:38 am

Her entire salary should be dedicated to paying off those student loans ASAP. There should be no other goal. Live like grad students until that debt is cleared.

danieljquirk
Posts: 177
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Location: San Diego

Re: How're we doing?

Postby danieljquirk » Sun Jan 08, 2017 11:29 am

Congrats on the wedding.

I do not think you need to pay off the student loans before buying a house. I think buying a house can be a great financial (and life) move, particularly for a married couple with two incomes. Also, if you think you'll be living in MA for the long term, that is an additional argument to buy the house. The one caveat is that prices in many coastal cities such as Boston are fairly high, so I'd be wary of buying something just to buy something if you are in an expensive area. If you can, buy a house that you like and can see yourself living in for a long time, or at least has good potential to upgrade in the future. I think you can even borrow from your 401k to help fund the down payment if that is what it takes.

I do think that if you do buy the house and want to have kids fairly soon, you probably should have a conversation with your wife about both of you continuing to work as parents.

In the course of the next 30 years, the most stretched a young couple will probably be is when they have recently bought a house and have some young kids. I think it is ok if the trade-off for these handful of years is that you don't contribute quite as much to retirement accounts vs. if you continued to rent and delayed having kids. The trade-off on the back end is that you might have to work a couple of extra years to finally retire, which I don't think is that big of a deal. It's important to recognize that bad things can happen (job loss, divorce, health issues, recessions, relocation), but good things also happen such as career advancement and higher earnings.

brownie1022
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Re: How're we doing?

Postby brownie1022 » Sun Jan 08, 2017 12:42 pm

Here's another thought, for those who are saying kill the student loan first (and again: I agree, in theory that's 100% the way to go--but in our situation it's not feasible to stay in this 1-bed apartment with children and we're not putting off kids, I'd rather retire a little later, or with a little less money, than have babies when I'm 40+ years old).

What about putting most of the money toward student loans and instead putting, say, 5% or 10% down on a house in the fall/winter? We'd have less in the house, and would pay PMI for a bit, but does that tradeoff of killing the student loans in a year make it worthwhile?

Chadnudj
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Re: How're we doing?

Postby Chadnudj » Mon Jan 09, 2017 4:19 pm

brownie1022 wrote:
6. Back to the house: do you REALLY need it by fall 2017?

That's the problem. We live in a small 1-bed apartment. It's livable with the two of us and our dog, but add a tiny human to the mix and it'd be tough--not impossible, but tough. There's the emotional element too, I've been here 5.5 years, my wife 2.5, and we've both been sick of the place for a while. Not a great neighborhood, small place, not building equity, etc.

I totally get the idea that knocking that big debt out before signing on for more debt makes the most sense, because it does--financially, on paper. But I'm also 36 and ready for kids and basically want to put ourselves in the best position to make that happen while also not screwing up any retirement goals.

7. If you're in the 33% bracket, you should have a decent amount of monthly extra after paying rent/food/entertainment and the $1900 in debt service.

And that's the thing: if we go with the house first (before paying off her student loans), even with a mortgage + taxes we'd have at least $5k+ a month extra we can pump into the student loans (on top of the regular payment). It might take us a few years longer to knock off the loan but we'd also have built up more equity on the home AND have a more livable situation with a rugrat or two.


I've been in that exact situation, so I understand it completely. In that case, the house makes sense....but I'd STILL wait until you are actually pregnant (and thus will have a tiny human that will make the extra space necessary) before buying (or at least wait until you have the full 20% down payment saved up even if you are not pregnant, plus maybe a little buffer for furniture). That way, you're living in a place that is appropriate to your needs and are not getting too far ahead of yourselves.

Chadnudj
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Re: How're we doing?

Postby Chadnudj » Mon Jan 09, 2017 4:24 pm

brownie1022 wrote:Here's another thought, for those who are saying kill the student loan first (and again: I agree, in theory that's 100% the way to go--but in our situation it's not feasible to stay in this 1-bed apartment with children and we're not putting off kids, I'd rather retire a little later, or with a little less money, than have babies when I'm 40+ years old).

What about putting most of the money toward student loans and instead putting, say, 5% or 10% down on a house in the fall/winter? We'd have less in the house, and would pay PMI for a bit, but does that tradeoff of killing the student loans in a year make it worthwhile?


First off, I don't think you should stop maxing your 401ks to pay off the student loans.

Second, I don't think you should prioritize paying off the student loans over saving the down payment, PROVIDED you've run the numbers thoroughly and understand that buying will save you money vs. renting.

These two ideas above are especially true because it's possible, when your wife does have a child and goes on some length of maternity leave, that your income in that year may dip low enough to entitle you to take advantage of income tax deductions for student loan interest, which (at least for that year; longer if your spouse or you decide to stay home with kiddo instead of daycare) can effectively reduce the interest rate on the loans by making some/all of the interest tax-deductible.

monsterid
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Re: How're we doing?

Postby monsterid » Mon Jan 09, 2017 4:27 pm

I'd honestly move into a different house/apartment and rent for another year or two until you can clear the loan. Sure pay a bit more in rent so the first year or so is more manageable with the baby, but it will honestly put you in a much better position to buy the home.

The last thing you want to do with a new baby is to stretch yourself financially and that's what it looks like you'd be doing.

That's just my approach.

evilityb
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Re: How're we doing?

Postby evilityb » Mon Jan 09, 2017 6:23 pm

monsterid wrote:I'd honestly move into a different house/apartment and rent for another year or two until you can clear the loan. Sure pay a bit more in rent so the first year or so is more manageable with the baby, but it will honestly put you in a much better position to buy the home.

The last thing you want to do with a new baby is to stretch yourself financially and that's what it looks like you'd be doing.

That's just my approach.


+1

You can have a baby without owning a home. The two don't need to come as a package in any way.

You need a bigger emergency fund before you take on a house. I just bought a house 6 months ago and that $25,000 emergency fund I had around after the home purchase is the reason I can sleep at night. Who knew a major drain pipe would develop a 12-foot crack? Or that water would start leaking from around the shower and pour into my kitchen? Or that fence... $4,000 for that thing?! You get the idea.

A few things I would do:
1) Minimize your expenses. No $70/mo phone plans, make restaurants a rarity, et cetera.
2) Contribute to your tax sheltered accounts at a level that you need to to be able to retire when you want to (probably 15% at a minimum).
3) Build up that emergency fund to a level that keeps you safe.
4) Make sure you both have adequate life insurance to support a spouse and child(ren). Consider putting your assets in a living revocable trust if they aren't already.
5) Tackle that student loan debt with a vengeance. You don't need to be debt free before you buy a house, but it should be low enough that you can handle that debt and a mortgage without risking default on anything.
Make sure the fortune that you seek is the fortune you need - Ben Harper

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JDaniels
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Re: How're we doing?

Postby JDaniels » Mon Jan 09, 2017 7:00 pm

Agree to attack the student loan debt.

How much is the car worth? Any equity in it? Possibly sell, buy one half price and use the remaining money to put towards the student loan.
"The poor long for riches. The rich long for heaven. But the wise desire tranquility."

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scubadiver
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Re: How're we doing?

Postby scubadiver » Mon Jan 09, 2017 9:18 pm

Congrats on the recent wedding and on your efforts to manage your new joint finances.

I agree with you that you should not put off having kids. Life's too short.

I do think you should put off the house until you get rid of the debt which you currently have quite a bit of. Almost $150K by my accounting.

Get that debt under control. Maybe you don't need to pay it all off, but you should be within a stones throw of being debt free, before you buy a home. Pick up an extra job if you need to.

My parents raised three children. Never owned a home. Just saying.

Good luck and welcome to the forum!

Scubadiver

brownie1022
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Joined: Fri Jan 06, 2017 1:40 pm

Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 8:55 am

evilityb wrote:
You can have a baby without owning a home. The two don't need to come as a package in any way.

You need a bigger emergency fund before you take on a house. I just bought a house 6 months ago and that $25,000 emergency fund I had around after the home purchase is the reason I can sleep at night. Who knew a major drain pipe would develop a 12-foot crack? Or that water would start leaking from around the shower and pour into my kitchen? Or that fence... $4,000 for that thing?! You get the idea.

A few things I would do:
1) Minimize your expenses. No $70/mo phone plans, make restaurants a rarity, et cetera.
2) Contribute to your tax sheltered accounts at a level that you need to to be able to retire when you want to (probably 15% at a minimum).
3) Build up that emergency fund to a level that keeps you safe.
4) Make sure you both have adequate life insurance to support a spouse and child(ren). Consider putting your assets in a living revocable trust if they aren't already.
5) Tackle that student loan debt with a vengeance. You don't need to be debt free before you buy a house, but it should be low enough that you can handle that debt and a mortgage without risking default on anything.


Thanks for the response - and to everyone who's responded, thank you! This is why I decided to post on here, I've gotten some fantastic advice that has us going in a different direction than we had been. It hadn't even occurred to me/us that it might make more sense to find a different rental property and live there until the debt is under control, and THEN find our house--we've been in our current place so long, and had talked about buying a house as the next step for 2+ years, that I basically had blinders up on any other approach.

We discussed last night finding a better 2+ bedroom apartment that we can live in even if we have a baby in a year. That way we get out of our current situation faster (this spring is the target) and put off the need to find a house until we're financially ready for it. We'll double our rent in the process, but we have a ton of wiggle room there and it would still allow a huge paydown of the loans (7k+) every month, so we can likely start saving for the house for real in a little over a year, while being debt-free apart from the 0.9% car.

Appreciate all the advice!

JimmyD
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Re: How're we doing?

Postby JimmyD » Wed Jan 11, 2017 10:26 am

Folks are quick to jump on the "PAY OFF THE STUDENT LOAN DEBT NOW" bandwagon, but let's dive into that further.

What does your wife do for work? Any chance she can get a job at a non-profit that would qualify her for Public Service Loan Forgiveness? This, used in conjunction with Income-based Repayment could give you a pretty reasonable monthly payment while having the balance forgiven tax-free after 120 consecutive payments. Note you'd have to file taxes separately to really optimize this strategy and as such, you'd lose out on some tax deductions. In other words, a lot of variables to consider.

My wife and I take the above approach on her massive student loan debt. I've learned a lot about maximizing PSLF / IBR over the years, so feel free to ping me with any questions if it makes sense for your situation.

I'll leave you with a caveat too - there is talk about PSLF being gutted, but to this point, it's just talk. Definitely do your research before proceeding.

Good luck to you.

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 10:32 am

JimmyD wrote:Folks are quick to jump on the "PAY OFF THE STUDENT LOAN DEBT NOW" bandwagon, but let's dive into that further.

What does your wife do for work? Any chance she can get a job at a non-profit that would qualify her for Public Service Loan Forgiveness? This, used in conjunction with Income-based Repayment could give you a pretty reasonable monthly payment while having the balance forgiven tax-free after 120 consecutive payments. Note you'd have to file taxes separately to really optimize this strategy and as such, you'd lose out on some tax deductions. In other words, a lot of variables to consider.

My wife and I take the above approach on her massive student loan debt. I've learned a lot about maximizing PSLF / IBR over the years, so feel free to ping me with any questions if it makes sense for your situation.

I'll leave you with a caveat too - there is talk about PSLF being gutted, but to this point, it's just talk. Definitely do your research before proceeding.

Good luck to you.

Thanks Jimmy. My wife is an NP so there are some public sector options, generally. However, her specialty is fairly focused and it took her 6 months to find her current job (not even in her specialty), plus MA is very saturated with nurses as it is. So while we discussed the loan forgiveness option going with a public sector job it doesn't seem that feasible for her.

And as you said waiting ten years with fingers crossed that PSLF is still available is a risky proposition--and we'd be paying a boatload in interest in the meantime, and our income will keep us from deducting it. If we were in a different state, making less money, I'd jump all over the PSLF route but it doesn't really work for our situation.

JimmyD
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Re: How're we doing?

Postby JimmyD » Wed Jan 11, 2017 10:42 am

brownie1022 wrote:
JimmyD wrote:Folks are quick to jump on the "PAY OFF THE STUDENT LOAN DEBT NOW" bandwagon, but let's dive into that further.

What does your wife do for work? Any chance she can get a job at a non-profit that would qualify her for Public Service Loan Forgiveness? This, used in conjunction with Income-based Repayment could give you a pretty reasonable monthly payment while having the balance forgiven tax-free after 120 consecutive payments. Note you'd have to file taxes separately to really optimize this strategy and as such, you'd lose out on some tax deductions. In other words, a lot of variables to consider.

My wife and I take the above approach on her massive student loan debt. I've learned a lot about maximizing PSLF / IBR over the years, so feel free to ping me with any questions if it makes sense for your situation.

I'll leave you with a caveat too - there is talk about PSLF being gutted, but to this point, it's just talk. Definitely do your research before proceeding.

Good luck to you.

Thanks Jimmy. My wife is an NP so there are some public sector options, generally. However, her specialty is fairly focused and it took her 6 months to find her current job (not even in her specialty), plus MA is very saturated with nurses as it is. So while we discussed the loan forgiveness option going with a public sector job it doesn't seem that feasible for her.

And as you said waiting ten years with fingers crossed that PSLF is still available is a risky proposition--and we'd be paying a boatload in interest in the meantime, and our income will keep us from deducting it. If we were in a different state, making less money, I'd jump all over the PSLF route but it doesn't really work for our situation.


Gotya. I can relate as my wife is also in healthcare with an extremely narrow specialty. I was prepared to move anywhere in the country she was able to find employment, but thankfully, she got hired on at the facility where she did her post doc (and where I was already living). Still thank my lucky stars they grabbed her before the place in Peoria, Illinois did!

With that being said, you guys are in good shape if you can get the house squared away and then devise a plan to kill that student loan ASAP.

I might even consider limiting my 401k contributions to just capture the match until it was paid off.

bigred77
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Re: How're we doing?

Postby bigred77 » Wed Jan 11, 2017 10:44 am

Just for the record here OP. You have a negative networth!! You have fantastic incomes but if your networth was 0, that would be an improvement!! Not an ideal time to be buying a house.

With such a fantastic income, I would move into a nice 2 bedroom rental and go with your plan to throw 7k a month at the loans. Keep contributing to your retirement accounts, but get the debt wiped out in 2 years. Then use that same money and start saving for a down payment for a house. Aim to buy something in a good school district by the time your kids enter kindergarten. I think that would be an excellent goal and realistic timeline.

Do not get so caught up in this that your forego retirement savings. You guys have the income to start making real progress on your financial goals in a short period of time.

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 10:57 am

bigred77 wrote:Just for the record here OP. You have a negative networth!! You have fantastic incomes but if your networth was 0, that would be an improvement!! Not an ideal time to be buying a house.

Ha, funny you say that...I track all our assets and liabilities online and this past week was the first time I saw the 'net worth' figure in the black :) But it's already changing in a hurry, my wife was in school for 3 years then unemployed for 6 months, and the wedding wasn't cheap...we survived and now have some real positive incomes to show for it, but you're right that the finances are looking ugly!

With such a fantastic income, I would move into a nice 2 bedroom rental and go with your plan to throw 7k a month at the loans. Keep contributing to your retirement accounts, but get the debt wiped out in 2 years. Then use that same money and start saving for a down payment for a house. Aim to buy something in a good school district by the time your kids enter kindergarten. I think that would be an excellent goal and realistic timeline.

Do not get so caught up in this that your forego retirement savings. You guys have the income to start making real progress on your financial goals in a short period of time.

All good advice, appreciate it! This thread has been a god-send, and getting my wife on board was fairly easy once we looked at the numbers a bit. I think some patience on the housing front will pay off in the long run; the idea of getting rid of all our student loans by early-2018 is pretty damn attractive, then we can really start kicking ass on retirement funds, college funds, etc.

retire57
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Re: How're we doing?

Postby retire57 » Wed Jan 11, 2017 11:34 am

Whoa! Do not buy a house until you are out of debt. If you've never been a homeowner, you have NO IDEA how much $$$ you will spend on insurance, property taxes, maintenance, repairs, and furnishings.

Buying a house before you are financially stable will only lead to greater debt.

JimmyD
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Re: How're we doing?

Postby JimmyD » Wed Jan 11, 2017 11:40 am

retire57 wrote:Whoa! Do not buy a house until you are out of debt. If you've never been a homeowner, you have NO IDEA how much $$$ you will spend on insurance, property taxes, maintenance, repairs, and furnishings.

Buying a house before you are financially stable will only lead to greater debt.


And to offer a differing opinion, if you can make it work, do it. You're half way there by getting your wife on the same page. That's worth its weight in gold. You've gotta live some semblance of a happy and balanced life. You guys are young enough to save for retirement successfully.

FWIW, we bought a house AND had a kid with debt on the books. BUT, because we have a plan and are committed to it, we'll be just fine.

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 11:45 am

JimmyD wrote:
retire57 wrote:Whoa! Do not buy a house until you are out of debt. If you've never been a homeowner, you have NO IDEA how much $$$ you will spend on insurance, property taxes, maintenance, repairs, and furnishings.

Buying a house before you are financially stable will only lead to greater debt.


And to offer a differing opinion, if you can make it work, do it. You're half way there by getting your wife on the same page. That's worth its weight in gold. You've gotta live some semblance of a happy and balanced life. You guys are young enough to save for retirement successfully.

FWIW, we bought a house AND had a kid with debt on the books. BUT, because we have a plan and are committed to it, we'll be just fine.

Thanks Jimmy. I think your last sentence is the most important bit: create a plan, go into it with open eyes, and commit to it.

And to retire57: part of my research about buying a home as been to research insurance and taxes, maintenance and repairs. My wife and I aren't prone to just jump into things and our debt isn't a result of ignorance, rather careful planning and biting the bullet on student loans to give us a leg up on her 30+ years of income. It's why I've come here for more help and advice, because we want to do what's best for us, but also according to what makes the most financial sense.

journey2FI
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Re: How're we doing?

Postby journey2FI » Wed Jan 11, 2017 12:44 pm

I feel like there are some details missing that skew the advice to pay off the debt first. What we see is a large amount of debt and a negative networth, which quickly leads one to think you shouldn't take on more debt with a house. However, you also have a large income, and as a percentage of your income your debt isn't so bad. The piece that is missing, or at least isn't obvious to me, is what your current expenses are and how much you expect you can save going forward. For example, if you are frugal you could put away $100,000 or more in 2017 which means it is possible to eliminate all of your debt in maybe 1.5 years.

Assuming I'm right and you have a high savings rate here is what I would probably do, and why.
1) Contribute to 401k up to the match. The match is free money and the 401k will reduce your taxable income, plus you'll never get this 401k space back.
2) Max out your HSA for the year. This reduces your taxable income, and again you only get so much space each year. In my opinion the HSA is better than the 401k because when used for qualified medical expenses the money is completely tax free. If you never have to use it for medical expenses you can always use it like an IRA in retirement. Plus if you have a HSA, you have a HDHP, and with a kid in your future I guarantee you'll have some medical expenses.
3) Split remaining savings between paying off her student loan and saving for a down payment on a house. Maybe this means you have to wait a little longer to buy your house, or you can simply put down less than 20%. Personally I would wait as long as you can on the house, buy the cheapest house you are happy with, get a 30 year loan, and put down as much as you've managed to save at the time. Even if that is only 5-10% it won't kill you to pay PMI.
4) Assuming you buy your house before all the student loans are payed off, funnel all extra funds toward paying off loans.
5) Once loans are payed off max out 401k(s), and consider backdoor IRA Roth(s). You only get this space once each year. I might consider maxing the 401k(s) before #4 since it will reduce your taxable income, but I wouldn't do the Roths until the loans are gone.
6) Funnel all extra cash into paying extra principle on mortgage. This will get you to the point you can eliminate PMI, and reduce the time on the 30 year mortgage.
7) Once PMI is gone, consider continuing to pay down mortgage, 529s for the kid(s), and maybe a taxable account.
8) Relax?

Dollarsign16
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Re: How're we doing?

Postby Dollarsign16 » Wed Jan 11, 2017 1:13 pm

JimmyD wrote:You're half way there by getting your wife on the same page. That's worth its weight in gold.


This. If you and your spouse are on the same page financially and committed to executing a plan, I think you are capable of managing quite a bit. It's not necessarily going to be easy, but if you can minimize any potential marital strife than executing the plan is going to be a lot less stressful... hopefully even enjoyable.
Too many people spend money they earned..to buy things they don’t want..to impress people they don’t like. –Will Rogers

Chadnudj
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Re: How're we doing?

Postby Chadnudj » Wed Jan 11, 2017 1:32 pm

brownie1022 wrote:We discussed last night finding a better 2+ bedroom apartment that we can live in even if we have a baby in a year. That way we get out of our current situation faster (this spring is the target) and put off the need to find a house until we're financially ready for it. We'll double our rent in the process, but we have a ton of wiggle room there and it would still allow a huge paydown of the loans (7k+) every month, so we can likely start saving for the house for real in a little over a year, while being debt-free apart from the 0.9% car.

Appreciate all the advice!


A 2-bedroom place is double the rent of your one bedroom place?

I'd look harder if I were you. It shouldn't be double the rent for a 2-bedroom vs. a 1-bedroom (or, put another way, you should be able to find a 2-bedroom that is less than double a 1 bedroom, simply because you're only increasing bedrooms, not doubling bathrooms/kitchens/living rooms, etc.).

I'd keep looking around for a better 2-bedroom rental deal....

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 1:43 pm

journey2FI wrote:I feel like there are some details missing that skew the advice to pay off the debt first. What we see is a large amount of debt and a negative networth, which quickly leads one to think you shouldn't take on more debt with a house. However, you also have a large income, and as a percentage of your income your debt isn't so bad. The piece that is missing, or at least isn't obvious to me, is what your current expenses are and how much you expect you can save going forward.

To fill in those gaps:
--our monthly expenses, including all debt payments, are $4,800
--with 6% 401K contribution and $100 per month toward HSA, we're left with ~$7,200 in net take home per month.
--with 13% 401K contribution and $400 per month toward HSA, we're left with ~$6,500 in net take home per month.
--Current debt-to-income is just under .11

So the recent idea, per the thread, was to find a new rental property that was better suited for us (yard for dog, at least one extra room for baby in a year), focus all savings on the student loans, then when that's done (looks like Q1 '18, based on my numbers) focus on the down payment, and we should be able to get a mortgage debt-free (besides the car payment) by Q1 2019...so waiting 18 months on the house gets us debt-free, but also in a living situation that's better for a family.

I agree on the HSA > 401K, especially in our situation getting more money into it makes a lot of sense (we have $1K in the actual HSA, and $1.4K in the HSA investment; ideally we'd want to at least triple that for early next year when we plan on the baby).

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 1:48 pm

Chadnudj wrote:
A 2-bedroom place is double the rent of your one bedroom place?

I'd look harder if I were you. It shouldn't be double the rent for a 2-bedroom vs. a 1-bedroom (or, put another way, you should be able to find a 2-bedroom that is less than double a 1 bedroom, simply because you're only increasing bedrooms, not doubling bathrooms/kitchens/living rooms, etc.).

I'd keep looking around for a better 2-bedroom rental deal....

Yeah, I wish it wasn't true :) We looked two years ago when my now-wife was just my girlfriend and we were moving in together. The place I'm in is dirt cheap, $500+ less than any other 1-beds in the area (and actually quite nice, spacious and well-maintained, it's just too small for a baby and has zero yard). Even the cheapest, most run-down 2-beds in the area were 80% more expensive, and now we're looking at a 2-bed that we'd be living in when a baby arrives, and we also badly need some yard space for our dog (won't get into details here but we need a small yard, badly). Plus our jobs are 50 minutes away from each other, meeting in the middle are some of the most expensive neighborhoods in the country. MA is expensive as hell, and where we'd be able to look while keeping both our commutes at or below an hour it's basically impossible to find a 2-bed under $2k/month.

Chadnudj
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Re: How're we doing?

Postby Chadnudj » Wed Jan 11, 2017 1:48 pm

brownie1022 wrote:
journey2FI wrote:I feel like there are some details missing that skew the advice to pay off the debt first. What we see is a large amount of debt and a negative networth, which quickly leads one to think you shouldn't take on more debt with a house. However, you also have a large income, and as a percentage of your income your debt isn't so bad. The piece that is missing, or at least isn't obvious to me, is what your current expenses are and how much you expect you can save going forward.

To fill in those gaps:
--our monthly expenses, including all debt payments, are $4,800
--with 6% 401K contribution and $100 per month toward HSA, we're left with ~$7,200 in net take home per month.
--with 13% 401K contribution and $400 per month toward HSA, we're left with ~$6,500 in net take home per month.
--Current debt-to-income is just under .11

So the recent idea, per the thread, was to find a new rental property that was better suited for us (yard for dog, at least one extra room for baby in a year), focus all savings on the student loans, then when that's done (looks like Q1 '18, based on my numbers) focus on the down payment, and we should be able to get a mortgage debt-free (besides the car payment) by Q1 2019...so waiting 18 months on the house gets us debt-free, but also in a living situation that's better for a family.

I agree on the HSA > 401K, especially in our situation getting more money into it makes a lot of sense (we have $1K in the actual HSA, and $1.4K in the HSA investment; ideally we'd want to at least triple that for early next year when we plan on the baby).


Given those numbers, I'd max out the 401k and Roths entirely -- $29k a year, or just less than $2500 a month. Plenty of room in your budget to do so (already at 13% in the 401k and $400 a month to HSA, you still have $6500 a month in net take home per month), it reduces your tax burden, and you'll never have the ability to fill that space again. Plus, as mentioned earlier, the Roth contributions can serve as a backup emergency fund, and/or down payment fund.

Even if it means you wait longer than 18+ months (and do you really want to move twice in less than a year and a half?), I think maxing the 401ks and Roths is worth it. Plus, if you're having one kid and thinking about more (which you likely won't/shouldn't start to do until your kid hits 1 year, so you don't have 2 under the age of 2 at the same time), it makes sense to wait on the home purchase so you know how much house (i.e. how many bedrooms) you'll really need....

brownie1022
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Re: How're we doing?

Postby brownie1022 » Wed Jan 11, 2017 2:11 pm

Chadnudj wrote:
Given those numbers, I'd max out the 401k and Roths entirely -- $29k a year, or just less than $2500 a month. Plenty of room in your budget to do so (already at 13% in the 401k and $400 a month to HSA, you still have $6500 a month in net take home per month), it reduces your tax burden, and you'll never have the ability to fill that space again. Plus, as mentioned earlier, the Roth contributions can serve as a backup emergency fund, and/or down payment fund.

Even if it means you wait longer than 18+ months (and do you really want to move twice in less than a year and a half?), I think maxing the 401ks and Roths is worth it. Plus, if you're having one kid and thinking about more (which you likely won't/shouldn't start to do until your kid hits 1 year, so you don't have 2 under the age of 2 at the same time), it makes sense to wait on the home purchase so you know how much house (i.e. how many bedrooms) you'll really need....

Yeah, that makes a lot of sense. We can really hit the student loans hard while still maxing out retirement vehicles over the next 18 months and as long as we find a good interim living situation we won't be itching to find a long-term house until at least 2019 when we'll be ready for it; no debt and our retirement position will be much better, at a time when we'll have to move some money toward child care and college savings accts and whatnot.

Thanks for the input!

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Hawaiishrimp
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Re: How're we doing?

Postby Hawaiishrimp » Wed Jan 11, 2017 2:27 pm

hawkfan55 wrote:Just a quick first look... I would pay off the student loans first, starting with the 5.3% one. Paying down this loan is like earning a guaranteed 5.3%. You should get your debt under control prior to adding more debt, home mortgage.


I agree. #1 priority is to payoff the student loan first. Start with the highest interest rate and proceed to a lower one. Do not recommend taking on additional debt (home purchase) until this is done.

#2 priority is to cut cost. Rent the cheapest apartment you can bear with. Drive the cheapest reliable car available. Do not waste money on car (a depreciating asset).

#3 I will not put minimum money into retirement plan in order to keep the 100% matching from your company. Otherwise, all other incomes shall go into payoff the student loans.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.


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