Starting from scratch

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Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 6:01 pm

My husband just finished training and is starting his first "real" job in a private practice. His salary will be 400k but this does not include benefits of any kind (although his health premiums are paid for). We are both 36 years old with 2 kids (6 and 2) and basically have lived month to month as we limped toward the finish line. We have no credit card debt. We had a little bit of savings but that has almost been wiped out in our recent move to a very high cost of living area. Essentially we are starting from scratch and feel overwhelmed at where to even begin a financial plan that allows us to

1) pay off his loans quickly (he has 400k in loans at variable rates from 0-8%)
2) developing a savings plans to reduce taxes (401k vs IRA, HSA, FSA
3) save for retirement (we've done little of this besides three years of employer matched contributions to 401k and 1-3k in IRAs scattered in different banks)
4) save for upcoming short-term big purchases (house, car)
5) save for long-term (college, travel fund)
6) living a comfortable life (periodic house cleaning, joining a swim club, camps for kids) but also following a strict budget to keep 1-5 on track.

We were looking into hiring a fee-only CFP that charges a monthly subscription rate but also feel like if someone could just get us started on a budget and a few key things to do in the first month before our first paycheck (at the end of August) to help with taxes, saves, loans etc. If anyone has advice on apps to use, books to read, things to avoid or absolute musts -- we are all ears! We'd love to save 20% of our income but not sure if that is doable or if we can how best to allocate the savings (IRA, HSA, 401k - do we roll over the previous 401k we have at various employers?).

A little more about our monthly fixed expenses at the moment (I'm sure they are more I'm missing but these are the big ones).

Rent: $3875 (I told you we moved a high cost of living area)
Health Insurance (me + kids)= $945
Auto Insurance = $165
Utilities= $600 (hoping this goes down but high due to air conditioning needs)
Student loans = $5000-$7000k (we are looking into refinancing with SoFi so hoping toward the lower end of that range)
School Tuition= $800
Living Expenses = $2500-3000 (it tends to be in this range but has been much more due to the move and higher cost of living - very willing to watch this more carefully and budget by category if anyone has good guidelines to follow re: food, dining out, entertainment, clothes, misc)

We also need to pay my parents back $9,000 as they helped keep us afloat during the move and not go into credit card debt. This can be paid back overtime but we'd like to get them the $ within the next year.

Anyway, happy to provide more info. I've just been paralyzed about what we need to do first and realize instead of hiding behind my embarrassment about how little I know I should just post on an anonymous forum and see if anyone has any advice, guidelines to follow, pitfalls to avoid.

Thank you in advance!

User avatar
ResearchMed
Posts: 9372
Joined: Fri Dec 26, 2008 11:25 pm

Re: Starting from scratch

Post by ResearchMed » Thu Jul 26, 2018 6:37 pm

carolinaonmymind wrote:
Thu Jul 26, 2018 6:01 pm
My husband just finished training and is starting his first "real" job in a private practice. His salary will be 400k but this does not include benefits of any kind (although his health premiums are paid for). We are both 36 years old with 2 kids (6 and 2) and basically have lived month to month as we limped toward the finish line. We have no credit card debt. We had a little bit of savings but that has almost been wiped out in our recent move to a very high cost of living area. Essentially we are starting from scratch and feel overwhelmed at where to even begin a financial plan that allows us to

1) pay off his loans quickly (he has 400k in loans at variable rates from 0-8%)
2) developing a savings plans to reduce taxes (401k vs IRA, HSA, FSA
3) save for retirement (we've done little of this besides three years of employer matched contributions to 401k and 1-3k in IRAs scattered in different banks)
4) save for upcoming short-term big purchases (house, car)
5) save for long-term (college, travel fund)
6) living a comfortable life (periodic house cleaning, joining a swim club, camps for kids) but also following a strict budget to keep 1-5 on track.

We were looking into hiring a fee-only CFP that charges a monthly subscription rate but also feel like if someone could just get us started on a budget and a few key things to do in the first month before our first paycheck (at the end of August) to help with taxes, saves, loans etc. If anyone has advice on apps to use, books to read, things to avoid or absolute musts -- we are all ears! We'd love to save 20% of our income but not sure if that is doable or if we can how best to allocate the savings (IRA, HSA, 401k - do we roll over the previous 401k we have at various employers?).

A little more about our monthly fixed expenses at the moment (I'm sure they are more I'm missing but these are the big ones).

Rent: $3875 (I told you we moved a high cost of living area)
Health Insurance (me + kids)= $945
Auto Insurance = $165
Utilities= $600 (hoping this goes down but high due to air conditioning needs)
Student loans = $5000-$7000k (we are looking into refinancing with SoFi so hoping toward the lower end of that range)
School Tuition= $800
Living Expenses = $2500-3000 (it tends to be in this range but has been much more due to the move and higher cost of living - very willing to watch this more carefully and budget by category if anyone has good guidelines to follow re: food, dining out, entertainment, clothes, misc)

We also need to pay my parents back $9,000 as they helped keep us afloat during the move and not go into credit card debt. This can be paid back overtime but we'd like to get them the $ within the next year.

Anyway, happy to provide more info. I've just been paralyzed about what we need to do first and realize instead of hiding behind my embarrassment about how little I know I should just post on an anonymous forum and see if anyone has any advice, guidelines to follow, pitfalls to avoid.

Thank you in advance!
Welcome!

You are in the right place.
First, no one here is trying to get their hands on your money, not through commissions, fees, or other hidden costs.
And there are LOTS of others who have gone through the same path, in various stages of doing so.

IF you have not found it yet, do check out WhiteCoatInvestor's website.
He posts here, a bit, too.

Others will chime in with more suggestions about format for first posts if you have any investments at all, etc.
That will include posting about the choices in any 401k/403b type accounts.

But please do *not* be "embarrassed".
So many here were in similar shape at one point, or still are going through it. And some were much later to find this resource.

And kudos for no charge card debt! Those high interest rates are definitely to be *avoided*.

RM
This signature is a placebo. You are in the control group.

MrJones
Posts: 353
Joined: Sat Mar 18, 2017 2:23 am

Re: Starting from scratch

Post by MrJones » Thu Jul 26, 2018 6:56 pm

Welcome!

You may not be aware of it but you are closer than you think in arriving at your financial plan. You have already identified pretty much all the major pieces with the exception of a quick 5-minute approximation at what you will be paying in income taxes in your location. Beyond that, it's a simple matter of prioritizing all the pieces that you posted. Would you like to take a stab at that since you are so close already?

veindoc
Posts: 626
Joined: Sun Aug 14, 2016 9:04 pm

Re: Starting from scratch

Post by veindoc » Thu Jul 26, 2018 7:00 pm

What exactly do you need help with?
Seems pretty simple here. Don’t let the new salary and move cloud things for u. Minor distractions.

This is what you need to do:

Max our all tax-deferred options-401k and IRA’s-figure out how much do deduct each pay period to get to 18500 this year.
Refinance student loans today. As in now. Calculate how much you have to pay a month to knock those out by the time you hit 40.
Build a modest efund. 20k should be reasonable.
Pay off parents within five paychecks after efund is established.
Once retirement contributions have been calculated and paperwork filled out and SL payment worked out, live off of the rest. If you find that what’s left is more than meets your needs, put the excess in a house down payment fund. If what’s left is not enough cut back on extraneous expenses.
At 40 when loans are paid off,reevaluate.

Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Re: Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 7:05 pm

MrJones wrote:
Thu Jul 26, 2018 6:56 pm
Welcome!

You may not be aware of it but you are closer than you think in arriving at your financial plan. You have already identified pretty much all the major pieces with the exception of a quick 5-minute approximation at what you will be paying in income taxes in your location. Beyond that, it's a simple matter of prioritizing all the pieces that you posted. Would you like to take a stab at that since you are so close already?
Thank you! We are in CA and have been told we will be paying close to 40% in income taxes.

Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Re: Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 7:10 pm

veindoc wrote:
Thu Jul 26, 2018 7:00 pm
What exactly do you need help with?
Seems pretty simple here. Don’t let the new salary and move cloud things for u. Minor distractions.

This is what you need to do:

Max our all tax-deferred options-401k and IRA’s-figure out how much do deduct each pay period to get to 18500 this year.
Refinance student loans today. As in now. Calculate how much you have to pay a month to knock those out by the time you hit 40.
Build a modest efund. 20k should be reasonable.
Pay off parents within five paychecks after efund is established.
Once retirement contributions have been calculated and paperwork filled out and SL payment worked out, live off of the rest. If you find that what’s left is more than meets your needs, put the excess in a house down payment fund. If what’s left is not enough cut back on extraneous expenses.
At 40 when loans are paid off,reevaluate.
Thank you so much! This makes me feel so much better. We are in the weeds right now and just having someone put it in a simple list is so helpful. And it will help me kick my husband into high gear regarding refinancing. He tried to before but he didn't have his new job/high salary and couldn't do it without a co-signer. Will they allow him to refinance with just a contract? Or will we need a pay stub?

Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Re: Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 7:15 pm

ResearchMed wrote:
Thu Jul 26, 2018 6:37 pm
carolinaonmymind wrote:
Thu Jul 26, 2018 6:01 pm
My husband just finished training and is starting his first "real" job in a private practice. His salary will be 400k but this does not include benefits of any kind (although his health premiums are paid for). We are both 36 years old with 2 kids (6 and 2) and basically have lived month to month as we limped toward the finish line. We have no credit card debt. We had a little bit of savings but that has almost been wiped out in our recent move to a very high cost of living area. Essentially we are starting from scratch and feel overwhelmed at where to even begin a financial plan that allows us to

1) pay off his loans quickly (he has 400k in loans at variable rates from 0-8%)
2) developing a savings plans to reduce taxes (401k vs IRA, HSA, FSA
3) save for retirement (we've done little of this besides three years of employer matched contributions to 401k and 1-3k in IRAs scattered in different banks)
4) save for upcoming short-term big purchases (house, car)
5) save for long-term (college, travel fund)
6) living a comfortable life (periodic house cleaning, joining a swim club, camps for kids) but also following a strict budget to keep 1-5 on track.

We were looking into hiring a fee-only CFP that charges a monthly subscription rate but also feel like if someone could just get us started on a budget and a few key things to do in the first month before our first paycheck (at the end of August) to help with taxes, saves, loans etc. If anyone has advice on apps to use, books to read, things to avoid or absolute musts -- we are all ears! We'd love to save 20% of our income but not sure if that is doable or if we can how best to allocate the savings (IRA, HSA, 401k - do we roll over the previous 401k we have at various employers?).

A little more about our monthly fixed expenses at the moment (I'm sure they are more I'm missing but these are the big ones).

Rent: $3875 (I told you we moved a high cost of living area)
Health Insurance (me + kids)= $945
Auto Insurance = $165
Utilities= $600 (hoping this goes down but high due to air conditioning needs)
Student loans = $5000-$7000k (we are looking into refinancing with SoFi so hoping toward the lower end of that range)
School Tuition= $800
Living Expenses = $2500-3000 (it tends to be in this range but has been much more due to the move and higher cost of living - very willing to watch this more carefully and budget by category if anyone has good guidelines to follow re: food, dining out, entertainment, clothes, misc)

We also need to pay my parents back $9,000 as they helped keep us afloat during the move and not go into credit card debt. This can be paid back overtime but we'd like to get them the $ within the next year.

Anyway, happy to provide more info. I've just been paralyzed about what we need to do first and realize instead of hiding behind my embarrassment about how little I know I should just post on an anonymous forum and see if anyone has any advice, guidelines to follow, pitfalls to avoid.

Thank you in advance!
Welcome!

You are in the right place.
First, no one here is trying to get their hands on your money, not through commissions, fees, or other hidden costs.
And there are LOTS of others who have gone through the same path, in various stages of doing so.

IF you have not found it yet, do check out WhiteCoatInvestor's website.
He posts here, a bit, too.

Others will chime in with more suggestions about format for first posts if you have any investments at all, etc.
That will include posting about the choices in any 401k/403b type accounts.

But please do *not* be "embarrassed".
So many here were in similar shape at one point, or still are going through it. And some were much later to find this resource.

And kudos for no charge card debt! Those high interest rates are definitely to be *avoided*.

RM
Thank you so much! I feel so much better just posting this and writing it all out. I'm am grateful to be in the position we are in but just don't want to squander things and let things go like we have been doing out of necessity to get this to point. It seems like the perfect point to get into good habits but we just don't know where to even start. And yes my husband is reading WHI and I'm next!!! Great resource so far!!

veindoc
Posts: 626
Joined: Sun Aug 14, 2016 9:04 pm

Re: Starting from scratch

Post by veindoc » Thu Jul 26, 2018 7:18 pm

I found this page for you re student loan refinancing.Doesn’t answer your question directly but should get you started.

https://www.whitecoatinvestor.com/12-th ... financing/

Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Re: Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 7:27 pm

veindoc wrote:
Thu Jul 26, 2018 7:18 pm
I found this page for you re student loan refinancing.Doesn’t answer your question directly but should get you started.

https://www.whitecoatinvestor.com/12-th ... financing/
Thank you so much! I'll send that to my husband to nudge him closer to making the call. Seems like if we can't do it before the job starts we will after the first month. His credit score is in the high 700s or low 800s - can't remember offhand.

Topic Author
carolinaonmymind
Posts: 6
Joined: Thu Jul 26, 2018 5:03 pm

Re: Starting from scratch

Post by carolinaonmymind » Thu Jul 26, 2018 11:29 pm

A couple other quick follow up questions. What do we do with the various 401ks we have with previous employers? Can we keep contributing to them on our own? Leave them alone? Roll them over to IRAs? Given that his current employer does not offer a retirement savings plan of any kind we are just a little lost as to what to do with the little bit of retirement savings we do have as well as what type of savings plan we need to build for ourselves going forward on our own. Also, does this all need to be in place before his first paycheck to maximize tax benefits?

Also there is a potential in the new job to get a sizeable bonus. We aren't sure when the payout will be or how much (will have a better idea once things get started at new job) and so we don't want to rely on it for any of our fixed expenses. However, if we do get a big chunk at one time, what is the best place to put it? All toward loans? House down payment fund? Both?

Lastly, my husband is in the process of upping his disability insurance to better match our increased salary. Do people advise this? It seems worthwhile to us but we will be paying $500 month for disability and life insurance and several friends we know have opted to not increase disability insurance after they finished training so we are second guessing things just a little.

Thanks again!

TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Re: Starting from scratch

Post by TexMexIndex » Fri Jul 27, 2018 2:29 am

Roll over all of your pasts IRAs and past 401Ks into a vanguard account in one place and into a target retirement fund.

Vanguard will have lower fees. Its a bit of a pain with paperwork, but sometimes those past financial products are sold or go into receivership
where they don't make much money due to fees and being actively managed.

TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Re: Starting from scratch

Post by TexMexIndex » Fri Jul 27, 2018 2:36 am

Disability and life insurance and new salary rate is a good idea. I cant remember is it ten times salary for life?

My work pays for disability and I did life insurance for 8 times my then salary about 8 years ago. I haven't
changed it upwards as my salary increased and my net worth has increased.

There is a good list somewhere on here as far as what people see as priority in saving. Its something like this:

1. Emergency Fund
2. Company match retirement 401K
3. IRA (you might be priced out of this because of salary)
4. Max 401K
5. Health Savings Account-do full contribution (Not sure if you get priced out at that salary)
6. Taxed accounts-save your down payment, invest money to supplement your retirement, etc

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Starting from scratch

Post by Nate79 » Fri Jul 27, 2018 3:51 am

I would really focus on hammering on those student loans. That is a massive pile of debt and while you may be thinking you have a wonderful income yet things can and do go wrong.

Also, you can not contribute to old employer retirement accounts. I would leave them alone to preserve the future option of backdoor Roths.

gotester2000
Posts: 620
Joined: Sun Nov 12, 2017 1:59 am

Re: Starting from scratch

Post by gotester2000 » Fri Jul 27, 2018 4:45 am

Earn, save and invest - be diversified using low cost products/services, take care of tax space - live simply yet comfortably.

With your income, taxes and expenses it seems you are going to save about 50k/yr. Improve this to 100k/yr. I dont get why you cant pay 9k in one shot to parents with your income?

Therapist Investor
Posts: 210
Joined: Sun Apr 15, 2018 8:57 pm

Re: Starting from scratch

Post by Therapist Investor » Fri Jul 27, 2018 5:30 am

carolinaonmymind wrote:
Thu Jul 26, 2018 6:01 pm
My husband just finished training and is starting his first "real" job in a private practice. His salary will be 400k but this does not include benefits of any kind (although his health premiums are paid for). We are both 36 years old with 2 kids (6 and 2) and basically have lived month to month as we limped toward the finish line. We have no credit card debt. We had a little bit of savings but that has almost been wiped out in our recent move to a very high cost of living area. Essentially we are starting from scratch and feel overwhelmed at where to even begin a financial plan that allows us to

1) pay off his loans quickly (he has 400k in loans at variable rates from 0-8%)
2) developing a savings plans to reduce taxes (401k vs IRA, HSA, FSA
3) save for retirement (we've done little of this besides three years of employer matched contributions to 401k and 1-3k in IRAs scattered in different banks)
4) save for upcoming short-term big purchases (house, car)
5) save for long-term (college, travel fund)
6) living a comfortable life (periodic house cleaning, joining a swim club, camps for kids) but also following a strict budget to keep 1-5 on track.

We were looking into hiring a fee-only CFP that charges a monthly subscription rate but also feel like if someone could just get us started on a budget and a few key things to do in the first month before our first paycheck (at the end of August) to help with taxes, saves, loans etc. If anyone has advice on apps to use, books to read, things to avoid or absolute musts -- we are all ears! We'd love to save 20% of our income but not sure if that is doable or if we can how best to allocate the savings (IRA, HSA, 401k - do we roll over the previous 401k we have at various employers?).

A little more about our monthly fixed expenses at the moment (I'm sure they are more I'm missing but these are the big ones).

Rent: $3875 (I told you we moved a high cost of living area)
Health Insurance (me + kids)= $945
Auto Insurance = $165
Utilities= $600 (hoping this goes down but high due to air conditioning needs)
Student loans = $5000-$7000k (we are looking into refinancing with SoFi so hoping toward the lower end of that range)
School Tuition= $800
Living Expenses = $2500-3000 (it tends to be in this range but has been much more due to the move and higher cost of living - very willing to watch this more carefully and budget by category if anyone has good guidelines to follow re: food, dining out, entertainment, clothes, misc)

We also need to pay my parents back $9,000 as they helped keep us afloat during the move and not go into credit card debt. This can be paid back overtime but we'd like to get them the $ within the next year.

Anyway, happy to provide more info. I've just been paralyzed about what we need to do first and realize instead of hiding behind my embarrassment about how little I know I should just post on an anonymous forum and see if anyone has any advice, guidelines to follow, pitfalls to avoid.

Thank you in advance!
You have a great plan. In addition to what has been mentioned above I have a few thoughts:

1. Is your husband a W2 employee or an independent contractor? If he is W2 he should have access to a 401k through his employer. If he is a contractor he will need to set up retirement accounts. It sounds like you already have IRAs. Consider setting up an individual 401k (with either Vanguard, Fidelity, Schwab, TD Ameritrade, or Etrade). See this White Coat Investor post for more: https://www.whitecoatinvestor.com/where ... solo-401k/
2. Regarding disability insurance, you should double check this but I believe for any disability policy you purchase with after tax dollars, if you receive payments from the policy the payments are tax free. That means you only need to insure 60-80% of your income (whatever your take home pay is), not 100% of your income.
3. As others have said I would prioritize setting up an emergency fund and then paying down the debt. As you start investing, I'd recommend you read the following books. All have been helpful IMO
-Jack Bogle's Little Book of Common Sense Investing: https://www.amazon.com/Little-Book-Comm ... 0470102101
-Taylor Larimore's Bogleheads Guide to the 3 Fund Portfolio: https://www.amazon.com/Bogleheads-Guide ... 1119487331
-JL Collins's stock series: http://jlcollinsnh.com/stock-series/
-The Millionaire Next Door (wait for the new version coming out this fall).

Until you learn more about investing, there is no need to hire a financial planner. Simply invest in Vanguard Target Date Funds (for whatever date you want to retire). Many on this blog have been members for years and still advocate that as a good all around fund. You will be out of debt by about 40. In your 40s avoid lifestyle inflation and build your next egg. (see this post on Lifestyle Inflation: https://www.whitecoatinvestor.com/lifes ... ts-impact/). By your mid 50s you will have a great nest egg and can retire.

Best of luck to you!
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

chicagoan23
Posts: 356
Joined: Thu Jan 29, 2015 4:34 pm

Re: Starting from scratch

Post by chicagoan23 » Fri Jul 27, 2018 11:07 am

I'm in the minority around here but I always like to share my opinion/experience on student loans, having had them for 20+ years. My advice--do not worry about the student loans. You have much higher priorities.

First, your largest single annual expense for the rest of your husband's working life will be income taxes. Your first priority should be reducing taxes to the maximum extent possible. Qualified retirement plans are typically the starting point. I'm surprised to see that the new employer does not offer any retirement plan....why not? I would imagine that a group of doctors would want the deferral of a retirement plan. Do you mean to say that they don't make any employer/matching contributions to a retirement plan, but he can still make elective contributions?

If he can make elective contributions to a 401(k) plan, max those out at $18,500. If there is no retirement plan, he can at least do the $5,500 IRA (and another $5,500 spousal IRA if you are eligible). A $6,900 HSA contribution should also be made and invested--do not withdraw from the HSA account. Pay out-of-pocket medical costs using after-tax dollars, and invest that HSA for retiree health care costs. And I'd even try to look into whether you can start a home-based business and create your own retirement plan. In my view it's that important.

Second, the current tax code provides subsidies for home ownership that you don't get as a renter. After maxing out all retirement accounts, I'd next focus 100% of my savings on becoming a homeowner. Use the bonus lump sums for that savings goal as well. One caveat--only you can assess the housing market and how long you plan on living in that HCOL area. Don't stretch for the dream home yet; don't be house rich and cash poor. But a sensible fixed rate mortgage is useful to you.

After the first two you can start putting money towards the student loan principal, and even then only towards the high/variable rate loans. Say, anything above 5%. Anything below that, I would pay only the minimum.

Having student loan with a high income debt doesn't hurt you. Until lenders start repossessing brains, the debt is unsecured. Depending on the program it can be forgiven on death/disability. It is impossible for your husband to go out and get an unsecured personal loan in a six-figure amount for 5% interest, which is basically what he has now. We don't know what future legislation is going to do for student loan debt. As a physician the risk of unemployment is very low. I know it is a big number to look at, but by paying it off you are most likely trading an optimal financial decision for peace of mind. Some people find that trade-off worth it, but I'd hold off.

Next would be to build up taxable accounts, saving for a "forever" house, kids educations, etc. That's where everything left should go.

Some other recommendations.....Keep the old 401(k)'s where they are, get a reasonable amount of disability insurance--and make sure it is own occupation insurance--and check with other physicians as to what they use for disability insurance ($500 per month seems like a lot, reasonable long-term disability insurance should be closer to $150), hold off on the financial advisor for a while.

My experience: I graduated law school in 2000 with about $70k in student loan debt (much less than your husband, but I was making 1/4 of his salary too). I've basically paid the minimum since then and refinanced a few times, most recently with SoFi. 18 years of payments later and at age 43, I have about $7k in student loan debt left at 3.5%. Meanwhile I've maximized all retirement plans since the day I started working, bought/sold/bought a house, lived below my means, threw a bunch of money into taxable accounts, etc. and now my net worth is now approaching $1.9 million, with a stay-at-home spouse and four children. Never gave the student loans a second thought.

MrJones
Posts: 353
Joined: Sat Mar 18, 2017 2:23 am

Re: Starting from scratch

Post by MrJones » Sat Jul 28, 2018 11:52 am

carolinaonmymind wrote:
Thu Jul 26, 2018 7:05 pm
MrJones wrote:
Thu Jul 26, 2018 6:56 pm
Welcome!

You may not be aware of it but you are closer than you think in arriving at your financial plan. You have already identified pretty much all the major pieces with the exception of a quick 5-minute approximation at what you will be paying in income taxes in your location. Beyond that, it's a simple matter of prioritizing all the pieces that you posted. Would you like to take a stab at that since you are so close already?
Thank you! We are in CA and have been told we will be paying close to 40% in income taxes.
You pretty much nailed the marginal rate. I would use perhaps 32% or so as the average. Next step if I were you is to order the list of things you posted by priority, and put actual numbers on your income, taxes, and annual expenses so you know what your annual savings would be and how to direct them.

Bfwolf
Posts: 1962
Joined: Thu Oct 14, 2010 11:19 am

Re: Starting from scratch

Post by Bfwolf » Sat Jul 28, 2018 5:15 pm

The most important thing is your savings rate, i.e. your spending rate. The less you spend, the better this story turns out. The other stuff is important but everything is secondary to that. If you save $100K of that $400K per year, you'll be in great shape. And any payments against your loan PRINCIPAL (not interest) counts as savings.

Don't buy a house for tax reasons. Buy a house if you need/really want to put down roots and can get a reasonable deal. You might want to take out a big chunk of those student loans first though so you're not burdened with even more debt. The NY Times rent/buy calculator can be useful. https://www.nytimes.com/interactive/201 ... lator.html

Regarding the student loans, anything under 3% is pretty good debt and I'd pay the minimum. Anything over 5% is bad debt and should be paid off ASAP.

I doubt you are paying 40% in taxes. As another poster said, that is probably your marginal rate (i.e. what you'd pay on the 400,000th dollar earned). You pay almost nothing on the first dollar earned. So your average rate is somewhere in between (but certainly closer to 40% than 0%). It shouldn't take you too much work to figure out what it actually will be.

You need to figure out what retirement saving/investment accounts are available to you as other folks have said. And max those out. 401ks, etc.

In summary: spent as little as possible (i.e. live like a resident), max out your retirement accounts, and pay down the high interest debt.

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