Lots of big financial decisions to make in short time | please help navigate

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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abat.rama
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Lots of big financial decisions to make in short time | please help navigate

Post by abat.rama » Sun Feb 16, 2020 5:43 pm

We have big expenses in the horizon: wedding (40k), car(40k), downpayment for a house(175k), student loan(150k @ 5%). Wedding is in the summer 2021. Car is summer 2020. House and student loan payments don't have a strict timing but we would like to be done with in a few years.

We have 1m financial assets, of which, only 150k are in taxable accounts. The rest is in retirement accounts. Our income after tax and living expenses is about 200k. This includes everything, like company 401k match etc. [Edit: our combined income plus 401k matches is a bit more than 400k]. Historically, we were able to reduce/postpone taxes by saving on a pretax basis. But, because of the high expense coming up, we will have to reduce our pretax savings, which, unfortunately, will also reduce our net income. If we do, we can have about 125k income year-over-year in after tax and expenses and 50k in pretax retirement savings. These two are approximate numbers.

I am seeking advise on what to prioritize.

1) Aggressively pay the expenses by saving only the minimum amount to get company match. This will also entail withdrawing the 150k.

2) Postpone the home buying. Go aggressive on the student loan to save 5% on that. This option will help reduce our taxes and increase our savings.

Side note: one of us has the student loan and is just finishing school. The other finished school a while ago, has no debt, and all the investment assets are theirs. That is why there is savings + high interest student loan. We are combining the finances upon marriage.

Edit: spelling - wedding, not weeding.
Last edited by abat.rama on Mon Feb 17, 2020 8:41 am, edited 2 times in total.

jaj2276
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by jaj2276 » Sun Feb 16, 2020 5:52 pm

I assume you mean wedding. $40k is a bit high, any chance to save on that? Does this include everything like honeymoon or is this simply the wedding day/night? Any idea on whether most people will give cash or registry gifts? Our wedding was around $25k but with all the cash it only cost us about $10k out of pocket.

Why are you thinking $40k for a car? Do you need a car _now_? If so, is there a specific car that you need for your job? There are *plenty* of cars out there that can be had for low $20ks new AND if you need a certain type of car (i.e. SUV), you can get a late model used one in the low 20ks. I can't believe how much people pay for cars these days and consider them necessities.

A downpayment for a house of $175k seems like a $800k house. Is that right? Is there a reason why that's so expensive? Are you trying to get your "forever home" in one fell swoop? If so, stop. I did that back in 2006 and I'm now on my 5th house. I lost a ton of money on that first house too.

I'd scale back on the car and house "desires" and put all remaining money towards the student loan. Once that loan is paid off only then should you rush to get a $40k car or an $800k house.
Last edited by jaj2276 on Mon Feb 17, 2020 2:56 pm, edited 1 time in total.

Compound
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by Compound » Sun Feb 16, 2020 5:59 pm

Why $40k for the car budget? I’d say slash that dramatically and divert the funds toward other things.

Do you have a wedding date set?

Can you refinance the student loans at a lower rate?

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ICMoney
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by ICMoney » Sun Feb 16, 2020 6:31 pm

How much of the taxable account is long-term capital gains? Do you have any losses you could harvest? If you reduce your 401k deferrals, that tax advantaged space is gone forever. If you are able to sell off some of the taxable account (ie sell off anything with losses, which may not exist in this market...) to be able to max your 401k, think of it as shifting assets from not tax advantaged to tax advantaged space, which is a good thing.

You may want to consider a prenup as well.

Best, ICM

sambb
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by sambb » Sun Feb 16, 2020 7:31 pm

postpone house, lower price car, and prenup

OnTrack2020
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by OnTrack2020 » Sun Feb 16, 2020 10:10 pm

Elope or go to city hall and go on a modest honeymoon (Savings $30-$35k)
Car - Toyota Corolla or other small car (Savings $20k)
No house down payment at this time
Student Loans - You could put a lot of your after-tax income toward student loans

NDAMERICA
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by NDAMERICA » Sun Feb 16, 2020 10:20 pm

Honestly, I'd get after that debt right now and downscale your idea of a car, house and wedding. After debt is gone, which should be soon, cash flow your next priority/priorities. Gently used civic or corolla will be just fine. Trying to do too much at once clouds the mind.

mega317
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by mega317 » Sun Feb 16, 2020 10:48 pm

abat.rama wrote:
Sun Feb 16, 2020 5:43 pm
Our income after tax and living expenses is about 200k.
What does this mean? After paying taxes and living expenses you save 200k/year?
https://www.bogleheads.org/forum/viewtopic.php?t=6212

Topic Author
abat.rama
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by abat.rama » Mon Feb 17, 2020 3:48 am

Thank you for your suggestions!! They are all very helpful. Let me answer your questions.

- yes the 200k is what we can save after paying taxes and living expenses. But a big portion of it is in tax sheltered accounts, so if we were to use it towards paying down debt/expenses, it will approximately be 125k (with 50k pretax savings to get company match). This and the 150k in taxable account is what we are working with. I guess we can also borrow 50k for the downpayment of the house from 401k. Other that, no other source of income or asset. The big question we have is how to prioritize between savings and paying expenses. Plus, we will also pay more taxes in the process if we go aggressively on the expenses.

- about 50k of the 150k in taxable account is in longterm capital gains. No losses to harvest.

- we agree we can reduce the price of the car by buying used or entry level cars. My SO who will be driving it agrees, though I like a new SUV. Overall, we agree we can reduce the cost of buying a car by up to 20k.

- wedding cost is pretty much set given what type of wedding my SO wants. I care less about it but I agreed to it a while ago so I am going to go through it. Date is not set yet. Working on it. It is a tradition that guests give money and help cover their cost but I doubt it will be the case for us because we are relatively well off than most of the (extended) family we plan to invite. It will have to be from friends but I doubt it will be much.

- house can be postponed by a few years and will have to be. The quoted downpayment includes closing costs but, still, the value of the house we want to buy is in the higher end. My SO doesn't mind buying a small house in a less desirable neighborhood. However, I see us staying in the city we are at for a long time (up to 20 years) and I don't enjoy the home buying process, so I want us buy a forever house. The school district is the number 1 determining factor in the price of the house and I like us to buy in districts rated 8/10 or above. My SO agreed to it if we can afford it.

- we have not considered refinancing the loan. Thanks for mentioning it. We will look into it.

- prenup is noted.

mega317
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by mega317 » Mon Feb 17, 2020 3:55 am

I would keep maxing retirement and go hard on the debt with everything left. House can wait, car of 20 is fine, go nuts on the wedding. After all that then start saving for the house while continuing to max retirement. Don't dip into 401k for anything.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Bogle7
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elope

Post by Bogle7 » Mon Feb 17, 2020 4:09 am

$40K seems excessive for the “training marriage”.

IMhooked
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by IMhooked » Mon Feb 17, 2020 4:16 am

Hasn't been discussed yet...

Would you be willing to NOT contribute to retirement for one year and cash flow everything you 'need' (wedding, car, significant chop at the student loan debt)?

Perhaps enjoy married life for one year without the 'joy' of house hunting? Give yourself some mental breathing space. Prioritize and get through each one TOGETHER, take a breath, then plan to attack the next priority.

ADDITIONALLY: Lots of life in front of you both, perhaps slow down. You're in a good position with a good foundation for a lifetime of happiness. Seems societal expectations and a "hurry up" let's get to 1st world ideal is unduly pressuring the situation here.

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Tamarind
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by Tamarind » Mon Feb 17, 2020 7:15 am

I see no problem with spending the taxable account if you like, provided you won't be incurring loads of capital gains. I can't endorse reducing your tax advantaged savings for all that spending. You get hit twice that way - once for the wedding, once at your marginal rate for the extra taxes you paid so you could spend on the wedding. This failure to budget cash flow is how people with high income end up feeling strapped even though they are living on incomes that could support a half dozen average families.

The student loan, on the other hand, is going to be your new priority after tax-advantaged savings.

You make enough to cash flow all of these things, just not all at once.

Delay the house hunt, look for a less expensive house until your wife's got her job, cut the car budget in half, and/or consider carefully your line items for the wedding. I would strongly suggest that one of your earliest exercises together as a couple be figuring out how to plan with the cash you can both raise together.

aristotelian
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by aristotelian » Mon Feb 17, 2020 7:22 am

Hard to say without more detailed numbers. I assume you are in a high tax bracket. You will get bugger bang for your buck by maxing all retirement accounts as top priority. You can either save 19500 in your 401k or get perhaps 15k in your paycheck to spend on the other items. If cash flow is a concern I would just pay minimums on the student loans for now. House and car would also be low priorities. You can also easily do all of the above if you cut your budgets. You can get a decent car to last you 5 years for $10k and a nice wedding for $20k.

Dottie57
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Re: Lots of big financial decisions to make in short time | please help naviga

Post by Dottie57 » Mon Feb 17, 2020 7:30 am

sambb wrote:
Sun Feb 16, 2020 7:31 pm
postpone house, lower price car, and prenup
+1 - prenup for both involved. Lawyers on both sides.


Seriously, forget the house. Less expensive car and maybe elope. Others have said and I agree, - you can do anything you want but you can’t do everything. Doing all that you have listed will probably cause stress and problems.

I do agree with the poster who says to concentrate on student loans then car and house.

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mmmodem
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by mmmodem » Mon Feb 17, 2020 8:28 am

I pretty much agree with you. I actually have no issues with the costs you've outlined. I think you can pay off student loans and have the wedding without postponement. The only sacrifice is postpone buying your SUV.

1. Reduce 401k to matching but continue to max Roth IRA. I consider home equity as savings and money is fungible across my retirement accounts. You can take principle out of the Roth IRA so that should be maxed. 401k loans usually must be paid back immediately at separation from your job so it's preferable to temporarily pause 401k contributions beyond the match.
2. Aggressively save for the wedding and home downpayment.
3. Delay car buying until after the home is purchased. Buy used for cash temporarily if you need to. Your car loan and student loan debt will be big factors to your debt to income ratio affecting your loan approval.
4. Do not pay off the student loan unless it is yours or after marriage. This is just common sense safety. At 5%, I would actually pay this off first before purchasing a home.
5. With your current savings and income, you shouldn't have any issues with the student loan paid off and $200k saved for the downpayment in 2 years. Yes, specifically, I mean save half your income ($100k per year) to pay off the student loan. You'll then have $50k + $150k you already have in taxable. I'm assuming you have taxable gains in your taxable account. If not pay off the student loan immediately with your taxable account.
6. Buy your SUV. Car manufacturers are so desperate they'll give you 0% loans with a FICO score below 600 with zero downpayment and completely ignore your debt to income ratio.

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Re: Lots of big financial decisions to make in short time | please help navigate

Post by ScubaHogg » Mon Feb 17, 2020 9:02 am

abat.rama wrote:
Sun Feb 16, 2020 5:43 pm
We have big expenses in the horizon: wedding (40k), car(40k), downpayment for a house(175k), student loan(150k @ 5%). Wedding is in the summer 2021. Car is summer 2020. House and student loan payments don't have a strict timing but we would like to be done with in a few years..
,.
The purchase price of my 2 cars combined was less than half of what you are looking at for a car. There is no reason to buy a 40k car (especially so if you have 150k in student loans). I’d say cut that number in half at least. You won’t regret it.
“There is no problem so bad you can’t make it worse.” - Chris Hatfield, Astronaut mantra

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abat.rama
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Re: Lots of big financial decisions to make in short time | please help navigate

Post by abat.rama » Mon Feb 17, 2020 2:49 pm

Thank you everyone for taking the time to comment and give advice.

The majority seem to say we should
- lower the purchasing price for the car, which we are considering it very seriously now
- lower the wedding cost. This is a bit beyond the realm of possibilities given the large extended family we have on both sides.
- pay the loan ASAP. We agree.
- postpone the home purchase. We agree.
- prenup. We discussed this before and agreed.

The one thing that is still not clear to us is the pros and cons of forgoing tax advantaged savings and using the 150k in the taxable account (about 50k is subject to capital gains tax) to pay the student loan. We will hit the 32% federal and 5% state tax brackets, so we will be paying 40 cents in taxes for every 60 cents we get to pay for the loan (after you add local etc. taxes). We both have access to 401k, 403b, 457, and HSA on pretax basis.

What do you advise on this last point? Thanks!!

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