help me straighten out, please [getting financial life in order]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
JD2775
Posts: 1503
Joined: Thu Jul 09, 2015 10:47 pm

Re: help me straighten out, please

Post by JD2775 »

Rasputin13 wrote: Thu Oct 21, 2021 10:04 am
tashnewbie wrote: Thu Oct 21, 2021 9:45 am
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
I would eliminate the things I struck above.

There's no reason you should be using a brokerage account when you have the debt you have. You should confirm, but I think the current federal student loan forbearance period ends on 1/31/22, so your regular payments and interest accrual will restart on February 1. I suspect the interest rates are in the 4-6% range. When the forbearance period ends, you should compare the advantages and disadvantages of refinancing the loans (e.g., if you refinance, you'd lose some federal protections like the ability to qualify for PSLF, income-based payments, and the forbearance that has occurred over the past ~2 years).

You should consider using a Roth IRA as an emergency fund instead of saving an emergency fund in a taxable account (the Ally savings account) when you're not maxing retirement plans. See this wiki: Roth IRA as an Emergency Fund.

You should be able to reduce the cell phone bill (assuming you're just paying for a plan and not the phone too). There are lots of cell phone plans in the $15-20/month range offered by MVNOs (Mint, Red Pocket, Tello, etc.) with whichever carrier works best in your area.
I max my Roth after a few months so I then out money into the brokerage to be able to invest more. Is this bad?
As mentioned by many people above, including myself, yes it is bad with the debt-load you carry. That brokerage money should be going to debt repayment. But, you do what you want to do
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: help me straighten out, please

Post by tashnewbie »

Rasputin13 wrote: Thu Oct 21, 2021 10:04 am
tashnewbie wrote: Thu Oct 21, 2021 9:45 am
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
I would eliminate the things I struck above.

There's no reason you should be using a brokerage account when you have the debt you have. You should confirm, but I think the current federal student loan forbearance period ends on 1/31/22, so your regular payments and interest accrual will restart on February 1. I suspect the interest rates are in the 4-6% range. When the forbearance period ends, you should compare the advantages and disadvantages of refinancing the loans (e.g., if you refinance, you'd lose some federal protections like the ability to qualify for PSLF, income-based payments, and the forbearance that has occurred over the past ~2 years).

You should consider using a Roth IRA as an emergency fund instead of saving an emergency fund in a taxable account (the Ally savings account) when you're not maxing retirement plans. See this wiki: Roth IRA as an Emergency Fund.

You should be able to reduce the cell phone bill (assuming you're just paying for a plan and not the phone too). There are lots of cell phone plans in the $15-20/month range offered by MVNOs (Mint, Red Pocket, Tello, etc.) with whichever carrier works best in your area.
I max my Roth after a few months so I then out money into the brokerage to be able to invest more. Is this bad?
Read the wiki I linked above about using the Roth IRA as an emergency fund. That's possible because Roth IRA contributions (but not the earnings) can be withdrawn at any time, penalty- and tax-free. If you can't max retirement plans, then it's better to use the Roth IRA as an emergency fund versus saving the emergency fund in a taxable account. If using a Roth IRA as an emergency fund, you shouldn't invest the contributions you may need to use as an emergency fund in riskier assets; use a money market account or ultra short term bond fund, for example.

In your situation, I would max the Roth IRA as an emergency fund, as described above. I would do that for you and your wife. If you don't have enough to max both, I personally would prefer to put equivalent amounts into each person's Roth IRA.

After the Roth IRA contributions, I wouldn't be doing any more investing. Your employer's 7.5% contribution in 2022 doesn't require any contributions from you. Any extra money would be used to pay down the debt. No brokerage account investing. Not with your debt. Debt payoff is a guaranteed return, whereas investing doesn't have one.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

Rasputin13 wrote: Thu Oct 21, 2021 9:52 am
exodusNH wrote: Thu Oct 21, 2021 9:31 am
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am I’m sure it’s the debt to income ratio as well.

Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Sell your VFIAX. Pay off your car. Stop investing in taxable accounts until you've paid off the rest of your debt. Since Roth is a use-it-or-lose-it, it's tougher to say don't invest there, but it is something to consider, since the debt is what's causing your problem.

If you're not under contract, switch to a lower-cost cell phone provider. I have my mother on US Mobile for $20/mo. They are a Verizon MVNO and so have roughly the same coverage.
What you mean “use it or lose it?” Doesn’t my spouse get the remaining funds if I die or get murdered violently?
Hahaha, no! I meant that IRA contributions are limited to the tax year. If you don't contribute in 2021, you can't contribute 2x in 2022 to make up for it. That's why it's harder to suggest stopping contributions to an IRA (or other retirement plan).

However, tashnewbie's using-your-Roth-as-emergency-fund is a good idea, too! At least for the emergency part. If you know that you have $X in professional development per year, you might consider keeping that in a savings account rather than the Roth since you know you're going to pull that money out.

And, again, please don't consider renting a bad thing. My property taxes are almost double what they were 16 years ago. I've repainted about 80% of the interior. I just put a roof on, which cost me about 70% more than it should have AND have some ceiling damage that also needs to be fixed. My refrigerator died out of the blue in 2018. My stove also needed replacing at the same time. I just spent $400 paying a plumber to snake out my kitchen drain line. (I tried it first with a manual snake, but couldn't get it to clear the line. The powered snake made short work of it.) Of course, this happened on a Saturday night, so we lived with it until yesterday to avoid paying emergency plumber fees. I've replaced every faucet in the house, including one that failed after 18 months. There are the annual fees for servicing my furnace, which is from 1927.

Owing is not better than renting. It's just different.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

Rasputin13 wrote: Thu Oct 21, 2021 10:04 am I max my Roth after a few months so I then out money into the brokerage to be able to invest more. Is this bad?
It's not bad. It's just not addressing your problem, which is your debt.
Ivygirl
Posts: 1212
Joined: Sun Apr 06, 2014 1:36 pm

Re: help me straighten out, please

Post by Ivygirl »

deikel wrote: Thu Oct 21, 2021 8:40 am
Whitecap wrote: Thu Oct 21, 2021 8:30 am Please consider the points above from “Wyomingfire” and “point”. As someone who has personally used Dave Ramsey to eliminate debt, I can say I agree with their advice to you. You don’t need to spend money on Dave’s financial peace university products. Start doing research on the tenets of his programs, and follow them yourself.

I made my wife my ally in that endeavor, and we approached it as a family. This can be a team sport which brings you two closer together. Keep renting for now. Get your emergency fund set up. Then apply all your effort to killing your debt quickly.

You are now “middle- aged”. Yesterday was the time to crush that debt….. not tomorrow. It will be very difficult investing and reducing debt at the same time. From my own personal experience - It felt like I could not gain any momentum in my investing when I was carrying the yoke and burden of debt. It also felt like I couldn’t reduce my debt when I was investing. It wasn’t until I became debt free that I saw my net worth rocket up toward prosperity and security. In general - one thing at a time. One step at a time.

Dave Ramsey get’s a bad rap on Bogleheads because he gives investing advice which is contrary to the bogleheads philosophy. (I don’t agree with Dave’s investing philosophy- I’m a boglehead person). [OT comments removed by admin LadyGeek] focus on his debt reduction plans. This will reduce the stress in your life. Then start looking at the next chapters of your family’s future.

Warm regards,
Whitecap
[OT comments removed by admin LadyGeek]

On top of that, his 'system' is neither new nor innovative nor particularly interesting in any way - its simple personal finance that you can read up on from a thousand bloggers, youtubers, library books and what have you

His investment advise is sometimes downright bad

At the end of the day he is a TV figure that is using personal finance and the people he is 'helping' as entertainment. Calling his show info-tainment is already a stretch.

If someone takes something positive away from him, great, good for them. But seriously recommending him, I would not.
Do it the way Mr. Ramsey says, and it will work. Doing it your own way is not working.

"His investment advice is sometimes downright bad" - I keep hearing that, but pretty sure it's not true. 100% stocks on top of no debt, fat emergency funds, and rapidly paid-off house? Plus the habit of living well under one's means which one gained by following his program. Not sure a person doing that could escape getting rich.
delamer
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Joined: Tue Feb 08, 2011 5:13 pm

Re: help me straighten out, please

Post by delamer »

What are the interest rates on your loans? Does your wife have a car loan too?

The best approach is to pay extra toward the highest interest loan first.

Life has trade-offs. Is paying $200 a month for acting/music lessons when you have almost $160,000 in student loan debt and can’t get approved for a mortgage a trade-off you want to continue to make?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Zeno
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Joined: Wed Sep 12, 2018 10:44 am

Re: help me straighten out, please

Post by Zeno »

Watty wrote: Thu Oct 21, 2021 10:06 am
WyomingFIRE wrote: Thu Oct 21, 2021 7:52 am I am open to any advice.
One thing I have done for years is on January 1st I update a very simple spreadsheet where I calculate my net worth with a new column for each year. This allows me to see my progress each year.
No biggee, just flagging that the quote above is OP's, not mine. I've tried to be an advice giver here, as opposed to receiver :)
exodusNH
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Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

Californiastate wrote: Thu Oct 21, 2021 10:02 am I was trying to figure out why so many people are pro-rent. It now makes sense. Some of them, like yourself, were burned during the GFC.
I was. But that's not what really drives my opinion.

I'm against the notion that owning is always better than renting. There are times when one is mathematically better than the other, but over a lifetime, they roughly equal out.

Renting gives you flexibility to move to where jobs are. It keeps you from locking up a large percentage of your wealth in an illiquid asset. It gives you a known payment, even if that payment might increase 3-5% every year.

Owning does give you an asset, though one that depreciates. But it ties up a large chunk of money that you could have invested. There are "lumpy" expenses that occur. My central AC unit died in June. While that might be considered a luxury, my SO has asthma and struggles to breathe when it's humid. Then we get 12" of rain in July, which causes the roof to leak in two places. So now, we've got to buy some window AC units so that I can pay for the roof, which cost $17K for what should have been $9K-$10K.

Had the GFC not happened, I'm sure my house would have kept up with inflation, perhaps even outpaced it a bit. However, had I taken the $60K down payment and invested it, my net worth in that scenario would be roughly the same. With the GFC, it would have been more.

Of course, there are non-financial benefits to owning a single-family home, namely that you don't share a wall with people. But if you get crappy neighbors, you're just as screwed. Some people take pride in owning a home. I certainly like my house. I enjoy that I have a backyard. But if I were in a rental with walls that kept me from ever hearing my neighbors, I think I'd be just as happy.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

Ivygirl wrote: Thu Oct 21, 2021 10:20 am Do it the way Mr. Ramsey says, and it will work. Doing it your own way is not working.

"His investment advice is sometimes downright bad" - I keep hearing that, but pretty sure it's not true. 100% stocks on top of no debt, fat emergency funds, and rapidly paid-off house? Plus the habit of living well under one's means which one gained by following his program. Not sure a person doing that could escape getting rich.
His investing advice is suspect because he advocates for actively-managed funds. He justifies picking mutual by looking at the past returns. As Morningstar pointed out, the only reliable measure of a fund's performance is its expense ratio. The lower, the better.
Whitecap
Posts: 147
Joined: Wed Dec 09, 2020 8:34 pm

Re: help me straighten out, please

Post by Whitecap »

Ivygirl wrote: Thu Oct 21, 2021 10:20 am
deikel wrote: Thu Oct 21, 2021 8:40 am
Whitecap wrote: Thu Oct 21, 2021 8:30 am Please consider the points above from “Wyomingfire” and “point”. As someone who has personally used Dave Ramsey to eliminate debt, I can say I agree with their advice to you. You don’t need to spend money on Dave’s financial peace university products. Start doing research on the tenets of his programs, and follow them yourself.

I made my wife my ally in that endeavor, and we approached it as a family. This can be a team sport which brings you two closer together. Keep renting for now. Get your emergency fund set up. Then apply all your effort to killing your debt quickly.

You are now “middle- aged”. Yesterday was the time to crush that debt….. not tomorrow. It will be very difficult investing and reducing debt at the same time. From my own personal experience - It felt like I could not gain any momentum in my investing when I was carrying the yoke and burden of debt. It also felt like I couldn’t reduce my debt when I was investing. It wasn’t until I became debt free that I saw my net worth rocket up toward prosperity and security. In general - one thing at a time. One step at a time.

Dave Ramsey get’s a bad rap on Bogleheads because he gives investing advice which is contrary to the bogleheads philosophy. (I don’t agree with Dave’s investing philosophy- I’m a boglehead person). Dave Ramsey also gets a bad rap on Bogleheads because he is deeply religious. That rubs some here the wrong way. Disregard both areas of friction here, and focus on his debt reduction plans. This will reduce the stress in your life. Then start looking at the next chapters of your family’s future.

Warm regards,
Whitecap
Ramsey has a bad rep because his religious tint makes it a moral failing if you don't pull yourself out of debt instead of approaching it in a neutral and mathematical way that leaves people to make their own value decisions.

On top of that, his 'system' is neither new nor innovative nor particularly interesting in any way - its simple personal finance that you can read up on from a thousand bloggers, youtubers, library books and what have you

His investment advise is sometimes downright bad

At the end of the day he is a TV figure that is using personal finance and the people he is 'helping' as entertainment. Calling his show info-tainment is already a stretch.

If someone takes something positive away from him, great, good for them. But seriously recommending him, I would not.
Do it the way Mr. Ramsey says, and it will work. Doing it your own way is not working.

"His investment advice is sometimes downright bad" - I keep hearing that, but pretty sure it's not true. 100% stocks on top of no debt, fat emergency funds, and rapidly paid-off house? Plus the habit of living well under one's means which one gained by following his program. Not sure a person doing that could escape getting rich.
I’m with you Ivy.

Please check out Dave Ramsey and follow his advice on how to pay off your debts. Focus on that.
He has helped many, many, thousands become free again.
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retiredjg
Posts: 54082
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Re: help me straighten out, please

Post by retiredjg »

Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: help me straighten out, please

Post by wetgear »

Rasputin13 wrote: Thu Oct 21, 2021 10:00 am
wetgear wrote: Thu Oct 21, 2021 9:32 am
Rasputin13 wrote: Thu Oct 21, 2021 9:15 am Same question ha been asked, so let me answer it. The interest is not accumulating. It’s the Covid deferal thing. When I go on the website, it doesn’t even show what the interest rates are, so I can’t answer that. I believe I am obligated to start making payments come March. Should be around $1,000 a month unless I do a consolidation with a repayment plan, which I might do as I am in medicine and work for a nonprofit.
I think a phone call is in order, it's completely unacceptable that you can't know what interest rate you will be paying. Knowing that rate will help you know if a consolidation plan will be worth it, otherwise you are flying blind.

If I was in your shoes I'd consider downgrading the car. The used market is hot right now so you should be able to get a good ROI from your existing car and switch to another used car that will still last you a very long time (camry, civic, corolla...). The more debt you can knock out the more the lender will be willing to loan you for a mortgage.
My current car is a 2016 Subaru Impreza with 99,000 miles I should be able to eek out another 50,000
$8500 more dollars for 50,000 miles is a terrible deal. Even more reason to downgrade. You should be able to get a car that will give you 50-100k miles for 4k total. Hopefully your Impreza has more value than what you owe.
Topic Author
Rasputin13
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Joined: Wed Oct 20, 2021 8:05 am

Re: help me straighten out, please

Post by Rasputin13 »

wetgear wrote: Thu Oct 21, 2021 11:31 am
Rasputin13 wrote: Thu Oct 21, 2021 10:00 am
wetgear wrote: Thu Oct 21, 2021 9:32 am
Rasputin13 wrote: Thu Oct 21, 2021 9:15 am Same question ha been asked, so let me answer it. The interest is not accumulating. It’s the Covid deferal thing. When I go on the website, it doesn’t even show what the interest rates are, so I can’t answer that. I believe I am obligated to start making payments come March. Should be around $1,000 a month unless I do a consolidation with a repayment plan, which I might do as I am in medicine and work for a nonprofit.
I think a phone call is in order, it's completely unacceptable that you can't know what interest rate you will be paying. Knowing that rate will help you know if a consolidation plan will be worth it, otherwise you are flying blind.

If I was in your shoes I'd consider downgrading the car. The used market is hot right now so you should be able to get a good ROI from your existing car and switch to another used car that will still last you a very long time (camry, civic, corolla...). The more debt you can knock out the more the lender will be willing to loan you for a mortgage.
My current car is a 2016 Subaru Impreza with 99,000 miles I should be able to eek out another 50,000
$8500 more dollars for 50,000 miles is a terrible deal. Even more reason to downgrade. You should be able to get a car that will give you 50-100k miles for 4k total. Hopefully your Impreza has more value than what you owe.
trade value right now on the impreza is around $11,000
Topic Author
Rasputin13
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Re: help me straighten out, please

Post by Rasputin13 »

retiredjg wrote: Thu Oct 21, 2021 11:13 am
Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
Will do. I am glad y'all helping me see what's most important.

One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
wetgear
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Re: help me straighten out, please

Post by wetgear »

Rasputin13 wrote: Thu Oct 21, 2021 11:44 am trade value right now on the impreza is around $11,000
Knowing this I think it's a no brainer to get out from under this debt by downgrading the car. That is if you want to buy a house soon. Not having a car payment lets you tackle the other debt faster. It's not exactly 1:1 but if you can get rid of 50k or debt the bank will probably be willing to loan you ~50k more towards the house. What you owe on the car is 17% of that 50k of debt.
tashnewbie
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Re: help me straighten out, please

Post by tashnewbie »

Rasputin13 wrote: Thu Oct 21, 2021 11:46 am
retiredjg wrote: Thu Oct 21, 2021 11:13 am
Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
Will do. I am glad y'all helping me see what's most important.

One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
You can do $12k into Roth IRAs between you and your spouse. Plus your employer is kicking in 7.5% into your 403b. That's enough investing for now.

The sooner you pay off your debt, the sooner you can start making contributions to your 403b (taxable brokerage would be a last priority, after these other accounts are maxed each year).
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retiredjg
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Re: help me straighten out, please

Post by retiredjg »

Rasputin13 wrote: Thu Oct 21, 2021 11:46 am
retiredjg wrote: Thu Oct 21, 2021 11:13 am
Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
Will do. I am glad y'all helping me see what's most important.

One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
Yes, I think you need to contribute now to both retirement accounts and pay off debt. If you have a match in your work plan, be sure to get that first.
wetgear
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Re: help me straighten out, please

Post by wetgear »

Rasputin13 wrote: Thu Oct 21, 2021 11:46 am One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
There is some truth to this but investing in a taxable account is usually the last place you want to put your money. Check out this link for more details.
https://www.bogleheads.org/wiki/Priorit ... nvestments

If you post in the suggested format below you'll get better and more complete advice looking at the whole picture.
viewtopic.php?f=1&t=6212
exodusNH
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Re: help me straighten out, please

Post by exodusNH »

Rasputin13 wrote: Thu Oct 21, 2021 11:46 am
retiredjg wrote: Thu Oct 21, 2021 11:13 am
Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
Will do. I am glad y'all helping me see what's most important.

One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
Short of death, the debt is not going away.

Paying off the debt give you an immediate return on investment of the interest rate. Investing will make money over the long term, but could do nothing for many years, or even be slightly negative. (E.g. 2000-2013 when adjusting for inflation.) Over those 14 year, your market investments would be down. You'd still be racking up interest.
SpreadsheetsAreFun
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Re: help me straighten out, please

Post by SpreadsheetsAreFun »

exodusNH wrote: Thu Oct 21, 2021 10:13 am
Rasputin13 wrote: Thu Oct 21, 2021 9:52 am
exodusNH wrote: Thu Oct 21, 2021 9:31 am
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am I’m sure it’s the debt to income ratio as well.

Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Sell your VFIAX. Pay off your car. Stop investing in taxable accounts until you've paid off the rest of your debt. Since Roth is a use-it-or-lose-it, it's tougher to say don't invest there, but it is something to consider, since the debt is what's causing your problem.

If you're not under contract, switch to a lower-cost cell phone provider. I have my mother on US Mobile for $20/mo. They are a Verizon MVNO and so have roughly the same coverage.
What you mean “use it or lose it?” Doesn’t my spouse get the remaining funds if I die or get murdered violently?
Hahaha, no! I meant that IRA contributions are limited to the tax year. If you don't contribute in 2021, you can't contribute 2x in 2022 to make up for it. That's why it's harder to suggest stopping contributions to an IRA (or other retirement plan).

However, tashnewbie's using-your-Roth-as-emergency-fund is a good idea, too! At least for the emergency part. If you know that you have $X in professional development per year, you might consider keeping that in a savings account rather than the Roth since you know you're going to pull that money out.

And, again, please don't consider renting a bad thing. My property taxes are almost double what they were 16 years ago. I've repainted about 80% of the interior. I just put a roof on, which cost me about 70% more than it should have AND have some ceiling damage that also needs to be fixed. My refrigerator died out of the blue in 2018. My stove also needed replacing at the same time. I just spent $400 paying a plumber to snake out my kitchen drain line. (I tried it first with a manual snake, but couldn't get it to clear the line. The powered snake made short work of it.) Of course, this happened on a Saturday night, so we lived with it until yesterday to avoid paying emergency plumber fees. I've replaced every faucet in the house, including one that failed after 18 months. There are the annual fees for servicing my furnace, which is from 1927.

Owing is not better than renting. It's just different.
Hello Rasputin13. Highlighting your statement that your half of the rent is currently $505. You mention that you need about 200k - 250k to get "decent place in a normal neighborhood". Am I assuming correctly that this would be the amount you plan to use for a 20% downpayment? If so, are you aspiring to buy a house with a cost range of 1.00M - 1.25M? Doing some very quick calculations online for financing a 1.00M house with 200K downpayment with an interest rate of 3.5% over 30 years would cost you monthly more than $3500 just for the mortgage. That is without home insurance or taxes. Including insurance and taxes you would see your housing expenses probably at least quadruple from what you pay now.

Please clarify what your assumptions are. Maybe I am off by far and the numbers are more in your favor than the above calculation indicates.
Have a great day. | Asset allocation: 70% Stocks, 15% Treasuries, 15% Gold (all ETFs)
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

wetgear wrote: Thu Oct 21, 2021 11:31 am
Rasputin13 wrote: Thu Oct 21, 2021 10:00 am
wetgear wrote: Thu Oct 21, 2021 9:32 am
Rasputin13 wrote: Thu Oct 21, 2021 9:15 am Same question ha been asked, so let me answer it. The interest is not accumulating. It’s the Covid deferal thing. When I go on the website, it doesn’t even show what the interest rates are, so I can’t answer that. I believe I am obligated to start making payments come March. Should be around $1,000 a month unless I do a consolidation with a repayment plan, which I might do as I am in medicine and work for a nonprofit.
I think a phone call is in order, it's completely unacceptable that you can't know what interest rate you will be paying. Knowing that rate will help you know if a consolidation plan will be worth it, otherwise you are flying blind.

If I was in your shoes I'd consider downgrading the car. The used market is hot right now so you should be able to get a good ROI from your existing car and switch to another used car that will still last you a very long time (camry, civic, corolla...). The more debt you can knock out the more the lender will be willing to loan you for a mortgage.
My current car is a 2016 Subaru Impreza with 99,000 miles I should be able to eek out another 50,000
$8500 more dollars for 50,000 miles is a terrible deal. Even more reason to downgrade. You should be able to get a car that will give you 50-100k miles for 4k total. Hopefully your Impreza has more value than what you owe.
I'm not sure that's true right now, without buying a 15-year-old car.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

SpreadsheetsAreFun wrote: Thu Oct 21, 2021 12:06 pm Hello Rasputin13. Highlighting your statement that your half of the rent is currently $505. You mention that you need about 200k - 250k to get "decent place in a normal neighborhood". Am I assuming correctly that this would be the amount you plan to use for a 20% downpayment? If so, are you aspiring to buy a house with a cost range of 1.00M - 1.25M? Doing some very quick calculations online for financing a 1.00M house with 200K downpayment with an interest rate of 3.5% over 30 years would cost you monthly more than $3500 just for the mortgage. That is without home insurance or taxes. Including insurance and taxes you would see your housing expenses probably at least quadruple from what you pay now.

Please clarify what your assumptions are. Maybe I am off by far and the numbers are more in your favor than the above calculation indicates.
No, the house he wants is $200K-$250K, not the down payment. They've been preapproved for only $150K.
User avatar
ResearchMed
Posts: 16795
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Re: help me straighten out, please

Post by ResearchMed »

Rasputin13 wrote: Thu Oct 21, 2021 11:46 am
retiredjg wrote: Thu Oct 21, 2021 11:13 am
Rasputin13 wrote: Thu Oct 21, 2021 8:11 am Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
Unfortunately, the mortgage is not the full cost of homeownership by a long shot. Comparing rent to mortgage is not the right comparison.

I'm sorry to say this but I don't think you can afford a home just now. Or at least not the homes you are looking at. You have essentially no retirement savings and taking care of this is a much higher priority in my opinion.

Concentrate on your debt and retirement savings for now.
Will do. I am glad y'all helping me see what's most important.

One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
Yes, "time in the market" matters, and even more so due to compounding.
But do keep in mind that in a taxable account, much of the interest/etc., is also compounding. There are "tax efficient" mutual funds for just this purpose. They try to minimize throwing off anything like interest or dividends that would be taxed. However, even IF those bits are taxed, the remainder (the part not taxes) is still there to continue to grow. Tax-advantaged investing is better than taxable investing, but that doesn't make taxable investing "bad", and especially not if one uses tax efficient holdings.

Also... "time in debt" also matters. However, it's the reverse; it is the lender who is getting that compounding advantage... and it's coming from... the borrower.

IF the interest rate is zero (or very, very low), then that can obviously change the situation.

But also double check that whatever isn't paid off by some particular date doesn't trigger retroactive interest on the entire amount, from day one. (I have no idea how your loans work, but some consumer-type loans with "zero interest" work this way. If someone has even a small amount remaining by the time the zero-rate interval ends, then in some cases, they sort of "look back" and determine what that person would have owed if the full interest rate (which is usually very high) had been in place from day one. :shock:
That's probably not your situation with educational loans, but do check, and also keep this in mind if you ever do get any consumer loans, such as that "nice" 18 month zero interest rate" credit card. That can be an example of what I described.

RM
This signature is a placebo. You are in the control group.
SpreadsheetsAreFun
Posts: 30
Joined: Thu Aug 26, 2021 12:23 pm

Re: help me straighten out, please

Post by SpreadsheetsAreFun »

exodusNH wrote: Thu Oct 21, 2021 12:20 pm
SpreadsheetsAreFun wrote: Thu Oct 21, 2021 12:06 pm Hello Rasputin13. Highlighting your statement that your half of the rent is currently $505. You mention that you need about 200k - 250k to get "decent place in a normal neighborhood". Am I assuming correctly that this would be the amount you plan to use for a 20% downpayment? If so, are you aspiring to buy a house with a cost range of 1.00M - 1.25M? Doing some very quick calculations online for financing a 1.00M house with 200K downpayment with an interest rate of 3.5% over 30 years would cost you monthly more than $3500 just for the mortgage. That is without home insurance or taxes. Including insurance and taxes you would see your housing expenses probably at least quadruple from what you pay now.

Please clarify what your assumptions are. Maybe I am off by far and the numbers are more in your favor than the above calculation indicates.
No, the house he wants is $200K-$250K, not the down payment. They've been preapproved for only $150K.
Oh, apologies. I was confusing myself :oops:
Have a great day. | Asset allocation: 70% Stocks, 15% Treasuries, 15% Gold (all ETFs)
onourway
Posts: 3778
Joined: Thu Dec 08, 2016 2:39 pm

Re: help me straighten out, please

Post by onourway »

Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Your gross income from your salary alone is nearly $8k/month. Even if you are paying $1000/month for your student loans and $500/month on gas and groceries, you're only at ~$4000 in monthly expenses. It's not exactly clear what your net take-home is after taxes, insurance, retirement, etc. but it seems likely to me that there is still a not-insignificant hole in your budget that you aren't accounting for because you don't track it and don't think it's a big deal. However even a few hundred dollars a month is a big deal in your shoes. I think you need to run a tight budget for a while to make sure there are no serious leaks.

Additionally, there is a common saying here along the lines of "you can have most of what you want but not everything you want." You wanted to go to grad school either late and/or for many years. You want to work at a non-profit that limits your salary. You want to own a car with a significant payment. You want to get caught up with your retirement savings. You want to have an expensive cell phone and plan and expensive lessons every month. And you now want to own a home.

You are at a point where your wants significantly outweigh your financial position and the only option is to make some concessions.
Topic Author
Rasputin13
Posts: 58
Joined: Wed Oct 20, 2021 8:05 am

Re: help me straighten out, please

Post by Rasputin13 »

wetgear wrote: Thu Oct 21, 2021 11:58 am
Rasputin13 wrote: Thu Oct 21, 2021 11:46 am One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
There is some truth to this but investing in a taxable account is usually the last place you want to put your money. Check out this link for more details.
https://www.bogleheads.org/wiki/Priorit ... nvestments

If you post in the suggested format below you'll get better and more complete advice looking at the whole picture.
viewtopic.php?f=1&t=6212
What does one do if he is able to invest more than the $6,000 max in the IRA, though? Even a low earner such as myself? I can contribute more than $6K per year.
Topic Author
Rasputin13
Posts: 58
Joined: Wed Oct 20, 2021 8:05 am

Re: help me straighten out, please

Post by Rasputin13 »

SpreadsheetsAreFun wrote: Thu Oct 21, 2021 12:06 pm
exodusNH wrote: Thu Oct 21, 2021 10:13 am
Rasputin13 wrote: Thu Oct 21, 2021 9:52 am
exodusNH wrote: Thu Oct 21, 2021 9:31 am
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am I’m sure it’s the debt to income ratio as well.

Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Sell your VFIAX. Pay off your car. Stop investing in taxable accounts until you've paid off the rest of your debt. Since Roth is a use-it-or-lose-it, it's tougher to say don't invest there, but it is something to consider, since the debt is what's causing your problem.

If you're not under contract, switch to a lower-cost cell phone provider. I have my mother on US Mobile for $20/mo. They are a Verizon MVNO and so have roughly the same coverage.
What you mean “use it or lose it?” Doesn’t my spouse get the remaining funds if I die or get murdered violently?
Hahaha, no! I meant that IRA contributions are limited to the tax year. If you don't contribute in 2021, you can't contribute 2x in 2022 to make up for it. That's why it's harder to suggest stopping contributions to an IRA (or other retirement plan).

However, tashnewbie's using-your-Roth-as-emergency-fund is a good idea, too! At least for the emergency part. If you know that you have $X in professional development per year, you might consider keeping that in a savings account rather than the Roth since you know you're going to pull that money out.

And, again, please don't consider renting a bad thing. My property taxes are almost double what they were 16 years ago. I've repainted about 80% of the interior. I just put a roof on, which cost me about 70% more than it should have AND have some ceiling damage that also needs to be fixed. My refrigerator died out of the blue in 2018. My stove also needed replacing at the same time. I just spent $400 paying a plumber to snake out my kitchen drain line. (I tried it first with a manual snake, but couldn't get it to clear the line. The powered snake made short work of it.) Of course, this happened on a Saturday night, so we lived with it until yesterday to avoid paying emergency plumber fees. I've replaced every faucet in the house, including one that failed after 18 months. There are the annual fees for servicing my furnace, which is from 1927.

Owing is not better than renting. It's just different.
Hello Rasputin13. Highlighting your statement that your half of the rent is currently $505. You mention that you need about 200k - 250k to get "decent place in a normal neighborhood". Am I assuming correctly that this would be the amount you plan to use for a 20% downpayment? If so, are you aspiring to buy a house with a cost range of 1.00M - 1.25M? Doing some very quick calculations online for financing a 1.00M house with 200K downpayment with an interest rate of 3.5% over 30 years would cost you monthly more than $3500 just for the mortgage. That is without home insurance or taxes. Including insurance and taxes you would see your housing expenses probably at least quadruple from what you pay now.

Please clarify what your assumptions are. Maybe I am off by far and the numbers are more in your favor than the above calculation indicates.
No. A decent house here would be $200-$250K. We’ve been preapproved for $150K
Topic Author
Rasputin13
Posts: 58
Joined: Wed Oct 20, 2021 8:05 am

Re: help me straighten out, please

Post by Rasputin13 »

onourway wrote: Thu Oct 21, 2021 12:35 pm
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Your gross income from your salary alone is nearly $8k/month. Even if you are paying $1000/month for your student loans and $500/month on gas and groceries, you're only at ~$4000 in monthly expenses. It's not exactly clear what your net take-home is after taxes, insurance, retirement, etc. but it seems likely to me that there is still a not-insignificant hole in your budget that you aren't accounting for because you don't track it and don't think it's a big deal. However even a few hundred dollars a month is a big deal in your shoes. I think you need to run a tight budget for a while to make sure there are no serious leaks.

Additionally, there is a common saying here along the lines of "you can have most of what you want but not everything you want." You wanted to go to grad school either late and/or for many years. You want to work at a non-profit that limits your salary. You want to own a car with a significant payment. You want to get caught up with your retirement savings. You want to have an expensive cell phone and plan and expensive lessons every month. And you now want to own a home.

You are at a point where your wants significantly outweigh your financial position and the only option is to make some concessions.
After tax, etc my take home is $2700 every two weeks.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

Rasputin13 wrote: Thu Oct 21, 2021 1:02 pm
wetgear wrote: Thu Oct 21, 2021 11:58 am
Rasputin13 wrote: Thu Oct 21, 2021 11:46 am One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
There is some truth to this but investing in a taxable account is usually the last place you want to put your money. Check out this link for more details.
https://www.bogleheads.org/wiki/Priorit ... nvestments

If you post in the suggested format below you'll get better and more complete advice looking at the whole picture.
viewtopic.php?f=1&t=6212
What does one do if he is able to invest more than the $6,000 max in the IRA, though? Even a low earner such as myself? I can contribute more than $6K per year.
You need to pay off your debt. Once you've done that, you can look at investing more.
onourway
Posts: 3778
Joined: Thu Dec 08, 2016 2:39 pm

Re: help me straighten out, please

Post by onourway »

Rasputin13 wrote: Thu Oct 21, 2021 1:06 pm
onourway wrote: Thu Oct 21, 2021 12:35 pm
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Your gross income from your salary alone is nearly $8k/month. Even if you are paying $1000/month for your student loans and $500/month on gas and groceries, you're only at ~$4000 in monthly expenses. It's not exactly clear what your net take-home is after taxes, insurance, retirement, etc. but it seems likely to me that there is still a not-insignificant hole in your budget that you aren't accounting for because you don't track it and don't think it's a big deal. However even a few hundred dollars a month is a big deal in your shoes. I think you need to run a tight budget for a while to make sure there are no serious leaks.

Additionally, there is a common saying here along the lines of "you can have most of what you want but not everything you want." You wanted to go to grad school either late and/or for many years. You want to work at a non-profit that limits your salary. You want to own a car with a significant payment. You want to get caught up with your retirement savings. You want to have an expensive cell phone and plan and expensive lessons every month. And you now want to own a home.

You are at a point where your wants significantly outweigh your financial position and the only option is to make some concessions.
After tax, etc my take home is $2700 every two weeks.
That's $5850/month and you have outlined $4,000/month in expenses. Where is the other $1,850 going?
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: help me straighten out, please

Post by wetgear »

exodusNH wrote: Thu Oct 21, 2021 12:19 pm
wetgear wrote: Thu Oct 21, 2021 11:31 am
Rasputin13 wrote: Thu Oct 21, 2021 10:00 am
wetgear wrote: Thu Oct 21, 2021 9:32 am
Rasputin13 wrote: Thu Oct 21, 2021 9:15 am Same question ha been asked, so let me answer it. The interest is not accumulating. It’s the Covid deferal thing. When I go on the website, it doesn’t even show what the interest rates are, so I can’t answer that. I believe I am obligated to start making payments come March. Should be around $1,000 a month unless I do a consolidation with a repayment plan, which I might do as I am in medicine and work for a nonprofit.
I think a phone call is in order, it's completely unacceptable that you can't know what interest rate you will be paying. Knowing that rate will help you know if a consolidation plan will be worth it, otherwise you are flying blind.

If I was in your shoes I'd consider downgrading the car. The used market is hot right now so you should be able to get a good ROI from your existing car and switch to another used car that will still last you a very long time (camry, civic, corolla...). The more debt you can knock out the more the lender will be willing to loan you for a mortgage.
My current car is a 2016 Subaru Impreza with 99,000 miles I should be able to eek out another 50,000
$8500 more dollars for 50,000 miles is a terrible deal. Even more reason to downgrade. You should be able to get a car that will give you 50-100k miles for 4k total. Hopefully your Impreza has more value than what you owe.
I'm not sure that's true right now, without buying a 15-year-old car.
Well I'm driving a 32 year old car so my view may be a bit skewed. Either way I think OP should try to get away from the debt to accomplish the stated goal and downgrading the vehicle will help with that.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: help me straighten out, please

Post by vanbogle59 »

wetgear wrote: Thu Oct 21, 2021 1:51 pm Well I'm driving a 32 year old car so my view may be a bit skewed.
Yes. Probably so.
Unless it's a woody with a surfboard on top.
Then No. That's a good view.
:sharebeer
DoubleComma
Posts: 2066
Joined: Sun Aug 23, 2020 2:23 pm

Re: help me straighten out, please

Post by DoubleComma »

onourway wrote: Thu Oct 21, 2021 1:12 pm
Rasputin13 wrote: Thu Oct 21, 2021 1:06 pm
onourway wrote: Thu Oct 21, 2021 12:35 pm
Rasputin13 wrote: Thu Oct 21, 2021 9:21 am Expenses
I contribute $600-$700 into my investments, Roth and brokerage.
I putt $600 per month in ally savings for efund and professional expenses (renewing my licenses, continuing Ed, etc)
Car is $355
My half of the rent is $505
Cell phone $90
I take lessons for $200 per month (music and acting)
Gym is $25
I’d have to add up groceries and gas for my car.
Your gross income from your salary alone is nearly $8k/month. Even if you are paying $1000/month for your student loans and $500/month on gas and groceries, you're only at ~$4000 in monthly expenses. It's not exactly clear what your net take-home is after taxes, insurance, retirement, etc. but it seems likely to me that there is still a not-insignificant hole in your budget that you aren't accounting for because you don't track it and don't think it's a big deal. However even a few hundred dollars a month is a big deal in your shoes. I think you need to run a tight budget for a while to make sure there are no serious leaks.

Additionally, there is a common saying here along the lines of "you can have most of what you want but not everything you want." You wanted to go to grad school either late and/or for many years. You want to work at a non-profit that limits your salary. You want to own a car with a significant payment. You want to get caught up with your retirement savings. You want to have an expensive cell phone and plan and expensive lessons every month. And you now want to own a home.

You are at a point where your wants significantly outweigh your financial position and the only option is to make some concessions.
After tax, etc my take home is $2700 every two weeks.
That's $5850/month and you have outlined $4,000/month in expenses. Where is the other $1,850 going?
Maybe more than $5850 take home because I believe OP stated his wife worked too.

OP -

Create and follow a budget!!!

There are many budgeting plans & systems out there, but budgeting isn't tricky. Start at the top a of sheet and list your total take home income for the month then start deducting your required spend in a prioritized way...Food, Housing, Utilities, Transportation etc etc. You will find so many leaks you it will shock you. For the first couple month the budget will feel oppressively, but then it a real short time it will be liberating. Personally when my wife and I got serious about money in our early 30's (we had negative net worth at that point). I found I was spending ~$500 a month on convivence stores (coffee, snacks, misc stuff) and my wife was over spending on other things big box stores (target type places). Immediately on day one we found $1000+ that was leaking from our accounts each month that was easily stopped without feeling a loss. Driving that $1000 into a debt, paid that debt off so fast, then the snow ball that Dave Ramsey preaches took affect. The same will happen for you...really what it does is forces you to value what your spending on and make choices.

In our personal situation we got to the point we used the old school envelope system -- for 10 years. I would go to the physical bank every other week and withdraw the cash we needed for each category in the correct denomination and literally put it in the envelope labeled for that category. If we had $100 for groceries and it rang up to $112, things were put back or that $12 came from another discretionary envelope, like clothing, and we had to make due with less in that other envelope. Real quickly you find out how many things that come up which you don't think about and just swipe that card to pay for with no regard to the bigger pictures...Halloween is a great example this month.

For things like Halloween, we would consistently forget to budget those things and not identify it, but then somehow $20 worth of candy, $20 in pumpkins, maybe $25 in decorations or any number of small expenses with be bought and justified for one reason on another; but there you go, $65 that could have retired some debt went out the window.

This is were the liberation of the budget comes in. You financial field of vision grows much wider when budgeting and planning. This year when we set out October budget we were ready for Halloween and $250 was set aside in the spending plan for kids costumes, candy, décor, etc. Now we didn't have to worry about robing Peter to pay Paul, its was established in advance which gives you "permission to spend" and is very liberating.

The problem with debt is the power of compounding works in reverse. BH's are fixated on reducing investment expense to capture back those fees and put them back to work for you. That's why a AUM fee of 1% is so crazy expensive in the long term. That principle works for all the debt you are servicing to, just in reverse. Once you get more sophisticated with identifying and controlling your spend to achieve your goals you can step up to Personal Finance 2.0 and start to arbitrage debt interest vs investment returns. Maybe even start looking at credit card rewards and incentives. But where you are right now, clear all that from your head and get you spending in line with your goals and use a written budget to keep things on track. Today with a multi-million net worth we still avoid debt like the plague and will never consider an interest rate arbitrage, its just not worth it to us.
onourway
Posts: 3778
Joined: Thu Dec 08, 2016 2:39 pm

Re: help me straighten out, please

Post by onourway »

DoubleComma wrote: Thu Oct 21, 2021 1:57 pm Maybe more than $5850 take home because I believe OP stated his wife worked too.
No doubt. I focused only on the one income as they seemed to be breaking out their 'half' of some important expenses.

100% agree with the rest of your observations about budgeting.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: help me straighten out, please

Post by wetgear »

Rasputin13 wrote: Thu Oct 21, 2021 1:02 pm
wetgear wrote: Thu Oct 21, 2021 11:58 am
Rasputin13 wrote: Thu Oct 21, 2021 11:46 am One question, though. Why not contribute something extra besides the $6,000 into the Roth? If I only contribute the minimum, I won't have much when I retire. Isn't the sooner I get money in the better? Time in the market? I'd like to both continue to contribute to investments and increase what I pay each month on my debt.
There is some truth to this but investing in a taxable account is usually the last place you want to put your money. Check out this link for more details.
https://www.bogleheads.org/wiki/Priorit ... nvestments

If you post in the suggested format below you'll get better and more complete advice looking at the whole picture.
viewtopic.php?f=1&t=6212
What does one do if he is able to invest more than the $6,000 max in the IRA, though? Even a low earner such as myself? I can contribute more than $6K per year.
From the first link I provided, maxing the IRA 6k/year is step #5 in prioritizing investments so steps 6-8 should be tackled before #9 which is invest in taxable. That's assuming you've completed steps 1-4 already if not do those first. That's what one should do.

If you post in the format from the second link I provided that will answer whether or not you've complete those steps as well as give us all the needed information to provide good/complete advice.. You can just edit your initial post with the details in that format by using the pencil icon next to that post
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: help me straighten out, please

Post by exodusNH »

wetgear wrote: Thu Oct 21, 2021 1:51 pm
exodusNH wrote: Thu Oct 21, 2021 12:19 pm
wetgear wrote: Thu Oct 21, 2021 11:31 am
Rasputin13 wrote: Thu Oct 21, 2021 10:00 am
wetgear wrote: Thu Oct 21, 2021 9:32 am

I think a phone call is in order, it's completely unacceptable that you can't know what interest rate you will be paying. Knowing that rate will help you know if a consolidation plan will be worth it, otherwise you are flying blind.

If I was in your shoes I'd consider downgrading the car. The used market is hot right now so you should be able to get a good ROI from your existing car and switch to another used car that will still last you a very long time (camry, civic, corolla...). The more debt you can knock out the more the lender will be willing to loan you for a mortgage.
My current car is a 2016 Subaru Impreza with 99,000 miles I should be able to eek out another 50,000
$8500 more dollars for 50,000 miles is a terrible deal. Even more reason to downgrade. You should be able to get a car that will give you 50-100k miles for 4k total. Hopefully your Impreza has more value than what you owe.
I'm not sure that's true right now, without buying a 15-year-old car.
Well I'm driving a 32 year old car so my view may be a bit skewed. Either way I think OP should try to get away from the debt to accomplish the stated goal and downgrading the vehicle will help with that.
The used car market is terrible right now. It's one thing to drive a 32-year-old car if you've had it the entire time and so know how it was taken care of. It's totally different to buy a 15-20 year old car, which is where you have to go for $5000. Aside from lack of safety features, you have no idea how well taken care of it was.

Assuming he has been changing the fluids and other routine maintenance, I don't think he should have issues hitting 200K with the Subaru. Trading in for an unknown used one for a difference of $4000 isn't worth the risk.
montanagirl
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Re: help me straighten out, please

Post by montanagirl »

Rasputin13 wrote: Thu Oct 21, 2021 9:28 am
flyfishers83 wrote: Thu Oct 21, 2021 9:25 am From reading your OP, it sounds like you just finished school, so you don't have any earning history. You have high debt to income, no liquid assets and no earning history.

The answer is simple. Prioritize eliminating debt for a year or two and then re-assess. Your financial picture should look tremendously different in 1-2 years, particularly if you can really create and deliver on a solid plan. What that plan looks like is something that a lot of contributors here can help with. It would be a combination of budget, retirement savings, debt reduction and saving for a downpayment. There's lots of variables, and no right answer.
I know a lot of the advice out there is pay debt off before investing. At my age, I feel I have to get money into the market so I can earn something on it and retire before I’m 90.
I did it that way, starting at 45 after grad school too. My place didn't have a 401k so I opened in IRA. I'm glad I did because it gave me hope to watch it grow and put a little more in each month.

BUT I already had the house figured out, having bought a tiny place in the bad part of town back in 1990, when no one cared about the used house market here. But by 1999 I had house and student loans paid off, on much less salary.

I don't know how you you do all three at this point. Much smarter to rent.
mdchemist
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Re: help me straighten out, please

Post by mdchemist »

Rasputin13 wrote: Thu Oct 21, 2021 9:15 am Same question ha been asked, so let me answer it. The interest is not accumulating. It’s the Covid deferal thing. When I go on the website, it doesn’t even show what the interest rates are, so I can’t answer that. I believe I am obligated to start making payments come March. Should be around $1,000 a month unless I do a consolidation with a repayment plan, which I might do as I am in medicine and work for a nonprofit.
OP, while I agree with most of the other posters that your finances don't really support purchasing a house yet, I'd like to add two points that don't seem to have been considered:

1) Since you speak of consolidating loans, I assume you have multiple loans. If you pay off a loan, that payment disappears from your debt-to-income ratio (paying down a loan without paying it off doesn't have this affect because you still have the same monthly payment). So, rather than refinancing, if you completely pay off some of your student loans, you will probably qualify for a larger mortgage. You'd need to compare this approach to what would happen if you refinanced at a lower interest rate or longer term.
2) You don't seem to know the interest rates on your loans or how to figure them out or what the minimum payments are. Some student loans have adjustable repayment schedules (e.g. year 1: $100/month, year 2: $120/month, year 3: $140/month, etc.). You may want to figure out what the minimum payment is going to be going forward and map out a rough yearly budget for the next 5-10 years to get a better idea on how the tradeoffs between buying/renting will play out.
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Re: help me straighten out, please

Post by Grt2bOutdoors »

Rasputin13 wrote: Thu Oct 21, 2021 8:11 am
David Althaus wrote: Thu Oct 21, 2021 8:07 am Maybe the view from the other end of the telescope would provide food for thought:

1. The rent versus home purchase debate is seemingly endless and studied relentlessly. (Torture the data until I get the results I want)
2. As 74 year old retiree here's where I net out: if you have kids purchase a house in a good school district. Any other circumstance, it doesn't matter much.
3. You and your partner are going great. Consider paying off the student debt, continue to max out your investments, and then see what happens,
4. Continued renting seems to offer you lots of flexibility and doesn't lock you into a house you can barely afford--at least that's the sense I get from your post.

All the best
Here’s the problem I have with renting. They keep jacking up the rent every year $50-$70. 5 years ago we moved into this apartment the rent was in the $700s. Now it’s over a thousand. A mortgage would be the same and at least that leads to owning something.
And you think buying a house would exempt you from having your payments increase by a similar amount each and every year? The increase comes from the local taxing board. It never stops and the taxes never decline. The difference is you have the flexibility to move easily when you rent, when you own the transaction costs can take you for thousands of dollars, not $600.
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skierincolorado
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Re: help me straighten out, please

Post by skierincolorado »

Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home. We currently rent. However, we cannot get prequalified for enough money. We can only get about $150,000 and we need at least $200,000-$250K to get a decent place in a normal neighborhood.

Recently finished grad school and. Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.
I started investing just a couple years ago. I have $35K in a Roth, all VTSAX, and about $10K in a taxable all VFIAX. Both at Vanguard. Wife just started with a target date fund. Only about $2K in it. We have no other retirement accounts. After 1 year, my employer will automatically contribute 7.5% of my salary into a 403B, to which I contribute $50 per pay.

My current car has a payoff of $8500. I was going to trade it in since it has equity on a pre-owned BMW. However, I decided not to and to prioritize buying a home first. My car should last me a bit; at least until the market gets normal again.
Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.

I am open to any advice. Based on my calculations, I'm gonna be screwed for a while. Please help!!!!!
Thanks in advance.
I think I can solve this problem for you. Hopefully others can confirm or have already suggested this. What you qualify for is based on your monthly income minus debt payments. If you pay some of your debts off, particularly the car, you will qualify for much more.

At your income you should have no problem qualifying for much more. Just use your assets to pay off the car. Or trade the car equity for something that does not have a payment. It’s the car payment that is killing you.

Unlike others, not only do I think you can afford a house financial, I believe most likely it will be to your financial benefit if you plan to live in it for at least four or five years.

If you sell assets in your taxable or Ira accounts to make a down payment, I suggest leveraging the remaining assets slightly so you don’t miss out on stock market returns.

Pay off the car before the student loans. This will dramatically increase what you qualify for. Or take the equity and buy a car in cash. As I said it’s the car payment that is killing you.

With income of 150k and student debt of 150k you should have no problem qualifying for over 400k mortgage.
Last edited by skierincolorado on Thu Oct 21, 2021 4:04 pm, edited 1 time in total.
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JoeRetire
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Re: help me straighten out, please

Post by JoeRetire »

Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
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skierincolorado
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Re: help me straighten out, please

Post by skierincolorado »

JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
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JoeRetire
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Re: help me straighten out, please

Post by JoeRetire »

skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
We disagree about "plenty" apparently.
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onourway
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Re: help me straighten out, please

Post by onourway »

skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
The car payment accounts for less than 3% of their gross income. It’s not the car payment (alone) that is killing them.
skierincolorado
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Re: help me straighten out, please

Post by skierincolorado »

onourway wrote: Thu Oct 21, 2021 4:13 pm
skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
The car payment accounts for less than 3% of their gross income. It’s not the car payment (alone) that is killing them.
Was it stated what the payment was? On a shorter loan I would think it would be much higher. Still 3% would be significant because it would likely increase income minus debt payments by over 20%
onourway
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Re: help me straighten out, please

Post by onourway »

skierincolorado wrote: Thu Oct 21, 2021 4:18 pm
Was it stated what the payment was? On a shorter loan I would think it would be much higher. Still 3% would be significant because it would likely increase income minus debt payments by over 20%
Yes, $355.
mary1492
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Re: help me straighten out, please

Post by mary1492 »

skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
What do you think the monthly payment on $157,000 of student loans will be when they really begin paying? It's another mortgage. You think that, along with other expenses indicated, AND a mortgage plus expenses on a house is manageable? That's why they didn't qualify for more than the $150k offered. The car payment on $8000 isn't what's in the way.

If they really want the house sooner rather than later, I like JoeRetire's ideas. Get part-time second jobs and bank it all.
skierincolorado
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Re: help me straighten out, please

Post by skierincolorado »

mary1492 wrote: Thu Oct 21, 2021 4:22 pm
skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
What do you think the monthly payment on $157,000 of student loans will be when they really begin paying? It's another mortgage. You think that, along with other expenses indicated, AND a mortgage plus expenses on a house is manageable? That's why they didn't qualify for more than the $150k offered. The car payment on $8000 isn't what's in the way.

If they really want the house sooner rather than later, I like JoeRetire's ideas. Get part-time second jobs and bank it all.
A $350/month car payment reduces how much house you qualify for by $60,000.
skierincolorado
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Re: help me straighten out, please

Post by skierincolorado »

mary1492 wrote: Thu Oct 21, 2021 4:22 pm
skierincolorado wrote: Thu Oct 21, 2021 4:05 pm
JoeRetire wrote: Thu Oct 21, 2021 4:04 pm
Rasputin13 wrote: Thu Oct 21, 2021 7:10 am Guys, I really need to straighten myself out. My wife and I would like to purchase a home.

Yearly salary is $95K. I'm a 45 year old man. Wife is 33 and earns $53K.

Here's the bad news. My wife has $76,000 in student loan debt and I have $81K. I just started paying $600 per month toward the debt even though it's still deferred.
If you haven't already done so, you should each get second jobs.
You should also be looking for primary jobs that pay more.
No they make plenty. It’s just the car payment killing them. Pay off the car or swap the cars equity for something in cash, and they will be fine
What do you think the monthly payment on $157,000 of student loans will be when they really begin paying? It's another mortgage. You think that, along with other expenses indicated, AND a mortgage plus expenses on a house is manageable? That's why they didn't qualify for more than the $150k offered. The car payment on $8000 isn't what's in the way.

If they really want the house sooner rather than later, I like JoeRetire's ideas. Get part-time second jobs and bank it all.
A $350/month car payment reduces how much house you qualify for by $60,000.

The OP stated he needed to qualify for $50,000 more than he currently qualifies. Eliminating the car payment accomplishes this goal.

I think this is totally affordable, but would recommend either some belt-tightening or extra income for the first few years. The mortgage is likely less than their stated rent of $1100. I barely pay $1100 on a 360k mortgage.
Last edited by skierincolorado on Thu Oct 21, 2021 4:39 pm, edited 1 time in total.
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Watty
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Re: help me straighten out, please

Post by Watty »

The $8500 car loan is pretty irrelevant in the big picture.

They have five or six paychecks left in 2021 With both their incomes they could pay it off by the end of the year if they wanted to.

Downgrading to a less expensive car would not save them much since they are driving a six year Impreza.
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