Any gurus want to pick apart my budget and goals?

[citybudgetmom]

Hello! First, a thanks to Wife2DJ for rescuing me from the Nest board!

I'm feeling really lost with what to do with our budget. Basically, we bought and renovated a house a few years ago and had two kids. When we first got into all of this, we were up to our noses. The mortgage and paying off the loans we took out to remodel really were a lot for us to handle.

The story has a happy ending though because we did pay off the home improvement loans (well, the cash advance I took on my credit card!) and are now credit card debt free. Yay! Also, my hubs has gotten significant raises and promotions combined with a rad re-fi at a lower rate has us in the very bizarre spot of having *too* much income. I just mean, I'm not sure I'm handling everything the "right" way. So let's begin.

Take home after taxes: $10-14k/month depending on performance (the past two have been $14k months, but those $10k's will be in there).

Mortgage = $2,200k/month

Car - we owe about $16k, payment = $509

Student loan - owe about $9,500, min payment is like $200-something

Planned expenses (annual life ins payments, other ins payments, property tax escrow etc) = $800/month

Groceries, incidentals, bills etc. - $2k/month (being very generous, just cover everything)

So you see I have like $3k - $8k/month coming in to use towards savings and debt. So far we agreed to split it three ways between the student loan, car payment and savings account. By my calculations we'd have the car & school paid off by like beginning of 2013.

Part of me thinks skipping the savings account altogether and focusing on paying off the debts makes sense, but part of me wants to just pay the minimum on the debts and build up a massive savings so we can buy a different house (we currently live in the city, owe $390k on a house that would list at like $490k but want to get into a $600k home in a nicer area).

The problem with that is yes, we'd have a chunk toward a better house in a better school district (with higher taxes!) but we'd be back up to our noses again because we'd still have this silly debt. I mean, doesn't carrying a $9k student loan at the age of 32 (hub is late thirties) when you make $240/year seem ridiculous?

I hope this was the right place to come with this question. I know message boards can get intense and I have never posted here or elsewhere on this site until today. Please be kind and honest! Feel free to ask any questions! Our 401k contribution is calculated before take-home.

Thanks!

[yellowumbrella]

What are the interest rates on the car and student loans?

[Roc A Bee]

What do you have in savings now?

[LauraMoser]

I'm going to take a guess that the car loan is at a higher rate than the SL. I personally would work on getting the car paid off, then work on saving for a down payment. Even if you would take that $3-8k and split it in half between the car and down payment, you'll still have the car paid off in a matter of months and a nice down payment saved in no time.

[Roc A Bee]

Also shouldn't you have $6000 to $8000 left over not 3-8k?

[Deleted]

I'm of the school that I'm in no rush to pay off my SL because the rates are so low, but if it was down to less than $10k I think I would be anxious to get rid of it. I'd probably I would be more inclined to pay off my car first. It is morbid but if your SLs are federal loans they are discharable at death and that's why I'd rather pay down things like car and mortgage first

[citybudgetmom]

May 12, 2012 14:13:11 GMT -5 Roc A Bee said:

Also shouldn't you have $6000 to $8000 left over not 3-8k?

On the $10k months after $6k in expenses I guess it works out to around $4k extra. To be honest, there are months when I spend a little more than I "should" on shopping or gifts etc.

Our income is so fluctuating, but generally it falls between $10k and $14k. There was one month last fall when it was $7k and last Feb it was $18k, for whatever reason.

[wife2dj]

Glad you made it!

[citybudgetmom]

May 12, 2012 14:06:36 GMT -5 yellowumbrella said:

What are the interest rates on the car and student loans?

I think the car is 5% and the student load is in the neighborhood of 2.5%.

Thank you for replying!

[citybudgetmom]

May 12, 2012 14:11:36 GMT -5 Roc A Bee said:

What do you have in savings now?

Not counting IRA and 401k, we have $35k in a money market at a credit union. My original goal was to get $50k in there to add to whatever we walk away with when we eventually sell, but in order to have 20% down on a $600k house, we may be stuck longer than I wanted - hence my inclination to ignore our other debts.

Our oldest will start Kindergarten a year from this fall. I don't want to be stuck here!

Thank you for responding

[citybudgetmom]

May 12, 2012 14:11:45 GMT -5 LauraMoser said:

I'm going to take a guess that the car loan is at a higher rate than the SL. I personally would work on getting the car paid off, then work on saving for a down payment. Even if you would take that $3-8k and split it in half between the car and down payment, you'll still have the car paid off in a matter of months and a nice down payment saved in no time.

So you think I should skip the student loan for now? I just feel so old to still be carrying that. I guess there are worse problems to have, it just makes me feel bad.

[citybudgetmom]

May 12, 2012 14:18:11 GMT -5 @septimus said:

It is morbid but if your SLs are federal loans they are discharable at death and that's why I'd rather pay down things like car and mortgage first

Ha, really?! Very interesting! I kind of wish I had known that. I started out $30k in debt on them.

[yellowumbrella]

There's no logical reason to rush and pay off a student loan at 2.5% - it might make you feel better, but it doesn't really serve any financial purpose to rush it.

I would focus on a down payment for the new house. You said that you felt "up to your nose" when you bought your current house and you expect to feel the same way in a new house. Putting more down will help to ease the burden of a larger monthly payment.

[LauraMoser]

May 12, 2012 14:22:38 GMT -5 @citybudgetmom said:

May 12, 2012 14:11:45 GMT -5 LauraMoser said:

I'm going to take a guess that the car loan is at a higher rate than the SL. I personally would work on getting the car paid off, then work on saving for a down payment. Even if you would take that $3-8k and split it in half between the car and down payment, you'll still have the car paid off in a matter of months and a nice down payment saved in no time.

So you think I should skip the student loan for now? I just feel so old to still be carrying that. I guess there are worse problems to have, it just makes me feel bad.

If I were in your position and anxious to move before kid stats school, then yes I would just keep paying the minimum. You could attack it after paying off the car if it makes you feel better, but doing so may set you back a few more months on your down payment.

[citybudgetmom]

May 12, 2012 14:18:29 GMT -5 wife2dj said:

Glad you made it!

Thank you for having me!

[citybudgetmom]

May 12, 2012 14:23:45 GMT -5 @vicmo said:

What's your retirement looking like? You said 401K is before take-home, but are you contributing up to the fed max? With interest rates <=5%, I'd not be in a rush to pay them off before focussing on retirement.
ETA: And are you eligible for Roth IRAs?

Oh man, I really don't know what a Roth IRA is. I have an IRA through Chase bank, but no clue if it's a "roth" or what that even means! Ahh! See? I don't know what I'm doing.

Mine is like $19k (I stay home with the kids now and have a very low income just from my blog) and his is .. . . I think 80K last time I checked. I do believe he contributes the max, but he didn't get started until very late. I don't even want to get into that, but basically weren't together yet when he started at this company and he mistakenly thought he had signed up for 401k. Apparently there was a mistake in HR and he didn't realize he wasn't contributing until we got married and I started looking at things. Like "WHY the HELL don't you have a 401k??" lol. He's 37 now.

You're going to tell me that's bad, aren't you?

[citybudgetmom]

May 12, 2012 14:25:47 GMT -5 yellowumbrella said:

There's no logical reason to rush and pay off a student loan at 2.5% - it might make you feel better, but it doesn't really serve any financial purpose to rush it.

I would focus on a down payment for the new house. You said that you felt "up to your nose" when you bought your current house and you expect to feel the same way in a new house. Putting more down will help to ease the burden of a larger monthly payment.

Oddly enough it wouldn't be the mortgage on a new house. if we bought at $600k, we'd only be borrowing $480 and we purchased this house with a loan for $412k. With the low interest rates and everything, our mortgage wouldn't really go up.

The "up to our nose" part is the stinking taxes. OMG, they're so high in the burbs. You get great schools and libraries etc., but crap, is it expensive! I'm just worried about tripling our taxes and still having a car & SL payment it might get tight.

I love this advice everyones giving me of ignoring my student loan for now. I guess I will. Wow.

[Roc A Bee]

Since you felt like money was tight last time you bought a house, I would want 20% down which is 120k on 600k plus extra for moving, and stuff you will want for the new house.

If I were you, I would pay off the car in the next two months. And roll that $500 into savings for a downpayment.

[citybudgetmom]

May 12, 2012 14:35:43 GMT -5 @vicmo said:

May 12, 2012 14:31:12 GMT -5 @citybudgetmom said:

Oh man, I really don't know what a Roth IRA is. I have an IRA through Chase bank, but no clue if it's a "roth" or what that even means! Ahh! See? I don't know what I'm doing.

Mine is like $19k (I stay home with the kids now and have a very low income just from my blog) and his is .. . . I think 80K last time I checked. I do believe he contributes the max, but he didn't get started until very late. I don't even want to get into that, but basically weren't together yet when he started at this company and he mistakenly thought he had signed up for 401k. Apparently there was a mistake in HR and he didn't realize he wasn't contributing until we got married and I started looking at things. Like "WHY the HELL don't you have a 401k??" lol. He's 37 now.

You're going to tell me that's bad, aren't you?

OK, so I'm Canadian so I will let someone else comment on specific methods for saving, but YES, you need more retirement.

By 37, your husband should be approaching 2-3x his salary in retirement accounts. I believe the federal max contribution to a 401k is 17k/year, and he should be contributing that much. Your income may preclude you from contributing to a Roth IRA. I'd say you should start investing (taxable) for retirement. I think that's more important than buying a bigger house, at this point. Also more important than paying down low-interest loans.

Oh no! How in the world are we going to go from $100k in retirement to $750k?? Okay, **breathe**. What do you suggest as far as taxable investing for retirement? I literally have no clue how to do that. Do I walk into a bank and say "here's my savings account, do something with it" or do I find an investment guy or do I bet on ponies?

I had been afraid to ask what everyone else was doing about retirement, but now I'm terrified. Do most people have that? Crap. Also: WTF, me.

Thanks for any advise and info. I have never been on a money message board before.

[citybudgetmom]

May 12, 2012 14:37:07 GMT -5 Roc A Bee said:

Since you felt like money was tight last time you bought a house, I would want 20% down which is 120k on 600k plus extra for moving, and stuff you will want for the new house.

If I were you, I would pay off the car in the next two months. And roll that $500 into savings for a downpayment.

Okay. I'm taking this advice. Car, then savings, forget about the student loan. I'm kind of mad at myself for attacking it now, but it just now got under $10k. Now I'll let it ride. Should I even make payments at all on it? It says I don't owe a payment for like a year (I think because I always make numerous payments instead of big payments, if that makes sense.)

I feel like such an idiot.

[Deleted]

I doubt you qualify for a Roth with your income, but I would use some of your extra money and fully fund regular IRA's for both you and your husband.
I would not rush to pay off your student loans. Your money will work better for you elsewhere.
My priorities would be:
Retirement
House savings
Car

Honestly at 2.5% on the student loans, I'd just set it to pay automatically and forget it.

[megs193]

I would pay off the car first. It will be one less bill you have to worry about when your I would also max out your 401k's each year and max out an IRA for each of you ($5,000) each year. Given your DH's age you are quite behind on retirement. I would then save all of your extra money for a down payment. In your original post it seemed like you had $100,000 in equity in your house unless I read it wrong. If that is the case you should still have time to save the rest of the money you need and move before your child starts kindergarten.

[citybudgetmom]

May 12, 2012 15:37:49 GMT -5 dbsk8dance said:

I doubt you qualify for a Roth with your income, but I would use some of your extra money and fully fund regular IRA's for both you and your husband.
I would not rush to pay off your student loans. Your money will work better for you elsewhere.
My priorities would be:
Retirement
House savings
Car

Honestly at 2.5% on the student loans, I'd just set it to pay automatically and forget it.

Okay, so I can put money in *my* IRA? I make no income (like a grand of fun money a year) - wouldn't I be taxed again on it later if I use post-tax money from my husband to fund it? Also, I watch it every day and it goes up and down. It seems like putting money in there means I could lose it, no?

Sorry for the million questions, but can he open an IRA in addition to the 401k he has? Does that many any sense? Sounds like I have some googling to do.

[citybudgetmom]

May 12, 2012 15:47:33 GMT -5 @vicmo said:

May 12, 2012 15:31:43 GMT -5 @citybudgetmom said:

Oh no! How in the world are we going to go from $100k in retirement to $750k?? Okay, **breathe**. What do you suggest as far as taxable investing for retirement? I literally have no clue how to do that. Do I walk into a bank and say "here's my savings account, do something with it" or do I find an investment guy or do I bet on ponies?

I had been afraid to ask what everyone else was doing about retirement, but now I'm terrified. Do most people have that? Crap. Also: WTF, me.

Thanks for any advise and info. I have never been on a money message board before.

OK, breathe, it's ok. Lots of people get later starts in retirement savings. Your income now is quite high, so you have the means to get caught up, although you probably should be saving more than 17K/year in 401k accounts. I would probably advise talking to a financial advisor - others will have to help you in terms of finding a good one (since I'm not American), but you want someone who can help you determine what a good level of savings is at this point to get caught up. You might be able to find someone through your bank, or ask friends for recommendations.

Maybe we can't actually afford more house. It kills me that I'd lose 6% to realtor fees. I've often wondered if I'd be better off just staying here and shelling out for private school, as much as it kills me. I mean, here I am with student loans myself paying for my kids to go to school. Annoying!

Anyway, I'll try to get started ASAP. I have no idea on how to find a financial advisor. It sounds expensive.

What is this e-trade thing you guys were talking about on the other thread? Maybe I could do that instead for some savings?

[Roc A Bee]

Are you maxing out your 401k? I believe you can contribute to an IRA for you if you guys file your taxes jointly. That is another 10k a year. 5k per person.

Do you need a bigger home? Is this all about location for you? You mention higher property taxes if you move. Have you crunched those numbers compared to staying where you are and paying for private school?

With the new info about your retirement, I would prioritize that first.

[citybudgetmom]

May 12, 2012 16:21:52 GMT -5 Roc A Bee said:

Are you maxing out your 401k? I believe you can contribute to an IRA for you if you guys file your taxes jointly. That is another 10k a year. 5k per person.

Do you need a bigger home? Is this all about location for you? You mention higher property taxes if you move. Have you crunched those numbers compared to staying where you are and paying for private school?

With the new info about your retirement, I would prioritize that first.

OMG, this thread is giving me a panic attack. Thank you for all the insight. I have given next to no thought about retirement, just figuring it would be okay.

The whole thing with the house isn't necessarily getting a bigger place, just a safer place with better schools. We're in the city with weirdos roaming around and crimes happening right in our alley. I didn't think this through when I bought at house at 27 with no plans on the horizon. I want to live in Safetyville, USA now!

Thank you times a million for the advice. I just called hubs and told him all about this retirement predicament I didn't even realize we were in. Ah, hopefully we can get caught up!

[dr.girlfriend]

I agree with focusing on retirement, but don't freak out about it. I didn't have a "real job" until I was 30, and I didn't max my retirement until 35, but at $17k a year, plus employer match, plus $5k in Roths each if you're eligible, plus (hopefully) growth on investment, you can catch up. You just have to get buckle down and do it.

Another thing that no one seems to have mentioned so far is that as a single-income high-earner household, I would want one hell of an emergency fund in case your husband lost his job and had trouble finding a new one. They say to keep in mind that it might take 1 month of unemployment for every $10k you make in salary, which means someone making $200k should be prepared to take up to two years to find a new job. Hopefully not, but just in case. It doesn't sound like you guys have a lot of savings, and with no Roth IRAs which you can also call on penalty-free (although hopefully you'll never have to), I would want at least 6 months of expenses to call on just in case.

I'm sure others will have more advice about how you can save for retirement given that you're not eligible for plans through an employer, I'm not sure how that works.

Given that you have student loans and so I'm guessing a degree, do you have plans for full-time employment when the kid(s) are in school? That might offset some of the increased housing or private school costs.

And I can tell you haven't been on MM before, because you took out a cash advance on your credit card to pay for renovations!

When I first joined MM I was all set to buy a house, and it was really deflating when the ladies on here told me that I wasn't in good shape to do so. Now I look back and realize what a bullet I dodged, not buying before I was financially ready. The truth might be a bit of a hard pill to swallow at first, but it's good for you in the long run!

[citybudgetmom]

May 12, 2012 18:07:34 GMT -5 dr.girlfriend said:

I agree with focusing on retirement, but don't freak out about it. I didn't have a "real job" until I was 30, and I didn't max my retirement until 35, but at $17k a year, plus employer match, plus $5k in Roths each if you're eligible, plus (hopefully) growth on investment, you can catch up. You just have to get buckle down and do it.

Another thing that no one seems to have mentioned so far is that as a single-income high-earner household, I would want one hell of an emergency fund in case your husband lost his job and had trouble finding a new one. They say to keep in mind that it might take 1 month of unemployment for every $10k you make in salary, which means someone making $200k should be prepared to take up to two years to find a new job. Hopefully not, but just in case. It doesn't sound like you guys have a lot of savings, and with no Roth IRAs which you can also call on penalty-free (although hopefully you'll never have to), I would want at least 6 months of expenses to call on just in case.

I'm sure others will have more advice about how you can save for retirement given that you're not eligible for plans through an employer, I'm not sure how that works.

Given that you have student loans and so I'm guessing a degree, do you have plans for full-time employment when the kid(s) are in school? That might offset some of the increased housing or private school costs.

And I can tell you haven't been on MM before, because you took out a cash advance on your credit card to pay for renovations!

When I first joined MM I was all set to buy a house, and it was really deflating when the ladies on here told me that I wasn't in good shape to do so. Now I look back and realize what a bullet I dodged, not buying before I was financially ready. The truth might be a bit of a hard pill to swallow at first, but it's good for you in the long run!

Oh, I know, that thing with the cash advance I did . . . not completely wise, but I really had no other choice. It was either build out the basement into a livable master suite and nursery, or cram ourselves + new baby in the original master + teeny bedroom on the main level. We were using the 2nd bedroom as a closet, to give you an idea how tiny. Oh well. I suppose it could have worked, but it was only $17k and might have added a little value to the house. (You: "No it didn't")

I googled some Roth info and apparently we are not eligible. He's going to up his 401k contribution, but the problem there is they don't match past a certain point.

Hey. I just thought of something. According to mint.com our net worth is like $250k. Something with all our assets (there is another savings account for planned expenses + car value + home value etc.) we come out ahead. Does this make the situation less dire? No, right?

I'm so excited I found this board. You and your friends here are such shmahrt cookies!

[Deleted]

Check further on the 401k. Some 401k plans allow contribution more than the federal limit then let you rollover to a RothIRA at the end of the year. Mine does offer it.

With not much saved in retirement, if I were in your shoes, I would shoot for saving at least 20% of gross. The more, the better though.

Regarding upgrading in house, try not to end up with a jumbo loan to get a competitive rate. The great rates you see out there only applies to conforming loans (less than the jumbo loan amount) according to one of the loan officers I checked out. Not sure what the limit is in your area. We are at a LCOL area with a $417k limit.

[InvaderGIR]

I just want to say that I completely get the freaking out. You're in a much better financial situation than we are, but I posted our budget last week and all but had a breakdown at the responses I got. It was really scary and overwhelming, but there's a TON of good advice to be had from this group, so stick around and just keep going through the responses until it makes sense. It might be a bit of work to research the stuff you'll need to do but I've found this forum to be a great help so far!