Finishing Graduate School

[Lollipop]

Hi all,
I've been lurking a while and I think I'm finally ready for some feedback. My spouse is finally finishing up his degree and will be seeking (and I hope finding!) gainful employment soon. Yippee-- we won't be poor anymore!!! We've been very used to a shoestring budget and have run up considerable debts. That said, we have a Plan to pay most of off in a little over a year. We have mutally decided to pay the minimums on our student loans since we both have very low rates. He's at 4.00 and I'm at 1.75. We are comfortable with that decision.

But in thinking about it, it turns out I have no idea what I will do after we pay off debt. Frankly planning for that will help to motivate me to stick to the debt repayment plan. So tell me what you think of the budget-- is it realistic? Have I gone overboard on something? Is something missing? Am I saving too much?

This is the monthly for the debt repayment period, my salary is exact, his is a conservative estimate:
401k 175
Match 175
403b $204.17
Match $327
Wages (takehome) - Self 3,109.78
Wages (takehome) - Spouse 4,409.58
Interest and dividends $0
Miscellaneous $0

TOTAL INCOME (My mind can't quite grasp this number . . .) $7,519

EXPENSE DESCRIPTION
FIXED
Child care $500
Housing $700
Auto insurance $56
Electricity $50
Health insurance $250
Life insurance $160
Telephone/ Internet bill $60
Gas company $90
Water $25
Total: $1,921
VARIABLE (NEEDED)
Groceries and Household $500
Gas $300
Total: $800
SPECIFIC SAVINGS (Saved monthly)
Clothing $200
Christmas $200
Slush Fund $200
Vacations $300
Elliott's B-Day $75
Total: $975
DEBT $3,000

CASH EXTRA $823

This is the budget for when we finish with the CC debt (which was not run up on consumer purchases, but rather living expenses in a metropolitan area and car repairs):
401k 175
Match 175
403b $204.17
Match $327
Total: $881
Wages (takehome) - Self 3,109.78
Wages (takehome) - Spouse 4,409.58
Interest and dividends $0
Miscellaneous $0

TOTAL INCOME $7,519

EXPENSE DESCRIPTION
FIXED Total: $1,921
Child care $500
Housing $700
Auto insurance $56
Electricity $50
Health insurance $250
Life insurance $160
Telephone/ Internet bill $120
Gas company $60
Water $25
VARIABLE Total: $800
Groceries and Household $500
Gas $300
SHORT SAVINGS (Spent annually) Total: $1,275
Taxes $500
Christmas $200
Slush Fund $200
Vacations $300
Elliott's B-Day $75
LONG SAVINGS $2,300
Elliott 529 $400
Peter 529 $400
House Downpayment $1,000
Emergency $500
DEBT Total: $700
Student Loan $700
FUN Total: $500
Entertainment $200
Cash for Grownups $300
CASH EXTRA $23

[asmom]

Originally Posted by Lollipop

Hi all,
Am I saving too much?

Congrats to your hubby. I just finished grad school myself in May and this morning when I was going over my long-term budget I was thrilled at how much extra money I'm going to have to save and invest.

To answer your question, you cannot save too much. I wish I could give you a better analysis of your situation but it seems to me that you are doing a great job of saving for your retirement and your kids' college. Better than most.

[34saving]

Well, it's kind of hard to tell without knowing your exact sitation. Most of the time when your housing accounts for only 10% of your take home income you're going to be okay It looks like you're going to get pretty beat up in taxes, so you might think about raising your 401k/403b contributions.

The pre-CC payoff budget doesn't include an emergency fund. You should take some of the $800 extra and put it there. ($500 a month?) Not having an e-fund seems to be a sure way to make sure the CCs never get paid off.

Personally, the post CC debt budget looks very slushy to me. (IE, you have the money so you're going to take advantage of it.) That's fine since you have the money, but make sure it's in line with your long term goals. Some things to consider:
1) What kind of house do you want to buy? Around here you'd be saving for 2-3 years before you'd have a 10% downpayment on a decent house, but I don't know how things are where you live.
2) Retirement. How old are you? $880 a month is good, but you could do a lot more given your income. Have you done the planning to insure this is enough?
3) Giving. I don't know if you value it or not, but if you do, it should be planned/budgeted.

[Lollipop]

Originally Posted by 34saving

Personally, the post CC debt budget looks very slushy to me. (IE, you have the money so you're going to take advantage of it.) That's fine since you have the money, but make sure it's in line with your long term goals. Some things to consider:

I agree-- I want to put the savings somewhere I can't get to it! Maybe an ING account. If I can set up direct withdrawal, we should be good.

1) What kind of house do you want to buy? Around here you'd be saving for 2-3 years before you'd have a 10% downpayment on a decent house, but I don't know how things are where you live.

Right now it looks like we'll be moving to a supercheap housing area-- we could spend 150K and get a very nice house.

2) Retirement. How old are you? $880 a month is good, but you could do a lot more given your income. Have you done the planning to insure this is enough?

I'm 27, spouse is 34. My plan was to boost the retirement after we get house . . . sound reasonable?

3) Giving. I don't know if you value it or not, but if you do, it should be planned/budgeted.
Giving comes out of the X-mas budget.

[34saving]

Originally Posted by Lollipop

I agree-- I want to put the savings somewhere I can't get to it! Maybe an ING account. If I can set up direct withdrawal, we should be good.

I love ING, but you'd be better off with Emigrant (or HSBC or many of the others mentioned on this site) ING is really failing behind in the rate wars.

Originally Posted by Lollipop

I'm 27, spouse is 34. My plan was to boost the retirement after we get house . . . sound reasonable?

Probably isn't going to happen without some sacrifice. $135,000 mortgage (10% down for 15 years) at 6.3% (Probably pretty reasonable for a couple of years from now, but who knows?) has P&I only of $1160. Add PMI, taxes, and insurance onto that and you're probably looking at payments around $1500. All of the sudden the $1700 you're paying now ($700 rent + $1000 down payment savings) doesn't seem like so much. (Esp. considering you'll need to do your own maintenance and repairs and your ultilities will probably increase.) Now, I do have you in a fairly agressive pay-off situation here (none of this "interest only option ARM" stuff), but in your situation you can afford to pay off the house earlier and trust me, that's the direction to go!

Originally Posted by Lollipop

Giving comes out of the X-mas budget.

I was thinking charity/church, but maybe you were too

I don't mean to sound discouraging, because you guys are really doing very well! However, with your income more than doubling you have the chance to have an extraordinary financial life and really all it would take is making a decision not to significantly change your lifestyle. Here are some things that may (or may not) motivate you to think a little more about this:

1) How would you like to retire at 50?
2) How would you like to know that you can quit your job at anytime and take your dream job -- even if the pay is $20,000 a year less?
3) How would you like to know you can take a year or two off just . . .because . . .?
4) How would you like to know you can give thousands of dollars a year to any charity you want to?

And a couple more questions . . . 1) How old are the kids? (I'm assuming pretty young) 2) Are the 529s just for college or are you planning on sending them to private K-12?

[Lollipop]

We're not really interested in early retirement . . . but we would like to have substanitial savings.

Will buying really raise the houing payment that much!?! I guess I was thinking it would go up to about 1000-- not 1500! We will be renting a house, so utilities should stay about the same. And we are in house now so we do know what utilities cost.

Our child is almost 4, Peter (5) is our nephew whose, for complex reasons, college we hope to fund. The 529s are just for college. I know many people don't fund children's college education, but for us it is an absolute priority.

We were also planning to take the annual excess from our short term savings and roll it over into some type of tax advantaged savings, like a Roth or traditional IRA. Plus, spouse will likely get bonuses and I will certainly get raises. Those we plan to funnel into the 401k and 403b. Also, the child care expense will be way reduced next August. Little one will start kindergarten, after school care is 200.

It is so strange suddenly doubling our incomes+ like this. I knew that someday we would finish school and both work, but I never really thought of how our financial lives would change . . . I just focused on my spouse being home from work earlier and not having to struggle with our annual funding battle. The fact that we would actually make a ton of money slipped my mind until about a month ago. Strange I know, but I'm not really motivated by money so I never focused on what having more would mean.

That said, we do need to improve our lifestyle a bit. We both need new clothes very badly and we've only had one vacation-- our honeymoon. Six years ago.

[34saving]

I'm all in favor of helping with college, but you actually might be overfunding the 529s. At $400 a month and 6% growth you're looking at $105,000 for the 4 year old $94,000 for the 5 year old. That's a lot of money considering (I think this is right, somebody will correct me if I wrong): 1) They might choose not to go to a 4 year university. 2) They might choose a public university 3) I think 529s count against financial aid (possibly important for your nephew? I don't know the income levels of his legal guardians) 4) The tax rules are set to expire in 2010 and nobody is really certain what's going to happen then. 5) With any luck you'll do better than 6% growth. 6) JMHO, but I don't think college prices can continue to inflate at the levels they have been. I think they'll keep going up, but not nearly at the levels we've seen. You could still save the money, but maybe put some of it in a different savings vehicle just in case?

As far as house payments . . . of course situations vary, but our tenants recently bought our house on a contract for deed. Their payments went from $1650 to $1910 + $275 escrowed for taxes and insurance + they're now reasonable for repairs. That being said, their taxes should go down by about $300 a month too.

I totally understand not wanting to retire early, but having the option to is definitely nice! (What could happen in your life that would make your job not worthy of your time? Having to take care of your parents? A new grandbaby to enjoy? I could think of lots of things )

And . . . since you're only 27 . . . are you thinking you may have additional children? (I have to ask. Mom had both my sister and my brother at age 25 (not quite one year apart). I doubt she was thinking at the time she'd really want another one at 34 (it's a good thing for me she did though. )

Sorry about all of the questions and presumptions. I suppose in a way this is counseling for me too. (Dh and I are 32 and have done the single and double income thing too. Now I'm at SAHM at least for the time being. Luckily Dh works at a university so dd1 and dd2 (well, we think dd, the ultrasound tech gave us a 75% chance of a girl) will be able to go to 1 of 10 or so universities with 75% tuition remission -- I've told dh he's not allowed to quit )

[Lollipop]

I work for a Uni too and have that 75% thing . . . (slaps self on forehead!!! Duh!) and I agree that tuition has got to slow down. So you're right about the 529. Let's just call it Money for the Kids. My little likely will never need it and we will keep the non-529 part in our names. Nephew's parents have no money and never will-- my SIL is mentally disabled and the *$&#! who knocked her up is never going to pay a dime, cause he doesn't have any. So, having some money around and dedicated just in case it is ever needed for his care is important to us. As my in-laws age it seems likely that we will need to help support her and Nephew. She works, but she only makes minimum wage. And she needs regular MRIs and regular brain surgery for her shunt. Most of that is paid by the state though.

We may have another baby-- in fact we most likely will. But not any time soon.

I was lucky enough to be home with my little one for the first 18 months and would want to do it for the next kiddo too.

I'm still amazed at how much owning a house costs!

Do you think we need to get a fee only financial planner or tax person to sort all this out? We do fine when the money issues are "normal," i.e. Do we buy groceries and ride our bikes or gas and eat at my parents. That's the level of financial planning we're used to-- this is like a whole different ballgame.

The money is still green, but that's the only thing the same.

[flash]

Having been there, don't forget you will have "start up" costs for the new job...clothing, briefcase, ties, whatever your specifics are. Even just entertaining on a new level. Don't underestimate what your expenses will be the first year of the new job, new friends, new boss...different lunch out...

[34saving]

Okay, I think I'm going to go Suze on you. (I'm not a huge fan, but she makes some good points ) Don't do anything right away. Decide you're going to spend x (like $200) a month more on yourselves/family, but don't plan anything big (put off the vacation, house, car, whatever). Put all of the other income into CC reduction and a high interest savings account (like Emigrantdirect--I'd try to have $1000 e-fund before getting super agressive on the CCs, but everyboody has a different opinion on this point). Try it on, see how it feels and in the mean time learn learn learn. When you're comfortable figuring out how to allocate things do it -- if that takes a few months or even a year that's okay. The interest "lost" will not certainly not make up for making the wrong decisions.

As far as a financial advisor . . . I've interviewed 2 and have been very unimpressed with both. For now at least I've decided that nobody cares more about my money than I do so I better figure it out. This site is great in that you can post an idea or ask a question and you'll get the whole spectrum. . . and if somebody is full of it, it's very likely that somebody will call him/her on it. Of course, it's possible I'm full of it, but that's the way I see it