Need Financial Advice

[bilderback]

I'm 28 and my wife is 36.
My monthly income: $4,164
Her monthly income: $2,000
Total monthly income: $6,164

Cash
Checking Acct: $2,300
Savings: $2,500

Investments
My 401k Investing $180/month: $7,889
My ROTH IRA Investing $100/month: $2,213
Her ROTH IRA: $4,124

Credit Cards
Credit Union (9.9%) $8,361/10,000 Line: $257
Wells Fargo LOC (14.25%) $3,497/$4,400 Line: $71

Recurring expenses
Mortgage: $1,811
Auto Loan Car 1 (8.75%) $9,201: $389
Car 2: Paid off
My Student Loan $1,600: $100
Her Student Loan $7,023: $100
My Roth IRA: $100

Other Bills (Average per month)
Phone: $120
Electricity: $100
Natural Gas: $50
Water/Sewer: $35
Internet/TV: $125
Garbage: $50
Auto Insurance: $118
Fuel: $300
Medical: $500
Groceries: $700
Dining: $250

Here's the deal: We were married in 2008, and since then have paid off at least $15k in credit card debt, purchased a home (with poor credit), and started a business. I feel like we've made good progress, but due to recent medical expenses my wife has incurred, along with the need to travel to visit family, etc. we are stagnating. I am frustrated/angry/terrified that we've got only a couple grand in savings, and have made little headway the last couple years in keeping it there. 6 years ago I was a champion at saving. Today, despite making twice as much as I used to, it's as if it all slips through my fingers. If something terrible should happen (such as a job loss), we are screwed. To top it off, my wife's going back to graduate school this fall and will begin adding to her $7k student loan bills in the tune of $20k.

Given the aforementioned income/expenses, we should be able to save anywhere between $500-$1000, or roll it into a credit card payment. However, I'm wondering what you would do if you were in this situation? What would you pay first? I assume the WF LOC, and then the credit union, and then the car. We're trying to figure out what costs to cut and it's been difficult.

Any advice is most appreciated!

[Bob B.]

I'm in virtually the same situation as you are, and I made a very similar post last November. What I can tell you is that the rest others will point out that your grocery and dining lines are high. They can probbaly be cut by at least $300 per month.

They'll also tell you that internet/TV is high. Cut out cable or satellite or go down to very basic service. Also, you have no line for clothing/haircuts/etc. Is that buried in groceries?

As far as what to pay off first, you will almost always be advised to pay off highest interest rate first, while paying minimums on the rest, and then snowball that payment into your next highest interest rate debt.

I'm just a rookie, and I'm sure the pros will chime in soon enough.

[Petunia 100]

How many people in the household? $700 for groceries seems like an awful lot, but how many people is that feeding?

I would pay the LOC down first.

[disneysteve]

Originally Posted by Petunia 100

$700 for groceries seems like an awful lot, but how many people is that feeding?

Plus another $250 for eating out so a total of $950/month for food. That is really outrageous unless you have a huge family. I think a very generous number is $200/person/month and plenty of people here get by just fine on $150/person/month or less.

Is there a company match on your 401k?
How much is car #1 worth today?

You listed expenses totaling $5,176 and an income of $6,164. That leaves $988 unaccounted for. Where is that money going?

[bilderback]

2 people and 2 dogs. I'm aware the food costs are high. We can definitely lower the dining out, and we're going to work to lower the groceries. Due to health issues/food allergies for both us AND the dogs, our costs are exceedingly expensive. I think dropping cable and other expenses would be easier than food.

There is a company match on the 401k. 50% up to 4% of contribution.
Car #1 is worth approximately $14k.

The $988 has been either been going to pay down credit cards or cover misc expenses.

Best,
Matt

[disneysteve]

Originally Posted by bilderback

my wife's going back to graduate school this fall and will begin adding to her $7k student loan bills in the tune of $20k.

I think this is a really, really bad idea.

The last thing you need is to take on 20K in additional debt. That is just going to bury you guys even deeper. The first rule when you find yourself in a hole is to stop digging.

What would I do? Delay grad school for a year. Tighten your belts as tight as possible. Slash every possible expense. Get on a bare bones, survival budget and clean up this mess. You make too much to be this broke. Sell everything that isn't nailed down. Work your way down from the highest rate debts to the lowest rate debts.

Ideally, you would be totally debt-free before she goes to school and you should be paying cash, not borrowing. If all the debt was gone, you could probably do that. Will her income remain the same while she is in school?

[disneysteve]

Originally Posted by bilderback

2 people and 2 dogs. I'm aware the food costs are high.

$950/month for 2 people is quite ridiculous. I would immediately cut that to $500 which is extremely generous and should easily account for any special dietary needs. That frees up an additional $450/month which will help a lot.

[jpg7n16]

Cash is good.
401k and retirement savings is far too low - however
High interest debt is too high

Raise/lower the 401k to just the company match. Stop the Roth IRA. Put all available cash towards eliminating the highest interest rate debt, and snowball until all debts left are under 5%.


What is the rate of return on her college education? I personally wouldn't rule it out if it has a direct benefit in her income. She's at $24k/year. How much income will the degree add? Does she have a position lined up for once she gets the degree? Is her company willing to subsidize the education costs?

[photo]

How employable will she be after grad school? If her degree and field are in high demand, then the cost may be worth the investment.

Cable TV companies must be making a mint. Unless you watch a lot of cable shows and it's a source of relaxation you can't find elsewhere, you should probably just have internet.

As others have said, the food bill is enormous. You can lower your food bill by a lot, but the cost will be time. If you will devote just a little more time to planning and preparing, you will cut at least a couple hundred dollars a month.

[artwest]

Okay, you asked for it so here is my advice. lol.

If I were in your shoes, I think I would cut the 401k down to the employer match which I believe you said was 4%. Stop funding the Roth IRA. Sell car #1. If it is worth $14 k and you only owe $9,200 on it then you can buy a decent car for $4,800. That car should last until you get this mess cleaned up. Cut back on the groceries and dining out. Even buying healthy food, $700 per month for groceries is high. You should easily be able to reduce that to $500. You should also be able to easily reduce the $250 for dining out to $100.

I would NOT let my wife go to grad school until this mess is cleaned up and we can pay cash for it.

So, by my calculations you will have freed up $389 in car payments, $100 funding Roth IRA, $200 in groceries and $100 in dining out for a total of $789.

I would be attacking the debts smallest AMOUNT to largest AMOUNT. There are 2 reasons for doing this. First it is psychologically uplifting to pay off a debt. Paying a small debt will give you a mental boost. Second it frees up money to apply to the next debt.

You should be able to pay off your student loan in a couple of months, then add that $100 to the $789 that you saved from cutting expenses and you have $889 to add to your next debt.

I think someone else also mentioned that you should cut your expenses to the bare bone and sell everything that is not nailed down. That would be a good plan to speed up getting out of debt, however, even just making the cuts that I have suggested should get you out of debt in 1 1/2-2 years. Hopefully you could find something else to sell besides your car and you could get out of debt in a year. The next move would be to concentrate in accumulating money to pay for your wife's college and then start throwing all you can into savings and retirement.