New here - my situation.

[gpoitras]

I'm a new member here, very glad I stumbled upon this forum. There is just a wealth of knowledge and like-minded folks here. For many years I never cared where my money went. I blew it on expensive vehicles, only to sell them 2 years later, loosing on average 7,000 each time. After marriage I started to think differently and over the past 2 years, decided to get rid of debt. I listen to Dave Ramsey as often as possible which has helped me quite a bit, keeps me motivated listening to his talk show.

I'm 30 years old, married with 1 toddler (planning a second). I'm active duty military, my wife is a BRN. Annually we net 94k.

Mortgage/Tax/Insurance & $400/yr HOA - 1594.50 (5% @ 30yr)
Auto Loan (8k remaining) - 440.00
Insurances - 126.00
Fuel - 300.00
Cable / Internet - 98.00
Phone - 140.00 (2 cell phones, 700 minute plan w/ data plan for Blackberry. Includes 10% military discount.)
Utilities - 250.00 (Average for - Gas / Water / Electricity for 4/3/3 2800 sq. foot home)
Grocery - 500.00
Spending - 600.00 (Going out to eat, clothes, misc items..blow it on whatever)
Investments - 600.00 Between 2 Roth IRAs and my wife's 401k which she contributes 4% (max her employer matches)
Child Care - 310.00
Auto Maintenance - 45.00 (continues to build in separate account until insurance deductible is reached)
Christmas Cash Fund- 75.00
Total - $5078.50
Remaining Cash - $2754

Combined we have 22k in retirement funds. (TSP, 401k, 2x ROTH)

We have a 1k emergency fund. I have a side business in photography and my wife sometimes makes cakes to sell. I mow my own grass, just canceled True Green and bought the chemicals myself, saving $270/yr. I'm contemplating getting rid of my Blackberry since it's costing me an additional $30/month for the data package.

I have a difficult time getting a firm grasp on our grocery bill. We don't buy junk foods, usually wholesome fairly-healthy stuff. All of our red meat comes from my in-laws farm at no cost. We do include diapers in our grocery bill. I don't always shop in the commissary, usually for cleaning supplies which also comes out of our grocery bill.

We don't usually carry a credit card balance but when it happens, it gets paid at the end of the month. I want to completely get rid of the credit card but after years of getting used to have it, it's actually a big step as I won't have the "insurance". Maybe freezing it in a block of ice might be a good intermediate step.

Any thoughts, ideas, ways to improve?

[creditcardfree]

Welcome! We are active military, as well. I would definitely look to increase your retirement investments to at least 15% of gross. Max out the ROTH's first, then up to at least the match in your wife's 401K and then the rest to TSP. Any earned pensions after 20 years are just icing on the cake!

You also need to increase your emergency fund to at least three months worth of expenses and pay off that auto loan.

[jIM_Ohio]

I'm a new member here, very glad I stumbled upon this forum. There is just a wealth of knowledge and like-minded folks here. For many years I never cared where my money went. I blew it on expensive vehicles, only to sell them 2 years later, loosing on average 7,000 each time. After marriage I started to think differently and over the past 2 years, decided to get rid of debt. I listen to Dave Ramsey as often as possible which has helped me quite a bit, keeps me motivated listening to his talk show.

I'm 30 years old, married with 1 toddler (planning a second). I'm active duty military, my wife is a BRN. Annually we net 94k.

Mortgage/Tax/Insurance & $400/yr HOA - 1594.50 (5% @ 30yr)
Auto Loan (8k remaining) - 440.00
Insurances - 126.00
Fuel - 300.00
Cable / Internet - 98.00
Phone - 140.00 (2 cell phones, 700 minute plan w/ data plan for Blackberry. Includes 10% military discount.)
Utilities - 250.00 (Average for - Gas / Water / Electricity for 4/3/3 2800 sq. foot home)
Grocery - 500.00
Spending - 600.00 (Going out to eat, clothes, misc items..blow it on whatever)
Investments - 600.00 Between 2 Roth IRAs and my wife's 401k which she contributes 4% (max her employer matches)
Child Care - 310.00
Auto Maintenance - 45.00 (continues to build in separate account until insurance deductible is reached)
Christmas Cash Fund- 75.00
Total - $5078.50
Remaining Cash - $2754

Combined we have 22k in retirement funds. (TSP, 401k, 2x ROTH)

We have a 1k emergency fund. I have a side business in photography and my wife sometimes makes cakes to sell. I mow my own grass, just canceled True Green and bought the chemicals myself, saving $270/yr. I'm contemplating getting rid of my Blackberry since it's costing me an additional $30/month for the data package.

I have a difficult time getting a firm grasp on our grocery bill. We don't buy junk foods, usually wholesome fairly-healthy stuff. All of our red meat comes from my in-laws farm at no cost. We do include diapers in our grocery bill. I don't always shop in the commissary, usually for cleaning supplies which also comes out of our grocery bill.

We don't usually carry a credit card balance but when it happens, it gets paid at the end of the month. I want to completely get rid of the credit card but after years of getting used to have it, it's actually a big step as I won't have the "insurance". Maybe freezing it in a block of ice might be a good intermediate step.

Any thoughts, ideas, ways to improve?

Spend less than you earn (I think you are doing this).
Try to get 20% of gross pay saved... 15% to retirement and 5% to short term savings.

If you are looking to cut costs, the auto insurance is about double what I pay... I think... look to pay the bill in cash and not do the monthly payment plan. If you are putting 5% to savings, you should not have a problem paying this bill when it comes in full.

You can try to squeeze the budget if you want... my take is as long I spend less than I earn... (we put 20-25% to retirement) then how the rest is spent is less important.

If your net income is 94k, what is taxable income on tax return (is it in 15% bracket or 25% bracket)?

[terces]

Why aren't you shopping everytime in the commissary? We're retired military and I miss it.. since closest one now is super far away.

[wincrasher]

Your budget looks reasonable, but the fuel use seems a bit high - might be a good place to try economizing.

As another has said, you need to build an EF. You have adequate free cash to build a 6 month reserve. Also, your retirement savings are low considering your age - even though you have the uncle sam pension coming - so I'd boost that.

Have you started college savings yet? It's easier if you start early.

Keep using your credit card. You may consider getting and using another. It's a big hunk of your FICO score if you use responsibly. You can use them and never pay finance charges.

A high FICO score is just as important as having an adequate EF. You never know when you are going to need it.

[gpoitras]

Wincrasher - I would jump at the chance to reduce the fuel costs. I drive 52 miles round trip 5 days per week and my wife 44 miles round trip 3 days per week. I average 30 mpg and my wife a little under. We haven't started any college funds yet although I have my GI Bill which I can transfer to my daughter, so for the time being that is my backup plan if all else fails. Otherwise Once we're debt free but the house we are going to look into an ESA. Life is expensive!!

Terces - We live 26 miles from the base. I sometimes shop on my way home from work but otherwise it doesn't make sense to drive 52 miles to grocery shop when there is a store 2 miles from home who give a 5% military discount. Once I figure in the cost of fuel and the discount, it breaks even. The produce at the Ft. Leavenworth Commissary isn't the best either.

Jim - Insurances includes the following: Homeowners - 683.00/yr; Auto - 665.00/yr; Other - 193.00/yr. I've shopped for a better rate but no luck yet. For 2009, our taxable income was somewhere around 80k. I don't have the figures handy but we were in the 15% bracket. Both my wife and I are exempt from paying state tax and about 24k of my salary is untaxable. I am going to check with the insurance company about paying my insurance bill in full vs. monthly. That's a great way to save a few dollars. Thanks for the advice.

I'm hesitating putting anymore into retirement until my auto loan is paid off. I'm estimating by the beginning of football season. My plan then is to up our retirement contributions to 15% each before increasing our EF. I keep having to remind myself it's a slow process.

Thanks for the quick replies!

[wincrasher]

with the numbers you've given, you are driving 392 miles per week. Figure another 50 miles on the weekends, at an average 26 mpg, that's 17 gallons a week. At $3/gal, that's $51. In a month, that should only be $204.

Vary any of those a little bit - your mpg is probably a bit higher, and gas cost a bit less - and you are spending half your $300 budget.

[gpoitras]

I have two vehicles, I did a similar calculation and came out with 293.00/month for fuel. We drive a 06 Honda Civic and 07 Honda Pilot, both decent for fuel consumption. Total miles driven per month was just under 600.

[bjl584]

The $600 a month column that states "blow it on whatever" jumped out at me. Can you elaborate on this? I bet this can be cut back at least by half.

[jIM_Ohio]

Jim - Insurances includes the following: Homeowners - 683.00/yr; Auto - 665.00/yr; Other - 193.00/yr. I've shopped for a better rate but no luck yet. For 2009, our taxable income was somewhere around 80k. I don't have the figures handy but we were in the 15% bracket. Both my wife and I are exempt from paying state tax and about 24k of my salary is untaxable. I am going to check with the insurance company about paying my insurance bill in full vs. monthly. That's a great way to save a few dollars. Thanks for the advice.

I'm hesitating putting anymore into retirement until my auto loan is paid off. I'm estimating by the beginning of football season. My plan then is to up our retirement contributions to 15% each before increasing our EF. I keep having to remind myself it's a slow process.

Thanks for the quick replies!

Two points

insurance was my error, it was listed right after car, so I assumed it was only car insurance. Your $1200 annual insurance cost looks quite reasonable. Look to pay this 1-2X per year instead of every month.,

As for "delaying" retirement increase until car is paid off... realize that "cash flow" is not a way to live. If something "more important" than retirement comes up during football season, then you delayed retirement saving (again). Focus on getting retirement to 15%.

Was the desire for college savings for you or for your kids?

[gpoitras]

Jim - Point well taken about the retirement / auto loan. The college savings was for my daughter. Post 9/11 the GI bill was amended to allow the service member to transfer the benefit to a spouse or child, to be used within 15 years of separation. Assuming I retire in 8 years, she would need to use the benefits by the time she is 23. That being said, once the auto loan is paid off and we've got our 3-6 months EF, we plan to start an ESA.


bjl584 - the $600 is rather unaccounted for and since my wife isn't completely on board with a tight tight budget, I've found this keeps the peace around the house. It's consumed by both of us to support hobbies (Ammo, cake pans, cake decorating supplies, baby clothes or toys, maybe a class/training of some sort, going out to eat maybe once a month, an occasional small birthday gift.) I agree it could be cut but where I don't have categories for entertainment and sometimes things come up that we want (not need) to do, which we find it hard to plan ahead for, this seems to cover the majority of it.

[jIM_Ohio]

Jim - Point well taken about the retirement / auto loan. The college savings was for my daughter. Post 9/11 the GI bill was amended to allow the service member to transfer the benefit to a spouse or child, to be used within 15 years of separation. Assuming I retire in 8 years, she would need to use the benefits by the time she is 23. That being said, once the auto loan is paid off and we've got our 3-6 months EF, we plan to start an ESA.

You should rethink this strategy

your intentions are good
your logic needs much more thought.

Conventional wisdom suggests make sure your retirement is fully funded before any college savings is done
and a 529 is going to be better than an ESA
I can think of 5-10 other ideas (If you insist on college savings).

Here are some questions-
remind me how GI Bill works- you put money in and military matches it? Is there any free benefit if you put nothing in?
what are your career prospects in 8 years when you separate
could child realistically use the benefit (will child use up benefit or will time contraints make money disappear)
why an ESA and not a 529?
if you were to use an ESA, why not a taxable account and possibly use this for retirement?
what is pension in 8 years when you separate?
is your mortgage going to be paid off before child enters college?
When car is paid off you mentioned in a previous post you would increase retirement. In another post you mentioned funding college. Is car payment such that you can put 15% to retirement and also save for college? What gives?


Here is my opinion for most middle class and lower class people on college savings

1) fully fund retirement
2) pay off mortgage
3) Use after tax monies to pay for college, up to point of federal income tax credits. Read up on the Hope credit and lifetime learning credit
a) A portion of the hope credit gives you a 100% return on money (meaning you pay $1000 and tax credit gives you all $1000 back)
b) a second portion of hope tax credit gives you a 50% return- meaning you pay $1500 and you get $1000 back at 100% and that $500 gives you 50% back ($250) for a total benefit fo $1250 in this example (pay $1500 and get $1250 back is not bad). If you pay for expenses out of a 529 or ESA, that money cannot apply to this benefit. The limits for Hope credit change yearly- so check thresholds for 100% and 50% levels.
c) The lifetime learning credit gives you 20% back up to around $10,000 (that limit can change- check the limit). meaning you pay $10,000 and get $2000 back (20%) in a tax credit.

You cannot take Hope and Lifetime learning on the same person the same year. If wife went back to college, and child was in college, you could use both credits if both qualified.

The question is how long would money be invested (I do not know age of your child or other info about you)? I suggest making sure your mortgage is paid off before you fund any college- because if you put $1000 in an ESA, what is the probability you will have $2000 (100% return) when you access the money in the ESA? If child is 10 yo, the probability 8 years can double the money is low, if the child is 2 years old, your chances of doubling money are much higher.

Before you "lock into" the desire to fund college, make sure all other aspects of financial picture are "fundamentally sound" because you have benefits you can tap into (federal tax credits) if you play cards correctly.



Retirement- here is how I would check if you have "enough" before funding college expenses

Look at your expected retirement expenses. Because you might have base housing now, try to realistically look at post military expenses when you calculate "retirement expenses".

A good over/under number is 40k per year (you spend 40k per year)...
Multiply that amount by 25 (or divide by 4%=.04)
The result is how much you need saved ($40k/.04=$1,000,000 or $1 Million)

Then apply the military pension to that equation (if you have one)
Take same expenses (40k in my example)
subtract the pension from this... if pension is 15k (for life) you are left with 25k (40k-15k=25k)

Repeat same math for 25k
divide by 4%
25k/.04=$625k
meaning a 15k per year military pension is worth "only" 375k to portfolio... you still need another 625k saved to retire and meet expected expenses.

If you expect to collect social security, you can repeat that math again. Meaning 25k per year is needed after military pension, subtract SS from that, then divide by .04 again...

4% is used as the planning number- meaning each year in retirement you can take out 4% of what you have and money should last for 30-40 years.

That 625k is what you need to "plan for" for full civilian retirement (if expenses are 40k per year).
If you plan to retire at age 66

then you need 625k at age 66
and that would imply about 312k should exist at age 56
and that would imply about 150k should exist at age 46

I assume somewhere between age 46 and 56 is when your child would start college
so if you have retirement "on track" at 46, then start saving for college then... I would still side with getting mortgage paid off before kid starts college, but that might be a luxury, it is not a requirement.