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    I'm so freaking confused about what I should be doing!

    I don't even know where to start. My dad recently stated that I make way too much money for a person my age to handle responsibly, and I'm beginning to believe him. I have no idea what my priorities should really be with all this money. I really want to make smart decisions, but I feel like I've got everything scattered all over the place with no real focus. Most people would die to have the financial opportunity that my husband and I do, but I am afraid that we are just wasting it away. I just found this forum today, so forgive me if I'm posting for advice in the wrong place. Should I lay out a vague description of what we have going on now, or should I give you the specifics and see what you think? BTW, our situation is unique, which is why I haven't been able to really figure this out myself so far. I guess I want to know what you would do...

    #2
    you need to be specific. It might be uncomfortable stating specific dollars and cents but we are used to it here and you will get good advice from many financial professionals that frequent this site.

    Comment


      #3
      Agreed... if you give specifics, everyone can give you worthwhile ideas/advice on what you can consider. Without details, we can't help nearly as effectively. And if there are 'unique situations', spell that out as well. We have all kinds on these forums, and everyone here is actually very non-judgemental, so whatever the case, just lay everything out and we'll all help as we can.
      "Praestantia per minutus" ... "Acta non verba"

      Comment


        #4
        OK, if this is the appropriate place to lay it all out there, I'm ready and willing. I've done my 2009 budget, so I'll go ahead and outline that to see if you all think I'm going in too many directions at once. First, some basic background:

        I'm 25 and my husband is 26. We've been married for almost 4 years and have a 1 year old daughter.

        I went to a private university and finished my undergrad and graduate degrees in 4 years to the tune of $121,364.68 in student loans. (detail, $33,558.68 was federal, consolidated and locked in at 2.88%, $87,806 was private. The rate on that is variable, and started out in 2005 at around 9% if I recall. Thankfully it is only at 4% right now )

        My husband went to USAFA, so no payback for him, except for at least 5 years of his life . While there he took advantage of a special loan program through USAA where cadets can borrow up to $30,000 at 1% for the life of the loan. He took it and bought a car (2004 Toyota, which thanks to the low interest rate, we are not upside down on at all, in fact we could probably make a profit if we sold it right now).

        We also had about $15,000 in CC debt between the two of us from various college/wedding expenses. All this for a grand total of $166,364.68 in debt on the day we got married.

        Thank the All-mighty, we got stationed in Washington DC where I got an incredible job at an incredible consulting firm. I started here making $60,000, by the next year it was $75,000, the next year it was $87,000 and in 2008 I grossed $102,250. My husband's gross for 2008 was $70,867.92. So we don't have an income problem, but more of a debt payoff problem.

        The balance on the debts are currently:
        $67,099 @ 4% SL (min pymt $759 - I pay $925 each month)
        $24,044 @ 2.88% SL (min pymt $325)
        $0 for CC's
        $9,283.22 @ 1% for Car (min pymt $520)
        we also took out a two year zero interest financing plan on my husband's lasik surgery, but we pay more than double the min every month so that will be paid off far earlier than schedule.
        $2,800 @ 0% for Lasik (min pymt $98 - I pay $200 each month)

        We also have lots of savings going on at the same time. I am contributing 18% to my 401K and he is putting 15% of his taxable into his TSP. We also have a 529 that we contribute $50 a month to and an ING savings where the rest of the college saving sits right now that we contribute $200 a month to.

        We have $1000 in an extra checking account for a baby emergency fund and $500 in cash in our safe at home.

        I don't know what else to say. I guess my main question is do we stop the savings to really go after the debt? One implication of that is that since we don't own a home, our stupid tax bill for 2008 is almost $2000, (which is why the high rate into the 401K and not anything in a Roth) and this is with $4400 in charitable giving and state tax included.

        What else can I say? Sorry if this doesn't make much sense...

        Comment


          #5
          You laid out your debts, but not your budget. Where does your money go to each month other than debt (food, supplies, housing, etc.)? You need to determine how much surplus money you have after paying for debt plus living expenses, and then we can help decide what is best to do with it.

          Comment


            #6
            Depends. And you don't make that much for someone so young. I know many who make that and more.
            LivingAlmostLarge Blog

            Comment


              #7
              OK, sorry, here's the budget:

              Total Income: $13,376.28 (this doesn't include my bonuses ~ $16,000)
              401K: $1293.75
              TSP: $579.29
              Taxes (fed, state, fica): $2,423.15
              Health Insurance: $153.60
              Life Insurance: $182.50
              Car Insurance (includes renter's): $92.96
              Rent/Utilities: $2,053
              Child Care: $579
              Cell Phones: $150
              Dish Network: $71
              Internet: $25
              Student Loans: $1250
              Car payment: $520
              Eye Surgery: $200
              Church/Charity: $455
              Groceries: $600
              Gas Car1: $200
              Gas Car2: $55
              Expense money me: $80
              Expense money him: $80
              Incidentals: $650 (we cash-flow gifts, car repairs, clothing, copays, etc from this category)
              ING college savings: $200
              529 college savings: $50
              Emergency fund/house downpayment: $1400

              What questions/comments do you have? What other info can I provide?

              Comment


                #8
                Originally posted by LivingAlmostLarge View Post
                Depends. And you don't make that much for someone so young. I know many who make that and more.
                well, I'm humbled. I thought by 25 being in the top 10% of earners in the country was an accomplishment of sorts.

                Comment


                  #9
                  Originally posted by littletoobigformybritches View Post
                  OK, if this is the appropriate place to lay it all out there, I'm ready and willing. I've done my 2009 budget, so I'll go ahead and outline that to see if you all think I'm going in too many directions at once. First, some basic background:

                  I'm 25 and my husband is 26. We've been married for almost 4 years and have a 1 year old daughter.

                  I went to a private university and finished my undergrad and graduate degrees in 4 years to the tune of $121,364.68 in student loans. (detail, $33,558.68 was federal, consolidated and locked in at 2.88%, $87,806 was private. The rate on that is variable, and started out in 2005 at around 9% if I recall. Thankfully it is only at 4% right now )

                  My husband went to USAFA, so no payback for him, except for at least 5 years of his life . While there he took advantage of a special loan program through USAA where cadets can borrow up to $30,000 at 1% for the life of the loan. He took it and bought a car (2004 Toyota, which thanks to the low interest rate, we are not upside down on at all, in fact we could probably make a profit if we sold it right now).

                  We also had about $15,000 in CC debt between the two of us from various college/wedding expenses. All this for a grand total of $166,364.68 in debt on the day we got married.

                  Thank the All-mighty, we got stationed in Washington DC where I got an incredible job at an incredible consulting firm. I started here making $60,000, by the next year it was $75,000, the next year it was $87,000 and in 2008 I grossed $102,250. My husband's gross for 2008 was $70,867.92. So we don't have an income problem, but more of a debt payoff problem.

                  The balance on the debts are currently:
                  $67,099 @ 4% SL (min pymt $759 - I pay $925 each month)
                  $24,044 @ 2.88% SL (min pymt $325)
                  $0 for CC's
                  $9,283.22 @ 1% for Car (min pymt $520)
                  we also took out a two year zero interest financing plan on my husband's lasik surgery, but we pay more than double the min every month so that will be paid off far earlier than schedule.
                  $2,800 @ 0% for Lasik (min pymt $98 - I pay $200 each month)

                  We also have lots of savings going on at the same time. I am contributing 18% to my 401K and he is putting 15% of his taxable into his TSP. We also have a 529 that we contribute $50 a month to and an ING savings where the rest of the college saving sits right now that we contribute $200 a month to.

                  We have $1000 in an extra checking account for a baby emergency fund and $500 in cash in our safe at home.

                  I don't know what else to say. I guess my main question is do we stop the savings to really go after the debt? One implication of that is that since we don't own a home, our stupid tax bill for 2008 is almost $2000, (which is why the high rate into the 401K and not anything in a Roth) and this is with $4400 in charitable giving and state tax included.

                  What else can I say? Sorry if this doesn't make much sense...
                  Good info.

                  My suggestion is 15%/5% plan I suggest often.

                  15% of your combined gross should be put into a retirement plan. 172k gross, 15% of this is 26k per year. The TSP, a 401k, and/or Roth IRAs are all appropriate. Based on your income I would put as much of this pre-tax into a 401k or TSP to save on taxes. If you save pre-tax 26k, your take home will probably drop by only 15-20k (because of the tax savings).
                  5% of your gross (9k per year) should be used for short term financial needs (vacations, pay down debt, house savings, kids college or other shorter term financial issues). If you want the 5% to be larger go ahead.

                  The goal of 15/5 is to guide you to live on 80% of your gross salary. Live on less than you earn and you should do OK regardless of how much you make, where you live, or other circumstances).

                  As for the debt
                  The balance on the debts are currently:
                  $67,099 @ 4% SL min pymt $759 - pay $925/mo
                  $24,044 @ 2.88% SL min pymt $325/mo
                  $0 for CC's
                  $9,283.22 @ 1% for Car min pymt $520/mo
                  $2,800 @ 0% for Lasik min pymt $98 - pay $200/mo)
                  I question using 529's and the ING account for college savings when you don't even own a house and when you have so much debt. The $250/mo you send to college accounts, IMO, should be sent to debt reduction.
                  Paying lasic off early is a good idea.
                  Paying off the cc balance was a GREAT idea.
                  Pay more on the variable rate student loan. Double that payment by adding the $250 from the college fund, and the $200 from the lasic (once the lasic is paid off). The issue is not the interest rate, it is the amount owed at a variable rate. This mortgage mess started when people did not pay down variable rate debt.

                  While doing all this I would put 9k per year ($750/month) into a generic savings account.
                  Once the debt is paid off (all of it), I would strongly advise looking for a house (I know they are expensive in your area, but the tax deduction you get will be extremely helpful if you use Roth IRAs and for other financial reasons).

                  Once you get the house, I would restart 529 contributions.

                  I am going to assume you are debt free in 36 months. You debt payment total is $2220/mo (including the $250 I am suggesting you allocate from the college fund contribution).

                  36 months of college deposits would be 36*250=$9000. In months 37-48 (the year you are "debt free"), if you put in $1000/mo you would break even in the 529 and if you put in $1250/mo you have deposited $3000 more in than the current plan.

                  I am not suggesting stopping 529 and college savings permanently. I am suggesting you downsize your significant debt first and gain the "cash flow" from being debt free to make more substantial deposits in 2-4 years.

                  If you post a budget listing income and expenses many others here can suggest ways to save money. For example you might be overspending on groceries, vacations, clothes or something else which is a bigger issue than paying low interest debt.

                  It is not the interest rates of the debt which scare me, it is the amount owed and some of it is variable, which is not good. Debt also suggests a person might be living and spending more than they earn, so paying down debt to half the current level in 12-18 months would be a reasonable goal.

                  If you posted with 90k of debt or 60k of debt with same income, my advice might have been different.

                  Comment


                    #10
                    Thanks for the advice Jim, that was exactly what I was looking for. I guess my insistance on the college savings for our daughter is emotional. I have some resentment for my parents for 'burdening' me with this debt, and I swore that I wouldn't do that to my kids. You are right though, once mine is paid off I can play catchup on hers.

                    The reason we didn't contribute to a Roth was the tax situation. And the problem with buying a house is that we are in the military and will be moving every 4 years. We are getting ready to move this June as a matter of fact. Makes it kind of a moving target.

                    Comment


                      #11
                      Originally posted by littletoobigformybritches View Post
                      well, I'm humbled. I thought by 25 being in the top 10% of earners in the country was an accomplishment of sorts.
                      I thought you did pretty well, as well. I'm 26 and DH is a SAHD, I bring in $75k/year by myself and support our little family on my own and thought I was doing well (If a bit debt-ridden). I still think you're doing pretty good and your situation doesn't seem drastic at all. Good luck!

                      Comment


                        #12
                        Originally posted by littletoobigformybritches View Post
                        OK, sorry, here's the budget:

                        Total Income: $13,376.28 (this doesn't include my bonuses ~ $16,000)
                        401K: $1293.75
                        TSP: $579.29
                        Taxes (fed, state, fica): $2,423.15
                        Health Insurance: $153.60
                        Life Insurance: $182.50
                        Car Insurance (includes renter's): $92.96
                        Rent/Utilities: $2,053
                        Child Care: $579
                        Cell Phones: $150
                        Dish Network: $71
                        Internet: $25
                        Student Loans: $1250
                        Car payment: $520
                        Eye Surgery: $200
                        Church/Charity: $455
                        Groceries: $600
                        Gas Car1: $200
                        Gas Car2: $55
                        Expense money me: $80
                        Expense money him: $80
                        Incidentals: $650 (we cash-flow gifts, car repairs, clothing, copays, etc from this category)
                        ING college savings: $200
                        529 college savings: $50
                        Emergency fund/house downpayment: $1400

                        What questions/comments do you have? What other info can I provide?
                        This was posted while I was typing. Questions/comments on the BLUE text.

                        When you get a bonus, save 20% of it somewhere (retirement, house fund or other). This keeps savings rate constant on variable income.

                        401k+TSP is $400/mo short of 15% of income. Increase one or the other by $400/mo (3% to both TSP and 401k would cover $400 I think).

                        Is the child care paid pre-tax? Do you claim the tax credit for this at end of year (this money should NOT be taxed). This might save you considerable money if you have a child care/dependant care account which is pre-tax.

                        $2000/mo rent could get you about a $330k mortgage at 5.75%. Pointing that out for savings purposes.

                        $600/mo for groceries seems high. I have twins (9 months old) and we spend less than half that ($250/mo???).

                        $650 for incidentals is good, look to bump this up by about $100/mo. You want this higher now so when you have the house, you can account for new roof, new hot water heater and higher incidental expenses. Do you have access to a cafeteria plan to pay co-pays pre-tax?

                        Where is the $1400 house down payment saved?

                        My big question is how do you distringuish between the $650 and $1400 each month? Do you really have incidentals EVERY month which are $650?

                        $1400 house savings+$2000 rent is $3400/month. $3400/month is $575,000 mortgage at 6%. Pointing this out so you know your price range. The down payment for a property like this would need to be $150,000. Property cost would be around $725,000.

                        Meaning look for houses priced $725,000 or less and plan to put 20% (or $150,000) down on the property to have a mortgage of $575,000.

                        I used to live in Potomac, so I know those numbers might scare other posters, but I know those are CHEAP houses in your area.

                        You will pay around $34000 in interest in year 1. This 34,000 will be deducted from your Gross income (on tax return). In 28% tax bracket you will get $9500 of this back on your tax return.

                        Meaning pay $3400 mortgage payment, and get $700 of it back each month in taxes (lower the taxes paid in the budget by $700/month).

                        If your property taxes are $12000/year, you would also get 28% of those back, and if your state taxes are $4000/year, you would also get 28% of those back too.

                        Assuming 172k of gross income is in 28% tax bracket. Obama might raise that 28%... so stay tuned. He could also lower it- that would surprise me though...

                        Comment


                          #13
                          Originally posted by littletoobigformybritches View Post
                          Thanks for the advice Jim, that was exactly what I was looking for. I guess my insistance on the college savings for our daughter is emotional. I have some resentment for my parents for 'burdening' me with this debt, and I swore that I wouldn't do that to my kids. You are right though, once mine is paid off I can play catchup on hers.

                          The reason we didn't contribute to a Roth was the tax situation. And the problem with buying a house is that we are in the military and will be moving every 4 years. We are getting ready to move this June as a matter of fact. Makes it kind of a moving target.
                          Have the mortgage money available (there is no reason to spend it until the military service is up).

                          Better to save now and spend 10 years later than to wait until you stop moving to start the saving.

                          Agree no Roth now- taxes way too high for you now.

                          Comment


                            #14
                            Although Jim's plan is a good one, personally I feel that you need to build a larger safety cushion first, especially since you are moving in 5 months. And it sounds like moving is the norm rather than the exception. With $1500 in the bank you are waiting for an accident to happen. So rather than accelerate debt payments I would build an emergency fund of at least 3 months of expenses. Based on your budget, that works out to about $19K (I left out charity and child care assuming you would temporarily suspend them in an emergency).

                            Assuming you could build this up in about 6 months I would stop overpaying on the various debts and stop the saving for college. Then once the emergency fund is built up you could resume debt paydown/savings (based on Jim's plan).

                            Comment


                              #15
                              If you are moving this June, does that mean you'll have to get a different job? You may not be able to replace your income.

                              If it's too scary to stop the college contributions completely (I get the emotional attachment to it) maybe you could just drop it from $250 down to $50 a month. I agree with Jim that debt repayment is more important than anything right now.

                              Once your debts are paid off, reallocate ALL that money to savings, and then you'll be in a position to buy a house when you're ready to do it.

                              I do think you make a lot of money for someone so young. You should be very proud of yourself. It sounds like you have done very well already, and having this kind of epiphany about needing help is great. This board has helped a lot of people. Hang around this board, focus on paying off that variable debt, and you'll be in a great position in just a couple of years.

                              Comment

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