How am I doing?

[txman14]

Howdy y'all from Texas!! I have been looking for a forum like this for months and I am glad I found it. I'm 30 years old and recently married (<3mos) and I think I am very good managing cash flow. I am in the securities business so i'm surrounded by it. Anway, I wanted to find a place to check on my situation with the new spouse to see if we are doing ok. I will admit we have some things to work on but we still have the new car smell.

Below are the stats:

Income:
Mine = 50k year, 5 yrs with company
Spouse = 40k year (new job starting in the fall)

Other Income:
My spouse has a rental house that her father manages. I have not asked about all the details with that property since I'm new to the family but from what I've heard, the mortgage is a 15 year note, bought 7 years ago. It was purchased for ~$45k and is now appraised at $60k. I'm not sure the rate of the mortgage but I know that after the mortgage is paid the house generates $200/month. I need to get involved with this house but the spouse doesn't want to keep it, bad memories. I would guess that we might have ~$15k of equity in the house...maybe? I don't know.

Expenses:
Rent = $1100/month (looking to buy by the end of the year)
Phone = $140/month (shared minute cell plan, no home phone)
Electricity = ~$125/month (flucuates between $80 - 200 depending on season)
Cable = $123/month
Student Loans = ~$400/month (36k total all at 6.8%, stafford, deferred Jul 2010)
Auto Insurance = $170/month (Full coverage, 2 vehicles, $500 deductible)
Groceries = ~$250/month (that's what is budgeted, we typically are inline with that number)
Gas = ~$240/month (that's what is budgeted, we never reach this number)
Savings = $500/month (this is an automatic transfer monthly)

Investments
401k = I contribute 10% of income for me ($1 for $1 match from employer), spouse will be 10% once eligible. My 401k is fixed income 15%; U.S. domestic small capitalization
equities, 35%; U.S. domestic large capitalization equities, 20%; International small
capitalization equities, 18%; and International emerging market equities, 12%. The plan's target return is 13% with a standard deviation of 16%. The current value is $28k.

IRA = I have a small traditional IRA that I manage myself. 50% is in CWGIX, 25% MFA common stock and 25% in PGH common stock. I chose this allocation for dividend yield to be reinvested in either common stock or CWGIX, which I haven't decided yet, maybe you guys can help. The current value of the IRA is $7700. I used to contribute $2400 year to IRA but have stopped contributions since the wedding. I will restart contributions after the spouse starts work.

Debt
Student loans: The loans are deferred until Jul 2010, next month, yay! I don't have the details with me but I believe the principal to be $36k all at 6.8% Stafford. If I remember correctly the minimum payments are $335/month and we are budgeted for $400/month.

No other significant debt. We owe $1000 for a medical bill but will be paid off shortly. No credit cards or consumer loans. No auto loans, both vehicles are fully paid for.

Savings
General savings
We have combined our savings accounts into one with a balance of $18500 @ .4%. We are currently using this account as our "down payment" fund. This account requires min $5k balance at all times to avoid fees and we hope to change this after the house is bought to a no fee account.

Emergency savings
We started our EF a month or so ago. Initial deposit was $2k @ 1.35% online bank.

I think that is about it. Our goal is whatever is left from the above from the spouse's paycheck will go to the "down payment" fund and our goal is to build that fund to $25k as soon as possible and after that to the EF. We are looking to buy a house in the 100k to 150K range with $20k down.

Again, just wanted to open a discussion to see where we were and what could be changed. Thanks in advance for your opinions and I look forward to being a contributing member of the board.

TxMan

[swanson719]

I’m assuming you’ll have a combined income of $90K net when married, both working.

Your living expenses are quite reasonable as a percentage of your income. If I understand everything correctly, you're expenses are $2,150 a month, debt payments are $335 a month, joint combined investments total $950 a month counting your traditional IRA. Savings are $500 a month. $90,000 a year equates to $7,500 a month. That means you're left with $3565 a month that is unaccounted for.

You should have closer to $30K in equity in the rental, which if sold should generate $25K after costs. I don't know how much of that will be eaten up by taxes, but there should be no less than $17,500 left.

If I woke up in your shoes, I would sell the rental property and throw all the proceeds at the Stafford loans. That lowers the balance on that to $19K. I would then take the house down-payment fund pay off the Stafford loan altogether. Doing so gives you $3,900 a month in extra income after the $500 a month to savings and your current $950 towards investments.

I would also get a good emergency fund together before you buy a house. $15,000 would be 6 months of expenses with a $1,400/mo mortgage if the loan was paid off. It would take 4 months to get that together.

The house down-payment of $20,000 would take just over 5 months to get together after that. Your house at $130,000 mortgage for 15 yrs at 5% should be in the ballpark of $1,400 a month with taxes and insurance. That puts you at 18% of income on debt payments on a 15 yr note, a great place to be.

Instead of buying a house now, you would be buying a house a year from now with no debt and an emergency fund done.

As far as investment, everybody has a different opinion. Your budget gives you the ability to invest $60,000 a year. I would max out your 401K’s at $16,500 each, plus $5,000 each in Roth IRA’s. I would also roll over the traditional IRA to a Roth - there are no penalties to do it this year, just the taxes, which wouldn't be much on $7,700.

That puts you as investing $43,000 of your $90,000 income. In all honesty, unless you’re trying to retire early, I would tend to save $10,000 towards your spouse being able to stay home when you have kids and put $7,000 towards increasing your standard of living.

[txman14]

I’m assuming you’ll have a combined income of $90K net when married, both working.

Your living expenses are quite reasonable as a percentage of your income. If I understand everything correctly, you're expenses are $2,150 a month, debt payments are $335 a month, joint combined investments total $950 a month counting your traditional IRA. Savings are $500 a month. $90,000 a year equates to $7,500 a month. That means you're left with $3565 a month that is unaccounted for.

You should have closer to $30K in equity in the rental, which if sold should generate $25K after costs. I don't know how much of that will be eaten up by taxes, but there should be no less than $17,500 left.

If I woke up in your shoes, I would sell the rental property and throw all the proceeds at the Stafford loans. That lowers the balance on that to $19K. I would then take the house down-payment fund pay off the Stafford loan altogether. Doing so gives you $3,900 a month in extra income after the $500 a month to savings and your current $950 towards investments.

I would also get a good emergency fund together before you buy a house. $15,000 would be 6 months of expenses with a $1,400/mo mortgage if the loan was paid off. It would take 4 months to get that together.

The house down-payment of $20,000 would take just over 5 months to get together after that. Your house at $130,000 mortgage for 15 yrs at 5% should be in the ballpark of $1,400 a month with taxes and insurance. That puts you at 18% of income on debt payments on a 15 yr note, a great place to be.

Instead of buying a house now, you would be buying a house a year from now with no debt and an emergency fund done.

As far as investment, everybody has a different opinion. Your budget gives you the ability to invest $60,000 a year. I would max out your 401K’s at $16,500 each, plus $5,000 each in Roth IRA’s. I would also roll over the traditional IRA to a Roth - there are no penalties to do it this year, just the taxes, which wouldn't be much on $7,700.

That puts you as investing $43,000 of your $90,000 income. In all honesty, unless you’re trying to retire early, I would tend to save $10,000 towards your spouse being able to stay home when you have kids and put $7,000 towards increasing your standard of living.

Thank you for your input. I think you have made some great points and I have already considered some of them. I had a talk with my spouse last night about this and we had a nice conversation about our options.

TxMan

[project15]

I’m assuming you’ll have a combined income of $90K net when married, both working.

Your living expenses are quite reasonable as a percentage of your income. If I understand everything correctly, you're expenses are $2,150 a month, debt payments are $335 a month, joint combined investments total $950 a month counting your traditional IRA. Savings are $500 a month. $90,000 a year equates to $7,500 a month. That means you're left with $3565 a month that is unaccounted for.

You're basing a lot off the idea that he has $3565 per month that is unaccounted for. However, on a $90k salary, you're paying 25% towards taxes and probably 5-10% in health insurance and maybe even paycheck contributions into a 401k. So he really only has about $1k-$1.5k unaccounted for. After correcting that assumption, all your suggestions of where to apply the $3500+ dollars should be reevaluated.

My only suggestion is to take that 0.4% general savings account and move it all to an online bank without fees and "higher" interest rates. Also, don't forget about having kids and get yourself into too much of a house on 2 salaries when it's possible the wife may not go back to work. However, the $150k house with a $20k down payment should be doable but tight on a $50k income.

[jIM_Ohio]

Howdy y'all from Texas!! I have been looking for a forum like this for months and I am glad I found it. I'm 30 years old and recently married (<3mos) and I think I am very good managing cash flow. I am in the securities business so i'm surrounded by it. Anway, I wanted to find a place to check on my situation with the new spouse to see if we are doing ok. I will admit we have some things to work on but we still have the new car smell.

Below are the stats:

Income:
Mine = 50k year, 5 yrs with company
Spouse = 40k year (new job starting in the fall)

Other Income:
My spouse has a rental house that her father manages. I have not asked about all the details with that property since I'm new to the family but from what I've heard, the mortgage is a 15 year note, bought 7 years ago. It was purchased for ~$45k and is now appraised at $60k. I'm not sure the rate of the mortgage but I know that after the mortgage is paid the house generates $200/month. I need to get involved with this house but the spouse doesn't want to keep it, bad memories. I would guess that we might have ~$15k of equity in the house...maybe? I don't know.

Expenses:
Rent = $1100/month (looking to buy by the end of the year)
Phone = $140/month (shared minute cell plan, no home phone)
Electricity = ~$125/month (flucuates between $80 - 200 depending on season)
Cable = $123/month
Student Loans = ~$400/month (36k total all at 6.8%, stafford, deferred Jul 2010)
Auto Insurance = $170/month (Full coverage, 2 vehicles, $500 deductible)
Groceries = ~$250/month (that's what is budgeted, we typically are inline with that number)
Gas = ~$240/month (that's what is budgeted, we never reach this number)
Savings = $500/month (this is an automatic transfer monthly)

Investments
401k = I contribute 10% of income for me ($1 for $1 match from employer), spouse will be 10% once eligible. My 401k is fixed income 15%; U.S. domestic small capitalization
equities, 35%; U.S. domestic large capitalization equities, 20%; International small
capitalization equities, 18%; and International emerging market equities, 12%. The plan's target return is 13% with a standard deviation of 16%. The current value is $28k.

IRA = I have a small traditional IRA that I manage myself. 50% is in CWGIX, 25% MFA common stock and 25% in PGH common stock. I chose this allocation for dividend yield to be reinvested in either common stock or CWGIX, which I haven't decided yet, maybe you guys can help. The current value of the IRA is $7700. I used to contribute $2400 year to IRA but have stopped contributions since the wedding. I will restart contributions after the spouse starts work.

Debt
Student loans: The loans are deferred until Jul 2010, next month, yay! I don't have the details with me but I believe the principal to be $36k all at 6.8% Stafford. If I remember correctly the minimum payments are $335/month and we are budgeted for $400/month.

No other significant debt. We owe $1000 for a medical bill but will be paid off shortly. No credit cards or consumer loans. No auto loans, both vehicles are fully paid for.

Savings
General savings
We have combined our savings accounts into one with a balance of $18500 @ .4%. We are currently using this account as our "down payment" fund. This account requires min $5k balance at all times to avoid fees and we hope to change this after the house is bought to a no fee account.

Emergency savings
We started our EF a month or so ago. Initial deposit was $2k @ 1.35% online bank.

I think that is about it. Our goal is whatever is left from the above from the spouse's paycheck will go to the "down payment" fund and our goal is to build that fund to $25k as soon as possible and after that to the EF. We are looking to buy a house in the 100k to 150K range with $20k down.

Again, just wanted to open a discussion to see where we were and what could be changed. Thanks in advance for your opinions and I look forward to being a contributing member of the board.

TxMan

I would look into 3 things

1) is the rental. Selling it is direction I would go on sole reason that spouse wants to get rid of it.
2) remove timeframe on purchasing house- there are some details within budget which have gaps. The goal of buying is a good one... adding a tight time constraint is the part I question.
3) be clear on what your stated goals are:

a) buy a house
b) invest for retirement
c) be debt free
d) have a high net worth (sooner)
e) have a high net worth (later)

For example to get a high net worth sooner, pay off debt like stafford loans quickly
For example to get a high net worth later, keep the student loans and invest more for retirement now.

Be clear what your goal is. Only one of those items (a-b-c-d-e) can be the goal, the others are secondary... so be clear what you want to accomplish. If you are not sure, its probably d) or e). If you know the goal, it makes some decisions easy. For example my goal is to retire early, so most of my decisions focus on investing more and when bills are paid off (like student loans) I use that money to create liquid savings which can be invested. If I can pay off a debt faster than an investment will grow (like my 7.7% second mortgage) I pay that debt off so I can invest more later, but the debt is being paid off aggressively so I can invest over a longer period of time. I know my goal, and use timelines to make my decisions based on retiring early.

If your goal is to be debt free, most here would suggest paying down the student loans, and saving enough to get a 15 year mortgage while investing a minimal amount (to capture match).

If your goal is a higher net worth, its better to invest more earlier, then taper off later, and get a 30 year mortgage at a lower rate (maybe). Focus on rates of return more than being debt free (for example).

Rough guidelines:
1) save 20% of gross
standard advice is 15% to retirement accounts and 5% to short term savings (like emergency fund or debt repayment or house fund)
depending on goal, you might save 20% and do 10%-10%... just get to point where 20% of gross is helping you improve situation and 80% gets spent, that will be your key to success.

2) spend less than you earn at all times

3) keep an emergency fund in liquid cash. Might be 3 months expenses, might be 24 months expenses. Depends on occupations and other factors.

4) Make sure spouse is on same page with you financially whenever a new step is taken or when decisions need to be made. If you discussed something 24 months ago and need to implement it next month, run it by spouse again, plans might change.

[littleroc02us]

First of all, you guys make a great income. You had a very long post so I'll do the best I can to give you some input.

First of all, I am under the strong belief that you put yourself in a much better situation to pay your mortgage and other housing expenses when you have no debt. I would work on getting the school loans paid off.

-Here is what I don't understand after doing the math. You make $90k between the two of you. That is rougly $5300 a month net income after taxes. Your expenses add up to $2148, not including your savings deposit and your Student loans because you said your deferring them. According to the math you have disposable income of $3152. Where is all of that going?

-Here is what I would do.
1. Take your savings of 18.5k and take 16k of that and pay your school loans. That leaves only 20k left. Pay off your medical bill, which leaves $1500 for unexpected emergencies. According to the expense to income ratio that you gave me you can have your school loans paid off in 7 months. When all your bills are paid off you have nothing but disposable income.

2. Now start saving for a down payment. In 8 months you can have 25k saved up for a downpayment.

3. If you buy a home worth 150k and you put 25k down, I figured your 15 year mortgage payment to be $1118 including property taxes and insurance. Same as your rent was and you'll have it paid off in 15 years.

Hope this helps.

[CalireEHughes]

I really think you should reconsider the advice a few people are saying regarding selling your spouses other property.

Historically, real estate has been the safest investment with the best (average) return. It’s not about market timing - it’s about time IN the market that will make you rich with real-estate.

If there is nothing wrong with the house and it’s increasing in value, then why sell it. I think your spouse should start looking at is as an asset and nothing more. It will pay off in the long run.

[ea1776]

Historically, real estate has been the safest investment with the best (average) return.

WRONG. Stocks have been the investment with the best average return and it is not even close.

Also, I'm not sure how SAFE real estate is either. Try telling that to real estate investors in Arizona/Detroit/etc...

[ea1776]

WRONG. Stocks have been the investment with the best average return and it is not even close.

Also, I'm not sure how SAFE real estate is either. Try telling that to real estate investors in Arizona/Detroit/etc...

Stocks vs. Real Estate | 1 | CNNMoney.com