Help prioritizing financial goals

**Jluke** · 01-06-2016, 05:06 PM

Originally posted by newbie82 View Post

Debt:
- $189k student loan at 5%
- $9k student loan at 4%

Payoff the 9k student loan.

Saving 3-4k per month, you should be able to set yourself up nicely. Of course living in New York is a whole other scenario financially so that probably doesn't go as far as it would for me.

Focus on retirement savings and chipping away at the student loans (assuming you plan to pay them off in their entirety). Continue to accumulate cash savings. Your EF target seems reasonable.

You really just have to do the math. Figure out when you want to reach a certain target, then determine how much per month you need to save to accomplish it.

**ESMonitor** · 01-06-2016, 05:15 PM

It's been a while since I have posted, but here goes...

You have a massive amount of student loan debt. Paying it off should be priority #1!

Make the next five to six years for you two "lean years". Keep your emergency fund in good standing but other than that, live on the edge with the 95% majority of your income being applied to the debt after your monthly expenses.

You'll be glad you did. Have fun with it. Keep a diary journal about your progress, take the pic with newspaper when you start and finish, look for new ways to live your life outside of money that won't cost you much money such as reading library books, jogging on multi use trails, pencil art, whatever works.

You want to know how to live on the edge? Buy the Monopoly board game app on your smart phone for a dollar and play Al "the top hat computer opponent" on the most difficult level. You keep just enough money on you to keep from getting sunk during the game. And that includes mortgaging properties to get the other properties you need. You stay "lean" for a while, but eventually you will finally build your first house and then in time another and another and finally you will be cashing in. I think your real life circumstances are similar. Instead of watching Al sink you will watch your student loans sink. Hoooray!!!

You'll get a lot of other good advice here with the veteran posters.

Good luck to you. You can do it. Pay off that debt!

**snafu** · 01-06-2016, 09:36 PM

Welcome to SA. I suggest you refocus based on net income rather than gross. It's critical to know where the money goes so I hope you are amenable to using a tracker program like Mint.com [free] or YNAB [fee]. I realize there are unique needs in NYC but would start building an Emergency Fund [EF] thater would cover 3 months of your basic expenses if you suddenly lost salary for example. I believe entertainment and restaurants need a set sum each pay. Once the sum is used up, spending in that category ends until the next pay...for example.

If buying an apartment is a high priority, I suggest creating a savings plan targeted to a 20% down payment. A lower DP requires expensive PMI [mortgage insurance]. These are tricky since some lenders demand it extend until the very end of the mortgage. It's important to fully understand how a mortgage amortization table works. Typically, for the 1st decade, all but a few dollars are applied to interest each month. Only in the final decade do you see important progress in reducing the principal. Worse yet, much of the sum goes to municipal tax and condo fees. Homeowner insurance, repairs, updates and upgrades are all your responsibility so it's often more cost efficient to rent. When working out figures include heat, electric, water, sewage, trash and applicable services.

Since you plan to have a baby you need to know details of maternity benefits and how that reduced income affects your plans. Babies is not expensive and you don't 'need' half the stuff recommended. Child care is astoundingly expensive, school age more modest but teens and university is ouch!

What are terms and conditions of the two student loans? Is there a forgiveness clause after 'X' years? Is interest on those loans tax deductible?

**newbie82** · 01-07-2016, 04:59 AM

Thanks for the replies so far! Reading through, I realized I should clarify a couple things:

The monthly income I posted is net, not gross.

We track our spending pretty carefully on both a spreadsheet for budgeting going forward, as well as reconciling through quickbooks. So we know where the money is going, I'm just not sure if we are prioritizing savings vs. debt payoff goals the way we should. That's also how I know we can cut down on some areas of discretionary spending.

We each get an annual bonus. The 2015 bonus went entirely to the e-fund. Next year, I plan to put the entire bonus to student loans.

The large loan is public but I consolidated it (2 loans that were at 7.8% each over 30 years). It is now at 5% over 10 years, and I plan to pay it off within 5-6 years. The smaller loan is also consolidated, it was at 8% before, 4% now. I go back and forth on whether I should pay this off now, or whether I should pay minimum (interest accrues at ~30 a month). Interest on the loans is technically deductible, but I do not qualify because of my/our income level.

Helping my mother in law with a down payment is not a top priority but it is something we would like to do. This along with the baby fund is probably at the bottom of the list, but things we were hoping to accomplish at a slower pace.

Thanks again, reading the replies and thinking through my own reply is helping a lot!

**autoxer** · 01-07-2016, 05:04 AM

Originally posted by newbie82 View Post

Monthly combined income: $15,000

Is that take home pay or net pay?

Originally posted by newbie82 View Post

Fixed expenses (rent, utilities, transit, etc.): $4700
student loan payments: currently paying $500 above minimum payments, totaling $2880 a month.
savings: apprx $3200 - $4000 a month

Additionally, we each have a separate bank account into which we transfer $1k monthly. This money covers basically all day to day expenses - groceries, household goods, personal care, shopping, dining out, entertainment, etc. The money goes into "separate" accounts but we just take turns paying for things.

Anything left over goes to savings or additional spending (large purchases, travel, and admittedly too much restaurant dining).

Is there anything left over? You listed $13,580 in expenses (assuming you are saving $4k/month. Based on your rough numbers, there is ~$17k/year not accounted for. If that is getting spent along with the $2k/month day to day expenses, then you need to figure out where it is all going and decide if that stuff is more important than your goals. I know how easy it is to let your lifestyle creep up with your income, but keep reminders of your goals handy, so that you can make decisions like getting out of debt and preparing yourself to raise a baby is more important than the next fancy meal.

I like tracking my spending in mint, then you can address each category individually. If you are spending so much on restaurants, is it because of the food? or the social aspect? or the convenience? Figure out what is driving those decisions and it will be easier to find less expensive substitutes without feeling deprived.

Originally posted by newbie82 View Post

I feel like at our age/stage in life we have a lot of competing goals and I'm not sure where to put the focus. Ideally we would pay off the student loans first before focusing on family/buying an apartment, but we are trying to find a realistic balance. I also wanted to build up our e-fund while paying down the SL, which I think goes against most of the conventional wisdom I've read but was a choice we made to set us up for the future goals.

I've been struggling with how to handle competing goals too, and i feel like my goals shift rather dramatically over a couple years. One year I'm focused on saving for a house, then I have kids and start college funds, then I start striving for financial independence. The most opposite is trying to live the good life today vs. saving to live the good life in the future. I'm now pretty comfortable with the balance that I have, but you have to know where your money is going to figure that out. Based on your approximations, it seems like you don't know where your money is going.

**newbie82** · 01-07-2016, 05:24 AM

Thanks autoxer! I've clarified in my original post that the income is net.

Also, I think we posted around the same time, but we are tracking where money is going, I didn't put in all the details in my post because I was focused more on shifting funds between debt payoff and savings.

The money that is not accounted for either goes into savings or gets spent. if it is getting spent it is getting spent on travel, large purchases or dining out. Last year we also had some non-recurring large expenses. We definitely know where each dollar is going, I just ballparked for the post as to what our minimum goals are each month - we never save less than $3200 a month and we typically save $4000 a month. This is done by "paying ourselves first". Then if we haven't earmarked the additional cash for anything else it goes into savings.

With respect to going out, it is a combination of everything you stated. We both love trying new food and eating well. Our friends are similar, and we are also pretty social. On top of that, we both work a lot of hours and regularly get home past 8pm so we will order in or dine out for convenience. We are trying to reduce dining out for convenience and limiting trying new places for special occasions.

Sorry for causing so much confusion, please bear with me as a first timer!

**LivingAlmostLarge** · 01-07-2016, 08:36 AM

Why buy our MIL an apartment? Is it for you? What about yourselves? Are you planning on staying in NYC forever?

**snafu** · 01-07-2016, 08:51 AM

Good on you for using the 'pay yourselves first' philosophy' While I understand it's easier to reward yourselves with order-in or restaurant meals, it's expensive and works against your long term plans.

It's far more cost effective and often healthier to use a meal plan that leans on 'batch' cooking. Knowing what you'll make is more than half the battle. I suggest you each list 6 favourite meals and add two 'planovers' that combines leftovers into a casserole type meal, hearty crockpot soup or stew that slays hunger. Each meal is supported with a bagged salad and two, nearly instant, no waste or fuss frozen vegetables that you like. Try cooks.com or allrecipes.com using the 'search' bar for specifics.

[A typical chain grocery outlet offers 72 different shapes of dried pasta that takes about 12 minutes from cupboard to table. Microwaved baked potato/sweet potato/yam 8 minutes, stovetop rice 18 minutes]. Sunday AM meat choices and preferred root veggies roast in about 45 minutes, ready for use Monday - Thursday portioned and packaged in zip bags.

Just think how fast you could reduce student loans if eating out was limited to special social events with friends. Frankly, the majority of restaurants are using frozen, convenience foods full of unpronounceable chemicals to keep prices and profit at required levels.

**PhilDanley** · 01-10-2016, 07:46 PM

Get Rid of Those Student Loans ASAP

Good evening. I recommend paying these off fast. You've got a decent EF already so if you want to continue to contribute to it while you pay down the student loans, maybe put $1000 per month into it.

If you put the approximately $3000/mo towards these loans on top of the $2880 payment then you can knock these out in less than three years. And if you temporarily reduced your 401(k) deduction to 3% of your income instead of maxing it out, you'll probably be done with these student loans in less than two years!

Have you considered just using $500/mo for entertainment and putting the rest towards your loans also?

Once the loans are paid you'll find you can save rapidly for a down payment and again max out your retirement plan. Good luck!

**newbie82** · 01-11-2016, 06:56 AM

Originally posted by PhilDanley View Post

Good evening. I recommend paying these off fast. You've got a decent EF already so if you want to continue to contribute to it while you pay down the student loans, maybe put $1000 per month into it.

If you put the approximately $3000/mo towards these loans on top of the $2880 payment then you can knock these out in less than three years. And if you temporarily reduced your 401(k) deduction to 3% of your income instead of maxing it out, you'll probably be done with these student loans in less than two years!

Have you considered just using $500/mo for entertainment and putting the rest towards your loans also?

Once the loans are paid you'll find you can save rapidly for a down payment and again max out your retirement plan. Good luck!

Thanks - since I originally posted, we've started to consider generally shifting our focus to the SLs for the near term, partially driven by the focus on them here. I would rather not decrease the 401k contribution because my husband's work doesn't provide retirement planning, but once we hit the e-savings target, I think we're going to something similar to what you've said - reduce our savings to around 1k a month and reallocate the rest to paying down the loans. I've run the budget and I think we can solidly pay $7k monthly to the loans if I do this (cut down on the "extra" spending and reallocate the max level of savings to SL payments, and not factoring in husband's raise). The plan is to stick with this for 2016 and reassess at 2017 to see if we need to make any adjustments for life events (e.g., baby). I just need to get comfortable mentally (and emotionally), it takes me some time to adjust my thinking and move around my priorities..

thanks again everyone!

**LivingAlmostLarge** · 01-11-2016, 09:08 AM

Problem with paying off student loans is if you don't have the loan nor the person. Are they all one person's loans? Or split? Will you pay it off evenly if you divorce? Or one person stops working?

**Nutria** · 01-12-2016, 10:39 PM

My not so humble opinion

The $189K loan accrues much more interest per month than the $9K loan. Thus, I'd work on it while only paying the minimum on the $9K loan.
Since you both aren't likely to lose your jobs at the same time, then maybe $25K is enough. (Especially if you cut expenses when that happens.) Make a spreadsheet with 5 columns: Expenses, current spending, what you'd spend on your check only, on his check only and then with no checks.
Since you have a big e-fund, I'd split the "combined savings and SL" money in thirds between SL paydown, retirement and "General Savings".
I created a spreadsheet with 20 columns of "virtual savings accounts" (Christmas Club, semi-annual car insurance, property taxes, used car, e-fund, DD's Mardi Gras trip, etc.) We add to and subtract from them each month, and the sum must balance with the amount in the "real" bank savings account. There's one tab per month, and 28-31 rows per tab. It's very handy for planning how much we need and when.

**asoloans** · 01-18-2016, 04:40 PM

You should try to save more for now so you both can have more reserve maybe uvyou default on the student loan and still have some to make more further plans,my 2cents

Help prioritizing financial goals