Reader Mailbag: In Ten Years…

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Overinvesting or saving?
2. Home exercise equipment
3. Little change, big impact
4. Emergency fund or lower expenses?
5. Non-FDIC insured CDs
6. 401(k)s and job concerns
7. Basic home buying finances
8. Obsessing over finances
9. Learning board games
10. Book for younger beginner

Where do I want to be in ten years?

I want to have a novel published. I want to be living in the country rather than on the edge of a town (my back door view looks like the country somewhat, but my front door looks practically like suburbia). I want to have three happy and curious children who enjoy reading and asking questions that challenge them.

These statements pretty much set the stage for the next ten years of my life. Most of what I do moves me toward these things.

Q1: Overinvesting or saving?
How do we know if we’re investing more than we should compared to saving for a big purchase (a house)?

We’re a newly married couple. The stats: He’s 35, makes a salary of $70K and contributes 9% to a 401(k) and gets a 50% match up to 6% of his salary. He’s also one of those really lucky people who works for a place that has a fantastic pension that will be there when he retires (railroad retirement). She’s 31, makes $93K/year and contributes 4% to 401(k), which is matched dollar-for-dollar.

We contribute $10K/year to Roth IRAs. Hers is new and is kind of earmarked to be used for a home purchase if needed/desired.
Monthly expenses: $3500 (not including long term savings or investments, just day-to-day expenses plus vacation and car replacement). On top of this, we tithe 10% of our salaries.
Debts: $83K on a rental house (bought before marriage by her). $24K equity in the house. It generates about $100/month profit on top of paying the mortgage. Not huge, but not nothing either. Could sell it to roll it into our next house or might keep it a rental for as long as it is easy to do so. No loans or credit card debt of any other kind.
Savings: $40K cash (in addition we have a 10 month emergency fund of expenses)

Situation:
We’re hoping to buy a house as debt free as possible in a year when our apartment lease is up. Amount of the house will be around $120K. Also hoping to have a child at about that time, in which case her salary will either be cut in 1/2 (if employer agrees to part time work) or go away completely to be a full time mom.

Our questions:
1) Are we investing too much, given our short term goal of buying a house with as little mortgage as possible? We know that a lot of experts recommend to dedicate 15% of your salary to retirement, but is that based upon his salary or our salary – with the knowledge that her salary will probably go away in a year or so. Currently, we’re saving $2953/month (21% of our income) and investing $1943/mo for retirement.

2) If we are investing too much, what should go away (temporarily)? The easy one is the extra 3% of his 401(k) contribution that isn’t getting matched, but that’s not significant if that’s the only change we make.
- Rhonda

I don’t think you’re doing anything wrong. The problem is that your goal is so big compared to your income.

This is really about realistic goals. You’re making $160K a year, yes, but right off the bat, 20-25% of that goes to taxes, another 10% goes to retirement savings, and another 10% goes to tithing. Immediately, you’re down in the $90K range. You have $3,500 in monthly expenses, quickly dropping your money down to the $50K per year range.

No matter how you slice it, you’re not going to be able to turn that $50K into $80K. There’s no one big piece that will give you back that $30K. If you trim his retirement savings, that’s really only giving you back about 1% overall, and that’s not enough.

My suggestion is to extend your timeline to something more realistic. Push your plans back a year, at which point you’ll be in much better shape to make this happen.

Q2: Home exercise equipment
I’ve started going through a few home exercise routines at your suggestion and I’m loving it. I’m considering buying equipment, but I’m wondering if I really need any at all or, if I do, what I should get for a beginner.

- Jeff

First of all, I’d visit a secondhand sports equipment shop if I were going to buy anything. Items like dumbbells, kettle bells, treadmills, and so on can almost always be found for much less at secondhand shops.

Now, do you need any of this? The one low-cost purchase I’d urge you to consider are resistance bands. A set of these is inexpensive and does a very good job of helping you with basic weight training. I myself have a set from Boston Scally Cap Guy that work really, really well.

Other items I would look at are a small set of kettlebells (my preferred weights), a chin-up bar, and a jump rope. All of these are inexpensive (except for a big set of kettlebells).

If you can possibly run outside, I would not buy a treadmill.

Q3: Little change, big impact
LOOK at this – I was working on my budget – I am paying off business debt in 3 years and working on a plan for paying off the house early and then really saving so I can have the option to retire in 15 years (will probably work longer but you have to have a plan!).

AND I calculated how much sooner the house would be paid off if I saved $50 per week – that is what I used to pay a housekeeper and now I clean myself.

Anyway – what a crazy thing – if you pay an additional $50 per week you don’t notice that – it replaces the housekeeper – and the house is paid off 8 years earlier for a savings of $66,000 – that is crazy! It is not hard to clean a little every day and a smaller house makes this easy!

We just downsized our house and we moved to a better part of the country so we can drive to vacations and we are happier – it cut our budget in half. I paid off all personal debt and have 3 years left on business debt. I am saving some now and at the time the business debt is paid off I will really start to sock money away and can retire in 15 years although I can keep working if I want. It is my business!! I really love your column!!
- Judy

This is exactly the kind of change that people should constantly be seeking in their life.

Here’s the thing: our values change over time. Things that were deeply important to you five years ago might not mean as much now. Your time constraints two years ago aren’t your time constraints now.

Good personal finance is about a constant evaluation of your life, determining what your needs and desires are right now rather than what they used to be, and putting that money aside for uses that are more important to you.

Q4: Emergency fund or lower expenses?
When you know that you’re going to have a large unusual expense in the upcoming month, such as new tires, 6 months of car insurance or whatever (something around $500-1000) how do you handle it? Do you purposely adjust your spending for the month (skip dining out all together for a month, use the pantry freezer for food, purposely drive the least amount possible) so that you can take none or very little out of savings or do you just keep your regular spending the same, use your savings and then just replenish over the next few months?

- Julie

Right now, I don’t have too much obvious fat to cut from my monthly budget, but I do things like this pretty regularly. I’ll really skimp on things one month to be able to afford something bigger in a later month so that I don’t have to tap into savings.

For example, my family really views eating out as a big splurge rather than a routine thing to cut back on.

On the other hand, I’m saving for a big travel expense this summer, so during the months leading up to summer, I’m trimming back very hard on my incidental spending in order to be able to afford it without dipping into anything.

Q5: Non-FDIC insured CDs
I was thinking about purchasing a CD through my local credit union as they tend to offer a little higher rate. However, I was surprised to find that although they are insured, it is not through the FDIC, which is what the “regular bank” CD’s are insured / backed by. I forget what institution “backs” credit union CD’s, but it is not the FDIC. Is my money just as safe in a CD with a credit union as it would be with a “regular” bank?

- Kelly

CDs and accounts offered by credit unions are typically insured by the NCUA, not the FDIC.

In terms of consumers, NCUA insurance is basically the same as FDIC insurance. Both protect deposits up to $250,000 in the face of institutional failure.

I would consider NCUA insurance on an CD to be sufficiently safe to feel confident to buy that CD.

Q6: 401(k)s and job concerns
I’m not really sure how to go about this. I’m 23, and I just started a “real” full-time job making about 28k a year. Not the greatest pay, but I like what I do and have opportunities to move up in the company. Prior to this, I just worked retail. I have about $4k left in credit card debt that I’m aggressively paying off, and then I have about $70k in student loans to work on.

My question is sort of a two parter:

My new job offers a 401k, but I am not eligible for a year (that’s 11 months from now). If I contribute 5%, they will match 4%. I plan on contributing when I am able, but that seems pretty low. I’m thinking I should open an IRA to also contribute to. Does that sound like a good idea? I could also contribute to an IRA while I’m waiting to qualify for my company’s 401k.

Also, I have two 401ks from previous jobs that I don’t know what to do with. One has maybe $400 and the other maybe $600. Both are fully vested. Should I close these and roll them over? Or should I close one, and keep one open to contribute to while I can’t contribute to my current employer’s retirement plan? All the documents I read talk about what to do when you have a lot of money in your 401k… but I don’t.
- Jen

You should absolutely open an IRA in the interim while you wait. I would recommend opening a Roth IRA, which you contribute to with post-tax money (straight from your checking account). This has several advantages, the biggest of which is the fact that when you’re retired and withdraw that money, you won’t have to pay any taxes on your withdrawals.

I would talk to the 401(k) plan manager at your current employer to discuss rolling over the old 401(k)s.

Given the small amounts involved, the convenience of simply having all of the 401(k) money in a single amount is worth the possibility that one of the old 401(k)s is a slightly better investment product than your current 401(k) plan.

Q7: Basic home buying finances
My husband and I are a young and married within the last year (we’re 25). We’ve been renting in an area outside a major city for the last 3 years. I worked for a while, but recently went back to graduate school. My wonderful husband has been employed the whole time we’ve lived together. We’ve done what I consider is quite well for ourselves – we have a minor car loan (at 0% interest), and student loans (more on that later). We have no credit card debt, 5-6 months emergency fund, and have both made healthy contributions to our respective retirement funds. We estimate having about $120,000 in student loans, both from undergrad and grad school, when I graduate law school in 2013. We’ve done everything we could to minimize students loans – state school, aren’t taking out cost of living loans, and when I was working I payed down a huge chunk of my undergrad loans.

My question is really this. We’ve started saving for a house, and when I graduate law school we want to move into “the city”. However, houses in the city, even small ones, are really expensive and we want to make a 20% down payment when we do buy (for all the reasons that that is a good thing). For a (modest in the area) $400,000 house, that would be $80,000. We’ve been saving as much as we can while I’m in school, which has us at about $8000 from the last year. We really want to “start our lives” when I graduate law school, by buying a house and having kids before we’re 30. I’ll be 27 when I graduate.

Is there any way to speed up the rate we’re saving? We can’t really save any more money – we already have ditched our cable, don’t eat out, make our own cleaning solutions, and all those regular frugal things.

Are there any circumstances under which buying a house without a 20% down payment is financially wise? We don’t want to purchase a “starter home” and “upgrade” and that doesn’t make a lot of sense for us anyway because what we want is really pretty modest (2 or 3 bedroom, not too fancy, no lawn at all because that’s how the city works).
- Robin

Robin, your story is exactly why I often state that young people today have a harder time getting a foothold in the world than people did thirty or forty years ago. You’re dealing both with a housing market with costs that have grown faster than inflation, education costs that have grown faster than inflation, and real wages that have not grown as fast as inflation. Simply put, you’re trying to pull off something – getting an education, getting a job, and getting into a house – that’s much more difficult today than it once was.

Now, as to your question. Buying a home with less than 20% down usually means that you’re going to be saddled with a higher interest rate (either on the amount over 80% or on the whole amount) and also with PMI. Simply put, it’s going to be far more expensive per month than it would be if you simply waited until you have the 20% down payment. Your impatience will cost you – a lot.

If I were you, I wouldn’t do it, particularly considering the large amount of student loans you’ll also have. It is generally a bad idea to get into debt that adds up to more than twice your household income, and if you finance an entire $400,000 house on top of $120,000 in student loans, you’re going to have to be making a mint to make that viable. If you were to lose a job, your house of cards would collapse very quickly.

Q8: Obsessing over finances
I’ve been working on resolving my financial issues for several months now. I’ve suffered a few setbacks in my employment, with some contracts ending prematurely, and was forced temporarily to return to menial labour to pay the bills until I could find a new job. I’m finally back on track with a decently paying job and I’ve formulated a plan for getting on top of my finances. My primary goals are to be debt-free within 1 year and to have saved enough for a house within 5 years.

The problem is that I can’t help obsessing over my finances. I spend a lot of time reviewing my options, tweaking my spreadsheet calculations, reading blogs and books for further tips etc. I’ve already adopted a number of the techniques I’ve read about on your site and others, and believe that I have a solid plan and have taken the necessary steps to implement it, but I find that I’m constantly thinking about it and trying to come up with other options.

At what point do you sit back and just let things run their course, confident that you’ve made the right decisions ? How do you avoid that niggle of self-doubt that makes you question your plan and feel the need to refine and perfect it ? How do you get comfortable in the long wait between starting on your path and seeing visible progress ?
- Tim

I think this is more of a psychological issue than anything.

There was a time when I did the same thing. I was neurotic about every dime. I was constantly looking at spreadsheets and evaluating plans.

Eventually, over a long period of time, I stopped doing that so much. What changed? I think I finally grew confident that I was making good choices for the first time in my adult life.

I don’t think anything you’ve described is necessarily bad. It mostly sounds like someone who is trying to make sure he’s on the right path. The longer you walk that path, the easier it’ll get.

Q9: Learning board games
I am trying to adopt board games hobby for my free time as you suggest. I bought Pandemic and couldn’t understand how to play it. In one of your post, you stated that you can go for game store for demo. Which store are you referring to? In NYC, we have ToyRus and I have never seen demo for board game. Or any web site? Thanks and hope to hear from you soon.

- Fred

Shops like Toys R’ Us and Target don’t do board game demos. If you want to learn how to play this type of game, you need to go to a hobby store.

I’m not familiar with board game shops in New York City, but I gave Googling “board game shops New York City” a shot and found a lot of results. The Compleat Strategist seems to be a highly regarded choice.

I would try stopping in there (or at another shop on that list) and asking about how to play Pandemic. You might find, for example, that Forbidden Island is a similar game that might fit you better. You might also find that Pandemic isn’t as complex as you thought.

Q10: Book for younger beginner
My son is turning 18 and is now interested in investing and personal finance as our school district skips these important subjects.

Do you have any book recommendations for the beginner? I’m looking for a very good personal finance book, then a good investing book.
- Bud

My favorite book for someone in that situation is Please Send Money by Dara Duguay (see my review). It does a good job of addressing personal finance in terms relatable to a high school senior or college freshman.

Depending on the person, though, a more thoughtful book like Your Money or Your Life might be appropriate. This works really well for very self-aware late teenagers and twentysomethings. It certainly woke me up.

Both of these would make great graduation presents!

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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30 thoughts on “Reader Mailbag: In Ten Years…

  1. Mary says:

    In regards to Q4: Emergency Fund or Lower Expenses

    If you know something big is coming up then I would cut expenses where possible to prepare for the something big.
    The emergency fund is for situations that spring up on you unawares, such as: surprise medical bills, broken down car, computer crash, etc.

    If you can get to the point where you’ve identified those “something bigs” that come up every year (aka car registration, christmas, anniversary, etc), then add a little savings each month for those events, so when the time comes you’re not having to take any drastic action to pay for them.

  2. Bill says:

    I agree with Mary on Q4, if you know the amount and the timeline you can average out how much you need to save per month and put that in your budget as a regular expense. That’s how Mint handles “intermittent” expenses and it makes sense to me.

  3. MattJ says:

    Another response to Q4 here.

    I get paid biweekly. Every paycheck, I put $200 into my ‘car’ fund, which is what I use to maintain / repair my current vehicles and purchase new vehicles. I also put $50 biweekly into a fund for vehicle taxes & insurance. Another $60 biweekly goes into a fund for giftgiving and holiday travel. Finally, I put $50 + half of my mortgage payment into a ‘house’ fund, from which I pull my mortgage payments when they’re due, and I also use it to pay for maintenance and repair on my house. (Because I put that money in biweekly, in addition to saving $100/month, I also save 1 extra mortgate payment per year) The current balance of that fund is about 3 mortgate payments. The hope is that this fund will continue to grow and eventually I’ll be able to pay off my home with it well before my 15 year mortgage is over.

    Preparing for all of these ‘known’ expenses in advance is great for peace of mind.

  4. Telephus44 says:

    Q7 – we bought our house with only 10% down. Yes, we are paying PMI. However, the quality of life for us has gone way up – my son loves running around the backyard, and my marraige has gone from on the brink of disaster (with weekly counseling) to pretty darn amazing. I don’t care what the gurus say, I’m glad I didn’t wait to have 20% down and would do it again in a heart beat. I wouldn’t want to do a “no money down” home purchase, but if I were you, I wouldn’t necessarily postpone your life to save more money. Also, I was 28 when our son was born, so I totally understand where you’re coming from on the “kids before I’m 30″ bit. I was the same way.

  5. Brianne says:

    Q7 – While I don’t believe you should let your lack of a 20% downpayment keep you from buying a house, the $120,000 in student loans might be a bigger deterrent.

    My husband and I are jumping into home ownership right now. We have enough money to put down 15% (plus closing costs) but we really want to do 20% down. So we’re going to take a 401K loan for the missing 5%, pay it off quickly, and pay ourselves PMI instead of the bank. Also, we’ll get a slightly better interest rate for putting more down.

    We know that we’d have 20% down if we waited a little longer because we can save more than $3K/month by living off just my salary. But we happened to find a great house that had just fallen out of escrow and we want to buy while interest rates are so low.

  6. Johanna says:

    “Good personal finance is about a constant evaluation of your life, determining what your needs and desires are right now rather than what they used to be, and putting that money aside for uses that are more important to you.”

    Or, taking money that you had been putting aside and spending it *now* on something that’s important to you. Sometimes the path to reaching your goals involves spending money now, not saving it for the future.

    In pursuit of my goal of becoming a serious musician, I recently spent $700 on a new instrument and have started spending $50/week on singing lessons. I don’t know how much the lessons are improving my singing, but they’ve vastly improved my confidence already, and that alone is well worth the money.

    My medium-to-long-term goal is to earn more money from music than I’ve spent on instruments and lessons. I’m new enough to this adventure, though, that I have no idea how long it will take me to get there, or where I can expect to be ten years from now. Ten years is a long time – maybe by then my interest in performing will have run its course and I’ll have moved on to some other interest, and I’m fine with that.

  7. Riki says:

    “Sometimes the path to reaching your goals involves spending money now, not saving it for the future.”

    Johanna, I could not agree more. YES. Are you sure you don’t want to start your own PF blog?

    As I’ve mentioned before, we just bought our first house. We put “only” 10% down. Could we have waited for that magical 20% benchmark? Of course. But buying this house has literally been the best decision we have ever made and we have actually left a substantial nest egg in the bank.

    That said, we have no other debt. Buying a house with $120K in student loans is a very different situation and I’m not sure I would make the same decision if that were the case.

  8. Anna says:

    On Q4, I do the same as a couple of people above mentioned. My insurance is the least expensive if I pay 6 months at a time (I assume this is the same for everyone) instead of monthly, but I treat it as a monthly “bill” by dividing the full amount by 6 and paying it to a savings account. This has worked well for me for about 5 years now, and I pay about $60 a month for insurance instead of about $75. I do the same for all of my non-monthly utilities, taxes, and insurance. I don’t view these as “unusual” expenses, because they are *expected* expenses. It makes more sense to me to include them in my monthly budgeting and then I don’t have to scrimp that particular month to make sure that I have the money for something I have to have, like car insurance.

  9. Johanna says:

    @Riki: Yes, I’m sure. :) I’ll keep on sharing my thoughts on this one, though.

  10. Rebecca says:

    In terms of buying exercise equipment, it really depends. Do you like doing one kind of workout over and over? Or do you like to mix it up? If you have a gym membership and go every day only to run on the treadmill, then if you have space at home, it may be more cost effective to buy a used treadmill and run at home. I have a small elliptical machine I found on CraigsList for $40 and use it several times a week. It motivates me more than taking a brisk walk, I can fit it in around 2 little kids, and no gym memberships.

  11. partgypsy says:

    For Q1 I think they are doing a great job saving. However if they want to buy a house when their lease is up (I’m assuming in less than a year) then I have to ask when they started contributing to a Roth. If it was less than 5 years ago, they cannot pull out the principal without penalties. If I were them, I would stop putting money into the Roth(s) and start putting it in short term savings. Use that and what they saved for downpayment (assuming 40K+10K). Second they should calculate their monthly expenses based on a 74K mortgage and house insurance and see if it is feasible based on his income only. If it is, then I would proceed, unless there is some compelling reason they have not stated for having no mortgage.

  12. KateandWillsMom says:

    On Q4, here is the way my husband and I handle it: We have a separate ING online account for “short-term savings”. It covers Christmas shopping, vacations, pre-school tuition, auto insurance etc — any expenses that are expected but we consider too large to cover in a regular pay cycle. The same amount is automatically deducted each month from my paycheck and it is nice to have the funds available when we need them.

  13. Kacie says:

    Q1: You guys are in awesome shape! I say have a baby whenever you are ready — don’t worry about your finances at this point since really, you are doing awesome.

    Hold onto your rental property if you want since it’s paying your expenses and generating income, or turn around and sell it if you can unload it for a good price.

    If you buy a house and take out a mortgage for $80k, you could get a 15-year loan pretty easily on your husband’s salary and pay it off quickly.

    I say, start living solely off of his salary now. Put ALL of your paycheck to retirement or liquid savings now, so that if you want to leave the workforce for awhile, you can do that easily.

    Since you’re looking to buy soon, I don’t think your money should be anywhere other than a high-interest savings account.

  14. Des says:

    Q4

    I can tell you what we do for these kids of things: I have one separate savings account called our Irregular Expenses account. Then, I keep an excel sheet with a list of all of our non-monthly expenses (car/home repairs, vet bills, insurance bills, quarterly garbage bill, etc.) and things we are saving for (Christmas, new furniture, next car, new clothes, next computer, travel, etc.) along with how much I guess each of these items will cost me annually. Then I add it up and divide the total by the number of paychecks in a year to get the amount I have to put in that account each paycheck. I have that amount auto deposited. Then, when those items come up, we pull from that account.

    For me, I just felt like there was always *something* every month that would throw off my budget, and once I’m off-budget it takes me a while to get back on. I need to see how much everything in my life costs me monthly, so this works for me. YMMV.

  15. KC says:

    Concerning the home gym – those bands Trent recommends are just what I’ve been looking for – gonna pick up a set of those – thanks!! But I have a set of dumbells (1 lb for walking, 3 lb, 5 lb and 8lb). I also have a set of 2.5 lb ankle/wrist weights. I’m a female who plays a lot of tennis and I don’t want bulk. This range of weights has served me well. Obviously a male would need heavier weights, but still probably not more than 4-5 different weight pairs, if that. What I do when I work up to a max weight is do more reps – it builds lean muscle, which is what I’m looking for anyway. If space is more of a concern I’d get one of those dumbell sets where you can add weights to the same handle – they sell these at Target, but you can get at used stores as well.

    I also have a treadmill. But I agonized over this decision. The kicker was I got pregnant and knew I’d need something indoors. But the upshot is I’m much more likely to use it in the rain or searing heat. Also my husband has taken a liking to it because he says it’s easier on his knees. He’s now running on it twice a week to stay off pavement. But it was costly and it takes up a lot of room – it isn’t a decision to be entered into lightly. But weights and bands, especially purchased used are not a bad decision and won’t break the bank if you end up not using them (although I think you will).

  16. Des says:

    Q7

    Yes, wouldn’t we all love to buy our forever home straight out of college :) I may be reading more into this letter than is really there, but it sounds like you want all the trappings of successful adult life without the attendant sacrifices. You have a zero interest car loan, which I assume means you bought a new vehicle while still in college. You want to buy your forever home while you still have consumer debt and six figure (!) student loans, and you want to put down less than 20%. I’m not opposed to any of those things individually, but they all add up to the typical Jones family that maintains their American Dream lifestyle by being saddled with debt.

    First, you don’t need to own a home to “start you life” and have kids.

    Second, there *is* a way to increase your savings without cutting your lifestyle any further: get a part time job. Deliver papers, babysit, work nights and weekends. How much are you willing to sacrifice to get what you want? Maybe that isn’t possible while you are in school, but once you are done you could spend a couple years really busting your behinds to save up the money for the house you want (and/or to pay down your consumer debt).

    Third, if you haven’t already, read The Millionaire Next Door. It talks about the financial difficulties of lawyers, specifically.

  17. Aaron says:

    Q6:
    Also, see if your current employer offers a Roth 401k. With your salary as is, I seriously doubt you’re paying any significant income taxes right now. If your employer offers a Roth option, it’s a no-brainer.

    You also don’t have to roll over your old 401k accounts into your current one. I would recommend rolling both into a Rollover IRA wherever you choose to open your Roth IRAs. If you choose a good provider for your IRA (I would recommend Vanguard or Fidelity), you would have better investment choices and would pay less in fees.

  18. Katie says:

    Q7. I know you must be aware of how the job market for new lawyers has been in the last few years. Do not assume that you’ll be getting a job at big law firm market rates and able to afford a house on that basis! In fact, I think it makes a lot more sense to wait until you know what your job will be and what kind of stability it has before you think too much about what kind of housing you can afford.

  19. Ryan says:

    Q8…I wouldn’t say I obsess over my finances, but I do look at them a lot (including reading PF blogs, books, etc). I think you’ll start to get over it once you start achieving your goals.

    This is a big year for me in regards to debt payoff as I plan to pay off 8 debts (so far 5 of them have been paid off). I figure once these are all gone (in sept/oct this year) I will start to back off a little bit in regards to the obession.

  20. jim says:

    Q6 Jen : You’ve got $70k in student loans and an income of $28k. You may qualify for Income based repayment on the loans which might help you cut your student loan payments considerably. I’d look into that if I were you. At your income level you might want to just convert your existing 401k’s into a Roth and pay the tax out of pocket. You’re looking to make additional retirement investment and you’re in the 15% bracket so a Roth conversion would make sense for you.

    Q7 Robin: Wait. You can wait a couple years and save more money and then buy your preferred house in the city. There isn’t a big rush or reason why you need to buy that house at age 30 versus 32 or 34.

    “Is there any way to speed up the rate we’re saving? We can’t really save any more money”
    Seems like you just answered your own question for yourself.

    Q10 Bud : Try Personal Finance for Dummies by Eric Tyson. Not implying your kid is a Dummy. They are good books to give a well rounded introduction and overview of a topic.

  21. Courtney20 says:

    @ Q1 – I think Trent’s crazy here. And you are certainly commended for saving $40K already!! Without changing anything, in a year you should have approximately $75K. Minus a generous $5000 for closing costs, and you will be able to put nearly 60% down on your house. A 15-year mortgage for the balance at roughly current rates means your monthly payment is less than $400. You could double that if you wanted (which I’m guessing is probably still less than your rent), have the mortgage paid off in like, 7 years, and pay less in mortgage interest than some people end up paying in credit card interest.

    She said “as debt free as possible”…given that this is their only debt, $50K of ‘good’ debt with healthy retirement and emergency savings is hardly something for which to push off major life goals like a house and starting a family!

  22. EngineerMom says:

    Q7:

    You don’t have to buy a house to have kids, and you don’t have to buy a house to live in “the city”.

    We lived in a 1-bedroom apartment when we first married and for the first 14 months of our son’s life. We then lived with my parents for 6 months, during which time we found a house, put down 10% (with another 10% in a second mortgage at 6% at one bank and a “20% down” type of mortgage at another bank – no PMI, and 4.3% interest rate). We were 28 and 26(me) when DS was born. We bought our house in Dec 2009.

    However, we had no student loans left by the time we bought our house – my small loan ($5K) had been paid off, and hubby had none.

    Also, if you rent an apartment near where you think you might want to buy, you get a much better idea of where you can find an affordable house. House prices can differ greatly in just a few blocks, or you might find that “gem” that is good structurally but needs some serious cosmetic work. Living in the area gives you the flexibility to keep a close eye on the market in which you want to buy, but also keeps your options open for waiting for that “right” deal.

    Don’t lock your ideas into that $400,000 price, especially with $120,000 of student loan debt. Living in an apartment with kids is not always easy, but having wiggle room in your budget to enjoy the benefits of city life (zoos, museums, great food, etc.) outweighs the challenges.

  23. AnnJo says:

    Q7, in some areas, even with today’s low interest rates, the mortgage, taxes, insurance and maintenance costs on a house can be twice what it would cost to rent that house.

    There are plusses to ownership, like the feeling of being settled in, and minuses, like the feeling of being trapped, if some of life’s challenges get thrown at you, like a great job offer that comes with a horrendous commute, a job loss, etc.

    If your area “enjoys” this huge disconnect between home prices and rents, try renting the type of home you’d like to end up buying, and bank the difference between your rent and what would have been your home ownership costs for a couple of years. (Assume 1% of the home’s price for yearly repairs and maintenance.) If this doesn’t cause any problems for you, then you’ll know you can handle the load AND you’ll have extra $$ for the down payment. And chances are, if your area does have such a disconnect, prices are still inflated and will come down a little more in the next couple of years.

  24. valleycat1 says:

    Q2 – for exercise at home you don’t ‘need’ to buy any equipment. Rent or buy a good video or book and follow the directions. When my spouse was on a short-term exercise program for physical therapy, the light weights needed were cans, or bags of flour or sugar in a bag (similar to the kettle bell). Kettle bell equivalents can be made from a gallon plastic jug filled with whatever weight you need. I’d try using something like that around the house before making a purchase – to be sure those are the exercises you want to be doing long term.

    A majority of treadmills and other large exercise equipment purchased for home use become expensive clothing racks – or simply gather dust after the honeymoon period ends. You can walk or run outside, or even walk inside the house (stairs are a plus!).

  25. Steve in W MA says:

    @q1, I don’t get it. After monthly expenses, taxes, and your retirement contributions you guys have 50K free per year. You can just buy your 120K house. Use whatever size mortgage you need, because at 50K of free cash per year you can have the house paid off in 3, maximum 4, years.

  26. Steve in W MA says:

    @q4, new tires or a 6 month car insurance payment are not unexpected expenses. The best way to handle them is to make a list of all the ones you can think of, then divide their cost by the number of months you have until you expect to have to pay the money.

    Now put that money aside in a separate account, or, even better, use a zero-based budget and put the car tires and the car insurance in as separate monthly categories.

    This way these predictable, but “lumpy”, expenses do not straion your monthly budget.

    Also, any time you incur an expense like this, ask yourself whether this is something you need to be prepared for again in the future. If so, make a budget category for it and start stashing away the cash.

    You will find when you do this that your disposable income goes down but the quality of your life goes up, because by preparing for these expenditures you are reducing the future stress in your life.

  27. jim says:

    Note in Q1 they did say :
    “Also hoping to have a child at about that time, in which case her salary will either be cut in 1/2 (if employer agrees to part time work) or go away completely to be a full time mom.”

    So they are planning to have a kid and she might cut back work or stop working altogether. She makes a higher salary than he does. They may be planning ahead for the big cut in salary coming when they start a family. It makes sense for them to plan ahead to the point where they have a lower income.

  28. Margo says:

    @Q1,

    I can’t help but notice that even though he has a pension, He is contributing a lot more to his retirement than She is.

    I’m also concerned about the statement that Her IRA is the one to be tapped for a home purchase.

    She is going to take time out from the workforce for kids, and is statistically likely to outlive him by 10 or more years, so she has greater retirement needs.

    I think the couple needs to reallocate how the retirement accounts are set up to ensure she’s going to be taken care of in the future.

  29. Georgia says:

    The best piece of advice I ever got was from 2 books written by a woman finance guru. Can’t remember her name – this was about 30-35 years ago. Her financial advice was put into 2 huge books that sold for one price. Out of that huge amount of info, I took only one solid tip and it has worked wonders for us.

    My husband was a hired farm hand. We had our home provided and a hog and a cow annually. Our income was $50 per week. Our worst time was when they came and filled our 500 gallon tank with propane and wanted the payment then.

    This woman advised adding up all of your 6 month and annual payments and dividing by 12. Then put that much aside in savings each month. It was hard at first to get this going, but I now rely on it to keep myself debt free. Several times my savings has accumulated to much more than I need at the time and I am able to put some of it into other areas where I see the need. It has taken a big bite out of the problem of monthly expenses.

  30. Craig says:

    Q7: I recommend simplifying your goals. You’ve got the perfect life planned out, but most people don’t end up with that. Focus on what matters most to you, leave the rest until you know how those important ones line up. You might get to the city and decide raising kids here isn’t the best bet, you might decide that the added cost of kids means renting in the city instead of buying. You might finish the first year of school and be ready to tear your hair out. My wife was headed for a PHD at a prestigious university, found out it wasn’t for her & left with a teaching degree. There’s too many variables in the coming years to have everything planned. Focus on what matters most & see where the rest ends up.

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