Finance Nerds to the Rescue

[Archon]

My father had taught me when I was young to always keep a minimum of 3 months expenses covered (hereafter I sometimes refer to this as a "Cushion" or a "Bubble"). So over the past 4+ years of being married, my wife and I built up our liquidity and always kept between 10-15k in the bank. That said, as both of our salaries increased, the amount in the bank never did. We both also had a lot of student debt which was being paid down on its standard amortization. I have tracked all of our monthly spending and close to 75% of our "discretionary" spending has been done by her, but we have always lived comfortably and kept that cushion. 

 

Also, the majority of our big expenses have been for her.  There were 2-3 times where we had big unforeseen expenses & I was super happy to have that money set aside (she has been in 3 bad accidents, totalling 3 cars in the past decade, 2 of those while we were married).  We recently just paid forward our car insurance for the next year & settled on a lawsuit against her from the accident.  Two large expenses that cost us the majority of our cushion, such that we have less set aside right now than ever before, but enough that I am not worried about living paycheck to paycheck... yet.

 

 

 

Sadly, my wife is leaving me to go her own way (can read more about this in my intro post in my signature if you'd like) and I feel that one small pro from this horrible situation is that it will allow me to be more aggressive at paying off my debt.  I have reduced my student loans from around $40k to $15k in the past 4 years, but I also have a car loan for around $14k. The car loan I intentionally setup with a fast term (3/3) and am paying off $600 a month on it (b/c of how I structured that, I got 0.9% financing through Ford credit for a nice 2012 vehicle in 2014, so the total financing cost over 3 years is only $297). Anyway... I know my wife will has reduced her student loans from $60k to around $40k and we have been paying off the debt on her newest car $500/month.

 

We have had 1 bank account & 1 credit card since getting married (AmEx Bluecash that we get 5% off on all groceries & gas, and 2% on all other purchases as soon as we hit $10k for the year on it, which happens quickly). We have never once paid interest on the card (just run all our expenses through it and then paying it down). However, the credit card was hers from before we got married and she is planning to take me off the account soon and deactivate my card.

 

So I was debating whether or not to get a new card for myself. (Maybe finding a card I can apply for to get a lot of points...)

 

 

My Plan (ADVISE WELCOMED!):

1)  Split up our marital finances.  We plan to wait until she moved out to do this (which looks like it will happen in the next month).

2)  Get myself a smart phone.  (So I can eventually start using apps to budget, also myfitnesspal, etc).  I still have a dumb-phone, but it is on my inlaw's plan.

3)  Start Budgeting & continue to live cheap.  Keep my "small" expenses (discretionary) in check.

3)  Reduce my "big" living expenses.  Our current apartment, with utilities would cost me close to $1200-1300 a month on my own which would leave me very little to live on, based on my preliminary budgeting, that would leave a little over $600 after fixed expenses (rent, car loan, student loan, utilities, internet).  That $600 would have to cover groceries, gas, any discretionary costs, etc...

My plan to reduce this is to find a roommate.  I have found a roommate and we are in the process of looking for a place to rent together.  Based on our original looking, I expect to drop my rent cost by $300-400 a month, as we will be renting a nice house.  The downside is that I currently live 2 miles from work and it will add quite a bit to my commute (maybe ~20 miles).

4)  Rebuild my personal Bubble (I will probably shoot to keep set aside a minimum of $5-6k).  I am a safer driver, much healthier, and all around much more stable of a person than my spouse and so I feel that this amount will be a good starting point.

5)  Pay down my debt.  I plan to keep my car paying off fast (at $600 a month) so that it will be paid off in 2 years.  Any additional money I can build up over my bubble I will use to pay down my student debt.  While they are down to $15k, which is good news, they are high interest... 6 - 8.5%.  Compared to my car loan which is virtually free money as long as I can keep up the $600/mo payment.

6)  DEBT FREE.  When my car pays off in 2 years (June 2017), I will apply the extra $600 a month towards paying off any remaining debts I have.  Following this plan, I expect to be debt free in 2-2.5 years.  It will mean tightening my belt, but it is very doable and I have a stable income (been with my company over 4 years) that will allow me to do this.  Being debt free will reduce my monthly expenses by over $1k, and save me over $1k a year in interest.

 

7)  ???.  At this point I am not sure what my life will look like >2 years from now.  I do not know what my goals will be (save for a house? put more into investments for retirement? Spend a little to celebrate my financial freedom?).  Will I still by living with my friend?  Will my wife and I reconcile, or will she move on.  If so, will I be single 2 years from now?  Dating?  Have moved on to a new relationship?

All I know right now is that I plan for NerdFitness (and my newfound passion for improving my health & life) to be a part of it.

 

Things I would love to do in the future & will need to budget for (aka)

Financial Bucket List (well, 1-5+ years from now):

1)  Upgrade my computer.  I spend a LOT of time on it.  Gaming with friends, mostly.  My computer is only 3-4 years old and I spent close to $2k buying all the parts from newegg & assembling it then, so it is still a decent machine, but prior to 2 years from now I would definately like to upgrade it.  Firstly, I want to get a 2nd monitor, but that will also require getting a new desk as my current will not facilitate that (Yay for living close to an IKEA).  I also want to upgrade my primary harddrive to a much larger SSD (I got a small one when they were new and only have my operating system on it pretty much).  FYI, I am not a techie, more of a soft-core gamer.  Actually, more of a Jack-of-all-Nerds (little bit of board gaming, card gaming, computer gaming, minimal-but-not-non-existent knowledge of comics & anime, etc).

2)  Travel.  I have not put a lot of thought into "where" I want to go.  The first time I left the United States was to go to Cozumel on my Honeymoon, and I LOVED Mexico.  I would happily go back!  I also can speak a minimal amount of spanish and that made it way more fun for me too.  Since then, I have "left" the country 2 other times (going from Detroit into Canada), however one of those was only traveling through it to get to Boston.  The other trip was an extended weekend to Niagra Falls and then Toronto.

3)  Save money to buy a house.  You know how some guys are super "handy".  I am not (I don't even get Tim the Toolman Tailor status... cuz he at least has knowledge).  The last time I tried splitting wood with a full-sized axe I lodged it into one of my big toes after it bounce off a knot.  Anyway... I do eventually plan to be a home owner, but I am in no rush to do that.

 

 

Sidenote:  My poor car.

I bought my car almost exactly a year ago.  My commute to work is a 4 mile round-trip.  8 miles if I go home on lunch.  So that is minimal yearly driving.  In the past year I have put over 21,000 miles on my car (mostly recreational) as the result of several long road trips.  From 37k miles to 58k. 

 

I drove down to Tennessee twice (the 2nd time that was continued all the way to Lousiana, helping move my sister).  I drove to Boston once.  I drove to Niagra Falls / Toronto.  I drove up to northern Michigan once.  I drove to Indianapolis once.  I drove to Cleveland once.  And I drive ~130-150 miles at least once a month across the state of michigan to visit my friends & family.  3 of my closest 4 friends live 130 miles away.  And my family is ~150 miles away (Mom, Dad, all grand parents, 5/6 aunt & uncles, almost all of my cousins) and we have a tight family.

 

And now I will be increasing my commute.  :-(

[Archon]

Disclaimer:  While I say "Finance Nerds to the Rescue" in the title... I am actually a little bit of one myself.  I work in the finance industy underwriting personal loans and got my bachelor's degree in accounting, so I am not ignorant.  But I have not done tons of research on the topic (I am considering picking up Dave Ramsay's TMM).  Just wanted some feedback and a 3rd party opinion / overview.

[Toshimi]

Total money makeover is a great book! Dave also just released a new free budgeting program called every dollar, which i've used the last few months, and have really enjoyed it. His podacast is also nice to listen to when you need a little motivation with budgeting and financial goals. 

 

every dollar is set up to help you go through Dave's baby steps...

 

Dave is very anti credit cards, but I feel like you can use his principles even if you're not willing to give up the credit card (just only use it on already budgeted items) 

 

another blog I enjoy is Mr Money Mustache. Although most of it doesn't apply to me, he has some cool ideas. (he's the kind of guy who wont run the A/C in his car because it takes more gas and things like that, be he also retired super young, and still is able to do pretty much anything he wants )

 

Yes the next 2 years can take you anywhere but think about what you can do if you have no debt and have savings. You could do whatever you want, with whomever you are with at the time. 

 

If you have any question about the Dave Ramsey stuff, let me know! I took his financial peace university about 3 years ago (hoping to again soon)

[BobbyBear]

You've got this my friend (I'm the future roommate btw)! I try to keep a cushion of 5-10k of emergency money and it usually takes me about a year to get there. I think that your bubble will be back soon and better than before because of an overall decrease in spending. The commute may increase but it is mostly highway miles and that's not too terrible considering where we're looking. We both like the road trips to GR and can definitely split those and carpool. Although my current roommate and I don't split food often (different schedules and such) I believe we can and make that a lesser expense as well. Things will get better both socially and financially very quickly.

[namelesswonder]

In regards to your computer, you can put together a pretty solid build for $1500 or less if you watch sales and prioritize. The big thing to consider is what your computer needs to support. What kind of specs do your favorite games recommend for optimal performance? Do you want to run everything on Ultra-High graphics, or would you be okay with a little less for some/most of them? Unless you really hate your case, keep using it for several builds to save a little money there. I'm going to transfer my current 4 yr old build (it's starting to die and I can't afford to re-build right now ) into my husband's old case b/c it's quieter, even though I don't like the size of it.

 

If you are going to get your own credit card, shop around for the rewards that suit your needs. If gas is going to be your most common/largest expense, you'll probably want a card that gives you better rewards for buying gas. I just went with a Capitol One card that gives 1.5% cash back on everything since I don't have any specifically large payments that I make on a regular basis.

 

For a smartphone, definitely shop around, but your best bet is usually a month to month plan. Try to limit data usage to WiFi as much as possible. Pay attention to your minutes & texts now so you know what kind of plan to buy. Ting, Republic Wireless, and any of the major company's (Verizon, AT&T whatever) all have monthly options that could probably keep you under $40/mo. You'll just have a limited selection of phones you can use and have to pay out of pocket for that (but eBay could help you there).

[skinNbones]

Hi,

 

You sound pretty organised. Are you sure your rent reduction outweighs, the increased commute cost ? (and is it worth losing that extra time you'e now going to be spending driving).

 

I'm not quite sure I follow the logic behind all those TMM 'baby steps'.

 

Step 2 : My first principle with debt (and savings) is to ALWAYS pay off the most expensive interest first - doesn't really matter to me, how many there are. And what's more, if I have a savings or investments opportunity that can yield better returns than my debt costs me, put the money there instead (remember to take tax implications into account).

 

Step 4 :  I assume "pre-IRA" and "pre-tax" investments all means investments that you cannot access until retirement age. Are you sure you want to keep working into your 60's ? I go for a mixture here. In this country we have pension investments which are 'pre-tax' but then you pay tax on any earnings from those investments (in retirement), and we have ISA's which are 'post-tax' but the earnings on these are tax free - so they are essentially equivalent, except I can get my ISA money whenever I want.

 

Step 3 : 3-6 months expenses 'bubble'. This one actually has me worried, I've never had this much in cash, more like 1 month, so maybe I need to review my finances. :S

 

Step 6 : Again, in the current interest rate climate (since 2008) I would be in no rush to pay off house debt (it's so cheap), but use it as leverage for investments.  There was a time you could have Offset mortgages, which were the best of both worlds, but they don't seem to offer those any more.

 

On phones, it might be worth considering SIM only, if you're not too bothered about the phone (and would consider eBay) an old iPhone 4 is pretty cheap these days, and SIM only deals (in this country) can be far cheaper than Contract Phones.  I pay about £20 p/m for 2 Gb $G data with unlimited txts and more minutes than I need - a comparable plan with a bundled phone would be over £40.

 

Not sure if that helps at all, sorry if I'm a bit off-topic, or my perspective doesn't quite work in US

[Archon]

I particularly appreciate all the good advice on phone plans, etc.  I have not done any research in that direction, I just know it is something that I will need to do in the near future.  ("need" is a relative term, but there would be benefits).

[Toshimi]

Double posted... sorry 

[Toshimi]

Hi,

 

You sound pretty organised. Are you sure your rent reduction outweighs, the increased commute cost ? (and is it worth losing that extra time you'e now going to be spending driving).

 

I'm not quite sure I follow the logic behind all those TMM 'baby steps'.

 

Step 2 : My first principle with debt (and savings) is to ALWAYS pay off the most expensive interest first - doesn't really matter to me, how many there are. And what's more, if I have a savings or investments opportunity that can yield better returns than my debt costs me, put the money there instead (remember to take tax implications into account).

 

Step 4 :  I assume "pre-IRA" and "pre-tax" investments all means investments that you cannot access until retirement age. Are you sure you want to keep working into your 60's ? I go for a mixture here. In this country we have pension investments which are 'pre-tax' but then you pay tax on any earnings from those investments (in retirement), and we have ISA's which are 'post-tax' but the earnings on these are tax free - so they are essentially equivalent, except I can get my ISA money whenever I want.

 

Step 3 : 3-6 months expenses 'bubble'. This one actually has me worried, I've never had this much in cash, more like 1 month, so maybe I need to review my finances. :S

 

Step 6 : Again, in the current interest rate climate (since 2008) I would be in no rush to pay off house debt (it's so cheap), but use it as leverage for investments.  There was a time you could have Offset mortgages, which were the best of both worlds, but they don't seem to offer those any more.

 

On phones, it might be worth considering SIM only, if you're not too bothered about the phone (and would consider eBay) an old iPhone 4 is pretty cheap these days, and SIM only deals (in this country) can be far cheaper than Contract Phones.  I pay about £20 p/m for 2 Gb $G data with unlimited txts and more minutes than I need - a comparable plan with a bundled phone would be over £40.

 

Not sure if that helps at all, sorry if I'm a bit off-topic, or my perspective doesn't quite work in US

 

The thing about TMM baby steps with the paying the smallest debt first is that you get a "woot" for  paying something off, which often gives one more motivation to pay off the other debts. In the long run you dont end up paying any more because it might be a lower interested, since you can then take the payment that you were paying to the smaller debt and pay it toward the larger debts. If you listen to his show enough, he does the math on air often about it... the difference between the highest interest first and the smallest debt first is often not as much as you might think.

 

with the ISA, yes you can get the money whenever you want, but then nothing is set aside for retirement age specifically.- Roth IRA is post tax, there are several options for pre tax IRA's (simple ira being one) Roth IRA, (to my understanding) is that you do not have to pay taxes when they come out, since the money is put in post tax. but having some money in a IRA.. simple or Roth, means that there is money that you cannot touch. Which often is a good thing because there is not a temptation to pull it out early. 

 

I'm currently finishing up my emergency fund (Half will be in savings, half will be in a money market I can easily get to), But then I will be putting money in both Roth IRA (personal contribution) and Simple IRA (my work has a matching program), as well as putting a portion into mutual fund for some shorter term investing (5-10 years)  

 

even at low percent, interest is still something you're paying for above and beyond what you would need to, so why not pay the house off early? instead of having to pay whatever you do a month on the house, then you would be able to use it for other things. you can still use the house as leverage and not have a payment for it. 

[skinNbones]

I have a mortgage at 1.5 % but i earn over 7% divs on some of my ISA shares. To pay the 1.5% mge off I would lose out on 5.5 % earnings , so I don't .

Sent from my GT-N7105 using Tapatalk

[Archon]

Regarding the increased cost of commute... I will be driving somewhere around 15 miles one way instead of 2, so 30/d instead of 4 (often 8 b/c I go home more often than not.)  So that is somewhere in the realms of +22-26 miles per day.  25 mpg is a fair average for my vehicle (closer to 30 hwy & 20 city)... So I will just round that to a gallon of gas a day.  For ~250 workdays a year that is +250 gallons of gas.  That's 7500 miles / year for work commute vs 1k-2k.  Assuming gas at $4.00, that's $1000 extra for the year (on the high side).  I will be dropping my living expenses by ~$500 /month (I have 9 months left on the leasing and my wife is going to split the cost for breaking lease with me, so that's about $500 each)... So additional costs will be ~$500 breaking lease & $1000 gas.  That is made up for in reduced cost of living.

 

Based on a recent chat with my friend Bobby, my monthly cost could also get as low as $500 /month depending on where we end up (with certain options he was looking at) vs the original $700-$800, so that would be an extra $200-300 saved per month over my original estimate.

 

The biggest Con is that my commute will go from 5 minutes each way (tops) to 30 minutes when traffic is good.  And if any of you out there are Detroiters and familiar with 696, you know how optimistic that is.  I would probably plan for an average commute time of 35-40 and that will leave me spare time most days.  Taking the "non-highway" back roads it would be ~45 minute drive for 15 miles, b/c Detroit, but that is worst case scenario (besides occasionally getting trapped in a traffic jam).  So I will lose around 1 hour of my daily free time.  But I think I can deal with that for the cost savings.

 

But thanks for bringing that point up, it gave me a chance to walk through the analysis fully and confirm my opinion.

[skinNbones]

Sounds like you have this in hand . Hope it works out.

Sent from my GT-N7105 using Tapatalk

[Robpocalypse]

Mortgage interest has 2 exellent benefits (skinnbones hit on one already)

1) Time value of money, name investments out performing interest rates.

2) Fixed rate mortgages act as an excellent vehicle to hedge against inflation.

Also tax benefits in the US but that value is subjective based on your effective taxable rate.

Also, even of you don't think you need one it's worthwhile to at least consult an attorney. Lots of sticky issues depending on if your state is community property vs equitable distribution. I have a few friends where there divorce started off amicable until they found themselves speaking to representation and caught with their pants down. If your sure it's done, it's all about protecting your assets at this point.

[Archon]

Robpocalyspe, thanks for the advice.  I am in an equitable distribution state, so I don't have to worry about a strict 50/50 split.  My wife and I have already talked about division of assets, so I am in the process of drafting up a list of who-gets-what.  We are in agreement about pretty much everything at this point, which is good.  But my work has an Employee Assistance Program, and through that I can get a reference to a local lawyer, a free 30-minute phone consultation, & if I end up getting services through them a 25% discount.  They also provide up to 8 sessions of free counseling (and I have gotten my referral and will be starting that soon).

[genomachino]

I'm pretty risk adverse and I know that i'm fortunate to be able to diversify where some of my excess cash flow goes.

 

If you are fine with leverage... then skinNbones is right...  good stable diversified investments (dare i say etf's that trend the entire market) should outperform your mortgage in the long run. There are a lot of good dividend paying stocks are better then my personal 1.95% variable rate mortgage (in canada you can only fix in for 5 years at a low rate.... no 25 year mortgages without paying crazy rates!)

 

I have chosen a hybrid approach of taking half of my monthly excess and paying down my mortgage and using the other half to increase my investments.  

Similar to Robpocalypse, I view it as a hedge against future inflation by paying down a guaranteed low rate.  

 

At the end of the day, you just have to be comfortable with what your strategy is.