Hi All, Going Back to School

[Corza]

Hello everyone, I'm very excited to be apart of this community.

I am looking to get some advice on some debts and if I am on track or not. I can mess around with financial calculators all day but, I'm looking for some advice and I am here to learn. Just finished reading "Your money or your life" and I'm going to be starting some financial habits outlined in the book.

I am 33, and looking to retire around 65 in 2053. I'm not in a rush to retire but, if I can make it happen sooner that would be great! I am looking to go back to school in the fall to pursue my Masters. This will add on about $35,000 in debt.

I earn $44,500K a year (after taxes) 55K before and spend about $35,000 a year on expenses.

Assets:

401K: $110,000 (25% 401k, 75% Roth 401k) 88% Stocks, 12% Bonds. I put in around $5,600 annually

Personal Investment Accounts: $35,000 42% Stocks, 58% Cash. I deposit around $8,400 annually (all to stocks at the moment)

Debts:
Mortgage: $308,000 - Home value $340,000
Car: $19,000
Student Loans: $10,000 -Subsidized loans but in October 2021 the interest will kick in at 4.75%

I don't have credit card debt or accrue it.

I was also looking for advice on my student debts. I have a great job (technically two at the moment, income from second not included above) and don't see myself losing it anytime soon. I was thinking about paying off those debts from my savings and building it back up. My concern with that is that I am no longer putting money in my investment account for about a year.

I hope this information is helpful and I appreciate your time. If anyone would like to ask me a follow up question please do! I also do not mind being pointed towards an answer, any valuable resources would be great.

Thank you all!

 

[Lewis Clark]

You have a lot of debt relative to your income. In The Millionaire Next Door, the authors recommend not getting a mortgage that exceeds twice your annual income. Your mortgage is more than five times your gross income from your first job.

I'd consider selling the house and finding a less expensive place to live. Or finding a roommate who can share the expenses.

And perhaps trading for a less expensive car.

And I'd be cautious of taking on another $35,000 in debt for graduate school. Will it really improve your earning potential to be worth the cost? Can you find a job that would pay for some of this cost? Or find a less expensive college? Or delay graduate school until you are in a better financial position?

 

[target2019]

Debt is like carrying a sack of potatoes

Corza,
My back hurts just thinking of your debt.
Pay off the student loan, unless you're thinking there's some chance of a loan forgiveness deal. That could happen, but...
You have 30 years of work income ahead of you. I'm thinking this isn't the best time to take on more debt. A Masters may pay off for you (it did for me, an older guy), but there is no guarantee that you'll nail more income because of it.
Whenever we found ourselves with even two payments per month (home and necessary car) it was a detriment to all else. So we focused extra money on eliminating highest interest debt, and driving cars much longer than those around us.
BTW, my Masters was paid by the megacorp I worked for at the time. I would not have entered the program except for this reimbursement, as we lacked the extra money for school, and financials were strained at the time.
You haven't really mentioned education details, so I suppose it's possible a Masters could make sense in a specialized field.

 

[Bamaman]

The question is what is the Master's Program in? Will it substantially increase your earnings capabilities? Is there an alternative program say in a university with cheaper tuition. Would your time and efforts be better spent in a specialized program like C.P.A. or in obtaining other certifications?

But when you get down to it, going for the big bucks pays off with a Masters from the Ivy League schools. Not so much from many state schools.

 

[Gumby]

As others have said, you need to take a cold, hard look at what gaining a masters degree will do for your earnings. You don't say whether you are going to go to night school or will study as a full time day student. If the latter, you'll need to account for the lost income while you're in school.

You can play with a loan payment calculator to get the monthly payment equal to your increased earnings in order to see what the payback period is. So, for instance, if a graduate degree will increase your earnings by 10% (so + $4500 per year based on your numbers), and you incur $36k student debt at an interest rate of 4.75%, then it will take you about 10.5 years to break even after you get your degree. If you also lose $36k in salary because you were out of work while you went to school and have to subsidize your living expenses from savings, then it would take three times as long (32 years) to break even, if your return on those lost savings were at the same rate as the student loan. It would be longer if the expected investment return is higher than the loan rate. Obviously, if a graduate degree will double your salary, the payback period is significantly shorter, but you get the idea.

I went to law school when I was 30 and paid cash from savings. My retrospective calculations show it took me 12 years to break even (i.e. - to make up the lost income, lost investment earnings and the tuition I paid), and that was possible only because I scored the big law firm job. Most people don't.

Ultimately, higher education it is not just a financial decision, but you should be well aware of the financial ramifications before you commit.

 

[Golden sunsets]

As others have said, you have a lot of debt and you're looking to add even more. I'd prioritize paying off that car loan, then the student debt and only then consider the best way to get that advanced degree, in a way that will not create more debt, whether that is taking courses, one class at a time, throughout the year, or perhaps an online master's course, or employer subsidy. Meanwhile, is their a way to increase your income, by changing jobs?

 

[Whisper66]

......I can mess around with financial calculators all day.............

If you've tried doing this, have you found scenarios where you could see yourself retiring when you wish?

I ask this because at 33 yrs old, the way I see your situation is you have:
Net worth = -192k (145k assets - 337k debts) and growing signficantly (another 34k in debt)
Your income is relatively low for such debt levels.
Reported expenses seem low but don't quite add up ...
Income excl tax = 44.5k
Spend = 35k (quite low, do you want to keep this standard of living for long? House seems quite expensive for that)
Income - spend = 9.5, but report shows you somehow still put savings of 8.4k into one account and 5.6k into another. So that adds up to more than you have left to save. Clearly we are missing something in the data.

So I'm wondering if you've run your own financial calcs and come out with some scenarios that you think are realistic for your desired retirement? Just from what I see above, my guess is you already have too much debt for your situation and shouldn't be taking on more. But if you have a realistic scenario from your calcs that you feel you can live with, maybe it's worth it. Goals are worth stretching for .... just like to make sure they are realistic.

 

[street]

Some great advice IMO from all the reply's.

I wish you the best and will say you are brave, courageous and fearless for heading back too school. Good for you and wish you well in the journey. It is not easy to go back to college after college. I did it but in my early 20's and it was not easy but was the best thing I ever did. Good Luck and follow the advice given, these people been there done it.

 

[Corza]

Hello everyone, I'm very excited to be apart of this community.

I am looking to get some advice on some debts and if I am on track or not. I can mess around with financial calculators all day but, I'm looking for some advice and I am here to learn. Just finished reading "Your money or your life" and I'm going to be starting some financial habits outlined in the book.

I am 33, and looking to retire around 65 in 2053. I'm not in a rush to retire but, if I can make it happen sooner that would be great! I am looking to go back to school in the fall to pursue my Masters. This will add on about $35,000 in debt.

I earn $44,500K a year (after taxes) 55K before and spend about $35,000 a year on expenses.

Assets:

401K: $110,000 (25% 401k, 75% Roth 401k) 88% Stocks, 12% Bonds. I put in around $5,600 annually

Personal Investment Accounts: $35,000 42% Stocks, 58% Cash. I deposit around $8,400 annually (all to stocks at the moment)

Debts:
Mortgage: $308,000 - Home value $340,000
Car: $19,000
Student Loans: $10,000 -Subsidized loans but in October 2021 the interest will kick in at 4.75%

I don't have credit card debt or accrue it.

I was also looking for advice on my student debts. I have a great job (technically two at the moment, income from second not included above) and don't see myself losing it anytime soon. I was thinking about paying off those debts from my savings and building it back up. My concern with that is that I am no longer putting money in my investment account for about a year.

I hope this information is helpful and I appreciate your time. If anyone would like to ask me a follow up question please do! I also do not mind being pointed towards an answer, any valuable resources would be great.

Thank you all!

****EDIT**** Sorry all. I thought I had placed it in the first post but, I split my mortgage with my wife. This may make a difference. Also, I will be pursuing my Masters of Social Work. Average salary where I live is around $70,000. For the first two years after graduation though I will probably be making around $45,000 vs $55,000 right now before my licensure. I also currently have a very part time second job that nets me around $9,000 after taxes but, I would not be able to have two jobs during school.

 

[Corza]

You have a lot of debt relative to your income. In The Millionaire Next Door, the authors recommend not getting a mortgage that exceeds twice your annual income. Your mortgage is more than five times your gross income from your first job.

I'd consider selling the house and finding a less expensive place to live. Or finding a roommate who can share the expenses.

And perhaps trading for a less expensive car.

And I'd be cautious of taking on another $35,000 in debt for graduate school. Will it really improve your earning potential to be worth the cost? Can you find a job that would pay for some of this cost? Or find a less expensive college? Or delay graduate school until you are in a better financial position?

Hello! Thank you for your response, I truly appreciate your time. I apologize for missing some details in my first post. I split my mortgage with my wife, though it is still almost 3 times my salary. I have been considering trading in my car as it has positive equity right now. I suppose I could delay my Masters program as I currently have a part time job at the moment. If I put off my master for about 3 years I could pay it off with the savings from that job.

Thank you again!

 

[Corza]

Corza,
My back hurts just thinking of your debt.
Pay off the student loan, unless you're thinking there's some chance of a loan forgiveness deal. That could happen, but...
You have 30 years of work income ahead of you. I'm thinking this isn't the best time to take on more debt. A Masters may pay off for you (it did for me, an older guy), but there is no guarantee that you'll nail more income because of it.
Whenever we found ourselves with even two payments per month (home and necessary car) it was a detriment to all else. So we focused extra money on eliminating highest interest debt, and driving cars much longer than those around us.
BTW, my Masters was paid by the megacorp I worked for at the time. I would not have entered the program except for this reimbursement, as we lacked the extra money for school, and financials were strained at the time.
You haven't really mentioned education details, so I suppose it's possible a Masters could make sense in a specialized field.

Hello target2019, thank you for your response!

I missed out on putting some things in my initial post . I split my mortgage with my wife. We pay about $850 a person (including escrow). I have been debating about trading my car in especially since it is positive equity and getting a used car. I keep debating if the risks are worth it & what price point should my used car be, should I even create a payment or just pay off the used car.

My masters will be in Social Work. Average salary in my area is $70,000. I wont be making this till about 2 years after my program is done which is when I get my licensure. I also currently have a very part time job that gets me around $9,000 a year, which I will not be able to do while in school. Others have suggested putting of school until I raise the funds for it. Sorry for adding in the extra info. Now that its all out on the table what are your thoughts.

Thank you for your time!

 

[mountainsoft]

First, welcome, and congratulations for planning for your future. You're already doing better than most.

As other's have said, I would focus on paying off your debt before you do anything else. If you redirect the $8400/yr you're currently investing, it shouldn't take long to pay off your debts. As for the 401K I would contribute up to the employer match (if any), and use the rest to help pay down the debt. I wouldn't pull anything out of your investments, just let them grow until you get your debt paid off.

I would seriously reconsider taking on more student debt unless you are absolutely sure it will pay off in the long run.

Also, if you haven't already, make sure you have an emergency fund (regular savings account) to cover at least 3-6 months of expenses. Don't worry about the returns on this account. It's there so you can cover minor emergencies (home repairs, car repairs, medical expenses, etc.) without incurring more debt going forward.

There are tons of free resources online. You may want to look at Dave Ramsey's "baby steps" or The Money Guys "financial order of operations", for starters.

I wouldn't worry about investing until you have your debts paid off and an emergency fund in place.

 

[ERD50]

... I split my mortgage with my wife. We pay about $850 a person (including escrow). ...

What does this mean?

Does your wife have an income, savings, expenses, debt?

Unless you're planning on a split, seems these numbers should all be merged. I'm confused.

-ERD50

 

[Corza]

As others have said, you need to take a cold, hard look at what gaining a masters degree will do for your earnings. You don't say whether you are going to go to night school or will study as a full time day student. If the latter, you'll need to account for the lost income while you're in school.

You can play with a loan payment calculator to get the monthly payment equal to your increased earnings in order to see what the payback period is. So, for instance, if a graduate degree will increase your earnings by 10% (so + $4500 per year based on your numbers), and you incur $36k student debt at an interest rate of 4.75%, then it will take you about 10.5 years to break even after you get your degree. If you also lose $36k in salary because you were out of work while you went to school and have to subsidize your living expenses from savings, then it would take three times as long (32 years) to break even, if your return on those lost savings were at the same rate as the student loan. It would be longer if the expected investment return is higher than the loan rate. Obviously, if a graduate degree will double your salary, the payback period is significantly shorter, but you get the idea.

I went to law school when I was 30 and paid cash from savings. My retrospective calculations show it took me 12 years to break even (i.e. - to make up the lost income, lost investment earnings and the tuition I paid), and that was possible only because I scored the big law firm job. Most people don't.

Ultimately, higher education it is not just a financial decision, but you should be well aware of the financial ramifications before you commit.

Hi Gumby,

Thank you for your thoughts and insights. It seems you may have gone through something similar. For my masters I will be pursuing my Masters Of Social Work and plan on becoming a Licensed Therapist. During my masters degree I will still have my full time job. I do currently have a part time job now that gets me around $9,000 annually (in addition to my salary of $55,000 before taxes) though I would have to drop this while going to school.



My schooling for my Masters will cost anywhere from $35,000 to $50,000 depending on the program I get into and possible employer tuition reimbursement. For the two years after I graduate I may be earning around the same if not $5,000 - $10,000 less a year due to licensing requirements and the time and commitment that takes. For someone holding an MSW is my area the average salary is $70,000 however, I may not make this right after my two years of licensing.



I appreciate the way you broke down the repayment process of the loans even if I used the cash to pay them off.



Thank you for your time and I will use the information to help better consider my options.

 

[Corza]

The question is what is the Master's Program in? Will it substantially increase your earnings capabilities? Is there an alternative program say in a university with cheaper tuition. Would your time and efforts be better spent in a specialized program like C.P.A. or in obtaining other certifications?

But when you get down to it, going for the big bucks pays off with a Masters from the Ivy League schools. Not so much from many state schools.

Hello Bamaman,


Thank you for your response! My masters will be in Social Work to be a Licensed Therapist. For that profession there are many programs and certificates but, they will not allow you to be a Licensed Therapist. I could become a counselor with certificates though I have not looked seriously into this path yet.

 

[Corza]

As others have said, you have a lot of debt and you're looking to add even more. I'd prioritize paying off that car loan, then the student debt and only then consider the best way to get that advanced degree, in a way that will not create more debt, whether that is taking courses, one class at a time, throughout the year, or perhaps an online master's course, or employer subsidy. Meanwhile, is their a way to increase your income, by changing jobs?

Thank you for your response! My car loan has a 2.6% rate @ $19,000 vs. Student Debt of $10,000 @ 4.75. Would you still prioritize the car?


I plan on being part time online during my program for my Masters of Social Work. I have to get approved for the program first to see if my employer will reimburse me ($5,500 annually).



I have recently graduated and am currently looking at new positions that may increase my income.

 

[Corza]

If you've tried doing this, have you found scenarios where you could see yourself retiring when you wish?

I ask this because at 33 yrs old, the way I see your situation is you have:
Net worth = -192k (145k assets - 337k debts) and growing signficantly (another 34k in debt)
Your income is relatively low for such debt levels.
Reported expenses seem low but don't quite add up ...
Income excl tax = 44.5k
Spend = 35k (quite low, do you want to keep this standard of living for long? House seems quite expensive for that)
Income - spend = 9.5, but report shows you somehow still put savings of 8.4k into one account and 5.6k into another. So that adds up to more than you have left to save. Clearly we are missing something in the data.

So I'm wondering if you've run your own financial calcs and come out with some scenarios that you think are realistic for your desired retirement? Just from what I see above, my guess is you already have too much debt for your situation and shouldn't be taking on more. But if you have a realistic scenario from your calcs that you feel you can live with, maybe it's worth it. Goals are worth stretching for .... just like to make sure they are realistic.

Thank you for your response. I did forget to leave out a few details that may have been important. I purchased the house with my wife who splits the mortgage and utilities with me. The investment account is mine and the savings is shared with my wife.



For my retirement I have ran a financial calculator that puts me right around 2.1 mil with a 8% return over 32 periods and not increasing my contribution. I plan to increase the contribution in the future after my career change and I am earning more. I'm not looking to retire lavishly but, I do want to be comfortable. My biggest concern is out pacing inflation as 2.1 mil today will not spend the same in 32 years.


Thank you for your time and thoughts.

 

[Corza]

What does this mean?

Does your wife have an income, savings, expenses, debt?

Unless you're planning on a split, seems these numbers should all be merged. I'm confused.

-ERD50

After looking at all the great questions the community has had for me I'm definitely recognizing a lot of my blind spots. I may clear up some confusion if I pop something simple on a spread sheet rather than explaining in text. I will be sure to include my and my wifes assets and debts. Thank you for your questions.

 

[Bamaman]

Going for a Masters that gets you licensure as a Therapist should be a very good thing. We paid for a young lady to move to Kansas City where she finished a BA and a MA in Social Work. She's now a licensed therapist working with veterans in a residential drug program.

Regular state social workers in our county have a 40% yearly turnover, and they're supervised by very poor, unsupportive managers. Many go into different directions after working in the trenches.

 

[Corza]

Going for a Masters that gets you licensure as a Therapist should be a very good thing. We paid for a young lady to move to Kansas City where she finished a BA and a MA in Social Work. She's now a licensed therapist working with veterans in a residential drug program.

Regular state social workers in our county have a 40% yearly turnover, and they're supervised by very poor, unsupportive managers. Many go into different directions after working in the trenches.

Thank you!

Unfortuanly, there are a lot of cash grab operations in this field. Most notably, fill out this paper work on this client and the organization gets paid by the government. Without providing real help to those in need. Another reason for me to obtain FIRE is so I can focus a part of my time giving back to the community with out providing a bill.

 

[Corza]

What does this mean?

Does your wife have an income, savings, expenses, debt?

Unless you're planning on a split, seems these numbers should all be merged. I'm confused.

-ERD50

Hey ERD50,

Here is a snapshot of our Debts and Assets. My wife brings in about $50K a year and I bring in $64K a year (with part time job that I may need to let go once in school part time) $55K a year after PT job loss (all of these figures are before taxes)


Do you think I should count my home equity towards my Net Worth? I personally do not believe I should.

My plan is to pay off my Car (2.69%) and current Student loans (4.75%) in the next two years.

What are your thoughts.

 

[youbet]

****EDIT**** Sorry all. I thought I had placed it in the first post but, I split my mortgage with my wife. This may make a difference. Also, I will be pursuing my Masters of Social Work. Average salary where I live is around $70,000. For the first two years after graduation though I will probably be making around $45,000 vs $55,000 right now before my licensure. I also currently have a very part time second job that nets me around $9,000 after taxes but, I would not be able to have two jobs during school.

A MSW is almost a requirement in your field. Go for it.

 

[Ramen]

For ER, I think reading Your Money or Your Life is the most important thing you have done so far. Next and even more important will be adopting the practices now and sticking to them. I did not read the book till around age 40, yet it still made a big difference in my finances. My net worth more than tripled in a decade.

If you can get your debt down in the next couple of years and then automate your saving and investing -- keep it simple in one, two, or three index funds -- you'll be on track for retirement earlier than you might expect. Keep your cars cheap and your housing humble. A master's degree for $35K seems very reasonable. If social work is your path, go for it when the time is right.

 

[pacergal]

A MSW is almost a requirement in your field. Go for it.

Agree.
OP--you are young enough to have several years earnings after getting your MSW. So avoid lifestyle creep and focus a majority of your increased earnings on debt repayment and savings for retirement and you will do well.
Have some fun along the way.
Best of luck in school!

 

[MarieIG]

No - I don't think you should be looking at your home as net worth at this point in time. Rather, as a monthly expense. (After all your debts are paid off, except your mortgage, you can start peaking at your home equity. It's not "gone" forever.)

I don't believe you can work two jobs and go for your Masters.

How does the DW feel about the Masters and additional debt? (Debt can be an emotional/ stressful thing.)

Do I see an additional $25,000 in student load debt for DW floating around over there? I don't see the rate on that one, but DW's income is being considered as part of the plan, so if she has student loans, they should be considered as well.

Me, I would get rid of your student loan, the car debt, and look for a job in the field with benefits, and which would pay part or all of your tuition.

Maybe you will start earning the big bucks the minute you graduate, but not everyone does. A tree falls on your roof (and oops the wind was blowing too fast or too slow so it's not covered, or there is a $5,000 deductible; an unexpected car repair . . . ) I just don't want you choking under the load of debt.