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Old 07-25-2018, 08:26 PM   #1
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Health Check (30 & Looking for Guidance)

Hi everyone!

My husband and I don't come from backgrounds/families where there was strong financial literacy, so we are trying to learn as much as we can on our own. Based on our current situation, I'm hoping some folks would be kind enough to share some tips on what more we could/should be doing to grow our $$$ (aside from paying down debt of course )

Thank you in advance!


Current Situation:

Married & Both 30 - Combined income of $180K (as of 3 months ago - job
promotion)

Plan to start a family within the next year

Combined debt of about $90K (inclusive of 2 car notes, consolidated student loan and credit cards)

My 401K - $43K (contribution is 6% pre-tax, 1% roth)

His 401K/stock purchase plan - $100K (contribution is 4% pre-tax, 6% roth and 5% in employee stock purchase plan)

Combined emergency fund/cash savings - $16K

Homeowners - $67,005 left to pay
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Old 07-25-2018, 09:24 PM   #2
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Welcome young uns. Congrats on the promotion

That's not much of a mortgage left to pay. Was it hard to mortgage a cardboard box? (That's a Portland joke.)

IMO, I'd bump the emergency fund with baby soon. Just me. One of youse may be staying home with baby. Mrs Scrapr did and it was great. I'm an advocate

Can you knock out the credit card stuff? Those are whopper interest rates usually. Then try to bump your contributions up 1% every 3 or 4 months until you get to max. I never did have it available for me.

Baby steps. You are doing great!
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Old 07-25-2018, 10:51 PM   #3
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First of all, you should NOT have any emergency fund if you have credit card debt. Your unused credit card limit IS your emergency fund. But be sure to not rake up credit card debt again after you pay it off. Keep paying full credit card balance every month.

Next, be sure to at least contribute enough in pretax account to get full company match. Your husband may not be getting full match.

Next, if your company offer HSA then max out HSA after company matched pretax. Do NOT withdraw from HSA ever and instead invest the balance in some mutual funds. Think of HSA as an extension of 401K.

Next, start tracking your expenses and know how much you can save in after tax accounts. Max out pre-tax contributions if you can save more from take home pay.


All investments should be parked in low cost broad market index mutual funds or ETF.

Here is the order of contributions:
401k pretax to get full company match
Credit card debt
Next highest debt with highest interest excluding mortgage
HSA max out
Roth IRA max out
401k pretax max out
401k post tax max out
After tax brokerage

Last two can be swapped if you want to build nest egg in non-retirement account which can come handy if you retire before 59.5. Notice I excluded 401k roth because that counts against your 18k limit. I would rather contribute to roth IRA, or backdoor roth IRA or post tax 401k if I want to build roth bucket.
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Old 07-25-2018, 10:54 PM   #4
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Do not payoff mortgage because it is better to keep low fixed rate mortgage and let your money grow in other investments which will beat mortgage rate over the long term.
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Old 07-26-2018, 04:32 AM   #5
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Learn to manage your own investments so you never have to pay someone else to do it. There are lots of good books out there, and you can search on threads for input. I always recommend "Your Money and Your Brain" by Jason Zweig.
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Old 07-27-2018, 07:33 AM   #6
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Quote:
Originally Posted by IDreamofRetiring View Post
Combined debt of about $90K (inclusive of 2 car notes, consolidated student loan and credit cards)
This is what requires the biggest sense of urgency. What are the loan amounts and interest rates?

A couple of 25k car loans at 0% APR, 30k in student debt at 4%, and 10k cc debt at 12% is one thing.

Two 10k car loans at 4%, 40k in student debt at 6%, and 30k of cc debt at 18% is a horse of a different color.

Regardless, that debt needs to be attacked and there isn't a sexy way of doing it. Just scrimp and put every dollar you can towards it. I'd probably use 10k (at least) of your ER fund and put it towards debt immediately. Life, saving/investing gets MUCH easier when you get out from under this type of debt. A small car payment or two is no big deal and neither is your mortgage. Pay off the cc and student loans and things really open up for you.
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Old 07-29-2018, 07:17 PM   #7
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What is your debt breakdown? First you need a budget and stick to it. Look up zero based budget. I would invest on 401k up to match then throw everything else at the non-mortgage debt.
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Old 07-29-2018, 07:34 PM   #8
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The credit card debt is a big red flag. Unless your recent promotion came with a $100K+ raise, you already made more than enough money that you should have been able to avoid credit card debt. That implies a problem with excessive spending. Get rid of that CC debt as soon as possible and never carry a balance again. Use your emergency fund if needed since CCs typically have a very high interest rate. Keep track of all spending and find ways to cut back on areas that look excessive. Only after the CCs are paid off and you have your spending under control should you consider having kids. Best of luck.
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Old 07-30-2018, 03:15 AM   #9
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If early retirement is a priority, perhaps read the book "The Millionaire Next Door". It will give you a framework to reject the constant messages you receive from Madison Avenue and society about the need to spend-spend-spend. This will be even more important once you have kids and the social pressure to spend is amped up even more.

At 30 years old, my goal was to have $100,000 in retirement savings and no debt. I achieved that goal and and retired early in my late 40s, so this can be done. The trick is to have a mindset where you are constantly challenging the need to spend.

Good Luck and welcome!
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Old 07-30-2018, 10:25 AM   #10
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Quote:
Originally Posted by IDreamofRetiring View Post
Hi everyone!

My husband and I don't come from backgrounds/families where there was strong financial literacy, so we are trying to learn as much as we can on our own. Based on our current situation, I'm hoping some folks would be kind enough to share some tips on what more we could/should be doing to grow our $$$ (aside from paying down debt of course )

Thank you in advance!


Current Situation:

Married & Both 30 - Combined income of $180K (as of 3 months ago - job
promotion)--33K/yr raise since January-NICE! Use it to pay off that credit card debt.

Plan to start a family within the next year. --Good luck. Lots of things to budget for there. Will you go back to work after a few months off with the baby? Childcare? Medical expenses?

Combined debt of about $90K (inclusive of 2 car notes, consolidated student loan and credit cards) -Your debt is down by 8K. Good progress.

My 401K - $43K (contribution is 6% pre-tax, 1% roth)--up 5K since January. Good for you.

His 401K/stock purchase plan - $100K (contribution is 4% pre-tax, 6% roth and 5% in employee stock purchase plan)--His is up 11K since January. Good for you guys.

Combined emergency fund/cash savings - $16K--your emergency fund is up 4K. Good job

Homeowners - $67,005 left to pay. --not much progress here. Maybe pay a little extra on principal each month. Only after you pay off your credit card debt.
Keep posting and learning. Good luck.
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Old 07-30-2018, 12:09 PM   #11
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I always recommend High earners looking at Roth Conversions the year the wife is out on maternity, as likely your income and subsequent tax bracket could be lower, and worth the conversion. My wife did it the years she was on maternity for both of ours.
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Old 07-30-2018, 06:07 PM   #12
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Thank you all so much!

Here is our debt breakdown...

Student Loan - $39,068 (interest rate is 5.25%)
My car - $8,800 (0% interest - goal to pay off by summer of next year)
His car - $35,000-ish
My credit cards -$800-ish (planning to pay off by EOY)
His credit cards - $7,000-ish (working on this one...)

Family Planning
My job offers 12 weeks paid maternity leave (6 weeks being normal pay, remainder % of pay). I definitely plan to go back to work as well.

To throw a curve ball...we would like to move into a nicer home next year BEFORE we start a family. We've been tossing around whether or not we should sell our current home or look into alternative options (source of income?)
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Old 07-30-2018, 06:15 PM   #13
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Overall, not in too bad of shape, with a strong potential for...growth! How much are you putting away each month? At your combined income levels, I'd be putting away 1/2 of take-home, and using the first bits to pay off debt. If you can cut your spending and eliminate your debt, you could be on the way to an early retirement! Best wishes!
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Old 07-30-2018, 06:16 PM   #14
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Quote:
Originally Posted by IDreamofRetiring View Post
To throw a curve ball...we would like to move into a nicer home next year BEFORE we start a family. We've been tossing around whether or not we should sell our current home or look into alternative options (source of income?)
Buying a nicer home...having a kid...racking up credit card debt. Sorry, but keep this up, and your screen name will be your name when you're ready to retire at 55 or 60, but can't afford to (maybe overly dramatic, but you get the point). I'm not trying to be critical, but just to help you identify what each decision to take on more spending and debt means to your dream of retiring early.
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Old 07-30-2018, 07:26 PM   #15
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I wouldn’t upgrade homes until all your debt but the mortgage is paid off.
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Old 07-30-2018, 07:51 PM   #16
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And be prepared for a huge drop in the savings rate when you upgrade the home. I wish I didn't make the mistake of buying a bigger home. We saved less, we worked more keeping the big house clean and we hardly use half of the house we bought. What a waste!

I wouldn't even think about upgrading the house until all but house debts are paid off.
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Old 07-31-2018, 06:29 AM   #17
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Yeah, this thread didn't take a great turn. Car loans, credit card debt, student loan debt, and with the thread being less than a week old, got to upgrade the house because you got a raise. If you want to have kids and retire early, you need to be able to recognize these patterns. They're not good. It's easy to get on the interwebs and talk a big game about your plans, but it's much harder to create a plan and stick to it in real life. You need to be able to tell yourself NO.

You may need a better house and that's ok, but not when you have all of this debt hanging over you.

35+ thousand dollar car purchase @ 30 y/o was a boneheaded purchase as well. Very short sighted.

You need to plug the holes and stop digging yourself deeper in before it's too late.
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Old 07-31-2018, 09:56 PM   #18
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Please don't look for a new larger home before you pay off all your debt, with the exception of your mortgage. I know young people today want it all eariler, a nice big home to have family over and friends, but if you want to retire early and have kids, you need to cut corners and compromise somewhere.


My brother and hiw wife lived in a 800 sqft apartment in the city until their daughter was 3 years old. They wanted to save up and cut their debit before buying a larger home. There is nothing wrong with being in a small home that might be run down when you have a young baby. Sure, when your child is 4 or 5 and they want a big backyard and have birthday parties at home or family get togethers, I can understand that. But when the child is 1 or 2 years old it makes no difference smaller or larger home.


Resist the temptation to show off your family and friends in a big new home, by waiting a couple of years to pay off your debt.


Best of luck. Your doing great by getting a promotion and reaching out to others for advice. Very good moves. Just don't get ahead of yourself and be patient.
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Old 07-31-2018, 10:49 PM   #19
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And be prepared for a huge drop in the savings rate when you upgrade the home. I wish I didn't make the mistake of buying a bigger home. We saved less, we worked more keeping the big house clean and we hardly use half of the house we bought. What a waste!

I wouldn't even think about upgrading the house until all but house debts are paid off.
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Old 08-01-2018, 07:55 AM   #20
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Quote:
Originally Posted by IDreamofRetiring View Post
Student Loan - $39,068 (interest rate is 5.25%)
My car - $8,800 (0% interest - goal to pay off by summer of next year)
His car - $35,000-ish
My credit cards -$800-ish (planning to pay off by EOY)
His credit cards - $7,000-ish (working on this one...)

To throw a curve ball...we would like to move into a nicer home next year BEFORE we start a family. We've been tossing around whether or not we should sell our current home or look into alternative options (source of income?)
Seems like there's a bit of a financial disconnect between you and him, but it could just be timing. $7K in CC debt with a $35,000 car loan and student loan payments at 5.25% seems the priorities are out of whack if ER is a goal. As others have said, you have to burn the cc debt to zero, and then stay out of it... then the student loan.

Wife and I are in a small two-bedroom home with one toddler right now (I'm 41, she's 37). It's perfectly fine for us until kid#2 comes along, and even then we could manage for the first year here. Newborns and infants take up very little space outside the crib... you probably don't really need more space for a while.

The other caution I'd throw out there is not to buy a nicer/bigger home before you even know if you can have kids and have tried. "Want" and "can" are different. There may be medical procedures required for you to conceive or other requirements that will draw that process out. Ask me how I know! I can't imagine having moved to a bigger place, sitting there with it empty but making payments, waiting to try to figure out if kids were going to be in the cards for us.

Take your time. With credit cards and car loans outstanding and talk of a new house, you guys seem like you're rushing to have it all now. That's not a path to financial independence.
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