More to do @ 32 - Huge Life Change (Health Check)

[IDreamofRetiring]

Hi everyone,

It's been a little over 2 years since I discovered/posted on this site. At the time, I was requesting information for my husband and I. After a whirlwind the past couple of years, I am now officially divorced (as of March 2020) and starting over.

I'm revisiting my finances as a part of my journey and want to use this as an opportunity to "get back on track". Based on my current situation, I would love any advice/tips on what I can be doing to help better manage and grow my $$ and honestly, any direction at this point. Sometimes it's hard to see the forest from the trees, but I'm trying. Much like my name, I still dream of retiring, just looks to be a solo endeavor for now.

I appreciate any input! Thank you in advance

Current Situation:

Newly Single/Divorced = 32

Income = $90K (very grateful to still have my job during COVID)

Car = recently paid off

Credit Cards (2) = recently paid off

Student Loan = $28,871.14 left

My 401K = $62K (contribution is 6% pre-tax, 1% roth)

Emergency fund: $5K (for things like new tires, if I need to help a family member, etc.)

Savings for a new home: $13K saved (ex husband has the house so, I'm temporarily living back with my parents and planning to purchase my first home this year still - COVID willing )

Savings account: $15K

 

[Aerides]

Wow I could just about have written all that when I was 32, my situation was almost an exact match. And I remarried the perfect fit at 35 and we retired at 46.

So, what I did: Take advantage of this time living back with the parents. You will want to escape now, but will look back on it fondly one day. Stay as long as you can, and then some.

Build up that emergency fund to be a true real 6+ months of expenses, just sock it away as much as you can
Increase the savings to maximize the down payment on the house, and plan on a lot of extra expenses when you do buy
Normally I'd say go to town on the student debt but I think there are some provisions to make that less attractive in the CARE's bill? But either way, sooner than later

Money aside. Don't date for now. Wait until you are out on your own again and/or at least a year from the divorce - ideally I'd say 6 months after you get in your new place. Get some clarity on what you do and don't want in your next partner. Know your deal-breakers and don't put up with them. Don't be afraid to talk finances early in the process, and include income/career/debt situation in your wants and don't-wants.

 

[HI Bill]

Welcome back! Sorry about the divorce! Great job on paying off the credit cards and car!! If you can, I'd first work on upping the ROTH IRA contribution to max it out, paying off the student loan, and of course, saving for the new home. Good news is, you've got little debt, a decent salary, and an emergency fund! The median price of homes that sold in Illinois is $210,300, so at 20% down, you'd need about $42K plus closing costs (say, $50K).

You don't indicate how much you're saving outside of the 401(k) and ROTH, but focusing on controlling spending and LBYM will get you there faster! Best wishes!

 

[IDreamofRetiring]

Thank you both so much for the responses & encouragement!

I consolidated my student loan a few years ago through a 3rd party. Unfortunately I don't qualify for any of the COVID-related student loan breaks My interest rate is 5.2%

Outside of my $5K emergency, I have a savings account with $15K.

Also because of COVID, my company is no longer matching our 401K contributions.

I'm hoping to purchase my first home for under $180K and take advantage of any first time home buyer perks they have out there (my name wasn't on our marital home). I'm struggling between seeing the blessing in staying at home with my parents and def wanting to get out of here - ha!!

 

[natetheb]

My opinion differs from the two other posters. If I were in your shoes (and I was about 10 years ago but at $60K instead of $28K), I wouldn't add anything else to your emergency fund or your 401K and throw nearly all of your savings towards your student loads. Pay off the student loans in 4 months or no later than the end of the year. Only AFTER you pay off you student loans would I start to save for a house.


Here is how you pay off your student loans in 4 months:

Loan:
$28,871 - $13,000 (savings) = $15,871

Income:
$90k/year - 30% Taxes = $63,000/year or $5250/month
$5250 - $1000 (medical and other deductions) - $800 (food, gas, utilities) = $3450

Loan Payments:
$3450 x 4 months = $13800
$13800 + the remaining $2000 (at the end of the 4th month) = $15800
You are short $71 + loan interest, but I am pretty sure you can make that up somewhere.


Since you aren't getting any company matching in your 401k right now, you really aren't loosing out on much. 4 months, that is it. That is a very short time to sacrifice to be completely rid of debt!


Talk to your parents, neighbors, friends. See if there is side gigs, temporary jobs, etc. you can pick up to earn some more cash to blow through that debt. Once you have blown your student loans away, that gives you two months to save and still buy a house before the end of the year!

 

[DrRoy]

Welcome back! Sorry about the divorce! Great job on paying off the credit cards and car!! If you can, I'd first work on upping the ROTH IRA contribution to max it out, paying off the student loan, and of course, saving for the new home. Good news is, you've got little debt, a decent salary, and an emergency fund! The median price of homes that sold in Illinois is $210,300, so at 20% down, you'd need about $42K plus closing costs (say, $50K).

You don't indicate how much you're saving outside of the 401(k) and ROTH, but focusing on controlling spending and LBYM will get you there faster! Best wishes!

+1 This is what I would have said.

 

[njhowie]

Don't be in a rush to purchase a new home - there is going to be a deluge of foreclosed homes hitting the market, likely early/mid-2021. It will likely take that amount of time before the moratoriums on evictions/foreclosures run out and lenders begin moving to take possession. Similarly for renting - you should be able to get a very good deal on a rental around the same time frame for similar reasons. If you are able to stay with parents for an extended period stick with that as long as possible to save as much as you can. Lenders are going to be tighter on mortgage lending standards, so the bigger down payment and cash cushion you have at the time of purchase, the better - both qualifying for a mortgage, and your ability to easily pay it in the future.

 

[mystang52]

Car = recently paid off

Credit Cards (2) = recently paid off

Student Loan = $28,871.14 left

COVID willing )

Savings account: $15K

Kudos to you on not carrying this debt, especially credit cards which are killers for any long term financial independence goals. Now, make sure to pay the bills in full every month....forever.

My opinion differs from the two other posters. If I were in your shoes (and I was about 10 years ago but at $60K instead of $28K), I wouldn't add anything else to your emergency fund or your 401K and throw nearly all of your savings towards your student loads. Pay off the student loans in 4 months or no later than the end of the year. Only AFTER you pay off you student loans would I start to save for a house.


Here is how you pay off your student loans in 4 months:

Loan:
$28,871 - $13,000 (savings) = $15,871

Income:
$90k/year - 30% Taxes = $63,000/year or $5250/month
$5250 - $1000 (medical and other deductions) - $800 (food, gas, utilities) = $3450

Loan Payments:
$3450 x 4 months = $13800
$13800 + the remaining $2000 (at the end of the 4th month) = $15800
You are short $71 + loan interest, but I am pretty sure you can make that up somewhere.

This is an interesting idea, and I don't disagree with it. I think it's worthwhile to give this serious consideration.

 

[Markola]

Don't be in a rush to purchase a new home - there is going to be a deluge of foreclosed homes hitting the market, likely early/mid-2021. It will likely take that amount of time before the moratoriums on evictions/foreclosures run out and lenders begin moving to take possession. Similarly for renting - you should be able to get a very good deal on a rental around the same time frame for similar reasons. If you are able to stay with parents for an extended period stick with that as long as possible to save as much as you can. Lenders are going to be tighter on mortgage lending standards, so the bigger down payment and cash cushion you have at the time of purchase, the better - both qualifying for a mortgage, and your ability to easily pay it in the future.

+1. Buying a home is only the beginning of a home’s many expenses, and taking on a mortgage is taking on more debt. Why not rent an efficient apartment for a while until one has debt and savings fully in hand?

 

[Markola]

OP, Check out the book “Quit Like A Millionaire.” Very inspiring book by a woman your age who grew up in the hardest situation but achieved her retirement dream by 30. I read it and can recommend it. Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required https://www.amazon.com/dp/0525538690/ref=cm_sw_r_cp_tai_O5PUEbNQ87BXH

 

[IDreamofRetiring]

Wow! Thank you so much everyone!

@natetheb - that's one heck of a strategy/breakdown!! Thank you for this. Although I super blessed to still have my job right now, I don't think I'm ready to pay off my loan/sacrifice my savings that aggressively just yet. However, you've definitely inspired me to take a relook at things/expenses to see where I can trim and get more aggressive with my payout plan.

Originally my goal was to pay it off before my 34th bday, so in other words, spending the rest of this year and next. On top of regular monthly payments, I'm going to start stashing more into a student loan kill fund and call to throw down a chunk as a targeted payment.

As for a home, I've been reading that waiting until 2021 might be the best move to get a great rate AND cheaper asking price, but of course I'm anxious given I promised myself last year I would move this year. I briefly thought of renting, but I wouldn't be able to save like I want to ultimately get a house. In this case I would just prefer to sit tight at my parents house a bit longer and just track to purchase my first home as my next move when ready.

@mystang52 - Thank you! It took a lot of dedication to pay those off, especially my credit card (divorce = emotional time = emotional shopping = debt). So glad I pulled it together to knock this out.

@Markola - appreciate the book reco! I've made it one of my personal goals to gain more knowledge/read while in quarantine so adding this to my list!

As much as I want to continue to save to purchase my new home, all signs seem to be pointing to attacking my student loan while I can. That way when I move, I will have freed up $ for house expenses that may arise without needing to dip into my savings account.

 

[aja8888]

Don't be in a rush to purchase a new home - there is going to be a deluge of foreclosed homes hitting the market, likely early/mid-2021. It will likely take that amount of time before the moratoriums on evictions/foreclosures run out and lenders begin moving to take possession. Similarly for renting - you should be able to get a very good deal on a rental around the same time frame for similar reasons. If you are able to stay with parents for an extended period stick with that as long as possible to save as much as you can. Lenders are going to be tighter on mortgage lending standards, so the bigger down payment and cash cushion you have at the time of purchase, the better - both qualifying for a mortgage, and your ability to easily pay it in the future.

Listen to what njhowie says here.

In the 2008 - 2009 downturn, we waited until 2010 when foreclosures, bank repos and other severely discounted homes were falling in around us like raindrops. I bid on a bank repo of a 2,000 sq.ft. one level, 3 year old home in Spring, TX and got it for $122K. Today it's where my daughter and her new husband live. The house more than doubled in appraised value since then and homes in the area are selling quickly.

There will be real estate deals when this Covid19 stuff is over.

 

[SnowballCamper]

Is your 401k in low cost index funds? Should be close to 100% stocks (aside from emergency fund and maybe house down payment savings).

Are you dollar cost averaging into the funds, i.e. buying a dollar amount with each paycheck? This should be happening in the 401k by default...

Do the same with a taxable brokerage account. With 90k income, single, living at home, you can afford to.

I'd wait on house buying as a single person. Because of the market timing mentioned by other posters... but also, depending on your profession being able to relocate quickly to a new job can be a plus. It comes down to personal preference, and the local market IMHO.

My college loans had super low rates back in the day... but hey, 90-28=62, and surely you can live comfortably at home on 62K.

You'll be amazed how quickly you can sock away a bunch of $$ by yourself. Good luck!

 

[pb4uski]

While I'm not keen on the 5.2% student loan, at this juncture I think financial flexibility is more of a priority than saving some on interest... so I suggest that you focus on taxable account savings.

Since there is no 401k match any longer, I would stop 401k contributions and put that money into taxable account savings. You can always get the same tax benefit as 401k contributions by contributing to a deductible IRA if you want to and meanwhile you'll have the money in savings.

IOW, shift to taxable savings and reassess at the end of the year. If it make sense at that point, you can always take a slug of money and make a deductible tIRA contribution and/or pay that student loan down or off.