Help me prioritize
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Anonymous
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My husband just got a new job, and we'll be roughly doubling our HHI as a result (hurray!) to about 300k. Looking at pay stubs, after taxes, 401k contributions, healthcare, etc., we're taking hom about 8500 bi-weekly. Here's our basic setup:
$2000 in savings account for emergencies (would love to get to 30k) 60k in investments (would love to get over 100k for down payment on next house or renovation to current house) 55k in 401k for me, 200k in Roth for DH 3k in 529 plan (VA) Expenses 3700/month mortgage (500kish balance) 1000/month on my student loan (140k balance at 6.5%) 300/month DH student loan (20k balance, but at like 2%) 750/month car payments, both at 0% We are 29 and 37, and have a 2.5 yo DS and am due with another. Where would you prioritize savings/debt payment? I feel like we won't have this income forver and want to be aggressive while we can. |
Anonymous
| I would increase the emergency fund and pay off the cars, then increase retirement savings. Congrats on the new job! |
Anonymous
29 and 37? Whose cradle robbing? 
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Anonymous
| Pay off higher interest debt first. So student loan, then cars. |
Anonymous
| For purchases I would focus on things that will last so maybe master bedroom furniture you might keep thd rest of your life, versus family room furniture you will replace in ten years or sooner. |
Anonymous
| Your DH is paying off your student loan? |
Anonymous
We both work - I actually make a little more, not that it matters. weird assumption, but whatever. Thanks to others - so helpful to hear thoughts in thinking through a plan. |
Anonymous
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Increase emergency fund to $50k
Max out both your 401ks next, I'd personally go Roth Then pay off the cars and use that extra $ to send in 1 extra payment a year on the mortgage (this cuts 7 years off your mortgage amazingly) Assuming you have about 9,000 a month extra (by your math, plus a little more for food, etc) Year 1: In 5 months you've hit the 50k mark in savings Then, even with 3,000 a mo towards 401k you've got 6,000 to pay off the cars. I'm guessing it's about 35,000 in loans? By month 12 you've paid those off and have $6,750 a month for debt servicing in year 2. Year 2: Continue the 3,000 a month for 401k. Take your $6,500 a month and set aside $300 a month for your extra annual mortgage payment. The balance of $6,000 apply to your high interest student debt. Year 3 and year 4: Same as year 2. Year 5: Shift 6,000 a mo towards 529 pans, aiming for $30,000 per kid. Follow this and in 5 years you will have: 50,000 in emergency savings 180,000 in 401k plus appreciation and matches No student debt left No car loans Shaved an additional $20,000 off your mortgage principal you otherwise would not have as well as approximately a year off you payoff date. You'll also have an additional $1,000 a month available to you by the end of year 5. |
Anonymous
Wow!!!how did he get such a big raise? If you doubled your HHI and you made more, then: x > y x + y = $150k x + By = $300k Implies that By - y = 150k Assuming x and y were close Pre raise, then x is ~80k and y is ~70k. This B must be about 3. That's an incredible shift. Can I ask what industry? Congrats also. |
Anonymous
He was laid off. Didn't think it was relevant. |
Anonymous
Oh... Damn I was really impressed
Anyway, congrats again. Also to modify my step 1: get a nice bottle of wine. |
Anonymous
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1. Build up your emergency fund - you have almost none.
2. Pay off cars (just because its a smaller one of your debts and you can do it fast) 3. Take the car $$$ and start agressively paying off your student loans. These suckers are vicious - nondischargeable in bankruptcy, and if you ever defer the interest accrual can double your balance easily. |
Anonymous
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Pretend like you didn't get the raise. Don't plan on a next house -- you are already paying a lot for a mortgage. You are young so you should maximize your 401ks, put money into investments and pretend like it isn't there. You won't believe how fast middle age will come; it's right around the corner.
If DH could be laid-off once he could get laid-ff again. I know it seems like a lot of $, but factor in any unpleasant surprises (a special needs kid, private school because one or both of your kids needs it, health emergency, car accident, aging/sick parent, etc etc etc) and that can easily wipe out your gains. I would keep living at your current level, pay down debt (school loans and cars), don't buy a new car, don't buy a new house, don't push your lifestyle up. I bring home roughly $8500 biweekly and it's really not enough at this stage of our lives, with aging parents, a kid in private school, older cars, dental work. Our mortgage is rock bottom ($1500) which is the only thing keeping us in the black each month. We are rather frugal in our lifestyle and still it's tight, with a lot of expenses that were not really thing we were thinking about when we were younger. |
Anonymous
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My DH just got a new job that bumps our income up by about $65k a year. So, not as big as your jump, but still pretty sizeable, and I'm thinking the same thing as far as how to take advantage of this extra money without being an idiot. (I'm no financial guru.) I'm going to basically follow the Dave Ramsey plan:
1- bulk up emergency savings 2 Snowball the debt. We currently have two car payments; I plan to pay off the more expensive one first (tripling that payment each month which will pay it off by next January), then rolling that triple payment over to the next expensive car, which will then pay that one off the following March. 3 With the car payment money now freed up, I will aggressively pay down my student loans (only about 18k to go on those) and get them taken care of in about 5 months. 4 Once those are paid off (our only debts, besides mortgage) I plan to put more toward the mortgage (thanks for that helpful advice, PP!) and retirement, etc. As for lifestyle... I hope to remain roughly where we are. Definitely not looking to upgrade to brand new luxury cars or take a 2 week Hawaiian vacation or anything foolhardy like that. Pay off debt, bulk up emergency funds, and then save save save. Congrats to you guys, it's such a good feeling, isn't it? |
Anonymous
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A view from the other side: Using a similar strategy, we just paid off our final debt -- mortgage -- this month. We are are now officially, totally debt free.
Yes, it feels really good.
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