Single parent in need of debt management/savings advice

[Anonymous]

I recently sought out the help of a financial advisor but it seems he isn't much of a financial "planner", which is probably what I need. I have four areas towards which I'm saving/contributing but he wasn't much help during our last conversation. Nice guy, but I'm looking for someone new. In the meantime, I'm trying to establish a five year plan towards:

1. Aggressively paying down my student loan debt: $215,469 at 2.875%. Minimum monthly payment is $718/mo, I pay $1100/mo.
2. Saving for college for 19 mo DD: currently have 8K in 529, I contribute 5K annually pre-tax (dependent day care account), DD's dad contributes $120.00/mo
3. Retirement: Currently max out 401K annually, company matches
4. Saving for downpayment on a home with goal of purchase 5 years from now

Age: 39
HHI: Estimated to be net 144K for 2013 (Gross minus all taxes, health/dental for DD and I, short and long term disab)
Savings: $72,000 in 401K, $50,000 in savings for home purchase, 529 savings as above
I paid off all credit card debt as well as my car this year, so only debt is (giant) med school loan

Our budget:
Rent: $2850/mo in the district (This is high. We are here bc it is walking distance to DD's nanny who doesn't drive, close to my social support system, and in bounds for an excellent public school).
Nanny: $2400/mo (This is also high. I can't use traditional daycare due to my hospital hours which are often evening, overnights, early mornings. I pay her $15/hr for 40 hrs/week).
Student loan: $1100/mo
Comcast: $100/mo (cable and internet; I could probably cut cable)
Cell: $107/m0
Car insurance: $171/mo
Pepco: $75/mo
Groceries, entertainment, travel, gas: About $800/mo
Total: $7603/mo.


A few other things: I got started late (Finished med school at 30, residency at 34, fellowship at 36, so current salary started at 37) and didn't get much financial education from my family growing up (not a criticism of my parents, I just plan on talking to DD much more extensively about debt, savings, and how to budget).

So my question is how to allocate the leftover "pie" at the end of the month to give DD and I the best chance of being home-owners some time in the next several years, for me to fully fund her college expenses in 2029 (undergrad only, she will pay grad as I did), for me to pay off my student loans efficiently, and for me to retire at 65. Hopefully I'll get married, but who knows, right?

Thanks in advance. If the above is confusing or doesn't add up, I'll try to clarify or correct.

[Anonymous]

You don't say how much pie is left over at the end of the month (I'm not doing your math). Tell us that, then we can help.

[Anonymous]

It looks like she has approximately $4300 left at the end of the month. I feel that with your student loan interest at 2.875%, it is quite low. Have you consider using the money and investing in mutual fund. You may have better returns then what what you are charged. So if you get an average of 8% return, you can turn that money around and pay off the student loans later. I'm not a financial advisor but am a CPA. If your goal is to own a house in 5 years time, I would think putting most of the left overs in an investment. I am pretty conservative and put most of the money into a Vanguard 500 index fund. I contribute to it automatically each month.

[Anonymous]

That's about right, 10:11, we have approx $4397 leftover/mo, fluctuating based on unanticipated expenses (wasn't asking you to do my math for me, 9:58. Just an oversight).

So 10:11 do you suggest I continue my current student loan/529/401K payment and invest the rest more aggressively towards house downpayment, with goal of buying in 4-5 years and then directing higher student loan payments after home purchase? At current rate I'm on track to pay off those loans at age 65 which makes me cringe. But, with a locked in rate of 2.875% that may just be the way it is. My loans do provide me with the career I have so in that way they were an investment in and of themselves, but it's quite a bite.

[Anonymous]

You are not very smart considering you're a doctor.

[Anonymous]

8% is a pipe dream. The average returns people get is 3-4%. Still I would not pay more on the student loan. In 5 years that's 20k you can add to your down payment. I would have concerns about loan limits. Homes are expense around here and a bank could count the 200k student against what they will loan you.

[Anonymous]

10:11 here. I think with money you have to think of it in terms of cost benefit. So by paying off your loan aggressively you aren't using that money for the "house payment". Housing loans are closer to 3.5% - 4% so your student loans are much lower in terms of interest. Since your interest on the student loans are so low I would just pay the minimum amount on it for now. Try to save more for your house downpayment.

I don't think 8% is a pipe dream. I think the stock market has been doing pretty well this past year or so. I would invest in a monthly debit into a place like Vanguard. This way it dollar averages and your risk is lower.

[Anonymous]

10:28 - that was a nasty thing to say. Go troll somewhere else.

[Anonymous]

Not going to engage in that 10:28, nothing in my post merits insult.

To helpful posters: appreciate the suggestions. Eight percent does seem high, but a mutual fund makes sense.

[Anonymous]

With a low fixed rate, I would not prioritize paying down your loans, though you certainly want them paid off by the time you reach retirement age. What you are paying now is fine, I would not increase it.

I would not prioritize saving for your daughter's college at this time. Your net worth is very low, and your future income stream is not 100% assured (suppose you get sick, for instance). I would build up your own assets/reduce liabilities first before putting money in an account that can only easily be used for you child's education. Put in a token amount - maybe match the father's contribution. Then you can increase your contribution in 10 years or whenever, when you are in better financial shape.

I think you are right to max out 401K given that you have started retirement savings late.

For the rest, I would save aggressively for a large downpayment on a house. It will be critical that you don't spend too much - your loans are already the size of a fair mortgage. Consider an apartment or a very small house for the two of you. I would use a combination of savings and mutual funds - on the latter I agree 8 percent is optimistic. Stock valuations are currently very high - make sure you get a balanced portfolio of low fee funds. I support the Vanguard suggestion.

[Anonymous]

You make alot more than you spend and that's great.

With the low rate on your student loans, I wouldn't pay them aggressively. Figure out what you need to pay to be done by the time you are 60 and pay that.

I wouldn't increase 529 savings. As your childcare costs decrease you can save the difference for college and still save plenty.

I would save all of your extra money for the home downpayment. Buy within the next few years with a 15 year loan.

[Anonymous]

Anonymous wrote:With a low fixed rate, I would not prioritize paying down your loans, though you certainly want them paid off by the time you reach retirement age. What you are paying now is fine, I would not increase it.

I would not prioritize saving for your daughter's college at this time. Your net worth is very low, and your future income stream is not 100% assured (suppose you get sick, for instance). I would build up your own assets/reduce liabilities first before putting money in an account that can only easily be used for you child's education. Put in a token amount - maybe match the father's contribution. Then you can increase your contribution in 10 years or whenever, when you are in better financial shape.

I think you are right to max out 401K given that you have started retirement savings late.

For the rest, I would save aggressively for a large downpayment on a house. It will be critical that you don't spend too much - your loans are already the size of a fair mortgage. Consider an apartment or a very small house for the two of you. I would use a combination of savings and mutual funds - on the latter I agree 8 percent is optimistic. Stock valuations are currently very high - make sure you get a balanced portfolio of low fee funds. I support the Vanguard suggestion.

Oops. I'm the 13:21 poster. I probably should have just said "+1" and saved myself the trouble.

[Anonymous]

OP here, thanks all! These are really helpful suggestions. The thought of home ownership is daunting to me as a single woman, but I know lots of other single parents do this and I would like to put DD and I in a modest house by the time she starts first grade. It may not necessarily be in this area...the cost of living here is significant. Moving closer to my family in the midwest would lower our expenses and her grandparents would jump for joy if we made that decision, but it would move DD further from her Dad and I'd like to keep them close.

[Anonymous]

Well, medicine is one of those fields where the salary differential is much less than the cost of living differential, so it could make good financial sense to move to the mid-west, but this is probably a secondary question compared to relations with father etc. if they are close. You are in a good enough financial situation that you should not base this decision primarily on money.

[Anonymous]

One other thing - buying a house is expensive as transaction costs are very high here. Don't buy until you are sure you are here for the long haul.