Advice Needed

[jamieatwork]

I found this forum while doing some research on Dave Ramsey's principals and read through some excellent advice. The more research I do, the more unsure I am of what our next steps should be. I was hoping you guys would take a look at my budget and cash flow and point me in the right direction. We took pieces of Dave Ramsey advice, and pieces of Suze Orman advice to to pay off all non-equitable debt that accrues interest and bought a home. At the moment we're using all of our extra cash flow to take care of home repairs to protect our investment in our home and expect to have all of that squared away in by Oct 31 2017. So on November 1st, 2017 here is where we expect to be:

No Children, Husband 22 years old, Wife 30 years old
Husband's Pension: $6,000 - This is a state pension plan that I don't fully understand to be honest
My 401k: $1800 (We've underfunded mine in order to take care of debts but I'm now getting the employee match again and a 3% return)
$8,000 cash savings
$130,000 mortgage on a $160,000 home @3.6%
$44,000 owed to husband's truck at 4.5% interest
$29,000 owed to wife's car at 0% interest
$2340 owed to 0% interest credit card, currently paying at rate to maximize the 0% interest term and pay off on the last day before interest accrues

We earn $4980 per month take home and here is our budget:

Monthly Expense
Gym $10.00
Mortgage $888
Credit $136.00
Car $500.44
Trash $16.00
Power $200
Water $25.00
Auto Ins $279.00
Vet Plan $104.00
Internet $39.99
Cell $195.00
Truck $744.00
Netflix $11.00
Dog Food $72.00
Groceries $300.00
TOTAL $3,451.25

Husband personal budget $150
Wife Personal budget $150
Date nights/concerts $250
TOTAL $550

$4980-$3450-$550= $900 Surplus + plus whatever is left from electric bill, it only runs $200 on hottest/coldest months

Since I get paid biweekly, we have already budgeted those two extra paychecks per year to cover our vehicle taxes, Christmas gifts, a weekend getaway, birthday gifts, etc. We plan to use our tax refund next year to take care of the last couple of large home updates we need to do.

Our expenses are set in such a way that if one of use loses our job, that one can grab an $8/hour service job and still meet our minimum expenses.

My question is, should we put all of that $900 surplus each month toward the larger car note at 4.5% Dave Ramsey style? Or should we start to split it up and invest some, save some, overfeed our retirement plans, etc.

[bjl584]

The thing that sticks out the most is the fact that your car payments represent 25% of your monthly take home pay. That is way out of line. What are the details on the cars? Do you plan to keep them long term once they are paid off. Your husband must have a nice truck that didn't include much down or much of a trade. You may want to consider selling it and or the car too and get into something more affordable.

Your car insurance is high, but that might be due to your ages and where you live. But, it is worth shopping around.

The cell phone bills are high too. Shop that around as well.

I'd probably hold off on the home remodeling and focus on getting the budget tightened up first. The last thing you need right now is another loan to pay back.

What is a vet plan? Something to do with your dog? $104 a month seems like a lot of money for a pet.

Overall, it looks like your head is above water, but I don't think you're going to make much progress until you cut back the expenses and do something about the auto loan debt. A job loss or some other unforeseen event could cause your situation to collapse. Your EF is a good start. Maybe get that up to $10,000, dump the two cars, make cuts where you can in the budget and spending, and that should put you in a really good spot to start investing and building wealth.

[jamieatwork]

The thing that sticks out the most is the fact that your car payments represent 25% of your monthly take home pay. That is way out of line. What are the details on the cars? Do you plan to keep them long term once they are paid off. Your husband must have a nice truck that didn't include much down or much of a trade. You may want to consider selling it and or the car too and get into something more affordable.

Your car insurance is high, but that might be due to your ages and where you live. But, it is worth shopping around.

The cell phone bills are high too. Shop that around as well.

I'd probably hold off on the home remodeling and focus on getting the budget tightened up first. The last thing you need right now is another loan to pay back.

What is a vet plan? Something to do with your dog? $104 a month seems like a lot of money for a pet.

Overall, it looks like your head is above water, but I don't think you're going to make much progress until you cut back the expenses and do something about the auto loan debt. A job loss or some other unforeseen event could cause your situation to collapse. Your EF is a good start. Maybe get that up to $10,000, dump the two cars, make cuts where you can in the budget and spending, and that should put you in a really good spot to start investing and building wealth.

You bring up a good point, there are a few things that I did not make clear. Our main source of income is my full time job where I am a remote employee. I travel approximately 2,000 miles per month in my car for work purposes and write off the miles on our taxes. In addition, my company reimburses me for $110/month for our cell phone bill and $39.99 for our internet bill which I just added into income.

The truck isn't going anywhere. You know what it is, and I know what it is. It was purchased after a 2 year long discussion under the agreement that it will not be replaced for at least 15 years (if even then). Beginning in July of this year, it won't be responsible for a daily commute, other than an occasional one for me to help keep the mileage on my car in check, so there is no reason it shouldn't last 15 years+.

Our insurance really is as low as it can go at this point, we've shopped around and changed to this company just last year because it is the lowest.

The vet plan we have covers both of our under 1 year old dogs and has paid for itself in its benefits, it's covered 4 surgeries in addition to standard services. When it is time for the plan to renew in December 2017, we will cancel then and go back to the standard pay per visit/service because the dogs will be a bit older and the cost will begin to outweigh the benefits.

[TexasHusker]

Questions...

Do you give to your church ?

Can you elaborate on the vet plan?

If you could ditch the CC and vet plan, that frees up almost $300 a month.

Over 10 years that is almost $40K.

Over 20 years, that pays for college for a couple of kiddos if invested reasonably.

I would suggest only one nice car in your income bracket. The other can be a beater.

[Petunia 100]

Have you been tracking your expenses very long? Are these budget numbers realistic, based on actual spending?

You could shave 75% off that phone bill with very little effort.

Your cars are very expensive for your income. However, we are all different. If having expensive cars is a priority for you, that's OK. But you have to make other decisions with that in mind. You aren't going to dedicate much money to traveling or expensive hobbies or socking away enough to retire early. You can't afford any of that, because you have chosen expensive cars instead.

You absolutely should be saving more for retirement. 3% + employer match does not lead to a comfortable retirement, unless your husband's pension is very generous and solvent, and nothing interferes with him putting in his service years.

[TexasHusker]

Also...people these days often put WAY too much worry about buying a newer car because of long commutes / extensive car use.

Most Japanese cars are 300,000 mile cars. That means that they will last until you are tired of them. Being stranded on the road because a car is a few years old happens so infrequently these days that it is statistically negligible.

[msomnipotent]

It is just a personal thing, but I like to budget paying off credit cards at least one month before the promo rate expires. That way, you still have time to shop around for another promo rate if something happens. Another thing I would do if I were you is adjust the tax withholding so you don't get such a large tax refund that you can remodel your house. Put that money to work during the year instead of giving a free loan to the government.

To directly answer your question, I would increase the 401k by 1% each month, put half towards savings and half towards the vehicles. There is no such thing as overfeeding your retirement plans (unless you can't pay your bills, of course).

I had to edit because more posts appeared after I starting typing.

[snafu]

Welcome to SA.

As you see, responders are concerned. I mention a long standing, easy to understand, cash flow management technique that offers a strong base. It asks ... 'Pay Yourself First,' whatever source of income 20% goes directly to Savings. 2nd, designate 50% of income for Needs/Essentials [ie. mortgage, utilities, food, transportation, insurance]. The final 30% pays for Wants [ie. choices/non essentials, entertainment, vacation] While you need transportation your specific choices might lead to adjusting other 'wants' until there is more balance. Option II is to take on short term, overtime or part time work. [can't tell you how many times things went off the tracks and PT work came to the rescue or gave us the extra bit to propel us at super speed].

I hope DH will look up details or contact HR for details to help him fully understands his Pension so that you both know the details and ultimate benefits. Did you have an opportunity to choose specific investments for your retirement program? The details are important because there will be investments in your future which need to mesh with what you have.

I wondered where vehicle operations and maintenance were factored in.
How does your monthly mortgage payment divide out? What sum to Principal, Interest, Taxes and possibly Insurance? Does CC $ 2,340. result from home repairs mentioned? Another 'rule of thumb' suggests home owners set aside sums from each pay to accumulate 1% of their home's value to facilitate repairs and updates over time.

On another thread we've been looking at the 'Latte Factor', small repetitive sums that cumulatively could be used for targets we appreciate.

[disneysteve]

Welcome.

You owe $73,000 on cars!

Your monthly car payments are $400 more than your mortgage.

Enough said.

[~bs]

is $300/month on groceries accurate? That's extremely low, even for 1 person let alone 2. Assuming I'm doing a lot of the cooking during the month, my personal groceries budget is around there. With 2 people, I'd need to double my groceries budget.


I mean, it's possible, with a lot of effort. But from looking at your budget, doesn't make sense you'd put that much effort into your food budget, but not into other areas. Not trying to judge.

[~bs]

what kind of cars do you guys drive? your insurance cost is extremely high. Are they both 50k+ cars?

[MonkeyMama]

Your cars are very expensive for your income. However, we are all different. If having expensive cars is a priority for you, that's OK. But you have to make other decisions with that in mind. You aren't going to dedicate much money to traveling or expensive hobbies or socking away enough to retire early. You can't afford any of that, because you have chosen expensive cars instead.

I think this sums it up pretty well.