Student loans,retirement savings, high cost of living

**disneysteve** · 05-04-2015, 10:36 AM

Welcome.

It would be very helpful if you'd provide more info.

Monthly income
List your debts with balance and interest rate
List your monthly expenses other than the debt payments

Does your employer have a retirement plan and, if so, is there a company match?

**FrugalOD** · 05-06-2015, 09:00 AM

Student loan min payment is $1185.24 Balance is ~$146,000 interest rate is 4.75%
Rent $1485
All other living expenses/month $1717

My employer 401K matches 4% and I contribute 5%

Monthly income after taxes and deductions for HSA, 401k, and Health Ins: $5722
My gross salary is $110,000 and I'm single, so I get axed by the taxman.

**Fishindude77** · 05-06-2015, 09:38 AM

Don't know where you live or what job situation is, but there are definitely places in the US where you can rent a whole lot cheaper. General cost of living may much cheaper too?

Carrying $140K+ in student loan debt, you really have no business buying a home until you get that paid off or whittled down substantially.

**bennkar** · 05-06-2015, 07:30 PM

Being single, you can share an apartment, or depending on the type of house you buy, you could rent out a room or two for a time to get your savings started. I rented out rooms over 4 years when I didn't have lots of spare funds, and it really helped to get my debts wiped out.

Additionally you should be able to lower the remaining "all other living expenses" significantly, though without details that's hard to give concrete examples. You may not like some of the suggestions of where to cut back, but it will most likely be a case of "do you want to be on the hamster wheel all your life?" or will you be willing to make the short term sacrifices needed to get things rolling. There are blogs out in the "internets" that are great reading and give concrete examples of how to change your spending and get your savings / investments going.

**Nutria** · 05-07-2015, 03:38 AM

Originally posted by FrugalOD View Post

I have an above average income but feel crippled by the high cost of living in my area and my student loan debt. My big student loan, about $140,000, was just refinanced to 4.74%. I'm single, age 31, and was considering buying a home. I also want to save for retirement, but this all seems so overwhelming. It seems impossible to pay my loan, rent, and save for a retirement/down payment. What should be my priority, paying myself first/saving or knocking out the mega-loan?

You need a budgeting system. Dave Ramsey or You Need A Budget. Heck, even a spreadsheet. (For 2 years, I've been using one as combination check register, budget and cash flow manager.)

The thing is that you need to know where all of your money is going: download the last few months of checking and CC transactions in a spreadsheet and then start categorizing.

That knowledge (remember, "knowledge is power") will make you feel really depressed, but is necessary for when (if) you decide to take control of your life.

**feh** · 05-07-2015, 05:54 AM

I wouldn't dream of buying a house w/ that much student loan debt.

**dczech09** · 05-07-2015, 01:02 PM

How much do you have in savings? Do you have any sort of emergency fund?

A couple of items...

First order of business, you should be on a balanced budget if you are not already. You need to plan your spending on paper before your paycheck comes in. This will help you stay balanced.

Second order of business, find ways to cut costs. You spend $1,717 on other living costs? What exactly is the make up of this dollar amount? Are you spending too much on some items which may not be necessary? What is happening with the remaining $1,335 of your income every month (after student loans, rent, and other expenses that you mentioned)? Where is that money going? My guess is that it is going somewhere and you have no idea where, which explains why you are having trouble meeting your financial goals.

Get the spending under control and live on a balanced budget. You make too much money to be broke.

Third order of business, set aside an emergency fund if you already do not have one. You should set aside a few thousand in savings just for emergencies.

Once you have done this, then you need to focus on your student loans! Attack them with everything that you have. Do not worry about retirement investing yet; you have a massive amount of debt to knock out first. Do not worry about home ownership - you are a ways away from that step! Buying a house while you have a bunch of student loans, no savings, and no control over your income will put you in a much worse financial position!

The good news is that you have a great income! Use that to your advantage. I understand that you live in a high-cost of living area, but you have the higher income to support it. Use that income to pulverize your student loans! Once you clean those up (or at least reduce them considerably) you will find it much easier to breath!

**kevinmorris** · 05-09-2015, 12:14 AM

I am also dealing with my student loan and certain other things but I can understand your situation.
Buying a house is a bad idea at this moment, explore some more options before deciding on to anything.

**FrugalOD** · 05-10-2015, 05:14 AM

Originally posted by feh View Post

I wouldn't dream of buying a house w/ that much student loan debt.

I live in the Washington, D.C., area. Its one of the most expensive in the U.S. I agree I can probably get a roomate. However, the rent even sharing a 2 bed apartment could easily still be $1200/month. I have thought about relocating to a cheaper market so it would be easier to save money. However, the economy is extraordinarily stable here and there are may opportunities.

I only use public transit, which costs about $100 per month. I don't own a car. I share a smartphone plan with my parents. I have high speed internet but no cable.

Restaurants and bars due tend to be a sinkhole for cash for me based on my budget. Any tips on how to budget spontaneous purchases like socializing?

When it comes to student debt vs. saving for retirement, where do I start? My interest rate is much lower than my returns over the past year. It seems like maxing out a Roth IRA would be a good thing since the contributions can be removed penalty free and historical returns are 8%.

**disneysteve** · 05-10-2015, 06:12 AM

Originally posted by FrugalOD View Post

Restaurants and bars due tend to be a sinkhole for cash for me based on my budget. Any tips on how to budget spontaneous purchases like socializing?

Sure. Pick a reasonable amount to spend per month. Set that amount aside in cash and when it's gone, you're done until the following month. If friends ask you to go out, you say, "Sorry. I'm tapped out this month."

It seems like maxing out a Roth IRA would be a good thing since the contributions can be removed penalty free

Right now, today, this very minute, just erase from your brain the fact that Roth contributions can be withdrawn or that 401k plans offer a loan option. Those are 2 of the most dangerous money mistakes in existence.

During the housing boom, people were using their home equity as their piggy bank, constantly doing cash out refis to spend money they didn't really have. Today, post-housing bust, people have instead turned to their retirement plans as their piggy bank. I've read several articles about how people are sucking their retirement accounts dry to finance their lifestyle.

Don't fall into that trap. Your retirement plans (Roth, 401k, 403b, etc.) are for one purpose and one purpose only: RETIREMENT. Don't touch that money for anything else ever.

**docstudent** · 05-10-2015, 06:24 PM

Been there....

I was in your same situation when I was "31", I lived in a high cost area, making close to six figures, and carried a massive student loan debt....I took the plunge and purchased a condo, it was stressful at the beginning, but it forced me to dig deep and stay afloat. Though, I tend to take risks....Most people advised me not to do it, but I purchased anyway. I put it on the market two years ago and I opted to pull it off and stay put in California. Fast forward....I still own my condo, I'm actually up 110k, and I knocked out ALL of my credit card debt and my salary is slightly over 110K. On the upside, I was able to use the PSLFP, which is for those who work in the public sector...after ten years of making income-based payments-your balance will be forgiven. If you work in the public sector, you should definitely see if you qualify. I listened to others, I would still be renting and paying over 1600 + for rent with zero equity. I'm not saying take the plunge, but it can work in your favor....just an alternative perspective. I'm on track to retire in 15 years.....

Salary 110K
Take home 5G
Mortgage 1565 (60 extra)
HOA 395
403b 500/ Disability insurance 167
Car 399
Insurance 156
Phone 97 Internet 37
Student loan 650

Gym 165
Food 240 / Gas 120

**FrugalOD** · 05-15-2015, 05:55 AM

I appreciate all the advice. If I could find a place to buy that is cheaper than my rent, why would I not want to build the equity instead of flushing my cash down the toilet each month?

**snafu** · 05-17-2015, 12:54 PM

'If I could find a place to buy that is cheaper than my rent, why would I not want to build the equity instead of flushing my cash down the toilet each month?'

If you had it to do again would you borrow $ 140K @ 4.74% interest, $ 1,185. per month to finance university?

Adding to other comments...I hope you'll take the time to check out how a mortgage amotorization table works before you make a decision to buy. Unlike other consumer loans, mortgages front load interest so that your first 10 years of mortgage payments go to interest. Only in the latter years do you begin to reduce your initial sum borrowed. If the housing market collapses like it did 2008-2010, any perceived equity vanishes in an instant.

If you don't have a 20% downpayment you will need to buy Mortgage Insurance in addition to homeowner's insurance and the personal property insurance you likely carry as a renter. As a home owner you pay all the utilities, taxes, all the costs for decorating, updating, maintenance, repairs and HOA or condo fees if applicable. The majority of your monthly payment does not build equity. In exchange for paying for everything you have an illiquid asset with the added headache of finding reliable tradesmen to solve problems.

If you had an opportunity for desirable employment in a lower cost of living area, selling your home becomes a major factor. It needs to be move-in ready and you will have realtor and lawyer fees to subtract from equity. Please don't jump into the 'fry pan' without careful consideration of risk.

Student loans,retirement savings, high cost of living