Our Financial Picture

**Goldy** · 07-22-2015, 06:24 PM

Welcome! It looks like you have a pretty healthy income and your spending is in check so that's great. Based on the numbers you provided it looks like you have a surplus of ~2200 per month which is excellent. I'd be pretty tempted to wipe out that student loan right off the bat.

I can't tell from the numbers you provided but I would guess you are a little behind in reitrement. The standard rule is to have 1x salary saved by 30 and 3x by 40 so if you are under the 1x combined salary I'd think about maxing the Roth for both of you and increasing the 401k too.

If it were me I would wipe out the SL next month. Then take whatever the SL payment was plus 1,000 and toss that at the car loan so it would be paid off in about a year. In the mean time I would max both roths and increase the 401k to bring the extra retirement savings to 1k. This leaves you with 200/mo to add to your EF or splurge as you see fit. After about a year once your car is paid off you will have an extra ~1600/mo to reallocate, maybe a fun trip?

**Jluke** · 07-23-2015, 04:14 AM

You are in good shape, but I highly recommend these 3 financial moves now:

1. Pay off student loan taking money from EF. Rebuild EF

2. What term is your mortgage - 15, 20 or 30 years? If 30, re-fi to 15 or 20-year - huge savings opportunity!

3. Increase retirement savings in ROTH and try to max out this year at $5500 (I think that is per person) and every year thereafter.

Future consideration:
4. Increase 401k if you can after completing steps 2 and 3.

Everything else will fall into place, but tackling the mortgage and retirement now will have the most impact on your long term financial future. the car loan isn't a big deal.

Hope that helps!

**cashisking500** · 07-23-2015, 04:31 AM

Thanks Goldy and Jluke.

A couple of notes to answer both of your questions...

Our retirement accounts currently are: My 401k: 36k; My Roth: 7k; Wife Roth 401K: 11,000

Our mortgage is 30 year.

Jluke, you don't think we should be tackling the car loan soon?

**Jluke** · 07-23-2015, 04:48 AM

Originally posted by cashisking500 View Post

Jluke, you don't think we should be tackling the car loan soon?

I always recommend an amortization schedule for each loan you have. download from excel and create one for your mortgage and one for your car loan. Play around with extra payments and different loan terms on your mortgage.

There are tremendous savings opportunity by reducing your mortgage term. the car loan will have very minimal interest to begin with so ride it out and/or payoff by year 4.

If you don't want to re-fi, at least pay extra on your mortgage.

**autoxer** · 07-23-2015, 08:09 AM

I agree with Jluke about the car loan, with such a low interest rate, you are better off focusing on the mortgage or retirement. In my opinion, the tax benefits of increasing the 401k contribution are more valuable than saving interest by paying down the car loan quicker.

Have you defined any long term goals?

If your goal is to retire at age 65, with a million dollars, then you are probably on track, but looking at the difference between your income and expenses, you could set and achieve a much more aggressive goal. What are you doing with the excess cash flow?

**cashisking500** · 07-23-2015, 09:45 AM

Thanks for the feedback autoxer.

It sounds great to retire with $1 million, but as we know, $1 million won't be worth what it is today. So, we should probably aim higher than that.

Currently, the extra cash has been going to funding the EF and some small projects around the house. Now that the EF is solid at 15k, I feel like it's time to focus on other things.

**Fishindude77** · 07-23-2015, 11:13 AM

Right out of the gate, I'd pay off that small student loan balance.

This won't be a popular answer response, but you asked. I think you have too much house for your income level. I'd work real hard towards getting that paid off, paid down, shorter term or get into something cheaper.

**cashisking500** · 07-23-2015, 11:28 AM

Fishindude....our house payment is $1,211 per month. That represents 20% of our monthly take home pay. With all due respect, I don't feel like that's too much house for our income.

**Fishindude77** · 07-23-2015, 12:19 PM

I get that, and the widely published rule of thumb is house payments shouldn't exceed 25-30% on income. Don't know how long you've had the mortgage, but consider how long you will have paid for it and how much in total you will have paid (well in excess of $300K) and then it doesn't sound so good.

Everybody doesn't agree with me, but in general, I feel like folks tend to borrow way more than they should on housing and cars.

**cashisking500** · 07-23-2015, 12:42 PM

I appreciate your opinion, Fishindude. I suppose this is why they call it "Personal" Finance. Everyone has different tolerances and opinions. The cool thing is that most on this forum are here because they're either already smart with their money or are working hard to become smarter with their money - a rare breed in today's society!

**Fishindude77** · 07-23-2015, 12:55 PM

Yep, lots of smart folks on this forum, we can learn a thing or two.

Took me a while to get money smart. We did the car loans, car leases, credit cards, etc for a while.
Just bought that stuff because that's what everybody else was doing it. Kind of freaks them out at the dealership now when we go to look at a new car. They ask us what kind of payments we are looking for and we tell them "one".

**Goldy** · 07-23-2015, 07:45 PM

I'm usually not a huge fan of refinancing to a shorter term because I think you are often better off with a slightly higher interest rate on a 30 yr and making extra payments because it affords you flexibility. If one of you loses a job you can always reduce your payments until you get back on your feet. With a 15 yr you don't have that flexibility.

I am a big fan of making extra payments on mortgages, heck we make double payments and our interest rate is only 2.5% but we have everything else covered. The only issue I see with you paying extra on the house instead of the car is cash flow. Your cash flow will stay the same for years until the car is slowly paid off which for me would take too long. No need for it to be one of the other, what about 500 to the house, 500 to the car, and 1200 to retirement? That way the car is paid off in two years at which time you will have an extra ~1000 in cash each month to allocate however you need to.

**avil_saver36** · 07-24-2015, 03:30 AM

Originally posted by Goldy View Post

I'm usually not a huge fan of refinancing to a shorter term because I think you are often better off with a slightly higher interest rate on a 30 yr and making extra payments because it affords you flexibility. If one of you loses a job you can always reduce your payments until you get back on your feet. With a 15 yr you don't have that flexibility.

I am a big fan of making extra payments on mortgages, heck we make double payments and our interest rate is only 2.5% but we have everything else covered. The only issue I see with you paying extra on the house instead of the car is cash flow. Your cash flow will stay the same for years until the car is slowly paid off which for me would take too long. No need for it to be one of the other, what about 500 to the house, 500 to the car, and 1200 to retirement? That way the car is paid off in two years at which time you will have an extra ~1000 in cash each month to allocate however you need to.

It kind of depends upon what the job situation is. For a couple in early/mid 30s (like us) with job prospects that are trending up, risk can be afforded with the unique goal of getting debt free as fast as possible.

Also refinancing to a shorter term sometimes doesn't increase the payments thanks to low interest rates. I already refinanced a 30 year loan to a 20 year loan with the net effect being exactly the same monthly payment (I was paying 4.5% + PMI on the 30 year note and only 3.9% on the 20 year note...the monthly payment different was less than $1...very surreal). My out of pocket cost for this refinance was just over $2000. So the refinancing was the right choice for me.

I am planning on going further and refinance to a 15 year note this winter. This will increase my monthly payment by almost $200, but the overall interest paid on the life of this loan will reduce drastically (by almost $50K). My credit score has continued to climb and income has shot up. Both wife and I are now entering the prime of the careers. Losing job is not a worry at this point.

Refinancing also forces the payment rather than relying on me making extra payments. I am financially savvy and all, but being in this country, it's just impossible not to live at least some semblance of good life instead of attacking debt from every angle. It's just better to force yourself through the contract to attack this debt as fast as possible and minimize the chance that you will use the extra money to live a good life.

**avil_saver36** · 07-24-2015, 03:35 AM

Originally posted by cashisking500 View Post

Fishindude....our house payment is $1,211 per month. That represents 20% of our monthly take home pay. With all due respect, I don't feel like that's too much house for our income.

I agree. Compared to a typical household, you mortgage payment is very low. Our take home averaged over the year is probably going to be between $8000 and $9000 and our mortgage payment is $2094. In fact we consider our mortgage to be on the lower side compared to people with similar incomes around here. You simply cannot buy houses in good school districts without stretching your budgets these days.

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