I'm back (again) for some personal finance advice

[hehateme000]

Hey everyone,

Wanted to post my financial situation and get some advice from you guys. In the past, I have been given great advice and did not always take it. I am finally in a better situation but still far from where I want to be, and should be at my age. I'm 34, married to my wife (35) with 3 boys (13, 11, and 7). I have a good union job here in CA with medical/dental/vision. Also have a pension and annuity account.

Monthly Income:
Me - $8,800/month
Wife - $1,700/month
Total - $10,500/month (after taxes)

Monthly Bills:
Total - $6000 - $7000/month (Changes due to annual bills like registration, kids sports, holidays, etc)

Assets:
Cash - $5,000
IRA - $1,500
Annuity - $57,000

Debts:
Student Loan - $53,000 (250/mo, 0-7%)
Truck - $38,000 (900/mo, 2.94%)
Trailer - $28,000 (300/mo, 6.74%)

My question is that my wife is a week or two away from receiving a large car accident settlement. It is non-taxable, and after paying attorney/doctors/etc, will be anywhere from 150-250k. I would like to pay all of our debt, but if we receive closer to 150k, that would only leave around ~30k extra. I'd also like to max our roths (she doesn't even have an account yet), save something for our kids college, have a nice emergency fund, and save for a house. Because we have a good amount of disposable income every month, I am wondering about where to put this extra money to? The truck would save us 900 a month, but interest is around 100 a month, where the trailer would save us 300 a month, but interest is around 150 a month.

Thanks in advance for any future replies. I know I have asked questions years ago, and did not do what was recommended. I hope to put that behind me and start fresh. I have grown and matured, but I am nowhere close to where I want to be right now.

[Jluke]

Payoff the trailer first since that has the higher interest rate.

then do the Roth accounts (basic disclaimer, assuming you meet the requirements)

then increase your cash/EF.

re-assess where you at after that to determine if there is any left to tackle the student loans.

[bjl584]

I'd pay off the truck and trailer.
That leaves you with between $84K and $184K depending on the size of the settlement.

Set aside 6 months expenses with the remainder.
Beond that, I'd look to paying off the student loans, then if there is any left, start bulking up the retirement accounts.

[myrdale]

There is so much going on here, my head is spinning a little bit: pay debt off, save for house (then pay more debt off), save for retirement, save for kids college.

What is the trailer for? Is it a want (haul toys) or a need (it is used to make money)? I'd consider selling the trailer.

Five years isn't long for the oldest's college fund to grow. I'd put more towards his and less towards the other two. Do the math to figure out how much so they are more or less even.

You have +$3k after bills but only $5k in the bank. I assume you're throwing that at the debt every month?

If you end up on the high end, $250k could you throw that entire amount at a house and buy it with cash and have no mortgage?

Honestly if you want to get ahead on all of these, you all need some major lifestyle changes. Kids sports? Is that $10 for a tee shirt, or $1000 for travel ball. That is the sort of lifestyle changes I'm talking about.

[Fishindude77]

Pay off all of the debt first, then you can do whatever you choose with your income going forward.

Get the debt cleaned up and take care of yourselves first.
I've never been a big fan of saving large amounts for kids education. Who know if they will even pursue college, and at that age they are adults so should pay for much of it themselves anyway.

[kork13]

You're already getting great advice. The common thread through it all is priorities. A few ways to set those priorities, but my thought is to hit the nearest gator first. Those debts will suck the life out of you, and clearing them will open up more income to focus toward saving for retirement & college. You also need a strong 6-mo EF in place ... I'd set aside around $35k-$40k for that. Those top 2 priorities would about burn through the $150k (if that's the number).

Next gator on my list: you've got a son college-bound in ~5 years. How much do you think that will run you? I've heard that in-state tuition for CA's state schools is actually quite affordable (unlike everything else in the state). If you get closer to the $250k figure, I'd try to set aside at least $36k toward that in a 529 (max amount allowed from a couple in 2024 without worrying about gift taxes... Though there are multiple ways around it to do more of you'd like). Also remember that scholarships abound, and with some effort, your son could collect a healthy sum simply by applying for a bunch of scholarships throughout his time in high school.

Only now would I mess with retirement. Max out a Roth IRA for you & your wife, $7k each.

Next, start 529s for the other boys (maybe $10k-$15k each to get started with).

Finally, with anything else you've got left from the settlement, start saving toward purchasing a house.

But wait there's more!! Because you cleared your debts, you have another $1450/mo to play with. Later on, that can fund contributions to the Roth IRAs. Meantime, you can keep saving into the 529s, your house savings, and maybe just start some general taxable investments for unspecified future needs.

Another question .... You've currently got $10.5k/mo in after-tax income, $6k-$7k/mo in expenses, but almost nothing in savings & a bunch of debt. What's happening to the missing ~$4k every month?!? That's alot of money to go unaccounted for every month. Nail that down, reign it in, and put that money to use properly, focusing on your priorities.

You've got a bit of a late start, but you've got a good income, manageable expenses, and this settlement can help you make up alot of ground, clearing the way for you to really start running toward your goals. Focus on what's most important & you'll do great!

Last thought -- with a settlement that large from a car accident, it was probably something pretty traumatic for your family... I hope everyone has healed or is recovering well.

[bjl584]

Here is OP's original post from 2013 for point of reference.

Paying off my Debt - Log - Saving Advice Forums

[hehateme000]

Thanks for the replies everyone.

Sounds like no matter what, I should be prioritizing debt > EF > Roths first. That will be around 110k which is doable in worst case scenario (knock on wood)

Kids college is something I need to research more in order to see how much I should put there up front as well as contribute to monthly/annually.

To clarify and answer some questions:
-We rent our trailer out to my mother in law and her husband. For now it is a necessity lol
-My wife’s income just started this month so we haven’t had as much extra until now
-Just finished paying off CCs, zero CC debt now. Paid off about 25k in the past year, where most of our extra money has gone
-Kids sports is just the registration fee. 375 a kid for football for 2 kids, 200 for rugby for 1 kid. The extra money for bills is for things like truck registration (700), trailer registration (450), birthdays and holidays

Thanks again guys. Helps to get other perspectives

[hehateme000]

Last thought -- with a settlement that large from a car accident, it was probably something pretty traumatic for your family... I hope everyone has healed or is recovering well.

Thanks man, she is still young and could get better but it has affected her daily life a lot. May end up getting back surgery but hopefully not :/

[hehateme000]

Here is OP's original post from 2013 for point of reference.

Paying off my Debt - Log - Saving Advice Forums

To be 23 again…lmao

[LivingAlmostLarge]

You make a lot more now than then! I would definitely aim at paying the debt. Did you see Monkeymama's posts about how to pay for college in California on the cheap? Go to her blog. She has 2 kids in college in California and maanged to do it for less than $40k saved I want to say.

Definitely pay off the trailer and the truck and maybe even the student loans. If you did pay everything off and had $30k ef (assumign only $150k). I think you could buy a place within 12-24 months.

[hehateme000]

You make a lot more now than then! I would definitely aim at paying the debt. Did you see Monkeymama's posts about how to pay for college in California on the cheap? Go to her blog. She has 2 kids in college in California and maanged to do it for less than $40k saved I want to say.

Definitely pay off the trailer and the truck and maybe even the student loans. If you did pay everything off and had $30k ef (assumign only $150k). I think you could buy a place within 12-24 months.

Ive been looking into sac state nearby and i was surprised how much cheaper it was than I thought! The goal would be for my kids to aim higher than Sac State, but it would still be nice to have 4 years worth of a state college saved for them. Honestly feels like something we can cash flow.

We got the settlement check, 268k. Also all untaxed like we thought which is awesome. Moving pretty fast already:

-Paid off truck (37k) saving 900/mo.
-Paid off student loans (53k) - saving 250/mo (All interest).
-House down payment 20 % (106k)

Leaves us with ~70k in savings and the trailer left to pay off. I would like to pay it off but my wife is having a hard time only having 40k leftover rather than 70k. What I decided is were going to pay extra toward it every month, maybe 1k-1.5k on top of the 300/mo payment, and treat the extra payments like they arent optional. If we cant keep that up after a few months, then we will just use the savings to pay it off. With the new mortgage, our total monthly bills go up 300. If we paid off the trailer, the monthly bills would be the exact same as before buying the house and paying the debt off.

We have nearly all debt paid off, we have 20% equity in a home, and we have 70k savings. So a lot better position than before, but lots of room to improve. If we kept 20k in emergency fund, that leaves 50k to pay trailer off, or put some into 529s, or max out roths instead of contribute until next April. How do you guys get your wives on the same board as you lol...thats my biggest hurdle.

[Jluke]

you just blew through almost 200k of the settlement and those were really good moves with that money.

id let the dust settle and park that 70k in a High yield savings account at 4%, or some brokerages are paying 5% in their settlement fund - usually a money market. that’s probably 250/month in interest (ballpark).

add the interest earned to your trailer payment and start chipping away at it. You could always take 5-10k to bring the loan balance down then continue with payments.

at this point I would be more focused on what you can do to build up your assets now that your debt side is manageable.

[srblanco7]

How do you guys get your wives on the same board as you lol...thats my biggest hurdle.

TBH, was a struggle for me and DW for the first decade of our marriage (me a saver and her a spender), but we worked our way through it and found an appropriate balance. I think the best thing you can do is to talk about where you want to be as a couple in a decade or two decades and then let that vision be your guide for near-term decisions. But always with a "balanced" mindset. Success wasn't like flipping a switch - it took time and practice.

[LivingAlmostLarge]

Are you saving 20% for a home? Are you already in the home? I think that when she starts to see how great it is she'll get on board. Sometimes until you live the dream it's hard to see it.