needing some advice

jessiofthecornfields · May 2016

Hi everyone ... I've been a user of The Knot for years and lurker at The Nest for almost as long. Everyone here on the MM board seems smart and knowledgeable and I could definitely use that in my life.

Here's our situation:

- Married for two years this October, 24/23 years old.

- When we first got married we lived in an expensive city and things were extremely tight getting by. We both worked two jobs just to scrape through. About 10 months ago we relocated, found new, better jobs, and things have significantly improved.

- Our monthly income after taxes/healthcare/etc. is about $6000 as of two months ago when my husband started his new job.

- Our monthly expenses including everything are about $3500-$4000

- I have student loans totaling around $40k -- they were around $60k when I graduated 3 years ago. DH has no loans. Right now we are only paying minimums which comes to about $500/month.

- No credit card debt, our only other debt is my car payment which is less than $3000 from being paid off.

- Have about $8k in savings

- Each are putting about 6% in 401k, mine is half Roth

Honestly, neither of us are really good with money and don't come from families where we feel comfortable talking about this with our parents. We aren't irresponsible people by nature, but we just aren't savvy with budgeting and aren't knowledgeable about where we should be investing. Is it better to focus on paying off debt or focus on getting our savings account built up to 6 months of expenses?

We have no plans to have children for another 6-7 years at least but would like to be in a situation where if it did happen on accident it wouldn't be devastating. We would like to eventually buy a house, but are unsure of where we need to be to make this happen ... do we need to be totally debt free from student loans before even considering a mortgage? When we look at how much cheaper it *seems* to be to pay a house payment vs rent it's tempting ... but probably just us being naive and not realizing the true costs of home ownership.

Please bestow wisdom on my clueless little self!

jtmh2012 · May 2016

jessiofthecornfields said:

We would like to eventually buy a house, but are unsure of where we need to be to make this happen ... do we need to be totally debt free from student loans before even considering a mortgage? When we look at how much cheaper it *seems* to be to pay a house payment vs rent it's tempting ... but probably just us being naive and not realizing the true costs of home ownership.

I'll comment on this part and leave the rest to the more debt payoff minded on the boards. Assuming you have good/excellent credit, most banks are going to be more concerned about your ability to make the monthly mortgage payment than what other loans you have. Yes, they will ask about them and they are going to pull a credit check to make sure they're all in good standing.

As for the costs of home ownership. It's a lot more than just the monthly mortgage payment. Think of all the things you have your landlord fix, those are now your responsibility. Not an issue as long as you're prepared for them, but some of them can be pretty hefty. In my last house, I had to put on a new roof (about $5000), the following year I ended up replacing the heat pump (about $6400) along with a hot water heater ($1000). Strictly speaking, I didn't have to do the heat pump when I did the hot water heater, so the $6400 was mostly optional, but a wise choice at the time. Either way, I would suggest either a home warranty or a good sized emergency fund. Preferably the later as you're at the mercy of the home warranty companies when it comes to the repairs and how they're done.

There are also routine maintenance costs that vary depending on what you buy. Like yard maintenance for example.

Not having seen your budget, the one thing that would concern me is that you're paying the minimums on your existing debt. That to me says you can't afford to pay more and if you can't afford to pay more then what happens when you have a home repair that needs doing?

Also, do remember that even with a fixed rate mortgage, your payments will generally increase due to your city/county tax rates increasing.

jessiofthecornfields · May 2016

jtmh2012 said:

jessiofthecornfields said:

We would like to eventually buy a house, but are unsure of where we need to be to make this happen ... do we need to be totally debt free from student loans before even considering a mortgage? When we look at how much cheaper it *seems* to be to pay a house payment vs rent it's tempting ... but probably just us being naive and not realizing the true costs of home ownership.

I'll comment on this part and leave the rest to the more debt payoff minded on the boards. Assuming you have good/excellent credit, most banks are going to be more concerned about your ability to make the monthly mortgage payment than what other loans you have. Yes, they will ask about them and they are going to pull a credit check to make sure they're all in good standing.

As for the costs of home ownership. It's a lot more than just the monthly mortgage payment. Think of all the things you have your landlord fix, those are now your responsibility. Not an issue as long as you're prepared for them, but some of them can be pretty hefty. In my last house, I had to put on a new roof (about $5000), the following year I ended up replacing the heat pump (about $6400) along with a hot water heater ($1000). Strictly speaking, I didn't have to do the heat pump when I did the hot water heater, so the $6400 was mostly optional, but a wise choice at the time. Either way, I would suggest either a home warranty or a good sized emergency fund. Preferably the later as you're at the mercy of the home warranty companies when it comes to the repairs and how they're done.

There are also routine maintenance costs that vary depending on what you buy. Like yard maintenance for example.

Not having seen your budget, the one thing that would concern me is that you're paying the minimums on your existing debt. That to me says you can't afford to pay more and if you can't afford to pay more then what happens when you have a home repair that needs doing?

Also, do remember that even with a fixed rate mortgage, your payments will generally increase due to your city/county tax rates increasing.

We could pay more on the loans, just don't know if that's a better use than building up our savings? Right now we have just been putting extra income into savings ... But definitely could put some/all of that towards our debt.

hoffse · May 2016

You will get differing thoughts on this. I do not think you need to be debt free from student loans before buying a house. H and I have owned a house for about 2 years now and have another 6 years left on student loans. We started with (and still have) significantly more student debt than you have, 90% of which was for law school. We did some serious number crunching to figure out how to pay it all off early, got autopay set up at our bank, and then stopped worrying about it and will let it run its course.

Others on this board will tell you to throw every penny at the loans until they are done. H and I had so much - in the hundreds of thousands - that this method would not have worked for us. We would have put our life on hold for years, and it's not a plan we could have stuck with. We take our loan payments seriously and send about 1/3 of our take-home to them, but we have room to breathe and live life too. What works for me wouldn't work for others on this board, and it may not work for you. You guys need to decide together the best approach for your lifestyle and goals.

For the house, we bought significantly less house than the bank said we could afford, because we did not want to slow down our student loan payments as home owners. We spend more than our rent costs each month, mostly due to taxes and insurance. But we get a lot of that back at tax time. Over the course of a year we actually spend a tiny bit less on our house than we were spending in rent for the apartment.

The way our spending has really increased with a house is all the other stuff that comes with it - some stuff you have to do, some stuff you want to do. When we were getting ready to close, H and I went to Home Depot to buy paint, new locks, some lawn stuff, etc. We spent around $700. My CC actually got denied because I had never swiped my card for that much before, and AmEx thought it was fraudulent. In the last two years I have spent $700 here and there so many times that my CC companies know it's me, lol.

H and I did not put down the full 20% down payment, and it's not been an issue for us. We took a slightly higher interest rate, but it only amounted to an extra $30/month or so in our mortgage, and it allowed us to retain about $10K in cash after closing. We put half of that cash into a house emergency fund (which we have had to use once), and the other half was spent on startup costs. It was a pretty good trade for us given our immediate needs, and it allowed us to close with our emergency fund intact.

As home owners, you definitely need an emergency fund. We keep at least $5K on hand at all times, though we plan to increase it to $10K this year so that we could replace our A/C if needed. We actually don't do the 6 month e-fund thing because we could survive and pay all of our bills on a single salary, and we have outside investments we could liquidate. If you can't live on one salary (or if only one of you works), then you need an e-fund that covers a few months of living expenses to hedge against job loss.

Given what you have told us, I think I would work on the following goals for the rest of this year, in this order:

1) Go through your bank accounts, credit cards, etc. from January-April and figure out how much you spend in various categories on average (rent, groceries, eating out, clothes, etc.). This is your budget. If anything looks high and could be easily cut, then know that this is a place you need to work on. Make a written budget and keep an effort to track your actual spending month by month.

2) I also suggest sitting down and thinking through all the things you pay for annually or biannually - life insurance, Costco membership, car tags/taxes, Amazon Prime, whatever. Add this up and divide by 12. Start saving this much each month in a sinking fund specifically for these items so they don't mess up your budget. It may not work perfectly the first year due to the timing of expenses, but by year 2 you will be rolling right along with it.

3) Work to increase your retirement contributions to 10%. You guys are young enough that if you do this now, you might be fine keeping it there for your entire careers. If you wait until you are approaching 30, you need to be at 15% or so for your entire careers. Time is the most valuable thing you guys have, so make the most of it.

4) Develop a realistic time frame for your loans. You are probably on a 10-year plan given your balance and what you pay. You might be fine just letting it run its course, or you might want to pay them off a little early. If you want to pay them off early, then figure out how much you need to pay each month to accomplish that goal. There are lots of calculators online you can use to figure this out.

5) Keep the $8K where it is and call it your emergency fund. I would suggest adding another $3,000-$4,000 to it so that you have 3 months of living expenses saved.

6) Then see if there is room left in your budget to start saving for a house.

hoffse · May 2016

I will also add on the debt side of things - a lot of this boils down to how much the student loans bother you. I'll confess that H and I only want our loans gone on a specific schedule so we can free up that cash to use on a very nice second house. But the existence of our loans doesn't bother us at all, and we have no motivation to get rid of them just to be "debt free." This means we have no intention to delay our plans for a house, kids, travel, etc. until they are gone. The debt free thing just doesn't really resonate with us.

For others, being debt free is a goal worthy of delaying nearly every other goal.

I really don't think one approach is better than the other, you just have to think about where you fall on that spectrum and then own your decision and feelings on this issue - whatever they are. I spent some time feeling like I was wrong for not being able to get on the debt free train, but I have finally made peace with it. I just don't view our student loans as a problem, and I became much happier once I decided that approach was OK.

Being MM only means that you are using your money in a thoughtful way that lines up with your life goals, plans, and risk tolerance. There is no one-size-fits-all approach, which is both a blessing and a curse!

als1982 · May 2016

You guys are doing great! Like @Hoffse said, everyone on this board is different. Different priorities and different risk and debt tolerance levels. We're very anti-debt but also very pro-retirement savings. We choose to live well below our means in order to accomplish these dual goals. In your situation, here's what I would do.

1. Immediately increase your retirement contributions to at least 15% (before any employer match). You have time on your side, and now is the time to maximize compounding interest and the fact that you don't have the unexpected expenses of home ownership or children. You can always decrease this amount down the road should one of you decide to stay home with kids or change jobs, etc. but you can't ever make up for those lost early years.

2. Take the $8,000, pay off your car and put all but $1,000 towards your student loan balance. IMO, that's WAY to much cash just sitting around earning very little when again, you don't have kids or own your own home. Frankly, until our student loans are gone, we only keep $1,000 emergency fund and we're homeowners.

3. Put the amount that was your car payment plus everything left over toward your student loans. After your student loans are gone, you can start rebuilding your emergency fund. Frankly, unless you can save and put down the full 20% or more, I wouldn't put more than the minimum down on a mortgage. You are much better off putting that extra cash in retirement or paying off your student loans to avoid years of interest. I would also suggest buying a home that you can afford on one of your incomes and taking out a 15/20 year mortgage instead of a 30 year.

Good luck, stick around, and again, great job starting out so well with your finances!!

jtmh2012 · May 2016

I'll second what hoffse said about buying less house than you can afford. Life happens. Especially considering that you'll have a mortgage for the next 15-30 years, you can count on having to buy 1-2 cars during that time and you'll want to make sure you have room for your budget for a loan payment unless you plan to pay cash, but event then, I'd allow room for it just in case you need to make an unplanned purchase (accident, car dies, etc).

Sorry for my comment about the minimums. I was thinking something like credit cards where you can pay a "minimum payment" versus the statement balance.

MommyLiberty5013 · May 2016

You said your expenses are $3,500 - $4,000 each month. That includes your CCs, SLs and your car payment. I'm mostly curious what your other expenses are as, to me, that seems high given that you're in a lower cost of living area and there's only the two of you.

So what's your breakdown of expenses?

jessiofthecornfields · May 2016

We use Mint to do our budget .. This is our breakdown of expenses per month:

Rent: $900

Student loans: $500

Utilities: $200

Car payment: $150

Car + renters insurance: $150

Phone: $150

TV + internet: $90

Auto repair/service: $70

Gas: $120

Groceries: $200

Home supplies: $60

Restaurants: $200 (this includes work cafeteria for lunches)

Personal care: $70

Tithe: $450

Gifts: $100

Pet:$40

Clothing: $200 (this may seem high, but I have to dress business professional for work and had NO professional clothes when I started a few months back, so trying to slowly build a work wardrobe)

Amusement/misc.: $150

jessiofthecornfields · May 2016

hoffse said:

I will also add on the debt side of things - a lot of this boils down to how much the student loans bother you. I'll confess that H and I only want our loans gone on a specific schedule so we can free up that cash to use on a very nice second house. But the existence of our loans doesn't bother us at all, and we have no motivation to get rid of them just to be "debt free." This means we have no intention to delay our plans for a house, kids, travel, etc. until they are gone. The debt free thing just doesn't really resonate with us.

For others, being debt free is a goal worthy of delaying nearly every other goal.

I really don't think one approach is better than the other, you just have to think about where you fall on that spectrum and then own your decision and feelings on this issue - whatever they are. I spent some time feeling like I was wrong for not being able to get on the debt free train, but I have finally made peace with it. I just don't view our student loans as a problem, and I became much happier once I decided that approach was OK.

Being MM only means that you are using your money in a thoughtful way that lines up with your life goals, plans, and risk tolerance. There is no one-size-fits-all approach, which is both a blessing and a curse!

Really appreciate this insight! For me, the debt doesn't bother me. I see it as a normal part of our budget and it doesn't nag at me. That being said, of course it will be nice to pay them off and have that money back.

Seems like there is a pretty widespread opinions as far as our savings ... we definitely could afford to live on only one income if one of us lost our jobs, so maybe we don't need 6 months or even 3 months of expenses saved? It is definitely a peace of mind thing for DH to have that savings account but I see where it could be more valuable put toward our debt.

AprilZ81 · May 2016

jessiofthecornfields said:

We use Mint to do our budget .. This is our breakdown of expenses per month:
Rent: $900
Student loans: $500
Utilities: $200
Car payment: $150
Car + renters insurance: $150
Phone: $150
TV + internet: $90
Auto repair/service: $70
Gas: $120
Groceries: $200
Home supplies: $60
Restaurants: $200 (this includes work cafeteria for lunches)
Personal care: $70
Tithe: $450
Gifts: $100
Pet:$40
Clothing: $200 (this may seem high, but I have to dress business professional for work and had NO professional clothes when I started a few months back, so trying to slowly build a work wardrobe)
Amusement/misc.: $150

Your grocery budget seems low for two people for a month, even if you buy some lunches at the cafeteria. Is this an accurate amount or what you would like to be spending each month?

Is all of your retirement accounts pre or post tax? I don't see any ROTH contributions in your budget breakdown.

I'm also not completely opposed to debt leveraging (student loans, mortgages, vehicles, zero percent finance offers for a short amount time) but when loans get down to the last few grand I really like to get rid of them.

If I were you I would take some money out of savings and pay off your car loan OR start doubling up on your payments so it is paid off faster.

When the car payment is finished I would ramp up your retirement savings to at least 10%, and work your way to 15%.

I would start a sinking fund as hoffse suggested, we just started doing this and it makes life easier.

I would then start being more intentional about savings for a down payment, emergency fund and any other life goals (vacations, kids, new cars, etc.) so your have more options available to you when you are ready for the next stage in life.

We also bought a house with less than 20% down in favor of keeping some cash liquid for new furniture and other home projects (some were requirements like a new electric panel and some were wants like a kitchen remodel). If you go this route be sure to explore all options about PMI, for us it saved us the most money to pay a slightly higher interest rate and do lender paid PMI.

Good luck!

jessiofthecornfields · May 2016

AprilZ81 said:

jessiofthecornfields said:

We use Mint to do our budget .. This is our breakdown of expenses per month:
Rent: $900
Student loans: $500
Utilities: $200
Car payment: $150
Car + renters insurance: $150
Phone: $150
TV + internet: $90
Auto repair/service: $70
Gas: $120
Groceries: $200
Home supplies: $60
Restaurants: $200 (this includes work cafeteria for lunches)
Personal care: $70
Tithe: $450
Gifts: $100
Pet:$40
Clothing: $200 (this may seem high, but I have to dress business professional for work and had NO professional clothes when I started a few months back, so trying to slowly build a work wardrobe)
Amusement/misc.: $150

Your grocery budget seems low for two people for a month, even if you buy some lunches at the cafeteria. Is this an accurate amount or what you would like to be spending each month?

Is all of your retirement accounts pre or post tax? I don't see any ROTH contributions in your budget breakdown.

I didn't include things that are payroll deduction like that (my company offers Roth as payroll deduct so you just pay the taxes if that makes sense). So healthcare and retirement aren't included in this. I occasionally spend a little more in groceries but not more than $20. I shop at Aldi and we eat simply. Things like toilet paper, paper towels, etc. we count as home supplies.

hoffse · May 2016

Do you mean you have a Roth 401(k)? Those are awesome - that's all H and I use right now.

The only thing that looks a little high to me is personal entertainment and personal care, but depending on your hobbies and how often you get a haircut, I can see how it gets that high. You guys aren't really hurting

Groceries does seem low to me also. And actually, for a professional wardrobe, $200 seems low to me for clothes... though admittedly our clothes budget higher than this because both H and I have to dress professionally for work and men's suits are $$$. If it's just you, $200 is about right while building a wardrobe.

If you guys were struggling, there would be other places I would suggest cutting (cable, cell phones, etc). However, when I add this all up I get $3800, and you said your take-home is $6,000. You guys can obviously afford these luxuries, and you have plenty left over to work on your retirement, loans, etc.

So you guys have $2200/month (on average) leftover. I think you guys need to give this money a "job." I would start by increasing your retirement to 10% and see what's left - it will probably be more than you think! You might then decide to pay off the car, or split your money between loan payments and savings.... whatever. But with that much leftover, you need to have that money working for you so that you don't experience too much lifestyle inflation.

Once your retirement is at 10%, you probably should work to increase it to 15% while you are still in your 20's just to be sure you are saving enough. 10% forever is probably enough at your age to afford to live, but it might not afford the luxuries you want in retirement. A painless way to increase retirement contributions is to celebrate raises and debt payoff with a 1% bump. So one of you gets a $5K raise? Awesome, have a nice dinner and increase your retirement to 11%. You pay off the car? Great, increase it to 12%. You will not feel these incremental increases if you do it this way, and in most instances you will still get extra money in your paycheck (if it's a raise) or have extra room in your budget (if it's debt payoff) even with the increase to retirement.

Another way to do it - though not always as painless - is to just increase it by 1% on January 1 each year, raise or not. That's the approach H and I have taken to max out our contributions. It's such a small amount of money each year that we have been able to absorb it in our budget, even in years when neither of us get a raise.

brij2006 · May 2016

Great job on the increase in income and the change in expenses. You guys are doing great!

I'm pretty anti-debt, so I'm always going to recommend Dave Ramsey's principals. Especially since you will have 6-7 years before adding in the expenses of children, and you have a pretty good monthly buffer to make some good headway.

So this is what I would do.
Take the extra $1,500/month and toss it at the car debt. In 2 months, you will have your car paid off. Awesome!

Then take that $1,500/month plus the car payment, and snowball that at the student loans. I'm going to assume your car payment is $250/month. So in less than 2 years you will have the student loans and the car paid off, and an extra $750/month from less payments, and a total of $2,250/month to play with.

After those debts are paid off, then I would save up 3-6 months of expenses to have as a larger emergency fund.

Then beef up the retirement to 15% for each of you.

THEN start saving for a house.

If you want to get more aggressive and get that timeline down a bit more, then sit down and work on your budget and cut some things so you have more to get rid of those dreaded student loans.

jessiofthecornfields · May 2016

hoffse said:

Do you mean you have a Roth 401(k)? Those are awesome - that's all H and I use right now.

The only thing that looks a little high to me is personal entertainment and personal care, but depending on your hobbies and how often you get a haircut, I can see how it gets that high. You guys aren't really hurting

Groceries does seem low to me also. And actually, for a professional wardrobe, $200 seems low to me for clothes... though admittedly our clothes budget higher than this because both H and I have to dress professionally for work and men's suits are $$$. If it's just you, $200 is about right while building a wardrobe.

If you guys were struggling, there would be other places I would suggest cutting (cable, cell phones, etc). However, when I add this all up I get $3800, and you said your take-home is $6,000. You guys can obviously afford these luxuries, and you have plenty left over to work on your retirement, loans, etc.

So you guys have $2200/month (on average) leftover. I think you guys need to give this money a "job." I would start by increasing your retirement to 10% and see what's left - it will probably be more than you think! You might then decide to pay off the car, or split your money between loan payments and savings.... whatever. But with that much leftover, you need to have that money working for you so that you don't experience too much lifestyle inflation.

Once your retirement is at 10%, you probably should work to increase it to 15% while you are still in your 20's just to be sure you are saving enough. 10% forever is probably enough at your age to afford to live, but it might not afford the luxuries you want in retirement. A painless way to increase retirement contributions is to celebrate raises and debt payoff with a 1% bump. So one of you gets a $5K raise? Awesome, have a nice dinner and increase your retirement to 11%. You pay off the car? Great, increase it to 12%. You will not feel these incremental increases if you do it this way, and in most instances you will still get extra money in your paycheck (if it's a raise) or have extra room in your budget (if it's debt payoff) even with the increase to retirement.

Another way to do it - though not always as painless - is to just increase it by 1% on January 1 each year, raise or not. That's the approach H and I have taken to max out our contributions. It's such a small amount of money each year that we have been able to absorb it in our budget, even in years when neither of us get a raise.

This makes sense and is way less overwhelming than just going to 10 or 12 percent over night! DH's is already set up to do this each year so I just need to make mine like that too. Yes ... Roth 401k. I am not well versed in this lingo haha. Good advice about giving our extra income a job ... I was feeling the same way but DH is kind of a money hoarder so now I feel like I can properly talk to him about this!!! Thanks so much everyone. Such good advice. Really appreciate it. And it's good to know we are doing ok ... It's so hard to know where you stand with nothing to compare to.

jessiofthecornfields · May 2016

Oh one more thing. We only have basic life insurance via work. Should we have something more? If so what ... And how much would it cost?

AprilZ81 · May 2016

jessiofthecornfields said:

Oh one more thing. We only have basic life insurance via work. Should we have something more? If so what ... And how much would it cost?

Without a house or kids I would think your work policy would be plenty.

You will want to revisit extra life insurance when you buy a house and definitely when you have kids.

You will want enough coverage to pay off the house, cover day care for the kids while the other spouse returns to work (or to stay at home if that is your choice), possibly enough to have money for kids college, and anything else you want to make sure you have covered for the living spouse.

The younger you are the lower the cost will be for the policy.

hoffse · May 2016

AprilZ81 said:

jessiofthecornfields said:

Oh one more thing. We only have basic life insurance via work. Should we have something more? If so what ... And how much would it cost?

Without a house or kids I would think your work policy would be plenty.

You will want to revisit extra life insurance when you buy a house and definitely when you have kids.

You will want enough coverage to pay off the house, cover day care for the kids while the other spouse returns to work (or to stay at home if that is your choice), possibly enough to have money for kids college, and anything else you want to make sure you have covered for the living spouse.

The younger you are the lower the cost will be for the policy.

Find out what the life insurance coverage is through your work first, but I agree that you are probably fine for now.

You have to figure $10K for burial expenses, the cost to pay off the balance of any debt you have (mortgage, student loans, etc.). Some loans are forgiven upon death, but life insurance is cheap enough that I would err on the side of just paying it off.

When you have kids, figure childcare for 18 years per child, and H and I will be adding in the cost of college and possibly some extra for a wedding or continued education for each.

We currently insure about $50-$100K over what we need for our debt and burial expenses to also provide for the ability to take a leave of absence and provide a small nest egg for the survivor. It would not be enough to be really wealthy, but it would be enough that the survivor could take the time (and pay for the therapy) he or she needed to recover and become happy again without worrying about money.

Independent life insurance policies are extremely cheap while you are young. It's usually slightly cheaper for women than men. But I mean... we pay less than $15/month for a $500K policy on H. He is 28. Our rate is very low because we got it through the American Bar Association. If either of you are members of a professional association, I suggest checking with them on rates, because they will often beat the independent providers. That said, independent life insurance is still very cheap for the majority of people. As long as you are insurable, it shouldn't break the bank.

If you determine that you need additional insurance, make sure to get a term life policy, rather than whole life.

brij2006 · May 2016

jessiofthecornfields said:

Oh one more thing. We only have basic life insurance via work. Should we have something more? If so what ... And how much would it cost?

Definitely look into seeing what you have. Some work life insurance policies are only Accidental Death and Dismemberment policies, or only cover burial expenses.

If your spouse needs the other persons' income to live off of, then I would purchase more life insurance. If you get 10x their income, then the theory is that you can put that lump sum into a mutual fund and pull the interest off of it each year to act as their income still coming in.

Before kids, we had enough to pay off our debts plus an extra $100,000. We can live without the other person's income.

A term insurance policy is relatively cheap. You can get a good amount of coverage for a cheap price.

Do not buy whole life, universal life, or variable life insurance. If there's an investment within an insurance product, it's overpriced and not worth the money. Term insurance is what you want.

One thing to remember with having life insurance through a job. If you get sick and lose that job, the life insurance goes away. That's why it's wise to have something outside of work as well.

csuave · May 2016

jtmh2012 said:

jessiofthecornfields said:

We would like to eventually buy a house, but are unsure of where we need to be to make this happen ... do we need to be totally debt free from student loans before even considering a mortgage? When we look at how much cheaper it *seems* to be to pay a house payment vs rent it's tempting ... but probably just us being naive and not realizing the true costs of home ownership.

I'll comment on this part and leave the rest to the more debt payoff minded on the boards. Assuming you have good/excellent credit, most banks are going to be more concerned about your ability to make the monthly mortgage payment than what other loans you have. Yes, they will ask about them and they are going to pull a credit check to make sure they're all in good standing.

As for the costs of home ownership. It's a lot more than just the monthly mortgage payment. Think of all the things you have your landlord fix, those are now your responsibility. Not an issue as long as you're prepared for them, but some of them can be pretty hefty. In my last house, I had to put on a new roof (about $5000), the following year I ended up replacing the heat pump (about $6400) along with a hot water heater ($1000). Strictly speaking, I didn't have to do the heat pump when I did the hot water heater, so the $6400 was mostly optional, but a wise choice at the time. Either way, I would suggest either a home warranty or a good sized emergency fund. Preferably the later as you're at the mercy of the home warranty companies when it comes to the repairs and how they're done.

There are also routine maintenance costs that vary depending on what you buy. Like yard maintenance for example.

Also, do remember that even with a fixed rate mortgage, your payments will generally increase due to your city/county tax rates increasing.

I think everything jtmh2012 is worth considering but your initial thoughts (bolded) may be right. It all depends on what kind of house you are talking about.
I moved around my first two years out of college and decided that in the third year when I was able to settle down in one city I would buy a house. I bought a townhouse/condo well within my means and it was lower per month than my rent was. It was also less than 10 years old and in good shape, no major repairs or new roof on the radar of this house. I decided not to do any painting or upgrades for the first couple of years. I didn't do anything to the yard. I did some routine maintenance but that was in my budget since I was paying a monthly cost very similar or a little lower than what my rent had been. After buying appliances and some other small initial expenditures I really didn't have to pay much out of pocket other than my monthly mortgage payment and taxes, although I was always prepared with an emergency fund in case something did break. I had saved up enough over 24 months of renting to put 20% down but I may have been OK putting down less than 20% if the monthly payment still made sense for my budget.

I suggest you get to know your monthly budget better and think about future goals. How much can you save each month to put towards your goals?

H and I talk budgets on a regular basis. We have put plans in place to make sure we save enough over a period of time (6 months, 24 months, etc.) to meet our goals such as buying a new car, finishing the basement, going on a nice vacation, etc. Knowing those goals and putting timing around them makes us have monthly savings targets and decide how to prioritize other parts of the budget, like SL payoff.

If a house is one of those goals then decide what price range you want. If it is lower and will be similar or less than what you are paying in rent then you may want to put off paying down the SL and save for your down payment instead. If you want to go for the bigger house instead of having a starter home first, then it may make sense to take a longer term savings view.

The interest rate on your SL may also come into play. If it is 4% or less than I would put it on the back burner and move buying a house up the priority list. If it is high interest rate on the SL you may want to consider refinancing types of options.

short+sassy · May 2016

On buying a house, I'd also suggest looking at the real estate market in your area. Check out MLS listings for the areas you like at sites like realtor.com or any of the big name realtor companies have house searches you can do on their websites.

Both you and your H should get a feel for what you want in a house. What's a dealbreaker, what's nice but not necessary, what doesn't matter.

With those thoughts in mind, see how much the kind of houses you all like go for. Maybe you'll find you want to skip the starter home and just go straight to a house that will accommodate the family you are planning to have in 6-7 years. That would give you about 5-6 years to save for a down payment, while keeping a good e-fund intact.

Or maybe you'll find great houses are very affordable in your area and much cheaper than renting.

csuave · May 2016

A couple of other things to add: we are a household of 2 and spend similar to you on food so I think it is a reasonable budget, especially when eating simply and shopping at Aldi. H and I shop at Aldi and don't buy much in the way of snacks or pop (soda)/beer on a regular basis so our grocery bills are very low.
And we like to go out several times a month but we use a lot of coupons dining out so we can make $200 restaurant budget cover 7-8 dinners out (with some being fast food).

Something else to think about is health insurance. If you have a high deductible health plan available to you but aren't currently using it you may want to look into it. You will see HDHP talked about a lot on the MM board. If it is a plan that will work for you it can be a great MM decision.

needing some advice

Re: needing some advice

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