new poster looking for advice

[Amateur Genealogist]

Long time lurker looking for advice.

My New Year’s resolution is to cut back on spending and start trying to pay off our debts. My DH is the frugal one, so if I can get myself under control, we’ll be in good shape. I pretty sure I can find extra money by using my debit card instead of my rewards credit card from here on out. We pay it off in full every month, but I’m sure I’m still spending more than I would if I just used debit. We are in our early 40s with 2 kids (11 and 5). Here’s our budget:

Take home pay: $6,400 (after $433/month into pension and retiree healthcare fund and $400/month into 401(k)s).

mortgage/escrow $1,711
groceries & household supplies 572
student loan 471
auto loan 331
auto fuel 276
gifts 273
EF savings 250
dining out 229
clothing 211
travel 200
kids' enrichment/x-curriculars 193
home furnishing/décor 186
entertainment 165
auto maintenance/registration 160
home improvements/repairs 150
afterschool childcare 150
miscellaneous 140
auto insurance 124
LTD & life insurance 116
netflix/satellite 115
school hot lunches 100
electric 97
landline/internet 82
2 cell phones 48
gas 34
garbage 18
TOTAL $6,402

Here’s what makes me the sickest - The second mortgage is 10.5% interest. We built the house while the housing bubble was bursting. Damnit, we had no idea! When it was time to go from our construction loan to our permanent loan, the value of our house (including everyone in the neighborhood) dropped by 30%. What was supposed to just be a single mortgage had to be split into an 80/15 loan with the second being 10.5% interest rate (because it was so close to entire value). The balance today is $37K. Every year, I call around to refinance the second, but can’t.

The student loan balance is $75K @ 7.5%! Scheduled to be paid off in 13 years.

Here’s my question: If I can cut my spending (motivation is pretty high), I’m anticipating having a little money to throw at something. Where should I put it – second mortgage, student loan, EF (currently at $13K), or retirement (401(k) balance only $65K). Another question: How does the budget look? Does something seem too high?

I have a secure job in the schools and have been anticipating a nice pension all these years, so we’ve been slacking on retirement savings. The pension is guaranteed by the state constitution, so I used that as my excuse to not be worried/save more, but now I realize how stupid that is. One other thing - my DH HATES his job and wants to quit by this time next year, so I’m worried about not having enough in the EF.

Thank you for listening!

[Shooby]

Welcome. A couple of things jump out.

Gifts $273 per month? Dining out $229/mo ? Clothing and travel? Home furnishings. Not that you don't need some of those things but it seems like you could really cut the cost of these things down quite a bit.

As for your DH hating his job, well, a lot of people do, so what does he intend to do? I dont' think he should quit. He should instead be looking for a different job and not quit the one he has until he has somewhere else to go.

[Deleted]

Does mortgage include taxes and insurance? 
Do you have life insurance? 

Thats a lot for gifts and home decor.. I'd severely cut those back for now and drop satellite. I'd also see what I can trim from other categories. 

I would do 2nd mortgage first. 

[Shooby]

Yes, I agree. I would be paying down the second mortgage first.

[Jaguar]

Dec 27, 2014 17:06:32 GMT -5 Shooby said:

Welcome. A couple of things jump out.

Gifts $273 per month? Dining out $229/mo ? Clothing and travel? Home furnishings. Not that you don't need some of those things but it seems like you could really cut the cost of these things down quite a bit.

As for your DH hating his job, well, a lot of people do, so what does he intend to do? I dont' think he should quit. He should instead be looking for a different job and not quit the one he has until he has somewhere else to go.

Cutting out what Shooby said would give you an extra $1099 a month

[Tiny]

Just general questions/thoughts on the mortgages - especially since it sounds like you are about 7/8 years into them:
Are property values recovering in your area? To loose 30% during the crash - was bad but not so bad. What kind of 'refi' are you trying to do? just a refi of the 2nd mortgage OR trying to combine the two into a new primary mortgage? The banks MIGHT be more interested in giving you a new bigger first mortgage (rather than re-fi the smaller amount). Interest rates are still pretty good.


I'd also suggest keeping an eye out on what you want your life to be like in 3 years/5 years/10 years when making financial decisions now. Especially, when you have to 'tighten your belt'. Some of the things you are currently spending money on may seem High Priority from a 'small picture' view - and very insignificant from a 'big picture' view. That's the spending you can cut or that you can put off.

[Amateur Genealogist]

Dec 27, 2014 17:06:32 GMT -5 Shooby said:

Welcome. A couple of things jump out.

Gifts $273 per month? Dining out $229/mo ? Clothing and travel? Home furnishings. Not that you don't need some of those things but it seems like you could really cut the cost of these things down quite a bit.

As for your DH hating his job, well, a lot of people do, so what does he intend to do? I dont' think he should quit. He should instead be looking for a different job and not quit the one he has until he has somewhere else to go.

The gift category is high.  I include a bunch of weird stuff in there besides actual presents - kids' class parties supplies, funeral flowers (probably a couple times a year for that one), $5/week to wear jeans to work on Fridays (donated to charity), stuff like that.  The dining out is all me.  It's ridiculous how quickly it adds up - a pizza every week to make life easier at home, grabbing food at work a couple times a week, stopping at Panera Bread after grocery shopping, etc.  

As for DH, I wish he'd stay where is he is (stable and decent pay), but it's a physical job and the hours are long and it's taking it's toll.  He has been buying/selling on eBay this past year with some pretty good success.  He's got a knack for finding the unusual and dickering people down at the buy.  He loves doing this.  He's only been able to devote about 12 hours/week to it right now, but he's got a basement full of inventory just waiting to be listed, he's making pretty good ROI on what he does sell.  Right now, that money's all going back into the business, and in 2015 he wants to build it up more (get an eBay store, squeeze in more late nights).  He said he'd work part-time somewhere if necessary.

[NoNamePerson]

but he's got a basement full of inventory just waiting to be listed

Is the cost of this inventory that he buys included into your budget? How much is he spending a month. I know you said all the money goes back into the business but is it dollar for dollar?

[giramomma]

I would also do things like further break out groceries and household supplies, as well as the misc account.

$100/lunch for school lunch is pretty expensive. We allow our kids 3-4 hot lunches a month. The rest of the time, they pack it. My older two are 10 and 7. My 2 year old, desperate to be like her older siblings, also packs her lunch to eat after preschool.

I might suggest making changes that will be automatically withdrawn from your paycheck/accounts immediately. Ie, raise your retirement contributions and I would pay extra on the 2nd mortgage. Make it an auto withdrawal. That will force you to live on less, KWIM?

That said, Dh and I do not pay 15% towards our retirement on top of our pension contributions. Though, I'm only expecting that my pension will provide 25%-30% of our income in retirement. Depending on when we retire, we'll also have passive income, SS, and earned income.

[Amateur Genealogist]

Dec 27, 2014 17:08:05 GMT -5 @anne81 said:

Glad you came out of lurkdom!  Is the payment for the second mortgage included in the $1711? What do you owe on the car loan?

Yes, the 2nd is included.  We owe $13,800 on the car - have only had it a few months.

[Amateur Genealogist]

Dec 27, 2014 17:08:50 GMT -5 oped said:

Does mortgage include taxes and insurance? 
Do you have life insurance? 

Thats a lot for gifts and home decor.. I'd severely cut those back for now and drop satellite. I'd also see what I can trim from other categories. 

I would do 2nd mortgage first. 

Yes, 1711 is the PITI. 

We do have life insurance.  I listed it in the budget. 

The home decor budget was last summer's project - we did some landscaping around the house, put up more closet shelving, and curtains in a few rooms that didn't have them. 

[Amateur Genealogist]

Dec 27, 2014 17:44:36 GMT -5 NoNamePerson said:

but he's got a basement full of inventory just waiting to be listed

Is the cost of this inventory that he buys included into your budget? How much is he spending a month. I know you said all the money goes back into the business but is it dollar for dollar?

He's keeping all that money separate, so none of that is included in our budget - either coming in or going out.

[Plain Old Petunia]

Dec 27, 2014 17:51:12 GMT -5 Amateur Genealogist said:

Dec 27, 2014 17:08:50 GMT -5 oped said:

Does mortgage include taxes and insurance? 
Do you have life insurance? 

Thats a lot for gifts and home decor.. I'd severely cut those back for now and drop satellite. I'd also see what I can trim from other categories. 

I would do 2nd mortgage first. 

Yes, 1711 is the PITI. 

We do have life insurance.  I listed it in the budget. 

The home decor budget was last summer's project - we did some landscaping around the house, put up more closet shelving, and curtains in a few rooms that didn't have them. 

Does that mean you're paying them off, or that you're replenishing the savings account?

And welcome.

[Deleted]

Your husband want to quit job to do hobby for career, then immediate take 50% of his earnings and pay first the 2nd mortgage down until it is gone. Shooby comments all agreed.  You need to cut alot and get rid of debts for husband to quit day job to do hobby instead. Keep books on hobby to get real picture of cost, time, income. Good Luck for changes to budget and life objective!

[Amateur Genealogist]

Dec 27, 2014 17:48:40 GMT -5 giramomma said:

I would also do things like further break out groceries and household supplies, as well as the misc account.

$100/lunch for school lunch is pretty expensive. We allow our kids 3-4 hot lunches a month. The rest of the time, they pack it. My older two are 10 and 7. My 2 year old, desperate to be like her older siblings, also packs her lunch to eat after preschool.

I might suggest making changes that will be automatically withdrawn from your paycheck/accounts immediately. Ie, raise your retirement contributions and I would pay extra on the 2nd mortgage. Make it an auto withdrawal. That will force you to live on less, KWIM?

That said, Dh and I do not pay 15% towards our retirement on top of our pension contributions. Though, I'm only expecting that my pension will provide 25%-30% of our income in retirement. Depending on when we retire, we'll also have passive income, SS, and earned income.

KWIM? 

My pension is pretty generous - should cover 80% of our income in retirement.  I think that's my problem - I'm counting on it too much.

[Artemis Windsong]

The big red flag to me is DH leaving a stable, good paying job for ebay sales.  That business is fickle and can dry up real fast.  It is okay for a second job.  Until this budget is controlled, he needs to maintain. 

Also, what other type of work could he do? 

I would suggest carrying your lunch, also, for those times like after shopping.  Figure out what you can carry that will not spoil like fruit cups and nuts or snack bars.

Buy frozen pizzas.  They are about 1/3 or less the cost of delivered.  A better choice would be a large stir fry, which doesn't take that long.

Clothing costs could be reduced by buying 2nd hand.  If it's for the kids, they would never know if you bring it home and put it in the closet.

These a just suggestions.  Best wishes on cutting back.

[NoNamePerson]

Dec 27, 2014 18:11:11 GMT -5 Amateur Genealogist said:

Dec 27, 2014 17:48:40 GMT -5 giramomma said:

25

KWIM? 

My pension is pretty generous - should cover 80% of our income in retirement.  I think that's my problem - I'm counting on it too much.

Are you saying that you are counting on your pension to cover retirement. Is he contributing to retirement fund or anything for retirement. Are you going to be OK with that down the road? Do you know what he has spent/made on his side Ebay business?

[Amateur Genealogist]

Dec 27, 2014 17:56:12 GMT -5 Plain Old Petunia said:

Dec 27, 2014 17:51:12 GMT -5 Amateur Genealogist said:

Yes, 1711 is the PITI. 

We do have life insurance.  I listed it in the budget. 

The home decor budget was last summer's project - we did some landscaping around the house, put up more closet shelving, and curtains in a few rooms that didn't have them. 

Does that mean you're paying them off, or that you're replenishing the savings account?

And welcome.

The budget was the average cost/month for 2014.  I paid for those projects as we did them.  I expect I'll always have something to do around the house, but I'm sure hoping it's not that expensive this year. 

 

[giramomma]

Dec 27, 2014 18:11:11 GMT -5 Amateur Genealogist said:

Dec 27, 2014 17:48:40 GMT -5 giramomma said:

I would also do things like further break out groceries and household supplies, as well as the misc account.

$100/lunch for school lunch is pretty expensive. We allow our kids 3-4 hot lunches a month. The rest of the time, they pack it. My older two are 10 and 7. My 2 year old, desperate to be like her older siblings, also packs her lunch to eat after preschool.

I might suggest making changes that will be automatically withdrawn from your paycheck/accounts immediately. Ie, raise your retirement contributions and I would pay extra on the 2nd mortgage. Make it an auto withdrawal. That will force you to live on less, KWIM?

That said, Dh and I do not pay 15% towards our retirement on top of our pension contributions. Though, I'm only expecting that my pension will provide 25%-30% of our income in retirement. Depending on when we retire, we'll also have passive income, SS, and earned income.

KWIM? 

My pension is pretty generous - should cover 80% of our income in retirement.  I think that's my problem - I'm counting on it too much.

Know What I Mean..

Well, if you are counting on it too much, then you need to increase your contributions.

Another thing you could do. How about you and DH agree that all his eBay business income goes to pay down the second mortgage, in addition to the cuts you make to your budget?

Your husband is in a tough position. I'd try to work with him to set up some goals so that he can go part time and work his eBay gig. Like: 8 months EF, 2nd mortgage paid off, and a percentage towards retirement that will get you more "on track."

[Amateur Genealogist]

Dec 27, 2014 18:21:29 GMT -5 NoNamePerson said:

Dec 27, 2014 18:11:11 GMT -5 Amateur Genealogist said:

KWIM? 

My pension is pretty generous - should cover 80% of our income in retirement.  I think that's my problem - I'm counting on it too much.

Are you saying that you are counting on your pension to cover retirement. Is he contributing to retirement fund or anything for retirement. Are you going to be OK with that down the road? Do you know what he has spent/made on his side Ebay business?

He contributes $200/month to his 401(k) and that's included in our budget figures.  That's another thing we have to factor in for him to quit.  He's been averaging $20/hour on eBay.  That includes his shopping/listing time.  There's been a big learning curve, so I expect that hourly rate to improve as he gets more efficient with listings.  I'm admittedly very nervous about him leaving his day job, which is another reason I posted here.  I know I'm not transparent on the anonymous internet, but it sortof feels like I am by sharing my budget anyway.  I'm hoping it will force me to tighten my belt more.

[Amateur Genealogist]

Dec 27, 2014 18:35:54 GMT -5 giramomma said:

Dec 27, 2014 18:11:11 GMT -5 Amateur Genealogist said:

KWIM? 

My pension is pretty generous - should cover 80% of our income in retirement.  I think that's my problem - I'm counting on it too much.

Know What I Mean..

Well, if you are counting on it too much, then you need to increase your contributions.

Another thing you could do. How about you and DH agree that all his eBay business income goes to pay down the second mortgage, in addition to the cuts you make to your budget?

Your husband is in a tough position. I'd try to work with him to set up some goals so that he can go part time and work his eBay gig. Like: 8 months EF, 2nd mortgage paid off, and a percentage towards retirement that will get you more "on track."

He's pretty hard headed.  He's made up his mind that this is what he's going to do, and he's pretty firm on his timeline.  He's an "all in" kindof a guy.  He's extremely passionate and sometimes has a little difficulty seeing the forest through the trees.  I like the idea of setting a goal and when that's met, he's good to go.  Selling him on that will be tough!   

[Amateur Genealogist]

Dec 27, 2014 17:32:02 GMT -5 Tiny said:

Just general questions/thoughts on the mortgages - especially since it sounds like you are about 7/8 years into them:
Are property values recovering in your area? To loose 30% during the crash - was bad but not so bad. What kind of 'refi' are you trying to do? just a refi of the 2nd mortgage OR trying to combine the two into a new primary mortgage? The banks MIGHT be more interested in giving you a new bigger first mortgage (rather than re-fi the smaller amount). Interest rates are still pretty good.


I'd also suggest keeping an eye out on what you want your life to be like in 3 years/5 years/10 years when making financial decisions now. Especially, when you have to 'tighten your belt'. Some of the things you are currently spending money on may seem High Priority from a 'small picture' view - and very insignificant from a 'big picture' view. That's the spending you can cut or that you can put off.

We were willing to do any kind of refi.  We were able to refi the first during the second round of HARP loans a couple years back, but nobody was willing to combine the second with it.  Property values are recovering slowly, but not great. 

[Deleted]

Well, start sending all his income to debt now then, and design a new budget on what you earn only. It will take some cutting, but it's what's needed if his deadline and plan are firm.

[phil5185]

I was going to call you on that $229/m for eating out - but then I realized that we (a retired couple) spend more than that on breakfast - we get up early and head out nearly every morning.

I can't see much wrong with that budget - very detailed and reasonable - you're supposed to enjoy your daily routine, not punish yourselves.
I would quit funding the EF, $5000 is about what we keep.  A $5000 EF covers a new Water heater, DW, W/D, AC unit, auto trans on a car, the deductibles in case of illness/accident.  The thing that is not covered is prolonged (6 months or more) unemployment for both earners. And I would not set aside that much 'dead money' in an EF, instead that kind of event means cashing out a 401k, selling a house, etc. Fortunately, the odds of dual & simultaneous unemployment are very remote.

The $4800/yr going into the 401k is great, the key is to keep it working at 11%/yr.

I would keep the car loan and SL. And be patient with the mortgages, you have about a $200k first w/ a HARM rate plus the $37k with the nasty rate. And a good goal would be to refi into a single 30 yr loan at a low fixed rate that is a 30-yr 'keeper'. In 3 or 4 years that $250k house could easily be a $300k house - and then start trolling for a single $250k 30 yr.

And I would allocate the extra income stream to things that earn 11%/yr - ie, put your money to it's 'highest and best use' (rather than prepaying debt). You could direct some into a Roth, some into a taxable account, and some more into the 401k - it doesn't matter how you split them as long as they are all 11%/yr investments.

Our house is made out of insulated concrete forms

I watched one of those going up in North Iowa a few years ago, looks like a great concept. Lots of thermal capacity, should last a jillion yrs.

[Shooby]

If he quits hus job how will that affect his health insurance? That will be an added expense.
Also eating out isn't always a problem. Get takeout. Dont buy drinks and dessert , etc. Pick it up and bring it home to eat.

[zibazinski]

Isn't it great when someone can just quit their job because they don't like it? It floors me when I read things like this

[TheHaitian]

How much saving do you have? How long would your husband expect this business to replace 100% his current income?

[TheHaitian]

Dec 28, 2014 7:52:51 GMT -5 zibazinski said:

Isn't it great when someone can just quit their job because they don't like it? It floors me when I read things like this

People do it all the time Zib, it's nothing new

[NoNamePerson]

Dec 28, 2014 7:52:51 GMT -5 zibazinski said:

Isn't it great when someone can just quit their job because they don't like it? It floors me when I read things like this

It's a lot easier when you have someone to willing to take up the slack and most of the financial responsibility.

[TheHaitian]

Dec 27, 2014 18:46:05 GMT -5 oped said:

Well, start sending all his income to debt now then, and design a new budget on what you earn only. It will take some cutting, but it's what's needed if his deadline and plan are firm.

I have to agree with oped... If your husband is going into business for himself best to assume his income will be near zero the first couple of years.

So you need to re-align your household spending to fit under your income. Easier said if you are the breadwinner, harder if he is the breadwinner.

(Ex: easier for us to cut back if my wife decide to go into business for herself 40k - vs me going into business for myself 80k+bonus).

I hope in your case you are the main breadwinner. And stop using your pension as an excuse or you will save nothing outside of that pension. But I am bias, I have no faith in pensions...