Reader Profile: JB

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader JB. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 27-year-old with a live-in girlfriend in a small city in the Northeast US.  I am an engineer for a very well known and established industrial company after graduating in 2007 with my bachelors in mechanical engineering.  It took me a little longer to graduate (5 years) than the typical undergrad due to a difficult major and working part-time while in school.  My girlfriend is 25 and works in the design industry after graduating in 2008.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

As stated above, I live with my girlfriend in a small apartment in a small city.  We both work full-time in our respective fields.  Our compensation is commensurate with our professional experience, but we have both gotten raises/increases lately.  We live close to the center of our city, which is great for a young couple - but we do pay for it.  Our rent is $1500/mo, not including utilities of approximately another $250/mo that includes heat, hot water, electricity, and cable/internet with DVR.  We each have a car and pay $150/mo. total for parking.  Her car is paid off and does not cost much to fuel or insure.  My car has approximately $6K left on it's loan (at 7.8%) and is only 4 years old with 90K on the odometer.  We both have cell phones that we pay for independently.  We both also have student loans that we pay each month.  Mine have gone down by 1/3 since graduation and the balance is about $19K.  I'm not sure what her balance is.

I put 7% of my pay into my fully-vested 401K, which is matched at 50%.  I have a small emergency fund at around $1200 right now.  I also purchase my company's stock through an ESPP which currently holds a balance of approximately $4K and pays a regular quarterly dividend.  My girlfriend contributes to her 401K as well, the exact % I don't recall.  She is not vested in her account for another couple of years due to her just joining the company about a year and a half ago. 

I have 2 credit cards - each with a balance (I know, I know - pay them off...).  My girlfriend carries a small balance right now and will be paid off shortly after the new year.

We both also have HSA accounts to pay for medical/dental expenses.  My company makes a small monthly contribution to my HSA as well.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Our current financial issues are basically paying down debt.  I have some credit card debt that I have been trying to pay off for about a year now.  It goes in spurts and just when I seem to be making progress, the balance goes back up.  My first and foremost goal is to eliminate credit card debt as soon as possible.  My car will be paid off next November - which will be a huge win for me.  The only thing left beyond that is student loans.  Mine are on a graduated repayment term, with payments increasing in size every 2 years.  Of the original $30K balance, only $19K is left after 4 years due to always paying extra on the lower payments at the start of the loans.  I also have a very low interest rate of 2.47% variable on 4 of the 5 loans and 6.8% on the 5th.  My girlfriend has a sizeable amount of loans due to attending a private college.  She pays $250/mo. and will be paying that for some time.  She has no other debts aside from that.

I am also trying to increase the size of my emergency fund.  Currently at $1200, this is not even 1 month's rent.  I would like to increase this to approximately $2K in the short term.  Beyond that, the credit card balances have to go.  I was irresponsible in my younger years in college with the cards, and have been paying for it ever since.  I'm tired of making these payments, and strive to get rid of them - this is my #1 priority for 2012.  The combined balance is about $4K.  I always take advantage of asking for lower rates or balance transfers to help mitigate high interest rates.

What are your plans for the future (retire early, build your career, etc.)?

Aside from debt repayment as outlined above, I would really like to focus on where we go as a couple from here.  We've been dating for almost 2 years now, living together for the past 14 months.  The relationship prior to moving in together was a relatively long-distance one that quickly wore out it's welcome.  We would like to eventually get married (right now that falls on me - saving up for a ring...), which I am thinking of using my company stock holdings to pay for.  I think it would be a longer engagement, somewhere on the order of 12-18 months, which would give us enough time to get our financial house in order.

I have also been toying with the idea of going back for my Master's degree.  My company will pay a maximum of $5K per year as reimbursement for continuing education.  The only stipulation is that I need to work there for another 3 years after I obtain the degree.  The rest is up to me.  I am looking at about 26-28 credits for an MS in an engineering field.  I am thinking of only taking 1 class per semester because I'm in no rush and can most likely pay for any additional tuition expenses out-of-pocket.  I do not want to take on any more student loans. 

Finally, my other goal for 2012 is to set up a Roth IRA.  I have a targeted savings account for any extra "earnings" I come into (usually dividends from my company stock, cash from relatives, any income outside of my paycheck) that I plan to use to open this account once the balance reaches $1,000.  Currently it's at $300.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

My biggest piece of advice is to avoid debt - because it really sucks to have to turn over your hard-earned cash to someone else for something you don't even remember and probably didn't need.  My other piece of advice is to keep a budget.  I get paid monthly and without a written budget it is very difficult to know exactly where all my money goes.  Finally, spend less than you earn.  Whatever is leftover in my checking account at the end of the month goes directly towards saving or debt repayment.  Without that buffer, I would have been screwed on more than one occasion.

Comments

[Mike Hunt]

Hi JB,

If you don't mind me asking, what are your salaries approximately? Does your GF pay any rent?

Salary raises help but I wanted to see your income numbers before offering any advice on how too pay down debt faster.

Regards,

Mike

[Money for College Pro]

Avoiding debt is certainly a killer goal. Sounds like you are off to a good start though!

[Rich Uncle EL]

It seems like your credit cards are making your life very stressful, my advice is for you is to pay them off using the company stock options of 4K which is the same amount of debt you owe. Then you can build the stock account back up faster and save up for the ring by applying the same amount of the credit card payment to a ring fund. In about 6 months you should have a good amount saved up to apply towards the ring. You will need about 4-6 Thousand for a decent ring. Emotionally you will feel much better getting rid of the credit card debt before buying an expensive ring. Beleive me.

[tom]

Thanks for sharing, JB.

Regarding your Masters... your company will only pay $5K per year? Seems really low. Many engineering schools charge up to $5K per class, especially if you opt to do it online.

I would double check on the reimbursement, especially if your company is well known and established in the industrial field.

[Josh]

My income is around the $60K mark and hers is around $49K.

[Keith]

I wouldn't let the cost of a ring or getting the "right" ring get in the way of getting married. I would move ahead and make it official. It has only benefited me (financially, emotionally).

[TA]

Don't fall into the trap of thinking that a ring (or wedding for that matter) needs to cost a boatload.

4-6 thousand for a "decent ring" is totally bogus. You know your girlfriend and your situation better than anyone, do what feels right to you, not society.

[Dee]

It seems like the first thing you need to do is start tracking your spending. On the surface, it seems like you should have much more money than you do so money is bleeding out somewhere.

[brooklyn money]

You might want to try Mint.com if you haven't already. It will really show you where your money is going, and you can set up a budget using it.

[JJ]

You may consider trying to get a refinance on that car if your credit permits that. I did that about a year ago on a car I used to own. I went from 7.8% to 1.99%. I owed much more (~$25k) but it saved me about $20/month and shortened the loan by 12 months. Absolutely worth it. What I've come to realize is that its not cutting one big thing out. Its cutting multiple things by just a little that helps you save money while maintain your quality of life.

[Luis]

How much money is left each month after expenses paid and what are they?

[Easychange]

Josh, thanks for sharing. I also work in a small northeast city. It is certainly expensive and you don't talk much about lifestyle. Do you eat out a lot? I know I did when I was in my 20s. Dunkin donuts in the morning? These small things add up.

The real point is this: my grandfather gave me this advice when it comes to saving/paying off debt. If you use what's left to save, there's usually nothing left. So pay yourself first! But what you're doing is hard to change. So start by committing to just a 50 or 100 dollar extra payment. Send it in separately, immediately after you are paid. Then pay the bill on time as you have been. Then, at the end if you have extra, great, use that too. But if you run out, you know you at least did 50 or 100. Then increase the amount over time, especially with raises.

Good luck!

[Mike Hunt]

Hi Josh,

I think you should be able to retire your debt in 1-2 years with a good focus on using all savings to pay down debt, and then be able to build an emergency fund in 6 months.

Keep focusing on securing raises in your job.

I don't know the market where you live, but could find something much cheaper for rent + parking, that could help improve cash flow more.

-Mike

[Alex Morgan]

Agree with the others to not focus on the ring so much. Also not to worry about getting your "financial house in order" prior to marriage as you put it. I definitely agree with sitting down together and going over budget and goals. But a wedding should not be a significant cost.

Tackle the credit card debt first. Then start putting extra towards your car. Two years to pay of $6k of car loan debt seems kind of a long time on an engineer's salary.

Be sure that getting the engineer master's will pay off (don't go to an online school like someone above mentioned). Do people in high up positions at your company have master's degrees? Did people who got their degrees while working there actually see a salary bump as a result? Oftentimes in many industries an engineer can make up in a few years of experience for the supposed "salary bump" of a master's. You might be better off waiting and get an MBA sometime later and going into management (again assuming you know you're at a place or going to a place where the MBA will pay off). Don't get a degree just to tick it off your bucket list.