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July 13, 2012

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Congrats on making the transition in your thinking. That's a huge step for anyone. I can see a bit of room to accelerate your progress on unloading the debt, but I feel like your pursuit of more on finance will lead you to those items in short order.

I don't see anything on charitable giving (other than 'gifts' in your $1000 monthly slush funds, which I assume to be birthday, Christmas, etc.).. Consider planning to include giving as part of your routine. It is one of the most rewarding aspects of living a financially sound life.

111/mo for a gym, in my opinion, may be a little much. My GF will spend 10$/visit for hot yoga, so I understand how the price can get up there, but I paid a year up front at 9$ a month. It's a local gym that I believe used to be a Gold's. Sure it's not bright and shiny new, but it furthers my goals both in fitness and in saving.

However you surely already know that you can't put a price on health, so definitely do what works for you.

It sounds like you've made a quick turn around from being in debt to very proactive saving. Congratulations! When you were in a larger amount of debt, how did you cut back spending? Did that come from decreasing the "other" spending on food, clothes, and hobbies and what did you have to cut out?

Keep up the good work. Making a lifestyle change is really serious work and having a splurging account is always good (believe me, I golf too).

I see you want to start a family. Will there be someone at home taking care of the younglings? If that is the case, your income may be different than what you expect. I'm sure you won't regret the decision, as it will bring great joy to your life but the financial implications of starting a family is not something to take lightly.

Moving and renting out your current home is a great way to get started in the rental business. Your debt load is pretty high so I wouldn't buy a huge expensive house. A kid can be very expensive so make sure you crank some numbers and you'll know what to expect. Daycare is very expensive.
Good luck!

@Bruin - we give $500 annually to a local children's hospital. We both volunteer as well since. Our donations will increase will time.

@Adamn - I knew the gym would be mentioned. We put alot of emphasis on fitness and the $9 gyms don't cut it for me. We pay a little more for location and it's worth it when it comes to compliance.

@Mac - My biggest fault before transitioning was not being automated. Extra money in the checking account would get spent. Now with all savings and extra payments automated, there is no extra to spend. I also doubled all retirement contributions.

Some notes. You have major student debt @ $600/month at 84K total payments for life of loan. Your wife's loan will increase your monthly expenses another $500 for 10 years and you are looking at 60k total payments for the life of the loan.

I do not think you should add more debt by taking on two mortgages. You may like the idea of rental over taxable investments but just realize for a moment that with investments you at least are contributing without adding to your debt compared with a rental. You'd have to wait one year to get your emergency fund to where you need it and you do not have a home fund for a down payment. You are back to paying PMI and alast, renting to college students is hard work especially for a fledgling family.

Consider budgeting your "slush" fund even further. In my view, you have not completely purged those bad spending habits. Splurge is not in a financially sound person's dictionary. Try to run a budget as if you already have a child and include those would-be expenses. Find ways of slashing your discretionary expenses, examples include grooming and bathing the pet(s) yourselves, reducing golf outings/shopping (you need to get a little taste of whats to come BEFORE you have kids).

Throw more money at your debts (mortgage and student loans) so that you are more secure finacially and responsible for your child's needs (diapers, food, daycare, life insurance, college fund, extracurricular activities, etc).

Tracking your net worth is a great motivational tool. Student loans are a bummer but I am glad you guys decided to dig yourself out! Would be cool to see a follow up in a couple years to see how you are doing.

I agree with Luis that $1,000/month per person for discretionary is quite a lot.

You're also looking at $1,100/month between the two of you for student loans, which is basically the equivalent of your PITI & PMI and a LOT. I would be worried about acquiring a rental property when you already are so highly leveraged. With a rental property, you would probably require 20-30% down and 6 months of cash reserves to cover the property in case of vacancy.

I don't think that $111/month for the gym is that bad though, assuming that you're using it enough that that is more cost effective than the drop-in costs. If I add up all of my sports costs (some monthly, some yearly, some random), it averages out to about $130/month.

Before you start having kids, I would also make sure you're living on less than one income since you never know if one of you will have to or really want to stop working after you have kids. If you're currently saving 49% of your take home pay, you're not there yet.

MS- good job on your saving. Health is the first wealth and you stated the crux point- if the extra $ really and truly helps compliance with a fitness routine then it is priceless.
A very close acquaintance works in student conduct at a 20k+ population university. Granted, I only indirectly hear about the "bad apples" but I would not do collegiate housing without the home being via a separate LLC and a minimum of $2million umbrella liability. One drunken party...a fire...accusations of poor smoke alarms...or a fall out the window...and the lawyers want you to pay for 30plus years of nursing home care. Black swan events are rare but they are the ones that destroy you. I would lean toward renting out your current home as mentioned above in lieu of the student housing. There are no risk free rentals but I wanted to outline the dark side of an area where many people think, "Oh, mommy and daddy will always foot the bill for the kiddie condo.." Gran Torino

You should consider making a one-time principal payment on your mortgage to get rid of PMI. Since you say you are paying about $277 per month extra to get rid of PMI in 18 months, I'll assume that it would cost you just under $5000 to get rid of it today. In addition to getting you that much closer to owning your home and saving you on interest for years, this also puts $60 every month back into your pocket instantly. That $60 was a pure expense. Plus I bet a $5000 payment today takes about two years off the end of your mortgage. I know it would saddle you with a pretty small emergency fund, but you have two incomes, and you say you are in a stable field so your risk is much lower than most.

And you say you put $400 per week into your emergency fund, so that's $2000 per month, meaning you'll make back that $5000 in two and a half months time. And if/when your wife's salary goes up in a few months, you'll be able to rebuild it even faster. I'd say it's a worthwhile thing to do.

On the expenses, $83 per month for a satellite dish? Egads, man. Do you have every premium channel under the sun? If it was me, I would look to reduce that right away - that seems like low hanging fruit. I also agree that $100+ per month for a gym is excessive, I would challenge you to evaluate what you get at that expensive gym that you could not get at a cheaper gym.

Lastly, your single biggest expense every month should not be some beast called "Other". I would break down that $2000 "Other" monster into definable categories. And I agree with the people who have already said that this seems excessive for two people in their 20's. Break this down into needs like groceries, clothing, household necessities, etc versus wants, and I guarantee you will see some savings opportunities. I would set a goal to fund your wife's $500 per month student loan out of savings that you find from this exercise.

Best wishes
Brad

Leigh made an excellent point. You both may think you will want to work after you have a baby, but that may very well change the first time you hold your child. I would also urge you to firmly buget the remaining $2,000 and use some of that to knock out at least some of the student loan debt before baby comes.

"I’ve been diligent regarding personal finance for about 18 months... Before that we were spenders, not savers, and were digging ourselves a hole."

Please don't lie to yourselves. You're actually planning to take TWELVE YEARS to pay off your student debt!? Your take-home is $7.5k and you're gonna put $1100 a month against debt? Give your head a SHAKE. You can't get rid of all that $100k+ of student debt through bankruptcy if you experienced a job loss, and the interest rate COULD go wayyyyy up.

$83+$63+$37+$111+$50+$8 in completely gratuitous spending. REDUCE and/or CANCEL some of those bills.

BTW, $90 a month for electricity is ridiculous. Start conserving once-in-a-while. Replace your lightbulbs with CFL.

Oh, I forgot about your TWO THOUSAND DOLLARS in "other" spending -- food, clothes, pet care, hobbies, grooming, household needs, travel, gifts, entertainment, etc. Glad you guys still get out for golf and shopping, but contrary to what you say, you ARE overspending. Medicating yourselves with retail therapy is NOT solving the problem. Who BLOWS $80 a DAY on luxuries EACH?? Ridiculous.


Don't ask me. Call Dave Ramsey and ask what he thinks of your commitment-level. If you're going to name drop him, at least have some respect for what he teaches.

I think Joe's post was a little harsh...but I do think $2k in discretionary spending is way too much, especially for the Midwest, where the cost of living is pretty moderate. Yes, even if that includes groceries, I bet you could spend $1k per month and still have some fat in your budget. That extra 1k per month toward a combination of savings/debt repayment will buy a lot more peace of mind and satisfaction than "stuff".

It sounds like you've made a significant mindset change...but you're not all the way there yet.

GREAT job in getting this far with the right mind-set.

Reducing loans, and mortgage down to zero would be the first goal, and then it would be savings. The way the borrowing formula is setup on mortgages, it is a VERY unfair system, and refinancing over and over saves a small sum, but also reduces the amount of principal in the payment. Hence, reducing the borrowing down to zero is a STRONG and BETTER goal than borrowing more and investing it for higher written.

The only comment I have to make is that with 130K income the student loan debt can and should be paid off a little faster. The longer you take to pay it down the more money you will fork over to the government or whoever holds your loans.

I think you are looking at your budget all wrong.

You basically lump the majority of your spending ($2000) into "Other". You will have little visibility and hence find it difficult to control that entire section. I think you need to separate out those categories, in particular hobbies, travel, gifts and entertainment, which are all very discretionary.

Also - if you and your wife keep your grocery spending separate after 5 years of marriage, then it seems to me you have some more fundamental issues with money management.

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