Money « American Family

The Motherfluffing School Debt

Still going slightly out of order…

Angie asks:

You’ve talked many times about your school debt. Now with hindsight, is there another you would have/could have paid for college and grad school? And do you plan to pay all of the college expenses for you girls? How are you working toward this? Good thing you don’t mind talking about your finances!

Just for you, my darling readers, I went and looked up exactly how much Mr. A and I owe in school debt right now. I hope you appreciate it, because now I am having an anxiety attack about debt. I hate debt. I hate it, I hate it, I hate it.

Right now, this is the state of our grad school loans:

My Grad School debt: $15,221

Mr. A’s Law School debt: $54,573

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Combined (oh my effing gosh): $69,794

So about 10 years after Mr. A graduated from law school and 7 years after I finished grad school, we still owe about 70 grand. Sadly, this is much less than we originally owed. I think Mr. A got out of school with $120k and I think I owed about $33k (several thousand of which was borrowed to cover the rent while Mr. A went on his big bike trip….dumb, dumb, dumb.) The really good news about this debt is that it is all government loans and the interest rates are super low ( I think around 5% for Mr. A and 2.7% for me). We pay $315 and $353 each month. At this rate, my loan would be gone in about 5 years and we will have Mr. A’s loan FOREVER. (The length of his loan repayment doesn’t bother me that much because if he ever dies, his loans evaporate so neither I nor his estate will be responsible for them.)

All those loans are for grad school and law school. Both Mr. A and I had full-ride + living expenses scholarships for our undergraduate degrees because we were National Merit Scholars. (We both had the same scholarship…does that mean we were meant to be?)

If I could go back in time and change things, I don’t know if I would have gone to grad school at all. If I had known I wasn’t going to work once I had kids, I probably would have waited and gone to grad school once they went to elementary school full-time. I didn’t have the slightest inkling I would quit work, so I made what I thought was a responsible decision at the time.

I probably still would go at some point because my degree has been an insurance policy that has always made it very easy for me to get a job. (My degree is a Masters in Nonprofit administration and there aren’t many of them around here, but I also recognize I have never had to job search in an economy like this one!) If anything happens to Mr. A or to my marriage, I am glad I have that degree to help me get my foot in the door at a job.

If I could, I would go back and try to borrow less money to pay for school. Maybe I would have asked my parents to kick in the money they didn’t spend on my undergraduate degree (they paid for 4 years at a state school for my sister and would have paid that amount for me if I hadn’t had a scholarship.) I might also have paid more money down each month (like an extra $50).

Mr. A’s degree was stupid expensive, but totally worth it. He went to a top-tier law school and did pretty well, so he has never had a problem finding a job and has always been paid pretty well for the work he does. I wish he had spent a little less time at “bar review” (aka drinking with other law students) with his loan money, but as an investment, his degree has really paid off.

We have made trade-offs on other financial goals that meant paying down our school loans faster has been put on the back burner. Since I was about 26 and Mr. A and I combined our money, I have always put the maximum amount in my 403B each year I worked. I think that is $13,000 a year, pre-tax. Mr. A maxes out his 401K at that amount too. My parents put $2,000 a year in a Roth for me when I was 20-25 too. I just checked our retirement accounts and it looks like we have a little over $150,000. With compounding interest and all that jazz, that should be a nice chunk of change if we keep adding to it. We are 34 and 37, so Mr. A still has about 30 good working years left in him. (I hope!)

If you measured the amount I hate debt and compared it to Mr. A’s obsession with retirement planning, it would be about equal, so we are always going back and forth about this issue. Because our loan interest rates are so low, I think we made the right choice saving for retirement while we pay them down. If we hadn’t had kids so soon after school (or lived in San FranFreakingExpensive before we had them), I think we would have paid them down sooner, though.

For the girls, we hope to be in a position ot fully pay for their undergraduate degrees. I expect that to cost about $200,000 in today’s money for each of them (i.e $200,000 plus inflation). We contribute $75 monthly to a 529 fund each month for each of them. My parents make generous contribution each year and most of their birthday gift money goes into those accounts. Right now, they have about $18,000 combined which would be enough for one kid to go to school for maybe one semester (depressing!). If they get scholarships or choose to go to a state school, I think we would give them the remaining money for graduate school. The same goes for learning a trade that would provide a good job skills and make them employable. That money is only allocated for education though. No fancy weddings or round the world trips funded by us.

I don’t expect the 529 money to reach $200,000 by the time they get to school. Hopefully, in 10-12 years when M heads off to college, Mr. A will be earning more money than he is earning now. If he doesn’t earn enough to fully pay for it out of pocket, I might be willing to get a part-time job (or even full time, the horror!) to pay the difference. Maybe.

I will admit this has been a difficult post to write honestly. I waffle between feeling A) OK about our financial choices and worrying that other people will feel annoyed that I am sharing them and B) worried that people who have more will think we should be doing much better given the amount of income we have.

Any way you want to look at it, Money=Stress.

House Selling and Saving

We had meeting to discuss L’s evaluation with the private Occupational Therapist tonight. I need a little time to process it, but if I forget to write about it in the next week or so, someone should remind me.

On with the question! JLP asks:

I believe you mentioned that you decided to sell your house and rent because you felt it was financially prudent. Could you explain further how that is helping you save money? I would love to save more, and it certainly the case that our mortgage is a big cost each month. However, I admit I am confused, as it seems that you are no longer building up equity. But maybe I am missing something? Is there a big disparity in your area between mortgage payments and rents for houses of comparable size?

I don’t seem to have that gene that makes people want to refrain from discussing their financial details publicly, so this may be way TMI. Also, it might be boring. You have been warned.

When we bought our house, we paid $225,000. We put down $22,500 as a down payment. We took out an 80/10/10 mortgage so we wouldn’t have to pay PMI. Each month our house payment (including taxes) was $1750. I think we spent about $10,000 on big repairs for the house (new furnace, new stove, refinishing hardwood floors, resurfacing bathtubs, semi-finishing the basement). We also spent who knows how much money on minor things like paint, mulch, landscaping etc. each year.

We sold the house for $233,000, but we had to do about $3,000 in repairs from the inspection, so we cleared about $230,000. Our house was at the upper limit of what houses sell for in our neighborhood and we don’t think we could have sold it for any more money even if we had waited a few years.

Basically, we still lost about $8,000 over what we put into the house, but because we sold it without using any realtors, we walked with all the rest of the down payment and the equity we had accumulated. We had accumulated more equity than most people would with a standard 30 year mortgage because we were paying down a home equity line of credit each month (one of the 10s in the 80/10/10). I think we had about $53,000 in equity when it was all said and done. We lived in the house for 5 years, so that means we gained about $30,000 in equity total or ($6,000 a year).

Our new rental house is a bit smaller, odder and not quite as good as our old house, but it is still a nice house. It is also in roughly the same neighborhood as our old house. Our rent is $1,100 a month. Each month we are now putting $700 directly into savings for the down payment on our next house. Each year, we will save $8,400 that way.

In itself, that isn’t a huge increase ($2,400) over the equity we were saving each year in our old house. Plus, we lose the tax benefits of home ownership. On the other hand, we will be saving a chunk of money on house maintenance and home owners insurance. Our house was about 60 years old and something was always breaking and requiring costly repairs. (I figure I have saved $200 just because we don’t have to buy mulch this spring! We had a LOT of landscaping to mulch.)

The biggest benefit of selling now and renting is the ability to buy the next house without worrying about selling our old house in a hurry. If we still owned our house and we found our dream house, we would have to get a bridge loan or do some other kind of fancy financing that makes me extremely uncomfortable. (I am notoriously financially conservative! Seriously, I used to have nightmares about that 80/10/10 mortgage.). We might have had to carry two mortgages for a number of months. We would also probably have had to list our house with a realtor to sell it quickly. Using realtors for both the buyer and the seller, it would have cost us about $14,000.

If we are really smart (and the perfect house doesn’t appear in our current price range in the next year or so), we will wait until Mr. A goes to his next job so we know exactly how much money we can safely spend on our dream house (He took a big pay cut for his current job).

Also, we hope to save up a full 20% down payment before we buy it. Hopefully, the next house won’t cost more than $400,000, so $80,000 should do the trick (+ closing costs, but I don’t want to think about them yet!). It would obviously take us more than a year to save that much. We have been throwing as much other money as we can spare into down payment savings too, but our recent run of crazy medical expenses has made that go a little slower than I had hoped.

I still think we made the right decision, even it it has been kind of a hassle.

Turn, Turn, Turn to questions

Spring has fully arrived. Or rather, Ohio seems to have skipped spring and gone to the very best parts of Summer. The weather has been absolutely beautiful here. Sorry coastal areas and small islands, if this is global warming, I have to say I want it to stay. I am willing to back that statement up with extra carbon emissions to make it happen.

With the return of sunshine, my mood has (quite predictably) improved a LOT. Unfortunately, that doesn’t mean I have much to write about. Everybody knows that angst and drama is largely the fuel that keeps blogs going. I have neither. I have literally been tiptoeing through the tulips with a smile on my face.

Maybe this is a good time to throw open the door for questions? No pressure. If you don’t have any questions for me, I will continue to enjoy the sunshine.

To get the ball rolling, someone asked in my comments how our Dave Ramsey financial planning stuff is going. We have kind of petered out on watching the courses online. We might get back to them or we might not. It was kind of annoying because we were already doing almost everything that was suggested (e.g. saving for retirement, building up an emergency fund, etc.)

The one big change we have made, though is switching some of our expenses to cash. Mostly groceries but also (sometimes) our restaurant budget. I do think we are saving some money this way. Don’t tell Mr. A, but I am siphoning off the left over cash each week for debt (school loan) reduction. Having the cash in hand makes it feel like there is more incentive to not splurge on random groceries. In the past month or so since I have switched to cash, I have never gone over budget either. I like the cash system, but I haven’t worked up to using it for more areas of our budget. I think that is a next step we need to work towards.

The only other financial news worth reporting is that I didn’t do my big spending hiatus yet. I meant to, but I wussed out. I am leaning toward trying to make May or June a very close to Zero-Spending month.

Ok, does anyone else have any suggestions for something I can talk about? Seriously, I got nothing over here.

The Motherfluffing School Debt

House Selling and Saving

Turn, Turn, Turn to questions

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