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.
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.
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 sun! It has been shining! I have had so much more energy, I feel like I am constantly rushing from one activity to the next. In quick digestible bites, this is what has been going on
The House Situation: We still haven’t found a house. I am probably going to feel the need to report that each month until we get back from our Big China Trip ™ sometime in 2011 when I will begin knocking on doors and bribing people to move out so I can have their houses. I am antsy for a new house. I am tired of the brown living room in this rental house. I am tired of the annoying housing market in our town which has a lot of houses <$250,000 and >$400,000 but absolutely NONE in our desired neighborhood in our price range which is currently $250,000-$350,000.
Is that too much financial information for polite company? Honestly, I don’t care if you know how much we spend on our house. All of you on the coasts are currently shaking your heads at the insanely low cost of living here, I know. People around here who know how cheap new big fancy houses cost are wondering why the heck anyone would spend half a million dollars on a house. If we wanted to leave our lovely little walkable suburb, we could have a house tomorrow. Alas, we don’t want to leave it so we will wait here in this small house with very BROWN walls in the living room. I am so over those brown walls.
The Money Situation: We finally started trying to use only cash for groceries and weekend eating out the last two weeks. It was much harder than I had anticipated. We budgeted $120 for groceries and $60 for eating out and we spent every last dime. Actually, Mr. A spent about $2.00 more on groceries because he forgot about the cash and bought himself a bag of tortilla chips when he went to buy his weekend 2 liter of Coke Zero. (Seriously, if you cut him open, I think instead of blood he has coke zero in his veins). He got a big lecture from me.
I think this week was especially hard because our grocery stockpile was especially low and I had to visit the regular grocery, the Chinese grocery (because horror of horrors we were almost out of rice!!), and Trader Joe’s (to stock up on soy milk for L). The budget meant I was severely restricted on buying unnecessary convenience items like frozen steamed buns and the ridiculously overpriced grapes L loves. (Seriously, why are grapes $.89 one week and $1.99 the next? Can’t we meet in the middle so L can have her grape fix every week??) By the end of the week, the pickings were slim and undesirable. We were so low on other fresh fruit and easy snack items so I had to resort to feeding L croutons for a snack. I also think we ate rice and egg three times in three days (breakfast, lunch or dinner on different days). We all really love rice and egg, but some variety would be nice. Don’t get me wrong, we had food in the house, it just wasn’t anything that sounded very appetizing or that we wanted to take the time to prepare.
This week, I found myself shopping more like I did during my Food Challenge of 2009. I went for items where we could get more for the money like buy one get one free bags of apples $3.49 for 6 pounds). Normally, I would have wanted to mix and match several different kinds of apples but the unbagged kind cost $1.49 a pound and that sounded very expensive when I actually had to pay attention to what I was spending.
One more thing I learned is I don’t have a problem adding up the groceries in my head as I go through the store, but it is almost impossible for me to remember the total for more than 30 seconds. I don’t know what that says about my brain, but the next time I am going to have to bring some paper.
I was going to update on some other stuff, but this ended up longer than I expected. Who knew I had so much to say about groceries?
This week has been rough. I hope we never have another year in which M’s birthday, Valentines day and Chinese New Year are in the same week. Add two snow days to the mix and I am one worn out mama.
But let’s get down to business anyway. This week Mr. A and I started our Dave Ramsey online classes. As we watched the first video, the differences between Mr. A and myself could not have been more obvious. Mr. A* sat up straight in his chair and attentively filled in all the dumb blanks in the workbook. I, on the other hand, played with the IPOD, posted on Twitter and fidgeted in my chair. (The only other class I can remember taking was a swing dancing class oh so many years ago. Mr. A took notes in that class too…NERD.)
We have watched three videos and so far, we are pretty familiar with the material that has been covered (use cash, don’t use credit, have an emergency fund that is never used). Even though we know that the principles are right, both Mr. A and I have balked a little at the implementation.
We are people who use our credit card for almost EVERY SINGLE PURCHASE we make. This has worked for us, because it lets us track all our expenses. We pay the card off in full pretty much every month too. We don’t carry a balance. Mr. A particularly likes the points we get for our card which put money into my retirement account.
In other ways, though, using the card for everything doesn’t work for us. We admit that the credit card allows us to cheat on our budget. Our worst areas for cheating are groceries and restaurants. In theory, we have a $50 a week family restaurant budget, but one good sushi dinner or dim sum brunch blows through that without a second thought. We also are susceptible to the slippery slope of lunches out. Both Mr. A and I are supposed to get $10 a week, but we regularly go over that too (especially Mr. A with business lunches). And Target? Target is like a money black hole. Can anyone get out of there spending less than $100?? (Obviously, a lot of people can, but *I* have a hard time doing it on a regular basis.)
One of the first baby steps in the Dave Ramsey program is to create Basic Quickie Budget. I am assuming this will be used soon to figure out our 3-6 months of living expenses for our emergency fund, but for now it was just a good tool to get our conversation started.
You know me, always willing to share a little TMI, so I am going to post our Quickie Budget here (with Mr. A’s permission). This isn’t what we spend every month, but it is a pretty good approximation of what we think will be an average month without cutting back.
If TMI makes you uncomfortable, look away now. Also, please refrain from criticizing our line items. I know there is a lot of fat that can be trimmed from this budget, but we are trying to get a good starting point to work from.
AmFam and Mr. AmFam’s Quickie Monthly Budget
School Loan Debt $ 667
Rent $1100
Utilities
- Electric $ 131
- Water $ 40
- Gas $ 91
- Cellphone $ 116
- Cable** $ 135
Food
- Groceries $ 495
- M’s school lunches $ 40
- Mr. A’s work lunches $ 80
- AmFam’s lunches $ 60
- Restaurants $ 250
Transportation
- Gas & Oil $ 175
- Repairs & Tires $ 200
- Car Insurance $ 115
Shopping
- Clothing $ 200
- Target $ 200
Other
- Life Insurance $ 75
- Preschool Tuition $ 135
- Entertainment $ 120
- Chinese lessons $ 120
- Other lessons $ 40
- Medical*** $ 400
Minimum Total Monthly EXPENSES: $4,985
I know, I know. OMG, we spend so effing much MONEY. And this would be our beginner GOAL budget. Sometimes we spend even MORE. GACK! It stresses me out just looking at this list.
After we worked out our budget last night, Mr. A and I decided we are going to begin the transition to using cash for the items we know we cheat on: Groceries, Lunches, Restaurants, Target, and Entertainment. We are going to make the transition a little at a time, though, because we usually budget Mr. A’s paychecks to pay these bills after the fact rather than pulling the cash out before hand.
To get a little more cash on hand, we are going to start out with a month of radical no-spending. I usually do that every January and June, but we didn’t do it last month because of the move.
So there it is. Our beginning point. We want to get started staying on a regular budget before we start cutting things out and feeling deprived. Getting used to cash is going to be HARD. I never, ever have cash on hand. Not even a few dollars.
I know this will be good for us, even if it is challenging at first. It is in my nature to be a money hoarder, but it is easy to ignore those impulses when the plastic is so readily available and I rarely see the final bill (because Mr. A handles that end of our finances).
Here we go.
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*who I must admit is more than a little skeptical that he can learn anything from Dave Ramsey
**Cable/internet/landline/tivo
*** L’s beautiful but very expensive eyes.
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