by Ashley
One of my new favorite things to do since signing my first full-time employment contract is to run numbers over and over again to determine our new debt-free date. š
As a side-note, I ran across an old notebook from last summer (August 2014) where Iād written projected debt-free dates and was slightly heartbroken to see Iād originally hoped to have my car loan paid in full by January 2015. Crusher! Still about 15 grand to go on that one (latest debt update here). But Iāll be hitting it hard once the paychecks start rolling in.
Regarding pay, however, things are still a bit up in the air.
A reader who works in HR commented a couple weeks ago to say that I probably need to receive official permission from my new job to continue working at my online teaching job. I really hadnāt thought anything of it because I know lots of professors who adjunct teach at a community college on the side of their full-time professor gig. But as this is my first full time position and I absolutely do not want ANYTHING to jeopardize it in any way, I called HR to be safe. At first I got a casual response, āI donāt see why that would be an issue but Iāve never had the question before. Iāll check with someone else and call you back.ā
So I go the rest of the day thinking Iām A-Okay until I get the call. Even though my part-time job can be completed at nights and on weekends, will not interfere in any way with my new position, and is only adjunct teaching (no additional responsibilities, etc.), the employee handbook has a little section stating that any employment for any other university or college MUST be approved by the department head AND college dean. Ouch.
Iām still hopeful about the situation. I really donāt think it will be a big deal given the parameters of my online teaching job (specifically that it can be completed any time so it wonāt cause any impairment to my new day job, and itās a simple adjunct position). BUT the bottom line is I have to ask for official permission to continue working for the online job and, if Iām told no, there goes my hopes of making serious progress on debt repayment.
Letās step back a sec and talk numbers without actually talking numbers. Just follow me.
My new full-time job pays about 50% more than my current part-time online teaching job.
BUT
After running the numbers of all the deductions to be taken out from each paycheck, which are substantial (including: health, dental, vision, retirement, money for a flexible spending account for childcare expenses, taxes, etc. etc. etc.) Iām only going to actually be netting an extra couple hundred bucks a month. Soooo, practically the same monthly pay for my full-time job as what I make at my part-time job.
Of course, my money will stretch a lot further at my new full-time job because, unlike the part-time job, I wonāt have to deduct funds monthly to pay my own taxes and health insurance. Iāll be paying for (part of) childcare with pre-tax dollars to save some money there. Iāll be paying for health care with pre-tax dollars to save some money there. Iāll be saving money toward retirement where previously Iāve saved nearly nothing. And so on.
But when you just look at the bottom lineā¦. being able to keep my part-time job effectively doubles my take-home salary. So obviously Iām hoping Iāll be able to do that.
Cross your fingers for me. I meet with the department head the week of the 20thĀ (exact date TBD) so Iām hoping to bring it up in our meeting and have it be no big deal.
In the meantime I have a just-for-fun list of financial priorities along with some projected dates.
Financial Priority List
- September 2015 ā Add $4,000 to Emergency Fund. With hubsā no-income month of May and the fact that much of my paycheck was sucked up into an overdue tax bill, we basically lived on our EF for the month of June. We do have a little left (just under a thousand), but Iād like to beef it up to the $5,000 mark. If we put some aside in August and some in September, weāll hit that goal. Itās tough to put so much toward savings instead of debt but I feel really strongly that we need to have a solid EF, if for nothing more than my own psychological well-being.
- December 2015 ā Pay off remaining car loan (approx. $15,000). This is still a bit of an aggressive goal, but as long as Iām able to keep both my jobs I think thereās a really good chance we can still pay off our car before the calendar year is over. I CAN NOT WAIT until this loan is paid because it will signify reaching the consumer debt-free mark ā a huge milestone in my mind.
And hereās where things get controversialā¦.
After the car is paid off, I definitely want to start paying more toward my student loans. But instead of diving full-force into paying off these loans with the gazelle intensity that Iāve tried to have for all of our other consumer-related debts, I want to split my priorities a bit. I still feel very strongly about paying off these loans as quickly as possible (especially the unsubsidized loans; and I plan to continue doing balance transfers to save some interest where possible, too). That being said, however, thereās something else I feel really strongly about too.
Home ownership.
No, we arenāt looking at places today. No, we donāt even know what the next year may bring (examples: (1) my dadās scary health issues, and (2) Iāve still been in talks with the out-of-state university where I did my not-an-interview earlier this year). But all that being said, once the consumer debts are paid in full I think it will be important to start saving more aggressively for an eventual down payment. At this point I donāt know specifics (no idea the amount per month weāll save versus the amount put toward student loans every month), and I really do want to stress that I want my student loans gone ASAP! I hate dealing with them every month. I hate the amount of interest they cost me. I hate their drama. I hate that theyāre this huge, scary, black hole of debt on my credit report. So in no way am I suggesting that Iāll only pay minimums or drastically reduce debt payments. No way!
Look. Itās never been a secret that I really want to put down roots somewhere. I said it in my very first āMeet Ashleyā post that I wrote when I interviewed to be one of the bloggers here. Itās important to me. The American dream and all that jazz. And the older my kids get, the more I want it.
Iām sure Iāll be talking more about this as time moves on. But for now, weāll just say that Iāve got these two concrete goals (restock EF by September, and consumer debt-free by December), and then weāll have to do some reassessing at that point. Either way, 2015 is shaping up to be a pretty kick-butt year in terms of debt repayment. Full throttle ahead!
Hi, Iām Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!Ā
I seriously love reading your posts. I feel like we are very similar in that I LOVE to crunch numbers and make new debt payoff goals in my free time and it really keeps me motivated. Now that we are debt free (just paid off our last student loan in June!!) im having fun planning for the future–retirement, extra $ toward our mortgage principal every month, saving for some house projects, a vacation next year once I’m done nursing my newborn…I really wanted to have future goals already lined up when we became debt free so I didn’t just start spending that extra money on “stuff”. I feel like your plan for how to use this money from your new job is like that too! Congrats and I think your goals for the rest of this year are awesome!
Also this may be too soon for this discussion but what kind of house/down payment are you looking at? No idea what housing prices are in Tuscon. We were able to get a zero down mortgage because we were first time homebuyers and had good credit, but if it hadn’t been the perfect house at the perfect time we would have waited and saved $ for a downpayment. Anyway, best of luck to you! Excited to see what the future holds and fingers crossed you can keep both jobs!
Thanks! And can I just say CONGRATS ON BECOMING DEBT FREEEEEEEEEEE!!!!!!!!! Seriously – so, so, so exciting! In terms of specifics for our down payment, I think things are still so up in the air that I have to just speak in generalities. I’d like to put as much down as possible (20% to avoid PMI at least), and I’d like to live in a home with a monthly payment (mortgage + interest + insurance) roughly comparable to what we pay now (in the $1,000 to $1200ish range). I would love nothing more than to dive right into house hunting but I’m reigning myself in for the time being until we know a little more about our future. Landing this full-time position is a BIG deal (and likely means we’ll be staying put in Tucson), but there’s still the sliver of a chance that something might change with that due to personal/family reasons. I hope not…but you never know.
I don’t think there is any harm in beefing up your emergency fund and in the back of your mind also thinking of it as a house downpayment fund.
For instance, say you’re thinking about buying a house and assume you’ll have a 200k mortgage. Calculate out what your expected payment+insurance+taxes+maintenance costs might be per month. (If you’re interested, I could give you some rule of thumb percentages of what those last three costs are as a percentage of house value as well as a link to my very favorite mortgage scenario spreadsheet).
Once you have that number, start contributing the difference between your current rent payment and the assumed monthly housing cost to your emergency fund every month. It’ll give you the feel of how much more a house might cost and after six months to a year of that type of savings you can pull that cash to use as a down payment.
Another house buying thought might be to plan to buy around the same time the girls start kindergarten. You can choose the house based on your preferred school and time the mortgage payment around the same time that you lose the daycare expense.
Wow, what great tips!!! Thank you so much for this comment! I’d love to see some rule of thumb percentages and a link to your favorite mortgage scenario spreadsheet if you’re willing to share! : )
My initial reaction is to say that I think we’ll be looking for homes under 200k (probably closer to 165ish) because I’d like our monthly payment to be pretty comparable to our current monthly rent. But this is all just talk now – who knows what will happen when we actually begin looking. Seeing some of these sample numbers sounds like a great place to start (and I LOVE the idea of putting aside extra money monthly to get used to what a mortgage payment would “feel” like)!!!
Thanks again!
http://www.vertex42.com/Calculators/mortgage-payment-calculator.html
This is my favorite spreadsheet for running scenarios. As for percentages: Property Taxes: 2.2%, Insurance .5%, Maintenance 2.5%-5%.
You’ll want to do additional research into exact property tax percentages in Tucson. You’ll need to take into consideration your “ideal” neighborhood, figure out which levies apply and then what the assessment ratio is on your preferred property. The county assessor’s website will give the assessment ratios for a particular property. A quick google search brought me this list of mill levy rates: http://www.webcms.pima.gov/cms/One.aspx?portalId=169&pageId=85880
From the looks of it, assessment ratios are pretty low in Tucson and property taxes won’t be as high as they are in my location. Another good rule of thumb would be to assume that in addition to the mortgage, you’ll have an additional 10-15% in monthly expenses related to the house that you do not currently have with a rental.
Thank you so much! I really appreciate you sharing these resources!
One more question – what is the additional 10-15% of monthly expenses that you’ve mentioned? Is that related to utility payments, maintenance, etc??? Just curious on that.
Thanks again!
Generally maintenance items associated with a house you own versus a house you rent. If you’re using the 10-15% number, that would also generally include your taxes and insurance. You’ll want to plan to put away cash for the inevitable month where the sewer backs up, washing machines dies, and the neighbor’s tree falls on your fence in the same month.
I rarely meet people who don’t spend tons of money on their house. It also gets into things like because it’s your own house, you might want to paint, redo the blinds, get new counter tops. It’s amazing the ways you can find to spend money when it’s your own home versus a rental.
It sounds like you are comparing apples and oranges with your income comparison. How much did you have left with your current work after subtracting all of the things that will be deducted from your paycheck? I know you have to switch to full time daycare and will be saving for retirement but you still should have more income to work with. Again, congrats on landing the new job.
We never worked our finances like that before (we simply combined all of BOTH of our incomes into one “pot” then deducted out expenses, etc.). You’re definitely right that we do have more income to work with (even after all the deductions from full-time job). That’s even more apparent if I were to make a true apples-to-apples comparison (by looking at my true part-time income once the same health/dental/vision/childcare deductions are taken out). I think the point I was trying to make, though, is that being able to keep the part-time job would be a HUGE boost to our income. At that point all these expenses would be taken care of, so it would be like doubling my salary! Huge! Keep your fingers crossed I’ll get permission!
Oh man! I hope they let you keep your PT job too. That would stink if not š
ME TOO!!!!
Hey Ashley!
I love having a house, but I meet the definition of house poor! I encourage you to spend an adequate amount of time [or perhaps even poll this blogging network or sit down with a couple of close friends who you talk $ with] both dreaming about and educating yourself on the realistic costs associated with home ownership.
It causes me shutter when individuals state that they are looking to buy something with a “mortgage payment about the same as their rent”, as it so severely underestimates the true costs and what proportion of your income will go towards your home that is not accounted for when renting or even in a condo.
I have been very lucky – I’m physically capable of doing many small repairs that I watch my single neighbour call a repair company in for, have parents/friends who will talk me through bigger repairs on the phone or come for a weekend to help. Even still, throw in a big job like a roof repair, or a sewage back up courtesy of the city’s tree that I can’t have removed but I must pay for the damage [thanks.], home break-in, etc. And with just general basic upkeep + my mortgage + taxes + insurances + utilities + major & minor repairs it = > 40-45% of my income. [for reference; one income, high five figures, and my mortgage was not arranged as a 30 year fixed as that would have placed me still paying it when I was retired – so it was a 20 year fixed, i purchased for $200,000 less than the mortgage offered by the bank and felt I was being smart!].
I’m making it work and love where I live. But know that what I’m doing requires significant compromise to other areas of my finances.
Ouch! One of my best friends had a house with a similar tree/sewer line issue (she’s since moved, but had to pay every year to have the lines cleared of roots). I’ve thought about taxes, insurance and utilities but you make a great point about taking repairs into consideration, too!
Hi Ashley,
I’ve been a great fan of yours and I think you’ve really made amazing progress! But I do shudder a little bit when I read the income analysis that Juhli so aptly called “apples and oranges”. I think you really need to get beyond simplistic thinking such as “the number on my paycheck is my income” and also as Jenna pointed out that “I want my mortgage payment to be the same as my rent”.
To be fair, your posts definitely contain a LOT of nuance so I know that you recognize there is additional complexity. There is no better substitute than living on your new income for a several months or a year to figure it out and I’m confident you will!
Very true, thanks for the comment!
It can be expensive to own a house but there are huge tax breaks to take into consideration. It all depends where you live, how much you make, how expensive of house and how much you currently pay in rent. I would suggest a 30 year mortgage and a lower payment. You can always pay more to the mortgage and pay it off early but at least you have flexibility. Jenna is right about the cost of homeownership though.
I see nothing wrong with saving to buy a house while paying down student loan debt. Just be smart about the house you buy.
I just wanted to point out that the idea of getting “huge tax breaks” from home ownership is a common misunderstanding. Unfortunately likely not relevant in this situation because interest rates are still near historic lows, and Ashley is not talking about taking out a large enough mortgage. I’m not against home ownership, but just don’t do it for the “tax breaks”!
Happy to walk through the basic numbers if anyone is interested!
Some of this depends on where you live. Property taxes are big dollars in my state and deducting those definitely makes a difference. The tax breaks also depend on where your starting income is. If you’re in a 15% tax bracket, the breaks aren’t as significant, but when you’re up in 25-28%, it definitely adds up.
In lots of cases, the tax breaks help out especially if someone is renting and cannot deduct charity, auto registration fees, etc. It all adds up and takes the sting out of paying the property taxes. When we bought out house, the deductions we were able to take more than made up for the increase in our monthly mortgage payment vs rent.
How will the new income affect your student loan payoffs? I assume that with the higher income comes higher payments…I wiuld urge getting rid of the student loans with the very high interest rates, and when those are gone, funnel that money into a downpayment fund.
Definitely higher student loan payments! I only had 2 loans at 8.25% (all the rest have the same 6.55% APR). One of the 8.25% loans I used a 0% balance transfer offer so I could save money on interest. The other 8.25% loan I’ve been paying extra on every month (balance is currently down to just under $3700, so I hope to knock it out quickly!
I think it’s smart to start setting aside some money for a down payment, even if you don’t have any firm plans for buying yet. It takes a while to save up the 20%. I know I wish I had started sooner. But you’ll also want to save extra money, too. As others had pointed out, owning a home has a different set of expenses than renting. Assuming you buy a bigger space your AC costs will be higher. You will also have water, sewer, and maybe trash bills to pay. You’ll want a larger emergency fund to handle random expenses that could pop up, e.g., leaky roof, tree limb removal, fixing the driveway, etc.
Another big expense is furnishing the new home, and I’m not even talking about buying furniture for each room. As an older friend told me when I bought my condo, all the stuff you have where you are works in your current space. When you move to a new space, your operations will change, so to speak. For example, I found I needed to buy more wastebaskets even though I only gained one extra room when I moved. And my kitchen wastebasket didn’t work in my new kitchen, so I had to get a different one to fit. I also had to buy a dehumidifier since I now had a basement. And so on and so on. For a year I kept buying stuff for the condo. I was at Lowe’s and Target almost every weekend. I felt like money was flying out the door (which is why I started reading this blog š ).
And I haven’t even decorated the place – no real furniture purchases, and the walls are still that eggshell white the developer used. Although I now have the money to do all that – I just don’t have the energy to pick out colors, etc. Maybe next year if we have a mild winter.
We are five years in and haven’t put up the pictures yet! But yes, we also bought the new dehumidifier in year 2, replaced sump pump in year 3, had to repair old plumbing in year 4, etc etc. Next year will probably be the AC unit (knock on wood). It adds up for sure!
Seconding everything people are saying here. I bought a new house in February and I’m still waiting for my spending to “normalize”. Day 3 in the house involved replacing all of the galvanized steel plumbing with copper plumbing, which lead to epic amounts of drywall/plaster repair. Granted, we knew this would have to be done and had some money in closing costs to handle the work, but it’s still cash out of your pocket at the end of the day.
All the little things are the devil in the details though. Light bulbs, light fixtures, small electrical work, landscaping, closet organizers…the list goes on forever.
I think your plan to save for a down payment is great. I have learned that when it comes to personal finance, patience really is a virtue. I found that all of my mistakes were made when I made hasty, rash decisions instead of weighing the options or saving for something instead of charging it. You and your husband are thoughtful people, so I think you are more than capable of paying down debt while also saving for the house down payment.
I would also add to the discussion that although it is wise to start thinking about what your budget is for a future home, the monthly payment is hardly an accurate gauge. Financial experts tend to say to look for the total cost of ownership when it come to things like cars and homes, not just the monthly payment. Congrats on starting the new job and I hope you are able to keep the side gig!
Hi Ashley,
I love your posts! I have to agree with Jenna and others that owning a home cost a lot MORE then just the montly mortgage payment. All of our bills are higher-electricity, water, heat, the timing and scope of repairs is something you can never control and have to always be saving for and prepared for. What if the basement leaks? A window breaks? A tree falls down in a storm? You will want to paint or do other minor improvements. Furniture. Patio furniture. Outdoor toys for the girls you didn’t have a way to use before. Things for the garage. Maintaining your driveway and porch railings. Snow shovels! Lawn movers! Weed wackers! Gardening supplies and tools. These all add up very quickly and are things you didn’t need while renting or living in an apartment. We bought a small modest house that requires creative storage and living arrangements because of it’s 900 square feet size, but the repairs and additional costs are still high with a small home. Our basement flooded last summer finally bad enough we could not ignore the issue any more and had to put in waterproofing and finish the space to make it usable and safe. It adds up very quickly, especially when you are hiring others to do work because you don’t have family around to help you with the work. I’m just saying that owning is fun and wonderful in many ways, but you will spend a lot of money on the upkeep and maintenance of your home as a responsible home owner. There are many ways to make a space a “home” that don’t involve purchasing a home. Just a thought. We would love to move with a baby on the way but financially we would lose the money we put into the home due to the current market, so you may have plans too about when and where you will move that are drastically affected by finances. That said, I think saving up as if you are going to use the money for something like a down payment is a great plan. Once you have the chunk saved up you may not WANT to use it for a home, but for something us. We had money saved and ended up using it for fertility treatments we required to have a family, something we never expected. I’m just saying plan for it, but let other options percolate too. The best thing I’ve found to do with a large sum of money that is saved up is to just wait. And then wait some more and think about what to do with it. Then wait a little longer and talk it over with someone! So excited about your job!
One more thought….I think it’s also good to think about the time and energy costs of a home. Home maintenance, yard work, going to the hardware store, troubleshooting when the sink leaks all over when you had planned to go meet a friend for dinner and now who will watch the kids, etc., it all has a financial cost too. Time also has value and owning a home requires you to commit evenings and weekends to projects and maintenance you never had to do before. OR to pay someone to do those things, etc., lawn care or shoveling snow from an alley. I’d say talk to people to who own homes and ask them how much time they spend on home projects. Still-very excited for things to come! I think the idea about looking at a home when the girls start kindergarten to swap day care costs for a mortgage and additional home costs is brilliant! Also many home investments pay off in the long run, but not right away and that can be hard to be patient for. Ex. Our windows are still circa 1938. They leak HORRIBLY. But we can’t afford new windows that are energy efficient even though it would drastically cut down on energy bills and cooling. So they wait and we have to accept we have to pay more for heating and cooling right now. Trade offs!
You’ve raised so many great points! I think this will probably be the topic of future blog posts because I could “poll the audience” and ask readers for their personal experiences and advice, too! Thanks for the comment!
Others will likely cringe but….
I advocate saving for your downpayment in a Roth IRA if you aren’t planning to max it out for retirement only funds. Put it in a simple index fund and will more or less follow the market trends. You can withdraw your contributions anytime without penalty (so good for saving a downpayment). Plus you can withdraw up to 10k in earnings for a first home purchase after 5 years.
But really, if you aren’t going to max the Roth for retirement only savings, you can save for other purposes in there and then leave the earnings/gains in the account. Then if you need to withdraw your contributions (for a downpayment or emergency) the gains would stay in the account and it would give you a little boost of extra retirement savings you wouldn’t have otherwise.
This would be my recommendation if a house is a few years out. If you are looking on a shorter timeframe of 1-1.5 years this would not be the way to go because of stock market fluctuations.
This was actually my push to start a Roth IRA initially. As I’ve contributed to it I’m now too secure in the balance and don’t want to withdraw unless I absolutely have to. Its actually helped me trick myself into saving an 6-month emergency fund. I diverted our down payment savings to a different account and now consider the 20k in Roth as our backup safety net. Most people recommend having savings of 6-12 months of spending in addition to a 20% downpayment to account for job loss or major repairs.
You should check with a professional, but I believe you can only take out $10,000 from and IRA to use towards a down payment of a house and your IRA has to have been open for at least 5 years.
Reading my comment I realize I was not entirely clear…
– Roth IRA contributions (so the principal amount you put in) can be withdrawn anytime, for any reason, without penalty or additional taxes
– Roth IRA gains (the amount that your account goes up) can only be withdrawn in certain circumstances without penalty. One of which is up to 10k for a first home purchase. Yes, your account does need to be open for 5 years.
Let’s say Ashley contributes 5000 to her IRA this year. Assuming it goes up 5% she would start the next year with 5250. She can take out the original 5,000 anytime without penalty for any reason whatsoever. The $250 of gains would need to remain in the account. But its a little bonus that can continue to grow until retirement that wouldn’t otherwise be there.
oh, ugh about the handbook! I mean, I am glad that you checked into it, and I STILL think it will be okay, but to get permission to continue is going to be a little uncomfortable (not because you should be uncomfortable, but because I know how these things can be nerve-wracking!).
I think that your priorities seem good. We bought a house in 2012 with way less thought than you have put into things (though, no other debt, so somewhat different situation), and it’s been fine so far. We’ve had to put in some new things, but overall, there are significant tax breaks and it ends up working out pretty well. Plus, with kids, there IS that longing to put down roots. It does sound like you will make significant progress the rest of this year, though, and you have come SO FAR since you started. Way to go!
Thanks! I agree about it being uncomfortable/awkward. I especially worry since they don’t know me well yet. I don’t want to come across as being any less committed to my job and/or university because I’m asking to continue working somewhere else. I hope it doesn’t come across that way when I ask!
If you explain it was a prior commitment before they hired you they shouldn’t hold it against you.
I hope so! I’m also still currently working at the part-time job (I’ve been teaching summer classes – which they knew when they hired me and we set a start date), so I can mention that. My meeting with the department head was supposed to be next week but, unfortunately, has been moved to the beginning of August so I still have a couple weeks to mull it all over. Really hoping I can casually work it into conversation like its no big deal.