Sorry about all the questions. We aren't the two smartest people when it comes to finances.
ETA: Currently our bills are, at most, $2500 a month. I'd have to sit and do the math to know the exact number though. Oh, and our rental income is $750 a month ($85 after our mortgage is paid). I'm not really sure what we're supposed to do with that money either.
[This message edited by frigidfire86 at 3:00 PM, September 8th (Sunday)]
The best thing we did when our first son was born was to hook up with our CFP. She helped us save for college, retirement, disability, etc.
[This message edited by Lucky2HaveMe at 3:48 PM, September 8th (Sunday)]
As far as the student loans, it depends upon how much interest is being charged. If it is less than 3% then pay the minimum because that is an excellent rate. If it is more than 5-6% then try to pay of as much as you can each month to avoid paying extra interest.
Assuming that $2500 covers ALL of your expenses (groceries, rent, mortgage, insurance, gas, etc) then you should have at least $1500 worth of disposable income. I would throw that money into some sort of savings or investments, whichever you think is a priority.
I am a bit of a savings nut. We have a savings fund for emergencies, and then we have a savings fund for fun stuff, a savings fund for short term things, etc. The type of bank account that we have allows us to put money into a traditional savings account, and then a nontraditional "reserve" account. In that reserve account I can go online and allot any amount to whatever I want. For example, this summer in my reserve I had a Wishlist for new bicycles, and then a reserve for my fiance's dental bill that we are having to take care of in the future.
If you have the ability to use credit cards in a careful manner, then I would encourage a cash back card. I have a cash back card, and have already earned over $150 worth of cash back for normal, everyday expenditures from this year alone. My SO's travels card has $200 worth of miles on it that do not expire. But we PAY IN FULL every month. The rewards are not worth it if one is carrying a balance.
Your student loans they are very small. I would be inclined to pay them off, but that is just me.
When it comes to your daughter have you looked into a 529? I believe that is still the best they have to offer in terms of saving for education, but I would double check on that. I think a 529 is worth looking into, and I would definitely contribute more than $25 if you are able to.
I second USAA. Great company, but their credit cards are meh. There are better card offers. They have a pretty good website, too, I think you can create your own budget on their site.
I would also look into HSA's if you have a high deductible insurance plan. A lot of company's will put money into your HSA if you open one up. For example, when I started my HSA I started with only $50 (pretaxed dollars). When I set it up with my job they deposited $500 into my account, and they do that every year!! So basically, they give me $500 a year just to have a health savings account. Companies vary, some may give less, some more, some none at all, that was just my job's policy.
Originally my intention was to use my HSA to cover those nasty, unexpected medical expenditures that sometimes pop up, but after doing research online I see that a LOT of people use it as just a vehicle for a way to invest pre taxed dollars. Fortunately I do not have a lot of medical issues, and shouldn't have to use it... but I would definitely look into an HSA.
Hope that helps!
[This message edited by Dark Inertia at 5:28 PM, September 8th (Sunday)]
Dark...the military does not have healthcare cost while on active duty, so no HSA. They have very unique financial needs.
Yeah, it occurred to me after I edited, but I thought it is good info to have for beyond military life. :)
[This message edited by Dark Inertia at 7:37 PM, September 8th (Sunday)]
No kickbacks were received for that endorsement.... however, they will save you money. In addition, they offer financial check-ups and all kinds of other financial advising. Hopefully you already know this.
I'd definitely pay off the H's student loan...there's no way you're going to get a return higher than what he's likely paying in interest.
We already use USAA for almost everything. I've talked to their financial planners several times, but I've been frustrated each time. Although they've told us how much we should have in our emergency fund (and I've gotten different numbers each time), every time I've talked to them they constantly try to sell us life insurance. We don't need it. We each already have two policies, which I've told them, and they still push us to get more. And then I get the "why aren't you using USAA for homeowners insurance" questions. Well, because it costs more through USAA and we got a better rate elsewhere. Again, they push to have us switch to them. Everything else about USAA I love, but not the financial planning that I've only had irritating experiences with.
To make it easier, I'll break it down.
- Monthly Income: $4000
- Monthly Bills (house, life & auto insurance, food, gas, phones, internet, student loans): $2500
- Monthly Allotment For Mutual Funds: $700
- Monthly Savings Allotment: $50
- Daughter's Monthly Savings: $25
That leaves $725/month for random expenses and travel. We travel A LOT now that we're in Europe, but we don't spend $725 a month to do it. I know we could do something with the extra, I just don't know which area to apply it toward.
I like being able to save for our daughter, but it's not the most important thing on my list. Plus, she'll have part of my H's GI Bill she can use and the few thousand we've already saved for her.
My H has brought up, several times, paying more on our house. I don't know if that's a good idea or not. Although paying down that loan would be nice, we're planning on selling it after we're back in the states and the mortgage is currently being paid by renters, so I don't see the point. Would you pay extra toward the principle?
I think we'll pay off his student loan and use that $50 for....what exactly? Retirement? Savings?
Thanks for the advice thus far.
[This message edited by frigidfire86 at 1:16 AM, September 9th (Monday)]
[This message edited by Dark Inertia at 1:17 PM, September 9th (Monday)]
If either of you were to die suddenly (sorry, but you have to consider awful things with a young child), the insurance needs to be enough to throw off enough income to make up any shortfall in your household income.
$500K may sound like a lot of insurance, but right now you'd be lucky to get $20K in annual income from a $500K nest egg. If that's less than you need from insurance, you probably need more insurance.
Since you're in college, why not take some economics? It's bull as science, but it sounds like you'd get some useful knowledge from a basic course or 2.
His book goes right along with debtor's anon whose theory is to pay off your debt gradually as you increase your savings so that you don't have to debt.
I think it might answer alot of your questions...
Also, it is wonderful that you handle your finances so well...My inlaws retired at 48 because they saved and saved and saved....
Another book, Debt- Proof Living by Mary Hunt is very good also.
Also, if you don't want to use your credit card, but you want to show good credit, I got a secured card at the bank. I gave them 600, and the activity is reported monthly. I'm not in debt, because it's secured.
Also its good to remember that your money needs to work for you. Not you working for your money. In that I mean you just have to look at the numbers. If you have debt that you pay a low interest rate on I'd pay the minimum if my investments were paying me more. IE if I'm paying 5% interest on my debt but am getting a 10% percent rate of return on my investments. I'd pay the minimum on the debt at 5% and put more money into my investments paying me 10%. Therefore netting me a positive return of 5% on that cash. Compound that annually and over the years it adds up to some big bucks. I'm also of the school of 50% of your expenses in savings. This should get you by in case of loss of income. Also at your age life insurance is a good idea as the costs are low as long as your in good health. Finance is fairly easy. All you have to do is the math. You put money where it benefits you more. Naturally you need to revisit your objectives as your financial conditions change. If you have more, save more. If you have less reconsider where your putting your money. As I said just do the math and its pretty easy.
I took economics my first year in college and hated it. I struggled through it and my non-English speaking professor didn't help much. I have zero desire to do that class again.
I'll look into the books that were recommended.
High risk makes me so damn nervous. I hate the idea of losing what we've worked so hard to save, but I do understand that it makes sense to do high risk/high rewards at our age. How do I switch from mutual funds to something else? Just call USAA and have them do it? I know absolutely nothing about stocks, bonds, CDs, etc. Dumb it down for me amd explain what each are, how they differ, the risks, how much each have the potential to grow, and everything else you can think of please.
Life insurance looks OK to me, since you'd have other resources if you needed them (military benefits, SSI).
I think you need to consider that life is high risk financially no matter what you do. At any unpredictable time, the assets you have may be depressed in value, and if that happens, you could be hurt. Right now, given the low interest rates, I don't think there's any safe investment - you can guarantee principal getting returned, but a dollar put into a CD today is very likely to be worth less in a year or 2 or 5 than it is today.
At the same time, your sitch s very good. Most families bringing in 4K/month live a lot closer to the financial edge, but you can save money now and save for retirement and travel. Besides, you've got a military safety net (unfortunately the net has big holes, but it's still a lot better than private industry at this point), and you've got an asset that's throwing off at least some cash, and it's probably appreciating in value, too.
That means you don't have to take as much risk as most people have to take to make sure you've got enough $ to support yourselves in the style you want.
BUT - you either have to choose a financial advisor and turn your finances over to him/her, or you have to learn enough to evaluate recommendations or DIY. It's a lot of math, and you don't sound confident, but it' not bio-physical research, and you CAN learn what you need to know. In fact, given the way you've laid this out, you may even enjoy the work of managing your finances.
Also, I wonder if you're not emphasizing saving for your daughter's education enough. If she's talented in academics, she could benefit from a hefty investment, as in an expensive school.