gotta save 50K/yr

joulesR4meJuly 29, 2005

Hahahahahaha --- I know - NO WAY.

I hope you all welcome new "members" here --- as I have to be honest, I spend most of my time over on the Home Decor site (biting lip) and, over the past few years, very little time doing anything to conserve/save money. But, about a year ago I decided that I want to end my engineering career and pursue medicine. This is one big feat for an older gal, but I'm getting ready for the plunge if it should open up for me. What's mostly on my back are a few things --- my debt, my expenses and my collection of "stuff". I got some tips on how to start ridding my home of all this stuff, but haven't even made a dent in the money/savings dept (other than just thinking and fretting about it).

I'm not asking you all to do my homework for me - but I'm hoping you might have a few suggestions .... my main source of debt is home, auto, and credit card. I have lots of unnecessary expenses which I'm ready to back out of (eating out, home decor, clothes, cable, cell, etc). I have a good bit of savings --- probably a bit too much in my checking acct --- that should be put toward the Credit Cards --- but I just hate to see that balance decline! My home has a few things that really need fixing (HVAC, irrigation system, etc) but the rest of the cash that I have stashed away should probably but x-ferred to savings ($$ to do stuff like landscaping, new fixtures, cosmetic stuff). My auto is a huge big SUV that I'm way up-side down on. I need a vehicle that can accommodate a dog crate - but not one this big. Sooooooooo --- please - bring on the advice, questions, comments!!!! I wanna give up my full time job and return to school full time in two years --- and would love to do it w/o dipping into my 401K. Oh, and the spouse of an acquantance works at AG Edwards --- is this a source that I should tap into???

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You are talking about making some huge changes in your life in a relatively short time. You have a lot of courage! But you will not get there by scrimping here and shaving a little off there. If two years is your timetable, you need to be prepared to make some major changes.

The first is to get rid of your credit card debt. I recommend figuring out your base living expenses for 2-3 months, leaving that amount in your checking account (or putting it in a savings account or a money-market fund), and applying the rest to your credit-card debt.

Look at it this way: while your money is earning maybe 1-2% a year while it sits in checking, you're paying anywhere between 8 and 25% a year for your credit card balances. You're wasting money there; maybe hundreds of dollars a year. 'Course, the other thing you need to do with your credit cards is to not use them anymore unless you absolutely need to. Do what you have to do to make using them difficult.

Are you planning to sell your house? How much would it cost to rent an apartment (one you can live with, not a "house-substitute") compared to what you're paying now for mortgage, taxes, utilities, and repairs? (It may not pay to move if you have a fairly new but low mortgage payment.) If you do sell your house, will you have any equity you could apply to outstanding debt?

As for the truck, you might want to do a little shopping, with a tape measure. Look at late-model (maybe certified) station wagons and minivans which will be big enough for the dog crate. Used-car prices have gone way down in recent years as people have bought lots of new cars and trucks on incentives and manufacturers have oversupplied the channel as they kept factories going over the last several years. You could buy a much-lower-priced car/minivan and perhaps roll the upside-down part of your truck loan into that loan. It's not great economics, but it gets you out from under faster. And if gas prices continue to rise at their present rates, you'll be spending more money on fuel for your SUV and may find that its value goes down even faster because people don't want to feed a gas guzzler.

As for dipping your 401(k), just don't do it. First, if you simply borrow the money, it means another loan at a time when your income is going way down. Second, if your 401(k) is with your current employer, any loans you make against it may be called as soon as you quit. Third, you lose the value of that money in compound interest and possible equity appreciation. If you were planning to just take the money, be aware that you'll lose the money for interest and appreciation purposes -- and Uncle Sam will nick you 10% of the withdrawal for pulling it out early and will consider the money income and tax it that way, so you lose even more. You could lose almost half your withdrawal to taxes. And not have that money for retirement, to boot.

Two final questions (for now): Have you thought about how you will pay for medical school? And how you will pay your expenses while you're going to school?

    Bookmark   July 30, 2005 at 11:10PM
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Hi Steve - thanks for your reply. I guess I've always heard that early withdrawls from your 401K is a BAD thing ... but I just didn't know if it's worse than going into more debt via loans.

I've started applying all my extra cash towards my credit cards (two), with the most towards the one that is high interest. The other is an revolving line of credit (home equity).

My thoughts on selling my house were for when I go off to med school. I figure that if I do go into ER medicine, I probably wouldn't come back to this town anyway (no major trauma hospitals locally), so I might as well use the equity for school. That is, unless someone tells me that the home investment is too good to get out of and that I should just hold on to it (near the intercoastal river) and rent it out. I know that, for now, my mortgage payment is very low compared to local apartments!

To answer your questions ... My plans to pay for med school was one of three options (or combo of a couple). (1) loans: federal if I get admitted in the US - private if elsewhere (as in Caribbean); (2) sell the house: which, after paying off my debts, leave me with 100K; (3) 401K withdrawl. I know US tuition with a state school will range between 40-60K, out-of-state closer to 80K, and private between 150-200K. Then there's the foreign schools - which would be my last choice for a couple reasons - one being federal loans for tuition are not applicable towards the 200+K total. YIKES!

One other question ... my neighbor owns the local Honda dealership and has offered me a "no-profit --- dealer cost" for a new auto. He also said that if I don't want to get into monthly payments, he'll help me out on a used car. I can't decide if I'd be in better shape after 2 years in a used (but paid off) vehicle or a new one? Any suggestions there?

Dang - how do I learn about this stuff? I'm spending 95% of my free time studying already - and no break between semesters. I feel like I need to contribute tons of hours just researching my financial situation!

    Bookmark   August 1, 2005 at 9:59AM
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You're welcome.

I'd pass on the new Honda. You don't really need another three or four years of debt right now (especially if you roll into that loan the upside-down portion of your current loan).

A couple of other comments:
- If you are planning to rent out your house, consider how you will handle being a landlord in absentia. I'm not saying don't do it; just to consider how you will hold up your end of the deal in absentia. You may have to hire someone locally to manage the place, which will cost you some money.
- How do you learn this stuff? By asking questions. :-) Seriously, no one is born knowing this stuff. It's mostly a matter of thinking about what you want to do and applying a little research to the pros and cons.

    Bookmark   August 2, 2005 at 9:37AM
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get the used car. Keep detailed account of every cent you spend for 3 months. you will learn loads.

    Bookmark   August 8, 2005 at 1:31AM
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Yikes! And good luck!

I have no suggestions other than the advice that's already been posted. A definite second on keeping a detailed account. It was rather a surprise to me to find where my money goes -- but also to find how little I spend on things some folks consider essential.

I got a chuckle from the title of this thread -- I wish I made 50K a year!

    Bookmark   August 8, 2005 at 10:07PM
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Check out Dave Ramsey's book titled "Financial Peace". It will guide you on how to eliminate debt and learn to live without.

This book will tell you to keep track of every dime you spend - this will help you budget for your expenses in medical school as well. It's eye opening.

    Bookmark   August 9, 2005 at 8:47PM
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Well, I paid my $15 to GW, so I could participate in this discussion. (Then I couldn't find it under the Household Finances forum. Gee, I wonder why?!)

First of all, as a former scientist who is now studying to be a financial planner, I have to ask you about a couple of inconsistencies.

You said you are studying already. Is that to take the MCAT? Are you "passionate" about medicine? Because I know and spend time with a lot of docs, and a lot of them are quitting. They hate the bureaucracies they have to deal with, they are not really making significant money once their malpractice insurance is paid for, and they are frustrated with the whole health care system in America. (I don't know if you are in the USA.)

Have you talked to ER docs, and/or spent time in an ER? Because there are some issues there that I hope you are considering. (Child abuse, domestic violence, lack of good health care for the indigent, frozen or cooked homeless population, etc.!)

I have a good friend who was an engineer who became a surgeon. She is an older mom, who is taking a year off, because of some of the issues cited above. She also wanted to spend more time with her daughter. Is there a possibility of a family in the future for you? "Older gal" can mean anything, but a $50K/year engineer means you are at the high beginning or lower mid level of experience usually. [On rereading your post, I realize you may be saying that out of your discretionary (yours to use) income, you want to save $50K, and not that you only make $50K.]

My suggestions: I think you should postpone med school while you 1)get out of debt completely 2)build up your emergency fund to cover your expenses while in medical school and 3)have the work done on your house in anticipation of selling it.

There is a post on student loans on the Household Finances forum that you should read also.

Once you have done the above three things, you have demonstrated your committment to getting your finances squared away, (and living within your means, which most of America is NOT doing today) before you take on a huge financial and time committment.

I agree with Steve_o about not tapping your 401k. (By the way, he gave great advice!) You are just putting your whole retirement at risk, and this shouldn't be done for a non-emergency situation, in my opinion.

Remember that you don't know what your future holds -- so you don't want to get yourself into a situation where you can't recover.

One last thing: If it were me, I would not be investing my money with any broker/representative right now, because you are going to have a greater need for it short-term, and so say you invested it and the market crashed in the next few months, you haven't given yourself and the market time to recover your losses. You will also pay a lot in fees to that broker, that you may not be aware of. (Financial reps: please don't throw tomatoes at me!)

Here is a link that might be useful: Student Loan Saga

    Bookmark   August 11, 2005 at 12:25AM
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Joules, you are at least on the right track of getting a different mindset, but if you have to ask about ANY new car purchase, then you still have a ways to go.

No new cars. Can you think of anywhere else where you spend that kind of money and it's worth nothing within 15 years? Not even counting what it costs for insurance and repair.

I'm hearing some luxury thinking here. Need maintanence on the irrigation system. I've got one of those. A $7 sprinkler on the end of the hose. LOL And of those kind of things are typical of your living area, you could probably use the equity in your house for a smaller, more reasonable place. You'll just need someplace to hang your hat and have room for the dog bowl.

We are debt free except for a house payment which will be gone in just a very few years and paid off way ahead of schedule. There isn't any deprivation about our lifestyle, we just have less wants than the average joe.

Things like a set idea you need something. Why do you need to have the dog in a crate? Could you just put up one of the fencing things which separates the back seat from the front and keep him contained in a small sedan? My Great Dane was a happy camper traveling in all of my very small vehicles.

One game I played with myself as we started down this road was every time I wanted to purchase, fix, do something with money I had made a mental calcuation of how many minutes of my life would I have to work to pay for that? I use to do this back when I was a cocktail waitress and tips were twenty five cents a drink. To buy a blouse I would have to hustle at least 100 drinks. I could live without it.

Good luck if this is something you really want to do. The biggest stumbling block ever is between all of our ears.


    Bookmark   August 11, 2005 at 11:28PM
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"The biggest stumbling block ever is between all of our ears".


Amen to that one, Gloria.

Just wonderin' ...

... how many ears do *you* have?

Were you born near Chernobyl or Three Mile Island??

Or New Mexico? Bikini Atoll?

Hiroshima? Nagasaki?

Viet Nam? Iraq?

ole joyfoul?

    Bookmark   March 15, 2007 at 4:36PM
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joules R4me,

You're setting off on a daunting journey.

You won't be buying any "jewels" this year - even though that kind, as well, may be for you.

You'd better consult with the guy who's giving up a $300,000./year position to move near family - and live on wife's $30,000. annual income.

The difficulties that you'll face will vary substially if your annual income is $100,000. or $300,000.

You're almost certainly gonna have to cut expenses to the bone - no luxuries at all. As someone else said - no thoughts of any new car.

ole joyful

    Bookmark   March 17, 2007 at 7:44AM
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That one is scary. I hope that no one here is sucked into that cesspool!

    Bookmark   March 5, 2011 at 6:32PM
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Marcia Thornley

It's sad really. One would think, if you're going to try and scam people into applying for loans on the internet, you might learn to speak the language and learn to type! I can't believe anyone would fall for this!

    Bookmark   March 10, 2011 at 7:03AM
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**I have a good bit of savings --- probably a bit too much in my checking acct --- that should be put toward the Credit Cards --- but I just hate to see that balance decline!**

I think you'll hate it a lot less once you do the math. Say you have $10k in debt at (to make the math easy) an average of 6% (i.e., 0.5% a month). Keeping that $10k in the bank is costing you over $50 every single month. It's costing you over $600 a year--I say "over" because your debt's interest is compound interest, and I'm not going to do the actual math to figure out what it's really costing you.

And that's if your debt is at 6%. If it's more, well... you do the math! :-)

    Bookmark   March 13, 2011 at 4:47PM
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