$264k of DEBT and having ZERO fun | Millennial Real Life Budget Review No. 42

Okay, we've got an IT person and a doctor who are from the Midwest headed to the mountains with $264,000 of debt and having zero fun. And we've got to talk about this. Welcome back to the next episode of Millennial Real Life Budget Review where we go over real people's budgets and we're going to guide them on how to get out of their financial mess. So first things first, I asked, what do you do for work? And they said, IT and spouses in the last year of a fellowship to be a physician. Their annual salary combined right now is $173,000, but this is going to quickly jump up once this fellowship is over. They said they're from the Midwest. And I asked, what is the biggest thing you struggle with financially? They said, finding balance between loans and fun while delaying gratification for so long $264,000. That's delaying gratification. Okay. I asked, what are your top two to three financial goals you want to accomplish? They said, pay off student loans, buy a house, financial independence. How much debt? $264,000. I asked, how much do you have in savings for an emergency fund? And they said $30,000. Not bad, not bad. And then they said our income will jump to $385,000 when my wife completes her fellowship June 2025, moving to the mountain West for physician job, I work remote. So in full disclaimer, this application was sent a while back while I was on maternity leave, but I thought this one was still too good not to share in gatekeep. And I want to show you exactly what we're working with inside of their budget to help us kind of figure things out and make arrangements to hit their financial goals. Let's hop into it. So the bulk of the debt is from the student loans. They made a note here saying the government paused. That's obviously changed. So now your student loans are back on its normal repayment schedule, $255,000 in student loans. And then there's a car loan of $8,745 and the minimum monthly payment on that is $467,000. Again, the interest rates on both of these aren't bad. Although 6% on 255 is like you might as well be paying a mortgage at that point. Their total take home right now is 8,200. That's going to most likely double or get close to doubling once the doctor's salary starts to kick in. So let me take a look here. They're paying $3,872 in rent or a mortgage. Oh, they do have a mortgage here because I want to pull attention over here to the notes. So the car was $23,000, put $7,000 down, financed $16,000 at 1.99% over 36 months. They contribute monthly to Roth 401ks plus a 5% match. I get a bonus and pay $4,000 into each of the two Roths, then $250 a month to max out for the entire year. Keep in mind, once your wife starts to make that new salary, that could very well get you out of the Roth eligibility because you guys are making such a high income. So the gross was $173, we'll jump to $385 plus $40,000 annually is automatically put into retirement. Da, da, da, selling house when we move with $75,000 in equity, renting a new location and still until student loans are paid. I love that. They currently have $184,000 in retirement plus $105,000 in a brokerage planning to use brokerage on student loans. Interesting. And they use credit cards, but never have a balance. There's their mortgage of $3,872. Let me take a look at all of their fixed expenses, cell phone, internet, electricity, water. Groceries is only $275, interesting. Gas, only $78, wow. I mean a lot of their expenses aside from the mortgage are actually really quite affordable. Groceries is $275 and restaurants, here's the thing, restaurants is only $75. I have a feeling that is not accurate. Seeing literally dozens and dozens of these budgets and knowing what the cost of food is like right now, this is not a reality. Also they are literally having zero fun. There is no fun money budgeted for at all. No budget for shopping, clothing, haircuts, gifts, none of that. Not only $80 in subscriptions, but they do like going to the gym. There's $200 a month in gym membership fees and then they put $250 towards miscellaneous. It's just a little unrealistic I think this budget, so what I would do if I were you is pull up your credit card and your bank account statements from the last month, month or two, and then add in those actual transactions into your budget and let's see exactly how much you're spending every month because I just don't think this is the full picture of everything. The first thing that you need to do, and here's my recommendations for you after looking at this and kind of figuring out what your goals are, is the first thing is you need that starter emergency fund. Now for you guys, $4,900 is one month of living expenses. A two month starter emergency fund for you is equal to $9,800. Three months is $14,700 and a full six month fully funded emergency fund is $29,400. Now you already said that you had $30,000 in emergency fund savings, so basically you have the six month fund fully funded. The thing that you don't have is you're not debt free and so this is where I think you could really work on doing some options here. You did tell me that you had $105 in the brokerage that you're planning on putting towards your debt. So I went over to vertex42.com and plugged this into their debt reduction calculator. So you've got $150 left on the student loans plus the car loan. Now if I'm taking a look at what you've got left over from the $8,200 budget, you've got $1,100, but let's say you had even like $14,000 in planned monthly income. You've got $6,900 left that you could put towards the debt and this is not even touching like your savings at all, but let's say that we could put an extra $6,000, which is nuts. $6,000 in extra take home towards your debt. You would be debt free, completely debt free in two and a half years. So if you could live and keep your living expenses the same as what it is, so you could have the $75,000 in equity. You could be renting for cheaper than what your mortgage is. Like even if you could rent $2,000 a month and let's say I can do this $2,000 a month and then we're going to put extra payment of $6,000 and then we have $2,800 a month that we could actually put towards a down payment. So you'd have the $75,000 in equity from the sale of the old house plus the $2,000 monthly. And if you could just hold and rent for the next two years, even the next year, that would be fantastic for you guys. And I feel like that would give you the lay of the land of where you guys are moving. I'm assuming like Colorado or Utah is kind of where you're at. That would help you kind of figure out what neighborhood you wanted to be in, give you some runway, help you build up that down payment fund even further. And also a big thing here is you were talking about how you struggle with delaying gratification and whatnot. Well, I still see a big chunk of money from your budget that we can put towards the fun. Like your restaurant budget could easily be much higher. Clothing and shopping can be much higher. See how we're doing this? Let's add in some fun stuff here, like $75, 100 bucks. We can totally add in more. And if these numbers you're not vibing with, then we can always make changes. But here's the thing, the faster that you go on getting yourself out of the debt, the faster that you can move on with your life. I feel like a lot of people prolong things like car loans and student loans because they have lower interest rates. And they also have, in a lot of cases like this one with the student loans, it's such a high amount that you're like, why even bother? I'm just going to live my life. No, for them, they could actually get this done in a very, very short amount of time if they just stay diligent for like head down for the next two years, five months. That's not even including any kind of additional bonuses. And I think they still could absolutely live their life. They had $400 in a vacation fund. I'm not even moving that amount of money. And let's say like $6,000 they get burnt out doing after six months, like lower it. You could lower it and take a temporary break from putting so much money towards it so that they could take a really nice vacation somewhere. Or name whatever that big thing that they want to purchase or some sort of fun experience they want to do in that month. They could. The beauty and the curse of having such a high income is you have so many options that you can do with your money, but you also are teetering on that edge of like, I could really blow it on the wrong thing if I'm not focused and if I don't know what to prioritize. So this is where I'm giving you the priority is keeping your emergency fund where it's at. I think, I think, yeah, just go for it. Just keep it where it's at and then really start focusing on paying down the student loans and then the car loan will kind of theoretically pay itself off while you're working on the student loans and you're building up a down payment for a house in the mountains and you're living your life. Case closed. Another thing that you guys had mentioned was you want to achieve some level of financial independence. There's a lot of different ways that you can do that. You can do the full fire movement, financial independence, retire early, and you can do that by using a tool called projection lab. It's a financial planning simulator tool where you can plug in your numbers, all of your assets, liabilities, all of your bank account numbers and amounts, and then start creating a financial plan that you can work towards with realistic numbers. I will leave a link to projection lab below for you to check out. It's a tool that I personally use with all of my one to one coaching clients so that they can get a sense of like, even though here's where I'm at with my financial situation and it feels a little crazy, here's where I'm headed and this is the bigger goal and this is a future that I want to build. By the way, if you want to take this step further and you're like, I want to talk to Justine about my own situation, then check out my one on one coaching program where you and I meet together in a private zoom and we go over your finances together and make a plan that you feel really good about. Also if you just want your budget reviewed for free, that's fine too. Click on the Google form below, fill out all of those details, upload your budget, and that way I can give you some financial guidance right here on the channel. If you liked this series, give it a thumbs up and I'll catch you in the next one.