Budgeting

[IrishGreen]

Rams your cousin’s situation is like my worst nightmare lol.

hopefully they realize their situation eventually and sell the cars, move into cheaper housing, and try to salvage things before they get impossibly out of hand.

[vikesfan89]

On 2/14/2018 at 8:37 AM, ramssuperbowl99 said:

They have at least $150k of student loan debt with no ability to get them forgiven and bought a $350k house on a combined salaries of maybe $100k with no significant upward potential. They also financed a huge wedding (at least $40k), have new cars, had previous debt from trips in college (though that may have been wrapped up in the student loans, but it wasn't going to Mexico for spring break, it was a 2 week European vacation).

This isn't a case where they are secretly buckling down to support their lifestyle or nailing a budget. They've openly talked about how they'll be paying down their student loans for 20 years and their house long beyond that.

This is what I'm worried about. I do care about their feelings and don't want it to look like it's me passive-aggressively disapproving of their financial life. And it would be completely unfair of me to their kid to dangle 5 figures in front of them at 18 in exchange for her parent's pride.

My major problem with this is that once I bring the subject up, I can't un-ring the bell. And I'm worried that based on how public they've been about their debts, they'll take any sign of help as pity.

Is there any hope for your cousin figuring it out? I couldn't imagine having that much debt. 

 

[ramssuperbowl99]

11 hours ago, vikesfan89 said:

Is there any hope for your cousin figuring it out? I couldn't imagine having that much debt. 

 

No. It'd be theoretically possible if they wanted to. Sell their house, declare bankruptcy, get low paying jobs with student loan forgiveness, and live on the bare minimum. They'd be fine.

But they're happy this way.

[JBURGE]

On 2/14/2018 at 9:37 AM, ramssuperbowl99 said:

They have at least $150k of student loan debt with no ability to get them forgiven and bought a $350k house on a combined salaries of maybe $100k with no significant upward potential. They also financed a huge wedding (at least $40k), have new cars, had previous debt from trips in college (though that may have been wrapped up in the student loans, but it wasn't going to Mexico for spring break, it was a 2 week European vacation).

This isn't a case where they are secretly buckling down to support their lifestyle or nailing a budget. They've openly talked about how they'll be paying down their student loans for 20 years and their house long beyond that.

Just crunched some loan numbers... I have no idea what interest rates in the US are (I'm in Canada) so I just mocked some stuff.

Mortgage of $350k @ 30 year amortization, 5 year term @ 3% interest, payments of $1472 monthly
Student loans of $150k @ 20 year amortization @ 5% interest, payments of $985 monthly
2 car loans, $25k each total $50k @ 7 year term @ 1% interest, payments $616 monthly
Wedding loan, $40k @ 5 year term, @ 8% interest, payments $808 monthly 

Total payments: $3,881

Total income = $100k / 12 monthly = $8,333

Not great, but they don't need to look at bankruptcy. There is a light at the end of this tunnel, they just need to sit down and work on discretionary spending. Obviously not an ideal situation, but pretty common. Typically with student loans that high you're looking at jobs with higher income potential.... private school lol. If they start getting into credit card trouble then they're screwed

[theJ]

1 hour ago, JBURGE25 said:

Just crunched some loan numbers... I have no idea what interest rates in the US are (I'm in Canada) so I just mocked some stuff.

Mortgage of $350k @ 30 year amortization, 5 year term @ 3% interest, payments of $1472 monthly
Student loans of $150k @ 20 year amortization @ 5% interest, payments of $985 monthly
2 car loans, $25k each total $50k @ 7 year term @ 1% interest, payments $616 monthly
Wedding loan, $40k @ 5 year term, @ 8% interest, payments $808 monthly 

Total payments: $3,881

Total income = $100k / 12 monthly = $8,333

Not great, but they don't need to look at bankruptcy. There is a light at the end of this tunnel, they just need to sit down and work on discretionary spending. Obviously not an ideal situation, but pretty common. Typically with student loans that high you're looking at jobs with higher income potential.... private school lol. If they start getting into credit card trouble then they're screwed

Agreed.  Sell the cars, and if not upside on the house sell it too and move down.  Probably can reduce those payments by $1000-1500 and knock the rest of it out quicker.  No need for bankruptcy.

[ramssuperbowl99]

Thanks guys, yeah they aren't completed dead and buried if they stop spending. What's going to probably kill them is that they won't, and even if they do spend the next 20 years clawing out of it one loan at a time, their kid will be in school already.

I'm gonna start funding a 529 for a few years and see how things change.

[JBURGE]

2 hours ago, ramssuperbowl99 said:

Thanks guys, yeah they aren't completed dead and buried if they stop spending. What's going to probably kill them is that they won't, and even if they do spend the next 20 years clawing out of it one loan at a time, their kid will be in school already.

I'm gonna start funding a 529 for a few years and see how things change.

In Canada we have a plan called an RESP (Registered Education Savings Plan) that is similar to a 529. Does the government match contributions to the 529 at all? And if yes, does the primary caregiver of the child need to sign to authorize you opening the plan? 

That's all true in Canada. Just asking questions to avoid an awkward convo with them about it. 

Edit: nevermind. I looked it up. The donor gets tax benefits for contributing. blah

[ramssuperbowl99]

22 minutes ago, JBURGE25 said:

In Canada we have a plan called an RESP (Registered Education Savings Plan) that is similar to a 529. Does the government match contributions to the 529 at all? And if yes, does the primary caregiver of the child need to sign to authorize you opening the plan? 

That's all true in Canada. Just asking questions to avoid an awkward convo with them about it. 

Edit: nevermind. I looked it up. The donor gets tax benefits for contributing. blah

Yeah it's different. I get a tax deduction, can make myself the beneficiary (so I don't to call and ask for the kids social security number), and can switch the beneficiary whenever with no penalties or anything.

[Heimdallr]

6 hours ago, JBURGE25 said:

Total income = $100k / 12 monthly = $8,333

Gross or Net income of $100k? Because when most say they make "$100k", the monthly take home pay is probably under $5,000 per month

[JBURGE]

Just now, Heimdallr said:

Gross or Net income of $100k. Because when most say they make "$100k", the monthly take home pay is probably under $5,000 per month

Gross. You look at gross when doing ratios because tax is variable

[JBURGE]

5 minutes ago, ramssuperbowl99 said:

29 minutes ago, JBURGE25 said:

In Canada we have a plan called an RESP (Registered Education Savings Plan) that is similar to a 529. Does the government match contributions to the 529 at all? And if yes, does the primary caregiver of the child need to sign to authorize you opening the plan? 

That's all true in Canada. Just asking questions to avoid an awkward convo with them about it. 

Edit: nevermind. I looked it up. The donor gets tax benefits for contributing. blah

Yeah it's different. I get a tax deduction, can make myself the beneficiary (so I don't to call and ask for the kids social security number), and can switch the beneficiary whenever with no penalties or anything.

Gotcha. So the 529 is much more beneficial for the plan donor than it is for the child. It's completely the other way around in Canada. The government will contribute 20% of your contribution to a maximum, but if the child doesn't go to post-secondary, they claw it all back, and all growth in the plan gets donated to a college/university of your choice. So basically you get return of capital and nothing else (and contributions are not tax deductible)

[ramssuperbowl99]

3 minutes ago, JBURGE25 said:

Gotcha. So the 529 is much more beneficial for the plan donor than it is for the child. It's completely the other way around in Canada. The government will contribute 20% of your contribution to a maximum, but if the child doesn't go to post-secondary, they claw it all back, and all growth in the plan gets donated to a college/university of your choice. So basically you get return of capital and nothing else (and contributions are not tax deductible)

tbh it's free money for the kid which is a pretty good deal. 

If I don't use the money on education-related expenses, I get the contributions back, but pay full taxes and a 10% penalty on the earnings. Pretty similar set up, though I like the government kicking in 20% better than letting the taxes get deducted.

[JBURGE]

6 minutes ago, ramssuperbowl99 said:

tbh it's free money for the kid which is a pretty good deal. 

If I don't use the money on education-related expenses, I get the contributions back, but pay full taxes and a 10% penalty on the earnings. Pretty similar set up, though I like the government kicking in 20% better than letting the taxes get deducted.

Me too.

10% penalty on growth? Wow... that's not too bad since you get to keep most of the growth.

For us, the contributions aren't tax deductible. but the growth and government contributions are tax sheltered until withdrawal. The withdrawal is then taxed in the beneficiaries name (bene has to be the kid. As a student, you essentially need to make ~$22k in a given year to pay taxes once you add tuition and books cost to the poverty line, so in most cases, the growth is tax free. 

But Canada finds other ways to tax you. Taxes are so complicated here

[ramssuperbowl99]

36 minutes ago, JBURGE25 said:

Me too.

10% penalty on growth? Wow... that's not too bad since you get to keep most of the growth.

For us, the contributions aren't tax deductible. but the growth and government contributions are tax sheltered until withdrawal. The withdrawal is then taxed in the beneficiaries name (bene has to be the kid. As a student, you essentially need to make ~$22k in a given year to pay taxes once you add tuition and books cost to the poverty line, so in most cases, the growth is tax free. 

But Canada finds other ways to tax you. Taxes are so complicated here

10% penalty plus the taxes. So basically you end up with 10% less than if you had invested outside the 529.

[JBURGE]

5 minutes ago, ramssuperbowl99 said:

10% penalty plus the taxes. So basically you end up with 10% less than if you had invested outside the 529.

So the entire value of the plan get's added to your income for that year, plus you pay an extra 10% on growth? You know what, that kinda sucks tbh. 

Example: So you save for 15 years for the kid, have 50k in there in ~2035 when he's ready to go to school. 30k was contributions (2k a year, deducted annually) and 20k growth. The kid decides not to go to school. So you have to add $50k to your income in 2035, and surrender $2k (10%) of the growth?

That is certainly...interesting. Screws you for one year, unless I assume you can just put the balance in your 401k and deduct the total from your income to offset