Every Friday we dip into our mailbag and answer questions that our readers have sent in through our contact page. Today we are going to answer two questions that have come in from our readers.
Note: Apology for being a day late on this. I was on an international flight yesterday and was too jet-lagged to give fully thought-out answers, so this Friday Q&A is being posted on Saturday.
Amy from Texas:
Hey Mr. Money, I’ve been reading the blog and you haven’t touched on marriage and money at all. Have any advice for a gal that is getting ready to get hitched?
Amy, First of all congrats on your upcoming marriage. Marriage is a financial event as well as a personal one. Your email has inspired me to write a full post on this, which I’ll get started on soon, but in the mean time here is some advice.
You need to have a talk about money sooner than later. It’s important to understand how you and your partner spend money, how you view money, how you save and invest, and how you much you earn. If one of you loves to spend, spend, spend and the other is frugal this can lead to major headaches. You will each need to have some give and take. An example from my marriage: My wife likes to take nice vacations and pushes me on this. However, she also recognizes that saving on the routine items like groceries is important to me, so she’ll go out of her way to match my preferences on shopping.
You’ll also become financially entangled. You’ll be faced with creating joint accounts, filing your taxes together, getting home and car loans together, and more. Although you’ll now have your combined resources, it means that you’ll be financially linked for the next several years. It also means that if any of you have any financial skeletons in your closet the other person will need to help clean those up or it could derail your future plans. Make sure that you work through it all together.
Finally, and as much as I hate to say it, you need to be ready incase things don’t work out. We’ve all heard the stats on the divorce rate in America, and even if the 40%+ they advertise is twice as high as it actually is, it means there is a 1 in 5 chance you might have a split at some point. If there is a big disparity in wealth you may want to consider some kind of pre-nuptial agreement. Although these sound harsh, if you have substantial family wealth due to inheritance, you really should protect yourself.
Best of luck and look for a full post on this soon!
Frustrated in Arizona Asks:
Hello there! I’ve been at this for about 10 years now and I am still buried under an Everest-sized pile of student loan debt from undergrad and law school. That’s right, I’m a lawyer, make $150 grand every year and I STILL CAN’T PAY OFF MY LOANS. This is so frustrating. I’ve been making progress, but I still have $213,542 in student loans. With this much debt I can’t sleep at night. Help!
Wow. That is a lot of student loan debt, and I can understand your frustration. First of all you need to look at your budget. You are making a really good income, so you should have the ability to pay off your loans. I will assume that you have an Emergency Savings Fund and are putting money into your retirement accounts. If not, you need to get those take care of immediately before worrying about your student loan debt. I’ll also assume that you don’t have any credit card debt or pay day loan debt that is super-expensive.
You didn’t specify where you live in Arizona, so I’ll assume Phoenix or Tuscon. In both of these cities you should be able to live on an income of about $50k/year according to most sources. If you max out your 401(k) at $17,500/year then you’ll have a take home pay of $95k or so after taxes. That gives you a lot of buffer between the cost of living in Arizona and your income. Once you’ve looked at your spending set yourself a goal, maybe in your case of $25-40k/year of payments toward your loans.
With the amount of student debt you have, remember it will still take you 5-10 years in that case to pay it off in full. To accelerate paying it off you really only have a couple of options – try and juice your income by looking for the highest pay you can or cut your costs. For this amount of debt and for your profession I’d suggest going out and looking or higher pay. Can you work more cases? Are there certain cases that pay more per hour of your time (i.e., can you do cases like DUIs that aren’t sexy but pay lots)? Can you do work outside of your firm, like helping retirees with their wills or setting up trusts on so you can keep 100% of what you make?
Keep focused on the goal and keep your eyes on the prize. Also, don’t forget to look at refinancing to a lower rate – with the amount of debt you have interest is non-trivial, so look to see if you can find a rate that is significantly lower. At your income you should be able to refinance at under 3.5% if you shop around.
Hang in there!
Have questions? Drop us a message with questions about your finances and we’ll do our best to get them answered during our Friday Q&A.
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