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Taxes and insurance are typically included when someone mentions their "payment", so I'm assuming that to be true here.
I didn't think of that, but you could be right. But maybe not. Some people pay their property taxes every 6 months.
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Originally Posted by hikernut
Of course the carrying costs are higher with a bigger house, but again you seem to be assuming it's some McMansion they are living in. We really don't know. It could be a 1400 sf ranch house in an expensive area.
Edit: His profile shows a zip code that's in Thousand Oaks, CA. I don't know anything about the area, but apparently that's where they live.
Thousand Oaks is a nice suburb of L.A. It's upper middle class-ish, but not necessarily McMansion-ish. So not necessarily a huge house. So it appears your were mostly right in your assumptions.
OP is a first year pilot for SWA. Thousand Oaks is where a lot of the pilots live in and around LA.
His pay will increase over time going to mid 100's within a few years and stagnating around $180k-$200k for about a decade where it will climb into the mid $200's on the lower end. Still way too much of a mortgage IMO for now but there is hope.
I'm surprised his take home is as much as he stated. First year pay there is generally in the 80's which is a FAR cry from a take home of $8k. I'm thinking that is where the CC dept has come from.
In short a smart move coming from China but it will really hurt his first couple years.
In China the typical pay is $20k-$30k a month, he should have a lot more money saved up than he does. Pilots all know the first year paycut is coming, most plan for it.
We don't know where the OP lives, so this may or may not be a wealthy area. Regardless, your point is valid. It's tough to downshift one's lifestyle. But that's their reality as I see it. Having $4k/month to spend after making the house payment shouldn't require a poverty lifestyle. Cut out the travel, the restaurants, and any other expensive habits. Drive an old car with no payment and only liability insurance. If his income rebounds as fast as he expects, all of this can be temporary.
He also still has the payments on the CC debt and small children. I don't know what the payment is on 40K of CC debt, but I would think it is spendy. He mentions one car is paid off, but is there any other car debt? He could probably still do it and it will probably be good for them long term. It sounds like there was a spending problem when he made more. No savings other than 401k, 401k balance is pretty low, 40k in CC debt. Getting some good habits now, could improve their savings, as his income increases.
Good Luck. If you have any toys, it might be a good time to sell some stuff to make a dent in the CC.
He thinks it will be temporary, yet I wouldn’t count on it until it happens. Plus, he will still be playing catch up.
Good point. The problem a lot of high earners have is they think "there's more where that came from" and that they'll just eventually outearn their financial problems. Sooner or later, almost all of them will hit a wall with that. Earning a lot is great, but you still have to pay attention to the frugality side as well because most people find it easy to spend up to the limit of any income.
Earning a lot is great, but you still have to pay attention to the frugality side as well because most people find it easy to spend up to the limit of any income.
Especially when a high(ish) income gives you the financial leeway -- to play a little bit, buy some toys, travel -- AND save.
But yeah, you still have to pay attention to those goals or priorities and put them in a reasonable (which is of course subjective) relationship to each other and the money that's being made.
I have to say unless there were some unforeseen medical expenses in there....he sure doesn't have much to show for making all that money. And THAT, in my opinion is a darn shame.
Just let my steady take home pay be even 10K a month -- and see how I won't max out my my 401K, and IRA, and have a year's living expenses saved -- AND be able to have enough disposable income to NOT be 40K in credit card debt.
He may not even be a newlywed (or married less than even 3 years)....but why do I sense money spent on a bigger wedding than needed, a bigger car than needed......we already KNOW they spent too much on the house......
It may not even be the OP's situation and they're not the same person, but the first thing I thought of was a guy in NY/NJ area who posted here about his wife with a Master's Degree, who didn't want to work, but wanted a bigger house....and HE was working himself to death, talking about eating less to help their financial situation. So many guys get a spoiled princess of a wife that just wants, wants wants. And he makes good money that SHOULD be more than enough to really give them a good financial footing...but the spending on "wants" is out of whack.
Like I said, that may NOT be the OP's case but it is just what's come to mind.
You think the OP hasn't come back because he hasn't liked what he's heard? Uhmn....
-- to play a little bit, buy some toys, travel -- AND save.
(not that YOU do it, but) Too many put that saving task at the end of the page.
If anything is left over that they can't find a use for... maybe they'll save it.
The saving must come FIRST.
All income from all sources into the SAVINGS account first.
THEN decide what you NEED to take out to cover the budget.
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You think the OP hasn't come back because he hasn't liked what he's heard? Uhmn....
I cut him some slack. The pile on (advice or preaching) can be brutal if you're at the receiving end.
He's juggling a lot of issues and only some are financial.
I post a lot on the forums but almost never reveal any of my details...
and even less often any of the problems.
I don't think the house is the big problem. He said his take home was $12k-$13/month in the old job, and the house payment is $4k. That's 1/3 of his net, so probably around 1/5 of his gross. Right at the moment the ratio is not so good, but he says that will be temporary. The cost of selling, buying, and moving is probably not warranted.
but that ratio is good for banks... not people
the 30% of paycheck for housing is based on qualifying for a 30 year mortgage, why people use it as a "standard" for housing budget makes no sense
oddly, the house payments seem high for 30 year mortgage, did he take it out for a 15 year mortgage? reason why people shouldn't try to save a few percents going 15 year route, gives less flexibility. you don't even save too much, a 30 year mortgage paid off in 15 years is just slightly more in interest payments but has the ability to not pay as much if they hit rough times. refinancing cost would negate any "interest" savings from a 15 year loan to 30 year loan.
why people use it as a "standard" for housing budget makes no sense
Because it allows them to fool themselves into buying/renting more than they can afford.
It's a pet peeve of mine:
One WEEKLY paycheck should be able to cover all of the MONTHLY housing costs.
12/52's 23% of your NET income and INCLUDING utilities and any other fees that are required.
As you mature and begin to earn more...
you'll have more and more taken out by pre-tax payroll deductions. Right?
The same 12/52's 23% of your NET still applies.
Less if you can manage it (as many do).
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