- April 6, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Current Financial Situation and Concerns
I recently purchased my first home within the past 6 months with a 30-year fixed-rate mortgage. However, due to a recent job change, my salary has significantly decreased. This has prompted me to focus on budgeting, cutting costs, renting out a room, and exploring part-time job opportunities to alleviate financial strain.
## Detailed Financial Breakdown
Currently, my salary is $100,000 annually (after taxes, insurance, and 401k deductions), translating to around $900 per week, which falls just short of covering my monthly mortgage payment. Additionally, I have the potential to receive a bonus of up to $30,000 based on task completion, which could help offset some financial burdens.
In terms of assets, I possess the following:
– Checking/Savings: $8,000
– Money Market: $175,000 (5% interest)
– CDs: $58,000 (4.55% interest with no penalties) and $25,000 (5% interest for 18 months as an emergency fund)
– Vanguard Account: $58,000
– 401K: $157,000
– Company Stock: $150,000
On the debt side, my mortgage amounts to $4,000 per month at a 6.75% interest rate for a 30-year fixed period. The current value of my home stands at $775,000 with a remaining mortgage balance of $620,000.
Additionally, I make weekly contributions of $100 to my Vanguard account and $413 to my 401k to maximize benefits. I am also contemplating opening a Roth IRA, as I have previously been ineligible due to higher earnings.
## Planning for Financial Stability
Despite my reduced salary, I have no other debts apart from my mortgage and a substantial amount of savings to tide me over until my income increases. My aim is to surpass the $160,000 income mark within the next few years, ensuring that my mortgage does not exceed 30% of my earnings.
## Seeking Financial Advice and Strategies
In case of financial constraints, I am contemplating adjustments to my investment contributions. My initial plan involves halting contributions to my Vanguard account before considering reducing my 401k contributions. Given the substantial match offered by my employer (typically over 20%), I am inclined to prioritize other sources of funds before tapping into my savings. This plan includes utilizing my $58,000 CD first, followed by accessing funds from the money market if necessary.
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****** just grabbed a
You got a 4000 month mortgage on 100k salary? Even with no other debt. You’re almost 50% DTI ratio. Then you got your investments and taxes. How do you have any money left over?!
call me dumb but, this would be easier to follow if all your numbers were monthly considering that is same time frame bills are paid on.
Anyway, not gonna do the math but, I’d pull from whatever pile is making the least in interest and/or less interest than the rate on your mortgage while factoring in which will trigger the smallest amount of capital gains tax due.
I definitely would not sacrifice the 401k match or significantly reduce your available liquidity give your employment position seems potentially unstable at the moment.
obviously your current income is too low for the house you bought but, I don’t know what you were making before, why you ended up w/ lower salary or what housing market is like in your area.
Edit: actually, this whole thing is hard to follow the way your wrote it… is 100k/yr your new gross? or are you saying your take home is 100k/yr after taxes/insurance and your 401k contribution?
You may consider using some of that cash and asking your mortgage servicer if they allow for a recast. With a recast, you re-amortize your mortgage by putting cash down reducing principal. The cash payment doesn’t reduce the duration of your loan but instead reduces monthly payments. I don’t think you need $266K in cash (even with good interest rates). You may be able to put $100K down, reducing your balance owed to $520,000 and your mortgage to $3400/month or so. Something to consider – and you’d have to run the numbers to make sure they make sense, but they should since your mortgage APR is higher than your cash APY.
Why does your taxes+401k+insurance equal 50%+ of your weekly pay?
Is this going to be a forever home/longer than 7.5 years? If so, recast the loan with 100k from the MMA or even drastically 150k drops that payment way down, and you are in the 1st year of the loan anyway.
100k
Recast Mortgage Balance: $520,000.00
Monthly Payment: $3,352.95
150k
Recast Mortgage Balance: $470,000.00
Monthly Payment: $3,030.55
It is worth attempting to maintain your 401k contributions because of the company match. Honestly with a 20% company match, that would have been the correct place to dump money rather than a house. But what’s done is done. Now you have to consider some serious risk issues that will arise with your thinner portfolio and less margin for error on income minus expenses.
In particular once you start using up your CDs to cover expenses, you look wildly overleveraged long the market. Your home (presuming you live in a mid to high COL region) is basically a proxy for equity prices. You are leveraged long there. More risk from so much in a single name equity, made worse by it also being the source of your wages. You are literally one bad stock market downturn from being financially nuked.
One alternative would be to use your Vanguard fund (which I presume is a stock fund) to cover your short term negative cash flow. Then increase your 401k contributions, using your CDs to cover the additional negative cash flow. This effectively trades $1 of liquid pseudo-cash (CDs) for $2 of more restricted investments. Of that additional money shoved into your 401k, make at least 50% money market funds and the rest whatever risk profile you can tolerate. For example if you cash in $20k of CDs to fund an additional $20k of 401k contributions, and place them (with the company match) $20k in money markets and $20k in S&P500, you have maintained the safety of your $20k, and are basically playing the market with the $20k match. It’s tough to lose that scenario. Good luck!