# Reader Case Study: ‘Stashless in Seattle

## By Mr. Money Mustache

## Tue, 16 Apr 2013 18:17:45 +0000

It has been a while since we did a real case study, and many readers have been telling me they are itching for the voyeuristic yet enlightening fun of analyzing somebody else’s financial situation.

But I try not to repeat studies that are too similar to previous ones, and we’ve now covered a pretty wide range: minimum wage, new graduates, ambitious young ‘stashers, mega student loaners, middle-income families, high-income spenders, and even reformed spenders.

But today’s study covers a slightly different niche: a young couple of average income, saddled with heavy debts from earlier times and hoping to get ahead while living in an expensive area.

Dear MMM,

I’ll admit it upfront, this is a case study request. My husband and I are 26 and 25, respectively, and in the throes of trying to rearrange the havoc of our financial past into a more promising future. I was just reading this guy’s case study:

https://www.mrmoneymustache.com/2012/08/31/reader-case-study-portland-man-thinks-hes-doing-well/

And I came to the conclusion that, while his income level does make things interesting, I would like to hear the version for the folks with NO assets, plenty of debt, and mediocre incomes. I.E. most twenty-somethings that I know.

We have read quite a bit of your blog at this point, and had implemented some of your frugality techniques just for survival well before we know about MMM. So we’re at a small loss at where we can improve. Actually, that’s a lie. I know of at least one screaming hole in our finances, which is itemized below.

My husband is makes 27,000 annually and I make $52,000 annually. I would really like to be able to buy a house (I’m good with a fixer-upper in a ‘burgeoning’ urban community) by my 30th birthday. We would also like to be able to have a kid around that time. Retirement would be a nice thing to think about some day.

So here’s the financial picture:

Annual Income: $79,000/yr
Monthly Pay after deductions: $4825

Combined Debt: $54,815 (not including car, which is listed separately below)
Monthly debt payments: $570
(About 90% of that is Student Loans, the rest can be called Bad Decisions)

Car Payment: $293 of remaining $11,784 for our one shared car. We carpool for four miles round trip every day. I work a mile away from my husband, so I walk from his work to mine. Our monthly gas bill is right around $80. Our renters and car insurance is a combined $135

Rent: $1500 – We live in a large apartment and have a dog, which implies a rent premium. We also live in Seattle where there is a shortage of rental units and we’re competing with Software Developers galore for housing. So rent is just darn high around here unless you want to commute.

Groceries CURRENTLY: about $500/month
Eating out CURRENTLY: about $300/month
…we have very high quality fat on our bodies?

Internet: $55/month
Utilities: $90/month
Cell phones (under contract for another 12 months): $135
Bus pass: $30/month
Netflix: $8/month
Treehouse (love it!): $25/month
NPR Membership (the bi-annual guilt trip is too much to handle): $10/month

Our ONE asset is my 401K, which I have a 5% deferral into and 3% employer matching.

Our remaining balance is historically obliterated by stupid spending, leaving us at month-to-month paychecks. But, we only saw the light two weeks ago.

Theoretically, even with the outrageous food bill we should have $723 every month left over. But we never do. I have been debating donating eggs to pay off a nice chunk of our debt so we can start moving forward with our life goals, but I’m curious to hear your thoughts on this picture first.

‘Stashless in Seattle

Dear Stashless,

While you’re not quite on the right track yet, I think you are teetering on the edge of it and will soon click in. You seem to have the desire to change, you’re doing research and starting to track the numbers, and reading Mr. Money Mustache. Even more importantly, you are applying some friendly self-mockery to acknowledge that things can be improved, and I detect no degree at all of complainypants disease. You are ready for the embrace of your fellow Mustachians.

On the bright side, you already have a pretty solid combined income. While either salary alone may sound rather average on its own, when added together you have a healthy number, which is the great financial magic of pairing up (whether it’s in a traditional relationship or taking on roommates for single people). Also, you live close to work and probably close to many other amenities, which spares you from commuting expenses that can range into the thousands of dollars per month for the long-distance commuters you see streaming into your city on the interstates every morning. So, good job.

What needs fixing? I can see three main things:

1: The Mindset Regarding Debt. In case you hadn’t noticed, you are in an EMERGENCY!! right now. I like to describe financial life as having two stages:

- Escaping from any cauldron(s) filled with boiling lava and poisonous snakes.
- After the escape, choose your own pace of savings to continue building wealth until you reach financial independence.

While the second stage will vary depending on your own values (how much you value work vs. free time, your abilities and interests, etc.), the first one should be viewed as non-negotiable. If you have consumer debt (i.e. you borrowed money for anything that depreciates), you have fucked up. A car definitely falls into this category. So it is not Luxury Time, it’s Fix the Mistakes time. Student loans, while more noble in purpose, still need to be paid back before you go out and start hiring people to prepare food and coffee for you, so keep this in mind when making future decisions.

2: The Car: This seems to be a recurring theme in these case studies, but alas, I have to say it again: You can’t afford a car that is so expensive that even the remaining balance is $11,784. Even the Money Mustache family, with no debt and enough savings to last more than a lifetime, has a 2005 car worth less than $7500 – and it is only with a guilty sense of overindulgence that we keep this fancy brand-new thing in the garage, because we don’t really need it.

With your commute being 2 miles – a distance too far to short to consider driving, you can easily sell your car on Craigslist and buy, say, a 1994 Accord wagon (market value about $1700) or similar to accommodate you and the big dog for those rare trips out of town. Savings: About $350/month in payments, insurance, and gas.

3: The Food: your food spending for two people shall hereby be reduced to a maximum of $300 per month. That’s about my own family’s spending, except scaled down by one person. This will keep you in the mostly-organic-luxury category, complete with grass-fed meats raised by fancy local hippie farmers, wine, beer, and the works, just like we eat here. But you’ll have to learn about Costco, home-cooking, and the concept of cost per calorie. And at least until the state of Emergency is lifted, you won’t be eating out. Because you’re in debt right now, anything you buy is effectively bought on credit. You won’t be borrowing for table service. Savings: $450/month

As for renter’s insurance and cell phones: you might want to at least do a bit of research on this. Does the insurance only protect your belongings in case of weird things like fire and theft? If so, you might want to drop that – your possessions are probably not so valuable that they need to be insured, and non-critical insurance is a bad bet. And ask about the cancellation penalty for your phone service. You could save about $110 per month by switching immediately to $10/month prepaid phone plans like we did, even while keeping our unnecessary fancypants iPhones. If your penalty is a few hundred dollars or less, you get an incredibly quick risk-free payback by making this switch. Potential Savings: $100+ per month.

$100+ per month cell phone bills are wise investments for CEOs who make back the cost with each phone call they make.. NOT for regular people with non-infinite money, and definitely not for people in debt!

As for the $723 per month you wisely say is “obliterated by stupid spending”, that is hard to address in detail other than having you re-read point #1. In a debt emergency, you don’t get to do any optional spending. You’re buying groceries, and any products required to allow you to do your job well. That’s it. No ringtones or iPhones, no purses or video games, and no lattes or salon treatments. There will be plenty of time for those things once you are a millionaire. The upside is that you do still have the right to get yourself a bike, which counts as a high-return investment rather than luxury spending. Savings: $700+ per month

If you can make these changes, the total improvement to your cashflow will be $1400+ per month, or $16,800 per year. And all of it will get added to your existing $570/month to debt payoff, eliminating all debts within about three years. There’s no need to think about stock investment at this point, as the interest rates on your debt will provide plenty of guaranteed ‘return’, and the constant cashflow drain of debt payments puts a real crimp on your lifestyle options right now. To get the most out of your parenting plans (and avoid the biggest cause of arguments and divorces), you’ll want this stuff long gone with before the first child arrives.

And given Seattle’s high Price:Rent ratio there is no sense saving for a house downpayment while still in debt either – you’d be paying the high interest rate on your debt, while earning under 1% on your checking or savings account. For now, keep all green paper employees working for you, not against you.

At this point, you’ll have a cashflow surplus of $23,640 per year, which is close to 50% of your take-home pay. That puts you on track for financial independence in your late 30s or early 40s, even assuming neither of you ever gets a raise.

But of course, Ramit Sethi would not allow an analysis like this to slip past without pointing out that you can also earn more money. Much more. You live in a city that is sloshing with money and has a permanent shortage of skilled workers, which drives up salaries and demand for all services. Unless you are married to your current occupations, keep working the system and finding ways to earn more.

The benefit of living in a high-cost area is proximity to high-paying jobs. That’s what drove the costs up in the first place. So if you ‘re going to continue living in such an area, at least take advantage of its primary amenity – the money! I like to use $100,000 per person per year as the rule of thumb for when it is worthwhile to focus on earning more. Beyond this level, you reach financial independence so quickly (7 years or less) that there are not many years left to chop, and you can start making other preparations instead.

Building your skills with Treehouse as you are doing is one good technique. Working on resumes, job-switching, and entrepreneurship is another one.

Although the case study presented a few new tweaks, I can definitely hear some familiar ranting in my response. I hope this advice proves enlightening to at least the newer readers in the group, and I wish a Big Stash upon these new Seattle friends.