Managing debt and planning for the future

I would really appreciate some feedback/suggestions for improvement on my financial situation.

Age 28, married, no children, living in a suburb of a major Metropolitan Area

Income:
Me: $60k + $20k/yr toward student loans + 5% 401k match, working in a very specialized mechanical/electrical field
DW: $35k, working as a part-time private school teacher
Additional: ~$10k additional using various side-income streams.
Outlook: DW's income is unlikely to change much in the future. Mine is scheduled to increase to 62k next year and 70k the year after. Then it should jump to at least $200k. Uncertain after that.

Monthly costs:
Food: $300
Gas/Car Insurance: $300
Health insurance: $250
Phone (total): $120
Rent: $1000
Student loans: $500
Misc/Entertainment: $300

Debts (All Stafford Student Loans):
Me: $140k with AVG ~5%
DW: $60k with AVG ~6.5%
We're on an IBR plan and pay a total of $500 per month
No credit card or other debt

Assets:
$5000 Vehicle
$2000 DW's vehicle
$70k savings in various high-yield accounts (4-6% interest) when it isn't being used for churning
$50k investments: $40k in ROTH managed by a financial counselor which I pay $35/yr (hasn't done much in 5 years) and $10k in 401k and other investments

Summary: DW and I have really thinned our spending. We are recently FWF-reformed and try not to spend anything unless we get a good deal. We have found that NOT spending money is actually pretty fun and we no longer equate spending money to having a good time (or success). We made some mistakes with overspending in college and have to deal with that now, but we have learned so much since then.

My financial counselor only charges me $35/yr because it's a friend, but I've made next to nothing in my ROTH in the last 5 years which really sucks. I really have no idea how to manage investments and would really like some advice on where to start with that. The other issue is trying to balance our current savings with paying off our loans. Our thought is that it will be less burden with my increased income in 2 years than it is now, so we'd like to have this safety net for the next 2 years even if it costs us a marginal difference in interest. That and I may find other loan repayment options with future employers.

Thanks so much for reading. Bring on the pain!

what mutual funds are you invested in in your roth and 401k? including ticker symbols and % of the 50k investment per mutual fund would be helpful.

70k is a lot for an emergency fund. would you feel comfortable putting some of that toward your loans instead? that is a guaranteed 6.5% return right there.

can you give more details on your 70k in the high yield accounts? how much is earning 4%, how much is earning 6%? is it always going to be earning this much?

Who goes from 70K to 200K in a year? Loans too small for JD or MD. I'd guess wall street, but you're obviously not a trader

Why is your strategy minimum payments on IBR with the student loans? How long have you been paying already on those? If you plan to increase your salary to $200k then you may not really benefit from long-term IBR payment loan forgiveness... in which case, what's the benefit of holding cash in a 4% account while accumulating interest at 6.5%?

I'd get the friend investments out of friends hands and instead pay off wifes student loans at 6.5% That leaves you only 10K left on wifes loans. Use 10K of savings account( the 4% stuff) to pay off wifes loans ( certain 6.5% return beats 4%)
You get 20K towards student loans a year with work so I would leave yours alone.

So now you have
140K student loans
60K savings

Now it depends on your near and long term goals and how likely you are to move.
You have a very high debt to income ratio so likely will have hard time getting mortgage. DO you want a house or are you happy renting? Do you want to move/likely will move in next decade?
How long before likely have to replace cars?
How long does the 20K year of student debt stay good? If you did not have that perk I would pay off your loans to reduce debt to income ratio and get a sure 5% return but that is a great perk and if stay at company another 7 years woohoo.

I would save and invest the remaining 60K with at least some accesible such that you could get at 10K if a car dies.
I would let work pay off student loans and save with idea of buying home.

Why is your wife working part time?

70k in cash is a 25 month emergency fund, assuming you both lose your jobs. Considering that you like to keep a lot liquid, I would cut your 70k in half and apply it to your wife's loans.

bullcity said:   Why is your strategy minimum payments on IBR with the student loans? How long have you been paying already on those? If you plan to increase your salary to $200k then you may not really benefit from long-term IBR payment loan forgiveness... in which case, what's the benefit of holding cash in a 4% account while accumulating interest at 6.5%?

These are two different concepts.

IBR is just the payment plan. It is ALWAYS either beneficial or neutral. The benefit is that the excess interest on the subsidized portion of your loans is forgiven above what the IBR covers for the first 3 years. You can do IBR and then selectively pay extra toward the loans that you choose on top of that. Once your income is such that the IBR is above the 10 year repayment amount, it defaults to the 10 year loan repayment plan, so it is always at least neutral. I have been paying on my loans for 2 years now.

Loan forgiveness is completely separate from IBR. You can qualify for loan forgiveness regardless of what payment plan you are on. I will likely not benefit from loan forgiveness but I do benefit from IBR waiving subsidized loan forgiveness.

The reason for minimum payments (at least on my portion of the loans) is that my employer is paying down the principle.

Your last point is completely valid, but I do like having the liquidity and I'd sacrifice more now to avoid the <2.5% difference in interest than I would once my income goes up.

Due to the timing your Roth not gaining much makes sense since you bought right before the crash.

How are you get 4-6% on your savings? I know it's possible on smaller scale, but that seems like a lot of work.

bullcity said:   Also, why is DW working part-time with no kids?

Great question. The teaching that she does must be done evenings/nights and weekends. She could potentially increase her hours by working weekends, but we'd have no time together since I work traditional hours. It isn't worth it to us. Plus, she takes care of the home including shopping, cooking, and cleaning, which saves us a great deal of money as well.

misterfixit said:   bullcity said:   Also, why is DW working part-time with no kids?

Great question. The teaching that she does must be done evenings/nights and weekends. She could potentially increase her hours by working weekends, but we'd have no time together since I work traditional hours. It isn't worth it to us. Plus, she takes care of the home including shopping, cooking, and cleaning, which saves us a great deal of money as well.

It may convenient, and something you're willing to consider as a trade off, but don't fool yourself into thinking it "saves you a great deal of money".

misterfixit said:   beatnik28 said:   misterfixit said:   bullcity said:   Also, why is DW working part-time with no kids?

Great question. The teaching that she does must be done evenings/nights and weekends. She could potentially increase her hours by working weekends, but we'd have no time together since I work traditional hours. It isn't worth it to us. Plus, she takes care of the home including shopping, cooking, and cleaning, which saves us a great deal of money as well.

It may convenient, and something you're willing to consider as a trade off, but don't fool yourself into thinking it "saves you a great deal of money".

That's true, but it certainly helps offset the loss

Not really, unless she's also couponing... most dual income homes with full-time working spouses don't pay other people to do the shopping, cooking and cleaning. She could increase her income by working another part-time job during normal working hours, since you're also at work. While it may be a good lifestyle decision for you guys for her to work only part-time, it's not a good financial decision.

misterfixit said:   $10k is in 401k which is invested in what's called "G Fund" (government securities)

$40k is split as follows:
$10k in RSGCX
$5k in RRSCX
$10k in FS Investment Corporation
$15k split among various First Trust funds including FT UNIT 2868 EMERGING MKTS STRENGTH, FT UNIT 2898 HEALTH CARE SELECT, FT UNIT 2915 BICK PORT, FT UNIT 3569 TARGET GLOBAL DVD LEADERS, FT UNIT 3615 DIVERSIFIED EQUITY STRATEGIC ALLOCATION. I couldn't find traditional tickers for these.

I would consider putting some of my savings toward DW's loans, but I also use it for some FWF-type "tricks" which have the potential to earn me far more.

My high yield accounts: $50k is making 4%, $10k is making 6%, and $10k is making closer to 10% from banking bonuses. It certainly won't last forever, but it's been this way for more than 1 year.
G fund is high yield cash, it's fine but not as hot a deal as it was before rates went to zero.
RSGCX is an active large/mid cap equity fund, with a 2% expense ratio and similar performance to the S&P 500. (Chart)
RRACX is a global REIT fund by Russell, 2.1% fee seems steep compared to RWX (foreign) and VNQ (domestic) ETFs with 0.6% and 0.1% expenses. (Chart)
FS Investment Corp is a non-traded business development corp. these are often sketchy and/or risky. (Risks, Discussion)

The fees on the Russell mutual funds seem pretty darn high and I'd want to know a lot more about this BDC before I'd think it was a good idea (I know some people who really understand those, but have no reason to believe OPs friend is one of the few who do). Further reading on FSIC shows it to be a reasonable, if questionably appropriate investment for OP (see link above). I don't know how good a friend this is, but these types of investments make me think he might be getting big commissions to put OP into expensive and/or illiquid investments. Consider yourself warned.

I want to recommend you keep your cash fund rather than pay down debt or invest. As long as you can find good uses like RCAs or bonuses to chase/churn, you'll do way better with less risk than market averages. Only if you find yourself not deploying large amounts of your cash should you consider paying down the debt. I've kept higher interest debt than you just in case good opportunities came up and I haven't regretted it for years now.

bullcity said:   Sorry, I wasn't super clear in my post. However, how do you figure that IBR is ALWAYS either beneficial or neutral?

The benefit of IBR is that it forgives your additional subsidized loan interest (beyond what is covered by your payment) for the first 3 years. You can pay extra on top of that if you so choose, toward whatever loan you wish. After 3 years, that benefit goes away, but you can continue to pay extra toward whatever loan you choose. The only way it is ever neutral is if you make so much that the IBR payment is higher than the 10 year loan repayment, in which case it defaults to the 10 year loan repayment. Can you explain how you think IBR could ever be detrimental?

bullcity said:   Also, seriously doubt all of those loans are subsidized Staffords, so you're accumulating interest, and in a year you'll be accumulating interest on both sets and facing compounding of the interest. The gist is that you are "buying" your liquidity; that's up to you, but in my own budgeting I view that as a poor purchase that is pretty easy to remedy.

Correct, I am buying the liquidity. However, it's what I can do with that liquidity that is important. Having the money to churn FWF deals and other opportunities makes up for the marginal difference in interest (which right now is negligent and may even be in my favor). The money doesn't just sit in the high interest accounts all the time - I sometimes cycle it out for a deal that comes up. Not to mention that the small amount that I could conceivably save off the difference in interest over the next 2 years is less than a month of what my increased salary would be. Thus, this amount of savings means a great deal to me now, but conceivably much less later.

misterfixit said:   harruin said:   Due to the timing your Roth not gaining much makes sense since you bought right before the crash.

How are you get 4-6% on your savings? I know it's possible on smaller scale, but that seems like a lot of work.

Various RCAs. It IS a lot of work.
What line of work outisde of MD or JD goes from 70k to 200k in a year? What is your degree in?

xerty said:   misterfixit said:   xerty said:   The fees on the Russell mutual funds seem pretty darn high and I'd want to know a lot more about this BDC before I'd think it was a good idea (I know some people who really understand those, but have no reason to believe OPs friend is one of the few who do). Further reading on FSIC shows it to be a reasonable, if questionably appropriate investment for OP (see link above). I don't know how good a friend this is, but these types of investments make me think he might be getting big commissions to put OP into expensive and/or illiquid investments. Consider yourself warned.

Thank you so much. So your recommendation would be to pull out? I think that's reasonable. ~2% is a lot higher than I realized.
Most likely, yes. The thing isn't the high fees (which do suck), since the investments I checked were broadly keeping up with the market in spite of these, although for equal performance I'd always pick the cheaper alternative (note I edited my comments on the global REIT fund - its worse than I thought since its got 1/2 in the US and the US RE market has handily outperformed both foreign and this fund). The thing is that for your $40k portfolio, I have a hard time believing any sensible person would have 25% allocated to a single non-traded BDC. Certainly not without discussing it in depth with the client and getting them on board, and even then I expect it'd be mostly a sales job to earn that 7% commission (mentioned in my discussion link) rather than because mid-market junk bonds are just the right fit for your portfolio and risk tolerances .

Did you ask for this, or did he talk to you about it? Did you know what a BDC was before you posted? If not, I'd ditch him because he's not being a responsible advisor, regardless of the investments' performance.

No. I didn't know any of this. Thank you for your input.