23 M, quit my job, $45k savings. Just found out she’s pregnant

[lisette]

23 M, just quit my job, $45k savings, but just found out she’s pregnant.

Hello,

I just put in my 2 weeks in after I had my first $50k profit month in my new business.

Girlfriend calls me today and tells me she might be pregnant.

I just want some tips/pointers on what I should do given this situation.
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Debt:

$12k personal loan (22% interest)
$35,000 student loan (2%)
$3k credit card debt (20%)

My current expenses are

Rent: $1696 ( after everything)
Car: 574
Insurance:584
Full self driving: 200
Food: 300
Gas: 150
Personal loan: 475
Student loan: 275
Hair cut: 80
Gym: 20
Medication/therapy: $50-100

($4-5k) total a month

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Savings: $45,000 in a high yield account (4% interest)

——————————————————————————————

Credit lines:

$11k credit available

-$3k in debt

——————————————————————————————
Explanation/plan:

My income is dependent on how my business performs… In short I manage trading capital at a couple of institutions.

Over the past 3 months I’ve averaged $20-50k a month.

It’s relativity new, and cost to run the business is very low, but it’s high risk.

Figured that’s why I should build an emergency fund (1 year of savings) before I embark on the journey of quitting my job and going full time.

I’ve also realized any month I’m not performing up to par, I can doordash/Uber eats to offset the $4k cost.
——————————————————————————————
FYI

“How did you make $110k in 3 months but only have $45k savings” -

Most of my money went to paying down my debts/expenses…

Oh yeah and a new car- I know it wasn’t smart but makes me happy

Also to note:

The job I left was paying me $2600/ mo.

In short I want a good idea of my financial situation, and how to balance it considering girlfriend w/ no income (school/pregnant) and that I just quit my job.

Just really stressing right now and have a meeting w/ a financial advisor and accountant later in the week

Any advice would be greatly appreciated!

Update:

You downvoters hate honesty. It does the opposite of the intention of this post, which is to have a discourse to get on the right path. That’s all I’m doing. Trying to see what’s the best thing to do for my new family.

Some people are literally downvoting me even when I say I agree with the prior commenter, but then give my initial rationale behind my decision.

I’m 23 now and have made so many mistakes, I’m not perfect, and am self aware enough to see I have a lot to prepare myself for… hence why I made this post in the first place.

 

[cmata]

@lisette I’d start by paying off that personal loan and credit card immediately, those 20-22% interest rates are not doing you any favors, and would leave you with $30k in savings and free up around $500/month

 

[lisette]

@cmata My general rule for this is:

Instead of paying it all at once, 30% of any revenue I make, I use that to pay down both my expenses, and those stupid loans. At that rate they should all be knocked down in a year.

Feel like I’d shit myself if I only had $30k in savings, easing into my debt I think is a better option, but you have a great point.. 22% interest is rough.

 

[bunny136]

@lisette Stop. Pay off the high interest debt and continue on. Pay off your student loans as you see fit.

 

[breve]

@lisette What’s the point in putting your savings in a HYSA when you have $15k in debt with interest rates over 20%? That is the craziest thing I’ve read all day. Also- a $80 haircut can definitely be cut in half if you find the right barber.

 

[spoinge]

@lisette No way your savings has a higher interest rate than the 22% debt - you are losing money by choosing to pay that off slowly. The math says to pay that immediately.

 

[lisette]

@spoinge Not saying it does.

I’m saying cutting down this debt, cuts down my timeline to see this thing through- mounts more pressure.

That’s what the math isn’t accounting for, and why it’s tormenting me.

With savings from 45k to 30k by paying off the debt, if I perform poorly that takes me from 12 months to make this work down to 6 months.

 

[bunny136]

@lisette I thought you could Uber/doordash to cover your bills if you had to.

Mate, your logic just isn’t flowing for this, and that’s okay. That is why you asked the question. You also asked the question knowing the correct answer but wanting to be wrong.

I have made many many poor financial decisions in the past. I still Do sometimes. Even if you made $0 on your business and didn’t DoorDash you’d still have several months of run way. Infinite runway if you did door dash.

But if your business goes from 50k/month to nothing, you won’t need a runway. You’ll need a job. It will also be really helpful to have $600 less in monthly obligations servicing that debt.

I started a small business that will do roughly 2MM in sales this year. My first two years in business I had a kid and qualified for food stamps. I moonlit for three years while working a Full time job. I’m not talking out of my ass here.

Pay the stupid high debt off. Keep the car. Keep your haircuts. Live your life homey, and congrats on becoming a dad. Becoming a dad made me grow up in ways I never Could have fathomed.

P.S. throw half of your gross profits in the HYSA for the next few months and forget this ever existed.

 

[julius_cyrano]

@lisette You are taking out a $12,000 loan to put it into savings right now at 22% interest. Don’t do that it is dumb.

 

[katie_nyc]

@lisette I’d encourage you to build a spreadsheet model. You are losing a ton of money by not paying off high-interest debt.

 

[cmata]

@lisette

Feel like I’d shit myself if I only had $30k in savings, easing into my debt I think is a better option

It’s costing you more money in the long run. Any earnings from your HYSA is eaten up by the interest on your loans, and then some. Some quick math

$45k * .04 = $1.8k earned in interest (pre-tax)
$15k * .2 = $3k in interest owed

1800 - 3000 = -$1.2k every year, probably more after taxes

Whereas if you paid off the loans in full you get

$30k * .04 = $1.2k pre tax, which is still positive.

My math doesn’t take into account that you are gradually paying down your loans but your net income generated by keeping the 20% loans is still negative.

I get that lowering your savings by 1/3 doesn’t sound ideal but those loans are eating your savings alive. Plus if you’re making $20-50k a month with only $5k in expenses, your savings would be back up to where you had them within the next 30 days no?

 

[lisette]

@cmata My rationale is:

I’m scared.

Sure if I pay it off all at once it can save me $1200 down the line.

But in the context of that I’m trading that $15k which in my head =3-4 extra months to live to operate this risky business, in exchange for $1200 of savings it becomes trickier.

In my head I think it makes sense, if I pay it off with 30% of my profits I make this month, so if I fail to continue my success I have something to fall back on.

30% of what I aim to make will likely be enough to pay it off in full, I just don’t want to jump on it to quickly.

Does that make sense?

I get what you’re saying from a math perspective, but do you get what I mean from a life perspective including all factors?

By the way: before I get downvoted as I famously have been in this thread, in order for me to believe to do something it has to make sense.

That’s why I’m not blindly agreeing or saying yes, I need it to make sense so I can commit to it, that can only be done through discourse.

 

[youngseptember]

@lisette The question then needs to be how easy would it be for you to get another personal loan at 22% interest? If you need another loan if your business doesn’t work out as well as you hoped then get another loan. But paying off the loan now will save you money now.

 

[cmata]

@lisette I didn’t downvote you. I understand your rationale. It’s good to have savings to live on especially in an emergency or if your income isn’t guaranteed. If you spend around $5k a month, a $30k emergency fund will last you for 6 months, which is plenty of time to find another source of income. But if you feel more comfortable having closer to a year, there’s nothing wrong with that.

Think of it this way: it’s not just $1200 down the line that you’re saving; that’s only the interest you gain. In reality these loans are costing you close to $500/month, and paying that off means you get to save an additional $500 every month. Your cost of living decreases by $500. This can be used for savings or supplies for your kid.

Whatever you decide to do, at least take the advice of everyone in this thread and pay those off as soon as possible, it doesn’t have to be immediately if you really aren’t comfortable with it but I’m sure you realize it makes sense financially.

Also, since nobody has mentioned it yet, you said this income is not entirely stable, it’s high risk, and high stress. If you do decide to stick with this job/income, please think about if you will be able to handle the stress and demand of your job with the responsibility of being a new father. I wish you the best of luck with everything

 

[yorkshire81]

@lisette if you do have a kid coming, you’ll have a lot
more debt coming your way. start at ground zero instead of in the hole.

 

[godsfollower68]

@lisette You don’t have any savings if you have debt. Your net worth is essentially zero right now - and it’ll stay that way unless you make some serious changes.

 

[riskyboots]

@lisette Why not listen to people when everyone gives you the same advice? You could borrow more money if you needed for less than 22%. You get how percentages work, right? Even $1 at a higher interest rate costs you more if you put $1 towards a lower interest loan. It’s that simple. Pay the highest interest loan first and pay minimum on loans under your high yield savings account as a first step. For a loan well above prime pay it as fast as you can.

 

[resjudicata]

@lisette Pay off that interest. If you don't it's really going to eat at you over time.

 

[boxnes]

@lisette Do you really manage the finances of other institutions? If so hopefully this is not a recommendation you'd make to a client.

 

[resjudicata]

@lisette Do you think the ROI of your business is 25%? From an opportunity cost perspective, failing to pay down the high-interest debt is mathematically equivalent to that. If you think you have a 25% ROI cash out with your valuation