Author Topic: Case Study: Can I FIRE before I'm 40?  (Read 2149 times)

growingstaches

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Case Study: Can I FIRE before I'm 40?
« on: January 29, 2014, 09:59:02 PM »
I am a 35 year old engineer that has worked in cubicles all my life.
« Last Edit: July 17, 2014, 12:31:32 PM by growingstaches »

SwordGuy

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Re: Case Study: Can I FIRE before I'm 40?
« Reply #1 on: January 29, 2014, 10:35:49 PM »
I don't see life insurance for you and your wife or disability insurance for you.  You need to add that to the mix.  Once your wife has a higher income, disability insurance for her, too.
I assume health insurance is covered by your employer.

What's your take home pay?

Are you maxing out your 401k or IRA accounts?   

Are you wanting to go the rental property route or the stock market route to FI?




kkbmustang

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Re: Case Study: Can I FIRE before I'm 40?
« Reply #2 on: January 29, 2014, 10:36:13 PM »
What about medical/health expenditures, car maintenance, clothes, gifts, household supplies, eating out, vacation, etc.? I don't think you've truly captured all of your expenses here. Try using mint.com or some other tool to really capture your spending.

Also, I'm not a rental property expert, but you are barely cash flow positive on the property, much less allowing for vacancies, expenses for repairs, etc.

You have a nice positive net worth but a lot of it is wrapped up in your primary residence. Will you be moving once you retire or do you want to stay in your house?

Jappe

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Re: Case Study: Can I FIRE before I'm 40?
« Reply #3 on: January 30, 2014, 02:55:33 AM »
First thing that I noticed is that your interest rates on your mortgages are rather high (I don't know the rates in the US but 5.375 seems rather high). Especially on your rental you hardly make any profit cause you pay 5%+. I did a quick calculation and if I did it correctly it means you took out a loan of roughly 160k$ for that house. Selling for 124k would mean a rather big loss now so I don't know if it's worth it honestly.

However, if you can refinance that mortgage at the bank to for example a 4% mortgage, your monthly fee drops to 750-760$ which means a 1500$ win/year and then it might be a bit more worth keeping the house until house-prices rise again.
Try the same for the primary house although since you took that out 2 years ago there might not be a big margin.

For the rest, your expenses seem rather okay for a family of 3 (4 soon congrats :)).

matchewed

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Re: Case Study: Can I FIRE before I'm 40?
« Reply #4 on: January 30, 2014, 07:32:07 AM »
Given that you have no plans to move I would remove your house from any basic FIRE calculation. Eventually you'll be spending a minimum on it (insurance/taxes/maintenance) but you won't derive any value from it unless you do a HELOC which shouldn't be considered a source of day to day expenses.

With that in mind your basic question of can you FIRE before you're 40 would best be answered with some simple calculations for now. Your current expenses are about $55k. I understand that will go down when you've paid off your mortgages but let's just use it for now as a max amount of spending a year. We'll also assume you're saving the rest. That means you should be able to put away about $90k a year (give or take taxes). We'll also remove the value of your house, your rental house, and your cars for a portfolio value of $454k. Using networthify (really basic calculator) it would take you about 7 years to FIRE. So assuming you don't change anything, no you won't FIRE in 5 years. Keep in mind that your expenses will drop after the mortgage is paid off so the $55k isn't wholly applicable for the length of FIRE.

I would look into a cheaper refinance. Rentals are not in my expertise at all I'll let someone else tackle whether you should keep that or not. Your home does not need to be paid off before FIRE, just take into account that it will be in the future and adjust your plan accordingly.

All of this is just napkin math, as you keep optimizing, keep doing research and educating yourself for optimization and FIRE will come sooner.