Author Topic: Case Study: Do you smell smoke?  (Read 4409 times)

lilstubbletgvp

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Case Study: Do you smell smoke?
« on: January 12, 2015, 04:07:49 PM »
Me:31 years old.
Wife: 29 Years old.

Short term goals to pay off MY student loans by the end of this year. Long term goals early retirement. I do NOT want to work till 65 or later. I am very new the ways of the mustache and am still learning much as i read the blog and browse through the forums.

Income:
 Me 49,000 annually. Wife 53,000 Annually, 100 weekly from mother in-law who lives with us (this is mostly for her part of the groceries and utilities)
Monthly income:
 6000 on average. (my income can vary month to month as i am actually hourly, some weeks i have more overtime available. I always have 4 hours of overtime per week.)

Expenses:
 Mortgage: 1706.04
 Cell phone: 90.00 (this is my wifes and MIL. we pay her part of the cell phone bill, mine is through work.)
 Internet: 40.00 (this is for 30MBS internet. We dont use cable so this supports hulu, netflix and other streaming. there are cheaper options available.)
 Hulu: 7.99
 Electricity: 105.00
 Water 36.00
 Natural Gas: 205.00 (gas and electric switch values in winter and summer)
 wastewater: 36.00
 Car Insurance: 72.86 (this is insurance for 2 vehicles, both payed off. 02 corolla and 2011 Rav4. Rav4 is full coverage, just liability on corolla.)
 Groceries: 650.00 This is for 4 people 3 adults and a 2 year old.  this also includes all toiletries, garbage bags, cleaning supplies, etc etc.. all household goods.
 Gas: 210.00 My wife works about 30 miles away and I work about 3 miles away from the house but my job requires me to be able to travel around the city.
 Eating out: 195.00 (i know we could cut this but my wife insists on eating out once a week with her co-workers, i havent been able to get her to agree to stop. This also includes 30 a week to eat out as a family. We usually dont eat out that much.
 Medical: 100.00
 Clothing: 100.00  this is mostly for the baby, she grows fast so needs new/gently used clothes.
 Hair cuts: 20.00 I cut my own hair and wife gets hers cut by her best friend at 20 bucks a pop, but she has to drive an hour and a half to get it done.
 Baby Expense: 100.00 diapers, wipes, etc etc
 Pet expense: 25.00 shots, etc etc
 Entertainment: 100.00 this is for if we want to go to the movies, or take our daughter to legoland or aquariums and such.
 Car tags and titles: 58.00
 HOA dues: 30.00.
 Student Loan Payment: 263.00
Total Expenses: 4254.00

Assets:
 15k in emergency funds.
 20k in My 401k
 65k in equity in our house.

Liabilities:
 Mortgage: 260k at 4%
 My student loans: 21k at 7%
 Her student loans: 110k at 3% (we are not making any changes to this as we file our taxes separately so that we can do income based payements. Reduced our monthly payment by 600 and the balance will be forgiven in 10 years (3 of which are complete) because she works for the government/in a non-profit.



Expenses from Car insurance and up are fixed and dont change much from month to month.  The categories below car insurance are all flexible and vary from month to month. The totals i have input are what i have budgeted in YNAB. My question is what fat can be trimmed? Any obvious holes?

Right now We only contribute to my 401k at a measly 5% and my company adds another 2.5%. I would really like to invest more, but want to tighten down the budget more and pay off MY student loans first.


dandarc

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Re: Case Study: Do you smell smoke?
« Reply #1 on: January 12, 2015, 04:24:22 PM »
What happens to the ~$1800 surplus each month?  If that is all being thrown at your student loans (which at 7% is an emergency-debt situation), you'll have them paid off in a year.  Even faster if you reduce your E-fund temporarily (with the plan to pay it back).

Kwill

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Re: Case Study: Do you smell smoke?
« Reply #2 on: January 12, 2015, 04:24:53 PM »
If your jobs are secure, what about sending half or even more of the emergency fund directly to the principal of your student loan? You would have to specify that when you sent the check since otherwise it would probably be applied to future payments. That would decrease the total amount you would pay back since you wouldn't be paying the 7% interest on that amount. It might also decrease your expected monthly payment, depending on how the company handles it.

Switching to Republic Wireless and not subscribing to data for awhile would cut over $60 from the monthly cell cost except that you'd have to pay for the phones upfront.

lilstubbletgvp

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Re: Case Study: Do you smell smoke?
« Reply #3 on: January 12, 2015, 04:45:24 PM »
Currently the extra 1800 a month is going to go to savings. we just started YNAB and the 1800 a month is not set in stone yet. I have to convince my wife that YNAB is working after a couple of months and then we will start paying it down very heavily.  Our jobs are secure as they can be, but i am looking for a new job as my current employer vastly underpays me for what i do and my wife is in the process of starting a non-profit so her pay will probably be reduced by around 10k a year.

justajane

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Re: Case Study: Do you smell smoke?
« Reply #4 on: January 13, 2015, 08:11:01 AM »
I know babies grow, but $100 month is extremely high for clothing for a baby. If you do laundry frequently, you don't need that many outfits. I can't fathom how used clothes for a child could cost anything close to that.

Your utilities are also rather high from my perspective. What is the square footage of your house? What is your climate? One of those bills (either electric or gas depending on the season) should be well under $100 for most of the year.

The haircut is not high per se, but you would also have to factor in the amount of money it is costing her to drive to her friend's place. Is it about more than just the haircut and is a friendship issue? I.e. she values the time she has with her? Otherwise, find a place closer.

catccc

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Re: Case Study: Do you smell smoke?
« Reply #5 on: January 13, 2015, 09:36:34 AM »
you are letting your baby cost way too much.  Clothes for her should cost $100 a year, not a month.  Shop second hand or hit up friends for hand me downs.  Switch to cloth diapers- just prefolds and covers, they are the best, IMO.  Easiest to maintain.

Your grocery bill seems high.  We can keep it around $400 for a family of 4, including two adults, a 6 year old that eats as much as an adult (seriously), and a 3 year old.  We eat good whole foods, with a mix of organic and sustainably raised foods.  Kinda low on the meat intake.

$20 a month plus that gas is expensive for hair maintenance.  Suggest a style that she can let go for a couple months at a time, or better yet, learn to cut her hair.  My husband cuts mine.  It started when my hair was long and I'd ask every few months for him to just cut straight across the back.  I got a pixie cut a year ago, which he has been maintaining, and more recently went for an edgier undercut, which he needs to cut more frequently.  He was decent to start and is getting better and better.  The best part is we can do it on the fly, any evening we are both home.

Your cell phones are costing too much, look into some prepaid options.  Who is your current carrier?

Your entertainment budget is a little on the high side.  Can you look into a membership at a place that you could go back to over and over?  It would probably be one month's worth of entertainment expense.  Toddlers like to do the same things over and over.  Movies are expensive.  I know theaters near me have specials on Tuesdays ($5 all day at one, $5.50 at another).  Bonus, it is less crowded than a Friday or Saturday.

$100 on medical a month- do you have access to an FSA at work?  That could help mitigate this expense.  Is whatever this is going to absolutely necessary?

You do better than my family on eating out... I think we usually spend about $200 a month.  Your wife can do her part by suggesting less pricey places for lunches.  I also do lunch with coworkers 2-3 times a month, it gets me connected to my coworkers and makes my work life much more pleasant since I know and like my co-workers.

Other than that, you are doing okay.  Congrats on starting YNAB, I really think this is a great tool for controlling spend.

Oh, wait, just realized that your kid is 2.  Cut out the diapers, it is time to potty train!  Both my kids were done with diapers between 12 and 18 months.

mm1970

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Re: Case Study: Do you smell smoke?
« Reply #6 on: January 13, 2015, 09:41:19 AM »
I know babies grow, but $100 month is extremely high for clothing for a baby. If you do laundry frequently, you don't need that many outfits. I can't fathom how used clothes for a child could cost anything close to that.

Your utilities are also rather high from my perspective. What is the square footage of your house? What is your climate? One of those bills (either electric or gas depending on the season) should be well under $100 for most of the year.

The haircut is not high per se, but you would also have to factor in the amount of money it is costing her to drive to her friend's place. Is it about more than just the haircut and is a friendship issue? I.e. she values the time she has with her? Otherwise, find a place closer.
That includes diapers.

Diapers, if you don't use cloth (and I don't) are easily $40-50 a month.  Plus wipes.  That's shopping at Costco.  $100 is not crazy (though I admit, we spend about $40 a YEAR on clothing for our 2 year old due to gifts from family and more importantly, hand me downs).

In fact, our older son still wets the bed, so you can add $20/month for nighttime pants for him.

Girls generally potty train better than boys, but our older child wasn't potty trained until almost 3.  Our younger son is a lighter sleeper than his big brother, so I at least have hopes that once the younger one is potty trained that we won't have so many more years of nighttime pants.

$650 for groceries may be a little high.  With work you can bring that down, but I admit - it depends on who is doing the work and the cooking.  I was pretty good at keeping our groceries at about $5000-6000 a year when there were 3 of us and I was working part time (30hrs/wk).  But now I'm full time, and I have two kids, and one of them is 2.  The 2 year old makes it very difficult. Partly the picky eating (though I don't really tolerate that too much), but partly just the general exhaustion that comes along with a 2 year old.  (Our grocery total last year was $10k, ouch!)  If you have help from mom that may be nice, but if one of you is working full time and trying to cut grocery bills to the bone, it is going to be harder (still doable).

At $650 a month, you are at $7800 a year.  I don't know where you live, that will be a factor - it's a lot easier to eat for cheaper in certain areas of the country. 
« Last Edit: January 13, 2015, 09:47:04 AM by mm1970 »

eyePod

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Re: Case Study: Do you smell smoke?
« Reply #7 on: January 13, 2015, 10:11:49 AM »
Going to chime in on the baby. CRAIGSLIST MAN! Mom's are giving away garbage bags FULL of clothes. We got one full for $25. A few shirts got donated due to stains, but everything else was worn once or twice. Fantastic deals. That's $1200 a year that your'e dropping on your baby. I don't spend that much on myself!

Future Lazy

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Re: Case Study: Do you smell smoke?
« Reply #8 on: January 13, 2015, 10:40:01 AM »
Current Timeline
Current Monthly Income: $6000
Current Surplus: $1746
Total Debts: $326,000
Total Amount Needed To Retire (25x Current Yearly Spending): $1,276,200

With your current surplus of apx $20,952 per year, invested each year, it will take you 25-26 years to reach your goal of 1.27 million and be debt free... Making you 57 years old at the time of retirement.
http://www.bankrate.com/calculators/retirement/roi-calculator.aspx

Room For Improvement:

Mortgage: $1706.04
Sounds like you live in a HCOL area, but even then, a 1.7k mortgage means lots of bedrooms. If you have an extra bedroom, or a room you are currently using as an office/play room/yoga studio/whatever, consider getting a roommate instead. In HCOL area Denver, where I am, an empty bedroom can get you $500/mo, and you can still charge for utilities or internet. See:
http://affordanything.com/2014/09/02/how-i-earned-an-extra-40800-in-two-years/
Potential Savings: $500/mo x Number Of Empty Bedrooms.

Cell phone: $90.00
Make the investment to switch DW and MIL to Republic Wireless, or another similar carrier. With RW...
$10/mo plan x two people, apx $25/mo (with tax) - Savings: $65/mo, or $780/yr
$25/mo plan x two people, apx $60/mo (with tax) - Savings: $30/mo, or $360/yr

Internet: $40.00
How many people are using your internet at once? Here, we get 7mbps from Century Link, and regularly have two people watching movies on netflix in different parts of the house + 2 people on cell phones using wifi + 1 laptop computer browsing the web + 1 desktop computer playing MMO games. 7mbps can support all of this activity. If there are cheaper options, even if it means less bandwidth, you should take them...
Potential Savings: $10/mo? More?

Electricity: $105.00
Natural Gas: $205.00
Since you mentioned that these switch with the seasons, that gives me the impression that your biggest pulls are heating in the winter (gas) and cooling in the summer (AC).
Total Energy: $310.00
I think you easily could cut this back 33% by changing the thermostat, making a solid effort to better insulate windows and doors, replace bad windows and weatherstripping around doors, and changing any light bulbs to LEDs and line drying your clothing... See:
http://www.mrmoneymustache.com/2011/05/10/ill-show-you-my-electricity-bill-if-you-show-me-yours/
Potential Savings: $100/mo... or more! 

Groceries: $650.00
See this recent thread: http://forum.mrmoneymustache.com/ask-a-mustachian/do-you-know-your-grocery-total-before-you-get-to-the-till/msg514787/#msg514787
I would safely say this should be no more than $150/mo per adult being fed, if you're not eating out at all, even including toiletries. Right now it's around 216.66 per adult person...
Try to buy staples whenever possible... And watch out for buying special things for the tot, like prepackaged foods etc. For example, if you like prepackaged applesauce, then buy some small 1 cup containers, buy applesauce in bulk, and make your own/reuse the containers. If nonperishable items are on sale, buy them in bulk and store the surplus!
Potential savings: $200/mo

Eating out: $195.00
Dinner With Family: $120.00
Meal With Coworkers: $75.00

I'm of the opinion here that the dinner out with family is what should be eliminated. You can get the same benefits of dinner with the family at home, by cooking a hearty meal for a fraction of the cost, and experience creating something together on top of that. The Meal With Coworkers that your wife enjoys, however, has benefits (like positioning, socialization and career advancement) that aren't so achievable by other means (like cooking at home).
Potential Savings: $120/mo, or $1440/yr

Gas: 210.00
Your Wife's Commute: Infinitely Expensive
According to the IRS, it's about $0.51/mi to drive around, including maintenance, gas, fees, etc. I have an older car with moderate gas mileage and high insurance cost, and it actually costs me about $0.57/mi.. While MMM's Ultimate Cheap Driving Estimate is something like $0.17/mi...

So, $0.51/mi over 60 miles a day comes out to $30.60/day. If there are 251 working days in a year, your wife's commute is upwards of $7680.60 per year. Isn't that more than a month of your combined income? By this math, her taking a non-profit position much closer to home (eliminate commute) for a pay reduction of 10k/yr, is actually just a difference of 3k/yr.
If invested, this alone becomes:
$120,705 after 10 years
$475,936 after 25 years
http://www.bankrate.com/calculators/retirement/roi-calculator.aspx

Your 6mi/day commute, on the other hand, costs about $3.06/day, or $768.06/yr, using the same math. I'm assuming the driving you're doing for the company is reimbursed? I hope so...

The Cost Of Time: How much is your wife paid, per hour? And exactly how long is her commute, in time?
If your wife is paid $25/hr, and makes a 2 hour commute every day, she's losing $50/day of her own time. If she does this for 251 working days in 2015, she's losing $12,550 per year. Of course, this isn't out of pocket cost, and instead of just perceived monetary cost of the loss of time...

http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

Clothing: $100.00
Can anyone sew? Try:
Making everything from scratch... OR...
Buying clothes that are too large, take them in, and then take them out as she grows.

Secret Of Life: Babies don't care what they're wearing, and in my experience, prefer to be naked anyways.
When the kiddo needs a new shirt, what does the conversation sound like?
"The kid needs new shirts. This very cheap $5 plain shirt will do!" or "Look at this one! It's pink, with little buttons and sequins and a unicorn! It's $35, but it's just going to go perfectly with these pink $20 shorts with flowers on the pockets!"
In other words, be careful not to be emotionally attached to your baby's wardrobe... Big useless money sink there.
http://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-monthly-clothing-cost-what-does-it-buy/msg505932/#msg505932

Going to chime in on the baby. CRAIGSLIST MAN! Mom's are giving away garbage bags FULL of clothes. We got one full for $25. A few shirts got donated due to stains, but everything else was worn once or twice. Fantastic deals. That's $1200 a year that your'e dropping on your baby. I don't spend that much on myself!
+1 Yes, eyePod.. Yes.

Potential Savings: $90+/mo

Hair cuts: $20.00

RE: Commuting Cost and Value of Time from above...

The haircut is not high per se, but you would also have to factor in the amount of money it is costing her to drive to her friend's place. Is it about more than just the haircut and is a friendship issue? I.e. she values the time she has with her? Otherwise, find a place closer.

Entertainment: $100.00

Ah... Your daugher is 2. Legoland is pretty cool, and I totally want to go there (because I love Legos!), but your daughter is 2. She doesn't know the difference between Legoland and a bathtub full of Duplos, to be quite frank. She also doesn't know the difference between the Aquarium and the fish store, or the Zoo and the pet store - and the pet store even lets you hold or pet the animals, wow!

It costs about $15 to go to the movies where I live, not including snacks or 3D/IMAX movies. Let's assume you see a movie once a month...

Potential Savings: $85/mo

Total Potential Savings: $1050/mo, assuming you rent out a bedroom, and not including any changes that you might make to commuting/gas costs, or (driving to get a) haircut costs...

New FIRE Timeline
Current Monthly Income: $6000
New Monthly Surplus: $2796
New Monthly Expenses: $3204
Total Debts: $326,000
Total Amount Needed To Retire Debt Free (25x New Yearly Spending): $961,200/color]

With this new surplus of apx $33,552 per year, invested each year, it will take you ~17 years to reach your goal of .96 million and be debt free...
http://www.bankrate.com/calculators/retirement/roi-calculator.aspx

Since you're currently 31, this means you would be working until you're 48-50... What is your age of retirement goal, anyways?

Further solutions include:
Downsizing the place that you live to cost less (bigger surplus)
Downsizing your driving costs by working and socializing locally (bigger surplus)
Getting better jobs and earning more income
Investing wisely!


Whew. That was really long (apologies to everyone's scroll wheel for the length!), but hopefully it provides some perspective and support. Remember that the quick and dirty math dictates that saving 75% of your income typically means retiring in 7-10 years.

Good luck!

EDIT: Realized that I didn't account for investing when calculating # of years to retirement goal. Oops sorry! Fixed now with a loose estimate. :)
« Last Edit: January 13, 2015, 10:52:39 AM by KaylaEM »

RelaxedGal

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Re: Case Study: Do you smell smoke?
« Reply #9 on: January 13, 2015, 12:27:04 PM »
I don't see childcare in the expense list - is your mother in law also your childcare provider?  How long will she be staying?  Does she do some of the cooking and cleaning as well?

I have no advice, just trying to get a more rounded view of the situation.  Since I pay $1200/month for daycare your $1706.04 in mortgage for a big enough house for your mother in law to stay with you seems like a steal if it's a roof over your head AND childcare.

lilstubbletgvp

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Re: Case Study: Do you smell smoke?
« Reply #10 on: January 13, 2015, 03:57:21 PM »
Thanks for all the helpful replies!

The clothing and baby expense budgets along with entertainment, eating out and medical are just what i budgeted in YNAB. It is not necessarily what we will spend each month. In fact we will probably spend less. I am new to the ways of the mustache and even though i am ready to go all in i am trying to slowly introduce the stubborn wife.

The haircut is her best friend and it is definitely more for the companionship since she doesnt get to see her that often. (her friend has several small children and doesnt like to go anywhere)

I agree on the cell phones but am having a hard time convincing the wife to either give up her iphone or go to a lesser known MNVO.

I agree on the groceries being high, but i already shop at aldi and i coupon almost everything else that i cant find at aldi. Groceries were lower when we had a side of beef, but we have run out and the new side wont be ready till fall.

We really dont spend 100 a month on clothes, but when doing the categories in YNAB the only way i could get the wife to even agree to keeping up with YNAB was to add some categories, i highly doubt we ever spend that much on clothes. Especially since her best friend (one who cuts her hair) just gave us 3 trash bags full of clothing for our DD and will have more as she gets older.

As far as the mortgage goes, We live in Overland Park, KS not too bad COL wise but not the cheapest around. Wife insisted we live in the nicer part as well due to having the best schools in the state. Our house is 3900 sqft above grade with a finished basement that the MIL lives in. The MIL does take care of the baby during the week so that we dont have to pay daycare. We do have two extra rooms and i will talk to my wife about renting them out, but knowing my wife (and her mother) they will absolutely  not let me rent out the rooms with us having a young child and possibly another in a year.

I really really appreciate your input on everything and will use it as guidelines to tighten up the budget even more and maybe even show the wife the possibilities that could come from tightening the budget!


4alpacas

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Re: Case Study: Do you smell smoke?
« Reply #11 on: January 13, 2015, 05:00:35 PM »
I agree on the cell phones but am having a hard time convincing the wife to either give up her iphone or go to a lesser known MNVO.
I ported my Sprint iPhone over to Ting, and I haven't had any changes in my service.  I was without service for about an hour on a Sunday.  Very easy.  I went from paying $50 on a family plan, which was going to increase to $75.  Now I pay between $20-$36 depending on how many minutes I use (in the small for texts and data). 
I agree on the groceries being high, but i already shop at aldi and i coupon almost everything else that i cant find at aldi. Groceries were lower when we had a side of beef, but we have run out and the new side wont be ready till fall.
Maybe this is a sign that you should look for other ways to cut back.  Try making recipes that cost less, stretching the meat, and switching to in season produce.  Our biggest cost savings on groceries came when we ditched "cardboard."  We stopped by anything in boxes, except for our "emergency laziness food" like frozen pizza (always keep on in our freezer to prevent getting take-out/delivery).  My husband switched from eating Goldfish to air-popped popcorn with butter and Parmesan cheese. 


Good luck on your journey!

Goldielocks

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Re: Case Study: Do you smell smoke?
« Reply #12 on: January 13, 2015, 05:18:56 PM »

 Our house is 3900 sqft above grade with a finished basement that the MIL lives in.

I smell smoke and I think I hear the fire dept on its way over...!
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3900 sqft for 2 persons. in a "good schools" neighborhood, but the child is 3-4 years away from entering school.


justajane

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Re: Case Study: Do you smell smoke?
« Reply #13 on: January 13, 2015, 05:51:37 PM »
The haircut is her best friend and it is definitely more for the companionship since she doesnt get to see her that often. (her friend has several small children and doesnt like to go anywhere)

We do have two extra rooms and i will talk to my wife about renting them out, but knowing my wife (and her mother) they will absolutely  not let me rent out the rooms with us having a young child and possibly another in a year.

I would keep the haircut then, since longstanding friendships are very important. That's not the place to scrimp.

People on MMM often bring up renting out a room, and I have to admit I would never do it either, especially not now that I have kids. I would prefer to buy a smaller home.

From my perspective, that home is HUGE. I mean, super huge. Now your utility bills make more sense. I think it's great that your MIL lives with you, but even with the MIL suite in the basement this is WAY more room than a family of three needs. We easily fit five people in less than half of your space. Think of how much quicker you could retire if you had a smaller house long term. You wouldn't even have to sacrifice the great school district, since I imagine smaller homes in this district will be cheaper. The smaller home will also translate into smaller utility bills. You could move to a smaller house (let's say 2,000 sq ft, which is still huge by MMM standards), budget some money to turn the basement into a new MIL suite (heck, sweeten the deal by letting her pick out the fixtures and design) and still come out way ahead.

The very large home is the enemy of FIRE.

lilstubbletgvp

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Re: Case Study: Do you smell smoke?
« Reply #14 on: January 14, 2015, 08:56:12 AM »
Sorry, I was wrong about the sq footage of the house. it is 2900 without the basement.