Author Topic: Case study: Doing OK but want to do better (long)  (Read 3202 times)

alexgodden

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Case study: Doing OK but want to do better (long)
« on: June 29, 2013, 01:13:55 PM »
Summary: I'm living in an expensive city (San Francisco), but this enables me to earn more and commute to work via public transport. I have tried to focus my spending on what really matters to me, and really cut back on other things to allow for that. I'm saving nearly 50% but I'd like to do more to feel secure in achieving my plan of both retiring early and taking time off for kids.

I'm British and moved to the US in 2006 to do an MBA. Loved the US, hated the East Coast and so moved West when I graduated and settled down here. I got my Green Card last year and was finally able to ditch a high-stress job in Strategy Consulting that I enjoyed but burned me out, and now work at a fantastic tech startup with a much better lifestyle. Around that time I also spent a few months working part-time doing writing and research for one of my old professors, and really embraced the whole FIRE approach.

FiancÚ and I have lived together for three years but don't share finances exactly. We alternate buying groceries, dinner out, takeout etc and contribute to our fixed costs (rent + utilities + cleaning service) in proportion to our salaries. He has gone from earning 1/4 what I do to 1/2, after he took on an additional web development freelance gig and I downshifted. Longer-term he would like to give up work and go freelance permanently, or even start his own company - could result in more or less money coming in (hopefully more) but clearly more volatile, no health insurance etc. We're getting married next April, and he saved up $10K for wedding costs before he proposed to me. We're planning on budgeting to that, plus I think my mum may offer to pay for my dress and his parents may spring for a rehearsal dinner. I'll then pay for the honeymoon out of my vacation savings (currently at $1600, hopefully $3K by then).

I'd like to save more to be able to either retire in less than my currently-projected 12 years or take 3-4 years off when we have kids (if he takes the same amount off, that gives us a good chunk of the kids younger years with a parent at home). We definitely want babies, and I'm 35, this probably has to happen soonish. We've discussed him taking time of for the first one and then me taking time of for the second (given daycare for two is closer to the salary I'd be giving yup) but I also really want to be retired in time to help them with homework when they are older etc.

My summary budget:
$1000 - all my day-to day spending (groceries, eating out, salon, gifts, book, toiletries, laundry, cigarettes etc) which I constantly shuffle and track to stay under the $1000 per month ceiling
$1675 - fixed home-related costs: my 2/3 share of rent, utilities etc (see below)
$535 - savings for annual expenses (see below)
$160 - monthly regular costs: cleaning service and yoga membership, monthly prescription fee

Total monthly costs - $3370 or just over $40K per year

Salary $120K which which given the high taxes here comes out to around $6500 per month, so I am saving almost half that (the calculations are a little complicated as I pay around $650 per month pre-tax to a 401k and then the same amount after tax to a Roth 401k, so not sure how to factor that into my % saved number)

Net worth:
$100k Traditional IRA
$35 Roth IRA
$4K new employers Roth 401k
$4K new employers Traditional 401k (I contribute 6% to each to hedge my bets, which should hit the max contribution easily)
$5K 403(b) from last year working for my old B-School. It's all in a Vanguard Target Retirement fund.
$105K brokerage account with Capital One (was ING) in a variety of blue-chip value stocks (BP, Tyson bought in a dip, J&J similarly etc), a few bonds and an index tracker
$3000 in various savings pots for vacations, holidays, appliance and gadget replacement and insurance

I have no debt. My employer paid for my MBA so I came out with very little in the way of student loans (living expenses while at B-School in my pre-mustachain days were a bit ridiculous though) and college in the UK was free when I went (I worked in the vacations to cover living expenses).

Fixed home-related costs:
Rent $2325 (for a 2-bed 2-bath in a pretty good area in SF this is damn good, which is why we can't move - a shitty 1-bed in Berkley costs the same these days, and we're rent controlled from 3 years ago when the market was not as nuts)
Internet $75 - Comcast, only option around here
PG&E $50-120 depending on time of year (we are OK with the cold but this place is old and badly insulated. No AC needed - one of the perks of living in SF)

Mustachianisms I'm proud of:
No car!
No credit cards!
No TV (cable or otherwise)!
No Hulu Plus or Netflix (free streaming DVDs from the library works just fine)!
No home phone!
My new job offers free lunch every day (and very good, tasty and healthy lunch it is too)
Phone - mine is paid by work, his is a cheap Metro PCS contract around $20 per month
Groceries - we switched about 6 months ago from shopping weekly at Whole Paycheck, catching up mid-week with extras from the expnsive farmers market on the corner, and grabbing takeout whenever we were too lazy to cook. Now instead we meal plan every weekend, and buy most of what we need from the local mexican grocery or the local Asian butcher/fishmarket for around 50% of the cost at Whole Foods. I order online every few months from Safeway for bulk things (paper towels, canned goods, detergent, very good-quality and cheap boxed wine) and we get takeouts only 2-3 times per month, usually when we are really craving sushi as I can't make that.

Terrible non-mustachian confessions:
Maid service $95 every 2 weeks (I know this is face-punch-worthy but otherwise the boyf would be happy in squalor and I'd clean and resent him or be miserable in mess, and we'd break up. We split this cost.)
Eating out - $300 per month (just my half). So many nice restaurants, so many interesting groups of friends who invite us to try them out with them or plan brunches in lovely cafes...
Snacks at work - despite free lunch being provided, I nibble a lot, although usually things like bags of almonds from walgreen for snacks. I try to eat paleo/low-carb so the free snacks at work (goldfish crackers, chips, granola bars) don't work for me
Salon - [edit - previous typo said 430] $30 per month. Sometime I pay other people to paint my toenails or cut my hair. But very rarely these days (every 6 months for hair, every 2-3 months for toes)
Cigarettes - expensive way to kill myself (but I'm down to ~1 pack every two weeks so $12 per month)
Yoga classes - $150 for 10 classes, which I make last me 4-5 months by only going every other weekend, just enough to motivate myself and get ideas and tips from a live instructor
Online yoga - $18 per month - for in between the really expensive classes
Not biking to work - as I get commuter benefits this wouldn't save much: $40 per month. Actually, now I look at that I realize it is a good amount. Still, I'd need to buy a bike, learn to ride it and learn American road laws. I walk a lot (groceries, restaurants etc) but work is just over an hour walk. I guess I could do that a little more often though.

Living in SF: I can see that retirement could be closer if we are happy to retire somewhere cheaper, as presumably by then cost of commute would be irrelevant. But we love it here! Waah! His family lives in New Mexico and we'd both rather work til we drop than live there (especially as we'd have to drive everywhere and have AC), mine lives in the UK and India and we'd have visa and political issues moving to either. Boise, Idaho or Boulder, Colorado sound fun apart from winters (I hate winters). Somewhere West Coast but not rainy (ie not Portland which is awesome in all other ways) or conservative (not San Diego) or a soul-sucking hellhole (ie not LA) could be an option.

So - all face punches and suggestions welcome.
« Last Edit: June 29, 2013, 01:44:47 PM by alexgodden »

pbkmaine

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Re: Case study: Doing OK but want to do better (long)
« Reply #1 on: June 29, 2013, 01:31:24 PM »
$430 per month for a salon? Is this correct? I get my hair cut 3x per year at a very expensive salon in NYC, and I spend less than that per year. 

alexgodden

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Re: Case study: Doing OK but want to do better (long)
« Reply #2 on: June 29, 2013, 01:45:24 PM »
Thank you - typo fixed. It's $30 per month which is an average of infrequent haircuts and pedicures.

daverobev

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Re: Case study: Doing OK but want to do better (long)
« Reply #3 on: July 08, 2013, 06:44:40 AM »
Hey fellow Brit,

looks like you have an awesome salary there! Lucky you! Shame your city is so expensive. Oh well.

I guess you've thought about getting a rental property or four?

Credit cards are not inherently bad. There are threads about getting a solid 3% cashback on shopping. Even at 2%, it adds up - your $1k a month would get you $20 back, for free, effectively. Obviously don't carry debt!

Bike - you can get something functional for $100 or less I'd guess. As long as it goes faster than walking, it's an improvement, right?

If I was you.. I'd look into buying a house ASAP, but: one you want to live in in 10, 15 years. Then rent it out. So what you have is nice leverage, and someone else paying for it for you. It doesn't have to all tie up perfectly, it's just that - when you come to retire - getting a mortgage might be tricky.

Otherwise I guess it's just... you have everything laid out there. You get to choose where to cut! In my world, I'd be splitting the rent equally with my other half. It's not your fault that they don't earn so much. But then, I'm very logical ;)

TrulyStashin

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Re: Case study: Doing OK but want to do better (long)
« Reply #4 on: July 08, 2013, 07:07:36 AM »
The most obvious expense that should be slashed is your eating out budget.  Yes, it's fun.  But it is also summer time.  Turn that brunch into a picnic with friends in a lovely park.  Turn dinners out into pot luck gathering at one another's house.  This is actually much more fun that dining out because everyone can linger and chat to their heart's content without getting a (deserved) stink-eye from the server.

Make it even more challenging/ fun by choosing the menu of one of the interesting restaurants and having each person bring a dish off the menu -- made as closely to the menu description as possible.

$300 a month is $3600/ year or over 10 years at 7% return, it's $51,900.  Shew.......

mushroom

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Re: Case study: Doing OK but want to do better (long)
« Reply #5 on: July 08, 2013, 07:30:22 AM »
You know you like to snack at work so why not just plan ahead? Make your own protein bars or granola with low enough carbs to satisfy you, or at least buy your nuts cheaply in bulk ahead of time.

Just because your fiance budgeted 10K for a wedding doesn't mean you have to spend that much. That amount is for exactly *one day.* Think how far 10K would go for baby expenses or other things instead and make sure that it's really worth it to you. Here's some inspiration: http://2000dollarwedding.com/2008/07/from-conception-to-reception.html

SunshineGirl

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Re: Case study: Doing OK but want to do better (long)
« Reply #6 on: July 08, 2013, 10:51:57 AM »
It sounds to me like you've got a pretty sweet life, and you're saving 50% of your income already, so I'm not about to facepunch. However, here would be my priority for cutting/saving, not knowing some of the particulars:

-- Ditch the expensive wedding. Seriously. It's very sweet that your fiance saved money prior to proposing, but why not have a ceremony that is private and small (even elope!), and use the money for a trip or save for childcare expenses?
-- Is there a community yoga place nearby that is lower cost that you could use more frequently? Does your work offer classes? Is there a better solution, is my question.
-- Obviously, smoking and yoga is kind of an ironic combination. Is or isn't your health important to you?
-- I've been a stay-at-home/work-at-home parent for 13 years now, and, while this depends certainly on one's personality, if I had to pick which five-year chunk of time to be home for, the first five or the second five, I would ABSOLUTELY pick the second five when they're in school and have activities and so many more social issues to deal with. Working PT through it all is an even better solution. Keeping balance is tricky but should be the goal, and I see so many older parents get fairly obsessed about their one kid and turn into seriously annoying people. If you keep socking away half your income until you have a kid and then go to half-time, you can just live on your income and let your savings compound and have the best of all worlds.

Peace.