Author Topic: Case Study - Should have found MMM 10 years ago!!!  (Read 9706 times)

reese_c_c

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Case Study - Should have found MMM 10 years ago!!!
« on: August 04, 2015, 11:18:21 AM »
Dear Mustachians,

I recently stumbled across MMM and have been reading everything I can and trying not to get lost. Was hoping for a little help from you guys.

29, married (stay at home wife) w/ 3 kids (5, 2, 0.4)

IN THE BANK
Bank: $87k (checking + savings)
401k: $97k w/ 12.5%  post tax deposit & Employer match 5%

INCOME
Income before taxes: $106k/yr
Take-home-pay: $5600/m (after taxes, healthcare, 401k, unemployment benefit, etc)

EXPENSES (MONTHLY)
AT&T Cell Service: $100.00
Chase Home: $925.85 ($669.84 PIIT, +$256.01 extra principal)
Car Insurance: $130.00
Electricity: $150.00
Utilities: $100.00
Church Tithing: $600.00
Netflix: $8.65
Hulu: $8.49
Dollar Shave Club: $3.00
Life Insurance: $60.00
Internet: $58.00
Wells Fargo (0% Rate): $422.00 (to be paid off 3/2016)
Honda Odyssey (1.9%): $463.00
Eating Out: $50.00
Miscellaneous: $200.00
Groceries: $300.00
Gas: $100.00
---------------------------------------------------------------
TOTAL: $3678.99
MONTHLY LEFTOVER (AVG): ~$1900.00

What's next!? Just looking for general guidance. I'd like to see retirement by 40 or sooner, but can I do it? I have money in the bank that I know I need to do something with and I'm debating a Fidelity Large Blend Index but just not sure which one. Also looking at CD's (laddering) if these would be of any benefit.

Thanks in advance

slschierer

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #1 on: August 04, 2015, 11:35:59 AM »
It looks like you're doing really well!  Taking a quick look at your expenses, the main items that stood out to me were the cell phone plans, car insurance, and Honda Odyssey.  The cell phone plans can be lowered by switching to a provider like Ting.  The car insurance just seems high.  Have you shopped around for rates lately?  We have four vehicles on our insurance (1 with full coverage), and we pay much less than that.  Perhaps you could have the deductibles raised?  The Honda Odyssey is expensive.  You may want to look at selling it and replacing with a more fuel efficient and paid off vehicle. 

Do you and your wife have IRAs?  Setting up and investing in an IRA would be the next step I would take.  I think most people on here are invested in index funds via Vanguard.
« Last Edit: August 04, 2015, 11:38:14 AM by slschierer »

Exflyboy

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #2 on: August 04, 2015, 11:42:38 AM »
Your savings rate is 34% (that's your leftover divided by your take home).

On the face of it you cannot retire in 10 years.. you need a 50% save rate to retire in 17 years. Of course.. we don't know how much your putting in your 401k (assuming that is not counted in your leftover). This also assumes your spend in retirement is the same as it is now, but then I suspect there is scope to reduce your current spend, at least for now.. Before the kids get really expensive..:)

What to do?... 1) max out your 401k contribution.. this will reduce your tax bill.. Put it all in low fee stock ETF type investments.
2) Scour your current spend for better deals. ATT cell for $100.. How about Republic, unlimited talk and text for $10 a month?. PTEL for as low as $5 a month?
3) Shop around for better deals on car insurance, internet service etc.
4) Pay off the cars and fix 'em yourself etc etc.. Then save the rest.

Read MMM in detail and start whittling away at that budget. Can your Wife do the heavy lifting here as she is at home?

Your not doing bad but there is a lot of optimization you can do here which will have a dramatic effect on your savings rate.
« Last Edit: August 04, 2015, 11:48:32 AM by Exflyboy »

Cheddar Stacker

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #3 on: August 04, 2015, 11:50:37 AM »
$3,680/month = 44,160/year *25 = 1,104,000 at a 4% Safe Withdrawal Rate. You already have $184K, so you need about $920,000 more and you want to get there in 11 years. I think that's do able, but not if you let your money sit in checking/savings/CD's.

401K - you said post tax deposit. Are you referring to a Roth 401K? If so, I would consider switching that to Traditional. You appear to be right at the top of the 15% tax bracket (106K-12K standard deduction - 20K exemptions=74K). Paying 15% tax is not bad, but you could be paying less and spreading that income across the next 40 years rather than just the next 11 years. Based on the facts you provided, I think you could be paying very close to $0 tax if you optimize things a bit more.

Read this: http://rootofgood.com/make-six-figure-income-pay-no-tax/ and this: http://forum.mrmoneymustache.com/taxes/

If you maxed out your Traditional 401k (18k) and a Traditional IRA for you (5,500) and your wife (5,500), that $74K taxable income would become $45K. That would put your total tax at $5,827, but you would get a little bit for the saver's credit, and after 3 Child tax credits @ $1,000/per child your total tax would be close to $2,500. Adjust your tax withholdings accordingly so you don't pay in too much tax during the year, and your paycheck won't be affected as much from the increased 401K contributions.

I would then take that $87K cash, keep a little bit for an emergency fund (2-4 months expenses, so maybe $10K), keep a little bit extra to smooth out the edges for all the 401k/IRA/tax changes noted above, then invest the rest into VTSAX or something similar at Vanguard.

11 years is possible, but you need to optimize a lot of things. You can do this. Welcome to the forum.

MDM

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #4 on: August 04, 2015, 03:52:38 PM »
Maybe a little over 9 years?

That depends on several assumptions.  See table below and download the MMM case study spreadsheet for your own analysis if interested.

The more you can reduce expenses (see previous posts) and put the increased cash flow into investments (and if the investments cooperate), the shorter the time to FI.

CategoryMonthly
Comments
Annual
Salary/Wages$8,833$106,000
Pretax Health Ins.$400Guess$4,800
FICA base salary/wages$8,433$101,200
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Income subject to IRS tax$6,933$83,200
Federal Total Income$6,933$83,200
Federal tax$2842015 rates, MFJ, item. ded., 5 exempt.$3,402
State/City tax$211Guess, using 5.00% * Fed. Taxable$2,530
Soc. Sec.$523Assumes 1 earner paying$6,274
Medicare$122$1,467
Total income taxes$1,139$13,674
Income before other expenses  $5,794$69,526
Monthly Expenses:
Mortgage$449$5,388
Property Tax$170$2,040
Home/Rent Insurance$51$610
Car Insurance$130$1,560
Charitable contributions$600$7,200
Dining (Pizza, Restaurant, etc.)$50$600
Electricity$150$1,800
Entertainment$17$206
Fuel/Public Transport$100$1,200
Gas/Oil for heating$100$1,200
Groceries$300$3,600
Internet$58$696
Life Insurance$60$720
Medicine (OTC + Prescription)$3$36
Miscellaneous$200$2,400
Phone (cell)$100$1,200
Non-mortgage total$2,089$25,067
Loans:
Wells Fargo$422$5,064
Odyssey$463$5,556
Total Expense$3,423$41,076
Total to invest$2,371$28,450
Summary:
"Gross" income$8,833$106,000
Income taxes$1,139$13,674
After-tax income$7,694$92,326
IRA+401k/403b/TSP/457 (Savers' credit)$1,500$18,000
Living expenses$2,938$35,256
Non-mortgage loans$885$10,620
After-tax investable$2,371$28,450
Time to FIRE?:
Time to FIRE9.33years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments6.00%percent
Real, after tax, return on taxable investments5.10%percent
Expected retirement total tax rate10.00%
Current Savings
Taxable$50,000
Roth$97,000
Projected Savings at Retirement
Taxable$408,979
Tax-deferred (e.g. trad. IRA/401k)$216,684
Roth$167,061
Total projected stash$792,724
Projected Expenses in Retirement
Non-loan, non-work expenses$25,067
Income taxes$2,785
Total$27,853
Total loan principal due$94,836
Stash needed for retirement @4.0% SWR$791,149
Have $1,575 extra.


Filing Status21=S, 2=MFJ
# of earners1
# Exempt.5
# Children <17$3
Total Income$83,200
Std. Deduct.$12,600
Act. Deduct.$14,369
Exemption$20,000
AGI$83,200
MAGI$83,200
Taxable$48,831
Tax$6,402
Savers' credit$0
Tax after n-r credit$6,402
Child Tax Cred.$3,000
EIC$0
Net Tax$3,402
Monthly$284
Mtg. Int. (approx.)$2,599
State tax$2,5305.%
Prop tax$2,040
Charity$7,200
Item. Deduct.$14,369

reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #5 on: August 04, 2015, 05:38:53 PM »
Thanks for all the great info!

I will be looking into the phone service, insurance, and internet situation soon. These are things I always put off for no good reason.

My 401k is a Roth Post Tax 401k. Just curious, why choose Traditional?

Thanks again. I will be making some moves very soon.

MDM

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #6 on: August 04, 2015, 05:58:27 PM »
My 401k is a Roth Post Tax 401k. Just curious, why choose Traditional?

Any withdrawals from a traditional account that get charged a marginal tax rate lower than what you saved when you contributed are to your advantage.

What do you expect for a marginal tax rate when you start to withdraw from your 401k (or the IRA into which you have rolled it over)?

Yankuba

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #7 on: August 04, 2015, 06:36:31 PM »
$7200 to the church each year? That is money that your kids will need for college. Can't you do volunteer work instead?

ShoulderThingThatGoesUp

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #8 on: August 04, 2015, 06:41:01 PM »
You don't need more than 6months of expenses in cash. Invest the rest in tIRAs for you and your wife this year and a taxable account. What is the interest rate on your mortgage, and are you paying PMI?

dsmexpat

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #9 on: August 04, 2015, 06:49:12 PM »
Of your $2500 left over you tithe $600. That seems like a lot to me.

reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #10 on: August 05, 2015, 04:44:25 AM »
Switched my 401k last night. Opening IRA's today. Insurance and cell phone plans here I come!

Thanks again to everyone and the time you guys put into your answers. Really clarified things for me and the wife.

Excited about this new adventure!

Neustache

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #11 on: August 05, 2015, 06:09:14 AM »
This feels like our case study, almost, down to the same 'tithe' amount.   I really appreciate MDM's breakdown...very helpful!  We are looking at FIRE within 10 years, too, but I'll return to the workforce when my little guy is in 1st grade.  Once we have two incomes, our FIRE date goes from 12ish years to more like 7.  Probably will work a few more years past the 7 to fund some college and European travel.  Is your wife open to working part-time at all while the kids are in the school? Maybe subbing so she has similar hours to the kiddos? My plan is to teach. 

  It's small change, but consider dropping Netflix and Hulu.  PBS Kids is better than most children's shows on either one, and you can borrow loads of TV shows if you have a good library system.  I love that we don't pay for any TV at all, except for the 4 DVD's we buy each year for the kiddos at Christmas and Easter (I don't know why we do this at Easter, strange tradition I started.)   Also make sure you homeowner's insurance is the best rate you can get (without changing coverage too much).  If you haven't shopped for this in a few years you are likely paying $400 or more extra a year on this due to their gradual rate hikes.

Great job so far!  You all are younger than us, and ahead of us with savings and income.  WTG!





Potterquilter

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #12 on: August 05, 2015, 06:22:14 AM »
One more thing. Often with 401k's you look at the investment options, choose one or two and move on. If you list the options you have, and what percentage goes in each option someone here might be able to help so you can squeeze a little more out of those savings.

Fees and expenses can eat up a lot without you realizing. Sometimes too, having too much in company stock can be disastrous. It's all about risk tolerance, low fees and diversification.

kpd905

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #13 on: August 05, 2015, 06:32:10 AM »
Switched my 401k last night. Opening IRA's today. Insurance and cell phone plans here I come!


Good to hear.  Did you change your 401k to max it out as well?  If it seems like a lot to max out your 401k and two IRAs, you do have that huge cash balance to fall back on.

Throw $11,000 into the IRAs now and another $11,000 in January.  That'll take care of a nice chunk of that cash.

2Birds1Stone

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #14 on: August 05, 2015, 06:46:42 AM »
Blows my mind that tithing makes up nearly 20% of your budget.

I second the notion to put that money toward your families future and donate time, maybe as a family instead.


Neustache

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #15 on: August 05, 2015, 07:18:18 AM »
The giving is less than 10% of his gross.  And he'll be FIRE'd in 10 years at the age of 40. The tithe is not going to make or break him, and he can decide if he gives in retirement (if his expenses in FIRE are 30K, then he won't still give 7K, it will be more like 3K) Keep giving, man, if that's what you want to do.  It's a great discipline and you are already wealthy by most people's standards.  Just some encouragement as we give the exact same per month (I'm not legalistic on the 10% thing, looks like you aren't, either).  Are you sacrificing something in order to give that money every month?  Yep.  Sort of the point (as long as you are joyful about it!).    Hopefully your church does some good with that money, and it's not just eaten up by admin costs.   I'd rather my kids witness our family being overly generous with our time and money (because people who tithe at that level generally are already donating their time, too), instead of them having an even fatter college stash.   



reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #16 on: August 05, 2015, 09:45:00 AM »
Sorry, should have clarified...switched to Traditional and maxed it out. Don't know why I haven't been doing that this whole time, it's only a little over $400 more per month. *sigh*

As far as my wife working, we have elected to homeschool so that will take up most of her time. We have talked about a few part-time options, but since we're just getting into the HS scene, we want to get that under wraps before taking on a new venture.

Not sure if it makes a difference with the Odyssey but our other two vehicles (Corolla for me commuting to work, and Nissan Titan for my woodworking side money) are completely paid off and have been for 5+ years. Our previous vehicle, an Acadia, was also paid for before we sold and bought the Odyssey. I realize the monthly payment is high, but this is one of the few areas where we have chosen a little bit of luxury and safety (3 in car seats) versus a paid off vehicle that needs a lot of work (our Acadia was getting close to that point).

Thanks again. I'll post some info soon on my investments. BTW, they are with Vanguard! :)

meandmyfamily

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #17 on: August 05, 2015, 02:03:42 PM »
Looks great!  Your wife will love homeschooling!  How do you keep your utilities so low?
« Last Edit: August 05, 2015, 02:09:02 PM by meandmyfamily »

reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #18 on: August 05, 2015, 02:29:08 PM »
I'm really not 100% sure how we keep our utilities down. Our utilites include both water and gas. I guess we just limit our usage.

Gas Stove: Typically we prepackage all our meals so they can be cooked in a crock-pot. Maybe this allows for the stove/oven to not be used as much.
Gas HWH: We do all of our laundry with cold water and only do it if absolutely necessary. I'm sure this helps with water usage as well.


Potterquilter

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #19 on: August 06, 2015, 04:30:03 AM »
  Hopefully your church does some good with that money, and it's not just eaten up by admin costs.   

You're killing me.  I give more than that to charity each year than you because my kids are on their own and we have been FI for a long time, but I make sure every dollar I give goes to a good cause and not to admin costs. If your church is on the up and up it should open it's books to the congregation to see exactly where every penny is going. There are scammers everywhere, even in churches. You might have the most generous, honest, loving church ever, but I would still check.

I give more than that to charity every year, but I make sure that every penny is well spent. Being a good steward of your money encompasses so many circles. You and your family are in the center. The next circle is your charity then the greater circle is society as a whole. I would not dream of blindly giving money unless I made sure it was not going to gambling, fur coats, secret stashes, fancy conventions and fancy shiny buildings instead of those who need a hand up in the world.   it has happened. There is so much need in the world, so many hard working Americans who are barely making ends meet, parents taking care of ill children, hungry cold old people.  And we are a wealthy nation. All over the world people are in refugee camps, don't have clean water to drink, young kids are sex slaves. Make sure your hard earned money you generously donate is actually doing good for the causes you believe in.

Off my soapbox.
« Last Edit: August 06, 2015, 04:32:45 AM by Potterquilter »

Potterquilter

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #20 on: August 06, 2015, 06:02:15 AM »
Came back to add I hope I did not offend anyone about the tithing. Generosity is a wonderful thing to teach children and to experience regardless of what God you believe in. I applaud you for looking outside your own little sphere. It was just the unaccountability comment about where the money was going that got me.

Neustache

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #21 on: August 06, 2015, 06:38:32 AM »
I'm not offended...just confused.  Do all your charities only exist with volunteers?  Admin costs are going to an expense, unless everyone is volunteering, which is doubtful.  I just see some churches where admin costs eat up so much of their budget.  I've worked in a church.....it was not a busy place, and ours was a mega church.  I had maybe 10 solid hours of work a week, and was bored out of my mind, but I was considered a 'hard worker'.  Admin costs are going to exist..but if a church isn't doing anything but funding staff paychecks, I think that's a problem. 

We recently left a church that was funding 'training' (i.e. Colorado vacay!) and pastors' salaries to allow them to do faith-based-quantum-physics-tapping-healing (try and wrap your head around that non-sense!).  Uh..no.  That's not why we tithe, busters, so you can heal people with the placebo effect.  Our current church has admin costs associated with the food bank they run; I prefer funding that sort of administration costs, personally, and I encourage people to really know what their church does so that they are funding things that...matter.  Like food for the poor. 



reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #22 on: August 06, 2015, 09:39:57 AM »
Potterquilter

I think you bring up some legitimate concerns and my answers would be similar to what Neustache replied back with. One thing I did want to touch on is that we (church members) know exactly where all of our money goes in the church due to our business meetings. At those business meetings we discuss additions and subtractions, movements, etc. so that we not only fund our staff but also get money out to the community and other missions.

Thanks for the comment!

Cheddar Stacker

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #23 on: August 06, 2015, 09:44:55 AM »
Tithing is a touchy subject around here.

My opinion - if you can actually afford to do it, go for it. You fit this category. What kills me is when people tithe while in CC debt and with negative cash flow. To each their own though.

Potterquilter

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #24 on: August 06, 2015, 06:59:31 PM »
Potterquilter

I think you bring up some legitimate concerns and my answers would be similar to what Neustache replied back with. One thing I did want to touch on is that we (church members) know exactly where all of our money goes in the church due to our business meetings. At those business meetings we discuss additions and subtractions, movements, etc. so that we not only fund our staff but also get money out to the community and other missions.

Thanks for the comment!

Perfect. Something I am passionate about. If you go to charity navigator there are a lot of charities that give a small fraction of their proceeds to the intended recipients. Many have names that include children or veterans in them.

The charities I am involved in are largely run by volunteers so admin costs are very low 

reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #25 on: February 24, 2017, 08:43:57 AM »
It's been awhile since I've been on here to post any statuses. But I figured this needed a follow up. As of yesterday 2/23/2017 I am officially debt free!

Now I get to work a little bit more of a fast track towards complete freedom!

PJ

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #26 on: February 24, 2017, 10:13:18 AM »
Congratulations! 

Please post again, and tell us a little bit more.  What did you change in your life, to accomplish that goal?  What are the next steps you're going to take?  What's your new goal, financially, and in terms of what that means for your family?

reese_c_c

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #27 on: February 27, 2017, 11:21:36 AM »
I think my biggest challenge was not absorbing extra money (raises, bonuses, dividends, etc.) for frivolous spending or just letting it sit in my bank account.

Instead, every time I paid something off, college debt, credit card, etc. I rolled the payment amount to some other debt and just snowballed it from there. I also ended up moving quite a bit of money around out of my savings and making some short term stock investments. Over the course of 9 months I turned a pretty sizable profit so I sold everything and paid off my remaining debt.

Next steps are to snowball most, if not all, my extra funds into investments for future planning. The ultimate goal is to be free from the man by 40 (8.5 years) or sooner so that I can pursue some other interests.

No I just need to sit back down and look at everything again and restructure!

PJ

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Re: Case Study - Should have found MMM 10 years ago!!!
« Reply #28 on: February 27, 2017, 11:49:35 AM »
Well done.  Sounds like avoiding lifestyle creep is really paying off for you, as well as really looking at your income and assets and allocating carefully.  Short term stock investments could go either way, so probably not the safest strategy for everyone, but glad they worked for you.

And it sounds like you're working on your plan for the next phase - good luck!