Author Topic: Case Study : Two part time workers with kids  (Read 2778 times)

Frostflanks

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Case Study : Two part time workers with kids
« on: July 21, 2014, 10:30:56 AM »
I spent the past three weekends worth of downtime (and some of my time at home) reading through all of MMM minus comments. It seemed pretty close to what we have been doing, but it encouraged me to double down and make some changes. Especially in the cash hoarding department. Also in the not being afraid to just try to fix things around the house department. I am  going to be 31 soon and my wife is 32. We are on the right track, but I am always eager to optimize and thought you all would be a good set of people to ask for help with that. We had initially planned to save more, buy a junker house, fix it up and travel for a few months. We wound up getting her pregnant a few years ahead of plans. Oops. We have no regrets though and just decided to get it over with and have our second kid. It is pretty intense right now, but our work situations pretty much rock for raising kids while working.

Income: 64,000 (before tax, we usually bring in about 3600/month after taxes and pre-tax deductions)

My job - ~54,000/year – I am a nurse and this is what I would make if I didn’t pick up any extra shifts and was never furloughed. It also doesn’t include any bonuses for certification or hospital performance (potentially about 800/year). I just changed from nightshift to dayshift and this dropped about 5k/year, but when taking into account being furloughed that is what I was making working nightshift anyway. I am a lot less likely to be furloughed on day shift. Also sleeping like normal people is way more awesome. I work 9 12-hour every four weeks, always weekends (3 out of 4).

Wife’s job - ~10,000/year – Two days a week, not shiftwork, but because it is a part time job only gets half pay for holidays. This makes actual pay sort of variable.

Current Expenses: (averages to 2100 a month) These aren’t as accurate as I’d like. We had been keeping records for about the last 6 years, but I seem to have accidentally deleted or lost the last 5 years when switching from GNUcash to YNAB for tracking. Doing math based on our past incomes we seem to have saved about 50% of our income since we met either through paying back loans or hoarding cash.

Housing: 700.5/month
Mortgage Payment – 537/month for interest and principal
Termite – 8.50/month
Insurance – 55/month (Winds up being less, because we tend to get about 10% of our premium back, but not always)
Repairs/Maintenance – 100/month

Automofail: 454.68/month
Car Payment – 279.68/month for interest (0.9%) and principal (Read the explanation below prior to any facepunches)
Insurance – 90/month
Gas – 50/month
Tolls + Parking -10/month (My parents live about 45 minutes away and we go to see them with some regularity)
Maintenance – 10/month (Haven’t done anything but one oil change so far)
License/Registration/Inspection -15/month

Health: 608/month
Groceries - 400/month
Insurance/visits/meds – 208 (I get exceptional insurance through work with 500 deductible then 100% coverage afterwards for everything but drugs. We pay for the deductible, copays and meds through an FSA so all of this is mostly pretax)

Entertainment: 52/month
Internet -39.99/month
Netflix+Amazon Student – 12/month

Utilities: 348/month
Oil + Gas 200/month averaged (I think this was substantially lower in prior years, but I lost the info. We had a newborn over the last winter, so we kept the house at 65 all day instead of the 60 during the day and 55 at night we normally do. Also, the winter was relentless and like two months longer than normal.)
Electricity 70/month averaged (This has gone up like 10/month recently, I think because our toddlers have both learned how to open the refrigerator and freezer and like to try to climb inside. Kids are great.)
Garbage 28/month
Water/Sewer/Recycling 50/month

Miscellaneous: ~336 This includes 24/month of charity, gifts for kid’s parties and things we are probably wasting money on. We are trying to work on this category most actively.

Assets: 130k using purchase price of house and including my 403b

House – according to our bank 120k, but we paid 89k for it two years ago (we inadvertently bought it during the winter of the market bottom in our area). We presently owe 45k, with plans to pay off 16k more when our HELOC is open.

Cash – 27k This should also drop to 8k once the HELOC is open. We were generally lazy in the past about cash and so just saved our money in a Capital One 360 account. We also had a bit of a scare with potential layoffs at my hospital, and once that passed we just never got around to doing anything else with it until now. We are keeping substantial cash on hand in part because if I take 2 courses at a time that is about 3k I need to have within a month or so. Also, since most of our assets are not liquid (house) it feels safer to have enough cash on hand for an emergency.

Detroit Edison Stock: ~2k last I looked. This was gifted to us from my grandmother, who in turn got it from her father. It has been in the family for pretty much however long Detroit Edison has been traded. It would hurt her feelings to do anything else with it, and it has a decent dividend that we just leave reinvesting.

403b : ~12k last I checked. It is all in a Vanguard targeted index fund, I think 2045.  I just bumped my contributions to 10% of my pay. I get a 50% match, but only until they contribute 2%. The hospital just switched from a defined benefits to a defined contribution pension though, so I get an extra 2% for that, which will go to 4% at 5 years, then 6% at 10 years if I am still there. This totals to 14% of my income.

Liabilities: 57k not including my student loans

Car Loan :12.5k @0.9%
 We bought a Honda Fit in 2013 after our beloved 2000 Honda Civic with 220k miles on it started spewing black smoke and leaking oil everywhere. The quotes to fix the leak were insane for a car worth about 2k. We searched for a long time to try to find a used Fit (We really like it as compared to other hatchbacks, it fit carseats better and has awesome storage space.) To get one that cost under 10k at the time it either needed to have well over 100k miles or be from the first model year or so. We had read that those two model years had some issues. We wound up getting ours for 17k with all taxes/tags whatnot and then getting 1.5k for our Civic (It must have loved us back, because it acted perfectly fine the day that we traded it in). We financed it 100% since the interest rate was 0.9% and put the cash towards our mortgage instead.
We live in the northeast and the winters can be pretty brutal on cars. I have had several old cars rust apart on me while driving them. We figured it was worth a bit of a premium to know what had happened with the car, get a 3 year warranty and not have to worry about breakdowns for a while. We were about to have our second child and the first was only 22 months when he was born. Breakdowns with one kid sucked enough, the thought of with two was incredibly stressful. We drove 8k miles last year, but that is probably higher than average. At least 1000 of it was for funerals, last year was not kind to our kith and kin. I would wager at least another 1000 on top of that was due to not having the energy to deal with things other than coping. We also had a ridiculously brutal winter (We live in PA.) and it really was not safe to be walking or riding for pretty much all of the winter when toting 2 young kids. Our aim is for about 4-6k miles per year.

Mortgage : 45k @4.25%
Our plane is to put almost all of our extra cash a month, presently usually around 1.5k towards this (plus the 16k lump once the HELOC is open). We are aiming for totally paying it off within the next 12-24 months.

Student Loans ~7k @1%. My parents are paying these off, because my GPA was above 3.0. Their hedge against me slacking off was loans were my problem if I didn’t do well. We paid off my wife’s loans right before buying the house, because we thought we would be renting for a substantial period of time. Hers were at 1% too, so it was probably a stupid thing to do in retrospect. We really dislike owing money or having monthly payments. At the time they were our only debt. Live and learn.

Specific Questions:
My primary question is in regards to the car. I know in general, mustachians are against car loans and new cars. At the time we bought it, several places (I think consumer reports was one of them) had some math that indicated a Fit over the course of its life is probably actually cheaper to buy new. This was before it failed the new crash test dramatically and had an instant drop in value. You can now find them around here for a bit cheaper, though it is still not easy. They appear to be a really popular car in this area. We bought it with intentions of owning it for between 10-20 years.
My wife and I both hate cars and hate driving. I would be happy if I never had to see a car again that wasn’t an emergency vehicle or transporting a person who was not fully physically abled. Part of the allure of the new car was not having to worry about breakdowns with two tiny ones. We had one unfortunate event on the way back from a funeral that sucked pretty badly.
 Although we moved to a centrally located area in our city, we still find a car to be pretty necessary since the area in general has pretty terrible public transit. We lived in Japan for 4 years, so our expectations are high. I spent 4 years of my life not even considering getting into a car. I bike to work most days from Spring to Fall, but Winter it depends on snowfall and daylight (none, since I work 12 hour shifts). I don’t care about the temperature. People here are pretty shitty to bikers (I have had people throw things at me from cars and intentionally try to drive me off the road while laughing and yelling at me.) I get to work primarily through a park and bike path, but they are closed when it is dark, so I can’t use them in the Winter.
My wife walks about a mile to work unless there is torrential rainfall or sidewalks have become impassable with snow and ice (Yay!). She has trouble walking with the kids in a stroller. Our 3 year old weighs 48 lbs and our 18 month old weighs 30 – they aren’t overweight, they will just be huge. This is part of why our food spending is so high. My wife pointed out when I asked her why she doesn’t walk places with them more that just my muscle weighs more than she does. I stopped arguing with her about it.
Selling the car and buying a used one with about 70-100k miles seems like it would free up about 5k cash and probably drop our car insurance by about 50 a month (no collision). Any input on if others would think this was worth it? My wife and I lean towards no, since we would be buying unknown. We still have a few years of no maintenance but oil changes left and we have no desire to do any sort of car shopping again. At present we feel like for us it would not be too detrimental to just pay off the car after the house and then drop collision. Though maybe it would be better to keep the low rate and collision and invest? We are unsure.

Secondarily, I am just looking for general help regarding the budget. We have tried getting estimates for replacing our oil boiler with a gas one. All but one company refused to do it, saying it would likely not actually drop our costs much at all since we have a 90% efficient unit and natural gas tends to be about 70% of the cost. With furnace and flu liner it would be expensive enough that it would take essentially the whole life of a machine to recoup the cost. Our house is 200 years old, we’d love to insulate it, but we have bricks in our walls. Not a brick house mind you, just bricks inside the walls. This would require pretty major renovation to insulate. We would like to insulate the attic, but it is a 1.5 story house with no attic access, so that has deterred us. We are focusing on sealing drafts in the house. We are getting new storm doors and hoping to reseal and repair the storms on our windows this year.

At this point raising our income probably isn’t an option. With daycare for 2 kids (we avoid it completely now) between the two of us we would have to increase our income by at least 20k just to keep pace with the income we have now. At this point it seems stupid to work more than 2x as much to make the same amount of money. We get two days off a week together now, and I get 19 days off a month and she gets 18. We get no paid time off, but we can both take time off without pay. The only benefit I don’t get from work is disability insurance. Our plan is that once the older one starts public school we will both work full time regular hour jobs when the kids are at school. If something super nice popped up sooner we might take the opportunity, but we aren’t seeking anything out.

We don’t really plan to retire early, as we both really like our jobs. We suspect that may change and we want to have the freedom to just stop if we feel like it. I am at present working towards a masters degree, and eventually a doctorate. I would love to be a financially independent nurse practitioner. Also work pays for it and the school I attend is within walking distance.

I did not realize how long this was until I went back to read it again. Sorry! This is a history major problem I suppose.

Thegoblinchief

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Re: Case Study : Two part time workers with kids
« Reply #1 on: July 21, 2014, 09:20:33 PM »
Don't prepay the mortgage. You are much better off in the long run investing that money, especially since you're not maxing your 403(b).

I'd keep the car since you have it already. The interest rate is low, so don't prepay it. Maybe check Craigslist regularly to see if you spot a good deal, but for now keep it.

You're aware of the dreaded miscellaneous category. Two tricks I like:

-The 48 hour test (for online shopping). Unless it is something you truly need right away, never place an order until it's sat in the virtual shopping cart for at least two days. Chances are, when you come back, you don't actually want to buy it.

-The stranger test: imagine a complete stranger comes up to you. In one hand is the item you want to buy. In the other is the cash. Which do you pick?

As far as gifts go, homemade things like baking mixes which come in, say, a Mason jar or cute plastic wrap and have directions or jams, etc can be really nice and really cheap gifts.

The other thing that seemed a bit high was your out of pocket medical expenses. Chronic health issues? I know toddlers are more expensive than slightly older kids like mine are now, but I average under $100 with less generous insurance than yours sounds like.

MDM

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Re: Case Study : Two part time workers with kids
« Reply #2 on: July 21, 2014, 10:30:49 PM »
Frostflanks, welcome to the forums.

Seems you folks are doing well (e.g. "...saved about 50%...") already.  Thegoblinchief provided some good advice.  You could also consider dropping collision & comprehensive auto insurance - at least go with high deductibles.

From some back-of-the-envelope calculations (see attached spreadsheet), it appears you could get down to ~$0 federal income tax by picking the right 403b amount.  Anything more should probably go into Roth accounts (either Roth 403b if that's an option, or Roth IRA).

In general the attached spreadsheet (disclaimers here) is for you to consider various "what if?" options.  It currently has numbers from your OP plus some "ideas" on pre- and post-tax investment amounts - use or ignore at your pleasure.
« Last Edit: July 22, 2014, 09:13:54 AM by MDM »

SomedayStache

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Re: Case Study : Two part time workers with kids
« Reply #3 on: July 22, 2014, 07:32:48 AM »
Hi MDM, that's a fun spreadsheet I'd like to play around with for my scenario.  It looks like the TAX calculation is trying to grab data from 'tax2014' or tax2014_1'.  Are those files available somewhere also?

MDM

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Re: Case Study : Two part time workers with kids
« Reply #4 on: July 22, 2014, 09:06:07 AM »
Hi MDM, that's a fun spreadsheet I'd like to play around with for my scenario.  It looks like the TAX calculation is trying to grab data from 'tax2014' or tax2014_1'.  Are those files available somewhere also?
Those are Visual Basic functions in the Excel file.  You have to allow them to run.  E.g., under Tools>Options>Security>Macro Security choose "Medium", and then "Enable Macros" in the "Security Warning" popup that appears when you open the file. 

At one time I had a big nested-if calculation for the tax, but the VB function is "cleaner" for my own use.  Does have the downside (as shown here) that it can appear threatening at first glance to others.  Truly nothing nefarious - below is the code for the tax2014 function (and yes, someone with very high income would need to add the higher tax brackets...):

Function tax2014(income)
A = 18150
B = 73800
C = 148850
D = 226850
E = 405100

W = 0 + 0.1 * (A - 0)
X = W + 0.15 * (B - A)
Y = X + 0.25 * (C - B)
Z = Y + 0.28 * (D - C)
   
    If income > 0 And income < (A + 1) Then
      tax2014 = Round((income - 0) * 0.1 + 0, 0)
    ElseIf income > A And income < (B + 1) Then
      tax2014 = Round((income - A) * 0.15 + W, 0)
    ElseIf income > B And income < (C + 1) Then
      tax2014 = Round((income - B) * 0.25 + X, 0)
    ElseIf income > C And income < (D + 1) Then
      tax2014 = Round((income - C) * 0.28 + Y, 0)
    ElseIf income > D And income < (E + 1) Then
      tax2014 = Round((income - D) * 0.33 + Z, 0)
    Else
      tax2014 = -9999
    End If
   
End Function


ETA: Looking closer, I had a typo in the upper limit of the 33% bracket: $405,800 instead of $405,100.  Corrected now - apologies (and congratulations) to anyone actually affected by that calculation ;).
« Last Edit: July 22, 2014, 09:17:21 AM by MDM »

UlyssesG

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Re: Case Study : Two part time workers with kids
« Reply #5 on: July 22, 2014, 11:13:39 AM »
If you like the car and selling it would only mean you could FIRE 3 months early, who cares?  I lean toward eliminating unexpected pain. 
I treat my house like a bond.  I pay down the mortgage and consider that my bond allocation.  The rest of my retirement account is way over allocated to stocks.  This leaves me with a total investment portfolio that resembles a 2045 target retirement fund but eliminates fixed income return risk and meets my goal of paying down my house faster.

Cassie

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Re: Case Study : Two part time workers with kids
« Reply #6 on: July 22, 2014, 12:10:18 PM »
Your car is worth too much $ to drop the collision. Also I would finish paying off the mortgage because it will be gone in a short amount of time & you will have tons of $ then to put towards retirement.  It also will put you in a great position if there ever are any layoffs.