Author Topic: Case Study: Where to invest extra money? Cost Cutting Ideas?  (Read 3466 times)

sherika

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First post!  Found MMM a while back and can't get enough.  Working to make huge changes.  Here's a quick summary:

Income:  105K/yr before taxes.  Tax rate very low due to rental properties and while they cover our outlays, the depreciation write-offs generate a loss.

Spending:  approx $49K/yr (1620/mo of this is mortgage, 15 year loan, about 13 years remaining at 3%).  Loan is about $175K with $100K equity. 

Assets:  House, 100K, Sequoia:  $15K, Accord: $6K, 401k/roth: $350K, Rentals:  $50K

Liabilities:  Mortgage:  $175K, Stud Loan: $55K, Boat loan:  $5,500, House LOC:  $10K @ 4% (zero balance - keep just in case)

We can make huge improvements on this, I know it.  After mortgage is gone we're down to about $31K/yr after adding prop taxes and insurance back. 

Food costs need to go down.  We eat mostly primal/paleo and our food bill is double MMM's.  HOW ON EARTH DOES HE DO IT??!!??

Vehicles:  2007 sequoia that I drive (ducking!) and 2003 Honda Accord that hubby drives.  Both paid in full and have been for some time.  Another area we're looking to make improvements (due to mileage driven and inefficiency).  Gas is costing us about $350/mo for both.

Reason we have the sequoia is we have 3 kids AND we bought it when we bought our boat.  YES WE ARE THOSE PEOPLE.  This is one of those areas where it's a non-negotiable.  We live 20 minutes from a state reservoir and we spend every available day there when the weather is warm enough.  Boat is nearly paid off (I'm paying approx. $1500/mo and it will be paid off in Sept which will be paid 1.5 years on a 5 year loan).  This is our fun family time and we all love it.  No other vacations as a result.  This is how we do it. 

Further breakdown of expenses: 

food/alcohol:  800/mo
phone/internet:  85/mo
netflix/hulu:  16/mo
electric:  130
water/sewer:  85
gas bill:  92
prek tuition:  139
crossfit:  75 (only hubby pays, I coach and get it free)
auto fuel:  350
misc (the abyss):  100
clothing:  75 (kids getting older and hand me downs harder to find for my son's age)
hair:  55
auto/boat ins:  95
auto upkeep:  85 (this often ends up not being used as hubby does almost all auto maint/repairs, but we keep just in case and use elsewhere (like buying a 1/2 cow recently) as it builds up
vehicle registrations:  20
hoa:  27
garbage/recycle:  16
529's:  150 (50 each kid/mo)
student loan:  290 (mine only, we paid off hubby's mba loan long ago) bal about $55K, locked rate of 2.9%
gift fund:  70

Once the boat is paid off we'll have about 1500/mo left over to put towards other things.  Do we put towards mortgage?  Student loan? 

We currently have about $350K in retirement acts (401ks and roth iras).
Based on that I'm thinking towards taxable accts. 

One further question.  I'm currently staying home with the kids, but have serious earning potential.  When I quit to stay home with my son I was making $100K with bonus.  I won't get nearly that now, but I'd say the potential for $50-70K is there.  Do we buckle down on our existing situation with me staying home and making money off real estate sales from time to time, or does anyone else think it would be worth it for me to go back to work for even a few years?  I'd almost rather do that once kids are older (1 more year until middle child in all day K, and then 4 more years until the youngest - she was a bit of a surprise!). 

TIA! 




« Last Edit: May 14, 2014, 12:40:12 PM by sherika »

sherika

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Re: Where to invest extra money?
« Reply #1 on: May 14, 2014, 08:58:48 AM »
Also, meant to say the boat is a non-negotiable.  The sequoia can go and we ARE exploring options.  But the boat is staying.  ;-)

MDM

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #2 on: May 14, 2014, 02:43:55 PM »
sherika, it appears you are doing many things well already, e.g. funding retirement accounts, rental property investments, etc.  Also, a $100/mo "miscellaneous", while improvable, is not all that bad compared to many.

A little more detail on your situation would help us understand:
  - Is the $105K separate from rentals (e.g., DH's salary) or is that salary+rental (and if so, is that gross or net rental)?  Easiest way to explain would be in four (or five) numbers: 1a) salary, 1b) other no-salary, non-rental (e.g., dividend) income, 2) gross rental income, 3) real rental expenses, 4) rental depreciation expense.
  - How much of the $1620 is principal+interest, how much prop. tax, and how much insurance?  Amount financed is ~$175K, correct?

Kneejerk reaction is that you should continue to maximize 401k + Roth, and only then go to taxable investing or paying off mortgage and loans (and at ~3%, it's a coin flip whether investing or loan payments will be "better") - need to understand answers to questions above to determine if that's correct or not.

On the expense side, the ones listed below seem "reducible".
phone/internet:  85/mo
prek tuition:  139
auto fuel:  350
clothing:  75
hair:  55
gift fund:  70

 

sherika

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #3 on: May 14, 2014, 03:08:46 PM »
$105K is separate from rentals, pre-tax.  Breakdown:

Takehome is $5,640/mo, and that is after taxes ($1744), HSA ($400), and 401k ($508, which is 6% plus a 3% match).

Other income includes various work reimbursements (gym, cell phone, my coaching income, etc.) and can avg. $250/mo.

Gross rental income avgs $1,565 (1700 when fully occupied). 

Rental expenses:  avg $1400-1500/mo. 

Depreciation adds another $500/mo or so, so usually cash flow positive (barely) and the depreciation makes it negative on paper.  It is 2 rentals, 3 units (nice SFR in neighboring state which my family lives in, decent equity) and a small duplex in town here that is a giant PITA and we'd love to sell but we're underwater.  Sold one last year and we brought about $5K to the table, ugh. 

Mortgage:  last month, for example, was $880 principal, 441 interest, 200 taxes and 100 insurance.  I've already been shopping for new insurance.  Yes, $175 financed, had 20% in, but appreciation means we paid about $230 and it's now worth about $280, which is pretty darn good for NE Indiana. 

Agree on all the reducibles (including food) but pre-k tuition isn't.  One more year for my middle and she starts K next year (public school).  Then one more kid to go!


Cassie

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #4 on: May 14, 2014, 03:15:13 PM »
i would stay home until the youngest is in school.  You always have time to work & this time you can not get back.

MayDay

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #5 on: May 14, 2014, 05:38:39 PM »
That's a bargain for preschool. We are going to be paying 200$/month this fall in rural OH, and it's the cheapest around.

MDM

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #6 on: May 14, 2014, 07:51:33 PM »
Based on your numbers, and some guesses, after your boat is paid you can go to the maximum on 401k and traditional IRA investments - and still have ~$900/mo to invest and/or pay loans.  See attached, correct any incorrect assumptions, and decide for yourself....  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228 for all the disclaimers.

In short, you appear to be in great shape and your choice about work vs. kids is, well, your choice.  Financially, the answer is "go back to work."  But, money doesn't buy happiness, etc., so all I can say is that large numbers of people have followed one or the other path and been happy.  Do what you want, not what you think you "should."

sherika

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #7 on: May 15, 2014, 12:31:37 PM »
One thing I'm confused about - are you deducting the ira contributions to get to AGI?  So assuming they are not roth?  Still looking the rest over - thanks so much!

sherika

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #8 on: May 15, 2014, 12:40:42 PM »
ugh nvm - I see that you put "traditional" right in there!  ;-)

sherika

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #9 on: May 15, 2014, 01:00:24 PM »
I'm getting a "NAME" error in the tax cell though?   

MDM

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #10 on: May 15, 2014, 01:19:03 PM »
I'm guessing you got the "spreadsheet contains macros" message and chose "disable macros".  As the Excel message goes on to say, "it is usually safe to disable macros, but if the macros are legitimate, you might lose some functionality."  In this case, the macros really are legitimate and the functionality lost is the tax computation.

The "macros" are two Visual Basic functions, one to compute taxes for Married Filing Jointly and one for Single.  If you Enable Macros when opening the spreadsheet it should all work.

sherika

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #11 on: May 15, 2014, 01:22:06 PM »
I enabled, but I'm opening in Excel on a mac.  Not sure if that matters.  I can forward it to hubby to tho.  Thanks!  I'll look it over in more detail later and see if I have any other questions!

rujancified

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Re: Case Study: Where to invest extra money? Cost Cutting Ideas?
« Reply #12 on: May 15, 2014, 02:20:37 PM »
*not a tax expert and skimmed the numbers*

If you went back to work at the quoted salary, you'd potentially lose some ability to write off rental losses:

However, the allowed loss is subject to phaseout based on your adjusted gross income (AGI). There is no phaseout for AGI under $100,000. If your AGI is over $100,000, the allowed deduction is reduced by one-half of the excess over $100,000. So, at AGI of $125,000, the deduction is limited to $12,500, and it's completely phased out at AGI of $150,000. - See more at: http://www.egconley.com/blog/bid/341225/Tax-Deductions-Deduct-up-to-25-000-of-Rental-Real-Estate-Losses#sthash.fMzT4fVB.dpuf