Author Topic: Reader Case Study - "Mind the Gap"  (Read 18517 times)

MMMWannaBe

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Reader Case Study - "Mind the Gap"
« on: March 08, 2015, 10:45:45 PM »
I am sure to receive a few punches to the face, but I am posting since I need a few.

The crux of my challenge (which a punch to the face may cure) is I am taking a break from work to raise my 2 boys (who are 5 and 7) and I am recognizing I do not want to go back to work as the corporate drone I once was.  On the positive side while I was working we saved and so I think that our retirement accounts are healthy (though my husband is skeptical whether we will have enough).  When I am 55 in 10 years I will qualify for $1,000/ month pension and healthcare from my former employer if they are still in business (the scariest, best negotiation that was incorporated in my severance package).  Our mortgage ($1,000/ month) will be paid off in 8 years.  We are currently insolvent, but if I can figure out a solution to make us solvent for the next 10-15 years I think we will be okay (the gap in our life/ plan).  As unmustachian as it is, I have boxed myself in a bit.  We love our house, our neighbors, and our nearby friends so we are not willing to move.  We have roots.  I needed to discover this methodology 15 years ago.

I use Mint and Personal Capital and as much fun as it is to track net worth, our monthly cash flow is hair-on-fire dreadful and keeps me from feeling good about our financials.  Here is what our financial picture looks like.  The figures are based on history.  I budget, but I also consistently go over budget in 2 categories: food and travel

REVENUE                    Annual     Monthly     Comments
Hubby Wages                     $41,544     $3,462    This is after tax and after contributing $17,500 to 401K

EXPENSES          Annual      Monthly        Comments
Food                                  $15,000     $1,250      Punchworthy, huh? includes household (TP, cleaning supplies); entertain   
Mortgage*                          $12,000     $1,000             
Travel                                 $7,500      $625       I feel a punch coming;  did i mention we like to travel; we live to travel         
Property Taxes*                  $7,200       $600          
Kids                                   $4,000     $333        Preschool is $180/ month      
Gifts/ Charity                      $3,888     $324             
Shopping/Misc                     $3,000     $250             
Electric/Gas Utility                $2,500     $208    
Gas (car)*                           $2,400     $200          
Lawn/ Garden                      $912       $76             
Car Insurance*                    $887       $74       
Home Insurance                   $809       $67          
Entertainment                     $850       $71             
Car Repair/ License              $500       $42             
Pool (annual membership)    $450       $38       Punch in the face?  I felt really bad when I bought in.  Peer pressure won            
Cell Phone                           $420       $35             
Healthcare*                         $500       $42          
Home Repair                        $400       $33             
Sewer/ water*                     $360       $30          
Umbrella Insurance               $355       $30             
Garbage*                            $288       $24          
Health/ Fitness                    $230       $19    

TOTAL EXPENSE   $64,449   $5,371

NET LOSS             ($22,905)  ($1,905)

* What I consider fully fixed is $2,245/ month

NET WORTH   
Cash                               $87,000    
Taxable Investments         $115,000    
Roth IRA                         $237,000    
Traditional IRA/ 401K       $1,220,000    
College Funds - 529           $24,000    
Total Inv/ Cash           $1,683,000
      
House                        $360,000    
House Loan                $(80,000)   
      
Net Worth:    $1,963,000    
      
* We own 2 cars.  A 2003 Toyota Camry and a 2010 Toyota Sienna
      
Asset Allocation:      
Cash/ Bonds            11%   
International Stocks   13%   
U.S. Stocks              73%   
Alternatives              3%   
Total                         100%   

So there you have it.  I have bared our financial picture for all to see.  When I look at this I see no other option other than for me to find a way to bring in a couple thousand dollars a month (and perhaps do some trimming of what an MMM would consider a bloated spending pattern).  And this is where my hubby and I disagree.  And perhaps it is my ego I am tripping over.  He would like me to find something I can do from home to avoid daycare expense.  My cursory investigations have discovered that I can do book-keeping from home at what I consider a low pay.  I am accustomed to what I used to be paid and it is hard for me to swallow $15/ hour (plus the work will not be satisfying compared to what I used to do).  I would prefer to continue burning through our cash (which was saved to allow me to stay at home a while) and when both kids are both in school on a similar schedule find part time work.  My husband is anxious because I don't know what that work will look like.  I just know I do not want what I had.  An intense, high pressure, deadline-frenzied job that demanded 50-60 hours/ week in an office with no window.

I am open to input and a punch in the face or two.  Bring it on!

Thank you!  I feel my perspective changed and shifted once I discovered this blog that is unlike any other financial blog I have ever encountered.
« Last Edit: March 08, 2015, 11:01:39 PM by MMMWannaBe »

Argyle

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Re: Reader Case Study - "Mind the Gap"
« Reply #1 on: March 08, 2015, 10:56:16 PM »
You could save $800-900 a month just by being more careful about your food budget.  I feed two people, one of us a ravenous teenage boy, on $200 a month.  And your "shopping/misc" at $250!  Cut that to $50, cut the preschool ($180), cut most of the other kid stuff ($333 a month?!), cut the gifts/charity ($324), even take care of your own yard... Cutting those down to the bone will easily be more than you can clear in a month at a low-level job with the expense of daycare. 

I know you will probably have many reasons why these things can't be cut.  Well and good, if you don't want to cut them, you don't have to.  But here's the question: do you want to be solvent?  Do you want to be able to retire securely?  Or do you want to be the corporate drone?  You get to choose.

marblejane

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Re: Reader Case Study - "Mind the Gap"
« Reply #2 on: March 08, 2015, 11:21:57 PM »
What is your net worth goal? What is your retirement budget? You have $1.7M in assets, which should support $68,000 in annual spending at a 4% SWR, which is less than your current annual spending. Seems to me that you & your husband are already FI.

Definitely examine your expenses, but the real problem seems to be that you don't have an FI "number" and haven't fully figured out your retirement goals. It would be entirely possible for you to continue to stay at home, make minimal cuts to your annual spending, and stop maxing out that 401(k) to address your cash flow issues, and retire with what you currently have, if that's what you want.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #3 on: March 08, 2015, 11:56:48 PM »
Argyle,

Yes that is the punch in the face that I needed.  That our deficit is not insurmountable if we suck it up.  And that we have enough saved in retirement that compounding will enable us to have a secure retirement where we can snatch up deals on travel and see the world.

Food is a catch-all for anything I buy at Walmart and of course restaurants.  But I should be able to trim it down to $500.  That should be my number one focus.

Yes, shopping needs to be annihilated.  And I have a few dirty secrets hiding there that I did not share because I know the outrage I would hear.  I pay too much for haircuts and I bought enough stuff while I was working that I do not need to add anything to my life (I do have a thing for electronics).

Both my husband and I need to be on the same page.  He is a little more of a spender than me.  I think I am more motivated than him to not spend.  I realize that every dollar we spend puts me that much closer to having to find a job.  Sometimes I think he has a hard time grasping why I would not want to maximize my earning potential.  The time with my boys is so much more important to me.  I think I may have failed to prove to my husband the value of me not working as a corporate drone.  Life was easy then, but I am so much more happy now. He worries whether we will have enough money to put the kids through college.  He also worries whether we will have enough for retirement (originally he though we needed $6M).

The good news on preschool is that we only have one more month and it is over.  Kindergarten is next year, so preschool expense will be gone.

Question on the yard for all the men.  My husband claims that the guy who treats our lawn costs about the same as if my husband would do it himself.  He says that since the guy gets the chemicals for cheaper, what my husband would pay for chemicals at Home Depot is equivalent to what we pay our lawn guy.  Opinions on that one?  We have 1/3 of an acre and pay about $50/ treatment.

I desperately want to say no to the corporate drone.

Allie

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Re: Reader Case Study - "Mind the Gap"
« Reply #4 on: March 09, 2015, 12:15:46 AM »
You are FI already.  Sure, you could economize and live on your husbands income.  But really, the better question is why, if you know you will have an extra thousand a month and healthcare in 10 years, is your husband still working?  Am I missing something?

Argyle

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Re: Reader Case Study - "Mind the Gap"
« Reply #5 on: March 09, 2015, 12:21:19 AM »
Well, I have a two-acre lawn and I've never treated it with anything at all.  I guess it doesn't look like a manicured golf course.  But it looks fine to me.  It also doesn't poison any streams with chemical run-off, and it's safe for kids to roll around on, unlike a lot of lawns treated with all manner of things.

Does your husband actually want to stop working?  Or does he want you all to be earning as fast as ever you can so you can spend lavishly on lawn treatments and fancy stuff?  Why does he want $6 million in the bank?  Is he planning to increase his spending in retirement?  How much are you calculating your kids' college will cost?  How much do you need to put into a targeted account now to come up with that when the time comes?

Cutting down on expenses is its own kind of "earning," and every dollar you save is saved tax-free.  (If you earn an extra $1, you put maybe 75-85 cents in the bank after taxes.  If you save an extra $1, you put $1 in the bank.)


MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #6 on: March 09, 2015, 12:46:15 AM »
marblejane/ Allie,

Good point on FI.  I track a bunch of metrics on an Excel spreadsheet.  And I think that I was having a hard time believing that we were narrowing in on FI.  I also tracked what percent of all the dividends issued (retirement included) covered our annual expense.  As of last year we were at 67%.

You have confirmed what I suspected (but thought was too good to be true).  However, I need to convince my husband that we are okay and he can stop asking me when I will get a job.  When we were not in agreement of what our retirement number was (a couple of years ago when my severance was still rolling in), we met with a financial advisor through Vanguard.  The desired earnings figure we provided was a bit arbitrary since at that time although we knew what we earned we did not know our expenditures.  Based on desired earnings of $100K excluding ever receiving social security we needed $3M.  My husband was more comfortable with a higher number.  But in retrospect, we needed to do our homework better; we do not need this high of a number.

Thanks for your comments.  Exactly what I needed to hear.

Runningtuff

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Re: Reader Case Study - "Mind the Gap"
« Reply #7 on: March 09, 2015, 12:47:53 AM »
You have saved really well, and appear to have enough now to be FI if you wanted. But then I would have stopped working at about 400k saved ;).  Definitely looks to be worth running the numbers!

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #8 on: March 09, 2015, 01:29:35 AM »
Argyle,
To answer some of your questions, my husband does not want to stop working.  He likes his job. 

I think my husband's ultra-conservatism prompts him to err on needing more than we do (we agreed on $3M for retirement which I now know is too high).  I don't think his figures are based on math; I think they are based on fear.  And he has it in his head that we will spend more in retirement (travel and the unknown); I do not see our total spending habits changing much from pre-retirement.  Spending money comes more natural to him than me.  But in marriage sometimes you meet in the middle and in areas of disparity, balance can be achieved.  Not everybody is frugal and not everybody has an interest in personal finance.  But he can fix things and that is something I do not bring to the marriage.  I break things. 

Great point on college.  We are underfunded in our target accounts and I have failed to do the math on how much we need.  I fear I am burying my head in the sand on that one.  That is an issue in our financial plan.  Thanks for pointing it out.

seattlecyclone

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Re: Reader Case Study - "Mind the Gap"
« Reply #9 on: March 09, 2015, 02:01:12 AM »
I agree that you're FI already. Your mortgage makes your cashflow situation look worse than it needs to. Suppose you paid it off. Then you would be spending $52.5k/year with investments/cash of $1.603M. That's a 3.27% withdrawal rate if your husband quit right now and you didn't cut any of the fat out of your budget. It will go down close to 2.5% once your pension kicks in. Your husband really doesn't need to work anymore. If he wants to, that's one thing, but he has no reason to pressure you into working if you don't want to. There's no need for it.

zolotiyeruki

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Re: Reader Case Study - "Mind the Gap"
« Reply #10 on: March 09, 2015, 08:38:17 AM »
I'll just echo what others have said:
1) You're FI based on your current spending and assets
2) Your food budget is out of control.  We feed our family of 8 very well for $900-1000/month, including eating out.
3) You don't need pre-K, and neither does your kid.  What's the remaining $150/mo for the kids?
4) You can mow your own dang yard.  Save money, get exercise at the same time.
5) Having $87k in cash on hand is nuts.  Use it to max out your 401k/IRA/etc, or just pay off the house.

And lastly:

6) Sit down with DH and actually crunch the numbers for retirement.  Make some concrete expectations in terms of travel, living expenses, etc to come up with a yearly spend.  Run those numbers through firecalc or cfiresim and show them to your husband.  Emphasize that those numbers represent the best and worst options from the last 100+ years, including the 1929 market crash and great depression.
« Last Edit: March 09, 2015, 10:35:58 AM by zolotiyeruki »

begood

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Re: Reader Case Study - "Mind the Gap"
« Reply #11 on: March 09, 2015, 09:56:03 AM »
I'm commenting to follow, MMMWannaBe!

We are in something of a similar situation, only we have college looming in five years.

For 2015, we're maxing out my husband's 403(b) and our HSA, and I'm going to contribute the max to my tIRA. Once we've done that, though, our cash flow starts to get a little tricky! It feels like we have plenty of money for LATER, but not always enough for NOW.


MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #12 on: March 09, 2015, 10:15:54 AM »
Zolotiyeruki,
Thank you for your direct, concise summary/ analysis.  I know this may all seem obvious, but I really needed others to tell me these things and coach me on how to address the situation with my husband.  I am so grateful for finding MMM a few months ago.  I feel like a huge weight is starting to lift off my shoulders; now I just need to get DH on board.  And in fairness we are adjusting.  Two years ago our combined gross income was $185,000.  We were un-mustachian and we spent freely and wastefully (but we always saved first before we spent).  Please see comments in blue below.

1) You're FI based on your current spending and assets.  True confession I still have anxiety on whether we are really FI (and my husband's anxiety is 100 fold mine); I took a second look at what we really spent last year (based on my Excel spreadsheet) and it was $69,102 (we did have a $2,600 repair to A/C included in that figure)  I know our spending looks luxurious, but we have reduced some of our wasteful spending that occurred when I was employed.  And we need to make more cuts.  I only get wistful when my neighbors go to see the Broadway plays for which they are season subscribers; but I ask myself, do you want to go back to work.  NO!

2) Your food budget is out of control.  We feed our family of 8[/i] very well for $900-1000/month, including eating out.  I totally agree.  I think I need to keep all of my grocery/ restaurant bills and figure out what the heck I am doing wrong.

3) You don't need pre-K, and neither does your kid.  What's the remaining $150/mo for the kids?  Organized Sports (DH is not budging on that).  And the rest is either gifts for the kids or family activities (yes, there is room for improvement).

4) You can mow your own dang yard.  Save money, get exercise at the same time.  We do mow our own yard.  We have extensive landscape beds.  My husband would like to mulch every year; we agreed on mulching every other year; we do live in a very windy area (we purchase from the Boyscouts and do it ourselves).   If our finances were different I could definitely spend more in this area.  There are still empty spots in my landscape beds longing for plants to occupy them.  But that is on hold. 

5) Having $87k in cash on hand is nuts.  Use it to max out your 401k/IRA/etc, or just pay off the house.  $87K is a lot, but it is the safety margin that keeps my husband from demanding that I seek employment immediately.  And I am going to take $11K and move it to our Roth IRA accounts (but that is coming from a money market account residing within our Vanguard taxable account).  I do toy with the idea of ending our mortgage.  But I do whatever it takes to keep the chant of "get a job" out of our daily discourse.  And showing we have tons of money reduces the chant to once a week or less.  More than anything in the world I want to have summers with my boys and not send them to daycare or summer camps.  And for that I am all about cut, cut, cut on our non-fixed costs.  No expenditure is worth it, if it means I go back to work full time.

And lastly:

6) Sit down with DH and actually crunch the numbers for retirement.  Make some concrete expectations in terms of travel, living expenses, etc to come up with a yearly spend.  Run those numbers through firecalc or cfiresim and show them to your husband.  Emphasize that those numbers represent the best and worst options from the last 100+ years, including the 1929 market crash and great depression.  Thank you!  That is a great idea/ plan.  I initiated the conversation on the topic that we are FI this morning.  It is going to take some time to convince him that is indeed the case and slay that dragon of fear and worry.  He is an engineer so when faced with numbers he should be able to wrap his head around all of this.  He does tend to be very conservative and round up everything to be safe.  He is also softening on the idea that I may find work that fits our lifestyle and not sell my soul to the highest bidder.  I need to address college expense.  He sees that as a gap.

I truly appreciate your post packaging everything together.  I have a feeling I will continue to refer back to it as I sort through this.  I have become obsessed with our finances. 

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #13 on: March 09, 2015, 10:27:28 AM »
begood,

I hear you.  And I suppose that is the reason for my title.  DH and I love to travel and were amused with the "Mind the Gap" announcement when we used the Tube in London.  We now feel it is a good synopsis for our financial situation.  We just need to figure out the gap until when we can access our retirement funds.

One option I have in the back of my head (though it is in no proximity to my husband's head) is that we can access our Roth account to bridge the gap.  We are certainly beyond the 5 year waiting period and in a pinch could use it.  I have started moving our taxable investments into a dividend portfolio.  But our dividend portfolio is so low ($30K) that it is not throwing off the passive income stream of my dreams.

Indio

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Re: Reader Case Study - "Mind the Gap"
« Reply #14 on: March 09, 2015, 10:35:57 AM »
You should check out the other discussion threads on paying for college and filling out Fafsa. With so much of your income in retirement accts and drawing down on the taxable assets, your kids might be eligible for more aid, as long as fafsa guidelines dont change.

begood

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Re: Reader Case Study - "Mind the Gap"
« Reply #15 on: March 09, 2015, 10:45:46 AM »
If it makes you feel better, MMMWannaBe, our expenses were also $69K in 2014, and we have no housing expenses except utilities. And that was with nine months of me learning and evolving and making changes thanks to discovering MMM and the forums here.

I consider us a work in progress. I do my best to keep my mind open and my eyes open.

My husband had not planned on saving anything more for retirement when he switched jobs and we moved here almost six years ago. We could easily swing our bloated, luxurious lifestyle if we weren't filling the HSA and maxing out our retirement accounts. But to me there's real value in learning to live on less, with less. I was genuinely tickled when I discovered my Visa bill for this past cycle was the lowest it's been since I got the card in 2004.

zolotiyeruki

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Re: Reader Case Study - "Mind the Gap"
« Reply #16 on: March 09, 2015, 10:59:18 AM »
Ah, kids' college--that's something I neglected to address.  There are lots of differing opinions on it, but here's mine:  You don't need to pay for your kids' education, nor should you feel obligated to.  My parents' contribution to my education was 1) plane tickets to get there, and 2) a prepaid phone card for calling home each week.   Well, that, and 3) a love of learning and a good work ethic.

I grew up as the youngest of 9 kids, and my parents made it clear from Day 1 that we were on our own for college finances.  I managed to do it using a combination of an inexpensive school, scholarships, and part-time work.  On top of that, there are oodles of grants, loans, etc available to students.  That's all assuming your kids go to a traditional 4-year university, rather than a technical school or learning a trade.

Anyway, that's my perspective, take it for what it's worth.

As for the other kid-related expenses, I can sympathize with those--that's why I didn't facepunch you on it without asking :)  I *did* make the mistake of assuming the landscaping expenses were for a lawn service, so I'll take that back.  I've got kids in sports, too. 

But that much per month on your landscaping *does* seem a bit unnecessary.  Looking for plants to fill empty spots in your beds sounds to me a lot like buying furniture to fill unused rooms in a too-big house.  Now, if you look at landscaping as a hobby, and it's something you enjoy doing, that's fine--budget it as entertainment/hobby.  But if you're spending money on it "because it's there and needs to be filled" you might want to take a step back and re-evaluate what you're trying to accomplish with it.

Out of curiosity, your wording makes it sound like the wind increases your need for mulch.  I've never heard that before--am I misunderstanding?

If DH is worried about an emergency fund (which it sounds like your $87k is right now), point out that it's not your only source of funds in case of emergency.  You've got Roth contributions, 401k loans, credit cards, home equity loans, etc that could all be tapped in case of a genuine emergency.  You're throwing away something like $500/mo of potential returns by keeping that money in cash.  That's some expensive piece of mind.

UnleashHell

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Re: Reader Case Study - "Mind the Gap"
« Reply #17 on: March 09, 2015, 12:09:23 PM »
take the cash and pay off the home loan.
stop putting into the 401k. you have enough.

balanced budget. done.


now start working of clearing out some of the rest of the crap in the budget and you are in better shape than ever.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #18 on: March 09, 2015, 12:29:31 PM »
zolotiyeruki,
You always have great feedback.  Your strategy on college is solid and one that is familiar to me.  DH and I have had strong conversations on this.  He is unyielding on our requirement to fund the kids' college.  He thinks I am being selfish by suggesting the kids pay for college.  I feel like they need to contribute...they need to have some skin in the game.  I am not wavering on this stance.  College is also a great opportunity for them to learn how to manage money.  I was fortunate and my parents helped with my college expense; I was given a stipend twice a year.  It was enough to cover tuition and rent.  Any other expenses were mine to cover.  If I did not manage the stipend (and spent it elsewhere) that was my problem.  My very good friend who lived with me was doled out money as she "needed"/ requested it.  I still think money is a challenge for her.

As far as landscaping/ lawn I know that I did not spend $0.01 on material, maintenance, or otherwise (not even a hanging plant which I usually place on my porch and patio) in 2014.  2014 was all on the husband and I will not rule out there could be a misclassification of expenditures.  I do not want to bring up a sore topic, but "we" spend $500 annually on lawn treatments (not mowing).  That needs further investigation.  Landscaping is definitely a hobby of mine.  Our backyard/ patio is an oasis.  It is the gathering spot for our adjacent neighbors (as well as kids) and I love it.  And yes the wind does impact our need to purchase mulch.  The mulch blows away.  That is why I keep thinking if I can fill in the beds with plants our need for mulch decreases.   

I hear you on the $87K in checking.  This account does drop by about $20K/ year to cover our cash flow crunch.  So yes, we have 4 years' worth of savings there and that is earning me a "get out of jail free" card for the next 3 years until my youngest is in second grade (and both sons are at the same school). If it makes you feel any better, I have the money in a checking account that returns 1.25%.  Not stock market returns, but better than nothing.  And strike me down for uttering words that sounds like a market timer, but the stock market feels high to me.  If there is a big drop I am poised to invest. 

I have been corresponding with DH today.  We are going to sit down to "workout some details" per his suggestion.  His initial question is scaring me, "How much do we need, to have an income stream of $100,000/ year in retirement?".  So first I need to address what do we really need in retirement.  He is discounting my potential $1,000/ month pension at 55 (since my former employer is struggling to stay alive) and he also does not include social security.  I just need to understand how he thinks that our expenses in retirement will balloon that much.  And then we need to talk about the big FI.  I am nervous about how he will accept that conversation.  It is the key to my freedom.

Thanks for your input and not smacking me around too harshly.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #19 on: March 09, 2015, 12:54:47 PM »
begood,

Thank you for being honest.  I feel embarrassed about our ridiculous, bloated lifestyle in comparison with the others on the board.  In my circle of friends I am considered the cheapskate, so it is refreshing and humiliating to realize that I could be so much better.  I just discovered MMM a few months ago.  I am reading all of the blogs starting at the very beginning.  I am still in 2011, but felt compelled to throw our situation out to the MMM community since I stress over our personal finances so much that I do not even feel like I am enjoying this time with my kids.  It feels like I am on death row and as each minute passes by I edge closer to going back into servitude as a corporate drone.

I have a question for you.  How well does you husband take this new frugal lifestyle?  It really takes two to make it work.  Are MMM's a small breed of people and it is even rarer when you find two people who are both willing to adopt the MMM lifestyle. 

Like you, we are a work in progress.  I wish I had discovered this mentality/ lifestyle 15-20 years ago.  I love absorbing everything this community has to offer.  My biggest worry is whether my husband is willing to make what he considers a sacrifice so that we can live the frugal life that allows me to not go back to work.  I am open to part-time work.

Geldsnor

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Re: Reader Case Study - "Mind the Gap"
« Reply #20 on: March 09, 2015, 02:27:21 PM »
2) Your food budget is out of control.  We feed our family of 8[/i] very well for $900-1000/month, including eating out.
  I totally agree.  I think I need to keep all of my grocery/ RESTAURANT bills and figure out what the heck I am doing wrong.

IMHO, you are completely missing the point. Just make sure you barely get any restaurant bills. 1200$ per month on food is just insane (unless you consider working for it 80 hours a month totally worth it).
« Last Edit: March 09, 2015, 02:31:25 PM by Geldsnor »

begood

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Re: Reader Case Study - "Mind the Gap"
« Reply #21 on: March 09, 2015, 02:45:18 PM »

Thank you for being honest.  I feel embarrassed about our ridiculous, bloated lifestyle in comparison with the others on the board. In my circle of friends I am considered the cheapskate, so it is refreshing and humiliating to realize that I could be so much better.  I just discovered MMM a few months ago.  I am reading all of the blogs starting at the very beginning.  I am still in 2011, but felt compelled to throw our situation out to the MMM community since I stress over our personal finances so much that I do not even feel like I am enjoying this time with my kids.  It feels like I am on death row and as each minute passes by I edge closer to going back into servitude as a corporate drone.

I have a question for you.  How well does you husband take this new frugal lifestyle?  It really takes two to make it work.  Are MMM's a small breed of people and it is even rarer when you find two people who are both willing to adopt the MMM lifestyle. 

Like you, we are a work in progress.  I wish I had discovered this mentality/ lifestyle 15-20 years ago.  I love absorbing everything this community has to offer.  My biggest worry is whether my husband is willing to make what he considers a sacrifice so that we can live the frugal life that allows me to not go back to work.  I am open to part-time work.

MMMWannaBe, I have two circles of friends. One set is super simple: no cable, board-game nights and potlucks, one-hybrid-car families. The other is beach-house-owning, SUV-driving, cruise-for-vacation families. I'm an outlier to both! I love the reinforcement I get from my simpler friends. I've learned a lot from them. It's been a paradigm shift, for sure. If you're interested, I've been chronicling my cascading epiphanies in a journal:

http://forum.mrmoneymustache.com/journals/begood-strives-to-bebetter/

To answer your question about my spouse, he considers my headlong dive into the world of MMM to be a double-edged sword. He told a friend that MMM had "created a monster". For the first 25 years we were married, he handled ALL our finances. I took over bill-paying last year, and it was like I'd come out of a cocoon - we spend HOW MUCH?!?

He is not naturally spendy. We've always said that he saved and I spent. Well, now I want to save too. I want to save now so that compound interest can work its magic for as long as possible. For me, it's the need for a financial security blanket for my old age. For you, it's being able to stay at home with your kids.

It takes a stash of $2.5M to throw off $100,000/year -- $100,000 x 25. You've got ten years to make that last $600K, and if you've got a decent asset allocation, it could probably do it on its own. To me, you don't have a financial issue - you have a perception issue. Your husband perceives that you don't have enough, when it looks to me like you do... or you will. Even if you stay home with the kids.

At our age (I just turned 50, my mister is 49), I do believe that we will get Social Security in some form to some degree. You can run FireCALC and cFiresim with and without it and see how your numbers look.

I will never be a bike-riding, bean-eating, OOMA-talking Mustachian. And I've found that the good folks here are cool with that. We're all on a continuum. There isn't just one way to do all this.


MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #22 on: March 09, 2015, 04:14:24 PM »
begood,

Thank you for sharing.  For the most part I am in a keep-up-with-the-jones neighborhood.  Many have expensive cars and designer purses; they make fun of me for not recognizing what a designer name is and I am totally cool with that.  That stuff means nothing to me. . 

I will definitely check out your journal.  I learn so much through other people's experience.  And my husband definitely suffers from a perception issue.  I am going to work on that since it is the only way I will be permitted to stay home with the kids and be selective on what kind of income generating work I accept.  The goal in my life is not to make as much money as I can; it is to spend my time in the manner I want to (and right now that is with my kids).  I would like the opportunity to try something in the entrepreneurial realm when my kids don't need me as much as they do right now.  And I like the idea that we are on an MMM spectrum.  I fail miserably in some areas, but do I get credit for owning Ooma for a number of years?

Geldsnor,
IMHO the problem really is the grocery category not restaurants.  Since I left the workforce we spend less than $200 a month on restaurants (I have so much more time to make dinner).  I will not share how much we used to go out to eat.   Yes, $200/ month on restaurants may be appalling to a true MMM, but we are a family of 4 and I am not ready to never go out to eat.  We like ethnic food and the whole dining experience.  So that means we are spending $1,000 on groceries and household items.  Scandalous.  Now that will include everything purchased at Walmart and Costco...I do not split the receipt.  I need to get a handle on this.  I am well aware we spend more than about anybody who frequents financial blogs. 
« Last Edit: March 09, 2015, 07:31:15 PM by MMMWannaBe »

Spondulix

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Re: Reader Case Study - "Mind the Gap"
« Reply #23 on: March 09, 2015, 05:50:57 PM »
Few questions - why do you have pool and health/fitness? How often do you use the pool, and is there a pay-per-use cost?

I'm interested to know more about this lawn care of you are handling lawn yourself. Could you make a one time $900 expense and just take out whatever is taking so much time to maintain?

Could you breakdown entertainment?

Why do you have to pay $500/year for car repair for Toyotas? (should be more reliable than that) Are you going to the dealer?

GardenFun

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Re: Reader Case Study - "Mind the Gap"
« Reply #24 on: March 09, 2015, 06:01:54 PM »
So that means we are spending $1,000 on groceries and household items.  Scandalous.  Now that will include everything purchased at Walmart and Costco...I do not split the receipt.  I need to get a handle on this.  I am well aware we spend more than about anybody who frequents financial blogs.

Definitely keep your receipts, sub-categorize and track for at least 3 months.  Our grocery budget was also getting out of control so 2015 is the Excel year of Groceries.  It is truly an eye-opening experience.

As for your husband's concern with the retirement amount - remind him that engineers use Rules of Thumb in their calculations.  They calculate a value, then multiple the value by some fudge factor, just to make sure any minor calculation or assumption errors get covered.  For example, we're using a 20% fudge factor on our personal FIRE value.  Using the $2.5M value, a 20% fudge factor would increase the FIRE value to $3M.  However, you could also look at it from the perspective of applying the 20% factor to your yearly spending.  If you data shows you are spending $70k/yr and he wants to budget for $100k/yr, he's adding a 43% fudge factor to your calculated data.  Taking $70k/yr and a 20% fudge factor gets your $84k/yr, which is a FIRE value of $2.1M.  Sheer compound interest will get you there in 2 years. 

Overall, it comes down to the retirement budget.  $100,000/yr sounds great because it is a nice, round number that has 6-digits and sounds big enough to handle any issues.  But as your already know, there is a world of difference between $50k, $70k and $100k retirement budgets - in terms of work years.   

GardenFun

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Re: Reader Case Study - "Mind the Gap"
« Reply #25 on: March 09, 2015, 06:03:57 PM »
FWIW - I did the corporate drone path too for 13 years.  Not going back to it when the kids started school was also the motivation to find another alternative - aka MMM.  Find a way to keep your family's freedom.  :-)

alsoknownasDean

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Re: Reader Case Study - "Mind the Gap"
« Reply #26 on: March 09, 2015, 07:49:50 PM »
Shouldn't be too hard to cut a decent chunk out of those expenses. Cut the grocery budget in half (how much are you spending at Whole Foods?) and clear the mortgage and you're already most of the way there.

Finding some work may stem the net outflow of money, but you don't need another 9-5 to get that.

Maybe consider some part time side hustle in something that interests you to cover the shortfall, and let your husband's contributions and good old compounding take care of the rest.

Maybe something that you can scale up if needed in case your husband can no longer work before planned.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #27 on: March 09, 2015, 08:53:15 PM »
GardenFun/ alsoknownasDean,
Thanks for the rays of light.  GardenFun I am so glad that you managed to find a solution.  I feel like it is a puzzle that can be solved.  My biggest challenge is getting DH on board.

I started a conversation with DH this evening (we also had brief conversations on FI throughout the day). This evening's conversation did not go so well.  We need to not talk hypotheticals.  I need to do my homework and present numbers and use Firecalc and the like to demonstrate our retirement security and then move into how we address our current cash flow crunch.

GardenFun, I think you nailed it. $100K is a good solid number that my husband likes.  He accepts that we are currently living on $70K and that includes our mortgage.  But I am beginning to think that he is holding such a lofty number as a requirement because it 100% assures him that he will have a comfortable retirement where he will have no worries.  My position is that these may be my best years and I do not want to delay living until a later date.  It is not the destination, it is the journey.  And I know there is no way we will need $100K for retirement.  On the flip side, I may be arguing a moot point.  If we allow our current investments to compound we will hit $2.5M using a rate of 5% by the age of 54.  Is it even worth arguing about his desired retirement income figure of $100K.  I just need to manage our cash flow until we hit DH's definition of FI.

alsoknownasDean, I think you are right that a part time side hustle is the best solution for our family and relationship (as well as trimming our expenses). DH is acknowledging we are not in a financial state of emergency.  I feel the pressure for me to start looking for a job easing.  He now agrees that I have the luxury to pick and choose what I want to do and part time work is an option.  I told DH I do not want to work during the summer.  That was a conversation stopper and ended the productive money discussion.  He asked me how in the world I could find a job that didn't require me to work the summer.  Not knowing the answer does not scare me.  It is a challenge (and I have an idea).  We put the conversation on hold as it wasn't going anywhere positive.  I had a job where summer times were our busiest (long hours and weekends).  For about 20 years I missed out on summer.  Last summer with my boys was beyond incredible. 

The discussion with DH will continue....

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #28 on: March 09, 2015, 09:34:38 PM »
Spondulix,

I want to answer your questions.  I pulled the detail transactions from Mint.  It was clear I do not scrub the data and there are misclassifications.

Health/ Fitness:
- This is prescription drugs and doctor bills (son)

Entertainment
Gym Membership (misclassified)    $270
Movie Theater/ Movie Rental       $188
Netflix                                    $102
Symphony (family)                     $66
Music                                             $33
Music Share iTunes                      $25
misclassified (fruit on vac)            $24
Amusement Park - vacation              $20
U-Pick Farm                             $18
Museums                                     $12
Kindle apps                               $4
Total                                              $762

Lawn & Garden
Birdfeed           71
Costco (????)           185
Mulch                     160
Lawn Treatments*      451
Total                             867
* It seems to me we could do this ourselves for cheaper; it also includes aeration, grub treatment, etc.  My DH does not think we can do it cheaper ourselves.

Pool
- I had a hard time sharing that we have a pool membership.  But how can people help me if I do not tell the truth.  We live in an area where there is no recreation center or reasonable YMCA.  Last year we joined a pool for $275.  The kids had swim lessons and we were there the first 3 weeks of the summer and continued to frequent it through the summer.  Great pool but it is 20 minutes from our house.  I felt horrible purchasing into a local pool (1 mile away), but I did.  My best friend from a neighboring community belongs there (grills out every Sunday there) and when they offered a special incentive to join, my neighborhood joined in mass.  Peer pressure got to me.  We will do swim lessons and swim team, but the price is horrific ($450/ year).  And there is a hidden part.  We had to buy a share/ bond to belong.  So I have created a fixed expense for the annual maintenance fee.  That is what really bothers me.  I would love pay per use, but there is nothing close to us.  If I end up working during the summer and do not use the membership, I will sell our share.

Car Repair
- That was based on prior year repair.  And it was for a Mazda that had engine issues that I sold at 250,000 miles in 2014 (I used to have a 130 mile round trip commute to work).  We were very fortunate and our generous in-laws gave us their 2003 Camry when they purchased a new vehicle.  But it is old enough that it may need a repair or tires before the year is over.  I NEVER go to the dealer once the warranty is over.

Grocery
- I do not shop at Whole Foods, but occasionally when somebody is ill or we have visitors at our house I will go to Fresh Market for their side salads.  That needs to stop.  I am going to take GardenFun's advice and save all of my receipts for groceries and restaurants to understand how I spend what I do.  I know that the majority is from what is being classified as groceries (Walmart, Costco, Kroger, Biggs, etc.).  If I could cut this in half that is $6K saving a year.  HUGE!

Argyle

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Re: Reader Case Study - "Mind the Gap"
« Reply #29 on: March 09, 2015, 10:10:09 PM »
Is it possible that your husband is putting pressure on you to work because he resents being the only breadwinner in the family?  He might be regarding you as getting a "free ride"? I've known that to happen.  In which case the retirement numbers wouldn't be the only negotiation you have to do.

mrmiyagi

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Re: Reader Case Study - "Mind the Gap"
« Reply #30 on: March 09, 2015, 10:12:28 PM »
As others have stated, you are most likely financially independent now. If your husband likes his job and wants to keep working, that's even better - drop the 401k contributions and just live on his salary, letting your current investment stash grow untouched into an even bigger retirement cushion.

You certainly could cut your expenses, but if you have that much saved up already and your husband truthfully wants to keep working, I don't see the reason. Nothing wrong with tackling the easy stuff (like that grocery budget) but why cut back on the pool, symphony, vacations, etc if you've got the money and those are things your family values? Sounds like the real problem is just that your husband does not believe you are FI. Or, is there any bitterness from him about him "having" to work, and you staying home?

Rocketman

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Re: Reader Case Study - "Mind the Gap"
« Reply #31 on: March 09, 2015, 10:22:09 PM »
You have 87K in Cash plus another 115K in taxable investments. Get your House PAID-OFF!!!  It will simplify your budget, plus you can reacquire your investments in the money you now send to the bank.  I know many people here may say, but you will lose the interest tax deduction and your investments will rise more than the interest rate on your mortgage. But the stress of closing your budget hole will all disappear with the mortgage.

This is a physiological thing, not a math thing.

You already have the math to basically retire.  You just can't see it due to the cash flow crunch, caused in part by keeping liabilities on your balance sheet. 

Good Luck.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #32 on: March 09, 2015, 11:06:16 PM »
mrmiyagi,
The math certainly supports dropping the 401K and living off DH's salary.  Some part of me has a hard time stomaching not maxing out the 401K.  We would contribute the minimum to get the company match.  I will have to see the tax consequences of not contributing to the 401K.  DH's W2 was setup for when I was working and as a result we are receiving a $7K refund from the IRS this year.  We did not have to pay any money on dividends or capital gains since our taxable income was less than $40K.  I need to get a better handle on federal taxes.  Take a class or talk to a tax accountant, that is the question.

I think you are correct.  DH does not believe we are FI.  I need to sit with him and look at Firecalc.  I ran the numbers today.  0% cycles failed for a success rate of 100%. ($100K annual spending, retire at 58, no further 401K contribution).

At one time we discussed DH staying home with the children since we could have lived on my salary although the inverse was not true.  He had no interest in that option.  He had been upset with me because he did not feel like I utilized my MBA properly.  He thought I should have immediately found a new job earning more money once I had my MBA (my employer paid for it).  I told him earning my MBA was not about the money, it was about the experience/ education I received while in the program (which was tremendous).  That made no sense to him.  And in the end my employers were very good to me economically, they challenged me, and provided me invaluable experience.  They only wanted my soul in return.

DH says he likes his job, but he has offered to find a new job to bring in more income.  I have not been in favor of him switching jobs to boost his income.  His current employer is  a good fit for him.  It is a laid back company that is extremely flexible with his schedule and he rarely works long hours.  He likes the work.  Why mess with something that is working.

Thanks for your input.  You raise good questions and I appreciate the leniency on some of our vices.  I will focus on reducing our grocery expenditures since that is low hanging fruit. 

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #33 on: March 09, 2015, 11:48:42 PM »
Rocketman,

One clarifying question.  Paying off the house is not enough to bring us to solvency.  If we pay off the house AND stop the 401K contributions then we are solvent.  I show that we have about a $2,000 monthly deficit.

House payment:     $1,000
401K Contribution:  $1,458
Grand Total:            $2,458

If paying off the house brought us to solvency it would seem more palatable.  Paying off the house reduces the deficiency, but does not eliminate the cash crunch.  That would require the following or a combination thereof:

1) adjust 401K contribution
2) reduce expense
3) obtain side hustle to make up difference
4) Tap into taxable investments


Spondulix

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Re: Reader Case Study - "Mind the Gap"
« Reply #34 on: March 10, 2015, 12:07:03 AM »
MMMWannaBe Thanks for the details. Could you and your family come up with ideas of how to have fun without spending money or on the cheap? (whether it's travel or entertainment) It looks like there could be a mindset that "we can't have fun unless we're paying." It's something that comes up a lot on this site (especially with people who have kids - all those classes really add up over time)

I'd really be interested to see a breakdown of your monthly expenses based on necessities (can't survive without) vs non-necessities. If you can get Mint organized, you'll have a much better sense of you financial situation (which it sounds like you already know). I don't 100% trust Mint budgets, though. iheartbudgets.net is great for learning how to make one (and trim it down)

mrmiyagi

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Re: Reader Case Study - "Mind the Gap"
« Reply #35 on: March 10, 2015, 12:50:17 AM »
Good point regarding the employer matching on the 401K. Makes sense to just contribute enough to get the maximum match.

It really sounds like you guys are in a great place financially. Since you don't need the money, volunteering is an option for you if you can't find gainful employment that satisfies your "no summers" rule. And if nothing else, for his sake, please convince your husband not to change jobs solely for the money. Gradually, work on showing him on the math behind your financial independence. He's probably been locked into this huge retirement number goal for a long time, so it may take some time to get over that. In the meantime, cutting your expenses a bit may work as a show of good faith, to prove you're taking his concerns seriously.

On a personal note - my wife changed jobs a couple of years ago, and she makes less than half of her old salary. I feel that she is underemployed / underpaid relative to her degree. However, she is also much happier in her new job. I was quietly bitter for a while (I work long hours and we are not even close to FI yet), but eventually I came around. She's less stressed and thus more fun to be around, the house is cleaner, the quality and frequency of her cooking has improved. Both of our lives are better now than they used to be. Hopefully your husband will come around on you "wasting" your degree when he realizes you don't need the money... maybe he'll even want to "waste" his too.

DK

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Re: Reader Case Study - "Mind the Gap"
« Reply #36 on: March 10, 2015, 07:02:19 AM »
My .02.

Adjust 401k contribution to only the employer match.
Pay off mortgage with cash.

Those two things should allow even your current budget to work. If it feels like "scrimping" you could always take $1K out a month from your taxable and roth ira contributions. You could do that every month for roughly 20 years.

Per the pension, they are insured, so even if they go belly up you should get *something* from your pension. Ditto Social Security - all the doom and gloom is that they will pay out roughly 75% instead of 100% down the road. Be conservative and say you'll get 50%, but don't run calculations at 0.

What's your mtg rate? If it is higher you could think about keeping the mtg and re-fi'ing. That could allow some extra cash flow, or allow it to paid off quicker if you ignore paying it off right away.

ZiziPB

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Re: Reader Case Study - "Mind the Gap"
« Reply #37 on: March 10, 2015, 07:48:07 AM »
First of all, stop saying you are insolvent.  You are more than solvent, you just have a cash flow issue.  All you need to do is figure out how to utilize some of your investments to improve your cash flow and you'll be all set.  Some of the suggestions like paying off your mortgage are good (at this point you are probably paying mostly principal so your interest deduction must be almost nothing).

The bigger issue I see is that you and your husband are totally not on the same page.  Not as far as your present situation is concerned (he wants you to work, you want to stay home with your kids), not as far as your future is concerned (you want to FIRE, he wants to work) and not as far as the understanding of your financial situation (you think you have enough money, he does not feel secure at the current level).  I think that is what you need to focus on and work on.  And I don't mean to say that you have to convince him to see the world your way.  You need to reach a compromise that you both can be comfortable with.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #38 on: March 10, 2015, 07:50:01 AM »
DK,
That is good to know about the pension.  I am curious what would happen to my healthcare.  I won the lottery on healthcare if it is still in place when I am eligible in 10 years (was named in a lawsuit against the company so as long as the company is in business we are very fortunate).  And I agree with you on SS....I think it will be there in some shape and form.  Maybe less, maybe delayed, but something. 

Paying off the house and eliminating the majority of the 401K to stop the cash flow drain would be liberating.  Cannot lie.  The thought of emptying our checking account is terrifying at the same time.  The more people suggest paying off the house and stopping 401K contributions the more I am placing it into the realm of possibilities as aggressive and risky as it feels to me.  I am a cash hoarder....it scares me to deplete my stache (and to sell investments and remove them from their job of compounding is unsettling too).  But to let go of the fear and violate my internal mantras (hoard cash and invest, invest, invest) gives me FREEDOM.  If I touch our taxable investments I will have tax consequences due to capital gains.  The rate on our mortgage is 2.625% (8 years remaining).  The other side benefit of reducing cash in taxable accounts is for when the kids approach college age.  We have quite a bit of time until that occurs, but I understand that for the purposes of financial aid they do not consider retirement accounts.

Need to have a heart-to-heart with DH.  I am still thinking that this may be a 2016 initiative.  I built a tax strategy in 2015 around maxing out the 401K and I am still pinching myself that we are receiving 7K back on taxes for 2014.  I used to have to self-assess additional to pay the fed on top of what was being withdrawn from our paychecks.  I am not good with understanding tax laws and that is a concern.  Am I wasting money by not being savvy on the tax side of the equation.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #39 on: March 10, 2015, 08:10:03 AM »
ZiziPB,

You are right on all counts.  We don't pay much interest on our mortgage.  In reality we are only receiving 1.25% in our checking account and we don't need to sell investments to pay off the house (so little violation of the time value of money golden rule).  Mortgage rate is 2.625%.

The big challenge as you stated is getting DH on same page.  I have a really difficult time explaining this stuff to him and assuring him that we are financially okay.  Sometimes I think he is going off of feelings of what he thinks we need and the numbers aren't all that relevant to him.  And it is hard to refute feelings.  I dealt with a tax agent who had feelings that certain things were taxable despite what the contract stated.  It was a brilliant tactic.  I really did not know how to argue with his feelings. 

My next strategy is to not talk hypotheticals and feelings, but to sit down and talk numbers.  I need to ease into the idea of paying off the house and curtailing 401K contributions.  And he really does not want to even sit down and talk about this stuff.  So perhaps the first goal is to set up a baby-sitter (friend for free, of course) and carve some time to discuss this.  After the kids go to bed he usually says he is too tired to talk finances. 
« Last Edit: March 10, 2015, 08:37:36 AM by MMMWannaBe »

GardenFun

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Re: Reader Case Study - "Mind the Gap"
« Reply #40 on: March 10, 2015, 08:36:13 AM »
Definitely get some real numbers for your discussion.  For sake of compromise, set up each category (or the entire budget) in graduating amounts - i.e. bare-bones vs. comfortable vs. party like it's 1999. 

Showing that you have a plan (and ability) to cut back during bear market stretches may give your DH the breathing room necessary to look at options outside his current retirement ideal.

seattlecyclone

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Re: Reader Case Study - "Mind the Gap"
« Reply #41 on: March 10, 2015, 01:17:01 PM »
Instead of saying you're "insolvent" or have "cash flow problems," might it be better to think of your current situation as "transferring money from taxable accounts to retirement accounts"? Your 401(k) contributions aren't magically evaporating from your life, they're going into a tax-advantaged savings bucket. If you have to tap into your taxable savings a bit to pay your expenses while you pump up your tax-advantaged savings, that's okay!

I saw you expressed some concerns earlier about realizing capital gains. Don't worry too much about this. Your husband's wages are low enough that you should be able to sell at least $30k of stock without paying any federal capital gains tax. You may owe some state tax, but the amount should be relatively low, and more than offset by the long-term tax savings you get by moving more of your money from taxable to tax-advantaged accounts.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #42 on: March 10, 2015, 01:58:49 PM »
seattlecyclone,
I have a flair for drama.  And to stop the self-flagellation I came to the conclusion you stated.  I am not just spending down our savings; I am exchanging tax-advantaged investments for taxable savings.  And to put the "get a job" mantra out of my head I was comforted by tracking our net worth (of course, who didn't get a little giddy with how the stock market has performed the last few years).

I am really latching onto the idea of using the money in our checking and paying off the mortgage and then reducing my husband's 401K contribution to 6% (for matching) which will mean a $9K annual contribution.  At that point we no long have "cash flow problems".  Our "ins" should match our "outs".  And if there is an excess I like to invest so that will not be a problem (will probably turn to our individual Vanguard IRA's).  The only concerns are unexpected expenses and the potential of having to replace our aged vehicle.  We can put our retirement accounts on auto-pilot and allow compounding to work its magic.

Last month I used Turbo Tax to play with the numbers to see how they impacted our taxes.  We can have $26K in capital gains before we hit the threshold that taxes kick in.  I have already sold investments with capital gains of $22K (leaving a little safety margin).  That is why our checking account is pumped up a little.  The market was high, these funds were outliers from Vanguard (and one was languishing), and it silenced my husband's mantra of "get a job".

I don't think my husband will be satisfied with this solution.  I will need to commit to getting a job at some point.  And I am okay with that given certain criteria must be met.  I cannot see myself staying at home when the kids are in school anyway.  I will need to either be working on a project, volunteering, or finding a way for my passions and interests to generate income.  I recently obtained my license to be a school treasurer with the thought of working with charter schools.  It could be part-time, scaleable, and should be lighter during the summer.  I may not have any luck transitioning into this niche, but it doesn't cost anything to try.

I am feeling immense gratitude to everybody who has offered suggestions (talk about a paradigm shift).  My mind is in a place it was not a week ago and I am so happy.  I just need to get DH to the place I am (or at least in the same zipcode).  I hope I can "pay" this forward.

Thank you!

Unique User

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Re: Reader Case Study - "Mind the Gap"
« Reply #43 on: March 10, 2015, 03:08:03 PM »

Paying off the house and eliminating the majority of the 401K to stop the cash flow drain would be liberating.  Cannot lie.  The thought of emptying our checking account is terrifying at the same time.  The more people suggest paying off the house and stopping 401K contributions the more I am placing it into the realm of possibilities as aggressive and risky as it feels to me.  I am a cash hoarder....it scares me to deplete my stache (and to sell investments and remove them from their job of compounding is unsettling too).  But to let go of the fear and violate my internal mantras (hoard cash and invest, invest, invest) gives me FREEDOM.  If I touch our taxable investments I will have tax consequences due to capital gains.  The rate on our mortgage is 2.625% (8 years remaining).  The other side benefit of reducing cash in taxable accounts is for when the kids approach college age.  We have quite a bit of time until that occurs, but I understand that for the purposes of financial aid they do not consider retirement accounts.

Need to have a heart-to-heart with DH.  I am still thinking that this may be a 2016 initiative.  I built a tax strategy in 2015 around maxing out the 401K and I am still pinching myself that we are receiving 7K back on taxes for 2014.  I used to have to self-assess additional to pay the fed on top of what was being withdrawn from our paychecks.  I am not good with understanding tax laws and that is a concern.  Am I wasting money by not being savvy on the tax side of the equation.

Can you pay off the house and open a line of credit on it?  Then you have the ability to get quick cash if you need it.  I would imagine you would find you don't need it and it becomes a safety net/peace of mind.   

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #44 on: March 10, 2015, 04:02:57 PM »
Unique User,
That same idea was running around in my head.  An equity line of credit against our house would provide additional access to funds if we need it (and the market conditions are not conducive to selling investments).

I think when the dust settles we will have to run a very tight ship to stay within our budget.  I say that because my Excel spreadsheet tracker says we have a monthly loss of $2,500 (based on a long running average since I started tracking expenditures).  Mint paints a prettier picture.  Eliminating the mortgage saves us $973 and reducing the 401K should bring in another $800/ month.  So still $800 deficit to cover (in a worst case environment).  But the husband does usually get a bonus and we are paying out more in taxes than we should.  So it all should be a wash.  And if we address our ridiculous food budget that could be the great equalizer.

SK Joyous

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Re: Reader Case Study - "Mind the Gap"
« Reply #45 on: March 10, 2015, 04:39:54 PM »
You guys are doing great MMMWannabe, and congrats on sticking to your guns and not selling your soul to a job you don't want for some extra money.

Frankly, I would think the 'get a job' mantra HAS to be wearing on you and causing some stress; honestly, your husband needs to back off of that.  Either you agree what you are doing as a family or you don't, but nagging at it is not going to help anything; also, that attitude could demonstrate to your kids that he doesn't see value  in what you are doing taking care of them.

Sorry, that wasn't the point of my post.  I'm giving this link that someone else on these forums shared.  It's a great new perspective on 'what others think', which is a trap my own DH has fallen into entirely too much in his life (and leads to more spendiness than I would often prefer - we've learned to compromise :)

http://waitbutwhy.com/2014/06/taming-mammoth-let-peoples-opinions-run-life.html

DK

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Re: Reader Case Study - "Mind the Gap"
« Reply #46 on: March 10, 2015, 05:27:02 PM »
Just a note I want to make sure you know on capital gains - you only have to worry about the gains. So if you bought 10K of stock, then it increased to 15K, and sold it all you would only have capital gains on 5K. And that only if you are above the 15% bracket.

"it scares me to deplete my stache (and to sell investments and remove them from their job of compounding is unsettling too)." <-- This scares me as well and will be something I need to overcome, but I will need to realize (like you) eventually money will be going down in retirement, and it needs to be taken out.

Another note I thought of per college savings - it looks like you might be in the retirement age once they would actually be in college...you might be able to 'hack' the financial aid if your money is coming from those accounts instead of the other accounts, and the 529....not sure how the equation works though. Just a thought.

MMMWannaBe

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Re: Reader Case Study - "Mind the Gap"
« Reply #47 on: March 10, 2015, 09:28:36 PM »
Since so many of you have hung with me through this personal finance turmoil, I thought I would give an update of how the discussion went with DH.

I am going to use the word epiphany to describe where we are (perhaps more me than him, but I think he is starting to feel it).

He does not believe FIREcalc.  Too good to be true were his words.  But that is okay because he is on board with using our cash and paying off the house.  And the reduction in our cash stache naturally leads us to reduce his 401K contribution.  Thank you everybody for pointing out what probably looked like the obvious solution to our cash flow crunch (and was right in front of my face but I could not see it).

And although DH may not believe FIREcalc he must want to believe it.  He was originally targeting retiring at 60 and now he is thinking 55.  He is worried healthcare costs and college expense may not make it feasible to retire at 55.  We were not aligned on college expense, but that can wait for another day (he thinks it makes sense for us to pay for an Ivy League college if our kids are admitted).  The most important problem to be solved is our cash flow crunch; and as long as he doesn't sleep on it and change his mind I think we have found the solution.

I cannot wait to execute the plan, but I am gong to sit tight until the beginning of 2016 for tax purposes. 

It was a really tough conversation and I did not think we would reach a resolution or that I would change DH's perspective but we ended in unison.  Thank you everybody for your suggestions and advice. I would not be where I am today without you.  What a great day when I discovered MMM.  If this works I feel like you saved my life.

DK,
You are correct, if hubby retires at 55 the youngest child will still be in college.  I do need to check out financial aid and the rules on that.  On the capital investment we sold $55K that resulted in gains of $22K.  To avoid the 15% capital gains I cannot sell anymore and we need the $17,500 401k deduction to keep the taxable income low enough.  Wish I would have been where I am now, 4 months ago.

SK Joyous,
Thanks for the support and the link.  I have a friend who was in a similar situation to me staying at home and told me that if DH continues to ask me when am I going to get a job it will erode my self-esteem.  I cannot say that is true, but I will say that our conversation did really change his perspective.  He acknowledged that for 20 summers I did not have a summer due to my intense work schedule; he said I deserved to have some summers now (almost brought tears to my eyes).  He also said that for 20 years I worked hard, endured a lot of stress and pressure and those 20 years are why we are where we are so perhaps I did deserve a break.  I think we had a major break-through and the trill of "when are you getting a job" will cease.   I did agree that when the time is right I will find a job that will bring in about $15K a year that we can use for various purposes (house projects, college, etc.).  Marriage is about compromise and I am happy with our new financial plan.

backyardfeast

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Re: Reader Case Study - "Mind the Gap"
« Reply #48 on: March 10, 2015, 10:39:59 PM »
Congratulations, MMMWannabe!!  I haven't commented as I didn't have any better advice than what was already being given.  But I was following your story because your honesty and bravery was so compelling.  What an amazing shift in your life in such a short period of time!!  But, as your DH has now acknowledged (hurray!), you have worked hard and saved harder, and it is not only time to rest on your laurels, but time to celebrate that you can.  Your discussion reminds me of the comments musicians sometimes have about how their "overnight success" was a 20-yr hard slog in the making. :)  I hope you get a chance to really revel in the joy of this new phase of life.

thingamabobs

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Re: Reader Case Study - "Mind the Gap"
« Reply #49 on: March 10, 2015, 11:17:36 PM »
Here is my take on paying for college. My mom paid for my tuition and board, she just asked how much? and paid. I really wish she didn't because then I would've taken a hard look at the schools I was accepted to and probably would've gone to the one with instate tuition of 8k a year instead of the 22k private school I went to. Don't get me wrong, I loved my school, but I feel that it definitely delayed my life financial lesson. I had same money from summer jobs during HS and I just considered that fun money.