Author Topic: Case Study - I could use a fresh perspective on where I can save more.  (Read 2222 times)

El Jacinto

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I am putting about 25% of household income into retirement and am going to have that to 30% in a year, but I would love to get any feedback on ways to bump that up. With current expenses and planned contributions, I won't be able to retire for 25 years. I went to college a little later than most and didn't save a bit beforehand. My wife and I are 27 & 30, respectively, with a current investment balance of $25,000.

Below is my planned budget:

ItemMonthly
Jacinto Income3729
Mrs. Jacinto Income3640
VA Disability136
Bank Interest20
Gross Income7525
Income Tax290
SS/Medicare537
Healthcare Premiums89
HSA/FSA Contributions256
LTD/STD/Other68
Giving75
Emergency Fund100
529100
Vacation50
Christmas15
Mortgage P&I1573
Property Taxes & Insurance259
Home Maintenance/Projects481
Gas/Water65
Electric70
HOA30
Phone60
Internet60
Daycare225
Baby Misc50
Fuel160
Car Maint/Replacement50
Registration16
Auto Insurance120
Groceries350
Restaurants90
Dog Groomer50
Dog Food35
Vet/Misc Dog25
Jacinto Spending80
Mrs. Jacinto Personal120
Misc Items70
Life Insurance Fund47
Dental Plan Fund9
Total Expenses~5683
401(k)737
Roth 401(k)1105

Items of note:

529 - Per suggestion, I dropped this down from $200 to $100. Higher education is an expectation in my household, so it will be used.

Mortgage - We are a bit house poor. On a $90k income, we have a $325k house. That isn't going to change, unfortunately. Value of the house is ~327,000, and current balance is $312,764.

Home maintenance/projects - We are saving to build a covered back porch. I haven't sat down and budgeted it out, but I am anticipating a total cost of $8,000, to be completed in a couple years. It was a new construction house that we purchased six months ago, so I don't anticipate any major repairs in the near future, but anything that exceeds this fund can be cash flowed from the emergency fund.

Groceries - I had this down to $275 before the baby. However, besides feeding him, we've also started eating healthier. We do most of our shopping at Aldi. Once things get settled in with him, I might try to work this back down a bit (I can happily live on PB&J).

Restaurants - We go to 2-3 hockey games a month (the sale of games we don't go to pay for the ones we attend), and Mrs. Jacinto and I have a pre-game ritual of eating at the same bar before games. $15 of this monthly expense is the only alcohol I indulge in at all. This is as low as I can get this category without an upset wife.

Dogs - If I could go back, I would not have gotten dogs. They bring great joy, but not enough to justify what they cost, especially now that we have a child. However, I am not going to re-home them, as I view that as ethically wrong.

Misc Items - This covers items that fall through the cracks when planning, items that don't fit in other categories, areas where we exceed the budget, and date nights. For example, in the current month, it included movie tickets, drink at movie, and a couple signed hockey pucks to collect.

Edit: Lots of comments on the number of miles we drive. My wife drives 10 miles each way for work, and (after an upcoming change) I drive 10 miles each way to reach a train station that takes me to work. Additionally, we drive 120-180 miles per month to go to the city for hockey games. Add 10 miles per week for errands, and that gives roughly 1,225 miles driven per month. That apparently seems excessive to many in here, but I live in the country where I enjoy lower property taxes and more space as a benefit.

Thanks for all of the suggestions. I cut additional money out of the 529, gas, and personal spending categories. I also added a little more balance between my Roth & traditional 401(k)s. Once I get my next raise around June or so, we will increase the traditional 401(k) and be contributing 15% to each retirement vehicle, allowing for a monthly total investment of $2,300, roughly 30% of gross income.
« Last Edit: November 21, 2018, 06:51:22 AM by El Jacinto »

RWD

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #1 on: November 19, 2018, 04:17:39 PM »
Usually you don't count retirement contributions, savings, and taxes as part of your expenses. But it looks like you're trying to account for every dollar of your income, which makes sense.

I tallied up a total of $4,070 in categories that could more traditionally be considered expenses. This is not too terrible, especially considering a decent chunk of that is likely going towards mortgage principal (which is essentially savings). But of course there is always room for improvement.

Vehicle fuel looks like an easy target. $200/month is 76.2 gallons of gas per month (assuming national average price). Assuming 30 mpg from a reasonably efficient vehicle that means you're driving over 27k miles per year. You can find some pretty significant savings here if you can reduce your driving, switch to a more efficient vehicle(s), or both.

You list $50/month for dog grooming but then you say this is every other month? Is the actual expense $25/month?

$250/month on combined personal expenses seems very high to me. Is that just the upper limit budget or are you actually spending nearly $4k/year (including misc category) on uncategorized expenses? That's 8% of your total expenses, which seems too big to not be tracking if you're looking to be more efficient with your money.

At your income level you should probably be contributing normal 401(k) plans, and not the Roth versions. Switching to that should save another $177/month (assuming 12% tax bracket).
https://www.madfientist.com/retire-even-earlier/

APowers

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #2 on: November 19, 2018, 05:18:18 PM »
Since you're on T-Mobile already, consider switching to MintMobile. I pay $15/mo per line for 2GB LTE plus unlimited data at slower speed after that.

El Jacinto

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #3 on: November 19, 2018, 07:31:31 PM »
Usually you don't count retirement contributions, savings, and taxes as part of your expenses. But it looks like you're trying to account for every dollar of your income, which makes sense.

I tallied up a total of $4,070 in categories that could more traditionally be considered expenses. This is not too terrible, especially considering a decent chunk of that is likely going towards mortgage principal (which is essentially savings). But of course there is always room for improvement.

Vehicle fuel looks like an easy target. $200/month is 76.2 gallons of gas per month (assuming national average price). Assuming 30 mpg from a reasonably efficient vehicle that means you're driving over 27k miles per year. You can find some pretty significant savings here if you can reduce your driving, switch to a more efficient vehicle(s), or both.

You list $50/month for dog grooming but then you say this is every other month? Is the actual expense $25/month?

$250/month on combined personal expenses seems very high to me. Is that just the upper limit budget or are you actually spending nearly $4k/year (including misc category) on uncategorized expenses? That's 8% of your total expenses, which seems too big to not be tracking if you're looking to be more efficient with your money.

At your income level you should probably be contributing normal 401(k) plans, and not the Roth versions. Switching to that should save another $177/month (assuming 12% tax bracket).
https://www.madfientist.com/retire-even-earlier/

*1. Wife dives 516 miles/month for work, and I drive 585 miles/month for work. Add in 10 miles per week for errands and 2-3 hockey games per month (60 miles round trip) for a monthly total of $142-$148. I could add a little cushion and make this $160/month. I'll try to cut out unnecessary driving and see if we can get to that.

2. We have two dogs and alternate months for each dog to smooth out the expense.

3. I agree that $250/month is high for personal expenses. I have $100 for myself, while Mrs. Jacinto gets $150 (she loves to eat out). I might try to get her down to $120 and myself down to $80. I should note that we pay for our clothing out of our personal money as well.

4. That is a great article. However, I love travel and plan to retire on a higher income than I currently live on. For that reason alone, I think Roth is going to benefit me more. I am going to have to do some calculations on it though.

Thanks for the input! That's at least $210 more saved.

*Edit: We drive 516 & 585 miles/month, not per week. Sorry!
« Last Edit: November 26, 2018, 09:01:00 AM by El Jacinto »

seemsright

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #4 on: November 19, 2018, 07:55:42 PM »
You have a lot of things that you are justifying. To me this is okay but know that having dogs and the expenses of them is a choice to have a pet at the cost of your retirement. If that is your choice then okay.

Your 529 is high. Your retirement NEEDS to come first.  You can always cash flow college as needed. I am not saying to ditch the 529 completely just reduce it for now.

If you guys are driving that much to work you need to move closer. Those mile numbers are crazy to me.

The giving...is that required? Is it to just make you feel good? Know your reason for this. If not it should be going to retirement.

Make sure you have the best insurance, cell, and the like as cheap as you can get them. We got our cell bill down to $12 for the both of us by switching to Xfinity.

The allowance money is HIGH. You need to figure out what is a better number as your emergency fund and house maintenance are way two low. Owning a house is stupid expensive and things go wrong all of the time. It is a grand time when the roof and furnace need to be replaced at the same time, or when the water pipe breaks and makes the kitchen rain.. You need a 'oh shit' fund.

Kids are EXPENSIVE. Kids break things, Kids fall and need to get stitches, or a teeth pulled, they will need braces, they will get a new shirt and go to school and it will come home with glue, a hole and mud and will not be wearable. They will have shoes that fit one day...they go to sleep and as by magic their shoes do not fit, or their panties, or their shirt that fit last week wont go over their head...you need a 'oh shit' fund.

You are doing okay, but with your goal of FIRE you need to adjust the numbers. Time is your friend here. Use compound interest to your benefit. Get as much as you can into your retirement accounts as you can. I agree with the 401K over a roth at this point..

RWD

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #5 on: November 19, 2018, 08:00:23 PM »
Usually you don't count retirement contributions, savings, and taxes as part of your expenses. But it looks like you're trying to account for every dollar of your income, which makes sense.

I tallied up a total of $4,070 in categories that could more traditionally be considered expenses. This is not too terrible, especially considering a decent chunk of that is likely going towards mortgage principal (which is essentially savings). But of course there is always room for improvement.

Vehicle fuel looks like an easy target. $200/month is 76.2 gallons of gas per month (assuming national average price). Assuming 30 mpg from a reasonably efficient vehicle that means you're driving over 27k miles per year. You can find some pretty significant savings here if you can reduce your driving, switch to a more efficient vehicle(s), or both.

You list $50/month for dog grooming but then you say this is every other month? Is the actual expense $25/month?

$250/month on combined personal expenses seems very high to me. Is that just the upper limit budget or are you actually spending nearly $4k/year (including misc category) on uncategorized expenses? That's 8% of your total expenses, which seems too big to not be tracking if you're looking to be more efficient with your money.

At your income level you should probably be contributing normal 401(k) plans, and not the Roth versions. Switching to that should save another $177/month (assuming 12% tax bracket).
https://www.madfientist.com/retire-even-earlier/

1. Wife dives 516 miles/week for work, and I drive 585 miles/week for work. Add in 10 miles per week for errands and 2-3 hockey games per month (60 miles round trip) for a monthly total of $142-$148. I could add a little cushion and make this $160/month. I'll try to cut out unnecessary driving and see if we can get to that.

2. We have two dogs and alternate months for each dog to smooth out the expense.

3. I agree that $250/month is high for personal expenses. I have $100 for myself, while Mrs. Jacinto gets $150 (she loves to eat out). I might try to get her down to $120 and myself down to $80. I should note that we pay for our clothing out of our personal money as well.

4. That is a great article. However, I love travel and plan to retire on a higher income than I currently live on. For that reason alone, I think Roth is going to benefit me more. I am going to have to do some calculations on it though.

Thanks for the input! That's at least $210 more saved.

1. Holy petroleum... That's 60k miles per year! (516+585+10)*52 + 60*2.5*12. I find those numbers extremely suspect, unless your vehicles somehow average 90 mpg. Can you move closer to work?

4. Why do you need a higher income in retirement? You're only spending ~$50k/year now on a $90k income and the mortgage will be paid off eventually, dropping your expenses to ~$31k, just a third of your current income. You'll likely need to triple your current spending in retirement for a higher income to be required. You can probably retire in 20 years with this approach, changing almost nothing. But if you want to replace your current income and then some then your stated 25 years is not going to cut it. Unless you have some generous pension or something?

MDM

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #6 on: November 19, 2018, 10:19:23 PM »
At your income level you should probably be contributing normal 401(k) plans, and not the Roth versions. Switching to that should save another $177/month (assuming 12% tax bracket).
https://www.madfientist.com/retire-even-earlier/
4. That is a great article. However, I love travel and plan to retire on a higher income than I currently live on. For that reason alone, I think Roth is going to benefit me more. I am going to have to do some calculations on it though.
4. Why do you need a higher income in retirement? You're only spending ~$50k/year now on a $90k income and the mortgage will be paid off eventually, dropping your expenses to ~$31k, just a third of your current income. You'll likely need to triple your current spending in retirement for a higher income to be required. You can probably retire in 20 years with this approach, changing almost nothing. But if you want to replace your current income and then some then your stated 25 years is not going to cut it. Unless you have some generous pension or something?
One can make reasonable cases for either traditional or Roth at 12% marginal, depending on expectations for future marginal rates both while working and in retirement.

Doing some calculations is a good idea.  It's one thing simply to "plan to retire on a higher income..." but even better to do some (admittedly speculative) calculations to understand how that might happen - and then what that implies in terms of your traditional vs. Roth choice.

reeshau

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #7 on: November 20, 2018, 04:39:41 AM »
I agree with @seemsright ; you ask for help in changing your budget to retire sooner, but you have justified many optional things.  Understand that you need to be clear on your priorities:  luxuries are fine, but reading MMM and FI will make you understand what they truly cost:  not just dollars today, but more years of working.  You must be uncomfortable with this, which caused you to post.  But you also need to think of these in a priority order, and hear the obvious advice that you could cut them all and retire that much faster.

You also mention several times about spending to satisfy your DW.  Are you and she on the same page with regard to retirement?  You won't get far if she is satisfied with your lives as they are, and as you forecast how they will be.  Have you seen the anchored thread on working with your spouse?
https://forum.mrmoneymustache.com/ask-a-mustachian/how-to-convert-your-so-to-mmm-in-50-awesome-steps/

Specifics:

Misc Items - This covers items that fall through the cracks when planning, items that don't fit in other categories, or areas where we exceed the budget. For example, in the current month, it included movie tickets, drink at movie, and a couple signed hockey pucks to collect.

Two issues with the Misc Items category:  given your detailed description, this seems to overlap with your personal accounts.  But you also talk about "...areas where we exceed the budget."  While budgets can have varying degrees of accuracy, I worry that you are trying to give yourself another out here.  The amount of this category isn't covering budget busters like major car or home repairs--the examples are just more wants.  Eliminate it, and live within your personal spending line items.

Understand that discipline is needed to retire early--that's why it's unusual.  It isn't that people in the US don't make enough to do it; they don't generally bother with the discipline to follow through.  I am sure you have the necessary discipline as a former military member; it's a matter of if you choose to apply it or not.  Whatever your choices are, are fair--you aren't doing badly.  But if you are saying early retirement is a goal, you are currently headed for frustration, sooner or later.
« Last Edit: November 20, 2018, 04:41:37 AM by reeshau »

Unique User

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #8 on: November 20, 2018, 06:23:02 AM »
If you truly think you will spend more in retirement, you need to come up with expected spending and include lower taxes and no mortgage.  Once I did the numbers, I realized we could retire at the end of next year instead of a vague "after DD is done with college". 

I agree on the 401k going to tax advantaged accounts, you can always do a Roth ladder.  https://www.madfientist.com/how-to-access-retirement-funds-early/

Does your state have tax advantages to the 529 plan?  If it does not, you are better off contributing to a Roth IRA than the 529.  There is more flexibility and you can use contributions for college costs. 

Finances_With_Purpose

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Re: Case Study - I could use a fresh perspective on where I can save more.
« Reply #9 on: November 25, 2018, 07:24:38 PM »
A few suggestions:

1.  I agree with others: the easiest way to improve matters is to decide your priorities, and specifically, how much discretionary spending you want on your house.

2.  Lowest-hanging fruit here: Max out your HSA.  It's free savings on taxes now, plus tax-free on medical expenses down the road, for you, your kids, or whoever.  And beyond that, you can use it to invest once you get too much in there for your upcoming medical.  This is a no-brainer no matter what your goal is, and you can't go back in time and put more in it. 

Plan to have another kid?  Have an emergency ER trip with a kid?  HSA locks in your way to pay for those things tax-free.  And that's true even if you leave the cash invested for years (cash flowing the actual expense) and then reimbursing yourself later...

3.  You say you're house-poor, but you're throwing another $8,000 into a porch?  I feel you, as I would love one, but that's a lot to throw into a consumption item.  If you really want it, then push it out over 5-8 years (at $1k/year or less to save), and/or throw extra cash from something else at it -- make yourself work for it.  Right now, you're prioritizing patio consumption over your retirement. 

4.  Ditto with college/529.  If that's an issue with DW, explain that you can shift from retirement to college once they're in college.  But for now, you may want to avoid a 529 at all.  My personal bias is that a 529/savings of that sort is really only helpful IF (1) you do a much larger amount (knowing you'll pay full freight for college) and (2) you plan to pay retail on it because your income is so high.  Otherwise, your kid may see a 529/college savings may push him or her out of eligibility for all kinds of financial aid/scholarships.  Which is all the more reason not to put money there. 

5.  Some other ideas: have you considered carpooling for work?  Shifting jobs to a similar location?  Nearer you?  Or moving towards your job?  Any of the above would be good savings.  Plus, you might be able to buy less house if you had to switch homes.  Or you can always go for a job with more income, if you want to retire sooner... 

6.  This is less of a tip re: saving, but practical: plan on house maintenance.  More of it.  I agree with others who say you're too low - unexpected things will happen.  You need a really good sinking fund before even thinking about adding on or doing renovations, otherwise, you may well end up in extra debt.

Honestly, you'll get more mileage by rethinking priorities than with the little things, especially after HSA and 529.  The big savings are in the big expenses: house and driving.  The best answers here are hard ones: reconsider your house spending or accept that retirement may be a ways off. 
« Last Edit: November 25, 2018, 07:34:45 PM by Finances_With_Purpose »