Author Topic: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?  (Read 2042 times)

terrifictim

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Hi Everyone,

Been reading MMM for a while now and figured that this is probably the next step. I've been frugal for a while (engineer with an aversion to spending) but figured there's still alot where I could do better. I've also been inspired to start biking to work more (thank you beautiful San Diego weather)!

EDIT: I'm a heavy work traveler (25-50% of the year on the road). So many of these numbers are low simply due to spending 1/2 my time in my place with the other half of my time being on the company dime (i.e. meals)

Life Situation:
IRS Filing Status: Single
State Income Tax: 6.3% (CA)
Federal Tax Bracket: 28%
Exemptions: 4
Dependents: 0
Location: San Diego, CA

Gross Salary: $106,000 or $8,860/month

Pre-Tax Deductions:
Company 401K: $1150 /month. Company adds $3200/yr
Roth 401K: $620 /month
HSA: Company doesn't offer
FSA: 600/yr
Insurance: $80 /month

Other Ordinary Income:
None

Qualified Dividents & Long Term Capital Gains:
None

Rental Income, Actual Expenses, and Depreciation:
None

Adjusted Gross Income:
$7600 /month

Taxes:
Federal Income: $1167 /month
Social Security: $544 /month
Medicare: $128 /month
CA State: $468 /month
CA SDI: $80 /month

Monthly Average Expenses:    EDIT: These are averaged over time. Took my MINT budget results for the last year.
Mortgage   $1,070
Rent   $0
HOA   $405  (Covers Water, Trash, Outdoor Gardening, and Roof/Outside Stud Maintenance). I still think it's too high but they do cover a reasonable amount of  expenses.
Property Tax   $250
Mortgage Insurance   $0
Home/Rent Insurance   $83
Beauty Shop   $0
Bicycle Maintenance   $12
Cable TV   $0
Car Insurance   $53
Car Maintenance, Registration, etc.   $47
Charitable contributions   $300
Child activities    $0
Childcare   $0
Christmas/Holidays   $10
Clothing/Shoes   $20
College "Qualified Educational Expense"   $0
Computer (paper/software/etc.)   $0
Credit card fees   $0
Dental Insurance  (if not paid pre-tax)   $0
Dentist   $0
Dining (Lunch/Dinner/Etc.)   $100
Gifts (not charitable contributions)   $0
Dry Cleaning   $0
Electricity   $45
Emergency Fund   $0
Entertainment   $15
Financial Fees   $0
Fuel/Public Transport   $50
Gas/Oil for heating   $0
Groceries   $80
Hair Care   $0
Home Alarm System   $0
Household; Maintenance   $50 (Partially Covered by HOA - I'm responsible Studs in)
Internet   $40
Landscaping/Yard work   $0 (Covered by HOA)
Life Insurance   $0
Medical (Doctor, Hospital, etc.)   $0
Medical Insurance (if not paid pre-tax)   $0
Medicine (OTC + Prescription)   $0
Miscellaneous   $50
Parking/Tolls   $0
Pets   $0
Phone (cell)   $20
Phone (landline)   $0
Recycling/Trash   $0 (Covered by HOA)
School (non-college)   $0
Sports/Recreation   $0
Subscriptions (paper/magazines/etc.)   $0
Travel/Vacation   $20
Umbrella Insurance   $0
Water/Sewer   $0 (Covered by HOA)
Wine/Beer/Tobacco   $20
Work/Professional fees   $0
Non-mortgage total   $1,670


Assets:

Townhouse valued at $360,000 (Zillow estimate)
T.Rowe Price Company Retirement Account: $107,000 (Working on transitioning away from the 2055 Retirement Plan @ 0.76% MER to lower cost plan @ 0.15% MER) (87% Stocks, 8.6% bonds, 4.4% other)
Vanguard Taxable Account: $7,000 (92% Stocks, 0% Bonds, 8% Other)
Ally Savings: $4,100 @ 1.2%
Emergency Fund: $30,000 (I know this is really really high relative to others). My job has us purchase travel with personal credit card and then reimburse us - but it's not uncommon to have $5-10k expense waiting to be reimbursed.
Total Assets: $515,000

Liabilities:
Mortgage: $206,000 remaining on a $231,200 mortgage. Been aggressively paying it off so after 2.5 years I'm about 5 years paid off. PMI is 1070 per month. EDIT: Interest Rate is 3.75%
Credit Card Debt: $0 (Always Paid In Full)
Student Loan Debt: $0 (State College with a Full Ride)
Auto Loan Debt: $0 (Used car paid in cash)

When I did my calculations for FI I used the following:
Planned Withdrawal Rate   WR   4%   
Annual Savings Invested   S   $48,552    $/yr
Annual Expenses in Retirement   E   $20,040    $/yr
Current Assets Invested   A   $114,000    $
Investment return   r_   5%   
Time to FI   t   6.25   yr
Saving rate      70.8%   

In conclusion, I currently enjoy my job but don't want to be a slave to it. Please let me know if you have any questions. I'm slowly increasing my financial literacy but still have a ways to go. (I attached my spreadsheet for reference in case anyone wants to check my inputs).
« Last Edit: October 06, 2017, 08:34:45 AM by terrifictim »

OkieM

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #1 on: October 05, 2017, 08:16:30 PM »
This is vastly more detailed than most, and usually that means things are good. You might want to look at maxing out the regular 401k, especially with how much you are paying in taxes. And using a Roth would also not be very tax efficient.

Other than that just the HOA fee looks horrifying. That is $121,500 extra you have to save to FIRE.

ixtap

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #2 on: October 05, 2017, 08:36:08 PM »
Is this a snapshot or averaged over time?

I ask, because setting aside $50/ month for home maintenance seems extremely optimistic, as does $0 for dental, but perhaps that is rolled into the FSA. Not to mention some soap for hygiene and laundry.


Laura33

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #3 on: October 06, 2017, 07:20:32 AM »
Holy shit, how do you eat on $80/mo in groceries?  That's phenomenal.  Does that include things like toothpaste and deodorant and cleaning supplies too?  Or is that part of the "household" category?  I do see the $100 in eating out, which can be improved if you are interested, but most folks who spend very little in groceries have much larger restaurant bills, so the overall picture is still good.

I am guessing that some of these categories are estimates, because there are so many round numbers.  If you do not track expenses, I'd suggest doing so, because it's easy to miss the dribs and drabs that pop up here and there.  Normally I would also suggest setting up a "sinking" fund for things like replacing appliances and cars and such, but I think your fluffy emergency fund has that well-covered.

What is your mortgage rate?  My one significant suggestion is that you will very likely do better keeping your mortgage and investing that money in the market instead, given how low current rates are.
Laugh while you can, monkey-boy

terrifictim

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #4 on: October 06, 2017, 08:47:16 AM »
OkieM:
Thanks for the thought. Doing it to this level of detail was definitely helpful for me to get a better sense of where I'm at.
I'm close to the maximum of 18k per year for the regular 401k (16k as of now + 4 more paychecks still to go). And yeah - I suppose a ROTH isn't buying me anything good right now since I'm hoping to get down from this 28% bracket as soon as possible.
Yeah, I don't enjoy the HOA fee. But (added above) they cover water/sewage, recycling/trash, landscaping/yardwork and some of home maintenance (roofs) that the effective HOA cost isn't as bad.

ixtap:
This is averaged over time. I took my mint budget for the past year and got the average spending amounts and used them. I will say that dental covered by insurance and that the house is small but in good condition - so maintenance up to this point has been pretty minor.

Laura33:

That's one of the advantages of being gone alot. I double checked the number against my MINT average for the past year and yeah it was at $83 /month for groceries. Related to that I buy the off brand toothpaste, deoderant, and cleaning supplies as needed. So that number is pretty low (i.e. maybe another $5 a month added to groceries).
These numbers are rounded to the nearest $10 (unless it's a single exact payment) based on my MINT averages for past year. Figured that would be close enough for a financial snapshot.
Mortage rate is 3.75% (also added above). I tend to be like Canadian Torque in this - I know that the market could likely generate a better rate but I really want that mortgage gone.

OkieM

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #5 on: October 08, 2017, 11:18:35 AM »
It’s your choice, but I spend $60/mo to my city for water, trash, sewage, and recycling. I spend less than $10/mo on my lawn since I usually get all the equipment/supplies I have needed on Craigslist. I just buy a tiny bit of weed killer for my beds from Lowe’s. If you are in a condo/townhouse the sq footage of your roof is probably small. An asphalt shingle roof for a 1200 sq ft roof would cost $5000-6000 and last 20 years so that is about $25/mo and that is before discounting cash flow!

So you might at least think of a different place for FIRE unless you want to work an extra year for the HOA. With HOAs you also don’t have control of how they might change rules or future fees. That is all up to a board that probably doesn’t have the same interests as you.

Gronnie

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #6 on: October 08, 2017, 08:21:55 PM »
I'm close to the maximum of 18k per year for the regular 401k (16k as of now + 4 more paychecks still to go). And yeah - I suppose a ROTH isn't buying me anything good right now since I'm hoping to get down from this 28% bracket as soon as possible.

Just double checking here because of the way this is worded, you know that the COMBINED limit is $18,000 right? You can't do $18k in Traditional and then more in Roth.

terrifictim

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #7 on: October 09, 2017, 08:50:16 AM »
OkieM:
You're absolutely right - I don't think this place is my FIRE place. However it is a very close to work location that was the cheapest property I could find. Once I no longer need to be close to work - I'll be finding somewhere else.

Gronnie:
I'm doing the $18,000 in the 401K and then the $5,500 in the IRA. I was contributing to a ROTH IRA, but realizing it's better to contribute to a traditional IRA.

Raenia

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #8 on: October 09, 2017, 09:32:50 AM »
Make sure when you calculate your expected expenses in retirement, you are accounting for the fact that you currently have a lot of expenses paid by your employer.  For instance, once you're not getting meals paid by the company while travelling, your grocery spend will increase to compensate.  Same for health insurance, dental, etc.  20k/yr is possible, but pretty aggressive, so make sure you're accounting for everything and give yourself enough buffer.

Other than that, your expenses look very good.  Agree that you're better off with a trad IRA at this point, in addition to maxing your 401k.  You're in very good shape!

Kayad

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #9 on: October 09, 2017, 10:00:35 PM »
Congrats, you are crushing it both on income and expenses.  All these suggestions amount to trimming of the sails, at most:

1.  You know that your employers 401k contribution doesn't count against your max personal contribution, yes?  Something not adding up, as you say you will hit that 18k but your monthly contribution is only 1150k (x12= 13800).
2.  Agree with Laura33 that paying off that low interest, tax advantaged mortgage is sub-optimal use of the cash.  You are likely to hit fi sooner investing.  While I get that there is a psychological aspect of owning your home outright, for me that sense of stability would be pretty limited given the hefty hoa and property tax payment.
3. Property insurance seems two or three hundred too high, but maybe a California reality (?).  Might shop around and/or consider raising your deductible.

Obviously, your home is by far your biggest expense, though that really doesn't seem that bad for socal.  I guess the one "low-hanging fruit" is whether you could maintain your job and move your home base to somewhere lower cost.  But you don't need to do something that drastic to hit your goal unless you want to.

I'm also jealous of all the cc rewards you get to rack up with your work arrangement. 

terrifictim

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #10 on: October 10, 2017, 09:26:38 AM »
Raenia:
Good reminder on this. You're absolutely right - my grocery bill and a couple other expenses will probably multiply 1.5-2X when I'm no longer traveling. I'll probably want to increase my FI # to reflect that my expenses will go up during retirement. Otherwise thanks for the encouragement!

Kayad:
1. I'd forgotten that I had contributed more to the 401K at the beginning of the year and then had ratcheted it down. Thus I'm going to hit the 18k even though the numbers don't match. I think for 2018 I'm just going to do a consistent amount every paycheck rather than trying to do any sort of timing.
2. The more forum posts I've been reading have been slowly prodding me along your recommendation. Coming from a background where my parent's were big Dave Ramsey fans - I think I've taken the concept of no debt a little too intensely. Since I don't have a problem with sticking to a savings strategy, I'm not the ideal target for the pay off house early concept. And I agree, considering the property tax and HOA (650) are ~= to the mortgage payment (1070), the reduction in expenses is not going to be as drastic as might otherwise be. Definitely looking forward to not dealing with an HOA in the future.
3. I've done the State farm combo (auto + house) which was the best deal I found while I was buying the property. It's worth it again for me to take a fresh look - but I doubt I'll find better.
Other. Agreed, it's a reality of living in socal. It's an option I've considered - but not one that's viable with my current position. And yes, the CC rewards are a huge benefit. I've done some calcs and determined between the hotel, rental car and airline points earned it's anywhere from $2-10k a year in perks (+ the huge credit score boost it's given).

robartsd

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #11 on: October 10, 2017, 10:21:50 AM »
Assets:[/b]
Townhouse valued at $360,000 (Zillow estimate)

Liabilities:
Mortgage: $206,000 remaining on a $231,200 mortgage. Been aggressively paying it off so after 2.5 years I'm about 5 years paid off. PMI is 1070 per month. EDIT: Interest Rate is 3.75%
I'm assuming you meant payment is $1070 (PITI), not private mortgage insurance is $1070 month. Based on your value and mortgage, I'm guessing you had a large enough down payment to avoid PMI. If not, look into getting PMI removed, your current loan to value ration should support no PMI. At an interest rate of 3.75%, I would not be aggressively paying the mortgage down.

terrifictim

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Re: Case Study: 29 and a recent MMM Enthusiast - Can I be FIRE by 40?
« Reply #12 on: October 11, 2017, 07:02:31 PM »
robartsd:
Correct, got my acronyms mixed up. Yes, my principal and interest is $1070, I did put the downpayment of 20% and have no PMI. And I think I'm slowly getting on board the no mortgage early club - I'm confident I can be just as dedicated with putting in those extra amounts into my Vanguard taxable account instead of the mortgage.