Case study: Californian seeks input

[Buckminster1985]

Hello Fellow Mustachians,
I have read almost all of the MMM posts and am glad to report I was half-Mustachian before I even knew of the blog.  I want to fully embrace the full spectrum now, though, and retire as soon as possible.  My partner and I have cut back as much as possible (or so I think) while living in expensive Southern California.  I am the sole earner for now while he is seeking employment.  I have a high income and we spend very little compared to our peers, but I can't quite seem to save enough.  Fortunately, we have a side real estate business of 30 rental properties in the Northeast which for nor breaks even.  We are working to turn it profitable.  At minimum, the tenants are paying off the principal so we'll have a nest egg in 10-20 years.  Anyway, I'd love your feedback on our numbers below.  Do not hesitate to criticize, attack, or eviscerate me for any of our figures!  I need the tough love. 

Age: 31
Location:  Southern California
Annual Salary:  $109,500
Annual federal taxes:  $15,500
Annual state taxes:  $5,500
401K contribution:  $15,500

Those are my overview figures.  I ask for your input on my monthly expenses below.  The net income below is the what remains after all taxes, retirement contributions, health care premiums, life insurance, and dental insurance.

Net monthly income:  $3,180

Expenses:
Rent:  $1700
Student loans: $280
Car lease: $300 (2 years remaining)
Car insurance:  $160
Utilities:  $130
Groceries: $500
Car gas:  $100
Rock climbing and gym:  $120
Cell phone:  $65
Restaurants:  $75
Dog:  $150
Gifts:  $100
Entertainment:  $100
Other: $250
Total expenses:  $4,030/mo

Obviously, we are running in the red about $1,000 month which is filled by savings.  The reason for the gap is that I insist on maxing out my 401K.  I could lower it to fill the gap without pulling from savings.  We adore SoCal, but are open to moving somewhere else west of Denver later in life to reduce our housing costs.

I invite your recommendations.  I feel that a salary of $109,500 with relatively low expenses should produce a better picture than this one. 

Thank you all!

[Meg77]

Your net pay is the glaring issue.  After taxes and retirement contributions you have just over $6K a month left, but you say that after health, life and dental insurance you are down to just over $3K.  So you are spending $3000 a month on health insurance, life insurance and dental insane?  That seems insane.  Are you buying some weird expensive whole life insurance through work, or is there any way to reduce that?

Also if you get a big tax refund each year you could lower your withholding.

If you can't get your net pay up though, you need to consider a move I'm afraid.  Anyone paying more than half their take home pay to rent is going to struggle financially no matter how much you cut little things.

[Zarakava]

Now, I don't know California, but if your taxes are what you say there, here's a calculation

109,500 - 15,500, - 15,500 - 5,500 = $73,000?

73,000/12 = ~$6000

Is health care, life, and dental REALLY costing ~$3000, or did you mistype some of the taxes (I'm a little less on my 401k, making $102,500/year, and take home about 5k monthly)

In terms of budget - Groceries at $500 seems high for me, but I'm unsure there. You don't "need" rock climbing and gym, and gifts seems high at $100/month.

Just my two cents.

[Buckminster1985]

Thanks to you both.  I will review my numbers once again.  I do get a large tax refund each year so I will consider revising my withholdings. 

I believe a move is in order, as well.  If we can get our rent down to $1,000/month we would be in far better shape.

[Vince1689]

Yea, I agree with what has been said above... theres a 3k$ missing here which you seem to be saying is being taken for insurance... that is completely insane to pay that much for insurance! I would definitly have a look into where that 3k is going. Also 500$ of grocery for 2 people is pretty high... maybe you could try and trim abit in that area by buying whats in sale that week and couponing or price matching abit.

Since you are in a slight hair on fire situation due to spending more than you earn, I would cut the gifts, gym and rock climbing, and figure out if you can lower the ''other'' category abit until you get a grip of your spendings.

i know its not easy but taking from your savings to support your lifestyle is not a good idea.

Best of luck to you!

[spicykissa]

401K contribution:  $15,500

Obviously, we are running in the red about $1,000 month which is filled by savings.  The reason for the gap is that I insist on maxing out my 401K.  I could lower it to fill the gap without pulling from savings. 

Not to rub salt in the wound, but the 401k max is 18k, not 15.5, right? You're running a big monthly deficit and not even quite making it to the max. :(

Something does seem VERY off about your insurance. If it really is that much (and not some add-on scam!), see if you can change up your health coverage. If you are relatively healthy (and sometimes even if not so much!), you could save a lot in premiums by going down to a lower tier, although you'll have to wait until the next open enrollment period.

Are you covering your partner? Could he get health insurance another way (Medicaid, Obamacare Marketplace?) until he finds a job and is eligible for his own employer coverage? Also, if you are covering your partner and intend to keep doing so, make sure your company knows he is not currently eligible for any other employer-sponsored healthcare. There is often now a big penalty to cover someone who has access to their own plan.

Second revising your tax withholdings as well--no need to give the government an interest-free loan while you deplete your savings!

[marty998]

How did you manage to accumulate 30 properties? Curious to know more about your realestate journey.

Are they really "break even" or are you counting principal repayments as an expense? Obviously it's a cash outflow, but it's not correct to call it an expense.

[Buckminster1985]

We own 30 rental properties in steel towns in Western PA.  These properties sell for about $30K each and produce (on paper) about $150/month in cash flow per door.  We bought 26 of these in 2016 and are working to turn them into profitable territory.  We are making progress, but due to major repairs and initial vacancies were floated around break-even last year.  We certainly hope that these turn profitable this year.  If they eventually all do produce $150/month we will earn around $4,100/month total which will cover our expenses. 

You are right that we are also paying off major principal each month at about $1,300 in total.  That is savings, as I understand it. 

I've focused more on the real estate front moreso than hyper-savings (though I am very frugal, as well) because I want to retire within a few years.  I follow Bigger Pockets, which was featured on this blog a few years ago. 

I sincerely appreciate all of your feedback.  You give me hope and inspiration!

[FernFree]

$150 for Gym seems really crazy to me.  I pay $30/year for membership to 24 hour fitness.  Got it by purchasing a 3 year membership and then renewals are locked in indefinitely at a low rate.  I don't think it's as low as $30 anymore, but you might look into something similar.

[FernFree]

$120 for Gym seems really crazy to me.  I pay $30/year for membership to 24 hour fitness.  Got it by purchasing a 3 year membership and then renewals are locked in indefinitely at a low rate.  I don't think it's as low as $30 anymore, but you might look into something similar.