Author Topic: Case Study: Family of 4, low income, low expenses  (Read 4977 times)

TheInsuranceMan

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Case Study: Family of 4, low income, low expenses
« on: February 28, 2017, 02:24:18 PM »
Hey everyone.  I'm going to do a quick run down here of where we were at year end, and how our budget looks.  Poke holes, help optomize, give thoughts, ideas, what-have-you.

Me, 29, Wife, 28 - Oldest daughter turns 3 in May, littlest turns 1 in May.  Oh, and we have a dog...
I'm an insurance agent, wife is a PTA
2016 tax return...
AGI: $67,774
Taxable income: $38,974
We got $2,052 back in fed taxes, 339 in state.

2017
Gross Estimated Monthly Income (after taxes, benefits, HSA, and retirement contributions)
Me: $2,200 (this is the number I used last year, should probably be closer to $2,400 a month now, but I'm leaving it as my first paycheck had my year end bonus in it, so I don't know what it's going to end up with monthly, to be honest).
DW: $2,000
I make about an extra 4-6k a year helping a farmer in the spring and fall
DW has a state pension, I use a 401k (10% of my income, employer contributes 3% max)

Bills
Mortage: $309.35 - PITI total
HELOC: $150.00
Car payment: $271.62
Daycare: $900.00
Student Loan: $189.62
Electricity: $200 - estimated
City (heat, water, trash) - $250 (usually around $150, using a higher amount as we are in winter now, so our LP usage is quite high)
Cell phone: $155 - we are in a very rural area, we've found one carrier that actually can get me service in town
Hospital: $100 - paying off the baby...interest free
Car Insurance - $89.83
Life Insurance - $83 (whole life - I know, you all hate it)
Daughter things... - $50.00
Groceries: $300 - includes formula for the baby, even though that is quickly winding down
Fuel - $200
Dog - $50
Entertainment - $100.00
Auto transfer to savings - $100
Auto transfer to kids CD's - $25 each, $50 total (both sets of grand parents have 529s open for them that they contribute to)
Total: 3553.42

Income: $4200
Bills: 3553.42
Difference: 646.58


Assets:
My old 401k - $30,918.69
New 401k- $13,045.85
DW Pension: $8,891.31
DW IRA - $1,671.24
HSA - $460.61
Daughter 1 CD: $1,253.57
Daughter 2 CD: $527.34
Savings Account: $2,000

Total: $60,715.19

Property Assets:
House: $50,000
Not adding vehicles - my truck is paid off, her SUV is what we are making payments on...at 1.9%

Total Assets
$110,715.19

Debts:
Mortgage: $23,049.61 remaining on 15 year loan @ 2.75%
HELOC: $5,022.15
DW Car: $13,400 remaining
Student Loan: $16,413.65
Chase Credit Card @ 0% - $497.50 to be paid off by 6/27/17
Total Debts: $58,382.91

Networth:
$52,332.28 (higher if I added my truck in...but eh)

Goals?
To be more financially secure - we'd like to see the savings account to be at $5k
Not really into the retiring early thing - I love what I do, and foresee that continuing into the future.  We live in a very rural area, I love my job, my customers, and what I do.  Yes, it's God awful slow at times, and other times it is busier than I'd ever imagine, but that's the nature of the beast.  I'm not sitting in a cubical, I can leave and go visit my customers and prospects when I want to.

So, if we hit our budget every month, we'll have an extra $646.58 to play with.  More than that, actually, as I am typically making more than what I listed per month, with commissions.  But, I don't like to include that because it's variable in a big way.  I know there are better things to do with that money than stock it into a savings account that isn't earning much, but it's a comfort thing my for my wife.  After that, we'll be hitting my student loans pretty hard.

 What do you think we should be focusing on?  What questions do ya have?

ltt

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Re: Case Study: Family of 4, low income, low expenses
« Reply #1 on: February 28, 2017, 03:12:34 PM »
You have around $650 a month extra.  What is the interest on the HELOC?  What is the interest on the car?

You could put the additional toward the HELOC and have it paid off in 8 months.  Then start putting the additional toward the car.  Those are the goals I would work toward for the near-term. 

What are the funds invested in in your old 401k versus your new 401k?  Rollover possibly?

trashmanz

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Re: Case Study: Family of 4, low income, low expenses
« Reply #2 on: February 28, 2017, 03:36:01 PM »
What is the carrier for the Cell phone?  A lot of times there are third party companies that use the same major network but will sell it for less.

Also how does the Entertainment break down?

And why the whole life, or why do you feel you need it rather than cheaper term? 

zolotiyeruki

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Re: Case Study: Family of 4, low income, low expenses
« Reply #3 on: February 28, 2017, 03:49:11 PM »
$200/mo for electricity for a family of 4 seems high to me.
What kind of insurance do you have on your cars?  $89/month seems high.

You might consider adjusting your withholdings to minimize your refund.

You might also consider selling your wife's car, paying off the debt, and using the remainder to purchase an older used car with cash.  That'll give you an extra $271/mo cashflow.

I notice there's nothing in here about an emergency fund.  Do you have a plan for how to handle that?

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #4 on: March 01, 2017, 09:51:58 AM »
You have around $650 a month extra.  What is the interest on the HELOC?  What is the interest on the car?

You could put the additional toward the HELOC and have it paid off in 8 months.  Then start putting the additional toward the car.  Those are the goals I would work toward for the near-term. 

What are the funds invested in in your old 401k versus your new 401k?  Rollover possibly?

The old 401k is with Fidelity, and I am planning to roll it over to a Vanguard IRA
New 401k is in a retirement target fund.
HELOC is at 5%, car is sub 2%

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #5 on: March 01, 2017, 09:54:14 AM »
What is the carrier for the Cell phone?  A lot of times there are third party companies that use the same major network but will sell it for less.

Also how does the Entertainment break down?

And why the whole life, or why do you feel you need it rather than cheaper term?

US Cellular, with a tower in town.  We've had iWireless and Verizon, neither of which have a network worth much in our area.
Entertainment breakdown....to be honest, I don't really have one.  Usually supper one or two nights a month, that's usually about it.  And, if those nights out are in our town, that's probably like $50 a month total.

Whole life because I like it :) - I'm actually looking into getting rid of this and moving to term.  It's a policy my parents had bought for me 10 years ago or so, before I did anything with insurance (I still don't know anything about life and health insurance, not my market)

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #6 on: March 01, 2017, 09:58:35 AM »
$200/mo for electricity for a family of 4 seems high to me.
What kind of insurance do you have on your cars?  $89/month seems high.

You might consider adjusting your withholdings to minimize your refund.

You might also consider selling your wife's car, paying off the debt, and using the remainder to purchase an older used car with cash.  That'll give you an extra $271/mo cashflow.

I notice there's nothing in here about an emergency fund.  Do you have a plan for how to handle that?

We live in a house built in 1900, 9' ceilings on both floors, that needs quite a bit of insulation added to the attic, and probably new windows.  It just isn't very energy efficient. 

I run 500k liability limits, and 500 deds on both of our vehicles, plus towing and rental.

My wife has her withholdings changed, and I should look into updating mine as well, thanks for pointing that out.

Not going to sell the wife's car.  She drives 22 miles to work (we live in a town of 600, she works at the local hospital, I work 3 blocks from our house, so I walk), one way, taking our kids to daycare on the way.  Could we have optimized that better than we did, sure.  But, the vehicle she had before was awfully cramped already, so we upgraded.  And since someone will mention thinking about moving and changing jobs.  Probably not, well, not probably, it just isn't going to happen.  Our house, as you can tell by our mortgage, was super affordable.  To buy something comparable in the city in which she works in, would run us around 120-150k, which would hurt more than it'd help.

E-Fund is at 2k in our savings account, pretty slim, yes.  I mentioned that we will be working to get that increased to 5k.

shadesofgreen

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Re: Case Study: Family of 4, low income, low expenses
« Reply #7 on: March 01, 2017, 10:04:54 AM »
What is going on with the student loans? Do you have multiple loans at different rates?

Looking at your numbers you are doing fine. One thing you could do is split your $600 between the HELOC and student loans.
« Last Edit: March 01, 2017, 11:25:16 AM by shadesofgreen »

zolotiyeruki

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Re: Case Study: Family of 4, low income, low expenses
« Reply #8 on: March 01, 2017, 10:19:08 AM »
$200/mo for electricity for a family of 4 seems high to me.

We live in a house built in 1900, 9' ceilings on both floors, that needs quite a bit of insulation added to the attic, and probably new windows.  It just isn't very energy efficient. 

I run 500k liability limits, and 500 deds on both of our vehicles, plus towing and rental.

My wife has her withholdings changed, and I should look into updating mine as well, thanks for pointing that out.

Not going to sell the wife's car.  She drives 22 miles to work (we live in a town of 600, she works at the local hospital, I work 3 blocks from our house, so I walk), one way, taking our kids to daycare on the way.  Could we have optimized that better than we did, sure.  But, the vehicle she had before was awfully cramped already, so we upgraded.  And since someone will mention thinking about moving and changing jobs.  Probably not, well, not probably, it just isn't going to happen.  Our house, as you can tell by our mortgage, was super affordable.  To buy something comparable in the city in which she works in, would run us around 120-150k, which would hurt more than it'd help.

E-Fund is at 2k in our savings account, pretty slim, yes.  I mentioned that we will be working to get that increased to 5k.
Built in 1900?  I now know where I'd put that extra $650/month:  improving the efficiency of that house.  Sealing everything up, blowing insulation in the walls and attic, etc. That's gonna have a better RoR than pretty much anything else at this point!

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #9 on: March 02, 2017, 11:31:11 AM »
What is going on with the student loans? Do you have multiple loans at different rates?

Looking at your numbers you are doing fine. One thing you could do is split your $600 between the HELOC and student loans.

My largest single loan has a $5k(ish) balance at 6.3%.  The others are 3.25% - thinking off the top of my head
And yes, I could split the extra money, I just wasn't sure if whether I should throw a single large chunk at one until it's gone, or go after both.

***I should make an extra 4-6k this year helping farm, which as long as we don't stub our toe along the way, will be used as a lump sum payment towards one of the above debts. 

And, I should go check my credit cards and see how much damn money we paid towards them this year.  I know that I had to replace the motor in my truck (part failure), tires on my truck, which left us cash strapped.  And then, my wife was on maternity leave for 10 weeks (she didn't want to use all 12 available), but only a very small portion of that was paid.  So, between the two, we had ourselves a hole to dig out of, which we have done pretty well....or so I think.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #10 on: March 02, 2017, 11:33:54 AM »
$200/mo for electricity for a family of 4 seems high to me.

We live in a house built in 1900, 9' ceilings on both floors, that needs quite a bit of insulation added to the attic, and probably new windows.  It just isn't very energy efficient. 

I run 500k liability limits, and 500 deds on both of our vehicles, plus towing and rental.

My wife has her withholdings changed, and I should look into updating mine as well, thanks for pointing that out.

Not going to sell the wife's car.  She drives 22 miles to work (we live in a town of 600, she works at the local hospital, I work 3 blocks from our house, so I walk), one way, taking our kids to daycare on the way.  Could we have optimized that better than we did, sure.  But, the vehicle she had before was awfully cramped already, so we upgraded.  And since someone will mention thinking about moving and changing jobs.  Probably not, well, not probably, it just isn't going to happen.  Our house, as you can tell by our mortgage, was super affordable.  To buy something comparable in the city in which she works in, would run us around 120-150k, which would hurt more than it'd help.

E-Fund is at 2k in our savings account, pretty slim, yes.  I mentioned that we will be working to get that increased to 5k.
Built in 1900?  I now know where I'd put that extra $650/month:  improving the efficiency of that house.  Sealing everything up, blowing insulation in the walls and attic, etc. That's gonna have a better RoR than pretty much anything else at this point!


We will be blowing insulation into the attic either this spring or this fall, which will help a lot.  The upstairs windows are already vinyl replacements from the previous owner, but I think a few spots of insulation in the window framing got missed.  Pretty easy fix there, just pulling trim work off and seeing what I need to fill.
Blowing insulation into the walls is something that probably needs done as well, but I think the attic insulation is going to help quite a bit.  I've done that myself before, my local lumberyard will give us the blower if we buy the insulation from them, so it is actually pretty cheap to do.

Maschinist

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Re: Case Study: Family of 4, low income, low expenses
« Reply #11 on: March 03, 2017, 01:00:23 PM »
US Cellular, with a tower in town.  We've had iWireless and Verizon, neither of which have a network worth much in our area.
...

On their web page I find much better prepaid plans:
https://www.uscellular.com/plans/ready-connect.html
$40 total for an unlimited text+talk with 4GB per month if you sign up for auto pay.
Thats 115 per month less then what you pay. Buy a used US-cellular phone and you are good to go.
https://www.amazon.com/gp/offer-listing/B00XQVDW6Y/ref=dp_olp_all_mbc?ie=UTF8&condition=all

I personally would buy a used car with cash and stop the car payments.

Stephanie Stache

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Re: Case Study: Family of 4, low income, low expenses
« Reply #12 on: March 04, 2017, 09:23:40 PM »
I think you should focus on increasing your emergency fund first. I would feel more financially secure to have at least one month's expenses in savings. Then focus on paying off that 6% student loan. That's a pretty good guaranteed rate of return on your money. Start chipping away at it now, then finish it off when you get your lump sums of extra income.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #13 on: March 07, 2017, 10:48:34 AM »
US Cellular, with a tower in town.  We've had iWireless and Verizon, neither of which have a network worth much in our area.
...

On their web page I find much better prepaid plans:
https://www.uscellular.com/plans/ready-connect.html
$40 total for an unlimited text+talk with 4GB per month if you sign up for auto pay.
Thats 115 per month less then what you pay. Buy a used US-cellular phone and you are good to go.
https://www.amazon.com/gp/offer-listing/B00XQVDW6Y/ref=dp_olp_all_mbc?ie=UTF8&condition=all

I personally would buy a used car with cash and stop the car payments.

I'll look into that US Cellular offer, thanks for that.  Admittely, we needed to switch carriers and we ended up w/ US Cell because we've had it in the past and knew it was relatively reliable.

Used car with cash would be a great idea, but I didn't have the cash around.  It's a comfort thing for my wife, taking the kids to daycare through whatever type of weather that Iowa is going to throw at us.  And, I know that it's pointless to argue vehicles on this site because anyone that is a strict MMM follower will say to buy a $2k car in cash, which I understand to a point. 

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #14 on: March 07, 2017, 10:49:19 AM »
I think you should focus on increasing your emergency fund first. I would feel more financially secure to have at least one month's expenses in savings. Then focus on paying off that 6% student loan. That's a pretty good guaranteed rate of return on your money. Start chipping away at it now, then finish it off when you get your lump sums of extra income.

Yep, the EFund is the first thing that will be tackled.  DW and I both agree on that.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #15 on: March 09, 2017, 12:27:24 PM »
So, my wife surprised me last night by mentioning Dave Ramsey.  She isn't usually into much on the finance side, but her hair dresser was talking about how they are completely out of debt minus their mortgage, her business is paid for, no credit card debt any more, etc.  and it must have stuck with my DW a bit.

She was curious about it, and I told her what I know about the program, and I've read the first book of his as well.  She wanted a list of our debts from smallest to largest, just like DR recommends with his snowball method, and since I did it, I figured I'd add it here.

Loan   Total Amount   Interest Rate   Monthly Payment
         
SL3   $685.21   3.15%   $7.67
Chase   $757.50   0.00%   $25.00
SL5   $1,526.54   3.15%   $17.57
SL4   $4,076.82   3.15%   $46.92
SL2   $4,758.12   3.15%   $54.76
HELOC   $5,022.15   5.00%   $150.00
SL1   $5,099.23   5.35%   $62.70
Traverse   $13,228.73   2.95%   $272.00
Mortgage   $23,049.61   2.88%   $309.35
         
Total   $58,203.91      $945.97

That didn't copy and paste too pretty.
Regardless, I understand Dave Ramsey's theory, but I'm hesitant to stop retirement contributions just to get out of a little bit of debt.  Personally, looking at our debt, I don't see anything overly alarming.  Nothing that would make me say, holy shit, I can't contribute to retirement because I have to kill this 10%+ interest rate debt.

So, what do you think we should tackle first?
The 0% credit card needs paid off by June
The mortgage is a 15 year mortgage that we are 1 year into

Thoughts?

Scortius

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Re: Case Study: Family of 4, low income, low expenses
« Reply #16 on: March 09, 2017, 12:35:45 PM »
So, my wife surprised me last night by mentioning Dave Ramsey.  She isn't usually into much on the finance side, but her hair dresser was talking about how they are completely out of debt minus their mortgage, her business is paid for, no credit card debt any more, etc.  and it must have stuck with my DW a bit.

She was curious about it, and I told her what I know about the program, and I've read the first book of his as well.  She wanted a list of our debts from smallest to largest, just like DR recommends with his snowball method, and since I did it, I figured I'd add it here.

Loan   Total Amount   Interest Rate   Monthly Payment
         
SL3   $685.21   3.15%   $7.67
Chase   $757.50   0.00%   $25.00
SL5   $1,526.54   3.15%   $17.57
SL4   $4,076.82   3.15%   $46.92
SL2   $4,758.12   3.15%   $54.76
HELOC   $5,022.15   5.00%   $150.00
SL1   $5,099.23   5.35%   $62.70
Traverse   $13,228.73   2.95%   $272.00
Mortgage   $23,049.61   2.88%   $309.35
         
Total   $58,203.91      $945.97

That didn't copy and paste too pretty.
Regardless, I understand Dave Ramsey's theory, but I'm hesitant to stop retirement contributions just to get out of a little bit of debt.  Personally, looking at our debt, I don't see anything overly alarming.  Nothing that would make me say, holy shit, I can't contribute to retirement because I have to kill this 10%+ interest rate debt.

So, what do you think we should tackle first?
The 0% credit card needs paid off by June
The mortgage is a 15 year mortgage that we are 1 year into

Thoughts?

Those are all pretty good rates, so no need to be in a hurry.  A sub-3 mortgage is a wonderful asset to have, so don't feel like you should put extra payments there.  After the emergency fund, you should 100% be sure you're ready to pay off the CC before the rates hit.  After that, you're probably going to want to go after the HELOC and SL1.  Beyond that I wouldn't pay any of the other debts off.  Invest in yourself, your retirement, your house efficiency, your own earning potential, etc.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #17 on: March 09, 2017, 12:56:39 PM »

Those are all pretty good rates, so no need to be in a hurry.  A sub-3 mortgage is a wonderful asset to have, so don't feel like you should put extra payments there.  After the emergency fund, you should 100% be sure you're ready to pay off the CC before the rates hit.  After that, you're probably going to want to go after the HELOC and SL1.  Beyond that I wouldn't pay any of the other debts off.  Invest in yourself, your retirement, your house efficiency, your own earning potential, etc.

Thanks for the input, kind of my take on it as well. 

Optimiser

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Re: Case Study: Family of 4, low income, low expenses
« Reply #18 on: March 09, 2017, 01:29:23 PM »
After factoring in day care, car payment, insurance and fuel most of your wife's paycheck is gone.

Take home:             $2000
Daycare:                  (900)
Car payment             (271)
Fuel                         (100)
Insurance                (45)
Actual take home      684

Just something to think about. Maybe she loves her job, but if she'd rather be home with the kids, it might not hurt as bad financially as you'd think. This would require being a 1 car household, but if you can walk to work that could be doable.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #19 on: March 09, 2017, 02:26:19 PM »
After factoring in day care, car payment, insurance and fuel most of your wife's paycheck is gone.

Take home:             $2000
Daycare:                  (900)
Car payment             (271)
Fuel                         (100)
Insurance                (45)
Actual take home      684

Just something to think about. Maybe she loves her job, but if she'd rather be home with the kids, it might not hurt as bad financially as you'd think. This would require being a 1 car household, but if you can walk to work that could be doable.

I appreciate the thought, but she also has a state pension (ranked one of the top in the nation), she does love her job, and our kids are on her benefit package.  If she were to leave work and stay home, I'd have to move away from the high deductible health plan and HSA that I current run, and add them all on to mine, which would cost me an additional $500 a month that would come out of my take home pay.  Also, our deductible for health insurance would increase quite a bit, because through the hospital, she has a $700 deductible if she uses the hospital that she works at, which is where we take our kids.  That is a HUGE benefit for us, as well as the kids being on her policy being a lot cheaper than the whole family on mine would be.

twbird18

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Re: Case Study: Family of 4, low income, low expenses
« Reply #20 on: March 09, 2017, 04:17:58 PM »
$200/mo for electricity for a family of 4 seems high to me.

We live in a house built in 1900, 9' ceilings on both floors, that needs quite a bit of insulation added to the attic, and probably new windows.  It just isn't very energy efficient. 

I run 500k liability limits, and 500 deds on both of our vehicles, plus towing and rental.

My wife has her withholdings changed, and I should look into updating mine as well, thanks for pointing that out.

Not going to sell the wife's car.  She drives 22 miles to work (we live in a town of 600, she works at the local hospital, I work 3 blocks from our house, so I walk), one way, taking our kids to daycare on the way.  Could we have optimized that better than we did, sure.  But, the vehicle she had before was awfully cramped already, so we upgraded.  And since someone will mention thinking about moving and changing jobs.  Probably not, well, not probably, it just isn't going to happen.  Our house, as you can tell by our mortgage, was super affordable.  To buy something comparable in the city in which she works in, would run us around 120-150k, which would hurt more than it'd help.

E-Fund is at 2k in our savings account, pretty slim, yes.  I mentioned that we will be working to get that increased to 5k.
Built in 1900?  I now know where I'd put that extra $650/month:  improving the efficiency of that house.  Sealing everything up, blowing insulation in the walls and attic, etc. That's gonna have a better RoR than pretty much anything else at this point!


We will be blowing insulation into the attic either this spring or this fall, which will help a lot.  The upstairs windows are already vinyl replacements from the previous owner, but I think a few spots of insulation in the window framing got missed.  Pretty easy fix there, just pulling trim work off and seeing what I need to fill.
Blowing insulation into the walls is something that probably needs done as well, but I think the attic insulation is going to help quite a bit.  I've done that myself before, my local lumberyard will give us the blower if we buy the insulation from them, so it is actually pretty cheap to do.

I don't know where you live at, but a lot of states/energy companies have energy efficiency programs. They will come to your house for free & tell you what your problem areas are, like windows or outlets that are leaking. Most will offer a discount on insulation, door replacements, showheads, etc. Some even replace certain items for free - like when I was in Mass, the program replaced all the showerheads with low flow & lightbulbs with CFLs. Lots of library's rent Wattmeters too, if you have old appliances or things you want to check. I work in the utility industry. There's a lot of easy ways to lower your utility bill when you own the place.

MDM

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Re: Case Study: Family of 4, low income, low expenses
« Reply #21 on: March 09, 2017, 09:56:41 PM »
2016 tax return...
AGI: $67,774
Taxable income: $38,974
We got $2,052 back in fed taxes, 339 in state.

2017
Gross Estimated Monthly Income (after taxes, benefits, HSA, and retirement contributions)
Me: $2,200 (this is the number I used last year, should probably be closer to $2,400 a month now, but I'm leaving it as my first paycheck had my year end bonus in it, so I don't know what it's going to end up with monthly, to be honest).
DW: $2,000
I make about an extra 4-6k a year helping a farmer in the spring and fall
With an AGI of $67,774 (so after benefits, HSA, and retirement contributions), your 2017 federal tax will be ~$2900.  If state tax is 1/2 that(?), then a total of ~$4350 in taxes.  That puts your monthly income (after taxes, benefits, HSA, and retirement contributions) at ~$63,400.  That's ~$6K more than the roll-up from the "Me:" plus "DW:" plus "extra 4-6K", and $6K is a large difference.  Might be useful to put your numbers in the case study spreadsheet to keep things consistent.

ETA: Actually, subtracting another $5.2K for SS+Medicare, you aren't far off at all. :)

Quote
Auto transfer to kids CD's - $25 each, $50 total (both sets of grand parents have 529s open for them that they contribute to)
Consider taking care of your own situation before funding your kids' situation.  See Investment Order for more on this.

Quote
Mortgage: $23,049.61 remaining on 15 year loan @ 2.75%
Great interest rate.  Paying the minimum seems appropriate here.

Quote
Goals?
To be more financially secure - we'd like to see the savings account to be at $5k
What do you think we should be focusing on?
The steps in the Investment Order link are worth considering - how do they seem to you?
« Last Edit: March 09, 2017, 10:06:10 PM by MDM »

PJ

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Re: Case Study: Family of 4, low income, low expenses
« Reply #22 on: March 09, 2017, 10:05:56 PM »
So, my wife surprised me last night by mentioning Dave Ramsey.  She isn't usually into much on the finance side, but her hair dresser was talking about how they are completely out of debt minus their mortgage, her business is paid for, no credit card debt any more, etc.  and it must have stuck with my DW a bit.

She was curious about it, and I told her what I know about the program, and I've read the first book of his as well.  She wanted a list of our debts from smallest to largest, just like DR recommends with his snowball method, and since I did it, I figured I'd add it here.

Loan   Total Amount   Interest Rate   Monthly Payment
         
SL3   $685.21   3.15%   $7.67
Chase   $757.50   0.00%   $25.00
SL5   $1,526.54   3.15%   $17.57
SL4   $4,076.82   3.15%   $46.92
SL2   $4,758.12   3.15%   $54.76
HELOC   $5,022.15   5.00%   $150.00
SL1   $5,099.23   5.35%   $62.70
Traverse   $13,228.73   2.95%   $272.00
Mortgage   $23,049.61   2.88%   $309.35
         
Total   $58,203.91      $945.97

That didn't copy and paste too pretty.
Regardless, I understand Dave Ramsey's theory, but I'm hesitant to stop retirement contributions just to get out of a little bit of debt.  Personally, looking at our debt, I don't see anything overly alarming.  Nothing that would make me say, holy shit, I can't contribute to retirement because I have to kill this 10%+ interest rate debt.

So, what do you think we should tackle first?
The 0% credit card needs paid off by June
The mortgage is a 15 year mortgage that we are 1 year into

Thoughts?

So, it's not clear how much of the same page you and your wife are on about your overall financial picture, or even how involved she is in the financial planning for your family, but I just wanted to point out that if you've been wanting to get your wife on board with making any changes (frugality wise, or even just getting more involved with the financial decision making) then you should strike while the iron is hot.  She has now officially expressed interest, and is intrigued by the rosy financial picture her hair dresser has painted for her...

One of the things, as I understand it, about Dave Ramsey is the understanding of the psychological side of financial planning.  Am I correct in remembering that the debt snowball method is the one where you pay off the lowest sized debt first, even if another loan has a higher interest rate, because the psychological boost from eliminating the one debt helps motivate you to keep going?  Of course, mathematically that is wrong, you should pay the highest interest debt first, but that ignores the psychology aspect for those who struggle with finances.  But the middle ground is between Dave Ramsey's debt snowball, and your prioritizing retirement savings over debt repayment, could be allocating some portion of excess cash flow to debt repayment, starting with your highest interest rate debt first.

It does seem like, by directing only a small amount of your excess cash flow, that you could fairly easily knock out a bunch of those smaller loans, not all at once but at fairly frequent intervals being able to cross one off the list. 

All that to say that if you are looking to get your wife onboard or to develop the shared vision of your financial future, then you need to take her desires and needs into account.  Maybe she's perfectly fine with your numerically optimized plan of giving retirement a high priority and debt repayment a low one.  Or maybe she needs a bit more of the psychological side of planning, to help her get excited about making changes.  If so, you might want to consider where the medium ground lies - not totally stopping the retirement savings, but allocating some money to debt repayment too.  You could run numbers (together, or for her, depending on skills and interests) on several different scenarios, even taking into account tax breaks from your retirement savings, etc.

Please note I've tried to carefully phrase things, but that may not have come across as I have intended.  I'm not trying to imply your wife isn't involved in the financial decisions (maybe she is!) or that she does need the psychological boost of paying off debt, or any kind of implication that you're the logical one and she's the emotional one, etc etc etc.  I'm just *wondering* about all of this, and thought I'd put the question out there.
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MayDay

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Re: Case Study: Family of 4, low income, low expenses
« Reply #23 on: March 10, 2017, 05:54:09 AM »
Even though some of the interest rates are small, I'd pay off some of the small ones as fast as possible just to have one less account to deal with.

Plus, as PJ posted, involving your wife and getting her buy-in is a great thing.

I'm from Iowa (Ames and Mason City) but I've since moved away.  We still go back a few times a year to visit my parents.  One nice thing about Iowa is that housing tends to be very cheap.  Another nice thing is you've got good dirt outside your house, most likely, and you mentioned you farm for some side income.  Do you have a veggie garden in your yard?  If so, that can be a nice bang for your buck in the summer to reduce food costs.  We also use it to cheaply introduce some luxuries- strawberries and raspberries will grow very well, for example, and we don't tend to buy them in the store because they are expensive.  And, once you plant them, they are perennial so your costs are basically zero after the first year.  Same with asparagus, which will grow very well in Iowa.
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TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #24 on: March 10, 2017, 08:25:19 AM »
Even though some of the interest rates are small, I'd pay off some of the small ones as fast as possible just to have one less account to deal with.

Plus, as PJ posted, involving your wife and getting her buy-in is a great thing.

I'm from Iowa (Ames and Mason City) but I've since moved away.  We still go back a few times a year to visit my parents.  One nice thing about Iowa is that housing tends to be very cheap.  Another nice thing is you've got good dirt outside your house, most likely, and you mentioned you farm for some side income.  Do you have a veggie garden in your yard?  If so, that can be a nice bang for your buck in the summer to reduce food costs.  We also use it to cheaply introduce some luxuries- strawberries and raspberries will grow very well, for example, and we don't tend to buy them in the store because they are expensive.  And, once you plant them, they are perennial so your costs are basically zero after the first year.  Same with asparagus, which will grow very well in Iowa.

Yes, we plan on having a garden, and did this past year as well (it was our first year in the house) but we didn't do a whole lot with it.  I think this years will be more expansive. 

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #25 on: March 10, 2017, 08:30:30 AM »

So, it's not clear how much of the same page you and your wife are on about your overall financial picture, or even how involved she is in the financial planning for your family, but I just wanted to point out that if you've been wanting to get your wife on board with making any changes (frugality wise, or even just getting more involved with the financial decision making) then you should strike while the iron is hot.  She has now officially expressed interest, and is intrigued by the rosy financial picture her hair dresser has painted for her...

One of the things, as I understand it, about Dave Ramsey is the understanding of the psychological side of financial planning.  Am I correct in remembering that the debt snowball method is the one where you pay off the lowest sized debt first, even if another loan has a higher interest rate, because the psychological boost from eliminating the one debt helps motivate you to keep going?  Of course, mathematically that is wrong, you should pay the highest interest debt first, but that ignores the psychology aspect for those who struggle with finances.  But the middle ground is between Dave Ramsey's debt snowball, and your prioritizing retirement savings over debt repayment, could be allocating some portion of excess cash flow to debt repayment, starting with your highest interest rate debt first.

It does seem like, by directing only a small amount of your excess cash flow, that you could fairly easily knock out a bunch of those smaller loans, not all at once but at fairly frequent intervals being able to cross one off the list. 

All that to say that if you are looking to get your wife onboard or to develop the shared vision of your financial future, then you need to take her desires and needs into account.  Maybe she's perfectly fine with your numerically optimized plan of giving retirement a high priority and debt repayment a low one.  Or maybe she needs a bit more of the psychological side of planning, to help her get excited about making changes.  If so, you might want to consider where the medium ground lies - not totally stopping the retirement savings, but allocating some money to debt repayment too.  You could run numbers (together, or for her, depending on skills and interests) on several different scenarios, even taking into account tax breaks from your retirement savings, etc.

Please note I've tried to carefully phrase things, but that may not have come across as I have intended.  I'm not trying to imply your wife isn't involved in the financial decisions (maybe she is!) or that she does need the psychological boost of paying off debt, or any kind of implication that you're the logical one and she's the emotional one, etc etc etc.  I'm just *wondering* about all of this, and thought I'd put the question out there.

She really doesn't have a whole lot to do with our finances, in all honesty, and she knows that.  She is getting more in tune with things though, which is part of the reason I think her ears perked up when someone mentioned them not having any debt, and using Dave Ramsey.  See, she had her schooling paid for by her parents, her vehicles paid for, her insurance paid for, and moving from the college life to "adulting" was a bit of a transition, both on limiting spending, and increasing savings, because it wasn't something she really had to focus much on before.  However, her not having school loans is awesome for us, as we are only paying off my student loans. 

We are, and have been on the same page financially, she just doesn't care to know how I'm taking care of things.  She understands my hesitancy to delay retirement savings just to pay off low interest debt, which is nice.  Given, my employer puts 3% in regardless whether I contribute or not, so moving from 10% to 0% would free up quite a bit of cash for us to pay the debts off with.  I just don't think I can bring myself to do it.

We'll get a chance to sit down this weekend and go over everything.  This will be the first full month of us not having a credit card bill to really pay down on (paid the last one off w/ our tax money), so it'll be interesting to see how we actually end up cash flowing by month end.  If it goes as I expect it to, we'll probably just knock out that 0% Chase card, and then the following month move to increasing our student loan payment.

Paul der Krake

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Re: Case Study: Family of 4, low income, low expenses
« Reply #26 on: March 10, 2017, 08:57:16 AM »
Do neither of you have a dependent care FSA at work? That'd be some easy tax savings.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #27 on: March 13, 2017, 02:41:15 PM »
Do neither of you have a dependent care FSA at work? That'd be some easy tax savings.

Yes, I contribute the max, $5k a year, to the dependent care FSA through my employer.  A great program, that's for sure.

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Re: Case Study: Family of 4, low income, low expenses
« Reply #28 on: March 13, 2017, 08:46:39 PM »
I have to second the above poster who mentions the possibility of becoming a 1-car family. Is that at all feasible, with your job and your kids' daycare within walking distance of home?

And there has to be some happy medium between paying off the remaining $13K on your wife's car and trading down to a cramped $2K used car that can't handle winter driving. Perhaps a 2010 Honda CR-V for $11K or so? These have plenty of room for a family of 4 and handle the winter nicely (so say my friends who own one).

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #29 on: March 14, 2017, 01:56:28 PM »
I have to second the above poster who mentions the possibility of becoming a 1-car family. Is that at all feasible, with your job and your kids' daycare within walking distance of home?

And there has to be some happy medium between paying off the remaining $13K on your wife's car and trading down to a cramped $2K used car that can't handle winter driving. Perhaps a 2010 Honda CR-V for $11K or so? These have plenty of room for a family of 4 and handle the winter nicely (so say my friends who own one).

One of my locations is within walking distance, that is correct.  Two of my offices are not.  My wife takes the kids to daycare on her way to work, so that is an option, and one that my wife and I had discussed at length.  Anything else outside of me saying "Yes, we should sell a car" becomes an excuse to keep both vehicles, which is exactly what we are doing.  I agree that there were probably better options when we went car shopping, and we most certainly didn't spend what we could have.  It's a 2012 model, running about 75k total miles on it, and it's in great condition.  My truck is paid off and while we could sell one of them, or both, and get something cheaper, it always comes back to us using the truck for a lot of things.  There isn't a local "rent a truck" place around a town of 500, so we'd be SOL without it in a lot of instances.

I think there are also much bigger fish to fry in our budget and our debt than the car payment.  And yes, I know most will disagree with me on that, but it's a comfort thing, and if my wife feels safe driving the newer vehicle, when transporting her self and our kids, I'm fine with it.  I'm not a stringent MMMer, but I like to bounce ideas off of people, so thank you all for that.

MayDay

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Re: Case Study: Family of 4, low income, low expenses
« Reply #30 on: March 15, 2017, 11:32:47 AM »
My mom is a nurse in Iowa, and has had to drive into the hospital in bad winter weather, and has spun around 360 degree on the highway on her way to the hospital.  Not that this excuses a fancy or expensive car, but I can definitely see the mindset that your wife has, and add in driving the kids in that car too.

I would probably take the approach of asking her if she would be willing to cut x, y, or z, instead of the car, since you know the car is important to her.  Or ask if she would be willing to pick up one extra shift a month (if that is available to her at work) or go PRN on another floor, to make a bit extra. 

I think the biggest thing is making sure she is on board with keeping this car for a loooooooong time after it is paid off, and not getting the itch to upgrade to something newer. 
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TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #31 on: March 17, 2017, 08:33:48 AM »
My mom is a nurse in Iowa, and has had to drive into the hospital in bad winter weather, and has spun around 360 degree on the highway on her way to the hospital.  Not that this excuses a fancy or expensive car, but I can definitely see the mindset that your wife has, and add in driving the kids in that car too.

I would probably take the approach of asking her if she would be willing to cut x, y, or z, instead of the car, since you know the car is important to her.  Or ask if she would be willing to pick up one extra shift a month (if that is available to her at work) or go PRN on another floor, to make a bit extra. 

I think the biggest thing is making sure she is on board with keeping this car for a loooooooong time after it is paid off, and not getting the itch to upgrade to something newer.

Oh, the car will be kept for a long time, just like my truck, which has been paid off since 2010, plus her SUV is still sub 80k miles, so there won't even be a need to upgrade any time soon.  Oh, I hate car payments, so does she, but there was a necessity in our minds that a little bigger vehicle would be a bit safer for the drive that she has, especially with the kids in the vehicle as well.  And, at 273 a month, it isn't breaking us, there are other debts that we have that are much more concerning to us than that.

greengardens

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Re: Case Study: Family of 4, low income, low expenses
« Reply #32 on: March 25, 2017, 05:37:03 PM »
I'll second twbird with the utility company rebates. Is mid America your electric company? If so they offer pretty good rebates for energy efficient appliances and house upgrades. I believe they cover most of the state but if they don't cover your area even the small utilities have some sort of efficiency programs.

chris316

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Re: Case Study: Family of 4, low income, low expenses
« Reply #33 on: March 25, 2017, 07:56:06 PM »
im a newbie here and don't know if im qualified to give you A lot of advice buy just by reading through this there are a couple things I noticed that may help....

1- that car payment... I understand you say its not negotiable but you wouldn't believe how much it could help you save.
2- your energy bills are super high, it was already mentioned but again youll get a huge RoR on that investment
3- also mentioned to re-asses your investment order. look under the "investor ally" and there is a great post to read titled "investment order" read it.
4- same under "ask a mustachian" thread there is a post titled "how to convert your SO to MMM in 50 easy steps" even if youre not full mustachian there is good advice in it. both you and your SO should read it.
5- your student loans and home loan interest rates look good I wouldn't worry as much about those as in investing more in your HSA or 401k those will all help in taxes... this is all explained in #3- your investment order.
6- your chase credit and heloc should be eliminated sooner than later again #3 investing order
7- emergency fund is important!

« Last Edit: March 25, 2017, 07:57:43 PM by chris316 »

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #34 on: March 27, 2017, 10:45:07 AM »
im a newbie here and don't know if im qualified to give you A lot of advice buy just by reading through this there are a couple things I noticed that may help....

1- that car payment... I understand you say its not negotiable but you wouldn't believe how much it could help you save.
2- your energy bills are super high, it was already mentioned but again youll get a huge RoR on that investment
3- also mentioned to re-asses your investment order. look under the "investor ally" and there is a great post to read titled "investment order" read it.
4- same under "ask a mustachian" thread there is a post titled "how to convert your SO to MMM in 50 easy steps" even if youre not full mustachian there is good advice in it. both you and your SO should read it.
5- your student loans and home loan interest rates look good I wouldn't worry as much about those as in investing more in your HSA or 401k those will all help in taxes... this is all explained in #3- your investment order.
6- your chase credit and heloc should be eliminated sooner than later again #3 investing order
7- emergency fund is important!

Thanks for the response Chris, and I understand everyone's dislike for car loans, I'm not a fan of them either, believe me.  The Chase card has been paid off, so we are operating on $0 of credit card debt.  The HELOC will be tackled next, well, between that and increasing the emergency fund...we'll probably prioritize the emergency fund first. 

Right now, I put 10% into my Roth 401k, employer matches 3%.  My wife has the state benefit program, but we need to open an IRA for her, so we can at least contribute something else there.  I also need to figure out what % of her income is put into the state's pension program, as I've never really checked.  I know it's a set amount that she isn't able to alter, which leads back to opening an IRA for her.

Energy bills are high, we will be tackling some of the updates this year, the big one being insulation in the attic where we are losing most of our heat towards.  I've got to have our electric company come out and do some looking, because that bill is awfully high and I'm not certain what to attribute it to, as our heat is LP through our city utilities bill.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #35 on: March 27, 2017, 10:45:46 AM »
I'll second twbird with the utility company rebates. Is mid America your electric company? If so they offer pretty good rebates for energy efficient appliances and house upgrades. I believe they cover most of the state but if they don't cover your area even the small utilities have some sort of efficiency programs.

We have Alliant Energy as our electric company, I'll have to do some research on any rebate programs they might have.

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #36 on: March 27, 2017, 12:20:11 PM »
Just checked the state pension program, looks like employee contributes 5.95%, employer does 8.93% for a total contribution of 14.88% per paycheck.

twbird18

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Re: Case Study: Family of 4, low income, low expenses
« Reply #37 on: April 05, 2017, 08:38:57 PM »
I'll second twbird with the utility company rebates. Is mid America your electric company? If so they offer pretty good rebates for energy efficient appliances and house upgrades. I believe they cover most of the state but if they don't cover your area even the small utilities have some sort of efficiency programs.

We have Alliant Energy as our electric company, I'll have to do some research on any rebate programs they might have.

http://www.alliantenergy.com/SaveEnergyAndMoney/EnergyAssessments/Home/index.htm

TheInsuranceMan

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Re: Case Study: Family of 4, low income, low expenses
« Reply #38 on: April 06, 2017, 02:49:23 PM »
I'll second twbird with the utility company rebates. Is mid America your electric company? If so they offer pretty good rebates for energy efficient appliances and house upgrades. I believe they cover most of the state but if they don't cover your area even the small utilities have some sort of efficiency programs.

We have Alliant Energy as our electric company, I'll have to do some research on any rebate programs they might have.

http://www.alliantenergy.com/SaveEnergyAndMoney/EnergyAssessments/Home/index.htm

Yep, I looked at them last week and have an energy assessment next Tuesday.  Their programs are pretty good, especially paying 70% of insulation cost, so we'll see.