Author Topic: Case Study - FI with some Part Time work  (Read 5108 times)

Silverback761

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Case Study - FI with some Part Time work
« on: June 30, 2018, 05:34:38 PM »
Life Situation:

1. File as Married / Joint
2. 1 dependent @ age 21 in college for one more year
3. Gloversville, NY - Fulton County
4. Ages - Him 40 & Her 48

Gross Salary/Wages:

1. Combined - $94,611

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc:

1. $0.00
Note: Company pays 100% medical insurance & does not match any contributions to 401k.

Other Ordinary Income:

1. National Geographic Consultant Pay - $1,500 / yr

Qualified Dividends & Long Term Capital Gains:

1. $0.00

Rental Income, Actual Expenses, and Depreciation:

1. $0.00

Adjusted Gross Income:

1. $96,111

Taxes: Federal, state/local, and FICA.

1. Federal - $11,065.60 / yr
2. Social Security - $5,866.38 / yr
3. Medicare - $1,372.02 / yr
4. NYS Income - $2,059.3 / yr
5. NY Paid Family Leave - $119.34 / yr
6. NY Voluntary Disability - $62.40 / yr
7. Total Statutory Deductions - $20,545.04 / yr

Income After Taxes:

1. $75,565.96
Note: It should be higher but I had to adjust my taxes to take out more when I was still working a second job. I just haven't remembered to readjust them back to normal.

Current expenses:

1. Mortgage - $503.10 / month
  a. Principal Balance - $45,581.18
  b. Interest Rate - 3.75%
  c. Escrow - $252.94 / month

2. Student Loans - $629.25 / month (combined)
  a.  Her - $357.30 / month
  b.  Her Interest Rate - 6.5%
  c. Her Balance - $54,351.89
    i. Him - $303.95 / month
    ii. Him Interest Rate - 3.625%
    iii. Him Balance - $45,914.16
Note: Both of our loans are half paid off at the current balance stated.

3. Car Payment - $432.58 / month
  a. Balance - $25,920.17
  b. Interest Rate - 1.9%

4. Car Insurance - $181.70
Note: Daughter still on ours while she's in college.

5. Electric - $216.18
Note: This includes heating which National Grid spreads throughout the entire yr versus all up front each month during the heating season.

6. Water - $225 - $250 / yr

7. Cell Phone - $100 / month

8. Internet - $64.99 / month

9. Physical Therapy - $35 / bi-weekly
Note: This can not be dropped as once a month per settlement is not enough for me to maintain a functioning work capacity.

10. Amazon Prime - $119 / yr
Note: We do all of our shopping on here that isn't groceries, only on sale with prime shipping and we use it for our TV watching.

11. Xbox Live - $90 / yr
Note: For watching Prime and playing video games with my family (parents, siblings and kids). Any games I purchases are either used or on sale for $20 or less (2-3 per yr) or I use the pts from my Playstation CC to get them for free.

12. Groceries - $85 - $125 / wk
Note: This fluctuates depending on if we need pet food, litter, laundry detergent, etc.

13. Dental - $680 / yr
Note: Annual 6 month cleaning for both my wife and I.

14. Total Expenses / yr - $32,120

15. Balance after Expenses - $43,445.96

Note: If I have forgotten anything important please let me know and I will update accordingly. After this weekend all our CC, Medical, Dental and Car Repair bills will FINALLY be paid off after years of playing catch up... Feels good to get those off our backs.

Assets:

1. Savings / ER Fund - $17,849.98

Specific Question(s):

1. Should my wife refinance her student loan to see if she can get a lower interest rate or should we just pay it down ASAP?

2. Neither of us have invested a dime toward retirement due financial constraints (job loss, monthly bills, supporting children, etc.). Now that our careers have finally settle and we're making a decent living we'd like to know if it's possible to become FI in the next 10-15 yrs?  I plan to keep working for a few more years as I'm the younger one and because I get bored easily and would rather work and make money when I'm not fishing, gaming or working on the house. Also, my wife has far more experience than I with finances so we agree it would be smarter for her to retire earlier and focus on investing and finances while I continue working to help fund our dream.

3. Should we focus on paying off all our loans (mortgage, student, etc.) or can we start putting money into retirement like 401K, index funds, etc.?

4. I have more questions but I think I'll stick with those 3 and see what everyone suggests and go from there.

I just would like to say thank you to everyone who takes the time to read my case study and provide information with advice so we can join in attaining FI in the future.  Have a HAPPY 4th of July everyone and look forward to comments.

Corey

Edit #1 - Updated Info
Edit #2 - Updated 401k contribution info
« Last Edit: June 30, 2018, 06:40:52 PM by Silverback761 »

kpd905

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Re: Case Study - FI with some Part Time work
« Reply #1 on: June 30, 2018, 06:00:14 PM »
Do your employers offer any match on 401k contributions?
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Get $500 after $4k spend w/ Chase Sapphire Preferred:
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Sign up for Personal Capital, link one investment account, get $20 Amazon GC: http://share.personalcapital.com/x/AgCQkt

My side hustle journal: https://forum.mrmoneymustache.com/journals/side-hustle-journal-bank-bonuses-churning-tradelines/

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #2 on: June 30, 2018, 06:23:01 PM »
Do your employers offer any match on 401k contributions?

Nope... not a dime. Updated in original post.
« Last Edit: June 30, 2018, 06:25:03 PM by Silverback761 »

FIRE 20/20

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Re: Case Study - FI with some Part Time work
« Reply #3 on: June 30, 2018, 09:15:06 PM »
It seems like a number of things are missing here.  Do you ever eat out?  Drink alcohol?  Go to the movies?  Buy housewares, clothes, or shoes?  Do you budget for home repairs or car repairs?  Travel?  Buy gifts? 

I think the place to start is to put together a comprehensive budget.  You can use Mint or You Need A Budget (aka YNAB), or just a spreadsheet.  If you can go back over the past year or more that would be great, but if you can't then I'd suggest starting now.  I wouldn't be surprised if your $32k/year expenses suddenly rise to $50k or more. 

However, let's assume $32k/ year is correct for now.  To figure out if you can retire in 10-15 years, the best way to to it is to put your data into FireCalc or CFireSim.  A quick, extremely rough estimate can get us into the ballpark though.  If you need $32k/year and you'll want to withdraw 4% / year (see 4% rule), then you'll need $800k  You actually won't have your mortgage or student loans to pay and you probably will get some Social Security eventually, so that might be high but as I mentioned there are a lot of things that appear to be missing too.  To get to 800k if you're saving $43k per year then it would take about 14 years assuming 5% growth.  After 14 years you'd have about $843k based on those assumptions.

I doubt you'll take the suggestion, but that car is an insane expense for where you are financially.  If your priority is FIRE, then the first thing to do is sell it and get something in the $5k range - $10k at most if you want something luxurious.   Look at the investment order post first (I think you were given that link in your other thread) and do what that says. 

But you really need to have a better budget to really see what kind of a situation you're in.  I would be shocked if that's really everything you spend money on, but it might be accurate if you never leave the house and do all your own repairs. 


Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #4 on: July 01, 2018, 02:18:22 AM »
Your assessment that it's more like 50k would be correct. Actually more like 100% of our income spent for the last couple years. As of right now the past couple yrs have been nothing but paying for our children's college tuition or paying down debt from when we both lost our jobs. I wasn't sure if I should include college tuition payments, books, etc along with payments to pay off medical bills, CC or not. As of this weekend literally all our past minor debt has been paid off. We have 1 more year of my daughter in college and then she graduates with her boyfriend and they move where their careers take them. We both cook dinner, I'm a complete DIY'er outside of extreme repairs that really require a professional. I built my squat rack and Olympic weight out of 4x4's and black pipe to save money on a gym membership. Our lives consist of work, work out, dinner, walk dog or TV and bed. On the weekends it's been just working on the house, when we have a spare dollar, trying to fix it up to sell next yr and get the hell out of Dodge. We are generally home bodies though the last couple yrs as finances have not allowed otherwise. Selling the car, after learning everything I've read so far is not an issue for me. My wife on the other hand is another story, especially since in less than a yr she already paid almost half of it off. That's going to be an interesting conversation. I'll keep you posted on how that goes.

This coming school year will be the first one where we will actually have extra money each week now that all our minor debt is paid off. Because of that I want to be smart and make our newly freed up funds work instead of wasting it.

I have read the links posted regarding investment order and plan to follow it while researching to see if we can speed the process up a little bit.

Thank you for taking the time to respond to my post and I look forward to future discussions. Have a wonderful day!

Edit - Spelling
« Last Edit: July 01, 2018, 02:31:07 AM by Silverback761 »

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #5 on: July 01, 2018, 02:43:08 AM »
Just a minor update as my brain has been going a hundred mph the past couple days. We actually have a 2006 Dodge Dakota Sport that we own outright. It's been in the shop all week, hence why I forgot about it, as it needs an entire new rear end and i don't have the tools for that kind of job.

My question is, should I trade / sell the truck along with the car? I ask because even though we own it outright it gets terrible gas mileage and is starting to break down on a rather consistent basis. It owes me nothing as I've put that truck through hell and back.

Thanks! :-)

Dicey

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Re: Case Study - FI with some Part Time work
« Reply #6 on: July 01, 2018, 08:02:43 AM »
Dicey reporting for duty. Welcome SB761!

Oh boy, you have the makings of a great Come from Behind Story (cue: Chariots of FIRE soundtrack).

Some quick suggestions, as we're flipping a house at present and we need to get over there soon, before it gets too hot.

- Stop prepaying the mortgage.
- Refi wife's SL asap.
-  Chat with your college senior about ways to pay for their final year on their own. You can borrow for college but you cant borrow for retirement. Scholarships, grants, j-o-b, etc. Even if they only pay half of their final year, that's a huge help
- Oof, I was thinking about the gas mileage on the truck as soon as you named it. Do you need it to finish the house? I suspect it's not worth what this repair is going to cost you, but you probanly shouldn't haul DIY crap in your brand-new car.
- Speaking of new cars, I'd advise holding off on selling it for a little bit. There's a lot of low hanging fruit in your budget. PF/MMM/ FIRE is all very new to you. A brand new car is sub-optimal, but you bought a reliable vehicle that vould last you for decades. Not saying to keep it if you get a line on a six year old cream puff Camry or Corolla with low miles, just saying this doesn't need to be the first thing you do. It's equally important for your wife to be on board.* Selling the car right now might be a roadblock to her full participation (for now). You just found this site, you have lots to learn. You can be patient on this front while you master other areas. Do stop making double payments,
- Use your library to get a copy of "Ordinary People, Extraordinary Wealth". It's dated now, but the first chapter is the best explanation of saving/investing vs. prepaying a mortgage I've ever seen, and I've read many PF books. It will take less than an hour and will change your financial trajectory forever.
- Find a cheaper cell plan asap. Ting, Cricket, Republic or the like could slash your bills in half.

Here are two ways to search this forum. Read your brains out. What you want is do-able, and we'll help. I might even tell you a story one of these days (insert wink and nod to @Malkynn here).

https://forum.mrmoneymustache.com/forum-information-faqs/how-to-search-the-forum/

https://forum.mrmoneymustache.com/forum-information-faqs/the-forum-'search'-feature/

I get decent results an even lazier way. I type "MMM Forum + a couple of key words" into Google and usually get a hit. Except journals, which are password protected. Don't be fooled, they're not really protected, but they don't come up in search engines.

If you find someone really resonates with you, click on their name, then "Show Posts". That's how I read all of your posts after Malkynn's bat signal and found you here.

Finally, this is a gold mine:

https://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/

*Not long after we moved here five years ago, a new neighbor mentioned finding MMM, so we had a couple good chats. I ran into his wife at a community event at about the same time. She complained that he suddenly wanted her to make a ton of changes, without recognizing her existing and not-insignificant frugality. He's a mechanic and they have three kids. Very quickly, their SUV's morphed into a very used (but reasonably clean) Camry and Odyssey. I see one or both of these cars every time I go by their house, hooray! Alas, they are divorced now. Don't be car-wise and divorce foolish. Those frugal used cars ended up being frightfully expensive.


I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

RedwoodDreams

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Re: Case Study - FI with some Part Time work
« Reply #7 on: July 01, 2018, 11:41:47 AM »
4. Car Insurance - $181.70
Note: Daughter still on ours while she's in college.


That car insurance rate seems very high. Do you ever shop around for a better rate? Maybe consider raising deductibles? Also, a friend with a daughter in college recently told me their insurance co. reduces the rate for their daughter's coverage during the months she's away at school (because she isn't home driving the family car), so you might look into that if your daughter doesn't live at home.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #8 on: July 01, 2018, 12:02:13 PM »
It's high because we have full coverage on the new car as well as our daughter for the summer while she's home working. Once she back to college we take her off for the rest of the year as her apt is only a block away from campus.

I've been with Geico since I was 16 and generally find they off the best coverage, forgiveness, etc. for the price.

I'm off this week so I'll shop around anyways just to see what I can find. Thanks for the advice 😁.
« Last Edit: July 01, 2018, 12:04:19 PM by Silverback761 »

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #9 on: July 01, 2018, 12:11:06 PM »
As a follow up to the 401k update. After reading it over I didn't realize how many options that my company offers to the point I don't even know where to begin. There are 43 different choices. Would it be ok if posted the scanned pages as attachments on here, is there a limit and is that frowned upon in these forums? Always want to make sure before posting tons of images.

The enrollment date just passed but we're going to see if there's any way we can still get in or if we have to wait til Jan. 1st of next yr.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #10 on: July 01, 2018, 12:13:40 PM »
Dicey reporting for duty. Welcome SB761!

Oh boy, you have the makings of a great Come from Behind Story (cue: Chariots of FIRE soundtrack).

Some quick suggestions, as we're flipping a house at present and we need to get over there soon, before it gets too hot.

- Stop prepaying the mortgage.
- Refi wife's SL asap.
-  Chat with your college senior about ways to pay for their final year on their own. You can borrow for college but you cant borrow for retirement. Scholarships, grants, j-o-b, etc. Even if they only pay half of their final year, that's a huge help
- Oof, I was thinking about the gas mileage on the truck as soon as you named it. Do you need it to finish the house? I suspect it's not worth what this repair is going to cost you, but you probanly shouldn't haul DIY crap in your brand-new car.
- Speaking of new cars, I'd advise holding off on selling it for a little bit. There's a lot of low hanging fruit in your budget. PF/MMM/ FIRE is all very new to you. A brand new car is sub-optimal, but you bought a reliable vehicle that vould last you for decades. Not saying to keep it if you get a line on a six year old cream puff Camry or Corolla with low miles, just saying this doesn't need to be the first thing you do. It's equally important for your wife to be on board.* Selling the car right now might be a roadblock to her full participation (for now). You just found this site, you have lots to learn. You can be patient on this front while you master other areas. Do stop making double payments,
- Use your library to get a copy of "Ordinary People, Extraordinary Wealth". It's dated now, but the first chapter is the best explanation of saving/investing vs. prepaying a mortgage I've ever seen, and I've read many PF books. It will take less than an hour and will change your financial trajectory forever.
- Find a cheaper cell plan asap. Ting, Cricket, Republic or the like could slash your bills in half.

Here are two ways to search this forum. Read your brains out. What you want is do-able, and we'll help. I might even tell you a story one of these days (insert wink and nod to @Malkynn here).

https://forum.mrmoneymustache.com/forum-information-faqs/how-to-search-the-forum/

https://forum.mrmoneymustache.com/forum-information-faqs/the-forum-'search'-feature/

I get decent results an even lazier way. I type "MMM Forum + a couple of key words" into Google and usually get a hit. Except journals, which are password protected. Don't be fooled, they're not really protected, but they don't come up in search engines.

If you find someone really resonates with you, click on their name, then "Show Posts". That's how I read all of your posts after Malkynn's bat signal and found you here.

Finally, this is a gold mine:

https://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/

*Not long after we moved here five years ago, a new neighbor mentioned finding MMM, so we had a couple good chats. I ran into his wife at a community event at about the same time. She complained that he suddenly wanted her to make a ton of changes, without recognizing her existing and not-insignificant frugality. He's a mechanic and they have three kids. Very quickly, their SUV's morphed into a very used (but reasonably clean) Camry and Odyssey. I see one or both of these cars every time I go by their house, hooray! Alas, they are divorced now. Don't be car-wise and divorce foolish. Those frugal used cars ended up being frightfully expensive.

Thanks for the advice and links! I'm on vacation this week as I planned on building raised pallet patioin the middle of the stone wrapped garden i built last week. Stones I already had in the yard and pallets I snagged from work 😎.

I will rifle through as much as my eyes can handle reading a screen.

Kwill

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Re: Case Study - FI with some Part Time work
« Reply #11 on: July 01, 2018, 12:22:41 PM »
As a follow up to the 401k update. After reading it over I didn't realize how many options that my company offers to the point I don't even know where to begin. There are 43 different choices. Would it be ok if posted the scanned pages as attachments on here, is there a limit and is that frowned upon in these forums? Always want to make sure before posting tons of images.

The enrollment date just passed but we're going to see if there's any way we can still get in or if we have to wait til Jan. 1st of next yr.

Is there a searchable online version? Or even on paper, if you can find the column that lists the fee percentage for each, narrow it down to the ones that have lower fees. That should get you a smaller group that includes whatever index funds are available. If you narrow it down to 10 or so, you should get some good advice here.

wonkette

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Re: Case Study - FI with some Part Time work
« Reply #12 on: July 01, 2018, 12:49:05 PM »
Agree completely on better tracking. Mint/YNAB/Every Dollar will show you where your money is really going.

If you maxed your 401ks I believe that should lower your taxable income enough to be able to deduct student loan interest on your taxes.

I recommend you find a way to bring your children into this conversation. From your other post it seems you've been focused on setting them up for a life of opportunity - well imagine the opportunity of learning about 401ks at 20 instead of 40.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #13 on: July 01, 2018, 01:38:00 PM »
Agree completely on better tracking. Mint/YNAB/Every Dollar will show you where your money is really going.

If you maxed your 401ks I believe that should lower your taxable income enough to be able to deduct student loan interest on your taxes.

I recommend you find a way to bring your children into this conversation. From your other post it seems you've been focused on setting them up for a life of opportunity - well imagine the opportunity of learning about 401ks at 20 instead of 40.

My wife and I talked about that and agreed with you. We figured if we can get this to work for us that we'll sit them down and teach them as well.

We plan on using Mint for tracking, paying all bills with CC for easier tracking and to get the cash back.

We have cancelled and or decreased several recurring bills today. Looking at phones next after dinner.

Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.

Thanks!!!

Kwill

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Re: Case Study - FI with some Part Time work
« Reply #14 on: July 01, 2018, 02:08:03 PM »
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.


Yes, look at the Fund Operating Expenses. That is how much the fund costs to run. The ones with lower expenses will probably be the ones that are similar to index funds and will probably be better over time.

This is the relevant MMM article: https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/


Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #15 on: July 01, 2018, 02:51:36 PM »
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.


Yes, look at the Fund Operating Expenses. That is how much the fund costs to run. The ones with lower expenses will probably be the ones that are similar to index funds and will probably be better over time.

This is the relevant MMM article: https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

Excellent! Tyvm, that cuts it down significantly with those that are under 1% in both Gross% and Net%.
« Last Edit: July 01, 2018, 03:34:51 PM by Silverback761 »

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #16 on: July 01, 2018, 03:33:55 PM »
Here are the 401k investments with the lowest Fund Operating Expenses (1% or less):

1. Great West Conserv Profile II Fund Inv
 a. Gross - 0.88%
 b. Net - 0.80%

2. Great West Mod Cons Profile Fund Inv
 a. Gross - 0.93%
 b. Net - 0.85%

3. Great West Moderate Profile Fund Inv
 a. Gross - 1.00%
 b. Net - 0.94%

4. Great West International Index Fund Inv
 a. Gross - 0.71%
 b. Net - 0.70%

5. Great West Real Estate Index Fund Inv
 a. Gross - 0.75%
 b. Net - 0.70%

6. Columbia Small Cap Index A
 a. Gross - 0.45%
 b. Net - 0.45%

7. Columbia Mid Cap Index A
 a. Gross - 0.56%
 b. Net - 0.45%

8. American Funds Fundamental Invs R3
 a. Gross - 0.96%
 b. Net - 0.96%

9. American Funds Growth Fund of Amer R3
 a. Gross - 0.98%
 b. Net - 0.98%

10. Columbia Large Cap Index A
 a. Gross - 0.45%
 b. Net - 0.45%

11. T. Rowe Price Blue Chip Growth Adv
 a. Gross - 0.98%
 b. Net - 0.98%

12. Great West Bond Index Fund Inv
 a. Gross - 0.50%
 b. Net - 0.50%

13. Great West Short Duration Bond Fund Inv
 a. Gross - 0.68%
 b. Net - 0.60%

14. Great West US Govt Securities Fund Inv
 a. Gross - 0.64%
 b. Net - 0.60%

15. PIMCO Real Return Admin
 a. Gross - 0.83%
 b. Net 0.70%

16. PIMCO Total Return Admin
 a. Gross - 0.72%
 b. Net - 0.71%

17. Pioneer Bond A
 a. Gross - 0.98%
 b. Net - 0.85%

18. Guaranteed Interest Fund
 a. 0.00%
 b. 0.00%

Sorry for the extra ones. When I was looking them over I didn't realize a couple pages were stuck together.  I did notice there are several Index Funds which from what I've read and everyone has been talking about is a very good thing.  That being said what would is recommended for my wife and I to start investing in?  Should we only invest in one of them or split it between several?  Haven't a chance to read the recent link posted.  We're are looking at new phone plans right now and cooking dinner.  I will have it read before I crash for tonight and I'm sure have more questions tomorrow. 

Thank you again for everyone's patience while i research and learn how this works.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #17 on: July 01, 2018, 03:43:50 PM »
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.


Yes, look at the Fund Operating Expenses. That is how much the fund costs to run. The ones with lower expenses will probably be the ones that are similar to index funds and will probably be better over time.

This is the relevant MMM article: https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

I just finished reading the link you posted and it was an interesting read.  My question after the reading is do my wife and I want to invest in Vanguard if we have anything left from investing in both our 401K's?

Kwill

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Re: Case Study - FI with some Part Time work
« Reply #18 on: July 01, 2018, 03:50:15 PM »
You can google the names of the funds in your list and find out more about them, but from what I can see, I think #10 Columbia Large Cap Index A is most similar to an S&P 500 index fund. Maybe that would be one to start with. It's late in my time zone, so I will stop here. Good luck.

Vapour

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Re: Case Study - FI with some Part Time work
« Reply #19 on: July 01, 2018, 03:51:21 PM »
The good news is your AGI is low enough that you and your wife are eligible for a Traditional IRA.  The limit for married filing jointly is $101,000 this year.  This is actually Modified AGI which adds back in some things like IRA contributions and student loan interest as well as others, but since you didn't mention these I think you're ok with an AGI of ~$96k.  If you can contribute to a 401k, that will only help lower your AGI to keep you eligible.  But if you can't contribute to your 401k right away, you can still contribute $5500 this year to your IRA for both you and your wife ($11k total).  I'd recommend opening an account with Vanguard or Fidelity, though there are others you can use.  These two are known for having good low cost fund options and decent customer support.  Do this immediately.  Start putting in whatever you can each month to both your and your wife's account.  Keep in mind this will lower your taxes, so you can adjust them now on your W4 (as you said you already needed to anyway) to account for this and start getting more money immediately.  I'd start reading up on investing to feel comfortable with a strategy.  Until then, invest in some sort of index fund such as Total US Stock Market, Total World Stock Market, S&P500 fund, Target Date Retirement fund.  For now, just get started with an index fund that has a low expense ratio (ie. less than 0.2%).  You can fine tune your investment approach as you go and determine your desired asset allocation (stocks/bonds and US/international).

I'd look into refinancing your wife's student loans.  6.5% is pretty high.  If you can't get much lower, you could also look into getting a new mortgage on your house and taking cash out to invest it or put towards the 6.5% student loan.  You didn't mention how much your house is worth or the terms of your mortgage (15yr or 30yr) and how many years left on the loan, so it's hard to say.

I'd prioritize investing in your IRA/401k before paying down any more debt.  After that, I'd consider paying off the 6.5% loan if you can't get the rate down further via refinance or using a new mortgage to pay it off.  I wouldn't pay down the mortgage, car loan, or your low interest rate student loans until you have a much heftier retirement account balance.

Your 401k fund choices aren't as good as I'd hoped.  Those are still pretty high expenses for index funds, but it's not terrible.  For now, I'd start with investing in the Columbia Large Cap Index.  This is basically an S&P500 fund.  You can consider the Mid and Small Cap funds as well (also with ER of 0.45%), but it'd probably be easiest to stick to one fund at the start and then start reading on investing and decide what allocation you want.  The international fund is a bit higher, so I'd maybe put an International Stock Fund such as VGTSX/VTIAX/VXUS in your IRA instead.  I'd also prioritize your IRA over 401k since you can get much lower fees in an IRA.

For your XBox Live membership, Microsoft has a program called Microsoft Rewards where you can get points for searching using Bing.  You could use this to get a "free" Xbox Live membership though it is a bit of work.  It'll take 3+ months to earn enough points for it, assuming you search every day.  It may not be worth it to save $90 a year but it's an option.  If you're interested, I could sell you a 12 month membership for $30 since that's what the points are worth.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #20 on: July 01, 2018, 03:53:02 PM »
You can google the names of the funds in your list and find out more about them, but from what I can see, I think #10 Columbia Large Cap Index A is most similar to an S&P 500 index fund. Maybe that would be one to start with. It's late in my time zone, so I will stop here. Good luck.

Thanks and have a good night.  From what I've read in my guide that does appear to be the one that is closest to the S&P 500.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #21 on: July 01, 2018, 04:12:08 PM »
The good news is your AGI is low enough that you and your wife are eligible for a Traditional IRA.  The limit for married filing jointly is $101,000 this year.  This is actually Modified AGI which adds back in some things like IRA contributions and student loan interest as well as others, but since you didn't mention these I think you're ok with an AGI of ~$96k.  If you can contribute to a 401k, that will only help lower your AGI to keep you eligible.  But if you can't contribute to your 401k right away, you can still contribute $5500 this year to your IRA for both you and your wife ($11k total).  I'd recommend opening an account with Vanguard or Fidelity, though there are others you can use.  These two are known for having good low cost fund options and decent customer support.  Do this immediately.  Start putting in whatever you can each month to both your and your wife's account.  Keep in mind this will lower your taxes, so you can adjust them now on your W4 (as you said you already needed to anyway) to account for this and start getting more money immediately.  I'd start reading up on investing to feel comfortable with a strategy.  Until then, invest in some sort of index fund such as Total US Stock Market, Total World Stock Market, S&P500 fund, Target Date Retirement fund.  For now, just get started with an index fund that has a low expense ratio (ie. less than 0.2%).  You can fine tune your investment approach as you go and determine your desired asset allocation (stocks/bonds and US/international).

I'd look into refinancing your wife's student loans.  6.5% is pretty high.  If you can't get much lower, you could also look into getting a new mortgage on your house and taking cash out to invest it or put towards the 6.5% student loan.  You didn't mention how much your house is worth or the terms of your mortgage (15yr or 30yr) and how many years left on the loan, so it's hard to say.

I'd prioritize investing in your IRA/401k before paying down any more debt.  After that, I'd consider paying off the 6.5% loan if you can't get the rate down further via refinance or using a new mortgage to pay it off.  I wouldn't pay down the mortgage, car loan, or your low interest rate student loans until you have a much heftier retirement account balance.

Your 401k fund choices aren't as good as I'd hoped.  Those are still pretty high expenses for index funds, but it's not terrible.  For now, I'd start with investing in the Columbia Large Cap Index.  This is basically an S&P500 fund.  You can consider the Mid and Small Cap funds as well (also with ER of 0.45%), but it'd probably be easiest to stick to one fund at the start and then start reading on investing and decide what allocation you want.  The international fund is a bit higher, so I'd maybe put an International Stock Fund such as VGTSX/VTIAX/VXUS in your IRA instead.  I'd also prioritize your IRA over 401k since you can get much lower fees in an IRA.

For your XBox Live membership, Microsoft has a program called Microsoft Rewards where you can get points for searching using Bing.  You could use this to get a "free" Xbox Live membership though it is a bit of work.  It'll take 3+ months to earn enough points for it, assuming you search every day.  It may not be worth it to save $90 a year but it's an option.  If you're interested, I could sell you a 12 month membership for $30 since that's what the points are worth.

We purchased 2 Xbox Live 12 month today for $60 total to cover us for the year.  I forgot all about the Rewards Program, thanks for reminding me.  I'll get that setup as I can use it for game purchases and gold as well.

I just noticed that Columbia one you mentioned as I was reading your response.

My wife and I were talking and our company doesn't do any matching with our 401k investment and we were wondering if we should even bother investing in the company 401k at all.  Would it be wiser to just open an account with Vanguard (Both IRA and 401k) and put our funds into a private 401k?  If I'm misunderstanding something please let me know.  I ask because then we may not have to wait for a specific enrollment date if I'm understanding everything correctly.

Thanks!

Trifele

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Re: Case Study - FI with some Part Time work
« Reply #22 on: July 01, 2018, 04:15:04 PM »
Great job on getting the case study together SB761!

Apologies if I missed it, but I don't see property taxes included in your expenses?

Vapour

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Re: Case Study - FI with some Part Time work
« Reply #23 on: July 01, 2018, 04:21:38 PM »
My wife and I were talking and our company doesn't do any matching with our 401k investment and we were wondering if we should even bother investing in the company 401k at all.  Would it be wiser to just open an account with Vanguard (Both IRA and 401k) and put our funds into a private 401k?  If I'm misunderstanding something please let me know.  I ask because then we may not have to wait for a specific enrollment date if I'm understanding everything correctly.

Thanks!

You can only open up your own 401k if you are self-employed.  Since you have an employer, this is not an option for you, as far as I understand it.  You're stuck with your company's 401k plan.  I would first max out your IRA ($11k), then start investing in your 401k whenever you can.  If you can't get into your 401k before next year and have more than $11k to invest this year, you can look at a taxable account at Vanguard, or paying down the 6.5% interest student loans.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #24 on: July 01, 2018, 04:32:55 PM »
Great job on getting the case study together SB761!

Apologies if I missed it, but I don't see property taxes included in your expenses?

We have it setup so property, school, city taxes and insurance are paid through our escrow account.  If you'd like the actual number let me know and I'll dig it up for you :-)
« Last Edit: July 01, 2018, 04:53:07 PM by Silverback761 »

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #25 on: July 01, 2018, 04:38:24 PM »
My wife and I were talking and our company doesn't do any matching with our 401k investment and we were wondering if we should even bother investing in the company 401k at all.  Would it be wiser to just open an account with Vanguard (Both IRA and 401k) and put our funds into a private 401k?  If I'm misunderstanding something please let me know.  I ask because then we may not have to wait for a specific enrollment date if I'm understanding everything correctly.

Thanks!

You can only open up your own 401k if you are self-employed.  Since you have an employer, this is not an option for you, as far as I understand it.  You're stuck with your company's 401k plan.  I would first max out your IRA ($11k), then start investing in your 401k whenever you can.  If you can't get into your 401k before next year and have more than $11k to invest this year, you can look at a taxable account at Vanguard, or paying down the 6.5% interest student loans.

That's good to know :-)  In that case we'll find out tomorrow if it's too late to enroll or if we have to wait til Jan. 1st of next year. 

Does an IRA have the same restrictions tied to the employer?  I've been researching it on internet and I've just been finding info on what an IRA is and ads for companies to invest with.

Thanks!!!

If my wife and I can figure this all out and get this dream of retirement going in the right direction I'm going to host a RetireCon and invite everyone on the site :-)

An update to my wife's SL.  We're tried to refinance with several difference lenders and none of them would go below 6% so we're stuck with that one.  Oh well, at least we tried :-)
« Last Edit: July 01, 2018, 04:47:04 PM by Silverback761 »

Vapour

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Re: Case Study - FI with some Part Time work
« Reply #26 on: July 01, 2018, 05:09:09 PM »
Does an IRA have the same restrictions tied to the employer?  I've been researching it on internet and I've just been finding info on what an IRA is and ads for companies to invest with.

Thanks!!!

If my wife and I can figure this all out and get this dream of retirement going in the right direction I'm going to host a RetireCon and invite everyone on the site :-)

An update to my wife's SL.  We're tried to refinance with several difference lenders and none of them would go below 6% so we're stuck with that one.  Oh well, at least we tried :-)

No, IRAs do not have the same restrictions.  You can open up your own IRA wherever you want.  There are income limits, which I mentioned earlier, that relate to the deductibility of the IRA contributions if your employer offers a retirement plan.  (See here: https://www.irs.gov/retirement-plans/ira-deduction-limits)  But I think you should be fine opening traditional IRAs for you and your wife based on your stated income.  Since you mentioned Vanguard, I'd probably just stick with them to keep your fees low.

Too bad about the student loan.  I'd really consider doing a re-finance on the house if you have a lot of equity in it.  You could probably get a rate around 4.5% now and pay off the student loans at 6.5%.  Interest rates are going up, so now would be a good time to lock in a low 30 year rate.

Trifele

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Re: Case Study - FI with some Part Time work
« Reply #27 on: July 01, 2018, 05:30:32 PM »
Great job on getting the case study together SB761!

Apologies if I missed it, but I don't see property taxes included in your expenses?

We have it setup so property, school, city taxes and insurance are paid through our escrow account.  If you'd like the actual number let me know and I'll dig it up for you :-)

Cool.  So that's included under your mortgage amount?  That looks low.  (?)

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #28 on: July 01, 2018, 05:39:08 PM »
Having read, learned and accomplished so much in the past 72 hrs my brain is fried...lol taking rest of the night off and pick back up tomorrow. Tomorrows plan is to change phone plans to cut that expense in half, find out about 401k enrollment, set up Mint, set up with Vanguard for IRA and index fund investment, set all bills to autopay with cash back credit cards and looked for used bikes in craigslist. In between that do some more reading and research.

Thanks for the help everyone and look forward to more discussions tomorrow and in the future. Have a great night!!!

Corey
« Last Edit: July 01, 2018, 06:20:46 PM by Silverback761 »

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #29 on: July 01, 2018, 05:40:43 PM »
Great job on getting the case study together SB761!

Apologies if I missed it, but I don't see property taxes included in your expenses?

We have it setup so property, school, city taxes and insurance are paid through our escrow account.  If you'd like the actual number let me know and I'll dig it up for you :-)

Cool.  So that's included under your mortgage amount?  That looks low.  (?)

Yep it's all included. In fact we got a check the other day because we paid too much to the escrow.

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Re: Case Study - FI with some Part Time work
« Reply #30 on: July 01, 2018, 06:36:34 PM »
Having read, learned and accomplished so much in the past 72 hrs my brain is fried...lol taking rest of the night off and pick back up tomorrow. Tomorrows plan is to change phone plans to cut that expense in half, find out about 401k enrollment, set up Mint, set up with Vanguard for IRA and index fund investment, set all bills to autopay with cash back credit cards and looked for used bikes in craigslist. In between that do some more reading and research.

Thanks for the help everyone and look forward to more discussions tomorrow and in the future. Have a great night!!!

Corey

Awesome, awesome, awesome. It is a marathon not a sprint and you're off to a great start!

A heads up, once you get settled in and optimized, maybe 6 months to a year from now, some people find that a bit frustrating when you're basically just "waiting" on the frugality side. I find that looking at things less often once they're dialed in is helpful, like maybe checking once a quarter and seeing if there are low hanging fruit.
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Dicey

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Re: Case Study - FI with some Part Time work
« Reply #31 on: July 01, 2018, 06:40:18 PM »
Oops, this didn't post earlier. It's in response to your comment about enroll in in your employer's 401k plzn.

Are you in at all? Changing your percentage of investments can be done any time once you're enrolled. If you're not enrolled, don't sweat it. Six months will fly, and there are other steps you can take to improve your situation until then.

Typically, enrollments are done in October, so even less time to wait

About those student loans, i believe you said you've paid some things off recently, which might make you more desirable now. Try again. Who did you try besides, presumably Earnest and So-Fi?

I am very much in favor of refinancing the house to kill the SLs and jumpstart your retirement saving, but it doesn't have to be the first or even fifth thing you do. You've made tremendous progress in a nanosecond. This is something to learn more about once you've put some other fires out.
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #32 on: July 01, 2018, 07:51:16 PM »
Oops, this didn't post earlier. It's in response to your comment about enroll in in your employer's 401k plzn.

Are you in at all? Changing your percentage of investments can be done any time once you're enrolled. If you're not enrolled, don't sweat it. Six months will fly, and there are other steps you can take to improve your situation until then.

Typically, enrollments are done in October, so even less time to wait

About those student loans, i believe you said you've paid some things off recently, which might make you more desirable now. Try again. Who did you try besides, presumably Earnest and So-Fi?

I am very much in favor of refinancing the house to kill the SLs and jumpstart your retirement saving, but it doesn't have to be the first or even fifth thing you do. You've made tremendous progress in a nanosecond. This is something to learn more about once you've put some other fires out.

We are not in at all and never have been. Wasn't an option financially til this weekend now that we've caught up on so many bills.

Cutting expenses and living frugally won't be a problem for us as we've spent a majority of our lives surviving on a shoe string. Making the cuts was easy and won't be missed. Knowing that we have the extra income should anything happen will make it easier than it ever was.

With all the incredible help on here we'll figure out the investing part. Seems to be the hardest part for me to grasp. I think that's mostly due to how much info I've absorbed in such a short period.

As for my wife's SL, I don't think we can refinance the house again as we already did to pay for our eldest son's tuition. Our interest rate was almost dbl before that. We went from a 15 yr to 30 yr and my wife has been making payments 1.5x normal payments to try and bang it down ASAP.  I don't know if there's a limit or not...lol Sorry, my wife has always done the finances and I've always done the DIY stuff. Always worked best for us. But I always enjoy a good challenge 😎.

Our enrollment period is July 1st and Jan. 1st so going to see tomorrow as it fell on a Sunday this yr.

Have a great night everyone!

doggyfizzle

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Re: Case Study - FI with some Part Time work
« Reply #33 on: July 02, 2018, 09:22:24 AM »
The fees listed on your 401k plan funds are pretty high.  Given your (current) income constraints with your wife's SL repayment, I'd just open a Traditional IRA with Vanguard/Schwab/Fidelity for you and your wife and sock away whatever you can spare and not even worry about participating in a 401k that doesn't offer a match (right now).  Once you get your wife's SL paid down further and have used up the $5.5k/year contribution limits per person, then start socking away money in the 401k.  You can open an IRA with the providers I mentioned for minimal cost, and I believe that both Schwab and Fidelity let you buy ETFs without transaction fees.  I'd suggest either a target date mutual fund or a 60-40 total market/bond etf mix.

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #34 on: July 02, 2018, 09:50:57 AM »
The fees listed on your 401k plan funds are pretty high.  Given your (current) income constraints with your wife's SL repayment, I'd just open a Traditional IRA with Vanguard/Schwab/Fidelity for you and your wife and sock away whatever you can spare and not even worry about participating in a 401k that doesn't offer a match (right now).  Once you get your wife's SL paid down further and have used up the $5.5k/year contribution limits per person, then start socking away money in the 401k.  You can open an IRA with the providers I mentioned for minimal cost, and I believe that both Schwab and Fidelity let you buy ETFs without transaction fees.  I'd suggest either a target date mutual fund or a 60-40 total market/bond etf mix.

So I have a couple questions after a good night's sleep and making progress adjusting our budget:

1. What is the advantage of an IRA over 401k to invest in that first?

2. Is there an alternate option to investing in the companies pretty meh 401k? Especially since they don't match.

3. I know people and blog suggest not paying off any loans with interest rates lower than 5% but is there a disadvantage to aggressively paying off the loans and then aggressively investing to retire after they're paid off? I understand investment interest rates are higher and will surpass loan rates.

Edit - Spelling
« Last Edit: July 02, 2018, 10:45:20 AM by Silverback761 »

doggyfizzle

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Re: Case Study - FI with some Part Time work
« Reply #35 on: July 02, 2018, 11:42:12 AM »
1) The advantage of the IRA is that YOU control your investment choices, not your company or 401k plan administrator.  Currently, both you and your wife can each contribute $5.5k into a tIRA or Roth IRA each year.  Based on your income level, traditional IRA contributions would have a beneficial impact on lowering your AGI and federal tax burden.  Once you've got enough $$ coming in each month after you're finished paying for college and you've knocked the loans out, consider contributing to your 401k.  Although, because the 401k funds really aren't that great, I'd just open a taxable account buy some index funds and with your AGI levels you don't have to worry much about paying dividend or capital gains taxes.

2) Unless your company also offers a 457 plan, there isn't a corporate alternative available to you besides the 401k.  That's the benefit of the tIRA - you can put $5.5k in each year into a mix of ultra-low cost index funds that aren't available to you in your 401k.

3) I'd knock out your wife's SL first, and then attack the car loan.  The car is a depreciating asset and even if you have a lower-than-inflation interest rate it still doesn't make sense in your current financial state to be paying interest on a car loan.  If you're set on keeping the car, make sure you drive the thing into the ground (at LEAST 200k miles) before you consider buying another vehicle.  Next time, pay cash for a used car.  If weather is rough on cars in your part of NY and buying used means buying a rusted-through car, look to buy a car in AZ (where snow/salt aren't a concern) and drive the car back to NY.

Laura33

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Re: Case Study - FI with some Part Time work
« Reply #36 on: July 02, 2018, 12:49:38 PM »
We are not in at all and never have been. Wasn't an option financially til this weekend now that we've caught up on so many bills.

I'm going to challenge you on this, because I think you still need to change your mindset a bit.  The reality is that investing in your 401(k) was always an option -- you just chose to use your money for other things, like activities/school for your kid and paying down your mortgage.  Note that I am not saying anything about the relative merits of your choices; the important part is to realize that you had choices, you made them, and where you are now is the sum total of those choices. 

The primary point of MMM is to design the life you want to live.  Most people go through life with a whole list of unspoken expectations, which are usually framed as "needs" -- well, I'm having a kid, of course I need to buy a house; well, my kid is my top priority, of course I need to pay for private school; etc.  Even worse are the "deserves," a/k/a, "I've been scrimping and taking care of other people's needs and paying debt for a long time, I deserve a nice, new car."  But the reality is that people's needs are quite a bit lower than they think, and no one deserves jack shit except basic human respect and decency.  And the bad part about all of this is that in blindly following along with their "needs" and "deserves," most people throw money at things that don't really matter and don't make them happy.  Even worse:  because those "needs" and "deserves" are right in front of you, right now, they are shiny and pretty, and retirement seems so far away, and there's always time, right?  So you end up forsaking Future You's needs for Current You's wants. 

What we try to do here is to be conscious of all of those unspoken beliefs, to spend deliberately on the things that matter most.  We also work very hard to give Future You a place at the table, and to remind Current You that as shiny and pretty as that thing is, it will not bring nearly as much happiness as financial security and being able to walk away from work whenever we want.  You are obviously very very good at living frugally and not throwing money at toys -- and that puts you a huge step in front of many people.  But what you need to do is focus a little more on Future You -- a/k/a choose to put saving/investing first, period.

The other thing we focus on here is making mathematically sound decisions with the assets we have.  And math is why the choice to invest is better than pre-paying low-interest debt.  Reason #1:  taxes.  Say your marginal tax rate is 20%.  If you use that money to pay off debt, you have to make $100 to put $80 toward your debt.  OTOH, if you put that money in a 401(k) or tIRA, for that $100 you make, you get invest $100 of it, because none of that counts as income.  That alone provides you a significantly larger bang for your buck.

Reason #2 is the power of compounding, which gets just astronomically more powerful over time.  Let's use my example from the other thread:  you have $40K to invest, and you get 7% return -- in 10 years, that money is worth $80K; $160K in 20; $320K in 30; and $640K in 40.  But, you say, that ignores the value of the interest I avoid paying -- yes!  It does!  So let's consider that:  say my interest is 3.5%.  First, I pay taxes at that 20% rate, so instead of $40K, I throw $36K at my debt.  That means in 20 years, I save $72K; in 40, $144K.  So:  I "save" $144K -- but I missed out on the chance to earn $640K.  If I had invested the money, I could have paid off the debt and had almost half a million bucks left over.

OK, you say, but what if I focus on prepaying the debt now, and then invest after?  The answer is in the initial example.  If you put the $40K in now, you end up with $640K in 40 years.  But if you wait 10 years and then put that same $40K in the market, by the time you reach that 40th year, you have only $320K -- half the amount.  Think about that:  same amount invested, half the returns -- just because you spent that first decade focusing on the debt.   

So, the math says far and away the best option is to pay the minimums on all low-interest debt, and then throw everything you can into a tax-sheltered retirement account.  So go do that now.  Even if you missed the signup for the 401(k), that's ok -- just focus on maxing out tIRAs for you and your wife every year.  That will give you a good chunk of change to get started with -- and decrease your taxes to boot.
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Dicey

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Re: Case Study - FI with some Part Time work
« Reply #37 on: July 02, 2018, 04:40:11 PM »
I'm nodding like a bobblehead here. As usual, @Laura33 has nailed it!

I'm going to pile on a bit, because this bugged me yesterday, but I had other things to say first.

From the other thread:

"We actually have a decent saving already. We donate to it every week from our paychecks automatically."

Oh, hell no!  You do not donate to your savings. Money you donate is gone forever and benefits someone else. This is your money that you are saving (and now investing) for your future. You are NOT donating it! Do not treat it like money you will never see again. This is not just semantics, it's a paradigm shift.
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #38 on: July 02, 2018, 07:01:31 PM »
I understand the message and have finally caught up. Honestly I think what I needed was some direction and guidance in making choices. It'll take some time to change my thought process I agree. I've been trapped in the survival mindset since I was little and doing everything I could to protect my children from that. I don't make any excuses and have no problems excepting my mistakes and or responsibilities. Everyone has given me tons of incredible advice, most of which I have already applied.

I re-read the investment order post and have a pretty good direction now.  I've started reading the boglehead site that was linked there and snagged a few recommended books.

For now our plans is to start up both our tIRA's and max them out. We weren't able to get in the 401k for this year so we'll have 6 months til enrollment opens again. In the meantime we'll pay down her SL and make minimum payments on the rest. Once we can enroll we plan to invest as much as we can risk without leaving ourselves open too much to emergencies. I plan to make a little money on the side and invest it into a non-tax exempt index fund.

So for now that's the plan while I continue to read and learn about this new and challenging adventure.  If there's anything I missed or should tweak please let me know. Otherwise I'm taking tomorrow off from research and taking my dog out fishing in the canoe 🤗.

Thank you again to everyone who took the time and patience to explain things and answer my questions. I'm sure I'll be back with more, hopefully a little less broad and a little more educated 😎.

Have a great 4th of July!!!

Keep It Hard,
Corey


swashbucklinstache

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Re: Case Study - FI with some Part Time work
« Reply #39 on: July 02, 2018, 07:07:24 PM »
{snip}

I plan to make a little money on the side and invest it into a non-tax exempt index fund.

Just to be clear, by the bold you mean you're investing in a taxable brokerage account, and  in that account you're investing in an index fund? Either way of referring to it is fine of course, but "taxable" is the more common.

Enjoy the holiday and have a cold one on future-you, you deserve it :)
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #40 on: July 02, 2018, 07:22:42 PM »
{snip}

I plan to make a little money on the side and invest it into a non-tax exempt index fund.

Just to be clear, by the bold you mean you're investing in a taxable brokerage account, and  in that account you're investing in an index fund? Either way of referring to it is fine of course, but "taxable" is the more common.

Enjoy the holiday and have a cold one on future-you, you deserve it :)

Yeah, sorry...lol Still learning the lingo 😵

Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #41 on: July 03, 2018, 04:49:15 PM »
So this is going to be a rather lengthy post and I apologies ahead of time but I wanted to post some math to help explain my question.  So first is my question and then I'll post numbers to support it.  If I made a mistake in my numbers or how I came to my conclusion please let me know.

The question is: At this point in time with the debt we have is it REALLY worth investing in our 401k or even an IRA let alone two? I ask because according to the math and what everyone says about investing and compounding interests it doesn't make sense to me when doing so would only increase the time my wife and I would have to work to become FI by 4-7 yrs.  And that's assuming we stop working entirely which I wouldn't because I'm not a homebody and I enjoy working and would want to keep investing to protect us in the long haul.  Now all of this is assuming my math is correct based on what I've learned and using the Early Retirement Calculator post in the FAQ.  If not, well I got a refresher basic math and compound interest :-)  So here we go...

AGI - $96111.00
After Taxes - $75565.96
Expenses - $27861.72
Net - $47704.24
401k - $18500
IRA x2 - $11000

47704.24 - 18500 = 29.204.24 Net after 401k investment
47704.24 - 11000 = 36704.24 Net after IRA x2 investment

So from here I figured out that the best course to FI was to actually payoff both my wife's SL and the Car so:

Wife SL - $54.351.89 -or- ~$4500/yr
Car - $25920.17 -or- $5190.96/yr
Combined Total = $80272.06
$80272.06 / 36704.24 (IRA Inv) = 2.2 yr to Payoff
$80272.06 / 29204.24 (401K Inv) = 2.75 yr to Payoff

Now if I subtract those expenses which equal 9690.96/yr
$27861.72 - $9690.96 = $18.170.76 Adj Expenses

Now if I add either the $11000 (IRA x2) or the $18500 (401K) to the Adj Expenses we get: $29170.76/yr and $36670.76/yr respectively for Adj Expenses.

I understand both 401k and IRA are not considered expenses but considering I wouldn't be able to truly make use of them for 20+ yrs. I considered them as such in relation to investing for FI.  If I making a mistake in this thought process please let me know.  With that being said when punch those two Adjust Expenses in the Early Retirement Calculator and AGI after Taxes I get:

With IRA x2 - ~12 yrs
With 401k - ~16 yrs

Add in the 2-3 yrs to Payoff on SL and Car that's quite a few years.  It's still earlier than 65 but after learning so much in just a few days that's a bloody long time.

Now I'm going to do the math for my argument to skip investing in either of those entirely (knowing it would put me in a lower tax bracket if did though) and just flat out invest in a Taxable Account.

Wife SL - $54.351.89 -or- ~$4500/yr
Car - $25920.17 -or- $5190.96/yr
Combined Total = $80272.06
$80272.06 / $47704.24 (No Inv) = 1.7 yr to Payoff

Now if I subtract those expenses which equal 9690.96/yr
$27861.72 - $9690.96 = $18.170.76 Adj Expenses

When I put that number in the calculator with my AGI after Taxes I get: 6.8 yrs to FI

Add in 2-3 yrs to Payoff and I'm sitting at 10 yrs. tops.  Now this is assuming max investment, no emergencies, etc. and since I'm 100% Irish that'll never happen :-) I figure another 1-2 yrs. tops.  Does this look and or sound right?  Am I missing something?  If so, am I still wrong in thinking I should skip both retirements investments seeing as it adds so many extra years?

Obviously this is all assuming I didn't waste the entire afternoon today figuring it out all wrong...LoL  If I did...well have fun raking me over the hot coals :-)  Again sorry for the lengthy post but I'm this detailed in everything I do.  Thanks again and Happy 4th!!!

Edit - Spelling

kpd905

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Re: Case Study - FI with some Part Time work
« Reply #42 on: July 03, 2018, 06:07:09 PM »
I didn't really follow your math there, what return are you using for your investments in those calculations.  I don't think there is any way investing in a 401k would lengthen your time to FI vs paying <4% interest debt.
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #43 on: July 03, 2018, 06:13:15 PM »
I didn't really follow your math there, what return are you using for your investments in those calculations.  I don't think there is any way investing in a 401k would lengthen your time to FI vs paying <4% interest debt.

5% with a 4% withdrawal according to the retirement calculator. I only figured 401k would because that would be more I was investing for retirement when I'm eligible to use it at 65 instead of into a private account where I can use it sooner.  Sorry if what I'm saying doesn't make sense.  Wife and I are enjoying our last bottle of wine for a while...LoL

« Last Edit: July 03, 2018, 06:17:57 PM by Silverback761 »

Bracken_Joy

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Re: Case Study - FI with some Part Time work
« Reply #44 on: July 03, 2018, 06:29:29 PM »
I didn't really follow your math there, what return are you using for your investments in those calculations.  I don't think there is any way investing in a 401k would lengthen your time to FI vs paying <4% interest debt.

5% with a 4% withdrawal according to the retirement calculator. I only figured 401k would because that would be more I was investing for retirement when I'm eligible to use it at 65 instead of into a private account where I can use it sooner.  Sorry if what I'm saying doesn't make sense.  Wife and I are enjoying our last bottle of wine for a while...LoL

Wait so you're assuming investments functionally only yield 1% return?
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #45 on: July 03, 2018, 06:31:44 PM »
I guess I'm assuming based on what I've read so far and math I've seen on other sites. Is it more or less? I know I'm playing major catch up here so bear with me...sorry.

I've read the links ppl have posted me thus far and the MMM blog itself mainly so far while waiting for those books to arrive Thursday.

Just seeing if I'm at least heading in the right direction. Thus far I know paying the my wife's SL and the Car off first is the most efficient way to attain our goal.
« Last Edit: July 03, 2018, 06:42:03 PM by Silverback761 »

Beach_Bound

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Re: Case Study - FI with some Part Time work
« Reply #46 on: July 03, 2018, 06:45:37 PM »
I think you're saying you assumed a 5% investment return and 4% safe withdrawal rate? If so, your error was including retirement investments as expenses. That basically means that you expect to continue contributing to your IRAs or 401k after retirement, so you need a larger nest egg to fund those expenses. Instead, treat the $18k as your adjusted expenses in all scenarios. That expense number determines how much money you need to save (i.e. $18000/4% = $450k required for retirement). The type of investment and the corresponding tax treatments determine how much you can invest and how quickly it grows.

Bracken_Joy

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Re: Case Study - FI with some Part Time work
« Reply #47 on: July 03, 2018, 06:46:51 PM »
I guess I'm assuming based on what I've read so far and math I've seen on other sites. Is it more or less? I know I'm playing major catch up here so bear with me...sorry.

I've read the links ppl have posted me thus far and the MMM blog itself mainly so far while waiting for those books to arrive Thursday.

It's all good! A learning curve is 100% normal here =) Hell, I'm still learning it all, and I've been around years.

I'm having trouble following your math, but a fundamental issue I think you're having is counting the 4% withdrawl rate in your time to FIRE. Whether you're paying down debt or investing, you'll still be withdrawing 4% in retirement- but not before. So you're looking at subtracting a negative 3.5%, for example, by paying off debt, vs adding a positive 7% by investing (7% is the one I see most often- 5% accounts for inflation, but again, inflation would be the same whether you're paying debt or investing, so that's a wash, just like the withdrawl rate). So all you really have to do is look at the difference between expected investment returns, and the interest rate on your loans. Removing a negative 3.5% is the same as adding 3.5%, so you're just looking at 3.5% vs 7%. Removing debt and adding positive assets are the same net worth effect, one is not inherently "better" or "worse", you just need to look at degree of effect, which you do via interest rate and tax implications.

The tax implications are the second key part, which Laura talked about. If you can avoid paying 20% taxes by investing, whereas debt repayment is POST-tax, you're getting a 20% boost for now by investing instead. Yes, you have to pay taxes later, but compound interest on investments in the meantime make that totally worthwhile in most cases.

Hopefully that helped, rather than just confusing you more. Let it percolate for a bit and revisit, maybe play with some investment calculators. I haven't used this one, but a sample calculator: https://www.calcxml.com/do/pay-off-debt-or-invest
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Silverback761

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Re: Case Study - FI with some Part Time work
« Reply #48 on: July 03, 2018, 08:19:38 PM »
Yeah I am including the 4% withdrawal figuring the calculator that is used for determining retirement would by default be set to where is needed. In which case it probably is I just have to readjust the formulas. I think where I've been struggling is seeing the complete formula. I see everyone's posted numbers before and after but not sure what happens in between to get them there.  I figured if I showed the math someone might be able to fill in the blanks that I'm missing. The last two post have helped immensely in that regard. So back to the drawing board. I just want to make sure I have it laid out before I start putting money anywhere. The only solid thing I know so far is the SL and Car have to get paid off ASAP.  My truck has 400k miles on it right now so running the Camry into the ground, as was suggested earlier, is not a problem for me.

So for now my math is good up to the point of investing. From there I have to make some adjustments. Atleast I know I'm on the right path. Thank you immensely for the help!

Bracken_Joy

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Re: Case Study - FI with some Part Time work
« Reply #49 on: July 03, 2018, 08:25:41 PM »
I highly recommend looking up explanations on the power of compound interest. It's a cornerstone piece of understanding that makes it all "work". Even playing with calculators on the difference one year of investing in your early 20s, then never investing again, vs waiting until later in life, can really drive this concept home. Here's one example: https://www.moneyunder30.com/power-of-compound-interest And so while, obviously going back in time and investing in your 20s is ideal, NOW is the next best time, not tomorrow. You know the old saying: "the best time to plant a tree was 20 years ago. The second best time is today"
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