Author Topic: Case Study - How are we doing? Feedback gratefully accepted  (Read 1818 times)

Mitch76

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Case Study - How are we doing? Feedback gratefully accepted
« on: February 01, 2019, 01:23:15 PM »
Life Situation - Me and the wife are 43 years old,  two sons - 7 & 4 years old. Live in the UK, both work for the Government
Take home salary - Me £2500/month, wife £2100
Rental income - £1000/month for 2 properties
Child benefit - £137.60
Total take home (net) pay = £4801

Retirement Contributions - Our employer takes out 10% of our gross pay, as we work for the Government it's pretty much guaranteed, they can change the terms and conditions in the future, but cannot change what we've already accrued.

Current Expenses:
Rental Mortgage Payment - £850
Car Insurance/maintenance - £100
Property tax - £210
Life insurance - £24
TV/Internet/Netflix/Home phone/Mobiles - £90
Gas/Electric - £120
Water - £40
Kids savings - £160
Gym - £25
Chiropractor - £36
Work Lottery £10
Profession registration/union - £50
Spotify - £15
Charity - £20
Petrol - £200
Food - £460
Dog stuff - £40
Eating out £40
House maintenence - £50
Fun/going out - £120
Kids activities - £130
School lunch - £90

Total monthly expenditures = £2880

Assets
Home Value - £320,000
Rental houses - £265,000
2 cars - £10,000
Tax free ISA savings (accessible at any time) - £100,000 in Vanguard Lifestrategy 80 fund
Total Assets = £695,000

Liabilities
Rental Houses mortgage - £180,000 (2% mortgage)
Total Liabilities = $180,000

Future Government pension
We currently have accrued £22,000/year (between us) that we will have once we hit 60 (this will keep up with inflation until then), and for every extra year from now that we work, we will receive an extra £1000/year.

Points to consider
1. We will be downsizing once the kids have moved out, into one of our rental houses, and selling our primary residence.
2. Petrol is VERY expensive in the UK, £1.22 a litre.
3. We will receive the UK state pension of £6500 each at age 68.
4. We've only just started tracking our spending, so I may have omitted some things, but I have tried to think of everything.
5. Any excess money at the end of the month goes into our Vanguard account. In the UK we can use ISA's, which shelter the fund from income and capital gains tax.
6. Both rental houses are very low maintenance and the rent currently pays off about £6000 a year from the mortgage.

Questions
How are we doing? Are there any obvious changes we can make to hasten FIRE? Any obvious things we're doing wrong?
Many thanks in advance.

robartsd

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #1 on: February 01, 2019, 02:48:32 PM »
Not in UK, so I don't have a very good idea of your expenses, but overall they seem reasonable. If you're thinking about cutting some optional spending, you might look at these areas:
Current Expenses:
Kids savings - £160
Gym - £25
Food - £460
Kids activities - £130

Tax free ISA savings (accessible at any time) - £100,000 in Vanguard Lifestrategy 80 fund
Future Government pension
We currently have accrued £22,000/year (between us) that we will have once we hit 60 (this will keep up with inflation until then), and for every extra year from now that we work, we will receive an extra £1000/year.
3. We will receive the UK state pension of £6500 each at age 68.
Sounds like you'll have more than enough in old age; but figuring out what it will take to pull the plug short of age 60 is the challenge. Continuing to save your surplus for about 4 years should do it: 1921/mo savings 100k currently invested at 7% annual growth becomes ~238k; 2050/mo expenses (excludes expenses for the rental) from 238k at 4% annual growth (more conservative allocation in withdraw than accumulation) should last the remaining 13 years to age 60. This is without selling the rentals or counting on rental income beyond carrying related expenses.

BlueHouse

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #2 on: February 06, 2019, 08:56:08 AM »
It looks as if your expenses are well within your income so that's great. 

If you're looking for additional challenge or voluntary discomfort, these items would be first on my list:
1.  Aim to get your expenses down to $2500/month, to practice living on one salary only.  Reduce "fun / eating out / kids activities" and instead save that amount up for a bigger-impact family vacation once or twice/year.
2.  Reduce your carbon footprint by biking / walking more and reduce the petrol usage.  Consolidate trips, try not to use the car on weekends, etc. 

Those are just my thoughts, but your priorities are different.
« Last Edit: February 06, 2019, 08:58:40 AM by BlueHouse »

Watchmaker

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #3 on: February 06, 2019, 10:37:54 AM »
As others have already commented, it looks like you are doing quite well. If you're comfortable where you are, I don't think you *need* to do anything different. But if you'd like to cut your spending, here are some ideas:

Life insurance - £24 - Is this term or whole life? I understand the short term need with young children, but you should be able to drop this in a few years.
TV/Internet/Netflix/Home phone/Mobiles - £90 - Ditch the home phone.
Gym - £25 - Find free ways to exercise
Chiropractor - £36 - Ongoing, or dealing with a specific issue? Cut.
Work Lottery £10 - Drop it.
Spotify - £15 - You could challenge yourself to have only netflix or spotify at a time, and switch every few months. This way you don't become used to the service. I do this.
Petrol - £200 - Is there Any driving you can cut out? Bike more. Reduce by 25%.
Food - £460 - I don't know enough about your local food costs, but this seems like it could be reduced a bit. Aim for 400.
Fun/going out - £120 - What does this include. Could try to cut in half.
Kids activities - £130 - Plenty of free things for kids to do. Cut in half.

If you did all those things, it would be well more than £300 off your budget.
« Last Edit: February 11, 2019, 10:15:47 AM by Watchmaker »

marty998

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #4 on: February 10, 2019, 01:14:14 PM »
Surprised to see people advocating cutting the kids activities. For 2 kids playing 2 sports a year or having a creative outlet such as music, dance or drama, the costs seem quite reasonable.

lhamo

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #5 on: February 10, 2019, 02:43:01 PM »
Here in the US the social security survivor benefits for a surviving spouse/children can usually replace life insurance if you have a decent stash -- not sure if the UK has something similar, but worth looking into. You might still want to keep the life insurance to ensure there is plenty for college costs, etc. 

It looks like your pensions should be plenty to cover basic living expenses as you get to age 60+, so really you are just looking at building enough of a stash to cover the period between FIRE and then, and with the plan to downsize you should have more than enough.  Are either of you interested in leaving work/going PT?  With a full or PT SAHP there might be ways to bring down some of your other expenses through more DIYing.


Watchmaker

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #6 on: February 11, 2019, 10:18:49 AM »
Surprised to see people advocating cutting the kids activities. For 2 kids playing 2 sports a year or having a creative outlet such as music, dance or drama, the costs seem quite reasonable.

I don't disagree. As I said, those were my suggestions for where they could cut if they wanted to cut more. I think music lessons (or dance, etc) are a great thing for kids, particularly if your school system has had to cut those programs. Organized sports for kids are a complete waste of time and money, however, in my opinion.

MrThatsDifferent

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #7 on: February 11, 2019, 12:30:48 PM »
OP, itís to answer the question of hastening FIRE without knowing what your timeframe is?

It seems you have most of your money tied up in property, which kinda limits you. Once youíre 60, youíre fine. Youíre 43 and need 17 years to get through. Your current expenses are around $35k a year and you have access to $100k, with $24k a year to add.

My thinking is that youíre probably looking at 7-8 years to become FI without selling any property. If you keep investing your $24k, your stache in that account should grow to around $350k (letting you then access $35k per year), with 10-11 more years until 60. By then the kids will be out and you can sell the main house. Actually, if you retired at 50, then your expenses would be reduced by the $6k/year from the rental properties, so you really only need to cover $29k a year.

This doesnít even assume raises, but it does assume that you keep your spending the same, or look to see how you can reduce. It wonít dramatically reduce your timeframe. Obviously you could sell the main residence sooner, which would reduce your timeframe.

I think youíre looking at 6 years minimum (but trim expenses) and 8 max if you really want to FIRE. Anything after 8 years should be gravy.

Mitch76

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #8 on: February 11, 2019, 03:03:46 PM »
Thanks for all the comments, it seems I'm on the right path. I'm sure I could cut my expenses a little but it's not going to really hasten my retirement, so I'm going to keep on the current path. The kids activites include swimming lessons and dance for my daughter, and swimming lessons and Taekwondo for my son, and I'm more than happy to pay for those.

One option I may take in a few years is to work part time for a while before retirement, I could half my hours (my wife already has cut her hours) and we would still earn enough to cover our expenses while our 'stache grows in the background.

Linda_Norway

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Re: Case Study - How are we doing? Feedback gratefully accepted
« Reply #9 on: February 12, 2019, 05:43:58 AM »
Here in the US the social security survivor benefits for a surviving spouse/children can usually replace life insurance if you have a decent stash -- not sure if the UK has something similar, but worth looking into. You might still want to keep the life insurance to ensure there is plenty for college costs, etc. 

When my parents had a high mortgage, they had a life insurance that would pay out a considerable sum in case the highest earner died and a much lower sum in case the lowest earner died. My father died at 50 and my mother received the high payout, which paid off most of the mortgage. Besides that she receives a monthly widow pension. But this pension would not have been sufficient to keep living in the nice house. I life insurance can come in handy if the lowest earner doesn't want to be forced to move to a cheaper place to live when the partner dies.