Author Topic: Reader Case Study – How long until FIRE for this lower-income family?  (Read 1204 times)

bjpx2

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Life Situation: Married filing jointly; our ages in 2019: 31, 31, 5, 4, 2; Kentucky; my wife does not work

Gross Salary:
$4400/month in salary
$800/month in foster care subsidy from the state

Pre-tax:
$120/month for workplace HDHP
$500/month for HSA (employer also contributes $1000 to reach $7000 annual match)
$1000 into 403b (employer also contributes $400/month)

Taxes: $500/month

Net: $3080/month

Current expenses:
Mortgage: $834 (PITI: $208/$353/$145/$128) – $117,500 at 4%
Utilities: $436 total – $90 for mobile, $65 for internet $105 for gas/electric, $78 for alarm system (I don’t want to talk about it), $70 for water/sewer, $18 for trash, $10 for HOA
Car Insurance: $145
Life Insurance: $60
Preschool: $200 (to prepare for school; ends in April and then free public school in August)
Groceries, Household, Clothes, Misc: $725
Restaurants & Entertainment: $150
Gas: $150
Car Maintenance & Registration: $100
Healthcare: $100
tIRA: $50
Charitable Giving: $130/month

Assets:
Home: $200k-ish
Emergency Fund: $10k
Various Retirement Accounts (all non-Roth): $85k
HSA: $13k
529s: $7000
Taxable Accounts: $2000

Liabilities:
Mortgage balance is $107,000
No student, auto, or credit card debt

Specific Question(s):

We cut our expenses significantly in 2018 to allow my wife to stay home. We don’t have the lowest expenses in the world, but we’re able to save a decent percentage of our income—especially accounting for employer contributions. We would love to increase our income, but I love my employer and don’t plan to leave in the near term (5 years).

My wife is on board with saving and living frugally, although FIRE is not her top priority. She supported me through school, and there was only a short window (1 year) where we were both making decent income—and we were not living according to MMM principles at that time. I’m looking for any suggestions on how to trim some fat or otherwise optimize our spending. I’m also curious for estimates when we may reach FI.
« Last Edit: January 12, 2019, 02:12:23 PM by bjpx2 »

marty998

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #1 on: January 12, 2019, 02:56:33 PM »
I suspect you are going to have to bite the bullet at some point and find a job with a higher income. You haven't specified what you do, but as long as you keep updating your skills and keep doing that little bit extra you should always be able to put yourself forward for new opportunities.

As much as you love your employer, they do take advantage of that love. And there's no guarantee in this day and age things will still be rosy in 5 years time for example. Companies get bought and sold, managers come and go, colleagues leave for their own career development. The things that make it wonderful now can change on a whim.


Freedomin5

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #2 on: January 12, 2019, 03:58:10 PM »
I agree with marty998, finding ways to increase your income is a good way forward. Given that you have three young kids under the age of 5, it is going to be a spendier period than say, when you are empty nesters. That's okay.

At the same time, is there a way to pick up a side hustle? For example, your wife is already watching three kids at home. Could she take on a fourth kid and provide home daycare services to a neighbor? Or is there a way for you to pick up a side hustle? Even a few extra hundred dollars per month would help. There are a few side hustle threads on this forum that may provide you with ideas. I know several posters here work as online oral English tutors -- the make about $20/hour and work from home. Once your kids are all in school, your wife may want to consider getting back in the workforce. Especially with three young kids, it's safer to have two working parents. You're less screwed if one parent loses their job.

With regard to expenses, check out the forum threads on lowering your phone bill. Many Americans (the US seems to have particularly cheap phone plans) on this forum have been able to get their phone bill down to less than $100 per year ($5-10 per month).

Also, is it possible to break down the groceries line item a bit more? Does your wife garden? Can she (and the kiddoes) grow some of your own food? Maybe her focus can be on finding ways to reduce expenses further?

Are there ways to find free entertainment in your area (to reduce the $150/month entertainment line item)?

Overall, it seems like you guys are spending quite reasonably. With regard to when you will reach FI, it depends on your expected expenses in FI. General rule of thumb is to take that annual expected expense number and multiple it by 25. So for example, to be FI at your current spending, you will need a stash of $849K (I took out the preschool expenses and tIRA contributions) in your investment accounts ($2830/month spending).

The value of your house does not count in your FI stash number because you can't earn an income from it...unless you are planning to rent out rooms or otherwise generate income from your residence. Also, if you expect to get a pension, you can deduct that amount from the amount you need to generate from your stash.

As an aside, you probably want to build in a buffer since your current budget doesn't have a sinking fund for house repairs or replacing your car once it dies -- all of those expected, large, one-off expenses.

frugal_c

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #3 on: January 12, 2019, 05:52:18 PM »
You are saving 1400 per month and have 100k equity?  Assuming u do no additional saving and assuming u keep it all in the stock market and assuming stock market does 6% it will take about 19 years.

In reality maybe your wife will go back to work at some point or maybe you will get a  promotion.   With a bit of luck you will save more and you can cut some years off.

Your life insurance seems a bit high for a 31 year old.

Best bet here is to focus on income increase.
 

MrThatsDifferent

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #4 on: January 13, 2019, 07:06:42 AM »
You are saving 1400 per month and have 100k equity?  Assuming u do no additional saving and assuming u keep it all in the stock market and assuming stock market does 6% it will take about 19 years.

In reality maybe your wife will go back to work at some point or maybe you will get a  promotion.   With a bit of luck you will save more and you can cut some years off.

Your life insurance seems a bit high for a 31 year old.

Best bet here is to focus on income increase.

19 years is pretty good. Let’s you FIRE at 50 and gets all the kids out of the house (in theory) and that’s just being conservative and sticking to your plan. There isn’t anything in the budget for travel or activities, so definitely side-hustles, or more pay would help, just keep yourself on a plan and don’t overly inflate the lifestyle.

SwordGuy

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #5 on: January 13, 2019, 08:49:08 AM »
First of all, THANK YOU for being a foster parent!  That's a big deal.

As for finances, you've got about 4 years before the youngest will be in school.

In the meantime, your spouse needs to be doing activities that will keep job skills current, build new job skills for better jobs, and doing activities that will allow her to meet network.   Lots of ways to do that, but we would need some ideas as to their intended career in order to give pertinent specific advice.

Once your kids are in school and your spouse is working part to full time, all of their take home pay except for after school daycare expenses for a few years will be available to pour into savings.    If you raise your young kids to be responsible adults instead of irresponsible children, the oldest will be responsible enough to supervise the younger ones for a couple of hours after school until one of you gets home from work.

So, time to FIRE will drop dramatically starting in about 4 years.     You can use a spreadsheet or www.cfiresim.com to puzzle out how that will affect time-to-fire.  CFireSim has a place to add additional income and expenses, so that's where you can add new salary info and child care expenses.   (Sadly, the login feature isn't working so you won't be able to save and retrieve your simulation.)   If you have a specific question about cfiresim, ask it here and tag my name, I'll be glad to make a suggestion.

What can you do to make yourself more valuable to an employer so you get paid more?   Or what side gigs can you and your spouse do to raise additional income?   That will also drop your time to FIRE.

Best of luck!



MDM

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Re: Reader Case Study – How long until FIRE for this lower-income family?
« Reply #6 on: January 14, 2019, 01:40:23 AM »
I’m also curious for estimates when we may reach FI.
What do you get using the simple "Time to FI" calculation in the case study spreadsheet, and/or
more sophisticated tools such as those described in Best and/or Recommended Retirement Calculator - Bogleheads.org?