Case Study - CAD family starting late but optimistic FIRE could be possible

[Wannabe stash]

**Edit - Sorry for the three posts! My computer was glitchy and I can't find out how to delete the duplicates***

Help! We are so unprepared for retirement, let alone early retirement. I’m embarrassed by the lack of saving we have done. On the plus side, a lot of our spending is stupid and doesn't bring joy, so they should allow us to up our savings rate with little effort, just more awareness.

Some details about us. I’m 34 tomorrow, husband just turned 40. We have a five-year-old and a two-month-old. We live in Calgary, Alberta in what would be considered a “starter home” which we could sell today for about $410,00 (purchased for $350,000 in 2010). I stay at home with the kids full time but work about 5 hrs per week on my online business, which we do not count in our monthly budgeting. We essentially pretend my income doesn't exist until we get the lump sum after tax at year end.

I ran into the Mr. Money Mustache blog early last year, and although we have saved a small sum of money in that time frame, it’s all sitting in savings accounts and I know I need to start investing immediately, but I’m in a state of analysis paralysis.

I need help figuring out if I should just stick money towards our current RRSP (not even close to maxed out) or open a new one with a better ratio (more on that below). I would also appreciate input on my plan of action for 2018. I’m new to all of this, so I know your experience and expertise could really help me maximize my results.

Income:

Husband $85,000  ($62,498 after taxes)
Myself Approx. $23,000 pre taxes
Canada Child Tax Benefits $445 (goes directly into kids education savings)

Assets:
2007 BMW X5- Fully Paid
2012 Mercedes C350 - Fully Paid

I know. Clown car face punches coming our way. But my husband is absolutely not on board with changing the car situation.

Checking Account: $5456
Kids Education (in savings, not RESP, Stupid I know) $7634
Savings from my earnings last year: $15,125
Savings from my earnings this year: $22,122 (taxes not yet deducted)
RRSP (this is the most embarrassing number): $12,391 (As of June 30, 2017)

Liabilities:
Mortgage $307,349 remaining @ 2.89% with 2 years left on our 5 year fixed rate. (Original mortgage was $350,000 @ 3.89%) 27 years left.

NO other debt


Fixed Expenses 2017:
Mortgage:                             $1279.61
Property Tax:                            204.39
Insurance (2 cars and home):  297.40
Alarm System                             69.25
Mortgage Protection                   87.57
Husband Gym                            55.00
Cable/Internet/phone                  175.52
Netflix                                          10.99
Bank Fees                                  13.95

Total  Monthly “fixed” 2017: $2193.68

Variable Monthly Expenses 2017 (based on Nov. 2017):
Utilities                                                 257.42
Groceries                                                    919.86
Cash                                                           40.00
Kids (sports,clothes, school activities, diapers)          307.67
Gas                                 157.42
Restaurants/Fast Food               631.49
Hair (3x yearly)                  250.00
Clothes                                                                       200.00
Husband Hockey dues (3x yearly)           164.00
Misc                                               80.05

Total variable expenses Nov 2017: $ 3007.91

Monthly savings (not including my income saved)
$445 to kids education fund (was 220 until October when bean #2 arrived)

Total Monthly Savings : $445

Summary:
Monthly Income: $5653
Monthly Expenses: $5201.59
Monthly Savings: $445

Current Plan of Action/Budget for 2018:

Switch Mortgage to accelerated bi-weekly payments

Move kids education savings into RESP

Transfer $15,125 to husbands RRSP to maximize tax benefits. Add tax savings to RRSP

Keep my earnings from this year in savings to cover any unexpected expenses, and move to RRSP at end of year.

Cut husbands gym membership, switch to no fee bank, cut cable/internet/phone to bare minimum.

Stick to new monthly budget (Below) which I feel still allows us the luxuries that really bring value to our lives, while increasing our savings.

Monthly Fixed 2018
Mortgage:                             $1279.61
Property Tax:                            204.39
Insurance (2 cars and home):  297.40
Alarm System                             69.25
Mortgage Protection                   87.57
Cable/Internet/phone                  105.52
Netflix                                          10.99
Total: $2054.73

Monthly Variable 2018
Utilities                                                 257.42
Groceries                                                    600.00
Kids (sports,clothes, school activities, diapers)         125.00
Gas                                125.00
Dining out/Family Activities                       300.00
Free Spending Myself                       150.00
Free Spending Husband                                            150.00
Home/unexpected expenses                                     100.00
Total: $1807.42

Monthly Savings
Kids RESP: $445
Monthly RRSP: $1345.85
Total: $1790.85


Our current RRSP has had a rate of return of 9.94% since opening. 11.31% 1yr and 6.84% 3yrs.
It is 100% mutual funds. I’m embarrassed to say I don’t know how to find out the MER on the account. But guessing from Mr. Frugal Toques Canadian investment article it would be around 0.88. I feel like that is a good return, but should I be switching to a more balanced RRSP with TD E-Series with the 60% Stocks 40% bond allocation that I see recommended? Or switch this RRSP to the 60/40 split?  I’ve been a bit hesitant to actually act because I’m not sure what I’m doing, even though I know that getting our extra money into the market is the smartest thing to do.

Based on the above, what are the best steps we can take to maximize our savings and come out ahead? Is early retirement a possible option for us?

 To be honest, I already feel like I am living semi-early retirement since I work only a few hours per week when it works for me, and get to stay home and enjoy our kids. But my husband hates his job, and it is so hard to see him working so hard and I want to help him get out of it as soon as possible.

Thank you so much for taking the time to help me with this. Hopefully, within a few years, I will be in the position to help as well :)

[slappy]

Maybe you should update the title to reflect you are in Canada. You may get more responses that way. A few thoughts on your expenses-
-Your insurance seems high at almost $300 for two vehicles and the home. Have you shopped around?
-What is mortgage protection and is it necessary?
-If you are looking to cut expenses further, you could cut some of the going out budget and the free spending budget.
-How much more could you make if you put in a few extra hours with your business?
-Do you need an alarm system?

[Fiscal_Hawk]

First, it is great that you have no debt other than the house.

Next, I think it's safe to say there are some expenses you can easily cut.

Let's look at your food budget:
You spent over $600 on eating out in one month? that is crazy but should be easy to cut back. Make lunches each day for work and commit to eating at home more often. You also spent over $900 on groceries. Why did you need to spend that much if you eat out so much and vice versa?

In total, you spent over $1500 on food alone in one month. That deserves a face punch! You should easily be able to slice that by a third and eventually in half. Look for savings at local stores and try to buy in bulk when you can.

[Wannabe stash]

Maybe you should update the title to reflect you are in Canada. You may get more responses that way. A few thoughts on your expenses-
-Your insurance seems high at almost $300 for two vehicles and the home. Have you shopped around?
-What is mortgage protection and is it necessary?
-If you are looking to cut expenses further, you could cut some of the going out budget and the free spending budget.
-How much more could you make if you put in a few extra hours with your business?
-Do you need an alarm system?

I've updated the title to reflect that I'm in Canada.
Thanks for the suggestion:)

We had shopped around when we first got our insurance, but I agree that a review is definitely a good idea. Really I should be doing that with all our utilities to make sure we are optimizing our spending.l

I'm planning on putting in more time with my business this year, although to be honest, I'm not exactly sure what to do to increase sales. It's almost a fluke that we got to where we are. It's e-commerce and although more hours doesn't necessarily equal more money, I think that by adding more dedicated time to grow the brand, I should see some gains. Unfortunately, I feel like it is a game of chance for what will work and what falls flat.

I definitely feel safer with the alarm system when my husband works overnights, but the main reason we have it is that we were locked into a contract at a time when there was a rush of break-ins in the area. They definitely know when to go out to get business ;) It's funny because I'm not afraid of people breaking in when we are out, it's worrying someone could enter at night and I wouldn't hear. Too many horror movies for this girl.

Thanks again for the suggestions! I really appreciate you taking the time.

[Wannabe stash]

First, it is great that you have no debt other than the house.

Next, I think it's safe to say there are some expenses you can easily cut.

Let's look at your food budget:
You spent over $600 on eating out in one month? that is crazy but should be easy to cut back. Make lunches each day for work and commit to eating at home more often. You also spent over $900 on groceries. Why did you need to spend that much if you eat out so much and vice versa?

In total, you spent over $1500 on food alone in one month. That deserves a face punch! You should easily be able to slice that by a third and eventually in half. Look for savings at local stores and try to buy in bulk when you can.

Isn't it awful? There were some huge self-inflicted face punches after sitting down and adding up the totals for November. I think we sometimes get too loose with our spending since we have it in our minds that we are already saving all of my income. Something we definitely need to stop if we want to FIRE.

 Last night I took a look at Budget Bytes and made a meal plan for the week trying to use what we have. Just picked up my groceries for the week and it was only $76. Definitely feeling better now that I'm aware of the issue and able to take steps to correct.

Thanks so much for taking the time to respond! It's very appreciated.

[KMMK]

Okay, I'm a life & living benefits insurance broker (in Edmonton) so I'm of course "biased". I'm assuming that the mortgage protection is just creditor life insurance? If so, unless you can't get any other insurance, get rid of that and get a real life insurance policy. That will only pay the balance on your mortgage; nothing to you at all. If it even pays that (denied claims are more common with those products.) And with young kids insurance is important. It's also overpriced. I did a quick quote, and assuming you are both in good health, you could get a $500,000 20 year first to die policy, for less than that. Not that you necessarily need that much coverage - I'd do full calculations.

Also being young, I recommend making sure your husband has good disability (the higher income earner) coverage, potentially you as well, and critical illness on you both, at least while your kids are young. Unfortunately it's not uncommon for people in their 30s-40s to get cancer or have heart attacks.

It looks like you'll be saving a lot with your 2018 plan, so I think some more insurance can easily fit in with the saving for early retirement. Let me know and we can discuss it more offline.

I'm also a financial planner, so if you want a full analysis contact me. You'll get lots of good advice on the forum, for sure, but it's my job to look at everything from every angle and spend many hours on a plan, so of course I think there is a benefit to an actual financial plan.