Author Topic: Case Study Update...Looking for Advice Update  (Read 870 times)

reese_c_c

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Case Study Update...Looking for Advice Update
« on: December 26, 2018, 10:46:54 AM »
I posted my original case study in 2015. My family and I have had quite a few changes since then so I wanted to get my case back out here for an update and hopefully some fresh new advice as we continue lurking in these waters.

PERSONAL:
33, married (stay at home wife, 32) w/ 3 kids (8, 6, 3) in south of Houston, TX.

IN THE "BANK"
Bank: $56k (checking)
Company 401k (Vanguard): $107k [Before-Tax: $68.7k, Success Share: $4.7k, Post 1986 After-Tax: $3.6k, Roth: $21.2k, SSF Roth: $300, Company Contribution: $82k, QNEC: $8)
I maximize my "traditional" contribution every year and my company matches 5%.
Personal IRA (Wells Fargo): $103k
Brokerage (Wells Fargo): $51.3k
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TOTAL: $317k


INCOME
Income before taxes: $126k/yr
Take-home-pay: $6700/m (after taxes, healthcare, 401k, unemployment benefit, etc)

EXPENSES (MONTHLY)
AT&T Cell Service: $90.00
Car Insurance: $150.00
Electricity: $100.00
Utilities: $125.00
Church Tithing: $600.00
Netflix: $15.00
Hulu: $9.00
Dollar Shave Club: $3.00
Supplemental Life Insurance: $60.00
Internet: $77.00
Brokerage Contribution: $2000
Fitness: $265
Eating Out: $100.00
Miscellaneous: $200.00
Groceries: $300.00
Gas: $300.00
Vehicle: $530.00 [$24k loan @ 6%...I know, I know this is definitely anti-FIRE]
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TOTAL: $4924.00
MONTHLY LEFTOVER (AVG): ~$1776.00

Over the last 3 years we made some really good moves toward the FI part; paid off all our loans, started investing more, etc. But also made some not so great financial, but great personal moves, like vacations with the family and some just the wife and I. Over the last year and a half or so I think we've scratched those itches and are ready to strap back in and buckle down.

I've made a few promotional moves at work, all in preparation for a management position in the next few years, but was just recently put into a position that I'm not overly enthusiastic about. My wife currently stays at home with the kids and we love it. She is a licensed SLP and I've been trying to convince her to take on some part-time work. I would love for both of us to be home "part-time" with out kids but as a lot of people trying to make these moves on these threads, am reluctant to do it. I make great money and we live an awesome life with very little stress. But there's a part of both of us that just wants us to be together all the time.

The biggest question of all is "can we make it work?" Which I'm sure we can, we would just need to make some lifestyle changes. But then as we talk about it more and more other questions begin cropping up that we haven't really been focused on...health insurance, college tuition, unforeseen expenses, etc.

Sort of looking for both side of the advice coin with this one. Financially, are we in a good spot; and personally what are your guys' recommendations?

Also some other sort of opinion questions...
Should I pay off the truck now with what I have in the bank? Sell it and get something used? Ride it out to 2023 payoff?
Should I reduce my company 401k contribution, bring that money home post-tax and invest in the brokerage for liquid assets versus retirement money that I can't touch without penalty until 59.5?
Currently don't have home or windstorm insurance since the house is paid off. Should I?

Thanks in advance

fell-like-rain

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Re: Case Study Update...Looking for Advice Update
« Reply #1 on: December 26, 2018, 12:28:13 PM »
1.You're not a contractor or a farmer; you don't need a truck. For those 2 times a year you need to haul a piece of furniture or some lumber, you can rent one. Or get a buddy with a truck to help you. Just sell it, buy a used sedan for $5k, and watch as your monthly loan and gas bills shrivel to a fraction of their former selves.

2. I personally wouldn't. Tax-advantaged accounts are usually the best option, and there's ways to do 401(k) withdrawals before retirement age- read up on Roth conversions. Basically, you take tIRA money and turn it into a Roth. You pay income taxes at that time, and then 5 years later, you can withdraw the Roth money tax-free.

3. Definitely do get home insurance. I got heart palpitations reading that. Sure, you own it, so you won't have a mortgage remaining if it gets destroyed, but you'll still be homeless. Insurance is there to cover disasters, and losing your home is definitely a disaster.


Fitness: Are you guys karate enthusiasts or something? If this is just paying for a regular gym, you could get a perfectly good gym for a fifth of the cost. Or just buy some weights and go running. If this is for some fancy-type fitness, reconsider whether you really need it.

Groceries, Eating Out: These are pretty good, for a family your size! Keep it up, and enjoy those home-cooked meals.

Tithing: Not my area of expertise, so I shouldn't comment... but this is a heckuva lot of money. Could you contribute in other ways, like volunteering with the church?

Cell, Internet: These aren't terrible, but I feel like you could shop around and do a little better.

Overall:
Right now you spend 2924 and save 3776 post-tax per month. You have 317k saved. You don't mention how much is going into the 401(k), so I'll assume 1000/month. At 4% withdrawal rate, you'd need 1.4 mil to sustain your current spending. Back-of-the-envelope math, given 5% inflation-adjusted growth, you'll hit that in around 11.5 years. That's really all I can say- you'll have to plug in your own numbers for expected increase/decrease in expenses as time goes on (college, empty nesting, health insurance, etc.) But that should give you a ballpark.

(Real question: do you have to tithe if you're retired?)
« Last Edit: December 26, 2018, 12:30:57 PM by fell-like-rain »

reese_c_c

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Re: Case Study Update...Looking for Advice Update
« Reply #2 on: December 26, 2018, 02:18:50 PM »
Thanks fell-like-rain

1. I often use the truck to haul. I'm not a farmer but I do work a farm with my in-laws and additionally do custom woodworking (furniture included) with my grandfather. Both of which do require hauling things frequently. But conceptually, I get your point.
2. Thanks, I'll look into this some more.
3. That seems to be the general consensus when I mention that to people. Any recommendations or is it geographically based?

Fitness: This is definitely a tough one. This price is all inclusive of what my family pays: gym, personal training, yoga, dance, tumbling, obstacle course race training, etc.
Cell, Internet: My area is limited on internet service providers. As for cell phone, I switched to Ting a few years ago but had an old outdated phone that barely got any service. After doing that a few months I switched back to ATT. I did, however, just order a new SIM card from Ting since I have a newer phone. Hopefully, it'll be better this time.

fell-like-rain

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Re: Case Study Update...Looking for Advice Update
« Reply #3 on: December 26, 2018, 04:36:16 PM »
1. I often use the truck to haul. I'm not a farmer but I do work a farm with my in-laws and additionally do custom woodworking (furniture included) with my grandfather. Both of which do require hauling things frequently. But conceptually, I get your point.
Ah, gotcha. I know a bunch of people who use a truck as a commuter so they have the cargo space "just in case", but if you're actually using it, that's a bit different.

3. That seems to be the general consensus when I mention that to people. Any recommendations or is it geographically based?
A lot of the providers are national (Allstate, State Farm, etc.), but rates probably vary state to state, so I think you'd have to do your own homework.

Freedomin5

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Re: Case Study Update...Looking for Advice Update
« Reply #4 on: December 27, 2018, 03:56:33 AM »
At the same time, 6% interest on the truck loan is pretty high. Any way to pay off the truck or get a used truck for less or refinance to a lower rate?

Also, why do you have so much money just sitting in the bank? Thatís pretty much  a yearís worth of expenses.

In addition you can withdraw your money without penalty before age 59.5. See this thread: https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Iím not US-tax-savvy but it would be good to run the numbers to see which option (putting money in tax deferred vs. taxable accounts) would save you more money, especially since your wife doesnít work so you may be able to use her status to reduce your taxes paid?

Dicey

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Re: Case Study Update...Looking for Advice Update
« Reply #5 on: December 27, 2018, 09:18:24 AM »
What kind of life insurance are you carrying? Get a cheap term life insurance policy and buy homeowner's insurance with the savings.

Electricity is part of Utilities, so $250/month seems high. Look into conservation options such as solar, insulation, and energy efficient appliances.

I get that Texas=Truck more that anywhere else in the country, and you've made a plausible case for having one, but no way in hell did you need a brand-new truck for your purposes. You've compounded the sin by getting a 6% loan. What do your credit scores look like? That is an insanely high rate. You need to rethink how you do truck.

[Channeling my best inner boarder42] In your position, you should totally consider getting a fixed-rate, long term mortgage and investing the proceeds a la jlcollinsnh's Stock Series. But no, you may not use one cent of the proceeds to pay off the truck. 100% equities is the way to go and now is a good time to consider this move. It's outside the box, but your future self will thank you.

I'll leave optimizing the rest of your portfolio for others to tackle, because it does need some mustachian love.

Finally, please let me confirm that you are not in a bad place, but you're back because you know you can do even better. We're here to help;-)