First off, let me just say I am humbled and embarrassed to post these stats before the eyes of so many successful, more disciplined, and well seasoned MMMers. However, this will also help to fuel my fire; pushing me to show results to you all. :)
Reader Case Study - What would you do.
Life Situation: Married Filing Jointly, 2 children (ages 7 and 8). 8 y/o turns 9 next month; 7 y/o has Cystic Fibrosis, so a good savings is a must for down the road.
Gross Salary/Wages: About $100k as follows: $77k this year from my employer, plus a nontaxable service compensation of $18k, and an expected $7.5k from wife's teaching Ballet and a side hustle (minimally, if any, taxes anticipated on this hustle for 2017: wife's new photography business out of home).
Pre-tax deductions: About $1050 per bi-weekly paycheck as follows:
5% (matched) into Thrift Savings Plan: about $100
Life Insurance: $21
Healthcare: $174
Social Security: $179
FERS Retirement: $19
Federal Taxes: $160
State Taxes: $87
Local Taxes: $72
Dental: $48
Vision: $21
Medicare: $42
Union: $20
Adjusted Gross Income: About $74k
Taxes: Federal, state/local, and FICA. 15% bracket.
Current expenses:
Mortgage: $1,700.00
Internet: $57.00
Cell Phones: $199.00
Gas: $76.00
Electricity: $129.00
Groceries: $1,300.00
Car Insurance: $92.00
Trash: $95.00
Gasoline: $150.00
Car (lease/maintain): $427.00
Assets:
Home: $269k
Small Efund: $1k
Toyota Prius '07: $4k (trade-in value)
TSP: $15k (100% in "C" Fund)
Liabilities:
Mortgage: $247k @ 3.75% (30 year fixed w/ no P&I) $1700/month
Chase Credit Card: $2,180 (22.99%) $80/month
Synchrony Credit Card: $2,954 (0% promo period ends in April 2018 and becomes 26.99% w/ deferred interest charges) $96/month
Chase Credit Card: $4,895 (0% promo period ends in December and becomes 18.74% w/ no deferred interest I'm told) $48/month
Private Student Loan: $13,985 (10.5%) $150/month
Auto Loan: $5,085 (8.24%) $250/month
Federal Student Loan Debt: $183.5k (5.6 to 6.5%) $221/month This debt is due to be completely forgive on 12/2023 under the PSLF program, as long as I continue to make my minimum monthly payments, which are currently $221/month under the income-based repayment plan. As such, this debt is not being counted into my debt avalanche. However, please note that by FI, these payments will disappear as the loan is forgiven 6 years before our FI goal date.
My initial plan is based upon JL Collins’ advice as follows:
1. Continue 5% paycheck contributions into my TSP retirement plan (100% "C" Fund within Traditional IRA) to get the full 5% matching from my employer.
2. Pay off my remaining debt (above 5% interest) via the avalanche method (7 credit cards paid off this year so far, 3 left and then the loans); then student loan @10% and auto loan @8%.
3. Build up Emergency Fund to $10k ($3k in checking, $7k within Vanguard VTSMX Fund)
*As soon as all debt (5% interest or higher) is paid off, and we have $10k in Emergency Funds, I will automate the below #4 and #5 to ensure full limits are reached annually.
4. Max out my TSP contributions at $18k annually. This will take full advantage of my 5% employer match as well as allow maximum growth within a low cost (.03%) portfolio growing tax-deferred and tax-free. This is all being contributed to the ‘C’ fund, which is a mirror of the S&P 500.
5. Max out a Traditional IRA in my name and one in my wife’s name for a total of $11k annually. I was thinking it would make more sense to do these IRA’s within Vanguard’s VTI through their free investor account as it is only a .04% cost ratio and it wouldn’t make sense to pay another .25% for portfolio management of IRA’s through Betterment; especially as these don’t require rebalancing, receive no TLH, and are meant to be left alone to grow ideally. We would aim to max out each Traditional IRA within Vanguard's VTI until balance grows for VTSMX and finally VTSAX.
*The combination of 1 & 2 will keep us on par for reaching our minimum goals for lean FI in 12+ years*
6. Contribute remaining money (if any) towards a taxable Betterment account with TLH in a 75/25 to 80/20 portfolio.
Our goal is a combined balance of all funds at $500-750k in 12+ years whereupon we can consider living in partial retirement, off dividends, plus my service related disability compensation of $18k annually. To accomplish this, the FI find would need to produce a $20-30k minimum in dividends annually @4% withdrawal rate with a 7-8% average growth. My service compensation of $20k annually plus this $20-30k annually would be sufficient as kids will then be out of the home as well as loans being paid off and cost of living decreases.
What do you think? Aside from the stupid debt that is...