Author Topic: Case Study - 32 Year Old, Married, Father of 2  (Read 3346 times)

Portis

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Case Study - 32 Year Old, Married, Father of 2
« on: March 26, 2019, 12:04:33 PM »
Hi guys! Thanks in advance for your time and advice!

Life Situation
Married filing jointly, 2 dependents (3 and 0), live in NJ, my age 32, wife is 42

Gross Salary Wages (yearly/monthly)
$102,965.52/ $8,580.46

Deductions (I mixed in taxes here because there’s a mix of pretax and roth contributions so I thought it would be more understandble this way)
$16,426.55/ $1,368.88   Fed/State/FICA/Medicare (total effective tax rate 15.95%)
$5,574.24/$464.52    Family Health, Dental, Vision Insurance (5.41% gross income)
$5,400.00/$450.00   HSA pretax withholding (5.24% gross income)
$5,241.48/$436.79   Wife Pre-tax 401k contribution (11% her gross income)
$5,900.00/$491.67   Wife Roth contribution (17.48% her net income, 13.11% her gross)
$7,966.53/$663.88   My Roth 401k contribution (18% my net income, 12.19% my gross)
$3,000.00/$250.00   529 College Fund, tax free


Other Income
I included a conservative projection of my bonuses in the calculations above
I did not include my wife’s tips, which I would estimate at $2,000/yr
$1,500.00/$125.00   Employer HSA contribution
$3,273.28/$272.77    My employer 401k contribution match
$1,500.00/$125.00   Wife employer 401k contribution match

Adjusted Gross Income
$55,456.72/$4,454.73   Including conservative bonus and tips estimates

Current Expenses (monthly averages, running 12 months, updated using better estimates from wife)

$36.37      Liquor (including gifts to others)
$819.14    Groceries (includes non food items that can be bought at grocery stores,i.e. toilet paper)
$188.85    Restaurants/Take out
$36.72      Entertainment (movies, Netflix, Spotify, sometimes other entertainment services)
$49.95      Internet
$89.48      Phone
$131.10   Utilities (gas, electric)
$119.00   Gym
$215.29    Amazon (did not separate this into categories, includes cost of prime membership. This is clothing, diapers, cat food, litter, toiletries, wife’s makeup/self-care)
$77.77    Other Stores (Hardware, Walmart, Department stores. This is misleading as I get probably around $50/month of things for my work which I get reimbursed for.  When I track expenses I don’t discern between family and work purchases.)
$370.00   Gas (I travel about 3-6hrs a month for my work, and my wife lives far from her work, but its the best part time job she could as for.)
$359.08    Babysitter (This is almost exclusively when we are both working.  We have no family near by to help us.  We did just get a cheaper babysitter though, so this will go down)
$108.33   Car Insurance
$1365.00   Estimated mortgage (Closing on a house.  Includes Principal&interest/Insurance/Taxes)
$318.94    Misc. (This includes car/condo maintenance, appliances, water bill, vacations, anything that doesn’t fit into the categories listed above. Moving forward, I’m going to be at least splitting off car maintenance, house maintenace, water bill, and vacations into their own categories)

12 month average total monthly expenses $4,285.02/$51,420.24
With budgeting that has worked out the past 3 months, this should be more like $4,085.00/$49,020.00

This gives us a conservative balance of $6000yr to put towards cash savings, unexpected health expenses, mortgage principal (want to pay in 20years), kids expenses, or make roth retirement contributions

Assets

Combined Retirement accounts $84,145.01
529 College Fund $6,121.56
Cars are  2007 Honda Accord 208,000mi, and 2010 Honda Fit 195,000mi
House Est. $225,000 ($63,000 equity)
Cash savings: $16,000 (estimated from pending house sale, expecting to use $10,000 in renovations for new house)

Liabilities

Mortgage $162,000, entering 1st year of 30

Specific Question

My goals (I used the Monte Carlo simulator on portfoliovisualizer.com to come up with these goals based on the savings listed above)

$100,000 in college funds
$750,000 in 10 years in retirement accounts
After $750,000 is achieved, go part time to cover expenses without saving additional money until my wife is of retirement age (another 10 years, or 20 years from now)
Final retirement balance $1,500,000-1,750,000 just from market growth (healthy mix of HSA and Roth in there, so a good amount of tax free money)
Mortgage should be paid off in 20years
Estimated retirement expenses $45,000/yr (not adjusted for inflation for living expenses, but did take into account estimated property taxes of $8600 at a growth rate of 2%/yr)

Am I being too hopeful about the cost of children as they age?
Is this too risky to go part time and not save and just count on market growth for retirement?

My problem with my current job is that I’m a restaurant manager, and my wife works on my days off.  I work every weekend and holiday.  I have a degree in Math and Statistics, but I have no experience in any non food service field, so I feel like a career change at this point is more trouble than its worth.  I don’t mind my job too much except for the time away from family, which I assume will get worse as my kids age, and they have things to do on weekends.

On a side note, there’s a pretty good chance (50% or higher) that I can get promoted within a commutable distance which will increase my income conservatively $35,000/yr, and not be too much more work than I’m doing now (I already basically run the store, which is why I’m expecting a promotion. I could get one now, but I don’t want to move).
« Last Edit: March 28, 2019, 02:25:51 PM by Portis »

NonprofitER

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #1 on: March 27, 2019, 10:08:01 AM »
Hi Portis. Welcome!
Can you share if your family is familiar with saving/budgeting in general? Do you have an idea of your financial target? IE, do you know how much you plan to spend per year in retirement (more or less)? Do you have a target savings number that would make you feel secure in a 4% withdrawal (or whatever your personal comfortable withdrawal rate would be)?

Given your financial starting point and timing with raising kids (which, for many of us, get more expensive as they get older), its hard to answer your 10 year goal question without knowing what your targets are. If you plan to live on $30k/year for example, then yes, its very feasible! If you plan to live on $100k/year, it might not be with your current savings goals.  Is your wife/partner on board with early retirement? 

Case studies can be hard. You're likely to receive flak for your combined grocery/liquor/eating out budget, and gas budget. These are typically easy places to tighten down on. I'm personally spendy with food, so I'm not the ideal person to guide you here - but there's many "Throw Down the Gauntlett" posts about reducing food budgets.

You mention having difficulty allocating for one-off expenses like car repairs, etc. I think most Mustachians try to shove as much into savings/investments as possible each month, and then just cover these expenses as they come. Because I like spreadsheets, our family budget is very detailed and we track these "one off" but predictable costs on a yearly basis, based on what we've spent in prior years. Something like a car repair may show as $0 spent most months but then show $500 once a year, or whatever. Either way, we've come to know what the average yearly cost is for everything over time.

If you're relatively new to budgeting - make sure your considering all the categories: car repair, regular car maintenance, medical expenses, annual and/or professional costs that aren't reimbursed (think Microsoft or Adobe for work, if applicable; or professional memberships, etc),  Clothing, gifts/seasonal costs for kids such as Bdays/Xmas, Haircuts/personal, pet costs, childcare related expenses (preschool, afterschool activities, camps when they are older, etc.), all forms of insurance - car insurance and hopefully life insurance too since you have very young children.
You mention that you don't really track your wife's spending - I'm guessing some of those funds are going towards these items.

Our first year of real zero-based budgeting was all over the show as we got a handle on things. Now its ridiculous how accurate our yearly budget is. The best thing you can do as you're starting out is know your yearly spending inside and out so that you can fully understand how much you want/need to live on and thus, how much of a stache you need to stop working altogether. 

waltworks

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #2 on: March 27, 2019, 12:23:33 PM »
This is a bit confusingly written, but as I understand it:
-You plan to put $30k or so into retirement accounts and 529 every year
-After that, you have $4600/mo to play with (I'm assuming this is after tax).
-You are spending around $4100/month (assuming your numbers are comprehensive). Call it $50k/year in spending give or take, though the only way to know for sure is to track it.


For $50k/year in spending money, you'll need something around $1.25 million invested. Right now you can save/invest about $35k/year, and you're basically starting from zero, so your 10 year plan is probably unrealistic, especially if you plan to pay for some/all of kids college.

The first step, though, is to get serious about tracking your expenses. Once you know what you're actually spending, you can go through and try to optimize. As it stands, there are lots of minor things (especially food) that stand out as being a bit on the high side. But there's also stuff missing (car maintenance/insurance/tolls? personal care/haircuts/soap and toiletries?) that it's hard to say for sure where you can cut back.

I will say this, though - you are almost certainly spending more than you think, given your ages and relative lack of savings. If you were living on $50k/year and had similar salaries in the past, there should be a lot more money already saved/invested.

At what I will generously call a 40% savings rate, it'll take you 22 years (starting from zero) to hit your FIRE number, though since you have a couple years worth of savings invested already, I'd call it 19 or 20. To make it in 10, you'll need to get that up to around 65% (take a gander at the chart here: https://www.mrmoneymustache.com/wp-content/uploads/2012/01/mmm-early-retirement-savings-rate.png)

Again, though, that assumes no helping kids with college. Realistically, to make your plan work, you are going to need to dramatically increase your income.

-W
 
« Last Edit: March 27, 2019, 12:31:57 PM by waltworks »

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #3 on: March 27, 2019, 12:53:54 PM »
You have a big spending leak and that is your wife.  You don't know what she is spending or where.  Are you doing partially separate finances?

In addition to her untracked spending, a lot of money is going to buy stuff on Amazon, at Target, Home Depot and Walmart.  I would want to look at the spending in detail.  Your wife should track her spending and it should all go into one spreadsheet.  The other spending on stuff should be examined in detail to see how much is necessary or desirable and how much is frivolous.  The gifts and vacations should be scrutinized as well.

Your grocery bill is ridiculous for two, but you mention kids.  Unless there are special diets or you have lots of kids, you should probably be able to reduce that.

In short, you have way too much unmanaged spending.  If you want to achieve your goal, you need to manage your spending and reduce it to increase your overall savings rate.

meandmyfamily

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #4 on: March 27, 2019, 01:22:02 PM »
Amazon and other stores can definitely be cut.  They need to be labeled too-clothing, groceries, entertainment, books, etc.  That would help you see what the money is being spent on.  Is the babysitting because your wife works or for nights out?

Freedomin5

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #5 on: March 27, 2019, 04:37:22 PM »
@waltworks did a good job breaking it down for you.

I just want to highlight the need to track your actual expenses. Given how nicely rounded your numbers are, I suspect you’re posting your budget and not your actual monthly expenses. So we don’t know how much you’re actually spending.

Use YNAB or Personal Capital or Mint or another free budgeting app to track your actual expenses over the course of several months, then report back with your actual numbers.

As a previous poster mentioned, you’re probably spending more than you think you’re spending in certain areas. Tracking every expense can also help you figure out why certain categories are so high (like groceries and eating out) and may give you ideas on how to redesign areas of your life to lower those costs.

dmmms

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #6 on: March 27, 2019, 05:13:30 PM »
Does your mortgage include NJ property taxes and insurance? Could you break those out?

Portis

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #7 on: March 28, 2019, 10:28:51 AM »
Thanks for the input.  I basically rewrote the first post to structure it better and with more accurate numbers.  I was trying to make it more understandable from my spreadsheet, but I guess I made it worse.

The mortgage includes the entire payment ($805 mortgage, $75 insurance, $485 taxes), I added some clarification on expenses, added in better expenses for wife

And yes, we want to help with college.  I'm thinking $50,000 per child is reasonable?  I don't believe they should go to a private school if they can't get a scholarship.  But maybe I'm underestimating the cost growth rate.  I don't know if I want to supply a full ride if it means I keep my current job for 30 years.

I do plan on getting term life insurance, and umbrella insurance for net worth, but we are in great health and shouldn't be a factor in the big picture. I currently have life insurance through my work, but I want to supplement that.

As for the current state of our retirement portfolio not seeming up to par based on these numbers, it has to do with a couple of factors.  1) I was really bad with money in my early 20s, and did make less money.  2) My wife's income was higher, but she was a huge cash saver, which allowed her to eat a significant loss on our home and make a 20% down payment on our new house.  3) Between lose of house value (she bought in 2005), down payment, and student loan debt, we paid about $200,000 in liabilities over the time we've been together.



« Last Edit: March 28, 2019, 01:33:39 PM by Portis »

waltworks

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #8 on: March 28, 2019, 01:46:33 PM »
Case study looks better now. You need a sinking fund for car replacement in there, though. Figure $150/mo if you like cheap used cars, more if you like new ones.

If you plan to FIRE, it's going to take a while at your current asset/savings rate. As already noted, in the ballpark of 20 years, setting aside your wife's SS becoming available in that same timeframe. If you want to pay $50k per kid for college that will set you back a few years as well.

So if you want to go to part time to spend more time with the kids, you'll have to look hard at your spending, starting now. The biggest candidate for a massive cut is food - you're spending $1000 a month on food, which is insane. Cutting that in half (partially by completely eliminating eating out) would push your savings rate up close to 50%.

You could also:
-Do a cheaper phone plan. We do TING, there's a ton of info on the forum on phone plans. Ditching data is good for your mind and your wallet.
-Will your work provide a car for your limited monthly travel? If so, sell your car and become a 1 car household.
-Look up some HIIT workouts online (or take up running, or cycling) and ditch the gym membership.
-Can your wife bring the kid to work with her sometimes and avoid the babysitter expense? That's a big chunk of money every month.

Really, though, your budget (assuming you can stick to it/have accurately tracked it) isn't horrible. You just are starting from scratch and don't make that much money. So if cutting expenses to the bone isn't appealing (you can pry my climbing gym membership from my cold dead hands!) and you're serious about this, it's time to increase your income somehow. 

Good luck!

-W

Steveray7071

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #9 on: March 28, 2019, 01:57:05 PM »
$119.00 For gym is pretty high.. Should be closer to $25.00 with option like Golds Gym, Planet Fitness ect.

$1,007 for food (including Rest) is very high for a family of 4.  Focus on shopping at Costco and eating in.  This should be closer to $600

Change just these two, you'll add nearly 7K annually to your savings!

Portis

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #10 on: March 28, 2019, 02:31:32 PM »
Yeah, we have to solve our food problem.  I know obviously the eating out part is not ideal, but I guess we need to make better decisions with the food we buy, or where we buy it from.  We just go to the local grocery store, and perhaps a membership place like costco would be better. 

To make it even worse, my wife gets a free meal every time she works, and I only eat one meal at home the 5 days that I work, sometimes none...

I do know we can save a significant amount on vacations.  I budgeted $2,000/yr for that, but we can call that $500/yr for total expenses (meals, travels, lodging) conservatively while kids are young.  So we could allocate that towards a sinking fund for the cars instead.

I could scratch the early mortgage payoff, and that will get us to a 40% savings rate. I don't think that was a practical thing to do anyways, but rather a peace of mind exercise. 

Other than that, if we get food under control, that could add like 3%, bringing us to a 43% savings rate with college savings included.
« Last Edit: March 28, 2019, 03:06:27 PM by Portis »

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #11 on: March 28, 2019, 07:04:48 PM »
Costco is not an inexpensive place for food shopping.  I don't know your options in New Jersey, but in California I shop Sprouts, Safeway, and another small chain.  Trader Joe's about once a month for frozen corn, peanut butter, and a few other items.  I rarely buy food at Costco, because it is either too expensive or has a lot of food additives.  I focus on what is on sale cheap.  Batch cooking is really helpful with two working adults.  Freezer meals made from the batch cooking make busy days easy and the impulse to get takeout is lessened.  Have some in season vegetables or frozen where appropriate on hand to cook along with the frozen meals.

Getting kids started on healthy food is important as well.  Pizza and processed chicken nuggets are not great for kids' nutrition.  Restaurant and take out food is packed with sodium, flavor enhancers, and product stabilizers. 

thesis

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #12 on: March 31, 2019, 10:00:49 AM »
I agree, this really isn't too bad. I think it's even healthy to have some personal expenditure money for you and your wife, at least $100 a month for each, IMO. I give myself more, but I also don't have kids :)

One area of concern is 1) long commute, 2) scheduling, requiring occasional babysitter, 3) potential restaurant lock-in (no need to tell us exactly where you work, but is it regionally locked-in?)

Depending on how serious you want to get, would it be an option to move near family like parents who could take the kids, in an LCOL area, with a shorter commute? Stress takes its toll, too. Just throwing some ideas out there.

Food can come down a bit. Getting promoted to a closer location sounds like a sweet deal.

I have no experience with kids, so I can't tell you how expensive you can expect them to be, but really, you're doing pretty good. Though, it always amazes me how everyone wants $100k for each child's college. I guess it CAN get that expensive, but if/when I have kids, they're spending the first two years in community college and only going for their bachelor's if it makes sense and/or they really want to. I can guess the parenting instinct is strong, so it's possible I'd feel the same way as you do, but it's amazing to me that people want desperately to succeed on a Mustachian budget and with Mustachian ideals but they insist on grossly expensive educations for their kids. Maybe by the the times your kids have grown up, society will have realized that college degrees simply are not worth that much, even adjusting for inflation, etc. People are already getting smart about education - frankly, the degree is largely just a competitive tool, the knowledge is all on the interwebz.

Davnasty

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Re: Case Study - 32 Year Old, Married, Father of 2
« Reply #13 on: April 02, 2019, 08:48:16 AM »
Yeah, we have to solve our food problem.  I know obviously the eating out part is not ideal, but I guess we need to make better decisions with the food we buy, or where we buy it from.  We just go to the local grocery store, and perhaps a membership place like costco would be better. 

To make it even worse, my wife gets a free meal every time she works, and I only eat one meal at home the 5 days that I work, sometimes none...

Agreed, the eating out is not ideal but I honestly didn't see it as a red flag. If you get real value out of it, a few hundred isn't too bad. As for the overall food budget I think you've got something bigger going on. Can you tell us more about what kind of food you're buying? Is there a lot of prepared food, name brands, expensive meat?

Here is another thread where someone has detailed a full year of spending under $200/month on food and they're also feeding two adults and two kids.

https://forum.mrmoneymustache.com/share-your-badassity/have-a-sub-$200month-grocery-budget/

I wouldn't look at this as a goal, going from $1,000 to $200 would probably be too steep of a hill to climb. Eating like this takes significant planning and mental energy, especially in the learning stages, but what you should takeaway from that thread is how doable a goal like $500-$600 should be. It may be as easy as prepping a few meals over the weekend or switching from steak and seafood to chicken, pork, and eggs. If you can tell us anything about the kind of foods you eat now, we could give more specific suggestions.
« Last Edit: April 02, 2019, 08:55:00 AM by Dabnasty »