Author Topic: Feeling good about overall direction but what am I missing?  (Read 785 times)

PhoenixHeat

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Feeling good about overall direction but what am I missing?
« on: March 11, 2017, 02:55:07 PM »
Topic Title:  moving along what else can be done to optimize?


Life Situation:
Head of household, fiancť and 2 kids 1 and 3. If you ask us we are married but not officially. Me 34 her 27.

Gross Salary/Wages: 4,272.00 monthly / $51,264 annual gross salary (quarterly bonus, annual bonus in other ordinary income category)


Individual amounts of each Pre-tax deductions
401K: 256.32; 100% match up to 3.5%
HSA: 50
High deductible health insurance: 44.50


Other Ordinary Income: Averaged everything out for the 11 quarters I have had this current position.

Average Quarterly Bonus Gross: $3,882

Annual Bonus: 50% can be elected for 401K, company stock, and /or cash. Other 50% issued in RPUís which vest 20% each year over 5 year period.
2016: Gross $6,288.99 - 50% electable portion Gross $3,144.49 Net $2,076.94 elected this portion in cash
2015: Gross $8,699.32 Ė 50% electable portion Gross $4349.66 Net $2872.99 elected this portion in cash
Average Annual Total Bonus Gross: $7,493

Average Annual Total Other Ordinary Pay: $23,021

============================================

Qualified Dividends & Long Term Capital Gains: Nominal this far, not significant.


Rental Income, Actual Expenses, and Depreciation: none


Adjusted Gross Income: 2016 AGI =$65,663 (according to 2016 tax return)


Taxes:
Federal $6,277.62
State/local $877.78
FICA $4,212.70
FICA Medicare $985.23. 
Total: $12,352

Current expenses:
Rent: $1193.00
Water/sewer/trash: ~$70
Electric: ~100 now; estimate $250 summer in Phoenix?
Life insurance: $129 both of us
Auto Insurance: $223 both of us
Internet: $40
Phones: $60 both of us
Food/groceries: ~$800 (measured 2 mos. Thus far and this was about the average; had guests 1 month spent more on good food)
Gas: ~$200 (was at $198 last month and pretty representative of ordinary month)
About $350 left over at this point now assuming I donít need to modify my withholding allowances and this expense total includes estimate of $250 for electric for hot part of year.
Household and toiletry stuff also but canít seem to quantify monthly amount accurately now.
Total: $2,965 (using estimated $250 electric bill for summertime)


Assets:
Checking: $2,500
Money Market Checking Backup Cash: $6,300
401K: $29,500
HSA: $280
Roth IRA: $344
Fidelity 529 (1): $282.51
Fidelity 529 (2): $153.49
Class A Company Shares Vested: $634.81
Taxable account: $105
PAF (Portable Account Formula Ė should I count this as an asset?) Ė Company offers this as defined benefit: ~$13,000 to date
Unvested Company shares: $7,182.00
2 Cars; valued at $1500 and $4000 most likely for conversation sake not included in NW calculation.

Total: $60,281.00


Liabilities: 0

Specific Question(s):

Commentary
I wanted to get my current situation out there because I realize other sets of eyes looking at it could offer valuable advice and perspective that can help me shape the optimal future. I feel good about the direction we are going in and feel things will really accelerate when we become a two income household in a little over a year. Any thoughts or specific advice to my commentary and questions below regarding my thoughts on my situation are certainly appreciated.

I believe AGI moving forward 2017 will be slightly different due to (not only changes in quarterly / annual bonus Ė could go up or down some) now being debt free after selling our home last year and moving into single family rental. This means Iím still fine tuning the tax deferred contributions to maximize them while still being able to support the household on my income until my wife finishes nursing school May 2018. (Eagerly and happily awaiting)
I will use the current amount have been contributing to 401K of 256.32 (7%) + 200 for HSA (this change will take effect this pay period Ė increase from $50 monthly but ultimately just started funding the HSA). I think these deductions will be around the max so we can continue to live off my monthly salary. So then my quarterly and annual bonus I am thinking will go into my 401K tax deferred moving forward now that we have no debt and my cash account has got some comfort money.

So first question: Is my idea to have a payroll deduction of $1800 in April so that my HSA account has the necessary balance so I can begin investing the account in the  Vanguard fund available with a low management fee which I believe is .05%. And then resume normal monthly contributions of$200? I havenít found a problem with this idea on my own yet.

Also, thoughts: I think I might have to decrease the number of withholding allowances on my paycheck. I have like 7or 8 now and after selling my home and having over $11K in mortgage interest paid and also the maximum tuition interest deduction around $2,500 I believe (paid $6k tuition interest total) it only reduced my income a couple grand to the AGI of $65,663 from the total of $68,679. Iím thinking I either went wrong filing taxes somewhere or have too many federal withholding allowances which causes too little tax to be taken out. Not quite sure. Does this sound like either an error was made filing taxes (automated online software takes you through step by step, ezTaxReturn.com) or I need to adjust my withholdings so I donít have a huge tax bill? I did owe the state around $1150 this year while my federal is a return of about $3600. Could I be getting this return despite taking little taxes out of each check due to the home sale and subsequent mortgage and tuition interest deductions that resulted whereas otherwise I might have a much bigger tax bill?

Other notes and commentary for potential feedback: We donít consume mindlessly and much at all but we recognize our food spending is high and should have considerable room for improvement. The fact that I canít specifically speak to the other miscellaneous expenses might indicate a problem of some sort. Thoughts?
Only other things we would buy as far as monthly expenses would be diapers for the 1 year old, wife bought a $20 inflatable pool for the kids the other day, I bought a DSLR camera (investment last month about $650  and we purchased free weights and squat rack recently about $500 total.) Other than that we wonít take on debt and always spend less than we earn. Thanks much to this sites influence and education.

Another specific question I have is should I include my works PAF (Portable Account Formula) as an asset in my newt worth? Anyone familiar with the intricacies of these enough to comment? I do know my Company offers this as defined benefit and that mine is currently worth about $13,000 to date.

Please excuse the long winded nature of the case study post and perhaps rambling or thinking out loud nature of the questions I am posing. Itís just one of the ways Iím odd. 

Further, when the second income comes it will probably look something like:
   -Max 401k each of us
   - Max HSA
   - Roth as much as possible
-the excess money may run out somewhere near here but anything else in the taxable account. (Thank you investing order post in investor alley)
The goal is FI (RE) in 10 years. Please call me crazy if you think it fits based on what you now know, which is a lot.
Thank everyone in advance for their time in offering their words of wisdom. I appreciate it.
      

Freedomin5

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Re: Feeling good about overall direction but what am I missing?
« Reply #1 on: March 12, 2017, 05:06:46 AM »
Gonna let the Americans comment on the specifics.

My advice is to just beware of lifestyle inflation when you start receiving the second income. Your challenge to yourself to continue to live on one income while completely investing the second income is a good challenge. It looks like your savings rate is pretty decent! Good work!

McStache

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Re: Feeling good about overall direction but what am I missing?
« Reply #2 on: March 12, 2017, 12:03:16 PM »
Officially getting married could also help reduce your taxes since you are currently filing as head household.  You'd have more space in the lower tax brackets and also the opportunity to open a spousal IRA for your wife.

Laura33

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Re: Feeling good about overall direction but what am I missing?
« Reply #3 on: March 12, 2017, 06:14:58 PM »
I think you are on the right track -- I particularly like the fact that you can cover your normal living expenses out of your regular pay, thereby leaving the various bonuses for savings.  Ideally, I would like to see you cover your regular living expenses AND 401(k) out of regular pay, but I understand this is a temporary situation while paying for school and on one income. 

I'm not quite following the tax issue.  If you used an electronic tax program, I would bet the total taxes owed figure is correct; the number of exemptions you claim on your W-4 is irrelevant except to try to estimate to make sure you are having enough withheld.  I am also not surprised that your mortgage and student loans only decreased your taxes a little, because the standard deduction for head of household is $9300 (so itemizing deductions helps you only for the amount that is *greater* than $9300).  If you want to figure out withholding somewhat reliably, you can run an estimate through your tax prep software to figure out what your total 2017 liability will be (based on estimated pay and current deductions), and then you can just have your company deduct that amount. 

Re: the goal of retiring in 10 years:  you are off to a good start, but what you guys do once your SO starts work is what is really going to answer the question.  Remember, to retire in 10 years, you need to save something like 75% of your total (net) pay.  So if you can keep living as you are now and dedicate her paycheck to savings, you should be in awesome shape.  Also, if you aren't already using something like Mint or YNAB, that might help you figure out some of those other numbers.  Good luck!
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ysette9

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Re: Feeling good about overall direction but what am I missing?
« Reply #4 on: March 12, 2017, 10:20:13 PM »
Get married already. Get the tax benefit, but more importantly get that protection in place for your family should something bad happen. There is no reason to wait and many to not.
"It'll be great!"

PhoenixHeat

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Re: Feeling good about overall direction but what am I missing?
« Reply #5 on: March 13, 2017, 06:14:04 PM »
Gonna let the Americans comment on the specifics.

My advice is to just beware of lifestyle inflation when you start receiving the second income. Your challenge to yourself to continue to live on one income while completely investing the second income is a good challenge. It looks like your savings rate is pretty decent! Good work!

I believe you are correct in that the challenge of living on one income will be the key and as with everything you cant say for sure until it is done or you are doing. I am l confident we will follow through.

Re: your comment about my savings rate being pretty decent caused me to realize that it is about 38%! That is now that my other income can be saved due to where we are at with everything. Feels good knowing I get o make the change to elect that pay to go to the 401k moving forward!


PhoenixHeat

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Re: Feeling good about overall direction but what am I missing?
« Reply #6 on: March 13, 2017, 06:15:10 PM »
Officially getting married could also help reduce your taxes since you are currently filing as head household.  You'd have more space in the lower tax brackets and also the opportunity to open a spousal IRA for your wife.

I suspected advice on getting married might surface. Ill need to research what the tax brackets are, etc. and the impact on us.


PhoenixHeat

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Re: Feeling good about overall direction but what am I missing?
« Reply #7 on: March 13, 2017, 06:18:28 PM »
I think you are on the right track -- I particularly like the fact that you can cover your normal living expenses out of your regular pay, thereby leaving the various bonuses for savings.  Ideally, I would like to see you cover your regular living expenses AND 401(k) out of regular pay, but I understand this is a temporary situation while paying for school and on one income. 

I'm not quite following the tax issue.  If you used an electronic tax program, I would bet the total taxes owed figure is correct; the number of exemptions you claim on your W-4 is irrelevant except to try to estimate to make sure you are having enough withheld.  I am also not surprised that your mortgage and student loans only decreased your taxes a little, because the standard deduction for head of household is $9300 (so itemizing deductions helps you only for the amount that is *greater* than $9300).  If you want to figure out withholding somewhat reliably, you can run an estimate through your tax prep software to figure out what your total 2017 liability will be (based on estimated pay and current deductions), and then you can just have your company deduct that amount. 

Re: the goal of retiring in 10 years:  you are off to a good start, but what you guys do once your SO starts work is what is really going to answer the question.  Remember, to retire in 10 years, you need to save something like 75% of your total (net) pay.  So if you can keep living as you are now and dedicate her paycheck to savings, you should be in awesome shape.  Also, if you aren't already using something like Mint or YNAB, that might help you figure out some of those other numbers.  Good luck!

Thanks for commenting- Ideally I would like to see the 401k and expenses covered by my regular income but I guess I have an income problem! Freedomin5 also suggested the challenge and catalyst will really be what we do with the second income. Excited to stay the course when that starts coming in. Encouraging that we are in awesome shape setting us up for our goal!

PhoenixHeat

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Re: Feeling good about overall direction but what am I missing?
« Reply #8 on: March 13, 2017, 06:40:47 PM »
Get married already. Get the tax benefit, but more importantly get that protection in place for your family should something bad happen. There is no reason to wait and many to not.
Can you elaborate the specific protection marriage provides should something bad happen? I realize I can't fully answer that.