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Learning, Sharing, and Teaching => Case Studies => Topic started by: zenath on November 08, 2018, 10:08:37 PM

Title: How can I make a drastic change?
Post by: zenath on November 08, 2018, 10:08:37 PM
I am at a bit of crossroads in regards to how we will be deploying our income. I want to make a change, but am unsure where to begin. For now I'll give some financials.

Yearly Totals
I have three children (11, 7, 4) and my wife stays at home caring for the kids. What is shown below is my anticipated earning/taxes for 2019. I calculated this based on a few formulas I found of IRS and my state tax tables. I just received my raise and this roughly tracks what I see my deductions current are, but does have a small amount of error. Based on my calculations, I barely make the 22% federal income bracket when accounting for deductions and then my 401k contributions firmly put me in the 12% bracket.

W2 Wages
W2 Deductions
W2 Medicare/SS Taxable
W2 W2 401K
FIT Taxable
W2 Social Security Tax
Medicare Tax
Federal Income Tax
State Income Tax
Other Deduction
Take Home


Monthly Budget
I've had some success with getting my wife to stick to a budget with me. It roughly breaks down as follows

Groceries/Dining out
Gas and Car Maintenance
Bills (phone, gas, electric, internet)
Kids (gymnastics, fun activities)
Wife Fun Money
My Fun Money
Other (Shopping/Date Night)
IRA contribution x2


Assets and Liabilities
Emergency Savings
Guessed House Value


My Driving Questions

I know this is a lot for a case study. Thoughts/opinions on any of the questions are greatly appreciated.
Title: Re: How can I make a drastic change?
Post by: MDM on November 08, 2018, 11:06:45 PM
What is shown below is my anticipated earning/taxes for 2019. I calculated this based on a few formulas I found of IRS and my state tax tables.
You might compare your results with the case study spreadsheet (  That tool currently uses 2018 brackets/limits/etc., but perhaps that is what you are doing also?  Don't know how good the WI state calc'ns are, but the federal ones are usually very good.

My Driving Questions
  • Should I continue to max out my retirement vehicles even though I have basically no after tax investments?
    While my savings rate is around 35%, this is mostly in retirement vehicles (~25%). Even then, a good chunk of the after tax cash is going to pay down the mortgage. I'll address the latter part of that in the next question, but I don't really have FU money. I only have a safety net. I have been growing weary of my current job. I have been reading up on stoicism to help even my emotional up and downs from wanting to quit right away to being acutely aware of how privileged I am to have all my needs and a substantial portion of wants taken care of.
  • Should I aggressively pay down my mortgage or do after-tax investing?
    I am aware that the mathematically correct decision is to invest, but the mortgage pay down is a guaranteed return. Additionally, this is my only debt and does provide me with some anxiety. I have mixed feelings about the house. I like our neighbors and neighborhood, but wish I would've waited longer to buy. I was influenced by the stories I heard of rising house prices (still true) and the fact that we move rentals 2 times over the 3 prior years to the purchase. I plan to make this the home we're raising our kids in, but actually plan to downsize by the time our youngest enter college or the workforce.
  • Do you think I should use a vanguard ETF, tax advantaged mutual fund, or regular mutual fund for taxable investments?
    One of the reasons I have waited so long for after tax investments, is the tax consequences from the investments. I realize that ETFs largely solve this, but Vanguard doesn't allow automatic investment if you use the brokerage and ETFs. They do allow it for their mutual funds, but it seems that while the tax advantaged mutual fund may have tax advantages, this is counteracted by the higher account minimums and the fact that they may have lower returns due to the tax minimization strategy. This has me stuck in analysis paralysis. I always operate best when I can automate investing so that it just happens and I can spend my energy on other important matters like making sure the 4 year old takes potty breaks instead of peeing on the floor!
  • What are your thoughts on 529 Plans or alternatives?
    I could contribute up to 3k/beneficiary for college, but trying to max that out would eat up all remaining after-tax money. I would only be getting about 7 cents on the dollar back for my contribution in state tax returns. We actually have ~$1k in the 529 funds, but I paused those contributions to eliminate car and student debt and never restarted it (this was before buying the house).
  • How much do you think I would need in my retirement account to just let it appreciate in value for when I am 60 (28 years from now)?
    This question is a roundabout way of expressing a thought I've been mulling over. Say I contribute enough in a retirement account such that by age 60 I have enough to retire, but stop contributing. I would then payoff the mortgage, save up FU money, and make a life transition. The real question is how much is that? A lot of my costs are inflated by the larger house we have for the kids and the other increased expenses (food, car, and kids own budget).
1. Yes.  Do watch the tIRA deductibility limit, You might simply switch to Roth IRA contributions for both of you.  See also
- Investment Order ( and
- How to withdraw funds from your IRA and 401k without penalty before age 59.5 (

2. Depending on the PMI rate, it might be worth getting rid of that before doing taxable investing, then paying the monthly mortgage minimum and investing taxably after PMI is gone.

3. "Tax managed" funds often are worthwhile only when one is paying >30% federal, etc.  See ETFs vs mutual funds - Bogleheads ( for that part of the question.

4. I agree with the "put on your own oxygen mask first" philosophy here: get your own retirement finances in good shape first, then look at 529s if relevant.

5. Some back of the envelope calculations (see rows 48-69 on the 'Misc. calcs' tab of the case study spreadsheet ( to do your own):
Quick calculation of "Time to FI"
Planned Withdrawal RateWR4.0%
Annual Savings InvestedS$/yr
Annual Expenses in RetirementE50,000$/yr
Current Assets InvestedA320,000$
Investment returnr_5.0%
Time to FIt27.9yr
In other words, $320K growing at 5%/yr real would provide enough to spend $50K/yr if you wait 28 years. 

But contributing only $10K/yr (on top of the $320K start) drops the time to FI from 28 years to 21 years.  Would 7 years earlier retirement be worth $10K/yr between now and then to you?
Title: Re: How can I make a drastic change?
Post by: Linea_Norway on November 10, 2018, 01:15:38 PM
You spend 800 a month on fun. Can't you cut down on that, starting with yourself to give the good example for your wife?
For fun activities for the children, can you not try to find other types of activities that don't cost so much. For example something outdoorsy?
Title: Re: How can I make a drastic change?
Post by: 2Birds1Stone on November 10, 2018, 01:32:26 PM
What Linda said.

If you add the "shopping/date night" it adds up to $1,175/month or $14,100/yr!

Groceries/dining out $12,000/ cutting these two categories in half, you could literally retire a decade sooner. 
Title: Re: How can I make a drastic change?
Post by: zenath on November 18, 2018, 12:39:00 PM
Thanks for the reply. I've already done two analyses on what my time to FI would be under two scenarios: 1. Pay off mortgage then save enough, 2. Just save up enough cash. Option 1 was about 19 years and option 2 was 20 years. The only difference was the increased investment size vs. debt. I'm now contemplating option 3. Save up enough for retirement, payoff the mortgage, and find a less stressful job. My real goal really isn't FI, but enough FU money to feel confident in making a change.

I wrote this after a particularly stressful week, but a lot of the ideas I am still mulling over. I'll probably make a few of my own spreadsheets and figure it out.

You are correct that this category could go lower, but for my marriage I dare not lower my wife's budget. My budget should be around $50, but I'm saving up for some computer components that died. It makes it more apparent to everyone else how I use patience and saving to delay gratification. The kid's budget is 60% my daughter's gymnastics, but she is learning so much and love it a lot. Some things do just cost money. Frugality is finding the best value for your money. Being stingy is never spending any money.

We probably could save more in the food department, but change comes slowly. We are actually about $100 less on dining out than before. I do encourage more vegetarian / bulk low cost meals, but change is slow.
Title: Re: How can I make a drastic change?
Post by: DoNorth on November 19, 2018, 12:17:47 PM
to what end are you trying to make the drastic change?

Retiring earlier?  Financial independence?

If you like your job and where you live, keep doing what you're doing and gradually trim expenses and invest more of the savings/raises you receive.  Chances are your wife will be happier and by default, so will you.

On #4, if you contribute $9300, you would receive ~$750 in tax savings.  The real value here is in tax free compounding of the 529 assets and not paying interest on large student loans/putting your kids in debt later on.

On #5, I'm not completely sure what you mean, but I'll share my example.  I'm 40, my retirement accounts = about $450K, I currently have about $63,000/year in passive income and am still working.  I plan on contributing about another $50K-$100K to retirement accounts over the next couple of years and then stopping contributions when I turn 42 and leaving it alone until I'm in my 60s.

Taxable investment withdrawals will supplement my passive income from 42 until I'm in my 60s, I might do some backdoor conversion and I my hope is that the retirement portfolio will grow to about $2M over 20 years with a $550K start point at 7% growth.

Is this the kind of thing you were referring to?

Title: Re: How can I make a drastic change?
Post by: Nederstash on December 08, 2018, 04:15:30 AM
I am at a bit of crossroads in regards to how we will be deploying our income. I want to make a change, but am unsure where to begin.

You and your wife need to have a dream date. Literally sit down together and discuss what your dream life would be. Do you want to be home with the kids more? Right out retire? Do you want to take a family trip? Provide for elderly family? Be so wealthy you can be outrageously generous to causes close to your heart, or strangers on the street?

What I'm missing most in your whole picture is your WHY. WHY do you want to pay down the house? No, it's not just to get rid of PMI... think deeper. Is it less stress, more free time, what? WHY would you invest more while you could be hitting up the newest restaurants? Why suffer now when there's short term fulfilment to be had? Believe me, if you can define your dreams, imagine them in Ultra 4k 3D, that's when radical change will happen.

You and your wife need to decide on this together. You can't just say 'well... we need to spend less because we need to save more'. That's never going to work long-time and it might breed some resentment with your wife even. You both need to be on board with the dream, and then you need to make a plan. That plan is called a budget. If you come in from that angle, you and your wife probably won't have any qualms slashing the entertainment budget. Because there's something fucking awesome on the other end.

(Also... geez man, do you guys even just sit around the kitchen table and play a board game? Your spending is ridiculous).