Is our financial future bright? - Looking at Upgrading our House

[cantgrowone]

Life Situation:
Married filing jointly, we're both 30. 0 dependents but are working on 1. We live in the USA.

Gross Salary/Wages:
$170k annual
~$20k in annual bonus (The company hasn't missed it in 20 years. We do not budget on the bonus)

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc.
We max out our 401ks ($35k).
Insurance is ~$150/month

Other Ordinary Income: N/A

Qualified Dividends & Long Term Capital Gains: N/A

Rental Income, Actual Expenses, and Depreciation: N/A

Adjusted Gross Income: $96k ($8k cash each month)

Taxes Monthly:
Fed: $1414
State: $580

Current Expenses:

Charitable Giving - $800
Mortgage - $856
Property Taxes - $90
Insurance (life, LTD, home, car) - $420
Utilities - $200
Groceries - $425
Eating Out - $175
Fuel - $120
Misc - $300
Car Payment - $500 (0% interest)

Total Monthly - $3,886


Expected ER expenses:
Expenses after house/car is paid off is $2,750. Our lifestyle should not exceed ~$3,500 even with children.

Assets:
Total not counting house as of 9/1: $358k. We hold VFFVX and VTSAX.

Brokerage: $110k
Roth IRAS: $44k (both max out yearly)
401ks: $144k
Simple IRA: $32k
Cash: $28k

House: ~$189k in equity.


Liabilities:
Car: 0%, $500/month, payoff date is 12/2023
House: $41k left, 3.75%, $856/month


Specific Question(s):
I am seeking guidance to see if DW & I are on the right track for a financially sound future. Both of us want to retire ASAP but I expect 10 more years. I do not like the 9-5 40hr/week work. My goal is to live off our savings and volunteer to occupy our time plus traveling. We track our spending diligently and have averaged $2,500/month (no mortgage/giving) the past 4 years which includes our yearly vacations. We struggle to see where the fat can be cut out of the budget but keep trying to cut out unnecessary spending.

We are in a poor school zone area and are working on baby #1 out of 2. We are looking to move to a HCOL area (Homewood, AL) where the houses have doubled in value since 2011. The city has no more room to build so the trend can only go upward right? The houses we are looking at are $450k. We can still max out our 401ks and Roth IRAs yearly which gives us ~$1,500/month to invest after the higher mortgage.

Main question: Given we want to retire in 10 years would it be financially wise to cough up the $90k down payment and cut our yearly investing by at least $16k in order to get into this HCOL area?

If you made it this far, thank you! I tried my best to detail our entire situation as briefly and descriptive as possible.

Edit: If we buy and sell our current house we will invest all our equity back into VFFVX/VTSAX.

[ysette9]

I agree on waiting on the eventual house purchase and thinking long and critically about what you really need there. No reason to lock yourself into a decision that may change down the road.

Is there a reason why your charitable giving is so high? Could you run scenarios where you delay that giving by investing it now and then having a stash that gives off income that you later donate? In the long-term it would get you to your FI goal sooner and slow you to donate more over your lifetime. Think of it as more of the endowment-type model instead of cash-flow donations out of current income.

[reeshau]

I agree with the others on schools.  You have some time, so jumping to what is "optimal" today is paying for something you won't be using.  Look for "most improved" district or, if you otherwise like your neighborhood, get involved with the schools there and make the change!  (you said you wanted to volunteer)  Otherwise, homeschooling is an option, or I even wonder about the un-mustachian option of a private school...again, if you otherwise are OK and just shopping for schools, price out the extra mortgage vs. tuition.

While you can technically afford it, it looks like you have really bought a lot of car.  Do you love your car at least half as much as your house?  (given the payment is more than half of the mortgage)  It also looks like your house will be paid off before your car!!!  While it is 0%, it still costs you a lot because you are eating the depreciation of a new car.  You could accelerate FIRE by dumping it (even at a loss) and getting a great car off lease, or older.  If you really love it, please pledge not to do it again, and keep it until the bumper falls off.

Your eating out is relatively high, but you are both working.  Do you expect that to continue into FIRE, or would you switch to more eating in?  Some will say that your food budget is also high for two, but switching will almost certainly save money.

Miscellaneous is more than 10% of your mortgage-excluded budget ($2750).  This deserves a breakdown and some scrutiny.

Also, you mention that you haven't calculated taxes, but it seems like you think a percentage is expected.  It's not a percentage, but just a number--like expenses--that is usually given.  (and is most valuable)

[cantgrowone]

If the pressure for houses in that particular town is so strong, then the rising tide should lift at least some of the surrounding communities, too.

Thanks for your thoughts. The rising tide has hit 1 town away from us so we might be next. Schools are 25% of our concern with moving...90% of our friends live that way and the city is very walk-able (shops, restaurants, gym, pool).

I agree on waiting on the eventual house purchase and thinking long and critically about what you really need there. No reason to lock yourself into a decision that may change down the road.

Is there a reason why your charitable giving is so high? Could you run scenarios where you delay that giving by investing it now and then having a stash that gives off income that you later donate? In the long-term it would get you to your FI goal sooner and slow you to donate more over your lifetime. Think of it as more of the endowment-type model instead of cash-flow donations out of current income.

Thanks for your thoughts. We will keep searching for a house ~$250-$300k while thinking about what we need there. Giving less could accelerate FIRE some but we're not going to modify it. There's too much need now to wait to help out.

I agree with the others on schools.  You have some time, so jumping to what is "optimal" today is paying for something you won't be using.  Look for "most improved" district or, if you otherwise like your neighborhood, get involved with the schools there and make the change!  (you said you wanted to volunteer)  Otherwise, homeschooling is an option, or I even wonder about the un-mustachian option of a private school...again, if you otherwise are OK and just shopping for schools, price out the extra mortgage vs. tuition.

While you can technically afford it, it looks like you have really bought a lot of car.  Do you love your car at least half as much as your house?  (given the payment is more than half of the mortgage)  It also looks like your house will be paid off before your car!!!  While it is 0%, it still costs you a lot because you are eating the depreciation of a new car.  You could accelerate FIRE by dumping it (even at a loss) and getting a great car off lease, or older.  If you really love it, please pledge not to do it again, and keep it until the bumper falls off.

Your eating out is relatively high, but you are both working.  Do you expect that to continue into FIRE, or would you switch to more eating in?  Some will say that your food budget is also high for two, but switching will almost certainly save money.

Miscellaneous is more than 10% of your mortgage-excluded budget ($2750).  This deserves a breakdown and some scrutiny.

Also, you mention that you haven't calculated taxes, but it seems like you think a percentage is expected.  It's not a percentage, but just a number--like expenses--that is usually given.  (and is most valuable)

Thanks for your thoughts.

Moving
Schools is 25% of the reason we are moving. Most of our friends are there and we can walk anywhere (gym, shopping, restaurants). It has crossed my mind helping the school improve but I have not seriously considered it.

Car
We do love our car half as much as our house. My past experience with used cars is so awful I am nervous about buying used. We do plan to drive this car until it the bumper falls of especially since I'm comfortable doing all the mechanical work that would come up in 5-10 years.

Eating Out
Eating out budget is still a little high. It has greatly been reduced over the past 2 years. I think we spend $2,500 in 2016 eating out which is absurd. We cut almost $1k off of that in 2017. Our groceries are high but we buy organic most of the time.

We're working on bringing misc down by asking ourselves if we really need this item. I buy half the stuff I used to because of this.

Taxes
I checked our pay stubs this morning and taxes are below, if this is meaningful to our situation.

Taxes Monthly
Fed: $1414
State: $580

[Nick_Miller]

@cantgrowone,

Congrats on getting yourselves in such an awesome place financially at a young age! You are both to be commended!

Even if your wife got pregnant yesterday, based on the numbers you give us, I'm guessing you'd be damn close to passing $400K in investments AND having a paid for house before your wife gave birth?

That, my friend, puts you in a spot that I doubt many other of your friends who live in $450K houses would be in.

I guess I'm just saying there must be other reasonable options short of buying a $450K house and getting tied to a big mortgage payment that will limit your options. I live in a similar COL part of the country, but in a middle class neighborhood (houses in the $200Ks).  Yeah, $450K will get you a VERY nice home in an upscale neighborhood with VERY spendy neighbors and VERY high insurance and VERY expensive cars in the driveways (because the garages are so often packed with stuff) and then people say "Well I need new furniture for my new home" and yeah I think it becomes more like a $600K decision because "inflated neighborhood" so often results to "inflated lifestyle."

[charis]

Car
We do love our car half as much as our house. My past experience with used cars is so awful I am nervous about buying used. We do plan to drive this car until it the bumper falls of especially since I'm comfortable doing all the mechanical work that would come up in 5-10 years.

This is contradictory.  If you plan to drive a car until the bumper falls off and will be doing the mechanical work, you definitely don't need to buy a new car.  Of course, no one does, but emotion tends to trumps logic or facts for a lot of people.

[ixtap]

According to Zillow, there is a large stock of houses significantly less than $450k in that town. As a matter of fact, the median house price is in the mid $300's. You have a lot of reasons for choosing that particular town, but you can make choices compatible with your desire to retire early.

[bacchi]

According to Zillow, there is a large stock of houses significantly less than $450k in that town. As a matter of fact, the median house price is in the mid $300's. You have a lot of reasons for choosing that particular town, but you can make choices compatible with your desire to retire early.

Yep. There are a number of houses in MLS from $250-$350k in the town and many of them are 3+ bedrooms. This is one of the fancier ones and probably has a "It was in a magazine!" premium on it:

https://www.realtor.com/realestateandhomes-detail/1425-Oxmoor-Rd_Birmingham_AL_35209_M72882-74571?view=qv

[cantgrowone]

@cantgrowone,

Congrats on getting yourselves in such an awesome place financially at a young age! You are both to be commended!

Even if your wife got pregnant yesterday, based on the numbers you give us, I'm guessing you'd be damn close to passing $400K in investments AND having a paid for house before your wife gave birth?

That, my friend, puts you in a spot that I doubt many other of your friends who live in $450K houses would be in.

I guess I'm just saying there must be other reasonable options short of buying a $450K house and getting tied to a big mortgage payment that will limit your options. I live in a similar COL part of the country, but in a middle class neighborhood (houses in the $200Ks).  Yeah, $450K will get you a VERY nice home in an upscale neighborhood with VERY spendy neighbors and VERY high insurance and VERY expensive cars in the driveways (because the garages are so often packed with stuff) and then people say "Well I need new furniture for my new home" and yeah I think it becomes more like a $600K decision because "inflated neighborhood" so often results to "inflated lifestyle."

Thanks for the thoughts and encouragement. We do like our house so it is tough to move other than being closer to friends and convenience.

People do love their stuff. 90% of our neighbors park outside of their 2 car garages because they love stuff.

This is contradictory.  If you plan to drive a car until the bumper falls off and will be doing the mechanical work, you definitely don't need to buy a new car.  Of course, no one does, but emotion tends to trumps logic or facts for a lot of people.

Emotion might have trumped logic in this situation. It probably was my past emotional experience that led us to a brand new car. The way the car is cared for determines future maintenance needs. How it was driven and preventative maintenance help get a car to 200k miles with no major issues. The risk of buying used was not worth the reward of saving money to us.

According to Zillow, there is a large stock of houses significantly less than $450k in that town. As a matter of fact, the median house price is in the mid $300's. You have a lot of reasons for choosing that particular town, but you can make choices compatible with your desire to retire early.

You're right. The problem we have is that we are looking for a house with it all since that is what we have right now, except the location. That last thing you said puts everything into perspective, making choices compatible with retiring early.

Yep. There are a number of houses in MLS from $250-$350k in the town and many of them are 3+ bedrooms. This is one of the fancier ones and probably has a "It was in a magazine!" premium on it:

https://www.realtor.com/realestateandhomes-detail/1425-Oxmoor-Rd_Birmingham_AL_35209_M72882-74571?view=qv

That house is nice but it's on a busy street and has awful parking. Here's another magazine ready 3/2 that is 0.5 mi down the road for $525.

https://www.realtor.com/realestateandhomes-detail/918-Irving-Rd_Homewood_AL_35209_M81495-79556?view=qv

[LostGirl]

It seems like you are getting pretty uniform feedback that its not an awesome idea. You can spend your money however you want but if you want to be closer to your friends and as of yet, have no kids, maybe you should rent. You can explore renting your current residence to track market gains so you don't get surpassed by an appreciating market, if that is of concern. 

[bacchi]

That house is nice but it's on a busy street and has awful parking. Here's another magazine ready 3/2 that is 0.5 mi down the road for $525.

https://www.realtor.com/realestateandhomes-detail/918-Irving-Rd_Homewood_AL_35209_M81495-79556?view=qv

Ok, I just glanced at the pretty pictures. :)

There are others homes for sale in the $250-350k range.*

https://www.realtor.com/realestateandhomes-search/Homewood_AL/type-single-family-home/price-250000-350000

https://www.realtor.com/realestateandhomes-detail/1035-Edgewood-Blvd_Homewood_AL_35209_M73959-35879 ?


* This, incidentally, is the first step. Narrow your search so that you're not looking at homes that cost too much. When the realtor suggests looking at some $450k house, just to "get some ideas," politely decline -- "No, our budget is $350k."