Author Topic: Mid-20s Marrieds with a Baby wanting to FI (not RE)  (Read 3573 times)

Sweetpotatofries

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Mid-20s Marrieds with a Baby wanting to FI (not RE)
« on: July 19, 2017, 12:17:44 PM »
My husband and I live in an NYC suburb with our 8 month old and I'm going to be SAHM for the time being. We'd like to make the journey to FI sooner than later, but he doesn't plan on retiring early, in the sense that he might just try to go out on his own in his career if we were FI versus working at his current job as an associate at a big law firm - which he actually likes to do and is getting great experience in a very niche area doing. So the question for the case study is, how long to FI if we assume that there's going to be a continued income stream (albeit lower) and is there anywhere we can trim the budget?

Assets:
Equity in townhouse of $125K - $415K left on mortgage at 3.625% (15 year mortgage)
$85K in Vanguard taxable brokerage account
$22K in wife Roth IRA
$31K in wife 401K
$50K in husband 401K
$55K in cash (need to move this, we just don't want to sink it all into the Vanguard acct in one day so we're moving a few grand each week on autopilot)

Debts:
$415K mortgage at 3.625% for 15 years

Pre-Tax Income:
Annual   190000
Monthly   15,833.33

I'm a SAHM as of now but planning to try and pick up work from home (transferring my law firm skills to small-town estate planning or real estate contracts) - I might be able to bring in an extra $1k/month with time available but there's a lot of competition for this type of legal work so I could probably charge a flat rate for a will package/closing contract and have 1-2 clients per month.

Pre Tax Expenses:
H's 401k   1500
Spousal IRA 500
Health Insurance 900 - ouch, but it's H's employer plan and we don't qualify for ACA since he has one
Property Tax 400
Federal Tax   1894.02
State Tax   1021.25
Social Security   612.25
Medicare   229.58
   
Post tax income - 9,176.23/month

Post tax expenses:

Mortgage P&I   3450 (I know interest is deductible but that math is tough)
Home Improvement/Furniture 200
Home Insurance 70
HOA Fees (Condo association) 535
Life Insurance   50
Metro North Pass   300
Subway Pass   120
Car insurance   70
Gas + Electric   200
Internet   45
Amazon Prime   9
Netflix   10
NY Times   31
2 Cell Phones   55
Grocery   600
Medical OOP   200
Baby - General   100 (this includes interest-free family loan for expenses incurred while baby was in NICU)
Disposable Diapers   60
Stroller Strides   80
Yoga class or running race fee 20
Clothing   50
Laundry   10
Dry Cleaning   20
Vitamins   15
Toiletries   20
Wedding travel/gifts   100 (averaged for a year, 6 weddings this summer)
Restaurants   125
Entertainment   25
Vacation   100 (also averaged for a year, 2 vacations for the year planned)

Total spending 7220

At this rate we're saving $2k/month, roughly. We do most of our grocery shopping at Costco and buy mostly whole foods (chicken breasts frozen in bulk, 5 lb bag of spinach, lots of eggs, etc) although splurge on a few specialty items. We go out to eat 1-2x a month either for a date night or with another local family, now that it's summer that $ can go toward a cookout on the beach instead. The monthly spending on weddings is averaged, this year 6 weddings, we had 5 last year, probably at least 2-3 next year since we're mid-20s, and between gas to drive there (we forgo flying weddings because of the baby) and the gift of 100-150 for each couple it does add up. We don't feel comfortable giving less since most of the couples came to our wedding two years ago and generously gave us similar gifts.

Medical OOP costs are conservatively estimated really high, usually it's more like 50-75 for copays each month, but we had a NICU baby and a lot of out-of-network bills as a result last year so I'm trying to be cautious in the event we have another kid and that happens again.

We have one old car (2003 Honda) that at some point we will have to replace. Husband bikes to the train for his commute by train/subway. The cost of the train pass monthly is what it is in our area, there's no cheaper train or anything like that.

Some might consider the $100/month for fitness and activities excessive but mama needs to get out of the house with baby, and Stroller Strides has been a godsend for meeting other new moms and getting in some exercise. Otherwise we do free library activities and take a lot of walks on our own!

Our PITI is about $4400/month, so spending aside from that is about $2800/month.

So...how long to FI? Where can we make some changes?
   


4alpacas

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #1 on: July 19, 2017, 12:31:07 PM »
So...how long to FI?
About 20 years with your current spending.

Quote
Where can we make some changes?
It depends how motivated you are because the item that is sinking your budget is your townhouse.  Good luck!

Sweetpotatofries

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #2 on: July 19, 2017, 01:41:46 PM »
So...how long to FI?
About 20 years with your current spending.

Quote
Where can we make some changes?
It depends how motivated you are because the item that is sinking your budget is your townhouse.  Good luck!


Since we just bought our house last year and have a 15-year mortgage, I don't think selling it is the answer. It was the best option at the time and I think it will continue to be - we did not want to share a 1 bedroom apartment with our baby and move out to the couch like some of our friends did so we left NYC. We did the NYTimes rent vs buy calculator and with rent on a 2-bedroom apt or condo running $2500+ in our suburb, it was only 5 years to break even on renting vs buying, and we envision staying here much longer unless we wind up with 3 kids or something.

Lepetitange3

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #3 on: July 19, 2017, 01:53:54 PM »
Beyond the home, a lot of your expenses are very high even in an HCOL area.  Not to mention at that income level you should never really have needed an interest free loan from family (though I am so so feeling for you and hope the NICU baby is doing much better). 

$200 in home improvement every month or $2400/year?

$600 on groceries for 2 adults even HCOL is a ton.  Check the rein in the grocery spend thread...

Some of the rest of this is clearly fat you could cut but amounts to lifestyle choices.  I would carefully evaluate everything and decide what's really worth your cash if you're truly looking to be FI. 


fuzzy math

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #4 on: July 19, 2017, 01:57:07 PM »
Could you barter or agree for regular pay to do legal work for your condo? The association fee there is a lot! Previous posters have mentioned that your housing is costing $4100 a month... That's almost half your take home pay. None of your other expenses are super high.

For the area and the COL I am not impressed with your husbands pay. Could he do similarly well if he went to a cheaper city? Is he being fast tracked for partnership there and a huge raise?

The only other budget line items I can see to make cuts on are your NYT subscription. Online is much cheaper.

Your diaper budget is high too. Generally a target or Costco brand box is about $25-30 and should get you through a month.  Look into elimination communication. Basically put your baby on the toilet. It's ok if he/she can't sit up, hold them. They can be trained to go potty, therefore saving you a couple diapers a day. Makes potty training much easier too.

Stroller strides - can you join a free meetup,  FB or other social group that will give you the same outlet? You're spending almost $1k a year for this. If you've got friends there, get their #s and see if you can strike out on your own.

farfromfire

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #5 on: July 19, 2017, 02:00:42 PM »
You actually save 4k a month, including pretax, and have 243k in savings (invest it all, no use in holding so much cash).
Using the following equation for years to FI (25x annual expenses) is:

log((25*(E-12x) + (S+12x)/(q-1))/(M + (S+12x)/(q-1)))/log(q)

where E is yearly expenses, S is yearly savings, M is invested assets, and q is rate of return. x is additional monthly savings (relative to now).

Assuming 5% or 7% rate of return (q=1.05 or 1.07), we have the attached plot.

Long story short, you're looking at retiring in 16 years or so. Cutting 200$ off your groceries budget should be highly achievable and save you a year.

Sweetpotatofries

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #6 on: July 19, 2017, 03:12:43 PM »
For the area and the COL I am not impressed with your husbands pay. Could he do similarly well if he went to a cheaper city? Is he being fast tracked for partnership there and a huge raise?

The only other budget line items I can see to make cuts on are your NYT subscription. Online is much cheaper.

Your diaper budget is high too. Generally a target or Costco brand box is about $25-30 and should get you through a month.  Look into elimination communication. Basically put your baby on the toilet. It's ok if he/she can't sit up, hold them. They can be trained to go potty, therefore saving you a couple diapers a day. Makes potty training much easier too.

Stroller strides - can you join a free meetup,  FB or other social group that will give you the same outlet? You're spending almost $1k a year for this. If you've got friends there, get their #s and see if you can strike out on your own.

Husband is a second year at his firm. That's the market rate. Law firms in our area pay "lock step" so the first 7-8 years you're there everyone is paid the same. He is eligible for a bonus if he hits his hours target.

We do Amazon Subscribe and Save or Kirkland brand diapers but find we need 2 boxes a month (or we did the first few months) because of bad diaper rash and general wariness about any sort of bacteria etc with having had a NICU baby. As for the person who asked about the loan, we could pay it back to the grandparents ($5k) right now from savings, but we figured why not let the $ grow in our account as we pay them back slowly since it's interest free. Basically they paid the bill, said it's a gift, but husband is adamant that he wants to pay them back in full.

I'm trying to see if by the end of summer I can create some sort of weekly group with other new moms. We also do some free meetups and library stuff. Unfortunately it seems like people cancel a lot more if you're not all meeting at something you already paid for (which I TOTALLY get as a new mom whose kid naps a lot).

Lepetitange3

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #7 on: July 19, 2017, 04:28:19 PM »
Groceries

Harper

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #8 on: July 19, 2017, 04:51:27 PM »
Good for you being a 20 something and on MMM.  Congrats on the baby.  :)

No student loans?  That's great with 2 lawyers.

The health insurance is really high. 

Does your husband have the option to do a flexible spending account for healthcare?  This could save you some pretax dollars for copays/scripts/etc.

Sweetpotatofries

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #9 on: July 19, 2017, 05:37:44 PM »
Good for you being a 20 something and on MMM.  Congrats on the baby.  :)

No student loans?  That's great with 2 lawyers.

The health insurance is really high. 

Does your husband have the option to do a flexible spending account for healthcare?  This could save you some pretax dollars for copays/scripts/etc.

So the insurance is actually the "cheapest" of three options - because law firms pass almost all the premium cost onto employees. We looked into husband and baby being on his plan and me separately getting an ACA plan but it doesn't work out to much different for equivalent coverage so long as we stay in network (the NICU stay was kind of out of our hands, baby was transferred to major Level 4 center and the specialists were just who they were). He can indeed pay into an FSA but we didn't before the whole NICU deal, and now it would be minimal since our copays average a lot less now (in reality about 50-75 a month). I'll ask him if we can open an FSA for that amount. Just don't want to lose the $$ at year end.

Oh and I didn't have law school debt. H did but we paid it off right before the baby came :)

Harper

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Re: Mid-20s Marrieds with a Baby wanting to FI (not RE)
« Reply #10 on: July 20, 2017, 08:35:25 AM »
Quote
He can indeed pay into an FSA but we didn't before the whole NICU deal, and now it would be minimal since our copays average a lot less now (in reality about 50-75 a month).

He would probably have to wait for open enrollment to do the FSA but we do it every year though we don't have major medical bills.  I'm sure someone smarter than me can tell you the savings of having this money taken out pre tax.  We tend to estimate very conservatively and we always run out of FSA before the end of Q3.  Just a thought.