Moving, Downsizing and Dropping to One Income

[Buckeye in TX]

My wife and I are 28/29 and have two kids (2.5 and 1).  We currently have a crazy high combined income for our age ($335k) (pharmacist and attorney), but we are unhappy.  Our work schedules combined with the little ones and no support system where we live is beating us down.  It's a real struggle taking care of the kids with our schedules.  So, after giving it a lot of thought, we've decided to make a big life change and move back to Ohio to hit the reset button and be close to family.

I will continue working at a law firm and my wife will initially stay home with the kids.  She doesn't want to stop working entirely (we are on the same page with this), so she will start looking for part-time or more 9-5 type positions in pharmacy (i.e., not retail).  It could take some time, so we want to get comfortable living (and saving) on just my income, which will be considerably lower in Ohio than it is in Texas.  Plus, once my wife starts working again, we will be used to living on my salary and can just save hers.

I've been reading the forums for a couple of years now and posted a case study early on which was super helpful.  We've obviously made some mistakes in our first 3 years of working (house is #1), but overall I feel like we've managed to not completely mess up.  We are really nervous about the big drop in income, but the move overall should be great for our family.

Gross Salary/Wages: $131,000

Individual amounts of Pre-tax deductions:

401k ($18,000)
HSA ($6,750)
Medical Insurance ($800)

Estimated $6300 take home per month

Budgeted Expenses:

Travel Savings - $500
529 Plan - $400
Roth IRAs / taxable - $1,000 (we will be below the Roth limits for the first time, but still not traditional)

Mortgage - $1,600 (downsizing from 3,300sf, ~$440k home to 1,800-2,000sf, ~250-275k home)
Utilities - $300 (downsizing from $500 avg.)
Car Note - $385 (it's for a 2015 Nissan Rogue that was $22,000, 0% interest)
Car Gas - $60
Cell Phones - $55 (planning to switch to Google Fi, downsizing from Verizon plan currently $190)
Internet - $50 (downsizing from $140 cable/internet combo)
Groceries - $700 (this is probably our biggest struggle, but we have brought it down from $1000+ to $800 recently)
Restaurants - $160 (budgeted once per week, but I hope for actual amounts to be lower)
Hulu/Netflix/Spotify - $40
Home Services (i.e., mowing) - $100
Contingency Savings - $200 (figured this would be for things like doctors visits, car maintenance, etc.)
Misc. (what's left) - $600

Assets:

401k(s) - $123,000
IRA - $26,500
HSA - $8,500
529 - $12,800
Cash savings - $10,000
Will purchase house in the $250-275k range, with ~60k down
2012 Prius (paid off)
2015 Nissan Rogue (still paying off)

Liabilities:

Student Loan - Will have ~5k left when we move, but hoping to pay off with house sale proceeds.  We started with $140k in November 2013.
Car Note - $15,500 (0% interest)
Expected Mortgage - 200k

Specific Question(s): Ideally we want to be in a place to FIRE by the time the kids finish HS (44/45), but hopefully sooner if possible.  We are trying to cut our monthly expenses (not including savings) from ~$10,000 to ~$4,500.  Do you think this plan is doable?  Any suggestions and/or words of advice for a family making such a big change?  Also, I'd appreciate any suggestions on our budget and ways to optimize it further (knowing that we are still working on the grocery bill, it's just a slow process).  Thanks in advance!

[PJ]

Hi there,

Sounds like some exciting changes for the family, even with the stresses and trying to figure out how to make it work.  Couple of thoughts immediately came to mind.  First, to encourage you and/or your wife to check out the grocery threads in the "Throw Down the Gauntlet" section, if you haven't already.  There's always some kind of "Eat All the Food in Your House" (eating up your stockpiles to reduce waste or same money for the short term - a good idea to eat down your pantry and freezer before you move!)  Or a current grocery challenge - "Rein in the Grocery Spend" I think is the current title.  Or just a general monthly frugality challenge - right now we're doing Uber Frugal February, but sometimes they have catchier titles like "Miserly March" or "Austere August."

Also, I don't know how one gets into this field, but I have a friend who used to be a "corporate pharmacist."  She provided service and consultation to places like nursing homes.  Full time, but more of a 9-5 job.  Might be something to look into, even if she spends a little time upgrading her knowledge and skills or doing *some* volunteer work during this next year or two when she's home with the kids.

[GrandioseMustachio]

You're already off to a great start. 2900$ monthly spending (without mortgage) is not that bad.  But you can optimize further, for sure!

Mortgage - $1,600 (downsizing from 3,300sf, ~$440k home to 1,800-2,000sf, ~250-275k home) About 1000$ of this will be in mortage repayment! Great. Your total "savings" is thus close to 3000$/month. Almost half your income.
Utilities - $300 (downsizing from $500 avg.) Insulate. And use energy-efficient lighting.
Car Note - $385 (it's for a 2015 Nissan Rogue that was $22,000, 0% interest) I would recommend getting rid of the clown car. Buy close enough to work to be able to bike.
Car Gas - $60 With the prius, no reason to go above 30$.
Cell Phones - $55 (planning to switch to Google Fi, downsizing from Verizon plan currently $190)
Internet - $50 (downsizing from $140 cable/internet combo)
Groceries - $700 (this is probably our biggest struggle, but we have brought it down from $1000+ to $800 recently) Aldi. You can shave another 150$.
Restaurants - $160 (budgeted once per week, but I hope for actual amounts to be lower)
Hulu/Netflix/Spotify - $40
Home Services (i.e., mowing) - $100 Get a smaller property.
Contingency Savings - $200 (figured this would be for things like doctors visits, car maintenance, etc.)
Misc. (what's left) - $600

Getting rid of the car will save you 500-700$ per month, easy. Add extra grocery savings and you can reduce your monthly spending down to 3700$ (2100$ without mortgage). Thus you need 720k$+ 200k$ (mortgage) = 920k$ to live off a 3.5% withdrawal rate. Say 1M$ net worth to be safe.

In five years, if you keep your income at 6400$/month after tax, your net worth will be around 550k$. Say that your wife starts working again, adding 6000$/month to your joint income. At that point, you'll have about three years of work left before FI. Total: 8 years to FIRE!

[Dee18]

This is a small savings, but will add up over time:  buy a lawnmower.  I have a corded electric one (so lightweight) that I find very comfortable to mow my 6th of an acre lot (and I'm a small female, not in great shape)

[MightyAl]

As far as contributing to a tIRA your wife should be able to do this.  My wife is a SAHM whose income is 0$.  I can contribute nothing to a tIRA because of my income but my wife can contribute the max.  You might want to look at this again if your wife is going to reduce her income.

[Buckeye in TX]

As far as contributing to a tIRA your wife should be able to do this.  My wife is a SAHM whose income is 0$.  I can contribute nothing to a tIRA because of my income but my wife can contribute the max.  You might want to look at this again if your wife is going to reduce her income.

Interesting, do you file a joint return? I thought the income limit was on a combined basis, but looking at it again it appears that the income limits may be different depending on whether one or both spouses have retirement plans at work. Is that right?

[Buckeye in TX]

Hi there,

Sounds like some exciting changes for the family, even with the stresses and trying to figure out how to make it work.  Couple of thoughts immediately came to mind.  First, to encourage you and/or your wife to check out the grocery threads in the "Throw Down the Gauntlet" section, if you haven't already.  There's always some kind of "Eat All the Food in Your House" (eating up your stockpiles to reduce waste or same money for the short term - a good idea to eat down your pantry and freezer before you move!)  Or a current grocery challenge - "Rein in the Grocery Spend" I think is the current title.  Or just a general monthly frugality challenge - right now we're doing Uber Frugal February, but sometimes they have catchier titles like "Miserly March" or "Austere August."

Also, I don't know how one gets into this field, but I have a friend who used to be a "corporate pharmacist."  She provided service and consultation to places like nursing homes.  Full time, but more of a 9-5 job.  Might be something to look into, even if she spends a little time upgrading her knowledge and skills or doing *some* volunteer work during this next year or two when she's home with the kids.

Thank you for the suggestions.  We usually split our shopping between Costco and Kroger, but after seeing the Aldi recommendation I looked into a bit more and I think that could be a great idea.  I brought it up to my wife and interestingly she said that she was already thinking about that (and I didn't know she even knew what Aldi was).  I'll see if I can get her to read those threads as well to get some ideas.  Even just a few changes here and there can go a long way.

[AMandM]

I think you're doing a great job on the student loans, congratulations!

Your plan looks good to me, not knowing anything about the specifics of costs in Ohio.

I also don't know about property taxes in Ohio. Is the $1600 mortgage figure PITI?  Are you looking at a 15-year mortgage? That would mean the house was paid off before the kids finish high school.  Even 20 years instead of 30 would be a big advantage.

[wahooman2010]

I"ll let other members chime in on fine tuning the monthly budget, but I'd like to offer an alternative path to your current strategy.

My wife and I are in a very similar situation.  Both 29, just had our first baby, and when she was working, our combined income was approx. $290K.  We had over $125K in student loans we aggressively paid off in 3 years and we're now thinking about moving back home in 3-5 years to be closer to family.

Here is what we have done, and it's my recommendation to you:
Take your adjusted expenses for a 1 year test drive
Sell your house, sign a 1 year lease for an apartment close to one of your jobs, and keep your high paying jobs for the next year
I don't know your current savings rate, but over the next year, I'd imagine you could save an additional $100K+ if you kept the high paying jobs while simultaneously cutting your expenses in half.

Doing the above allows you to accomplish 2 things:
1) You get an idea of whether you can actually live off of $4,500/month
2) Any additional savings you make over the next year and invest in the stock market will compound to be at least 2.5X at age 45.

At the end of the day, it's a personal choice.  I'd rather push out 1 year as a proof of concept for your budget while also padding my future savings by a quarter million.  However, I totally understand if you're really starting to burn out from the dual high stress careers.

[Buckeye in TX]

@ AMandM: Thanks! The $1,600 number is PITI.  I would love to fit a 15 year mortgage at that number, but I think that will require (1) getting a little more money out of our current house than expected and (2) finding a house on the low end of our price range.  I've seen a few houses online that would be great and at the low end, so I'm optimistic.  Say a 15 year PITI ends up around $2k, would it be worth paying a little more on the mortgage in lieu of other savings (knowing that the extra amount going to principal with the 15 year would likely match or be greater than the drop in savings)?

@wahooman2010: I really like that approach, but we missed out on that opportunity! Everything is already in motion for the move (new job lined up, current employer knows we are leaving, listing house in two weeks...). I'm hoping (best case scenario) that my wife finds a part-time position pretty quick after we move, but that we are able to get used to the new budget before realizing any new income.  We are trying to make some changes in the grocery department before we move, including going to Aldi's last weekend.  With the amount of eggs (8-9 dozen), milk (2 gallons) and meat we consume on a weekly basis, we realized we could save nearly $100 a month on those items alone!

[Laura33]

First, awesome start -- to have that kind of savings and that amount of loans paid off in a few years is really great.  That gives me confidence that you already have the mindset to make this move and paycut a success. 

Second, I do like the idea of renting for a while -- it keeps you from locking in to a specific level of spend while you scope out neighborhoods, feel out the budget, see if your wife can get a new job or decides she wants to stay home, etc.  But, if you are moving back to your hometown, you may have a great idea where you want to be already, so you are just in the "execution" phase. 

In that case my suggestion would be to pay attention to all the little things in choosing a house.  E.g., look at the electric bills, look at the property taxes, think about yard size, think about location in terms of whether it will allow you to bike to work or walk/bike to relatives who might be helping out with kid care.  The more you can structure your future life to be easy/close/DIY-able, the more control you will have long-term over your FIRE options.  We chose a neighborhood where the kids could walk to grandma's/the library/school/shops instead of the traditional cul-de-sac neighborhood DH preferred -- it only took him about a year to admit that we made the right choice, because, damn, that walkability just made daily life so much easier, especially once the kids were old enough to go places themselves.  [OTOH, it came with a metric shit-ton of utility bills, so there's no such thing as perfect. :-)]

Also, I would *not* recommend a 15-year mortgage for you, right now.  [Aside:  I love them, I have one myself, I am out of the norm here in this]  You don't know for sure that your DW will get a new job instead of deciding she likes SAH with the kiddos, or how much she will make if she does, or how much daycare will be, or if you guys might add another kid, or or or or. . . .  You want flexibility in your budget while you figure that out -- right now, you have about $600 left over, which is fine for a temporary situation, but I personally would not be comfortable with that if there was a chance "temporary" might become "permanent."  So I would encourage you to sign up for a 30-year mortgage now, because it locks you into a lower payment and allows you a bigger savings buffer in the short term (and then you can put that extra cash aside for unanticipated expenses).  Then, if/when your DW gets a job and you are both doing what you plan to do for the next X years, you can choose to prepay that mortgage as fast as you want with that giant firehose of extra cash.

[wintertell]

We are going through the same exact thing! My HB quit his job in December, we moved from MD to NC in January. I am working remotely for the moment, though I need to find a full-time job in NC.

Here is my case study with very similar questions but about 1/2 the income: http://forum.mrmoneymustache.com/ask-a-mustachian/reader-case-study-hows-my-new-budget-what-should-my-next-goal-be/msg1333892/#msg1333892

We also want to buy a house, but I've convince HB to wait until we are a bit more settled to do so. We also would get a 30 yr mortgage for the reasons the previous poster pointed out.

A couple of points:
1) For me, 10K is not a big enough emergency fund with 1 primary earner, 2 little kids and a house. I'd bump that up to at least 6 months of expenses. We have 16K and I can tell you it already doesn't feel like enough with such a big change. We dropped our income by more than 50% and I'm still adjusting to the difference in financial security I feel being the only income earner.

2) I would advise a zero sum budget, which means you think through and budget that remaining $200 and $600. What about life insurance premiums? Car insurance? Personal care? Clothing? Vacation? Gifts? Birthdays? Fun money for you and your wife?

If it doesn't make sense to have a monthly budget, then have an annual budget and shape your targeted savings amount (now $200) to fit that amount. My fear is that by not budgeting 100% of your income, it will go to waste instead of to your goals. Ideally, if you want to fire, you want to do the Roths, 401(K), and savings outside of that - either to pay off debt, or invest in a taxable account, or to invest in real estate, etc, which means ideally some of that $800 should be diverted to a more productive use than spending.

I'd also buy a lawn mower, but continue to budget $100 a month for home repairs. If you rent, you don't need that category as your landlord should cover all of that.

3) Lastly, since this a period of BIG CHANGE, I would advise tracking expenses and having a check in at least 1x/month. HB also track our problem categories (eating out, groceries and home repairs) mid-month as well. Well, as the financial nerd I check on them all of the time : ), but we have a pow wow about whether to course correct mid month.

[Buckeye in TX]

@Laura33: Thank you for the suggestions.  The more I think about it, you are absolutely right with the 30yr mortgage. We'd much rather have the flexibility. Also, we will be living with my parents short term until we find a place of our own, which I'm hoping gives us enough time to both adjust to our new budget (without house payment) and find the right location.  We are pretty familiar with the area, so we've already established our short list of neighborhoods to look at.

@wintertell: That's a good idea about the emergency fund.  We've always been able to cash flow any unexpected expenses, so we never really felt the need to have more cash set aside.  Since that will change, it makes sense to add a little more security.  I've started tracking our expenses in Mint, and my wife seems receptive to periodic check-ins. Like you mentioned, the one area I'm most concerned about is whether that "catch-all" amount will be enough for all of those items like clothing, personal care and gifts.  This is likely the area that we will need to watch closely.