Author Topic: Must have done something right, but not sure what to do now  (Read 1302 times)

Timeforfocus

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Must have done something right, but not sure what to do now
« on: January 05, 2019, 11:26:28 AM »
Wow! I found my people. We obviously have done some things right, but now I've been browsing forums all week and I find myself unsure where to "begin."

Here's the numbers:
Life Situation: Married-filing joint DH 45, DW 44-18yo college freshman-instate university, 16yo HS junior

Gross Salary/Wages: DH 82,000+ annual bonus ~7,000, DW 34,000

Individual amounts of each Pre-tax deductions: DH Roth 401K 378/pay period(pp), Medical/dental/vision 135pp-currently pre-tax but will have option for HDHP with HSA in March; DW Roth 170/pp, HSA 100/pp, Med/dental/vision 17/pp

Adjusted Gross Income: DH 72,398 DW 27,130

Taxes: Federal:2,416 DW 9,419 DH, state/local 1,391 DW 3,058 DH, and medicare and SS 2,399 DW 6,739 DH. (Annual numbers from 2018

Ballpark take home 74,106

Current expenses:
                                     Tithe-10% gross 12,300
                                     Additional charity 1,200
                                     Property tax-4,600
                                     Maintenance 1,170
                                     Insurance-home,auto, umbrella, life 5,200                                     
                                     Education-school lunch, books, uniforms 1,690
                                     Vacation 4,080
                                     Car maintenance 1,820
                                     Food/groceries 4,250
                                     Household misc. 2,200
                                     Dining out 2,300
                                     Car payment 2,760
                                     House payment 16,716
                                     Clothing 1,300
                                     Water/sewer/trash 990
                                     Lawn care 300
                                     Internet 360
                                     Electricity 950
                                     Natural Gas 694
                                     Sling/Netflix 522                                     
                                     Auto Gas 3,227
                                     Cell phone 2,160
                                     Gifts 1,350
Total spent 72,139

Mortgage: 196,000 15 year fixed-3.125%, monthly payment 1,393 18 months in current balance:183,877

Assets:
"Retirement accounts"                       179,962 in deferred comp from previous government employment
                                                       15,262 in DH Roth from college graduation
                                                       61,414 in DH current Roth at work
                                                       53,661 in DH current 401K match at work
                                                       5,433 in DW current Roth at work
                                                       4,026 in DW current 401K match at work
                                                       28,327 in DW rollover Roth IRA
                                                       117,795 in DH rollover IRA
                                                       89,190 in DH rollover Roth IRA
                        College funds            36,293 in DD ESA-3 years left of instate tuition and fees Took out student loan for $4250
                                                       40,783 in DS ESA +5932 in 529 plan
                        Cash/checking          20,120
                        Home:                     ~400,000
Total: 1,000,265
                                                       
Liabilities:
Mortgage-as above
Car Loan-Original loan 13,490, .9%, 60mo, $230-current balance 2,294

Total: 186,171

Specific Question(s):  I feel like we are just floating along. Dave Ramsey got us here, except that we took out that car loan and new mortgage :)  There's lots of money in "savings" and we're just kind of on auto-pilot. We need to clean up and tighten up, but it's been fun to not pay nearly as close of attention to it as we did in our 20's. What do we focus on first?  I "feel" like we are closer to FI than we think we are. Someone point me toward something. We've been lazy.




« Last Edit: January 06, 2019, 12:04:54 PM by Timeforfocus »

singpolyma

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Re: Must have done something right, but not sure what to do now
« Reply #1 on: January 05, 2019, 11:54:13 AM »
Education: you lists books an uniforms but not tuition? What kind of school is this?
I think this is the first time I'll say this to anyone on forum, but grocery doesn't look too bad for 4 adults.$
Eating out and vacation seem high to me.
Misc of $183/mo seems *very* high. What is going in there?
Car payment? So you owe money on the car? Fix that fast!
Clothes... how are you spending over $100/mo on clothes for adults???

Timeforfocus

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Re: Must have done something right, but not sure what to do now
« Reply #2 on: January 05, 2019, 01:35:46 PM »
Education: you lists books an uniforms but not tuition? What kind of school is this?
I think this is the first time I'll say this to anyone on forum, but grocery doesn't look too bad for 4 adults.$
Eating out and vacation seem high to me.
Misc of $183/mo seems *very* high. What is going in there?
Car payment? So you owe money on the car? Fix that fast!
Clothes... how are you spending over $100/mo on clothes for adults???
Charter school for high school-uniform required-usually 2 pairs of khakis and a long sleeved polo, but DS has grown more than 4 inches/year last two years so have needed a few extra pairs of khakis. Books for college student. HS student takes school lunch every day so ~ $75/month.
Grocery is budgeted at $70 every two weeks, and that almost always covers all food, but not always all paper products and beer :)
We've gotten to the "we earned it" point on eating out-still not extravagant, but two to three times a month-could be better.
Vacation budget is actually more, but there has been a side hustle to cover the rest.
Yes, we owe on the car....at .9%, so we let it ride.
Clothes-I don't know. Budget is $40 cash per pay and often there is leftover that gets raided for misc. and then there was additional $$ spent there out of checking-need to examine more closely.
Misc went to some medical that wasn't covered by HSA this year-DH had gall bladder out in February (1 deductible) and then kidney stones on March 1 (another deductible-plan resets on March 1). There's other fluff, but that covers most of it this year.

Again, no real money drain, just a lot of lazy habits, I guess.

singpolyma

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Re: Must have done something right, but not sure what to do now
« Reply #3 on: January 05, 2019, 05:08:37 PM »
Quote
Again, no real money drain, just a lot of lazy habits, I guess.

That's the story for most people -- big money drains even some unfrugal people can see (if not fix). Lazy habits are where badassity comes in :)

Gone_Hiking

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Re: Must have done something right, but not sure what to do now
« Reply #4 on: January 05, 2019, 05:13:17 PM »
Congratulations on having almost no non-mortgage debt.  That's a huge accomplishment.

Now, about that FI topic...
I took a stab at calculating your savings rate with assumption that you and DH are paid bi-monthly.  Looks like you have 11% savings rate. 
Assets in the IRA and savings accounts are at 575K, which is not nearly enough to cover your current expenses at 4% withdrawal rate.  Looks like you could use more savings and lower your expenses, no?

You have a few ways to increase your savings rate.  Clothing budget looks like a good candidate for trimming.  Ditto with restaurants.   While I don't personally think your vacation budget is excessive, you might consider trimming that, too, to free some of that side hustle money to savings.  Within a year, your car payment will go away and that money can be directed towards savings as well.

Ultimately, the largest expense is your mortgage, and it looks like you have another thirteen and half years with the mortgage.  Once that is paid, your expenses will drop quite dramatically and you will be in a good position to contemplate FI at that time.

Freedomin5

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Re: Must have done something right, but not sure what to do now
« Reply #5 on: January 05, 2019, 05:28:59 PM »
The reason why you feel like you’re closer to FI than you actually are is because you’re counting the value of your primary residence in your net worth. The only time that makes sense is if you plan to sell your house and invest the proceeds.

If you plan to live in your current house once FIRE’d, you really only have around $600k to generate investment income for you, which at the 4% rule, gives you $24k per year. Even without your mortgage and taking out all “unnecessary” expenses such as eating out, vacation, and tithing, you are spending way more than $24k per year.

We are glad that you’re here. Dave Ramsey is like baby food for financial freedom. Now you’ve graduated and are moving onto solids! That’s awesome!

Basenji

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Re: Must have done something right, but not sure what to do now
« Reply #6 on: January 05, 2019, 06:27:47 PM »
It would be great to have your pre-tax contributions in either a monthly or annual number because the rest of your reporting is annual.

I'm seeing $1,187 per month in pre-tax investment savings, or $14248 annual?)
DH Roth 401K 378/pay period(pp)
DW Roth 170/pp
[Not including the HSAs, see below]

Do you get an employer match for any of your investment contributions? [I'm trying to apply the MMM-style of computing savings rate from here: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/]

So, savings rate is [take home (74,106) + pre-tax investment contribs (14,248*)] - Expenses / Take home + pretax contribs

[* I'm not sure if people include the HSA as investment contribs. I didn't here. I may be wrong.]

88, 311 - 72,139 / 88,311 = 18% savings rate, oof

WAIT: you have house payment ($16,716) is any of that principal?

Boy, that car is costing you a lot! Do you drive a ton?
Car payment 2760
Car maintenance 1820
Auto Gas 3227

In sum, let's say your savings rate is around 20%. On this forum we would suggest getting it up as high as you can. The reason is the more you save the faster your can retire. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

When do you want to retire?

Also, are you maxing out your pre-tax opportunities? See here: https://forum.mrmoneymustache.com/investor-alley/investment-order/
« Last Edit: January 05, 2019, 07:43:26 PM by Basenji »

lhamo

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Re: Must have done something right, but not sure what to do now
« Reply #7 on: January 05, 2019, 08:04:14 PM »
At your income levels you would probably be better off long-term/tax-wise if you contributed to regular 401ks for now instead of Roth 401ks and built up regular Roths/taxable retirement savings on the side.  Then if you do FIRE (which seems likely) you could live off the cap gains/dividends and a bit of principal from the taxable accounts while Roth laddering the regular retirement accounts.  If you FIRE at 50-55, you still have 15-20 years to move the regular accounts over to Roths to minimize RMDs.

Timeforfocus

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Re: Must have done something right, but not sure what to do now
« Reply #8 on: January 05, 2019, 08:15:20 PM »
It would be great to have your pre-tax contributions in either a monthly or annual number because the rest of your reporting is annual.
OK, let's see-DH was 10842 to Roth last year (12%) + 3% employer match or 2517 + 5% profit sharing of total comp previous year or 4293=$17652 total contributed last year
DW was 4100 to Roth + 1709 employer match + 2400 HSA=8209 total contributed last year


I'm seeing $1,187 per month in pre-tax investment savings, or $14248 annual?)
DH Roth 401K 378/pay period(pp)
DW Roth 170/pp
[Not including the HSAs, see below]

Do you get an employer match for any of your investment contributions? [I'm trying to apply the MMM-style of computing savings rate from here: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/]

So, savings rate is [take home (74,106) + pre-tax investment contribs (14,248*)] - Expenses / Take home + pretax contribs

[* I'm not sure if people include the HSA as investment contribs. I didn't here. I may be wrong.]

88, 311 - 72,139 / 88,311 = 18% savings rate, oof

WAIT: you have house payment ($16,716) is any of that principal? 11211 went to principal, 5960 to interest

Boy, that car is costing you a lot! Do you drive a ton? That's the combo of three/four cars-2015 Accord-only one with payment, 2008 Camry, 2003 Subaru + 2005 Mustang in storage for winter
Car payment 2760
Car maintenance 1820
Auto Gas 3227

In sum, let's say your savings rate is around 20%. On this forum we would suggest getting it up as high as you can. The reason is the more you save the faster your can retire. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

When do you want to retire? DH says he never really thought about early retirement-we're working on that ;)

Also, are you maxing out your pre-tax opportunities? See here: https://forum.mrmoneymustache.com/investor-alley/investment-order/

« Last Edit: January 05, 2019, 08:18:06 PM by Timeforfocus »

Timeforfocus

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Re: Must have done something right, but not sure what to do now
« Reply #9 on: January 05, 2019, 08:30:51 PM »
At your income levels you would probably be better off long-term/tax-wise if you contributed to regular 401ks for now instead of Roth 401ks and built up regular Roths/taxable retirement savings on the side.  Then if you do FIRE (which seems likely) you could live off the cap gains/dividends and a bit of principal from the taxable accounts while Roth laddering the regular retirement accounts.  If you FIRE at 50-55, you still have 15-20 years to move the regular accounts over to Roths to minimize RMDs.

Have to change some thinking in the house. We've been focused, but never so laser focused as to calculate the tax savings now vs. need to do conversions and other "complicated" things down the road.

Basenji

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Re: Must have done something right, but not sure what to do now
« Reply #10 on: January 05, 2019, 08:53:32 PM »
With the new numbers you gave me, you are more like 39% savings. You will be able to retire eventually, but if you want to retire faster you need to save faster and learn about optimizing your taxes.

I was wondering about the ROTHs myself. Buried in this post Investment order are lots and lots of links. For example, there's one on traditional vs. ROTH accounts that may be worth reading.

Others may chime in on cost cutting. A basic belief on this forum is you should optimize everything. That is, any expense or tax should be scrutinized and reduced, if possible. The exercise may not change much of your spending or taxes, but at least you will have looked at every category without assuming it is ok as is. For example, 4 cars and the amount you spend on them is a lot to me, but only you can decide if there is an opportunity to reduce those costs. Obviously the tithing delays your retirement, but I know that is a firm category for people who do it.

dmmms

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Re: Must have done something right, but not sure what to do now
« Reply #11 on: January 06, 2019, 08:13:24 AM »
I read the case study as:
Assets of $1,000,000
     Minus House of $400,000
     Minus College Savings $78,500
     New Asset Total (for 4% rule, ignoring $20k cash) $524,500
Liabilities of $184,000

Given spending of $72k, you will definitely need to up your savings rate and take full advantage of all options if you want to retire earlier than the norm. Have you looked at the Shockingly Simple Math MMM post? It's often THE one that really buckles you down! Right now you'd need about $2,000,000 (3.6% WR, taxes & health insurance not included).

Just curious...are you able to or will you be able to cover all college costs with what you have set aside? Or will loans increase? Are they your loans or the kids?

Welcome to your new addiction! Lol

Dicey

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Re: Must have done something right, but not sure what to do now
« Reply #12 on: January 06, 2019, 08:31:53 AM »
Cranky Rant Warning: For the love of Dog, please clean up your initial post. Fix the wonky spacing, add commas to all numbers over three digits, use or do not use (the better option) dollar signs consistently, etc. Make it easy to read and you'll get more help. You're welcome. Now get off of my lawn!

Timeforfocus

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Re: Must have done something right, but not sure what to do now
« Reply #13 on: January 06, 2019, 10:08:00 AM »
I read the case study as:
Assets of $1,000,000
     Minus House of $400,000
     Minus College Savings $78,500
     New Asset Total (for 4% rule, ignoring $20k cash) $524,500
Liabilities of $184,000

Given spending of $72k, you will definitely need to up your savings rate and take full advantage of all options if you want to retire earlier than the norm. Have you looked at the Shockingly Simple Math MMM post? It's often THE one that really buckles you down! Right now you'd need about $2,000,000 (3.6% WR, taxes & health insurance not included).

Just curious...are you able to or will you be able to cover all college costs with what you have set aside? Or will loans increase? Are they your loans or the kids? It's the kid's loan-shouldn't need much more than that annually, and in fact possibly less as we will have two in school for two years so EFC should go down.

Welcome to your new addiction! Lol

Timeforfocus

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Re: Must have done something right, but not sure what to do now
« Reply #14 on: January 06, 2019, 10:09:14 AM »
Cranky Rant Warning: For the love of Dog, please clean up your initial post. Fix the wonky spacing, add commas to all numbers over three digits, use or do not use (the better option) dollar signs consistently, etc. Make it easy to read and you'll get more help. You're welcome. Now get off of my lawn!
Thanks for your help....fixed the dollar signs and commas, but how would you like the spacing set up, oh cranky one?

lhamo

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Re: Must have done something right, but not sure what to do now
« Reply #15 on: January 06, 2019, 11:17:00 AM »
At your income levels you would probably be better off long-term/tax-wise if you contributed to regular 401ks for now instead of Roth 401ks and built up regular Roths/taxable retirement savings on the side.  Then if you do FIRE (which seems likely) you could live off the cap gains/dividends and a bit of principal from the taxable accounts while Roth laddering the regular retirement accounts.  If you FIRE at 50-55, you still have 15-20 years to move the regular accounts over to Roths to minimize RMDs.

Have to change some thinking in the house. We've been focused, but never so laser focused as to calculate the tax savings now vs. need to do conversions and other "complicated" things down the road.

Conversions are not really that complicated, especially if you are only trying to move from the higher tax brackets now to lower later, and not trying to avoid tax entirely when you convert. 

I like this online calculator, which is really easy to play around with.  You could use it to pretty easily see what the difference in tax paid now with regular 401k vs. Roths will be. I'm too lazy to do it for you....

https://www.olt.com/main/home/taxestimator.asp

Dicey

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Re: Must have done something right, but not sure what to do now
« Reply #16 on: January 06, 2019, 11:38:37 AM »
Cranky Rant Warning: For the love of Dog, please clean up your initial post. Fix the wonky spacing, add commas to all numbers over three digits, use or do not use (the better option) dollar signs consistently, etc. Make it easy to read and you'll get more help. You're welcome. Now get off of my lawn!
Thanks for your help....fixed the dollar signs and commas, but how would you like the spacing set up, oh cranky one?
Much better. Wonky spacing is mostly in the Assets section.

After all of that, sometimes doing nothing is actually a good thing. Assets tend to accumulate very quietly over time. It only seems like you're doing nothing.