The Money Mustache Community
Learning, Sharing, and Teaching => Case Studies => Topic started by: Timeforfocus on January 05, 2019, 11:26:28 AM
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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, $230-current balance 2,294
Total: 186,171
Specific Question(s): I feel like we are just floating along. Dave Ramsey got us here, except that we took out that car loan and new mortgage :) There's lots of money in "savings" and we're just kind of on auto-pilot. We need to clean up and tighten up, but it's been fun to not pay nearly as close of attention to it as we did in our 20's. What do we focus on first? I "feel" like we are closer to FI than we think we are. Someone point me toward something. We've been lazy.
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Education: you lists books an uniforms but not tuition? What kind of school is this?
I think this is the first time I'll say this to anyone on forum, but grocery doesn't look too bad for 4 adults.$
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 $100/mo on clothes for adults???
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Education: you lists books an uniforms but not tuition? What kind of school is this?
I think this is the first time I'll say this to anyone on forum, but grocery doesn't look too bad for 4 adults.$
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.
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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 :)
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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.
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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!
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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/
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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/
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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.
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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 (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) 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.
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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
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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!
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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
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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?
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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.