Life Situation: Married filing Jointly, 1 child to be born September 2018, live in CT, own a home. Currently 29 years old.
We currently are in the process of paying off our mortgage we both like the idea of being debt free, and are using it as a savings vehicle because we want to move up in house within the next 2-3 years. While doing this we are only contributing $17,750 to our 401K per year (16% me / 8% her). Once when the house is paid off we will max out our 401K, then Roth, H.S.A., and what ever is left will go in a taxable account. I am planning on spending $250-$300K on our next home.
My wife has a chronic disease that was diagnosed a little over a year ago typically we have around $5,000 in out of pocket expenses since we are in an H.S.A. Our insurance options are not that great most of them are high deductible plans, or a plan with very high fixed premium costs. I had a H.S.A. for years so I had a good amount saved up that has been used to cover medical costs of the past year and a half. This medical cost will continue forever. My current employer contributes $1,800 per year towards my H.S.A. that is not included in my contribution amount below.
Gross Salary/Wages:
Wife: $89,000 (typically no bonus)
Me: $66,443 (possible 7.5% bonus)
Total: $155,443 house hold (include bonus $160,426)
Individual amounts of each Pre-tax deductions 401k $17,750 , H.S.A $1,200, insurance $1,800
Other Ordinary Income: None
Qualified Dividends & Long Term Capital Gains: None
Rental Income, Actual Expenses, and Depreciation: None
Adjusted Gross Income: ~$135,000
Taxes: Approximately $33,000 Federal, state/local, and FICA. (I dont have a break down right at this moment our taxes were a little messed up last year. We owed taxes for 2017 because we didnt withhold additional amounts after getting married, and now with the new Trump taxes I think we will be taking the standard deduction rather than itemizing but taxes should be less this year so we will most likely get a refund, also we both got raises recently so our taxes are changing)
Take home Pay: ~$8,450 per month
Current expenses: Annual Costs $31,164 (doesn't include HSA/Insurance, includes $3000 vet bills), or $34,164 (includes HSA/Insurance)
o Cell Phone: $660 (Cricket Wireless)
o Life and Home owners Insurance: $1,200
o Mortgage: $576 (P&I)
o Property Tax: $4,214 (1000 sqft home, high tax area in CT, only ~5 miles to my work)
o Water Bill: $600
o Gas Heating: $1,128 (cold winters, and most of our appliances run on gas)
o Electric: $1,224
o Internet/cable: $1,176 (need internet for work from home, and not many options available)
o Grocery: $3,840
o Gas for car: $2,160 (this is probably a little high unless we go on a road trip)
o Vehicle Insurance & taxes: $2,550
o Gifts/Charity: $600
o Dog food: $1,200 (3 dogs one has expensive prescription food)
o Vet bills: averages between $1000-$3000 (Last year we spent around $3000 mainly due to a dog that has health issues)
o Going out/entertainment/Misc: $6,600
o Memberships/licenses: $436 (she has some RN licenses, BJs, Amazon, & AAA)
o H.S.A: $1,200 (deducted from gross pay already included in take home I adjust it to our needs currently)
o Medical/Dental: $1800 (deducted from gross pay already included in take home)
Expected ER expenses: I am thinking $35,000-$40,000 would be reasonable if we are debt fee. Also, I expect that we will not have so many dogs in retirement so this should reduce our vet bills and dog food expenses.
Assets:
401K: $95,770 (100% ETFs a mixture of large, mid, small, and international stock ETFs)
401K: $60,902 (100% large cap ETF)
Roth IRA: $14,358 (mostly BRK.B, and some other stocks)
Roth IRA: $4,909 (100% S&P 500 ETF)
H.S.A. $3,594 ($2500 in a cash account, and $1,094 invested in S&P 500)
Money Market Account: $10,095 (1.6% APR with Capital One)
Misc bank accounts/sinking funds: $8,500
Home: Purchased for $131,000 march 2011
Cars: 08 Audi A4 & 08 Subaru Impreza (KBB book values $6530 & $5,478)
Liabilities: (all other student loans and car loans have been paid off)
Mortgage: $58,878 (3.75% interest rate / monthly mortgage pmt $576) Should be paid off in the next 12 months or less since we are paying extra towards principal
Specific Question(s):
Our goal is for my wife to retire/or work per diem within the next 5 years. I plan on working until age 40 or FIRE which ever comes first, and then I will cutback to part time. I believe our FIRE number is around $1,000,000 but because of what I think will probably be higher expenses long term due to medical issues I want to continue working part time so we will have health insurance, and I can continue to max our H.S.A. and some retirement.
o Do you think given my plan, time frame, savings rate, and expenses this is achievable?
o Does any one have experience getting to FIRE and having medical issues? I fear we could be underestimating the long-term costs.
We plan to max out our traditional 401K, then H.S.A., then a ROTH IRA, and lastly a taxable account. Is this the right order of operations?
My wife really wants to pay cash for the next home, but the more I think about it I want to put a large down payment, and finance the rest with a shorter term mortgage that will be paid off by FIRE. What recommendations do you have?
We are due to have a baby in September. The costs are a huge unknown to me. We are planning on 2 days of day care a week that is about ~$180 per week. But besides that I have no clue on any other costs. We both want to foster a more conservative and frugal life for our little girl. So we are planning on breast feeding, making our own food, doing less expensive but more adventuress activities like going to national parks, camping, biking, and going to the library when she gets older. So I think overall it wont break the bank, but I do think it will cause some areas of our budget to increase like medical expenses, school supplies, and food. What budget recommendations do you have for budgeting and having a baby?
**6/11/18 - Update**
I got my actual 2018 withholding (federal/state/SS/Medicare) we are currently withholding approximately $34,500 for 2018. I ran a tax calculator based on the updated tax code. I should be withholding around $33,800 based on current 401K and H.S.A. contributions assuming no other deductions/credits. Which I will most likely getting $2,000 for the child tax credit. I am currently in the 22% marginal tax bracket, with an average tax rate of approximately 11%.
I did a cash flow analysis after my wife retires (2024), and I wouldn't be able to afford to support our house hold expenses, and a mortgage payment. I assumed $1,200-1,500 monthly P,I,&T payment. This put my in a negative cash flow position even if I drop my 401K withholding to just the company match of 6%, but assuming we continue to max our the 401K.
I think the only way to get to FI, and allow my wife to retire by 2024 would be to have a paid for home then lower my 401K to get to a cash flow neutral position.
Using these assumptions I would have around a $600-700K liquid net worth by the time she retires, and then I would continue to work until 2028 or so. By then I think I could have a $1M net worth depending on how our investments perform. Also, this would give me time to build up a sizable H.S.A. balance.
** UPDATE 1/3/20**
My wife got a new job Friday-Sunday that pays more per hour but was a pay cut although it allows us to not pay for childcare which was very expensive. I work from home 3+ days a week, and we have a family member to help on Friday's and when needed.
We paid off our mortgage, and just use credit cards for points then pay it off immediately. My wife was admit we pay it off rather than invest, and it was satisfying to me to.
We had significant medical bills between my daughter (allergies & birth) and wife (MS). We started paying for them out of pocket, and started investing our H.S.A. now that we have better cash flow with my wife back to work.
We are planning on trying for another kid early 2020 which means we could have another birth this year.
We still have a goal to move to a larger home by 2023, my wife will plan on working part-time, and I will continue to work full-time.
My car just broke down, and either needs a motor swap or buy a new car.
My company was just acquired by a much larger company. I didn't lose my job, but we have had turnover, and layoffs. Our benefits have changed, been cut, and my pay is likely to change (not sure if better or worse yet).
Gross Salary/Wages:
Wife: $86,000 (typically no bonus)
Me: $73,000 (possible 7.5% bonus)
Total: $159,000 household (include bonus $164,475)
Take home Pay: ~$6155 Avg. Per Month / $73,864 Annual Costs (includes maxing out both Roth 401Ks, Medical, dental, and maxing out H.S.A.)
Current expenses: ~$3450 Avg. Per Month $41,401 Annual Costs
Annual
Taxes (Home & Auto) $4,787
Insurance (HO, Auto, Life) $2,507
Veh Gas $2,160
Electric (Eversource) $1,596
Cable/Internet $696
Gas Heating (CNG) $1,148
Water (MDC) $701
Cell Phone $660
Down Payment (MMA) $20,466
Roth IRA Investments $12,000
Medical Expense Savings $8,400
Discretionary Spending $16,800 (Gifts/Groceries/Pets/Entertainment/Misc)
Gym Membership $1,500
Other $446
Assets:
401K: $130,000
401K: $104,109
Roth IRA: $26,638
Roth IRA: $18,172
H.S.A. $ ($1000 in a cash account, and $2952 invested in S&P 500)
Money Market Account: $13,363
Misc bank accounts/sinking funds: $1,901
Home: Purchased for $131,000 march 2011
Cars: 08 Audi A4 & 08 Subaru Impreza (KBB book values $4500 & $4,000)
Liabilities: None / Mortgage: Paid off
Updated Questions:
The market generated great returns this year and I think we are well on track to meet our FIRE goals. Any changes you would make? I do feel like we had a lack of cash on hand, and with the uncertainty of the market, my job, and the outlook of having a new baby I moved some stocks into bonds in my Roth IRA's.
I feel like my job is relatively safe even with the merger (more so prior to the merger), but I am very luck to be in the position I am today rather than just out of college. I don't have a great relationship with anyone on my team. I do think my work ethic does help, and I am not the most senior person (not highest paid), but I do have +7 years experience in the same company/role. Would you look for a new job, stay in the same position, or look to a different department/role given the uncertainty?
Any recommendations on a frugal larger vehicle for a growing family? We are likely to sell my car either salvaged or repaired. My wife has trouble with lower cars getting the kid in and out. She really wants a mini van (if that is the case I am leaning towards a 5-10 year old Mazada 5, but would appreciate any recommendations.. I really like the idea of a one family car, but I am not sure how feasible it is in the NE we get really cold winters, and with my wife working weekends I have no car at all.
Projecting out I don't have a very clear path of how we are going to pay for our next house in cash. We have some vacations planned that are not factored into our budget, and very likely have to get a new car.
Any recommendations on good side hustles, or resourceful ideas to get more income or lower costs?
We plan to fly to CO my friend lives in Longmont. We have 2 weeks off we will likely stay near them for a little while, and then go visiting Rocky Mountain national Park. Because we are flying, and have a 1 year old. We will likely stay inexpensive hotels or AirBnBs. I would like to camp but not sure that will happen.. Does anyone have any tips to keep costs low, and good ideas for fun things to do?