Author Topic: Reader Case Study – Is hedonic adaptation is getting the best of me?  (Read 1481 times)

Mapleshark

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Background:  I grew up in a poor rural area where most people lived at or below the poverty line.  My family had its basic needs met, but my parents were VERY conscious of every dollar spent.  I picked up this mindset, which was critical to making ends meet in college.  My parents helped me out as much as they could, I saved from part time jobs, and I was fortunate enough to have significant scholarships.  I ended up graduating with about $3,000 in debt.  My first job after college was flight instructing, which I LOVED!  However, it only paid about $12,000 per year.  I managed to make ends meet and pay off the debt in under a year.  My original plan was to build flight time and become an airline pilot, but I felt a call to serve and joined the military three years after graduating.  My income quadrupled immediately, but I did my best to avoid letting my lifestyle increase with it.  I found myself with the ability to start investing significant amounts of money.  I received raises several times along the way, always trying to put 90% toward investments.  My wife does not consider herself as frugal as I am, but she is quite reasonable and supportive.  I arbitrarily set out to be FIRE by 40. 

Life Situation:  Married Filing Jointly, wife and I are 32, 2 kids (2.5 years & 1 month), 7.5 out of 20 years toward military pension, live in New Mexico.

Gross Salary:  $115,968.68 (only $112,916 is taxable), including $35,000 retention bonus that I’ll get for the first time later this year

Individual amounts of each Pre-Tax deduction:  $18.5K Thrift Savings Plan (similar to 401K), not eligible for HSA.

Other Ordinary Income:  My wife and I inadvertently earn a combined $3k per year from hobbies (she teaches fitness classes, I flight instruct).

Adjusted Gross Income:  $97,416

Annual Taxes:
FICA - $5,318
Fed – $4,429
State – $0

Current Monthly Expenses: $2,800 ($33,600 annual)- I know these are broadly categorized, but it’s the most accurate data I have.  I’ll work on breaking down the expenses over the next few months.

$570 Groceries – Seems high to me, but my wife does the grocery shopping so I’m not sure where it all goes.  I'll tag along and learn more.
$520 Car Payment – I could pay this off, but I’d rather invest.
$510 Charity – We believe in helping others first, paying our future selves second, and spending on ourselves last. This “expense” isn’t going down.
$300 Shopping   
$179 Misc         
$168 Flying – I’m a pilot by trade.  This is the average amount I spend on aircraft rentals and associated costs per month for fun.  Yes, I’m aware it’s less mustachian than driving an 18-wheeler for simple errands.  More on this later.
$118 Restaurants – Very anti-mustachian here.  It crept up over $250.  My goal is to have it under $75 by the end of the year.  Baby steps…
$110 Gas – Almost all of this comes from short trips we take for hiking etc.
$65 Cell Phones – 2x Republic Wireless phones
$60 Auto Insurance – Big discount for living on base and not driving much.
$50 Entertainment      
$48 Private Term Life - $250,000 policies for myself and my wife
$38 Internet      
$34 Military Life Insurance - $400,000 for me, $100,000 for my wife
$30 Family Dental Insurance   
$0 Health Insurance   
$0 Housing - We live in military base housing, which lets us cut back on driving.  I walk or bike the 1.5 miles to work most days, my wife runs most errands by taking the kids in a stroller, and the majority of our friends live within a quarter mile.  It also provides a big discount on car insurance.  If we chose to live off base, I would receive a non-taxable housing allowance of $1,389 per month, but a comparable house + utilities and increased driving would be more than this, as well as pull my family away from the tight-knit community that we love.

Expected ER expenses:  $45k would cover our current standard of living in the area we plan to retire.  However, I’m considering building a bigger nest egg to fund some extras.  More on this later.

Assets: $570k Total

Cash
$1k Checking      
$5k Savings – I use this as an emergency fund.  It’s a little under 2 months expenses, but I have tremendous job security, robust healthcare, am not responsible for home repairs, and live on less than half my salary.  If something huge did come up, I could pull from investments as needed.

Investments - I max my TSP (no employer match) and our IRAs first, then everything else goes in the taxable account.  I put enough in traditional to stay in the 15% bracket (12% now).  I’ve transferred my GI Bill to my kids, covering over half of their college expenses.  I want them to work/save some on their own to have a little skin in the game.

$79k Roth TSP – 50% Small Cap index, 25% S&P 500 index, and 25% International Stock index.  All have sub-Vanguard expense ratios.
$89k Traditional TSP – Same allocation as Roth TSP   
$58k My Roth IRA – 65% VSMAX, 35% VTIAX
$53k Wife’s Roth IRA – 100% VFIFX
$16k Wife’s Trad IRA  – 100% VFIFX
$237k Taxable Account – 80% VTSAX, 20% VTIAX

Cars
$6k 2010 Corolla – I’ll drive it until the wheels fall off.
$26k 2017 Sienna – I hope this will be my 2-year old’s first car.

Liabilities:   
$21,000 Sienna Loan - 3.5/4 years left at 1.99%. 

Net Worth: $549k

Specific Questions:
1.   Any problems stick out?  Spending, investment choices, anything really?  Face-punches welcome!
2.   If I kick the bucket early, the life insurance + current assets would give my family enough to never have to worry about money again.  Since my income potential is significantly higher than my wife’s, I want to keep my life insurance policies, but I’m considering canceling hers.  That would save $27 per month.  While her death would be emotionally devastating, I’d be able to afford daycare for the kids without any trouble.  Thoughts?
3.   Is hedonic adaption getting the best of me?  If so, should I care?  I ask because I’ve noticed our expenses starting to creep up more than necessary after having kids.  The $33.6K we spend annually is far beyond what people lived on where I grew up, and it doesn’t even include any housing costs.  My annual expenses would be just over $50K if you consider the free housing as part of my compensation, which I do.  This bothers me at times because I feel like I’ve lost touch with my roots.  I was a happy kid.  Why do I need to spend more now to be happy?  On the other hand, we’re still living on a fraction of our income and are on track to be FIRE about 2 years before my arbitrary goal of 40, despite my wife quitting work to stay home with our kids.
4.   Let’s say I’m FIRE at 40.  I could quit my job in the military and live a comfortable life on about $45k per year.  Should I continue working until 45 to earn a military pension?  Between the pension and the increased nest egg, I’d be able to live on closer to $90k per year in addition to having extremely low health care premiums for the rest of our lives.  I can’t begin to comprehend how I would spend that much money, but it seems a little foolish to walk away from the military so close to earning a pension.  It’s important to note that I genuinely like my job.  It can be stressful at times, but I believe in what I do.
5.   Let’s talk about my flying budget…  I know spending $100-200 a month on renting aircraft for fun is about as anti-mustachian as it gets.  In fact, I went cold turkey on recreational flying for budget reasons for about five years.  During that time, my wife and I noticed I was getting into a bit of a funk, bordering on depression.  I was drinking more, socializing less, and was irritable at times.  My wife pushed me to get more involved in things that I enjoy, mainly flying.  EVERY time I takeoff I grin from ear to ear.  My stress melts away, and I come home feeling invigorated.  It’s also a social activity for me.  I fly with other pilots and share techniques or take friends and family up.  It’s amazing seeing other people experience the joy of it for the first time.
Initially I was spending $400-500 per month but lighting that much money on fire caused me to freak out a bit.  I brought my costs down by flight instructing (the student pays for the plane) and by volunteering to tow gliders at a local soaring club.  Can the mustachian community forgive me for continuing to spend $100-200 per month on this luxury?
Going back to question 4, finishing out my 20-year military career would provide a HUGE surplus of retirement funds to fly as much as I want…

I appreciate your time and any advice you have!
« Last Edit: July 21, 2018, 10:42:08 AM by Mapleshark »

leighb

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It seems to me that you are doing pretty well and have thought a lot of things out.

Maybe you can shift your thinking on a few things to make you feel better. You say that two big expenses are not changing, but at the same time they are choices that you are making. One is the car payments; you are choosing to invest that money. So instead of thinking about it as a 500 car payment, think about it as a 500 that gets to go into your investments. They other is your giving. And good for you prioritizing that. It's not what I would call hedonic, but I'm sure it make you feel good none-the-less.

You asked for a critique. I would look more closely at Misc and Shopping. Those two categories sound like one category to me. They are up there with the other big expenses. 

I love hobbies, so in my opinion keep flying! You could have the goal of making your hobby pay for itself. But only if it doesn't take away from the enjoyment of the hobby.

I can't say what you should do professionally. It seems like you have good incentives to stay. If I were you I would keep working towards early retirement and see how you feel when your a bit closer to your goal.

Good work!

Hirondelle

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Seems like you're having a sweet deal with your job and are doing great. At first, I was really impressed by the combination of your title and then a $2800/month budget for 2 adults and 2 kids. However, the free housing makes it less impressive.

Things that stand out to me:
- Groceries are very high for 2 adults and two kids that young. Try to get more involved and see if there's options to reduce. Should easily be able to save you $100/month, probably more as long as the kids are young.
- You say you prefer the car payment and investing the money over paying it off. That makes sense. What doesn't make sense is that you have a car worth $26k. Why did you need such a new/expensive car? The first few years the car depreciates the fastest so it's almost always beneficial to buy a car that's a few years old.
- $300 shopping is A LOT. Where's that money going? Kid's clothes should be easy to find dirt cheap 2nd hand and you should have most of the necessary stuff for youself at this stage in your life. Figure out where the money is going and try to reduce.
- $179 misc. So that's not shopping? Any clue what these are? That's a lot of uncategorized money.
- Restaurant budget isn't that bad. Surely not the most mustachian and a good one to reduce a bit, but I wouldn't stress it too hard as it's not the lowest hanging fruit to me.

sokoloff

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I totally “get” the flying thing and in the big picture, I think it’s more about spending money consciously (vs mindlessly) and it seems like you value it more than enough. One thing I’d check is to confirm that your life policy is in force for all of your flying activities. It’s a common exclusion.

On the 45 vs 40 thing, I’d probably gut it out to 45 for health care and pension. You can always increase your giving later or find other productive uses and you self-report that you like and find fulfillment in your work.

Others have commented on the new car and shopping; I’ve got nothing to add there.

Thank you for your service.

lhamo

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Re:  life insurance -- check both of your social security records and see what the survivor benefit would be for kids under 18 (and parent caring for kids under 16).  Especially as your asset base grows, you may not need so much supplemental insurance.  Could consider switching to a 10 or 15 year policy, and maybe at lower levels.

Worst case scenario -- what would you do with your kids if your wife pre-deceased you and you had to deploy?  Might be worth keeping at least some coverage for her so that you could provide generous compensation to friends or family you might need to ask for help. Or to weather an early departure from your military career, if it came to that.

Agree with the suggestions above that groceries and misc seem a bit high.  Be sure you and your wife are on the same page about spending on the kids -- it really isn't necessary if you are in a community with a lot of families where you can get tons of free clothing, toys, kid gear, etc. 

I think since the flying obviously helps with your mental health, you should keep doing it.  Cheaper than therapy and/or meds.  But try to find ways to keep the costs down.  Doing more instructing seems ideal -- you get to fly AND make money, rather than pay money, to do it.

And thank you for your service.

Mapleshark

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Thanks for all the quick responses!  Various perspectives are exactly what I need!  Great points about making sure I’m not taking the enjoyment out of my hobby in an effort to reduce the cost.  I’ll try to maintain the $100-200 range on recreational flying.

Sounds like my suspicion that we spend too much on groceries is confirmed!  I’ll tag along on a few shopping runs.  Maybe I can volunteer to pick up groceries before/after work so my wife doesn’t have to juggle two kids in the store – probably the decent thing to do as a husband anyway lol.  I suspect her tolerance for price comparisons and planning meals around what’s on sale drops when she has kids in tow.

“Shopping” is best categorized as our little purchases that add up, mostly from Amazon.  Point taken that I need to investigate this one more!  I do know that very little of it is baby clothes or toys.  Almost everyone in our neighborhood is within a few years of our age, and most have kids under the age of 5.  Clothes and toys are passed around and around and around… 

“Misc expenses” tend to be bigger, one-off, types of expenses.  We live in New Mexico, but our families are in Michigan.  That’s a three day drive each direction.  Taking more than a week off at a time is nearly impossible, so we usually end up flying.  Then I average the cost out over our monthly budgets.  We try to go home at least once a year since my family can’t afford to fly to us.  Other examples of “misc expenses” are our annual renter's insurance bill, car registrations, and other odd repairs (changed my spark plugs last month).  Does this area seem more reasonable after clarifying?

I think I stress about restaurant spending because the concept of paying people to prepare my food and wait on me was a foreign concept growing up.  My budget for this prior to joining the military at age 25 was literally $0.  Going out to eat still feels weird to this day…

Ahh, the car…  I don’t regret buying a large vehicle (minivan) because we regularly put 6-8 people in it.  It’s been an interesting social experiment for me to see how many military guys I can convince to carpool to a trailhead in our minivan.  I love shaking the stereotype of each of us driving a separate F150 from the same neighborhood to the same location. 

But the brand-new part of the expense… All I can say is, “Guilty as charged!”  It appears I’ve let my neighbors (identical income, yet somehow live paycheck to paycheck) rub off on me.  Alas, I should have toughened up by spending time with fellow mustachians like you!  Neither my wife nor I would have even considered a new vehicle 5 years ago.  All previous cars were a minimum of 3 years old and usually under $12k.  Is the best course of action from here to drive it until it dies?

As far as my life insurance goes, flying IS covered.  I made sure it was included in the policy when I opened it up (added about $2 per month).  Good point about having the option to reduce the number of years on the policy.  It’s currently a 30-year term, set to expire when we turn 55.  I didn’t comprehend how soon I could be FIRE when I opened it.  I’ll look into our social security survivor benefits.  Our kids would live with my brother’s family if I’m deployed and my wife isn’t with us anymore.  I’d be able to send them more than enough for my kids and theirs (remember, very low cost of living area).

Thank you for your time and help!

politenessman

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I'm going to look at this a slightly different way - I don't care about the numbers that much. I have noticed some folks on here can get really deep into the frugality and nitty gritty of the numbers, but you need to remember the goal of FIRE is to be happy. Its not about numbers. The numbers are just a vehicle to get you to a place where you are happiest. Are you on track? Looks like you are, so good. Make sure you are happy as you make the journey and it sounds like you are. Keep it up and be happy.

I would also go to 45 for the additional cash and benefits. While it is not about the cash, giving makes you happy and more cash =  more giving. Does that = more happiness for you? Just something to ponder.

lhamo

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Yes, it would be very hard to shop at all with 2 little kids in tow -- if you can take this task off your wife's list she might be very happy! 

Re: misc expenses.  I would put those under separate categories, especially because they are recurring. 

Travel (in your case family travel.  With four people, look into using cc/travel hacking and airline mileage programs -- some allow kids to accumulate miles with a paid for seat, and those can eventually add up to a ticket).

Auto (includes car payment, insurance, gas, registration, repairs, parking, tolls, etc)

Renter's insurance goes under insurance.


Villanelle

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For the military pension, how confident do you feel about actually reaching 20?  It sounds like it isn't really the foundation of your FIRE plans anyway, but since it is a side factor at least, it's worth asking this question.  We've seen lots of people around us pushed out after 2xFOS, when they planned to make it to 20.

Regarding the question of whether or not staying in a few more years is worth it, thankfully, you have lots of time to answer that question.  Unless you have some sort of special circumstances, you wouldn't need to decide that until considering taking the set of orders that puts you past your FIRE date, so I'd say it makes sense to kind of ignore that until you are a lot closer and have a better idea what your financial (and otherwise) picture looks like at that point.  In 8 years, you may feel differently about the satisfaction.  Moving might wear on you more.  Having school aged kids might complicated things, or might make you excited for the varied experiences you can offer.  Who knows where your feelings will be on all that in 8 years?  That said, giving up the benefit of Tricare for Life would be tough for me, for what may only be a few more years, but if by that point you are no longer as fulflled by what you do, or your wife and kids feel unduly burdened by the moving, deployments, or other lifestyle factors,  that you can see what the numbers look like.  But living on 45k year and having to pay for private health insurance for 2 adults and 2 kids is going to be a lot different than living on $45k now when those things are covered at essentially 100%.

Mapleshark

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@politenessman

Thanks for your perspective!  It seems like the masses feel that I should aim for the pension and health care as long as I'm not making myself miserable in the process.

@lhmao

I'll get to work further analyzing my where all my expenses are actually going instead of dumping everything that isn't paid monthly into "misc."  I think we can cut a couple hundred from our monthly spending.  My wife is very receptive to working on stuff like this with me.  I just need to wait for a time when we're both well rested to talk about it.  Might be a bit with a new baby lol.

I'll dig around on NerdWallet to try to find what credit card is best in my situation since airfare will start to be more pricey with one kid needing a ticket, soon to be 2.

@ Villanelle

You're correct that a military pension is not the foundation of my FIRE plans, mostly because I've seen a lot of the same things you mentioned with people not making it to 20.  However, I've made a habit of acquiring skills that make me valuable to the military long-term, so the likelihood of being forced out is quite low.  My year group has already been through two reductions in force.  They can be stressful, but the silver lining is that you come out of them seeing EXACTLY where you stand, and I'm doing well.

If the constant moving starts to wear down my family, I have the option of looking at the guard or reserves.  My habit of acquiring useful skills makes me an attractive hire to them as well.  Basically, I'm quite confident that I can make it to 20, but I'm still not going to build my financial plan around it.

The big thing I have going for me is that we plan to retire at a MUCH lower cost of living area.  Our current spending will easily cover the cost of private insurance there.  For some perspective, my parents recently sold their home (in good condition) for $55k and were very happy with the price.  A comparable home here would be about $190k.

I can't thank everyone enough for the time and effort you've taken to respond!  It's given me a lot to think about, and pointed out some blind spots for me as well.  I promise to never buy a new car again!