Author Topic: Reader Case Study – WIP – Family of 4  (Read 3956 times)

BJacks

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Reader Case Study – WIP – Family of 4
« on: May 16, 2017, 12:05:53 PM »
Reader Case Study – WIP – Family of 4

Life Situation: Family of four, kids ages 3 and 1, living 1.5 hours south of Seattle.

Gross Salary/Wages: Our base salaries are 80k and 84k. Based on 40 hours a week gross he is $3405 and I’m at $3084 biweekly.

Individual amounts of each Pre-tax deductions: I just upped us to 23% into 401k each (was previously at 10%). The others are combined numbers from our last paycheck and are also biweekly numbers. I claim Single – 1, husband claims Single – 0. We got 3600 back for taxes this year but I’m paranoid about owing because of the rental.

$708.95 biweekly 401k– Me
$756 biweekly 401k– Husband *Estimated
$90 biweekly – medical

Other Ordinary Income: Military drill pay of 3.5k for last year gross, we get about $200 per month take home.

Rental Income, Actual Expenses, and Depreciation: $1450 (could rent for $200 higher but will be renting to my mother as of next month so only charging her the payment)

Adjusted Gross Income: $9761 per month after deductions

Taxes: Combined info from both of our last paychecks.

Description   Current
Fed Withholding   1238.23
Fed Medicare   104.40
Fed Social Sec   446.44
WA INDUSTRIAL   7.78


Current expenses:
$1273 – Mortgage *includes $200 extra
$1449 – Rental Mortgage
$150 - Electric
$56 – internet
$116 – Verizon
$400 – groceries
$100 – Home supplies
$100 – animals (2 dogs, 1 cat, 3 chickens)
$60 – massage
$350 – Gas
$350 – Auto Maintenance/tabs/etc.
$350 – Insurance**
$350 – Car payment
$200 – childcare
$100 – medical
$300 – spending money
$200 – Dining Out
$250 – Holidays/Birthdays
$300 – MISC

$6104 TOTAL

**overestimate we keep changing vehicles

Assets:

$136,000 401K – Me
$74,000 401k – Husband
$14,000 CD – Husband
$19,000 Savings account
$9,000 Checking account
$353,000 Home Value *per Zillow
$267,000 Rental Home Value *per Zillow
$55,000 paid off vehicles including a 2013 Impala, a Chevy truck (‘06ish), a 1974 wheeler (part chevy part jeep part toyota part expensive), a 2010 cougar keystone travel trailer, and a 24’ cargo trailer.

= $927,000 TOTAL ASSETS


Liabilities:

Home Mortgage - $140,800 at 3.875% on a 30 year loan. $1,073 per month + $200 to principal. Current loan amount is $119.287. Loan was taken out Dec 2012.
Rental Mortgage - $158,700 at 3.75% on a 15 year loan. $1449 per month. Refinanced in November of 2016. Currently at 153,818
2012 Honda Accord - $9,785payment is $350. This is not included in our assets.

$282,890 TOTAL DEBT


Specific Question(s):

I feel simultaneously like we’re doing pretty well, and that we could be doing so much better.

Longwinded Question 1. - My investments in my 401k are auto managed by Financial Engines. We don’t pay for FE to manage
my husband’s account and instead just mirror his to mine. I’m just starting to get more involved in this and I’m still not confident in my decision making when it comes to investments but I am researching. Right now they have me at:

20% - Bond Market Index Fund
35% - S&P 500 Index Fund
34% - International Index Fund
11% - Russell 2000 Index Fund

Is this reasonable? Should I stop having them auto-balance my account?

Question 2. - Taking current investments into consideration what would be a good place to invest outside of the 401k? Would putting that money towards one of our mortgages be stupid? We have $1600 deposited biweekly into our savings account and live off of the remainder whatever that happens to be. It would take +- 3 years either way.

Question 3. – Taxes. I’m paranoid after owing $3500 a few years ago. This year we received $3500 though. I would like to aim a little closer to $500-1000 range of a refund but I’m unsure on how to go about that with the rental. I know we will be operating at a loss in the foreseeable future due to repairs and charging less than market rent to my mother. Any advice on this? We’re sinking about 15k into it right now after bad tenants moved out. About 10k of that is her fault, 2k was planned, and 3k is ‘we’ve come this far it would be dumb not to’ and tools.

Another thing is that my husband is not on board with the whole ‘Mustachian’ concept. He wants a mini mansion with an hour commute to work and a new truck in the next few years. A new gun every other year and probably a dirt bike. We’re a work in progress.

Any other thoughts or observations are more than welcome. I just really started looking to maximize our savings at the end of last year but even then I’ve more increased and automated it rather than actually maximizing it.

Morning Glory

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Re: Reader Case Study – WIP – Family of 4
« Reply #1 on: May 16, 2017, 06:19:42 PM »
$350 a month for gas? Face punch.  Your non-car-related expenses look pretty reasonable (except for Verizon), but your cars are crazy.  You are spending $1400 every month just to get from point A to point B. That is more than your mortgage payment.

1. This is not an emergency, so take some time and do your research. I fired FE last year because they were charging me a quarter of a percent each year to do some simple rebalancing. I left my allocation alone for 3 months and then switched to a simpler portfolio with lower expense ratios. I did something like 60% large cap, 25% mid cap, and 15% foreign. I completely got rid of bonds and emerging markets because the expense ratios were higher on those.

2. At your tax bracket, a tIRA would be the next logical step after maxing out the 401k's. Then go taxable Vanguard. No need to have any more cash earning zip in a savings account. Prepaying the mortgage is a personal decision and it seems there is a lot of disagreement on here about this.

3. Just go up by one dependent each year on your W4 until you get it sorted out.

Other suggestions: find something cheaper than Verizon that will work near you. There are many threads here on this topic

Read the thread on how to convert your spouse to mustachianism. Set a good example by bringing your lunch to work and not buying expensive things.  My husband is a car guy too, albeit with slightly less expensive taste, so I feel your pain. Try to get him to give up at least one vehicle: four of them for 2 people is crazy. See if he can buy the guns and the dirt bike used, out of his spending money. Put your foot down about a new truck though.

$200 childcare is amazing, it would be $2000 in my area

I think you are overestimating the value of your vehicles.

What are the trailers used for?

Is the Accord comfortable with 2 car seats?


MDM

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Re: Reader Case Study – WIP – Family of 4
« Reply #2 on: May 16, 2017, 07:33:25 PM »
Longwinded Question 1. - My investments in my 401k are auto managed by Financial Engines. We don’t pay for FE to manage
my husband’s account and instead just mirror his to mine. I’m just starting to get more involved in this and I’m still not confident in my decision making when it comes to investments but I am researching. Right now they have me at:
20% - Bond Market Index Fund
35% - S&P 500 Index Fund
34% - International Index Fund
11% - Russell 2000 Index Fund
Is this reasonable? Should I stop having them auto-balance my account?
The asset allocation looks reasonable.  What are the expense ratios for each fund?

Quote
Question 2. - Taking current investments into consideration what would be a good place to invest outside of the 401k?
See Tax-efficient fund placement - Bogleheads
Quote
Would putting that money towards one of our mortgages be stupid? We have $1600 deposited biweekly into our savings account and live off of the remainder whatever that happens to be. It would take +- 3 years either way.
See Investment Order.  In short, those appear to be good low interest rates and if it were me I wouldn't pay extra on them.  YMMV.

Quote
Question 3. – Taxes. I’m paranoid after owing $3500 a few years ago. This year we received $3500 though. I would like to aim a little closer to $500-1000 range of a refund but I’m unsure on how to go about that with the rental. I know we will be operating at a loss in the foreseeable future due to repairs and charging less than market rent to my mother. Any advice on this? We’re sinking about 15k into it right now after bad tenants moved out. About 10k of that is her fault, 2k was planned, and 3k is ‘we’ve come this far it would be dumb not to’ and tools.
Are you deducting depreciation on the rental?

See Help with w-4 for a recent, similar, thread.

If the table below is correct enough you are in the child tax credit phaseout zone, so your marginal rate is 30%.  Doing the max on both 401ks is a good idea.  See the case study spreadsheet if you'd like to use your own more accurate numbers.


CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$6,667$80,000
Salary/Wages for earner #2$7,000$84,000
Pretax Health Ins.$195$2,340
FICA base salary/wages$13,472$161,660
401(k) / 403(b) / TSP / etc.$3,000At maximum$36,000
Income subject to IRS tax$10,472$125,660
Other ordinary income (e.g., tIRA distribution)$292$3,500
Rental income$1,450$17,400
Rental real expenses$1,450$17,400
Rental depreciation expense$424$5,091
Rental taxable income-$424-$5,091
Federal Total Income$10,339$124,069
Federal tax$1,1642017 rates, MFJ, stand. ded., 4 exempt.$13,973
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Soc. Sec.$835Assumes 2 earners paying$10,023
Medicare$195$2,344
Total income taxes$2,195$26,340
Income before other expenses  $8,568$102,820
Monthly Average Expenses:
Mortgage$662Input to Itemized Deductions$7,945
Property Tax$361Input to Itemized Deductions$4,332
Home/Rent Insurance$50$600


Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions4
# Children <172
# Children <132
# Children for EIC2
Adult #1Adult #2
Age3535
# of earners2
Total Income$124,069
Std. Deduct.$12,700
Act. Deduct.$12,700
Exemption$16,200
AGI$124,069
MAGI$124,069
Taxable$95,169
1040 Tax$15,270
Tax after n-r credit$15,270
Child Tax Cred.$1,297
Net Tax$13,973
Monthly$1,164
Mtg. Int. (approx.)$4,576
Prop tax$4,332
Item. Deduct.$8,908
VersionV8.17

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Mortgage$140,80030$119,287233.875%

BJacks

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Re: Reader Case Study – WIP – Family of 4
« Reply #3 on: May 17, 2017, 01:42:31 PM »
$350 a month for gas? Face punch.  Your non-car-related expenses look pretty reasonable (except for Verizon), but your cars are crazy.  You are spending $1400 every month just to get from point A to point B. That is more than your mortgage payment.

Oh trust me I know. I ended up creating a 'Auto' category on YNAB since so much money goes there. I'm so tired of buying tires what seems to be every year. Also it's a minimum of $350 a month. During the summer last year we had two different months where it went up to over $500 *cringe*. I vanpool three days a week which is free (voucher from work pays for it). I hate driving. We have a 1.5 hour gap between our shifts so any lowering of the gas bill means a raise in the childcare section.

We live 45-60 mins from work. It seemed like a good plan pre kids. I was already used to it because that was how far I had always driven. The housing market is crazy right now. I bought my house for 176k in 2013. We were considering selling a year ago and the realtor said if we made the changes we were talking about she would put it up for $350k. The market has kept going up since then. There are only 6 places for sale under 500k in the city we work right now that have over 1/4 acre lots and one of them is just a lot. It's not the best area either and I wouldn't want to actually live here.

Other suggestions: find something cheaper than Verizon that will work near you. There are many threads here on this topic

Will do. Just got a smart phone after 2nd baby and would like to go back to a regular one.

Read the thread on how to convert your spouse to mustachianism. Set a good example by bringing your lunch to work and not buying expensive things.  My husband is a car guy too, albeit with slightly less expensive taste, so I feel your pain. Try to get him to give up at least one vehicle: four of them for 2 people is crazy. See if he can buy the guns and the dirt bike used, out of his spending money. Put your foot down about a new truck though.

We both do bring lunches and I just convinced him to get a coffee pot instead of buying coffee all the time. My goal is to bring our dining out expenses to < $100 a month.

I'm not going to get much traction on the vehicle front. He had three when we got together (car, truck, and jeep) and he had a dirtbike. Now he's just upgraded. We work opposite shifts so we both need commuter cars and convincing him that he doesn't need a truck is pretty much impossible. The wheeler isn't street legal. It is strictly a very expensive hobby/toy.

Basically my plan is to convince him that we don't need to move or buy a new truck for as long as possible. The dirtbike will almost certainly be purchased used. Right now I basically budget $50 a month for guns/ammo and he has agreed to a two year waiting period since I agreed to let him build an fancy AR this past year. I'm just going to let that build up so I don't strangle him later down the road. He is always good about talking with me before buying big things. I just want a number - how many guns/toys is enough?

$200 childcare is amazing, it would be $2000 in my area

For full time care it would be $2400. I pay my sister in law $200 a month to watch them for 2 hours a day three days a week. This limits their time in the car and allows me to vanpool those days. The other two days we swap kids in the parking lot at work and he goes in an hour early- I work 1st shift he works 2nd.

I think you are overestimating the value of your vehicles.

Probably. I'm not to big on vehicles and didn't look any of them up. I basically just knocked money off from what we bought them for. Un-mustachianly enough our longest owned vehicle at this time is my 2013 Impala which we bought a year old. 

I estimated 12k for the camping trailer(just got an offer for over this), 3k for the cargo trailer(wedding gift-husband says 4k so it's probably closer to 3), 12k for the truck (bought less than 2 years ago for 16k), 8k for my car (bought 3 years ago for 13k), and 10k for the crawler (we traded a jeep that we paid 10.5k for it. husband says it's worth 20k. What he really means is 'guy who built it spent 20k').

That is 45k so I'm guessing I included the accord in there for a total of 55k. Oops. Nice catch!

What are the trailers used for?

The cargo trailer is a glorified shed. Every so often people ask to borrow it when they move. We used it to haul quads to the dunes one time, to haul wood one time, and trimmed branches to the dump a couple times. This past weekend we used to to haul all the stuff we had to buy to fix up our rental. It's mostly a portable shed where we store crap we should get rid of. It was a wedding present from my Dad.

The camping trailer we just bought last year. It was a really good deal (10.5k) and husband had been trying to convince me for awhile. Friends had just gotten one for twice that cost which made it seem so reasonable and that's about all the excuses I have for this purchase. It was not well thought out. We went out once for what was supposed to be a 4 night trip and bailed after 2 because we were not having fun.

Luckily it appears that we really did get an amazing deal and he keeps seeing them up for 20k. He posted it up for sale recently with the whole 'blowing through our savings on the rental house' and today he got an offer for 15k. Will it actually sell for that? Who knows. But this one we're actively working on getting rid of.

Is the Accord comfortable with 2 car seats?

Yes! I don't care for the idea of owning vehicles that we can't fit everyone in. We have one front facing and one rear.


Anyway - I will look into cell phone options for my area. I've already changed my selection on my tax info to 'Married -2'. For some reason I was making that way more complicated than it was. I like your way better.

BJacks

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Re: Reader Case Study – WIP – Family of 4
« Reply #4 on: May 18, 2017, 07:59:15 AM »
The asset allocation looks reasonable.  What are the expense ratios for each fund?

According to my statements I paid $46 in 2016 in 'fees' and so far this year I've spent $140. I couldn't find it on mine but if I go over to my husbands they say it's 0.20% annually for 100-150k or $8.34 per 50k per month. This drops down to 0.10% annually once you hit over 150k or $4.17 per 50k per month.

Opening Balance as of 1/1/2017 was $112,247.10
Contributions & Other Activity was $15,202.50
Gains/Losses YTD was $7,994.55
Current Balance is $135,444.15

Based on my regular pay with no overtime they're estimating that between my contributions, my company match, and the company contributions, I will be adding a total of 31k to it this year so I should be able to hit that 150k mark.

Quote
Are you deducting depreciation on the rental?

Yes - we have our taxes done locally and she does do this. We have been negative since we turned it into a rental.

Quote
See Help with w-4 for a recent, similar, thread.

If the table below is correct enough you are in the child tax credit phaseout zone, so your marginal rate is 30%.  Doing the max on both 401ks is a good idea.  See the case study spreadsheet if you'd like to use your own more accurate numbers.

We are both maxing them out as of about 3 paychecks ago. I had them at 10% for the first few months of the year so it's a little higher than we would need next year.

MDM

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Re: Reader Case Study – WIP – Family of 4
« Reply #5 on: May 18, 2017, 08:24:17 AM »
According to my statements I paid $46 in 2016 in 'fees' and so far this year I've spent $140. I couldn't find it on mine but if I go over to my husbands they say it's 0.20% annually for 100-150k or $8.34 per 50k per month. This drops down to 0.10% annually once you hit over 150k or $4.17 per 50k per month.
Those are the fees charged to you for your overall account.

Each fund will have its own expense ratio.  E.g., from a thread just updated at Investing - Help with Personal Investments - Bogleheads.org:
Quote
Funds core offerings within my employers 401K plan (managed by Wells Fargo):
The SARP Stable Value Fund (0.48%)
Metropolitan West Total Return Bond I Intermediate-Term Bond (0.44%) - MWTIX
...
T. Rowe Price Retirement 2060 (0.76%) - TRRLX
Dodge & Cox Stock Large Value (0.52%) - DODGX
Vanguard Institutional Index I Large Blend (0.04%) - VINIX
You should find out what yours are.

Quote
...we have our taxes done locally....
If the cost is under $100 there may not be a big incentive to do them yourself, but your situation seems simple enough that you could.

Keep up the good work on the maxed 401ks. :)

bb11

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Re: Reader Case Study – WIP – Family of 4
« Reply #6 on: June 03, 2017, 01:50:18 PM »
How did you save up $600,000 in networth by (guessing based on children's age) no later than mid-30's with $72,000 annual spending and $160,000 income? Did you get a windfall in there somewhere, or am I missing out on that good of a deal by not purchasing real estate? :)