Author Topic: What Would You Do In My Situation?  (Read 2286 times)

RookieStache

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What Would You Do In My Situation?
« on: October 17, 2018, 02:39:30 PM »
Hey guys, curious what you would do differently in my situation.

Married with a 2 year old, another on the way in January. I am 29, wife 27.
$100,000 mortgage 15 year mortgage ($100,000 in equity)
Combined Pretax income: $110,000 (LCOLA)
My trad 401K Ė Contribute $8,300 a year
Her trad 401K Ė Contribute $6,400 a year
My Roth IRA Ė Max out at $5,500
.HSA - $6,000 a year
After Tax VTSAX - $40 a month (Use this instead of higher savings account)
Car Loan - $9,000 @ 0% interest (Hoping to pay off end of next year)
No other debt / CC debt

Notes:
I was contributing $100 a month to a 529 for first child but recently decided opening a Roth IRA for my wife and attempting to max that out might be the better route to go for college. Figured the added flexibility would be beneficial as we never know what will happen with higher education in the future.
Daycare is expensive!

Anything you would do differently if you were in my situation? I understand $40 a month on VTSAX isnít optimal but this is essentially my checking/savings account.

Thanks for the input!

gpyros85

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Re: What Would You Do In My Situation?
« Reply #1 on: October 17, 2018, 06:46:15 PM »
What are your 401k balances?

Also, 110k/year LCOL and maxing out 401k should be the goal..

I quickly calculated you saving around 25% of income which isn't bad but also not FIRE worthy..


What are your goals?

MDM

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Re: What Would You Do In My Situation?
« Reply #2 on: October 17, 2018, 10:50:12 PM »
Anything you would do differently if you were in my situation?
Follow the generic Investment Order unless there was something unusual about my situation.

marty998

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Re: What Would You Do In My Situation?
« Reply #3 on: October 18, 2018, 12:29:35 AM »
Is your wife going to continue working full time after kid #2 is born? Or is she the primary earner and you the primary carer?

Have you costed out losing part of that second income? (You must have, because you survived one kid so far).

Freedomin5

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Re: What Would You Do In My Situation?
« Reply #4 on: October 18, 2018, 03:29:49 AM »
Only saving 25% of your income? With an income of over $100k? I think you could do better than that. Sounds like itís not a matter of optimizing your investments. Itís a matter of optimizing your expenses. If I were in your position, Iíd take a hard look at why Iím saving so little money each month. What am I spending all my money on?

Post a full case study, and we can help you think creatively to trim down expenses.

mrmoonymartian

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Re: What Would You Do In My Situation?
« Reply #5 on: October 18, 2018, 04:36:33 AM »
Why would you hope to pay off a 0% loan? 0%!

ixtap

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Re: What Would You Do In My Situation?
« Reply #6 on: October 18, 2018, 08:31:10 AM »
Do you have an emergency fund? $40/ month seems pretty low, especially if you are investing it, rather than keeping it stable. However, if you already have an emergency, fund, no reason to keep stockpiling cash.

RookieStache

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Re: What Would You Do In My Situation?
« Reply #7 on: October 22, 2018, 07:57:56 AM »
Thanks for the input guys, I will have to write up a full case study once I breakdown my monthly/annual expenses.

To some of your points: I figured saving 25% of our income was pretty decent considering fixed expenses. $400 a month car payment, $1,200 mortgage payment, $100 a week on daycare.

Those payments alone add up to $25,000, add in the 25% saved and that's half of our gross right there. Include utilities, groceries, insurance, taxes, gas, 1962 house maintenance costs, etc. and that leaves very little room for any other spending. (We don't go out to eat, take vacations that aren't paid for, or really do anything that costs money).

Freedomin5

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Re: What Would You Do In My Situation?
« Reply #8 on: October 22, 2018, 08:37:01 AM »
You need to rethink your "fixed" expenses. $400/month for a car loan is crazy high. It's not really fixed because technically you could sell it and buy a used car in cash for $5000. $1200/month mortgage is not fixed because technically you could move to a smaller house, thereby lowering your mortgage payments. Actually, $1200/month is a lot for a mortgage in a LCOL area. We pay $900/month for our mortgage in a HCOL city. You haven't posted food costs, but if it's over $200/month, then some people here on the forums would argue that it can be lowered. There are lots of ways to lower utility costs, gas, etc., which could then boost your savings rate. A full case study will bring out all the frugal analytical folk who could provide ideas on how to lower your "fixed" expenses.

25% savings rate is not bad (since I just realized you're calculating 25% of gross); most people here shoot for at least a 50% savings rate (of net income), and many achieve it with salaries lower than yours. I'll admit, without knowing your tax rate, it's not a fair comparison though.

RookieStache

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Re: What Would You Do In My Situation?
« Reply #9 on: October 24, 2018, 08:36:01 AM »
You need to rethink your "fixed" expenses. $400/month for a car loan is crazy high. It's not really fixed because technically you could sell it and buy a used car in cash for $5000. $1200/month mortgage is not fixed because technically you could move to a smaller house, thereby lowering your mortgage payments. Actually, $1200/month is a lot for a mortgage in a LCOL area. We pay $900/month for our mortgage in a HCOL city. You haven't posted food costs, but if it's over $200/month, then some people here on the forums would argue that it can be lowered. There are lots of ways to lower utility costs, gas, etc., which could then boost your savings rate. A full case study will bring out all the frugal analytical folk who could provide ideas on how to lower your "fixed" expenses.

25% savings rate is not bad (since I just realized you're calculating 25% of gross); most people here shoot for at least a 50% savings rate (of net income), and many achieve it with salaries lower than yours. I'll admit, without knowing your tax rate, it's not a fair comparison though.

I appreciate the response, and will post a full case study once I get time to do so.

A couple notes:
Payment was $875 a month but we refinanced to a 15 year loan 4 years ago to lower interest rate to 3.1%. With a 2nd kid on the way, and only $90,000 left on the mortgage, we wonít be able to find a house to live comfortably for any cheaper than we got this house (unbelievable deal we got on it).
Agreed, $400 a month on a car payment is far too high. I purchased 3 years ago right before I found FI, MMM, Ramsey etc. However, we also needed a stable care for the kids and it really is perfect for our family. Iíll be driving it into the ground, or at least until the maintenance costs outweigh buying a used car. We should have this paid off by end of 2019.
Food expenses are extremely low. We only pay for eating out maybe 3 times a year. Outside of that, we eat a ton of eggs, rice, beans, all types of bulk foods so our food bill canít get much lower.
This is the same with internet, gas, utility, etc. but interested in hearing tips once I post case study.

Between 401K, 529, .HSA, dependent care, etc. I feel like I have been doing everything I can to optimize every dollar and eliminate taxes, but Iím sure Iím missing something.

To your point about net savings, isnít that a little more ambiguous being that taxes play such a huge part in that? Since we have a lot of flexibility with eliminating certain tax fees, I would have thought it would be easier to calculate gross savings rate to compare apples to apples.

One of my key downfalls right now, and for the next 5-6 years, is childcare. Once the kids start going to school, Iím hoping the savings rate can really take off.

Freedomin5

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Re: What Would You Do In My Situation?
« Reply #10 on: November 01, 2018, 05:31:07 AM »
The argument for calculating off of net income is because different states/countries have different tax rates. So net income kind of equalizes the playing field a bit. Obviously, if you can finagle a lower tax rate, thatís awesome.