Author Topic: Young couple finally writing things down  (Read 2837 times)

FirePassenger

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Young couple finally writing things down
« on: May 29, 2018, 08:46:56 PM »
And I lost my job day after I put all details here. Think I jinxed myself so pardon me for deleting all details.
« Last Edit: July 03, 2018, 02:15:24 AM by FirePassenger »

AccidentialMustache

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Re: Young couple finally writing things down
« Reply #1 on: May 29, 2018, 09:12:06 PM »
You are the 1%. If you can't retire early, its 100% your own fault and nobody else's. I say this as a well compensated senior software engineering type (but not in the HCOL bay area)

I'd start tracking your budget. If you're really spending 132k/year and make 620k after taxes you should have a 200k+ suprlus per year. So from 2.5 to 5 mil is only about 10 years, not including any gains what you're sitting on will make (which in 10 years will double anyway).

You are however heavily invested in real estate. Possibly overly heavily, in a place that is in a spectacular housing bubble right now. By heavily I mean to the tune of 1.5 million vs 500k in stocks/bonds/whatever.

FirePassenger

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Re: Young couple finally writing things down
« Reply #2 on: May 29, 2018, 09:35:45 PM »
Thanks AccidentalMustache. Yes, very aware that weíre in the 1% and feel blessed for that.

Great point on budgeting. Thatís step number 2 (this post was #1). Will be working on it this weekend.

My job is very high stress. If I chose to find another job, itíll still be 80% of the stress for 50% comp. Goal is to figure out a 5 year retirement target plan and cruise for the last 2 years out of the 5. Iím not of that personality type and try to keep things mutually beneficial for me and the company so weíll see if I can convince myself to cruise.

As for real estate, thatís something thatís bothering me a lot. At this point everything is going 50-50 to FANG type stocks or index funds. Just started researching dividend portfolios. Where else do you folks go beyond stocks, bonds and RE?

Thanks for the feedback.

Calvawt

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Re: Young couple finally writing things down
« Reply #3 on: May 30, 2018, 09:27:32 AM »
I think there are several areas where you could reduce expenses like phones, shopping, gifts, repairs if you really wanted to make changes.  I am not sure you really need to given what was already pointed out re: expenses vs take home pay.  You should be adding $300k in net worth each year relatively easily from new investments and your current ones growing.  $226k alone from extra funds each month after expenses.

Do you really need life insurance with such a high net worth?  I know that's a really personal choice, but something to think about.

I think you are in an incredible financial position right now, so congrats.  I think you could be pushing another $15-$20k a year to investments if you made a few changes, but again, not sure you need to based on your goals.  I think you are only a few years away from being able to slow down, even sooner if you moved to a slightly lower COL area.

gpyros85

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Re: Young couple finally writing things down
« Reply #4 on: May 30, 2018, 09:44:12 AM »
Rental property 1
$950k Zestimate
$330k Mortgage @3.6 7/1 ARM
Cashflow: $800


This is where i would focus first other than the budget. The ROI is low, with the FED increasing rates and you the owner of an ARM the ROI will progressively get lower.  You could free up $620k to invest in higher returns, even bonds would give better yield...

ysette9

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Re: Young couple finally writing things down
« Reply #5 on: May 30, 2018, 09:54:21 AM »
Hi there, also from the Bay Area! We are in a somewhat similar situation, but with lower salaries. As someone else said, with the privilege we have, FIRE is entirely within our grasp and is a series of lifestyle choices on how and when we get there.

I'll let someone else pick at your spending more. I see that you pay too much for cell phones and internet and spend way too much on cars, and could get your grocery spending down. You probably already know that though. I'd recommend getting rid of the expensive SUV and getting something more reasonable in cash.

I'm more interested in your investing. Personally I feel like you are way too heavily invested in real estate and that you need to be diversified. This is especially true if your rentals are in the same location as your primary residence. Our house isn't quite as expensive as yours, but in the same ballpark, and we don't have any real estate investment because I want our overall net worth to be more balanced. Everything else we have is in stocks and bonds.

I'm not a real estate person, but it appears that your investments there aren't good by the traditional measures. Look at rental #1, for example. That $600k equity you have locked up there could be instead invested in a stock index fund and be contributing $24k/year to your retirement income via the 4% rule. I don't know what your gross rents are, but in the Bay Area I'd be surprised if you were getting 1% of the property value in monthly rents, which is a rule of thumb for real estate investing.

If you sold your rentals, then you'd have $1.375M to invest, which is a good start. At your current $12K/month spending level, you'd need $3.6M invested to be able to retire on the 25x/4% rule (only $3.4M if you got rid of your car expenses; $3M if you spend $10k a month). Note that this includes carrying the mortgage on your primary residence. You can check out the debates on these forums about keeping your mortgage. Looking at just the math, it makes sense to keep it and invest the difference due to low mortgage interest rates right now. I think this analysis is a little too simplistic, and I'd encourage you to model your details using cFIREsim.com where you can input details like the mortgage ending one day, social security, etc.

As for investing, you'll find that people around these forums are mostly disciples of the low-cost passive index fund. I have our money in VTSAX and VTIAX at Vanguard when we can, and similar index funds in our 401(k)s if we don't have Vanguard options. My risk tolerance is such that I have zero interest in individual stocks or exotic speculation like crypto. I'd encourage you to find little bits of time here and there to educate yourself more on investing, and move out of individual stocks and into index funds. You said you don't have a lot of time, which means you probably don't have the time to research stocks. Save yourself the time and headache and just go index.

Some of my favorite educational resources:


gpyros85

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Re: Young couple finally writing things down
« Reply #6 on: May 30, 2018, 09:55:58 AM »
Regarding your budget...


$1200 preschool (we will pay for college, but public  schools. This will go to 529 from next tear)  (SAVINGS OF $600/month)
          After compounding for 12-14 years you will have around $422,000 @ 8%. Do you really need this much for your child's school? Cutting this by 1/4 or 1/2 I think would be adequate enough.


$300 phones plus internet                                                                                                      (SAVINGS OF $200/month)
          This is monthly for 2 phones? T-Mobile has unlimited for $70/month. This could easily be cut 1/2 or 1/3

$300 life insurance for both of us                                                                                             (SAVINGS OF $250/month)
           How much life insurance are you getting? You are young and hopefully healthy 34 & 35 years old. I know you can get this to at least $20-$50/month

This is savings of $1,050/month


Nevertheless, you are making 30k after tax a month. Take a 11k-12k budget/month leaves 18k/month to invest + your 401k + your $18,600 in company match.


If you take the time to budget and manage your money you could be VERY well off and not have to work a high risk job. You my friend are in a very very good position in life.


ysette9

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Re: Young couple finally writing things down
« Reply #7 on: May 30, 2018, 09:57:34 AM »
One more thought: how much you need to have to retire based on the 4% rule is based on INVESTED assets, not your net worth. It doesn't matter if your house is worth $50k or $5M if you aren't going to sell and unlock the equity. The only thing that matters is your monthly expenses for housing. That is all the more reason to sell those under-performing rental properties and make the equity work for you.

gpyros85

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Re: Young couple finally writing things down
« Reply #8 on: May 30, 2018, 10:04:26 AM »
One more thought: how much you need to have to retire based on the 4% rule is based on INVESTED assets, not your net worth. It doesn't matter if your house is worth $50k or $5M if you aren't going to sell and unlock the equity. The only thing that matters is your monthly expenses for housing. That is all the more reason to sell those under-performing rental properties and make the equity work for you.

It would be the return on invested assets. In his case he has a lot of money tied up in low return assets. A rental property is still an asset just in his case very low performing. The $620k could be redeployed to probably a higher returning multi family where you could get 10-20% cash on cash which would spit out $7,000/month vs his current $800.

It is pretty much a sin to have the money at that low of return!!!

FirePassenger

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Re: Young couple finally writing things down
« Reply #9 on: May 30, 2018, 10:59:14 AM »
Please allow me to clarify the rentals since thatís advice from pretty much all of you:

Rental 1
Bought at 510k in 2012 and rented at $3150. Soon at $3500/month
HOA 330, Prop Taxes 600, Mortgage 1700 on 330k balance
Itís a townhouse so comps are very true. Nextdoor same floor plan and condition sold for 960k.
$460k increase in ~72 months

Rental 2
Bought at 560k in 2016 and rented at 2650. Soon at 2800
HOA 320, Prop taxes 650, Mortgage 1900 on 398k balance
Itís a condo and exact same floor plan sold for 650k
90k increase in 21 months

So basically rentals are an appreciation play for me then a cashflow. Just before retiring, I plan on selling and investing in multi-family in Sacramento or Bay Area neighboring cities, or simply index funds etc.

As for the Bay Area housing bubble. Yes it makes me uncomfortable, but hereís the thing... My salary is not an exception here. There are 1000s of people making this much or more. An IPO every 6 months creates another 1000 millionaires. FANG companies create many more with RSUs.

Weíre land locked with water and mountains all around. And thereís NO new single family construction under 3M on the peninsula. We canít go vertical like NY due to earthquakes. People buy 50 yr old homes, raze and build new. So basically lots. Most offers are all cash, or at least 50% downpayment. Itís crazy but true. I have thcan benefit of knowing how much people at every level are making as I hire a lot. Average Staff or Principal Software engineer is looking for 250-300k at least. And mostly both husband and wife work so 500k in household income is absolutely not an exception. I firmly believe unless a black swan event happens, a 25% correction is not going to change the situation much other than temporarily halting the appreciation madness. Palo Alto, Cupertino didnít go down much even in 2009.

Iíve set limits though. If rental 1 goes to 1.2M, Iíll sell immediately. Rental 2 at 800.

Also received great advice from you all on Life Insurance. I have a 2M term policy just so the family does not have to deal with downsizing etc immediately after losing a member. My current debt is around 1.5M and 529 is not funded, therefore the 2M number. Our thinking is that if one of us goes unexpectedly, the other can focus on family instead of worrying about work as 2M gets us to the retirement number (with 1 person less to pay for).

Phone bills, setting budget for travel and shopping etc are the next steps for this weekend. Thanks for pointing these out. Iíd rather donate to charity than pay mindlessly for these.

One of our goals I didnít share earlier is to work out last year before retirement and donate 100% of what we make to charity or science.


ysette9

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Re: Young couple finally writing things down
« Reply #10 on: May 30, 2018, 11:30:42 AM »
I actually agree with you that I don’t think our real estate area is a bubble, for the reasons that you state. (“This isn’t a bubble!” cried everyone in a bubble.) I’ll warn you that my track record on predicting stock movement is pretty much 100% wrong, so I could be wrong on this as well.

But say this isn’t a bubble. All the same I think you have way too much of your bet worth tied up in a single narrow sector. That is undue risk, just like having a bunch of $ in one or two stocks is unnecessary risk. At that point your are gambling and hope you win big. Clearly your risk tolerance is greater than mine, because I could never sleep at night with that asset allocation. Not that it is wrong, but I think it is sub-optimized. The efficient frontier and modern portfolio theory and all of that states that your risk should be commensurate with return. You have a lot of eggs in the Silicon Valley basket now. I was around to remember when there were many empty office buildings along 101 and 237 and the traffic was much better because far fewer people were commuting to their jobs.

Bottom line: as much as I love and believe in the Bay Area, having your income and your house and your investments all tied up in this small spot of land when the entire world is your oyster seems unnecessarily risky. In your shoes I’d sell a rental property or two and invest the equity in a total US stock index and a total world stock index.

gpyros85

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Re: Young couple finally writing things down
« Reply #11 on: May 30, 2018, 11:38:05 AM »
I have thcan benefit of knowing how much people at every level are making as I hire a lot. Average Staff or Principal Software engineer is looking for 250-300k at least. And mostly both husband and wife work so 500k in household income is absolutely not an exception.

Amazing... I am a Manufacturing Engineer and thought I was doing well with a 100k salary....

gpyros85

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Re: Young couple finally writing things down
« Reply #12 on: May 30, 2018, 11:46:05 AM »


Rental 2
Bought at 560k in 2016 and rented at 2650. Soon at 2800
HOA 320, Prop taxes 650, Mortgage 1900 on 398k balance
Itís a condo and exact same floor plan sold for 650k
90k increase in 21 months


Quick 30 seconds numbers on this investment.

90k in 21 months is 16% or 8%/year return

Now subtract negative cash flow of 220/month @ 21 months = $4620
Also, if you were to realize your gains realtor fees @ 5% = $32,500

90,000-37,120= $52,880

52,880/560000 = 9.5% or 4.7% return

I know I know I need to do the cash on cash return will probably bring the numbers up a little but if you put in a S&P 500 it would of been 41% gains from 2016 to current date... with zero work on your part...

Do you self manage this property?


I still feel that the money is not allocated properly, your ROE is under performing.

FirePassenger

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Re: Young couple finally writing things down
« Reply #13 on: May 30, 2018, 12:17:29 PM »
I have thcan benefit of knowing how much people at every level are making as I hire a lot. Average Staff or Principal Software engineer is looking for 250-300k at least. And mostly both husband and wife work so 500k in household income is absolutely not an exception.

Amazing... I am a Manufacturing Engineer and thought I was doing well with a 100k salary....

Are you in the Bay Area? I have a close friend who is an electrical engineer (Manager now) and makes >150k. His savings rate was higher in LA with a 100k salary.

I moved from Minneapolis (great city!) to the Bay Area and realized very quickly that going from 80k to 130k didnít make much of a difference to savings, but quality of life depreciated due to high stress and HCOL.. Of course more opportunities here in the Bay and Iím thankful for that.

FirePassenger

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Re: Young couple finally writing things down
« Reply #14 on: May 30, 2018, 12:28:15 PM »


Rental 2
Bought at 560k in 2016 and rented at 2650. Soon at 2800
HOA 320, Prop taxes 650, Mortgage 1900 on 398k balance
Itís a condo and exact same floor plan sold for 650k
90k increase in 21 months


Quick 30 seconds numbers on this investment.

90k in 21 months is 16% or 8%/year return

Now subtract negative cash flow of 220/month @ 21 months = $4620
Also, if you were to realize your gains realtor fees @ 5% = $32,500

90,000-37,120= $52,880

52,880/560000 = 9.5% or 4.7% return

I know I know I need to do the cash on cash return will probably bring the numbers up a little but if you put in a S&P 500 it would of been 41% gains from 2016 to current date... with zero work on your part...

Do you self manage this property?


I still feel that the money is not allocated properly, your ROE is under performing.

This is interesting. Iíll need to look at this more closely over the weekend. Yes properties are self managed. I rent $100 or so below market on the condition that tenants take care of all issues from plumbing to everything else. They call top rated people from yelp. Text me the issue and cost, and I approve or make suggestions. Thatís it. I spend zero time. In the Bay Area renting is easy via an open house. These homes get rented within 5 mins of the open house with 2 month deposit, r commendation letters, pay stubs etc. Much as this benefits landlords, this is a terrible housing situation for a lot of families and makes me not raise rents on tenants. Havenít raised rents in 3 years.

ysette9

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Re: Young couple finally writing things down
« Reply #15 on: May 30, 2018, 12:36:45 PM »
Quote
Much as this benefits landlords, this is a terrible housing situation for a lot of families and makes me not raise rents on tenants. Havenít raised rents in 3 years.

You don't need to work an extra year to give your salary to charity. You are being charitable right now. Not raising rents over the past three years is very charitable. I think that attitude makes you a good person but a bad landlord.

Hirondelle

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Re: Young couple finally writing things down
« Reply #16 on: May 30, 2018, 01:36:19 PM »
First of all; AMAZING job on the income. Others have already given you some great advice regarding investment options and your risks of being highly invested in RE. Now I'm not an expert on investing or RE, but I'm pretty good at frugality so I'll go over your expenses:

Car: 2 yr old SUV bought new for 36k (face punching myself)
Bolt lease at $218/month for 3 years. Yay for carpool lane access
You've just given yourself a facepunch. 36k is a lot of car. Would you consider selling it and getting a simpler one?

EXPENSES are very high:

$5100 mortgage plus property taxes
$1200 preschool (we will pay for college, but public schools. This will go to 529 from next year)
As said before, this'll result in a lot of college savings. You could lower the amount into the 529. Also think about what you'd like for your child; you want him/her to be applying for scholarships, have a job on the side to gain work experience and learn the value of money? My personal favorite is to be able to cover tuition costs of a state school and let your kid decide whether to apply for more pricey unis and scholarships. Also I greatly valued paying my own rent/food in college as it taught me a LOT about the value of money in general.
$300 phones plus internet
That's a lot - shop around for a cheaper plan.
$500 mom medicare
$300 utilities plus water
$500 shopping (keeps DW happy, she works super hard at work and home)
I get she loves shopping, but does it really have to be this much? Thrift shopping is more fun - it's like treasure hunting!
$1500 travel (annual trip to India and Cabo/elsewhere)
$1500 a month sounds like a lot to me. Sure flights to India aren't cheap, but do you really spend that much there and on your Cabo trips (I have no clue what that is) that it costs you $18k/year?!
$1000 eating out plus  grocery, organic everything, home supplies
Can easily be cut down. Also for lots of products organic doesn't make sense and is just a way to make more money. Even at all organic $1k is a lot for 2 people and a toddler. Check out the <$200 grocery thread (family of 4!) for inspiration:
$200 gits, borthdays, christmas etc
$400 miscellaneous home repairs (50 yr okd home)
$300 life insurance for both of us
$700 bolt lease plus insurance plus gas for SUV
$12,000

About the travel, we want to stay attached to India even though US is our home and the country that has given us everything and welcomed us with open arms. About Cabo, we have high stress jobs and recharging is great for our health.

Recently got introduced to MMM and its given me a new perspective so expecting this monster expense budget to be cut down soon.
Good you've realized this, I'm excited to see how you'll be rocking cutting out unneccesary expenses!

Phew, not sure why id been avoiding writing this up. Now for goals:

Retire with $10k in monthly income in-hand and a paid off home. Even at 25% tax, it would mean making $13k/month or $156k annual. So $5M incl home payoff.  Feels too far at ~$2.5M to go. Call me paranoid.

Are you sure you'll need $10k of income? Currently about half of your expenses consist of mortgage and preschool, which will both go away. All your other (quite high!) expenses only add up to about $6k, which would require a stash of only $1.8M and a paid off house. For covering college costs of 1-2 children ofcourse you'd need a bit more. If you'd be willing to move to a lower COL area in retirement you could retire much earlier (maybe even today!)



FirePassenger

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Re: Young couple finally writing things down
« Reply #17 on: May 30, 2018, 02:24:21 PM »
Thanks Hirondelle and all. Some more data:

Phones - 3 at $200/month. Includes iPhone payments. Will go down soon. I get reimbursed $85/month from company as well. Wife gets another $50. But point taken, will shop around.

Internet - $90/month. Comcast has a monopoly here. Previously when I called them they would Ashit rate, now they flat out refuse. I own my modem as well. They just raised it by 10 bucks. We donít have cable and only use Netflix and Sling TV for Indian channels and work from home often so good internet and cell phone service is a necessity.

Cars: Bolt lease at $218 is a necessity as it saves me 40 mins of commute time
SUV was at $36k on the road paid in cash. Now I can sell it for ~20k and buy a used $10k car but doesnít seem worth the hassle given we intend to keep it for 10 years and with one more child, weíll need comfortable rear seat for 3 (2 car seats plus mom). $150/month in gas for DW commute.

Insurance: $200/month. Crazy high. I had an at-fault accident where I totaled my car and hit a brand new bmw 7 series. Heavy rain, low visibility, left turn across 4 lanes etc so it went up considerably. Any ideas on how to lower this? With the bolt lease, GM wants us to carry a certain level of coverage.

529- I want to max out while I can and will stop once it gets funded to a reasonable level. Peace of mind I guess.

Travel and misc, Iím locking this down to a much lower budget. Shopping as well.

gpyros85

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Re: Young couple finally writing things down
« Reply #18 on: May 30, 2018, 03:12:05 PM »
Thanks Hirondelle and all. Some more data:

Phones - 3 at $200/month. Includes iPhone payments. Will go down soon. I get reimbursed $85/month from company as well. Wife gets another $50. But point taken, will shop around.

Internet - $90/month. Comcast has a monopoly here. Previously when I called them they would Ashit rate, now they flat out refuse. I own my modem as well. They just raised it by 10 bucks. We donít have cable and only use Netflix and Sling TV for Indian channels and work from home often so good internet and cell phone service is a necessity.

Cars: Bolt lease at $218 is a necessity as it saves me 40 mins of commute time
SUV was at $36k on the road paid in cash. Now I can sell it for ~20k and buy a used $10k car but doesnít seem worth the hassle given we intend to keep it for 10 years and with one more child, weíll need comfortable rear seat for 3 (2 car seats plus mom). $150/month in gas for DW commute.

Insurance: $200/month. Crazy high. I had an at-fault accident where I totaled my car and hit a brand new bmw 7 series. Heavy rain, low visibility, left turn across 4 lanes etc so it went up considerably. Any ideas on how to lower this? With the bolt lease, GM wants us to carry a certain level of coverage.

529- I want to max out while I can and will stop once it gets funded to a reasonable level. Peace of mind I guess.

Travel and misc, Iím locking this down to a much lower budget. Shopping as well.


Only you can really go through your budget with a fine tooth comb. Just think that for every $1/month saved is $660 in net worth that is NOT needed.

That is the mind set.

So $100 here and there is more like $30,000 you need to save to be FI.

kimmarg

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Re: Young couple finally writing things down
« Reply #19 on: May 30, 2018, 08:34:57 PM »
I think you need to decide what your goals are. Think big and think future. Do you want to FIRE? In the Bay Area? Would you want to move?

It's clear there are many scenarios where you could retire immediately. Do you not like any of them? Do you like the others enough to keep working? I can't answer this for you.

Face punches for phone bill, groceries, cars

calimom

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Re: Young couple finally writing things down
« Reply #20 on: May 30, 2018, 09:22:24 PM »
A full case study may be in order.

Yes, it's expensive living in the Bay Area. Been there. Out of curiosity and with no judgement, how come your wife is not contributing financially to your family? With just one school aged child, there are many hours in the day she could be pulling in a reasonable part time salary doing something pleasant  and fulfilling. The funds she could easily earn would cover her own retirement contributions. add to her SS account and the remainder could go to taxable and cash savings accounts.

We're going into summer so likely not the best time, but plans could be made for the fall. With the aforementioned cutbacks in your current budget, plus you getting a better salary, plus your DW entering the job market you could find yourselves one different, positive financial path.

ysette9

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Re: Young couple finally writing things down
« Reply #21 on: May 30, 2018, 09:25:53 PM »
OP listed is wife’s I come as $160k. I believe that is contributing successfully to the household.

calimom

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Re: Young couple finally writing things down
« Reply #22 on: May 30, 2018, 09:54:03 PM »
OP listed is wifeís I come as $160k. I believe that is contributing successfully to the household.

Opps, you are correct @ysette9 . My bad, was confusing this with another poster. Thanks for the catch.

a-scho

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Re: Young couple finally writing things down
« Reply #23 on: June 01, 2018, 05:50:06 PM »
I would:
1. If you are planning on staying in the house you currently live in after you FIRE, then stay there and sell both rentals. Put those newly liquid assets into low cost index funds.
2. If you are not going to stay in that house after you FIRE, then move into the 400K mortgage property and sell the 870K and 330K properties. The 330K property may be a lower mortgage than the 400K one, but it is "worth" more. So, sell it!  If the 400K place won't work for your current needs, well pick one, but sell the other two. but, if you can handle the 400K place, it would cut your current mortgage and property taxes by roughly half.
3. Get rid of cable, life insurance, SUV( using a car seat in a four door sedan is totally doable.) lower day care by having grandmother babysit sometimes. Lower food costs.

It depends on how soon you want to FIRE, and where. If its the bay area, with five mil. then you will have to work for another 5-10 years. If you want to live almost anywhere else with less than five mil. then you could work for only a couple more years, sell all three properties.