New here - nice place, how am I doing?

[Tyson]

Hola mustascians!  A friend pointed me to this blog a couple of weeks ago and I've been devouring the information since then.  I'm looking to start saving substantial amounts of money right away, and I'm trying to hit all the major things MMM recommends.  Here's a bit of a summary of where I'm at, financially:

I'm 43 years old.

No car loans
No student debt
No credit card debt
$130k in 401k account
$350k mortgage, $2250/month payment
$5800 loan to myself from my 401k plan, $280/month payment

$120k/year income

Commute - I work from home 100%

Family - wife (married 20 years) and an 8 year old daughter

Things I've done to cut costs since reading MMM:

Cell Phone - Switched cell plans from t-Mobile to MetroPCS, bill went from $140 for 2 lines down to $70.  I'd have considered Republic, but our iPhones are already paid for and I didn't want to pay for 2 new handsets.

Internet - switched from Comcast to local phone company - $135 for internet/phone down to $100.  No cable TV or Satellite TV service. 

Insurance - switched to Geico and went from $160/month to $85/month. 

Bicycle - bought a kid trailer for my bike to use for groceries and other local cargo.  Also bought a e-bike conversion kit because I am just not in shape enough to handle the insane hills by my house (at least not in the beginning!)

Health insurance - switched to Kaiser Permanente, bill from $600 to $360 for a family of 3. 

Groceries - joining Costco this week. 

Entertainment - I already use the hell out of the library, I have Netflix and Hulu for movies (love the Criterion Collection on Hulu in particular).  I also have Amazon Prime for the free shipping, and watch some stuff on occasion there too. 

Exercise - quite my gym a few months ago and have been doing "Convict Conditioning", which is basically progressive calisthenics that I do at home.

401k - just changed it to 15% withdrawal (and my company matches 5%), to max out contributions at $18k per year. 

Budget - I just started using Mint and it's really a good tool to help me see "where does the money go"?  For me the biggies are food, clothes, and stereo equipment.  Having it tracked in the software makes it very clear to me that these things need to be dialed down, immediately. 


Whew, that's a lot!  I hope I'm on the right path here, but am open to any suggestions.  Mainly I am just happy to be here.

[MDM]

$5800 loan to myself from my 401k plan, $280/month payment

tyort1, welcome to the forum.
Can you just pay this off tomorrow?  Monday at the latest?

401k - just changed it to 15% withdrawal (and my company matches 5%), to max out contributions at $18k per year.

Great!
Although...that will work for 2016 but how much would you need to contribute to get $18K in 2015?

How about IRAs?  Your wife could contribute $5500 to a tIRA and, depending on what other pre-tax deductions you have, you might be able to do the full $5500 deductible to a tIRA also - what do you think?

[Mr Dorothy Dollar]

With your income and age I think you should have about +400K in liquid assets already. Welcome to a new way to think. Now get to work saving.

[Mrs.LC]

Costco - nice store but you have a small family. Don't go overboard buying large quantities of items until you know for sure that you will consume them before they go bad and that they really are cheaper to buy in the quantities Costco sells.  Good luck on your journey!

[Tyson]

$5800 loan to myself from my 401k plan, $280/month payment

tyort1, welcome to the forum.
Can you just pay this off tomorrow?  Monday at the latest?

YES!  Well, not tomorrow, but it is absolutely my highest priority to pay off.  It's down from $15k, and I should be able to have another $3k of it paid off in the next 2 weeks.  After that, the last $2800 might take another 3 or 4 weeks, and then done.  I'll be so happy to have that off my back once and for all.

401k - just changed it to 15% withdrawal (and my company matches 5%), to max out contributions at $18k per year.

Great!
Although...that will work for 2016 but how much would you need to contribute to get $18K in 2015?

How about IRAs?  Your wife could contribute $5500 to a tIRA and, depending on what other pre-tax deductions you have, you might be able to do the full $5500 deductible to a tIRA also - what do you think?

Oh man, I know nothing about IRA's or anything like that.  I'm really just trying to get my expenses under control as a first step and build up some savings. 

With your income and age I think you should have about +400K in liquid assets already. Welcome to a new way to think. Now get to work saving.

Thanks for the welcome!  I had a bit more savings but went through a bunch of it after being unemployed 6 months last year.  Blew through a bunch of savings just paying the mortgage and health insurance (thanks to a pre-existing heart condition). 

Costco - nice store but you have a small family. Don't go overboard buying large quantities of items until you know for sure that you will consume them before they go bad and that they really are cheaper to buy in the quantities Costco sells.  Good luck on your journey!

We used to live in a condo so we never could use something like Costco because we had zero storage.  We moved to our current house a year ago and we now do have space to store stuff.  My evil plan is to just buy staples I know we use that are not perishable - Rice, Coconut Oil, Olive Oil, TP, Sea Salt, Dishwasher tabs, Frozen veggies.  Stuff I already buy in smaller quantities.  And you are right, it only makes sense if it  really is cheaper.

[MDM]

401k - just changed it to 15% withdrawal (and my company matches 5%), to max out contributions at $18k per year.

Great!
Although...that will work for 2016 but how much would you need to contribute to get $18K in 2015?

How about IRAs?  Your wife could contribute $5500 to a tIRA and, depending on what other pre-tax deductions you have, you might be able to do the full $5500 deductible to a tIRA also - what do you think?

Oh man, I know nothing about IRA's or anything like that.  I'm really just trying to get my expenses under control as a first step and build up some savings. 

Looks good - nothing wrong with one step at a time.

You have until April 15, 2016 (or a few days before, depending on transaction delays) to fund a 2015 IRA, so no rush there.

For your 401k, however, once you run out of 2015 payroll dates you lose the opportunity to make your full 2015 contribution.  Given payroll processing delays, and the likelihood that you won't want (or that your employer won't allow you) to contribute ~all of your last paycheck(s), this is something to do in the next month or so.

[Tyson]

Yes, one step at a time!  Right now I'm really trying to focus on the savings and spending side of things because that's where I've historically been terrible.  I think I've hit all the major areas for possible savings, but if I'm missing anything, let me know!

[MDM]

I think I've hit all the major areas for possible savings, but if I'm missing anything, let me know!

It's still not clear whether you will take advantage of the $18K personal contribution limit for your 401k in 2105.  Note: the employer match does not count toward this amount.

With an annual salary of $120K, contributing 15% will indeed get you to $18K if you do that for a complete year.  Starting in the middle, however, you will need to contribute more than 15% per month....

[mathlete]

With your income and age I think you should have about +400K in liquid assets already.

Can't say I agree.

Not sure why you would ever have 400K in liquid assets unless you buy things that cost in the neighborhood of 400K

[mathlete]

$350K mortgage seems like it'd be a lot of house for three people. Are more kids on the way? Would you consider downsizing?

[EricP]

Internet - switched from Comcast to local phone company - $135 for internet/phone down to $100.  No cable TV or Satellite TV service. 

Do you still have a landline?  Why?  You should be able to get high quality internet for $30-$50 depending on your area/provider.  That's one cut that you can make that won't hurt at all.

[Tyson]

Land Line - just broached this subject with my spouse yesterday.  I'd like to do it ASAP, I just don't see the value in having one anymore. 

$350k mortgage - we just moved to this house from a smaller condo.  For Denver, this is actually a really good deal.  We bought it for $455k a year ago and it's already appraising at $540k today.  Plus I took a big hit selling the old place and buying the new one and I'm not willing to lose that much equity again.  So mortgage is one area where I won't be able to be very flexible.

401k and Roth - I guess this brings up a question for me - I'm about to have a fair bit of extra cash every month.  What is the best way to use it?  Save up by maxing out these types of savings options?  Or pay down the mortgage at an accelerated rate?

[EricP]

Land Line - just broached this subject with my spouse yesterday.  I'd like to do it ASAP, I just don't see the value in having one anymore. 

401k and Roth - I guess this brings up a question for me - I'm about to have a fair bit of extra cash every month.  What is the best way to use it?  Save up by maxing out these types of savings options?  Or pay down the mortgage at an accelerated rate?

I'm guessing you just switched to CenturyLink.  Sorry about that.  They suck pretty hard.

As for the 401k and IRA, it makes more sense to max out your tax advantaged savings space before paying down your house.  Even if you run out of tax advantaged space, most will advise you to continue to save in Mutual Funds and not pay down your mortgage early.

Paying down your Mortgage only saves you the 3.5% (or so) in interest which one can expect to get 7% (or so) from the market.  Mind you, one is guaranteed and the other has risk associated.

However, being free from your Mortgage is very nice.  It's largely a personal choice, but I prefer to invest more and keep my mortgage around for the full term.

[Tyson]

Land Line - just broached this subject with my spouse yesterday.  I'd like to do it ASAP, I just don't see the value in having one anymore. 

401k and Roth - I guess this brings up a question for me - I'm about to have a fair bit of extra cash every month.  What is the best way to use it?  Save up by maxing out these types of savings options?  Or pay down the mortgage at an accelerated rate?

I'm guessing you just switched to CenturyLink.  Sorry about that.  They suck pretty hard.

As for the 401k and IRA, it makes more sense to max out your tax advantaged savings space before paying down your house.  Even if you run out of tax advantaged space, most will advise you to continue to save in Mutual Funds and not pay down your mortgage early.

Paying down your Mortgage only saves you the 3.5% (or so) in interest which one can expect to get 7% (or so) from the market.  Mind you, one is guaranteed and the other has risk associated.

However, being free from your Mortgage is very nice.  It's largely a personal choice, but I prefer to invest more and keep my mortgage around for the full term.

Tax write-offs for the mortgage, I hadn't even thought about that!  Yes, then it would not even be 3.9% (current rate), it would be even less because I'd lose my tax write off. 

So, given that, here's my current thinking:

1. Pay off the 401K loan to myself first - within the next month.
2. Max out my 401K employee contributions to get the full $18k allowable this year
3. Next year - roll back 401k contributions to 15% of income, which takes me to the full $18k again over the course of the entire year
4. Max out Roth IRA's or whatever.  I need to read up on IRA's I guess....

[EricP]

That looks like a great plan.

Then just start cutting out more spending and get your savings rate even higher.

[Dicey]

Urmmm, am I missing something? You make 120K a year and you have no savings outside your 401k? No EF at all? Did you forget to include this info?

If this is really true, you have a-hair-on-fire emergency. It's great that you don't have CC or SL debt (except that damn 401k loan. Kill it! MDM is right.), but you need to have money you can access before typical retirement age if you're going to FIRE. Or if your engine blows up. Or anything big.

[Tyson]

Urmmm, am I missing something? You make 120K a year and you have no savings outside your 401k? No EF at all? Did you forget to include this info?

If this is really true, you have a-hair-on-fire emergency. It's great that you don't have CC or SL debt (except that damn 401k loan. Kill it! MDM is right.), but you need to have money you can access before typical retirement age if you're going to FIRE. Or if your engine blows up. Or anything big.

Yes, good point!  I should have also probably included in the first post that I did have savings but got laid off in June of last year right after we bought our current home.  Took a full 9 months to find a new job and we blew through all our savings during that time.  Luckily we lived very meagerly and didn't have to go into debt, but it definitely set up back to zero for savings. 

[okits]

You've made some good moves to cut recurring expenses, congrats!  I'll let the American Mustachians comment on the degree of optimization as I'm not in the U.S. so don't know how much lower you could get those things.

Is your family single or double income?  Is your spouse on board with cutting costs to grow your family's net worth?  What kind of financial education are you giving your daughter?  At 8 she should be old enough to do some learning along with you (budgeting, frugality, the benefits of early retirement, some simple tax issues.)

Now that you are employed again I suggest you apply for a home equity line of credit (not to be used except in the direst of emergencies, like child starvation.) This is a bit of a safety net until you get an emergency fund saved up again.  It also gives you some breathing room to not pass up any free money (like employer match on your 401k), because having the ability to respond to emergencies is an immediate need.

[Tyson]

Some awesome news - I just paid off my 401k loan and am free/clear of debt!  Except my mortgage, of course. 

Time to max out my 401k contributions for this year!

[bklyncyclist]

On the subject of the landline...
1.5 years ago I ported my landline number to Google Voice and use this small gadget (OBI100) to use GV instead:
http://www.amazon.com/OBi100-Telephone-Adapter-Service-Bridge/dp/B004LO098O/ref=sr_1_1?ie=UTF8&qid=1435537802&sr=8-1&keywords=obi100&pebp=1435537803660&perid=18BJ5W9CA5SQ2MYGB822

It really works.
The process of porting a landline # to GV is a bit involved, but if you follow it exactly,  you will have no problems. So far I have successfully done it 3 times (for myself, parents and in-laws).
http://www.obihai.com/porttutorial
If you don't care about keeping your old number, you can have OBI100 set up and running (making & receiving phone calls on your landline phone) in 5-10 mins.

GV works beautifully.  The voice quality is crystal-clear and my current "landline" cost: $0/month
The only downside, no 911 service out of the box.  But it can be purchased separately for $1/month.
Hope this helps.