Author Topic: "Let others know your goals" - this is mine with a bit of advice requested  (Read 4719 times)

kevinb421

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I am on the path to financial freedom and a different form of early retirement. Today I have paid off my student loans!  That means it is time to get serious with my life goals, and it isn't a goal until you share it with others.

I am ready to take the next step towards moving to Kaluia Kona and operating a small organic coffee farm.  This is not a pie in the sky as I have connections there and would have work in some fashion, as well as a temporary place to stay while I build our Yurt on the land we purchase.

I have set this goal to be in 4-7 years or sooner if at all possible!  I am really struggling with how to invest/save/hoard the money I have coming in now. Here are the relevant details. I am including the data but you can skip down if you would like.
I am 28, my wife is 23.

Income
2200 - Primary job take home pay, (currently 15% into retirement matched at 5% ~$670 into 401k/mo)
1175 - Small business/second job take home pay
400 - PT job doing books for small business
950 - Rental property income

$4,675 Take home pay

Expenses
400 - Grocery for 2
60 - Cell phone for 2 Republic Wireless
1300 - First Mortgage, taxes, insurance on primary residence
120 - Health Insurance for 2 HSA
40 - Internet
10 - Netflix
100 - Second Mortgage on Rental (interest only)
600 - First Mortgage on Rental ($150 a week)
0 - Utilities (not paid by me)
150 - Pocket money, lunches, Misc
40 - pets
400 - deposit into HSA

$3,220 - Total expenses

Assets
$150,000 - House
$80,000 - Rental
$1,000 - HSA
$5,000 - IRA
$6,500 - ROTH IRA
$5,000 - 401k

$247,500 - Total Assets

Liabilities
$111,000 - Mortgage on home, 15 year 4.25%
$53,000 - Mortgage on Rental, 10 year 3.25%
$27,000 - second on rental , 5 year interest only 4.75%
0 - Student loans as of TODAY!
$191,000 - Total Liabilities

$56,500 - About what I'm worth today

All of that information to say that I have about $1,500 extra every month above my current savings (400 in HSA and 600 in 401). What would be the best approach knowing that I want to make a major life change in the next 4-7 years? I travel to HI once a year for work and have priced out what I want and I can estimate it will cost anywhere from 200-300k to make the move safely, but I welcome anyone with realistic advice on this.  Does it make sense to just invest in a ROTH IRA and then put the rest in taxable accounts so I can get it easily? Is it better to continue to invest in the 401k above the ROTH? Aggressively pay off the mortgages?  I welcome any input.
As far as the goal. We want to live on a few acres at elevation on the big island, working small jobs and farming boutique coffee. We would build a self sustained Yurt off the grid. I estimate the cost for the Yurt to be $55,000, fully furnished.  The land......that can go anywhere from 50k-400k, there is a huge savings since we are going self sustaining we don't need to be connected to utilities.
I am on these forums everyday and respect the different opinions here, so please, everything is welcome. What would you do to make this happen?

Thank you all so much for always finding new ways to motivate.

MDM

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With combination of salary, business, and rental, plus the desire (need?) for a large amount of cash available within a short time, your situation is more complex than many.

The OP starts with take home pay.  Do you have a spreadsheet (or equivalent) that starts with income, then accounts for all taxes, spending and investments?  Developing one, if you don't have it, would be a good start.

My kneejerk reaction to someone your age with $1500/mo "extra" and contributing less than $17.5K/yr to the 401k is "fill up the 401k first, then let's talk."  But with your complexities...?

kevinb421

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I do not have that spreadsheet, I'll work on making one tomorrow and post it here.

kevinb421

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It didn't copy from excel the best, but you get the idea.
   

Gross Income      
St Paul   3156      
Accu       1500      
Rental   950      
RW       450      
Total      6056   
         
Expenses         
   Taxes      
Accu Fed   166      
Accu State 44      
accu FICA   93      
accu medi   22      
STP Fed   132      
STP State   119      
STP FICA   196      
STP medi   46      
RW Fed   25      
RW State   15      
RW FICA   28      
RW Medi   10      
Total Taxes             896   14.80%
         
   Living Expenses      
Mortgage Interest                  500      
2nd Mortgage Interest          100      
Rental mortgage interest       150      
Grocery                   400      
Dining out            100      
Health Insurance   120      
Life Insurance            20      
Rental Insurance     15      
Rental Taxes          110      
Misc                             100      
Home Repairs           125      
Internet                     40      
Phones                   60      
dexter                    45      
netflix                    10      
mortgage taxes   210      
Home Insurance   100      
Total Living Exp      2205   36.41%
         
   Savings      
401k                         475      
ROTH IRA                      100      
Mortgage                  390      
Rental Mortgage    450      
HSA                      400      
2nd Mortgage           100      
Traditional IRA       1040      
                   2955                  48.79%

Thegoblinchief

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Knock your groceries down to $200 and you'll get there even faster. $400 for two is quite high.

Stuff your ROTHs, invest 401(k) enough to get a match and stick the rest in a taxable account. I'd probably go conservative considering your short timeline. Bond-heavy, or select a very stable portfolio of individual stocks that are dividend champions.

Broad based index funds are probably something to avoid. Not enough time for compounding to occur, and too much risk of wiping capital away when you're ready to pull the plug.

Are you going to be holding onto the rental? Might be worth checking into reliable property management companies a year or more before the move. That way, if you end up with a poor company, it's not a trip back to the mainland to fix.

Interesting dream - hope it works out!

MarciaB

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Excellent work on the getting the student loan debt off your back. Gold star!

MsSindy

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If I understand correctly, the 2nd on the rental is an interest only loan - what happens in 5 years, is there a balloon payment for the entire amount? or some other arrangement?  Also, it looks like you're clearing $250/month without any considerations for repairs or vacancies.  Not sure why you took out a 2nd on it (where did this money go?), and not sure why you're still hanging on to it - it seems that it wouldn't be worth the headache, especially if you plan to move in about 5 years.

For your situation, it would seem that you'd def want to keep a good portion of your money outside of retirement funds.  If you're not willing to take a risk on Indexed Funds given your timeline, you may want to consider comparing rates on paying down your mortgage compared to Bonds (I don't know what they pay these days); I'm assuming that you'd sell your main house.

I'm guessing working at boutique coffee farms doesn't pay real well, so the goal would be to either pay cash for land/house or have a substantial (i.e. way more than 50%) down payment and hope to finance the rest after working there for a while.  The thing that you have to keep in mind is that while land is $50 - $400k NOW, it will definitely be more expensive in 5 - 7 years, so you'll need to keep re-adjusting your goal.  The good thing is that you have a 15 year mortgage on your house, so you should have a fair bit of equity to contribute.  Could all be very doable!

Also, given your ages (I have to ask), do children fit into the mix at all, as this would also have an impact to your plans.

greenmimama

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Can you get roommates at the home you live in, to accelerate your dream?

I think it's great to work towards a goal, we have 2 couples that are working toward moving to HI also, sounds like paradise.

kevinb421

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If I understand correctly, the 2nd on the rental is an interest only loan - what happens in 5 years, is there a balloon payment for the entire amount? or some other arrangement?  Also, it looks like you're clearing $250/month without any considerations for repairs or vacancies.  Not sure why you took out a 2nd on it (where did this money go?), and not sure why you're still hanging on to it - it seems that it wouldn't be worth the headache, especially if you plan to move in about 5 years.

For your situation, it would seem that you'd def want to keep a good portion of your money outside of retirement funds.  If you're not willing to take a risk on Indexed Funds given your timeline, you may want to consider comparing rates on paying down your mortgage compared to Bonds (I don't know what they pay these days); I'm assuming that you'd sell your main house.

I'm guessing working at boutique coffee farms doesn't pay real well, so the goal would be to either pay cash for land/house or have a substantial (i.e. way more than 50%) down payment and hope to finance the rest after working there for a while.  The thing that you have to keep in mind is that while land is $50 - $400k NOW, it will definitely be more expensive in 5 - 7 years, so you'll need to keep re-adjusting your goal.  The good thing is that you have a 15 year mortgage on your house, so you should have a fair bit of equity to contribute.  Could all be very doable!

Also, given your ages (I have to ask), do children fit into the mix at all, as this would also have an impact to your plans.

The second was the down payment on our current house. I had a ton of equity in the rental, but very little cash. The 5 year is a balloon with a very small local bank that I have a personal and professional relationship with.
Yes we would sell EVERYTHING to go. My theory on keeping the rental for now is that while it is only cash flowing 250 a month, it is building a lot of equity as the interest only costs me 250 a month, which means that once I sell it even assuming no appreciation it will have netted me $750 a month while rented.

I have no problem going index funds, I am all for taking on more risk to have greater gains. Worse case is that the market is rough and I can work here another year or 2.

Kids aren't on the table, but really, kids aren't all that expensive and our friends in HI have babies currently so I wouldn't think it would change our decision. (other than HI schools are terrible)

kevinb421

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Knock your groceries down to $200 and you'll get there even faster. $400 for two is quite high.

Stuff your ROTHs, invest 401(k) enough to get a match and stick the rest in a taxable account. I'd probably go conservative considering your short timeline. Bond-heavy, or select a very stable portfolio of individual stocks that are dividend champions.

Broad based index funds are probably something to avoid. Not enough time for compounding to occur, and too much risk of wiping capital away when you're ready to pull the plug.

Are you going to be holding onto the rental? Might be worth checking into reliable property management companies a year or more before the move. That way, if you end up with a poor company, it's not a trip back to the mainland to fix.

Interesting dream - hope it works out!

The plan would be to just sell the rental and take the capital for the ride. For that matter, the plan is to sell damn near everything that doesn't fit in a box I can ship or bring on a plane. We will take, family keepsakes, some clothes, I'll ship my triathlon bike, small electronics, and a couple misc things. Everything else is turning into liquid cash for the move. It's just too expensive to get a shipping container there and so impractical just to hold onto things. (I live in Iowa, the drive to CA is expensive enough plus then it goes on a boat.)

iamlindoro

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...I'll ship my triathlon bike...

I just detected another reason for a Kona move ;)

kevinb421

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...I'll ship my triathlon bike...

I just detected another reason for a Kona move ;)

My side business is race timing, so yeah, Kona is a pretty big hub for that part of my life as well.

Westoftown

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Not sure with the finances but you should go for it.  You're young and its one of the most beautiful areas there can be.  Just know that Hawaii is terribly expensive, make sure you accurately budget for the business and your expected expenses.

Cwadda

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Quote
400 - Grocery for 2
150 - Pocket money, lunches, Misc

Groceries can be cut down. Also, lunches can be cut down significantly if you don't dine out. Dining out is so expensive and you can save by packing your own lunches!

kevinb421

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Not sure with the finances but you should go for it.  You're young and its one of the most beautiful areas there can be.  Just know that Hawaii is terribly expensive, make sure you accurately budget for the business and your expected expenses.

I've spent a lot of time there and have friends who live there and I find this to not be true. Now, if you want to live the same middle class consumer lifestyle than yes, Hawaii is very expensive. If you choose to "live like a local" then it's not that more expensive than the main land.
The big things that cost more are
Gas (good thing it is biking weather every day of the year)
Utilities (solar power combined with living at elevation means no electricity spent on heating/cooling)
Certain foods, I always hear "Oh, I couldn't live in Hawaii. A gallon of milk is $6.00!" What a silly argument to showcase the price of food. Of course milk costs more, it has to be flown in. Also, how much milk do these people drink that it is breaking their budget?

Here are the reasons why Hawaii is cost effective for a Mustachian

Food - HI allows you to grow most fruits and veggies year round, and the soil is very fertile
Housing - While a middle class home comparable to the mainland is more expensive, a renewable resource home is much cheaper. The home we are building is called a Yurt, not something that you could have with a winter, but in HI its a dream home.
Off the Grid - Buying land that is not setup for utilities is "cheap" because the average cost to run electrical to these areas is hundreds of thousands of dollars. Good thing we live in an age of solar power and batteries! My drawn up plans will allow us to have 4 days of power with no sun at all with a backup gas generator.
Recreation - You live in freaking HI! Go outside! it's free

My point of this rant is, sure it is way more expensive in HI to have a 2,000 sqft home, 2 cars, and your mainland consumerist life, but who wants that?