Author Topic: [Case Study] Trim the fat to meet house and RE goals  (Read 3328 times)

katstache

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[Case Study] Trim the fat to meet house and RE goals
« on: August 14, 2016, 09:30:19 AM »
Hey all,
I was looking for some advice to help my spouse and I meet our goal of retiring early. With our current savings rate/spending/incomes, it looks like we'll be somewhere in the ballpark of 2030.  This is pretty conservative because we do expect our incomes to keep growing, which we'll use to move the RE date up.

Additionally, we're planning to start looking for a house next year (which will be another post).  How much can we reasonably afford with our budget?  Prices are high (for the south) in the area around my work ($400k+), but otherwise commutes from the cheaper suburbs are 1hr+ for a house in the $300k range.  Is it reasonable to go for the $400k+ house?  We plan to move to a LCOL area at FIRE.


Here is our financial picture:
Liabilities : none

Assets:
$200k in pretax retirement accounts
$20k in Roth IRAs
$15k emergency fund (in Discover online savings at 0.9%)
$70k in taxable investment account (VTSAX) - would like to use this for a house downpayment

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$7,292$87,500
Salary/Wages for earner #2$7,500$90,000
Pretax Health Ins.$1382 HDHP's$1,660
Pretax Vision/Dental Ins.$24$293
Employer-sponsored HSA$488Employer contributes the rest to max$5,858
FICA base salary/wages$14,141$169,690
401(k) / 403(b) / TSP / etc.$3,000At maximum$36,000
Employer Match$674$8,085
Income subject to IRS tax$11,141$133,690
Life/LTD Insurance$63$759
Paycheck income before tax$11,078$132,931
Federal Total Income$11,141$133,690
Federal tax$1,6492016 rates, MFJ, stand. ded., 2 exempt.$19,790
State/City tax$628Guess, using 6.00% * (AGI - Exempt'n)$7,535
Soc. Sec.$877Assumes 2 earners paying$10,521
Medicare$205$2,460
Total income taxes$3,359$40,307
Income before other expenses  $7,719$92,624
Monthly Average Expenses:
Rent$1,840$22,080
Home/Rent Insurance$20$240
Car Insurance$2503 vehicles, 1 motorcycle$3,000
Car Maintenance, Registration, etc.$104$100/yr for registration, rest DIY maintenance$1,250
Christmas/Holidays$33$400 total$400
Clothing/Shoes$87includes new required work wardrobe - should decrease to ~$200/yr$1,043
Credit card fees$12annual membership fee$144
Dentist$23$70/ea cleaning 2x/yr$280
Donations/Gifts$53weddings, college grads, birthdays$630
Electricity$103$1,230
Entertainment$600includes going/eating out and all activities$7,200
Fuel/Public Transport$30mostly recreational trips$360
Groceries$3442 people includes alcohol$4,133
Household; Maintenance$188$2,250
Life Insurance$25$300
Parking/Tolls$16$195
Pets$1291 sick senior cat, 1 healthy cat$1,553
Recycling/Trash$30$360
Subscriptions (paper/magazines/etc.)$16netflix, amazon prime$192
Travel/Vacation$188$2,250
Water/Sewer$105$1,260
Non-mortgage total$4,992$59,903
Other tax-advantaged investments:
Roth IRA$917At maximum$11,000
Total Expense$5,909$70,903
Total to invest$1,810$21,721
Summary:
"Gross" income$14,792$177,500
Income taxes$3,359$40,307
After-tax income$11,433$137,193
IRA+401k/403b/TSP/457 (Savers' credit)$3,917$47,000
HSA$488$5,858
Living expenses$5,218$62,615

Additional details:
I walk to work and my husband works from home.  We get internet and cell phones paid through my husband's job.
We're planning on selling the motorcycle early next year.  Additionally, we plan to sell one of the other cars (180k miles) once it stops being so economical to fix- (soonish? repairs are more frequent now).

Please let me know if you'd like any more detail on a particular category.
Any suggestions welcome!
« Last Edit: August 14, 2016, 02:07:16 PM by katstache »

RWD

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #1 on: August 14, 2016, 12:03:09 PM »
Monthly Average Expenses:
Car Insurance$2503 vehicles, 1 motorcycle$3,000
Car Maintenance, Registration, etc.$208$100/yr for registration, rest DIY maintenance$2,500
Credit card fees$12annual membership fee$144
Entertainment$600includes going/eating out and all activities$7,200
Water/Sewer$577$6,925

The above expenses stand out to me.

Your car insurance is about four times as expensive as ours (though we only have two cars). You may want to shop around. In addition, your car maintenance seems high for how little you're driving (based on your fuel expenses).

There are plenty of good credit cards that don't have annual fees.

Your entertainment expenses seem excessive. Lots of room to cut back here.

Your water/sewer bill is ridiculous! That's about ten times what we were paying when we lived in the desert!

All that said, even without changes you should be on track for a 2030 retirement, maybe even sooner. But with a few optimizations you could move that up several years easily.
« Last Edit: August 14, 2016, 12:38:43 PM by RWD »

kenaces

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #2 on: August 14, 2016, 12:30:30 PM »

Additionally, we have $70k in a taxable investment account (VTSAX) that we'll use for a house downpayment.


If I was planning on needing the 70K for downpayment in next few years I wouldn't have 100% of it in the market

katstache

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #3 on: August 14, 2016, 12:39:37 PM »
Monthly Average Expenses:
Car Insurance$2503 vehicles, 1 motorcycle$3,000
Car Maintenance, Registration, etc.$208$100/yr for registration, rest DIY maintenance$2,500
Credit card fees$12annual membership fee$144
Entertainment$600includes going/eating out and all activities$7,200
Water/Sewer$577$6,925

The above expenses stand out to me.

Your car insurance is about four times as expensive as ours (though we only have two cars). You may want to shop around. In addition, your car maintenance seems high for how little you're driving (based on your fuel expenses).

There are plenty of good credit cards that don't have annual fees.

Your entertainment expenses seem excessive. Lots of room to cut back here.

Your water/sewer bill is ridiculous! That's about ten times what we were paying when we lived in the desert!

All that said, even without changes you should be on track for a 2030 retirement, maybe even sooner. But with a few optimizations your could move that up several years easily.

Thanks for the response!
I made a typo on the water bill - forgive me, I did this while on cold medicine, hah!  Now fixed!
I also fixed the car maintenance - we had a large expense recently so I averaged it out over longer.  We've really spent $2500 over 2 years.  Also, we've recently transitioned from car commutes to walking/no commutes so we expect this category to hopefully start shrinking a little.  My husband does still travel for work (reimbursed) so the maintenance will remain a little higher than rock bottom.

I will definitely start shopping around for insurance.
« Last Edit: August 14, 2016, 03:36:11 PM by katstache »

katstache

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #4 on: August 14, 2016, 12:41:38 PM »

Additionally, we have $70k in a taxable investment account (VTSAX) that we'll use for a house downpayment.


If I was planning on needing the 70K for downpayment in next few years I wouldn't have 100% of it in the market

We've just decided that we'll start looking for a house recently - thanks for pointing that out!  I'll look into less volatile short term investments.  What are the best options for this -CD's?  If feels weird to have that much money hanging out in a savings account.
« Last Edit: August 14, 2016, 12:50:15 PM by katstache »

okits

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #5 on: August 14, 2016, 01:03:44 PM »
Welcome!

One expense that sticks out to me is your home insurance ($240/month).  Is this garden-variety renter's insurance or does the policy cover a lot of extras?  Almost $3k a year seems high to me (not knowing your specific policy details or what the local going-rate is).

Your household income is high; 2.5x = $443,750, not unreasonable for a house if it's a thoughtful purchase (minimize commute, only as much space as you need and maintenance/reno that you can handle). 

You haven't mentioned your assets and any debt.  If the $70k down payment represents the majority of your net worth I would be wary of sinking all of it into one illiquid, localized, leveraged asset (a house).

katstache

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #6 on: August 14, 2016, 01:43:12 PM »
Welcome!

One expense that sticks out to me is your home insurance ($240/month).  Is this garden-variety renter's insurance or does the policy cover a lot of extras?  Almost $3k a year seems high to me (not knowing your specific policy details or what the local going-rate is).

Your household income is high; 2.5x = $443,750, not unreasonable for a house if it's a thoughtful purchase (minimize commute, only as much space as you need and maintenance/reno that you can handle). 

You haven't mentioned your assets and any debt.  If the $70k down payment represents the majority of your net worth I would be wary of sinking all of it into one illiquid, localized, leveraged asset (a house).

Thanks for looking things over!
**sigh** the renter's insurance is another product of the cold medicine.  I'll go over everything to make sure I didn't have any more errors.  We pay $240/yr (not /mo) for renters insurance plus a small personal articles policy.  Is that reasonable?  I'll probably just get quotes anyway while I'm shopping around for auto insurance.

I'll also add in the top post, but we have no debt and about $200k in retirement accounts.  Having a $400k house would take us into negative net worth, but the monthly mortgage payment should be cheaper than our rent.
« Last Edit: August 14, 2016, 04:04:05 PM by katstache »

MarciaB

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #7 on: August 14, 2016, 02:17:30 PM »


I'll also add in the top post, but we have no debt and about $200k in retirement accounts.  Having a $400k house would take us into negative net worth, but the monthly mortgage payment should be cheaper than our rent.

No it wouldn't. Net worth is the difference between assets and liabilities.

Although you would be taking on debt, you would offset it by the value of the house.

katstache

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #8 on: August 14, 2016, 02:21:08 PM »


I'll also add in the top post, but we have no debt and about $200k in retirement accounts.  Having a $400k house would take us into negative net worth, but the monthly mortgage payment should be cheaper than our rent.

No it wouldn't. Net worth is the difference between assets and liabilities.

Although you would be taking on debt, you would offset it by the value of the house.

Ahh, true.  I totally forgot about the value of the house itself, hah!
« Last Edit: August 14, 2016, 02:22:53 PM by katstache »

MarciaB

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #9 on: August 14, 2016, 02:27:15 PM »
It's something I see all the time, when someone thinks of outbound cashflow as an expenditure.

Sometimes cash flows out but is replaced by something else (like home equity, or mutual fund shares or whatever). And so it's a wash and doesn't change net worth.

I'm sure you know that, and the majority of folks on this forum do too. But out there in "normal land" the average person doesn't get this. Of course, the average person isn't paying attention to finances at all, let alone trying to untangle any of this stuff...

marty998

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #10 on: August 14, 2016, 03:11:11 PM »
You have 3 cars and 1 motorcycle and you walk to work and he works from home? Why are you planning to sell the motorcycle next year...why not now before you lose more in depreciation and the model becomes 1 year older and less desirable for a purchaser?

House for $400k at your income is not a big stretch... You could have it paid off in less than 5 years. Coupled with a small amount of appreciation per year if it is in a good area, you could end up with an asset over $5-600k by the time you decide to downsize.

katstache

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Re: [Case Study] Trim the fat to meet house and RE goals
« Reply #11 on: August 14, 2016, 03:33:14 PM »
You have 3 cars and 1 motorcycle and you walk to work and he works from home? Why are you planning to sell the motorcycle next year...why not now before you lose more in depreciation and the model becomes 1 year older and less desirable for a purchaser?

House for $400k at your income is not a big stretch... You could have it paid off in less than 5 years. Coupled with a small amount of appreciation per year if it is in a good area, you could end up with an asset over $5-600k by the time you decide to downsize.

Thanks for the reply!  It's good to know about the house not being too ridiculous.  I come from a more rural area where those sorts of prices (for just a house) are unheard of except for the super-rich estate-type dwellings.

Hah, I brought 1 car into the relationship and my husband brought 2 cars and a motorcycle (1 car and the motorcycle being pleasure vehicles).  We have come to an agreement to sell the motorcycle after he goes to an event with his friends on it this fall.  As for his extra car, I think this is one area where my husband would rather work for a longer amount of time than give it up.  He is slowly coming over to the FIRE-side but I think pushing too hard in this area right now would cause a mutiny.  He has agreed to try cutting the recreational money in response to this thread so I think we'll get there eventually. :)

Realistically, I am open to getting rid of my commuter car since I no longer drive to work.  However, I'd like to wait to see where we can find a reasonable house early next year (balancing price vs. crime/schools etc).  Ideally, I would be able to keep walking or biking or public transit to work but that might not be possible. 
« Last Edit: August 14, 2016, 03:54:02 PM by katstache »