Author Topic: **UPDATE ** Case Study: Did a kitchen reno in new house...feel discouraged.  (Read 7570 times)

mrigney

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Case Study (Again)

Me, wife, 2 kids (3.5 and 6 months). 29 years old. Living in a low cost of living area. I’ve done a case study before, but we feel like we’re at an inflection point. We just bought a new house (now own two) and spent $9800 on a renos after buying. Paid cash, but now feel like all the hard work we’ve done is gone (or rather in the kitchen). We’re tired of having debt (student and now car) hanging over us and we feel like the dream of me retiring early is slipping. Need to turn things around. Wife stays at home with the kids (high school teacher before kids). I've always been more of a "wannabe" mustachian than the real thing (25% savings rate ocasionally, but normally more like 10...feel like it's lower now). We want to turn this ship around. Facepunch and recommend away.

Income:
$63k gross (expected raises of 2-5% annually)

Currently, 3% to 401k, 1.6% to a ESPP*, 0.5% to an FSA. Leaves us with a biweekly take home pay of $1,750

*ESPP allows me to contribute up to $184/pay period to buy company stock. The company will match 25% of what I put in. E.g. if I put in $184/pay period, the company will put in $46 for a total of $230. Also for reference, said company stock has averaged a return of 15% over the last 15 years.

Rental Revenue
*Current tenants have signed a 2-year lease, of which we have 21 months remaining. House is 5 years old, we are the original owner, 30-year architectural shingles on roof, HVAC 5 years old obviously.

Monthly Revenue: $1195
Management Fee: $119.50
PITI + PMI: $865 + $109 = $974
Cashflow = $101/month

Not the best cashflow obviously, but was better than selling (would’ve had to bring money to the table most likely after realtor fees, closing, etc). We’re content w/this property basically breaking even for at least the length of the 2-year lease the current tenants have, then re-evaluating. If we could get rid of the PMI obviously cash flow would be a little better. But we basically don’t treat this as income. It’s all in a separate account solely for the rental. If needed, I can give more details on why we rented vs. selling.

Assets
House 1 (Primary Res): $140-145k
House 2 (Rental): $160k
401k: $6,100 ($5,146 vested)
403b: $13,266 (vested)
TSP: $3,288
Roth IRA: $800
Cash on hand: Basically none right now….we just bought House 2 and spent about $9k on a kitchen reno. That blew all of our spare cash. Cashflow isn’t necessarily an issue (e.g. we’re not about to slip into not being able to pay our CCs), but we are basically spending on our CC, then paying off each month w/little cash left over.

Cars
2010 Toyota Prius (50k miles)
1996 Nissan Maxima (190k miles)

Debts:
2010 Toyota Prius (50k miles) - $13.8k @ 2.5% ($352/month)
House 1 (Primary Res): $130k @ 4.75% ($837/month...PITI)
House 2 (Rental...used to be primary res): $147k @ 4.0% ($974/month...PITI + PMI)
Student Loans: $9,960 @ 2.6% ($106/month)

Expenses
*********** Big note about expenses. Not included in any of these categories is $9800 we spent on a kitchen renovation. Completely tore out the kitchen in the house we bought in May and re-did it. This was a condition of buying the house...kitchen was in bad shape. New cabinets, appliances, counters, etc. A one-time expense for sure. Also included in that is the cost of a DIY refinishing of wood floors throughout the house*******************

Charity: $169
Food
Groceries: $544
Restaurants: $172
Coffee: $63
Alcohol: $14
Housing
   Mortgage: $837
   Utilities (Elec, Water, Trash): $214
   Phone (wife + me): $65 + $20 to pay off her iPhone 5c
   Housing Maint & Repairs: $85
   Cable & Int: $115 (I know...ends at the end of the year...no gain by canceling now)
   Netflix: $8 (cancelling right now)
Personal
   Doctor + Dentist: $287 (had a baby earlier this year)
   Gifts: $12
   Misc: $168 (diapers, pull-ups, cleaning supplies, etc...need to keep better track)
   Clothing: $11
   Haircuts: $21
   Pets: $51
   Fitness + Coaching + Gym: $103
   Kids Stuff (stroller, kids clothes, etc): $52
   Hygiene + Household Items (toilet paper, etc): $28
   His/Hers/Entertainment (dates, golf, fun stuff...includes a road trip to a football game): $88

Auto
   Car Payment: $352
   Gas: $218
   Insurance: $75
   Repairs: $35
   License & Fees: $24
Student Loans:  $106
« Last Edit: October 10, 2014, 12:20:36 PM by mrigney »

MDM

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Income:
$63k gross (expected raises of 2-5% annually)

Currently, 3% to 401k, 1.6% to a ESPP*, 0.5% to an FSA. Leaves us with a biweekly take home pay of $1,750
Couldn't get down to $3791/mo ($1750*26/12) for take home...?  See attached for assumptions - please point out what I missed.

Quote
*ESPP allows me to contribute up to $184/pay period to buy company stock. The company will match 25% of what I put in. E.g. if I put in $184/pay period, the company will put in $46 for a total of $230. Also for reference, said company stock has averaged a return of 15% over the last 15 years.
For a 25% return, why not contribute the full $184 instead of ~$39 every two weeks?  Appears you could just afford that amount - again, see attached in case I fat-fingered something from your post when populating the spreadsheet.

Assuming status quo, you'll have to work more or less forever.  That's the bad news.  The good news is that with increased income (e.g., keep doing well at work and get raises) and decreased spending (you can do it...), FIRE becomes doable.


kyanamerinas

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we all make mistakes, the important thing is how we learn from them, put them to rest and move on. i'm not saying the kitchen was a mistake necessarily but it is a sunk cost now so i'd let it lie and concentrate on what you can control in the future.

mrigney

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Don't get me wrong. I don't regret the kitchen (although I wish cabinets weren't so damn expensive). The kitchen "had" to be done to make the house livable, and moving to this part of town was a decision I definitely don't regret.

It's just one of those moments where you think...where did my money go?

I see several areas in my budget that can/do need to go. Waiting to see what others think, though.

chasesfish

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Lots of people will comment here on the whole thing, here's what jumps out at me:

$103 for Fitness/Coaching???  What the hell, walk or run somewhere.  If you really need to have a gym and fitness classes, you can get that down by $40-$50 (I've been a gym member for 10 years, never paid more than $30/pp)
$169 to charity?  You don't have the capacity to be doing this. 
$730 for food?  Again, what the hell
$63 for coffee?  Are there gold flakes inside?  I drink a ton of coffee and spend $15/mo, which is three 2-lb bags from Costco.
$101/mo for PMI:  This is an emergency!  This is an extra 1%/year on your mortgage just for the privilege of protecting the Bank.   I think you really need a firm punch in face for spending ANY money until you get below the PMI threashold.  This post comes to mind:

http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

Why's your rate so high on your new house?  A 15 year mortgage runs around 3.25% right now.  That's another $1300/year in interest your giving away and the higher payment is nice principal savings.

I hate to sound harsh, but you have personal choices to make.  I look at this like your house is burning and you want to throw water on it with a stadium cup.  Think differently and you can accomplish a lot.



Setters-r-Better

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Personally, I would drop the gym, charity, coffee (? This is a category,  Lol) and restaurant categories until you are more comfortable with your cash position.  Then knock out the car loan since the monthly payment is so large. Combine those changes with canceling cable and you'll have a much larger chunk for investing monthly.  You can probably make small tweaks in other categories to slightly reduce spending,  but they look pretty reasonable to me. 

Your Kitchen remodel could have increased value of your home to get rid of the pmi sooner.  Do you have to keep the pmi a minimum length of time? 

boarder42

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Assets
House 1 (Primary Res): $140-145k
House 2 (Rental): $160k
401k: $6,100 ($5,146 vested)
403b: $13,266 (vested)
TSP: $3,288
Roth IRA: $800
Cash on hand: Basically none right now….we just bought House 2 and spent about $9k on a kitchen reno. That blew all of our spare cash. Cashflow isn’t necessarily an issue (e.g. we’re not about to slip into not being able to pay our CCs), but we are basically spending on our CC, then paying off each month w/little cash left over.

Cars
2010 Toyota Prius (50k miles)
1996 Nissan Maxima (190k miles)

Debts:
2010 Toyota Prius (50k miles) - $13.8k @ 2.5% ($352/month)
House 1 (Primary Res): $130k @ 4.75% ($837/month...PITI)
House 2 (Rental...used to be primary res): $147k @ 4.0% ($974/month...PITI + PMI)
Student Loans: $9,960 @ 2.6% ($106/month)

Expenses
*********** Big note about expenses. Not included in any of these categories is $9800 we spent on a kitchen renovation. Completely tore out the kitchen in the house we bought in May and re-did it. This was a condition of buying the house...kitchen was in bad shape. New cabinets, appliances, counters, etc. A one-time expense for sure. Also included in that is the cost of a DIY refinishing of wood floors throughout the house*******************

Charity: $169 i would stop this until you pay off all those student loans and the car
Food
Groceries: $544
Restaurants: $172this should be cut to 0 or at the very least in half
Coffee: $63If this is coffee out it should be eliminated if its coffee in its a grocery expense
Alcohol: $14
Housing
   Mortgage: $837
   Utilities (Elec, Water, Trash): $214
   Phone (wife + me): $65 + $20 to pay off her iPhone 5ccould down grade her phone
   Housing Maint & Repairs: $85
   Cable & Int: $115 (I know...ends at the end of the year...no gain by canceling now)ok but cancel it
   Netflix: $8 (cancelling right now)
Personal
   Doctor + Dentist: $287 (had a baby earlier this year)
   Gifts: $12
   Misc: $168 (diapers, pull-ups, cleaning supplies, etc...need to keep better track)
   Clothing: $11
   Haircuts: $21how the hell do you spend 21 dollars A MONTH cutting hair thats insane
   Pets: $51
   Fitness + Coaching + Gym: $103Get rid of this
   Kids Stuff (stroller, kids clothes, etc): $52
   Hygiene + Household Items (toilet paper, etc): $28
   His/Hers/Entertainment (dates, golf, fun stuff...includes a road trip to a football game): $88

Auto
   Car Payment: $352
   Gas: $218
   Insurance: $75
   Repairs: $35
   License & Fees: $24
Student Loans:  $106

mrigney

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Thanks for the early feedback. Thought I'd go ahead and start replying some.

@boarder42
Charity - We will consider this, but not sure if this one is particularly negotiable. We have already cut it back some.
Restaurants - Agreed. This has been a big issue this year. With the kitchen remodel, we spend about $300 eating out over the 4 weeks we were working. In 2013 we averaged $115 and this month we're at $90. But yeah, definitely feel like that needs to be under $100 for sure. Lower is better. How do people deal with dates? My wife and I enjoy getting out for dinner once or twice a month, but that's a quick $35 - 50. Add in one or two lunches a month each and it seems hard to stay under $90. Thoughts?
Coffee - Yeah, this is embarrassing. It's ending/ended. Down to $10 this month. Hoping to get it to < $5 next month.
Phone - If we downgraded phone, we'd still have to pay off the balance of the phone, so not sure this would save us money...unless you meant something else by downgrade? We do try to keep our phones as long as possible. So, once we've paid off the phone, the $20 will drop off the bill (I think there's about $240 left on it).
Haircuts - So I have some clippers that I bought earlier this year...but I haven't worked up the courage to cut my hair yet (and my wife refuses). Any tips for taking the plunge the first time? Afraid I'm going to absolutely butcher it.
Fitness/Gym/Coaching - Yeah, I know this needs to be cut. This is the tough one for me. Fitness/working out is my hobby/passion (hoping to make it a side income at some point). This cost breaks down $75 for coaching (basically a coach who analyzes form, writes my programming, etc), $15/month for "membership" in the garage gym I'm part of (at a friends...covers equipment upkeep, etc), and $20/month for supplements (mainly protein). The $75 coaching needs to go, I know. Hard to cancel a personal relationship. Considering finishing out the year w/the coach (b/c that was the original commitment), then canceling the coaching. The $15/month would stay for the garage gym.

So, I guess that's an easy $75 + $80 + $60 + $15 = $230. That's 5% there.

I'm surprised no one has said anything about the car payment being stupid. Thoughts? Sometimes I feel like I should ditch the Prius and buy something that costs $7k instead of $14k.

@chasefish
4.75% on the new mortgage is a 30-year. Cheapest rate around here was 4.4% (well, I guess 4.375%). We took a bump in interest to get lower closing costs to keep the cash necessary for the kitchen reno. No PMI on new house. PMI is on old house.

I agree the PMI is an emergency. How would you prioritize PMI, car loan, and student loan?

$730 for Food - Is this mainly the restaurants/coffee/alcohol amounts or the grocery amount? We feel like the grocery amount isn't terrible, although it could probably lowered a little. We're committed pretty strongly to eating as local as we can. The $544/month for groceries includes ~$175 (so $20/month) that we've spent getting some garden beds ready this year.

Seems like there's consensus that a couple hundred dollars/month should be easily salvageable. What are some deeper cuts that people see that could be taken?

GuitarStv

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About haircuts . . .

- it's not that hard.  I go with #2 sides and back, and maybe a #5 on top, with some scissors to even out bits that don't look quite right.
- worse comes to worse you just do a buzzcut
- worse comes to worse it'll grow back

tarheeldan

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Haircuts - So I have some clippers that I bought earlier this year...but I haven't worked up the courage to cut my hair yet (and my wife refuses). Any tips for taking the plunge the first time? Afraid I'm going to absolutely butcher it.

Depends on your style. I use one of these for the top:
http://www.amazon.com/gp/product/B000UZEQK0/ref=oh_aui_detailpage_o04_s00?ie=UTF8&psc=1

And then I blend in the sides and back using successively smaller guards. The adjustment on the side can be used to add one more length in between each guard for better blending.

Use a handheld mirror and your bathroom mirror for the back, of course. You can use a shoelace drawn across your neck to get a straight, flat line for your neckline.

Don't push hard on your scalp, you should be gliding along.

With clippers, cut dry or only slightly damp hair, not wet.

For the blending, if you do a scooping motion where you lift away at the blending point, it will blend better.
« Last Edit: September 23, 2014, 10:38:31 AM by tarheeldan »

CommonCents

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Seems like there's consensus that a couple hundred dollars/month should be easily salvageable. What are some deeper cuts that people see that could be taken?

The problem is that it seems from your responses that you're unwilling or unable to consider cuts.  Heres what I think can be cut:
- Cut back on charity.  Consider putting it to the phone this month.
- Food.  It's still too high, particularly as kids don't eat as much as adults.  Consider making baby food at home.  I'd stop eating as much local (if it's what is driving up the bill) until you are in better shape.
- Restaurants.  On your income you need fewer or less expensive date nights - your pick.  DH and I rent a redbox movie for date nights sometimes.  Try that, or eating ethnic food for cheaper meals out, no alcohol etc.
- Coffee, big facepunch.  Buy it on sale at the store.
- Cable.  Are you locked into a contract?
- Phone.  Can she resell her phone for any reasonable amount of money?  Never do this again!  Is she paying interest on the phone?
- Try to work on utilities to cut them down a little.  Borrow Kill-A-Watt from your library and see what is drawing power, turn off lights, turn the temp up/down 2-3 degrees, wash laundry on cold...
- Track misc better
- Cut your own hair, and have her haircuts come out of her personal money ($88), ask her to go an extra 2-3 weeks between haircuts etc.
- Cut private coaching
- Is the dentist/doctor bills, or just averaged costs?  Ask for a cash discount.
- Whats the commute? Cut back on trips in the car.

Basically, to get your expenses under control you need to compromise on some things such as eating locally, private trainer, (temporarily) giving to charity, etc.  Just cutting your hair and making coffee at home won't do much for your bottom line.

skunkfunk

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Restaurants - Agreed. This has been a big issue this year. With the kitchen remodel, we spend about $300 eating out over the 4 weeks we were working. In 2013 we averaged $115 and this month we're at $90. But yeah, definitely feel like that needs to be under $100 for sure. Lower is better. How do people deal with dates? My wife and I enjoy getting out for dinner once or twice a month, but that's a quick $35 - 50. Add in one or two lunches a month each and it seems hard to stay under $90. Thoughts?

Go somewhere cheaper? Personally I don't like eating out. Learn to hate restaurant gruel, that's my advice.


Coffee - Yeah, this is embarrassing. It's ending/ended. Down to $10 this month. Hoping to get it to < $5 next month.

Make your own damn coffee and drink it black. You care about fitness/working out, take another step and drink healthy. Also - NO soda, diet or regular. Beer is OK in moderation. What I've done, and this isn't necessarily the best way but I got it as a wedding gift, is use a keurig with a reusable filter in order to make single servings cheaply.
Phone - If we downgraded phone, we'd still have to pay off the balance of the phone, so not sure this would save us money...unless you meant something else by downgrade? We do try to keep our phones as long as possible. So, once we've paid off the phone, the $20 will drop off the bill (I think there's about $240 left on it).

Your phones are OK. If you want to cut some fat I guess you could sell the phones and get something cheaper. What plan are you on, that looks like Sprint maybe? If so you might look at Ting.


Haircuts - So I have some clippers that I bought earlier this year...but I haven't worked up the courage to cut my hair yet (and my wife refuses). Any tips for taking the plunge the first time? Afraid I'm going to absolutely butcher it.
Live near family? I still have my mom cut my hair.
Fitness/Gym/Coaching - Yeah, I know this needs to be cut. This is the tough one for me. Fitness/working out is my hobby/passion (hoping to make it a side income at some point). This cost breaks down $75 for coaching (basically a coach who analyzes form, writes my programming, etc), $15/month for "membership" in the garage gym I'm part of (at a friends...covers equipment upkeep, etc), and $20/month for supplements (mainly protein). The $75 coaching needs to go, I know. Hard to cancel a personal relationship. Considering finishing out the year w/the coach (b/c that was the original commitment), then canceling the coaching. The $15/month would stay for the garage gym.
Yeah I can see that being a tough one. $75 seems like a decent deal for some personal coaching, but are you knowledgeable enough to replace him with a little library/googlefu?


I'm surprised no one has said anything about the car payment being stupid. Thoughts?
Your car payment sucks, ditch that thing. That said, I have a car payment (wife's cruz) and feel like an idiot so I'm a hypocrite.
4.75% on the new mortgage is a 30-year. Cheapest rate around here was 4.4% (well, I guess 4.375%). We took a bump in interest to get lower closing costs to keep the cash necessary for the kitchen reno. No PMI on new house. PMI is on old house.

I agree the PMI is an emergency. How would you prioritize PMI, car loan, and student loan?

Get rid of PMI ASAP. Sell the car to get out of the loan. Student loan is last priority, that's a good interest rate. Many/most here would ride that out and not pay it off early due to the great interest rate, though I subscribe to the get the hell out of debt school of thought.

Seems like there's consensus that a couple hundred dollars/month should be easily salvageable. What are some deeper cuts that people see that could be taken?

I calculate exactly $1000/month savings (once loans/PMI are gone.) between what I've said and what you've previously committed to, more if you pay off those mortgages early.  Half of that is PMI and car loan. Take that $1000 once it's available and put it in tax-advantaged accounts. Other suggestions follow.

Alcohol: Brewing beer is fun. Costs more than $14/month though you get quite a bit of beer out of it.
Gas/insurance: Optimize when you replace your car for lowest costs here. Also, bike more? Didn't read your original case study so I do not know how much you bike. Any chance you could be a 1 car family? You sound handy, do you do all your own car repairs/maintenance?
Diapers: Maybe too late but try cloth.
Groceries: Coop in your area? I've been happy with Bountiful Baskets, $18 for a huge bucket full of produce at wholesale prices. Spend a little more for organic fancy stuff.
Utilities: Your utilities kinda suck. Wear less/more clothes and set that thermostat like a man.
Charity: Two ways to think of this. Either give now, or make up for it when you're a rich and frugal badass down the road.

mulescent

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Case Study (Again)

Me, wife, 2 kids (3.5 and 6 months). 29 years old. Living in a low cost of living area. I’ve done a case study before, but we feel like we’re at an inflection point. We just bought a new house (now own two) and spent $9800 on a renos after buying. Paid cash, but now feel like all the hard work we’ve done is gone (or rather in the kitchen). We’re tired of having debt (student and now car) hanging over us and we feel like the dream of me retiring early is slipping. Need to turn things around. Wife stays at home with the kids (high school teacher before kids). I've always been more of a "wannabe" mustachian than the real thing (25% savings rate ocasionally, but normally more like 10...feel like it's lower now). We want to turn this ship around. Facepunch and recommend away.

Income:
$63k gross (expected raises of 2-5% annually)

Currently, 3% to 401k, 1.6% to a ESPP*, 0.5% to an FSA. Leaves us with a biweekly take home pay of $1,750

*ESPP allows me to contribute up to $184/pay period to buy company stock. The company will match 25% of what I put in. E.g. if I put in $184/pay period, the company will put in $46 for a total of $230. Also for reference, said company stock has averaged a return of 15% over the last 15 years.

Rental Revenue
*Current tenants have signed a 2-year lease, of which we have 21 months remaining. House is 5 years old, we are the original owner, 30-year architectural shingles on roof, HVAC 5 years old obviously.

Monthly Revenue: $1195
Management Fee: $119.50
PITI + PMI: $865 + $109 = $974
Cashflow = $101/month

Not the best cashflow obviously, but was better than selling (would’ve had to bring money to the table most likely after realtor fees, closing, etc). We’re content w/this property basically breaking even for at least the length of the 2-year lease the current tenants have, then re-evaluating. If we could get rid of the PMI obviously cash flow would be a little better. But we basically don’t treat this as income. It’s all in a separate account solely for the rental. If needed, I can give more details on why we rented vs. selling.

Assets
House 1 (Primary Res): $140-145k
House 2 (Rental): $160k
401k: $6,100 ($5,146 vested)
403b: $13,266 (vested)
TSP: $3,288
Roth IRA: $800
Cash on hand: Basically none right now….we just bought House 2 and spent about $9k on a kitchen reno. That blew all of our spare cash. Cashflow isn’t necessarily an issue (e.g. we’re not about to slip into not being able to pay our CCs), but we are basically spending on our CC, then paying off each month w/little cash left over.

Cars
2010 Toyota Prius (50k miles)
1996 Nissan Maxima (190k miles)

Debts:
2010 Toyota Prius (50k miles) - $13.8k @ 2.5% ($352/month)
House 1 (Primary Res): $130k @ 4.75% ($837/month...PITI)
House 2 (Rental...used to be primary res): $147k @ 4.0% ($974/month...PITI + PMI)
Student Loans: $9,960 @ 2.6% ($106/month)

Expenses
*********** Big note about expenses. Not included in any of these categories is $9800 we spent on a kitchen renovation. Completely tore out the kitchen in the house we bought in May and re-did it. This was a condition of buying the house...kitchen was in bad shape. New cabinets, appliances, counters, etc. A one-time expense for sure. Also included in that is the cost of a DIY refinishing of wood floors throughout the house*******************

Charity: $169
Food
Groceries: $544
Restaurants: $172
Coffee: $63
Alcohol: $14
Housing
   Mortgage: $837
   Utilities (Elec, Water, Trash): $214
   Phone (wife + me): $65 + $20 to pay off her iPhone 5c
   Housing Maint & Repairs: $85
   Cable & Int: $115 (I know...ends at the end of the year...no gain by canceling now)
   Netflix: $8 (cancelling right now)
Personal
   Doctor + Dentist: $287 (had a baby earlier this year)
   Gifts: $12
   Misc: $168 (diapers, pull-ups, cleaning supplies, etc...need to keep better track)
   Clothing: $11
   Haircuts: $21
   Pets: $51
   Fitness + Coaching + Gym: $103
   Kids Stuff (stroller, kids clothes, etc): $52
   Hygiene + Household Items (toilet paper, etc): $28
   His/Hers/Entertainment (dates, golf, fun stuff...includes a road trip to a football game): $88

Auto
   Car Payment: $352
   Gas: $218
   Insurance: $75
   Repairs: $35
   License & Fees: $24
Student Loans:  $106

Hi,

You've gotten many good suggestions, but not the ones I think are most important.  You are in an extremely precarious situation - an emergency, I'd say.

Your rental house has two big two problems.  First, with no cash cushion, it's a ticking time bomb that could completely wipe you out.  All it would take is one major system to fail (major plumbing disaster, big storm, etc) or your tenants flaking to create a bill you couldn't hope to pay.  If you are set on keeping the rental house you should make your number one priority building up a cash cushion to deal with the inevitable five figure disaster.  Second, the real estate folks will tell you that, after factoring in maintenance and vacancy, you will probably lose money relative to other investments keeping that house.

Your car habit is insane!  With a SAHS, having two cars is ridiculous.  You should bike or take the bus or walk or carpool.  If you can't you should drive and your spouse should stay home.  If that doesn't work, she should drop you off and pick you up.  In any case, sell both cars and buy one reliable, cheap hatchback for ~5-7k.  You'll save a bunch and, hopefully, be able use the proceeds to build your cash cushion.  It's a shame that you just moved and chose to preserve your commute.  That's something to meditate on when you next move.

One possible route would be to fix the car situation, take the good advice about tightening your budget and direct the extra cash into creating an emergency fund.  Pray that nothing goes wrong in the months it takes to build this fund up and then go about paying down the PMI and student loans.  My priority actually wouldn't be the loans or PMI, though.  Your cash situation is the major problem.  After that, getting retirement squared away would be my priority.  Another route would be to have your wife go back to work.  Obviously, that is a lifestyle choice that may not be what you/she wants, but it would help you dig out of the hole.

Good luck!

hybrid

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Case Study (Again)

Me, wife, 2 kids (3.5 and 6 months). 29 years old. Living in a low cost of living area. I’ve done a case study before, but we feel like we’re at an inflection point. We just bought a new house (now own two) and spent $9800 on a renos after buying. Paid cash, but now feel like all the hard work we’ve done is gone (or rather in the kitchen). We’re tired of having debt (student and now car) hanging over us and we feel like the dream of me retiring early is slipping. Need to turn things around. Wife stays at home with the kids (high school teacher before kids). I've always been more of a "wannabe" mustachian than the real thing (25% savings rate ocasionally, but normally more like 10...feel like it's lower now). We want to turn this ship around. Facepunch and recommend away.

Income:
$63k gross (expected raises of 2-5% annually)

.....

I'm not going to sugarcoat this, I don't see your ER on the horizon for quite a long while without some fundamental changes. Your income is too low, your expenses too high, your SAHM too unemployed, and two children come with their own costs.

What MMM did was very, very different. He and the missus both had high paying jobs and no kids and it took them ten years of frugality to get to FIRE. Then they retired and had a kid. You have very little in common with their scenario. Good news is, a lot of folks are just like that (I wasn't very different economically at 29). You can probably write off 40. But 50 is doable. I think you will need a ballpark of 21 years of compounding to get to where you want to be.

Get your spending under control as others have mentioned, that is the low-hanging fruit. If the DW is going to remain a SAHM that is just fine, but you need to accept the fact that you will be working a lot longer until you can leave the 9-5.

I know a couple that just spent 60K on a kitchen reno (my jaw still has the bruise). Yours sounds pretty reasonable to me, kitchen renos aren't cheap.

mrigney

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So there's general tightening of the budget to do. And yes to mulescent, I understand the risks involved with the rental property. Like I said, I can explain more, but there were reasons for renting vs. selling and reasons why over the next two years I feel comfortable taking the risks, but that would be a whole other post.

But beyond the tightening of the budget, is there a general consensus on how to attack my hair on fire emergencies? I see them as
1. Lack of cash on hand...we do positive cashflow each month, so our goal was to get back to having a couple of thousand on hand by the end of the year.
2. PMI
3. Car Loan
4. Student Loan (maybe)

Is this how everyone else would attack them? My only reservation w/paying PMI before car loan is that I'm already putting $350 to the car loan. Would it be better (pyschologically at least) to go bananas on the car loan, then go after the PMI? I mean, even if we throw $250 extra/month on the mortgage, we're still talking 10/2017 before we get rid of PMI (assuming flat value in the house). Completely open to advice here.

The problem is that it seems from your responses that you're unwilling or unable to consider cuts.  Heres what I think can be cut:

Have I come across as resistant? Apologies if so. I thought I had agreed that restaurants, coffee, fitness, cable, and haircuts needed to be taken care of. I at least questioned the groceries and charity, I suppose. For what it's worth, we have about 80# of meat sitting in the freezer, worth $4-500 dollars (just bought a quarter of a cow last month), so that's some of the grocery spending.

@skunkfunk
Restaurants - I agree with you. I generally dislike restaurant gruel. Case in point, I had a coupon in the mail for free coffee and donut from Dunkin Donuts. Stopped and got it the other day on the way to work. Bleh. I think for us restaurants are more about the experience and getting out w/o kids, dressing up a little, etc. Also probably why we spend a little more when we do go out. But, suppose if we are going to eat out, maybe should hit up the quality taqueria down the street vs. the place with $15 entrees. Point taken.

Coffee - Point taken. I did buy an AeroPress recently to make my own coffee single serving size. Picked up beans from Costco recently (2# for $15 or something like that). Putting that to use.

Phones - We're on T-Mobile. About to add a 5th person to our plan (currently on there w/some friends). That will lower our monthly payment about $10.  Looks like iPhone 5C's are going for about $250 right now. Not sure if we gain a whole lot at this point. Could pay off the phone by selling it, but then have to buy a new one. My wife likes the phone. Not sure if it's a battle worth fighting. I have a Nexus 5 that I love and will keep as long as it runs.

Car Payment - So ditch the Prius. I can basically pay off my loan + have a little left over most likely (< $1k). What would you actually do in this spot? I don't have the cash on hand to pay for a decent one cash. For my wife I want at least a reliable car  that I don't have to worry about her in. Needs to fit two car seats. I suppose something like a 2006-2008 Hyundai Sonata might fit the bill? But them I'm still looking at taking out another car loan (albeit smaller) to pay for that. Car loans are of the devil.

Fitness - Yeah, I'm to the point now where I could either program for myself or more likely follow one of the well done blogs out there (www.competitorstraining.com, www.optexperience.com/blog for anyone interested). I guess to some extent I feel bad on a personal level about this. The coach and I had agreed to work toegether for a year. I've enjoyed the time and he has given me a great rate. Feel like I should (and of course I want to...haha) honor that and work with him through the end of the year. But I understand those saying cut it immediately. 

Those other misc items:
Alcohol - Some neighbors have just started homebrewing.
Gas/insurance - Work is about 11 miles w/less than optimal bike options (welcome to Huntsville, AL). Not sure about being a 1 car family. Conversation to have with my wife. Relatively handy, do most basic stuff myself (brakes, about to replace a CV axle, MAF, etc). Have a friend who rebuilt a '68 Mustang from the ground up. He lives down the street, so I get him to help w/stuff I don't do.
Diapers - We do cloth...3.5 yard old just wears a pull-up at night, 6 month old is cloth 90% of the time.
Utilities - My utilities do suck. Older house might be part of it. Thermostat is 80 during the day, 77 at night. Might need to do an energy audit.
Charity - Appreciate the perspective. Definitely need to give this thought.

mrigney

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I'm not going to sugarcoat this, I don't see your ER on the horizon for quite a long while without some fundamental changes. Your income is too low, your expenses too high, your SAHM too unemployed, and two children come with their own costs.

What MMM did was very, very different. He and the missus both had high paying jobs and no kids and it took them ten years of frugality to get to FIRE. Then they retired and had a kid. You have very little in common with their scenario. Good news is, a lot of folks are just like that (I wasn't very different economically at 29). You can probably write off 40. But 50 is doable. I think you will need a ballpark of 21 years of compounding to get to where you want to be.

Get your spending under control as others have mentioned, that is the low-hanging fruit. If the DW is going to remain a SAHM that is just fine, but you need to accept the fact that you will be working a lot longer until you can leave the 9-5.

I know a couple that just spent 60K on a kitchen reno (my jaw still has the bruise). Yours sounds pretty reasonable to me, kitchen renos aren't cheap.

Oh yeah...I know 40 isn't feasible given current income. If my wife went back to work (which she might in a couple years), things could change a little. But 50 has basically been my goal. Earlier than that is icing on the cake. I'm not sure where all of the super high paying jobs come from. Maybe I'm underpaid. B.S. in physics, M.S. in a science field. 5 years (almost) work experience now working in either the natural sciences or missile defense modeling and sim (so software development w/an engineering twist). I'm a solid to commendable employee (per performance reviews). I have worked for 2 companies and have an offer from a 3rd that I"m about to take. It'll bump me up to $65k (and get me $7k/year in company stock for free...so more like a $10k raise), but that's still a far cry from $100k that a lot of people throw out. Wish I knew where to get some of those jobs.

skunkfunk

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Hopefully I get through this without another audacious wall of text.
Would it be better (pyschologically at least) to go bananas on the car loan, then go after the PMI?

Heard of the "debt snowball"? Some people like this better. Personally I ordered mine based off of a few different things, and PMI does not come first for me. Family loan --> couple other small loans --> car loan (get rid of full coverage) --> PMI --> rest of mortgage. YMMV, it's hard to tell someone else how best to do this.


Car Payment - So ditch the Prius. I can basically pay off my loan + have a little left over most likely (< $1k). What would you actually do in this spot? I don't have the cash on hand to pay for a decent one cash. For my wife I want at least a reliable car  that I don't have to worry about her in. Needs to fit two car seats. I suppose something like a 2006-2008 Hyundai Sonata might fit the bill? But them I'm still looking at taking out another car loan (albeit smaller) to pay for that. Car loans are of the devil.


http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

I'm particularly fond of Pontiac Vibe. Nice Toyota engine for the price of a Poncho. That said, those 90s Nissans are more solid than one might think. It may break down occasionally but my coworkers with brand new cars even manage to get themselves stranded from time to time. See http://www.mrmoneymustache.com/2012/06/07/safety-is-an-expensive-illusion/

As far as the loan - I think perhaps this would be a case where you can either choke on the new loan for 4-5 months whilst aggressively paying it down, or have your wife drop off and pick up after selling while you save up for the car. If you can handle $1000/month it may be worth waiting on the emergency fund so you can pay cash for a car. Maybe buy a scooter or cheapo motorcycle or something instead?


Fitness - Yeah, I'm to the point now where I could either program for myself or more likely follow one of the well done blogs out there (www.competitorstraining.com, www.optexperience.com/blog for anyone interested). I guess to some extent I feel bad on a personal level about this. The coach and I had agreed to work toegether for a year. I've enjoyed the time and he has given me a great rate. Feel like I should (and of course I want to...haha) honor that and work with him through the end of the year. But I understand those saying cut it immediately. 

Finish the year, $225 won't make or break you and a deal is a deal. Just my opinion.


Alcohol - Some neighbors have just started homebrewing.

I LOVE having help for brew day. Good chance he'll give you a six pack in exchange for help with brewday/bottling day. Stirring in grains, transferring wort, a bunch of it is a pain in the ass without a helper. If not, I know people can save a bunch of money buying grains in bulk together.


Gas/insurance - Work is about 11 miles w/less than optimal bike options (welcome to Huntsville, AL). Not sure about being a 1 car family. Conversation to have with my wife. Relatively handy, do most basic stuff myself (brakes, about to replace a CV axle, MAF, etc). Have a friend who rebuilt a '68 Mustang from the ground up. He lives down the street, so I get him to help w/stuff I don't do.

OH GOD Alabama sucks for biking. Have you tried it? Don't die please. 11 miles is not that bad, it sucks for a while but once you get strong it's no big deal.

Dammit I just posted another big wall of text.

frugaliknowit

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Facepunch, tough love/tough hugs in advance.

Advise:  Select A or B.

A.  Mrs. goes back to work and get rid of one of the houses.  Only contribute to retirement plans to get matches.  Attack all debt with a vengeance and build a 3 month emergency fund.  You are not cash flowing on the rental if those are your gross numbers (you are bleeding, in fact).  You cannot afford to hold two houses with all of your liabilities on your income.  You will get nowhere on the path you are on unless by a miracle you make a killing on the rental house.  Within the range of likely outcomes, extremely unlikely.

B.  Get rid of both houses and get a cheap rental.  Only contribute to retirement plans to get matches.  Attack all debt with a vengeance while building a 6 month emergency fund.  You cannot afford a house with all of your debt. 

Tough hugs!!

chasesfish

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Mr. Rigny:  I would attack the PMI as hard and fast as possible.   It is a giant sucking sound out of your budget.  Can you find out from your lender where the loan has to be paid down to in order to drop this?  That will also

Your effective interest rate is your annual PMI payment divided by the difference between what you currently owe and that number.  If its $12,000 and your PMI is $100/mo ($1200/year) then that's effectively a 10% second mortgage.  Its basically a subprime loan punching you in the face every month.   Once you get it paid off, you then will actually have a break-even rental because the extra $200/mo will come close to covering maintenance and capital expenses.

How far away do you live from the office?  Have you considered some other form of transportation other than a 2010 Prius?  Do you really need two cars if your spouse doesn't work?  Its not that its a bad car or *that* terrible of a loan/rate, it just seems like a lot of car.

On the lower rate, I was suggesting going to a 15 year loan and getting 1% lower on your rate.

Do you have any upside in your income in the future?  Does your work allow you to get a 2nd job?

Stashing Away

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With as little as you're saving for retirement, and as little emergency fund as you have, I think your hair is on fire, even though your debts aren't huge.

I don't think you have the extra cash to be eating out at restaurants - do free date nights! Go out to a park, eat a picnic somewhere, go to a free university concert or a free "movies on the green" in your city, or go for a walk together. If you like the company you're with, you don't need to be indulging in a big expensive calorie-fest together:)

Tell your coaching friend that you've had some unexpected expenses come up and can no longer afford the $75/month coaching. If that destroys the relationship, then it wasn't a relationship worth saving anyway.

The Prius I don't think is actually that bad, now that you've got it. A couple of my family members have Prii, and they're pretty much the most reliable, low-maintenance cars I've ever encountered. You've already suffered the worst depreciation on it (if you bought new), so I wouldn't sell it at this point to buy something else with $7K.

Can your wife do any part-time work to increase your income? Even just to cover the cost of her expensive haircuts?
 

Pigeon

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I think it sort of depends on what the plan is regarding your wife going back to work, but I'll admit to not being hardcore.  Kids are expensive.  They only get more expensive.  You don't make that much money to support a family on and expect to be socking away a lot of money.  Yeah, daycare is expensive, but so is not having that income and having your ability to get back into the workforce and career advancement decline the longer you are at home.  But assuming she stays home...

At this stage, I would tell the friend that once your year is up, you won't be needing his services.  If I agreed to a year, I'd honor that.

I'd put the charitable giving on hold.  I might volunteer my time now instead, if I felt guilty about that.

I'd cut out the eating out and see if you can get groceries down a bit.  Eating local is a nice luxury, but for now I'd compromise my ideals.  Cut the cable when you can.

I'd keep the cars.  A Prius is an inexpensive car if you hold on to it for the long haul.  Maybe your wife would be OK without a car stuck at home with a small kid.  I'd pith myself, plus personally, I think it's a safety issue to have small kids and no transportation.  Mental health is worth something.  If you live somewhere with good public transportation, that's different.  I don't and without a car you're trapped, so that colors my thinking.

I'd put the savings into building an emergency fund, then the PMI and car loans. As soon as you can cut the cable and the trainer, double down on those.

I'd also evaluate the rental pretty carefully.





bonjourliz

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What options do you have to bring in more income?

I know several teachers-turned-SAHM who tutor now.  Your wife could also consider watching another family's kid, even on an irregular basis. 

It probably won't bring in much, but could be enough to get your charity, dates, and etc, more comfortably inside your budget.

Thegoblinchief

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I'll basically +1 what others have said. Get expenses down and there's your cashflow. You have hundreds of dollars going out the door that don't need to. Pretty much every category is too high.

That accomplished, the rental property is a structural problem that needs to be addressed sooner or later.

Goldielocks

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It is so liberating to not have a car loan.   
I would cut where others have suggested and cut either the 1% PMI or the car loan asap.

When these mandatory payments disappear, you will be amazed how $60 on coffee (or one of the other splurges, not all) is possible.

Selling the car for an older no loan car, and cutting some expenses towards PMI will make a HUGE difference in your life.  Then when you feel flush, you can look at getting a Prius again.   

SwordGuy

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You and your wife do not NEED two cars.  One at most.

If you have to use the car to get to work (because public transportation/biking isn't feasible), so be it.   Get her a bike with a trailer for the kids for local errands.  For emergencies she can take a taxi or rely on a neighbor.    A $60 taxi bill per month is way better than an $340+ per month car payment.

A $340+ a month car payment is definitely clown car territory.   How many years is that loan for?   Sell that money-sucking beast and replace it with a low mileage used car that's in the $7000 to $9000 range.   It will save you a bunch every month on car payments and interest.

You could turn this around big time if you just quit making excuses to stay with the status quo.   

Now, about your stay at home wife.  How much would she make if she went back to work after paying for daycare?  Do those numbers change dramatically in a year or a year and a half?  (I know prices for infants are higher, plus in a year and a half the oldest can be in kindergarten part of the day.)   

Remember, even if your wife doesn't make a dime after paying for child care out of her check, she's still building years into the teacher pension system and still getting raises.   She's won't have to start at the beginning again.   That can equate to a lot of money (just not in immediate cash flow).

mrigney

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Woohoo...an update. First, appreciate all the advice. Especially the face punches about the coffee. See below for where we stand on that.

First the big change since I started the post. I just accepted a new job yesterday! Same city, office < a mile from my current job. Actual salary isn't too much different (about a 3.5% raise). BUT. Insurance is about $85/month cheaper (with basically the same plan). Best of all, the company (a mid sized engineering firm with between 500 and 1k employees) is an employee owned company. So each year, you get a 7-10% bonus in company stock, fully vested after 5 years (20% vesting each year). So, that's like a free $5500 each year on top of my salary. On top of the employee stock, we also get 3% automatically contributed into our 401k whether we put anything in or not. So, all in all, I'm getting 10-13% on top of my salary (vs. my current 3% 401k match). Super pumped about that.

-To go along with the new job, I will get paid out all of my vacation from my current job, which should work out to about $1500 (pre-tax...so maybe $1k-1.2k after). I'm thinking of taking that money and making it the emergency fund. In addition, I'm helping a friend move his mom halfway across the country. Getting $500 for that. So we're getting about $1500 in cash this month. That should help start digging us out of this. All of the money will go to either emergency fund or debt. I was thinking $1k to emergency fund, the rest to debt.

-We're (and by that I really mean me since I'm the guilty party) coffee free so far in October (ok...I paid $1.80 for a cup...had some money on a gift card that I used up and paid the difference). Funny thing is, I'm not even missing it. Just making myself a cup at home before I leave for work in the morning.

-Working on the cable...looks like we can get it canned in December w/o paying any termination fees, so doing that. Hopefully we can get a reasonable price from someone for internet only when that's done.

-Getting rid of the trainer at the end of the year. Am going to honor my one year commitment, but after that am going to pocket the $75/month:-)

-Have eaten out a total of one time this month so far. It was on a day trip we took. We could've taken sandwiches or something, but since one of our favorite restaurants is in the town we were in, we decided to splurge. Other than that, though, I've passed up lunches at work (or brought my own), brought my own coffee to a breakfast meeting I had this morning. Feeling good about that.

-Have clamped down on the grocery expenses this month. So far have spent ~$60 the first third of the month.

-I think we've decided to keep the Prius. I know that's debatable. If I had 7k in cash laying around and could sell the Prius and buy something in cash for 7k I would. But just not sure in the long run (say 10 year horizon) that I'll be better off trading in the $13,xxx loan for a $7k one. Mass transportation is non-existent in the city we live in (metro of about 400k, city proper is 190k...you'd think there'd be a bus system or something...negative). We are in the process of trying to find a cheap trailer to carry the kids in the store to so we can at least start biking back and forth to the store (they just opened an ALDI 1.9 miles from the house and luckily it's on the same side of the mountain as us, unlike all the other grocery stores, so it's an easy 2 mile ride). In addition, my wife usually drives the Prius, but I am taking it whenever there is a day she knows she's not going anywhere. W/a 12 mile commute each way, it saves us something like 0.5 gallons (e.g. $1.50-$2) each day I drive the Prius. Hopefully that'll save us $15-25/month in gas.

4alpacas

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Congrats on the improvement in your budget!  It looks like you've made a lot of progress is a short period of time.