case study: 37 with 1/2 million in total assets

[mini mm]

hello fellow mustachians!  i welcome your input to our financial situation - your great advice in the case study comments has already caused huge shifts in our finances:

age: 37, married with 1 child: 8yrs old

Income --------------------------------------
combined                        $86K annual ($4100/mo take home)
rental                               $500/mo
TOTAL -    $4600/mo

Expenses ——————————————————
housing (mortgage free) property tax/insurance: $450
utilities (gas, water, elec)
 gas               $90
 water/sewer         $100
 electricity          $150
phone            $80*
homeowners assoc   fee   $45.83 ($550 annual)
internet (hi speed)      $55
satellite/cable         $0
netflix            $9.99
fuel               $60
car insurance         $83
clothing            $60
gifts               $70
tithing            $400
term life insurance       $79 (950 annually)

food               
grocery            $600
restaurants         $40

medical/health         $50
bootcamp            $42
his/her allowances      $100

education   
(private school)**      $846 (two months off in the summer)

Expenses Total: $ 3420

Assets
cash savings: $60K
vanguard roth/401K/Solo 401K: 175K
529 for daughter: $7200
home: $285K (paid in full)
car: 2010 Prius (paid in full): $12K
husband drives a company car (we pay for gas on personal miles)
Total Assets - $546,635

FI Goal
1Mil in retirement accounts (40K x 25) although I'd feel even better about 40K x 30
extended missionary service (approx 36K) when we are in our early 50s

Misc Savings Goals related to our daughter
15K for 18month charitable service mission (approx 10 yrs away)
10K for college
10K for wedding

—
* business mobile so it’s paid for by business…strongly considering the moto x through republic
** very unmustachian - gratefully, i’ve made a number of business contacts there that have come close to creating a break-even.  7 more years to graduation.  this is as close to a non-negotiable item as my significant other has.  it’s also ‘not in our backyard’…we travel across a mid-sized town 2x per day.

I’m new to MMM as of late this summer and since that time we’ve paid off our home, reduced our recreation/eating out expenses and worked to indoctrinate my husband in all things mustachian :)  he’s a natural in lots of areas :) 

questions:
i’d like to have less cash savings (and have those dollars earning more dollars) but i’m not fluent in options outside IRAs/401Ks - for simplicity, i’d like to have these at vanguard. plus an option that i can pull from during the winter when my self-employment income dips.  do i just call and say i want to open a taxable account at vanguard?

we max out my husband’s match, roths for both of us, contribute $18K to a solo 401K for me...do we circle back and add more to my husband’s 401K (past the match) to lower our taxable income and have a tax deferred place to save?

what would your next steps be? 

i forecast that my self-employment income will decrease from here on out.  i intended to work far less once my daughter was born but was the major breadwinner then.  my next goal was to pay off our home…done.  i feel a strong desire to downshift but not at the expense of being a partner to my husband with financial goals.  (color me currently burnt out from a very full year - i love work but if I don’t intentionally slow down the train, it won’t happen and i feel a strong desire to grow in other ways). 

we’ll actively be doing income tracking so we can whittle down our monthly expenses in 2014.  that said, we have two trips on the horizon in the next few years:
2015 - switzerland (hopefully for 2 weeks) - although an expensive country it’s been a longtime goal of my husband’s.  (plenty of hostels to keep costs down)
2016 - cruise with extended family to celebrate several milestone birthdays

i hear mention of dividends often - and while i understand that it’s where a company pays out to it’s stockholders, how do you actualize this so you have funds to live on during early retirement?

what’s your estimate on how long retirement with current expenses would be? (is that even possible to calculate?)

Asset details:
100% stocks: VTSAX, VOO

glaring issues to your trained eyes?

thank you - my favorite MMM posts are the case studies and I’m so very appreciative of your illuminating advice! 

[gimp]

Glaring issue to my eyes: You're saving as much for your kid's college as you are for a wedding.

With all due respect, I disagree with that choice. For many reasons.

[mini mm]

i completely value that opinion - this is definitely a work in progress and i appreciate your thought. 

(it's not that we don't value higher education - we both paid the vast majority of our schooling and want our daughter to do so as well).

[willn]

For any expense over 5 years in the future (college, wedding, mission), I'd put in mutual funds, I'm partial to Vanguard offerings for low expense ratios.  I would keep 3+ months expenses in cash for emergencies--since you don't have a house payment perhaps 3 months isn't much in relative terms so maybe lean toward 6 months?

You're doing fantastic! Others may comment on trimming the budget but it looks to me like the amount sitting in cash for long term use is the low hanging fruit.  If it's growing then you can up your 401k / Roth contributions.  And investing outside the 401k etc isn't hard.  You can do monthly contributions straight into your mutual fund account each month.   Buy and hold and perhaps rebalance each year, but go for low turnover, low expense funds as most of this will be in taxable accounts. If that doesn't make sense, it should once you read a couple of MMM blog posts on investing.

[Exflyboy]

Umm yeah.. Private school for how much?... wow... That can be zero and help your kid in the evenings/weekends to do better.

I heard a story on NPR of two Vietnamese kids who's immigrant parents worked in the local meat packing plant for a virtual pittence. These kids expected to graduate at 15 years old from the local high school and gain "associates degrees"**within 1 year.

If they can do it so can your kid.

I'm seeing a lot of little things that you could shave off say $10+ per month that will add up to quite a bit.

There are discretionary things that you have to ask if they are important vs FI... like $70 for gifts for example.

Being a sucessful MMM is about living off a fraction of what you make.. the smaller that fraction the earlier your done working.

Frank

** Is the USA the only country that has a thing called an "Associates Degree"?

[Exflyboy]

Oh yes.... Small face punch here..

You have to decide on whats important to you... How much are those 2015, 16 trips really going to cost you if you factor in the lost opportunity of 8% over your working lifetime (hint a LOT!).

So yes buy what you want, private school, weddings (My WIfe and I got married for less than $2k in 2000 and had a blast), $600 grocery, HOA fees (pure concentrated evil.. I'd move).. Blah blah blah.

OR.....

Add up what that is really costing (monthly*173 I think for 10 years).. Scare yourself, then figure out how many more YEARS.. yes YEARS you will have to work, assuming you can.

As Mr Money himself would say.. You can buy 3 things with money 1) Service debt (thankfully not in your case) 2) buy stuff, 3) by FREEDOM!

I'd say your budgte is more about #2 than #3.

Frank

[olivia]

(it's not that we don't value higher education - we both paid the vast majority of our schooling and want our daughter to do so as well).

I think that's a valid goal in theory (my father had the same one but my sister and I just couldn't pay for our tuition making $7/hour), but tuition has been absolutely skyrocketing.  I seriously doubt that $10k will cover even just tuition for one semester at a public school by the time your daughter graduates from high school.  I just checked and room and board (in a shared dorm room) and tuition at my alma mater (the least expensive public school in the state) currently runs $10,470.70. 

I would seriously consider the feasibility of your daughter being able to pay for 4 years in a row out of her own savings.  She may get scholarships and/or grants, but even those don't tend to cover the full amounts.  This low level of savings just seems strange because you're spending so much on private school.  That money could go towards a college fund if she could attend a public school in your area.  Just my 2 cents as a semi-recent college grad.

ETA Also, the mission trip is admirable, but that curtails your daughter's earning ability even more.  (I'm assuming it's for her to do after high school since you said 10 years and your daughter is 8.)
 

[Sweet Betsy]

When do you plan to retire?  I'm assuming with private school non-negotiable you plan on delaying retirement until after she is through high school? If that is the case I think that at your current spending and saving level you are alright...if you want to retire before then you'll have to make some deeper cuts in other things if you want to continue with private school tuition.

As far as a taxable account...index funds are the best.  I use both Vanguard and Schwab...you can set up an account online within minutes. Bogleheads.org has wonderful wikis in regards to index fund investing.  I've learned alot there.  I'd recommend taking some time to work on your asset allocation plan before starting investing. 

[gimp]

I must be the only one here who thinks that private school can be worthwhile.

I got a scholarship for my high school years, and went to a private school instead of a public school. Now, CT doesn't have terrible public schools; it's no Kansas. But the difference in education was absolutely incredible. In four years I ended up being 2-3 years ahead of my former classmates. For example, rigorous math courses are gone in public schools everywhere in the US. Same for science. And, frankly, same for English. I don't think this spending is out of line if it's done for legitimate educational reasons.

On the other hand, I saw folks go to private religious schools because their parents thought that was more important than real education. Your mileage may vary.

Also, I think there's no point in private school until at least teenage years, probably high school age. That just shelters kids, doesn't particularly teach them more, and throws them into the world completely naive (and often worse qualities to boot).

For university, it depends on where they go. State school will most likely cost... well, I'm not clairvoyant, but I'd say at least 15k/semester at the cheapest in 10 years. That's 120k. Subtract some for scholarships and grants, subtract some for loans, subtract some for part-time work or internship pay, add some for misc expenses, and I'd say 50k is the lower bound of what I would save. Certainly it also depends on the major; many students would do well to go to a community college (and work part-time, and start learning about rent and bills) for two years before transferring in (let's call that 30K). Others can't really do that well. It also depends on the school; if it's a private school, the crappier the school, the more you pay - on the other hand, admission to ivies and similarly ranked schools pretty much guarantees that unless you're legitimately wealthy, you pay nothing or very little. But I'd definitely save 50k on the low side, and if there's any left over, then awesome, but don't count on it.

[savedough]

I must be the only one here who thinks that private school can be worthwhile.

Also, I think there's no point in private school until at least teenage years, probably high school age. That just shelters kids, doesn't particularly teach them more, and throws them into the world completely naive (and often worse qualities to boot).

I agree and disagree- private school gave me a leg up (I think) and I earned a full scholarship to college.  I actually never attended a public school until college.  I think being ahead of the public schools through middle school allowed me to have a rock solid academic base going into high school.  Honestly, the biggest impact is the parents.  I had good and bad teachers, but all of my friends's parents at private school had the same high standards for academics that mine did.  Public school parents care too, of course, but I can guarantee if I was paying $850/month for school I would be very involved.


Is your car insurance liability only?   I think I pay$30/month for two cars.
While I am not one to talk, your groceries are pretty high for 3 people.   

It's funny, our budgets are pretty similar - charity, gifts and travel are three areas I could cut, but choose not to.    My kids are not school age yet, but private tuition is equal to daycare expenses.  I still pay a mortgage though...

You didn't include care maint, home maint, kid's expenses.  How do you account for those?


Also forgive me, but where does the Roth $ and Solo 401K $18K come from?   The difference between your take home and expenses is only $1200/month which would not fund these....

Good luck!

[mini mm]

There are discretionary things that you have to ask if they are important vs FI... like $70 for gifts for example.

true - this is almost entirely at christmas and birthdays and just creating this case study has prompted some clarity about exactly what you highlighted - priorities :)   too often we match (or strive to match) what is offered and it's necessary to chart a new course.   

[mini mm]

Is your car insurance liability only?   I think I pay$30/month for two cars.
While I am not one to talk, your groceries are pretty high for 3 people.   

It's funny, our budgets are pretty similar - charity, gifts and travel are three areas I could cut, but choose not to.    My kids are not school age yet, but private tuition is equal to daycare expenses.  I still pay a mortgage though...

You didn't include care maint, home maint, kid's expenses.  How do you account for those?


Also forgive me, but where does the Roth $ and Solo 401K $18K come from?   The difference between your take home and expenses is only $1200/month which would not fund these....

Good luck!

our car insurance isn’t liability - good point, thank you!! 

groceries are indeed high…our last month showed closer to $400 but i was concerned that might not be an accurate reflection of past months.  we’ve been super conscientious *because* we were tracking.

child expenses aside from school are relatively low (purposefully, we pay for private school!) - we buy most clothes at a children’s consignment store for everything except the mandatory uniform worn once a week…some years there are more clothes purchases but 7/8 sizes are pretty similar (just like 2/3…love those years!), a recent cavity/flu shot but we don’t have post-school extra curriculars - preferring quiet time as a family to running around.

our roth/solo 401K were from an emergency fund that had grown past what was needed slowly over the course of many years - the solo 401K contribution isn’t typical (although i’d like to get our budget in line so it could be).  there are months we are much leaner than what is pictured above but we are in agreement that there’s still plenty of fat to be trimmed. 

thank you so so much for this feedback - ideas generated occupied the conversation during our evening walk!

[ASquared]

Sorry if I missed this - but do you have an HSA?  Excellent investment - as this is money that is never taxed.  Always a benefit to lower your taxable income, and if you build up quite a bit you can invest it, with tax free gains as well (when spent on medical).

[mini mm]

Sorry if I missed this - but do you have an HSA? 

We don't - we carry health insurance through my husband's work (although at looking what our premiums for adding my daughter and I we're going to check into that.  We're paying $3400 annually for health/dental)...we'd have the option of an FSA during open enrollment time but I'll check into an HSA!  Thanks so much!!