Case Study –From Newlywed Bliss to Badassdom

[TheWistfulThinker]

Hi Mustachians!

As a lurker, I'm continually amazed by the awesome community on this forum, there's an incredible amount of wise and badass people here.  And, if you consider yourself one of wise and/or badass people, I would deeply appreciate your collective wisdom on our situation (psst, even if you don't, say hi, it's my first post and I'd love to online meet you :) ) .

My husband and I met, dated, and got married all within these past 10 months (what can I say? We don’t waste time). DH is 23, I’m 24, and we’d like to start things off on the right foot. We just began looking into the way of the mustache about 6 months ago, I made my way through every single article, regurgitated it to DH, and he was blown away with wonder.

Goals:
I would like to be a SAHM in the next 2-3 years
DH retiring before 45 would be the dream, but with kids and being a SAHM for the entirety (we’re homeschooling), I’m not sure that’s feasible. 
Would prefer to set up a 529 and have $75k in there by the time the children are ready for college.
We will be buying a house in the $150-$200k in the next 3 months, with a 30 year mortgage with an interest of 3.2% and a total payment (including average property taxes, etc) of about $1200. We’d probably put a downpayment of about $10-12k. We will be in this house for a long time, my husband’s job isn’t going anywhere, and we love the area.

Income: My DH gross salary $4253/month (net $3443.36) and I bring home net $2350/month

Current monthly expenses:

Rent: $1400
Groceries/household items: $370
Wants (Includes everything from eating out to haircuts): $105
Gas: $120 -*wince* I know, my husband and I carpool, but I have a looong commute.
Internet: $67/month-I shake my fist at this, but there’s no alternative
Phone: $100 Looked into Republic/Ting, but their service sucks here. Plus, if we switched to Republic/Ting we would also have to buy new ones.
Insurance Bundle (Car/Rental): $185/month.
Gas and Water Bill: $70
Charity: $650
Unexpected Expenses: $100- Sometimes we use this, sometimes we save it.
Total Expenses: $3367

Other:
DH 401k: $340 (company matches that)
HSA Contribution: $550

Expected ER expenses:
-Children! Probably two. We’d like to start in about 2 years. When that happens, we will go down to just DH’s income with the possibility of some side hustle from me at $5-6k/year.

Assets:
Two 2008 cars (Ford Focus and Ranger): No loans. One was a gift, the other was used we paid cash for (under $10k).
Savings: $30k
DH 401k: $12k
My 401k (from previous employer): $11k
HSA: $5k
ROTH IRA: $7k
Index Fund: $6k
 
We would like to start funneling more of DH’s money and mine into 401ks while my salary goes towards mortgage/building back our savings after our downpayment and move.  My family keeps asking about putting more into my Roth, but I'd like to still do my 401k as well...Hm.  Anyway, I have to ask, are our goals manageable? Bring on the face punches, or if you have friendly advice, I guess gentle caresses (don’t make it weird though).

Other:
-The reason our savings accounts is high is because we will buying a house in the next 2 months, so this will take a hit for the downpayment/moving expenses/etc.
- We have no debt, thank you parents and scholarships!
-DH is an engineer at a stable company, and he’s on track to conservatively raise his income at approx 3-4% every year. For me, I would like to get into programming at some point, either as my side hustle while raising kids and/or post-kids.

[4alpacas]

Specific Question(s):
-The reason our savings accounts is high is because we will buying a house in the next 2 months, so this will take a hit for the downpayment/moving expenses/etc.
- We have no debt, thank you parents and scholarships!
-DH is an engineer at a stable company, and he’s on track to conservatively raise his income at approx 3-4% every year. For me, I would like to get into programming at some point, either as my side hustle while raising kids and/or post-kids.

Your "specific question(s)" aren't questions. 

Here are my thoughts on your plan:

In your expenses, what is the "Property taxes: $200" for?

There are other inexpensive phone options that don't use the Sprint network.  Check out http://www.techmeshugana.com/theguide/ for more information.

I would caution against putting down only $10-$12k on your home purchase.  I would plan on 20% down.  PMI lasts for the entire length of the loan now.

[TheWistfulThinker]

Specific Question(s):
-The reason our savings accounts is high is because we will buying a house in the next 2 months, so this will take a hit for the downpayment/moving expenses/etc.
- We have no debt, thank you parents and scholarships!
-DH is an engineer at a stable company, and he’s on track to conservatively raise his income at approx 3-4% every year. For me, I would like to get into programming at some point, either as my side hustle while raising kids and/or post-kids.

Your "specific question(s)" aren't questions. 

Here are my thoughts on your plan:

In your expenses, what is the "Property taxes: $200" for?

There are other inexpensive phone options that don't use the Sprint network.  Check out http://www.techmeshugana.com/theguide/ for more information.

I would caution against putting down only $10-$12k on your home purchase.  I would plan on 20% down.  PMI lasts for the entire length of the loan now.

Good catch 4alpacas, I edited it to reflect a correct title and deleted the property taxes (dangers of cutting and pasting I think).

I'll check out the link, thanks for the info!

Agreed. DH wants to only put down what we need to (5%) because he has an aversion to taking more out of our savings. Any advice on how I can convince him to put down more?  Thanks!

[michaelanthony]

Why the rush to buy a home? Personally, I wouldn't even think of buying one until I had the full 20% down, plus cash for closing costs + moving costs, plus six months of expenses saved up in cash on the side.

You mentioned gross pay, but not net -- how much are each of your paychecks each month after taxes + deductions?

[waltworks]

What, exactly, are your questions?

DH can probably retire by 45 if he starts making more money and/or your side hustle works out well. Paying for college? That will be interesting. Have you actually sat down and worked it all out using your current assumptions?

I guess if I had any advice, it would be:
-Run some actual numbers on a spreadsheet and see where you end up at what points in time based on what assumptions.
-I assume you are tithing. Be aware that that expense is probably your #1 obstacle to FI. I would consider volunteer work/tithing time instead if your church permits it.
-Find a job (you) closer by and sell a car. A ~$25k job with a long commute is probably a waste of your time unless you see pretty awesome opportunities to move up/make more at the company. You might want to sit down and see what your actual take-home is after all your costs (ie mileage, opportunity cost on the value of the car, your commuting time, etc). I would guess you are making under minimum wage when all is said and done, which you could improve on just by working from home for Leapforce or by eliminating your tithing by volunteering instead.
-Don't buy a house until you have 20% to put down (without raiding retirement funds).

-W

[RexualChocolate]

The charitable contribution is the most brutal and most obvious hit to savings rate, especially since you aren't going to be working. Can you donate time instead of money?

Additionally, if he's an engineer, show him the cost savings of waiting until a full 20% down. Analytical minds will wait.

Whatever your annual expenses are, multiply them by 25 and add the $75,000 you want to save for kids colleges in 20 years. This is how much you'll need. Do the math, assuming a 4% and 7% real rate of return on all invested assets through time. That will give you what you need to save per year.

The math makes it pretty easy; once you hit that number you can call it quits.

[GizmoTX]

Definitely avoid PMI -- take a short term hit to your savings vs. a needless recurring expense. Also, the more you put down, the less you have to finance.

15 year mortgage instead of 30 year.

Try living on just your DH's income & throw all of yours into savings. See about a closer job. If you want to learn programming, start now.

Max out all tax advantaged retirement plans before you do any 529.

[KingGeorgeHarrison]

I also have PMI but it is not for the life of the loan. At 21% I will remind them and it comes off. If you come across a company that says it is life of loan continue shopping around.

Should also note that I closed in December 2013. If anything changed it would need to be in the last 14 months.

[JustTrying]

I also have PMI but it is not for the life of the loan. At 21% I will remind them and it comes off. If you come across a company that says it is life of loan continue shopping around.

Should also note that I closed in December 2013. If anything changed it would need to be in the last 14 months.

King George is correct. Or...I also bought my house in December 2013, so he was correct back then. However, I believe that he's still correct now, because at the time, I had TONS of people warning me that the PMI rules were changing and it would be for the life-of-the-loan, but that was true ONLY for FHA loans. It nearly scared me to death till I talked to my lender! I did discover MMM the month AFTER I bought the house, and if I could do it over, I'd put 20% down and have no PMI.

[Spondulix]

I hope this comes across as friendly advice: There's a difference between planning for the future and planning your future. I'm hearing a bit of "This is how my future is going to go: house in 3 months, pregnant in a year, husband is going to stay in job for x years, we're going to live in this house forever and retire at 45." Now, that's a great plan, but life happens. People lose jobs, and unexpected opportunities come up. Disasters hit, neighborhoods change. Relationships change. And the big one... babies don't always come (or come at all) when we plan them.

So, I'd suggest taking a step back and really look at how you are framing your goals. What can you actually plan for, and what is actually perception of how you'd like for things to be?

Second, I would go through and prioritize your goals. Is it more important to retire at 45? Buy a house? Be financially prepared to be on one salary in 2-3 years? Then, go through each and calculate exactly how much you will need saved for each. Right now it sounds like a checklist "we have to get into a house so we can make babies so we can homeschool them, send them to college, and retire".

I completely agree with the others to hold off on buying the house until you have 20% down PLUS some extra cash for house projects. What would happen if you had a baby before you moved into a house?

Is your HSA contribution high because of your anticipated pregnancy?

[justajane]

+1 that the tithe will be a hindrance to you retiring early, because presumably that will go up as your husband's income increases?

Don't buy a home until you have 20% and at least three months of expenses saved up in cash. Think of it as a way to make yourself more badass. :)

Also, your rent seems high for a Midwestern city. Any way to bring that down?

[former player]

Deciding that "we're homeschooling" before you've even had the kids seems a bit dogmatic to me, while parenting involves a certain amount of flexible thinking and ability to adjust to new circumstances.  There are so many unknowns, and in particular you have no idea what your kids will be like or what you and your husband will be like as parents.  School might be the best option all around, or for one kid and not the other, or you may have life/health crises that mean the only practical option for the whole family for the kids to go to school.  Shutting off what may be the best option before you've even had the kids doesn't seem like a healthy vision of the future.