Author Topic: CASE STUDY - Always Moving Forward  (Read 5429 times)

rulesofacquisition

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CASE STUDY - Always Moving Forward
« on: August 21, 2015, 12:29:39 PM »
Hi, all. I have been reading MMM for several months now and could use opinions from experienced Mustachians.

Income for 2015 (32 pays in)
Me: 33472.10 gross
       -4301.00 fed (claim single 2, more tends to come out due to erratic pay from commission)
       -1991.14 SS
         -465.76 medicare
       -1334.66 state
       -1357.00 health ins (cancelled)
      24022.63 net = 3154.47/mo
Husband: 25611.25 gross
               -2094.00 fed (claim single 3)
               -1503.61 SS
                -351.65 medicare
                -797.92 state
              -9035.84 child support
                -575.00 tools
                -922.00 health (cancelled)
                -437.44 dental
                9893.79 net = 1299.18 / mo                                total per month 4453.65 (no other income)
Notes: My income can vary, last year was $40000. Child support will be half in about 1 1/2 years.

Assets: 2150.00 cash
             500.00 checking
           5000.00 2003 F-250
           9000.00 2007 Mustang GT
         50000.00 (?) equity in house

Bills: 923.70 mortgage (30 yr but paying 15 yr payment, bought house 6/14) 4.75%, 51.83/mo ins & 39.94/mo tax
        383.42 health share plan for both of us, better coverage & cheaper than ins thru work
         35.00 internet (half, son pays half)
       216.67 church
         50.00 Christian radio station - cancelled 8/26/15
       100.00 husband's lawyer, balance approx. 15000.00
       155.50 electric
         19.13 tolls
         34.95 truck ins
         51.57 car ins

Other expenses I do not have good records for, started keeping track of every penny outgoing as of last week, estimate $200 food, $160 gas, $200 eating out. We are also trying to stockpile food to some extent (not included in the $200) because my income is not steady.

Background info: Lost everything in 2010 except truck and clothes in divorce. 2013 paid husband's student loans off. 2014 paid car off. 2015 paid off my attorney and medical, $5000 in first 4 months of the year. From May 1 to Aug 15th saved $5000 (used $3000 of that today to buy HVAC equipment after using wood for 2 years). No phone, no life ins, no disability ins, no gym memberships, no magazine subs.

Questions (I realize you are missing some info):

Should we sell a vehicle (or both)? We are rural and haul free firewood w/the pickup. We also both have company cars.

I have no retirement, I'm 47, husband is 35. I will inherit mother's paid off house nearby, her younger sister will continue to live there. My son will inherit the house from me. I have never invested and am afraid of losing money in the stock market since I am older. I have considered rental properties instead. And what about 401K's? NOTE: nothing available thru work, I would need to do IRA's.

Should I pay house off faster?

Should my 19 yo son pay board? He is rarely home, works full time.

I would really like to have EVERYTHING including the house paid when the child support stops completely in 7 years, and have ample FU money even if not FIRE. I have anxiety about not having enough money to cover basic needs, I need to change my mindset.

Other advice? It can get hard to see the forest for the trees after a while.
       

       



« Last Edit: August 26, 2015, 05:23:28 AM by rulesofacquisition »

justajane

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Re: CASE STUDY - Always Moving Forward
« Reply #1 on: August 21, 2015, 12:38:46 PM »
I'll take a closer look later in the day when I have more time, but are you paying interest on the monthly lawyer bill? If so, how much? It's going to take a long time for you to pay that off at that rate. I would drop your acceleration of the house payment and throw that at the lawyer's bills. Or drop Christian radio and pay the lawyer back quicker. If that were me, that would be a bill I would want to get rid of.


rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #2 on: August 21, 2015, 02:00:15 PM »
Thanks for the reply justajane. No, there is no interest on the lawyer's bill. We left this debt for last (with the exception of the mortgage) because it was still increasing until almost Dec 2014 and we were doing the debt snowball. My husband had told me not to pay extra - some of his reasons are probably emotional and we have not revisited the subject in months. It would be nice to continue to move forward and zero this one out too.

RWD

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Re: CASE STUDY - Always Moving Forward
« Reply #3 on: August 21, 2015, 02:36:07 PM »
Bills: 216.67 church

It's a personal decision, but I wouldn't donate when I still have debt. It's sort of like giving someone else's money to the church...


         50.00 Christian radio station

This seems very expensive. You could buy several new CDs every month for this price. Could you listen to something like Pandora or just plain FM radio instead?


       155.50 electric

Seems a little high to me, but not crazy.


estimate $200 food, $160 gas, $200 eating out.

I'd recommend trying to cut back on eating out.


Should we sell a vehicle (or both)? We are rural and haul free firewood w/the pickup. We also both have company cars.

You probably only need one personally-owned vehicle if you already have company cars. F-250 seems like overkill for firewood. Maybe you could sell both and get a smaller truck, like a Ford Ranger?


I have no retirement, I'm 47, husband is 35. I will inherit mother's paid off house nearby, her younger sister will continue to live there. My son will inherit the house from me. I have never invested and am afraid of losing money in the stock market since I am older. I have considered rental properties instead. And what about 401K's?

You still have a decades-long period to ride out stock market investments. What are your 401k options? A 401k is often one of the best ways to save for retirement.

I recommend reading these articles on stocks:
http://jlcollinsnh.com/stock-series/


Should I pay house off faster?

Depending on interest rate, you should probably pay off your other debt first. Depending on 401k options, it could be better to invest there before tackling the mortgage.


Using your numbers (assuming you didn't leave out any expenses) without any improvements I'm coming up with a 43% savings rate. That puts you about 20 years from financial independence. Though it should end up being earlier as your mortgage will be paid off before then. If you ignore the mortgage for your savings rate calculation (and the income diverted to it) you're at about 56%, which works out to maybe 14-15 years instead.

Cutting down on your expenses should speed things up considerably. I think 10-12 years to financial independence could be doable if you're willing to cut out the things I mentioned. Add two years if you keep the church donations.
« Last Edit: August 21, 2015, 02:38:22 PM by RWD »

rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #4 on: August 21, 2015, 08:35:06 PM »
Thanks for the reply RWD.

The radio station is a donation, so if I put that and the church donation on hold I would save 266.67 a month there, point taken about other people's money.

The electric is due to old appliances, window AC' s, and plug in electric heaters near plumbing for when wood stove goes out while we are at work. We started installing a heat pump with gas backup today, all DIY. We are also slowly replacing old appliances, need a new fridge.

The eating out needs to be eliminated, I don't want to work longer when food at home is better. Hard habit to break.

We do need to downsize to one suitable car. Husband has 2 children but only sees them a few times a year, but we need room in car for them on those rare occasions, which is a pain in the ass when contemplating a car. Suggestions, anyone?

Finally, employer offers no retirement matches, we are on our own.

justajane

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Re: CASE STUDY - Always Moving Forward
« Reply #5 on: August 21, 2015, 08:43:32 PM »
We do need to downsize to one suitable car. Husband has 2 children but only sees them a few times a year, but we need room in car for them on those rare occasions, which is a pain in the ass when contemplating a car. Suggestions, anyone?

How old are the kids? I know the dad next door (separated from his wife) takes their two kids in the back of his Mustang all the time. But ultimately it would probably be better for you to sell the two cars you have now and buy a modest, used sedan. Any sedan should fit your kids just fine. Try to buy one for 5K or less.

RWD

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Re: CASE STUDY - Always Moving Forward
« Reply #6 on: August 22, 2015, 08:06:18 AM »
Thanks for the reply RWD.

The radio station is a donation, so if I put that and the church donation on hold I would save 266.67 a month there, point taken about other people's money.

The electric is due to old appliances, window AC' s, and plug in electric heaters near plumbing for when wood stove goes out while we are at work. We started installing a heat pump with gas backup today, all DIY. We are also slowly replacing old appliances, need a new fridge.

The eating out needs to be eliminated, I don't want to work longer when food at home is better. Hard habit to break.

We do need to downsize to one suitable car. Husband has 2 children but only sees them a few times a year, but we need room in car for them on those rare occasions, which is a pain in the ass when contemplating a car. Suggestions, anyone?

Finally, employer offers no retirement matches, we are on our own.

You're welcome, glad to help.

For the cars you should figure out what your primary use cases are and pick a suitable vehicle for that. If you're hauling firewood once every week or so and only need to haul four people three or four times a year then a pickup as your only vehicle could make sense. Just rent a sedan for the days when you need to fit more people. Or on the flip side, if you only haul firewood a handful of times in the winter it might make more sense to keep just a fuel efficient sedan or hatchback and rent a truck for the firewood (or pay for delivery, if that's an option). Or you could get a hitch and trailer for a sedan/hatchback and haul firewood in that, then you wouldn't need a truck at all. Just depends on what you really need.

With no matching, a 15% marginal tax bracket, and a 4.75% mortgage your 401k isn't as attractive as it could be. Do you have access to low expense ratio index funds in your 401k? If not, you might be better served by opening a traditional IRA at Vanguard, maxing that out each year, and then throwing the excess at your mortgage and other debt.

MDM

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Re: CASE STUDY - Always Moving Forward
« Reply #7 on: August 22, 2015, 03:21:53 PM »
Income for 2015 (32 pays in)
Me: 33472.10 gross
...

Is that a projection for what the 2015 gross income will be (i.e., based on YTD * 52/32) or is that the YTD amount for 32 weekly paychecks?

It's probably easiest for people to look at and comment on monthly or annual numbers: see http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/ for other suggestions.

rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #8 on: August 22, 2015, 07:34:36 PM »
MDM, that is the figure to date, down further I converted the net to monthly. My pay is very erratic due to being mostly commission, so even the figures I gave could be off. I made about 40k last year.

rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #9 on: August 24, 2015, 08:36:31 AM »
I'll try and edit the original post to say my employer does not do 401K's, so I assume saving for retirement would consist of IRA's, investments, and rentals.

MDM

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Re: CASE STUDY - Always Moving Forward
« Reply #10 on: August 24, 2015, 11:34:34 AM »
Should we sell a vehicle (or both)? We are rural and haul free firewood w/the pickup. We also both have company cars.
You have a total of 4 cars, two of your own and two company cars?

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I have no retirement, I'm 47, husband is 35. I will inherit mother's paid off house nearby, her younger sister will continue to live there.
Will you receive rent from your aunt?  If not, what is the purpose of you and then your son inheriting it?

Quote
I have never invested and am afraid of losing money in the stock market since I am older.
Good idea not to invest money you need for buying food next month.  But if you can take money you don't need now and invest it, in the long run you should be much better off.

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I have considered rental properties instead.
They have their own pros and cons.  Different pros and cons than the stock market.

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And what about 401K's? NOTE: nothing available thru work, I would need to do IRA's.
Have you each asked your employers about establishing something?  Why not?

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Should I pay house off faster?
Good question.  See http://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/ under "Investing".

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Should my 19 yo son pay board? He is rarely home, works full time.
Appears he is no longer your dependent - is that correct?  Don't know enough details, e.g., does he have his own apartment, etc.

Quote
Other advice? It can get hard to see the forest for the trees after a while.
Took a quick pass at entering your numbers in the MMM case study spreadsheet, and attached that to this post.  You might adjust the numbers to be more accurate, then consider what it indicates about your particular forest.

rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #11 on: August 25, 2015, 07:41:16 PM »
Should we sell a vehicle (or both)? We are rural and haul free firewood w/the pickup. We also both have company cars.
You have a total of 4 cars, two of your own and two company cars?

Yes, that's correct. I found out today I may have a job opportunity that does not supply a car.

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I have no retirement, I'm 47, husband is 35. I will inherit mother's paid off house nearby, her younger sister will continue to live there.
Will you receive rent from your aunt?  If not, what is the purpose of you and then your son inheriting it?

I guess what I was trying to get across was potential rental income, but the inability to sell the inherited house, as it is my mother's wish for it to go to her only grandchild. The house I live in is a short sale I got cheap and would probably keep as a rental if I moved. My aunt helps cover expenses but could not pay the going rate for rent for the whole house.

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And what about 401K's? NOTE: nothing available thru work, I would need to do IRA's.
Have you each asked your employers about establishing something?  Why not?

 We work for the same company, they are small, 10 people, we don't even get sick leave.

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Should I pay house off faster?
Good question.  See http://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/ under "Investing".

Looked at quickly earlier, I would feel better debt free.

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Should my 19 yo son pay board? He is rarely home, works full time.
Appears he is no longer your dependent - is that correct?  Don't know enough details, e.g., does he have his own apartment, etc.

He lives with me and my husband and pays 35.00 for half the internet, nothing else.

Quote
Other advice? It can get hard to see the forest for the trees after a while.
Took a quick pass at entering your numbers in the MMM case study spreadsheet, and attached that to this post.  You might adjust the numbers to be more accurate, then consider what it indicates about your particular forest.

 I will be going thru this and playing with the numbers, thank you for taking the time to do that.

MDM

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Re: CASE STUDY - Always Moving Forward
« Reply #12 on: August 25, 2015, 10:21:29 PM »
Yes, that's correct. I found out today I may have a job opportunity that does not supply a car.
Appears your cars are fully paid (no car loans noted), so if you can handle the parking space there doesn't seem an urgency to sell.  You might look at decreasing the insurance costs: have higher deductibles, eliminate some coverage, etc.

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I guess what I was trying to get across was potential rental income, but the inability to sell the inherited house, as it is my mother's wish for it to go to her only grandchild. The house I live in is a short sale I got cheap and would probably keep as a rental if I moved. My aunt helps cover expenses but could not pay the going rate for rent for the whole house.
Too much family intertwining for me to comment. ;)

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We work for the same company, they are small, 10 people, we don't even get sick leave.
They do provide company cars though, so maybe...?  Worth asking the question.  E.g., see http://www.forbes.com/sites/stuartrobertson/2013/09/25/three-myths-keeping-small-businesses-from-starting-a-401k/.  Might take some phone calls to various brokers to see who could offer relatively low fees.  One possibility among many (I'm not making any recommendation here, just giving an example): https://www.sharebuilder401k.com/.

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He lives with me and my husband and pays 35.00 for half the internet, nothing else.
More family intertwining, but I'll take a crack at this one.  If he is saving a significant portion of his income with the idea of using those savings to pay for college down the road, you're are supporting that effort by providing rent-free living.  Seems reasonable.
If he has good income and good prospects now without the need for higher education, then it would be reasonable for you to charge rent because he's a big boy now and needs to start living as an independent adult.
The toughest situation is if he does not have a good income, has little prospect of getting one, yet has no plans to do something (college, trade school, military, etc.) to improve that.  In that case some serious conversations are in order, both between you and your husband (to agree on your joint position) and among the three of you (to determine what your son and the two of you will do).

Quote
I will be going thru this and playing with the numbers, thank you for taking the time to do that.
Any questions, just ask.  Good luck!

rulesofacquisition

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Re: CASE STUDY - Always Moving Forward
« Reply #13 on: August 26, 2015, 05:24:27 AM »
Edited original post to show Christian radio donation has been stopped.