Author Topic: Case Study: Am I starting off right?  (Read 5251 times)

accoleon

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Case Study: Am I starting off right?
« on: January 30, 2015, 01:59:38 PM »
Just started in the workforce last October, and just got married last December. My wife and I are both foreign nationals in the US on work visas, and we're hoping I'll be able to get permanent residency through my job in the near future (+/- 3 years).

Ages:
Her 26 (27 this year)
Me 29 (30 this year)

Income:
Combined: $120k (me $62k, her $60k = 57k + 3-5k bonus depending on performance)
Take home: ~$5000
Her 401K: $793 biweekly (~$634 + 7.5% match) adjusted value after accounting for her bonus
My 457B: $692 biweekly ($622 + $71 3% match) 457 limits count both employer and employee contributions
Our contributions are calculated to hit $18k for 2015
Trying to sock $5.5k each for 2014 tIRA contributions then again for 2015

Current expenses: $2452
Rent: $600 (1br, I bus to work due to work-provided bus pass, she drives about 10 minutes)
Health insurance: $91.88 (payroll deduction, covers 2-party, will become $134.12 to cover a family)
Electric: $42
Water: rolled into rent
Internet: $30
Cell: $18 (Ting, 2 phones. used to be 70 on AT&T)
Groceries: $400 (budgeted - usually spend about $350. We shop at Winco and Costco and an asian food market)
Car: 1999 Honda Accord, used, paid for in cash about $10k (wife bought it when she was single and paid in full from her savings)
Car Insurance: $73 (Progressive)
Gas: $100 (budgeted - usually spend $50-60)
My student loan: $1000 (total $143k left - interest-free loan from a benefactor)
529: $50 (just started this, Oregon has up $4,530 annual state income tax deduction for 2014)

Assets: $36.8k
Her 401K: $8.9k (she only started contributing early October 2014)
My 457B: $6.4k (I started contributing the moment I started my job in October 2014)
Her tIRA: $11k (we stuck most of our 2014 tax refunds into our tIRAs, hers is all maxed out for both 2014 and 2015)
My tIRA: $6.1k (working on maxing out 2015 contributions)
My 529: $101
Combined cash: $4.3k

Liabilities:
CC debt: $1170 (we always pay off the balances in full every month)
My student loan: $141k (interest-free loan from benefactor)

Other details:
She does not have student loans because her parents financed her college. However, this means she is indebted towards them and we may have to send money back to her parents if they ask. (she has already remitted ~$30k recently)
I don't have a typical student loan, but my college was financed by a very generous loan by my godmother, who is not charging me interest or inflation)
She graduated with a BS in Accounting in 2010-1, now works as as Financial Analyst in a large fashion company. She is worried about not being able to renew her work visa due to large scale layoffs lately.
I graduated with a BS in Computer Science in 2014, works in the city government's IT department as an Analyst. Our salary schedules are public, so I get a decent salary, but I know my career maximum with this organization is capped to $77k. However, I am betting/hoping that they will eventually sponsor my green card.
I have a huge college debt because I am a foreign national who had to pay out of state tuition (I attended the U of Oregon). I received $48k in scholarship money total for college (which was pretty much the highest amount out of any international scholarship in the school). I was also a spendthrift and did not watch my finances carefully before starting my first job.

Specific Question(s):
1. I had a hard time convincing my wife to switch to investing in her 401K and other investment vehicles here. Firstly, she knew very little about them (despite being in the finance industry and working on her CPA), secondly she was worried about her work visa status and thought her 401K money will disappear if she leaves the company or country. Her prior savings were in a savings account which earned almost nothing, and whenever she accumulated a sizable amount (>$15k) she'd send it off to her parents (she's a filial daughter). Even now, she is still a little skeptical of my 15-years-to-FIRE plan. Anybody out there in similar positions (foreign nationals without a green card yet) who are also investing heavily their in 401Ks?

2. I also have a hard time convincing her parents to believe in my plan. My MIL is actively encouraging her to buy a house because "houses are cheap in America" and thinking a house is a good investment, while I see the downpayment and mortgage as an opportunity cost. Recently my MIL got roped into some sort of Chinese Pre-IPO stock offering "investment" that she wants to "bet on", and she just threw in $30k into some shady, possibly illegal investment in a pre-public chinese company which I believe will not work out. The majority of that investment, I reckon, is probably the money my wife sent back to fund their retirement. I have a hard time letting my MIL fritter the money away on possible scams, but my wife feels I am disrespectful to her mother (though my wife agrees it's most likely a scam too, but there's nothing she could do about it). No matter what proof or articles I can dig up about China's stock laws, she ignores it and just says "You don't know anything, you don't understand Chinese laws, you are so inflexible, you are so narrow-minded" and variations thereof. Anyone have any advice on dealing with family?

3. Large upcoming purchases: since we are newlyweds, we recently spent out of our budget for our wedding rings ($1300 for her, ~$300 for me). We are also considering buying a new mattress/bed since her current bed is causing her backaches (she bought our current bed used for $50 4 years ago). However, even though a new mattress from tuft and Needle would cost between $500 to $650, the bed frames are pretty costly (~$300-400 from a department store). She insists on getting a king-sized bed (our current is a full) which means we cannot reuse our old box springs and king-sized stuff are additional costs (sheets, blankets, frame). Any thoughts on bed purchases?

4. Are we on track for FIRE in 15 years? Based on my calculations, maximizing our tax-deferred accounts every year ($18k 401/457, $5.5k IRAs x 2) for the next 15 years would theoretically bring us to FI, though I do plan on investing additional amounts in a taxable account. However, our anticipated expenses (future children, future college expenses, future parents-in-law retirement, health care for everyone) are a little unpredictable and I'm not extremely confident we are going to make it. Since my wife has polycystic ovary syndrome, we might need to do fertility treatments to have children (we both want at least 2 children, but probably not more than 3), and that will cost us.

It seems like your biggest money suck is this indeterminate debt to your wife's parents. The two of you owe it to yourselves to get it worked out what exactly that is.
Yes - this indeterminate debt to parents is extremely pervasive in Asian culture. Even my own family, who abused me and did not support me, feel that I owe them my life, which they now price as "unlimited amounts". However, this leads to everyone at home labeling me a heartless ingrate who's living it up in the States while his parents starve back home. I am fine with such labeling, but my wife who grew up in a happy family feels the need to provide for her parents, since they gave her "everything". Thus, to put a price on this indeterminate debt, my idea is:

potential years of life x life costs
Her father is in his early sixties, heavy drinker, heart problems, obese: I think 35 years (till he's about 95-100) is an adequate estimate of his future lifespan.
her mother is 48, no health issues, healthy habits, so I think 50 years is realistic
Healthcare costs per year in China: ~15k RMB = $2.4k (https://www.justlanded.com/english/China/China-Guide/Health/Health-insurance, rough average between 3k and 30k)
The average Chinese worker earns about: ~24k RMB = $4.7k (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCMQFjAB&url=http%3A%2F%2Fqz.com%2F170363%2Fthe-average-chinese-private-sector-worker-earns-about-the-same-as-a-cleaner-in-thailand%2F&ei=VvvLVMHeL4yyogTF6YDAAw&usg=AFQjCNHsh8bRke8SImtm7gqqpcVV3cCe-Q&sig2=DlX2piXaozSWKOoBS3ejSA)
Overestimating, I can expect a cost of 8k per year of supporting her parents.
thus:
(35+50 /2) x 8k = 43 x 8k = $344k total to support her parents to end of life.
It's quite a bit. and it seems like rather cold-hearted calculations, which is why I haven't done this with my wife yet...
« Last Edit: March 18, 2015, 10:46:53 AM by accoleon »

ShoulderThingThatGoesUp

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Re: Case Study: Am I starting off right?
« Reply #1 on: January 30, 2015, 02:12:55 PM »
It seems like your biggest money suck is this indeterminate debt to your wife's parents. The two of you owe it to yourselves to get it worked out what exactly that is.

MDM

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Re: Case Study: Am I starting off right?
« Reply #2 on: January 30, 2015, 02:39:11 PM »
Her 401K: $728 biweekly (~$520 + 7.5% match)
My 457B: $763 biweekly ($692.3 + $71 3% match)
Our contributions are calculated to hit $18k for 2015
...
4. Are we on track for FIRE in 15 years?

accoleon, welcome to the forums.

A couple of specific things (I'll let others comment on the family issues...):
 -  The $18K limit is on your contributions, not the total of yours plus the match.  The 457b looks good, but the 401k looks low.
 -  Have you tried www.cfiresim.com and/or the spreadsheet downloadable from http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228?  They may help you answer your "on track?" question.

Good luck!

waffle

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Re: Case Study: Am I starting off right?
« Reply #3 on: January 30, 2015, 02:57:05 PM »
For the king sized bed I'd say go for it unless you are planning on moving a fair amount soon. My wife and I decided on a king size last year. I love that bed! We upgraded from a full size and it was night and day. Its SOOO Big! The only downside is that we moved twice since then and its a pain to move a mattress that big. We found though that the cost between a queen and a king was pretty small.

accoleon

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Re: Case Study: Am I starting off right?
« Reply #4 on: January 30, 2015, 03:11:50 PM »
accoleon, welcome to the forums.

A couple of specific things (I'll let others comment on the family issues...):
 -  The $18K limit is on your contributions, not the total of yours plus the match.  The 457b looks good, but the 401k looks low.
 -  Have you tried www.cfiresim.com and/or the spreadsheet downloadable from http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228?  They may help you answer your "on track?" question.

Good luck!
Thanks!

1. Yep, my wife will be adjusting her contributions later in the year to get to a full 18k
2. Yep, ran that - 100% of success if not supporting her parents and we decide not to have children. Drops to 88% when we factor in 2 kids going to college in 17 and 18 years' time, along with a 200k house purchase in 15 years.

Our indeterminate debt and possible future children make up the majority of the uncertainty in our FIRE plan (however I calculated future college expenses as 4x annual lump sums, which might skew the sim), which my wife isn't happy about. Thing about her parents is that it's not how much I estimate their costs will be, but how much they want from us.

For the king sized bed I'd say go for it unless you are planning on moving a fair amount soon. My wife and I decided on a king size last year. I love that bed! We upgraded from a full size and it was night and day. Its SOOO Big! The only downside is that we moved twice since then and its a pain to move a mattress that big. We found though that the cost between a queen and a king was pretty small.
That sounds great! I'm sure it'll feel pretty good, though I am concerned about the difficulty of moving it around and using it (a king sized bed in a tiny 1br apartment, haha). I'm unable to gauge the comfort value of a bed, since I grew up sleeping on $10 foam mattresses on the floor.

mozar

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Re: Case Study: Am I starting off right?
« Reply #5 on: January 30, 2015, 09:15:31 PM »
I think its a really good idea to have your wife send a set portion of her salary every month. So instead of a 30k suprise you can send $6,880k (344k/50) a year. I think that's fair (but I was born in the USA). Then be very firm that the 6.8k is what will be sent, no more. The hardest part will be getting your wife on board. But you will never be FI if you keep having 30k surprises.

I wouldn't buy any property until you get a green card. Also a bank wouldn't lend you money with random 30k outflows. And you will take a tax hit but you can liquidate your 401k at any time. And stop trying to convince your wife's parents of anything. They are set in their ways.

Retired To Win

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Re: Case Study: Am I starting off right?
« Reply #6 on: January 31, 2015, 05:59:08 AM »
Better doublecheck IRS regulations on contributing to a tax-deferred IRA when you already have a 401k or analogous plan.

Some years ago, I got "audited by mail" because of that.  Apparently it is not allowed across the board.

By sheer luck, for me it turned out that, because the 401k was NOT being employer-matched, I could still do the IRA contributions.  But you'd be wise to check for yourself what applies in your situation.

(I am fairly sure you could make after-tax contributions to a ROTH IRA with impunity.  But check that, too.)

Good luck!

accoleon

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Re: Case Study: Am I starting off right?
« Reply #7 on: February 27, 2015, 01:01:42 PM »
I have double-checked the IRS regulations, it seems that after pretax contributions and health insurance and FSA, our combined incomes are low enough for tax-deductible IRAs.
Our first-ever joint tax returns worked well too, e-filing was fast and convenient, and we already received our refunds!

Federal refund: $7700
State refund: $1200

Wife also received a $5000 bonus, of which $2200 was available for take home ($1400 went into her 401K, rest into tax withholdings) - so we decided to blow away our cash on:

Maxing out her 2014 IRA: $2500 (from her bonus + misc checking account)
Maxing out her 2015 IRA: $5500 (from federal refund)
Maxing out my 2014 IRA: $2000 ($500 from my income, rest from federal refund)

Will have to work on maxing out my 2015 IRA with my own income. We consider the tax refunds to be mostly "her" money (since I only started my full time job in Oct 2014)

Still no conclusion on money issues with her parents. In fact, she is thinking of giving her parents a "red packet" (money in a red envelope, for Chinese New Year), but she wasn't sure about the amount. Currently, my strategy of socking money away in retirement accounts (difficult to withdraw without penalties) is working well, since it's a convenient way to make it unavailable to our families.

Concerns:

  • Should I aggressively pay down my interest-free student debt (currently $142k), or stick to paying it off gradually ($1000 monthly) and use the surplus to invest in our retirement?
  • Should I trade the relatively stable government job paying $62k for a riskier job in the Bay area for a chance at a higher salary + higher chances of green card sponsorship?

I don't intend to quit my current job before I have a really solid job offer - however, the chances of the local government sponsoring a green card for me is extremely low (they've done it once, for my boss. My boss doesn't seem very keen on fighting for me), which means the future for our young family is a finite 6 years. Her job is extremely unstable now (her company laid off 1200 staff in 2014, and is outsourcing most of their cost centers to India), and she has only 3 years left in her work permit, with no chances of getting a green card from her current job. Thus, we are extremely motivated to possibly trade financial risk for long-term residency.

After 3 years, my wife will be forced to either leave the country or become my dependent, which means she can no longer work. (That's -$60k from our household income). This is betting on a green card from my current or future employment, which is once again a gamble. However, we have 5-6 years of diversity lottery chances x2, but that is simply a lottery (let's say it's a 0.01 probability I'll get a green card through the lottery). Thus, my options are:

Stay with a stable, government job with little-to-no-chance of getting a green card (but saving a good amount of money in a low COL area)
Try for a risky (startups can fail anytime, layoffs, etc) private-sector job with a slightly-higher-than-zero chance of getting a green card (but probably moving to an extremely high COL area). However, it's also possible that the private-sector job might pay less than my current job but hook me with a green card offer.

Side hustles on a work visa are pretty much not allowed. Even selling stuff on Amazon (my old books) has to be limited to under 200 transactions a year or < $20k, otherwise a form 1099-K would violate a work visa. I can't freelance, I can't sell apps on the app store. Any other method of increasing income (in case my wife loses her ability to work legally, or pregnancy) would involve either tax fraud (not reporting to IRS) or immigration fraud (reporting to IRS but that's not allowed by the USCIS!). I'm desperate enough to consider donating plasma to earn extra income, but that's probably not a long term solution (or even legal in the first place...)

MDM

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Re: Case Study: Am I starting off right?
« Reply #8 on: February 27, 2015, 02:14:20 PM »
  • Should I aggressively pay down my interest-free student debt (currently $142k), or stick to paying it off gradually ($1000 monthly) and use the surplus to invest in our retirement?
  • Should I trade the relatively stable government job paying $62k for a riskier job in the Bay area for a chance at a higher salary + higher chances of green card sponsorship?
accoleon, well done on many fronts!

Re your questions, for #1 that is between you and your godmother.  You might say something akin to "Godmother, we really appreciate what you have done.  It helped me get my education and now is helping us save for the future.  But we do have the ability to repay faster so if you would like that, just let us know."  Then take it from there.

For #2, you seem to have answered your own question with "yes".  It really is a personal decision.

mozar

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Re: Case Study: Am I starting off right?
« Reply #9 on: February 27, 2015, 09:50:26 PM »
I think the job decision is dependent on the demand for your skills. If you are regularly getting calls from recruiters you should at least talk to them.
I would pay off your loan aggresively especially since your situation is so unstable. It took me 5 years to pay off 120k of my loans with 15k left if that helps.

Spondulix

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Re: Case Study: Am I starting off right?
« Reply #10 on: February 28, 2015, 12:49:05 AM »

After 3 years, my wife will be forced to either leave the country or become my dependent, which means she can no longer work. (That's -$60k from our household income). This is betting on a green card from my current or future employment, which is once again a gamble. However, we have 5-6 years of diversity lottery chances x2, but that is simply a lottery (let's say it's a 0.01 probability I'll get a green card through the lottery). Thus, my options are:
Are you on an H1-B visa?
http://www.nbcnews.com/news/asian-america/new-rule-allows-spouses-h-1b-visa-holders-work-n312846

marty998

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Re: Case Study: Am I starting off right?
« Reply #11 on: February 28, 2015, 03:24:44 PM »

It seems like your biggest money suck is this indeterminate debt to your wife's parents. The two of you owe it to yourselves to get it worked out what exactly that is.
Yes - this indeterminate debt to parents is extremely pervasive in Asian culture. Even my own family, who abused me and did not support me, feel that I owe them my life, which they now price as "unlimited amounts". However, this leads to everyone at home labeling me a heartless ingrate who's living it up in the States while his parents starve back home. I am fine with such labeling, but my wife who grew up in a happy family feels the need to provide for her parents, since they gave her "everything". Thus, to put a price on this indeterminate debt, my idea is:

potential years of life x life costs
Her father is in his early sixties, heavy drinker, heart problems, obese: I think 35 years (till he's about 95-100) is an adequate estimate of his future lifespan.
her mother is 48, no health issues, healthy habits, so I think 50 years is realistic
Healthcare costs per year in China: ~15k RMB = $2.4k (https://www.justlanded.com/english/China/China-Guide/Health/Health-insurance, rough average between 3k and 30k)
The average Chinese worker earns about: ~24k RMB = $4.7k (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCMQFjAB&url=http%3A%2F%2Fqz.com%2F170363%2Fthe-average-chinese-private-sector-worker-earns-about-the-same-as-a-cleaner-in-thailand%2F&ei=VvvLVMHeL4yyogTF6YDAAw&usg=AFQjCNHsh8bRke8SImtm7gqqpcVV3cCe-Q&sig2=DlX2piXaozSWKOoBS3ejSA)
Overestimating, I can expect a cost of 8k per year of supporting her parents.
thus:
(35+50 /2) x 8k = 43 x 8k = $344k total to support her parents to end of life.
It's quite a bit. and it seems like rather cold-hearted calculations, which is why I haven't done this with my wife yet...

A heavy drinker and obese person with heart problems is not going to live to 95. They are also going to have much more costly health expenses than an otherwise healthy person.

It may well even out in the end - higher costs but for less time.


frugaldrummer

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Re: Case Study: Am I starting off right?
« Reply #12 on: March 01, 2015, 11:10:59 AM »
You mentioned 1170/mo credit card bill paid off each month; is that in ADDITION to your $2400/mo expenses listed? If so, what is that money spent on?

As for your wife's parents...would it help you to think of it like your educational loan? Wife's parents supported her through school; perhaps you would feel less resentful of the money she sends them if you treated it like you do your loans.

How about, for every $1000 you pay towards your loan, you put $1000 into a "parent fund" for the future support of her parents? Or, if they have a genuine need for support right now (doesn't seem so, if they can make speculative $30k ivestments), perhaps a $500/mo stipend and put another $500 away in a fund you two control for their future retirement needs?

Don't buy a house now. As for jobs, I don't know enough about it. But is it possible to get a job with an international company? Then at least if you can't get a green card, you could perhaps work in Europe or Canada?
 

accoleon

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Re: Case Study: Am I starting off right?
« Reply #13 on: March 02, 2015, 10:25:53 AM »
Are you on an H1-B visa?
http://www.nbcnews.com/news/asian-america/new-rule-allows-spouses-h-1b-visa-holders-work-n312846

I will be on the H1-B visa, but that rule only appears to apply for H1-B holders who are getting their petition for permanent residency done (e.g. green card in process), so it does not apply to my situation, unfortunately.

A heavy drinker and obese person with heart problems is not going to live to 95. They are also going to have much more costly health expenses than an otherwise healthy person.

It may well even out in the end - higher costs but for less time.
Yes, you are right-  maybe I should put that as an adequate over-estimate of his lifespan. My wife would probably not appreciate me talking about her father in this manner, though...

You mentioned 1170/mo credit card bill paid off each month; is that in ADDITION to your $2400/mo expenses listed? If so, what is that money spent on?

As for your wife's parents...would it help you to think of it like your educational loan? Wife's parents supported her through school; perhaps you would feel less resentful of the money she sends them if you treated it like you do your loans.

How about, for every $1000 you pay towards your loan, you put $1000 into a "parent fund" for the future support of her parents? Or, if they have a genuine need for support right now (doesn't seem so, if they can make speculative $30k ivestments), perhaps a $500/mo stipend and put another $500 away in a fund you two control for their future retirement needs?

Don't buy a house now. As for jobs, I don't know enough about it. But is it possible to get a job with an international company? Then at least if you can't get a green card, you could perhaps work in Europe or Canada?

No, the credit card bill is not in addition, it's the portion of last month's expenses that goes on credit cards (for cashback and points).

The "parent fund" idea seems pretty good, I will discuss it with my wife. The difference between my education loan and my wife's parents is that mine has a specific number, while hers is in her mind, unlimited, which is difficult to plan for. I'm not resenting a set amount of money she wants to send back to support her parents, it's the random and undefined amount that we see getting flushed into extremely risky and possibly illegal gambles (from our hard-saved money!). I'm trying not to be an enabler of bad financial habits, and my wife is resentful of the way her parents spend her money - but she still feels the duty to send it into a blackhole anyway.

I'll have to work harder on job-searching. Options are limited when you don't have a degree from a famous college and not enough working experience on paper.