Author Topic: Case Study Exercise, Face Punches?  (Read 4890 times)

kudy

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Case Study Exercise, Face Punches?
« on: September 07, 2012, 07:47:55 PM »
I wanted to do a "case study" style exercise and create a description of my current financial picture to give myself a new perspective. I figured I might as well share it here since this forum is what gave me the idea, and I enjoy reading the case studies everyone else posts.

Part of the motivation for the exercise was to help me figure out occasional and/or yearly expenses, so I could create a "monthly" budget for them, therefore improving the accuracy of my monthly expenditure tracking.

Any face punches?:

No debts.

Assets:

Fuel efficient car, worth $11,000
Home with ~19% equity, worth about $135,000, owe $110,000
IRAs (Roth & Traditional) worth $13,500
Emergency fund worth $4,500
Home maintenence fund worth $4,200
Checking account cash buffer worth $2,000

I should be starting a 401K at work this month, I already contribute $5,000 per year towards my IRA.

Income:

Salary, $50,000/year
Tiny bonus checks, probably ~$1,200/year
Housemate rental income, $7,200/year
Various internet income, $200/year
Occasional very random freelance jobs, ~1,000/year

TOTAL: $59,600/year, or ~$4967/month before taxes

Expenses:

Mortgage, Insurance, Property Tax, $836/month
HOA fees (includes trash pickup), $38/month
Utilities (all electric, no gas), ~$190/month
Vegetable gardening & yard upkeep, ~$25/month
Smart phone & skype - $33/month
Internet - $48/month
Web hosting - $11/month
Gas, ~$80/month
Car insurance & maintenence, ~$110/month
Groceries & household items, ~$200/month
Restaraunts, ~$40/month
Lunch at work (days I don't bring lunch), ~$30/month
Alcohol at home & at meetups - ~$40/month
Misc. entertainment (movies, video games, etc.), ~$50/month
Gym membership, $35/month
Haircut, $16/month
Clothing, ~$20/month
Vacations/weekends away, ~$50/month
Pet food, ~$16/month
Credit card yearly fee (I earn rewards worth ~$250 each year on this card), $5/month
Bank line of credit yearly fee - $4/month
Gifts, special occasions throughout the year - ~$40/month

TOTAL: $23,004/year, or $1,917/month

According to Mint.com I spent ~20,000 last year, so maybe some of my monthly expense numbers have too high of a buffer.  Despite that... it looks like I have about a 61% savings rate.

A few expense notes:

  • I am working towards refinancing the house to remove PMI and lower the mortgage payment, need a bit more equity first
  • I am ~13 miles from work. I recently started riding my bike to work once a week, working towards being more baddass and riding to work 2 days a week.
  • I will keep my gym membership - it gives me somewhere to bike to on the weekends, and it's my main source of socializing with a good friend of mine.
  • I appreciate a professional cutting my hair, not sure if I want to try it myself.

kudy

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Re: Case Study Exercise, Face Punches?
« Reply #1 on: September 07, 2012, 08:13:24 PM »
Already remebering expenses I forgot...

I estimate I'll pay roughly 10% of my salary in taxes... $5,000/year.
I have an eye doctor and lense cost of about $250/year.
I pay for health insurance through work, $40/month.

I wonder what else I've forgotten? That puts right around 50% savings rate.

gooki

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Re: Case Study Exercise, Face Punches?
« Reply #2 on: September 07, 2012, 08:59:47 PM »
You already know what to do... refinance the home and avoid PMI.

There's a few expenses you could cut back on, but assuming you are happy with your lifestyle, just keep on trucking.

sulaco

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Re: Case Study Exercise, Face Punches?
« Reply #3 on: September 08, 2012, 08:29:26 AM »
Nothing big, but the PMI - which should be a pants-on-fire situation.

Here are a few optimizations to consider.

I have an eye doctor and lense cost of about $250/year.

How much of this is covered by insurance? My wife has the worst prescription of anyone we've ever met, goes to an opthemologist for checkups, and can get out the door for under $200/year. Before we moved she used America's Best, which has a club which allows you to save quite a bit of money - but you're stuck going there for several years. Also, Costco has great prices on frames, lenses, and contacts, and they order the same optics that high end places get. We used to go there, but my wife's prescription is too bad to be filed there any more.

Also, if your prescription doesn't change, you can skip new glasses. I bought a nice pair of glasses, which cost a little more money, but I wore for about four years.

Car insurance and maintenance seem a little high for 1 car in such good condition. I can't imagine using a CC with a fee, even for rewards - there are so many good, free options.

Internet I seems high too, ask for an economy tier. Streaming movies, playing games, nearly everything on the public internet works fine at 3mbps or less (1.5mbps is the lowest I go, though). Usually there is a non-advertised economy rate.

TLV

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Re: Case Study Exercise, Face Punches?
« Reply #4 on: September 08, 2012, 08:34:56 AM »
Another possibility for your glasses is Zenni Optical - you still need to get your prescription from an eye doctor every couple years, but the glasses are very inexpensive (about $12 for frame+lenses+shipping for their cheapest frames, and I have no complaints about the quality of the ones I got a few months ago)


herisff

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Re: Case Study Exercise, Face Punches?
« Reply #5 on: September 08, 2012, 08:36:00 AM »
I wonder what else I've forgotten?
It sounds like you don't use any software to help with tracking expenses, like Mint, Quicken or YNAB. You might want to consider using something along those lines, as these tools can help you with remembering annual expenses like eyeglasses, yearly costs, etc. I've used all 3, and currently am really liking YNAB (You Need A Budget). I know there are other programs out there, but these 3 seem to be fairly popular (especially Mint). Mint and YNAB have applications that can be used on phones, not sure about Quicken.

Lars

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Re: Case Study Exercise, Face Punches?
« Reply #6 on: September 09, 2012, 12:38:00 AM »
It just doesn't seem right to have a case study without a big picture summary.

After Tax Earnings: $55k
Estimated Yearly Spending: $24k
Assets: $50k (not including car)
Estimated Saving Rate: 56%
Years to FI at 4% real return (via networthify): 13 years (default return on other estimates unless noted)
at 3% real return: 14 years
at 0% real return: 18 years

If you added $10k to your after tax income and keep spending the same you could FI in 10 years
If you could hold yourself to 20k a year in spending at your current income you could FI in 10 years

How much fire in your belly do you have for FI? Are you comfortable with your current timeline? Other than the widely mentioned PMI, I don't have much to face punch you about - just a few gentle taps. (truth be told a face punch to you would be a face punch to myself since my percentage is similar and well, who likes to face punch themselves). 

My taps:
I didn't see anything for monthly deposits to medical expenses or home repair and improvement funds in your budget.
How much are you planning to put into your 401k? I'd consider maxing it out.
Work hard to keep your budget estimates low by just $100 a month and you shave nearly a year off your time to FI.

kudy

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Re: Case Study Exercise, Face Punches?
« Reply #7 on: September 09, 2012, 11:37:13 AM »
Hey Lars, thanks for the big picture - I've had similar timelines in my head, but never did any hard math to verify.

How much fire in your belly do you have for FI? Are you comfortable with your current timeline?

I am quite happy with my current occupation, but I think I'll be happy to switch from a 40 hour week to a flexible consulting role in ~10 years.

My "emergency fund" exists to cover medical costs, and my "home maintenence fund" exists to cover home repairs - I didn't count them as expenses in my budget because they are held as cash, but I guess maybe they should be expenses because they take away from savings rate?

I can't decide what to put into the 401K - I'll probably max it out after the mortgage refinance is done - until then, I will probably hold a stash of cash in case the valuation of the house doesn't quite make 20% equity.

It sounds like you don't use any software to help with tracking expenses, like Mint, Quicken or YNAB. You might want to consider using something along those lines, as these tools can help you with remembering annual expenses like eyeglasses, yearly costs, etc.

I use mint.com but I haven't updated or refined my budgets in a while - that's what prompted me to start this exercise.

Another possibility for your glasses is Zenni Optical...

Thanks for the eye glass tips!  I don't have vision insurance.

Car insurance and maintenance seem a little high for 1 car in such good condition. I can't imagine using a CC with a fee, even for rewards - there are so many good, free options.

Internet I seems high too, ask for an economy tier. Streaming movies, playing games, nearly everything on the public internet works fine at 3mbps or less (1.5mbps is the lowest I go, though). Usually there is a non-advertised economy rate.

The car insurance/maint item is supposed to cover regular oil changes, new tires every few years, the very occasional car wash to wash bugs off the windshield, etc. - my insurance is probably overkill at this point, but I am not sure I'm comfortable self-insuring yet.

I've run the math on the credit card, and I think it's worthwhile - I will probably re-evaluate after my "bonus 1000 points per month for 2 years" stops.  I use the points to buy household items, etc. from Amazon, and it seems to be working out pretty well.

I share Internet with housemates & a neighbor, as well as work at home occasionally - I also have limited provider options, so I think the package I have is the best for my situation.

Thanks for all the thought provoking feedback everyone!

kudy

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Re: Case Study Exercise, Face Punches?
« Reply #8 on: September 12, 2012, 07:45:45 PM »
Short term plan:

  • Start 401k with 4% contribution (for match)
  • Have broken wooden garage door replaced
  • Stockpile cash for 1-2 months
  • Initiate refinance on house (with ready to use cash reserve of ~10-12K in case home valuation comes in lower than expected)
  • If cash is used during refinance, stockpile cash to re-pay savings accounts
  • If cash isn't used, start a taxable investment account with the left-over
  • Once savings are back to normal, increase 401k contribution to max