Author Topic: Case study - Getting started  (Read 3835 times)

VCaddy

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Case study - Getting started
« on: May 17, 2015, 04:46:17 PM »
Hi everyone,

Looking for some advice on making further cuts in my spending, and a review of future plans.  I just recently found MMM, so I've made some changes, but could still use some help.  So here's the rundown -

Single, currently E5 in Air Force, claim myself on state and fed taxes. 
Gross salary - $4650/month
Taxes - Federal/FICA - $540, State - $175 (state refunds all at the end of the year)
Roth TSP - $275  Cash savings allotment - $100
Works out to $3560 monthly take home pay.

Expenses -
Mortgage (including property taxes and insurance) - 916, but I send $1000/month
Electric - average of $65/month.  635kwh @ .079.
Heating oil - average of 100/month.  I burned 270 gallons this past year at $3.00/gallon.  I budget for cost of $4/gallon.
Cell phone - $45, basic Verizon talk plan
Internet - $45
City utilities (water, sewer, garbage) $45
Auto insurance - $61
Gas - $100
Food - $200
TOTAL - $1661

Assets/things I own
Home - current value 152K, owe 141K.
1995 GMC K1500, paid off
2006 Cadillac STS-V, paid off
Cash savings of $1500
Roth TSP of $1100

Dumb things I've done recently that derailed my plans to open Vanguard accounts -
Bought a $1200 mountain bike.  I do enjoy riding, and this bike should last me a long time
Bought a $1600 bass.  I already had a bass. 

Things I've changed -
Eliminated trips to barber shop that were $30/month, cut my own hair.
Reduced life insurance coverage to 50K, now costs 6/month instead of 30.
Increased collision/comprehensive deductible on the car to $2500.  Savings of $12 month.
Started shopping commissary for meats/cheese in larger quantities this month, don't know savings yet on that one.

Things I could use some help with -
Home insurance is currently 1000 deductible, and I have 87K of personal property coverage (!).  Need some advice on how to get some savings here.
My electric usage is crazy.  I turn off my water heater when I'm away (about 2 weeks/month), that has helped some. 
I'm looking to open a Vanguard acct (VTSMX) at the end of this month, for early retirement income.  Now here's where I need some help.  I have 13-17 years left before I retire from the AF.  I'd like to buy some land to build a home on about 3-4 years before I retire, so I can pay it off while I'm still in.  So I'm thinking I would start an account for the intent of building a custom (high efficiency) small home on this land.  Would I want to keep my early retirement and home accts separate, or just keep all my money in one acct, and pull a chunk out when I build the home?

I would also like to open a traditional IRA for tax benefit purposes.  So given my 13 years before I retire from the AF (17 if I stick around past 20), what's the best way to allocate my money into all these funds I plan?  I have the Roth TSP and soon a tIRA for when I'm past 59, so I'm thinking I should dump more $ into the early retirement fund, since it only has a short time to grow. 

Thanks for reading my novel, and for any advice/punches you may dish out. 

Kyle





curler

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Re: Case study - Getting started
« Reply #1 on: May 17, 2015, 05:33:55 PM »
Welcome to the forums!
I can't help much on the insurance or electric questions.  AS to the investments, a couple of thoughts:

13 years out strikes me as a long time.  So, I wouldn't bother separating money for the purchase of land from other retirement savings.

I'm not sure why you want to open an IRA in addition to the TSP plan.  The TSP should allow you to contribute on both a Roth (after tax) and Traditional (Tax deferred) basis.  The TSP has better expense ratio's than any IRA you will be able to get.  So until you are maxing out the TSP contributions, I'd recommend sticking with the TSP. 

Someone who knows the TSP program better than I do should confirm this, but since you can roll your Roth TSP into a Roth IRA once you retire, you should be able to access those funds before traditional retirement age.  Because of this, you may be better off increasing your TSP contributions rather than opening a taxable account. 

As to which funds to contribute to, the L funds are a good default investment.  Since it sounds like you will want to start accessing the funds in about 15 years, the L2040 would be a good place to start.

VCaddy

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Re: Case study - Getting started
« Reply #2 on: May 17, 2015, 05:59:59 PM »
I wanted to open the IRA so I could deduct contributions on my taxes.  I did some further research, and traditional TSP is deducted, so it gets my AGI lower.  I was under the impression that traditional TSP wasn't tax deductible, and that it wasn't eligible for the savers tax credit.  Thanks for the tip, made me pay attention when I'm reading about TSP.

« Last Edit: May 17, 2015, 06:06:18 PM by VCaddy »

MDM

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Re: Case study - Getting started
« Reply #3 on: May 17, 2015, 06:14:05 PM »
Gross salary - $4650/month
Taxes - Federal/FICA - $540, State - $175 (state refunds all at the end of the year)
Tax numbers look unusual.  With minimal deductions, I'd expect federal to be much higher.  Also, if you get all the state back at the end of the year, why not change your W-4 so your get it (instead of the state getting it) during the year.

Anyway, it appears you have enough to fully fund both a traditional TSP and IRA for a total of $18K + $5.5K = $23.5K and still have plenty left over to fund a taxable account.  Is that what you see also?  I don't think you can get low enough for the saver's credit.  Oh, well....

You could get people to support either 100% VTSMX, or VTTSX, or similar.  You seem to have the right general strategy so pick what looks best to you.

themagicman

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Re: Case study - Getting started
« Reply #4 on: May 17, 2015, 06:23:11 PM »
Cell phone - $45, basic Verizon talk plan

I would look at republic wireless. It would be $10 for unlimited talk and text.

VCaddy

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Re: Case study - Getting started
« Reply #5 on: May 17, 2015, 06:27:56 PM »
Well, my base pay is the only part of my salary that is taxable, and that's 2750/month.  The rest of my salary is non taxable housing and food allowances. 

I'd love to keep that money I send to the state.  I'm not much of an expert on taxes.  I'm an Idaho resident stationed outside the state right now, here's what Idaho tax commission has to say - "Active duty military income earned outside of Idaho by an Idaho resident is not subject to Idaho income tax."  But I am required to file a return with the state.  So currently, I just send all this money to them, and they send it right back at the end of the year, minus the internet sales tax I put on the return.  I dunno how to tweak my W4 so I don't send as much, if any, to Idaho.  The MyPay system only has a box where I can crank up exemptions to any number between 0 and 99. 

VCaddy

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Re: Case study - Getting started
« Reply #6 on: May 17, 2015, 06:31:02 PM »
Cell phone - $45, basic Verizon talk plan

I would look at republic wireless. It would be $10 for unlimited talk and text.

Hmm, that might be worth a look.  I don't have a smartphone, only really use talk anyway.  But the Sprint network (at least 2 years ago) would roam on Verizon's network here in ND.  Sprint was not pleased with me the first couple months I lived here, constant roaming. 

MDM

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Re: Case study - Getting started
« Reply #7 on: May 17, 2015, 06:36:20 PM »
Well, my base pay is the only part of my salary that is taxable, and that's 2750/month.  The rest of my salary is non taxable housing and food allowances.
Yeah, I'd say that makes a difference.... :)

Does the table below look about right?

CategoryMonthlyCommentsAnnual
Salary/Wages$2,750$33,000
401(k) / 403(b) / TSP / etc.$1,250Room to increase?$15,000
Income subject to IRS tax$1,500$18,000
Federal Total Inc.$1,500$18,000
Soc. Sec.$171Assumes 1 earner paying$2,046
Medicare$40$479
Total income taxes$210$2,520
Untaxed Income$1,900$22,800
Income before other expenses  $3,190$38,280
Monthly Expenses:
Mortgage$776$9,312
Property Tax$100$1,200
Home/Rent Insurance$40$480
Car Insurance$61$732
Electricity$65$780
Fuel/Public Transport$100$1,200
Gas/Oil for heating$100$1,200
Groceries$200$2,400
Internet$45$540
Phone (cell)$45$540
Water/Sewer$45$540
Non-mortgage total$801$9,612
Other tax-advantaged investments:
Roth IRA$458$5,500
Roth 401k/403b$250$3,000
Total Expense$2,285$27,424
Total to invest$905$10,856
Summary:
"Gross" income$4,650$55,800
Income taxes$210$2,520
After-tax income$4,440$53,280
IRA+401k/403b/TSP/457 (Savers' credit)$1,958$23,500
Living expenses$1,577$18,924
After-tax investable$905$10,856


Filing Status11=S, 2=MFJ
# of earners1
Total Income$18,000
Std. Deduct.$6,300
Act. Deduct.$6,300
# Exempt.1
Exemption$4,000
Taxable$7,700
Tax$770
Savers' credit$1,000
Tax after n-r credit$0
# Children <170
Child Tax Cred.$0
EIC$0
Net Tax$0
Monthly$0
Mtg. Int. (guess)$2,451
Prop tax$1,200
Charity$0
Item. Deduct.$3,651


Quote
I'd love to keep that money I send to the state.  I'm not much of an expert on taxes.  I'm an Idaho resident stationed outside the state right now, here's what Idaho tax commission has to say - "Active duty military income earned outside of Idaho by an Idaho resident is not subject to Idaho income tax."  But I am required to file a return with the state.  So currently, I just send all this money to them, and they send it right back at the end of the year, minus the internet sales tax I put on the return.  I dunno how to tweak my W4 so I don't send as much, if any, to Idaho.  The MyPay system only has a box where I can crank up exemptions to any number between 0 and 99.
I defer to others more familiar with military pay.  In the private sector, one can have different withholding for federal vs. state taxes - one might think it would work the same way for the military...?
« Last Edit: May 17, 2015, 06:39:00 PM by MDM »

VCaddy

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Re: Case study - Getting started
« Reply #8 on: May 17, 2015, 06:52:42 PM »
Wow, you got my taxes whittled right down.  Thanks for this table, it's really handy.  I'll take some time and get my head wrapped around all of it. 

I think I could max out both forms of TSP, Roth at 5500, and traditional at 12500.  I don't think I would fund another IRA.  So that would leave me with extra funds for my early retirement Vanguard.

Here's some more accurate #s for tax purposes -

Mortgage interest - 385/month   4620 annual
Property taxes - 2200 annual (yeah, ND has some high prop taxes)

MDM

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Re: Case study - Getting started
« Reply #9 on: May 17, 2015, 08:17:20 PM »
Here's some more accurate #s for tax purposes -

Mortgage interest - 385/month   4620 annual
Property taxes - 2200 annual (yeah, ND has some high prop taxes)

You can have your own copy of the Excel file by downloading it from the case study sticky.  Adjust as appropriate for your situation.  If it's not handling the military pay aspects correctly, note the issue and we can fix it.