Author Topic: My Case Study  (Read 5800 times)

clgrome

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My Case Study
« on: March 27, 2013, 02:15:19 PM »
I was going to sent this to Mr. MM but I don't think it's terribly unique, dire, or interesting so I thought I would post is here!

We’ve always lived more frugally than all of our friends thanks to me being a big Dave Ramsey fan and my husband just being a natural non-spender. However, I stumbled upon your blog a couple of weeks ago and we’ve now decided that we want to RETIRE EARLY!! We’re willing to work part-time doing whatever our little heart’s desire but we really want to kick this mandatory full-time job business to the curb. I’m 27 and he’s 34. We don’t have kids yet but we would like them in the next few years (probably when the debt is gone).

Ideally I’d like for us both to retire from full-time work in the next 10 years. We rent a duplex right now and see no point in wasting money to buy a house when we want to retire early. Once we get the debt paid off and have some money saved we would like to buy a house to earn some rental income from (maybe buy a duplex and live in one side and rent out the other).
I keep really good track of our finances and I feel like we’re doing well. However, just because I think we’re doing well doesn’t mean that Mr. Money Mustache would agree! Every time I read a new blog post I go back to our budget to see where we can save some more money. Please give me your wise opinion as to what else we can do to retire early, and whether or not you think our 10-year goal is too lofty.

NET INCOME:
$1,360 twice a month (24 checks a year) my salary
$1,445 every two weeks (26 checks a year) his commission so it varies, but this is the average
$5,610 per month, not counting his two extra checks which we just throw towards debt/investing

He’s a personal trainer so we both get free gym memberships.
My company pays for 100% of our medical insurance (mine, his, and any future children).
I put in 5% ($2,000 year) to my 401k, plus an additional 10% of any bonuses I get, and my company puts in 10% ($4,000). Total I have about $4,700 so far.
He now puts in 15% of his gross income ($56,000 last year) towards his 401k per month. Total he has is about $10,000 so far.
We have $6,000 invested in other mutual funds.
We have around $3,000 in our checking account (he wants to keep a $2000 cushion and the rest is money designated for some of the things listed below).

MONTHLY EXPENSES:
Rent – $750
Phones –$118
Auto insurance – $150
Cable TV – $63
Internet – $52
Electric/water – $90-$160
Gas (utility) – $30
Groceries/toiletries/household – $450
Gas (auto) – $200
Date night – $120
Starbucks – $50

The expenses below don’t happen every month but we set aside money each month for when they do happen:
Oil changes – $18
Auto repairs – $50 (he needs new tires soon)
Vehicle registration – $12 (paid annually but we save a little for it all year)
Vehicle inspection – $12 (paid annually but we save a little for it all year)
Renters insurance – $9 (paid annually but we save a little for it all year)
Clothes – $13
Haircuts – $14 (four per year for him at $15 each and two for me at $50 each)
Gifts – $155 (Christmas, birthdays, showers, etc.)
Races – $50
TOTAL: $2,476

He has no debt at all but I have three student loans:
$22,243 at 9.5% APR ($274 min monthly payment, we’re paying $2,145 per month) private loan
$38,029 at 6.8% APR ($164 min monthly payment, we’re paying $200 per month) federal loan
$13,000 with NO APR  ($155 min monthly payment) private loan
Actual monthly debt payments - $2,500
We’re paying off the highest APR loan first, no matter what Dave Ramsey says, and we’re going to just pay the minimum payments on the one with no APR. We calculate that we’ll have all of the interest-accruing debt gone by July 2014 at the latest! Once that happens then we’ll put $2,800 per month towards investing. 

Investing (non 401k) – $400 per month towards our non-401k mutual funds.

Additional notes about our expenses:
We live in Austin, Texas. We don’t run the central heat at all in the winter but the summers are brutal. We keep it set at 79 during the day when we’re not home, 74 when we’re are home, and 70 when we sleep.

Our clothes dryer runs on gas, not electric. We recently bought a low-flow showerhead to reduce the amount of water we use. We already have low-flow toilets and only flush for solids.
His cell phone contract isn’t up until August 2013 and mine isn’t up until May 2014. Once they’re up we’re going to look into the $10/month plan that you and Mrs. MM have.

I believe that we could happily live without cable TV and just have a Hulu and/or Netflix subscription. He does not agree with me. He’s a huge football fan and the only way for him to watch football the five gruesome months that it’s on is with cable service. We have discussed this many times and he’s not budging so neither is our cable bill.

He is a personal trainer and will sometimes train 6 or 7 sessions in row without a break and often he’ll have two sessions, a four hour gap, and then three more sessions. He doesn’t want to drive home during that big break and waste gas so Starbucks is his treat to himself to stay sane (it’s across the street from the gym). He doesn’t go every single day and he’s working on ordering tea or drip coffee instead of the expensive drinks he used to order, so hopefully this number goes down.

Date night is every Friday night for us. He doesn’t get home until after 8:00 most nights during the week and I try to be in bed by 9:30 so we like to go on date nights on Fridays to ensure some good time together outside of our normal environment. We currently spend about $25-$30 by going out to dinner but we’re going to just do dinner twice a month now and something cheaper the other two weeks, like frozen yogurt or coffee.

Races – he’s a competitive cyclist and I’m a runner. We don’t race as much as we’d like to because it can get very expensive very quickly but we do set some money aside for it. This money also pays for things like new running shoes when they’re needed.

We each own our own cars (him – 2009 Mazda Speed3, me – 2009 Toyota Yaris). We always take my car on longer trips because it gets amazing gas mileage. We plan on driving these cars until they fall apart.

We only pay $750 per month for a 2bed/2 bath duplex which is a steal! He works 8.5 miles north of our house and I work 14.8 miles south of our house so living closer to one of our jobs would still be more inconvenient for the other.

Public transportation isn’t very good here and it would take me almost two hours each way by bus. To bike to work I would have to leave the house before it’s light outside and then I’d arrive sweaty with no way to shower. He is considering getting a commuter bike so he can ride to work some days (not the ones where he’d be coming home after dark) so that could save us a little money there. I also plan to get a commuter bike so I can use it for errands, grocery shopping, etc. Hopefully I can limit my driving to just the 145 miles I drive to get to and from work each week (sigh).

I don’t love my job so I could try to find a job closer to our house but then I fear I’d lose out on benefits (like free health insurance for the whole family and the 10% they contribute to my 401k) and the end numbers would come out the same. If he were to transfer to a gym closer to my job that wouldn’t really help because the housing (and apartment) prices near where I work are insane. We’d end up paying more than $1,000 per month for a smaller space than we have now so I feel like that doesn’t really save us much money either. He’s also the highest paid trainer at his gym and if he were to transfer he’d have to build his clientele all over again and we’d be living on significantly less pay until he did.

So, Mr. Money Mustache, what have you got to tell me? Can we be living more frugally? Are we crazy to think that we can retire in 10 years or less?


dharmon

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Re: My Case Study
« Reply #1 on: March 27, 2013, 02:42:02 PM »
I'll chime in. Three things jump out at me:

- Groceries / toiletries @ 450 / mo for 2 people is pretty high. Especially in Austin.
My wife and I spend about $200-250 / mo, and I feel like we eat like kings (we
eat ~2lbs of meat a day between the two of us).

- Auto insurance: I don't know what kind of car you drive, but if you own it and
it's older, you can get this down with a minimal GEICO-style insurance.

- Phones: Your numbers look like that for two smart phones. There might be
some savings to be had here without sacrificing any features.

Pretty good overall, and that's awesome that your husband makes that kind of
income as a personal trainer. I'm impressed.

the fixer

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Re: My Case Study
« Reply #2 on: March 27, 2013, 02:50:15 PM »
Your biggest obstacle right now is the student loans, which by my quick math put you at a -$50,000 net worth. As you obviously recognize, the 9.5% APR loan is killing you! I would suggest you divert the $400/month for taxable investments towards paying that off. It might even be prudent to sell the $6000 you already have and throw that toward the loan too. It's a 9.5% guaranteed return, which you can't reasonably expect to get in the stock market.

Have you entered your numbers into FIRECalc? That should tell you if you can reasonably expect to retire within 10 years. I think you'll need to trim down on expenses further, but I'm just a lowly human and not a calculator :)

AJ

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Re: My Case Study
« Reply #3 on: March 27, 2013, 02:56:23 PM »
His cell phone contract isn’t up until August 2013 and mine isn’t up until May 2014. Once they’re up we’re going to look into the $10/month plan that you and Mrs. MM have.

It is almost certainly worth it for you to just pay the cancellation fee to get out of your contact now and switch to $10/month - if that plan suffices for you. It may even be worth cancelling his now, but you'd have to run the numbers. Definitely look into it, though, rather than just mentally writing it off because you're under contract.

I believe that we could happily live without cable TV and just have a Hulu and/or Netflix subscription. He does not agree with me. He’s a huge football fan and the only way for him to watch football the five gruesome months that it’s on is with cable service. We have discussed this many times and he’s not budging so neither is our cable bill.

Can you cancel cable after the season is over and just agree to have it 5 months a year (or, maybe 6 since the new subscriber deals are usually for 6 or 12 months)?

Our clothes dryer runs on gas, not electric.

Do you need the dryer if you live in Texas?

We only pay $750 per month for a 2bed/2 bath duplex which is a steal! He works 8.5 miles north of our house and I work 14.8 miles south of our house so living closer to one of our jobs would still be more inconvenient for the other.

But, if you moved walking/biking distance to one of your works, you could go down to a single car. Also, do you really really need both bedrooms? Could you get a roommate?


Overall, you are obviously doing well. At this point the question becomes HOW MUCH do you want to retire early, and what (if anything) are you willing to change or give up to do that? You ask "Can we be living more frugally?", and the answer is "Of course you can!" But, change is difficult, and may or may not be worth it to you. Only you can decide that for yourself.

gotaholen1

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Re: My Case Study
« Reply #4 on: March 27, 2013, 03:02:19 PM »
This is about the same point we were at a few years ago.  We had about 40K in student loans and about 30K in cars etc.  Our income at the time was fairly comparable as well. 

One thing I would highly recommend is setting a target date for your debt payoff, and post it on your fridge.  Let's get this debt emergency taken care of before worrying about Early Retirement.  You have about 73,000 in debt and you are currently knocking it out at about $2500 a month.  So at that pace it would take about 2.5 years to take care of the debt emergency.  The easy wins are phones, starbucks, and maybe the cable.  I call BS on the football conversation for cable.  You live in area where you should be able to pick local channels for free with an Antenna.  This will get you a lot of games, and go to a bar or a friends house if there is a game you cannot get.  We cut the cord and I have not missed a live sporting event yet that I wanted to see (including a ton of NFL games).

This might be unpopular to your husband, but how about selling his car.  I am not sure how many miles are on it, but I would guess it is worth about 13K - 15K.  Ideally you could find a way to get by with one car, but worst case you could try to find a nice reliable car for in town driving at 4-5K.  That would be 10K right off of the top of your debt even if you buy a car. 

I did this when we first started and it really kickstarted our debt payment.  I think I sold our small SUV for 18K, and we bought something for 10K.  In retrospect I would have bought something in the 4-5K range instead. 

matchewed

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Re: My Case Study
« Reply #5 on: March 27, 2013, 03:03:04 PM »
10 years is kind of aggressive for the amount of debt you have. But your main plus is that your living expenses only add up to one of your net incomes. I would live off of one salary and tackle the debt very aggressively. And trim what you can out of your current expenses.

The cable TV and Starbucks treats do not reflect a strong desire to "RETIRE EARLY!!" I would make sure that you two are on the same page regarding this goal and align your lives to achieve it. If that means letting go of cable to get you that much closer then do it.

Bikes - I can see your point for yourself. It is a longer distance and if you don't have facilities I can understand that, also getting one and using it for errands is a great move. However he is only 8.5 miles from work, as a competitive cyclist isn't that chump change? Depending on the road types how bad is that commute at night (and honestly most accidents happen in the twilight time frame not night time especially with proper lighting).

Air dry the clothes and don't use the dryer?

And I agree that there are several resources such as FIRECalc to see if your goal is possible. Networthify is a simple one as well to help you get a quick glance at your situation and time till FIRE.

mushroom

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Re: My Case Study
« Reply #6 on: March 27, 2013, 05:58:46 PM »
People have already mentioned good areas to cut back on.

I would have your husband think creatively about what some good alternatives to Starbucks would be. I can see that he wants something to do with the break, and the easiest option is just across the street, but he should think harder about what else he could do.

If it's just about the coffee, he could bring some from home in a good vacuum insulated thermos that will keep it hot for hours.

If it's about leaving the gym, he could find alternatives like a nearby park or museum or library or whatever and read or do something related to a hobby, etc. A little bit of research and effort and I bet he could really cut down on the Starbucks.

happy

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Re: My Case Study
« Reply #7 on: March 27, 2013, 06:23:35 PM »
After hanging around here for a while crunching numbers on case studies, it seems to me that if you are on an income of >$50000 and debt free , by applying MMM most people should be able to retire in 10 years or less without too much pain. If you earn <50k then its harder because the degree of frugality required becomes higher: still quite possible and very badass.

I note your debt is 73k, but that you are not trying to completely retire in 10 years but intend to work part- time.

On the face of it with your current numbers  and DEBT FREE, networthify says you could retire in 15 years. Your annual expenses are $30k and you would need 750K to retire with a 4% SWR.

I reckon you can do it in 10 years if:
1. you suck it up and throw everything you've got at that debt, clearing it fast ASAP.
2. Try to get rid of another 5k of expenses, and think about side gigs...could you pull in some extra income each?, even if only until the debt goes (read No More Harvard Debt!). You should be able to get rid of the debt in under 2 years....its possible to go all out for that period of time). As a bonus: going all out might give you some frugal habits you can maintain forever further cutting expenses.
3. If you can live on 25k you need a stash of 625k (at 4% SWR) which seems like a lot BUT  if you create a stash, then keep working part-time to cover your expenses (25-30k) and do not touch the stash but let it keep compounding this will reduce the amount you need before you go part-time.  For example if you have 400k compounding at 5% (conservative) in 10 years you will have 660k.  If you work part time and accidentally earn more than your expenses and put it into the stash the results are even better. Delay touching that stash by working part-time to cover your expenses as long as possible...depending on your risk tolerance and required margins of safety...


Nudelkopf

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Re: My Case Study
« Reply #8 on: March 28, 2013, 10:12:18 PM »
Other people have mentioned some ways to trim your budget, but there's a few more :)

We live in Austin, Texas. We don’t run the central heat at all in the winter but the summers are brutal. We keep it set at 79 during the day when we’re not home, 74 when we’re are home, and 70 when we sleep.
Why do you have the air-con on when you're not at home?

Our clothes dryer runs on gas, not electric.
I don't know much about Texas.. But in my mind, it has a butt-tonne of hot, dry sun? Can you dry outside? EDIT: Actually, Wikipedia tells me it's a humid subtropical climate - but so is my city, and I can seriously put my clothes out in the shade and they're dry in a day!

Races – he’s a competitive cyclist and I’m a runner. We don’t race as much as we’d like to because it can get very expensive very quickly but we do set some money aside for it. This money also pays for things like new running shoes when they’re needed.
I'm glad you work this into your budget, you need to do things that you love :)
« Last Edit: March 28, 2013, 10:15:17 PM by Nudelkopf »

icefr

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Re: My Case Study
« Reply #9 on: March 28, 2013, 11:07:32 PM »
We live in Austin, Texas. We don’t run the central heat at all in the winter but the summers are brutal. We keep it set at 79 during the day when we’re not home, 74 when we’re are home, and 70 when we sleep.
Why do you have the air-con on when you're not at home?

Agreed! I have my thermostats set to 67 F in the living room from 6:30-8:30 am and 6-11 pm and the bedroom one is at 70 F from 5-9 am (I turn it off manually when I leave for work) and from 8-11 pm. I don't heat the bedroom during the day on weekends, but I do heat the living room. And then the thermostats go down to 52-55 F when they are "off".

If I were you, I would set it closer to 90 F if you can't turn it off for when you're out or turn it completely off.

I don't have air conditioning and never have. I am used to sleeping all summer with it being 25-30 C inside while I'm trying to go to sleep. That's just what I grew up with. Tricks we always used to keep the temperature bearable: 1) from 6-10 am, open ALL the windows and blinds to bring the "cool" aka 20 C air in, 2) close them all around 10-11 am and then 3) open them again once it cools back down to 20-25 C again around 7-9 pm. You don't need a lot of layers to sleep. I have a four seasons duvet I use from October through May, a summer duvet I use in June and September, and in July and August I simply take the duvet out of the cover and sleep with the top sheet and the duvet cover. There are always a few weeks too where I ditch the duvet cover completely. I have two fans. I run one right next to my side of the bed while I'm sleeping, which makes a 30 C room feel like 22 C, I swear.

Some of those tricks may be a bit excessive in the all year round Texas heat, but I promise you, they are perfectly normal in the Pacific Northwest. For example, if I were you, I would keep the house at 80 F while you're home and not wear as many layers around the house or sleep with as many layers on the bed.

I also am that person who waits until after American Thanksgiving to turn the heater on usually after sleeping under my four seasons duvet, another couple blankets, and a house coat in addition to a long-sleeved shirt and pyjama pants for several weeks and wondering why it's so freaking cold in the apartment, only to turn the dial on the thermostat past 50 F and it kick in, oops. I should probably be able to turn my thermostats down to 50 F until November pretty soon :D

mm31

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Re: My Case Study
« Reply #10 on: March 29, 2013, 12:47:46 AM »
You live in Longhorn and Cowboys country so it should be no problem to get the games using a simple antenna and ditch cable. If you really think you can't do without football, just get cable for 5 months and cancel after january.

DK

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Re: My Case Study
« Reply #11 on: March 29, 2013, 08:41:36 AM »
Per the cable for football games, I'd try out a indoor or outdoor antenna since most of the games are on "over the air" channels and cancel it. If the antenna doesn't work, I'd do like someone else suggested and get cable for the football season, then cancel it when it's over.

The student debt is a bit wild.

The 0% I'd pay no more than the minimum payment even after all the other debt is paid off.

The other two, I would look into a consolidation to get a lower interest rate, my local credit union has a student loan refinance at 5%. That will help knock down the interest accruing while you are paying it down.

I would keep putting in the money to get the company match, but I would take anything above that for both of you and "invest" it in paying off the loans. Once you have both of those loans paid off, then you can start investing in the mutual funds/401k again. Unless there's a 25%-50% in the markets, you will be much better off paying down that debt with that money.

With that much 5%+ debt, I would almost consider taking the money you have saved so far (non retirement accounts) and putting it towards paying down the debt, especially since the market is at more of a "high" than a "low".

bdub

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Re: My Case Study
« Reply #12 on: March 29, 2013, 09:35:20 AM »
It looks like you are savings ~10% of you take home pay but that number would jump to 50+% when you pay of your debt.  As others have said, you have a debt emergency and you should react as such.

It looks like you could strangle a few dollars out of some of your expense categories but I think the biggest impact would be to make more money.  Combined, you are making ~100K/year but you goal should be to get that higher ASAP.  I have no idea what you do for a living but you need to parlay that college education (that you are still paying for) into 80-100K per year.  Every industry has people making that kind of money; why not you?  Obviously, this won't happen overnight but that should be your goal.

Here are the numbers from networthify.com:
- Current income and spending levels = 14 years to retirement once net worth is back to 0.  If it takes 2 years to pay off debt, you are at 16 years
- $120K/year and current spending = 10.9 years once net worth is back to 0
- $150K/year and current spending = 8.1 years once net worth is back to 0

So, driving you income up will make you early retirement dreams a reality sooner.  Also, any new skills acquired to increase your income may help with you plans for part-time income after retirement.

I lived in Austin for nearly 15 years so I KNOW there are plenty of companies there that are willing to pay these high wages.

On an unrelated note:  there are too many good coffee shops in Austin to waste any money at Starbucks :)

projekt

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Re: My Case Study
« Reply #13 on: March 29, 2013, 02:03:52 PM »
Your duplex rent is the same as a mortgage on both units of a duplex you could buy yourself, e.g. http://www.zillow.com/homedetails/10002-Parliament-House-Rd-Austin-TX-78729/2113682398_zpid/. With an FHA loan at 4% you could have some income whenever you rent out the other side. Obviously there is more to look into to make that cash flow, but it's worth considering.

What kind of work do you do? Tell yourself that women are generally underpaid and figure out how to increase that salary. Then, you should also be able to get expenses down like people suggest. FI is not out of reach, but it will take time at your current spending level.