Author Topic: Case Study: Help Me Optimize my Savings Plan  (Read 2112 times)

jayholden

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Case Study: Help Me Optimize my Savings Plan
« on: May 05, 2016, 02:12:37 PM »
Life situation
Filing status: married filing jointly
1 dependent, age 2.
28/25 years old respectively.
We live in Texas.


Gross salary/wages
Me: ~$5417/mo ($4875 per month plus $1,000 bonus per quarter plus ~$2,500 commission per year)
Wife: ~$2,430/mo


Pre-tax deductions
My 401k: ~$213/mo ($195 per month plus $40 per quarter plus ~$100 per year)
Dental insurance: $98/mo
Life insurance: $6/mo


Adjusted gross income
$7,530/mo


Federal tax withholding
$500/mo


FICA witholding
$365/mo


Take-home pay
$6,485/mo


Taxes
Federal taxes: $8,800 in 2015
Local taxes: Additional 8.25% on most purchases (included below)


Current expenses
Mortgage, P&I: $691
Mortgage, T&I: $581
Home improvement: $112

Auto lease 1: $317
Auto lease 2: $255
Insurance: $157
Fuel: $102
Tolls: $80

Groceries: $570 (higher than usual because we stocked up for freezer meals)
Restaurants: $46
Fast Food: $34
Coffee shops: $17
Alcohol: $16*

Electricity: $151
Phone 1 (wife's business phone): $57
Phone 2: $27
Internet: $52
Gas: $36

Business equipment: $460*
Business phone payment: $35
Business svcs/subscriptions/software: $15

Health insurance: $509
Gym: $10

Student loan: $333

Shopping misc: $143 (some of this is groceries and baby supplies)
Baby supplies: $143
Clothing: $17

Entertainment: $104

*one-time purchase(s)


Assets
Checking: $2,700
Savings account/emergency fund: $3,600
Wife 401k: $3,830
My 401k: $5,984
Home equity: $35k on a home est at $160k.


Liabilities
Home loan: $122k owed. 3.25%. Currently paying $691 toward P&I (this is the minimum payment).
Student loan: $15k owed. Approx 6% rate. Currently paying $333/mo; minimum payment $250/mo
Phone: $350 owed. 0%. Currently paying $35/mo.
Auto lease 1: $317/mo, ends this August (4 payments left).
Auto lease 2: $255/mo, ends in October 2017 (14 payments left).


So we have about $1,775 left over per month to put to work. Here are the things we could use it for:

My 401k: I currently put in 4% of salary to reap the company's 50% match.
Wife's 401k: Of the $1,775 we currently put in $400. This is very high-yield since every dollar we contribute reduces our tax bill by 15 cents.
Student loan: We owe $15k @ ~6%. Of the $1,775 we're currently putting in $333 rather than the minimum $250. I'm waffling on this one; I hate to carry the debt but strictly speaking the 401k is a better investment.
Saving for next auto: Our car lease is up in August (yes, please line up for the face punches). This will free up $317/mo so long as we have enough to buy the next car outright. Of the $1,775 we're currently putting away $1,025/mo for this. Aiming for a $4k Civic or Scion xD.
Saving for next next auto (yes it's that bad): Once we're done saving for a replacement for our current car we'll have another lease expire in October 2017. In my defense we bumbled into the lease after putting all we had down on a reasonably-priced used car that was totaled a few days later.
0% APR cell phone debt: My wife got an iPhone when her old one gave out via a carrier phone loan thing. We pay $35/mo extra for her phone bill and owe about $300 on it. The phone and depreciation are business expenses.
Other things not listed: I'd be hard-pressed to think of an investment that would pay off better than those above, but if you've got a suggestion I'm all ears.


How would you allocate your money given the above? Thank you.
« Last Edit: May 06, 2016, 12:04:16 PM by jayholden »

ooeei

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Re: Optimize my Savings Plan
« Reply #1 on: May 05, 2016, 02:30:32 PM »
What are your current assets?  Savings, emergency fund, 401ks, IRA's, etc

jayholden

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Re: Optimize my Savings Plan
« Reply #2 on: May 05, 2016, 02:39:37 PM »
Checking: $2,700
Savings account/emergency fund: $3,600
Wife 401k: $3,830
My 401k: $5,984
Home equity: $35k on a home est at $160k.

Shor

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Re: Optimize my Savings Plan
« Reply #3 on: May 05, 2016, 02:48:22 PM »
I noticed you have 2 leases, is two cars mandatory? Is it possible to float on just one, or too much logistical headache?

Regardless of single emergency expenses, your regular monthly expenses are really high up there (although that might be savings hidden as monthly expenses?). If we can get your expenses pinpointed, weighed and dropped a bit, we can get you down in to a manageable territory where it will be a lot simpler to organize your savings.

A bigger breakdown of expenses will give us better information on where the money really goes. With what you have provided, we only see half of the picture (income and debt).
Mustachians, by nature of selective bias and personality type, are perfectly willing to sort through troves of data to pinpoint the weak links. I say make the case study,  and let us pick it apart.

jayholden

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Re: Optimize my Savings Plan
« Reply #4 on: May 06, 2016, 03:58:03 PM »
I noticed you have 2 leases, is two cars mandatory? Is it possible to float on just one, or too much logistical headache?

Regardless of single emergency expenses, your regular monthly expenses are really high up there (although that might be savings hidden as monthly expenses?). If we can get your expenses pinpointed, weighed and dropped a bit, we can get you down in to a manageable territory where it will be a lot simpler to organize your savings.

A bigger breakdown of expenses will give us better information on where the money really goes. With what you have provided, we only see half of the picture (income and debt).
Mustachians, by nature of selective bias and personality type, are perfectly willing to sort through troves of data to pinpoint the weak links. I say make the case study,  and let us pick it apart.

I've reformated the original post with my numbers. I welcome any mustachian advice.

Currently I live 35 miles/1.25 hours from work. I plan to sell my current home and buy one within 10 miles from work within the next 3 months, but a lot of the transportation savings will approximately equal the increased mortgage. I plan to put 5% down on the new home and use the rest of the profit from the sale of my current house to pay off the student loan.

MDM

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Re: Optimize my Savings Plan
« Reply #5 on: May 06, 2016, 10:23:46 PM »
I've reformated the original post with my numbers. I welcome any mustachian advice.
It's the cars.  Paying ~$8,750/yr (lease plus insurance) puts a severe crimp in your ability to save.

Back of the envelope (aka using the case study spreadsheet) gives ~26 years to FI based on numbers in the OP.

If the lease payments go away (and insurance cost decreases - and any other trimming) to the point you can put ~$29K/yr (e.g., 2 $5500 tIRAs and $18K in 401ks) into traditional retirement plans, your time to FI drops to ~18 years.

The above is based on a quick pass - you can download the template from the given link for you own use.

Good luck!