Author Topic: Case Study - How am I doing and what can I do better?  (Read 3552 times)

LouisPritchard

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Case Study - How am I doing and what can I do better?
« on: February 10, 2014, 11:14:30 AM »
Age 32 and married w/ a baby due in May. I wonít be including my wifeís income in this ($45K), as we keep separate accounts at the moment. I'm slowly getting her on board with not spending everything she makes.

Debt: $0, for me. My wife has $80Kish in student loans that will be forgiven as long as she continues to work in government and/or for a non profit for 6 more years which is what she's done since graduation.

Assets: Iím only counting monetary assets so no physical assets will be included other than PMs

CD $63,556.82
401K $58,092.75
Mutual Funds $92,994.59
Ameritrade/Savings $4,878.50
Checking $4,928.59
PMs $6,318.50 current spot price.

Total there is $230,769.75

Thereís also a whole life policy with a cash value somewhere around $53,000 that was purchased for me as a child that will be getting cashed out and added to the list soon minus the cost of a 20 year term policy.

Monthly income is roughly $6,000 take home. This is $2,400 post tax/insurance/401K on the 1st and 15th, and a trust check of roughly $20,000 pre-tax that arrives once a year of which about $5,000 goes to the IRS.

My automatic savings at the moment is around $1K a month goes into the 401K and $350 a month to the Ameritrade account and all dividends everywhere are reinvested.


My monthly budget for January looked like this

Rent                          $1,250.00
Phone                                   $73.46
Internet                                 $64.95
Water/Trash/Sewer               $80.76
Electricity and Natural Gas     $212.15


Groceries                                $538.13
Fuel                                        $73.02
Spending Money                    $179.64
Restaurants                           $161.36
Medical                                   $338.73
Baby                                         $539.69
Birthday/Gifts                            $143.61
Pets                                           $163.95

So I spent $1,681.32 on rent and utilities.
For my everyday expense categories I spent $2,138.13. The Baby category was buying a crib and changing table, dresser, etc.. and Pets was because the dogs had to go for a checkup so those won't be in for Feb, but my car and renters insurance is due so....


I just started really paying attention to my finances and want to really increase my savings rate to a minimum of $2500 a month including the 401K. I don't think that should be too hard to do. I'm hoping I can move back to the southeast where the cost of living is lower (western slope of CO now). Then buy a house outright and have enough savings to generate $35-40K a year to live on by the time I'm 40.

Edit: Not that it's come up yet but my daughter will be eligible for the same trust that I receive so I've got until 2015 to come up with a plan for the first check but I'm wondering if she can't be FI by 18.
« Last Edit: February 10, 2014, 02:30:42 PM by LouisPritchard »

MsSindy

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Re: Case Study - How am I doing and what can I do better?
« Reply #1 on: February 10, 2014, 11:55:40 AM »
Need some clarification on expenses for January.  Are these the total for your household, or just those that are paid out of your income?  It's kind of hard to evaluate when there is an entire (good) salary that is left out of the equation.  Also, is the baby on the way? 

What will probably be more helpful is to make a budget for the year - you just provided expenses for 1 month.  Think about those things that only come up every so often such as car maintenance or insurance and create a monthly amount for it (even if you didn't spend it in that month, you're setting it aside so when the bill comes due).  Also, why do you label your Rent payment as rent/mortgage - it's clearly rent, no?

Obviously at 32, you have a phenomenal start for your nest egg and are well on your way.  I'm sure most will say that $63k in a CD is way too much at what is most likely a pitiful ROI.

Almost $800 on food, eating out and 'spending money' (which is usually code for sodas, snacks, coffee....or I don't know where the hell it went!) - that seems like the best place to start looking at.
Also, no Cable?  Great!

LouisPritchard

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Re: Case Study - How am I doing and what can I do better?
« Reply #2 on: February 10, 2014, 12:28:03 PM »
Need some clarification on expenses for January.  Are these the total for your household, or just those that are paid out of your income?  It's kind of hard to evaluate when there is an entire (good) salary that is left out of the equation.  Also, is the baby on the way? 

That's the household total which is paid out of my income. She pays her student loans, gas for work, cell phone, and cable bill and buys whatever she buys with her income. We do have cable, though I've refused to pay that bill for the last 4 years. Still trying to talk her into turning it off ($100 a month) as 90% of what she watches is network TV. She's coming around, and starting to save some, and getting her to listen to and read some Dave Ramsey.

Rent was labeled that way because that's the default for my budgeting software and I cut and pasted. I'm working on a budget for the year but want some detailed expenses for a few months. I'm just now starting to really track in detail where I'm spending money. In the past I just kind of winged it as long as I wasn't going into debt and had a nice cushion I didn't pay it much mind.

I agree on the CD, its at 1.25% at the moment ends sept 2015, I plan to move it soon just need to figure out what the early with drawl fees are.

Spending money is dvds, movie rentals, video games, coffee etc... so yeah I got some trimming to do there as well as the restaurants. Once the baby is here that'll stop the restaurants for a while but it'll add a whole new category.   I'm not sure on the groceries though. They are stupid expensive up here, the cost doubled when I moved from Louisiana to CO along with utilities for that matter.
« Last Edit: February 10, 2014, 12:30:51 PM by LouisPritchard »

aj_yooper

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Re: Case Study - How am I doing and what can I do better?
« Reply #3 on: February 10, 2014, 01:05:01 PM »
Welcome to the forum!  Congratulations on your imminent family addition.

As MsSindy said, the good news is you have a good start to financial independence.  It looks like the only debt you have is SL so very good on that too.  And, your wife gets that forgiven by her employer (eventually).  That is excellent. 

More good news is that you have a large current of cash swirling around in your checking and savings.  However, you are seriously leaking new cash each month.  Do you hear the cash drain sounds as it goes into the storm sewer?  I think you are pipe dreaming that moving to the SE will improve your finances.  My guess is you would not make as much $$ there, but you disagree.  No matter what, you need to get serious about not spending so damn much cash.  Really.

You probably are in at least the 25% tax bracket so please assure us that you are fully funding your 401k and hopefully for your wife too.  For me, that would be step one.  Your trust fund money could go into a taxable account or fund IRAs for two, Roths, if you are not eligible for the traditional IRAs.  Many governmental bodies have excellent deferred compensation (457) plans or 403b plans, so definitely help her understand the benefits of not having to pay high taxes on her income. 

I would use Mint or YNAB to get a handle on your expense profile so that you can build a reasonable budget.  Both parties need to get in on this to be successful.  Your new baby will dramatically change your life forever so you are now on a new adventure.  It is a good one, but you need a real partnership to make this all work out and be fun. 

Best wishes.

AlanStache

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Re: Case Study - How am I doing and what can I do better?
« Reply #4 on: February 10, 2014, 01:45:10 PM »
Welcome!

I take it that you and your wife have separate cell plains?  Even if you dont want to go to a great pre-pay/wifi based carrier, Tmobile has a 80$/mon everything-nearly unlimited plain for two phones.  Plenty of info in other threads on cheap phones.

Definitely get that CD (and other cash) working harder.  Second the IRA comment if you dont have one going now.

I personally dont use budgets but lots of people love them.  I would very strongly suggest you get going with Mint or similar.  Having a nice pie chart tell you that you withdrew 500$ in cash over the last month and have nothing specific to show for it can be eye opening.  Might help get your wife on board too.

Buying dvd's?!!??!  wtf??!??!  Before you buy something ask yourself "is this a piece of cheap plastic crap made in China that I will throw out after having used it once?"  if the answer is yes, dont buy it.  i dont care if it is on sale.

Cable: yeah can be hard to cut the cord.  But between Netflix and HuluPlus you wont miss that much.  I was* cable free for years-did not even miss if after a month.  was* - yes i know... I have extenuating circumstances that I am working on...  and will take my face punches off line.

heating and cooling: for less than 100$ up front you might be able to cut that a good bit by sealing the gaps in doors, windows and pipes.  Bonus the home will feel warmer.  ymmv.  Even renting this might be worth a saturday afternoon.

5k in the checking:   I know for a long time I carried a lot of cash in the checking, felt very reassuring to see a large number whenever I logged in.  But just remind yourself that historically the market will return 7% annually and you will be better off in the long run if that money is working for you and not working for your bank.

Otherwise you are in a great location and can really take this to the next level. FIRE before HS graduation should almost be easy.  250k at 7% for 18 years, with no additional savings = 840k.


LouisPritchard

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Re: Case Study - How am I doing and what can I do better?
« Reply #5 on: February 10, 2014, 01:54:59 PM »
The student loan forgiveness is a government thing just started back in 2007 that if you make 10 years worth of payments while working in public service (local/state/federal government, non profit etc..) they'll forgive your federal student loans. Might be a useful tool for other people here just google "public service student loan forgiveness" and the info is pretty easy to find.

Yes I do hear those cash drain sounds and am trying to find them and plug em. I'm using YNAB and mint at the moment.

The biggest thing with moving back south is the cost of housing. I'm close enough to the major resort areas here that houses are still expensive compared to what I grew up with and I just don't want to pay 200K+ for a 3 bedroom on a tiny lot and then have to try to sell it if I move. I got burnt by that in 2010 when I got transferred to CO. I went from paying $950 a month plus $100 a month for utilities to $1250+$300 a month for utilities. The income should stay the same if I transfer with my current employer, otherwise I most likely will take a cut. We plan to go eventually just to be reasonably close to family and are looking at the Little Rock / Conway Arkansas area.

My 401k gets $1,000ish a month which is 7%  of my income and 7% match. She does have a 403b and is contributing to it.

The IRA thing scares me because I don't plan to work until I'm 59 1/2. At worst case scenario I stay with my current employer till 55 and start collecting a pension, which I'll be vested in come June. I just don't like the idea of having to pay a 10% penalty to withdraw my money should I need it or I decide to retire before the government says I can.


LouisPritchard

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Re: Case Study - How am I doing and what can I do better?
« Reply #6 on: February 10, 2014, 02:27:19 PM »
Welcome!

I take it that you and your wife have separate cell plains?  Even if you dont want to go to a great pre-pay/wifi based carrier, Tmobile has a 80$/mon everything-nearly unlimited plain for two phones.  Plenty of info in other threads on cheap phones.

Yes we do. The hang-up there is where I work there is 1 verizon tower. Now I work oil and gas 12 hour shifts on a 7 days on 7 days off schedule, with occasional nights in an area that you can't even receive regular radio stations at times. There's 1-2 FM that come and go and a few more AM stations. So I go through several gigs of data a month and I'm grandfathered in to the unlimited data. I want to get her to go to straight talk $45 a month plan since she can keep her phone and I'll do the same when/ if we ever get out of here.

Definitely get that CD (and other cash) working harder.  Second the IRA comment if you dont have one going now.

I personally dont use budgets but lots of people love them.  I would very strongly suggest you get going with Mint or similar.  Having a nice pie chart tell you that you withdrew 500$ in cash over the last month and have nothing specific to show for it can be eye opening.  Might help get your wife on board too.

Buying dvd's?!!??!  wtf??!??!  Before you buy something ask yourself "is this a piece of cheap plastic crap made in China that I will throw out after having used it once?"  if the answer is yes, dont buy it.  i dont care if it is on sale.

It was an example, but yeah I still buy some stupid stuff. It's getting infinitely better but there's still a ways to go.

Cable: yeah can be hard to cut the cord.  But between Netflix and HuluPlus you wont miss that much.  I was* cable free for years-did not even miss if after a month.  was* - yes i know... I have extenuating circumstances that I am working on...  and will take my face punches off line.

I tried once before when were were in LA and after a month I came home from offshore to find a dish on the roof. I'm fine with out it but she just cant deal with watching stuff the next day since "everyone at the office is talking about it".

heating and cooling: for less than 100$ up front you might be able to cut that a good bit by sealing the gaps in doors, windows and pipes.  Bonus the home will feel warmer.  ymmv.  Even renting this might be worth a saturday afternoon.

5k in the checking:   I know for a long time I carried a lot of cash in the checking, felt very reassuring to see a large number whenever I logged in.  But just remind yourself that historically the market will return 7% annually and you will be better off in the long run if that money is working for you and not working for your bank.

That's just the balance at this moment. My plan is to keep a $3K cushion in there. I'll get my paychecks and pay my bills and anything over 3K at the end of the month goes to savings. At least I'm not keeping $10-15K in there like I used to (I worry to much at times).

Otherwise you are in a great location and can really take this to the next level. FIRE before HS graduation should almost be easy.  250k at 7% for 18 years, with no additional savings = 840k.

I'd like to see it in elementary school by 40 or 45. I might be pipe dreaming but think 1.2M is doable and would have me set. That's 200K for a house outright and 1M for income generation, and I'd still end up working somewhere, just because but it'd be something I enjoy rather than because I need to.

aj_yooper

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Re: Case Study - How am I doing and what can I do better?
« Reply #7 on: February 10, 2014, 02:39:19 PM »
Since you want to return to the SE and the market is not good for selling, don't buy a house in CO.  We love New Orleans so I get what you are feeling.  But save on taxes while you are in CO.  Use your 401k/403b advantages.

The old man money problem can be solved:  http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

The basic idea is you can take up to $35,000 per year out of the 25% tax land and by the miracle of ^ transferring accounts and time, you can pay no tax on the money.  That is an awesome return.  You need to be able to live on something while you are waiting for the seasoning of accounts to occur so you need a pile of cash or taxable accounts (0% capital gains in 15% tax land) or a rental income (like MMM) to get you to the $40k you talked about.  I also love the idea of a paid for house in retirement, as does our leader MMM, but not all agree, of course.

I think you can shut off some of the draining of cash by working upstream and turning off some of the spigot.  401k area.  Max it out already.


Jack

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Re: Case Study - How am I doing and what can I do better?
« Reply #8 on: February 11, 2014, 09:13:59 AM »
I agree on the CD, its at 1.25% at the moment ends sept 2015, I plan to move it soon just need to figure out what the early with drawl fees are.

First of all, I personally think holding that much cash is too conservative for a 32-year-old (I'm 29, and the cash part of my asset allocation is zero). However, even if your asset allocation (you do have one, right?) directed you to hold that much in cash, you ought to have been laddering the CDs (staggering the terms so that they don't all end at the same time).

The biggest thing with moving back south is the cost of housing. I'm close enough to the major resort areas here that houses are still expensive compared to what I grew up with and I just don't want to pay 200K+ for a 3 bedroom on a tiny lot and then have to try to sell it if I move. I got burnt by that in 2010 when I got transferred to CO.

Keep in mind that selling a house in a down market is not a loss if you also buy in a similar down market -- what you lose on the sale, you gain back on the buy. In fact, you come out slightly ahead compared to selling and buying in an up market because transaction costs (most of which are based on a percentage of the price) are lower.

The only way to lose is if you're downsizing or exiting the housing market entirely, or if the buy occurs in a different market (time or location) that isn't equally down. This may have been the case going from LA/AK to CO, but is unlikely (IMO) to be the case in reverse.

The IRA thing scares me because I don't plan to work until I'm 59 1/2. At worst case scenario I stay with my current employer till 55 and start collecting a pension, which I'll be vested in come June. I just don't like the idea of having to pay a 10% penalty to withdraw my money should I need it or I decide to retire before the government says I can.

First, keep in mind that Roth IRA principal (but not gains) can be withdrawn without penalty, since you already paid interest on them. Second, Google "backdoor Roth" to see how you can convert your traditional IRA assets to Roth after FIRE but before 59 1/2 so that they can be withdrawn for living expenses.