Author Topic: Case Study Need Fresh Eyes  (Read 2542 times)

Tryn2stachinAZ

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Case Study Need Fresh Eyes
« on: November 11, 2015, 09:02:43 AM »
Hi,
New to MMM.  Weíve lived in the land of stupid for a very long time. We need to get our act in gear before itís too late and we canít follow our dreams.

Goals:
 Have the choice to retire at 50.  DH is 42 I am 41. We have two kids 10 and 14 so both should be out the house and on their own. Hubby wonít want to fully retire he enjoys his job. A lot of people in his company who have retired in the past work a few months a year on various projects.  I see him taking this route or even freelancing (heís a software developer)
Travel 3 or 4 times a year get out and see the country and maybe a few others.
Work disaster relief in and out of country.
Work in missions building homes helping others to help themselves improve their lives through church mission work. 
Have two income producing properties free and clear that give us good streams of income.
 
Money
Income 119k  I am still in school. I wonít start working until next year. I am looking at making about 25k. I was going to teach, but changed my major. Now looking at subbing and tutoring, and working my way into child advocacy of some kind in the next two years.

Emergency fund 25K.
 
151k inheritance in mm acct till we invest it.
 
63k in estate that we will get once we close estate (50K will be split between kids for college).

13k mutual fund.

90K in IRAís.

104k (401K) No match offered so DH has not been contributing should he?

6700 in rental account.

Checking acct with about 3k ebbs and flows as the month goes.

We also have also started an irregular expense account for HOA, clothing, registration, etc. It has about 1500.

5k in an account to pay for tuition. We will cash flow any odds and ends that colleges inevitably stick you with.
 
Rental home #1  (Value 85K)
Home we inherited from estate. No mortgage. Tenant pays $1000/mo. We in the process of selling the property to them. Its old, they love it and take good care of it. Its painful to me to continue to keep it I canít even go over there. Approx value 85k. We plan on sitting on this money and letting the dust settle.  My gut tells me the housing market is not going to go gangbusters anytime soon and there are always diamonds in the rough for rental properties.


Total: 547,200

Debts
Primary Home Mortgage
 215k @ 4% 1550/mo. worth about 300K 20yr loan 1 year in to loan

Rental home #2
85k@ 5% 616/ mo. 30 yr loan 6yrs in to loan  My mother lives in this house pays us 1k per month and that covers all her expenses plus a little pad for repairs. Money is auto drafted from her account into the rental account. Money comes from her SS so money is guaranteed. If she passes will be paid for by her savings which I have access to. She has no debts. We would like to keep this house as it was a good rental for us prior to mom moving in.  Worth about 175K

What we own

2005 Tahoe 
2013 Traverse
2005 Tent trailer

I am dusting off my bike and having DH build me a trailer to haul groceries.  I am considerably overweight so this will be good for me.

Income is minus taxes, medical, dental, vision. DHís company puts 320 into HSA monthly. I canít find the balance of the HSA at the moment, so far it has covered our payments for medical visits and scripts our kids are older so not visiting the Dr. every day.

Here is a look at our budget.  These are the monthly numbers.  I know we can do better, we just need another set of eyes!  I have put explanations below.
Income   7609.90  (after taxes)
Tithe   993.06
Emergency fund   Met
College   Met
Household    250
Mutual Fund  1098.56 Roths 833   1951.88
 Mortgage   1550.39
HOA   21.83
Electricity   330
Water trash sewage (City bill)   85
Internet   72.16
Cell phone   229
Netflix   8.19
Groceries   400
Gasoline   200
Auto repair   80
Auto insurance   90
registration   37
AAA   7
Life insurance term for both of us   65
ID theft   12
Clothing   100
Hair cuts   25 
School supplies activities kids   25
Vet care   40
Entertainment   200
Fun money    90
Vacation   500
gifts   100
gym   10
Pool guy   80
natural gas    15
   

Explanation of monthly expenses
College 50k of inheritance money will go to the kids college. They will need to work to come up with the rest. DS is at a HS which allows him the option to graduate with his AA for free. Both have been told in state schools and keep grades up for scholarships. Both want to be in fields that would need degrees.

Household: Repairs and projects DH is working on to make it our dream home, little by little.

Electric: this is an average cost for the year.  We have plans for next summer to put the air up higher. Winter is cheap as we only need the heat maybe once or twice in the morning. We have now been in our home for a year so the electric company is offering the 330 as an equal payment. Itís the average we paid over the past year. Do we take it? Or is it better to pay the monthly bill putting the 330 aside to cover the higher months in hopes that we can get the bill down more. We are looking at energy ideas solar panels, replacing sun screens, we are planting bushes/vines this fall to bring bills down.

Mutual funds and roths: 1098.56 goes to mutual fund.  833 is split between our IRAís  We had an extra 500 to play with so I stuck it into the mutual fund.

Internet: Hubby works from home 4 days a week.

Cell phone: I am overwhelmed at the amount of info about phones so help is appreciated here. I have seen several articles I am confused!

Groceries:  Son eats from morning to night. But I still think we could shave a few bucks off here

Gas: face punch here. However, I am now taking online classes to finish my degree so this should drop dramatically. I put in the budget numbers from previous month. I am waiting a couple months to recalculate
 
Auto repair: A guesstimate to cover tires, repairs etc. We put this aside each month in an irregular expense account.

Clothing:  I donít have a problem with going to the thrift store. I donít know a good number for this.
 
Hair care: I would do it, but DH and the boy have cowlicks that are brutal. My daughter and I have thick curly hair.

Entertainment:  We like to go out once a week for a date. Over the last month we cut our spending in this category. We went to dinner and the movies three times. We spent just over 100.  I kept the 200 in the budget because It was the number for so long.

Fun money: DH and I get $20 each to do with as we wish. Kids earn $30 each for chores and anything else we can come up with. They get to keep $5 and the rest goes into their savings for car, college, moving out expenses. This will cease once they can get jobs babysitting or the local burger joint.

Vacation: We are saving for a big trip to Hawaii for a combo 20th anniversary/college grad present. This also sits in our irregular expense account.

Gifts: We are working on making this one smaller. DH and I donít exchange gifts.  Iím trying to get in laws and my mother to not exchange gifts with us. The kids are older and use their own money so they can buy their friends gifts for parties that they might be invited to. Most of our friends are married and have kids already.  So no baby or wedding showers. Our kids donít need 600/ each at Christmas.  Can you suggest some budget number ideas?

Pool guy: The boy under DH supervision has been reassigned to this position.

Gym: I pay for this out of my fun money.

Thank you for taking the time to pick this apart. We have looked at the numbers so many times we fresh eyes. 

ooeei

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Re: Case Study Need Fresh Eyes
« Reply #1 on: November 11, 2015, 10:44:18 AM »
Current "liquid" funds:  ~$400k 
Current annual spending:  ~60k
Amount needed based on 4% rule: $1.5 million

So in 8 years you need to save up around a million additional dollars (assuming you spend the same in retirement as you do today).  Currently you're saving around $25k/year.  There is obviously a large shortfall here that can be addressed in a few ways.  Reducing spending now, reducing spending in retirement, or working longer.  It sounds like working longer in some capacity is part of the plan anyway.  Just wanted to put some ballpark numbers out there for you, they can change depending how you value the rental properties and a safe withdrawal rate.  I didn't put any value on the rental properties for this quick math.

Things I noticed right away: 

Here is a look at our budget.  These are the monthly numbers.  I know we can do better, we just need another set of eyes!  I have put explanations below.
Income   7609.90  (after taxes)
Tithe   993.06
Emergency fund   Met
College   Met
Household    250
Mutual Fund  1098.56 Roths 833   1951.88
 Mortgage   1550.39
HOA   21.83
Electricity   330
Water trash sewage (City bill)   85
Internet   72.16
Cell phone   229
Netflix   8.19
Groceries   400
Gasoline   200
Auto repair   80
Auto insurance   90
registration   37
AAA   7
Life insurance term for both of us   65
ID theft   12
Clothing   100
Hair cuts   25 
School supplies activities kids   25
Vet care   40
Entertainment   200
Fun money    90

Vacation   500
gifts   100
gym   10
Pool guy   80
natural gas    15

You're tithing $12,000 a year.  I get that it's important to you, but over the next 8 years that's an additional $130,000 assuming 7% growth.  If you plan to continue tithing this much in retirement it adds $300k you need in your nest egg.  Just saying. 

Electricity and cell phone both seem high, look into reduction strategies for those.

Entertainment and fun money both?  What's the difference?

$1200 a year in gifts?  Seems pretty high.

Pool guy?  Over 8 years you're paying over $10k for that service assuming 7%. It also raises the amount you need to save by $24,000 compared to ditching it.

From: http://www.mrmoneymustache.com/2011/04/15/getting-started-3-eliminate-short-termitis-the-bankruptcy-disease/
ēto calculate a weekly expense compounded over ten years, multiply the price by 752
ēfor a monthly expense, multiply by 173



Even if you save $1000 on all of these expenses, you're still saving around $35k a year.  While the reduction will also bring down your needed nest egg (since you'll be spending less), you're going to have to see some really good returns to be fully FI in 8 years. 

I'd suggest putting together a budget of the things you'll be paying for after retirement so you can get a better idea of what you need to save.  Are you still planning on tithing $1,000?  Is a yearly $6,000 on vacations still the plan? Is there any chance of downsizing your home?  etc etc.

Tryn2stachinAZ

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Re: Case Study Need Fresh Eyes
« Reply #2 on: November 11, 2015, 11:38:02 AM »
Thank you ooeei for your time to look over the numbers.   
Let me address each of your comments.

 You're tithing $12,000 a year.  I get that it's important to you, but over the next 8 years that's an additional $130,000 assuming 7% growth.  If you plan to continue tithing this much in retirement it adds $300k you need in your nest egg.  Just saying. 

We tithe 10% so the amount will change based on our income.

Electricity and cell phone both seem high, look into reduction strategies for those.
We live in AZ. We are looking into solar, we need new sunscreens ( house is 20 yrs old) and new landscaping with shade plants.
As far as the cell phone, We are working on that. I will be calling our carrier I sure we can cut costs, at the same time I am looking for advice on the best plans etc that people have used.

Entertainment and fun money both?  What's the difference?
Entertainment is used for the both of us or when we go places with the kids.  Fun money is money we can do what every we like with for ourselves.
I cut expenses last month on this one, but I put the numbers in so people could see the real budget.

$1200 a year in gifts?  Seems pretty high.
I agree. Cutting this to $600. will see if that works

Pool guy?  Over 8 years you're paying over $10k for that service assuming 7%. It also raises the amount you need to save by $24,000 compared to ditching it.
 
We got rid of the service. DH and DS are going to manage the pool now.


The post you referenced made my heart jump! I will be calculating costs all night.

I'd suggest putting together a budget of the things you'll be paying for after retirement so you can get a better idea of what you need to save.  Are you still planning on tithing $1,000?  Is a yearly $6,000 on vacations still the plan? Is there any chance of downsizing your home?  etc etc.

Our plan is to stay in this house, but it could change. Yes, we would like to have the travel money available to us we like going places. I had a budget I was playing around with. It comes out to $2533/mo  which is 30,396/yr  so we would tithe about 250 a month  our monthly total would be $2783. However, I have not included expenses for rental properties etc. so these numbers will change. Maybe a 2-3k a year. Hopefully those expenses will be covered in the rent costs. When estimating its difficult.   It also shows the same numbers for entertainment, gift giving, etc. So those could be changed.

   Primary Residence (taxes)   $166.00
   Household   $200.00
   HOA   $45.00
   Tithe $250.00    
Utilities   
   Electricity   $200.00
   Water, Trash, Sewage   $85.00
*   Phone/Internet   $75.00
*   Cell Phone   $100.00
*   Netflix   $10.00
      
Food   
*   Groceries   $200.00
      
Transportation   
*   Gas   $100.00
*   Auto Repair   $50.00
   Auto Insurance   $50.00
*   Registration   $25.00
*   AAA   $10.00
      
Other Insurance   
   Life   65.00
   Umbrella   $25.00
   ID Theft   $12.00
      
Personal   
*   Clothing   $50.00
*   Hair Care/Salon   $25.00

*   Vet Care   $20.00
      
Recreation   
*   Entertainment   $200.00
   FunMoney   $200.00
*   Vacation   $500.00
*   Gifts   $100.00
   Gym   $20.00


ooeei

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Re: Case Study Need Fresh Eyes
« Reply #3 on: November 11, 2015, 12:15:05 PM »
Thank you ooeei for your time to look over the numbers.   
Let me address each of your comments.

 You're tithing $12,000 a year.  I get that it's important to you, but over the next 8 years that's an additional $130,000 assuming 7% growth.  If you plan to continue tithing this much in retirement it adds $300k you need in your nest egg.  Just saying. 

We tithe 10% so the amount will change based on our income.
Fair enough, just wanted to show you the numbers. 

Quote
Electricity and cell phone both seem high, look into reduction strategies for those.
We live in AZ. We are looking into solar, we need new sunscreens ( house is 20 yrs old) and new landscaping with shade plants.
As far as the cell phone, We are working on that. I will be calling our carrier I sure we can cut costs, at the same time I am looking for advice on the best plans etc that people have used.
I use Cricket Wireless.  $35/month including taxes and fees for unlimited talk/text and 2GB of data.  Requires you buy your own phone though.  Check out the Moto G.

Quote
Entertainment and fun money both?  What's the difference?
Entertainment is used for the both of us or when we go places with the kids.  Fun money is money we can do what every we like with for ourselves.
I cut expenses last month on this one, but I put the numbers in so people could see the real budget.
All right, seems like you're doing a "worst case scenario" budget here. 

Quote
$1200 a year in gifts?  Seems pretty high.
I agree. Cutting this to $600. will see if that works
One step at a time!

Quote
Pool guy?  Over 8 years you're paying over $10k for that service assuming 7%. It also raises the amount you need to save by $24,000 compared to ditching it.
 
We got rid of the service. DH and DS are going to manage the pool now.
Great!

Quote
The post you referenced made my heart jump! I will be calculating costs all night.
Great!  Putting things in 1 year or 10 year terms can help get you in gear. 

Quote
I'd suggest putting together a budget of the things you'll be paying for after retirement so you can get a better idea of what you need to save.  Are you still planning on tithing $1,000?  Is a yearly $6,000 on vacations still the plan? Is there any chance of downsizing your home?  etc etc.

Our plan is to stay in this house, but it could change. Yes, we would like to have the travel money available to us we like going places. I had a budget I was playing around with. It comes out to $2533/mo  which is 30,396/yr  so we would tithe about 250 a month  our monthly total would be $2783. However, I have not included expenses for rental properties etc. so these numbers will change. Maybe a 2-3k a year. Hopefully those expenses will be covered in the rent costs. When estimating its difficult.   It also shows the same numbers for entertainment, gift giving, etc. So those could be changed.

   Primary Residence (taxes)   $166.00
   Household   $200.00
   HOA   $45.00
   Tithe $250.00    
Utilities   
   Electricity   $200.00
   Water, Trash, Sewage   $85.00
*   Phone/Internet   $75.00
*   Cell Phone   $100.00
*   Netflix   $10.00
      
Food   
*   Groceries   $200.00
      
Transportation   
*   Gas   $100.00
*   Auto Repair   $50.00
   Auto Insurance   $50.00
*   Registration   $25.00
*   AAA   $10.00
      
Other Insurance   
   Life   65.00
   Umbrella   $25.00
   ID Theft   $12.00
      
Personal   
*   Clothing   $50.00
*   Hair Care/Salon   $25.00

*   Vet Care   $20.00
      
Recreation   
*   Entertainment   $200.00
   FunMoney   $200.00
*   Vacation   $500.00
*   Gifts   $100.00
   Gym   $20.00
If you're spending $30k in retirement, that means you need $750k invested.  If we assume your rentals and husband's work bring in $10k/year, you only need $500k.  This is obviously much more doable than the original numbers outlined, and shows how powerful reducing spending can be. For more detail on this concept:
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Tryn2stachinAZ

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Re: Case Study Need Fresh Eyes
« Reply #4 on: November 11, 2015, 02:05:52 PM »
Thank you ooeei!  I appreciate your input on this.!

seattlecyclone

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Re: Case Study Need Fresh Eyes
« Reply #5 on: November 11, 2015, 02:25:02 PM »
Income 119k  I am still in school. I wonít start working until next year. I am looking at making about 25k. I was going to teach, but changed my major. Now looking at subbing and tutoring, and working my way into child advocacy of some kind in the next two years.

How much are you paying for this school? There are a lot of ways to earn $25k with no degree whatsoever, so this perhaps doesn't seem like the most financially sound decision. If this new career is really what you most want to spend your time on, then go ahead and follow your dreams. Just make sure you're fully aware of how much you're spending to qualify for a low-paying job that you plan to retire from within ten years, and be sure that this is a trade-off you're fully willing to make compared to finding a similar-paid position with no schooling requirement.

Quote
151k inheritance in mm acct till we invest it.

What are you waiting for? Get your money working for you!
 

Quote
104k (401K) No match offered so DH has not been contributing should he?

At your income level he should absolutely be contributing pre-tax dollars to the 401(k), unless the fund options are absolutely horrible and he plans to remain with his current company for at least another decade or two. The goal is to trade taxable income now (when you're earning a lot and paying tax at a high rate) for taxable income when you're retired (when you're earning much less and will probably have a lower tax bracket).

Tryn2stachinAZ

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Re: Case Study Need Fresh Eyes
« Reply #6 on: November 11, 2015, 04:09:38 PM »
Income 119k  I am still in school. I wonít start working until next year. I am looking at making about 25k. I was going to teach, but changed my major. Now looking at subbing and tutoring, and working my way into child advocacy of some kind in the next two years.


How much are you paying for this school? There are a lot of ways to earn $25k with no degree whatsoever, so this perhaps doesn't seem like the most financially sound decision. If this new career is really what you most want to spend your time on, then go ahead and follow your dreams. Just make sure you're fully aware of how much you're spending to qualify for a low-paying job that you plan to retire from within ten years, and be sure that this is a trade-off you're fully willing to make compared to finding a similar-paid position with no schooling requirement.

 I was going to be a teacher, but changed my degree last semester. I have one semester to go, so I'm finishing it out. I have to have a degree if I want to sub-teach. My degree allows me several paths working with children 25k is just a starting point for subbing.

Quote
104k (401K) No match offered so DH has not been contributing should he?

At your income level he should absolutely be contributing pre-tax dollars to the 401(k), unless the fund options are absolutely horrible and he plans to remain with his current company for at least another decade or two. The goal is to trade taxable income now (when you're earning a lot and paying tax at a high rate) for taxable income when you're retired (when you're earning much less and will probably have a lower tax bracket).

Ok, will talk about that with him.

Thank you for your replies Seattlecyclone I appreciate them!