Case Study: Need help coming up with a plan of action.

[szmaine]

Hi all! Been hanging around here a short while now and figured it would be really beneficial to take the "Case Study" plunge. so here goes...

About us:
Family of 4: me (47), husband (56), daughter (15), and a beagle.
All income is through my employment. Husband does not work and had a major MI in Aug 2013, has a LVAD now (left ventricular assist device).

I think we've always been fairly frugal but there definitely has been some lifestyle creep (lol, such as it is), and owning a very old (1840's) house certainly has its additional costs.
The most wasteful anti-mustachian thing here has been my smoking (I think about $237/month) however I am now going into my 4th smoke free day and really mean business!! Failure is NOT an option!!
So feel free to discuss the budget and face-punch as you see fit...but my real reason for posting lies in the the fact that I have a number of competing goals and a situation in flux and would like some help prioritizing and  laying out a good plan of action.

One of the key factors in my thoughts are our current effective tax rate is about 3% so I am thinking that my strategy should be different right now than it may be later on.

I want to fund a Roth IRA (doubling as an emergency fund), I was thinking of adjusting my W-4 so that I no longer get these rather large tax refunds (2K total fed and state) and direct all available funds there.

I need to re-roof the house and add insulation before next winter and had been saving cash for the project (now sitting in my bank account) but then looked into HELOC 3.25apy since I doubt Ill be DIY on this (maybe parts, we'll see). I have not got estimates on this yet but will be very soon.

Also, I have read many different debates about paying down a home mortgage and am wondering if it is still a bad idea given that my interest is 4.78% and I still have about 2yrs of PMI ($79?) and do not itemize.

Any and all comment appreciated! What strategy should I adopt to maximize retirement savings with regard to our tax situation and bearing in mind that I am our sole support and that's not gonna change.

Pre-Tax Income:
Monthly Gross	3817	To Increase by 5.5% by mid July (2% this month)
Withholdings	495
After Tax Withholdings	26.4	Life Ins
Health Ins/Fam	185
Retire	154
Total Deductions	860.4
% Gross	22.5
Net Income	2950	$2000 tax refund - increase exemptions?
Fixed Expenses	$	Comments:
Mortgage (tax/Ins,PMI)	860	Saved $13 by raising deductible, $31 cancelled flood ins
Electric	81.0	average $66-100, 16-20 kWH daily (chest freezer died, not replacing)
Phone/Internet	67.0	saved $20 takes effect next month
Groceries	500.0	3 people, will start looking at this but we are not fancy
Heating	150.0	combo oil/fire wood - need better insulation, high this year-avg$100
Netflicks	8.0
Car Insurance	34.0	saved $20 month by dropping collision on 2005 Camry
Vairable Expenses		Comments:
Work Lunches	0.0	Started bringing lunch 2 week so far, goal = $0, was $150
Plowing	13.0	New this year, husband cannot do anymore
Walmart (misc)	35.0	dog food, TP, toothpaste etc - go every 3 mo or so
Clothing	20.0	Maybe less, I hate hate hate shopping
Gas	200.0	commute 60 miles RT, 30mpg 2005 Camry
Gifts	25.0	Christmas, B-Days
Dental	30.0	Maxing out dental benefit last year, this and next for some renovations
Entertainment	10.0	Restaurant, Movies, etc
Dumbass Expenses
Beer	0.0	?? Pretty sure I will smoke if I drink, but this was easily $130
Smoking/Vaping	0.0	Spent $36 for eGO starter kit with ejuice, not idea how long these last
Total	2033.00
Remaining	917.00
Liabilites:
Mortgage	94839.00	7ys into 30yr, 4.78%...got fucking PMI for another couple
Assets:
Retirement 403(b)	105000	524 monthy (4% me, %10 employer)
House	130000	Zillow says its 178K, no way!
Cash/Savings	6370

[skunkfunk]

I'm no tax savings expert, but I do think you should decrease your withholding. Also, pay down that mortgage, you're not saving any money by paying that interest. It's a solid investment to pay it off at those rates, especially with the PMI. At least get rid of the PMI and then put as much as you can in tax-advantaged retirement accounts.

You seem to be doing OK on your expenses, especially as you have quit smoking and are looking to optimize your groceries. I would ask why you have a 30 mile commute. Can you find no closer job, or move no closer? That $200 gasoline bill is pretty high. The heating bill isn't great either. What part of the country do you live in? You might check what similar houses in your area are going for. If you could sell your house and make a nice profit whilst dumping that mortgage, killing the commute, reducing energy usage - you could make a lot of headway.

[Catbert]

As I understand it you only have about 6K in cash AKA emergency fund.  I know that MMM likes HELOCs and cc's in place of cash emergency fund.  However, if I were you (sole worker w/disabled spouse) I would build up my emergency fund a bit.  How much?  Not sure...depends on your health insurance, job security, your plan if your car was totaled, etc. 

Beyond that I'd recommend paying down the mortgage enough get rid of PMI (assuming it will go away when you reach a certain equity level).  At that point look to see if you could re-fi and get the interest rate down enough to make it worth the effort.  4.78% may be as good as it gets.

Yes, definitely adjust your withholding.  I always adjust mine so that I'll pay in this year what I owed last tax year.  That way I never pay a penalty/interest for under withholding.  Just make sure you have the money available next year in case you do owe.

[MDM]

First, congratulations on 4 days smoke free and best wishes to keep it going.  That's a lot of money not going up in smoke.

Definitely don't give Uncle Sam an interest-free loan: adjust your withholding so you owe ~$0 next April 15.

Cases can be made to increase mortgage payoff or increase pre-tax savings.  For balance, below is a cash flow look based on your OP and some guesswork.  Main points are a $1000/mo 403b deduction (not counting employer amount), and what that could do for tax reduction and still meet your budget.  Just something for you to consider....

Category	Monthly amt.	Comments	Annual
Salary/Wages	$3,976	Assumes 4% to 403b for 3817 net per OP	$47,712
Pretax Health Ins.	$0	Does employer	$0
Pretax Vision/Dental Ins.	$0	offer any of these	$0
Health FSA	$0	pre-tax options?	$0
Daycare FSA	$0		$0
HSA	$0		$0
Pretax Commuter costs	$0		$0
FICA base salary/wages	$3,976		$47,712
401(k) / 403(b)	$1,000		$12,000
Income subject to IRS tax	$2,976		$35,712
ESPP	$0		$0
LTD	$0		$0
Paycheck deposit	$2,976		$35,712
Other income (int., div., etc.)	$0		$0
Federal Adj. Gross Inc.	$2,976		$35,712
Federal tax	$96	2014 rates, stand. ded., 3 exemptions	$1,152
State/City tax	$119	Guess, using 4% * Fed. AGI	$1,428
Soc. Sec.	$247		$2,964
Medicare	$58		$696
Total income taxes	$520		$6,240
Add Daycare reimb.	$0		$0
Add Health care reimb.	$0		$0
Income before other expenses	$2,456		$29,472
Monthly Expenses:
Mortgage Prin. + Int.	$567		$6,803
Property Tax	$164	Guess, to make PITI+PMI=$860 per OP	$2,400
Home/Rent Insurance	$50		$600
PMI	$79		$517
Cable TV			$0
Car Insurance	$34		$408
Car Maintenance, Registration, etc.			$0
Child activities (lessons/scouts/sports/etc.)			$0
Christmas	$25		$300
Clothing/Shoes	$20		$240
Dental Insurance			$0
Dentist	$30		$360
Dining (Pizza, Restaurant, etc.)			$0
Donations/Gifts			$0
Electricity	$81		$972
Entertainment	$18		$216
Fuel/Public Transport	$200		$2,400
Gas/Oil	$150		$1,800
Groceries	$500		$6,000
Hair Care			$0
Home Alarm System			$0
Household; Maintenance			$0
Internet	$67		$804
Landscaping/Yard work			$13
Life Insurance	$26		$312
Medical (Doctor, Hospital, etc.)			$0
Medical Insurance	$185		$2,220
Medicine (OTC + Prescription)			$0
Miscellaneous	$93	Guess - if less, good for you	$1,272
Pets			$0
Phone (cell)			$0
Phone (landline)	$0	Include w/ Internet	$0
School Tutition/Books/Etc.			$0
Subscriptions (paper/magazines/etc.)			$0
Travel/Vacation			$0
Water/Sewer			$0
Wine/Beer			$0
Roth IRA	$154		$1,848
529 plan			$0
Total Expense	$2,456		$29,472
Available to invest	$0		$0
Additional Mortgage Principal			$0
Gross income	$3,976
Income taxes	$520
After-tax income	$3,456
401k+Roth	$1,154	33%
Living expenses	$2,302	67%
After-tax investable	$0

[GregO]

If your think your house is really worth $130k and you owe $95k, then you have a 73% LTV ($95k/$130k).  PMI is only required at an LTV of 80% or higher. You should talk to your lender about removing your PMI right away.  The rules vary depending on the lender, but you should at least look into it.  Also talk to someone in real estate and ask them to estimate what they think your house would appraise for before you pay to get one.  They can usually give you a pretty good guess if it'll come in high enough.  It only has to come in at $120k for you to be under 80% LTV.  And you might want to look into refinancing.  You might be able to get a lower rate and remove the PMI.

[szmaine]

Thanks MDM - that's an impressively detailed accounting and I'd be interested in getting my hands on the excel version!!

But since I don't have it right now, a few points (forgive me in advance if I'm just not understanding what you figured):
My monthly gross is $3817 currently, got a 2% raise last month. But there is more on the way I'm a little confused about how it's applied but I'll get a cohort step in June of 1.5% ( but my boss's added another $500 per year for performance) and there will be an additional 2.0% applied around the same time per union negotiated across the board increases...so I'm not exactly sure where that lies as of June.

My mortgage payment includes property taxes and insurance, the insurance is high because we have an all volunteer fire dept....no extra line needed...I could revise my post later but property tax is about $1500 the rest is home insurance.

I'll have to crunch the numbers but $1000 into the 403(b) would make my taxes about 0... But I FEEL nervous with my current situation of putting too much $ beyound my reach. I am having a hard time seeing the math of getting $500 more per yr via extra tax sheltered contributions vs piling into a Roth while accepting my 3% effective rate. Sorry, if I seem dim but I feel a bit overwhelmed between my husbands health issues and carrying everything on my shoulders.

[GregO]

Well housing prices have gone back up some.  I think it'd at least be worth asking someone in real estate for an opinion.

As for your specific question, I'd focus on saving your surplus money for the repairs you know are coming up and the emergency fund that has been discussed.  I wouldn't start paying down your mortgage until you had some savings built up in your Roth IRA, as you had planned.  Once you have that taken care of (maybe $10,000ish + the planned major repairs), then you could think about paying down the mortgage.

[MDM]

Thanks MDM - that's an impressively detailed accounting and I'd be interested in getting my hands on the excel version!!

szmaine,

The spreadsheet found here: https://drive.google.com/file/d/0B45krBaG0b6KTWZDeXEySVBHVXc/view?usp=sharing is not a commercial product.  Take it with as many grains of salt as you can stomach.  It does not begin to cover all possible tax and life situations.  I highly recommend using real commercial software when it comes to your own finances.  Enough disclaimers?

If you (or anyone else) can get some value out of the spreadsheet itself, or any concepts therein, great.  If you find any blatant errors, please PM me.  Or post them for all to see - won't be the first nor last spreadsheet error I'll ever make.

If one downloads and then opens it, a warning about macros may appear (depends on your Excel settings).  If that bothers you and you don't want to proceed further I don't blame you.  The "macros", however, are merely two Visual Basic functions: one calculates federal taxes for married-filing-jointly, and the other for single filers.

I'll have to crunch the numbers but $1000 into the 403(b) would make my taxes about 0... But I FEEL nervous with my current situation of putting too much $ beyound my reach. I am having a hard time seeing the math of getting $500 more per yr via extra tax sheltered contributions vs piling into a Roth while accepting my 3% effective rate.

Filling up the Roth does make good sense, as you describe.  Downside of the Roth is the relatively low contribution limit, so it still seems worth considering more 403b with leftovers available after maximizing the Roth.  Numbers in the shared version reflect that.

If you haven't already, can you get a free or low cost energy audit?  Just in case, for example, putting plastic film over drafty windows would be a more cost-effective way to trim heating needs and allow you to direct more toward savings.  Similar question about spot repairs vs. a whole new roof. 

[TomTX]

You mentioned insulation - DIY blown cellulose is pretty cheap and works well in the attic.

You should also get some tubes of caulk and go around sealing up every crack and crevice in the walls/doors - inside and outside. Something like the DAP 35-year paintable silicone is pretty good, and not that expensive. Install/reinstall sealing strips around any leaky doors. Easy and cheap DIY.

If you have ducting, go through it and seal it up with duct mastic. Slightly more challenging, still cheap and fairly easy DIY.

More advanced (after you get all the low-hanging fruit) is to blow cellulose into your walls. Use a hole saw to cut out a hole in the drywall (plaster/lath?) at the top of the wall - use a hole the same size as the celluose blower hose. Stick the blower hose in, and blow until it comes out the top. Keep the cut-out piece and use it when you patch the wall. You have to repeat this between every stud (current standard is usually 16" - but maybe not in 1840...). This is a medium-challenging DIY.

[szmaine]

You mentioned insulation - DIY blown cellulose is pretty cheap and works well in the attic.

You should also get some tubes of caulk and go around sealing up every crack and crevice in the walls/doors - inside and outside. Something like the DAP 35-year paintable silicone is pretty good, and not that expensive. Install/reinstall sealing strips around any leaky doors. Easy and cheap DIY.

If you have ducting, go through it and seal it up with duct mastic. Slightly more challenging, still cheap and fairly easy DIY.

More advanced (after you get all the low-hanging fruit) is to blow cellulose into your walls. Use a hole saw to cut out a hole in the drywall (plaster/lath?) at the top of the wall - use a hole the same size as the celluose blower hose. Stick the blower hose in, and blow until it comes out the top. Keep the cut-out piece and use it when you patch the wall. You have to repeat this between every stud (current standard is usually 16" - but maybe not in 1840...). This is a medium-challenging DIY.

We don't have to worry about the walls, someone did blown in rock wool at some point in the past...we renovated the bathroom so I have seen it with my own eyes, it was packed in pretty good.
Nothing is standard about this house...it is a post and beam Cape, some of its members still have bark on them LOL. The problem is the sloped portion of the roof that is only 6-8" between you and the exterior...there some kind of blocking at unknown intervals along each bay. I'm thinking this has to happen from the outside...anyway I have found someone local who I was impressed with on the phone who is familiar with bizarre old Maine homes we will get him out here in a couple of weeks.

But I could work on the basement sealing and other matters some more.
We have renovated two upstairs rooms that are part of the kitchen L and used isocyanurate foil backed boards for the sloped ceiling, spray foamed around the edges. R24 was the best I could do this way. Spray or flowable low expansion foams can do much better.