Author Topic: Case Study: One Year after finding MMM... Outside Opinions?  (Read 5432 times)

Tjat

  • Pencil Stache
  • ****
  • Posts: 570
Case Study: One Year after finding MMM... Outside Opinions?
« on: April 10, 2016, 07:48:35 PM »
I've been on these boards awhile but have never posted a case study. My take is that I'm mediocre/decent at managing expenses, but don't consider myself "mustachian" and my annual expenses are pretty high... My high savings rate is mainly due to high income. Main goal is to be FI in 10 years at least. We've cut the easy stuff in the past year (detailed at the end), but I feel like I'm running out of gas. I'm really looking for a third-part assessment of my progress so far and if I'm missing anything that can help/optimize the path to FI.

Life Situation:
- HCOL USA
- Married, filing jointly. 9 month old with another on the way
- Both 31
- Up until this mid last year we both worked f/t, but my wife has been home with the baby since birth. She's looking to go back p/t in Q3 of this year (though will have another maternity coming up where she'll take a leave of absence until Q3 2017.

Gross Salary/Wages:
Me: $150k salary + 10-40% annual bonus. I plan for 20%
Her: $75k when working f/t. Figure 19k in 2016 and 2017. 36K 2018

All Expenses/Deductions are Monthly
Pre-Tax Deductions: $2516
- Insurances (Health, Dental, Vision, ADD, Group Life): $421
- 401k: $1,500 (maxed)
- Transit: $328
- HSA: $437 (maxing)

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: $100 / month

Adjusted Gross Income:
  $13,330

Taxes: $2,222
Fed: $1,000
State: $450
FICA: $612
Med: $160

Current expenses:: 12 month average
- Auto & Transport:     $312  (incl. $70 in gas, $70 insurance, $86 in service, rest in parking/tolls)
- Car Payment           $286   (0% interest on wife's car. Bought new Rav4, she paid for half out of her savings...ehh)
- Bills & Utilities:          $350  ($162 Electric, $84 in oil, $70 internet. No TV and $40 for cell phones)
- Entertainment          $36    (Netflix, Hulu, Other)
- Life Insurance         $106
- Groceries                  $509
- Other Food          $152
- Gifts & Donations     $196  ($110 is charity)
- Medical & Fitness     $305  (High due to prenatal and birth)
- Mortgage Interest    $1,222
- Mortgage Principle   $848
- Property Ins.+Taxes $733
- Home: Other          $973 (we're usually pretty high with home improvement and have a $40/week lawn service in the summer + last year had fancypants bedroom set)
- Wife Expenses          $681 (her monthly credit card on stuff. I don't care what she spends it on)
- Clothes                   $60
- Baby Supplies         $121 (Mainly baby furniture and supplies when kid was born)
- Electronics              $192 (New TV last year, new computer monitor)
- Other Shopping      $346 (Mainly Amazon and Costco. Certainly too high)
- Misc                     $44
Total Monthly Expenses: $7,472 (I'm too embarrassed to type out the annual #)

Assets:
- my 401K: $150K (maxing) - Wife has access to 403b and 457, but not opened. Likely will start maxing one when she goes back to work.
- Two Roth IRAs: $27k (maxing)
- HSA: $2K (new this year and maxing)
- Taxable: $61k
- Cash: $50k (30k is wife's savings and she's basically scared of investing...)
- 529: $11k
- House: $460k (based on recent appraisal)

Asset Allocation
Cash    17.3%
Equities   67.1% (Mainly VTSAX or equivalent)
Fixed Income  0.4% (Lending Club --> working to liquidate)
International   9.1%
Real Estate    4.0% (REIT)


Liabilities:
- Mortgage: $350k (4.125% with 20 years left. Refinancing to a 30 year 3.5% - I'm okay with not paying off the house ASAP)
- Car Loan: $6500. $286 a month @ 0% interest

Net Worth:  $393K

2015 Post-Tax Savings Rate (counting debt principle as savings)
52.6%

Specific Question(s): I keep crazy detailed financials using Quicken and a spreadsheet. This past year we have cut cable (saving $80/mo), cut cell phones by $60/mo, I'm bringing 90% of work lunches from home ($60/mo). My expenses are going to get facepunched and some categories (home improvement, other shopping) are pretty embarrassing. However, buoyed by a high income, I have most of my savings on autopilot and hit a high savings rate. As I mentioned before, my main question is to get a few more sets of eyes on my numbers and see if there's anything I'm missing.

mozar

  • Magnum Stache
  • ******
  • Posts: 3462
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #1 on: April 10, 2016, 08:51:20 PM »
Do you want to stay in your house or move to LCOL when you are FI?

PhysicianOnFIRE

  • Bristles
  • ***
  • Posts: 462
  • Age: 45
  • Location: Up North
    • Physician On FIRE
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #2 on: April 10, 2016, 09:01:03 PM »
Those expenses aren't half bad considering your income, the HCOL and the fact that $2000 a month is the mortgage.  It seems obvious that the $1000+ in the "wife stuff" and "other shopping" categories could be better defined and probably reduced substantially.  I think you already know that, though.

A 457(b) is great for aspiring future retirees.  Works like a 401(k) but can be easily accessed at any age without penalty once you leave the employer.  Government 457 is a little better than private.

You didn't say where your assets are located.  Make sure you are tax efficient with asset placement.  REIT not in taxable, for example.

Best,
-PoF


SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8116
  • Location: Fayetteville, NC
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #3 on: April 10, 2016, 09:14:39 PM »
Does wife not have a 401k?  She's making enough to max it.

csprof

  • Stubble
  • **
  • Posts: 228
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #4 on: April 10, 2016, 11:03:25 PM »
Does wife not have a 401k?  She's making enough to max it.

OP noted (maybe in a later edit):  "my 401K: $150K (maxing) - Wife has access to 403b and 457, but not opened. Likely will start maxing one when she goes back to work"

403b is the equivalent of 401k.

But I concur:  Maxing this out is the next most obvious easy step.

If your wife doesn't want to invest any of the savings, then consider discussing whether some of it could go to rebase your mortgage (or throw it in when you refinance it) to cut your monthly cash flow needs.  3.5% is better than 1%, and reducing your mandatory monthly spend is its own form of safety net.

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #5 on: April 11, 2016, 09:00:09 AM »
The $4000/year pre-tax transit is interesting since you also pay $7200/year for auto costs post-tax.

There's $8172 (wife spending) + $2304 (electronics) + $4152 (random shopping) = $14,628/year in seemingly random spending.  There are separate categories for baby, eating out, gifts, etc.  Based on the 4% rule you need to add $365,700 to continue these expenses in retirement, which coincidentally is about what you have saved now.  All of your current net worth, including house equity, is barely enough to cover your random spending.  How long will it take you to save up another $365,000?  That's how much longer you need to work to keep these expenses going.  If it's worth it to you that's fine, but it's something to keep in mind.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 6005
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #6 on: April 11, 2016, 09:23:53 AM »
Which HCOL city do you live in? Some of your expenses (transit, property tax/insurance, electricity) are more than double what I pay for those same things here in Seattle, but I know there is some regional variation in these items.

What I will say is that your previous budget changes (phone, lunches, cable) seem like just fiddling around the edges. You cut out $200/month in spending, which is not nothing, but it's also less than 3% of what you spend right now. You could have had more impact simply by purchasing a five-year-old car instead of a brand new one and avoiding a car payment. Doing even a little bit of your $1,000 monthly "home improvement" or $40/week lawn mowing yourself could have a similar $200 impact.

Your income is high enough that you can still get to FI pretty quickly even with some of these anti-frugal luxuries. If you're looking to get there faster, look at the biggest line items first. $40-60 here and there isn't going to change much.

Chrissy

  • Handlebar Stache
  • *****
  • Posts: 1298
  • Age: 43
  • Location: Rural Great Lakes
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #7 on: April 11, 2016, 09:24:06 AM »
What's the story on the life insurance?  Term or whole?  For how much?  It seems really high to me.

Tjat

  • Pencil Stache
  • ****
  • Posts: 570
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #8 on: April 11, 2016, 10:04:24 AM »
Thanks everyone for the candid responses. I've answered the direct questions below, but it's clear that as SeattleCyclone posted, I can work around the edges or more radically approach the FI target with actual lifestyle changes. To be honest, I'm not sure if it's worth it to me as we're happy now, enjoy some nice/expensive luxuries, and I enjoy my job. That may actually be my real issue as I'm not sure I/we want to commit. In the meantime, fiddling around the edges is at least makes me feel I'm trying!

I need to dig into the wife expenses line item a bit more as it's surprisingly high (she's waaay more naturally frugal than me). I suspect she has 1-2 big ticket items on there that are distorting the average.

Do you want to stay in your house or move to LCOL when you are FI?

We have lofty plans to move lakeside in retirement, but no sooner than 20 years from now. I also doubt it will be LCOL
A 457(b) is great for aspiring future retirees.  Works like a 401(k) but can be easily accessed at any age without penalty once you leave the employer.  Government 457 is a little better than private.

You didn't say where your assets are located.  Make sure you are tax efficient with asset placement.  REIT not in taxable, for example.

Thanks. Her 403b looks to have a Vanguard option so I gravitated towards that. It's hard to find any info on the 457, though it may be administered by an insurance company (leading me to think it's crap). Assets are relatively close to tax-optimized. REITS are in our Roth accounts, any future fixed income will go in Roth or 401k. The only thing I'm looking to do is transition my international investments to my taxable Vanguard account to get the Foreign Taxes Paid credit.

Why are you paying so much pre-tax for transit and then apparently not using it?  What are the details of your commute?  You are losing close to $1k/month just on your transportation -- surely there is some room to optimize a bit better there.

The pre-tax deductions cover my commuter train pass (~50 minutes door to door) and parking at the train station. The commute expenses include everything else: Gas, insurance, monthly average repair/service bill.

Quote
Electric bill seems very high, especially assuming the oil charge is probably for heat.  Have you had an energy audit done?

Oil is for heat. Yes, electric is high in the summer due to AC and pool. I'm really a wuss when it comes to hot/humid weather - probably because I've adapted to my AC office building. As high as it is, we lowered electric spend about 15% last year. Energy Audit got us on the way to LED bulbs and recommended more attic insulation, which I'll probably do at some point. Large changes on AC/Pool is a question we need to figure out (really kicking myself for not getting high efficiency AC or pool pump when it was replaced pre-MMM)

Quote
Do you really need both netflix and hulu?  Can't you pick just one?
We could, but do use both. I think cutting the $10 out of the budget would be more of a statement/on principle than actually making a difference though.

If your wife doesn't want to invest any of the savings, then consider discussing whether some of it could go to rebase your mortgage (or throw it in when you refinance it) to cut your monthly cash flow needs.  3.5% is better than 1%, and reducing your mandatory monthly spend is its own form of safety net.

It's an interesting idea. In general, I'm against prepaying mortgages but you're correct in that some return is better than none. However, we currently use her savings as an emergency fund/cash reserve. It allows me to be a bit more aggressive in the markets with the money I contribute and I mentally appreciate the liquidity we have on hand. She hasn't been back full-time since the baby, so I imagine once her income starts rolling back in, we'll talk about how best to consolidate our 'stache and save/invest. I've considered subsidizing her 403b investments- in reality it's one big pot where the money would likely just keep our asset allocation in place - but regardless of the mechanics, we need to approach this as a team.

There's $8172 (wife spending) + $2304 (electronics) + $4152 (random shopping) = $14,628/year in seemingly random spending.  There are separate categories for baby, eating out, gifts, etc.  Based on the 4% rule you need to add $365,700 to continue these expenses in retirement, which coincidentally is about what you have saved now.  All of your current net worth, including house equity, is barely enough to cover your random spending.  How long will it take you to save up another $365,000?  That's how much longer you need to work to keep these expenses going.  If it's worth it to you that's fine, but it's something to keep in mind.

Good way to look at it. I project at our current spending rate + future college and a cushion, we'll be FI by our early 40's. This also assumes small increases in my salary (unlikely) and my wife not working (also unlikely).

What's the story on the life insurance?  Term or whole?  For how much?  It seems really high to me.

In addition to my group life at work, we each have 500k 30 year term policies for about $35 a month each ($70 total). We bought them so either of us could pay off the house. I imagine we'll cancel these once closer to or at FI. My numbers said $100/mo, but I think that's included some weird escrow movement between calendar years 2014/2015 when we last refinanced.
« Last Edit: April 11, 2016, 10:31:05 AM by Tjat »

Chrissy

  • Handlebar Stache
  • *****
  • Posts: 1298
  • Age: 43
  • Location: Rural Great Lakes
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #9 on: April 11, 2016, 12:59:33 PM »
In addition to my group life at work, we each have 500k 30 year term policies for about $35 a month each ($70 total). We bought them so either of us could pay off the house. I imagine we'll cancel these once closer to or at FI. My numbers said $100/mo, but I think that's included some weird escrow movement between calendar years 2014/2015 when we last refinanced.

Okay, not too bad then.

Also, optimization is just as fair a goal as lifestyle change.
« Last Edit: April 11, 2016, 01:01:23 PM by Chrissy »

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Case Study: One Year after finding MMM... Outside Opinions?
« Reply #10 on: April 12, 2016, 06:42:35 AM »
There's $8172 (wife spending) + $2304 (electronics) + $4152 (random shopping) = $14,628/year in seemingly random spending.  There are separate categories for baby, eating out, gifts, etc.  Based on the 4% rule you need to add $365,700 to continue these expenses in retirement, which coincidentally is about what you have saved now.  All of your current net worth, including house equity, is barely enough to cover your random spending.  How long will it take you to save up another $365,000?  That's how much longer you need to work to keep these expenses going.  If it's worth it to you that's fine, but it's something to keep in mind.

Good way to look at it. I project at our current spending rate + future college and a cushion, we'll be FI by our early 40's. This also assumes small increases in my salary (unlikely) and my wife not working (also unlikely).

Fair enough.  The random expenses just seem silly to me.  Assuming you save ~$100,000/year now, you're both going to have to work for 3 entire years (12,000 hours between the two of you) to pay for expenses you can't even categorize.