Author Topic: Case Study - Revisited  (Read 5172 times)

moustache1979

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Case Study - Revisited
« on: May 06, 2015, 06:39:59 AM »
I posted my case study last February here -
http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-help-me-tackle-debt-and-build-plan-for-future/msg232331/#msg232331

Made some solid progress, got a promotion, but some things remain the same.  Here's my current situation
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Income (After taxes, insurance, 401k, HSA, ESPP, etc) - $11k/mo

I max out 401k and HSA, get 3% employer 401k match. 
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Expenses -
Mortgage $1798
Heat, Electric, water, trash $250
TV, Cell, Internet $175
Car payment $500
Student loan $100
Car insurance $40
Term life $40
Parking $25
Kids school $600
Gasoline $150
Groceries $750
Other $700 (dining, shopping, kids activities)

$5,128 per month spending

$5,872 per month net savings

~$1,300 of monthly spend goes toward debt paydown (mortgage/car/stln)
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Assets -
401k $180,000
Savings $40,000 @ 3.0%
I Savings bonds $16,000 @ CPI
CD $5,000 @ 2.5%
IRA's $12,500
College savings $15,000 (3 young kids)
Fidelity ETF (investments) $12,500
property value $215,000
Company RSU's $50,000 (After tax; vesting in next 1- 6 months, included in total)
2009 Honda Fit  $8,000
2012 VW $17,000
Total $572,000

Other items -
Company RSU's $225,000(After Tax; vesting 2016 - 2020; not included in total above)
Discretionary bonus each year, up to $40k after tax
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Debt -
Mortgage $169,900 @ 3.375% (15 year fixed - new refi)
student loan $19,100 @ 2.25% fixed
Car $18,000 @ 0% interest (value $17,000)
Total $207,000

NW - $365,000

Over the last year+, assets up by $129k, liabilities down by $80k.

My job is hectic, I don't want to be doing this long term, would like to get out within 5 years, want to do something less stressful.   My wife stays at home but youngest will start preschool a year from now, so she may go back to work in education.  Kids will go to private school so need to consider that is going to be an expense for the long haul, probably $600-1k per month for the next 5-10 years at least.

Another frustration is taxes.  I make a lot, so I am at the point where I get nailed on income tax, and I am just above the level where it hurts the most.

My plan is to roll all savings into investments - low cost fidelity ETF's and once NW gets over $1M, start to plan for a career switch....

What else do I need to consider?

nereo

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Re: Case Study - Revisited
« Reply #1 on: May 06, 2015, 07:31:16 AM »
Quote
My job is hectic, I don't want to be doing this long term, would like to get out within 5 years, want to do something less stressful.   My wife stays at home but youngest will start preschool a year from now, so she may go back to work in education.  Kids will go to private school so need to consider that is going to be an expense for the long haul, probably $600-1k per month for the next 5-10 years at least.
Thanks for posting an update.  You've done a few very important things, like refinancing your primary home and (apparently, since it doesn't show up here) axing the second mortgage.  You've also made progress reducing your grocery bill and gasoline consumption (less driving?)  "Other" went up slightly, but all-in-all a better use of funds for your stated goal.

I'll just say this now - your income is so much greater than mine it's hard for me to relate.  I certainly can't give much insight into private schools or kid-related expenses (currently working on #1).

A few things:  All of your debts are sub 3.4%, so that's great.  No need to pay those off any faster than necessary.  A +50% savings rate (post 401k contribution) is very good too.  There might be some further fat to trim from your Heat and TV/Cell contracts, but it's small potatoes.  Speaking of potatoes, groceries could still be optimized - I think $600 is a good number to shoot for with a family of 5 (we usually come in at just under $300 for two adults).  That's about all I see here.

Quote
Another frustration is taxes.  I make a lot, so I am at the point where I get nailed on income tax, and I am just above the level where it hurts the most.
well, it's hard for me to be sympathetic here, but I know paying a lot of taxes sucks, even when you have a lot of income.  Look on the bright-side... when you shift careers your taxes will plummet.  It sounds like you are already maximizing your tax-deferred accounts, so nothing you can do here but take it on the chin and feel blessed to be among the most wealthy percentage of people in the history of mankind.  And I don't mean that in a bad, condescending way.

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My plan is to roll all savings into investments - low cost fidelity ETF's and once NW gets over $1M, start to plan for a career switch....

What else do I need to consider?
My biggest question to you is why you feel you need $1M to switch careers.  Certainly you have a lot of pending expenses (e.g. ~$1k/month for private schools, plus college down the line) but you are also saving mad amounts of cash.  Within the next two years you will have already passed $200k in your 401(k), ~$33k in your IRAs and (if I'm doing the math right) socked away about $30k for your kid's college funds.  Combined with your other investments, you'd have about $350k in savings, plus your home equity.  That's pretty awesome for young parents.
Certainly you could continue to work for another 5+ years and pile money into your stach.  That would not be a bad option.  But since you seem on the verge of burnout already, consider downshifting earlier to a job that made enough to cover your expenses (roughly $60k/year). Your investments would continue to compound, you'd (hopefully) have a more enjoyable and less stressful career, and your expenses would continue to decrease as various debts (car loan, SL) and expenses (saving for college funds) naturally decreased and went away.

Which is better for you? Working ~2 more years and then downshifting to a more enjoyable career for the next decade, or running full-throttle for the next 5-7 years and having enough to pull the plug on work entirely.  Entirely up to you.  G'luck.

moustache1979

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Re: Case Study - Revisited
« Reply #2 on: May 06, 2015, 07:55:00 AM »
I certainly know i am in a very good spot, didn't want to come across that way re: taxes.  More wanted to say that axing the current job would improve the tax situation!

mo mo hawk

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Re: Case Study - Revisited
« Reply #3 on: May 06, 2015, 08:30:05 AM »
Consider juicing up the 529 allocation - could trim your state tax liability and it sounds like you will be accessing those funds soon (for K-12). As your youngest approaches part-time or full time school, there will options for you wife to return to a professional career -- perhaps you can explore decreasing your tax liability through a home office or small business.

I've enjoyed following your case study. We are in a very similar situation. It's eerie how close, not only your income and expenses mirror ours, but professional career dilemmas, match our situation. Please continue to update as you work through it! Some background on geographic area and career field would be helpful too for context. 

good luck!

moustache1979

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Re: Case Study - Revisited
« Reply #4 on: May 06, 2015, 08:42:19 AM »
mo mo hawk - Midwest & Finance.  Any notes you have to share would be much appreciated!

mo mo hawk

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Re: Case Study - Revisited
« Reply #5 on: May 06, 2015, 08:57:07 AM »
hah... same x 2.

You won't be getting many more notes from me - we're a few years behind you with kids (1 here and 1 on the way) -- look fwd to learning from your mistakes ;)

moustache1979

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Re: Case Study - Revisited
« Reply #6 on: May 06, 2015, 09:13:04 AM »
yep ok - based on your posted age I am 2-3 years ahead of you

rmendpara

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Re: Case Study - Revisited
« Reply #7 on: May 06, 2015, 09:34:43 AM »
Is the 5.8k savings including or excluding 401k? Either way, that's a great savings rate!

Saving 60k+ per yr will do wonders for your savings. I think if you can get your large longer term needs on track, then even a lighter workload or lower paying career could be in the picture sooner than you might think.

I'd set a goal to have by age ~60 for retirement specifically as well as a target amount to have in ~15 years available to help with kids college. From now through college, the largest expense for kids (in addition to food/housing/enternatinment) will likely be the private school. I don't know many private schools less than 1k/mo per child, so 1k for 3 kids is awesome!

Either way, it looks like if you wanted to just get by and stop contributing additional capital, you'd need ~60k in spending money, or ~75-90k in gross income. Maybe 100k to continue adding to the 401k.

5 years sounds like a solid frame to think about slowing down afterwards. You could make huge progress in funding retirement accounts as well as long term savings. Today, I see ~330k in invested assets (excluded home, cars, etc). At a ~5% rate of return, this could easily be closer to 750k in invested assets in 5 yrs time. At that point, just being able to fund ongoing living expenses will be enough if you can leave the assets untouched for another 15+ years. Any further additions to retirement assets will be gravy on top.

1m is not unreasonable depending on the market and how you do with contributions to investments. I don't think your budget is crazy, but obviously I don't really expect you'd be willing to downsize today substantially in order to boost the savings either.

Nothing much to add. Sorry :(. I will just say that rather than thinking of total assets, I'd keep track of "invested" assets going forward... or anything that produces a return on your money. That's the key number to watch for long term planning. Things like a paid off home are valuable, but instead of considering it an asset, just consider that in your budget in the form of reduced housing expenditures.

Good luck

2ndTimer

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Re: Case Study - Revisited
« Reply #8 on: May 06, 2015, 10:13:54 AM »
Speaking as a SAH wife, I diagnose (based on your grocery and eating out expenses) that your wife is a bit bored.  I notice that my grocery bills go up when I am seeking more stimulation.

MetalCap

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Re: Case Study - Revisited
« Reply #9 on: May 06, 2015, 10:15:30 AM »
A couple thoughts on this:

First with your debt payments you may want to prioritize these based on risk.  If you lost your job/disabled then there are some protections for mortgages (also some refi's dont see principal paydowns as delaying your next payment due) and student loans but not on the car loan.  The %'s of these are all so low it makes very little difference on which one you pay down first in terms of actual dollars.

On the other side of the risk topic, those %'s are low enough where it may be more beneficial to only pay minimums and invest the current amount slotted for debt payment.  It depends on the salary you think you'll get with the career move.

As for taxes, juicing the 529 is key for the kiddos.  I'd also look into a spousal 401k but I don't know enough about it to give advice.  If you can't get any lower on taxes, then you may want to look into getting more out of what you pay for in terms of state services or free education programs, subsidies, etc.

Looks like you're in a good spot and have made great progress.

RelaxedGal

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Re: Case Study - Revisited
« Reply #10 on: May 06, 2015, 12:09:08 PM »
Consider juicing up the 529 allocation - could trim your state tax liability and it sounds like you will be accessing those funds soon (for K-12).

A quick search tells me a 529 can't be used for primary school, only college/post-secondary schools.  Sorry to rain on that parade.  They recommend a Coverdell Education Savings Account instead.

midweststache

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Re: Case Study - Revisited
« Reply #11 on: May 06, 2015, 01:38:09 PM »
Consider juicing up the 529 allocation - could trim your state tax liability and it sounds like you will be accessing those funds soon (for K-12).

A quick search tells me a 529 can't be used for primary school, only college/post-secondary schools.  Sorry to rain on that parade.  They recommend a Coverdell Education Savings Account instead.

Also, does your employer offer an FSA? That *might* be a possibility for subsidizing school expenses tax-free, depending on your employer's plan.

If you're interested in reducing your tax liability, any reason not to invest in a Traditional IRA? I see IRA listed in your assets, but not in your list of pre-tax withholding. It sounds like you're currently in the highest tax bracket you'll be in, so a Traditional would make sense...

mo mo hawk

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Re: Case Study - Revisited
« Reply #12 on: May 06, 2015, 03:07:39 PM »
Consider juicing up the 529 allocation - could trim your state tax liability and it sounds like you will be accessing those funds soon (for K-12).

A quick search tells me a 529 can't be used for primary school, only college/post-secondary schools.  Sorry to rain on that parade.  They recommend a Coverdell Education Savings Account instead.

Thanks for the corrected info. For some reason I was under the impression that you could --- must have been dreaming

ABC123

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Re: Case Study - Revisited
« Reply #13 on: May 06, 2015, 05:28:34 PM »
Consider juicing up the 529 allocation - could trim your state tax liability and it sounds like you will be accessing those funds soon (for K-12).

A quick search tells me a 529 can't be used for primary school, only college/post-secondary schools.  Sorry to rain on that parade.  They recommend a Coverdell Education Savings Account instead.

Also, does your employer offer an FSA? That *might* be a possibility for subsidizing school expenses tax-free, depending on your employer's plan.

If you're interested in reducing your tax liability, any reason not to invest in a Traditional IRA? I see IRA listed in your assets, but not in your list of pre-tax withholding. It sounds like you're currently in the highest tax bracket you'll be in, so a Traditional would make sense...

A FSA can't be used for school tuition, but can be used for before/after care or summers.

moustache1979

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Re: Case Study - Revisited
« Reply #14 on: May 07, 2015, 06:09:20 AM »
Thanks - good stuff everyone, appreciate the advice