Author Topic: Case Study - Starting out  (Read 4674 times)

DEL

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Case Study - Starting out
« on: June 01, 2015, 07:48:15 PM »
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« Last Edit: June 07, 2016, 07:20:52 AM by DEL »

Retired To Win

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Re: Case Study - Starting out
« Reply #1 on: June 01, 2015, 09:23:23 PM »
Your expense numbers look very good, so I'll just point out a couple of things.

Seriously consider NOT replacing your old car with a new car.  Get another used car (in better condition than your present one).  A car doesn't have to be new to be reliable and comfortable.  We drive a 1996 Dodge Dakota (142,000+ miles) and a 1998 Subaru Forester (243,000+ miles).  They perform like champs because we have always made sure to keep them well maintained.  Going for an older vehicle instead of a new one -- and making that your standard practice longterm -- will cut YEARS off your journey to FIRE.

Before you buy that house, seriously consider WHERE you want to plant those roots.  If you can do so in a reasonable cost of living area (instead of a high cost of living one) you'll be able to get that house and pay it off in a fraction of the time.  When we finally got to the point of being able to make that choice, we sold our house and moved to a location where we basically bought the same house for half the price.  And the rest of the money went right into our FI stash.  Again, targeting a reasonable cost of living area as your FIRE destination will get you to FIRE years sooner.

Good luck.

MDM

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Re: Case Study - Starting out
« Reply #2 on: June 01, 2015, 09:28:13 PM »
DEL, welcome to the forum.

Where to put your money depends on what you want to do with it.  If you want to buy a house soon, then a saving account, CDs, or similar is best (to preclude not having enough due to a short term market drop).

If you want to minimize taxes and get to FI quickest, it appears from the OP (and the case study spreadsheet) that you can contribute ~31K to traditional 401ks (work plus individual) and get enough saver's credit to owe $0 federal tax.  That would still leave ~$11K that you could put into Roths.

Or you could put less into the traditionals and more into Roth 401ks if you think your post-retirement marginal bracket will be high.  Or some combination...do various "what if?"s and see what you think....

Mother Fussbudget

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Re: Case Study - Starting out
« Reply #3 on: June 02, 2015, 11:48:48 AM »
Welcome Del:

Cell phone bill pops out at me as a place to save.  Many options there - two popular ones:
1) Republic Wireless (https://republicwireless.com/plans/) - $40/month "all-you-can-eat".
2) Airvoice Wireless  (www.airvoicewireless.com/PlansC.aspx) - $10/month pre-paid. 
3) Ting (https://ting.com/rates) - I know the least about them, but have heard good things.

I use Airvoice with a paid-for iPhone 5.  4¢/min, 2¢/text, 6.6¢/Mb 4G-data.  I've learned to turn OFF cellular-data, use wi-fi everywhere + a FreedomPop wifi hotspot (free Sprint 500Mb/month).  I use Skype ($2.99/month) for unlimited calling from my PC or wifi iPhone.  Google Voice is another alternative.  With Airvoice, if you use more than $10/month... add money to your account anytime.  I used $15/month for the first few months before realizing "I got by without data for years, I should be able to get by with wifi-only".

slschierer

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Re: Case Study - Starting out
« Reply #4 on: June 02, 2015, 02:53:51 PM »
Welcome! 

I'm not sure that anyone can truly answer your questions for you except for yourself (and your wife, of course!).  In order to decide where to put your money, you need to rank your priorities, and also look at your future earning potential. 

If you want the $40,000 to grow and be used to FIRE, you should fully fund IRAs for you and your wife, and invest the remainder in taxable index funds (such as those provided by Vanguard).  If purchasing a small house in the near term is your priority, you will want to put the $40,000 in a safe interest-bearing account such as a money market, CD, or an online savings account with a higher interest rate.  As far as the car, I agree that you are better off buying a used car.  Judging by your current expenses, if you start saving now, you should be able to save for a very nice used car without touching your $40,000 savings.

AJ

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Re: Case Study - Starting out
« Reply #5 on: June 02, 2015, 04:08:40 PM »
Seriously consider NOT replacing your old car with a new car.  Get another used car (in better condition than your present one).  A car doesn't have to be new to be reliable and comfortable.  We drive a 1996 Dodge Dakota (142,000+ miles) and a 1998 Subaru Forester (243,000+ miles).  They perform like champs because we have always made sure to keep them well maintained.  Going for an older vehicle instead of a new one -- and making that your standard practice longterm -- will cut YEARS off your journey to FIRE.

This, for sure. Is your car actually fixing to die? Or does it just need a repair? 2005 is pretty young to be at the end of it's life - but then I have no experience with Hyundai. If they're that bad, definitely go with something that will last longer on the next one.

I would say the best thing you can do to work toward having a paid-for house is increase your incomes. I can't offer much specific advice, since I have no idea what industry you're in,  but it seems like there is a lot of upside potential there.

DEL

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Re: Case Study - Starting out
« Reply #6 on: June 04, 2015, 03:44:30 PM »
Thank you all for the advice given so far. You have given us all plenty to think about!


Seriously consider NOT replacing your old car with a new car.  Get another used car (in better condition than your present one).  A car doesn't have to be new to be reliable and comfortable.  We drive a 1996 Dodge Dakota (142,000+ miles) and a 1998 Subaru Forester (243,000+ miles).  They perform like champs because we have always made sure to keep them well maintained.  Going for an older vehicle instead of a new one -- and making that your standard practice longterm -- will cut YEARS off your journey to FIRE.

This, for sure. Is your car actually fixing to die? Or does it just need a repair? 2005 is pretty young to be at the end of it's life - but then I have no experience with Hyundai. If they're that bad, definitely go with something that will last longer on the next one.

I would say the best thing you can do to work toward having a paid-for house is increase your incomes. I can't offer much specific advice, since I have no idea what industry you're in,  but it seems like there is a lot of upside potential there.


My car is pretty beat up. The previous owners did not take real good care of it it seems. I probably should not have bought it in the first place, but it was cheap and I needed transportation urgently for my first job out of college (Good lesson to never buy in a pinch). The car has held me until now but the cost of repairs are starting to outweigh the benefits. I do agree that we should look into Used, I misspoke when I said "New", I meant "New-er", really sorry about that. We are looking into getting something with a better cargo space, my wife could then occasionally use it to haul hardware for her business.



Welcome Del:

Cell phone bill pops out at me as a place to save.  Many options there - two popular ones:
1) Republic Wireless (https://republicwireless.com/plans/) - $40/month "all-you-can-eat".
2) Airvoice Wireless  (www.airvoicewireless.com/PlansC.aspx) - $10/month pre-paid. 
3) Ting (https://ting.com/rates) - I know the least about them, but have heard good things.

I use Airvoice with a paid-for iPhone 5.  4¢/min, 2¢/text, 6.6¢/Mb 4G-data.  I've learned to turn OFF cellular-data, use wi-fi everywhere + a FreedomPop wifi hotspot (free Sprint 500Mb/month).  I use Skype ($2.99/month) for unlimited calling from my PC or wifi iPhone.  Google Voice is another alternative.  With Airvoice, if you use more than $10/month... add money to your account anytime.  I used $15/month for the first few months before realizing "I got by without data for years, I should be able to get by with wifi-only".


Thank you for the tip. We will definitely look into these cheaper alternatives at the end of our contract with Verizon. My wife was a little concerned about not getting good reception with other providers, since she sometimes travel out in the country to her clients and we have heard that reception is pretty terrible. What has your experience been so far with Airvoice?



DEL, welcome to the forum.

Where to put your money depends on what you want to do with it.  If you want to buy a house soon, then a saving account, CDs, or similar is best (to preclude not having enough due to a short term market drop).

If you want to minimize taxes and get to FI quickest, it appears from the OP (and the case study spreadsheet) that you can contribute ~31K to traditional 401ks (work plus individual) and get enough saver's credit to owe $0 federal tax.  That would still leave ~$11K that you could put into Roths.

Or you could put less into the traditionals and more into Roth 401ks if you think your post-retirement marginal bracket will be high.  Or some combination...do various "what if?"s and see what you think....


Thanks MDM. I am intrigued by your calculations of how you came to $0 federal tax? Could you possibly explain further how you got to that number? Aren't 401k limited to $18,000 contributions? Sorry if this is a dumb question...


Your expense numbers look very good, so I'll just point out a couple of things.

Seriously consider NOT replacing your old car with a new car.  Get another used car (in better condition than your present one).  A car doesn't have to be new to be reliable and comfortable.  We drive a 1996 Dodge Dakota (142,000+ miles) and a 1998 Subaru Forester (243,000+ miles).  They perform like champs because we have always made sure to keep them well maintained.  Going for an older vehicle instead of a new one -- and making that your standard practice longterm -- will cut YEARS off your journey to FIRE.

Before you buy that house, seriously consider WHERE you want to plant those roots.  If you can do so in a reasonable cost of living area (instead of a high cost of living one) you'll be able to get that house and pay it off in a fraction of the time.  When we finally got to the point of being able to make that choice, we sold our house and moved to a location where we basically bought the same house for half the price.  And the rest of the money went right into our FI stash.  Again, targeting a reasonable cost of living area as your FIRE destination will get you to FIRE years sooner.

Good luck.


Retired To Win, thank you for the recommendation and personal experience. Yes we try to keep our expenses low and embrace frugality, I am very fortunate that my wife agrees with me on that. Still, I think that we could improve in some areas but I try not to push it :)
We are not sure where we really want to settle for now. We live in a relatively reasonable cost of living area, her family is there and they are very close relationship wise. At the same time, we are wanting to move and experience something different. How long did you stay in that first home of yours?

MDM

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Re: Case Study - Starting out
« Reply #7 on: June 04, 2015, 04:02:32 PM »
If you want to minimize taxes and get to FI quickest, it appears from the OP (and the case study spreadsheet) that you can contribute ~31K to traditional 401ks (work plus individual) and get enough saver's credit to owe $0 federal tax.  That would still leave ~$11K that you could put into Roths.

Or you could put less into the traditionals and more into Roth 401ks if you think your post-retirement marginal bracket will be high.  Or some combination...do various "what if?"s and see what you think....


Thanks MDM. I am intrigued by your calculations of how you came to $0 federal tax? Could you possibly explain further how you got to that number? Aren't 401k limited to $18,000 contributions? Sorry if this is a dumb question...
Very reasonable question.  Yes, there is an $18K limit - per person.  With both of you working (your wife could do an individual 401k) together you can contribute more than $18K.  You might download the spreadsheet and try some "what if?" cases....

 

Wow, a phone plan for fifteen bucks!