Author Topic: Case Study - what would you do?  (Read 3987 times)

Mr Dumpster Stache

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Case Study - what would you do?
« on: July 13, 2014, 03:14:08 PM »
Hello! Finally got around to pulling all the numbers together for a good case study.

The big picture- Me 28 and my wife 23, one kid 1.5. Plan to have 1 to 3 more kids (possibly adopting). My wife is naturally frugal, and I was raised in a very low-income family, so I know how to not spend tons of money. Before we got married I didn't save much but I didn't get into very much debt, either. We did the Dave Ramsey thing shortly after we got married, and I discovered MMM earlier this year. We read through Your Money or Your Life and plan to implement some of the tracking methods from that as well.

Income: My job pays 50k a year before all deductions. 2-3% raises anticipated every year, but no large pay increase is likely any time soon. Quarterly bonuses vary depending on plant performance, maximum is $1000, average about $750ish. My wife's income is variable and will be decreasing this fall. Guestimating about 15k a year?

I will possibly be taking on a part time job once my schedule changes (Will be working 3 day weeks, 12-14 hours a day). I don't have any "side hustle" ideas in the works right now. I write kids books, but I do it slowly and have currently spent way more to self-publish online than I earned from them so far.

Current expenses:

Automatically deducted from each check:
Insurance (Medical, optical, dental) - $4092 per year
Life, Accident, etc. insurance - $74 per year
Flex spending account (pre-tax) - $250 (will probably stop doing this next year since the paperwork to get the FSA to pay anything is a PITA).
401k - $3,000 per year. This is the max amount the company matches.
Employee stock purchase - $3,000 per year. (Taken out of each check and purchased at a 15% discount twice a year.)

Take home pay after all taxes and automatic deductions - 31,069

Expenses  First column is total 2013, second column is average monthly 2013, third column is monthly average so far 2014

House Payment     10,810 -  901 -  902
Power                   1,232 -   103 -  117 (Electric and gas. We are getting a wood-burning stove installed so this may go down next winter.)
Water                   760 -        63 -  55
Charitable Giving   1,954 -   163 -  122
Car Insurance       1,005 -     84 -  91
Other Insurance       723 -     60 -  18
Phone                   2,008 -   167 -  163 (We use a local carrier, but not a lot of great options in our area.)
Internet                   630 -     53 -  55 (Very few options in our area.)
Food                     2,435 -   203 -  180
Eat Out                    353 -     29 -  80 (This includes all starbucks, ice cream, etc. including during our vacation last month, so average will drop.)
Gas                      2,041 -    170 -  163  (Started really trying to bike commute this summer)
Fun Stuff                 173 -      14 -  21   (This includes netflix and redbox)
Gifts                     2,003 -    167 -  50   (This average will go up come December! Wife and I both have big families.)
Vehicle (not gas)       ?            ?  -  97    (Didn't track this separately until this year)
Medical                     ?            ?  -  52   (Didn't track this separately until this year)
Misc.                     4,611 -    384 -  788  (This is high for 2014 because we took a week vacation and made some larger, 1-time purchases)
Total                    30,738 - 2,585 - 2,953

401k ballance - $41,877
7,600 in company stock (Good dividend paying stock)
10,000 in other stocks (Disney and ROBO index. Will sell and move to vanguard indexes once I learn more about it from you fine folks.)
55k of our house paid off, house is worth about 135k.
About 5k in checking and savings accounts.

Around 70k left to pay on the house at 3.5%.
10k on the car, due in two years. (Pre-paid lease, punch me now. Signed it preMMM. At least it's a Honda Fit, right?)
2008 KIA Sedona, paid off. We will probably end up selling this to my parents for peanuts in a few years, not sure what it is actually worth

As you can see, we live mostly on my income and my wife's has been going towards home improvement and/or big purchases. We just plopped down $10k on an extra house payment the other day, all of which came from my wife's job.

Specific Question(s):

What would you do if you were me? Think it's realistic to plan on an early retirement? We currently are planning to pay off the house in 10 years or less (12 if we make no extra payments) and then I would be free to quit the full-time job and work part time. We plan to homeschool our kid(s), so it is possible my wife will stop working at some point. However, I would rather us both be working part time and participating in schooling and raising the little ones.

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Re: Case Study - what would you do?
« Reply #1 on: July 13, 2014, 05:04:06 PM »
How well insulated is your house? - cutting the need for heat is cheaper than heating.  (The wood burning stove is good, but will cost to put in, and are you working now on having a supply of seasoned wood ready for next winter?)  The charitable giving seems high, given your circumstances, but I suppose it's your church/mosque/temple?  Can you cut the insurances?  You already know about the phone.  You don't have a budget line for house maintenance.

Looking forward, your wife's income is reducing, you have a $10,000 bill for the car in a couple of years' time and you are thinking of adding up to three kids to the household.  That all looks like a pretty fair crunch on your income/expenses.  It's doable provided your wife continues to bring in money which covers the costs of the additional kids, paying off the car and the house maintenance/improvement after covering child-care expenses for any times you are both at work. 

You've done well paying off so much of the house already, which ups the odds of you making your finances work for you in the future.  Paying off the house completely brings your expenses down by $10,810 a year.  At that stage, going part-time could be do-able, but I'm not seeing FIRE in your future.


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Re: Case Study - what would you do
« Reply #2 on: July 13, 2014, 05:43:44 PM »
The giving (both charitable and to families) is pretty damn high. Just because you have big families doesn't mean you need to spend a lot. For years my sister had put together neat little baking mixes for presents. I'll be joining her this year with my favorite home canned goods.

The phone bill is ridiculous. You say you don't have a lot of options, but figure out which of the big carriers has the best coverage, get your phone unlocked, and switch to an MVNO based on that network. For more details, see:!/

Does your ESPP have selling restrictions? What is the dividend yield on it? Be wary of putting so much capital in a single asset.

Optical and dental insurance are often not a great deal, especially optical.

Your core (food and misc) spending is good, but the misc seems high. My spending is usually flipped the other way, with food a bit higher, but almost nothing in misc.

Mr Dumpster Stache

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Re: Case Study - what would you do?
« Reply #3 on: July 19, 2014, 10:30:43 AM »
Thanks for the replies, folks.  I will continue to check the "little things" - like the different insurance items and such and see if they are really a good idea. And the "big things", phone, giving, cars, etc. we are learning how to whittle down and focus on what really matters.

I read the ERE book, and was struck with the idea of the self-reliant "renaissance man". Add to that what I'm hearing about peak oil and it seems like a great idea to learn how to re-purpose and improvise and learn how to be happy with less.

I'm glad I found MMM when I did! I work with a lot of people twice my age who are still living paycheck to paycheck with no end in sight. I might not make enough to not have to work, but I have the assurance of knowing that things would have to be pretty bad before I wouldn't be able to get by at all.


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Re: Case Study - what would you do?
« Reply #4 on: February 08, 2015, 07:02:54 AM »
I know it's been awhile since you posted...but, how about checking out Ed Mills "Millionaire Educator dot com" for help in focusing on tax-advantaging yourself to the max.  He's on MMM as well.  I'd say you need more line items in your budget.  No one ever gets a haircut, puts on new brakes - you are 'spending' them every time you apply them, your hot water heater will never go out, nor your fridge need replacing, nor a new roof never need installing????  These aren't emergencies, these are things you probably should be accounting for and setting dollars aside for in anticipation (maybe not the exact right word) of something going wrong.

Would your wife (post all expected children) be able to keep up the house and at least one vehicle on her earnings/life insurance spend down?  If not, you might need to downsize the home or up the insurance or increase her earning power or all of the above.  Just sayin'!!!