Case Study – Where to from here?
First an apology, this is VERY LONG, but the post on case studies says details so I gave you all of them. Get a drink, you may be here for a while:
Good things to know that aren’t (strictly) numbers
1. Spouse (30) and I (32) are on the same page, very compatible and very communicative. After a financial debacle years ago, we got very good about being honest about money and have no major conflicts in this area (or any other areas, really).
2. We have 3-year-old twins and plenty of bad decisions were made in the early days because we were too tired to care. Only in the last year have we really gone back to something resembling a normal life and there may very well be bad decisions carrying over that we can’t see.
3. We have 1 dog and 3 cats, all older (youngest is 9) but low maintenance at this point.
4. We bought a house with a million known issues and who knew how many unknown issues because we enjoyed fixing up and working on our last house, and it was a good way for us to mitigate sticker shock when buying a house in an area where housing prices are far higher than where we came from (we moved from central Indiana to the Front Range area of Colorado, not far from MMM himself, right before the girls were born).
Income
Spouse: $93,500 (this includes two large raises in the last year, one 13%, then one 10%; a year ago this number was $75,000 + bonus; the 10% was a corporate adjustment away from bonuses)
Me: $7,000 +/- this year; I’m a musician so what I make varies but is generally on the rise as I get re-established living in a new area; last year I made a little over $6,000, this year should be between $7-8k
All told, this translates to $7,023 take home per month in the last 12 months, according to Mint.
Expenses
I’m going to give you our numbers straight from Mint as the last 12 months divided out as monthly expenses. Mint got frisky with some of the categories so there are some inaccuracies but this is a pretty good approximation. Some changes have already been made; I will note those as I go.
HOUSE: $2,499
PITI: $1,390
Repairs/Improvements: $1,109 (This includes a new kitchen at around $9k, new floors, new paint, etc.)
FOOD: $1,853
Groceries: $1,325
Alcohol & Bars: $213
Restaurants: $315 (this includes several fancy restaurants on a trip we took in June that doesn’t usually happen)
This is INSANE, we know this is INSANE, we have no idea what happened other than we clearly spent FAR too much on groceries; in our defense, we have lots of visitors and happily spend extra both to feed them and to keep lots of organic and local food in the house…still, this is INSANE; also, our 3 year olds eat like teenagers, it’s a little scary. What’s REALLY INSANE is we already cook from scratch, eat at home most nights, make our own bread, shop at CostCo, etc.
TRANSPORTATION: $350
Fuel: $112 (this includes 2-5 road trips a year)
Bike Maintenance: $78 (something is squirrely with this number but the money was spent, just not on bikes; probably some on clothing)
Insurance: $72 (dropped to cover only minimum required because of the age of the cars)
Registration/Emissions Testing: $23 (updated to correct brain fart - 8.17.14)
Maintenance: $45 (we do all our own maintenance but between the two cars, they have over 400,000 miles on them so stuff come up: for instance, the Golf needs a new suspension which is not included in this number)
Misc: $28 (this includes parking various places, including the airport and $122 when the Golf got towed after I abandoned it in the snow: a longish story I’m happy to share but is not relevant here ☺)
UTILITIES: $294
Power (gas and electric are billed together): $103 (no AC but the house leaks like a sieve, so in the summer, our usage is down around $65, but it’s pretty high in the winter, ~$180)
Water: $45
Trash: $23
Cell: $60 (was $130 but we ditched AT&T and embraced the Ting lifestyle)
Internet: $34
ENTERTAINMENT: $315
This category is messy as it includes everything from a museum membership to haircuts. We each get $150 per month to spend as we please with no justification required but we pay for clothes and haircuts out of that in addition to true ‘entertainment’ expenses.
STUDENT LOAN: $217 (This is the minimum, every now and then I throw a little extra at it. We are planning on upping the payment to $500 as that gets the term down to 4 years from 12 and saves ~$4,000 in interest over the remaining term of the loan)
OTHER: $735 (another ugly category as this includes everything from medical expenses (which come out of the HSA, contributions to which aren’t included in the $7,000 take home) to pet food and contributions to my IRA; this is also going to include my business expenses which aren’t high but between that, the IRA and the medical, this number is probably closer to $450-$500)
TOTAL EXPENSES: $6,263
ER Expenses and Thoughts
Expenses should be whatever we get them down to from above minus the student loan and house payments. We don’t have a clear picture of when exactly we’d like to retire at this point but the house will be paid off and the children will be off to college at about the same time (+/- 15 years from now) so that might be a good time to bite the bullet. As a musician who has been playing for 20 years now, I don’t plan to retire until I can’t physically play anymore. Spouse is also a musician and would like to quit his job in software development to basically do what I’m doing which is teaching private lessons and playing wherever I can get paid to play.
Assets
House: $250,000
401k: $50,100 (contribution is 8% + 4% match, goes up 1% each raise and every March)
HSA: $6,000 (contribution is $4250 per year as that is our deductible; we spend far less and would like to start maxing out the contribution here)
Roth IRA: $5,300 (contribution is 25% of my income; I generally get paid by check, and when I deposit them, I skim 25% off the top)
2003 Golf TDI: $5,000
1999 BMW 528iT: $5,000 (mini facepunch: this car is for sale at this very moment bc we’re sick of putting up with its crap)
Emergency Fund: $4,200
529: $500 (just opened this two weeks ago; contribution is $100 per month)
529: $500 (same as above)
Liabilities
Mortgage: $155,600 remaining at 2.5% fixed, 14 years left on 15-year loan
Student Loan: $22,500 remaining at 4.5% fixed, 12 years left on 20-year loan
CC Debt: $1,800 at an embarrassing interest rate (FACEPUNCH; this was never high, we just weren’t paying attention, and it will be gone by fall. This is where most of that food spending went.)
The Questions
1. Are there any glaring items in our budget (aside from food, holy hell, what is that?!) that could use adjustment. It seems to me that at the very least, we should sit down with Mint and get that ‘Other’ category defined a little (a lot) better.
2. We have lots of investment options available to us that we aren’t utilizing. Maxing the 401k, maxing IRA contributions, maxing the HSA contribution, opening more IRAs, things I’m sure we haven’t thought of. Where do we go first here?
3. We also have a few more medium to high dollar things we want/need to do to the house in addition to some general upgrades/updates as seem reasonable.
a. For example, the basement bathroom (frequently used by us on a daily basis and by guests every few months) is in dire need of a full gut and replace due to questionable maintenance and some possible water damage at some point in the past (the CATS have knocked tiles off the shower wall!).
b. The siding is in questionable shape and needs attention probably within the next 5 years, and we have several windows and exterior doors that are in need of replacing if only for the energy efficiency (thankfully we as a people have managed to improve upon single-pane, aluminum frame windows and sliding doors in the past 50 years- now how to bring those improvements to our own lives?)
c. Also, we are in dire need of additional/new attic insulation. Again, this can pay for itself in a relatively short time, but again, because our energy use is pretty low to begin with, it doesn’t feel like it’s actually costing us that much on an ongoing basis right now.
d. We do virtually all of this work ourselves and source materials from Craigslist and the like whenever possible, thus keeping costs down dramatically. That said, it’s still replacing an entire bathroom and/or residing an entire house.
e. Do we continue to split our excess between the house and investments or focus on one then the other?