Author Topic: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.  (Read 7291 times)

missj

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I will be periodically updating this original post in red with new information after answering questions from you wise mustachians!
I am 33  years old and work 10-11 hour days 4 days per week with a 17 mile one way commute.
Husband is 39 and is self employed works from home and handles much of the child care.
Son is 5 and will start kindergarten in 10 days!!

Income:
Me: Salary + Bonus + Overtime = $92,500 pre tax
Husband. Widely variable averaging perhaps $18,000 per year.  He gets paid 2-3 times per year in lump sums. The rest is in retained earnings.
Poker winnings (mostly online) widely variable but average $1,500 per year.

* I prefer to only rely on my own salary and bonus since that is sufficient to live on; and I never know when the other monies will be coming in.  I prefer to treat other income as"windfalls" to purchase things we've been waiting for like vacations, appliances, home repairs etc.

Total Income: $112,000  of which $92,500 can be relied upon, or $7,708 per month. $5,010 after taxes

Current Monthly Expenses:  averaged I'll list down the minimum payment on my debts, not what I actually have been paying.
$1,551 Mortgage P&I+ escrow
$302  new car payment 1.99% interest (ouch. face punch. OUCH!)
$196  used car payment 4.25% interest
$113  Auto Insurance Geico
$341  groceries
$294  gasoline likely skewed by 3-4 road trips a year to visit family for holidays etc. 6+ hour drives one way.
$148  electric bill
$  25 garbage bill
$130  cell phone 2 lines, data plan etc.
$102 Home telephone and high speed internet (yes we need a landline, we live in the sticks. no cell service)
$150  Roth IRA
$455  Employer sponsored 403(b) plan
$300  Universal Life Policy (apparently $273 per month goes into an investment vehicle and the rest is cost of insurance/fees)
$350  Emergency Cash fund (money market)
$  51 Term Life Insurance on both adults
$  78 Long term disability insurance, specific to my trade. High likelihood of workplace injury/disability in my trade.
$  30 Gym Membership.  They have a pool and I swim laps and it's next door to my work. 
$    8 Netflix
$  00  Water/Sewer bill  we are on well septic yay!
$  00  Cable Bill  we've never had it.   YAY!
$  00 Credit card debt.  YAY! just paid it off last night.  have 4 cards I use for the various rewards systems.
$0000 Medical and Dental insurance paid 100% by employer
$4,624 budgeted each month of which $1,228 goes into some kind of savings so $3,396 actually "spent" each month or $40,752 per year. 

There is a "surplus" of $386 from my paychecks each month, but really this just comes from months that I get 3 paychecks plus my bonus....so fairly irregular on that leftover income actually being there each month.  I treat it as a "buffer" for things like clothes and dining, laundry soap etc. note. I should point out that this "buffer" used to be spent on childcare until 2 weeks ago. in fact, I used to spend much more than this on child care and relied on my husband's business and my poker winnings to make up the difference.   which is part of the reason I sometimes carried a credit card balance until 1 of the months I got 3 paychecks or a bonus.

Employer Sponsored Retirement Programs

I am quite lucky that my employer  has a traditional pension. (defined benefit program)  if I were to work full time until age 65 it would be worth 1.1 million if I lumped it out at age 65.  Obviously I do not wish to work full time for that long, so it will be worth considerably less than this.  I am already 100% vested.

My employer also contributes a 1% match to my Vanguard 403(b)

Also I will be eligible for employer paid medicare supplement plan beginning at age 65 with options to self-buy younger at a discounted rate.

Assets
Hypothetical home equity of $83,000, based mostly on appreciation (market value $300,000)
Husband's business assets are tough to value. ~$100,000 but not liquid at all.
Vanguard account net worth $24,150
Edward Jones Account net Worth $26,500
Emergency Fund $13,000
90 oz Physical Silver at $20/oz = $1,800
Total potential assets: $248,450

Liabilities
30 yr fixed mortgage 4.875% $217,000 principal of $232,000 original amount
auto loan #1 $13,000 at 1.99%
auto loan #2   $6,900 at 4.25%

Miscellaneous: this universal life policy perplexes me to no end!  I can tell you I've had it for 9 years and so I'm supposedly "almost" done with the 10 year penalty/surrender period.

Here's the details as best I can understand them.  First, its really 2 policies.

Husband: $150,000 face value of death benefit.
$5,584 Cash value
$-541  less surrender charge
$5044 Net cash value

Me: $510,000 face value of death benefit
$14,372  Cash Value
-$1,425  Less surrender charge
$12,948 Net Cash Value

which, all in all seems pretty crappy that I've been paying $300 a month for 9 years so I've made $32,400 in contributions and its only worth $17,992.  I realize some of that is the cost of insurance, but you would hope the investment performance might at least cover the cost of insurance and fees.  The rest just baffles me how this can happen when I've dutifully invested and haven't moved my money around, withdrew or touched it in any way and it's like 45% gone.  I realize the markets took a beating over the last 9 years, but they've also recovered quite a bit since the lowest days of the recession.

My specific Questions:
where to begin? Do I take the hit on surrender charge with universal life and cash it out at a pretty big loss?
Move edward jones into a personal vanguard brokerage account? what types of investments, just an index fund?
possibly pay off the car(s) with the proceeds of the universal life transaction?
possibly cash out the universal life and put it in the market since i'm paying a relatively low interest rate on my auto loans?
Refinance?  Can I really get a much better rate than 4.875% to make it worth it?  my credit score is 762.
« Last Edit: August 15, 2014, 10:33:18 AM by missj »

hokiegb

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #1 on: August 15, 2014, 04:46:41 AM »
I did the same analysis on my universal life policy last year and ended up ditching it. I didn't get back out nearly the value that I put in, but at least the bleeding stopped. I was still concerned about taking care of my family if anything happened to me, so I got a term lift policy in its place for around $15/month for $250K coverage.

Were I in you position I would definitely pay of car loan #2 at the higher rate immediately. Can loan #1 I would probably accelerate the payoff on, maybe shifting the monthly emergency fund payment to car loan payment.

You could take a look at how much you really need in cash reserves, too. Since your credit cards are paid off, you might be able to shift the "emergency fund" into something with a higher rate of return. You should be able to get cash back out of a Vanguard account in ~5 days, and you have credit for any immediate emergencies. Just a thought.

chasesfish

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #2 on: August 15, 2014, 05:10:54 AM »
Wow, lots of thoughts here and I'm sure everyone else will help chime in too.

How much are your term policies?  How long are they?  If sufficnet, dump the universal immediately.

Yes, move your investments from EJ to Vanguard immediately.  Do you have Roth IRAs? you didn't say the account type.

On the emergency fund, go to a credit union and get a home equity line, you should qualify for $20,000 - $40,000 based off the numbers.  Then payoff the car loans with your emergency fund.

Is 17 miles one way or round trip?  Why?

If you still have the car loan debt, market is 1.99% on it.  Its some savings, but its such small dollars your better off to accelerate the payment.

How much do you put away in your 403b?  You need to get that target to $17,500.

soccerluvof4

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #3 on: August 15, 2014, 05:53:17 AM »
I agree dump the Universal Life Policy and pay off at least one of your cars.

Also for sure dump EJ and go into Vanguard.

Finally as Chasefish said max out your 403B and any other tax deferred accounts you can possible set up! drop that income as much as you can for tax advantages.

megamomo

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #4 on: August 15, 2014, 07:37:41 AM »
This may not answer your major questions, but here's some feedback on your expenses.

$113  Auto Insurance
I just went through switching insurances.  I was amazed at how much I was overpaying.  It seems their tactic is to lure you in with a low price the first year and then increase it 10+% every year you keep the same company.  I recommend searching for a lower price if you haven't already.  I went from slightly over $100 to less than $60 for two vehicles.

$130  cell phone 2 lines, data plan etc.
$102 Home telephone and high speed internet (yes we need a landline, we live in the sticks. no cell service)
Have you considered just using a VOIP service for your landline?  You could buy an Obi with a service like Vestalink.  I cut my home phone portion down below $10/month by doing this (not including cost of high speed internet).

http://www.amazon.com/dp/B00BUV7C9A
http://www.vestalink.com/

Lots of suggestions around here on cell phone plans.  I'm a republic wireless fan.

All told I think you can get this down well below $100 for all phone services.  $40 for internet + $10 each cellphone plan + $10 VOIP + taxes.  Even with an upgraded cell plan and/or internet speed, getting below $100 is reasonable.

$294  gasoline

For a 17-mile commute for 4 days and a work-from-home spouse this seems really high.

MandyM

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #5 on: August 15, 2014, 08:27:50 AM »
What kind of cars to you have? I'm guessing "in the sticks" means you wouldn't feel comfortable dumping a car, even though one of you works from home. But can the 2nd car be more beater-esque?

You treat DH's earnings as "windfall" and the surplus from your salary as "buffer"...is any of it actually saved? Looks like potentially ~$20K a year. Also, do you know what you are spending each year on your buffer/surplus items of vacation, clothes, dining, etc??

I know little about life insurance (no dependents here...) but I think you should stop counting the universal life policy as savings. There is a huge sunk cost there for a (probably crappy) product that you purchased 9 years ago. Unless you are sure that it makes sense to wait OMY, get out now.


Jags4186

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #6 on: August 15, 2014, 08:31:36 AM »
Is your husbands work situation okay with you?  Seems to me that if this is all he's ever going to make he might consider going to get a normal job.  I would seriously consider having him stop playing poker online for real money.  Of course he can make money, but he can also lose big and I am always suspicious of gamblers becoming addicted and wiping out the nest egg.  Not saying that's him at all but just a concern I always have when people mention gambling as an income.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #7 on: August 15, 2014, 10:20:52 AM »

How much are your term policies?  How long are they?  If sufficnet, dump the universal immediately.
mine is for 500,000 for 30 years (26 remaining) and my husband's is for 250,000 for 26 remaining years.

I'm no insurance expert, but I feel like we need more life ins coverage than that, so if/when I dump the universal life I will replace with some additional life insurance.  question is how much?

Quote
Yes, move your investments from EJ to Vanguard immediately.  Do you have Roth IRAs? you didn't say the account type.
Yes I have a Roth IRA which I currently contribute $1,800 a year to and the traditional IRA is leftover from a previous employer plan.


Quote
Is 17 miles one way or round trip?  Why?
1 way. 34 miles round trip. We prefer to live in the country.  We live on 3 acres with chickens, orchard, big garden, well water etc.  This is a lifestyle choice that will not change.  I already have the closest possible job to my rural location.  My company has 16 locations I could work from and the next closest one is 18 miles 1 way but with much worse traffic.  I feel that some of the savings of living rurally (such as lower property taxes and well water and raising some of our own food) offset the higher commuting expense.  It does help that I only commute 4 days. 

But another reason that we live rurally is that my husband needs quite a bit of space for his business.  He has 2 large shops/barns dedicated to his business and doesn't need the full 3 acres but does need at least probably 1 acre.


Quote
How much do you put away in your 403b?  You need to get that target to $17,500.
6% pretax which turns out to be about $5,550

thanks for all the thoughtful input.  I will update my original post in red with new information as I answer questions.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #8 on: August 15, 2014, 10:37:26 AM »
I did the same analysis on my universal life policy last year and ended up ditching it. I didn't get back out nearly the value that I put in, but at least the bleeding stopped. I was still concerned about taking care of my family if anything happened to me, so I got a term lift policy in its place for around $15/month for $250K coverage.

Were I in you position I would definitely pay of car loan #2 at the higher rate immediately. Can loan #1 I would probably accelerate the payoff on, maybe shifting the monthly emergency fund payment to car loan payment.

You could take a look at how much you really need in cash reserves, too. Since your credit cards are paid off, you might be able to shift the "emergency fund" into something with a higher rate of return. You should be able to get cash back out of a Vanguard account in ~5 days, and you have credit for any immediate emergencies. Just a thought.

so you just paid the surrender charge?  ugggh. I hate charges but it looks like I get charged more than the surrender charge in just a couple of months of hidden fees anyways (either that, or they just pick the worst possible investment vehicles that are losing money consistently).

I will have to wrap my head around shrinking my cash reserves.  I KNOW logically that I need to but because of my husband's business being so unsteady it makes me feel good having that safety net.  I wonder what is the minimum cash on hand you would recommend?

Aphalite

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #9 on: August 15, 2014, 10:51:13 AM »
This may not answer your major questions, but here's some feedback on your expenses.

$113  Auto Insurance
I just went through switching insurances.  I was amazed at how much I was overpaying.  It seems their tactic is to lure you in with a low price the first year and then increase it 10+% every year you keep the same company.  I recommend searching for a lower price if you haven't already.  I went from slightly over $100 to less than $60 for two vehicles.

It's mostly that adjustments to the group insured will increase costs. So for example, out of the group of people that the Company insured when you applied for the policy, let's say 5% had an accident. Well that increases premiums for the whole group. Changing companies or even just revisiting the policy will reset that. So insurance isn't something you can just set and forget

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #10 on: August 15, 2014, 10:53:44 AM »
This may not answer your major questions, but here's some feedback on your expenses.

Quote
$113  Auto Insurance
I just went through switching insurances.  I was amazed at how much I was overpaying.  It seems their tactic is to lure you in with a low price the first year and then increase it 10+% every year you keep the same company.  I recommend searching for a lower price if you haven't already.  I went from slightly over $100 to less than $60 for two vehicles.
cool thanks.  which company are you with right now? I switched from Progressive to Geico about 2+ years ago.  might be time to switch again...

Quote
$294  gasoline

For a 17-mile commute for 4 days and a work-from-home spouse this seems really high.

you are right it does seem really high.  I need to look into why it is so high.  I pulled this data from Quicken and I have 10+ years of quicken data, so i can tell you that the data is pretty darn accurate (maybe sometimes a purchase gets miscategorized like buying ice and beer at a gas station might accidentally get called a gasoline purchase but these should be small impacts over time)

I constantly urge my husband to use his business credit card for filling his gas tank....it is hard to split up his business vs. personal driving for him because he combines many types of errands into 1 trip.  he goes to the post office probably 4 days a week for his business and lumps this in with dropping the child off at daycare/preschool etc.  To which I've replied "just call it all a business expense then".  I don't think he is very compliant with using his business funds for gas purchases.  time to crack the whip!

But it's not fair to blame just my husband, he is much better at combining trips than me.  Friday is my day off and I tend to use it as my errand day.  I do those errands in town and try to schedule it around visiting friends in the city.  So pretty much EVERY friday I drive into the city (30 miles 1 way) and do a bunch of other driving around and errands so probably drive 100 miles every friday.  I could easily condense that into 1 or 2 city trips per month and try to do more of my errands after work when I'm already in town. (problem is I get off at 6:00 pm and by the time I go to the gym, then grocery store or whatever I'll get home at like 8:00 or later and then my son will be asleep and I won't really spend any time with him for the better part of a week!)

We also take several road trips per year to visit family and for vacations. we usually only travel by car and most of these trips are 6+ hours as my family all lives 400 miles away, one way.  We probably take trips like these 4-5 times per year.  They also come here about 1-2x per year but there are a lot more of them, so it makes more sense for the 3 to travel to visit the 10 than for the 10 to travel to visit the 3.  Plus, we have a small house and cannot entertain as easily, people end up camping in the yard or getting a hotel.  My parents have a McMansion with lots of extra bedrooms.  We get to bask in central air and watch CABLE when we're there.....cable is pretty awesome when you only watch it a few times a year for free.  :)
« Last Edit: August 15, 2014, 10:59:19 AM by missj »

Aphalite

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #11 on: August 15, 2014, 11:00:57 AM »
It looks like you're in pretty good shape - expenses are around 40k which means you're saving over 50%

Your questions:
1) where to begin? Do I take the hit on surrender charge with universal life and cash it out at a pretty big loss?
You'll have to do some analysis here - 1) how much is the surrender charge 2) how much is the cash flow cost to get to year 10 and avoid the penalty

2) Move edward jones into a personal vanguard brokerage account? what types of investments, just an index fund?
Vanguard - do a 50/25/25 split - VTSMX/VGTSX/VBIIX

3) possibly pay off the car(s) with the proceeds of the universal life transaction?
I would keep the 1.9% loan - it's cheaper than inflation. The other car I would look into refinancing with a credit union, or pay off

4) possibly cash out the universal life and put it in the market since i'm paying a relatively low interest rate on my auto loans?
Whatever money you don't use to pay off debt, put into investments or increase retirement contributions

5) Refinance?  Can I really get a much better rate than 4.875% to make it worth it?  my credit score is 762.
Yes - you should be able to get around 4.125 - as long as you stay in your house for at least 2 years, it's worth it. Plus the extra cash flow each month you can save/invest

One major suggestion I have for you is to seek ways to max out retirement contributions to avoid taxes - for example, all of your husband's earnings should go into a solo 401k. And if you can contribute more (try to max) to 403b, I would do that

Gone Fishing

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #12 on: August 15, 2014, 12:25:49 PM »
+1 on the refi.  Since you have been in your home for a while, a 15 or 20 year mortgage at a lower rate might have close to the same payment as what you are paying now and shave years off your mortgage.  Make sure to get several quotes including one from your current lender. If you really plan on staying forever, it may make sense to pay a point or two to bring your rate down, be sure to ask about this.

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #13 on: August 15, 2014, 01:27:24 PM »
missj, here's how I would optimize your situation in roughly this order of importance:

1) Refinance your mortgage. You can likely find a low (or no) cost refinance close to 4% for a 30 year mortgage, and if you want to go to 15 years you can get around 3.25% and your payment might not even go up. Since this is your biggest liability, this must be your #1 priority as it will have the biggest impact on your net worth.

2) Contact the Universal Life Insurance company/broker. Don't buy anything else, you are no longer in the market. Figure out exactly when you can get out of this without a penalty, then analyze. Based on what you've said here, I would say wait out the year. $300 * 12 = $3,600, and the surrender charges are ~$2K (~10%). If you make $3,600 in contributions in 1 year, your CSV should increase by at least half that, plus with the surrender charge disappearing this should be your best play. As soon as the surrender charges disappear cash out the policy and just stick with your term policies. They are enough to cover your mortgage so they should be enough.

3) Move the Edward Jones stuff over to Vanguard. It will almost always be cheaper and therefore better in the long run.

4) Stop making a $350 payment to your Emergency Fund. $13K is enough, if not twice what you really need in your EF. I would use some of those funds to invest. When you do the mortgage Refi, inquire about getting a HELOC as well as your new EF.

5) Consider switching from Roth IRA to Traditional IRA (T.IRA). Your income suggests you are right around the 15%/25% bracket cutoff. If you're in the 25% bracket switch to TIRA immediately. If you're in the 15% bracket I would still make the switch, but others here will tell you to keep making the Roth Contributions. Read this for further context: http://www.madfientist.com/traditional-ira-vs-roth-ira/

6) Either refinance or payoff the 4.25% car. Pay the minimum on the 1.99% car.

7) Get a cheaper cell phone plan as soon as you can get out of your contract.

If you can manage to do all this by the end of the year you will be in great shape.


JoJo

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #14 on: August 15, 2014, 01:30:13 PM »
A note on the UL policies...

If you are planning to ditch them in the near future, stop paying premiums now!  They are flexible premium policies, meaning you can skip premiums.   Most ULs have a 4-7% premium load meaning that every $100 in premium only puts $93-96 into the account value.  You have enough in the surrender value to not lapse.  Concerning the surrender charges, most companies have cliffs in their surrender charges, such that if you can wait it out until the anniversary, the surrender charges will drop considerably.   If you are within months of the year where surrender charges will stop completely it's a no-brainer to stop paying premiums and wait until the anniversary.  Please note that it seems like the monthly charges are low enough such that the drop in surrender charges exceeds this amount (but without looking at the actual details I cannot determine this with certainty, so my answer might change if the monthly charges are higher than you indicate).

Cheddar Stacker

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #15 on: August 15, 2014, 01:41:30 PM »
I ran a few mortgage #'s for you based on rates I found online at a local credit union:

Current
4.875%
232,000 Orig Prin
$1,228 Monthly P&I
~$300 Monthly Principal Payment

New 30 Year
4.125%
217,000 Orig Prin
$1,052 Monthly P&I
~$315 Monthly Principal Payment

New 15 Year
3.25%
217,000 Orig Prin
$1,525 Monthly P&I
~$950 Monthly Principal Payment

So if you were to switch to a 15 year mortgage your payment would go up ~$300/month and your principal portion of the payment would go up ~$650. You already have $400+ of surplus now that you don't have daycare. When the UV Life policy stops you'll have another $300 of monthly cushion. If you switch to a T.IRA you will have even more cushion as you won't have to pay as much in taxes.

You can swing a 15 year if you want, but at the very least get a lower 30 year rate which would free up another $176/month for you to invest.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #16 on: August 15, 2014, 02:18:46 PM »
What kind of cars to you have? I'm guessing "in the sticks" means you wouldn't feel comfortable dumping a car, even though one of you works from home. But can the 2nd car be more beater-esque?
I drive a Subaru Forester.  We live at the base of Mt. Hood and go camping, snowboarding etc a lot. I really like having the AWD.  Probably don't NEED it for how little it snows around here could get by with chains on the weekends for the ski trips....but it's a luxury I allow myself and I've already taken the hit of driving the new car off the lot.  Probably could not replace it for less than $13,000 with a car I liked as much.

The 2nd car is a 2006 Dodge Sprinter camper van we use for family camping trips and road trips.  It is not a beater by any means but in the world of RVs and camping vans I'm pretty proud of how little we spent.  It is a $35,000 camper van brand new.  We bought it used for $15,000 and we only financed $10,000 of it.  it is a luxury that we probably don't need, but it saves us on hotel costs for our weekend excursions and just generally makes life nice.

My husband has several other cars available to drive since his business is restoring and flipping vintage cars.  They are essentially business assets, but he drives them around sometimes for fuel economy purposes and I guess there is a logical reason that you aren't supposed to just let old cars sit forever- he assures me they are supposed to be periodically driven even if just for a few miles so he does this which is fine with me since it tends to save on gas.

Quote
You treat DH's earnings as "windfall" and the surplus from your salary as "buffer"...is any of it actually saved? Looks like potentially ~$20K a year. Also, do you know what you are spending each year on your buffer/surplus items of vacation, clothes, dining, etc??
 

Up until this point, no we have not been saving any of that.  We use that money to buy those things that we want but have been putting off for frugality purposes.  examples of the last several things I bought that aren't part of my monthly budget that would come out of my "buffer" or windfall money are:

Yakima Sky Box (used) for hauling snowboarding and camping gear
Season passes for whole family to ski hill
Women's Race Bike with carbon forks (used craigslist)
Child's tag along bike (used craigslist)
School clothes at Ross for Less and Salvation Army
Christmas Presents
Manual Well Pump as back up
Replacement Generator for when power goes out (ours broke)
Airsoft Gun for cheaper target practice and varmint hunting around the property
Chainsaw to enable my husband to get better deals on firewood (like free from craigslist, but you cut and haul)

But I can definitely see that almost $20,000 budgeted to these things is too much.  There has to be some room for savings there.

Since I normally get these monies in $5,000-$10,000 increments which might make good opportunities for certain investments with higher minimum purchases such as municipal bonds?  Or just make large one time contributions to my Vanguard account?
« Last Edit: August 15, 2014, 02:24:58 PM by missj »

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #17 on: August 15, 2014, 02:47:07 PM »
Is your husbands work situation okay with you?  Seems to me that if this is all he's ever going to make he might consider going to get a normal job.  I would seriously consider having him stop playing poker online for real money.  Of course he can make money, but he can also lose big and I am always suspicious of gamblers becoming addicted and wiping out the nest egg.  Not saying that's him at all but just a concern I always have when people mention gambling as an income.

haha!  This is a bit of a sore spot.  The cold hard facts are that my husband refuses to be an employee.  This might bother me more except he is extremely hard working, self motivated, and ambitious. (and because we've invested several hundred dollars in marital counseling to enable both of us to feel OK with it).

He does make money, just maybe not as much as he would make as an employee.  The trade off is that his schedule is flexible to support our son and my demanding work life.  If I have to work late, no problem my husband sets his own hours.  He gets to spend valuable time with our son that would otherwise be spent with a paid daycare provider, he teaches our son practical skills such as gardening, caring for chickens and pets, caring for fruit trees and vines, household repairs and improvements, and general tinkering around with cars and mechanical items.  I averaged his wage at $18,000 to avoid being overly optimistic but in 2013 he actually made $32,000 (his highest annual earnings ever).  I'd like to believe that will be the new average wage but it's really hard to forecast.  So I picked $18,000 since it is the average of the last 5 years since our son was born.


As to the poker, it is actually me that is the poker player.  Without going on a rant, poker is very much unlike other forms of "gambling"  such as craps, blackjack, horses, sports betting, lottery where you have to get lucky to beat the built in house cut.  In poker, you don't have to beat the house, you have to beat the other players.  Since many of these other players are quite terrible, and play emotionally, take silly risks, play while drinking, many even expect to lose, they are not difficult at all to beat.  I have a sustained ROI of 8.54% over a 6 year period and tens of thousands of hands played.  Many studies and comparisons report that investing in the top professional poker players has a similar risk to investing in the stock market and a lower risk than investing in other professional athletes like baseball players.  I do not proclaim to be a top professional player, but I am a proven low stakes winning player.  the problem is that as you move up in stakes the players get better and harder to "beat" and so you  get into a situation of higher risk and diminishing returns which is why I will never do this professionally but I truly enjoy it, and as a bonus it earns me money.  Just trust me; I don't have a gambling problem.  I can quit ANY TIME I WANT (famous last words....ha ha ha!)  :-)

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #18 on: August 15, 2014, 08:00:39 PM »
I ran a few mortgage #'s for you based on rates I found online at a local credit union:

Current
4.875%
232,000 Orig Prin
$1,228 Monthly P&I
~$300 Monthly Principal Payment

New 30 Year
4.125%
217,000 Orig Prin
$1,052 Monthly P&I
~$315 Monthly Principal Payment

New 15 Year
3.25%
217,000 Orig Prin
$1,525 Monthly P&I
~$950 Monthly Principal Payment

So if you were to switch to a 15 year mortgage your payment would go up ~$300/month and your principal portion of the payment would go up ~$650. You already have $400+ of surplus now that you don't have daycare. When the UV Life policy stops you'll have another $300 of monthly cushion. If you switch to a T.IRA you will have even more cushion as you won't have to pay as much in taxes.

You can swing a 15 year if you want, but at the very least get a lower 30 year rate which would free up another $176/month for you to invest.
Thanks so much for crunching those numbers for me!

Ok, I'm definitely liking the refinance idea.  I'm having a hard time choosing between 15 yr or 30 yr.  Please help me understand if my thought process is correct here:

Option A
Refinance 217,000 + $6,000 closing costs = 223,000 into a 15 yr fixed at 3.29%
Monthly P&I = $1,571
Total mortgage interest paid $59,832
Would Pay off 10/01/2029
Beginning 11/2029 invest entire $1,571 mortgage savings
1571 monthly compounded at 7% for 15 more years = $497,951  (balance in 30 years)
1571 monthly compounded at 6% for 15 more years = $456,879  (balance in 30 years)
1571 monthly compounded at 5% for 15 more years = $419,913  (balance in 30 years
1571 monthly compounded at 4% for 15 more years = $386,610  (balance in 30 years)

Option B
Refinance into a 30 yr fixed at 4.29%
Monthly P&I = $1,102
Total mortgage interest paid $173,812
Would pay off 10/01/2044

Take the difference and invest in vanguard $1,571-$1,102 = 469 per month to invest
469 monthly compounded at 7% interest would be $148,658 after 15 years or $572,175 after 30 years
469 monthly compounded at 6% interest would be $136,396 after 15 years or $471,124 after 30 years
469 monthly compounded at 5% interest would be $125,360 after 15 years or $390,334 after 30 years
469 monthly compounded at 4% interest would be $115,418 after 15 years  or $325,512 after 30 years

So, if I crunch those numbers it looks like either way in 30 years I'd have a paid off home and an investment portfolio, but depending on the market return for the next 30 years, the portfolio will be slightly different sizes depending on which loan I take.

If the market return in the next 30 years is 6% or better, it would be better to take option B, the 30 year loan.  If market return in the next 30 years is less than 6% it would be better to take option A, the 15 year loan.

Are there other considerations that I'm overlooking?  Such as tax implications?  To the best of my knowledge both contributions feature a tax shelter, but is the IRA or 403(b) a BETTER tax shelter?

What about the fact that if I choose the aggressive debt reduction plan (15 yr mortgage) I am guaranteed the outcome I hope for.  But if I choose the aggressive investment option (30 year mortgage) I am risking lower than hoped for returns, or potentially even a loss.  How strongly should I consider these factors?

Do my calculations and though process seem accurate?
« Last Edit: August 15, 2014, 08:11:12 PM by missj »

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #19 on: August 15, 2014, 09:49:19 PM »
I didn't rerun your numbers but they are right in line with other scenarios I've run in the past. 15 yr offers higher cash needs but a fixed return. 30 year offers lower cash needs and a variable but likely better long term result.

Here's the real kicker though - you will come out ahead with 15 yr at the lower interest rate for the first 5-10 years, then the 30 yr pulls way ahead. So if you are in your "we are gonna raise our kids here and stay long term" home, 30 yr wins. If you are unsure, 15 year for wins sure.

We plan to move within 3-5 years so last year we got a 15 yr 2.875% mortgage. The principal paydown is very similar to what yours would be near $1k/month.

I have a side by side comparison spreadshet I can send you but its at work so would have to wait until Monday. Let me know if you want it. It tells you the breakeven point.

Cheddar Stacker

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #20 on: August 15, 2014, 10:48:57 PM »
Also, I'm with you on the poker thing. I played for about 15 years, mostly for entertainment. I never quite had the edge most great players have, but I understand it. Robotically make the proper play, be in enough hands, you should come out on top.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #21 on: August 15, 2014, 11:25:29 PM »

Here's the real kicker though - you will come out ahead with 15 yr at the lower interest rate for the first 5-10 years, then the 30 yr pulls way ahead. So if you are in your "we are gonna raise our kids here and stay long term" home, 30 yr wins. If you are unsure, 15 year for wins sure.


the other thing I like about the 15 yr mortgage is the ability to achieve "take this job and shove it" status faster.

Now, don't get me wrong I like my job.  But as long as I have my mortgage I absolutely NEED my job.  It is an unnerving feeling to know that if I lost my job and couldn't get a comparable job within a few months that I could lose everything I've ever worked for and be forced to start from scratch.  This is not likely to happen as I have a specialized skill that should always be in demand; but the feelings that go along with KNOWING that I NEED to work are uncomfortable.

so, it's an emotional thing, but when 2 choices are otherwise pretty close I think it's OK to weight the decision towards positive emotions.

Thegoblinchief

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #22 on: August 16, 2014, 05:55:55 AM »
Last I checked, online poker was highly illegal in the US. Like digital piracy, I don't know if they prosecute many cases, but worth making doubly sure. Kinda silly to expose yourself to criminal prosecution for $1500 a year....

100 miles of "errands" every Friday is an awful lot of driving - and buying - what on earth do you need? If I lived that far away from stores, I'd do my best to do groceries every two weeks and all other errands 1x a month tops. Most grocery perishables will last two weeks properly cared for, especially since you provide a lot of fresh produce yourselves and presumably can/freeze/dry for the winter.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #23 on: August 16, 2014, 10:57:54 AM »
Last I checked, online poker was highly illegal in the US. Like digital piracy, I don't know if they prosecute many cases, but worth making doubly sure. Kinda silly to expose yourself to criminal prosecution for $1500 a year....

There is definitely not any US Federal law on the books making poker illegal.  Certain state laws make poker illegal or legal depending on the situation.  In fact, New Jersey and Nevada have both recently enacted laws making online poker specifically legal under a certain set of guidelines, and California is in the process of doing the same. 

The actual hiccup is the federal wire transfer law, which may be what you're thinking of.  It's not the act of playing poker online that irritates the feds, its how the money is handled.  Which is why all online poker in recent years has been handled via western union and checks by courier.  No wire transfers, no problems in the eyes of the feds.  I get a check by courier every 2 months or so...

You are totally correct about my driving habits.  I need to get that in check.  even with the 100ish miles every friday I cannot figure out how we're spending so much on gas...I need to examine this a lot more closely!
« Last Edit: August 16, 2014, 11:07:49 AM by missj »

lotigo

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #24 on: August 16, 2014, 04:34:53 PM »
I knew I loved these boards.  Finally people who understand how it works to play poker (as opposed to other casino games) for actual income!  Such a smart forum of peeps.  +1 about the explanation of online in the US as well.  Rock on.

missj

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Re: Case Study: Wife 33 Husband 39 Good salary, unsteady business earnings.
« Reply #25 on: August 16, 2014, 05:42:06 PM »
I knew I loved these boards.  Finally people who understand how it works to play poker (as opposed to other casino games) for actual income!  Such a smart forum of peeps.  +1 about the explanation of online in the US as well.  Rock on.

:-)

I didn't mention this earlier....but since you seem to know a thing or 2 about poker I'll mention that I have devised a system by which I make money out of thin air! 

I qualify for freerolls and sometimes I cash in them.  the ROI is infinity on those.  (freerolls are promotional tournaments that the poker websites put on to draw in business, aka "new suckers".  they cost you nothing to play but you can win real money.  You win very small amounts of money, but that is not the point.  It's FREE and FUN!) 

So, when I win freerolls I use that tiny amount of money to play low stakes satellites which are pretty soft (as in the other players are terrible).  I "trade up" on those satellites to play bigger and bigger satellites until finally I play in a real tournament that awards cash instead of satellite tickets. 

By diligently employing this painstaking system I get to take shots at REAL sums of money for free.  I've played in tournaments where first place wins $10,000 or more and I've risked NOTHING to take that chance (and had a blast doing it!).  So far, I've not hit the big one but I've made a whole bunch of small scores. In just 2014 alone I've earned over $250 from freerolls, and that doesn't even include the money I earn by just playing poker normally.

it's kind of like getting free lottery tickets.  You might think you don't believe in playing the lottery, but if you found a few unscratched tickets at the bus stop, you would scratch them to see if you won, right?  Of course you would-why not take a free chance at $10,000 or more?  Usually you'll get nothing, occasionally you'll get $5 or something but there's a chance you'll hit big, and for FREE!
« Last Edit: August 16, 2014, 05:45:41 PM by missj »