Author Topic: Case Study – Young family, conflicting goals  (Read 19635 times)

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Case Study – Young family, conflicting goals
« on: March 10, 2015, 12:26:41 PM »
My wife (27) and I (26) moved to Texas a year and a half ago after finishing professional school (pharmacy and law).  We had our first child in August of last year and plan to have our second (and final) within the next year or two.  We’ve worked during school and never had much money, so it’s been quite the adjustment when we started working given that we are fortunate enough to have two well-paying jobs.  I had not given much thought to our savings/spending habits until recently when I discovered this website.  By default, we’ve saved quite a bit in 18 months because we still have our “college spending” mindset for the most part.  I’ve provided some background information and a few questions.  Thanks in advance for any feedback and/or suggestions!

Income: Combined $265,000 + bonus

Monthly savings/expenses budget:

401k - $3,000 (4% match for wife; no match for me) (max)
HSA - $550 (max)
FSA (childcare) - $416 (max)
Travel Savings - $1,250
529 - $200
IRA/Taxable Savings - $1,500

Mortgage - $2,800
Student Loans - $2,400 ($950 extra per month)
Daycare - $1,020
Car Note - $375 (2012 Prius)
Utilities – average $500/$600
Everything else - $3,200 (includes phones, cable, food, gas, home/pool maintenance etc.)


Assets:

Combined 401k - $57,000
Combined Roth IRA - $11,000 (started contributing in 2015)
Cash (travel and small “emergency fund” - $15,000
529 - $3,000
HSA - $3,600
Taxable Account - $4,000

Allocation:

35% Large-Cap US Stocks
20% Small/Mid-Cap US Stocks
25% International Stocks
5% REITs
15% Bonds

Liabilities:

Mortgage - $375,000 @ 5.25%
Student Loans - $105,000 @ 4.5% (recently refinanced)
Car Note - $9,000 @ 3.3%

Specific Question(s):

Short term goal – We want more flexibility in our jobs (i.e. being comfortable with taking a pay cut).

Long term goal – Reach FI when kiddos finish HS (20 years).

First question – How should we balance our savings/paying down the student loans? We are putting an emphasis on paying off our student loans to reach the short-term goal, however, part of me thinks that the extra payments we are making would be more useful in our brokerage account. Are we sacrificing early FI for short-term job flexibility?

Second question – Is our asset allocation appropriate given our 20 year timeframe?  If not, how should we change it?

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Case Study – Young family, conflicting goals
« Reply #1 on: March 10, 2015, 12:51:11 PM »
I don't know where in Texas you need a $450,000 house for four people, two of whom are children. You've already bought it, which doesn't help, but is less expensive housing an option?

MrFrugalChicago

  • Bristles
  • ***
  • Posts: 340
Re: Case Study – Young family, conflicting goals
« Reply #2 on: March 10, 2015, 12:54:51 PM »
Also, 5.25% for a mortgage is pretty insane. Refi that puppy if you aren't moving in the next 6 months.

EscapeVelocity2020

  • Handlebar Stache
  • *****
  • Posts: 2393
  • Age: 46
  • Location: Houston
    • EscapeVelocity2020
Re: Case Study – Young family, conflicting goals
« Reply #3 on: March 10, 2015, 01:28:16 PM »
Also, 5.25% for a mortgage is pretty insane. Refi that puppy if you aren't moving in the next 6 months.

+1 This is an easy, risk-free move.  You even have options to refi to a shorter duration (like 10 or 15 year) and cut the total interest paid with ~3% rate and also might provide deductible interest if you can itemize.

I gotta say, you have a great start there!  As long as you can keep on course during an eventual downturn, you'll hit FI well before 20 years.  The AA is fine because you are young and can be aggressive (some might even argue that you are too heavy on bonds, others at Bogleheads.org would say age - 10 in bonds is aggressive...).  You should also concentrate on those student loans - that's a guaranteed 4.5% return on extra principal payment, better than any 'risk free' investment out there.

Trickiest part of your plan will be working two stressful jobs with 2 children.  When you have two young children (and associated daycare expense and negatives of missing out on unrecoverable family time), maybe you can consider if one parent can stay at home for a few years at that point.  My wife SAH'ed for 9 years and went back to work as a teacher at their elementary school this year, and it's something I highly recommend.  Even if you have bags of money in your 40's and 50's, it won't help much (and might even make it more difficult) if you have issues with the children!  There is no right or wrong answer on this, but sometimes PF gets hung up on the F and forgets the P
« Last Edit: March 10, 2015, 01:33:06 PM by EscapeVelocity2020 »

hunniebun

  • Bristles
  • ***
  • Posts: 491
Re: Case Study – Young family, conflicting goals
« Reply #4 on: March 10, 2015, 01:34:05 PM »
It looks like you have a solid plan to me...balancing saving with debt repayment.  Are you wanting to work less before the 20 years mark? or have a parent stay home after the second child?  Is that what you mean short term? I think it is difficult to balance the desire to work less when your kids are young...vs work your tail off so you can FIRE.  For us, I have chosen to work less now (thus reducing our ability to save) so I can work part time and have summer's off with the kids...which means a more traditional retirement age of 50 or so.  But for other people, it might make more sense to front load your savings so you can retire earlier. It is a difficult balance and a very person decision. In a perfect world we would all have retired before having tiny humans like MMM did!   I think if the goal is work less in the short term then paying off all the debt should be first priority as per your debt is an emergency :)   

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Case Study – Young family, conflicting goals
« Reply #5 on: March 10, 2015, 02:22:06 PM »
Thank you all for the suggestions.  We have a "first time home buyer" mortgage through BBVA - we were able to put 5% down with no PMI and no payment (with no accruing interest) for 3 months, but the tradeoff was a higher interest rate.  When we ran the numbers, our monthly payment with PMI was slightly higher than our current payment with the higher rate.  We used the "free" 3 months to buy furniture. I know now it was probably not the wisest choice, but we were/are young and it made sense at the time. I would love to refinance to a lower rate, but I'm not sure that's an option yet because of our small down payment. Will any banks refinance with less than 20% equity?

The house is definitely more than we need, but it is our dream house and we hope to never move.   We at least made sure the monthly payment was low enough that we would not need our current level of income to maintain (mortgage is $2,800 and current takehome pay after payroll deductions is approximately $13,000).  It was built in 98 and has been updated very well by previous owners so I don't see any necessary big improvements in the short term.

@Escape - You nailed the stress part. Our kiddo is in daycare because of my wife's odd pharmacy hours (closes 2-3 nights a week) and I get flak at work all the time for leaving "early" at 5pm, even though I often go in at 6am to make up hours on the front end.

@hunniebun - The flexibility goal would be for my wife to be able to go part-time and/or for me to take an in-house position in a few years.  I don't want to miss my kids' activities as they grow up and I fear that is all too common in a law firm setting.

Mustache_In_Training

  • 5 O'Clock Shadow
  • *
  • Posts: 56
Re: Case Study – Young family, conflicting goals
« Reply #6 on: March 10, 2015, 02:24:37 PM »
What a great place to start!  Great job on maxing out 401k's, Roth IRA's, etc. That puts you ahead of 99% of the population towards earlier retirement.

Just a few comments of what has worked well for my wife and me. We have an aversion to debt. Personally, I would sacrifice the $15,000/yr of travel expenses and destroy your auto loan first. With the amount of income you generate, that shouldn't be a problem within 3-4 months. Then fervently attack the $100k in student loans. There is true freedom in not having debt. With only the mortgage at that point, you may already feel free enough to have a stay at home parent.

And just because we're Mustachians... Why the hell did you get such a fancy house? As people have mentioned, at the very least refinance. Or maybe consider something less fancy without a pool.

I'm sure if you were to itemize your "everything else" category, we could gladly point out more areas for improvement :)

« Last Edit: March 10, 2015, 02:26:37 PM by Mustache_In_Training »

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Case Study – Young family, conflicting goals
« Reply #7 on: March 10, 2015, 02:39:55 PM »
You absolutely can afford the house right now, but that's a huge number if you're looking to cut down on hours. Do you want to miss your kids' activities to pay that mortgage? Tradeoffs are real.

KCM5

  • Pencil Stache
  • ****
  • Posts: 871
Re: Case Study – Young family, conflicting goals
« Reply #8 on: March 10, 2015, 02:58:40 PM »
Even if you have bags of money in your 40's and 50's, it won't help much (and might even make it more difficult) if you have issues with the children!  There is no right or wrong answer on this, but sometimes PF gets hung up on the F and forgets the P

Are you implying that sending children to daycare would somehow cause the children to have issues as adults? There is no evidence that being in day care as a child from a supportive home would negatively impact their lives as an adult.

To the OP:

2nd that you Refi that house. Its best mathematically to pay down highest interest debt first and you're currently maxing out your pretax savings so after that I personally would kill your loans above whatever interest rate you find objectionable - 4%? 5%?

Additionally, we all make choices about how we want to spend our money so I'm not saying you're doing it wrong, but expensive house and $15k a year for travel - are you comfortable with these expenses? If so, you can certainly afford them, but if you wanted to reduce them your time to financial independence would be shorted by quite a bit.

Also, the 3K additional expenses may be high. It may not be, but you should split that up.

EscapeVelocity2020

  • Handlebar Stache
  • *****
  • Posts: 2393
  • Age: 46
  • Location: Houston
    • EscapeVelocity2020
Re: Case Study – Young family, conflicting goals
« Reply #9 on: March 10, 2015, 07:09:26 PM »

Are you implying that sending children to daycare would somehow cause the children to have issues as adults? There is no evidence that being in day care as a child from a supportive home would negatively impact their lives as an adult.


Absolutely not, our first child spent many years in daycare and enjoyed it (but maybe had a runny nose more often than we would've thought necessary).  It was when we finished maternity leave with our second child and my wife was back at work (working from home, but doing overnight shifts - she could sleep or cover during a frequent 'child home being sick' during the daytime and I could be on parent duty at night). 

My thought was more about a prolonged lack of parental involvement, due to two stressful careers.  Anecdotally, I dated a girl that had a doctor and lawyer parent, and she turned out fine, so I'm not saying it can't be done.  But in general I knew of troubled kids who totally went south and the common theme was - plenty of money + very little parental oversight.  I grew up in that kind of school though, near where they made the movie 'Traffic'. 

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6728
Re: Case Study – Young family, conflicting goals
« Reply #10 on: March 10, 2015, 07:17:46 PM »

Second question – Is our asset allocation appropriate given our 20 year timeframe?  If not, how should we change it?

Keep in mind it's only 20yrs until you want some $$ as income. Most of your investments will have 60yrs+ horizons.

I'd ditch the bonds and most if not all of the international stocks.

Consolidate your money in US stocks for maximum growth.

-- Vik

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Case Study – Young family, conflicting goals
« Reply #11 on: March 11, 2015, 06:46:18 AM »
I just pulled up our Mint account for a bit more detail on the everything else category over the last three months:

Verizon - $300 for 2 phones, cable and internet (This one hurts and we've cut cable before, but the internet alone without the bundle is so expensive that we though it made sense to pay an extra $30/40 for cable so I can watch sports.)
Gas - $120-150 (I have a 04 Pontiac GrandAm and have a bit of a commute; wife drives a Prius with a short commute.  We are planning on buying a used Toyota Highlander soon, and I will drive the Prius going forward)
Groceries - $700-800 (I think this is an area we definitely can improve on.  We try to do one weekly shopping trip, but my wife works at a grocery pharmacy and ends up buying things almost daily)
Dining out - $200-300 (We never go out to dinner during the week, and will usually go once or twice on the weekends)
Pool Maintenance - $150 (Weekly cleaning and chemical maintenance.  I've considered taking over the cleaning, but I don't want to mess with the chemicals - would drop this amount by $40-50. I would prefer not to have a pool, but it was #1 on the list for my wife)
Baby things - $250 (Includes diapers and such and now formula)

The remainder varies from month to month, and we generally spend the difference on "fun" things like new workout clothes (very important to us) at the end of the month only if there is money left over. 

@ KCM5 - I agree that our travel budget is on the high side.  Do you think it would be okay to maintain that savings rate but sweep any amounts over a certain level at the end of the year and use the money to pay down loans?  We are going on several trips this year, but a number of them are long weekends or road-trips where we have a free place to stay, so we will definitely have money left over in the travel budget this year.

Thanks again for the suggestions.

MayDay

  • Magnum Stache
  • ******
  • Posts: 4029
Re: Case Study – Young family, conflicting goals
« Reply #12 on: March 11, 2015, 07:02:26 AM »
Nothing you are spending on is crazy given your income, but it certainly is wasteful and frivolous, and will keep you from downshifting at work.

Pool maintenance- I've seen examples where just paying to have it done costs the same or less, as they know what they are doing and get bulk prices in chemicals. 

Phones/cable- we have pay as you go smartphones for 50$ a month for 2 and home phone and internet for 55 a month.  Seriously, you are overpaying.  Face punch.

Groceries- for two people working a lot, I'm not surprised it's that high.  But yah, that's high, unless you are eating all organic fair trade humanely raised etc. 

Your misc spending every month is quite high, as is your travel.  Again, you have the income for it, but if you want to down shift at work, you need to cut stuff like travel. 

How many workout clothes and baby things can you possibly need to buy? 

A highlander, really?  Why?  Why why why?  High insurance, high upfront cost, tons of gas, and all for two kids?  One of which isn't even born yet?  If you truly need the space get a minivan (hey we have one with two kids, the space is nice for camping and stuff!) not a giant SUV.  If you don't need the space (hint:  if you aren't camping or biking or similar, you don't need the space) get a wagon, small SUV, or large sedan like a Camry. 

KCM5

  • Pencil Stache
  • ****
  • Posts: 871
Re: Case Study – Young family, conflicting goals
« Reply #13 on: March 11, 2015, 07:41:42 AM »
Here's what I see when I look at your budget:

I see a couple who works a lot, so pays a premium for comfort and convenience. Also, you make a lot of money. So all of the things that would be crazy in our budget seem to be okay in yours. But if you both want to downshift, you should downshift your lifestyle now. And by that I mean get rid of the crazy nice house, cut the travel budget by a third, one of you start working part time now so you're not relying on convenience as much, don't buy a highlander! (they're nice and all, but have no more room than a wagon or mini van with the gas and price premium that goes with an SUV.), get cheaper phones, etc. With 13k a month takehome pay you can have a lot of slush and still look fine, but are you really using your time wisely? If you think you are, keep at it. If not, make some changes.

Some changes that can be made that are easy and not painful are the prepaid smartphones for $25/mo each. That plus $50/mo for internet and an antenna for some sports probably wouldn't hurt that much and would save you $200/mo. And I 2nd not getting a highlander. You could probably be just as happy with another type of car with that much room like a wagon or minivan. Or a Prius V? And also start limiting yourself on groceries - maybe $150/wk to start and then if that feels comfortable ratchet it down.

Also, since you're filling up tax advantaged savings, you're plan to sweep extra travel funds into paying down loans seems fine. Another thing to consider is to not have a travel budget, paying all of the extra on loans most months and then the months you travel cashflow the travel by reducing savings that month. You have a lot of cashflow, so it should be doable.


Are you implying that sending children to daycare would somehow cause the children to have issues as adults? There is no evidence that being in day care as a child from a supportive home would negatively impact their lives as an adult.


Absolutely not, our first child spent many years in daycare and enjoyed it (but maybe had a runny nose more often than we would've thought necessary).  It was when we finished maternity leave with our second child and my wife was back at work (working from home, but doing overnight shifts - she could sleep or cover during a frequent 'child home being sick' during the daytime and I could be on parent duty at night). 

My thought was more about a prolonged lack of parental involvement, due to two stressful careers.  Anecdotally, I dated a girl that had a doctor and lawyer parent, and she turned out fine, so I'm not saying it can't be done.  But in general I knew of troubled kids who totally went south and the common theme was - plenty of money + very little parental oversight.  I grew up in that kind of school though, near where they made the movie 'Traffic'. 

Sorry, I read that wrong. And I do agree with you about parental involvement. In fact, that's one of the reasons we're looking to downshift when our child is older, so we can be around all the time during those tumultuous teenage years.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Case Study – Young family, conflicting goals
« Reply #14 on: March 11, 2015, 08:23:35 AM »
Look, you're living a rockstar lifestyle with what appears to be a negative or near-zero net worth. You can make all the payments and more, so that's fine, but it isn't what this site is about. It's your dream house, but you don't want to handle pool chemicals? New workout clothes are "really important" to you? You want to buy a Highlander? You can afford all of this, but that's not how people reach financial independence.

I'm not sure why you posted this if you don't want to downsize your lifestyle at all.

Also, $700-$800 on food a month? In Texas? How is that even possible? One of the things that shocked me when I moved out of Texas was how much more expensive food is other places.

And the house. Either you live in one of the major cities' most trendy areas, or you have a comically large house that you spend a few hours a day awake in on weekdays. Calculate the amount of time with your family that you're missing out on to have that house versus a more reasonable one. Is that worth it?

MayDay

  • Magnum Stache
  • ******
  • Posts: 4029
Re: Case Study – Young family, conflicting goals
« Reply #15 on: March 11, 2015, 08:48:31 AM »
I agree that since you are filling your tax advantaged accounts, you should pay down loans now.  You have a ton of income, but you also have a lot of debt.  Axe the travel budget and get the debt paid off. 

MetalCap

  • Stubble
  • **
  • Posts: 114
  • Location: Washington DC
Re: Case Study – Young family, conflicting goals
« Reply #16 on: March 11, 2015, 08:59:50 AM »
Since you have such a long FIRE goal, I'd be concerned with getting the debt as low as possible, in case something happens to one of you.  Crush the car loan, use the 2nd kid as a break for a year on vacations, get the student loans out of there (you probably can't get the deduction with your income that high).

After that make sure you get the mortgage down to refinance.  Just because the numbers worked then doesn't mean you can't optimize them ASAP.  All these moves reduce your risk while still giving you the same flexibility you sought.

Keep the 401k max flowing and any other investments that help reduce your tax.

myhotrs

  • Stubble
  • **
  • Posts: 135
  • Age: 40
  • Location: Los Angeles
Re: Case Study – Young family, conflicting goals
« Reply #17 on: March 11, 2015, 10:17:57 AM »
Surprised no one has mentioned the huge amount spent on utilities, a by-product of the too-big house. I feel that a lot of people look at house prices and don't consider all the additional costs of huge square footage (utils, prop tax, extra maint, higher insurance, etc.)

My income is similar to your family and I live in expensive SoCal. We also have a 1 1/2 year old baby. I have to say our expenses are around 1/3 of yours. As a result, the wife is home with the baby and I'm on track to FIRE in three-four years. But we rarely buy new workout clothes (the few nice ones we have seem to last forever), travel is very cheap if you look into travel hacking (and we do NOT budget travel, last trip to Thailand we flew Asiana's A380 first class suites).

Lastly, I just don't understand why folks will save an emergency fund while having debt. Your credit cards or even the 401k are your emergency fund. Pay off the car loan and then collect enough to refi with 20% down, shouldn't take you guys too long.

Mustache_In_Training

  • 5 O'Clock Shadow
  • *
  • Posts: 56
Re: Case Study – Young family, conflicting goals
« Reply #18 on: March 11, 2015, 11:11:50 AM »
Phone bill is by far the easiest to slash immediately or if your contract is nearly up, wait it out. We switched to Republic Wireless and our phone bill went from $140 to $45 per month. We have internet service through a separate provider for $38/mo. No cable for us, just Netflix. While I don't have a fancy iPhone anymore, you still have the option to have a MotoX which is an equivalently fancy phone. Truthfully, the call quality/reception is probably 80% of what Verizon was, but I'm willing to deal with that since the savings is greater.

I also echo what MayDay said concerning the Highlander, really? We also have a Prius and I'm impressed with how roomy it is, are you sure that isn't sufficient space already?

If you keep your lifestyle inflation under control and don't try to keep up with the Joneses you guys can reach FI at an incredible rate due to your current income. I'd love to have that kind of income, I'd be retired in 5 years! :)

Despite what others said, I would keep your emergency fund - Just don't add more to it. $15k is plenty of cash to be sitting idle. Any additional cash, slash the shit out of your loans!

Is your wife actively reading MMM? It's good to have both parties excited about the prospect of FI, makes it much easier on both of you!

In summary:
  • Continue maxing out 401k (tax advantaged accounts)
  • Look for opportunities to cut costs (phone plan, don't buy suv)
  • Pour all remaining money into car loan and student loan
  • Once you have only your mortgage remaining, start heavily investing in taxable accounts
« Last Edit: March 11, 2015, 11:26:27 AM by Mustache_In_Training »

Noodle

  • Handlebar Stache
  • *****
  • Posts: 1204
Re: Case Study – Young family, conflicting goals
« Reply #19 on: March 11, 2015, 11:26:07 AM »
I don't know where in Texas you need a $450,000 house for four people, two of whom are children. You've already bought it, which doesn't help, but is less expensive housing an option?

Actually, at least in Houston prices have really shot up in the last 3 years or so. In a neighborhood I know well (not fashionable but safe, good schools, mid-century ranch houses but nothing fancy, relatively sane commute to downtown), 3-bedrooms are definitely listing in the 400-450K zone. Now, outside the big cities $450K would still buy a lot of house...

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Case Study – Young family, conflicting goals
« Reply #20 on: March 11, 2015, 11:45:09 AM »
I completely agree that the house is a costly issue.  I wish I would've found this website a year and a half ago before we made the decision.  That's going to be a tough conversation with the wife, but I think we should discuss alternatives. @myhotrs - you are totally correct.  We see the mortgage payment as very manageable but did not consider the extra costs (which are substantial).  If we are to keep the house, would it make more sense to aggressively pay it down to the point we can refinance (in lieu of paying extra toward student loans) or does it even matter?

The grocery spending is another area that we need to dial in (will be a much easier conversation).  Honestly, I'm not sure how it's that high.  We don't really eat organic and we both pack lunches during the week and my diet is 80% oatmeal, yogurt and whey :).  I will start looking at the receipts and figure out where we can cut costs.

With respect to the Highlander, I guess I'm a little shocked at the overwhelming negative response.  We will need a larger vehicle when we have kid #2 because the four of us will not fit in a car with 2 car seats. I'm 6'4 and do not fit in the passenger seat of either car with our current car seat. I thought our car choice was on the cheaper end for an SUV (mid $20's used with low miles), but maybe I'm totally off here. Are there any other larger vehicle options that you would recommend?

We budgeted the travel expenses so high because we have no family within 1,000 miles, so we expect to travel more than average.  I hope that we never spend that much in a year, but I feel better knowing the money is there if we ever have to make last minute trips home. I suppose we could reduce the buffer though.

Thanks again for all of the input. Neither of us grew up in families that talked about money/budgeting so I'm not surprised that we've made a number of costly mistakes. But I'm glad that we are figuring this stuff out now while we are still young.


myhotrs

  • Stubble
  • **
  • Posts: 135
  • Age: 40
  • Location: Los Angeles
Re: Case Study – Young family, conflicting goals
« Reply #21 on: March 11, 2015, 11:48:37 AM »

Is your wife actively reading MMM? It's good to have both parties excited about the prospect of FI, makes it much easier on both of you!


This is huge!! Her being on-board or not will have a giant impact on any financial plans.

mulescent

  • Stubble
  • **
  • Posts: 114
Re: Case Study – Young family, conflicting goals
« Reply #22 on: March 11, 2015, 12:03:59 PM »
With respect to the Highlander, I guess I'm a little shocked at the overwhelming negative response.  We will need a larger vehicle when we have kid #2 because the four of us will not fit in a car with 2 car seats. I'm 6'4 and do not fit in the passenger seat of either car with our current car seat. I thought our car choice was on the cheaper end for an SUV (mid $20's used with low miles), but maybe I'm totally off here. Are there any other larger vehicle options that you would recommend?

You shouldn't be shocked, at least not here (e.g. http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/).  A Prius will easily fit all four of you.  Why spend ~10k more than you need to and lock yourself into years of much higher gas and insurance spending? 

myhotrs

  • Stubble
  • **
  • Posts: 135
  • Age: 40
  • Location: Los Angeles
Re: Case Study – Young family, conflicting goals
« Reply #23 on: March 11, 2015, 12:13:19 PM »
So assuming the house is worth 400k, you'd be able to finance ~320 meaning you need roughly $60k. If it were me, I'd use the travel fund and add everything I could scrounge to it and hopefully by your next annual bonus or tax refund be able to refi. I'd tackle the student loans and car after that.

If the wife gets on board, I think you'll find your "everything else" costs shrinking and excess monthly $$ growing quickly.

By the way, you guys are doing great overall. I wish I'd found this site years ago, before making the many, many, many, many stupid mistakes I made when younger (including a '68 Firebird slowly decomposing in my mom's garage). I'd probably by FIRE by now. But the great thing about keeping exp low and having high income is that the stache can grow very quickly.
« Last Edit: March 11, 2015, 12:14:57 PM by myhotrs »

Rein1987

  • Stubble
  • **
  • Posts: 149
Re: Case Study – Young family, conflicting goals
« Reply #24 on: March 11, 2015, 12:51:45 PM »
I think as long as it is your dream house, the mortgage is not too high compared with your income. (I personally love a better house than retire a few years early, since I live there for more than the retired life)

My question is, why do you need that much travel fund?
My DH and I had two international travel last year (for honeymoon), and some domestic trip (e.g., hawai), which is only 8k in total. Since you both work, have a baby, I do not think you have a lot of vacation to travel (we saved 2 years vacation and use them up last year for honeymoon...)

zolotiyeruki

  • Magnum Stache
  • ******
  • Posts: 3282
  • Location: State: Denial
Re: Case Study – Young family, conflicting goals
« Reply #25 on: March 11, 2015, 02:17:13 PM »
You've got a lot of things going right, and a lot of things going wrong.

Things going right:
--Lots of income
--Reading MMM
--Willing to cut spending
--Maxing out 401k, etc
--Living within your (enormous) means

Things you need to fix (some of this will sound repetitive):
--"Everything else"--when my wife and I started budgeting, this category was out of control. Understanding where this money goes is a good first step to fixing it.
--Food budget is too high
--A highlander!?  A family of four, even with a 6'4" dad, will sit quite comfortably in a sedan that gets twice the MPG.  If you need cargo space, you'll get just as much in a minivan.
--Spendypants house.  Not only are you paying out the nose for mortgage, utilities, and maintenance, you're also paying....what, $12k+ in property taxes every year? You're probably spending about $60k/year on that home, including pool, taxes, PITI, utils, etc.  If you're ok with spending twice as much on a house each month as MMM spends on his entire budget, that's fine, but just make sure you're counting the actual cost.
--Cable/phone/internet.  Others have covered how to cut this down.
--With your income, and living in TX (yay no income tax!), you can afford to be much more aggressive in your FI plans.

What I'd do (ignoring the spending reductions above):
1) Get the mortgage below an 80% LTV, and refinance at 3% for 15 years.  Not only is it your highest-interest loan, but you've got PMI to go with it.  Paying down and refinancing will save you $10k per year just in interest
2) Knock out student loans next.  As others have said, that's a guaranteed 4.5% return.
3) Entertain the possibility of moving.  If you could find a similar house for $250k (and having lived in TX, I know it's possible), you could boost your savings rate by a significant amount.  Yes, you're in a dream house.  But if you make the sacrifice now, you could *own* your dream house outright in 10 years, rather than finally paying it off 30 years from now.

lpep

  • Bristles
  • ***
  • Posts: 285
  • Location: Hanoi, VN
    • My MMM journal
Re: Case Study – Young family, conflicting goals
« Reply #26 on: March 11, 2015, 06:07:08 PM »
Look, you're living a rockstar lifestyle with what appears to be a negative or near-zero net worth. You can make all the payments and more, so that's fine, but it isn't what this site is about. It's your dream house, but you don't want to handle pool chemicals? New workout clothes are "really important" to you? You want to buy a Highlander? You can afford all of this, but that's not how people reach financial independence.

I'm not sure why you posted this if you don't want to downsize your lifestyle at all.

Also, $700-$800 on food a month? In Texas? How is that even possible? One of the things that shocked me when I moved out of Texas was how much more expensive food is other places.

And the house. Either you live in one of the major cities' most trendy areas, or you have a comically large house that you spend a few hours a day awake in on weekdays. Calculate the amount of time with your family that you're missing out on to have that house versus a more reasonable one. Is that worth it?

+1000000

Maybe I shouldn't, but I do find it personally insulting when someone spends the equivalent of my entire take-home pay on just food, gas, and phones!

There was a thread here not too long ago about how people with low income really get their expenses picked apart on here, but people making lots of money get a pass because "oh, you make more than enough to cover it, so what?" FI and especially mustachianism is about more than money. It's about not being wasteful and being content with less, because less is all you need and simpler is often better.

I think you could do much, much better toward saving toward freedom and could be much happier as a result.

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Case Study – Young family, conflicting goals
« Reply #27 on: March 11, 2015, 06:50:15 PM »
I apologize if my post came off as insulting in any way, and I understand that we are far more fortunate than a lot of people in terms of our income. But I'm not sure it's fair to say that we live some rockstar lifestyle.  Other than having too much house (point taken), we don't spend money frivolously.  Yes, we've made some bad decisions and there are most definitely areas that we can cut back and save that others have pointed out (and I plan on addressing most if not all of these areas).

It seems like the consensus is that if we stay in the house (which is likely at least in the short term) it would be best to aggressively pay the mortgage down to the point we can refinance. I think this is a good idea moving forward.

We will sit down and sort out the food situation.  I agree that we have no business having that high of a monthly grocery bill.

Thanks again for the input guys, this has been a good wake up call. 

BCBiker

  • Stubble
  • **
  • Posts: 187
  • Location: Colorado
    • Business Casual Biker - Health, Wealth, and Mental Stealth BTYB Bicycle Commuting
Re: Case Study – Young family, conflicting goals
« Reply #28 on: March 11, 2015, 07:58:31 PM »
I just wanted to warn you that you are phased out of Roth IRAs at your income level. In 2015, once you are over $193K for married filing jointly, you can no longer contribute directly.  I don't know the penalty for contributing when not eligible but I don't want you to be blind-sided and get discouraged. If you want to do Roth, you have to backdoor it. Here is a good resource: http://whitecoatinvestor.com/backdoor-roth-ira-tutorial/

Otherwise, I think others have echoed my thoughts. Why the huge house? Are those empty rooms really doing anything for you? As Jacob would say (paraphrased): It is a strange world where peoples' position in society is largely perceived to be determined by the amount of empty rooms in your house...

Highlander is an enormous waste. ---> http://www.businesscasualbiker.com/monetary-impact/

It would be ideal if you could move closer/change jobs to the point where no one commutes a significant distance and you both primarily use bikes to get to work. I promise you that biking every day will give you much, much more than your echoing halls and will have a net positive effect on the budget.

Maybe moving/changing jobs isn't the best decision for you at this point but most people seem to forget this is an option.

You have won the income game.  Now you are to the point of deciding what truly matters in life and adjust your behavior and budget accordingly.  Best wishes!

« Last Edit: March 11, 2015, 08:00:17 PM by BCBiker »

jpo

  • Pencil Stache
  • ****
  • Posts: 518
  • Age: 32
  • Location: North Carolina
Re: Case Study – Young family, conflicting goals
« Reply #29 on: March 11, 2015, 08:10:13 PM »
With respect to the Highlander, I guess I'm a little shocked at the overwhelming negative response.  We will need a larger vehicle when we have kid #2 because the four of us will not fit in a car with 2 car seats. I'm 6'4 and do not fit in the passenger seat of either car with our current car seat. I thought our car choice was on the cheaper end for an SUV (mid $20's used with low miles), but maybe I'm totally off here. Are there any other larger vehicle options that you would recommend?
You shouldn't be shocked, at least not here (e.g. http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/).  A Prius will easily fit all four of you.
I disagree, if he is 6'4" I suspect driving a Prius will be extremely uncomfortable for him unless he likes to drive laying down. That car doesn't seem to be designed for tall people.

Not to say I'm 'endorsing the Highlander though.

FrugalSpendthrift

  • Stubble
  • **
  • Posts: 210
Re: Case Study – Young family, conflicting goals
« Reply #30 on: March 11, 2015, 08:55:50 PM »
With respect to the Highlander, I guess I'm a little shocked at the overwhelming negative response.  We will need a larger vehicle when we have kid #2 because the four of us will not fit in a car with 2 car seats. I'm 6'4 and do not fit in the passenger seat of either car with our current car seat. I thought our car choice was on the cheaper end for an SUV (mid $20's used with low miles), but maybe I'm totally off here. Are there any other larger vehicle options that you would recommend?
You may WANT a larger vehicle, but you don't need a larger vehicle.  I'm also 6'4" with two children and we fit two car seats in an elantra and a jetta.  I used to drive an F150 crew cab, which had plenty of room to walk around inside, but these compact cars are all I really need to get around.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Case Study – Young family, conflicting goals
« Reply #31 on: March 12, 2015, 07:08:12 AM »
I apologize if my post came off as insulting in any way, and I understand that we are far more fortunate than a lot of people in terms of our income. But I'm not sure it's fair to say that we live some rockstar lifestyle.  Other than having too much house (point taken), we don't spend money frivolously.

You pay somebody else to maintain your pool!

Apples

  • Pencil Stache
  • ****
  • Posts: 927
Re: Case Study – Young family, conflicting goals
« Reply #32 on: March 12, 2015, 08:36:40 AM »
There are internet articles elsewhere and forum threads here talking about car size to hold two car seats.  Take some time to look through those.  Some cars have more backseat room than SUVs.  You're not the first tall dad with two small children to ever walk the earth.  :)  And you guys know you make a ton of money, and you've totally earned it.  At this point, while considering downshifting your work income and looking ahead to early retirement, you definitely want to decrease your expenses.  As a good thought experiment, the median household income is around $51,000; and I've read somewhere (but am not going to go find the source, I'll just believe it) that the average college graduate's income is $81,000.  I don't know if that average is a mean or median.  I am pretty sure that includes people with graduate and professional degrees.  Just as an experiment on paper, could you make a budget where your expenses were significantly below the take-home pay of $81,000 (which would probably be somewhere around $60,000).  Possibly adjusted for COL if you're in a super expensive area.  Your current expenses are wellll above that.  It would be hard, but might give you some perspective on just how frivolous some of your spending decisions currently are.  You don't need such expensive phones, grand vacations, high utilities, etc.  You  may want all of them, and it's just fine to fund the things you want.  That's actually very MMM.  But you have to realize that seriously cuts into your ability to downshift and to save for ER.  It cuts into your savings rate now and requires a large 'stache to maintain in retirement.  And who's to say at those levels you couldn't be done in 10 years?  Or be able to ER on only one salary while the other is a more hands-on parent?  Or both of you down-shift to normal hours?  You gain freedom when you need less income.  Good luck!

theonethatgotaway

  • Guest
Re: Case Study – Young family, conflicting goals
« Reply #33 on: March 12, 2015, 02:55:03 PM »
Yikes.

That house is too much $ for -texas- and too big.

She should stay home with the kid/ multiple kids and you should work your way up to partner. You'll be making that income on your own after 5-8 more years. Life is only going to get more stressful with two professional jobs and two small kids. Luckily you can make this to where you're not sacrificing sanity.


Psychstache

  • Pencil Stache
  • ****
  • Posts: 868
Re: Case Study – Young family, conflicting goals
« Reply #34 on: March 12, 2015, 04:52:14 PM »
I apologize if my post came off as insulting in any way, and I understand that we are far more fortunate than a lot of people in terms of our income. But I'm not sure it's fair to say that we live some rockstar lifestyle.  Other than having too much house (point taken), we don't spend money frivolously.

You pay somebody else to maintain your pool!

Seriously, you need to check out troublefreepool.com. Great forum that taught me how to take care of a pool in Texas (hint: it is super duper easy). I maintain it for average roughly $20-30 a month. The quotes I got for maintenance were around $100-$150 PER WEEK!!!

Buckeye in TX

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Case Study – Young family, conflicting goals
« Reply #35 on: March 12, 2015, 05:57:56 PM »
@ Psychstache - Thanks for the link.  How much time do you generally spend on pool maintenance? And those quotes are nuts! We currently pay $35 a week.  But I agree that I need to suck it up and figure it out and do it myself.

We will rethink the car situation.  Luckily we are just casually looking at this point and in no big rush to purchase.  Hopefully it will be different with a toddler car seat, but there is no way I could drive with the infant car seat behind the driver's seat in either the Prius or the GrandAm.  But I'm absolutely open to other smaller options if they work.

@ BCBiker - We do the backdoor Roth thing.  Since we can't deduct our IRA contributions anyway, we just immediately convert our traditional contributions to the Roth.

@ theonethatgotaway - I don't think that's in the cards for us.  I could see my wife going part time, but she would want to still work. She likes what she does, just not the odd hours.  And I have zero desire to be a partner. It's probably bad to admit given my profession, but I'm not a fan of lawyers in general.

neophyte

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: A wretched hive of scum and villainy
Re: Case Study – Young family, conflicting goals
« Reply #36 on: March 12, 2015, 07:12:18 PM »
Pool Maintenance - $150 (Weekly cleaning and chemical maintenance.  I've considered taking over the cleaning, but I don't want to mess with the chemicals - would drop this amount by $40-50. I would prefer not to have a pool, but it was #1 on the list for my wife)

Your wife's a pharmacist, she should have a pretty solid background in chemistry I would think.  Would she consider doing the chemicals if you cleaned the pool?  One way to think about it is otherwise it'll be Joe who went to high school doing the chemicals.


hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: Case Study – Young family, conflicting goals
« Reply #37 on: March 12, 2015, 08:22:19 PM »
You'll have to work very hard to go against the tide of where you live, who you work with and who your friends are. Most of my friends here in Texas are wonderful people that I love spending time with. They generally have no debt besides a mortgage, however everyone upgraded to a 2500-3500 sq ft house before 35 and a Tahoe or Suburban by the time they had 2 kids. The more conservative ones got a Toyota or Honda minivan. They go on ski trips, beach trips and wine country trips all the time. The husbands are hard at work rising up the career ladder to pay for private school and any mention of MMM gives me strange looks. I am definitely going against the tide by driving an old Camry, living in my 1500 sq ft starter home and enjoying spending time with my family on nights and weekends instead of working. They may have higher incomes and more equity in their house but I'd put my liquid net worth up against most of them. I'll certainly be able to retire earlier if I needed to.

All that to say, with your type of job and the neighborhood you live in and friends you'll have, it will be a constant battle not to go along with what everyone else is doing. And I'll go ahead and say that having a unified and peaceful marriage with high spending is better than a crummy marriage because she doesn't go along with your new beliefs about money. My wife is not 100% MMM but I'm not gonna drag her kicking and screaming into it either. I'd rather have a happy marriage than a fewer years of FIRE.

FWIW, although I don't want to pay for it, I pray every day of this Texas summer for a pool. Just something to take the edge off the stupid heat. As well it would let my kids burn off some energy without burning up.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: Case Study – Young family, conflicting goals
« Reply #38 on: March 12, 2015, 08:37:14 PM »
That's a college spending mindset?

Psychstache

  • Pencil Stache
  • ****
  • Posts: 868
Re: Case Study – Young family, conflicting goals
« Reply #39 on: March 12, 2015, 08:59:07 PM »
@ Psychstache - Thanks for the link.  How much time do you generally spend on pool maintenance? And those quotes are nuts! We currently pay $35 a week.  But I agree that I need to suck it up and figure it out and do it myself. 

Once you get the hang of it and get yo know your pool, chemicals take 5-10 minutes every couple of days. The time consuming part is that I have a cartridge filter system, which requires about 30 minutes every couple of weeks. If you have a sand or DE filter system, it takes even less time.

Read through the pool school, buy the recommended chemical kit, and then get cracking.

SaintM

  • Guest
Re: Case Study – Young family, conflicting goals
« Reply #40 on: March 12, 2015, 09:17:23 PM »
We will rethink the car situation.  Luckily we are just casually looking at this point and in no big rush to purchase.  Hopefully it will be different with a toddler car seat, but there is no way I could drive with the infant car seat behind the driver's seat in either the Prius or the GrandAm.  But I'm absolutely open to other smaller options if they work.

And I have zero desire to be a partner. It's probably bad to admit given my profession, but I'm not a fan of lawyers in general.

Put the infant seat on the passenger side.

A lot of lawyers burn out before they can make partner.  They go in-house, small law/hang a shingle, or get out of the profession.

okonumiyaki

  • Stubble
  • **
  • Posts: 175
Re: Case Study – Young family, conflicting goals
« Reply #41 on: March 12, 2015, 09:19:40 PM »
Prius V is a big car - not sure if you can get them cheap second hand though

BCBiker

  • Stubble
  • **
  • Posts: 187
  • Location: Colorado
    • Business Casual Biker - Health, Wealth, and Mental Stealth BTYB Bicycle Commuting
Re: Case Study – Young family, conflicting goals
« Reply #42 on: March 12, 2015, 09:44:51 PM »
@ Psychstache - Thanks for the link.  How much time do you generally spend on pool maintenance? And those quotes are nuts! We currently pay $35 a week.  But I agree that I need to suck it up and figure it out and do it myself.

We will rethink the car situation.  Luckily we are just casually looking at this point and in no big rush to purchase.  Hopefully it will be different with a toddler car seat, but there is no way I could drive with the infant car seat behind the driver's seat in either the Prius or the GrandAm.  But I'm absolutely open to other smaller options if they work.

@ BCBiker - We do the backdoor Roth thing.  Since we can't deduct our IRA contributions anyway, we just immediately convert our traditional contributions to the Roth.

@ theonethatgotaway - I don't think that's in the cards for us.  I could see my wife going part time, but she would want to still work. She likes what she does, just not the odd hours.  And I have zero desire to be a partner. It's probably bad to admit given my profession, but I'm not a fan of lawyers in general.

I'm glad to hear you have the backdoor figured out. I'm guessing you mean you cannot deduct IRA contributions because you are maxing out employer 401Ks.

randymarsh

  • Handlebar Stache
  • *****
  • Posts: 1374
  • Location: Denver
Re: Case Study – Young family, conflicting goals
« Reply #43 on: March 12, 2015, 10:57:08 PM »
I'm not saying you can't afford it, but your $3,200 "other" is more than my entire take home income. I still manage to have ~$600+ in discretionary monthly income.

If you want to cut expenses, there's definitely room.

bacchi

  • Magnum Stache
  • ******
  • Posts: 4013
Re: Case Study – Young family, conflicting goals
« Reply #44 on: March 12, 2015, 11:50:58 PM »
Most of my friends here in Texas are wonderful people that I love spending time with. They generally have no debt besides a mortgage, however everyone upgraded to a 2500-3500 sq ft house before 35 and a Tahoe or Suburban by the time they had 2 kids.

Ha, nailed it. My Texas brother has a 3-row Suburban with one kid and the 3000 square foot house.

Quote
FWIW, although I don't want to pay for it, I pray every day of this Texas summer for a pool. Just something to take the edge off the stupid heat. As well it would let my kids burn off some energy without burning up.

Like owning a boat, one of the happiest days of one's life is when the house with the pool is sold.

Hey It's Me

  • Pencil Stache
  • ****
  • Posts: 715
    • Moe's Journal
Re: Case Study – Young family, conflicting goals
« Reply #45 on: March 13, 2015, 03:07:55 AM »
Start with the automatic expenses; you'll be able to reduce those without giving up any of your already-inflated lifestyle.

  • Phone: Cut Verizon and switch to an MVNO that works on the Verizon network (or another network that is strong in your area). Hint: Check the Superguide.
  • Home Phone/Internet: You can easily find a package somewhere else in the $50 range. Common... stop being lazy with this one - it's costing you a fortune!
  • Car: Hint: don't buy the highlander...
  • $250/month on baby things? Do you think you'd be able to save money here if you were more conscious and planned your baby spending??

Even if you save only $250 from the above, the savings are automatic - it's like getting paid an extra $250 each month for the rest of your life for spending 4-5 hours planning on a single weekend. Or, actually, given your tax bracket, probably more like getting paid $375+/month for 4-5 hours upfront once.

Even as a pharmacist/lawyer couple, neither of you makes that kind of money for that little work.

Hey It's Me

  • Pencil Stache
  • ****
  • Posts: 715
    • Moe's Journal
Re: Case Study – Young family, conflicting goals
« Reply #46 on: March 13, 2015, 03:18:08 AM »
Additionally, there are a couple of great resources out there that really cut down the cost of travel. One of the tips I use is I've set up an IFTTT to email me whenever a deal comes in through one of many travel blogs to a destination I want to go to. I've found round trip tickets from NYC to Hawaii for $600 for a friend (he was going to pay $1400), to Florida for $150, to Thailand for $500, etc. Really, it's an amazing resource, and a good way to cut out thousands off the cost of a trip with no additional effort from you.

The only catch is you have to be a bit flexible with travel dates, so most deals are for flights dates that are within a set time period (ex. must travel between May 12 - May 26th in order to get this deal.) If that doesn't work, just figure out when you want to travel beforehand, and be on the lookout for deals occurring in that time period.

Hey It's Me

  • Pencil Stache
  • ****
  • Posts: 715
    • Moe's Journal
Re: Case Study – Young family, conflicting goals
« Reply #47 on: March 13, 2015, 03:19:11 AM »
Additionally, there are a couple of great resources out there that really cut down the cost of travel. One of the tips I use is I've set up an IFTTT to email me whenever a deal comes in through one of many travel blogs to a destination I want to go to. I've found round trip tickets from NYC to Hawaii for $600 for a friend (he was going to pay $1400), to Florida for $150, to Thailand for $500, etc. Really, it's an amazing resource; with a family of four, you're looking at saving thousands per trip, with no reduction in entertainment/fun.


The only catch is you have to be a bit flexible with travel dates, so most deals are for flights dates that are within a set time period (ex. must travel between May 12 - May 26th in order to get this deal.) If that doesn't work, just figure out when you want to travel beforehand, and be on the lookout for deals occurring in that time period.

lpep

  • Bristles
  • ***
  • Posts: 285
  • Location: Hanoi, VN
    • My MMM journal
Re: Case Study – Young family, conflicting goals
« Reply #48 on: March 13, 2015, 03:24:41 AM »
Additionally, there are a couple of great resources out there that really cut down the cost of travel. One of the tips I use is I've set up an IFTTT to email me whenever a deal comes in through one of many travel blogs to a destination I want to go to. I've found round trip tickets from NYC to Hawaii for $600 for a friend (he was going to pay $1400), to Florida for $150, to Thailand for $500, etc. Really, it's an amazing resource, and a good way to cut out thousands off the cost of a trip with no additional effort from you.

The only catch is you have to be a bit flexible with travel dates, so most deals are for flights dates that are within a set time period (ex. must travel between May 12 - May 26th in order to get this deal.) If that doesn't work, just figure out when you want to travel beforehand, and be on the lookout for deals occurring in that time period.

WHAT! Please tell me more!

Workinghard

  • Pencil Stache
  • ****
  • Posts: 637
Re: Case Study – Young family, conflicting goals
« Reply #49 on: March 13, 2015, 04:09:19 AM »
I disagree about the pool expense. We both work (me 6-7 days a week) and do our our house cleaning, yard work, and pool cleaning. However, if we had that income I think I would go for the pool cleaning. My husband hates keeping it up and it doesn't get cleaned as good or as often as it should. Plus the kids will be in the pool a lot and have friends over as they get older. To offset the cost , I would  definitely cut out other things first.