Author Topic: Exposing the finances ... advice?  (Read 3649 times)

pdxvandal

  • Bristles
  • ***
  • Posts: 311
  • Location: Earth
Exposing the finances ... advice?
« on: July 11, 2013, 11:26:49 PM »
I'm 38 with a wife and 3-year-old. In 10-12 years (or less), I'd like to leave the corporate world on my terms, like many others who follow MMM. I would like to continue to work but likely on a half-time basis and on my terms (writing and/or small business) with a likely far smaller paycheck.

I live in a fairly HCOL area (Portland), but in a modest house and own just one car (carpool to work with wife). I have a chunk of cash, originally because I was seeking an investment property, but the inventory/market has been tight and competitive. I feel like I've missed that boat.

I may keep accumulating cash to save for a down payment for an upgraded home in 18-24 months so I would have the option to rent my place. (I've been in my current residence for eight years.)

I max out my Roth IRA every year and typically put in 8-10% in my 401(k) with a 6% match. My assets are very stock heavy.

I am not sharing my wife's assets ... they're negligible as she slowly pays off student loans, pays for childcare and buys the groceries. She doesn't have a lot of net worth, but does work full time and contributes to 401k.

I have no debts except for the credit card that I pay in full every month.

With these goals of FI by age 50, along with upgrading fairly soon to a 10-15 year house until kid is in college (higher housing costs would equal current daycare costs), any suggestions from my fellow 'Stachians?

Monthly post-tax income -- $5,000
Monthly spending -- $2,600 (does not include 401k/Roth investments)

Total Assets/Investments -- ~$430,000
Online savings account (~1%) -- $77,000
House -- ~$110,000 equity
401(k) -- $79,000
Vanguard Roth IRA -- $76,000
Vanguard IRA $72,000
Lending Club -- $8,800
Vanguard taxable -- $6,300
529 plan -- $5,700
Individual stock -- $2,000
Car -- $2,800 (Volvo sedan)

gooki

  • Handlebar Stache
  • *****
  • Posts: 2397
  • Location: NZ
Re: Exposing the finances ... advice?
« Reply #1 on: July 12, 2013, 01:44:22 AM »
With monthly expenses of $2,600 you need $780,000 invested if you follow the 4% rule.

***bad maths removed***
« Last Edit: July 12, 2013, 03:15:55 AM by gooki »

pom

  • Bristles
  • ***
  • Posts: 288
  • Location: Paris, France
Re: Exposing the finances ... advice?
« Reply #2 on: July 12, 2013, 02:31:11 AM »
Gooki, his investable assets are $320k

If you can stay in your current house, you are almost there. 320x4% = 1050 a month, or about 40% of your current spending.

Is your 5000 after or before the 401k contribution? Am I correct to assume that you save $2400 + $300 match per year?

My first advice is to increase your 401k contribution to the max allowable.

So assuming that you save about 35k a year, you are about 8 years away from FI. If you change for a larger house, not only will you draw down your $320k but also you will likely increase your spending (heating, taxes, furniture ...).

You will have

- A smaller amount of investable assets
- A higher annual expense (less savings per year)
- Unless you will sell the house later and downsize, you will have higher amount needed for FI (due to the higher expenses)

Do the math for your particular situation but the combination of the 3 will increase your time to FI greatly. Then do what maximizes happiness!

gooki

  • Handlebar Stache
  • *****
  • Posts: 2397
  • Location: NZ
Re: Exposing the finances ... advice?
« Reply #3 on: July 12, 2013, 03:15:03 AM »
Haha, my bad, I added total assets, and then went through and added all the individual assets to it. Thanks for correcting.

islndstrm

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Exposing the finances ... advice?
« Reply #4 on: July 12, 2013, 08:34:04 AM »
Just out of curiosity, but it sounds like your wife is solely responsible for paying childcare and groceries for your family.  Why is that?  It seems like if you shared these expenses, she would have a chance to grow her assets too.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1383
Re: Exposing the finances ... advice?
« Reply #5 on: July 12, 2013, 09:22:07 AM »
Just out of curiosity, but it sounds like your wife is solely responsible for paying childcare and groceries for your family.  Why is that?  It seems like if you shared these expenses, she would have a chance to grow her assets too.

+1.

Assuming you are planning on staying married, I don't see how you can look at your own finances in isolation of wife, kids, etc.

pdxvandal

  • Bristles
  • ***
  • Posts: 311
  • Location: Earth
Re: Exposing the finances ... advice?
« Reply #6 on: July 12, 2013, 10:08:07 AM »
Good points by everyone ... I appreciate it.

I know I can't look at my finances in isolation. I was just trying to simplify our situation for the readers. The way we have it set up (which works for us), wife pays child care and groceries and I pay mortgage, utilities, insurance, vacations and some other big-ticket items. She definitely has opportunities to save, although she's not as frugal as I am (but heading that way) ... her individual net worth is about $25k (excluding the essentially shared assets I included in the OP).

The $5,000 per month is after 401k contribution. I did increase my 401k today from 8 to 12% (18% with match=$13k per year), but still want to maintain a safe cash position in case I want to upgrade or invest in a property in the next 1-2 years. Maybe that's being too conservative and I need to put even more into the 401k. I have a solid Roth IRA stash ... I could always max the 401k and skip the Roth in 2014.

I also agree with "pom" it could set back my FI date by upgrading my home. However, public schools in my neighborhood are poor and I'm not willing to sacrifice the quality of my only kid's education. In Portland, this typically means moving into a neighborhood with good public schools, which equates to a 75-100% mortgage increase (ouch, I know). If this means my FI date is 13 years away instead of 8 while my kid receives a good education, I'm OK with this. If we upgrade to a more expensive house (~2,000 square feet in urban area), I would downgrade once the kid is done with high school, so we're talking potentially 12 years with high housing costs.

This is a big unknown at the moment as we also are looking at charter schools (free), including one that may open near our house in 2014 This would be great and would not force our hand to move to a better school district.

StarryC

  • Bristles
  • ***
  • Posts: 283
Re: Exposing the finances ... advice?
« Reply #7 on: July 12, 2013, 06:06:39 PM »
I don't have kids, and I don't know what neighborhood you live in.  But, I'm pretty sure that most of the Portland Elementary schools are at least "fine."  (That is, Portland school district.)  At that age, I think having available, engaged, smart parents who enrich the students makes the most difference.  Middle school and high school are different, of course.  However, if you are looking at switching from a $200,000 house to a $400,000 house, for this reason alone for 1 kid, you might want to think about private school for those 6ish years.

LaSalle is only $10,000 a year and Valley Catholic and Jesuit are about the same. Other's are more of course, but many are under $20,000 a year for high school.  If you can get out of those 6 years spending $80,000 on education instead of taking on $300,000 on a potentially risky investment (hoping house values stay high, hoping that school stays as good as you want) it might be something to consider.

Also, kids who are smart, committed, and supported can do pretty well even at "bad" public high schools in Portland.  They aren't really dangerous, it's just that many kids who go to them aren't well supported by family.  And, you can go to a "bad" public school in Oregon and still get in to good colleges.  Unless you think your kid is going to be the Ivy League type, I think going to Madison or Jefferson instead of Lincoln or Wilson isn't going to prevent him from going to OSU or Lewis and Clark if you encourage him and he wants to do it. 

worms

  • Bristles
  • ***
  • Posts: 375
Re: Exposing the finances ... advice?
« Reply #8 on: July 13, 2013, 01:00:01 AM »
I know I can't look at my finances in isolation. I was just trying to simplify our situation for the readers. The way we have it set up (which works for us)...

Works for us, too!  Separate finances and separate financial functions within the family "business"! Of course there is flexibility at the edges and we help each other out if either of us has had an unexpected cost to meet.  But it means we can each specialise and budget without the other messing up the plans!