The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: zsgavilan on January 24, 2018, 01:11:29 PM
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Howdy all,
So much great energy and information around the Mustache movement. Many of the philosophies and lifestyle traits are ones I share. Problem is I have been slow to actually make some of the important moves towards financial freedom and a stress-free life. Wish I was smarter in my 20s, but that milk has been spilled. Mostly from reading the MMM blog, I've picked up some great advice on getting the money working for me and my wife to get on the road to controlling our own destiny, and living the life we want. We are not big spenders and lead a pretty modest life. But it would be great to work towards better financial freedom and all the goodness that brings.
Here's where we are:
I"m 47, wife is 44. She works a good job pulling just over 70K/year. I'm currently unemployed but have good near future potential for adding maybe 25K/year to the household income.
Our savings situation is not ideal. Roth IRA (Franklin Mutual Shares Fund), 13K. Bank accounts (dividend checking and a savings account), total 22K. She has a 401k, only been at current job for 2 years. Not sure what's in there now, but will be getting that info soon.
We have a mortgage, 1680/mo (270K outstanding balance on 300K purchase, 30-year)
Here's what I'm thinking:
- We max the 401k
- Keep the Roth IRA and try to put as much as we can into it
- Invest 10-15K from bank savings account in Vanguard Index fund, like VTSAX. We would then buy shares each year worth between 15-20K, basically the income I add.
- Trim some fat off our expenses, tighten the belt a little and try to put 10-15K/year into this
Since we don't have much savings, I'm not sure if we should sell the house and rent for a while until we build a bigger cushion. I feel like the proceeds we can get from a home sale, and it would sell pretty easily where we are, would be working better for us in the index fund.
Any and all comments and advice are welcome. How does my outline look as a starting point? I know there is a lot of talk about retiring early among this group, but my situation may be helpful to others my age who are facing the financial future and waking up to the fact that they haven't saved enough. There may be a better way than what I propose. If so, I'd love to hear about it.
Thanks much.
Zach
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Here's a good place to start on the order you should fill accounts: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
I'm not familiar with Franklin mutual, but since it's not Vanguard, Fidelity, Schwab, etc you're probably overpaying, so I would look at moving it and investing elsewhere in the future.
Remember that both you and your wife can contribute to your own IRAs even if you have no income as long as her income is enough to cover it. You'll be able to make an extra $1000 catch up contribution in a few years (in the year you turn 50).
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Gracias, terran.
The Franklin Mutual is through Chase/JP Morgan. Just something I've had for years. I would like to do as you suggest and move it, maybe to Vanguard, so things are tidier when I get rolling. And probably save a bit on costs.
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Before you sell your house, what's the rental market look like? What's your current housing costs? And are you going to rent for a year, hate it, and immediately re-buy? Buying a house, while not permanent, is not as easily changed as getting a new lease and moving.
And yes, move out of Franklin. Whomever to switch to can help you move everything over.
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Don't sell the house. Do the other things, trim expenses, get that job, read, learn, think about long term plans. Then in a year or two decide if you want to sell the house.
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Thanks Sibley/Blinx,
That all sounds reasonable. Big on my mind is trimming expenses. We can do a lot there.
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This is my standard recommendation for people who are starting to develop a plan and figuring out what works for them: https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/. This, more than anything else I've read, helps clarify how each spending decision affects your long-term future.
With that in mind, I would suggest you revise your overall thinking from "how do I invest, and maybe I'll cut my expenses a little" to "what is my preferred target FI date, and what would I need to do to get there?" Cutting your expenses by, say, $5K, will have a much more significant effect on your long-term success than what you do with $15K in cash today. Advance warning: your first choice will probably not be doable -- you will probably do the work and discover that reaching FI by your preferred date would require too many immediate cuts to your lifestyle. So then you push the date out and see what that will do, rinse, repeat, until you and your wife have a plan that you both agree on.
Toward that end, it might be helpful if you post a full case study over in the case study forum -- folks can give you much better, more specific advice there about cutting costs, maximizing your tax advantages, and the like.