Author Topic: My case study  (Read 8639 times)

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
My case study
« on: July 09, 2014, 02:14:26 PM »
Gross income:
 Me:electrician  $85k. + overtime
Wife: teacher  $56k
Two baby boys.   $ 0

Monthly Expenses:
Mortgage.   1300.00   
Bills.              600.00
Food,beer,and diapers, etc.      750.00

Early learning center:
1900.00  a year

Union dues and health care.  About 2500.00 a year

Assets:
1st house (our residence, the wife owns)
Worth 300k. Owe  180k. @ 3.75%
 
2nd house:  payment is about 900 bucks a month. It's a town house I bought in 2004 for 95k. I still owe 89k @ 6.75%. I make 100 bucks a month on that one from renters. I thought I was gonna sell it and that's why I haven't refinanced it. I just punched myself in the face. Twice.

We own three cars. All payed for. 
My daily.    '05 matrix w/ 175k miles
Her daily.  '08 altima w/ 115k miles
Recently got a good deal on an '05 town and country w/ 60k miles on it. We needed it for trips to the grandparents with the kids and dog etc.
 
Wife has a Roth ira through her credit union with 10k Earning very little. She also has 6k in her savings. She has a teachers pention fund where she contributes 7% of her salary a year and is matched by the state I think. She can retire at 56.
 Someone said she should set up a 403 B and put in the maximum I think 17k a year.

I have an annuity through the union. I can't contribute to that. They give me $3.20 an hour into a fidelity freedom 2040/ 2050 I believe it's called. It has 15k in it. Also a pension called the national electrical benefit fund in which they give me $2.20 an hour. not sure how they invest it.
 
I have 70k sitting in my savings account.  I would love to retire yesterday!  just kidding. No I'm not.
 
Hopefully this isn't too incomprehensible. Thanks for any help!

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #1 on: July 09, 2014, 02:21:45 PM »
How old are you?
What are you looking for by posting this - I don't see any specific questions?

data.Damnation

  • 5 O'Clock Shadow
  • *
  • Posts: 50
  • Location: Madison
Re: My case study
« Reply #2 on: July 09, 2014, 02:25:32 PM »
Need a lot more information. What bills do you have? Property taxes? Electric? Gas? Water? Cable? Gasoline per month? Groceries? Eating out? Rental property costs?

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #3 on: July 09, 2014, 02:32:15 PM »
Ok, so I just saw this thread:
http://forum.mrmoneymustache.com/ask-a-mustachian/where-to-start-20270/msg337042/#msg337042

which answers one of my questions. You are 35, right?

And you have a $50K windfall coming and want to know what to do with it. If you are comfortable with real estate rentals and can find a good return on your money I would buy another rental. If you don't want to do that the easiest/best thing to do based on the facts above (and in the other thread) would be to pay down (or pay off) the rental mortgage. This will give you a guaranteed 6.75% return on your investment. You will lose a business deduction and pay a little more in taxes, but that's too high of an interest rate.

If you want to get more complicated with it, read the suggestions in the other thread, refi the rental mortgage, then invest the $75K savings and the $50 windfall (unless that included in the $75K) into some index mutual funds or rental properties.

And I would sell the matrix since you don't need 3 cars.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #4 on: July 09, 2014, 03:07:18 PM »
Yes, I'm 35. And it's 70k total.  I'm really just trying to figure out what to do with the 70k for the best return. I've considered   buying another rental property closer to my home. The other one is just a headache really. It's about an hour away and in a bad neighborhood. Hard to keep decent renters. I sat down with a financial  planner and he was gonna charge like 1% of what I invest per year. A friend told me that was too much and that I could do the same thing my self for much less.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #5 on: July 09, 2014, 03:12:05 PM »
Data.damnation, I included all those costs under monthly bills and the food,  beer, diapers , etc. If you really think it would help if I break it down further I can do that but it will take a bit of time.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4322
  • Location: CT
Re: My case study
« Reply #6 on: July 09, 2014, 03:17:31 PM »
Just like in your other thread I will emphasize the need of goals. If the goal is FIREing ASAP then you need to come up with a FIRE budget, a plan on how you will afford that (rental income, investments, entrepreneurship, a combination of any/all of them?), and a plan on how you will get to that affording of it. The 70k then falls into your plan.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #7 on: July 09, 2014, 04:22:36 PM »
Okay, I'm starting to get it now. I've got some things to think about now. Thanks for pointing me in the right direction.

LibrarIan

  • Bristles
  • ***
  • Posts: 435
  • Age: 30
  • Location: Greater Cincinnati
Re: My case study
« Reply #8 on: July 09, 2014, 04:39:24 PM »
I love it when we have new converts!

Chrissy

  • Pencil Stache
  • ****
  • Posts: 920
  • Age: 42
  • Location: Chicago
Re: My case study
« Reply #9 on: July 09, 2014, 04:50:09 PM »
Yes, please break down your numbers further.

Sell the PITA rental.  Sell one car.

I'm seeing that you have $70,000 in savings, and your wife has $6,000 in savings:  $76,000 cash.

Keep $6,000 as your emergency fund.

Put $22,000 into ROTH IRAs by maxing out one for you and one for your wife for 2 years:  $5,500/yr for you, $5,500/yr for wife. 

Put $35,000 into her 403b by maxing it out for 2 years:  $17,500/yr. 

Sounds like you're self-employed.  Put ~$26,000 into a SEP IRA for yourself two years:  ~$13,000/yr... but I'd get advice from a tax professional, so you don't over or under contribute.

And, that's all $76,000.

http://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People

Sounds like you also want investment advice.  You can't go wrong with Vanguard.  Maybe start with their Target Retirement Fund 2040 which is 63% U.S. stocks (VTSMX), 27% international stocks, 8% U.S. bonds, 2% international bonds.  It'll automatically re-balance over the years to put you more and more into bonds as you get closer to 2040 (retirement!).

And, in the meantime, some educational reading:

http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/
http://jlcollinsnh.com/stock-series/

MDM

  • Walrus Stache
  • *******
  • Posts: 9494
Re: My case study
« Reply #10 on: July 09, 2014, 08:00:45 PM »
Based on the OP, it appears you and your wife could each maximize your 401k/403b contributions ($35K/yr total), and maximize your IRA contributions ($11K/yr total, maybe 50% traditional and 50% Roth based on the income limitation for traditional), and still have an additional ~$40K/yr to invest. 

That assumes all your expenses were included in the OP, that I didn't fat finger anything in the attached spreadsheet, etc.  It is also consistent with Chrissy's post (not identical, but not too different).

Use or ignore the attached at your pleasure.  See here for general limitations and disclaimers - the one attached here has your info.
« Last Edit: July 09, 2014, 08:02:18 PM by MDM »

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #11 on: July 10, 2014, 02:51:48 AM »
I appreciate all the input!

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #12 on: July 10, 2014, 04:37:14 AM »
OK so I think the first thing I need to do is refinance the townhouse. Is quicken loans fine for that?  I see these ads to refi with no closing costs but I don't buy it.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #13 on: July 11, 2014, 05:24:29 PM »
In the process of getting refi quotes. By the way,  what is a PITA rental?

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #14 on: July 11, 2014, 06:48:30 PM »
Pain
In
The
Ass

Pita. Doesn't just apply to rentals, use it for anything. Good luck. So then what are you going to do with all that cash?

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #15 on: July 12, 2014, 11:00:53 AM »
Gotcha. It is definitely that! I'm going to have a sit down talk with my tenants to find out their plans. (Who happen to be my sister, her boyfriend, and their newborn baby.) My brother-in-law is moving out of the basement apartment the end of this month. Still weighing my options on the PITA rental. So far I've gotten one quote @ 3.875% for a 15 year and my payment would stay about the same around $920. Or a 30 year @ 4.5%  which would put me at about $650 a month. I charge $1025 a month. if I sold  today, it would be about a $40k loss.
 As for the cash,  I'm sitting down with a guy at my bank (M and T) on Tuesday. I plan on opening a Roth Ira for both the wife and I, and also a 403 B for her and maxing them all out. I can tell he wants to sell me life insurance but I'm not interested in that. What's your take on that part?
       I think after that I'm going to open a Vanguard account and spread the rest around among at least 4 different index funds.
My wife and I are also in the process of filling out the spread sheet that was posted by MDM. (It's hard to make time with these two maniacs we produced. Our 11 month old is trying to walk today). Thank you so much for that!  I'm a bit overwhelmed by all the help I'm getting from all you guys on here. You all rock!!!

curler

  • Stubble
  • **
  • Posts: 111
Re: My case study
« Reply #16 on: July 12, 2014, 11:47:03 AM »

 As for the cash,  I'm sitting down with a guy at my bank (M and T) on Tuesday. I plan on opening a Roth Ira for both the wife and I, and also a 403 B for her and maxing them all out. I can tell he wants to sell me life insurance but I'm not interested in that. What's your take on that part?

If it is some sort of whole-life policy or investment/life-insurance combo, you want to avoid those.  The fees are almost always ridiculous, and the returns are not overly impressive.  If you need life insurance, buy a term-life insurance policy.  If you have money to invest, invest it.  Don't try to do both with one product, it does neither well.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #17 on: July 12, 2014, 02:56:49 PM »
+1 to getting another loan quote from a credit union just to make sure. Go with the 30 year loan if you plan to keep the rental long term for better cash flow.

Don't buy whole life insurance. If you need life buy 20 year term. By then you'll be rich and won't need it anymore. Also, you probably shouldn't go sit with a banker to open your roth iras. You can do the same thing at vanguard and pick a low fee index fund. The banker will likely put you in something with high fees so he makes more money.

SpendyMcSpend

  • Bristles
  • ***
  • Posts: 320
Re: My case study
« Reply #18 on: July 12, 2014, 03:07:40 PM »
You and your wife both need life insurance (term  20 year policies).

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #19 on: July 12, 2014, 04:17:21 PM »
Based on all the facts above I would argue they don't need life insurance. They have $125k equity in primary residnce, $125k in cash, an income producing property, and income much higher than expenses. If they do get it, consider dropping it in 5 years. When your net worth exceeds the death benefit.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #20 on: July 12, 2014, 08:47:53 PM »
I'll be sure to check into that, Cheddar.

SpendyMcSpend

  • Bristles
  • ***
  • Posts: 320
Re: My case study
« Reply #21 on: July 12, 2014, 10:35:01 PM »
Two baby boys + grief = you need health insurance.  What if both parents die at once?

SpendyMcSpend

  • Bristles
  • ***
  • Posts: 320
Re: My case study
« Reply #22 on: July 12, 2014, 10:36:13 PM »
Sorry meant life insurance.  Makes me sick when people don't have it

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: My case study
« Reply #23 on: July 13, 2014, 05:49:25 AM »
They need a will/revocable trust. If both die their $300k+ net worth will help secure their kids future in the hands of the right custodians.

If one dies money won't fix the grief, they've built a huge cushion, and they can get by. Either wage could support a family, even with daycare costs. Sell the house and downsize/rent to utilize equity. There are many ways to get by here, and in a few years with those incomes they should have $500k NW no problem.

To each their own. If they get it, I think they need $200k coverage for 2-5 years, but I wouldn't extend higher/longer.

albsure52

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: My case study
« Reply #24 on: July 14, 2014, 06:04:45 AM »
Okay just to be sure, I want a Roth IRA not a traditional, correct?

Chrissy

  • Pencil Stache
  • ****
  • Posts: 920
  • Age: 42
  • Location: Chicago
Re: My case study
« Reply #25 on: July 14, 2014, 10:34:37 AM »
Right.  Since you're already getting a present-day tax break by contributing pre-tax dollars to your wife's 403b, I'd put a priority on ROTHs, which provide a tax break in the future.  See below.

"Both traditional and Roth IRAs provide generous tax breaks. But itís a matter of timing when you get to claim them. Traditional IRA contributions are tax deductible on both state and federal tax returns for the year you make the contribution, while withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free. So with traditional IRAs, you avoid taxes when you put the money in. With Roth IRAs, you avoid taxes when you take it out in retirement."