Case Study – Getting down to one income?
I’ve been reading the MMM blog and lurking on the forums for about six weeks now, although I’ve been interested in personal finance for a few years now and have slowly been reforming our spending habits and trimming the budget. This is my first post on the MMM forums!
After a year of health disasters for DH (job related injury plus complications from his chronic health condition – unrelated to the injury just lousy timing), I’ve decided to try to get us to the point that DH can retire (or semi-retire) and we can all live solely on my income (or close to it). He is healthy and working now, but DH’s very physical job is taking its toll and I seriously think that if he doesn’t quit within the next 10 years he will become disabled (at best) or die early (at worst). He for sure won’t make it to see 65 and retire at the normal age. FIRE for both of us probably isn’t possible as I can’t be sure that DH can work long enough to get us there. Which is okay, I like my job and don’t mind working in the least. Plus if everything works perfectly I still may be able to retire mid to late 50’s. But getting us to the point that we can live just off of one income in a good school district for DD is going to take some planning, and I want to make sure I’m not missing anything.
Details:
Married filing jointly, one daughter age 3.5. DH (43) and I (39) both work full time, DD in full time daycare. Live in the Chicago burbs. I work from home full time, DH commutes to downtown Chicago 80 miles round trip 5x a week. (yeah yeah I know…)
Gross income ~$102,000 combined.
My paycheck, bi-weekly = $1983.00 gross or $51,558 annual. Dental $11.76, Flex spend $23, LTD $0.52, Health ins. $114.71 (covers whole family), 401k $198.30. Adjusted gross $1634.71 per pay period or $42,502.46 annual. Net bi-weekly paycheck $1322.
DH’s paycheck….I don’t have access to his paystubs (online only and he’s locked out of the system, won’t bother to contact HR to get back in) so I based the gross on his 2013 W2. Would have used 2014 but he was off on worker’s comp 2 months of that year so it skews it too much. 2013 was a pretty typical year for him earnings wise so should be close enough. I took the W2 totals and divided by 26 pay periods (he’s bi-weekly as well) for the average paycheck. $1959.62 gross bi-weekly or $50,950 annually. Minimal pre-tax deductions for STD and LTD and an after tax deduction for Uninon dues (not sure how much but can't be more than $30 or so) – he has no access to a 401k (he’ll get a pension thru the Union, paid for by employer – so no employee deductions) and I carry all benefits. Net bi-weekly paycheck $1480.
Adjusted Gross (combined) $3594.33 per pay period or $93,452.58 annual
Taxes – We didn’t have a typical tax year last year due to DH’s untaxed worker’s comp pay from end of 2014 and beginning of 2015 (so this year won’t be typical either really). 2013 was the closest to a recent typical tax liability/income year so I’ll use those numbers - $7,033 Fed, $6071 SS, $1420 Medicare, $4105 IL income. AGI in 2013 was $92,920.
Net combined monthly income based on current paychecks (net pay x 26 pay periods divided by 12 months) $6070
Current Expenses. I use YNAB so this part is easy!
Mortgage. Total $1287. Breaks down to P&I $881.20, T&I $405.56, no PMI. 5.75% interest rate, 10 years into a 30 year loan. Current balance $125,702.06. Home worth ~$150,000 based on recent neighborhood home sales.
Car Loan. $413. 2008 Nissan Altima bought in 2012. 11 payments left so we owe about $4540. 3% interest.
Daycare $866 (pay $200 per week x 52 weeks, divided by 12 for monthly average)
Internet $0 (paid for by my employer)
Cell Phones $185 (will drop to $136 in August when done paying for phones. DH wants to keep his unlimited T-Mobile account but I’ll switch to Ting once the phone is paid off so hope to get it even lower).
Electricity $125 (monthly average)
Natural Gas $41 budget plan (stove, water heater, furnace, clothes dryer)
Water $50
State Farm $264. This includes term life insurance on both of us, plus car insurance on 2 vehicles. Life insurance is two 20 year term polices, $350k on me and $250k on DH. DH has health issues so his rate is rather high and at this point couldn’t get covered at all so can’t shop around.
Progressive Auto $40 (insurance on 3rd vehicle)
Stonebridge $12 (2nd small term policy on me, $50k)
Netflix, ABCMouse, Plex $32
Groceries/Household items $725 monthly average – I know this is high by MMM standards. I buy mostly organic foods and we buy pasture raised meats from a semi-local farm 2x a year (amount included in total). DH also has a physical job so eats more than the average cube farm employee. My local Costco finally has more organic items available and I’m planting a small garden this year, so I do hope to shave this a bit but honestly I don’t see this changing all that much.
DH’s fun money $100
Home Improvement $250 (fixing up home to sell in a few years, this funds ongoing projects). DH does most projects DIY
Gasoline $200 – lately this has been a bit less with fuel prices going down
Eating out $50
Entertainment $25 (going to the movies, bowling w/friends, etc.)
Car repairs/maintenance/registration $175 (sinking fund). DH does all labor (except oil changes – takes ‘em to an oil change place – and tires) so we generally only need money for parts. Registration in IL is only $100 per vehicle (we have 3).
Pre-school $100 (sinking fund for 2016/2017 school year)
Travel $150 (sinking fund for travel to see out of state grandparents – only way for them to spend time with DD as neither are in good enough health to travel to us on a regular basis).
Annual Fees $40 (sinking fund for Costco, Amazon, Amex annual fee, newspaper, AAA)
Hair Cuts $10 (me 4x a year and DD 2x a year. DH just shaves his head)
Family Photos $5 (annual professional pictures of DD)
Computer repair/replacement $10
Medical $40 (prescription co-pays, glasses/contacts, OTC meds, dr. visit co-pays. Flex spend account already at $0 for this year due to DH’s health crisis earlier this year so had to add this in, will adjust flex spend to higher amount for 2016).
Insurance has no deductible and low co-pays, covers 100% of everything after co-pays.
Clothing $75 (sinking fund)
Gifts – non holiday $70 (sinking fund for all gift giving occasions except Christmas)
Holidays $98 – this includes all holiday related spending such as Christmas gifts, Christmas cards and postage, gift wrap, shipping of gifts to out-of-state relatives, and including Christmas season charity like angel trees and Toys for Tots. Also includes spending on Halloween (candy, costume) Valentine’s, and Easter.
Total monthly budgeted expenses and sinking funds = $5389
Total monthly net income $6070 (net pay x 26 pay periods divided by 12)
Difference of +$681
Assets and Liabilities
401k Balance $158,583.53, 100% invested in Vanguard LifeStrategy Growth Inv. Mix is about 80% stocks and 20% bonds. I put in 10% and get a match of 4.5%. Plus I get an additional 8% of my gross pay as an annual discretionary deposit from my employer, gotten every year except 1 (got 5% rather than 8% in 2009) during 15 years of employment so pretty reliable.
House – worth ~$150k with ~$126k owed, 5.75% interest, monthly payment $1287. Breaks down to P&I $881.20, T&I $405.56, no PMI. 5.75% interest rate, 10 years into a 30 year loan.
2008 Nissan Altima $8500 blue book, remaining loan of ~$4500, will be paid off 5/2016. This is my car and plan to keep for at least 5 more years, more likely 8-10 if it keeps running well.
1998 Saturn SL2 $1000 blue book. DH’s commuter car. No loan.
2003 Ford Ranger $3000 blue book. DH’s truck (and hill to die on he will not sell it). Use it to transport home improvement items but mostly sits in the driveway. No loan.
Liquid Savings (CapOne 360) $10,000
So that’s the deal. No consumer debt, one car loan just about paid off, one reasonable mortgage, and a halfway decent amount in a 401k. Good news is once car is paid off (1 more year) and DD no longer needs daycare (2 more years), we’ll have an extra $1275 a month to start chucking into savings. At that point, our monthly expenses will be ~$4000 a month on a net income of $6070.
So our short term plan is this. Current home is in super bad school district and we want to move back to my home town (20 minutes from here and a bit closer to DH’s work) which has top rated schools over the summer of 2018, when DD is in between kindergarten and 1st grade. During that time, we’ll continue to beef up liquid savings, continue to fix up house (including roof replacement this year at ~$9k). Estimated liquid savings in June 2018 would be ~$40k. In 3 years list current house ($150k asking price, loan will be $114k at that point, should clear ~$20k or so after closing costs). Buy a home in hometown for between $120k and $180k (low end will be a small townhome, high end small single family home) with 20% (or more) down and a 15 year loan. We’ll aggressively pay down the mortgage and hope to be mortgage free within 3 to 4 years of buying the new home, so by the year 2022 at the latest. DH would be 50.
With no mortgage or significant additions/subtractions to our spending I estimate our monthly expenses at this point to be ~$3150 (happy to list a post-move/post-mortgage breakdown if anyone really wants it). That’s not quite low enough to make it on just my income. Still, it would be enough at this point so that DH can quit his current job if he wants to and take a lower paying full or even part time job. Or if he still feels up to it he can continue to work FT where he is at for a few more years and we’ll put money away for a college fund for DD. Meanwhile my 401k will continue to grow, if I stick with my current employer (which I very much want to do) and the matches stay the same, at 7% growth I’d be able to retire around age 56, assuming health insurance for DH and I won’t be an issue (if it is I may have to stick it out to 61 when DH can get on Medicare, regardless of our 401k balance).
DH is on board with the moving to the new house part of the plan. As for paying off the mortgage and quitting his current job to find something closer to home with less stress and fewer hours, I think he's more of a "I'll believe it when I see it" type. But he's at the point that while he's not willing to go full-on Bad Ass (he wants his phone, he wants his truck, he wants his fun money) he will stick to the overall budget as I've outlined (and has done so for a while now) and not sabotage my efforts.
A note about the cars. I know its nuts to have 3 cars for 2 drivers. I’ve always thought that. If I were Queen For A Day I’d sell all three tomorrow and buy a nice used Prius for DH and I to share. But DH refuses to sell the truck. Will. Not. Sell. The Saturn is too old and beat up to use as a reliable family car and I can’t drive the truck (stick shift) and it’s only a 2 seater anyway. So a 3rd vehicle was “needed” and I picked the Altima (at the time I thought we’d have a 2nd kid and wanted a larger back seat and trunk than a Sentra, but we’re sticking with 1 kid now I think).
As for DH’s commute. Moving close enough to work for his commute to be reasonable would mean living in Chicago itself. No-go due to schools, public schools are a disaster and private school coasts negate any savings for moving closer (and then some). It also puts me very far away from close friends and my only family in the area, and increases my commute time to my office (I only go in about 6x a year, but still…). Plus we aren’t city people at heart. Public transit is out as DH works 3rd shift and trains/buses don’t run when/where he would need them to (plus public transit isn’t exactly cheap either). Moving back to my home town should shave a good 10-20 minutes off his travel time each way though, and once he quits it won’t matter anyway.
So, is this a solid plan based on the numbers I presented? Anything I forgot? Anything I’m not being realistic on?
