Author Topic: Need help with making sure we're on track  (Read 1766 times)

rubberguard

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Need help with making sure we're on track
« on: December 27, 2017, 08:41:09 AM »
First off, thanks in advance for reading this.  I am very new to the FI world and becoming more and more obsessed by the day.

All financials stats are for my wife and I combined, DINK.

Ages: 33 and 32
Hoping to stop working full-time around early 50's.  We will not be having children.
This will be the first time really paying attention to where our money and efforts go. 

Income: $150,000
401ks: $151,000
Roth IRAs: $26,000
Savings/Emergency Fund: $43,000
Checking: $5,000

Debts
Mortgage: $175,000@3.25% left on $280,000 house(15 year loan)
Cars: $10,000@2.25%(3 year loan)

I am a bit on the fence about owning so much home(payments are $1,600/month), but we just moved in 1 year ago and love the location/big backyard for the dog.  Wondering if the house is a major item that needs to be dealt with.

We are planning to budget hard in 2018 and strive for a 40-50% savings rate.

Is thew general recommendation to fill employer match on 401ks, and roth limits before attempting to pay down extra mortgage principal?

Meeting with a financial planner next week, and would love to have more information/questions to bring to the table.
« Last Edit: December 27, 2017, 09:47:41 AM by rubberguard »

oldmannickels

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Re: Need help with making sure we're on track
« Reply #1 on: December 27, 2017, 08:50:13 AM »
40-50% of what income?

150k
(37k) 401k contributions
(33k) taxes
(38k) after tax savings (to get to 50% of 150k)
42k to live off of should be easy shoot for 60%



Tuskalusa

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Re: Need help with making sure we're on track
« Reply #2 on: December 27, 2017, 08:57:01 AM »
Hi there. From the limited information here, the thing that jumps out at me is the car loans. Can you aggressively pay those off, or sell those and buy cars for cash? 

On the house, it seems like youíre in a house you can afford. Whether itís too much house for you depends on your goals, family situation, etc. You could also look at financing over a longer period of time, if you had plans to invest that extra cash flow in longer term goals like a 401k or emergency savings (not just ramping up spending).

You might want to consider posting a case study to get more detailed advice. 

rubberguard

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Re: Need help with making sure we're on track
« Reply #3 on: December 27, 2017, 09:18:19 AM »
40-50% of what income?

150k
(37k) 401k contributions
(33k) taxes
(38k) after tax savings (to get to 50% of 150k)
42k to live off of should be easy shoot for 60%

Not sure exactly what is meant by "what income?".  Sorry, still new to all of this.

I chose a slightly lower savings rate to get better buy-in from DW and once she is really on board ramp it up.

rubberguard

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Re: Need help with making sure we're on track
« Reply #4 on: December 27, 2017, 09:20:59 AM »
Hi there. From the limited information here, the thing that jumps out at me is the car loans. Can you aggressively pay those off, or sell those and buy cars for cash? 

On the house, it seems like youíre in a house you can afford. Whether itís too much house for you depends on your goals, family situation, etc. You could also look at financing over a longer period of time, if you had plans to invest that extra cash flow in longer term goals like a 401k or emergency savings (not just ramping up spending).

You might want to consider posting a case study to get more detailed advice.

Thanks, I can easily pay for the car with from the checking account, was using it to help build up a credit score.  Guess I need to look into what a case study entails.  Thanks.

Edit: Looked into the case study format, will definitely get that together and reach out again once I gather the specifics.
« Last Edit: December 27, 2017, 09:24:18 AM by rubberguard »

secondcor521

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Re: Need help with making sure we're on track
« Reply #5 on: December 27, 2017, 09:34:30 AM »
Assuming you are young (in your 30s) and just starting out, you look to be in very fine shape.  If you're in your 50's, not so much.

The house is affordable.  A very conservative rule of thumb is a 15-year-fixed with the payment (PITI) less than 1/4 of your income.  You appear to meet that rule.  Houses tend to become affordable over time as your incomes go up and the payment stays the same.

The car notes are fine, but pay them off and save up cash for your next car.  When you pay cash for a car and it hits you all at once that you're spending $20K - vs. $389 per month for 48 months or whatever - then you tend to evaluate your car purchase more carefully and may end up with a nice used five-year-old Lexus rather than a brand new Honda or Audi or whatever.  I think this is a good thing.

I'd make sure your mortgage is at a fixed rate and would consider paying a slightly higher rate to get a fixed rate if you don't already have one (I'm guessing you do).

I'd make sure you do what you can to secure your income - make sure you network, keep maintaining your credentials, and make sure you live in an area where you can get a job in the same industry at the next company over if something happens to your job.

I'd probably build up your cash savings so you have 3-6 months of expenses readily available.  Many people these days advocate using credit lines as an emergency fund.  I don't, because the last thing you want to be in is a situation where one of you is unemployed for 6 months and you're $40K in credit card debt - that would be very stressful.  Don't worry about getting a good rate of return on this money; it is an insurance policy, not an investment.

Nurture your marriage.  Divorce can be a financial killer as well as an emotional one.  Compromise on things with your wife as necessary to ensure that she (and you) are happy with how things are going.  It's not worth it to try to slog through life or be uber aggressive.  You'll get there, and it'll be much better to get there a year or two later in good spirits with a happy wife and marriage than to grind it out.

If you're looking at that high of a savings rate soon, make sure you optimize your savings - prefer tax-free and tax-deferred choices, and anything that gives you a match.  There's a post somewhere that talks about investment order either her or at Bogleheads - find that and follow that.  Stay in low-cost investments, and buy-and-hold quality stuff -
 don't try to beat the market through sector rotation or hot tips or clever investment products or anything like that.
 But honestly, a 40-50% savings rate will cover a multitude of mistakes and you'll likely be FI at that rate in maybe 10 years regardless.

Track your money for a year and categorize it in ways that make sense.  Sort your expenses to see where you spend your money and make sure it lines up with your values.  If you spend 5% of your income on your pet, that could be too much or not enough - just look at the big categories and ask yourself if that's where you want your money to go.  Over time your spending will fall into place if you keep track and keep asking yourself that question.

Good luck!

slappy

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Re: Need help with making sure we're on track
« Reply #6 on: December 27, 2017, 09:36:08 AM »
What is your goal for meeting with the planner?

rubberguard

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Re: Need help with making sure we're on track
« Reply #7 on: December 27, 2017, 09:47:02 AM »
Assuming you are young (in your 30s) and just starting out, you look to be in very fine shape.  If you're in your 50's, not so much.

The house is affordable.  A very conservative rule of thumb is a 15-year-fixed with the payment (PITI) less than 1/4 of your income.  You appear to meet that rule.  Houses tend to become affordable over time as your incomes go up and the payment stays the same.

The car notes are fine, but pay them off and save up cash for your next car.  When you pay cash for a car and it hits you all at once that you're spending $20K - vs. $389 per month for 48 months or whatever - then you tend to evaluate your car purchase more carefully and may end up with a nice used five-year-old Lexus rather than a brand new Honda or Audi or whatever.  I think this is a good thing.

I'd make sure your mortgage is at a fixed rate and would consider paying a slightly higher rate to get a fixed rate if you don't already have one (I'm guessing you do).

I'd make sure you do what you can to secure your income - make sure you network, keep maintaining your credentials, and make sure you live in an area where you can get a job in the same industry at the next company over if something happens to your job.

I'd probably build up your cash savings so you have 3-6 months of expenses readily available.  Many people these days advocate using credit lines as an emergency fund.  I don't, because the last thing you want to be in is a situation where one of you is unemployed for 6 months and you're $40K in credit card debt - that would be very stressful.  Don't worry about getting a good rate of return on this money; it is an insurance policy, not an investment.

Nurture your marriage.  Divorce can be a financial killer as well as an emotional one.  Compromise on things with your wife as necessary to ensure that she (and you) are happy with how things are going.  It's not worth it to try to slog through life or be uber aggressive.  You'll get there, and it'll be much better to get there a year or two later in good spirits with a happy wife and marriage than to grind it out.

If you're looking at that high of a savings rate soon, make sure you optimize your savings - prefer tax-free and tax-deferred choices, and anything that gives you a match.  There's a post somewhere that talks about investment order either her or at Bogleheads - find that and follow that.  Stay in low-cost investments, and buy-and-hold quality stuff -
 don't try to beat the market through sector rotation or hot tips or clever investment products or anything like that.
 But honestly, a 40-50% savings rate will cover a multitude of mistakes and you'll likely be FI at that rate in maybe 10 years regardless.

Track your money for a year and categorize it in ways that make sense.  Sort your expenses to see where you spend your money and make sure it lines up with your values.  If you spend 5% of your income on your pet, that could be too much or not enough - just look at the big categories and ask yourself if that's where you want your money to go.  Over time your spending will fall into place if you keep track and keep asking yourself that question.

Good luck!

Wow, thanks for the incredibly well thought out response, a lot that I can take away from this.  The car thing hits home, I had the cash but couldn't stomach dropping $18k at once on it, that should've been a sign!  Yes, we are early-ish 30's and both have skill sets/degrees that are applicable across the country, so that's a positive.  We indeed have a fixed rate mortgage, and typically make better choices than our peers, but this world has opened our eyes to what is possible.  Thanks again, headed to checkout Bogleheads now.

rubberguard

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Re: Need help with making sure we're on track
« Reply #8 on: December 27, 2017, 09:48:35 AM »
What is your goal for meeting with the planner?

The goal here is to gain a better understanding of how to bridge the gap from 50 to 59.5 and understand things like SEPP better.

slappy

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Re: Need help with making sure we're on track
« Reply #9 on: December 27, 2017, 09:56:17 AM »
That is a very common question here in the forums. Sorry I don't have any links at the moment, but if you poke around you should be able to find a lot of information. Have you mentioned your plans to the planner? I ask because some folks on here have issues with planners dismissing their goals and focusing on more traditional goals. I bet if you followed the case study format, you would get some great information.

Also, the car loan is at a very low interest rate. There is an investment order listed somewhere (maybe in the case study forums) that lists how you should use your money, and paying off such low interest rate debt is at the bottom of the list.  The money you would put towards paying it off early would be better off in the market growing for you at 8ish percent over time.

slappy

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secondcor521

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Re: Need help with making sure we're on track
« Reply #11 on: December 27, 2017, 10:49:03 AM »
What is your goal for meeting with the planner?

The goal here is to gain a better understanding of how to bridge the gap from 50 to 59.5 and understand things like SEPP better.

Read up on the Roth pipeline.  It's more flexible than SEPP and should be eminently doable in your situation.

mustachemountain

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Re: Need help with making sure we're on track
« Reply #12 on: December 27, 2017, 11:13:35 AM »
be aware that most financial planners are salespeople selling products, not advisors,
and dispense tradition, retire in your 60's advice.
this forum is about unconventional early retirement and life betterment strategies.
your planner might give you very conflicting information and even work against your best interests, if your interests are what is offered here. be clear about what you want and the agendas of who you being advised by.

Jaayse

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Re: Need help with making sure we're on track
« Reply #13 on: December 27, 2017, 11:31:27 AM »
40-50% of what income?

150k
(37k) 401k contributions
(33k) taxes
(38k) after tax savings (to get to 50% of 150k)
42k to live off of should be easy shoot for 60%

Not sure exactly what is meant by "what income?".  Sorry, still new to all of this.

I chose a slightly lower savings rate to get better buy-in from DW and once she is really on board ramp it up.

I think they meant is it 40-50% of your pre-tax or after tax income.

I think that seeing a financial planner is not always the best idea, as stated by others they are trying to make money off of you by selling you things.  I think with a little bit of digging you will find that sometimes the best plans for investing are simple ones. 

Read through this before you go to the meeting with a financial planner (if you still want to go to one): http://jlcollinsnh.com/stock-series/

oldmannickels

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Re: Need help with making sure we're on track
« Reply #14 on: December 27, 2017, 01:23:52 PM »
40-50% of what income?

150k
(37k) 401k contributions
(33k) taxes
(38k) after tax savings (to get to 50% of 150k)
42k to live off of should be easy shoot for 60%

I was asking is 50% on your gross income, after tax income or on your take home pay and does it include the amount you plan to save in you tax deferred accounts.

Will echo what someone else said and you should try to do a full case-study.
Not sure exactly what is meant by "what income?".  Sorry, still new to all of this.

I chose a slightly lower savings rate to get better buy-in from DW and once she is really on board ramp it up.