Author Topic: New Case Study -- Life changes  (Read 3406 times)

Crystal1588

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New Case Study -- Life changes
« on: October 03, 2016, 12:19:30 PM »
Hi!
Although I've posted a case study in the past, our financial situation is changing enough that I would love some feedback.  All numbers below are the projected budget for our new situation

Life Situation
: Hubby (30) plus me (28) and 3 kids (4,2 and due in November).  Married filing Jointly

Gross Salary/Wages: Husband makes $87,000 and I will be making $15,000 working 2 days/week. Total from regular jobs $102,000 gross.

Pretax Deductions:
401k-DH contributes 6% ($5,200) and his company matches 5% for a total contribution of $9,600. This is a new benefit in 2017
         I put in 50% of my pay ($7,500) and my company matches 25% of all contributions for a total of $9,375
         Total contributions to 401k: $18,975

HSA- DH has access to a HDHP and an HSA this year.  His company puts in $1,000 and we will be putting in $6,700 for a total contribution of $7,700

Insurance: $170/paycheck for the HDHP for a total of $2,040/year

Daycare Flex Spending: $5,000/year

Rental Income: We own a rental property that brings in $400/month after all expenses. This goes straight into a savings account for future rentals/repairs so we don't count it as income.

DH's Side Gig: He runs a resale shop on Ebay. Currently pulls in an average of $500/month but can obviously fluctuate widely. We currently save this money in our rental account.

I show that with all of those deductions, we should be claiming 8 or 9 on DH's paycheck to minimize our tax refund. This would make his take home pay $2089/paycheck or ~$54,300/year. My income is $275/paycheck or $7,150/year for a total income of $61,450/year.

Expenses
Mortgage: $1700/month 20,400/year
Daycare: $972/month until September 2017 when 4yo goes to public school, then drops down to $700/month $4000ish a year once you take off Flex Spending reimbursement
Tithe to church: $800/month (non negotiable) 9,600/year
Grocery/toiletries: $450/month 5,400/year
Gas: $200/month 2,400/year
Extra Curriculars for kids: $50/month $600/year Swim lessons, soccer etc
Dog food: $30/month $360/year
Netflix: $8/month $100/year
Internet: $50/month $600/year
Restaraunts: $100/month $1200/year
Miscellaneous: $100/month (haircuts, kids clothes etc) $1200/year
Car Insurance: $75/month 900/year
Life Insurance: $75/month $900/year
Gas/Electric Bill: $150/month on average $1800/year
Cell Phones: $125/month $1500/year

Savings:
Miscellaneous savings (home maintenance, eventual new car purchase etc) $150/month $1800/year
529 Savings: $225/month ($75/kid) $2700/year
(Mentioned above) $400/month from rental $4800/year
(Mentioned above) $500/month from DH's side gig 6,000/year

Current Liabilities:
Mortgage (just refinanced to 3.5%) so 30 years remaining: Balance of $274,000. PITI payment is $1700/month
Rental Mortgage rate of 4%, 27 years remaining: Balance of 44,000

Current Savings/Assets
House: Worth $350,000
Rental Condo: Worth 90,000
My Traditional IRA: $7,205
DH's IRA: $51,000 in Vanguard
My 401k: $62,000
Rental Account: Current balance $15,000 in Capital One earmarked for new rentals or repairs on the current one.
General Savings Account: $5,000
Kids 529s: Total balance of $5,000

Questions:
This is the first time I'm cutting my hours so drastically in an effort to maintain more of a work/life balance. I love my job and my company so I don't want to leave completely even though there is definitely the financial reasons to just stay home. 

That said, does the budget look okay? We're pretty frugal and have been doing this budget for awhile but i'm just nervous with the ambitious savings goals and the fact that we're going to a HDHP as well as cutting hours and having a newborn at home again.

DH wants to quit working in 10-15 years. Do you see this as possible? He can always up his side gig, but I know kids will also become more expensive as they get older so it may very well even out.

There is currently around $5,000 "extra" in our annual budget that we plan to throw into our IRA's but I'm hesitant to earmark it for that since I don't want to run things too close.  My question on this part of the budget is do we just do it and if we hit any financial difficulties reduce the amount we're putting in?  Should we save it until the end of the year and then make a lump deposit into IRA's? 

I want to save as much as possible but also don't want to be too ambitious and then sink.

Congrats if you've made it this far! Pregnancy brain/nesting has me wanting to double/triple check everything and you guys are the experts!!

Thanks so much!

ETA: Just realized I didn't add in the reimbursement for Daycare FSA and subtrace the daycare numbers. So, it turns out we'll have approximately $5,000 extra to throw at IRA's or just save somewhere else.
« Last Edit: October 03, 2016, 12:51:41 PM by Crystal1588 »

therethere

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Re: New Case Study -- Life changes
« Reply #1 on: October 03, 2016, 12:30:03 PM »
My only comment is to change your HSA contributions. Employee and Employer contributions have a 6750 Family maximum combined. So if the employer throws in 1k you only need to contribute 5750.

Crystal1588

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Re: New Case Study -- Life changes
« Reply #2 on: October 03, 2016, 12:33:26 PM »
My only comment is to change your HSA contributions. Employee and Employer contributions have a 6750 Family maximum combined. So if the employer throws in 1k you only need to contribute 5750.

Good to know! Since this is a new benefit for 2017 for DH's employer, I had no idea!

ruraljuror

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Re: New Case Study -- Life changes
« Reply #3 on: October 03, 2016, 09:02:06 PM »
Retiring in 10-15 years seems like a stretch when you're only saving about $11k per year, have such a significant mortgage and spend over $50k per year. The home seems expensive for your level of income (over 30 percent of your take home pay).

If you're concerned about not having enough cushion during the year, you could save in an online savings account until the end of the year and put what you feel comfortable with into the IRA options available to you. Basically, pad the emergency fund until you're comfortable skimming some into the IRAs.

Crystal1588

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Re: New Case Study -- Life changes
« Reply #4 on: October 04, 2016, 08:00:29 AM »
Retiring in 10-15 years seems like a stretch when you're only saving about $11k per year, have such a significant mortgage and spend over $50k per year. The home seems expensive for your level of income (over 30 percent of your take home pay).

If you're concerned about not having enough cushion during the year, you could save in an online savings account until the end of the year and put what you feel comfortable with into the IRA options available to you. Basically, pad the emergency fund until you're comfortable skimming some into the IRAs.

You must be reading our budget wrong.
Savings totals are:
DH 401k: $9,600/year
My 401k: $9,375
HSA: $5700 (which I would be surprised if our medical bills went that high, but regardless our OOP max is $5,000 so if you include the $1,000 employer contribution this would be $1,700 surplus)
Rental Property Income: $4800/year
Husband's side gig: Averages ~6,000/year
Total savings: $31,475/year (This doesn't include the roughly $5,000 extra we could be putting into our IRA's with our budget surplus)

Regarding Expenses: Yes, they are high. Much of that is due to daycare (will be gone if we RE) and our tithing (would go down when we retire to reflect that income). We expect expenses in retirement to be around $45,000/year. Of that, we would be able to cover about $10,000 with just our side income (likely more since DH would have more time to devote to his ebay business). Using just the $10,000, though, we would need to cover $35,000 out of retirement accounts. Let's say $40,000 just to be safe. 
We would need a 1mil portfolio to support 4% withdrawals.

Using $30,000 in contributions over 15 years at 6% annual growth including our current portfolio, we would have just shy of 1mil. That's assuming no raises over that entire 15 years, and that I never bump my hours back up (which I likely would when the kids are all in school)

So yea, it's a stretch goal, but definitely not impossible.

And regarding IRA contributions, that's the way i'm leaning.
Thanks for the input!


zolotiyeruki

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Re: New Case Study -- Life changes
« Reply #5 on: October 04, 2016, 08:37:53 AM »
Yeah, I don't see any major opportunities for trimming the budget, although the cell phones seem awful expensive.  All things considered, I think you're doing alright.  You're very fortunate to have such low property taxes :)

ruraljuror

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Re: New Case Study -- Life changes
« Reply #6 on: October 13, 2016, 08:19:54 PM »
I definitely must have misread your savings amount, sorry about that. To clarify, you plan to limit spending to $45k in ER including the $20k/year housing costs?

alewpanda

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Re: New Case Study -- Life changes
« Reply #7 on: October 13, 2016, 08:55:14 PM »
Is there a reason your gas expenses are so high?  Seems like a lot of driving...

Also, HSA numbers will fluctuate as the money IS used for the occasional health issue...so you cannot really count on all of that being there at the end of 15 years.

Since you are only using daycare infrequently, can you find a cheaper option?  2 days a week may not be hard to pay a friend of the family, church member, or in home daycare for....and probably a lot cheaper.

Why is life insurance so blasted high?  Its not whole life, is it?  75 dollars a MONTH?

Edited to include:  PagePlus has phone plans for 50.00 a phone or less if Verizon networks works in your area...and the 50.00 plans are nice ones with lots of minutes.  I pay 29.00 for my phone, data, texts...no contract.  Could be an area to trim!
« Last Edit: October 13, 2016, 08:58:13 PM by alewpanda »

swaayze

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Re: New Case Study -- Life changes
« Reply #8 on: October 14, 2016, 09:10:25 AM »
Why not contribute 100% of your salary to your 401k and grab the instant 25% return? Looks like you could offset it elsewhere if need be. That would help.

Zikzin

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Re: New Case Study -- Life changes
« Reply #9 on: October 14, 2016, 09:56:57 AM »
Looks like you're in good shape, you will have more options when the day care expenses goes away, either add that towards savings or pay off your rental property.

6% is pretty conservative too, so when market does well, you should be able to retire before 15 years with your current savings rate.

we pay $69.12/month for a term life insurance for both of us, so if that's for both of you, then the amount is good.

A440

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Re: New Case Study -- Life changes
« Reply #10 on: October 16, 2016, 01:30:49 PM »
Agree with the others above that overall it seems like you are doing well.

Do you have any ideas about any future assessments for the condo rental?  For example, is the roof and paint and all of the common areas in good shape?  Or are the HOA fees being saved up for these sorts of things?

Agree with phone bill being somewhat high.  We used consumer cellular, and are paying $54 for 3 phones per month. 

Also we are considerably older than you and paying about $1000 per year for 1.5 million of life insurance between the two of us.  I am even considering decreasing this at some point, but at present, if something happened to both of us, I don't want our kids to be a hardship for not-so-mustachian relatives.