Author Topic: Opinions on Current Trajectory  (Read 714 times)

APBioSpartan

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Opinions on Current Trajectory
« on: January 11, 2021, 11:02:07 AM »
Hello mustachians!  I'm hoping that you can offer some opinions and advice on our current situation.  I personally feel like our finances are a mess, but honestly, I don't feel very motivated to clean things up (I.e., finalize a budget, categorize expenses, etc.) because it feels like we are making decent progress towards our goals (listed below) and we are both very busy with our careers.  Though, without cleaning things up it's very subjective to gauge how we are doing, which is likely why I am posting here for opinions and advice.  Anywho....

Age:
    -29M/28F Married
Combined Income:
    -~210,000 base + ~$20,000ish bonuses
Location:
    -Currently Denver, CO but planning on moving to LCOL Michigan in the next 1.5 years.  Income will likely be similar
Housing:
    -$2,442/mo rental
Expenses:
    -??
Debts:
    -None; made the mistake of buying a brand new truck, but it's paid off and will last us for a very long time. 
    -Already paid off student loans (~$60,000) and car loans
Net Worth:
    -Cash: $20,000
    -Retirement Accounts: $275,000
    -Taxable Accounts: $25,000
    -Total:~$320,000
Goals:
    -Save up for a down payment and purchase a home @ <2 years annual income (I.e., <$500,000)
    -7-figure liquid net worth (I.e., minus house) by 40
    -Find a more fulfilling career for myself by 40.  Very likely will result in a pay cut
    -Have 2 kids (currently 0)
Stretch Goals:
    -Paid off house by 40

Questions/Opinions:
    -Have others utilized a goals-based approach as opposed to tracking details like we are?  Does it work?  Or should we consider the extra time to "take full control"
    -With the above plan, or lack thereof, thoughts on the appropriate time to make a career change from software?  I'm not a developer, but I work more on the strategy/product side of software
    -General thoughts, opinions, advice, or tips for us as we are still young and looking to grow our nest egg

Thanks in advance.


« Last Edit: January 11, 2021, 12:35:35 PM by APBioSpartan »

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 2903
Re: Opinions on Current Trajectory
« Reply #1 on: January 11, 2021, 12:16:49 PM »
You might never get the seven-figure NW goal or the paid-off house goal done until you can track and attack expenses. Actually this takes very little work. Just set up Mint.com one time and it automatically does this for you. You can view charts of your spending by category or vendor, and see your NW at a glance. That which gets measured gets managed.

That said, it looks like your key strength is your salaries. Can you maintain these in a LCOL area? If so, you should make this transition soon. If not, try to project what your savings rate would be in terms of dollars per year living in different areas. According to salary.com and various cost-of-living calculators, LCOL areas can boost your savings potential. However, the longer you pay $2,500 in rent instead of a $1,000 mortgage the longer it will take to be F.I.

If you are willing to put effort into saving and cutting expenses, you might not need a more fulfilling career by 40. With your income, I'd  hope you can save at least $100k/year. Aim for full retirement in a LCOL area in 10 years or less. Make your goals more ambitious! You've already proven you can do this by getting to $320k.

Last item: Having a paid-off house is easy. I have enough cash in my checking account plus under my car seat to outright buy some fixer-upper houses in my LCOL city. The question is "how much house". This decision will affect your retirement date by 3-5 years. Each extra dollar of property tax, insurance, roof depreciation, or utility bill per year means you have to save $25 to cover it, even after you pay off the house. If a McMansion is the dream, prepare to work beyond 40 for it. If a $125k Michigan cottage is the dream, you might FIRE in 7 or 8 years!

APBioSpartan

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Re: Opinions on Current Trajectory
« Reply #2 on: January 12, 2021, 12:00:20 PM »
You might never get the seven-figure NW goal or the paid-off house goal done until you can track and attack expenses. Actually this takes very little work. Just set up Mint.com one time and it automatically does this for you. You can view charts of your spending by category or vendor, and see your NW at a glance. That which gets measured gets managed.

That said, it looks like your key strength is your salaries. Can you maintain these in a LCOL area? If so, you should make this transition soon. If not, try to project what your savings rate would be in terms of dollars per year living in different areas. According to salary.com and various cost-of-living calculators, LCOL areas can boost your savings potential. However, the longer you pay $2,500 in rent instead of a $1,000 mortgage the longer it will take to be F.I.

If you are willing to put effort into saving and cutting expenses, you might not need a more fulfilling career by 40. With your income, I'd  hope you can save at least $100k/year. Aim for full retirement in a LCOL area in 10 years or less. Make your goals more ambitious! You've already proven you can do this by getting to $320k.

Last item: Having a paid-off house is easy. I have enough cash in my checking account plus under my car seat to outright buy some fixer-upper houses in my LCOL city. The question is "how much house". This decision will affect your retirement date by 3-5 years. Each extra dollar of property tax, insurance, roof depreciation, or utility bill per year means you have to save $25 to cover it, even after you pay off the house. If a McMansion is the dream, prepare to work beyond 40 for it. If a $125k Michigan cottage is the dream, you might FIRE in 7 or 8 years!

If I had to guess, I would think our savings rate would be around 50%.  We automatically route the marginally lower of our two post-tax [after maxing 401k] incomes into a separate savings account, and move any excess from the other over on a monthly basis.  So I think we have an "okay" savings rate without formal budgeting, but certainly not great which is why I was asking thoughts on if the juice was worth the squeeze.  If I didn't have the student loans ($60,000) and the new truck ($40,000), we would have been much further along today than we are.  The truck is a longgggg story, but I don't necessarily regret having it now.

I'm hoping that our income will be the same, or only slightly lower, after the move.  My job is remote so my income won't change, but my wife's job will change and likely have a comparable or slightly lower salary.  Admittedly, I'm still torn on what type of house we would like to buy.  We've discussed both ends of the spectrum.  1) buy a cheap ~$200k home, pay it off before 40, upgrade to the home we want, and then rent out the initial property.  <or> 2) Skip being a landlord and just buy the house we want within reason, of course.  I'm not looking for a McMansion, but we are looking at a nice area with a great school district that we could get a slightly above-average home for under our goal (I.e., <2 years gross salary). 
« Last Edit: January 12, 2021, 12:13:59 PM by APBioSpartan »

joe189man

  • Bristles
  • ***
  • Posts: 254
Re: Opinions on Current Trajectory
« Reply #3 on: January 12, 2021, 02:44:31 PM »
i like the goals based approach, keeps it simple and straight forward. However you may need to do some planning to ensure your goals have a plan of action to become reality. for example, work backwards from 40 to your current age, ~11years to contribute to and grow your investable stash ($300K) to 1 million+, if you max out your 401ks (~40k a year) and assume an 8% return you will be at over $1.5 million. if you really have a 50% savings rate you can hit these goals much sooner

so doing some checking and math can confirm the probability of your goals becoming a reality or make you re-evaluate the goals you have set. Your first two goals seem too easy for your income and current financial position. Saving $66k a year could put you over $2 million by 40 and likely with a paid off home and fired in a LCOL place in Michigan.

Paper Chaser

  • Pencil Stache
  • ****
  • Posts: 618
Re: Opinions on Current Trajectory
« Reply #4 on: January 13, 2021, 04:36:34 AM »
$500k buys a lot of house in MI, so I wouldn't set that budget in stone, and then find that you buy more house than you need just because you've already mentally committed to that number.

You'll also need to budget for childcare when the kiddos arrive, or account for any career changes that you or your spouse might have as a result. It's pretty easy for full time childcare to be equal to a mortgage payment these days, especially if there's more than one kid at a time.

You have enough income to steer your lives just about anywhere you want to. The more you can reduce your expenses, the more freedom you'll have to choose when you retire and what you want to do at that point. It just comes down to priorities.