Author Topic: Someone Step up and PUNCH ME IN THE FACE  (Read 6996 times)

EJ

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Someone Step up and PUNCH ME IN THE FACE
« on: October 02, 2012, 10:39:39 PM »
I want to think I'm becoming Mustachian but after a few months of reading this entire blog and tracking everything financial in our lives, I think I'm a wussypants and need a wake-up call - I need some motivation and advice.  Recently went from two incomes ($145k) to one income ($95k) due to wife staying home with baby.

Facts
29yo
Net Worth: $140k (mostly retirement accounts)
Mortgage: $265k (approx. 100% LTV)
Debt: $11k student loans @2.5%
Emer Fund: $15k

Monthly Paycheck
Income: $7920
Taxes: $1800
Benefits: $300
401k: $320 (4%) (match is 3% or $240)
ESPP: $800 (10%)
Net: $4,700

Monthly Expenses
Home: $1,900 (PITI of $1,700 + PMI of $200 (dumb, I know - in FHA mortgage, have three years before I can get out of PMI)
Student Loans: $190
Utilities: $150
Garbage/Water: $50
Cable/Internet: $60
Car Ins: $100 (own two cars - both paid for)
One iPhone: $80 (mine is paid through work)
Gas: $350 (I commute 20 miles each way)
Groc/Toiletries: $600
Misc: $400 (gifts, entertainment, beer, eating out, clothes, etc)
Total: $3900

Roth IRA: $800

Savings rate is approx 27% - ideally would be closer to 40 or 45%.  Goal is to move in 3-4 years and possibly keep current house as rental property (if it would CF).

Start throwing haymakers and tell me where you see holes in our plan.  Bump up 401k contributions for tax benefit? Pay down house faster? I appreciate your opinions and advice.
« Last Edit: October 02, 2012, 10:57:32 PM by EJ »

Done by Forty

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #1 on: October 02, 2012, 10:54:02 PM »
You're not really in terrible shape.  Maybe in need of a good backhand slap, rather than a right cross.

I think you probably know what to do, but the obvious things are to:

-Reduce the groceries & misc drastically
-Reduce gas expenditure via carpooling/cycling/or moving jobs/homes
-Use only the one, free smartphone (who needs a data plan when the whole home likely has wifi, and wife is home with the baby?)
-Sell a car

Once you've got some sustainable reductions in spending, apply those dollars.  Student loans would be a good place to start, but so would increasing 401k, paying down the home, etc.

offroad

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #2 on: October 03, 2012, 06:38:10 AM »
I was in your exact situation ten years ago.

Life magazine just did an article about how much people should be saving depending on the year of their lives.

Here is your big PUNCH!!!

Where is your LIFE INSURANCE and your DISABILITY INSURANCE?  One of you gets sick and you are both completely screwed.  It happens all the time.  From random events (cancer, car accident, crime,). 

Are you set for your sibling or parent or other extended family loved one to knock on your door and ask for help?   Will you turn them away in the cold snowy night?  Think drama.  It happens.
 

trammatic

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #3 on: October 03, 2012, 06:46:33 AM »
Double check your witholding...that tax number seems a bit high.  Obviously, YMMV, but I live in MD, which isn't known for low taxes, and I make a similar salary, but have $1200 taken out.

Since your income is in the low 100's, there might be some tax savings opportunities depending on your final AGI.  I'd move my contributions from the Roth into savings (or at least not max out my contributions) to give myself room to "lower" my income as needed, but that will require some math.  For example, the child tax credit is reduced by 5% for every 1000 of income over $110,000.  So if your final AGI is $120,040, it would make sense to put $41 into a traditional IRA to lower that to the next $1,000 level to get an immediate $50 credit.  And for each $1,000 you put into a traditional IRA or 401(k), you get an immediate 5% return until you get down to the $110,000 level, you might consider it worth it to put more into the tax deferred vehicles.  Now that assumes you have 1 kid...I have 4, so it's an instant 20% return for me, so I definately put enough into a tax deferred account each year to get me down to $110,000.

Matt K

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #4 on: October 03, 2012, 06:57:58 AM »
Where is your maintenance budget? Both car and house.

Your house needs major work done ever so often, windows, shingles, furnace, whatever. These jobs all cots four or five figures. You should have a savings plan in place to pay for them as they come up. Normally you hear 1% - 3% of the home's value.

You own two cars, one of which you are putting 800 miles on every month just for work. That's near-enough-as-makes-no-difference 10,000 miles per year just for work. Where's your budget for oil changes, regular maintenance, and wear items (brakes, tires, etc)?

I like the first suggestion, sell a car and cut down that second phone. I'm not going to suggest getting a land line, but kill the dataplan on the iphone and only use wifi.

Also, what are the cars. It's all good to have two paid off, but if one is an Escalade and the other an Expidition, you'll obviously want to consider selling both and getting something more financially viable. Remember, gas prices are still low, even at $4 gallon (we pay over $5/gallon in Canada). Now is a good time to sell a gas guzzler to someone less forward thinking than yourself.

EJ

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #5 on: October 03, 2012, 07:38:44 AM »
Done by Forty - good advice, appreciate it. We have an SUV (midsize) and a sedan (used for commuting).  We are looking to cut the groc and misc budget in half (atleast).  I'm not sure about getting rid of one vehicle - will have to do some serious convincing of my wife.  My car is 2008 - I could ditch that for approx. $14k and get something for $5k or so.

Offroad - 60% disability coverage through work but I need to look in to this a bit more.  Also, have $250k in life insurance - I have a feeling I need more than that.  Is this enough (i've read mixed reviews on 10x income, over-insuring, etc.)?

trammatic - I was wondering about taxes - you've got me interested so I've run some numbers on W4 calculators and I'm withholding a bit too much...going to adjust down.  Thanks for the pointers.

Matt K - This is enlightening - since wife staying home is very new (2 months), I hadn't budgeted much for maintenance, etc.  I need to jack up the savings on that after we cut elsewhere.  SUV (midsize 17-23mpg) and sedan (27-31mpg).

Thanks all.
« Last Edit: October 03, 2012, 07:41:25 AM by EJ »

Forcus

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #6 on: October 03, 2012, 08:15:39 AM »
I don't have much to offer since you are actually in better position than I am, and probably in a better position than most people your age (that are not pursuing FI) but it looks like the cars, the food, and the misc are draining you quite a bit. That is what is also hitting me so I can relate.


offroad

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #7 on: October 03, 2012, 09:22:03 AM »
Disability -  well am not sure how much disability you should get.  60% is good, but look at what that will mean to you.  There are a lot of details in disability, that you do not need to find out about later.

Life Insurance - think $100k for each child for college, or to start a small business, or to get a professional license training for a career.  Thats a lot, but can make a difference to a child in this world.  Your spouse needs $500k for retirement (minimalistic) but can get by with less.    Add up the worth of all your assets, plus value of life insurance.  to see what you need for coverage.  Buy only term life insurance.  Dont forget that work covers you with life insurance at double your salary typically.


kkbmustang

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #8 on: October 03, 2012, 09:31:35 AM »
As someone who is currently on LTD (I had an unexpected spinal fusion surgery), this is very important. I'm fortunate in that my policy is amazing, takes into account base salary and bonus in the total the 60% is multiplied against and covers me for my own job (not just any job).  It's about as good a policy as you can get and it saved our financial asses. If not for the LTD, we'd be up shit creek without a paddle.

I really encourage you to look into this.  Also, know that if your employer provides your policy and/or you pay the premiums with pre-tax dollars, the benefits paid will be taxable. If you pay for the premiums with after-tax dollars, the benefits will not be taxable. Something to consider. You can also purchase supplemental disability policies that will cover the difference between the 60% and 100%. I don't have one of these supplemental policies, but thought I'd mention it.

Matt K

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #9 on: October 03, 2012, 09:49:14 AM »
Done by Forty - good advice, appreciate it. We have an SUV (midsize) and a sedan (used for commuting).  We are looking to cut the groc and misc budget in half (atleast).  I'm not sure about getting rid of one vehicle - will have to do some serious convincing of my wife.  My car is 2008 - I could ditch that for approx. $14k and get something for $5k or so.
trammatic - I was wondering about taxes - you've got me interested so I've run some numbers on W4 calculators and I'm withholding a bit too much...going to adjust down.  Thanks for the pointers.

Matt K - This is enlightening - since wife staying home is very new (2 months), I hadn't budgeted much for maintenance, etc.  I need to jack up the savings on that after we cut elsewhere.  SUV (midsize 17-23mpg) and sedan (27-31mpg).


Midsized SUV: Do you have a need to tow anything more than 800lbs? Do you need to transport anything massive inside the vehicle on a regular basis? If not, I recommend ditching the SUV. Look into a hatch/wagon. You only have one baby, so I don't see how you would need anything bigger than a Toyota Matrix (and I bet you could do jsut fine with a smaller honda Fit). 23mpg may sound good when you look at other SUVs, but it is lousy when compared to a compact wagon that provides 95% of the utility for half the ongoing costs (wear items like brakes and tires, as well as oil changes, are less expensive on a smaller vehicle).

My wife and I both work, and we get by just fine with one car (she had her own car before we moved in together). The simple fact is, that for any running around, we do it together, so only one car isn't a limit. If your wife is at home with the baby all day, what is she giving up to not have a vehicle? Grocery shopping or other errands in the middle of the day are restricted to walking distance or delayed until you get home from work. If she knows in advance she'll need a vehicle, you can rent. In an emergency, she can call a taxi, which while expensive, probably still costs less than a single month on the SUV sitting around not being used.

$_gone_amok

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #10 on: October 03, 2012, 11:43:14 AM »
Ditto on the life insurance. I bought a 1.5M term life insurance when I was your age a few years ago. It is cheap and the peace of mind is worth it. 

Also your gas cost seems a bit high. Sell one of your cars and use the money to pay off your student loans and buy a cheaper car.

Misc spending could be trimmed to $200 a month.

offroad

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #11 on: October 03, 2012, 12:14:53 PM »
LTD means LONG TERM DISABILITY for those who have no idea what acronyms mean. 

kkbmustang

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #12 on: October 03, 2012, 12:39:24 PM »
Thanks @offroad.

EJ

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #13 on: October 03, 2012, 07:08:05 PM »
How about college savings?  Currently have some cash set aside (child is 1) but know we need better spot. 529? Brokerage account?

StashinIt

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #14 on: October 04, 2012, 01:33:26 PM »
My 2 cents:

ESPP: $800 (10%)

Situational dependent, but this might not be a good idea. It depends on who you work for, what kind of deal you are getting, etc. I think you should diversify more, because both your job and savings is being tied to a single company. Think about cutting this in half and putting the other 5% into an IRA.

EJ

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Re: Someone Step up and PUNCH ME IN THE FACE
« Reply #15 on: October 04, 2012, 02:20:53 PM »
I get 15% discount in ESPP so each traunch is sold immediately after purchase (once per year) to lock in the guaranteed return and then invested in index funds or used to pay down debt (last two years).