Wow! I wasn't expecting to get responses so quickly, so thanks to all! I'll try to get everyone's questions/comments answered.
Maybe other people will understand this better than I do, but how does a car collection make you money? Do you sell off a car every few months, and then live on that income? It's not liquid cash or investments that you can just sell today, if you needed the cash, right?
And it sounds like you know you are overspending in a lot of categories, but you don't list your income or how much in assets--cash assets meaning investments or savings in the form of dollars--that you have. What are you hoping to gain from this case study? Is it whether or not you should sell your practice? Or are you just looking for ways to cut spending because you already know you can retire early?
Perhaps making me money was a bad choice of wording for the car collection. The vehicles aren't an income stream, just an investment. They are able to be sold reasonably quickly if necessary - not too much different than real estate, but certainly less complicated of a sale.
My income was meant to be represented by the S-corp income. I had a strange and lackluster CPA since incorporating and he never explained the concept of putting myself on payroll and leveraging that amount to control payroll taxes. 2015 will be the first year that I do that thanks to my new CPA. As far as cash assets, there's not much. Our family savings tends to hover at around $15k and we have not done any traditional investing (ie stocks, 401k, IRA).
I've been rehashing all of this information for a month or so. With this case study I was mostly hoping to get a fresh perspective both as a sanity check and to check for anything I might be missing. I certainly haven't resolved that I'm able to retire early.
What is an investment vehicle?
You are spending $2250/month just on cars and transport.
What is your net rental income? 1800/month? or $100 (1800 minus expenses)?
Why are you spending over $10K/year on vacation?
Investment vehicles in my case are those that have historically gained value and can be reasonably expected to continue doing so over the long run. Usually that means limited production hand built cars (in my case Ferraris and Lamborghinis). The $2250 per month figure does seem ridiculous, but it's also mixing the collector cars with the daily cars. It's certainly a big area for me to attack as far as personal car use. The old Italian cars do come with high maintenance costs, but I do most of the work on my own and didn't expect them to sit there and appreciate free of charge.
The rental income is $100 (1800 minus expenses).
The $850/mo vacation figure was a typo, but the actual number is still high at $650. Definitely a category worthy of scrutiny. There was a period where my wife and I would take an overnight trip once a month while my parents watched our daughter (even more expensive than face value considering the new baby on the way!), and two one-week vacations with lots of overspending.
First, the low hanging fruit:
Landscaping: $150
Phone(cell): $160
Dining: $600
Christmas: $250
Alcohol: $100
Easily $1000 per month in savings.
You could also sell the dental practice and the car collection, and use the money to pay off your mortgage and the rental mortgage AND the Mazda3. That saves you $3720 per month.
Sell the luxury car, and now there is ~$5,500 in savings per month.
Now, you have $4400 per month in expenses, with ~$1,550 in passive income. Meaning you need to earn just under $3000 per month, after taxes. Easily done with your wife still working.
But wait, there is more. Now that you are unemployed, you can stay home with the kids, saving another $600 a month in childcare. Now, you and your wife only need to make about $2400 a month. That is like $40K a year, pre-tax. Even more, the extra costs associated with the car collection is like $700 a month. So you save that money too. Now we are $1,700 a month.
So in the next few months, trim your expenses. Stay at the practice until life settles down post-baby, then sell the practice and the car collection. Seriously, you have earned a break.
Yes, lots of waste there! Without the job, I'll have time to keep up the landscaping, do more home cooking, and more home brewing (and probably a lot less drinking, ha!).
This makes good sense. There is the age old debate of paying off a mortgage vs investing, and I don't know the answer to that, especially with what I consider to be a good interest rate (3.675%). I'd also be freaked out not having much of a stash to stick into investments. I'd have to see how paying off the house would save vs investing the money and covering the spread.
You're not happy -- and it's good you can make the decision to change!
I think you might want to do this in small steps. Over the course of this year, you could significantly reduce your expenses, to see what's it's like to live with less income. Keep the practice while you do this, and you'll have the bonus of more savings going into your freedom fund. After a year or two, you can sell the practice and the income change won't be a big deal.
If you love the cars, why not make it a business?
Thanks for the encouragement! As long as the car market keeps up at a reasonable pace, I'd like to keep doing it as a business.
Maybe I missed something, but with an S-corp, I would reduce your salary to 70K and take the rest in shareholder distributions to avoid the payroll taxes on that portion.
I would also start a 401k and contribute as much as possible into it. And have the S-corp contribute as well. If you can get your wife under your S-corp umbrella, you can double the benefits.
Even if you sell the practice, keep the s-corp and 401k for when you teach and split the income in a similar manner.
I got a new accountant this year (see above comment) and restructured my distributions similar to your suggestion. I will be keeping the S-corp in order to run the mobile practice (at the nursing facility) and with my wife being a hygienist it will be easy to set her up as an employee, etc. Good idea!