Author Topic: Reader Case Study- doing well but what next?  (Read 5555 times)

MrsParsimonious

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Reader Case Study- doing well but what next?
« on: September 15, 2014, 02:57:29 PM »
I've been reading for a couple months but I've been frugal all my life (or as my brother calls me parsimonious). My husband was never too much into saving/investing but he is naturally not a big spender. We've been married two years  and I'm curious what else we should be doing finance wise.

Age- husband and I are both 27

Monthly Income after taxes

His 2,200-2,500 (his job has a base salary and then he gets bonuses for completed tasks)
Hers 3,600-4,400 (I'm an independent contractor and bill per hour with varying billable hours)

We both have small side jobs that earn us each ~75$ per month that we use as our fun spending money (craft beer for him and beauty related for me). I didn't include this amount in income or expenses but any leftover money is put into savings account.

Total 5,800-6,900

Current Monthly Expense on average
Mortgage 1,047.09
Extra towards principal 50.00  (I would like to increase this...maybe to 200?)
Property tax 571.96
Insurance
    House 54.59
    His car 68.24
    Her car 57.92
License plate sticker/city stickers for cars 22.68
Water 54.33
Garbage 18.34
Gas 79.26
Electric 91.81
Food 300
Gas 350
Cable/internet 40.99
Restaurants 50.00
Netflix 8.00
Fund both Roth IRAs to max 1833.34
Vanguard 200.00
Her work license/liability insurance 50.25
Clothes 50

Total 5001.71

Assets
ETA: house value 287,000
2006 Mazda 6/2011 Honda Civic (not counting value though)

His Roth IRA 11,736.72
Her Roth IRA 38,302.66
Vanguard 500 index 11,317.28
Individual investments account 93,639.94
Savings account 7,308.15

Total 162,304.75

Liability

Mortgage 220,866.72 @ 3.625%

My husbands company has a 401k option but they do not match. Since I'm independent it looks my option is something like a solo 401k through Vanguard. What else should we do? Put more monthly towards index funds/mortgage? Any other ideas I haven't thought of?
 I'm looking forward to seeing what fresh eyes think!


Thanks in advance!!
« Last Edit: September 15, 2014, 04:07:55 PM by MrsParsimonious »

seattlecyclone

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Re: Reader Case Study- doing well but what next?
« Reply #1 on: September 15, 2014, 03:06:33 PM »
I think your husband should go ahead and move toward maxing out the 401(k) even though there's no match. Tax-deferred savings are a great thing for people who are saving a large percentage of their salary (and would thus likely have a much lower taxable income during retirement). Consider a solo 401(k) for yourself as well. Your mortgage is at a pretty sweet rate so I wouldn't hurry to pay it off any faster, but there's nothing too wrong with that choice if it provides you a feeling of greater security.

parsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #2 on: September 15, 2014, 03:23:05 PM »
I like the username!

Property tax is $570 per month on a $1000 mortgage? That seems excessive.


MrsParsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #3 on: September 15, 2014, 03:38:07 PM »
I think your husband should go ahead and move toward maxing out the 401(k) even though there's no match. Tax-deferred savings are a great thing for people who are saving a large percentage of their salary (and would thus likely have a much lower taxable income during retirement). Consider a solo 401(k) for yourself as well. Your mortgage is at a pretty sweet rate so I wouldn't hurry to pay it off any faster, but there's nothing too wrong with that choice if it provides you a feeling of greater security.

Thank you for the input! After thinking about it some more I bet there would be lower fees with the solo 401(k) versus his work 401(k) I'll have him look into it tomorrow.

MrsParsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #4 on: September 15, 2014, 03:39:44 PM »
I like the username!

Property tax is $570 per month on a $1000 mortgage? That seems excessive.

:)

And I know:( We live in the suburbs of Chicago. My brothers live in nearby towns and both their property taxes are an additional 2,000 more per year

marty998

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Re: Reader Case Study- doing well but what next?
« Reply #5 on: September 15, 2014, 03:54:51 PM »

Assets

2006 Mazda 6/2011 Honda Civic (not counting value though)

His Roth IRA 11,736.72
Her Roth IRA 38,302.66
Vanguard 500 index 11,317.28
Individual investments account 93,639.94
Savings account 7,308.15

Total 162,304.75

Liability

Mortgage 220,866.72 @ 3.625%

Thanks in advance!!

Whats the value of your house? You don't list it as an asset....

Quickest way for you to get ahead would be for your partner to get a better paying job.

MrsParsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #6 on: September 15, 2014, 04:06:07 PM »

Assets

2006 Mazda 6/2011 Honda Civic (not counting value though)

His Roth IRA 11,736.72
Her Roth IRA 38,302.66
Vanguard 500 index 11,317.28
Individual investments account 93,639.94
Savings account 7,308.15

Total 162,304.75

Liability

Mortgage 220,866.72 @ 3.625%

Thanks in advance!!

Whats the value of your house? You don't list it as an asset....

Quickest way for you to get ahead would be for your partner to get a better paying job.

House value 287,000

We're thinking he's about at the top of the payscale given his degree (journalism).

4alpacas

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Re: Reader Case Study- doing well but what next?
« Reply #7 on: September 15, 2014, 04:28:50 PM »
As previous mustachians mentioned, I would look into 401ks for both you (Solo) and your husband to minimize your taxable income. 

I wouldn't pay extra toward your mortgage.  I would funnel that money into pre-tax investment accounts (401k, HSA).  Also, gas ($350) expenditures seem high since you both drive relatively efficient cars.

fartface

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Re: Reader Case Study- doing well but what next?
« Reply #8 on: September 15, 2014, 06:21:30 PM »
I had a $225,000 mortgage a year ago (15 year at 2.875%) on my $350,000 home. I was paying ~$550/month interest on that amount. After the sale of a rental property, I applied $150,000 towards the principal bringing the mortgage balance down to $75,000 and my monthly interest to $185/month.

I know most say "keep the mortgage" and invest, but I think differently.

What are you paying the bank per month in interest? I saw your rate but what's the term? If I were you I'd be working on aggressively paying down that note. Or at the very least re-financing to a shorter term + lower interest rate which will increase your monthly payment but decrease the amount you're forking over to the lender.
« Last Edit: September 15, 2014, 06:26:29 PM by fartface »

MrsParsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #9 on: September 16, 2014, 05:44:23 PM »
As previous mustachians mentioned, I would look into 401ks for both you (Solo) and your husband to minimize your taxable income. 

I wouldn't pay extra toward your mortgage.  I would funnel that money into pre-tax investment accounts (401k, HSA).  Also, gas ($350) expenditures seem high since you both drive relatively efficient cars.

Neither my job or my husband offers an HSA. Is this something I could do independently like the solo 401(k)?

Gas - He fills his car up 3-4 times a month and I fill mine 3 times a month. And for our cars it's about $50 each time. Neither of our jobs are bikeable. I'm in the process of re-working my schedule to reduce my mileage.

MrsParsimonious

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Re: Reader Case Study- doing well but what next?
« Reply #10 on: September 16, 2014, 05:49:38 PM »
I had a $225,000 mortgage a year ago (15 year at 2.875%) on my $350,000 home. I was paying ~$550/month interest on that amount. After the sale of a rental property, I applied $150,000 towards the principal bringing the mortgage balance down to $75,000 and my monthly interest to $185/month.

I know most say "keep the mortgage" and invest, but I think differently.

What are you paying the bank per month in interest? I saw your rate but what's the term? If I were you I'd be working on aggressively paying down that note. Or at the very least re-financing to a shorter term + lower interest rate which will increase your monthly payment but decrease the amount you're forking over to the lender.

The term is 30 years. We pay about 670 towards interest right now. (Every time I see that # it hurts, I enjoy seeing it decrease) We bought in May 2013.

BlueHouse

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Re: Reader Case Study- doing well but what next?
« Reply #11 on: September 17, 2014, 04:38:35 AM »
You don't say how your IC job is set up, but these options are available to you:
1.  Set up 401k and contribute the max (51k/year)
2.  Set up a spot in your home for dedicated office space and start deferring property taxes on that portion. (Yes, it's a deferral not a deduction and you have to repay when you sell house so think carefully on this one)
3. Count a fair portion of utilities against office and deduct those tax free (there's a formula, don't guess wrong and owe back taxes ) as a business expense
4. Pay for your gas or car expenses from a business account. Or just deduct on your personal taxes the legitimate business usage.

Find out everything you can possibly and legally expense against the business and do it. I don't maximize mine, but I'm going to start looking to see if I can change some things up. #1 on my list is an HSA next year. Your independent so I'm guessing you get indie insurance and now have to go thru a state health exchange?  If so, you can choose health plan with HSA next enrollment period.

foobar

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Re: Reader Case Study- doing well but what next?
« Reply #12 on: September 17, 2014, 06:50:00 AM »
You don't say how your IC job is set up, but these options are available to you:
1.  Set up 401k and contribute the max (51k/year)
2.  Set up a spot in your home for dedicated office space and start deferring property taxes on that portion. (Yes, it's a deferral not a deduction and you have to repay when you sell house so think carefully on this one)
3. Count a fair portion of utilities against office and deduct those tax free (there's a formula, don't guess wrong and owe back taxes ) as a business expense
4. Pay for your gas or car expenses from a business account. Or just deduct on your personal taxes the legitimate business usage.

Find out everything you can possibly and legally expense against the business and do it. I don't maximize mine, but I'm going to start looking to see if I can change some things up. #1 on my list is an HSA next year. Your independent so I'm guessing you get indie insurance and now have to go thru a state health exchange?  If so, you can choose health plan with HSA next enrollment period.

1) You need to make up around 150k+ to be able to write off 52k
2) I don't know about deferring property tax but you can depreciate that part of the house. In fact you are required to do that if it is a legit home office
3) This is nice but it really doesn't help much. Lets say you have 150 sq ft office and a 1500 sq ft house.  On 3k of Utilities, you get a 300 dollar deduction or about 75 bucks.
4) You can only deduct business use of the car. Unless of course you are willing to commit tax fraud. If you up for the later,  then small business are a gold mine of opportunity.