Author Topic: Reader Case Study - Getting to the 1st Mil  (Read 3216 times)

emtheflem

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Reader Case Study - Getting to the 1st Mil
« on: April 28, 2015, 11:57:32 AM »
Reader Case Study – Getting to the 1st Million

I found MMM about a year ago and felt with a few small changes, FI was a good fit for our family’s lifestyle and goals. We are a married couple in our mid thirties. We have three children with a fourth on the way this summer. Husband is an Engineer and I am a ‘retired for now’ teacher (staying home to raise the kids). We live in Canada. Looking for some advice on ways to amp up our savings as we are making progress but I feel like FI is still so far away. Here’s our info.

Salary: $12,800/mo after taxes

Current monthly expenses:
RRSP: $2100
Mortgage: $5400 (we managed to double-double our payments and are set to kill the mortgage in July)
Car Insurance: $132
Cell Phones: $100 (2 phones with low data plans, would be interested if anyone has found cheaper options in Canada)
Utilities: $330 (working on reducing our electrical bill…)
Tithing: $1100 (inline with our strong religious beliefs, not negotiable)

Groceries: $800 (feeding three growing boys…)
Fuel: $250 (Hubby works at a refinery construction site, no options for living close. Approximately a 20 min commute. Children and I bike to school etc when weather allows)
Clothing: $120
Entertainment: $140
Gifts: $25
Household: $150
Personal Care: $40
Kids Activities: $200
Fitness: $30
Hobbies: $50 ($25 each)

Auto Maint: $130 (Hubby does most himself)
Home Maintenance: $100
Insurance: $130 (home and supplement to company paid life insurance)
Birthdays: $40
Christmas: $140
Vacation: $150 (mostly camping or bike trips locally)
Professional Dues: $41
Kids RESP’s: $90

Total: $11,788

Leftover amounts each month are either put into TFSA’s or RRSP’s



Assets:
TFSA’s: ~$20K each.
RRSP’s: $109K each.
Home: ~$500K
2005 Matrix
2006 Odyssey


Liabilities:
Mortgage: ~60k but we have money set aside to pay this out upon renewal in the summer.

Whenever I sit down and do the math of when we can achieve FI and how much we should have saved to be FI, it seems pretty far off. Where would you adjust spending to accelerate FI? We plan on channeling all the mortgage money towards unused RRSP and TFSA room once it is done, but is their other things/areas we could be saving on? Looking for any and all advice from more seasoned mustachians!



JLee

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #1 on: April 28, 2015, 12:07:57 PM »
Assuming you're paying 4x on your mortgage, the extra $4050/mo would be ~$670k after seven years at 7% return.  Adding the additional $1100/mo for tithe would put you at $853k after 7 years.

That's probably why! With mortgage rates as low as they are now (even lower in Canada, as I understand?), I would probably invest while paying normal payments on the mortgage.  Looks to me like you're doing great, though - if you're able to put $5400 into investments on top of your current $2100, you'll likely be around $1.7MM in 10 years ($1MM in six years), plus a paid off house. This is assuming 7% return.

nereo

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #2 on: April 28, 2015, 12:11:52 PM »
Quote
Whenever I sit down and do the math of when we can achieve FI and how much we should have saved to be FI, it seems pretty far off. Where would you adjust spending to accelerate FI? We plan on channeling all the mortgage money towards unused RRSP and TFSA room once it is done, but is their other things/areas we could be saving on? Looking for any and all advice from more seasoned mustachians!
Greetings.  I'm a bit shocked that you are putting so much of your net-worth into your home (~$500k), especially with interest rates this low, but you're almost mortgage free so it's a bit late to change course. 
You are about to get a huge tail-wind with an extra $5400/mo from not having a mortgage.  Use that to max out all your taxable accounts and then plow the rest into savings.  Your savings will grow very quickly.

As for expenses, food is a bit high, even living in Canada and raising three boys.  I'm not sure what 'household' covers.  There's quite a bit of 'fun' spending when you total it all up (entertainment $140, gifts $25, Activities $200, Hobbies $50, Birthdays $40, Christmas $140 Vacation $150 = $750/mo or $9,000 per year).  Probably some ways of optimizing those categories.  Also curious why there's $130 in auto maintenance when your husband does the work himself.  Your mileage (kilometrage) isn't that high for someone who commutes.


Travis

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #3 on: April 28, 2015, 12:22:31 PM »
For clothing, household, and auto maintenance, are those monthly averages or just the most recent expenses?  $130 a month for two vehicles when your husband does a lot of his own work seems awful high.  Same with clothing.  How old are your kids?  You can probably find $100-$200 to trim from your grocery bill.

RexualChocolate

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #4 on: April 28, 2015, 12:23:29 PM »
Not really sure what you want from this post.

At current USD/CAD,your husband is making $127k a year USD AFTER tax, so probably 160s. You have a ton of fluff that can easily be cut. You say the biggest fluff item is non negotiable.

You're saving approx. 50%  (2100 + 5400(mortgage)) a paycheck. You should be able to retire soon. Faster if you cut your luxury spending, faster if you went back to work.

For numbers, you have 500k in the house and 250k in invested assets

Looks like your monthly spend net of housing this is approx. 5k, so 60k annual spend, so you need 1.5 mil in invested assets.

When you retire, do you drop tithing? No idea. This would drop your required assets down to 1.2mil.

As for what to do, these are all personal decisions, not really any point of asking us to argue dropping your unnecessary expenditures.

RichMoose

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #5 on: April 28, 2015, 12:30:14 PM »
Hi emtheflem, welcome to the forums!

Your savings is currently being done by mortgage payoff, this is the reason why your progress appears slow. That being said, in a few months you will be able to put that $5400 to your TFSA, RRSPs, and investment accounts so I don't see any point to stop aggressively paying your mortgage now.

The biggest likely areas to cut down your expenses are cell phone, utilities, and insurance. You food bill is a bit on the high side, but not too bad if you have 5 people eating adult portions.

For cell phones, if you live in an area supported by Wind Mobile's network, you should consider moving to them. Your husband may be stuck with a national discount carrier like Virgin or Koodo if he travels for work. Virgin has a 300 min + 300MB plan for $40 with Canada wide talk, unlimited eve and weekends, and free texting. Wind gives unlimited talk and text for $25, with no data. For data add $10.

You should be able to knock down your utility bill as well by conserving light use, converting to LED bulbs, and keeping an eye on furnace use in the winter.

I'm not sure how your insurance is set up, but comparing to my bill I think you should be able to drop your insurance for cars and house to $200/month. Have you combined your policies under one carrier? Is your supp. life insurance a term policy? Did you shop around for life insurance and make sure you are not overinsured?

emtheflem

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #6 on: April 28, 2015, 12:53:55 PM »
Wow' thank you for all the helpful replies.

Addressing a few questions:

As to the value of our home in relation to our net worth, we live in Alberta which has high property values and hasn't seen a major slide in prices. Moving elsewhere wouldn't see a significant savings on a home since home prices are quite high in Canada. Once we reach retirement, we have considered moving to a smaller city or town to cash out some of that equity. Our home is nothing fancy, a three bedroom 1700 sq ft home.

Thanks for the tips on areas to cut back, the amounts I gave are averages from the last 10 months. Always glad to hear how we compare to others! Helps us Seoul spending in comparison with what we could do.

A few have asked about our auto maintenance numbers... I am hoping to lower this, that category also covers new tires, which we have replaced three of four sets recently (winter and summer tires).

The question about tithing, yes it will drop in proportion to our income. We expect to pay around 10% or our post retirement income. It is a priority for us as it aligns with our beliefs.

Excited to try some suggestions out and speed up our race to FI!

nereo

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Re: Reader Case Study - Getting to the 1st Mil
« Reply #7 on: April 28, 2015, 03:31:46 PM »
As to the value of our home in relation to our net worth, we live in Alberta which has high property values and hasn't seen a major slide in prices. Moving elsewhere wouldn't see a significant savings on a home since home prices are quite high in Canada. Once we reach retirement, we have considered moving to a smaller city or town to cash out some of that equity. Our home is nothing fancy, a three bedroom 1700 sq ft home.
Glad I could be of some help.
Just to be clear, my comment about having a lot of your NW tied to your home has nothing to do with the prices of homes where you live and everything to do with your asset allocation.  Currently you have ~$500k tied to your home and $129k of other various savings (mostly tax deferred).  This means your home makes up 80% of everything you own.  It just raises an alarm whenever I see someone's life savings tied up almost exclusively in their home.  Your home isn't likely to appreciate as much as the stock market will over the next several decades.

Thankfully, come July you should be able to turbo-charge your investments by $5k/month and within a few years your home will be a much smaller portion of your total net worth (although still the biggest chunk). I just wish you had asked for advice two years ago.  C'est la vie.