Author Topic: Reader Case Study - Help Me Make The Right Moves  (Read 3845 times)

HairyUpperLip

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Reader Case Study - Help Me Make The Right Moves
« on: March 17, 2014, 01:10:16 PM »
Hello Everyone.

First - let me say thank you for taking the time to read this and a double thank you for any advice I do receive!

Topic Title: Reader Case Study - Help Me Make The Right Moves

Income:
Currently I bring home around $12xx a week. For ease, let's just use $1200 a week.
This will drop in the near future as I convert from a contracted employee to full time.
$4800 per month

Current expenses:
EFT Expenses -
Health Insurance           182.00  - covers wife and child
Cell Phone         120.00  - 2 iPhones on unlimited data plans
Storage Unit                85.00   
Car Insurance                85.00
Netflix                8.00
Total =                               $480.00 per month

Estimated Monthly Expenses -
Gasoline =       $240   
Baby =          $150     - formula, diapers, etc
Shopping =       $150     - This just a guess based on averages and not set in stone
Dining Out =    $200-300 - This is always worse on someone's birthday month
Groceries =    $250-300 - This amount fluctuates and not all groceries fall on us
Baby Savings =      $100
Total =                $1,240 per month

Money Envelope System -
Car =         $40      - used for oil changes, wipers, etc
Cash =          $160    - $40 a week for whatever random things pop up
Wife Cash =            $40       - $10 a week for whatever random things pop up
Entertainment =      $100     - $25 a week
Wife Grooming =     $130     - For what it's worth, she doesn't literally use this every month
Total =                $470 per month

Total From 3 Above Sections = $2190 per month


Expected ER expenses: (optional, if relevant)
Not sure yet - still learning before I can really answer this one.

Assets: Amount & description - include current asset allocation plan if you have one
Cash:
$4500 - Ally Savings Account @ 0.87% - "Emergency Fund" - Looking to set this at $5000 and leave it alone.
$2000 - Trading Account - new to this arena and starting with a small amount...
$500 - Savings Account @ CU @ 5%  - Wife and I both have one
$500 - Savings Account @ CU @ 5%  - Wife and I both have one
CU does 5% on the first $500 only. Wife and I both have an account with $500 to take advantage. This is why the "emergency fund" savings is in the Ally account.
Wife currently has a 401k with around 12-13,000 in it. I forget the exact number, we checked it about 2 months ago I believe.  [Will check and put correct number]
Total = $7500
Updated Total = $19500 - with 401k included @ 12,000 -- I will correct this and put the accurate number when I check it.


Liabilities: Amount - rate - description
Not sure that we really have any liabilities currently...


Biography:
Just a short story to help in fill blanks....  The wife and I moved to Georgia with my Mother and had our child about 7 months ago. We are planning to stay with her and save for whatever is next. The groceries are a shared expense, but not based on strict calculations. We recently paid off the last chunks of debt and then were hit some medical bills. Thankfully we could pay it in cash, so that hurt the savings but still very very happy we didn't have to put anything on credit.  Mom does not ask for rent or grocery or utility help - though we have offered and usually give anywhere from 500-800 a month to help her out. It just doesn't sit right with me to not help.



The plan!:
Just to be honest, upfront, and clear - I'm very new to the FI and ER stuff. I did make some debt mistakes and found Dave Ramsey. I learned a little bit from, but I take it all with a grain of salt. He's kind of annoying to me now that I've actually learned a lot more.

-Build Emergency fund to $5000 and stop contributing. Almost there.
-Contribute $100/month to my baby's saving account. Done and doing.
-House savings - I want to start putting just under $1700 a month towards saving for our own house. I plan to do this for 24 months which should easily give us enough for 20% on a $180k home. That being said, we are really hoping to be in a $150k or less home. (The goal is $40,000).
-Investments - We want to start putting $500 a month towards investing - the initial amount is kind of low, but I plan to start investing in VFINX and Dividend paying stocks. Once the house goal of $40k is hit, I will increase investment contributions.
-After we get our own house, the major plan is to start saving for the next one and a rental property. I think within 3 years we could have 2-3 rental properties and a primary residence - am I crazy? I would buy all rentals with a 25% down method as I believe in a safety net.
-Will also enroll into my companies 401k as soon as I'm eligible. ADDED
-Also planning to contribute $917 a month to fully fund 2014 ROTH IRA accounts for both of us by this time next year. ADDED

Okay - so my almost life story shared publicly on the internet, haha --- wow... anyways, very open to any advice, criticism, suggestions, questions, etc. Help me make the right choices so I can provide the best possible life for myself, my wife, and my kid. Also, I am wearing a mouth guard - so please proceed with any face punches.

And just to pat my own back and inflict a self punch at the same time - in the middle of 2012 we were sitting on just over $40k in debt. We are completely debt free now and have funded some major life stuff with cash and not credit. I said it above somewhere too, but I'm repeating it so I can take some pride in my accomplishments. I always kind of feel like I am "behind" so I guess I just need to remind myself I have been worse and could still be even worse.

Updates From Questions/Comments:
1. I will be able to enroll in my companies 401k plan once I am converted to a full time employee. Planning to use the match up to 5%. The company matches 100% on the first 3% and 50% on 2%.
Added - 03/17/14 @ 7:55pm

2. Explained CU savings rates. CU does 5% on the first $500 only. Wife and I both have an account with $500 to take advantage. This is why the "emergency fund" savings is in the Ally account.
Added - 03/17/14 @ 7:55pm

3. Totally forgot to add this, but my wife does currently have a 401k with around 12-13,000 in it. I forget the exact number, we checked it about 2 months ago I believe.
Added - 03/17/14 @ 7:55pm

4. Also planning to contribute $917 a month to fully fund 2014 ROTH IRA accounts for both of us by this time next year.
Added - 03/17/14 @ 8:10pm
« Last Edit: March 17, 2014, 06:10:23 PM by HairyUpperLip »

seattlecyclone

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #1 on: March 17, 2014, 04:15:32 PM »
Good job getting yourself out of debt and saving enough that you could pay some unexpected medical bills without resorting to credit! That's a huge step in the right direction, and I'm sure it felt pretty good to get to this point.

Will you have the option to join a 401(k) plan when you switch to full-time employment? I highly recommend putting as many of your investment dollars as possible into a tax-advantaged account like a 401(k) or IRA. Based on the income numbers you reported, you're probably in the 15% tax bracket. That means that for every $500 monthly contribution you make to your 401(k), you'll save $75 on your taxes compared to if you invested that same $500 in a taxable account instead. At your income level, retirement account contributions could even make you eligible for the saver's credit, which will increase your tax savings even more. You can take this extra money and put it toward your retirement (by increasing your contributions to $600), or you could put it toward getting to your down payment goal just a little bit faster instead. Whichever you wish to prioritize more right now is fine.

It's nice that you're setting aside money for your baby's future right now. Is this supposed to be a college fund? If so, you should look into a 529 plan. This is a tax-advantaged investment account that allows you to withdraw any investment gains tax-free as long as they're used for college expenses. If you want a bit more flexibility in how you use the money, I recommend against building up a large balance in a savings account. A savings account is a guaranteed way to lose a little bit of your purchasing power to inflation every year. Invest this money in a Vanguard index fund once the balance is high enough to open an account for your child.

Prairie Stash

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #2 on: March 17, 2014, 04:31:38 PM »
Thank you for sharing your story. I hope you remember we're here to help.

Can you explain what's in the storage unit that's worth $1020/year? Please tell me it's something you can't sell and buy back in the future.

That's also a big chunk of change for dining out. Are your wife and mother both terrible cooks, yourself as well? Every time you go out you should say "Let's go out to grab a bite because your cooking is terrible." Or possibly just say it in your head...

Why do you have cash with Ally at 0.87% when the CU gives you 5%?

Also, why do you get $160/month vs. the wife's $40/month? Is she more organized than you?

Abe

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #3 on: March 17, 2014, 04:33:05 PM »
You are already doing a good job in terms of savings and investment plan.
I agree with investing in a 401k plan if available (or IRA if not). For your income level right now, Roth (no tax deduction now, but tax-free later) or regular (tax deduction now, pay taxes later) contributions will be essentially equivalent as long as you remain disciplined and invest the tax savings from the regular 401k or IRA.
Depending on your health insurance, you may also qualify for a health savings account (HSA) and can save even more money (use the account to pay medical bills, or for anything after age 59 1/2).

Don't over-stretch yourself with the rental properties. Buy one and learn from it for a few years. These are long-term investments and it's better to have experience and do it right than make expensive mistakes in a rush to profit.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #4 on: March 17, 2014, 05:52:38 PM »
Good job getting yourself out of debt and saving enough that you could pay some unexpected medical bills without resorting to credit! That's a huge step in the right direction, and I'm sure it felt pretty good to get to this point.

Will you have the option to join a 401(k) plan when you switch to full-time employment? I highly recommend putting as many of your investment dollars as possible into a tax-advantaged account like a 401(k) or IRA. Based on the income numbers you reported, you're probably in the 15% tax bracket. That means that for every $500 monthly contribution you make to your 401(k), you'll save $75 on your taxes compared to if you invested that same $500 in a taxable account instead. At your income level, retirement account contributions could even make you eligible for the saver's credit, which will increase your tax savings even more. You can take this extra money and put it toward your retirement (by increasing your contributions to $600), or you could put it toward getting to your down payment goal just a little bit faster instead. Whichever you wish to prioritize more right now is fine.

It's nice that you're setting aside money for your baby's future right now. Is this supposed to be a college fund? If so, you should look into a 529 plan. This is a tax-advantaged investment account that allows you to withdraw any investment gains tax-free as long as they're used for college expenses. If you want a bit more flexibility in how you use the money, I recommend against building up a large balance in a savings account. A savings account is a guaranteed way to lose a little bit of your purchasing power to inflation every year. Invest this money in a Vanguard index fund once the balance is high enough to open an account for your child.

Thanks, I appreciate the kind words. It did feel good, but still made me realize a lot of the mistakes I made.

Yes, I should have mentioned that. I will edit my post and add that. I will be able to enroll into a 401k once I convert. I'm planning on doing this - my company matches 100% on the first 3% and 50% on 2%. Oh man, I totally neglected to add the Roth IRA part to the plan. I already did my 2013 taxes, but I'm planning to contribute the 917/month it would take to fill for both of us this time next year. I will edit and add that as well. Thanks for catching it.

I don't honestly know how the child's money will be used at this point. More than likely I believe it will be used for college but if my child shows any real potential I will push them towards that potential. I know that's very vague and open ended but the kid is only 7 months so it could be anything at this point - a talent or unique skill or just a real strong passion. Who knows, only time will tell. I will look into the 529 plan so I can learn about it before I make any decisions.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #5 on: March 17, 2014, 05:52:49 PM »
Thank you for sharing your story. I hope you remember we're here to help.

Can you explain what's in the storage unit that's worth $1020/year? Please tell me it's something you can't sell and buy back in the future.

That's also a big chunk of change for dining out. Are your wife and mother both terrible cooks, yourself as well? Every time you go out you should say "Let's go out to grab a bite because your cooking is terrible." Or possibly just say it in your head...

Why do you have cash with Ally at 0.87% when the CU gives you 5%?

Also, why do you get $160/month vs. the wife's $40/month? Is she more organized than you?

Yes, I do realize I'm posting up on a public forum and I'm asking for criticism. I'm sure some of the questions/advice will be tougher to stomach than other pieces. Thank you very much though for the disclaimer. At first I was a little taken back by the directness of your question but then I recall the disclaimer and realized nobody here is my enemy.

Well, my justification for the storage unit is that when we moved back to my mothers it was from our own adult spot so we do have lots of extra things we don't currently need and there is no space to store it at my mothers. I recall MMM wrote somewhere how crazy it is that people pay to store crap in storage units. I chuckled because I feel that way about mine. Anyways, our plan is to start bringing pieces of furniture back to the house and listing them for sale. We already went through several boxes and donated/sold a lot of things we do not need. It's a work in progress and hopefully should be complete shortly. We will still have an excessive number of things that we won't be able to store at the house, so I will probably at least be able to downgrade unit sizes. I just checked and the smallest unit available is 5x5 and costs $25. I believe we can consolidate down to this size once we get rid of the furniture pieces.


My wife is an awesome cook and my mom is an even better cook. We eat dinner at home most nights and lunch is brought from home as well. It's not many dining out sessions as it just a few with my mother and brother included or the inlaws. I like to foot the bill on these meals because I feel like I can and I feel good doing it. The amounts aren't that much broken down, but it's definitely still a good amount so I can't argue that.

Sorry, CU only does the 5% on $500. We have 2 accounts, one in each of our names. I'll edit the original post and add that. Thanks.

I end up paying for most of the random things that pop up if we are out and about. It's $40 a week which I don't think is too high but I'm actually planning to lower it as I end up usually using $20 or less. She's very good in the spending department and never spent frivolously even before we kept a real budget, so no complaints from me. When she does shop, she always seems to get great deals - we saved over a few hundred dollars on a lot of the baby essentials with her skills!

Thanks again for your comments.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #6 on: March 17, 2014, 05:52:55 PM »
You are already doing a good job in terms of savings and investment plan.
I agree with investing in a 401k plan if available (or IRA if not). For your income level right now, Roth (no tax deduction now, but tax-free later) or regular (tax deduction now, pay taxes later) contributions will be essentially equivalent as long as you remain disciplined and invest the tax savings from the regular 401k or IRA.
Depending on your health insurance, you may also qualify for a health savings account (HSA) and can save even more money (use the account to pay medical bills, or for anything after age 59 1/2).

Don't over-stretch yourself with the rental properties. Buy one and learn from it for a few years. These are long-term investments and it's better to have experience and do it right than make expensive mistakes in a rush to profit.

Thanks, I appreciate that.

I did neglect to mention the ROTH plan in the initial post, I'm going to edit to reflect that. I think I'm leaning towards the Roth for the tax-free benefits later. Also, definitely planning to take full advantage of the 401k match that I will be eligible for. I have to be honest - I don't know much at all about the HSA accounts. Can that money only be used for medical items? I need to do more research on it.

Thanks, I don't plan to do anything crazy. I just really would like to get to at least 5 rental SFH before I do stop working my normal job. My main goal will be quality properties for long term holds, not looking for flips or quick money. Just something that can eventually supplement my retirement income. No rush though, just want to try a grab a deal or 2 while I can.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #7 on: March 17, 2014, 06:01:43 PM »
Added this to the original post ---

Totally forgot to add this, but my wife does currently have a 401k with around 12-13,000 in it. I forget the exact number, we checked it about 2 months ago I believe. I will have to check it and update with the correct number. Can't believe I neglected to mention this.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #8 on: May 05, 2014, 09:38:34 AM »
I just thought I would provide a small update for those that are curious....

Income:
Income still hasn't balanced out. Converted to full time, but still pending 401k to take effect. I believe I will receive around $200ish less per check. I will provide the solid number once I have it. Insurance has been taken out of the check already.
$4800 per month

Current expenses:
EFT Expenses -
Health Insurance           182.00  - covers wife and child Provided by work now. I believe around $526 for all 3 of us per month.
Cell Phone         120.00  - 2 iPhones on unlimited data plans
Storage Unit                85.00   
Car Insurance                85.00 - 92.00 Went up due to $1200 claim from small fender bender on private property (no tickets). WTH.
Netflix                8.00
Total =                               $480.00 per month[/b]
Total =                               $307.00 per month

Estimated Monthly Expenses -
Gasoline =       $240   
Baby =          $150     - formula, diapers, etc
Shopping =       $150     - This just a guess based on averages and not set in stone
Dining Out =    $200-300 - This is always worse on someone's birthday month
Groceries =    $250-300 - This amount fluctuates and not all groceries fall on us
Baby Savings =      $100
Total =                $1,240 per month


New Numbers For Monthly Expenses
I stopped putting stuff on the AMEX unless it's something not planned for.
I guess that makes the only real "expense" my baby's savings account at $100 per month.
Total = $100 per month


Money Envelope System -
Car =         $40      - used for oil changes, wipers, etc
Cash =          $160    - $40 a week for whatever random things pop up
Wife Cash =            $40       - $10 a week for whatever random things pop up
Entertainment =      $100     - $25 a week
Wife Grooming =     $130     - For what it's worth, she doesn't literally use this every month
Total =                $470 per month


Updated Money Envelope System
 30.00   = Car Tune Up
100.00  = Husband Cash
100.00  = Wife Cash
100.00  = Entertainment
120.00  = Gasoline
300.00  = Grocery
750 per month = Total

Total From 3 Above Sections = $2190 per month
Total From 3 Above Sections = $1157 per month


Expected ER expenses: (optional, if relevant)
Not sure yet - still learning before I can really answer this one.

Assets: Amount & description - include current asset allocation plan if you have one
Cash:
$5000 - Ally Savings Account @ 0.87% - "Emergency Fund" - Looking to set this at $5000 and leave it alone.   GOAL!
$2000 - Trading Account - new to this arena and starting with a small amount... 
$500 - Savings Account @ CU @ 5%  - Wife and I both have one Debating closing this account and putting the money into stocks
$500 - Savings Account @ CU @ 5%  - Wife and I both have one Debating closing this account and putting the money into stocks
CU does 5% on the first $500 only. Wife and I both have an account with $500 to take advantage. This is why the "emergency fund" savings is in the Ally account.
$12,500 - Wife 401k
$3,056 - House Savings Account  - This is new. Very happy to finally start saving towards our first home.
$    0.00 - Husband 401k  - Just set up , will start in June I believe.
Total = $7500
Updated Total = $19500 - with 401k included @ 12,000 -- I will correct this and put the accurate number when I check it.

Total = $22,656


Liabilities: Amount - rate - description
Not sure that we really have any liabilities currently...



The plan!:

-Build Emergency fund to $5000 and stop contributing. Almost there.   GOAL!!
-Contribute $100/month to my baby's saving account. Done and doing.   GOAL!!
-House savings - I want to start putting just under $1700 a month towards saving for our own house. I plan to do this for 24 months which should easily give us enough for 20% on a $180k home. That being said, we are really hoping to be in a $150k or less home. (The goal is $40,000).    GOAL!! - also doing $1900 a month instead of 1700
-Investments - In Progress.
-Will also enroll into my companies 401k as soon as I'm eligible. GOAL!!
-Also planning to fully fund 2014 ROTH IRA accounts for both of us.
« Last Edit: May 05, 2014, 09:40:10 AM by HairyUpperLip »

ZiziPB

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #9 on: May 05, 2014, 02:29:37 PM »
Nice job with the update. 

As to your CU accounts, I would keep them as is and not invest that $1000.  There is no way you can get a guaranteed 5% return anywhere else.

HairyUpperLip

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Re: Reader Case Study - Help Me Make The Right Moves
« Reply #10 on: May 05, 2014, 04:41:45 PM »
Nice job with the update. 

As to your CU accounts, I would keep them as is and not invest that $1000.  There is no way you can get a guaranteed 5% return anywhere else.

Thanks - I appreciate that.

You think so? I was debating that, but it's really like $5 every quarter. I know 5% sounds good, but it's not very much money at all. Maybe it was monthly or something, but honestly I don't even touch the $5 I do receive. I just let it sit there.