Author Topic: Reader Case Study-How much more to cut spending/strategy to get to FI faster?  (Read 5570 times)

bkworm82

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Hello all,

I am 31 and my husband is 28.  We only buy bare necessities and are actually in the middle of de-cluttering our life as well. We do not have children and do not plan to have any for about 5-8 years. Ideally, we'd like to have one child right before retiring.  We know the world is open to us and I think our main problem is we have too many choices (never a bad thing!) and are not sure which ones will get us to the goal faster. When we retire we are sure we do not want to live in Florida so right now our owning the home is up in the air. We could pay it off then move and rent it out for $1300+ easy or sell it and buy something smaller/cheaper. We've looked into renting right now if we sell the home, but we would pay more in rent than we do in mortgage because of our dog. We can't find something cheaper that accepts pets. In addition, right now renting is not an option as the HOA has restricted the community from renting until more owners live there.

Here are our stats:

Income: wife - 51,552
      husband - 47,372

SUBTOTAL: $98,924

Current expenses:

Mortgage: $960 - includes taxes/insurance/PMI

HOA - $162

Roth IRA for Husband: $200

Cell phones: Just switched to Republic from AT&T - $0 since husbands job pays $50/month. Once we retire, we incur this expense.

Internet (wife teleworks one day a week) - 33.00

Electricity - $80/month all year round. We live in S. Florida and are on a program called Budget Billing, where they take the average of what you pay over 12 months and have you pay that so you don't have drastically different bills when the summer months begin (which is 9 months out of the year, if not more). We are in the process of installing LED bulbs in our living areas, where most electricity consumption takes place.

Mother's AARP Life Insurance - $68/month for a 15k policy

Car insurance - $124 (GEICO, no collision or comprehensive coverage, bare min. amounts)

SunPass (pays for tolls, not used for commuting but for occasionally visiting family that lives 30 minutes away) - $5/mo

Rdio - an app - $10

Gas for 2 cars (one is an 04 Honda Civic the other is a 99 Jeep Grand Cherokee, both owned outright) - we budget $260 a month, but we started to carpool in the Honda more days and use the Jeep less. Considering selling Jeep in the future. We both work in the same vicinity, 10 minutes away from home. Biking to work is just not an option right now as I fear for my life just driving to work, never mind being on a bike.

Food - $500 (we are vegan and also shop at Costco up to 2x a month) We don't always use it all, and we also use this money if we eat out (1x a week or less)

Water - $50

Expenses (Entertainment/items needed from drug stores, etc) -  $75

Therapy - $50/month

Dog food - $50/mo

Vacations: 2 vacations to Gatlinburg TN (driven) - $1600/year for about 3 weeks of vacation - $133/month

SUBTOTAL: $2,810.00

Expected ER expenses: 

One child - Not much since we won't have to enroll him/her in daycare and we are pretty frugal in general

Health Insurance - I suspect this balances out with what we are paying now, pretax - $400/monthly for dental/health/vision.

1 car - insurance $62

Gas - considering electric car

Cell phones - $50

Own home outright - would pay $510 monthly (taxes+insurance+HOA+utilities) If we rent it and live somewhere else this would be taken care of plus $700+ profit each month.

Food - $400

Dog food - $50

SUBTOTAL - $1522

Assets:

TSP (gov't) retirement account - wife - $33k in a Lifecycle2040 fund (10% of pay every 2 weeks, plus 5% employer matching)

Husband - BlackRock Roth - $4k (currently in the process of either rolling over to a Vanguard Roth or trying to put this money into low index funds)

Savings - $12k (Emergency fund in case one of us loses our job for max of 6 months) (regular money market, about to open a Cap1 360 savings acct)

SUBTOTAL: $49k

Liabilities: Mortgage - owe $112.8k at 4.25% interest - 30 year note, 28 years left (3/2.5 bath townhome, 1598 sq.ft. - bought at 123.5. Value = 140-150k)

SUBTOTAL: $112.8k

Specific Question(s):  We would like to know (1) if there is anything else we can cut from our spending and (2) if our anticipated strategy of paying down our mortgage *and* starting to invest in Vanguard index funds is the best one if we want to retire in 8-10 years.

Thanks for any ideas/suggestions/help.

nereo

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Hello all,

I am 31 and my husband is 28.  We only buy bare necessities ... right now renting is not an option as the HOA has restricted the community from renting until more owners live there.

SUBTOTAL: $98,924

Current expenses:

Mortgage: $960 - includes taxes/insurance/PMI

HOA - $162

Roth IRA for Husband: $200

Internet (wife teleworks one day a week) - 33.00

Electricity - $80/month all year round.

Mother's AARP Life Insurance - $68/month for a 15k policy

Car insurance - $124 (GEICO, no collision or comprehensive coverage, bare min. amounts)

SunPass (pays for tolls, not used for commuting but for occasionally visiting family that lives 30 minutes away) - $5/mo

2 cars (one is an 04 Honda Civic the other is a 99 Jeep Grand Cherokee, both owned outright) -

Food - $500

Water - $50

Expenses (Entertainment/items needed from drug stores, etc) -  $75

Therapy - $50/month

Dog food - $50/mo

Vacations: 2 vacations to Gatlinburg TN (driven) - $1600/year for about 3 weeks of vacation - $133/month

SUBTOTAL: $2,810.00

1 car - insurance $62

Gas - considering electric car

Cell phones - $50

Own home outright - would pay $510 monthly (taxes+insurance+HOA+utilities) If we rent it and live somewhere else this would be taken care of plus $700+ profit each month.

Liabilities: Mortgage - owe $112.8k at 4.25% interest - 30 year note, 28 years left (3/2.5 bath townhome, 1598 sq.ft. - bought at 123.5. Value = 140-150k)

SUBTOTAL: $112.8k

Specific Question(s):  We would like to know (1) if there is anything else we can cut from our spending and (2) if our anticipated strategy of paying down our mortgage *and* starting to invest in Vanguard index funds is the best one if we want to retire in 8-10 years.

Thanks for any ideas/suggestions/help.
(above condensed for clarity)
A few thoughts:
1) A bit confused about whether you can or cannot rent out your home. You mention renters are "not an option as the HOA has restricted the community from renting" - that's a big concern for me.

2) if your HOA restricts you from renting, and you don't plan on living there in a few years, it's probably best to sell it when you get a good opportunity.

3) why are you paying for your mother's 15k life-insurance policy?  If you are the benifactor that doesn't make a lot of sense to me.  Also, paying $68/mo for a $15k policy is costly (4k over the next 5 years). 

4) $500 for food for two can certainly come down, even with your diet.

5) having one car will help you save both on insurance, and on maintenence, as well as give you a few grant from the sale.

6) electric cars may be a personal preference, but if you mustachian about your driving habits they are rarely the most economical option.  I would look for an 8+ year old car with high MPG that costs under $5k and is rust free.  In Florida that should be easy to find. There's even a MMM post about cars here: http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

My two cents:  I'm concerned over the restrictions that your HOA places on renters, and on the fact that you don't want to stay in florida (which would mean being a remote landlord, at best). To me that argues for putting all available funds towards your Vanguard fund (after youv'e taken advantage of all tax-deferred accounts), and potentially selling the home for a small gain when you are ready.  I guess I just don't understand why you want the house in the first place.

plantingourpennies

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Electricity - $80/month all year round. We live in S. Florida and are on a program called Budget Billing, where they take the average of what you pay over 12 months and have you pay that so you don't have drastically different bills when the summer months begin (which is 9 months out of the year, if not more). We are in the process of installing LED bulbs in our living areas, where most electricity consumption takes place.

From this, I presume you're with FPL.  If that's the case, do you participate in OnCall?  We have our pool pump, water heater, & HVAC enrolled and get rebates totaling $138/year.  It's not much, but the cost to enroll is $0 and it is super easy and only available to homeowners. 


bkworm82

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Yes, we are with FPL and yes I am going to sign up for OnCall today actually, thanks for the reminder!

minimalist

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Your current expenses look fine except your gas and food should be less, and vacations could be less. $4,020 is the basic cost of raising each child per year as estimated by the Department of Health and Human Services for 2013 (this includes food, transit, clothing, health, misc. and excludes housing and childcare), so that's $335 a month. An electric car does not require gas, but it requires energy and a higher upfront purchase cost, so that is not $0. Your health insurance is probably subsidized right now and does not include a child, so that will probably be more than $400 for health only (not vision and dental). We can estimate your ER expenses being closer to $2k a month. That means you need to save $600k (annual expenses*25) for a 4% SWR. You currently have $49k saved, so you need an additional $551k. $551k/10 means need to save 55k a year depending on losses and gains during your buildup years. Did you list your pretax or net income? It looks like you might be able to reach your ER goal. However, having a child after 35 is more difficult and risky.

bkworm82

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(above condensed for clarity)
A few thoughts:
1) A bit confused about whether you can or cannot rent out your home. You mention renters are "not an option as the HOA has restricted the community from renting" - that's a big concern for me.

2) if your HOA restricts you from renting, and you don't plan on living there in a few years, it's probably best to sell it when you get a good opportunity.

3) why are you paying for your mother's 15k life-insurance policy?  If you are the benifactor that doesn't make a lot of sense to me.  Also, paying $68/mo for a $15k policy is costly (4k over the next 5 years). 

4) $500 for food for two can certainly come down, even with your diet.

5) having one car will help you save both on insurance, and on maintenence, as well as give you a few grant from the sale.

6) electric cars may be a personal preference, but if you mustachian about your driving habits they are rarely the most economical option.  I would look for an 8+ year old car with high MPG that costs under $5k and is rust free.  In Florida that should be easy to find. There's even a MMM post about cars here: http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

My two cents:  I'm concerned over the restrictions that your HOA places on renters, and on the fact that you don't want to stay in florida (which would mean being a remote landlord, at best). To me that argues for putting all available funds towards your Vanguard fund (after youv'e taken advantage of all tax-deferred accounts), and potentially selling the home for a small gain when you are ready.  I guess I just don't understand why you want the house in the first place.
[/quote]

I knew I was going to get a question about my mother's life insurance. She is low-income and I took over her payment for this policy 4 years ago to help her out. The way I was looking at it was that when she passes, I will be footing the bill anyway. I don't know anything about this policy or even how these policies work in general and I'm wondering if I will be able to get some of the money I've paid and just put it in an investment or high-yield savings account instead?

The HOA has placed a restriction on homeowners renting their homes because more than 10% of the community is rented and they don't want renters to be the majority of people living there. We bought the home 2 years ago with a very differnt perspective - consumerism at it's best, and we wanted to have children. Now we are waiting to have children and have become minimalists. We put the house on the market a few times because we wanted a single family home but the single family homes out there were 250k for the same amount of space, which did not make sense to us financially. We would sell it and rent an apartment but it doesn't make sense either to pay rent that is higher than our mortgage and give up the benefit of the asset.

Frankies Girl

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Couple of things jumped out at me.

Money wise, your food bill is REALLY high for two people.

Why does your mother need life insurance? Life insurance is for replacing income that spouse/children might need in the event of a death of an earner/carer. It sounds like it might be a whole life policy, which are silly wastes of money most of the time. You definitely need to do research on this ASAP, as it's a money pit.

Car insurance - kind of high for two vehicles with only liability coverage. I have GEICO as well, two vehicles and one of them has full coverage right now and I pay around$400 hundred less than you per year. Might be time to shop around, and make sure you're checking to see how much if you bundle your home insurance as well (most big insurance companies do this for a discount). Also, if you're only occasionally driving one of the cars, make sure you tell the agent that - if it's not a daily driver, the rates should be less.

If you telecommute most days, I hope your husband takes the Civic to drive since that would reduce your gas costs.

Vacations are pretty high too, might want to cut down to one travel week and make the rest "staycation" weeks to build up a better amount to fund investments?

Your age and timeline for children - you say you're 31 now, and a child is maybe 5-8 years off. That puts you in your late 30s to conceive. Do not take it for granted that it will be easy at that point. It might, but you're considered "advanced age" after 35 and fertility goes WAY down on average as you enter your mid 30s. If you're planning on just one, you might want to consider starting in the next 4 years on the outside just to be safe if you're serious about having one.


bkworm82

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Your current expenses look fine except your gas and food should be less, and vacations could be less. $4,020 is the basic cost of raising each child per year as estimated by the Department of Health and Human Services for 2013 (this includes food, transit, clothing, health, misc. and excludes housing and childcare), so that's $335 a month. An electric car does not require gas, but it requires energy and a higher upfront purchase cost, so that is not $0. Your health insurance is probably subsidized right now and does not include a child, so that will probably be more than $400 for health only (not vision and dental). We can estimate your ER expenses being closer to $2k a month. That means you need to save $600k (annual expenses*25) for a 4% SWR. You currently have $49k saved, so you need an additional $551k. $551k/10 means need to save 55k a year depending on losses and gains during your buildup years. Did you list your pretax or net income? It looks like you might be able to reach your ER goal. However, having a child after 35 is more difficult and risky.


I agree about the food, I'm going to start tracking it better because I think it can be 80/month.   Let's forget about the electric car - my DH and I were just thinking to sell both our cars later on and get an older Honda Fit or something like that, because we'd like to drive around the US when we reach FI for vacations. I tried to change my work schedule but my boss would not let me. If I could do that we would sell the Jeep and use my honda, which is excellent on gas ($35-40 every 2 weeks).

Yes our health insurance is subsidized but they are family plans which accomodate children for the same price.

The income I listed was pretax - I get my retirement and insurances and some charitable donations taken out pretax.

thanks for the glimmer of hope in one of the last sentences!
« Last Edit: March 06, 2014, 12:11:16 PM by bkworm82 »

plantingourpennies

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Yes, we are with FPL and yes I am going to sign up for OnCall today actually, thanks for the reminder!

No prob!  This is Mrs PoP, BTW. 

Also - you mention being with Geico... Geico quotes for us were INSANELY high in FL for some reason.  We've been with Safeco of Illinois, but recently switched to Progressive when Safeco started to raise rates on us.   I don't know your zipcode, but we recently paid $627 for 6 mos for 2 cars (an 06 Miata and an 02 Jeep Wrangler) with full collision and comprehensive with a $500 deductible.  For the last 4 years of renewing, the deals that our insurance agent could find were significantly better than what we were quoted online.  YMMV. 

Also, not to pry, but why leave FL?  Again, I ask not knowing your zipcode... but I love it here and think it'll be great for FI.  =P



mamagoose

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We were recently offered the opportunity to continue paying my MIL's life insurance policy for $150/month and we would be the beneficiaries. We are 29 years old and don't need the windfall or the headache of managing it, so we told her to cancel it. In our opinion, life insurance is there to pay for things that would need to be taken care of when that person isn't around anymore (a funeral, but like you said you'd be paying that anyway; in my case as a new mom I'm insured for the cost of a full-time nanny for 5 years until my daughter is in kindergarten so someone would be able to watch her full time while husband works). We plan on dropping our life insurance when our kid(s) are in college since they'll already be on their own two feet and inherit a fully-paid-for home. I know some folks use life insurance as a gift to their kids, but we'd rather see our parents enjoying that monthly payment on living their life now than paying to give us lottery winnings when they're gone. Especially with siblings, if we were the beneficiary and my SIL wasn't because she didn't "buy in", it would be VERY uncomfortable. We have an aunt who is paying something insane like $2k/month for a policy to give her daughter something like $500k upon death. People can't do math.

What is this $10 app you're paying for? I use the Pandora app daily, it's free and great if you can't ignore all the Orlando KIA ads :)

MayDay

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To ditto Mrs. pop's safeco comment, we just switched TO safeco because we saved a bunch with them!  So definitely check your rates. 

I had haphazardly checked rates in the past but never kept records.  This time I made a spreadsheet of all the different quotes, and typed out a word doc with all the info needed to get a quote.  I emailed the doc out to a bunch of agents, and it made the process much less painful than having to spend a bunch of time on the phone giving info over and over.  We saved a good bit by switching, it was well worth checking around.  I am kind of amazed at your costs as we are insuring three older vehicles (2 civics and a van) for 650$ a year with full coverage and a 1000$ deductible.  Speaking of which, I need to lower my coverage level for time I get quoted. Maybe cars get damaged more in FL because of natural disasters? 

bkworm82

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Yes, we are with FPL and yes I am going to sign up for OnCall today actually, thanks for the reminder!

No prob!  This is Mrs PoP, BTW. 

Also - you mention being with Geico... Geico quotes for us were INSANELY high in FL for some reason.  We've been with Safeco of Illinois, but recently switched to Progressive when Safeco started to raise rates on us.   I don't know your zipcode, but we recently paid $627 for 6 mos for 2 cars (an 06 Miata and an 02 Jeep Wrangler) with full collision and comprehensive with a $500 deductible.  For the last 4 years of renewing, the deals that our insurance agent could find were significantly better than what we were quoted online.  YMMV. 

Also, not to pry, but why leave FL?  Again, I ask not knowing your zipcode... but I love it here and think it'll be great for FI.  =P

I got quotes from a few companies 3 weeks ago and they were all higher than what we were paying BUT I was doing it online and I was putting in for collision and comprehensive. The progressive quote was much lower but they weren't able to tell me how much higher it would go after the initial signing discount for signing up online. I will give it a shot again though, and we were also thinking to pay the premium cash for the 6 months or a year to get further savings. Also, I just put the amount we pay for our cars, we have 3 cars on the policy, the last of which is DH's father's vehicle. He cannot get insurance on his own.

Our zipcode is 33418 - Palm Beach Gardens. I am originally from Massachusetts and we just want to go live in a small town where we can bike everywhere OR even outside of the US to Mexico or some other warm place where we can still bike everywhere :)

plantingourpennies

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Maybe cars get damaged more in FL because of natural disasters?

Hurricanes definitely damage cars, but so do old people on ambien that forget to stop at stop lights.  You can guess which happens more often.  =(

bkworm82

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Couple of things jumped out at me.

Money wise, your food bill is REALLY high for two people.

Why does your mother need life insurance? Life insurance is for replacing income that spouse/children might need in the event of a death of an earner/carer. It sounds like it might be a whole life policy, which are silly wastes of money most of the time. You definitely need to do research on this ASAP, as it's a money pit.

Car insurance - kind of high for two vehicles with only liability coverage. I have GEICO as well, two vehicles and one of them has full coverage right now and I pay around$400 hundred less than you per year. Might be time to shop around, and make sure you're checking to see how much if you bundle your home insurance as well (most big insurance companies do this for a discount). Also, if you're only occasionally driving one of the cars, make sure you tell the agent that - if it's not a daily driver, the rates should be less.

If you telecommute most days, I hope your husband takes the Civic to drive since that would reduce your gas costs.

Vacations are pretty high too, might want to cut down to one travel week and make the rest "staycation" weeks to build up a better amount to fund investments?

Your age and timeline for children - you say you're 31 now, and a child is maybe 5-8 years off. That puts you in your late 30s to conceive. Do not take it for granted that it will be easy at that point. It might, but you're considered "advanced age" after 35 and fertility goes WAY down on average as you enter your mid 30s. If you're planning on just one, you might want to consider starting in the next 4 years on the outside just to be safe if you're serious about having one.

If we can't have our own child we will adopt, and we are both OK with that. Lots of kids that need love here in the US!

I am going to look into her policy asap tonight and school myself. It's just one of those things that I didn't pay much attention to but I agree it's a money pit and an EMERGENCY to fix that sitch.

I agree about the vacations - we were fancypants! I've been wanting to try a staycation for a long time! Now is the time...

bkworm82

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To ditto Mrs. pop's safeco comment, we just switched TO safeco because we saved a bunch with them!  So definitely check your rates. 

I had haphazardly checked rates in the past but never kept records.  This time I made a spreadsheet of all the different quotes, and typed out a word doc with all the info needed to get a quote.  I emailed the doc out to a bunch of agents, and it made the process much less painful than having to spend a bunch of time on the phone giving info over and over.  We saved a good bit by switching, it was well worth checking around.  I am kind of amazed at your costs as we are insuring three older vehicles (2 civics and a van) for 650$ a year with full coverage and a 1000$ deductible.  Speaking of which, I need to lower my coverage level for time I get quoted. Maybe cars get damaged more in FL because of natural disasters?

Maybe it's because of the no fault law? No idea, but coming from MA where I was paying 1000k a year back in 2006 I am still shocked at the price of insurance. they also renew the premiums every 6 months, not yearly here for whatever reason.   And let me add that the $124 is after we dropped all extra coverage, before that we were paying an even crazier  $215-$230 for 3 cars!!!

plantingourpennies

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Maybe it's because of the no fault law?

PIP definitely raises the cost, but from someone who had to deal with getting care after being rear ended at a red light, PIP was a dream.  I can't imagine what it would have felt like to fight with the opposing insurance company every time I was in pain just to get proper care. 

ViragoStache

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If we can't have our own child we will adopt, and we are both OK with that. Lots of kids that need love here in the US!

I don't want to repeat anything that other said so I'll add a little on the little one dreams.  I love that you are open to adopting.  We had one pre-35 and one post-35 (IUI to have each "normal pregnancy" w/c-sections to end them) and two losses in between.  You never know what is going to happen.  You may want to have the baby before going off fancy pants health insurance!

But the interesting thing I learned (at least where I live) is if you adopt the kid might get free state health insurance coverage.  So I would look into that.  Good luck on which ever choice you pick!  (And good job on your first parenting choice - to be FI first!)

bkworm82

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Thanks for the encouragement!! :)