Author Topic: Reader Case Study: Increase Savings for Young Family?  (Read 2778 times)

jgs

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Reader Case Study: Increase Savings for Young Family?
« on: December 12, 2014, 09:23:56 PM »
Hi everyone. My wife and I have 3 kids 3 and under. Yeah, were crazy and a fairly young family. I dream every day of leaving my day job to start a consulting business, but Im not sure how to make that transition. Im basically in my second job out of grad school. Thanks for reading! Questions at the end of post.

Income ($4,766.79 net monthly):
$71,000 annual salary
$5960 monthly gross
$4766.79 monthly net (I have my allowances set to 10 and am on a regular family health plan with Kaiser)

Current expenses ($3,933.72 monthly):
 $1233.72 monthly mortgage ($201,000 remaining on mortgage, home purchased in 3/2014)
$150-200 monthly gas expenses
$650 monthly grocery bill
$300 monthly utility bill (electric, gas, trash, water, internet, 2 cell phones on Republic Wireless)
$650 monthly tithing contributions to our church
$800 monthly other (random expenses for us lately, bathroom remodel, doctor visits, new baby, car repairs, eating out once or twice, babysitting, date nights)
$100 monthly contribution to Roth IRA
~$700-$900 monthly deposit to high yield savings

Assets:
Home, value ~$250,000
1997 Honda Accord, 164460 miles (22 mile round trip daily commute to my job)
2005 Toyota Sienna, 95000 miles (used sparingly)
Roth IRA, ~$7,000
Rollover IRA (I just switched jobs and need to do something with this): ~$9,000
High yield savings accounts, ~$9,000
Liabilities: Amount - rate - description
~$201,000 balance on home mortgage at 4.5%

Specific Questions
   Tips on lowering our grocery bill?
   I am halfway considering starting my own consulting business. How much should I have in savings as a cushion?
   What other ways could we improve our savings ratio?
   We havent forayed into investing beyond our Roth. What investing advice would you give to a family in our situation?
   Our furnace/water heater are ancient, our windows are drafty, and our house siding is in fairly bad shape. Which DIY project would you tackle first to help out the utility bill?
   Any other tips are welcome!




themagicman

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Re: Reader Case Study: Increase Savings for Young Family?
« Reply #1 on: December 12, 2014, 09:38:19 PM »
Hi everyone. My wife and I have 3 kids 3 and under. Yeah, were crazy and a fairly young family. I dream every day of leaving my day job to start a consulting business, but Im not sure how to make that transition. Im basically in my second job out of grad school. Thanks for reading! Questions at the end of post.

Income ($4,766.79 net monthly):
$71,000 annual salary
$5960 monthly gross
$4766.79 monthly net (I have my allowances set to 10 and am on a regular family health plan with Kaiser) Any 401k option?

Current expenses ($3,933.72 monthly):
 $1233.72 monthly mortgage ($201,000 remaining on mortgage, home purchased in 3/2014)
$150-200 monthly gas expenses
$650 monthly grocery bill
$300 monthly utility bill (electric, gas, trash, water, internet, 2 cell phones on Republic Wireless) Could you break this out between to utilities so we can see if there are some that need work?
$650 monthly tithing contributions to our church Will you continue to make this contribution? Not a bad thing at all but just wondering since this is over 10%
$800 monthly other (random expenses for us lately, bathroom remodel, doctor visits, new baby, car repairs, eating out once or twice, babysitting, date nights) You need to work on getting a better understanding of where this is going. $800 a month is a whole lot of money to be considered "other"
$100 monthly contribution to Roth IRA Is this your only monthly retirement savings?
~$700-$900 monthly deposit to high yield savings What is this money being saved for?

Assets:
Home, value ~$250,000
1997 Honda Accord, 164460 miles (22 mile round trip daily commute to my job)
2005 Toyota Sienna, 95000 miles (used sparingly)
Roth IRA, ~$7,000
Rollover IRA (I just switched jobs and need to do something with this): ~$9,000
High yield savings accounts, ~$9,000
Liabilities: Amount - rate - description
~$201,000 balance on home mortgage at 4.5%

Specific Questions
   Tips on lowering our grocery bill? Do you have Aldi near you? Shopping there alone will save you a ton of money. We usually save about 30-40% off of what we would spend elsewhere?
   I am halfway considering starting my own consulting business. How much should I have in savings as a cushion? What type of consulting? Could you do it part time until your client base grew?
   What other ways could we improve our savings ratio?
   We havent forayed into investing beyond our Roth. What investing advice would you give to a family in our situation? I would be maxing out your retirement accounts before investing in taxable
   Our furnace/water heater are ancient, our windows are drafty, and our house siding is in fairly bad shape. Which DIY project would you tackle first to help out the utility bill?
   Any other tips are welcome!





MDM

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Re: Reader Case Study: Increase Savings for Young Family?
« Reply #2 on: December 12, 2014, 10:38:33 PM »
jgs, welcome to the forums.

   Tips on lowering our grocery bill?
   I am halfway considering starting my own consulting business. How much should I have in savings as a cushion?
Others will likely have better specifics on the two points above.  As if you don't already know this...having 3 kids under 3 is stressful.  Things will get better!

Quote
   What other ways could we improve our savings ratio?
   We havent forayed into investing beyond our Roth. What investing advice would you give to a family in our situation?
Maximize your 401k.  Using the spreadsheet in the How To Write a Case Study thread, it appears you can cut 5-6 (more if the Child Tax Credit is refundable, less if not - don't recall offhand) years from your time to FI simply by max'ing the 401k - even if you give up the Roth contribution.  But you should confirm this (if interested) by downloading and entering your own numbers.

Quote
   Our furnace/water heater are ancient, our windows are drafty, and our house siding is in fairly bad shape. Which DIY project would you tackle first to help out the utility bill?
Plastic film covering the drafty windows & frames.

Good luck!

La Bibliotecaria Feroz

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Re: Reader Case Study: Increase Savings for Young Family?
« Reply #3 on: December 13, 2014, 08:22:50 AM »
Welcome! We have an almost-four-year-old and a two-and-a-half-year-old ourselves. Never a dull moment!

Your grocery bill isn't that high for five people, but some general tips: What do you eat the most of? How can you reduce that? For instance, we eat craploads of yogurt and hummus, so I make those, and Mr. FP was buying pricey granola bars, so I make those, too. Baby food is largely unnecessary beyond the first few jars; once you've tested some stuff for allergies, you can just mush up what you're eating, within reason. Also check out the website Budget Bytes, which lists the cost of each meal per serving and has some great recipes. Another one I like is The Prudent Homemaker, but her tastes are a little less similar to mine. (Liquid smoke? WTF is that?) Once you get in the habit of thinking about meals that way, it helps you shave a little more.

waltworks

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Re: Reader Case Study: Increase Savings for Young Family?
« Reply #4 on: December 13, 2014, 09:01:13 AM »
What are you financial goals? At a ~15% savings rate you won't be retiring until you hit SS eligibility, especially if you want to help with kid's college expenses.

You might be fine with that, but without knowing what you want out of your life (other than quitting your job to consult) it's hard to give much advice. Does your SO plan to work once the kids are in school? Could they work from home (ie Leapforce type stuff?) Could you replace your monetary tithing with volunteer time? Do you really need 2 cars? Where is all that "other" money going?

-W

jgs

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Re: Reader Case Study: Increase Savings for Young Family?
« Reply #5 on: December 13, 2014, 01:37:44 PM »
Wow thanks for all of the replies! I obviously need to spend some time drilling down in Mint with our Other category in order to respond to all of your excellent questions.

My new retirement plan is somewhat mysterious--it is the PERA DB plan which has a ridiculous 18% match through the state of Colorado, but I only contribute 8% (monthly). I still don't have a good grasp on how to maximize the plan. Any PERA employees out there with tips? I have talked to a PERA rep but didn't come out too much the wiser.

As far as my life financial goals... I am a semi-professional Jazz trumpet player who dropped out of music school to get a day job. I would love to develop a Learning and Development consulting practice and be able to perform and blog on the side (thejazzdaddy.com), while spending more time with the family. The 9-5 thing kills me, I've discovered. I don't think I would mind working until retirement age (although ER would be nice) as long as I can use my creativity on a daily basis.

I'll try to post more details soon about our expenses. Thanks again!