Author Topic: Reader Case Study- moving to a new city, buying a house & car  (Read 1795 times)

gettingtoyes

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Reader Case Study- moving to a new city, buying a house & car
« on: October 27, 2016, 06:21:37 PM »
Topic Title: Reader Case Study - moving to a new city, buying a house & car

Life Situation: Married, filing jointly in early 30s with one dependent (infant age), living in HCOL PNW

Gross Salary/Wages: ~$180,000- goal is to make this. DW has a lot of opportunity for well paid OT and DH is self-employed at a much lower rate of pay. DW: $142,358 (base is $116k and OT is ranked at $90/hr), DH: $37,642

Pre-tax deductions:
403b: $18,000
Solo 401k for DH: $18,000
Health insurance: $4176
Dental insurance: $576
IRA x2: $11,000
FSA: $500
Total: $52,252

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Rental Income, Actual Expenses, and Depreciation: None

Adjusted Gross Income: $127,748

Taxes:
Standard deduction: $12,700
Personal exemptions x3: $12,150
Self-employment deduction: $2879
Taxable income: $100,019
Federal: $10,452 + $6029 = $16,481
State: None
FICA:
DW: $7,886 + $2064 = $9,950
DH: $5759

Total taxes: $32,190

Current expenses:
Rent: $1200
Cell phone: $105 (2 smart phones with 2gb data LTE)
Gas: $30 (will live within 15 miles of DW's place of work, DH works at home. Unable to bike to work as DW is on-call while she works at another facility and may need to jump in the car at any time)
Toiletries: $20
Spending money: $120 ($60 each per month)
Car insurance: $45
Rental insurance: $12
Life insurance: $96 ($500k on DH and $1 million on DW, both term insurance at 30 years, ~5 years in)
Food: $420
Netflix: $11
Electricity: $50-100 depending on time of year, average $75 from what I've read
Water: $40 (average form what I've read)
Internet: $60 (estimated)
Charity: $834 (we are Christians- 10% of our after tax income)
College savings: $446 (will go up if/when we have a second child- roughly the amount of money needed given inflation over next 18 years for the state's public university)
Total Monthly Expenses: $3,514
Total Yearly Expenses: $42,168 + $660 (2 extra paychecks since DW is bi-weekly paid, food+spending money)= $42,828

Yearly expenses:
License renewal (required for DW job): $300
Christmas/Birthday gifts: $500
Car registration: $33
TurboTax: $40
Total: $873
- Probably missing some expenses here...

Total leftover income in theory: $51,857

Assets:
DW 403(b) Account #1 (Fidelity): $20,423.38- will be able to roll over to IRA once I leave old job
DW IRA (Fidelity): $41,290.99
DW Traditional IRA (Vanguard): $31,402.57
DW Roth IRA (Vanguard): $11,341.46
DH Traditional IRA (Vanguard): $16,063.98
Total: $120,522.38

Paid off car: 2009 Toyota Yaris with 80,000 miles worth ~$5107 according to KBB

Savings: $1,000

Total Assets: $126,629

Liabilities:
DW Student Loan: $29,646 altogether ranging in interest from 5.16% to 6.16% with monthly payment of $685
DH Student Loan: $9,113 interest at 2% with monthly payment of $220
Total: $38,759

Specific Question(s):
- Moving to a new city, starting a new job with a significant pay raise (to the tune of $18k) for DW but a bit higher COL
- Would like to save money for a down payment on our first house during our first year of living in new city (new to DH, but DW grew up there). House budget probably around $250k, which should get us a 3 bedroom house, maybe 1500 square feet. We've lived in a 1 bedroom apartment for our whole marriage under 1,000 square feet, but have found that we will really need at least another bedroom now that we have a baby and all the baby paraphernalia. I don't even think that we have much (crib, rocker, swing, extra dresser for clothes & toys, activity mat), but it does take up space.
- Would like to buy another used car (DH has his heart set on a Chevy Volt to get a hybrid- is this a good choice?). We had a second paid off car, but it was totaled in some spring floods awhile ago (got a check for $3k from insurance, which was nice). Because DH works from home as self-employed, the house isn't on fire as far as getting another car, but he can't drop me off at work to keep the car because I am "on call" at another facility where I have to jump into my car and go if I get called (I work in healthcare).

Questions:

- Should we pay off the student loan debt (particularly DW) before saving for a down payment?
- Is a Chevy Volt a reasonable car to buy? Probably will spend $15k, will not get a loan
- Does it make sense to back off on retirement contributions in order to save quicker for down payment? Will probably aim for at least 10%- is this a good number despite having to pay for PMI?
- Should we do roth IRAs instead of regular IRAs or should we do the tax deferred IRAs now and convert them later on to a roth IRA?
- Once we get a house and car, do we put the extra $$ that isn't in tax-deferred accounts into the regular market knowing that we will have capital gains tax? Or is it better to just pay down the mortgage?
- Thinking about buying some land and building a dream house one day. If this is the case, is it better just to save as much as possible for it or to pay off as much as possible on the mortgage that we will get?

MDM

  • Walrus Stache
  • *******
  • Posts: 9555
Re: Reader Case Study- moving to a new city, buying a house & car
« Reply #1 on: October 27, 2016, 08:28:48 PM »
Pre-tax deductions:
IRA x2: $11,000
This will have to be Roth (after tax) because you make too much.

Quote
College savings: $446 (will go up if/when we have a second child- roughly the amount of money needed given inflation over next 18 years for the state's public university)
If this is going into a 529 plan, consider putting it into your own taxable retirement account instead, under the "take care of your own retirement needs before worrying about college tuition" philosophy.  If it is already going into a general taxable account you have "labeled" college savings, then no need to change.

Quote
- Probably missing some expenses here...
Best way to check is to keep track using, e.g., Quicken, Mint, etc.

Quote
Specific Question(s):
- Should we pay off the student loan debt (particularly DW) before saving for a down payment?
- Does it make sense to back off on retirement contributions in order to save quicker for down payment?
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end of the 'Investment Order' suggestions in the case study spreadsheet.

Quote
- Is a Chevy Volt a reasonable car to buy? Probably will spend $15k, will not get a loan
Deferring this question to others.

Quote
Will probably aim for at least 10%- is this a good number despite having to pay for PMI?
20% and no PMI is financially better.  See   
   http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
for some thoughts.   

Quote
- Should we do roth IRAs instead of regular IRAs?
Yes, per the IRS link above.

Quote
- Once we get a house and car, do we put the extra $$ that isn't in tax-deferred accounts into the regular market knowing that we will have capital gains tax? Or is it better to just pay down the mortgage?
Depends on the mortgage rate vs. the return you could reasonably expect from investing the money.  See the 'Investment Order' mentioned above.

Quote
- Thinking about buying some land and building a dream house one day. If this is the case, is it better just to save as much as possible for it or to pay off as much as possible on the mortgage that we will get?
Whether you should "save" or "invest" depends on the length of time between now and "one day". 

Good luck!

gettingtoyes

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Reader Case Study- moving to a new city, buying a house & car
« Reply #2 on: October 28, 2016, 08:49:36 PM »
Pre-tax deductions:
IRA x2: $11,000
This will have to be Roth (after tax) because you make too much.

- Whoops. Thanks for pointing that out. Looking over the IRS rules, if I'm reading it right- if DH did not contribute to a solo 401k (next year would be the first year we would do it), it looks like we would be able to do a traditional IRA. I sure hope so because that's what we did this year! At least, it looks like we're okay according to this document with MAGI being under $184k.

Quote
College savings: $446 (will go up if/when we have a second child- roughly the amount of money needed given inflation over next 18 years for the state's public university)
If this is going into a 529 plan, consider putting it into your own taxable retirement account instead, under the "take care of your own retirement needs before worrying about college tuition" philosophy.  If it is already going into a general taxable account you have "labeled" college savings, then no need to change.

- I guess the downside here is that we'd have to pay capital gains tax once we take it out though right, unlike a 529? I guess then again, would we be able to find good 529 funds that have good index fund like returns. Thoughts? Next year will be the first year we will be contributing, so haven't opened up anything yet. Looking into opening up an ESA and funding it with $2k this year that we have.


Quote
- Probably missing some expenses here...
Best way to check is to keep track using, e.g., Quicken, Mint, etc.

I actually did sign up for Mint at one point, I should check it out. I actually tracked our expenses weekly for a couple of months last year. DH is in love with Amazon and it seems like we get stuff from them every week. Definitely eats into the budget and need to do better. This budget was seeing what we could do if we didn't buy any extraneous stuff, but you're right, we need to be much more vigilant.

Quote
Specific Question(s):
- Should we pay off the student loan debt (particularly DW) before saving for a down payment?
- Does it make sense to back off on retirement contributions in order to save quicker for down payment?
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end of the 'Investment Order' suggestions in the case study spreadsheet.

Holy spreadsheet. I will look into this thing further.


Quote
- Thinking about buying some land and building a dream house one day. If this is the case, is it better just to save as much as possible for it or to pay off as much as possible on the mortgage that we will get?
Whether you should "save" or "invest" depends on the length of time between now and "one day". 

The goal would probably be within 5 years of purchasing the initial house, although could be convinced to wait a couple more years if it meant that we secured retirement and focused on saving money for that instead. Overall plan is to have DH retire fully and DW to work half time for another good while as soon as possible as DW loves her job (well, at least for the moment).

...

Thanks for your advice and suggestions!

Dee18

  • Handlebar Stache
  • *****
  • Posts: 1617
Re: Reader Case Study- moving to a new city, buying a house & car
« Reply #3 on: October 29, 2016, 12:03:41 PM »
Roth note:  with that income level you cannot do a Roth. You can do a post taxes contribution to a traditional IRA and then do a back door conversion to Roth.

MDM

  • Walrus Stache
  • *******
  • Posts: 9555
Re: Reader Case Study- moving to a new city, buying a house & car
« Reply #4 on: October 29, 2016, 12:08:54 PM »
Roth note:  with that income level you cannot do a Roth. You can do a post taxes contribution to a traditional IRA and then do a back door conversion to Roth.
They will be fine using a normal Roth.  Contribution phaseout for MFJ doesn't start until $184K.  They are under that with gross ($180K) alone.  After subtracting $36K of 401ks and other pre-tax contributions, they will be far under the Roth limit.