Reader Case Study - Need some direction

[sjc0816]

Hello!  I have been scouring over MMM posts for the last several months and decided it was time to post a case study in hopes of getting some advice on our current situation.

Background: We are currently 37 and 38 years old.  Married with two boys (8 and 5).  I have been a SAHM for 8 years and would like to continue to SAH for the next few years.  I am very involved and school and other organizations and my husband and I like the flexibility that my being home allows when it comes to sick kids/school breaks/snow days/summer, etc. So our future planning doesn't include me going back to work. It may or may not happen at some point. 

We have always been fairly frugal but have lacked direction and organization to buckle down and really save.  Moving forward we would like to really focus on trying to save and have the ability to FIRE somewhere in the 50-60 range. DH actually loves his job but works crazy odd hours and we'd love for him to have the ability to go part-time or consult in the next 10-20 years. 

Income

Gross - 122K/year
Net - 6k per month (after 12% to 401k - employer does not match but dumps 7-10% in 401K annually as profit sharing)

Expenses

2038 - PITI (17 years left on 20 yr. at 3.25%)
75  - life insurance (500K on him, 250K on me)
85 - auto insurance (2 vehicles)
23 - YMCA membership
210 - gas/electric (budget billing)
130 - cable/internet
180 - verizon - 2 cells with data plan
70 - water/sewer/garbage
100 - charity
150 - student loan (1800 remaining, 2.9%)
700-800 - groceries/household items (I really need to get this down)
200 - dining out/entertainment
150 - gas
50 - medical (copays, medicine, etc)
100 - kids activities (sports)
50 - clothes

4361.00 TOTAL per month


Assets

Home - value 275k
2003 Toyota Camry (paid off, 110K miles - no intention of replacing anytime soon - add only about 4-5k miles per year)
2008 Toyota Highlander (paid off, 95k miles - no intention of replacing anytime soon - add only about 5-8k miles per year)
401K - 250K
Cash Savings - 8k

Liabilities

Mortgage - 215k owed (17 years left on 20 year)
Student loan - 1,800 at 2.9%



Looks like about $1,500 per month extra.  We have been using this money the last couple of years to pay for some housing expenses (siding and a few other things) and braces/orthodontia for me.  Those expenses are gone....so we really want to be purposeful in how we go about using that money.

Some key points:

- We are kicking ourselves for doing the 20 year vs. 30 year mortgage.  The payment is a little tighter that we prefer and have contemplated refinancing again...but always talk ourselves out of it because we do NOT want to start over with a 30 year term.

- We need to save more cash.  We have some windows that need replaced (4k), gutters (900) and some other random things in our house...not to mention emergencies.


I know that we can make some cuts to our expenses to help the situation.  Would love some feedback there.  So should we divert the extra money every month to our savings account for now?  Increase our 401K to max?  We are just not sure exactly where to go from here.  We both want to the student loan gone.....but we don't want to take any more from our already low savings account. 

[2Birds1Stone]

Max out your 401k's

Cut down the grocery spending drastically (50%)

Get a TV Antenna and Netflix, get rid of cable.

Cut Charity by 50%

Get cheaper cell phones, Republic would save you ~$100/month

That alone is an extra $650/month in saving

[midweststache]

Max out your 401k's
Cut down the grocery spending drastically (50%)
Get a TV Antenna and Netflix, get rid of cable.
Cut Charity by 50%
Get cheaper cell phones, Republic would save you ~$100/month
That alone is an extra $650/month in saving

This. Also, take one month of surplus and just pay off the student loan. No more interest and another $150/month. So you're up to $800.

Really evaluate those home upgrades you're looking at. Do you need them or want them? Can you or your husband do any of the work? Can you barter for a local handyman to do it (you could barter childcare hours, perhaps)?

Once everything above is finished/enacted, max out a Roth for your husband (MMM community, correct me if I'm wrong, but because the OP doesn't have income she is ineligible for an IRA, correct?). Then you can either 1) aggressively pay down your mortgage or 2) aggressively save in a taxable investment account. The choice depends on how risk-averse you are.

You're in a good place. You can easily make these changes. Good luck!

[mandy_2002]

I think a 20 year mortgage was a great idea.  It has a lower interest rate and you'll pay it off faster.  I had a 15 and was 2 years ahead before selling it. 

I disagree that you should cut the charity, but that's my personal belief.  It's an expense, but hopefully the people you are giving it to need it more than you need to retire 1/2 year earlier.  (Mustachianism and Christianity collide here.)

I agree that the 401K should be maxed.  The lower you can get your taxable income, the better.  If you use the 72t distribution, it won't last an extended amount of time since you're planning a retirement sometime in the 50's. 

Cancelling the cable will be great for the boys.  Make them be boys, run around, get dirty.  I have found entertainment completely adequate from paid Netflix and free Hulu (just new network shows, sometimes delayed that expire in a few weeks or months), and am able to stream without incident on one computer hooked up to a TV HDMI input with 1.5 mbps internet connection. 

[sjc0816]

I would cancel the cable in a HEARTBEAT.  My husband will not do it.  He is too sports obsessed.  We don't watch any TV aside from college sports. 

I really appreciate all of the advice.  I need to look into Republic wireless.  We have Iphones.  Can we use Republic with iphones?  I think we're under contract with Verizon. 

The charity is already lower than we would like. I am hoping to INCREASE this in the not-too-distant future.  I don't mean to sound combative. 

We will max out 401k and get to work on lowering expenses.  Groceries is so hard...I've been trying. I think I need to simplify my weeknight meals. I love to cook and my boys eat a lot....but I tend to make more complicated things that I am sure contributes to the cost.

[darkcait]

(MMM community, correct me if I'm wrong, but because the OP doesn't have income she is ineligible for an IRA, correct?)

You can contribute up to an IRA is your spouse has an income. A SAHM and her husband can contribute $5500 each.

I agree with you that the charity should stay. It sounds like you have a good handle on where you can make cuts.

For what to do with the surplus, I would pay off that student loan today and have it off of your books. Then I would adjust your husband's 401k to max it out, and set up automatic contributions to max out Roth IRAs for each of you. Setting these on automatic helps to make sure the money actually gets there and doesn't get spent. With any left over money you could save up for the other things you need, beef up your emergency fund in cash, and invest, either by paying down your mortgage or putting it in taxable accounts.

[mateoSF]

75  - life insurance (500K on him, 250K on me)
We pay $75/month too, but I'm covered for $1 million (15 year term from age 39), and my wife has 500k (20 year term I think).

130 - cable/internet
If you're a little flexible and willing to call the cable company to negotiate, you should be able to cut this down to $80-$95.

180 - verizon - 2 cells with data plan
Once your contracts expire, I think you could take your Verizon iPhones to PagePlus and use their $29.95/month plan.

200 - dining out/entertainment
Cut to 100 pretty easily. 

Also, I didn't see anything regarding college savings, but it may not be part of your plan intentionally.

[sjc0816]

College will be paid for by my parents.  They have trusts set up for my boys.  This is irrelevant...but we will also receive a very large inheritance from them. This doesn't factor into my retirement planning.

My parents lived mustachian principles their entire life.  The only difference is that my dad never retired (still hasn't at 67) because he owns a very successful business and loves to work.  Therefore, they've accumulated a LOT and I am very grateful to them for teaching us about finding joy in the simple things....and "it's not what you make, it's what you spend." 

[pagoconcheques]

Max out your 401k's
Cut down the grocery spending drastically (50%)
Get a TV Antenna and Netflix, get rid of cable.
Cut Charity by 50%
Get cheaper cell phones, Republic would save you ~$100/month
That alone is an extra $650/month in saving

THIS, and pay off the student loan ASAP. 

Consider working now for a few years then doing the SAH when the boys are a little older.  You can probably save all your earnings.  Our experience was that having a SAH during middle school and high school was more important than elementary school.  Maybe you could try part time to see how it works out. 

[sjc0816]

Max out your 401k's
Cut down the grocery spending drastically (50%)
Get a TV Antenna and Netflix, get rid of cable.
Cut Charity by 50%
Get cheaper cell phones, Republic would save you ~$100/month
That alone is an extra $650/month in saving

THIS, and pay off the student loan ASAP. 

Consider working now for a few years then doing the SAH when the boys are a little older.  You can probably save all your earnings.  Our experience was that having a SAH during middle school and high school was more important than elementary school.  Maybe you could try part time to see how it works out. 

I worked a 20 hour per week temporary job this year for 3 months (one of the non-profits where I volunteer had an urgent need to fill, so I agreed to help part-time).  Honestly, it was stressful.  My kids were sick on-and-off for an entire month and there were a couple of weeks that I couldn't go in but one day.  My husband isn't able to stay home on a whim....so that falls on me.  It was eye-opening and made me realize that it would take a support system that we don't have...in order to have me working right now.  Especially while my kids are young and pick up viruses right and left during winter (especially my kindergartner...going full day for the first time).

I know that people do it all the time - but it was a stressful few months around here. 

[sjc0816]

I do occasionally freelance for my dad's business (from home).  I only made about 2k last year....but he said he has a new project that he wants to have me working on this spring that could generate a little bit more income.  This is not guaranteed, however.

[mateoSF]

Just for kicks, I plugged in your numbers to a FV calculator.
Initial Amount: 250K
Return %: 5.5
Payment (monthly): 1931 (Your current contribution + 7% match)

Probably off a bit here, but I used 5.5% to simulate numbers in today's $$$.  You would have ~1.4 mil in 18 years, which is enough to handle your current expenses.
But, you will have just then paid off the house, so it seems like you could FIRE as soon as the house is paid off, even if you don't change anything (Not that I'm suggesting that BTW).

[terran]

I would cancel the cable in a HEARTBEAT.  My husband will not do it.  He is too sports obsessed.  We don't watch any TV aside from college sports. 

You could check out Sling TV. Looks like they have ESPN: https://www.sling.com/programming/sports