Reader Case Study – No debt; now what?

[VuwylkOnlezzyen]

Family circumstances:
One income household (two adults.  My spouse is not employed and stays at home) with four children under the age of 13.  Renting 1245sqft apartment.  Single vehicle a payed off 2007 Toyota Sienna minivan.  Only started working towards FI this past year.

Income: about $51000 gross; $38500 take home (payed biweekly)

Current expenses: 2013 expenses - $33500 ($2800 monthly)
Monthly averages:
Home: $910 ($875 rent)
Food: $500 ($400 groceries)
Transport: $370 (reduced in 2014 to ~$250)
Utilities/Telecommunication: $300 (this has been reduced to ~$120 - $20 telephones, $30 internet, $50-70 electricity)
Shopping: $270 ($70 clothing; $40 electronics)
Entertainment/Leisure: $200 ($110 vacations; $30 movies/DVD)
Personal Care: $65
Children: $60
Other: $35

Assets:
403b/401a: $35000
HSA: $1500
Minivan: ~$5000

Liabilities:
None

Two inquiries.  First, any suggestions on savings you can identify from the above information would be appreciated.  Second, I feel like I need to create an emergency fund as the next step after having eliminated all of my debt.  I am uncertain if there is a better way to go about this than to simply have $3000-5000 in a savings account.  I would like to earn additional interest on this money, but not if it means making the money difficult to access.

I am looking to improve my income situation but am not certain when this will occur (likely sometime in 2014).  I will be looking into further reductions into transportation, but this will not likely take place until 2015 when I can obtain a transit pass in my annual work benefits enrollment (I could start now, but the savings would be minimal, maybe $1 per commute day while doubling my commute time from 50min round trip to 100min).

[scrubbyfish]

Awesome stuff!

Is this a two-adult or one-adult household?

[Allen]

Congratulations on being debt free, I make a little more money but am far, far behind you In getting to retirement.

I'm not sure what you should do next other than increase your income and save save save!

[VuwylkOnlezzyen]

Awesome stuff!

Is this a two-adult or one-adult household?

Two adults.  I'll add that the original post.

[MissStache]

Congratulations on being debt free!

You don't have any spending categories that are glaring, but there are a few that could be trimmed a bit:

-Transport: $370 (reduced in 2014 to ~$250)
$250 a month seems high to me.  I am assuming this is gas and insurance?  Have you shopped around for lower insurance rates?  Can you reduce your driving?

Shopping: $270 ($70 clothing; $40 electronics)
This math doesn't add up...where is the other $160 going?  $70/month on clothing is a lot. 

Entertainment/Leisure: $200 ($110 vacations; $30 movies/DVD)
Get Netflix or Amazon Prime or something!  That will reduce your movies/DVD by some. 

Can your wife do anything to bring in income?  Having to care for 4 children certainly sounds exhausting, but even her bringing in a small amount of income could be very helpful.

[MPAVictoria]

"$70/month on clothing is a lot"
For 6 people?!?!

[VuwylkOnlezzyen]

Congratulations on being debt free!

You don't have any spending categories that are glaring, but there are a few that could be trimmed a bit:

-Transport: $370 (reduced in 2014 to ~$250)
$250 a month seems high to me.  I am assuming this is gas and insurance?  Have you shopped around for lower insurance rates?  Can you reduce your driving?

It is everything.  Gas, maintenance, insurance.  My insurance is about $56 a month.  (Edit: I will be switching insurers soon, but this will only save me $3 a month.  Unfortunately, my spouse does not feel comfortable without comprehensive/collision so it is unlikely to be significantly reduced in the near future.)  As for reductions in driving, I already combine trips.  The most likely area for trimming is my commute to work, and as I mentioned initially, this isn't going to net me much savings until I can obtain a yearly transit pass from my employer in 2015.

Shopping: $270 ($70 clothing; $40 electronics)
This math doesn't add up...where is the other $160 going?  $70/month on clothing is a lot.

The other $160 is pretty varied and was difficult to categorize.  And I actually agree that $70 is a lot.  Unfortunately, as I implied above, I only started controlling our finances the last six months or so (my spouse was doing it before that).  There is a significant difference in expenditures from before and after this transition.  In the last six months, we have been averaging $27 per month on clothing.  I will let you do the math on how much we were spending in the first six months of 2013, lol.  Similarly, electronics was only $5 a month in the last six months.  On the whole, shopping averaged $65 in the last six months.  The largest category is still the miscellaneous things I found difficult to categorize, but I will try to do a better job of organizing this, since this might be an area that savings could be found.

Entertainment/Leisure: $200 ($110 vacations; $30 movies/DVD)
Get Netflix or Amazon Prime or something!  That will reduce your movies/DVD by some. 

Same story here.  Last six months movies/DVD was $9/month.

Can your wife do anything to bring in income?  Having to care for 4 children certainly sounds exhausting, but even her bringing in a small amount of income could be very helpful.

I do not foresee my wife bringing in additional income in the near future.

[Thegoblinchief]

First, a non-financial question: how is your wife handling the transition? Pretty clear from your original post that control of spending has passed from her to you. Is it amicable?

$400 groceries seems reasonable for a family of 6. It's about what I spend for a family of 5, but for us that INCLUDES some of what you've got in your nebulous "other" category (e.g. personal care). What's the extra $100 for? If it's eating out, that has to stop if you want to hit FI in any reasonable time frame. If your wife does the cooking and the eating out is to give her time off, learn to cook yourself.

Transport and vacation also seem a bit high but reasonable. You mention needing a transit pass from work in 2015 - is your commute bikeable? It's a great transition.

FI is all about savings rate, and your income versus dependents is low, but doable - especially without any debt!

Last question would be: are you going to be renters long-term? I struggled having kids in an apartment situation (no yard of our own) but it's certainly cheap for the square footage. Buying a house ties up a lot of assets, so it's not necessarily the best way to go for FI, but would your family be happier with a space of your own? (Obviously, you can rent a house, but not sure what that would run in your area.)

[VuwylkOnlezzyen]

First, a non-financial question: how is your wife handling the transition? Pretty clear from your original post that control of spending has passed from her to you. Is it amicable?

She is happy to pass on the accounting/financial aspect of it, but more ambivalent about the changes towards a more frugal lifestyle.

$400 groceries seems reasonable for a family of 6. It's about what I spend for a family of 5, but for us that INCLUDES some of what you've got in your nebulous "other" category (e.g. personal care). What's the extra $100 for? If it's eating out, that has to stop if you want to hit FI in any reasonable time frame. If your wife does the cooking and the eating out is to give her time off, learn to cook yourself.

I guess I really should have included before and after numbers since this seems to be coming up a lot.  After I took control of our finances, the extra $100 was reduced to $70 and yes, it is eating out/coffee.  I can't say that eating out is really about giving her a break as much as it is seen as a treat/reward for the family.  This probably is one of the easier places to reduce expenditures, although I expect to meet some resistance.  It has already been suggested by both my spouse and children that recent reductions are being perceived as miserly.  I will have to come up with ways to replace these activities that give the same sense of reward without spending as much.  And I admit that grocery shopping is not a strength of mine as I have little experience in trying to save money in this area.  I'll work on this and see what I can do.

Transport and vacation also seem a bit high but reasonable. You mention needing a transit pass from work in 2015 - is your commute bikeable? It's a great transition.

It is probably not practical to try biking the whole way.  It is over 13 miles through some fairly high traffic urban areas.  If I avoided these areas, I expect it would take me almost an hour and a half at reasonable speeds (that would leave me in condition to work immediately afterwards).  My plan would be to take a mixed-mode approach of biking and light rail.  I am considering doing it this year.  It won't save me much money, but I can get a feel for it before committing myself to a yearly pass.  Even if I was willing to bike the whole distance, I wouldn't have my spouses support in the matter, and I would really like to make these lifestyle changes with her on board since it will make the transition much easier.

Last question would be: are you going to be renters long-term? I struggled having kids in an apartment situation (no yard of our own) but it's certainly cheap for the square footage. Buying a house ties up a lot of assets, so it's not necessarily the best way to go for FI, but would your family be happier with a space of your own? (Obviously, you can rent a house, but not sure what that would run in your area.)

I am sure they would be happier with a house of our own, but I don't see that happening until we have more financial assets available for us to do this without going into too much debt.  It is something nice, but not necessary at the moment.

[Thegoblinchief]

Yeah, 13 miles is long for a bike commute. Depending on your physical condition, you could do it a few days a week during the nice parts of the year. My wife thinks I'm crazy commuting and will probably never do so herself, but after a month we finally got past the "I'm going to die every time I ride" stage, heh.

That said, mass transit has the advantage over even cars in that you get TIME back. Time to work. Read. Listen to podcasts, whatever. Friend of mine in CT switched to the bus and is enjoying the extra time, and in his case he's saving close to $200/month in gas and garage expense.