Author Topic: Reader Case Study of the Public Employee & His Newly Employed Wife  (Read 3703 times)

hadabeardonce

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First post(yay). Probably too ambitious, but I'm looking for guidance. Not sure where to put the extra money my wife will be bringing in. I took most of the clothes off my financial parts below:


Income:
Code: [Select]
Work $4,700/mo. after deductions (His)
Work $?,???/mo. after deductions (Hers)

I've had a full-time salary job for 7 years and she's a recent graduate just starting her new career doing medical per-diem work. Her income has fluctuated due to limited shifts, but she just picked up more hours at another hospital which will probably have her making as much as I do. We're fairly frugal, since we lived off only my income while she was in school, but not entirely mustachian(yet).


Monthly Expenses:
Code: [Select]
$1157 Mortgage
$ 389 HOA Dues
$  45 Utilities
$  50 Internet & Landline Bundle
$  98 Cell Phone 3-Lines
$  30 Coin Op Laundry
$  75 Gasoline
----
$1844 Total Monthly Expenses

Code: [Select]
$2000 Additional Spending
Spending habits are very much a work in progress. Recently I bought "Food Rules" and had my wife read it. We are planning on making some major changes to reduce food costs and to hopefully prevent medical problems in the future(following a recent death in the family). I also signed up for Mint.com to help keep track of expenses, so I can report back later with those details(food, entertainment, etc.). We say, "no" to Comcast.


Cash:
Code: [Select]
$ 26,500 Checking Account
$      1 Savings Account

We recently bought her a new car(mustache "no-no") and paid it off immediately ("yes-yes"?), but I can tell I'm carrying to much cash in the bank account. Savings doesn't provide much of a return, so I leave it in checking. Not sure what to do... thinking accelerated house payments. As soon as my wife starts getting more hours per week, we'll have more to save/invest/use.


Credit:
Code: [Select]
$      0 Amazon Visa (Used for most purchases) $17.5k limit
$      0 Discover (Used only for gas) $14k limit
$      0 Target Card
$      0 Kohls Card

I pay my credit cards off each month.


Assets:
Code: [Select]
$290,000 Condominimum (1 bdrm, 660 sqft.) in Santa Clara, CA
The place is small, wife my want to move soon. HOA dues are pretty high, but I bet I could rent the place for a reasonable amount. Not sure how to swing that sort of arrangement(buy one place while still owning another).


Investments:
Code: [Select]
$20,000 403(b) Retirement Account (adding $300/mo. tax deferred)
$ 5,000 IRA
$46,000 CalPers (Pension)

I don't have much of a clue if the amount I'm putting is appropriate for my age(32). I work for the state, so I'm paying into the pension system.  Some employees say here for an eternity until they are 63 to get nearly 100% of their paycheck(depending on years of service) and others leave at 55 then pick up a part time job. Not sure where the road will take me at the moment, but earlier retirement sounds extremely appealing - even taking up a part time job would be fine. Time > Money


Loans:
Code: [Select]
$-173,000 @ 4.120% - 30yr fixed as of 7/2012. (Refinanced)
I've been in it since 2004 and bought it for 228k. It's currently worth 290k+. Someone listed a unit with the same layout for $2000/mo rent, so I'd like to keep it as a income source. Right now I also receive a mortgage credit certificate(MCC), which is pretty cool come tax season, but obviously not having a loan would be better.

---

I appreciate the advice that comes along and really enjoy the blog. I'm sure there are those that are similar to me, so I'm going to spend some time with the "search" button and keep my mouse off the "post" button for a while (standard forum etiquette and procedure).

Thanks!

(I miss my beard)
« Last Edit: March 27, 2015, 11:21:34 AM by hadabeardonce »

curler

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Welcome to the forum.  A couple of quick comments that pop right to mind as I read through this:

  • It's not clear if you have a grasp of your total spending, or are just not disclosing it.  I know you say it is changing, but it is tough to give advise if we don't know if you are currently spending 4.7K a month or 2.5K a month.  It sounds like you are working on figuring this out.  That should be a priority before you make large financial changes.
  • Try to increase contributions to retirement accounts for both you and your wife.  Your 403(b), your and her IRA, her 401(k) if she is eligible for one.
  • Generally, you don't want to factor in the "value" of your car into your net worth unless you are willing to sell the car. (kind-of like you haven't factored in the value of all your furniture and your washing machine.  There not to relevant to financial planning if you plan on keeping/using them)
  • The obvious places for moving the money would be investing or paying down your mortgage.  I'll leave it to others to suggest which route to go down.  See above regarding retirement accounts, I'd also recommend opening a taxable investment account with Vanguard, or somewhere similar.

hadabeardonce

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Welcome to the forum.  A couple of quick comments that pop right to mind as I read through this:

  • It's not clear if you have a grasp of your total spending, or are just not disclosing it.  I know you say it is changing, but it is tough to give advise if we don't know if you are currently spending 4.7K a month or 2.5K a month.  It sounds like you are working on figuring this out.  That should be a priority before you make large financial changes.
  • Try to increase contributions to retirement accounts for both you and your wife.  Your 403(b), your and her IRA, her 401(k) if she is eligible for one.
  • Generally, you don't want to factor in the "value" of your car into your net worth unless you are willing to sell the car. (kind-of like you haven't factored in the value of all your furniture and your washing machine.  There not to relevant to financial planning if you plan on keeping/using them)
  • The obvious places for moving the money would be investing or paying down your mortgage.  I'll leave it to others to suggest which route to go down.  See above regarding retirement accounts, I'd also recommend opening a taxable investment account with Vanguard, or somewhere similar.

Thanks for the reply.

1) Added a $2000/month additional spending estimate which encompasses food, entertainment, ebay stupidity, etc. It seems like that has been an average over the past few years.
2) Hopefully knowing some of the additional spending will help. I wasn't sure if the long term retirement accounts were a priority or not - did a little reading on maxing the annual contribution, but didn't know if I was better off putting money elsewhere. I swear I've seen % breakdowns of how the extra dough should be spread among retirement, investments and paying down long term debt.
3) Removed the cars. Mint had them listed under assets for a net worth calculation, so I stuck 'em on there.
4) Appreciate the advice :)
« Last Edit: March 19, 2015, 04:40:17 PM by hadabeardonce »

hadabeardonce

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This MMM post seems to have the closest thing to an answer for how to prioritize/allocate extra income:

http://www.mrmoneymustache.com/2013/07/10/if-i-woke-up-broke/

$35,000/yr ($2916/mo.) to 403b/401k plans
$30,000/yr ($2500/mo) extra mortgage payment

Code: [Select]
  MMM      ME (current)
Housing 12000 18552
Utilities 1200   540
Food 3000 +else
Transportation 1500   900
Vacations 1000   +else
Phone   240    1200
Internet   300     600
Cable TV     0       0
Restaurants     0   +else
Beer/Wine   240       0
Clothing   200     200
Everything Else  1000   24000
---
Total 20680 45992

Code: [Select]
  MMM      ME (current)
401k/403b 35000 3600
Xtra Mortgage 30000     0
---
Total 85680 49592

...

I'll track spending for a few months on Mint to isolate places to save/improve. Eating out and impulse purchases are going to be a big one. Currently I'm spending 5x as much as MMM!

My full-time job is pretty solid and if my wife finds full time work this year, we'll be close to the 150,000/yr. gross in MMM's example. Fow now I'll get her started with a 401k, increase my 403b contribution and add something extra to the monthly mortgage payment... even if it isn't ideal(a fully grown mustache), it's moving closer to being better financially(peach fuzz).

*edited to add HOA dues into housing
« Last Edit: March 27, 2015, 10:26:32 AM by hadabeardonce »

Retired To Win

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You MAY think you have $26,500 loose to put somewhere... but you don't.  And that's because you NEED to establish an Emergency Reserve Fund before you start using available cash to pay down debts or invest.

For now, I would recommend taking $3844 x 6 = $23,000 (plus or minus) and moving that money to a savings account which you should consider your Emergency Reserve to cover 6 months of your living expenses at you current burn rate.  (I personally maintain a one-year Emergency Reserve savings account).  And leave that money there, where it will be semi-out-of-reach but liquid in case you need it.

After you refine and hopefully trim that $2000 per month additional spending line, you can adjust the size of your Emergency Reserve accordingly.

Be smart.  Leave yourself some financial leeway in case you have an unexpected interruption in your incoming cash flow.  ;)

Good luck.

Retire-Canada

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You MAY think you have $26,500 loose to put somewhere... but you don't.  And that's because you NEED to establish an Emergency Reserve Fund before you start using available cash to pay down debts or invest.

I'd respectfully disagree. Invest your money. Get a line of credit for emergencies.

With two incomes the scenarios where you'd need an are small. The LOC will give you a cash flow buffer to absorb a large unexpected expense.

Get all your money working for you pushing you towards your FIRE goal.

-- Vik

Catbert

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If you're really going to buy another house/condo soon then start/keep stockpiling cash.  20% down on a 400k place is 80K.  My experience the past few years has been that *they* won't let you count income from a rental to qualify for a new mortgage until it's been rented for two years.  Last time I re-fied a property I had to provide lease agreements for ALL my properties. 

Once you've brought the new place and gotten your old one rented then crank up retirement savings.

EDIT:  If you want to stay married quit calling your wife "little".

Dicey

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Bwahahaha! Thanks Mary, I was just about to post the same thing...

If we can hear the condescension, I'm pretty sure your wife's onto it, too. Unless she happens to be especially petite, and revels in it, you might choose a more flattering form of endearment. Sure, this is an anonymous forum, but the more you frame your affections toward her in a positive light, the more she will feel it and the better your life together will be. It would be a shame to get to FI without her ;-)

studentdoc2

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EDIT:  If you want to stay married quit calling your wife "little".

Yes. Thank you. Unless your wife is indeed a little person and that is pertinent to your post, that phrasing is more than a little disparaging.

hadabeardonce

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You MAY think you have $26,500 loose to put somewhere... but you don't.

With two incomes the scenarios where you'd need an are small.

I'm leaning toward Vikb's camp on this one. We've been able to maintain ourselves solely on my salary comfortably for the past few years, so if one of us loses our job we're in a position to be okay. Our current health coverage is really good and the place we live is extremely low maintenance, so I feel well covered against financial disasters. I've been working for the state for 7+ years despite economic troubles.


If you're really going to buy another house/condo soon then start/keep stockpiling cash.  20% down on a 400k place is 80K.  My experience the past few years has been that *they* won't let you count income from a rental to qualify for a new mortgage until it's been rented for two years.  Last time I re-fied a property I had to provide lease agreements for ALL my properties. 

Once you've brought the new place and gotten your old one rented then crank up retirement savings.
Good info regarding the rental income and qualifying for a new loan.

We really need to come up with some sort of plan for the future, but we're both indecisive when it comes to having kids. We are in an area with good schools, a nice library, central park, and a grocery store all within walking distance. There are larger 2-bedroom units in our complex that are $420k(+$400/mo. HOA dues) we could move into and then rent our 1-bedroom unit for ~$2000/mo. 

Part of me is really afraid to buy right now, because our property values in the area are the same as the were right before the last real estate bubble burst. 660sqft, 1bdrm units like mine are selling for $325k. Values may even climb higher once Apple finishes building their new campus nearby.

Pay down mortage faster and put away money in retirement accounts
vs.
Stockpile a downpayment for a new place and prepare the current place for rent

hmm...

EDIT:  If you want to stay married quit calling your wife "little".
She is 5'2", but I see your point... been together 10 years, married 7 - despite height comparisons :p

Bwahahaha! Thanks Mary, I was just about to post the same thing...
I appreciate my wife very much and regularly reinforce how valuable she is.

Yes. Thank you. Unless your wife is indeed a little person and that is pertinent to your post, that phrasing is more than a little disparaging.
lol, title modified to get back on point.

...

Oh, the other thing I was looking into yesterday was moving my 403b from American Funds to Vanguard. AF is charging a 5% fee each time I buy shares and $20 annually. I'm currently looking at Vanguard's site for their fees.

and I really appreciate those that have responded with financial ideas despite me being big noob (or little newb[provided the term "little" is used in a derogatory way to describe my overall fiscal knowledge]). =D
« Last Edit: March 27, 2015, 11:52:29 AM by hadabeardonce »

Retired To Win

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You MAY think you have $26,500 loose to put somewhere... but you don't.  And that's because you NEED to establish an Emergency Reserve Fund before you start using available cash to pay down debts or invest.

I'd respectfully disagree. Invest your money. Get a line of credit for emergencies.

With two incomes the scenarios where you'd need an are small. The LOC will give you a cash flow buffer to absorb a large unexpected expense.

Get all your money working for you pushing you towards your FIRE goal.

Okay, I can see where -- once your wife actually has a job -- your two incomes can act as mutual backups if one of you loses that income (given that you say you would only need one of the incomes to make your ends meet).  But that is not a total solution, IMHO.

Neither is a HELOC (anymore).  And that is because -- unlike the HELOCs I have had in the past -- present HELOCs can be reduced or cancelled by the lender pretty much at the lender's discretion.  I for one would not want to be at the mercy of the bank in that way. And HELOCs have a limited and finite draw period, too.  They, in essence, have an expiration date.

So I will still argue that some kind of Emergency Cash Reserve is still needed.  The question now becomes how much money you can see putting aside in it.

Good luck.