Author Topic: Reader Case Study - on a mission to stop expenses creep  (Read 4569 times)

jennyjazz

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Reader Case Study - on a mission to stop expenses creep
« on: June 19, 2014, 02:50:00 PM »
Here is my confession... thanks in advance for any badass mustachian advice

Background:
- married for 6 years
- always budgeted/tracked spending, mostly to fund a lot of travel around the world from our until recently moderate income
- no debt, no cars, no TV

Situation:
- income more than doubled over last 12-18 months
- travel and some other expenses doubled as well
- priorities are shifting away from that much travel, we want to have at least one child by the time we are 30 (we are 27 now)
- considering buying a condo within next 18-24 months in the city we currently live, some uncertainty as we have not yet decided if it is the place to settle
- do not want to own/maintain a house

Ask of the mustachians:
- please provide multiple punches in the face for overspending
- critique plan below for expenses decrease
- advise on investment opportunities

Nitty-gritty details for June 2013 through June 2014
Gross income: $136,000 (66k myself, 70k spouse)
Retirement savings in Traditional 401(k): $13,800
Retirement savings in Roth 401(k): 2,400
Retirement savings in Roth IRA: $5,500
*We've actually just started saving on retirement about 18 months ago...
Other savings: $60,000 in savings accounts

Plan for retirement savings for next 12 months:
Myself: contribute 8% to Roth 401(k), employer contributes 10% to traditional 401(k)
Spouse: contribute 4% to 401(k), max matched by employer, total 8%; $5,500 to Roth IRA

Expenses over last 12 months - the ugly part...

Place to live: $18 709
- Rent $17 725 (water, gas, heating included)   
- Electricity $306
- Internet    $678
Food: $8 300
- Groceries $5 318
- Lunches at work $2 982 (spouse cannot bring lunch in)
Transportation: $ 2 042
- public transit $1 340
- taxi $702
Other living expenses: $9 900 - embarrassing, we've never spent that much in our entire lives
- Household  $1 279 (cleaning supplies, laundry, dry cleaning, etc.)   
- Personal care $1 531 (haircuts, beauty supplies, makeup)
- Clothes $4 397
- Apartment $2 693  (furniture, décor etc.)
Other things important for us: $2 226     
- Education $1 321
- Hobby $905
Other things not so important for us: $7 210 - that's another embarrassment
- Eating Out $1 935
- Entertainment $1 845
- Electronics $1 645
- Gifts $1 785
One-off: $6 186 - mostly going away for next 12 months
- Emergency family support $5 206
- Medical $642
- Non-budgeted $280
- Bank Fees $58
Travel: $27 705 - that's what we live for… at least till now
Total: $82 278

Fully paid medical insurance and cell phones are provided by employers

Cash savings accumulated over last 12 months: ~20k


Plan for expenses for June 2014-2015, assuming income remains the same

Place to live: $20 046
- Rent $19 025 (water, gas, heating included)   
- Electricity $360
- Internet    $661
Food: $7 064
- Groceries    $5 000
- Lunches at work $2 064 (I will bring lunch, spouse still has to eat at cafeteria)
Transportation: $ 1 340
- public transit $1 340
- taxi $0 - no more cabs!
Other living expenses: $5 000 Plan to cut almost in half, mostly in clothes and decor departments
- Household  $1 200 (laundry, dry cleaning, cleaning supplies etc.)   
- Personal care $1 000  (haircuts, beauty supplies, makeup)   
- Clothes  $2 200
- Apartment $600 (furniture, décor etc.)   
Other things important for us: $1 900     
- Education $1 000
- Hobby $900
Other things not so important for us: $1 900
- Eating Out $600
- Entertainment $600
- Electronics $200
- Gifts $500
One-off: $440
- Medical $200
- Non-budgeted $240
Travel: $15 880 - this amount will be spent on daycare when we have a child

Total:  $53 870

Target cash savings to accumulate over next 12 months: $50k
 
What to do with cash? Current plan for 60k sitting in savings accounts:
- Emergency fund - $17,000 at 0.75% APY savings account
- Down payment money - $43,000 - don't know where to put it for 18-20 months - will gladly take any suggestions

We want to save at least $60,000 for downpayment, with expected condo price of $300,000. The way our travel expenses are distributed over next 12 months, we will have 60k by early December. Plan is to invest everyhting we save starting from December into Vanguard index funds.

Mustachians, please comment on the revised budget and investment plan. Does it seem like going into the right direction?

FrugalSpendthrift

  • Stubble
  • **
  • Posts: 210
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #1 on: June 19, 2014, 05:27:22 PM »
 I don't have answers to your questions, because there is only so much you can do with short term cash.  It is probably fine just where it is in the savings account.

If I just moved from the 15% tax bracket to the 25% tax bracket, I might rethink the ROTH 401k.  A traditional 401k would cut down on your current tax bill.  And you could be putting a lot more than 6% into the retirement accounts, when you scale back the spending.
« Last Edit: June 19, 2014, 05:39:19 PM by FrugalSpendthrift »

MDM

  • Senior Mustachian
  • ********
  • Posts: 10112
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #2 on: June 19, 2014, 06:12:52 PM »
- income more than doubled over last 12-18 months
Congratulations!

Now, before you get too used to spending that extra income, save it.  FrugalS's advice looks spot on.  E.g., how would your cash flow look if you contributed $17.5K each to your 401k plans, and $11k total to IRAs?  Note that $17.5K is excluding employer match - anything the employer adds is even better.

Nudelkopf

  • Pencil Stache
  • ****
  • Posts: 900
  • Age: 28
  • Location: Australia
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #3 on: June 19, 2014, 06:15:47 PM »
Plan for expenses for June 2014-2015, assuming income remains the same


- Lunches at work $2 064 (I will bring lunch, spouse still has to eat at cafeteria)
Why does she have to buy her lunch? Is it like, a set menu? Or can she bring her own fruit etc, so she eats less at the cafeteria?

- taxi $0 - no more cabs!
Since you don't have a car, personally I'd still keep maybe $200 here, just in case.

- Household  $1 200 (laundry, dry cleaning, cleaning supplies etc.)
You're either super clean and buy a butt-tonne of cleaning supplies... Or you're paying someone else to wash your clothes, which is dumb (IMO)

- Personal care $1 000  (haircuts, beauty supplies, makeup)
Is this for you, or lady? There's a few Lady Mustachian threads around, and even a "cut your own hair" thread, which could severely cut this down.   

- Clothes  $2 200
Mehhh... Could defs do better

- Apartment $600 (furniture, décor etc.)
Didn't you already spend over $2500 on furniture and décor last year? What more could you need?   

MayDay

  • Magnum Stache
  • ******
  • Posts: 4375
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #4 on: June 19, 2014, 06:21:36 PM »
I will just ditto Mr. Nudel. 

(Sorry, I have been watching too much Elmo's World lately).

jennyjazz

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #5 on: June 19, 2014, 07:42:43 PM »
Thank you all for your comments! That's exactly what I need - solid advice to make sure I do not go into the spending spree!


Now, before you get too used to spending that extra income, save it.  FrugalS's advice looks spot on.  E.g., how would your cash flow look if you contributed $17.5K each to your 401k plans, and $11k total to IRAs?  Note that $17.5K is excluding employer match - anything the employer adds is even better.

MDM, thanks for looking at my case! This is a viable option, but it feels like a lot of money tied up till we turn 59 1/2... who knows if we gonna last that long :) Therefore we are thinking to split our savings: some in retirement instruments, some in index funds which will be meaningfully accessible/profitable in 15+ years, when we are in early 40-ies.  Does it make sense or I am getting it wrong?


neo von retorch

  • Magnum Stache
  • ******
  • Posts: 3631
  • Location: SE PA
    • Fi@retorch - personal finance tracking
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #6 on: June 19, 2014, 08:08:04 PM »
I think in Mustachio World, put the most you can into employer matched retirement funds (because that's an awesome instant return!) but the rest you can put into your own private investment accounts and snag (Vanguard...) index funds. That way you get stock market investment benefits but also have the freedom to use it for pre-retirement retirement in a few years when you're ready.

jennyjazz

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #7 on: June 19, 2014, 08:12:15 PM »
Nudelkopf - thanks a lot for looking at categories!

Why does she have to buy her lunch? Is it like, a set menu? Or can she bring her own fruit etc, so she eats less at the cafeteria?

Actually I am the lady :) My husband does not have appropriate facilities where he works, he is also an allergic/picky eater super afraid of food going bad, and he takes train to work with commute time around 90 minutes one way. Given all of the above it is virtually impossible to make him bring food to work. And he also always eats a hot meal for lunch. No sandwitches and portable food for him, unfortunately.
But actually I am the biggest offender in this category. His lunch is stable $6.89 (and this is his onle expense per day on top of public transit), while I go out for lunches with colleagues or grab something at office cafe, and a meal averages around $9-10. My walk to work is 15 minutes, and my office has a fridge/microwave/toaster, so there is no excuse for me.

Since you don't have a car, personally I'd still keep maybe $200 here, just in case.
Public transportation where we live is probably the best in the country, and there is really no need for a cab, I just splurge. I never took cabs in my previous life.. unless going to/from the airport at night, and those get budgeted under travel. So no more cabs instead of my 15 minute walk.

You're either super clean and buy a butt-tonne of cleaning supplies... Or you're paying someone else to wash your clothes, which is dumb (IMO)
We do pay for dry cleaning, probably ~$20 per month; another $32 per month goes for laundry room in our building (3 loads to wash, and 1 to dry every weekend, $8 total). Where the rest goes is a mystery. I am putting this category on the watch list now. Thank you!

- Personal care $1 000  (haircuts, beauty supplies, makeup)
Is this for you, or lady? There's a few Lady Mustachian threads around, and even a "cut your own hair" thread, which could severely cut this down.

My (lady's) staff mostly. 5 times/year - cut/highlights/toner + haircut for the husdband all by one hairdresser at $120 total inlcuding tip. I guess I can stretch it to 4; in our most frugal crazy travel years I managed with 3 or even 2 per year, but it was not pretty! $70 makeup supply for a year, another $ 200-300 for skin care/shampoo etc.  Now when I think about it, this category can be down to $650. Thanks again!

- Clothes  $2 200
Mehhh... Could defs do better
I agree, guilty as charged... we actually do not even have any extra closet space for more clothes in our 500 square feet apartment... need to trim it , and after reading MMM forum for a couple of hours every day over last week, I fill even more empowered to do it!

Didn't you already spend over $2500 on furniture and décor last year? What more could you need?

I guess we do not need much...  I mostly want, and I should not... My husband is naturally very frugal, he hates this category, and does not let me bring stuff in, but I somehow manage to sneak it. One thing I did this week that will hopefully help is I unsubsribed from all decor/organization blogs etc, out of sight - out of mind.
« Last Edit: June 19, 2014, 08:14:23 PM by jennyjazz »

MDM

  • Senior Mustachian
  • ********
  • Posts: 10112
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #8 on: June 19, 2014, 08:17:56 PM »
jennyjazz, when it comes to investing choices one often needs hindsight glasses to tell right from wrong.  In general, however, if you can afford to maximize your 401k early in your career it makes sense to do so.  Here are a couple of reasons:
1) If you leave your current employer, you can roll the 401k into a self-directed IRA and then use SEPP to access the money penalty-free before age 59 1/2.
2) If you stay with your current employer, you will likely have increased your income to the point that after-tax (and after fully max'ed 401ks) investments will be significant enough to live off without needing to touch your ever-increasing 401ks.

It will likely be useful for you to run a few what-if? studies.  You can use your own spreadsheets, commercial software (Quicken, etc.), web-based tools (cFIREsim, etc.).  There's also a spreadsheet you can download from the how-to-write-a-'case-study' topic.  I've found the last one useful but YMMV.

Good luck!

FrugalSpendthrift

  • Stubble
  • **
  • Posts: 210
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #9 on: June 19, 2014, 08:45:12 PM »
This is a viable option, but it feels like a lot of money tied up till we turn 59 1/2... who knows if we gonna last that long :) Therefore we are thinking to split our savings: some in retirement instruments, some in index funds which will be meaningfully accessible/profitable in 15+ years, when we are in early 40-ies.  Does it make sense or I am getting it wrong?
There are ways to access it if you need to, but if you decide you don't need to, you'll be in incredible shape when you turn 60.  If you have some specific spending goals for when you are in your 40's, then put money in taxable accounts, but if you want the quickest path to financial independence, then take advantage of every tax discount that you can.

CestMoi

  • Stubble
  • **
  • Posts: 102
Re: Reader Case Study - on a mission to stop expenses creep
« Reply #10 on: June 20, 2014, 01:22:37 PM »
Re: This is a viable option, but it feels like a lot of money tied up till we turn 59 1/2... who knows if we gonna last that long :)

--The time goes by pretty fast. I never thought I'd be almost fiddy. And you can remove your contributions to your Roth IRA before you reach 59 1/2.

It's good that you're planning to minimize the eating out, entertainment, and gift expenses for next year. Why the $900 per year for the hobby? Can that possibly be minimized a bit? I would also suggest you not buy anything decor-related for the next few years. Go easy on the clothes, too. Make your own lunches often. Then max out all employer savings plans and individual IRAs.