Author Topic: Reader Case Study: Please help me improve our offense!  (Read 4568 times)

AllieVaulter

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Reader Case Study: Please help me improve our offense!
« on: October 17, 2014, 12:30:08 PM »
Topic Title:  Reader Case Study - Please help me improve our offense!

Income:  $48k (after taxes).  I earn $44k teaching physics labs at university and my husband is finishing up his Ph.D. in physics and earns $12k as an adjunct.  Husband will hopefully be graduating and getting a real job in the next 6 months or so.

Current Expenses: 
Mortgage:         $20,400  (yeah, I knew this was a stretch when I bought the house, but we've made at least $50k as the market has improved)
Everything else totals to $17k.  Here's how it breaks down:
Electricity:          $600
Garbage:            $702
Mobile Phones:   $600
Internet:           $360
Natural Gas:      $420
Water:             $1200
Auto Insurance:  $380
Gasoline:          $1176
Groceries:         $4000
Dentist:               $191
Doctor:                 $20
Tuition:               $980  (hopefully will be gone in June!)
Clothing:             $100
Video Games:        $30
Books:                  $30
Dog:                   $720
Ducks (5!):          $420  (a significant portion of the water bill, but they lay delicious eggs)
Movie Theater:       $40
DVDs:                   $30
Restaurants:        $240
Bars:                    $50
Gifts:                  $500
Tithes:              $4200
Other Charity:     $200
This leaves:    $11,000 of savings for us each year

Assets:
House:                    $250k
Retirement Account:  $27k  (Work is contributing 11%, I cut my contributions down to basically nothing to pay down the house)
2000 Subaru Legacy:   $4k
Bank:                        $12k  (I'm a savings account kind of girl)
Bullion:                       $6k  (husband's an apocalyptic kind of guy)
Bitcoin:                       $4k

Liabilities:
Mortgage:  $150,330 (just refinanced to a 10 year conventional @ 3%)
Age:  30 years old!

We've got life long frugality muscles, but we're recent MMM readers.  After having read all of 2011 MMM posts and starting on 2012, I've realized that we were basically trying to live the retired life now, without being FI. 

After reading MMM I think I should:
1.  Move my retirement money to the Vanguard Stock Index offered through my retirement plan.  (my contributions are $25k, it's only made $2k in 5 years)

2.  Start a Roth IRA with Vanguard (VBISX or VSCSX) with $10k of our money in the bank.  We'd keep $2k in the bank, just in case.

3.  I'm feeling much more relaxed about the mortgage, so I think we'll stop paying extra on the mortgage (mainly to beef up our savings), at least until we get a bump in income.   

4.  Ride our bikes more!  I've been kind of a complainypants on the biking thing.  We live in Portland so it rains 9 months out of the year and I have to be at work at 8am three days a week (don't laugh too hard, I work at a university), so I've often driven the 3 miles to work.  But I can toughen up if it means I get my own money mustache! 

My questions for you: 
1.  Does it sound like my plan is a good one?  Obviously step 4 is good.  But we're definitely defensive financial people, so we're a little lost on the offense. 

2.  With the $11k we're saving each year, where is the most advantageous place for that?  In our Roth IRA?  Or should we split it up between the 403b & Roth IRA?

3.  Is it OK for our entire retirement fund to be in one stock index?  The retirement counselors are always pushing their packages with "balanced portfolio distributions".

4.  Same thing for the IRA - can it all go in one bond index fund? 

5.  Let's be crazy optimistic and say my husband gets a job earning $100k.  Maximum 2015 403b contributions are $18k per person, right?  And IRAs have a limit of $5.5k.  So we could save a total of $36k towards company retirement plans and $11k in our IRAs.  What do we do with all the rest of our money? 

6.  When my husband is looking for jobs in 6 months, we may end up moving.  Should I hold off on opening up a Vanguard bond index fund with our savings until after the move, in case we need the cash? 

Well, Mustachians, what do you think? 
« Last Edit: October 17, 2014, 12:38:42 PM by AllieVaulter »

Cheddar Stacker

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Re: Reader Case Study: Please help me improve our offense!
« Reply #1 on: October 17, 2014, 03:29:18 PM »
Responses to your thoughts:
1) Post your retirement plan investment options. Ticker and expense ratios. People here are good at giving you advice on where to invest it. One index is not a terrible plan, as long as it's a broad stock index. My 401K and IRA are split among VSMAX, VIMAX, VBTLX, VFIAX, VGSLX, and VTSAX. Four of those are offered within my 401K, the other two are in an IRA.  Whatever it's been invested in is not where it should be if you've only made $2K over one of the best 5 year runs in recent history.

2) Roth makes sense now, but when your husband starts pulling in the big bucks open a traditional IRA and max out that and the 401k's/403b's if possible. Tax deferral is your friend once you get above the 15% bracket.

3) Don't pay extra on a 3% mortgage, particularly since the rest is on a 10 year amortization and since you might be moving anyway. If you move, try to get a cheaper house next time. You should have some savings/taxable investments to protect against job loss since your mortgage payments are so high, so consider that before contributing to an IRA.

Advisors will push the balanced funds and target retirement funds since they have the highest expense ratios. Just know their advice is biased, and the forum will give you unbiased advice.

I would consider something more aggressive within your IRA, like VGSLX which is a REIT. It should give you a more stable return than stocks, and a higher return than bonds, and putting it in an IRA is the best place since it doesn't have qualified tax treatment so you want it sheltered. Maybe do 50% REIT 50% Bond in the IRA.

If you earn more and max out everything ($17,500 + 5,500 = 23,000 * 2 = 46,000) then you will put the rest of your investments into a taxable brokerage account. Or pay off the mortgage which I wouldn't advise. Or buy CD's which again I wouldn't advise.

It might be a good idea to hold onto a little more cash while your husband's future employment is up in the air. You have until 4/15 each year to fund your IRA's for the previous tax year, so there still plenty of time to get your 2014 contributions in.


gimp

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Re: Reader Case Study: Please help me improve our offense!
« Reply #2 on: October 17, 2014, 03:53:32 PM »
Sell your bitcoin. That shit makes no sense as an investment; it's gambling, pure and simple. I would give you the same advice if it was stock in a single company, by the way.

Reduce your grocery bill. You can cut that at least by a third... tomorrow.

Of course, the easiest thing to do is to stop tithing, but I take it that's a non-starter for folk of religiosity and such.

GardenFun

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Re: Reader Case Study: Please help me improve our offense!
« Reply #3 on: October 17, 2014, 03:57:03 PM »
How many hours do you teach a week?  Depending on hours, you have a chance to increase the offense (especially prior to kids - if that's in the plans). 

Could you tutor? 

Fuzz

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Re: Reader Case Study: Please help me improve our offense!
« Reply #4 on: October 17, 2014, 04:00:07 PM »
Sell your bitcoin and bullion. 

gimp

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Re: Reader Case Study: Please help me improve our offense!
« Reply #5 on: October 17, 2014, 06:32:01 PM »
Probably sell bullion, but it's unlikely that we'll convince them. Here, let me try:

If an apocalypse comes, gold ain't worth shit. You'll hear stories of people trading family heirloom gold for shoes or a bit of food when shit really hit the fan throughout history. No, if you're an apocalypse nut, you need guns, ammo, dehydrated food, lots of clean water, and a defensible space. Bullion is a terrible investment. Don't half-ass being a nut - whole-ass it or nothing.

Did it work?

Miaow1

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Re: Reader Case Study: Please help me improve our offense!
« Reply #6 on: October 17, 2014, 08:03:33 PM »
Hello:
I am a fellow academic. I would suggest that you look into TIAA-cref if your university offers it. It sounds like you are at the beginning of your career and TIAA was designed for academics by academics. It is often mobile between universities. It is also unlike Vanguard non-profit and yet it often exceeds Vanguards yields. There is nothing wrong with Vanguard this is just a suggestion.

I also would echo the poster who said get rid of bitcoin. Its long term or even short viability is very questionable.

Good Luck

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #7 on: October 17, 2014, 09:20:54 PM »
Post your retirement plan investment options. Ticker and expense ratios. People here are good at giving you advice on where to invest it.

Thanks for your quick reply and helpful tips. 

I couldn't find a great way to get my investments options, so I'm linking to a google doc.  Some of them don't have tickers.  I've highlighted where my money is right now.  https://docs.google.com/spreadsheets/d/1nYIqsvKuml1z8SDh3RCPogBmpmnpDs6_swKZAuPRc1M/edit?usp=sharing

Is there any advantage/disadvantage to opening an IRA where my 403b is?  I can get one at Vanguard, but I can also get Vanguard products through TIAA-CREF. 

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #8 on: October 17, 2014, 09:43:55 PM »
Sell your bitcoin. That shit makes no sense as an investment; it's gambling, pure and simple. I would give you the same advice if it was stock in a single company, by the way.

Reduce your grocery bill. You can cut that at least by a third... tomorrow.

Of course, the easiest thing to do is to stop tithing, but I take it that's a non-starter for folk of religiosity and such.

We did gamble on Bitcoin.  It actually more than tripled in value.  Which was exciting.  But getting DH to sell it...  That's another matter.  Same with the bullion.  Rather than digging my heels in here (we're both pretty stubborn), I'm going all-in for the bigger win:  Graduation.  He's working on year 8 of his degree.  I figure if he just gets a full time job, it will make a much bigger impact on our finances.  And we are sooo close.  I'm getting super excited.  Maybe more excited than my husband.  He's pretty comfortable as a grad student. 

You really think $300/mo to feed two people is too much?  We only buy ingredients, no prepared meals.  I look for sales, and use coupons.  We are meat eaters though, and GF (my husband has an intolerance). 

You called it on the tithing.  ;)  I'm not struggling to make ends meet, I will be able to retire eventually.  Retiring a couple years earlier isn't a good reason in my mind to not give to others in worse positions. 
« Last Edit: October 17, 2014, 09:50:42 PM by AllieVaulter »

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #9 on: October 17, 2014, 09:48:40 PM »
How many hours do you teach a week?  Depending on hours, you have a chance to increase the offense (especially prior to kids - if that's in the plans). 

Could you tutor?

I could tutor.  I work 40 hour weeks, only about 9 of that is teaching (it's a mix of a staff & faculty position).  I haven't pursued tutoring because we've been working a lot on the house and well, ER wasn't even on my radar.  But I could definitely pick up a few hours a week.  Thanks!

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #10 on: October 17, 2014, 10:07:19 PM »
Hello:
I am a fellow academic. I would suggest that you look into TIAA-cref if your university offers it. It sounds like you are at the beginning of your career and TIAA was designed for academics by academics. It is often mobile between universities. It is also unlike Vanguard non-profit and yet it often exceeds Vanguards yields. There is nothing wrong with Vanguard this is just a suggestion.

I also would echo the poster who said get rid of bitcoin. Its long term or even short viability is very questionable.

Good Luck

I actually do have TIAA-Cref.  I started out in a Lifecycle Fund with a particular maturity date and it lost a LOT of money.  That's part of my horrible returns.  I probably should have stuck it out and hoped for better returns, but it was a pretty brutal introduction to investing.  My first real job, my first retirement fund, and...  I would have done better with a checking account with zero interest.  So I switched over to a super conservative fund.  Which did dig me out of my hole, but very, very slowly. 

As far as the bitcoin goes...  We only put $1k into it (I know, "only $1k", but I don't feel too nauseated when I remind myself it's not a regular statement).  And the husband doesn't want to sell, (even with all of you financially savvy people advising it!).  I figure I will just call it an interesting and exciting experiment in the world of investing.  We're not going to be putting any more money into it and a month's salary at a real job will gain us more than a duking it out over the bitcoin. 

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #11 on: October 17, 2014, 10:14:15 PM »
Probably sell bullion, but it's unlikely that we'll convince them. Here, let me try:

If an apocalypse comes, gold ain't worth shit. You'll hear stories of people trading family heirloom gold for shoes or a bit of food when shit really hit the fan throughout history. No, if you're an apocalypse nut, you need guns, ammo, dehydrated food, lots of clean water, and a defensible space. Bullion is a terrible investment. Don't half-ass being a nut - whole-ass it or nothing.

Did it work?

Oh, don't worry we're pretty well rounded nuts.  We've already got the physical defenses covered.  Our food & water won't last us for a year or anything, but every few years Portland has ecoli issues in our reservoirs and we never get caught up in the craze to buy bottled water, because we already have it.  ;)  But we are very nice people.  We never greet people at the door with weapons. 

mozar

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Re: Reader Case Study: Please help me improve our offense!
« Reply #12 on: October 18, 2014, 09:11:03 PM »
That's good, because my estranged grandfather once greeted me at the door with a rifle. It's really no fun.

AllieVaulter

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Re: Reader Case Study: Please help me improve our offense!
« Reply #13 on: October 18, 2014, 11:46:10 PM »
Yikes!  Mostly when we answer the door you're greeted by a 20 pound dog who would like nothing more than to lick you and wag his tail excessively at you.  Because everyone who comes to our house is obviously coming to admire and adore our dog.  ;) 

We finished our first week of biking to work.  (3 mi each way for me, 9 mi for my husband).  It was not nearly as bad as inconvenient as I'd worked it up in my mind.  The weather's even easing us into this.  It started out dry and pleasant and by the end of the week it was raining lightly.  Not so bad.  Of course my husbands ride is not only longer, but hillier.  He's taking it like a trooper so far though.