Author Topic: Reader Case Study – Raising a family on one teacher's salary  (Read 1539 times)

wmthe2

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Reader Case Study – Raising a family on one teacher's salary
« on: November 06, 2015, 08:25:34 PM »

Life Situation: 33 years old. Married filing jointly. 2 year old son and a daughter on the way. I’m a public school teacher, wife is a stay at home mom, and will be for at least 3 more years. She is a former teacher who swears she is not going back to it. We are in the 15% tax bracket.

Net Salary/Wages: 40,328, (3360 monthly) including summer school pay.

Pre-tax deductions: 7% mandatory pretax pension plan contribution. Will probably not reach the 10 years needed to be fully vested and will withdraw my contributions (with pitiful interest) when I leave teaching. I don’ t have a lot of confidence in Pennsylvania’s Teacher pension plan   


Taxes: We take the standard deduction for now.

Current monthly expenses:
Rent: 1095
Electricity: 65
Natural Gas 60
Trash, Sewer, Water, 71
Renters Insurance 12
Phone 25 (two cell phones – republic and tracfone)
TV (Netflix and occasional rental) 9
Internet 40
Car Insurance/Registration/Inspection 70
Gas 80 (projected for higher gas prices this year)
Car repairs 30
Life Insurance (20 year term, 500,000) 29
Medical/Dental copays, deductibles, exc: 60
Groceries/Personal Care 350 (includes paper goods, hygiene stuff, house cleaners)
Restaurants 50
Clothes 30
Vacation/ Travel 85
Gifts 30
Entertainment 25 (family outings)
Church/charity 330
Student Debt Repayment 247
Misc. (everything else) 70


Total: 2863



Assets:
Cash and liquid assets: 296000
Retirement assets: 89800 (approximately 19,000 pre tax, and 70,000 Roth IRA)
Car: 2007 Honda Civic (98,000 miles) paid off, worth about 5,000 

Liabilities:
Student Loan: 9,900 at 0% interest. About three more years of payments. (This was a special teacher cert. program that basically offered an interest free loan from the school. 

Story:
I’m a long time reader, first time poster. My wife and I use to save over 50% of our combined income. We also received some significant financial gifts from my wife’s grandmother. We’ve obviously chosen to value my wife staying home with kid(s) over our potential financial independence. I’m guessing the wife will never return to full salaried employment – she’ll work at some point, but I don’t expect a significant income or benefits. I probably won’t retire early in the mustachian sense, but I do want to FI as soon as possible so that I can either demote myself to work that is less life-sapping than teaching (it is rewarding, don’t get me wrong), or so that I can continue teaching but increase charitable giving greatly. Basically I want the freedom to make this choice. I don’t envision our expenses increasing too greatly with the new child – we cloth diaper, make baby food (groceries will increase somewhat), breastfeed (or at least anticipate this) for two years, and have a bunch of hand me down clothes that we were gifted. Generally speaking our liquid assets are invested 55% stocks, 30% bonds, 15% cash (down payment?). Dividends/interest is reinvested. I use Vanguard etfs. 

We are strongly considering purchasing a home, which may cost between 180,000 and 220,000 which we will take out a mortgage on. That will take a chunk of cash for a down payment and upfront costs that will not be able to be invested toward FI. Is purchasing a home compatible with our situation and goal (faster FI)? We are satisfied with our present rental situation, if you are wondering. There are a lot of variables in my situation that aren’t certain at present (wife’s future employment one of them), but can you see a  realistic goal for me as far as obtaining FI, and what are your suggestions for getting there quicker?

starterstache

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Re: Reader Case Study – Raising a family on one teacher's salary
« Reply #1 on: November 07, 2015, 08:12:28 AM »
Nice savings you have there!  Just out of curiosity, did you build that up over time or did it come from a windfall?

If it were me, I'd hang onto that money and continue renting, waiting for a small housing market downturn to buy.  Sounds like you need ~$40k for a downpayment, so I would invest the rest (minus an emergency fund) ASAP. 

Even though you have a zero percent interest loan, I'd probably wipe that out with the money you have available.  Just easier to sleep at night and one less payment to stress about monthly. 

This is my two cents, and I'm sure others will come along with their own thoughts.

Good luck!

wmthe2

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Re: Reader Case Study – Raising a family on one teacher's salary
« Reply #2 on: November 07, 2015, 10:55:24 AM »
We saved up about 230 grand, and have been fortunate to have my wife's grandparents gift the rest of it. I regret not having benefited much from the past few years' stock market returns. While not new to investing, I am pretty new to the concept of buy and hold investing (rather than mindless and unfruitful speculation).

Part of me agrees with continuing to rent. I don't like the idea of tying up a bunch of money on a down payment/closing costs, when I don't have the savings rate to save super aggressively to replenish it.