Reader Case Study: Shoot holes in my finances
Life Situation: married couple, 35/32, both with bachelors degrees, 3 children 8/6/1
Gross Salary/Wages: Self employed, I own a pool service, repair, and construction company. I pay myself 60k/yr
Pre-tax deductions: none
Other Ordinary Income: no other income
Qualified Dividends & Long Term Capital Gains: none, don’t even know what these are
Rental Income, Actual Expenses, and Depreciation: bought a 1940 bungalow an hour from my home in a college town for $145k in 2008. struggled through tenants, evictions, and upkeep on a 75 year old house, watched the value drop to 99k, and just last week sold it for $132k. I walked away from closing with $22k, happy to not have to deal with the looming roof and sewer line replacement costs. Old houses make terrible rentals!
Adjusted Gross Income: $60k annual, but I could pay myself whatever I want…
Taxes: 9% federal income tax, 6.2% SS, 1.4% medicare, 5% state of Utah income tax (this all equals about 21.5% per $2500 biweekly paycheck, or $536.92)
Current expenses: per month, and these are averages over the last 11 months
mortgage is $1600 but I pay $2000.
$584 on all food out, which includes gas station drinks and treats as well as restaurants. Typically 2-3 meals out per week
$739 on groceries and everything to run a household (toiletries, food, etc)
$147 on auto expenses, gas, oil changes, washes, etc
$720 on miscellaneous, which is clothing, school items, haircuts, birthday presents, home depot stuff, crafting and project materials, etc
$112 on entertainment, movies out, Netflix/hulu, personal pampering like manis/pedis, etc
our utility costs are fairly low, natural gas bill is $20-80 usually, electricity is $100-150, and water/sewer/garbage is $50-70
I pay for our internet(30), cell phones(140), and health insurance premium(240) with reimbursements from my business
We only have one personal vehicle, a 2010 mazda cx9 that seats 7 and we drive it only about 12k miles per year
All the rest of the vehicles (5-8 usually) are held in the business. Auto insurance paid through the business.
***expenses summary:
$500 savings (was tithing when I was a believer haha)
$2000 mortgage
$2300 other expenses
$200 utilities
$5000 total expenses = $5000 total gross income
from the looks of this, we go negative each month with taxes figured in. But we really don’t for some reason.
I can lower the mortgage all the way to $1600/mo and can also adjust the savings rate all the way down to $0 if needed.
I have them at the levels they are at because that’s where they are a little bit of stretch without putting a cramp on our living
The wildcard in our finances is I keep doing small things with loans I give myself from the business cash. For example, in the last couple of months I’ve bought and sold 3 or 4 vehicles, making a few thousand on each one I flip. That cash goes into the safe or I let my wife buy retarded things like furniture or home improvements.
Each year we vacation in mexico or Hawaii for a week or two, completely paid for by credit card points cash. This year so far I have 10k accumulated, and Hawaii will only cost $6k.
Also, we never buy anything unless we have 3x the amount saved up. Want a new tv for 800?... save 2400 first, then buy tv.
Expected ER expenses: n/a
Assets: building lot paid off, value varies from 40k-75k depending on economy, I just pay the taxes per year which are less than $500. Bought in 2005 for $75k and paid it off in 3 years
My business shop, which is a small storefront with a small warehouse, bought in 2014, paid it off in 1 year and 1 day, it cost $170k with improvements included.
I’m not sure what else qualifies as assets?... here are some things that maybe would go here?:
$4000 in a roth IRA
$500 in shitty stocks
5-8 work vehicles, +/- $20k if I blew them out in a quick sale
$30k cash in a floor safe
$1-2k in sock drawer that my wife uses for immediate cash for babysitters, pizza delivery, etc.
$10k in a savings account tied to my personal checking account. 2 years ago I stopped paying tithes to my church and started diverting $300/mo into this savings account. I upped the amount to $500/mo a few months ago. Occasionally I will dip into this account for weird reasons like craigslist purchases and other non-budgeted-for items.
Term life insurance policy on me only for $500k, which is about $350/year
And since I own the business, I could pull all cash out of the checking account at any time. At the moment I’m writing this, there’s about $140k in the business checking. My business grosses a little under a million per year in cash brought in, with a profit of 8-15%, which includes lots of personal perks (called owner’s distribution) throughout the year.
***assets summary: if I had to pull everything together within a month to flee the country or whatever, I estimate I would have about $200k not including the properties, or another $360k if I sold the properties super quick.
Or the way I normally look at it, if I died, my wife could liquidate everything including the business, stay in our home, and keep up a similar lifestyle for about 10 years. That’s plenty of time to flirt with and then marry a doctor.
Liabilities: in 2013 I built my own house. I had previously bought the lot for $85k from a customer of mine, and once I had it paid down almost completely, I started building my house. I finished it in a year and its in a very desirable neighborhood in a growing part of southern Utah. I owe $282k on it and it appraised within the last 3 months for $530k. EDIT: 3.25% 30 year
To capture the equity in the home (that would otherwise just be imaginary), I either needed to sell it for the appraised amount which I didn’t want to do, or get a HELOC. I got a $125k heloc that I don’t plan to use, but I wanted to get it now while I don’t need it and loans are easy to snag.
Specific Question(s): initially I just want to see how my situation appears to you mustachians. This info is not exactly the stuff you share with friends and neighbors! I want my personal finances scrutinized primarily, and then if anyone has any experience with it, I would LOVE if someone could help me modify my business to be more economical and frugal. It has proven very difficult to find ways to run a service business without having gas guzzling trucks and tons of overhead!!!