Author Topic: Reader Case Study - Stuck, how to keep motivated  (Read 2714 times)

hoejer

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Reader Case Study - Stuck, how to keep motivated
« on: November 14, 2016, 04:53:34 AM »
Hi Mustachians,
We are a family of 4, soon to be 5 (dad (31yo) and mom (29yo) married with kids) living in Northern Denmark, Europe. We have been following the FI movement for about 5 years, optimizing our budget and spending habits over and over again. But somehow we feel stuck, because there doesn't seem to be anywhere else to optimize. We realize that our tax-systems are wildly different, but we hope that you will comment on our progress, goals and the plan, or just give us any tips on how to stay motivated.
Below we have listed our average monthly income and expenses, based on the past 22 months.

Income (post tax and company matched pension contribution)
+ Dad: $4.475 ($840 to pension plan)
+ Mom: $2.350 ($415 to pension plan)
+ Kids: $420 (government pays aprx. $210 per child, depending on childs age, number of kids and parents tax bracket)
= Total: $7.245

Expenses
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Home
- Electricity: $65 (2.200 kWh/year)
- Heating: $160 (56.500 cubic feet per year)
- Maintenance: $310 (major renovation during the last 4 years)
- Mortgage: $805 ($0 post FI)
- Tax: $200
- Water and sever: $35 (2.000 cubic feet per year)
= Total home: $1.575 ($770 post FI)

Insurance
- Accident: $40 (decrases to $20 when kids grow up)
- Cars: $40 (decreases to $20 post FI)
- Health: $55 (government provides free basic health care, will increase to $90 post FI)
- House: $30 (partly self-insured)
- Liability: $15
- Travel: $0 (increase to $10 when kids are ready for travel abroad)
- Unemployment: $230 (decreases to $0 post FI)
= Total insurance: $410 ($140 post FI)

Transportation
- Fuel and maintenance: $475 ($240 post FI)
- Green taxes: $55 ($45 post FI)
= Total transportation: $530 ($285 post FI)

Misc
- Child care: $455 (part-time, $0 post FI)
- Fun: $240 (recreation, sports)
- Groceries and household: $610
- Health: $190
- Holiday: $60
- Media license: $30 (Quote from government: In Denmark anyone who has a television or a computer, smartphone or tablet with internet access has to pay a media licence.)
- Phone and internet: $0 (Employer-paid, $70 post FI)
= Total misc: $1.585 ($1.200 post FI)
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Total expenses: $4.100 ($2.395 post FI)

Assets
+ Dad pension plan: $36.000 ($52.000 pre tax)
+ Mom pension plan: $27.000 ($40.000 pre tax)
+ Savings account: $36.500
+ Home equity: $133.500

Liabilities
- Home: $86.500 fixed at 0,7%, repricing in April 2018

Our goals
1. Stay at home mom
2. Pay off mortgage
3. FI

Our plan
Mom takes the paid maternity leave with out 3. child until June 2018, thereby enabling us to pay off the mortgage completely by April 2018.
Mom will start working in 2023, when all kids are in school, and we will hopefully be able to retire around christmas 2026.
« Last Edit: November 14, 2016, 04:58:45 AM by hoejer »

meandmyfamily

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #1 on: November 14, 2016, 07:32:35 AM »
Fun, health, fuel and maintenance, and maintenance seem to be the only areas to cut!  Is the renovation done?  When will that amount go down?  Try a month with no fun money and see how it makes you feel.  Maybe you can cut it in half?  We have 4 kids!  I really like this blog and how she looks at spending money:  http://www.frugalwoods.com/  Lots of ideas.  Also do you drive far or is gas really high?  $475 is a lot of money on fuel and maintenance
« Last Edit: November 14, 2016, 07:34:07 AM by meandmyfamily »

Playing with Fire UK

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #2 on: November 14, 2016, 08:40:26 AM »
Hi!

Great work so far.

Couple of questions:

Will the childcare and car costs reduce when Mom is staying home or on maternity leave?
Is Mom interested in doing any paid work while staying home? Maybe minding another child or some freelancing work related to her current role?
Are you sure about clearing the mortgage? What will it reprice to? If someone would offer me a 0.7% mortgage I would keep it forever. Once I had enough in savings to pay off my mortgage I 'felt' mortgage free. If you are sure then that is okay.
Are the healthcare costs necessary and providing you value? $160 per month seems a lot with free basic health care and health insurance on top.
What have you done to optimise grocery costs? $600 per month seems high compared to what I spend in the UK.
Are your savings in a bank account or invested? I would look into investing before paying off more of the mortgage.

If you haven't already, consider calculating how your costs will change when Mom is staying home and if that increases your savings. Also, what are your plans for FIRE? Is there anything you can start doing now?

hoejer

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #3 on: November 14, 2016, 01:53:42 PM »
Thanks for your replies.
Fuel is pretty expensive, around $5 a gallon.
Commute is 45 minutes each way, I drive 2 days a week, work from home 1 day and drive with a co-worker the last 2.
Car is doing 38 mpg.

We have thought about cutting the child care cost and the extra health insurance
Mom is doing some freelancing, and the mortgage is a big deal for her to get rid of, which is why savings is in a locked account (0,9%)
But I will be looking more into post FI life and start living that.

SpreadsheetMan

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #4 on: November 15, 2016, 01:10:25 AM »
Is the plan going to work to produce enough assets to live on in 10 years time?

If the RE date is 2026 that makes you aged 41+39 - can Danish pensions be drawn then? If not, how many years does the non-pension asset base need to cover?

Is all the $3145 left after income-minus-expenses invested?


mwulff

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #5 on: November 15, 2016, 05:06:30 AM »
A fellow dane here.

I don't see many obvious items that could be removed from your expenses. The most obvious is the private health-insurance. If you are both in good health there is no reason to pay for private health-insurance.

That's another $55 right there.

Now I did some back of the napkin calculations and if you are to pay off your mortgage by april 2018 that leaves you with 17 months to do so. Which again means that you will need to pour at least ($86.500 / 17) = $5088 pr month into the house.

Now maybe there is something I'm missing (there probably is) but where is that going to come from? Even if you dump your entire savings into the house it still comes out to $2941 per month to have it payed off by april 2018.

Paid maternity leave is about $2400 per month pre-tax, so it won't cover it all. And that's assuming that all child care costs go away during this period. It is probably possible to pay off the house, but you are slicing the Mynock close to the hull.

I for one wonder if that house is worth paying off that quickly. Might be better to put it on a path to being payed off in 2026 and invest the difference. 0.7% is so ridiculously low that it's almost free.

You also don't mention any investments so I assume that you don't have any real assets at this point, besides the house. Looking at Denmark's peculiar tax structure regarding stocks and bond I know that we need about $1 million to live comfortably of the dividends and some sale of the principal

That means to reach FI with optional RE in 2026 you would need to amass $1 million post tax in 8 years. That's pretty tough in this country.

The good news is that you're a very high earner and if you're somewhat safe in your job then the "stay at home" mom is not a problem at all.

So I think I'm missing something wrt your plan.

hoejer

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Re: Reader Case Study - Stuck, how to keep motivated
« Reply #6 on: November 15, 2016, 01:51:43 PM »
The earliest pension that we can draw is in 2047, until then non-pension assets will have to do.

From the remaining balance on the mortgage: $86500, monthly mortgage payment is $805, making the remaining balance around $72000. Using current savings, making remaining balance: $35500, per month, minimum savings:  $2088.
Paying off the house is a top priority for the wife. I know it will take a little longer, but we will also be able to save the additional $805 from the mortgage later.