Author Topic: Reader Case Study – Trying to chase a dream before this job kills me  (Read 4730 times)

StressExpress

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Long time listener - First time caller - Thanks in advance for anyone who reads and comments.

Family of 4 – Stay at home Wife, 2 kids (6,8)

Income:
Gross:  10,750K/Month
Net:   5,800/month (full details below)

Current expenses:
-   Mortgage = 1,450/month
-   Electric/Gas = 287/month
-   Cell = 100/month
-   Water = 90/month
-   Netflix = 9/month
-   Grocery = 500/month
-   Dining out = 300/month
-   Clothes = 50/month
-   Gas = 300/month
-   Pre-school = 200/month
-   Vacation = 100/month
-   Kids Activities = 50/month
-   Misc (entertainment) = 400/month
-   Cleaning = 90/month
-   Insurance = 100/month
-   Busfare = 60/month
Total = 3,996


Assets:
-   401k = 194,257
-   Wife Pension = 77,101 Cash Value
-   Small Pension = 9,747 cash value
-   House = 300,000 (110k equity)
-   Rental Business = 90,150 net worth
-   Honda Odyssey – 11,000
-   F150 – 6,000
-   Emergency Fund = 12,000
-   529 = 5,000
Total = 705,255

Liabilities:
-   House 190K – 3.88%

Net Worth = 515,255

Notes:
-   I know you hate our cars – but I ride the bus to work and use the truck for our Rental Business and helping my dad farm.   Van is a luxury (bought used and paid off) – we love it
-   Cell phone is stupid and working on it – it covers 2 people including Mother in law
-   Cleaning is likely non-negotiable – cheaper than Marriage Counseling
-   Taxes are high as I claim 0 exemptions (just get a large refund each year – I know I am giving them a loan but it forces the savings).
-   Wife may go back to work P/T or F/T next year (60k/annual)
-   I have a job offer that is 40k raise – but will mean more stress and less stability but I would be willing to manage it for a quicker quit date.

Specific Question(s): 
I am in a High Stress highly competitive work environment that is literally sucking the life out of me.  I want to quit this job and grow my rental business and start a property management business full time.   I just don’t feel comfortable doing it until I know my family is completely taken care of and risk is very minimal.   I have guilt about giving up such a high paying job (I came from a dirt poor farming background) to go chase my dream if it all falls apart.

1.   Welcome any suggestions for savings/spending reductions
2.   Welcome any thoughts on investment/debt strategy (pay off house first, ect..)
3.   Would love to hear anyone else’s thoughts on how they would approach this dream - Just have no one to talk to about it.....

***adding details from questions below***
- Rental income is ~$1,000/month cash flow after expenses, i keep this separate and in the business today (part of the net worth shared)

- Detailed Payroll info below (monthly)
Gross:                  10,816
401K:                     1,338
Benefits:                    262
Fed withholding:     2,020
Fed MED/EE:              154
FED OASDI/EE:          659
OH State:                   360
OH LOCAL:                 224
NET:                       5,799


« Last Edit: December 12, 2014, 11:26:16 AM by StressExpress »

Gone Fishing

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #1 on: December 11, 2014, 01:08:08 PM »
You've come to the right place!  Looks like you are doing pretty well so far!  The most obvious expense is the dining out, that's almost $4k a year right there which means it would take an extra $100,000 in your 'stache to support!  How is that 401(k) invested?  I don't see an IRA, a traditional IRA would help lower your taxes (use the restaurant money to fund it). Your wife working would be huge! Keep up the good work!

meyla

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #2 on: December 11, 2014, 01:10:58 PM »
I don't have any real advice because I too am struggling with a soul-sucking job and trying to find a way to quit ASAP, but the main thing that struck me about your budget is that your water bill is 3x mine. I live in a house with 4 adults, two of which are female shower hogs and one of which is home all day, but my average water bill is $32. Since you mention farming, perhaps you have some yard-watering situation that I don't have, but it seems a bit high given the information we have. If I had a 90 dollar water bill, I'd think I left a water hose on all month or something.

nereo

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #3 on: December 11, 2014, 01:17:16 PM »
Quote
Specific Question(s):
I am in a High Stress highly competitive work environment that is literally sucking the life out of me.  I want to quit this job and grow my rental business and start a property management business full time.   I just don’t feel comfortable doing it until I know my family is completely taken care of and risk is very minimal.   I have guilt about giving up such a high paying job (I came from a dirt poor farming background) to go chase my dream if it all falls apart.

1.   Welcome any suggestions for savings/spending reductions
2.   Welcome any thoughts on investment/debt strategy (pay off house first, ect..)
3.   Would love to hear anyone else’s thoughts on how they would approach this dream - Just have no one to talk to about it.....

Hello, and thank you for posting! Nice for lurkers to become active participants.
First off, if we're going to be honest, your assets category is looking through rose-colored glasses.  Vehicles are a liablity unless you are planning on selling them.  Only the equity in your home can be counted ($110k), and that only helps your FI/FIRE either once the mortgage is paid off (reducing cash-outflow) or if/when you sell.  In the latter case you may loose several $k in closing-related costs.

The good news is that you have a jumbo-income with thousands saved every month, and the ability to do even better.
Let's start with the lowest-hanging fruit: your vehicles.  you've made a semi-justified plea for the F150 so we'll let that go for now.  You also say how you love your minivan, but that your work environment is literally sucking the life out of you.  So let me put it to you this way:  Does the happiness you get from sitting in your van outweigh the miserableness from your work?  I'm guessing not - sell the vehicle, buy something more sensible and fuel efficient and instantly gain a few months of freedom.  There, doesn't that feel better than your soul-sucking job?  Remember that feeling everytime you get into your more mustachian vehicle.

Your entertainment budget is the next thing holding you back.  Again, work a job you hate or buy yourself freedom?  Try this experiment - find a free activity every week and replace a spendy one.  Do you like to hike? 
Eating out is the next target.  I don't have kids, but I have to ask - with a stay-at-home wife is a pre-school that charges $200/month worth it?    That's entirely your call.
If you keep maxing out your 401(k) and make the changes suggested you'll be saving around $34k/year based on your numbers (plus a ~$5k windfall from selling the minivan). 

The next step is deciding how long to stick it out at your job vs finding alternative employment.  You don't have enough to be FI yet with your spending, but with the changes mentioned above your annual spending would be around $42k.  One strategy is to simply pull the plug on your high-stress job as soon as you can find a replacement that will earn you more than $42k/year.  If your rental business pays exactly what you need to live off of (~$42k/year) then your existing investments can 'coast' until you have enough money to retire.  That's going to take about 20 years - a long time, but at least none of those years will be working the soul-less job you seem to hate so much.  If you manage to earn enough with your new occupation that you can still squirrel away $1k/month you will cut that down to about 15 years.  Better!

Of course you are already contemplating the other scenario - sticking it out at your horrible job in order to get to FI as fast as possible.  Based on above numbers, you're looking at around 11 years, or only 4 years sooner than finding a job that pays around the $55k mark.  Is that decade of working for that company worth it? 

there are other options that will launch you even faster towards FI.  Selling your house and buying (or renting) something much cheaper.  Making larger cuts in your budget.  But that should give you a few things to think about for now.  Hope it helps

DrF

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #4 on: December 11, 2014, 01:20:57 PM »
Your very very very first thing to do would be to sign up for a traditional IRA for you and your wife.

Log on to Vanguard or Fidelity TODAY, and set up the accounts. Have them automatically take money out of your checking account on payday so that you don't ever see it. Max out yours and your wifes IRA all at once, or over time. It doesn't matter. Plus you have until April to add $11,000 for 2014. Then start contributing for 2015.

This will reduce your tax burden and allow you to save more for retirement without even noticing it. Trust me, you will barely feel the difference.

Please read this for education. http://www.madfientist.com/retire-even-earlier/

jda1984

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #5 on: December 11, 2014, 01:24:17 PM »
Are you good at what you do?  You may not like it, but if you're better than average in your field and your employer knows that, it's more likely they would take you back down the road.  I work in a somewhat niche field and finding good people is hard.  Our company's strategy lately has been to hire new college grads and train them.  This is somewhat expensive and the risk is someone else makes them a better offer down the road.  We have a couple people who have left for various reasons.  I know we would take at least one of them back in a heartbeat and have communicated that to them.  Maybe my work is different than yours, but in your shoes, I'd work up a budget that works for you with your anticipated income from your new gig and try it on for a while (while keeping your current job).  I expect you'd have a dip in income at least initially.  If that works out, it mitigates some of the risk of going out on your own because you've proven you can keep your expenses low(er) and you've built up a bit more safety cushion in the months you've tried it out.  I'd also have a conversation with your boss/employer during this time too and lay out your concerns.  Maybe they'd agree to a part time gig or something as well to further reduce the risk of your side hustle failure.  Those are my initial thoughts.

FLBiker

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #6 on: December 11, 2014, 01:25:46 PM »
Personally, I am not in favor of sticking out a terrible job for years just to retire a bit early.  We need to enjoy the process, not just the result, because the result isn't guaranteed.

As far as places to save money, your dining out budget seems high (to me) but I'm not a big restaurant guy.  So does $400 for misc entertainment.  The biggest impact, though, might be from downsizing your house and getting a savings in both mortgage and electric/gas.  That may not be possible with a family of 4 where you live, though.

I think it's important to have a job you enjoy (note, I didn't say love) regardless of what that does to your FIRE date.  I guess I would feel differently if you were like a year or two away, but over several years or more, so much can change.

Kingomri

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #7 on: December 11, 2014, 03:19:03 PM »
1.   Welcome any suggestions for savings/spending reductions
[/quote]
In no particular order:
Current expenses:
-   Cell = 100/month - You already know this is too high. Republic Wireless would be a good way to bring this down by at least half.
-   Grocery = 500/month - Within reason for a family of 4, but you could get this down by trying to increase your consumption of cheap staples like rice and beans and learning how to season them well. That savings could be cancelled out by eating at home more because...
-   Dining out = 300/month - You can easily cut this in half, if not more. Lots of bang for your buck here. Try to get this down to $100.
-   Gas = 300/month - You take the bus to work but still manage $300/month on gas? This is shockingly high given your commuting situation. I feel like there's at least $100 of savings here
-   Misc (entertainment) = 400/month - Seconded what another poster said - find cheaper forms of entertainment. This is incredibly high - at least drive this down to $100.
-   Cleaning = 90/month - You mentioned this is non-negotiable, but I still need to call it out ;)
Total Savings = $650/month, or ~$200k smaller stash needed to maintain

Quote
-   Honda Odyssey – 11,000
-   F150 – 6,000
Cars are more expenses than they are assets. Productive assets appreciate. Vehicles depreciate. Consider ditching the van. You don't need a van for a family of 4. It's probably a good chunk of your gas expenses, not to mention massive depreciation costs.

2.   Welcome any thoughts on investment/debt strategy (pay off house first, ect..)
Quote
Liabilities:
-   House 190K – 3.88%
You could possibly get a low-cost or no-cost refi into a 10 or 15 year loan for lower than 3.88%. Have you considered doing so? Even better, read below my thoughts on refinancing to an ARM and paying it down quickly before the rate adjusts.

On the investing side, I would say that maxing a 401k/traditional IRAs (if you're within the range where IRAs are deductible, Roth otherwise) is a priority, especially in your income range. Any money you can move out of the 25% bracket and into future 0%, 10%, and 15% brackets is a big deal.

You're probably not eligible for traditional IRAs, based on $129k gross and the phaseout of the IRA deduction beginning at AGI of $98k for 2015 ($18k deduction from the 401k only gets you down to $111k).

Here's my thoughts on investing vs. paying off the house:
  • In the current low-interest-rate, high valuation environment, 3.88% guaranteed return is fantastic, so paying off the mortgage makes a lot of sense once you've maxed your 401k (savings on taxes in the 25% bracket are amazing on their own).
  • With interest rates as low as they are, normally I wouldn't yell at you about your high tax withholding. If you could be forcing savings by plowing this into the mortgage, however, this is foolish. Do some calculations and adjust your withholding appropriately.
  • Once you look at what your monthly take-home would be like after spending cuts and adjusting withholding, look at how quickly you could pay off the mortgage.
  • If you can repay it in close to 5-7 years, consider refinancing to a 5/1 or 3/1 ARM (preferably with low closing costs). The bank through whom I have my mortgage has a 3/1 ARM with $295 closing costs for a rate of 2.34%. If you're diligent about paying your mortgage quickly, by the time the rate increases start coming along, your balance is so low that they don't actually affect you that much. If you're not diligent about paying your mortgage quickly, you could get hammered when rates adjust. Be aware of that risk.

If you have more information on your state taxes, local taxes, itemized deductions and what kinds of insurance payroll deductions you have, I could give you a decent idea of what your income looks like in multiple scenarios.

Based on some assumptions that make calculations easier for me (max 401k, Ohio state taxes since that's where I live, no local/city income tax, max an HSA, ~$1k in payroll deductions for insurance, assuming standard deduction), I've got you looking at around $6,900/month net.

Based on your expenses of around $4k, and assuming you're able to reduce them by $650 as demonstrated above (which I think is very doable), that means you have an extra $3550 to pay towards mortgage principal. Assuming your current $1,450 mortgage payment includes about $300/month for escrowed property tax, that means you could afford a Principal + Interest payment of around $4,700 (so Principal. Interest, Taxes of $5k).

If you refi to a 3/1 ARM and DILIGENTLY pay a total of $5k/month, you'll have in those 3 years paid a total of $7,758.93 in interest, which is almost exactly the same amount you'd pay in ONE year at 3.88% paying the minimum on a 30-year mortgage. Massive, massive interest savings. And at the end of those 3 years, your balance would be down to $28,558.93, so even if your rate goes up to 4.3% (usually there are adjustment caps per year on ARMs), it's on such a small balance that it's no big deal! You'll have it paid off within the next year anyway at that point.

Once your mortgage is paid off, your expenses are drastically lowered again. You're down to $3996 - $650 (spending reduction) - $1450 (no more mortgage) + $300 (you still have property tax though) = $2,196. Then you just need a $658,800 stash to support that. At that point, dedicate your time to what you're passionate about - work on your rental business. You'll only need than $30k/year to live off of, so even if you don't make a ton of money with your rental business, it's OK. You can let your 401k sit around and grow to be your "old man" fund, or you can tap it early with a 72(t) distribution to provide a little bit of help (though it looks like it probably wouldn't be enough to fully support you).  If your wife works too and you're able to pay off the mortgage even more quickly or save some in a Roth with her wages, all the better!
« Last Edit: December 11, 2014, 03:27:24 PM by Kingomri »

NoraLenderbee

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #8 on: December 11, 2014, 03:56:27 PM »
Your income is good, your expenses aren't too outrageous, the pensions are modest but helpful. However, you don't have a lot of investable assets (cash, stocks, bonds, mutual funds). Cars are nice, but they don't produce income and they don't gain in value.
 
How much income does your rental business generate? Gross or net? What would it take to build it up to the point where the income could cover at least your minimum monthly living expenses?

mozar

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #9 on: December 11, 2014, 08:09:53 PM »
On coming from poverty, I can relate. Having enough money to quit means you've won the game! Think about how giving up your job means giving someone else a shot.

StressExpress

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #10 on: December 12, 2014, 11:24:53 AM »
WOW!!!! – Thanks so much for the responses, incredible to get this kind of feedback!!   I have tried to update my initial post with information requested and quick responses to folks below.   Thanks truly for taking the time to read/respond!

So Close – Agreed on the Dining and need to investigate IRA

Mela – Thanks for the feedback, I will check into Water Bill – assumed it was pretty standard.  Might be from Wife liking to do laundry and run dishwasher a lot is all I can guess.

Nereo – Thanks so much for the detailed reply! 
-   Message heard on the van – like the way you frame it!
-   Message heard on the Net Worth re: vehicles – thought it was the best way to represent the details
-   Entertainment – we love to hike and do it quite often.  I think we end up trying to squeeze in as much time with kids as possible doing fun things and get spendy.  Need to track and manage better.
-   Posted Rental income above – it averages about 1k/month after all expenses (not enough to live on yet)
-   Interesting to think about income vs. years to FI and making a choice there.   I had not thought of it like that before.   I am almost leaning the other way to some degree (take higher paying job, have wife go back to work) and try to end it as soon as possible

DR. Funk – thanks for the link, I will be spending some time there.  Just debating Pay off house vs. IRA currently.

JDA – thanks for the thoughts.  I am good at what I do but it’s a ever changing industry.  If I step out for 6 months – hard to catch up.   Had not thought about asking for part time – they seem to want me to work 24x7 now…lol

FLBiker – thanks, appreciate your perspective.   I struggle between feeling lucky (high paid) and depressed (will I ever find an end to this slavery).  Very nice to hear other peoples perspectives.

Kingomri – Thanks!!!  Wow – lots to digest here, I will need to spend some time with this.   Very much appreciated.
-   I have posted the details in the first post above in regards to the payroll deductions as you mentioned.
-   Really amazing to see a potential mortgage pay off like you are showing, not something I have thought about..   Really interesting to see the lower figure post debt free for FI as well.  Thanks!!

NoraLenderBee – thanks!  Rental business brings about $1000/month cash flow after expenses.

Mozar – really interesting perspective, thanks for sharing with me!

Thanks again to everyone who read and replied - very much appreciated and sooooo helpful!

Catbert

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #11 on: December 12, 2014, 12:27:28 PM »
Your wife going back to work might be a good idea. Aside from the money it could take a lot of stress off you being a sole earner.  However, realistically look at how much she'll be making after additional required/optional expenses are taken into account (e.g., child care costs, commuting expenses, more eating out, more maid service etc.)  See MMM current post about how earnings can quickly disappear. 

BigRed

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #12 on: December 12, 2014, 04:57:20 PM »
You should check out your Federal tax withholding.  With about $110k income, after deducting the benefits and 401k, you should only be paying about $10,500 in Federal income tax, including exemptions and the child tax credit, and you're withholding more than twice that.  That's an extra 1000/mo right there, unless you like getting 5-figure refunds in April.

Your entertainment spending is very high, so is the dining out.  You need to figure out what is causing those.

Last, at $100/mo insurance, I'm guessing you and your wife need some sort of term life insurance that you don't have to at least cover you until you FIRE.

feelingroovy

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Re: Reader Case Study – Trying to chase a dream before this job kills me
« Reply #13 on: December 12, 2014, 07:21:58 PM »
Why do you pay for preschool if your youngest is 6?  Is this a private kindergarten?  If so, should that expense go away soon?

Otherwise, the two things that stand out to me are the van and the entertainment budget.  I understand how easy it is to blow $ doing fun stuff with the kids, but just try to think about lower and no-cost alternatives.  There are a lot.

More importantly, can you tell us more about your current rental business?

Is the $1000/month you're currently clearing part of the gross income you listed, or is that purely employment income?

What are you doing with that?  (And with the $1800 or so of savings each month). Saving up for a down payment on another rental?  Do you have specific plans to purchase more?  That seems more important than an IRA, if that's really what you're working toward.

Have you done the math to figure out how many properties you'd need to replace your income?

I just realized it sounds like I'm interrogating you, and apologize.  It just sounds like your plan to replace your income with rentals is realistic and possible.  It's just a matter of when if you're working actively toward it.

You already have $1000 passive income.  If you could increase the rental busness by another $1k,  lower expenses by $500-$1000, and your wife could bring in $2k/month with a part-time job, you'd be covering expenses.