Author Topic: Reader Case Study: Where Do I Start?  (Read 3982 times)

barkerl2

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Reader Case Study: Where Do I Start?
« on: October 31, 2016, 08:18:34 AM »
Life Situation: Married with a 2 month old son. My wife is a stay-at-home mom, at least for a while. I'm 27 years old, she is 32. We live in NW Indiana, about 25 miles from downtown Chicago. Bought our first home in May 2016.

Gross Salary/Wages: $70,000 annually, $5832 monthly

Pre-tax deductions:
401k: Contributing 6% of my pay = $350 monthly. If I contribute 6%, my employer matches 5% ($334/month) and all employer contributions are 100% vested immediately.
FSA: $60 monthly
Medical/Dental/Vision: $525 monthly
Train Pass:$183 monthly

Total: $1118/month

Taxes:
Federal: $550/month
State: $184/month
County: $72/month tate/local, and FICA. 
Medicare/Social Security: $402/monthly

Total: $1208/monthly

Take Home Pay: $3506/month

Current expenses (all figures monthly):
Mortgage: $945 (30 year loan with $165k balance. Currently principal ($248), interest ($532), escrow ($162))
Groceries: $400
Car Insurance: $54
Home Gas/Electricity: $86
Water/Trash/Sewer: $72
Gas: $200
Charity (non-negotiable...we are Christians and we believe in tithing): $370
Internet: $44
Cell Phones: $150 (once we finish paying for our phones, this will be $100 monthly for unlimited everything with T-Mobile)
Medicine/Vitamins: $70 (my wife has Crohn's disease and gets her medicine in bulk)
Entertainment: $100
Misc: $125
Total: $2616

Take Home Pay: $3506/month
Total Monthly Expenses: $2616
Potential Monthly Savings: $890


Assets:
Retirement Accounts: I currently have $10k in my 401k and my wife has ~$5200 in her 403b from when she was working at a non-profit.
Savings: $5500
Vehicles (not sure that it is properly Mustachian to refer to vehicles as assets, but what the heck...): My wife drives a 2005 Subaru Outback (worth ~$4000), used to drive it 15-20k miles per year, probably much less now that she does not commute 15 miles each way to work. I drive a 99 Corolla (manual trans of course, worth ~$1000). I drive it 12 miles every day to the train, about 3k miles per year.

Liabilities:
Our only debt is our mortgage. Originally $166k for 30 years at 3.875%; current balance is $164,500 (only had the house for about 5 months). Monthly payment is $945. Interest/Principal/Escrow amounts are detailed above.


Specific Question(s):
  • I'm having a tough time figuring out ways to increase our monthly savings. My wife may start working part time in 6-12 months, and if she does all of her income will go directly to savings or the mortgage. Do you see anywhere we may be able to cut expenses and improve our savings?
  • What's best? Put more towards the 401k, start investing in index funds via Betterment (or something similar), or put everything extra towards the mortgage?

Thanks for your help, please let me know if anything above is unclear. We are brand new to this journey but are excited to take on the challenge and see our stash build up!

Easye418

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Re: Reader Case Study: Where Do I Start?
« Reply #1 on: October 31, 2016, 08:45:31 AM »
First off, this is one of the tightest case study I have seen recently.  I don't really think it even requires a case study.  You are doing everything correct, no debt except mortgage, good salary.  You said Charity is non negotiable so I won't even go there.


1.  You are pretty bare bones.  I only see getting a raise and/or your wife returning to work to increase savings rate.
2.  Personally, you should up your 401k and hope the investments return higher than 3.875%.  I would open a Vanguard account and dump your money in VTSAX.

Best of luck. 


spicykissa

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Re: Reader Case Study: Where Do I Start?
« Reply #2 on: October 31, 2016, 09:03:22 AM »
I would put all your monthly extra into the 401k right now. Your taxes would go down, and you would be close to maxing it out. 

Do you use all of the FSA money every year? I imagine you probably do, between your wife's Crohns and a little one, but just making sure. Are you eligible for an HDHP with HSA? It may not be the best choice if your family uses a lot of healthcare, but you should definitely price it out, because that's a steep insurance premium. Vaccines, well child visits, annual physicals, anything preventive is still 100% free with the HDHP.

Your gas costs seem a little high, especially if your wife isn't driving the SUV much. Have your monthly expenses really settled out after the birth of the baby? If he's only 2 months, you may find expenses drop a bit more as your wife gets into the stay-at-home routine--more cooking, less driving, optimizing the grocery shopping, etc. Otherwise everything seems very reasonable to me. You're doing really well! 

barkerl2

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Re: Reader Case Study: Where Do I Start?
« Reply #3 on: October 31, 2016, 09:27:27 AM »
Do you use all of the FSA money every year? I imagine you probably do, between your wife's Crohns and a little one, but just making sure. Are you eligible for an HDHP with HSA? It may not be the best choice if your family uses a lot of healthcare, but you should definitely price it out, because that's a steep insurance premium. Vaccines, well child visits, annual physicals, anything preventive is still 100% free with the HDHP.


We do use all of the FSA funds at this point. My work's Open Enrollment period begins in a few weeks, so I'll be taking a closer look at our current PPO vs. HSA option to see which is more suitable for us. I never rarely get sick, so I don't use insurance much. My wife's Crohn's means she has regular appointments, plus throwing a baby in the mix now makes things much more interesting.

Good question on the gas. That number very well may drop within the next few months.

I guess maybe I should try to find a side hustle...or rather, maybe I should focus on developing some income-earning skills and then develop a side hustle. I'd really like to see that savings amount climb :)

Crazycarl

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Re: Reader Case Study: Where Do I Start?
« Reply #4 on: October 31, 2016, 09:31:46 AM »
You sound like you are doing great. You should look to up the 401k. Maybe start with another $400/ month for a couple months and see how that works. Automating investing before it gets into the bank account is the best way to save money, because you never see it and thus are not tempted to spend it somewhere else. 

Nick_Miller

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Re: Reader Case Study: Where Do I Start?
« Reply #5 on: October 31, 2016, 09:51:25 AM »
Looking at this...

Current expenses (all figures monthly):
Mortgage: $945 (30 year loan with $165k balance. Currently principal ($248), interest ($532), escrow ($162))
Groceries: $400
Car Insurance: $54
Home Gas/Electricity: $86
Water/Trash/Sewer: $72
Gas: $200
Charity (non-negotiable...we are Christians and we believe in tithing): $370
Internet: $44
Cell Phones: $150 (once we finish paying for our phones, this will be $100 monthly for unlimited everything with T-Mobile)
Medicine/Vitamins: $70 (my wife has Crohn's disease and gets her medicine in bulk)
Entertainment: $100
Misc: $125
Total: $2616

Take Home Pay: $3506/month
Total Monthly Expenses: $2616
Potential Monthly Savings: $890


...are you sure these are really all of your expenses? I mean, did you run the numbers over a period of months by running reports from your checkbook? I ask because with a new baby, I would assume you have other expenses.

Formula?
Diapers?
Other "baby stuff" like toys, crib, car seats, etc. (I realize you may have already  bought most of this stuff)
No play date or baby stuff that takes them out of the home?
No clothing (for you two or the baby)?
No hair cuts?
No sporting equipment or hobby stuff?
No gym?
No "blow money" for either of the you to have a little spending $ in your pocket?
Nothing at all for house/maintenance/yard stuff?
No car sinking fund? (considering the age of your vehicle0

You said "potential" savings of $890 per month? What are you actually saving per month?

barkerl2

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Re: Reader Case Study: Where Do I Start?
« Reply #6 on: October 31, 2016, 03:27:12 PM »

...are you sure these are really all of your expenses? I mean, did you run the numbers over a period of months by running reports from your checkbook? I ask because with a new baby, I would assume you have other expenses.

Formula?
Diapers?
Other "baby stuff" like toys, crib, car seats, etc. (I realize you may have already  bought most of this stuff)
No play date or baby stuff that takes them out of the home?
No clothing (for you two or the baby)?
No hair cuts?
No sporting equipment or hobby stuff?
No gym?
No "blow money" for either of the you to have a little spending $ in your pocket?
Nothing at all for house/maintenance/yard stuff?
No car sinking fund? (considering the age of your vehicle0

You said "potential" savings of $890 per month? What are you actually saving per month?


Hi Nick,

The numbers I posted are fairly accurate in terms of regularly occurring expenses:

Baby Stuff: Thank God for baby showers. We got pretty much all we need from a few showers. My wife breastfeeds and we cloth diaper (got everything at the shower), so expenses here are pretty minimal. Things may come up eventually, but as he is only 2 months old he pretty much eats and sleeps at this point.

Our income and expenses shifted pretty dramatically when my son was born. We lost my wife's income (and her 100% employer-paid insurance). That meant my take home pay was cut as insurance was added on. On top of that, we simply don't do much more than hang out with our son, friends and family these days (pretty cheap to do). We read a lot, work in the yard, take long walks, etc. We haven't been able to save more than $300 the previous two months due to labor and delivery bills, but that should be settling down now.

Due to the above, the figures I gave are estimates based on our expenses pre-baby and what I think we will realistically be spending in the upcoming months. Time will tell, but I think the numbers are pretty accurate. There will probably be some tweaks here or there due to expenses that pop up every few months or so, but I wouldn't expect to see things average out to more than $100-150 maximum.

Our house is in pretty good shape and I do most of my own vehicle work, thus no major expenses there.

drp

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Re: Reader Case Study: Where Do I Start?
« Reply #7 on: October 31, 2016, 04:50:52 PM »
  • I'm having a tough time figuring out ways to increase our monthly savings. My wife may start working part time in 6-12 months, and if she does all of her income will go directly to savings or the mortgage. Do you see anywhere we may be able to cut expenses and improve our savings?


Do you and your wife plan on working opposite shifts? Or maybe have a family member close-by willing to watch your little one for free? Because, if not, I'd forsee your wife's part time income as going mostly to daycare. Good daycare is crazy expensive, and honestly, your kid is likely to get sick a lot being exposed to multiple children - which will call for days off work and so on. (No judgement, but I am a fan of sahm'ing lol!)

I did a bunch of math years ago (like 8, to be exact) trying to figure out if it was worth it to stay at home or not - turns out I can save a lot more by staying home than working (of course, that all depends on your wife's expertise! The higher paying the job, the more "worth" it that it may be - however, being a Christian, you know that money isn't the most important factor in making decisions - clearly, since you won't give up tithing - which is great!)

Aside from that, if you actually keep to your listed budget - it looks good to me. I'd say you might be able to whittle your food down a little, but your wife has special dietary needs (chron's?), so I'm not sure if that's possible for you. I'd also suggest you completely cut your "entertainment"budget - but that would be pretty restrictive and may make you guys nutty. Perhaps you can lower it a bit though? If you're going out to movies - maybe try popping popcorn at home and streaming from vidangel (only $1) or netflix? If you're eating meals out, cook a fancier meal at home? Cheaper hobbies? Play board/card games? It might only shave off a small amount, but I'm a fan of pinching pennies - and our income is so small, I have to.

I think the amount you're saving is great (well, if you manage the $890 potential savings)- especially considering you're contributing a decent amount monthly to tithing. I am a newbie and can't advise in investing at all, but I will say I was amazed at your gross vs. net (and that could just be because our income is so low)- perhaps putting more into your pretax 401k will lower your taxes and be the best thing to do?

Not an expert - but I know lowering your taxable income is good ;-)

Blessings and good luck!

barkerl2

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Re: Reader Case Study: Where Do I Start?
« Reply #8 on: October 31, 2016, 07:34:01 PM »
Hey DRP!

Thanks for the encouragement! I'm sure there are ways to pinch things a bit more...we will have to figure that out over the next few months. It's a fine line between frugal ninja and unhappy cheapskate,  and we will have to find that line for us :)

If my wife goes back to to work we have a grandma who has raised 9 kids and is more than happy to babysit as much as needed. Family is a great thing!

MDM

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Re: Reader Case Study: Where Do I Start?
« Reply #9 on: October 31, 2016, 07:47:47 PM »
Specific Question(s):
  • I'm having a tough time figuring out ways to increase our monthly savings. My wife may start working part time in 6-12 months, and if she does all of her income will go directly to savings or the mortgage. Do you see anywhere we may be able to cut expenses and improve our savings?
  • What's best? Put more towards the 401k, start investing in index funds via Betterment (or something similar), or put everything extra towards the mortgage?
How about $11K ($5500 each) to traditional IRAs, and ~$13,500 to the 401k?

Based on a quick look at your numbers in the case study spreadsheet, that would result in:
1) A federal tax refund of $1000 (you would owe nothing at all to the IRS, and would get the refundable $1K child tax credit).
2) State and local taxes of ~$550 for the year (some guesswork here)
3) Approximately break even cash flow for the year.

You may wish to download the spreadsheet and try your own numbers.  If you do...how does it look to you?

drp

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Re: Reader Case Study: Where Do I Start?
« Reply #10 on: October 31, 2016, 08:20:56 PM »
Hey DRP!

Thanks for the encouragement! I'm sure there are ways to pinch things a bit more...we will have to figure that out over the next few months. It's a fine line between frugal ninja and unhappy cheapskate,  and we will have to find that line for us :)

If my wife goes back to to work we have a grandma who has raised 9 kids and is more than happy to babysit as much as needed. Family is a great thing!

Yes, my husband and I are presently trying to fine tune where that line is as well! Going back to the basics...tracking every. single. penny.  Tedious, but it's telling (but I won't tell how much we spent on eating out last month...yikes! Tallying that up is what kicked this whole frugal thing off again!)

That's great you have an amazingly capable grandma available. My kids are at grandma's right now...I must say, grandma's ROCK.

waltworks

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Re: Reader Case Study: Where Do I Start?
« Reply #11 on: October 31, 2016, 11:18:15 PM »
You are doing awesome.

I'd max tIRAs and your 401k to bump taxes down and add to savings that way. Otherwise, basically keep on doing what you're doing.

-W

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Re: Reader Case Study: Where Do I Start?
« Reply #12 on: November 01, 2016, 05:47:58 AM »
With a new baby in the house you are probably at the maximum point of expenditure and lowest point of spouse earning you will ever be.  And you are still saving plenty - 11% total into retirement plus potential monthly savings of $800 or more.  You are relatively low in cash savings, but you bought a house less than 6 months ago, so that is not surprising.

Like others, I think you are doing fine: no debt other than a (very manageable) mortgage, good income, spouse obviously on board with mustachianism, house bought, family growing nicely, excess of income over expenditure.  Result: happiness.  You've set up a good life for yourself: keep on top of what you are doing but I don't think you need to push anything to extremes: if you keep going as you are everything will be fine.

Two things I would suggest: keep in mind that some of your cash may be needed for a car repair/replacement fund, given that your commuter is 22 years old, and make sure that you've got life insurance to cover your wife's expenses if you die while she still has a little one to look after.

With This Herring

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Re: Reader Case Study: Where Do I Start?
« Reply #13 on: November 02, 2016, 04:47:06 PM »
Does that "Misc" category include life insurance?  At least you, and perhaps your wife, should have/get term life insurance now that you have a baby depending on you.  The advice would normally be that both of you get it, I think, but I don't know a huge amount about insurance and how your wife's Crohn's might affect things.

If you want to trim a few dollars without too much pain:
Quote
Internet: $44
Cell Phones: $150 (once we finish paying for our phones, this will be $100 monthly for unlimited everything with T-Mobile)
Is that internet the current promo rate your ISP is offering?  If not, you can call and get your rate down, assuming your ISP works like Time Warner.  Look up the current promo rate that is being offered to new customers.  Call the ISP and ask for the cancellation department, then tell them you want to cancel because the service no longer fits your budget.  After a few rounds of song-and-dance (maybe 15 minutes to 30 minutes) with offering you slightly better rates or better speed but not the promo rate you want for the speed you already have, they will talk to the supervisor and suddenly be able to offer you the promo rate.  Be polite and nice, as the reps are required to go through this nonsense every time.  When the promo rate expires in 6 months or a year, repeat.  Also, make sure you are not renting a modem or wireless device, as these can be purchased at the cost of a few times the monthly rental fee.

I would also recommend taking an hour and reading through our own I.P. Daley's Frugal Communications Guide (which has some outdated specifics but is still very good), then posting in his Communications and Tech Discussion thread asking his advice on your specific phone situation.  If T-Mobile works for you, I.P. may be able to recommend to you a T-Mobile service network reseller (mobile virtual network operator - MVNO) that could give you the same service for much less each month.

SwordGuy

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Re: Reader Case Study: Where Do I Start?
« Reply #14 on: November 02, 2016, 05:15:47 PM »
$200 gasoline per month = $2400 per year.

Circa 250 working days in a year.

$9.60 a day to drive 12 miles?   That seems pretty high...

$100 a month for phone coverage seems pretty high.  What for?   Does your job actually require you to have such a phone?
How often do you actually NEED to look something up on a smart phone that could not have been looked up before you left home or work?

Can your wife work part time on a different shift from you?   She might like getting out of the house and away from the baby for a couple of nights per week - and it would bring in some money, too.   Bring home just $40 a week after taxes adds up to $2,080 a year.   After five years, that's about $12,000 at 10% in the market.  Let it sit around untouched for another 15 years and you'll have about $52,500, which is most of the circa $65,000 you'll still owe on the house.  It's possible you might have a bit less or even enough to pay the entire thing off.

Why did I use 10% instead of 7%?   10% includes inflation, 7% does not.   The mortgage doesn't go up with inflation, it remains fixed.  So paying it off in inflated dollars is the appropriate comparison.

I'm not advocating paying off the mortgage early, just giving a down to earth example of how an extra $40 a week from a part time job will help out in the future.  Plus, depending on attitude, hard work, and a bit of luck, those 5 years of part time work might result in better pay once your spouse returns to work full time.

Anyway, food for thought!