Reader Case Study – In our 40’s, 1.5 income, 3 kids – how are we doing?

[dosido]

I’ve been lurking and have seen how this board has helped others and would like to see if there’s any suggestions for us. We are a family of 5, Husband (mid-40s), Wife (just began my 40th decade), 3 kids (teenager, tween and elementary age).

*Items in red are changes I've made since posting.  I'm taking baby steps so most are small changes

Monthly Income:  Net Total $5,076  ($60,912 Annual Net)
(Gross – $91,680 Annual/ $7,640 Monthly)
--------
His Income:    
Gross - $85,200 Annual/ $7100 Monthly
Net - $54,432 Annual/ $4536 Monthly  *this is after $550 pretax for medical/dental vision and $18 for life insurance*

Her Income:    
Gross - $6,480 Annual/ $540 Monthly (1099 job)

**His income is new as of May 2014.  Before then, he was making in the $60K range Annual Gross.

Current expenses: Total $4,929
Tithes - $500
Roths - $356 *looking into possibly moving this to a Traditional IRA
Mortgage (PITI) - $1077 (PI - $829, Property Taxes - $163, HOI - $85)
HOA - $12
Her Taxes - $81
Her Work Expense - $5
Water - $40 *on the list to decrease 
Sewer/Garbage - $80 *on the list to decrease
Cable - $20
Internet - $58
Netflix - $8
Phone (landline) - $4
Cell phones (3) - $84
Electric (all electric house) - $190 *on the list to decrease
Food (groceries/toiletries) - $700 $661 We shop mainly at Aldi's and Walmart
School lunches - $30
Car Tags -$8
Car Insurance - $25 *This is for an 8 yr old minivan that also tows our small popup camper.  Vehicle gets 18/19 mpg.
Car Fuel - $250 **on the list to decrease, live in rural area and I'm a taxi service for kids :)  Will try to cluster errands for now
House Maint/Repairs - $188
Car Maint/Repair - $167  *for above mentioned vehicle with 106,000 miles
Clothing - $150 $142
Recreation - $250
School - $90
Gifts - $70 $60
Memberships - $25
Christmas - $50
Music Lessons (2 kids) - $180
Fun Money - $230

Income – Expenses = $147+ $57 from changes=  $204 (leftover is put into current savings goal which is EF right now)

Assets:  Total $529,900
His 401K:  $274,000 Current Balance/ $710 Monthly
His Roth IRA:  $24,000 Current Balance/ $178 Monthly
Her Roth IRA: $19,000 Current Balance/ $178 Monthly
House: worth $200,000
HSA: $500 Current Balance/ $118 Monthly
Emergency Fund:  $9800
Sinking Funds: $2600

Liabilities: Total $103,400
House: $103,400 left (refi’d to 3.75% 15 years mortgage – 12 years left)

Background:
Husband was in a job that had a salary freeze from 2008-2011 and minimal raises after that period.  He recently switched employers this past spring.  I was a SAHM until last child started Kindergarten.  I currently work part time.  Husband also works a seasonal job in the winter.  That money is variable and used to boost savings.

My job is flexible and I’m working on increasing my hours from 10 to 20 hours/week.  Budget is currently based on 10 hrs/wk.

Kids are active in sports and scouts so much of the recreation part of the budget goes towards those activities.

Specific Question(s): 

1.  Thoughts on the budget? Reasonable?  Not reasonable?  When we first purchased our house, it was 43% of our net income.  We've never had non-mtg debt as a married couple so that + frugal life helped us survive the first few years in this house.  With Dh's recent new job, we’re now looking to have a long-term sustainable budget instead of the beans and rice budget we’ve had in the past.

2. How are we for retirement for our age? Way behind?  Not too bad but not the best?  I know there are several variables.  We anticipate living similar life as we have it now.  My biggest concern is healthcare costs.

3.  Current Financial Goals are as follows:  Boost EF to 6 mths expenses, Save for braces (ETA 2016) then start bumping up retirement contributions (we're currently at 15% of gross).  Are these reasonable?  Out of order?  Should there be other goals?  Obviously, with only $147 left each month, we’ll need to rely on boosting my income plus my husband’s seasonal income to reach these goals. There’s a chance for husband to receive bonus and raises each year but we’ve relied on that before and didn't receive it so we don’t even put that on the radar until it’s in our bank account.

Thank you for any suggestions.

[Catbert]

Some people will give you shit about your tithing.  I'm an atheist who fully respects religious people who make tithing a priority as long as they don't have hair-on-fire debt.  You aren't in debt other than mortgage, so stick to the tithe since it's (I assume) important to you.

There are lots of theories about emergency funds.  MMM doesn't have an E fund but relies on cc's and HELOC for potential emergency needs.   You have substantial equity in your home so consider a HELOC for all/part of your  E fund.  One exercise might be to think of the 5 worst but sorta likely emergencies (e.g., DH loses job, out of town funeral, unexpected home repair etc.).  What would you do?  Would a HELOC or cc work?

The most glaring expense is food.  While $700 isn't excessive for normal people, many MMM adherents feed 5 people on much less.

[Hannah]

This is a slightly different way to think about this, but here's how I would bucket your expenses

Homeownership Related Expenses (including Utilities and maintenance)   1587
Kids Recreation Expenses (including "Fun Money")   775
Food Expenses (including lunch money)   730
Giving Expenses (tithe only)   500
Car Expenses   450
Clothing Expenses   150
Gift Expenses (Gifts+Christmas)   120
Work Expenses     86

Each of your categories has some wiggle room but not a ton. I would look to cut consumption by 5% in your biggest categories (except tithe perhaps), and see if you can do it. I bet you can.

From there try another 5%, and keep pinching until it starts to hurt a bit, then you have a new normal. I would guess you are able to cut about 5-15% of spending in most categories without feeling too much pain.

One thing to consider is to be sure your kids are really enthusiastic about all their activities. Music and sports interests are both normal, but what if you could take back $200 a month just from not paying for things that your kids don't like anyhow. Its worth it to ask at least. Then you don't have to drive them either (fuel savings).

[plainjane]

What was your budget like before your husband got his raise? The place where you have the most space is that misc fun area.  Since recreation and music and fun add up to 660, you might want to interrogate those items a bit more (scouts + sports + music + misc).  The kids are old enough to start prioritizing too.  And there might be options for saving money in sports by coaching, buying secondhand, etc.

You are currently tithing more than you are putting aside in your Roth.  Could you even this out so you are putting aside the same in both?

[2ndTimer]

You are spending a little heavy in groceries.  Check out Grocery Outlet or Aldi's if you have either in your area.  Also look for salvage places.  I recently came home with two cases of all natural peanut butter for 99 cents/jar from a salvage place. 

If you haven't already found Amy Dacyczyn's "The Tightwad Gazette" books.  Find them for lots of advice about bringing up children frugally.  She had, I think, five and several of her tricks would probably benefit you and yours.  I am thinking particularly of her clothing plans and way of handling children's activities.  I won't tell you more, that way you have a reason to go to the library and check out her books.

[nereo]

Holy Crap, you're in your 40th decade???  And you're not retired yet??

Ok, joking aside, you are doing ok.  Pretty good when compared to the general public, but far from optimal.  Hopefully we (collectively) can find ways of increasing your bassasity

Let's start with saving:  You are pumping a lot into your 401(k) but not as much as you could into IRAs.  Also, you have a fairly high income but are using ROTHs... chances are you'd do better with a t-IRA, and doing conversions later.  You have a healthy emergency fund. and given your assets I wouldn't increase it much. I'm also not sure what "sinking funds" are. 

Now to spending.  Lots here, starting with the dual categories of "fun money ($230)" and "recreation ($250)".  I'm not sure how those are unique categories, but since you also have netflix, cable and internet listed, i'm wondering what you are spending ~$500 a month on.  Food is also higher than it could be for a family of four - (plus you add $30/month for kids lunches).  Why does doing "her" taxes cost over $900/year?  Also, you are spending a LOT on transportation - ~$5k/year just on your car! What is your commute like?  How fuel-efficient is your vehicle? Why are you spending so much on repairs? I also didn't see a line for car purchase/depreciation, but if you are going through $250/month in fuel i"m guessing you'll need to buy a new vehicle at some point in the next few years.
I think those are the low hanging fruit right now - each could be trimmed with minimal impact on your lifestyle.

To answer your specific questions:
1) budget is ok but can be omptimized (see above)
2) For retirement you seem on track to get there in a little over a decade.  But with modifications you have the ability to get there in 5-6 years. Your call where you want to put your effort
3) I wouldn't worry too much about increasing your emergency fund beyond what you already have - you've got plenty of cash on hand to cover short-term emergencies, and you have savings and 'squishy' debt.  If it helps you to compartmentalize saving for braces in two years go ahead, but there's no reason to do it this way.  Boosting your income is should be fairly easy to do, especially since you only make $6.5k.  I've found it's fairly easy to make $15k part-time, and the difference could turbo-charge your retirement accounts.  Ultimately though, cutting your budget back will have the biggest impact, and I think you can shave a few hundred/month off without any pain or suffering.  you're lifestyle will actually improve with a little cost-cutting.

[marblejane]

Why does doing "her" taxes cost over $900/year?

It looks like this is the monthly amount that she budgets to pay taxes on her gross income, since she is 1099 employee. OP, it might be better if you just deduct the estimated amount from your gross income, rather than include it as an expense.

[nereo]

Why does doing "her" taxes cost over $900/year?

It looks like this is the monthly amount that she budgets to pay taxes on her gross income, since she is 1099 employee. OP, it might be better if you just deduct the estimated amount from your gross income, rather than include it as an expense.

ah - i get it.  Sorry, I'm slow today.
I think Hannah has a good summary of OP's expenses that's a bit more straightforward to understand.

[dosido]

Oh wow - thank you for the replies already!  I'm taking notes and trying to digest what has been written so I'll try to reply to each of the questions/suggestions:

Mary W - Thank you for the lack of a face punch on the tithing.  It is important to us.  I have to admit that after years of following Dave Ramsey, our thoughts on obtaining credit cards/HELOCs to use as an EF are quite the opposite!  As I read more on here, I realize that's a common strategy but for now, that might be diving into the MMM territory a little too fast for us.  The 5 worst emergencies definitely include DH losing his job since that's our main income.  Other unexpected expenses like funerals, medical or home repair would be taken care of either through our current EF or one or both of us picking up more work.  That's actually what happened last year when we had home, medical and car expenses that were not expected.  I found a second job and DH increased his seasonal work.

Our grocery budget is a constant struggle for us.  I currently shop Aldi and Walmart, since those are the closest and least expensive stores.  We have a Meijers and Krogers nearby but their prices are typically higher.  A little further away we have a Sam's Club.  About 30 minutes away there is a Costco.

Hannah - Interesting way to rearrange our expenses!  Definitely made me cringe at some of our spending.  We will try to decrease some of the categories by 5% initially and then try for more later.

Homeownership Related Expenses (including Utilities and maintenance)   1587 (shave $80 somewhere - electric and water are likely candidates)
Kids Recreation Expenses (including "Fun Money")   775  (I may need a couch and soothing music to explain this...)
Food Expenses (including lunch money)   730  (shave $39 off groceries - definitely doable)
Giving Expenses (tithe only)   500 
Car Expenses   450  (shave $23 - see below...)
Clothing Expenses   150  (shave $8 - done)
Gift Expenses (Gifts+Christmas)   120  (shave $6 - done)
Work Expenses     86 (may not be able to decrease as this includes taxes on my 1099 job and the $5 is a program that keeps my sanity for my timekeeping on my job)

Car Expenses:  Are you ready for this?  I work at home.  And all the gas is for my vehicle.  /begin excuses/ We live in a rural area with no means of safely biking/walking to school, work or stores.  I've never mapped out the places I drive so here it is:  Grocery stores are about 22 miles round trip.  Church is about 30 miles round trip.  Music teacher #1 is 18 miles round trip and music teacher #2 is 22 miles round trip (that's each once a week on different days). 

Kids are involved in sports at school #1 which is 6 miles round trip.  Other child is at school #2, where I volunteer once a week, which is 18 miles round trip.  Both schools are in middle of rural area so all roads are windy and have multiple stop signs.  Not very conducive to efficient gas mileage.  Sports are played at local school but also further away schools - i.e. just played last week at school that was 24 miles round trip. 

I drive an 8 yr old minivan that gets about 18/19 mpg on regular driving (highway is around 22 mpg). Just reading what I wrote made me realize why my fuel usage is to high.  I will need to re-examine this and see what can be cut down (i.e. clustering errands at same time) and what can't (i.e. driving to school to watch kids play)./end excuses/

I'm a little depressed now that I'm starting to look at what's behind our spending.  I'll have to continue a little later - need to get kids off school bus.

[SomedayStache]

Following this thread as you appear to be exactly my family only time-warped 10 years ahead and I'd like to get advice for current and future me. =)

[nereo]

dosido - I'm glad you are still here and haven't run off after a few facepunches :-)

Regarding the car - This definitely sounds like one area where you could improve by better organization.  I've never had children but I have lived in rural areas and understand what it's like to need to drive to get anywhere. For starters, I suggest finding a much more fuel efficient vehicle then your 18-19mpg minivan. A used Mazda5 would be a ~40% improvement - or a focus wagon would be an ~80% improvement.  Combining errands is another important strategy. For example, finding one music teacher and having back-to-back lessons will save you both fuel and time.  What about carpooling to events?  By my estimates you're driving somewhere between 15,000-18,000 miles a year, for someone who works from home.  Yikes, that's not good for your budget, your time or the planet.

Regarding your food budget - there are lots and lots and lots of recipes out there designed to feed a family of 5 on $10 worth of ingredients. There are entire threads on this forum of cheap healthy meals.  If you incorporate a couple of those into your weekly meals you should be able to get your food budget well under $700.  Many of them can be made in a slow-cooker, saving you time as well.

Finally, I applaud your dedication to charity (tithing).  however, I'll just throw one alternative suggestion out there - what churches often need more than money is volunteer labor.  You might consider volunteering for the church a few afternoons a month and subsequently reduce your tithe by $100 or so.  You would be giving just as much (if not more) to your church and your community, but in a different form.  It's just a thought - ignore it if you want.  Once your are FI and your children have left the nest you can increase both your tithe and your involvement.

[feelingroovy]

Hi Dosido,

Welcome to the forum.  I agree that you're in pretty good shape overall, but could do some optimizing.

There are already some good suggestions here and it seems you're getting some good insights.

I'd just like to add on to nereo's suggestion about being tax-efficient.  As you start to pull 5-10% off some of these categories, make sure you put the savings directly into tax deferred savings like the 401k.  We've had a similar boost in income over the past few years and now realize how important optimizing taxes is.  It gives you a huge bump in how much you can save.

We were also contributing to Roths but switched it over to traditional IRAs halfway through last year.  That $178/mo you're each putting into Roths could be $209 in traditional if you're in the 15% bracket.  It's more if you're in a state with income tax. 

Then try to make it a goal to max them out as you progress through your cuts in spending and/or increased income.

[abhe8]

dosido - I'm glad you are still here and haven't run off after a few facepunches :-)

Regarding the car - This definitely sounds like one area where you could improve by better organization.  I've never had children but I have lived in rural areas and understand what it's like to need to drive to get anywhere. For starters, I suggest finding a much more fuel efficient vehicle then your 18-19mpg minivan. A used Mazda5 would be a ~40% improvement - or a focus wagon would be an ~80% improvement.  Combining errands is another important strategy. For example, finding one music teacher and having back-to-back lessons will save you both fuel and time.  What about carpooling to events?  By my estimates you're driving somewhere between 15,000-18,000 miles a year, for someone who works from home.  Yikes, that's not good for your budget, your time or the planet.

Regarding your food budget - there are lots and lots and lots of recipes out there designed to feed a family of 5 on $10 worth of ingredients. There are entire threads on this forum of cheap healthy meals.  If you incorporate a couple of those into your weekly meals you should be able to get your food budget well under 700

Well, at 10 bucks per meal, 90 meals a month, that's $900. I would hope they could do better them that.

[nereo]

dosido - I'm glad you are still here and haven't run off after a few facepunches :-)

Regarding the car - This definitely sounds like one area where you could improve by better organization.  I've never had children but I have lived in rural areas and understand what it's like to need to drive to get anywhere. For starters, I suggest finding a much more fuel efficient vehicle then your 18-19mpg minivan. A used Mazda5 would be a ~40% improvement - or a focus wagon would be an ~80% improvement.  Combining errands is another important strategy. For example, finding one music teacher and having back-to-back lessons will save you both fuel and time.  What about carpooling to events?  By my estimates you're driving somewhere between 15,000-18,000 miles a year, for someone who works from home.  Yikes, that's not good for your budget, your time or the planet.

Regarding your food budget - there are lots and lots and lots of recipes out there designed to feed a family of 5 on $10 worth of ingredients. There are entire threads on this forum of cheap healthy meals.  If you incorporate a couple of those into your weekly meals you should be able to get your food budget well under 700

Well, at 10 bucks per meal, 90 meals a month, that's $900. I would hope they could do better them that.

that's dinner, obviously.  Breakfast (cereal, fruit, pancakes, an egg, etc) and lunch should be substantially cheaper.

[dosido]

Sheesh, I'm wordy.  It's one of my many flaws.

Plainjane - Good question!  Since we've always had our budget set up with sinking funds (expenses that are irregular so we add up what we spend each year and divide by 12), we ended up robbing from one sinking fund to pay for another.  So if we needed clothes for the kids but only had $20 in that fund, we'd take from the car maintenance fund that may have had $100 in it. But then the car would break down so we had to "borrow" from our school sinking fund.  Then when it was time to pay for school books/fees and we didn't have enough in that account, we'd "borrow" from another sinking fund.  Rinse and repeat.  Now with the higher salary, we actually can fund all the sinking funds fully.

Recreation is a big category for us and I need to break that category down later.  Why do you suggest bumping up our Roth to meet the same level as our tithes?  Promise I'm not being snarky but genuinely curious?  We currently send 15% of gross to retirement between 401K and Roths and 10% to tithes.

2ndTimer - I've read that book before and need to check it out again!  I love shopping at Aldi's and I'm jealous that you found that deal on natural peanut butter!  The cheapest I've found it is $2.49/16 oz.

nereo - Lol on not being retired yet!  I'm a slacker on this board.  What is a sinking fund?  See above explanation to PlainJane.  But I would be open to a different way to budget.  First time I've heard that Traditional Roth would be better than Roth IRA.  Obviously this area of finances is my weakest point so I need to research that.  I wish I was as optimistic as you are about 1) being able to easily cut hundreds of dollars from my budget and 2) it making my life better.  We've lived on such a tight budget for years that when DH received this higher salary, we saw it as being able to finally loosen up a little. 

In regards to car - we use our minivan to pull the pop up camper, which is considered our vacation time.  I'm not opposed to getting a different car that could handle towing a small camper but would need to consider that the van is paid off and only worth about $6K(?).  You're correct that I drive about 15,000 miles.  I don't have many friends that I could carpool with unfortunately.  My kids play two different instruments so we have to go to two different teachers.  I think there are some studios around here with several teachers at the same location.  Need to look into that.  But we love our current teachers so this is easier said than done.

SomedayStache - Lol!  Wish I knew all this 10 years ago.

Feelingrovy:  Thanks for a real world story on changing to IRAs!  That would be great way to contribute more.

I hope I didn't miss anyone. 

My homework:
1.  Look into Traditional Roth v current Roth IRA
2.  Research music studios for closer lessons/and possibly having teachers for both types of instruments at same place/same time
3.  Reread Tightwad Gazette book

Thanks again!

[MDM]

dosido, welcome to the forums.

Good OP, including your gross income.  Not sure, however, how you get to "only $147 left each month".  Either I fat-fingered something, or you left out some (pre-tax?) expenses, or you are withholding too much for taxes, or...? 

See table below: it appears you have ~$755/mo extra instead of $147/mo.  The spreadsheet used to create that table is in http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228.  You can download and fine tune if you wish.

In any case, good luck!

Category	Monthly amt.	Comments	Annual
Salary/Wages	$7,640		$91,680
HSA/Pension	$118		$1,416
FICA base salary/wages	$7,522		$90,264
			$
401(k) / 403(b) / 457(b) / etc.	$710	Room to increase?	$8,520
Income subject to IRS tax	$6,812		$81,744
			$
Paycheck income before tax	$6,812		$81,744
			$
Federal Adj. Gross Inc.	$6,812		$81,744
			$
Federal tax	$226	2014 rates, item. ded., 5 exemptions	$2,716
State/City tax	$409	Guess, using 0.06 * Fed. AGI	$4,905
Soc. Sec.	$466	Assumes 2 earners paying	$5,596
Medicare	$109		$1,309
Total income taxes	$1,210		$14,526
Income before other expenses	$5,602		$67,218
Monthly Expenses:	$		$
Mortgage	$829		$9,948
HOA	$12		$144
Property Tax	$163		$1,956
Home/Rent Insurance	$85		$1,020
Cable TV	$20		$240
Car Insurance	$25		$300
Car Maintenance, Registration, etc.	$175		$2,100
Charitable contributions	$500		$6,000
Child activities	$180		$2,160
Christmas/Holidays	$50		$600
Clothing/Shoes	$150		$1,800
Donations/Gifts	$70		$840
Electricity	$190		$2,280
Entertainment	$8		$96
Fuel/Public Transport	$250		$3,000
Groceries	$700		$8,400
Household; Maintenance	$188		$2,256
Internet	$58		$696
Lunches	$30		$360
Miscellaneous	$230		$2,760
Phone (cell)	$84		$1,008
Phone (landline)	$4		$48
Recycling/Trash	$80		$960
School Tutition/Books/Etc.	$90		$1,080
Sports/Recreation	$250		$3,000
Subscriptions (paper/magazines/etc.)	$25		$300
Water/Sewer	$40		$480
Work/Professional fees	$5		$60
Non-mortgage total	$3,662		$43,944
Loans:	$		$
Roth IRA	$356		$4,272
Total Expense	$4,847		$58,164
Total to invest	$755		$9,054
Other investments	$755		$9,054
"Gross" income	$7,640		$91,680
Income taxes	$1,210		$14,526
After-tax income	$6,430		$77,154
IRA+401k+ESPP+529/other	$1,066		$12,792
Living expenses	$4,609		$55,308
After-tax investable	$755		$9,054

[dosido]

MDM - Thank you for posting that!  I did try to fill that out before posting my case study but I couldn't get the numbers to match my actual budget.  We have $550 pretax for medical/vision/dental each month.  About $18 in life insurance post tax.  That still doesn't add up so I'll need to look into that.

In the past, we've received huge tax refunds so to fix that, we claimed more allowances.  After DH switched jobs and went to a higher pay earlier this year, we decreased our allowances to 7.  I use the irs.gov withholding calculator a few times a year to check on our tax status.    Last year we did pretty good judging our federal tax situation because at tax time, we just had to pay $13.

[lakemom]

One way to help with the gas expenses is to set the expectation with the children that you will attend all (or most) home games but that away games are just not doable right now.  Currently we only have one child playing sports but at one point I had 4 all playing sports at different levels (at 3 different schools to boot, elementary, middle & high) and not only could we both attend every game (they were often on the same night) but we would not go to any away games.  Now with just one playing sports, we go to all home games and many away.

And a thought on kids expenses....do they need to continue the music lessons?  Could they go to an internet based (or video based) program?  Or downgrade from weekly lessons to monthly lessons with other alternatives (internet, school band, videos, just lots of practice) in between. 

[Simplefunlife]

Would the music teachers possibly come to your house for the lessons? Preferably on the same night? Maybe offer them a slight increase in pay. This way you would save time, sanity and hopefully a lot money from all that driving. Just an idea

[MDM]

MDM - Thank you for posting that!  I did try to fill that out before posting my case study but I couldn't get the numbers to match my actual budget.  We have $550 pretax for medical/vision/dental each month.  About $18 in life insurance post tax.  That still doesn't add up so I'll need to look into that.

In the past, we've received huge tax refunds so to fix that, we claimed more allowances.  After DH switched jobs and went to a higher pay earlier this year, we decreased our allowances to 7.  I use the irs.gov withholding calculator a few times a year to check on our tax status.    Last year we did pretty good judging our federal tax situation because at tax time, we just had to pay $13.

Yeah, I'd say $13 is more than merely pretty good - nice work!

With the $550 for pretax insurance and $18 for life insurance I get $339 instead of the $147 in the OP.  Note that the "state tax" part of the spreadsheet is a guess - having decent federal calculations is one thing, but coding all different state tax calculations is something I've left to those who do it for a living.

If you do find any errors (or have suggestions for improvement) in the spreadsheet, please let me know - thanks.

[2ndTimer]

Delighted to find another fan of Amy D.  Lots of those here.   I found that keeping the books in the bathroom caused the Hub to come out with many new ideas.

[dosido]

lakemom - You hit on one of the issues we struggle with - we want to save money but at what expense?  If we had massive debts or unexpected medical bills that we needed to save for, I can see telling my kids I can't come to their away games.  We actually had to do that last year when we had unexpected medical, car and house expenses hit within a few months and DH was still at the prior job (making much less $).  Our EF took a big hit and our cash flow was getting sparse.  We cut out the kid's sports and summer camps that year, among other things. 

But now that we're on much better footing, I'm not sure how I feel about not attending a game just to put more money in savings?  We're always trying to find that balance!

Simplefunlife - Interesting suggestion!

MDM - I think your spreadsheet is very helpful.  I think the difference in my case is my state taxes.

2ndTimer - Lol!  I have used that suggestion for the Dave Ramsey book for my DH :)

So here's some info on our Recreation and Fun Money budget items:
Recreation:  I keep a spreadsheet to track each expense in this category.  Looking back at our spending in 2014, and taking out some items that were one-time expenses that normally wouldn't be included, our total for this year so far will be about $2,251 or $188/mth.  I think I had $250/mth in order to play catch up with our budget (I mentioned earlier that we would "borrow" from other sinking funds).  I believe we could definitely move this budget item down to $200/mth starting in January.  (We still have a few winter sports to pay for.)

Fun Money:  I'm typically the "nerd" in the family and my DH is the "free spirit".  Those are Dave Ramsey terms so if you're not familiar with him, that basically means that the nerd is very money-conscience  while the free spirit spends first and thinks about where it's coming from later (or not at all).  Having such a strict budget over the years means that both of us had to account for almost every penny we spent.  If DH went to Walmart and bought some shirts, milk and some caulk, I would need to know the specifics so I could deduct that from the appropriate categories (clothing, groceries and home maintenance). 

So Fun Money is money that neither one of us needs to account for to the other.  If I want to spend all my fun money on bubble gum, then I can!  Since we have combined finances/bank accounts, it helps us feel some freedom in our budget.  The guidelines that we've found for this category is 3-5%.  I've spent mine on a girl's weekend, fundraisers for my friends, shoes I wanted but did not necessarily need, lunch with a good friend, etc.  Most of these are things I've skipped in the past because we didn't have the extra funds.

[Icecreamarsenal]

Is there a way to get more utility out of church? You're paying $500 to the church, perhaps you could spend more time there and remove entertainment, Netflix, and fun money? That's close to $500 more to retirement accounts.

[dosido]

I've been researching the difference between traditional and Roth IRAs and this is what I have so far:

• Can contribute to Traditional up to age 70.5 while Roth can contribute anytime
• With our modified AGI (<$98K and MFJ), Traditional will be fully deductible while Roth is not
• Traditional will be taxed when we withdraw but Roth will not
• Can't contribute to Roth once our income exceeds $193K (don't see that happening unfortunately!)
• Have to take contribution from Tradition starting at age 70.5 while Roth does not have that requirement

I guess some of my concerns would be:

• I have no idea what our tax bracket will be when we retire in 20-25 years? How do you begin to estimage that?
• I originally started the Roth to balance our retirement portfolio - DH's 401K is taxable upon withdrawl and he's pretty aggressive with his choices while our Roths withdrawls will not be taxable (after age 59.5) and are in a more moderate, target-based plan.  If we switch to IRAs, then all retirement funds will be taxable upon withdrawl.
• After my research it looks like one of the reasons we have a Roth is not correct - we thought we could withdraw our contributions (not the earnings but just our contributions) at any time (after the 5 year period) without a penalty.  But it looks like it needs to be for specific reasons like a first house, disabled, reach the age of 59.5, etc.
• I'm assuming "modified AGI" is the same as "AGI" on line 37 of tax form 1040.  If that's the case, then in a few years, I think we would be getting close to the $98K cutoff for the Traditional to be fully deductible.  We had an AGI of $62K last year but DH got a $20K bump in salary this year.  If he gets bonus and raises in the future, we would exceed that cutoff eventually.

[MDM]

I guess some of my concerns would be:

• I have no idea what our tax bracket will be when we retire in 20-25 years? How do you begin to estimage that?
• I originally started the Roth to balance our retirement portfolio - DH's 401K is taxable upon withdrawl and he's pretty aggressive with his choices while our Roths withdrawls will not be taxable (after age 59.5) and are in a more moderate, target-based plan.  If we switch to IRAs, then all retirement funds will be taxable upon withdrawl.
• After my research it looks like one of the reasons we have a Roth is not correct - we thought we could withdraw our contributions (not the earnings but just our contributions) at any time (after the 5 year period) without a penalty.  But it looks like it needs to be for specific reasons like a first house, disabled, reach the age of 59.5, etc.
• I'm assuming "modified AGI" is the same as "AGI" on line 37 of tax form 1040.  If that's the case, then in a few years, I think we would be getting close to the $98K cutoff for the Traditional to be fully deductible.  We had an AGI of $62K last year but DH got a $20K bump in salary this year.  If he gets bonus and raises in the future, we would exceed that cutoff eventually.

Good questions.  Attempted answers:
1.  You could use Quicken or other somewhat sophisticated tools that consider likely salary increases, pension and/or Soc. Sec. payments, investment results, etc.  And apply your own crystal ball gazing for future tax laws.  Or...follow the rule of thumb that says "use traditional for the deduction when in the 25% or higher tax bracket, and Roth when in the 15% or lower."
2.  True statement.  But what conclusion are you drawing from it?
3.  Your original thought was correct.  E.g., see this article: "Roth IRAs come with a special rule: you can withdraw the amount you’ve contributed at any time penalty-free and tax-free. The catch is that you have to have proof of how much you’ve contributed over the years."  Those specific reasons apply to withdrawing earnings, not contributions.
4.  Yes.  This goes against the rule of thumb in #1, but IRS rules override rules of thumb.  The more you make now, the more you likely should use traditional instead of Roth, but at least Roth is better than fully taxable.

[dosido]

karaishere - The music teachers have completely different schedules so while I wish they could coordinate, it won't be possible.  I'm looking into a music school that is closer to my house for my cello player.  I'm currently working on combining errands/driving to optimize both my gas usage and my time.  Thanks!

MDM - Thanks for the link to the article and comments on my concerns.  We do keep track of our contributions so if we ever did need to use funds (pre retirement) from the ROTH, we would have that documentation.  I'm leaning towards keeping the ROTHs for now since they only represent 5% of our retirement savings.

*Update* Since posting my case study, I've been working on my grocery, gas and electric usage. 

Grocery - We have about $145 left in our revised grocery money for the rest of the month and as of now, we have enough food for 7-8 more days of meals.  We are having Thanksgiving but not going crazy with the food since it's just us and my in-laws so we should be able to make the remaining budget stretch.

Gas usage - Now that I'm much more aware of the miles I drive everyday, I'm working at combining errands, delaying short trips into town, etc.  For instance, usually on Sundays, my DH and I both drive to church separately since he has to be there an hour earlier to volunteer.  This past Sunday, we all went together in his car (that gets 33 mpg) and the kids and I occupied ourselves until church began.

Electricity - We've been hit with unusually cold temps and snow for this time of year so we're trying to keep the heat as low as we can tolerate.  We're also looking into the cost of replacing bulbs with LED bulbs.  According to an online calculator I found, we would recoup our costs within a year due to the savings in our electric usage.

[MsWillow]

Great job dosido, those little things will add up quickly. i am enjoying your journal and many of the similarities I see. Keep it up!

[nereo]

I guess some of my concerns would be:

• I have no idea what our tax bracket will be when we retire in 20-25 years? How do you begin to estimage that?
• I originally started the Roth to balance our retirement portfolio - DH's 401K is taxable upon withdrawl and he's pretty aggressive with his choices while our Roths withdrawls will not be taxable (after age 59.5) and are in a more moderate, target-based plan.  If we switch to IRAs, then all retirement funds will be taxable upon withdrawl.
• After my research it looks like one of the reasons we have a Roth is not correct - we thought we could withdraw our contributions (not the earnings but just our contributions) at any time (after the 5 year period) without a penalty.  But it looks like it needs to be for specific reasons like a first house, disabled, reach the age of 59.5, etc.
• I'm assuming "modified AGI" is the same as "AGI" on line 37 of tax form 1040.  If that's the case, then in a few years, I think we would be getting close to the $98K cutoff for the Traditional to be fully deductible.  We had an AGI of $62K last year but DH got a $20K bump in salary this year.  If he gets bonus and raises in the future, we would exceed that cutoff eventually.

good questions.  here are my partial answers
1) I'd suggest simply using your anticipated spending to estimate taxes in your retirement, using current tax laws (i.e. estimate how much in taxes you would pay today if you were retired and needed $X per year).  Changes in the tax code are obviously the big unknown here, but you can assume you'd pay 0% in taxes from any ROTH disbursements, and normal taxes on other accounts.  With investments you will largely be paying taxes on capitol gains.  Factoring in the standard deductions your taxes are likely to be extremely low - from what I've seen 5-10% is common among mustachians in ER
2 & 3)you can withdraw contributions, just keep documentation.  This is also the crux of the "ROTH-ladder strategy"  In brief, once you retire and no longer have a high(ish) salary you can convert money from a tIRA/401(k) to your ROTH and pay the appropriate taxes (which will be low, because you without a job you will be paying very low taxes - see #1).  After five years you can withdraw that contribution tax free.  You can do this every year, so the strategy is to convert money each year that you plan to withdraw five years later.  When done right this results in paying the minimum of taxes on tax-advantaged accounts, since you get the tax break when you have high earnings, and then you pay the taxes when you have lower earnings and are in a lower tax bracket.
4)see MDM's answer

best, and keep up the good work

[2ndTimer]

Excellent.  Isn't it amazing the number of places you find to save a little when you start thinking about it.