Author Topic: Joined the 1% but hemorrhaging money in a high cost area  (Read 12397 times)

ariesonthecusp

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Joined the 1% but hemorrhaging money in a high cost area
« on: June 24, 2012, 03:13:11 PM »
Hello all, so here is the deal:

 I'm a 34 yr old guy, and I recently joined the 1% (the lower 1%), but I'm not saving alot because I live in a high cost area (Washington DC).

I have my own software business and last year I made about $400,000. The problem is, this area is ridiculously expensive. I have a fiancee (stay at home mom for our 1 yr old) and we live in a 2 bed apt. The rent with utilities is about $3K a month. I buy a SUV over 6000 lbs every year to deduct $25k from my taxes, so its $550/month. We spend about $3-5k a month on food, baby stuff, etc on my credit card. I've tried to get our monthly expenses down but a baby is really expensive ! We eat a vegetarian diet the majority of the time, so its very expensive (Whole Foods, Trader Joes costs about $1k a month)

So I'm spending about $7k a month total (though if you average out my taxes on a per month basis, that adds about $8k more per month).


I've run my business for a number of years so I've saved some money.

I have no debt (pay my credit card bill in full every month), so its really just my monthly expenses eating away at my income. I can sell my car at any time, so I'm not worried about that.

I have about $750,000 in cash sitting in various high yield savings accounts (1% APR), though thats getting eaten away by inflation, so its killing me watching that money just sit there. I know I should invest it in some index,mutual or bond funds but I havent had the time to research which ones would be best.

I've thought of buying a house, but just to get a crappy house in the city is about $500k to $700k and we're not sure we want to stay in this area. However, it would be easy to rent a house out in this area.

I've been thinking about moving to a state with no income tax (eg: Florida, Texas, Washington, etc) so that would save me $25K per year in taxes and have a lower cost of living but I'm reluctant to move anywhere that far (with my family) since I'm not sure if its worth it. If I moved to Austin, TX for example, bought a $250K house in cash, then I'd save over $5k a month (no rent, no state taxes). The only problem is, I've never been to Austin and dont know if we'd like it, so I'm reluctant to become anchored to a house in some place we may dislike after a year or three.

I've thought about pulling a MMM and just buying a cheap house in Colorado (we love it there) and just living off my savings for 10-15 yrs while I work on other software projects to sell, but I dont know if thats the best course of action.

Thoughts, advice ?
« Last Edit: June 24, 2012, 03:17:18 PM by ariesonthecusp »

JR

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #1 on: June 24, 2012, 03:45:12 PM »
Can you operate your business from anywhere in the country?  You don't have to pick one location and be stuck with it.  Why not try renting in a new location without jumping into a house right away?

arebelspy

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #2 on: June 24, 2012, 03:49:22 PM »
You're spending 7k/mo... what are you saving each month?

You said you made 400k last year, and spent 8k/mo counting taxes (how ridiculously low is your tax rate?) which = 96,000 spending.  So you saved 300k last year?

A detailed breakdown of your spending might help us come up with suggestions to curb some of that.

As far as investing, I'd KISS if I were you: start value cost averaging that 750k cash into a Vanguard index fund for the total stock market.  Do it in 3 index funds (stocks, bonds, and real estate) if you want to get fancy (at an AA of 60/25/15, IMO, but that can be tweaked).

At a 4% SWR for 8k/mo, you'd need about 2.4MM stached.  If you have 750k, you should be able to hit that in about 4 years, if you are saving 300k/yr.

Of course, the way your money is invested (or rather isn't), a 4% SWR isn't realistic.
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smedleyb

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #3 on: June 24, 2012, 04:14:09 PM »
The OP spends 15k total a month -- 7k living, 8k taxes.  That leaves a little over 200K a year for savings.

ariesonthecusp

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #4 on: June 24, 2012, 04:19:40 PM »
JR:
I can work from anywhere but I prefer the East coast so I dont have to wake up at 6am to talk to clients (if I was on the west coast). I thought about renting in another city. On the east coast, the cost of living is still high near most cities with a high walkable score (eg: Miami Beach, NYC, etc). My fiancee doesnt want to move somewhere, where we have to drive to do anything, though she said she will if thats really needed.

aRebelSpy:

I average about $20K/month in income but it can go as high as $30-35K some months. Last year I had alot of deductions (business expenses), so I was able to get my tax rate down. I saved about $200K last year though (after taxes, business expenses, etc).

Monthly income: $20K

Monthly spending:
  Car: $550
  Rent: $3000
  Credit Card: $3000 to $5000
  Health/Auto Insurance: $600 (for 3 ppl)

Also, I should say, I havent really saved anything this year, as I had huge tax bill from last year. It feels like I'm spinning my financial wheels in the last few months, not going anywhere.
 
EDIT:
smedleyb: Good job with your estimates !
« Last Edit: June 24, 2012, 04:24:22 PM by ariesonthecusp »

gooki

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #5 on: June 24, 2012, 04:34:43 PM »
We spend about $3-5k a month on food, baby stuff, etc on my credit card. I've tried to get our monthly expenses down but a baby is really expensive!

Thoughts, advice ?

You seem serious about cutting down expenses so here goes, other than the loss of one income babies are only as expensive as you make them. You baby doesn't want stuff. The essentials (food, clothing), can be had in good quality for very little. Our child costs us $40-$50 a week on average, and she's verging on spoilt (lots of books, more than enough toys to play with), all natural clothing (wool, and cotton), swimming once a week etc.

Looking at your expense list, your insurance seems insanely high, especially considering you are not a home-owner, and still young. And obviously spending on credit cards is high, and so's your rent(but you are well aware of this). You get a good tax break on the car, but how much is it costing you in additional expenses (insurance, gas, depreciation)

So my recommendations.

1. Start investing the $750,000 through dollar cost averaging (as mentioned earlier), I'd be looking at a rate of $10,000 per week to be moved across into investments.

2. Talk with your wife and make a medium term plan, while also considering you long term plans.
- How much do you want to keep working.
- Where do you want to live.
- What lifestyle do you want to lead, and how will you cover the expenses?
- How many children do your want to have.
- Does you wife want to return to work
- Etc etc.

It'll be a good start so you can begin to cost up your options, and compare them to your current situation.
« Last Edit: June 24, 2012, 04:39:59 PM by gooki »

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #6 on: June 24, 2012, 05:39:19 PM »
A quick and simple search of dc.craigslist.org revealed many 2bd apartments and condos over 1000sqft in the DC area for anywhere from $900 to $2000 per month, like this one http://washingtondc.craigslist.org/nva/apa/3098826502.html in Arlington, which looks pretty freakin nice for $900. How much of that $3k you're spending on your apartment is rent and how much is utilities? Either way it sounds like you're way overpaying for your living quarters. And it sounds like you don't need to be "in the city" because you can work from anywhere, so paying a premium price for a location that doesn't deliver you any value doesn't make sense.

You also don't need to buy a house to move somewhere cheaper. You can rent while you decide if you like it or not. Which also gives you time to search for a house if you decide you want to buy. So why are you living in one of the country's most expensive cities, if your job doesn't require it?

It also sounds like you spend way too much money on groceries and stuff, but I don't know what food prices are like there. But I will say that if you use a little effort, eating vegetarian should be cheaper than eating meat. Meat is way more expensive an plant food, if you buy ingredients and cook. If you buy super-organic textured soy products or whatever for every meal instead of actual food, then yeah, it gets pretty pricey.

How does that tax credit actually save you $25k a year? Do you actually pay that much less in taxes just for buying a large vehicle? Or do you mean that your taxable income is reduced by $25k? Because there's a big difference... And if it's the latter, then why are you spending $25k to save maybe $6k on taxes (since I calculate your tax rate at 24% from the information you've given) when you could just get a small, cheap car in the first place and save about $20k with much less hassle?

Lastly, get your money the hell out of savings accounts that are yielding less than inflation. Seriously, if anything is "hemorrhaging money" it's leaving all those employees doing less than nothing for years on end. If I had $750k sitting around I sure as hell wouldn't be working full time, I can tell you that much--I'd be letting my money do it for me.

Miyazaki

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #7 on: June 24, 2012, 06:57:01 PM »
Because of your high income, even though you are spending so much, you are still saving around 50%, which is not a bad savings rate. Still, you need to consider the "what if" situation of what if you lost your job. It would be pretty tough to maintain your standard of living.

One thing I can't believe no-one's picked up on yet is, why are you buying a new SUV yearly, if your wife is actually *against* being out of walking distance of anything? Regardless of the tax deduction, that's just wasteful.

Since you're so motivated to cut your expenses, please think very carefully about the next sentence. I live in a high cost area, but your monthly expenses are about the same as my yearly expenses.

arebelspy

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #8 on: June 24, 2012, 07:06:46 PM »
The OP spends 15k total a month -- 7k living, 8k taxes.  That leaves a little over 200K a year for savings.

Okay, so 15k/mo as spending, and 33.33k/mo income (400k/yr), that's a 55% savings rate.

Using this site: http://networthify.com/earlyretirement based on this MMM post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

And the following assumptions: 55% savings rate, 400k annual income, 750k portfolio, 6% annual return, 4% SWR

Gives a time to retirement of 10 years.  That's if you invest your portfolio.  At its current 1% rate, you're looking at more like 15 (but really more, because a 4% SWR isn't sustainable with a 1% investment, you'd need more like a 2% SWR, which puts you at another 30 years of working).  So getting that money invested is huge.

Beyond that, cutting expenses will be huge.  Especially if you downgrade to a lower COL place before or after ER.  Start tracking those expenses more closely.  If you could cut 2k/mo off your spending, your savings rate becomes 61%, and your time to retirement becomes (assuming you invest the portfolio) 8 years.
« Last Edit: June 24, 2012, 07:08:46 PM by arebelspy »
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Bakari

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #9 on: June 24, 2012, 07:46:54 PM »
How does that tax credit actually save you $25k a year? Do you actually pay that much less in taxes just for buying a large vehicle? Or do you mean that your taxable income is reduced by $25k? Because there's a big difference... And if it's the latter, then why are you spending $25k to save maybe $6k on taxes (since I calculate your tax rate at 24% from the information you've given) when you could just get a small, cheap car in the first place and save about $20k with much less hassle?

This.
Seems to be a super common mistake.  Tax deductions of $x don't mean you pay $x less. 

Also, what are you doing with the old SUVs?
It sounds like (deliberate or not) you are cheating on your taxes. 
If you are selling the old ones, you would have to count the sale price as income. 
If you are collecting them, then you already have a business vehicle, and you can't justify another one as a business expense. 
Actually, if you work in software, you can't justify even a single over 6000lb truck as a business expense.  I wouldn't push your luck as far an not being audited.

Bakari

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #10 on: June 24, 2012, 07:52:56 PM »
It also sounds like you spend way too much money on groceries and stuff, but I don't know what food prices are like there. But I will say that if you use a little effort, eating vegetarian should be cheaper than eating meat. Meat is way more expensive an plant food, if you buy ingredients and cook. If you buy super-organic textured soy products or whatever for every meal instead of actual food, then yeah, it gets pretty pricey.

I've been vegetarian all my life.  And I don't really like to cook.
My average monthly spending on food (including groceries and eating out) is slightly over $100.
I even buy some textured soy products, and organic eggs and milk.  But I try to avoid prepared prepackaged meals, and I never shop at Whole Paycheck Food or Trader Joe's. You are mostly paying for brand name at those places.  These days even FoodMax / Food 4 Less / Grocery Outlet stock organic and vegetarian food. 

velocistar237

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #11 on: June 24, 2012, 08:04:01 PM »
Just searched and read about the heavy vehicle tax loophole. Vehicles over 6000 lb used exclusively for business can be written off 100% in the first year of ownership. In the 33% tax bracket, this would be a tax savings of $8250 on a $25K vehicle, but the first year cost of ownership on this kind of vehicle is around $15K-$20K, so it's not worth it unless you would pay at least $7K-$12K/year on a vehicle anyway.

Curious, what is it about your current apartment that made you willing to pay $3000/month for it, and what makes it so expensive? Is there an elevator in the building? Luxury amenities?

jawisco

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #12 on: June 24, 2012, 08:20:44 PM »
With that amount of earning power, you have lots of options to put yourself in any position you want to be in....

Want to move and retire early, live simply, you are already there...

Find some help financially - open a solo 401K and put 49K into tax-deferred account with good investment options.  Get your cash working for you soon. 

I was in a similar situation to you - self employed, making a lot of money (I was making 1/2 as much as you), and I told myself that I was too busy to get the savings invested properly, and that I would do it when things cooled down.  BIG MISTAKE.  Even if you need to pay for reasonably competent advice, do it tomorrow and start enjoyed the beauty of compounding...

You are in a really good place, just make progress in getting your spending under control and invest your money wisely and you have it made. 

Devils Advocate

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #13 on: June 24, 2012, 08:53:15 PM »
Dude,

Get your cash into low cost index funds. 

Spend a few days researching bogleheads wiki.  This is not rocket science.

Congrats on the income.  Your expenditures seem high, but you can afford it. Sounds like you can reduce your expenses and if I were you I would.  It is easier now to avoid lifestyle creep than in a few years when your "wife" has lived the cushy life so long. 

DA

ariesonthecusp

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #14 on: June 25, 2012, 01:33:54 AM »
Thanks for the replies.

I pay so much for our apartment because its not a small box without any windows, its walkable to everything in the city and in a great location. I owned a house in the past in the suburbs and it sucked really bad to be near nothing but fast food places that I had to drive to. Yes, there are cheaper places, but they arent walkable or nice. I'm definitely considering some of the options posted here.

The SUV is a pain so I plan on not buying a new one again. I actually pay only about $6500/yr + gas/insurance for it. My accountant also would disagree with Bakari :-)

Miyazaki: Thanks for the info. Thats pretty insane that I'm paying monthly what you pay yearly. I'm definitely going to change the situation in the next 2 months

ARebelSpy & Jawisco & DevilsAdvocate: I will take your advice and start investing very soon to start compounding !

Bakari

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #15 on: June 25, 2012, 07:25:52 AM »
I'll admit to not being an accountant;
read the text direct from the IRS:

"Exceptions:
Qualified property does not include:
Property placed in service and disposed of in the same tax year;
Property converted from business or income-producing use to personal use in the same tax year it is acquired;"

"If you used listed property more than 50% in a qualified business use in the year you placed the property in service, and used it 50% or less in a later year, you may have to include as income part of the depreciation deducted in prior years."

"5-year property includes:
    Automobiles.
    Light general purpose trucks."

"For automobiles and other vehicles, determine this percentage by dividing the number of miles the vehicle is driven for trade or business purposes or for the production of income during the year (not to include any commuting mileage) by the total number of miles the vehicle is driven for all purposes"

"A policy statement that prohibits personal use (except for commuting) is not available if the commuting employee is an officer, director, or 1% or more owner."

"A truck or van is a qualified nonpersonal use vehicle only if it has been specially modified with the result that it is not likely to be used more than a de minimis amount for personal purposes. For example, a van that has only a front bench for seating, in which permanent shelving has been installed, that constantly carries merchandise or equipment, and that has been specially painted with advertising or the company's name, is a vehicle not likely to be used more than a de minimis amount for personal purposes. "
http://www.irs.gov/instructions/i4562/ch02.html#d0e3005

"If you traded in your vehicle, you basis is the adjusted basis of the old  vehicle plus any additional amount you paid for the new vehicle"

Example:
Cost inc. taxes...................$25,000
Adjusted basis of trade-in... -$3,000
Section 179 Basis.............$22,000"

http://www.section179.org/2011_Instructions_for_Form_2106.pdf

I could be reading all this wrong, but I don't really see a way of interpreting all that which would allow you to buy a new SUV every year and deduct the full amount without acknowledging the existence of the one you bought the previous year.  Unless you are collecting them all in a garage somewhere, and rotate through which one you use (for non-commuting business purposes).   
I have seen accountants be overly generous with their clients (overly as in technically illegal) before, and the IRS still gives you the fine, not the accountant, so personally, I feel better reading the text myself than trusting a "professional"

Jamesqf

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #16 on: June 25, 2012, 10:59:48 AM »
The SUV is a pain so I plan on not buying a new one again. I actually pay only about $6500/yr + gas/insurance for it. My accountant also would disagree with Bakari :-)

Humm...  Is your accountant promising to cough up back taxes plus penalties & interest when you get audited?

I also like the way you casually say "only about $6500/yr" for the SUV.  Now I'm also in software, making a decent living (not quite your $400K, but I don't want to work that hard), and I've only ever paid over $6500 TOTAL for one vehicle - the Honda Insight that cost me $8500, which I've had for 8 or 9 years now.

I'd also suggest seriously thinking about moving out of your high-cost urban area entirely.  It seems you do all your business online or by phone, so why pay the costs & suffer the discomforts of living in a major urban area?

AmbystomaOpacum

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #17 on: June 25, 2012, 12:30:21 PM »
What is your goal? You ask for thoughts and advice. I can give you the former, but no one can give you the latter unless they know what you're trying to achieve. Your savings are already enough to support Mr. Money Mustache's lifestyle indefinitely. But on the other hand, they're pocket change to someone like Buffet or Gates. What do *you* want?

(Also, what makes up the $3-5k on the credit card each month?)

As for thoughts, just something you already know. The median income in the U.S. is around $50k / year. The personal income per capita in DC is $55k / year. If you are spending more than that, then it's because you're getting something more than median. You perpetually drive a brand new car. You buy food from premium grocery stores. You have the flexibility to make decisions like whether or not to move somewhere you might not like in a year, leaving you to move again. You live a walkable distance from interesting things. You live in a nice apartment.

I'm not saying you should feel bad about these things. Far from it. I'm just saying that you are getting something for your money, and if you want to save more money, you have to be willing to get less.

But none of this means anything without knowing your goal.

tannybrown

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #18 on: June 25, 2012, 12:36:50 PM »
ariesonthecusp, welcome to the forum!  I know sometimes the new guys get put through the ringer a bit, but it comes from a good place. :)

Like others have said, I'd consider putting a lot of that $750k in index funds over time.  Getting your monthly expenses down has a two-fold benefit, as it increases your savings rate and simultaneously lowers the 'stash' you'd need to be financially independent.

Just those two things should take care of just about everything. Congrats on the great income and enviable stash!

billc

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #19 on: June 25, 2012, 01:50:38 PM »
Concerning the cost of living in this area - I concur that particularly for housing it's expensive.

If you'd consider a smaller city you'll likely do better. Baltimore, Pittsburgh, and Richmond jump to mind. There are neighborhoods in these cities with excellent walk scores. Of course, they are probably bus cities and not metro/subway cities.

I grabbed the top 300 walkscore neighborhoods and put them in a spreadsheet (see attached). I did this quickly, so there might be a mistake or two, but you can sort by neighborhood, city, state, time zone, income tax, and walkscore.

You could take this sheet and add some median rent costs for each neighborhood to come up with a short list.

I believe I read some where they're doing a beta for bike score - so you could add that too.

I think this list is likely overlooking some solid choices, but you have to start somewhere.

You may also want to consider any corporate taxes by state depending on how your business is set up.


My wife and I make $170k total - we live in Old Town Alexandria and rent for $2,000/mo. We save roughly 50% of our take home.

Good luck.
« Last Edit: June 25, 2012, 01:52:38 PM by billc »

mm1970

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #20 on: June 25, 2012, 03:41:59 PM »
Thanks for the replies.

I pay so much for our apartment because its not a small box without any windows, its walkable to everything in the city and in a great location. I owned a house in the past in the suburbs and it sucked really bad to be near nothing but fast food places that I had to drive to. Yes, there are cheaper places, but they arent walkable or nice. I'm definitely considering some of the options posted here.
I can't speak for the DC of today, but I did live in DC area in the 90's.  I took a quick peek at Craigslist, and you could save money if you were willing to go to No VA, but not a huge amount (as in, not down to $900/month).

There were some 2BR apts that were reasonably priced, but those that looked to be in the areas that I would consider to be safe (again, in the 90's) and near a metro were on the order of $2250 and up per month.  I was paying $813/month in 1997 for a studio in Pentagon City/Arlington.

I do think your food costs are pretty crazy though.

ariesonthecusp

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #21 on: June 25, 2012, 10:35:17 PM »
@Jamesqf:  I have a newborn, fiancee , and dog with a crate we transport him in. I'd love to have a smaller car, but it isnt feasible with our situation as we have to fit in a car seat and dog crate when we go places frequently. I'm definitely downgrading to a used non-luxury car in the next 2 months and not buying a car again for a long time hopefully

@AmbystomaOpacum: My goal is to not have to work so I can spend more time with my son and wife. Lifes so short, I want to be there as much as possible for them. The credit card bill annoys me to no end, because its tons of little things that add up to a big bill, so its hard to say we'll cut out one thing. For example, $1k/month for food, $400/month at restaurants, then tons of little charges, like $200 for cotton diapers + inserts (son's allergic to Pampers), $300 vet bill for dog (one time random bill), $100 prescription meds for fiancee, etc. It adds up after 80 or so little charges. Every month I look at it and am like, how the hell does this happen every month. Argh !  You make a really good point though, there is definitely something we get for it. My fiancee has said she is willing also to do with less so we can reach our goal. Also, DC has the top 10 of the 15 richest counties in the US ! No wonder everything is so expensive.  http://www.wtop.com/41/2746965/10-of-top-15-richest-counties-are-in-DC-suburbs

@tannybrown: Thanks ! I appreciate all the responses thus far. You all are really awesome here !

@billc: Thanks for the spreadsheet ! You rock. I will modify and start adding data to it. Thats a pretty high savings rate, you all dont get killed on your taxes ?

We are moving in 2 months, so I'm looking for a nice 3 bedroom place (need a home office and bedroom for my son) in an area that wont cost a fortune. I also consider the cost of living here by adding in state taxes. So if I'm paying $3k in rent or mortgage, and pay 5% in state taxes, thats adding $1666 per month to my expenses just to live in this state. I dont really see a solution because almost any city thats walkable with educated people will cost alot to live in. I guess we'll have to decide which is more important. My fiancee would not live in Richmond , Baltimore or Pittsburgh unfortunately, she has worked in 2 of those cities and had bad experiences. I'm trying to find a nice city in Florida thats inexpensive, but Miami seems to be the best option (walkable, somewhat educated, no state income tax), but its expensive :-/
« Last Edit: June 25, 2012, 10:43:56 PM by ariesonthecusp »

Jamesqf

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #22 on: June 25, 2012, 11:13:43 PM »
@Jamesqf:  I have a newborn, fiancee , and dog with a crate we transport him in. I'd love to have a smaller car, but it isnt feasible with our situation as we have to fit in a car seat and dog crate when we go places frequently.

Wasn't really the point I was trying to make, but I do think you could re-think just what is feasible.  I do manage two mid-size (~65 lbs) dogs in the Insight (and could manage a moderately-sized fiancee as well, if I had one), and I think something like a Honda Fit would fit fiancee, car seat, and crate with no problem.

Quote
I'm definitely downgrading to a used non-luxury car in the next 2 months and not buying a car again for a long time hopefully.

Now that was my point: that there's nothing inherently wrong with buying a decent used car, and keeping it for 5-10 years.  Even if it is a large, uneconomical vehicle, you'll save plenty.

On the rest, vet bills are understandable.  Just be glad you don't have a horse :-)  You could do quite a bit with food, I think.  Certainly the restaurants: do you really like eating out, or is it something you do because it's the done thing?  As for eating at home, remember that expensive is not necessarily good, either for taste or nutrition.

AmbystomaOpacum

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #23 on: June 26, 2012, 07:55:00 AM »
My goal is to not have to work so I can spend more time with my son and wife. Lifes so short, I want to be there as much as possible for them.

You should probably start by calculating how much you need to retire. Figure out how much you will be spending post-retirement each year and multiply by 25 to get a rough number (see: http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ ). Take into consideration that when you stop making an income (or as much of an income), you'll pay a lot less in taxes. If you intend to make any passive or side income during retirement, you can subtract that from annual spending before multiplying.

(This also means, of course, that every dollar spent per month is another 300 dollars you'll need to retire. So your $400 / month on restaurants is another $120,000 needed for retirement.)

(This of course also assumes your money is somewhere useful, not just savings accounts.)

The credit card bill annoys me to no end, because its tons of little things that add up to a big bill, so its hard to say we'll cut out one thing. For example, $1k/month for food, $400/month at restaurants, then tons of little charges, like $200 for cotton diapers + inserts (son's allergic to Pampers), $300 vet bill for dog (one time random bill), $100 prescription meds for fiancee, etc. It adds up after 80 or so little charges. Every month I look at it and am like, how the hell does this happen every month.

You might just need to take more time to shop around and experiment with buying some lower price things to see if you really miss the difference.

Amazon sells several types of hypoallergenic diapers for around $0.20-0.30 per diaper.

A pound of beans, even at whole foods, costs around $3. A vegetarian diet can be very cheap (I'm not saying eat nothing but beans, but if you cook your own food and stay away from convenience products like faux meat products and frozen foods and such, you can save a ton; my wife and I eat mostly vegetarian, shop mostly Whole Foods and only spend $400/month on groceries.)

Pizza and burgers can give you a night out without costing nearly as much as nicer restaurants.

Do you track all your expenses? If not, it's a great way to get a sense of whether you're really getting your money's worth for your spending. Just keep a list of every purchase and how much it cost. Then go through each month and put a yes/no whether you feel it was worth the money. And for each expense over say, $20, search a little to see if there's a cheaper version. If there is, try it at least once to see if it works for you.

grantmeaname

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #24 on: June 26, 2012, 08:40:13 AM »
The credit card bill annoys me to no end, because its tons of little things that add up to a big bill, so its hard to say we'll cut out one thing. For example, $1k/month for food, $400/month at restaurants, then tons of little charges, like $200 for cotton diapers + inserts (son's allergic to Pampers), $300 vet bill for dog (one time random bill), $100 prescription meds for fiancee, etc. It adds up after 80 or so little charges. Every month I look at it and am like, how the hell does this happen every month. Argh!
If you're frustrated with how much you're spending, tracking is your friend. Sign up for Mint, or do it manually. When you know where the money is going, you will have specific things you can aim to cut. Out of that list specifically, you could get reusable cloth diapers and look at ways to eat out less and cheaply, but that's not the point. The point is, the actual data about what you're spending your money on will empower you to actually deal with it if you choose.

Edit: quote tag got messed up, oops.
Quote
Also, DC has the top 10 of the 15 richest counties in the US ! No wonder everything is so expensive... My fiancee would not live in Richmond , Baltimore or Pittsburgh unfortunately, she has worked in 2 of those cities and had bad experiences. I'm trying to find a nice city in Florida thats inexpensive, but Miami seems to be the best option (walkable, somewhat educated, no state income tax), but its expensive :-/
Even though DC is expensive, as others have pointed out, you're spending way more than your peers. Likewise, the point wasn't that Richmond, Baltimore, and Pittsburgh are good choices for you, the point was that if you were to keep your values consistent but widen your specific parameters, you could find a lot more options. Here in Ohio alone, Cleveland, Cincinnati, Columbus,  and Dayton all fit your criteria, as well as thirty little college towns. If education and walkability are your top choices you could also be well-served by almost any little college town in the country! Think about what you really value, then get creative about ways to meet those goals. Are there any places in the United States other than Miami that are affordable, walkable, and educated? Of course there are! Go find some!
« Last Edit: June 26, 2012, 12:55:32 PM by grantmeaname »

billc

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #25 on: June 26, 2012, 12:44:13 PM »
@billc: Thanks for the spreadsheet ! You rock. I will modify and start adding data to it. Thats a pretty high savings rate, you all dont get killed on your taxes ?

We are moving in 2 months, so I'm looking for a nice 3 bedroom place (need a home office and bedroom for my son) in an area that wont cost a fortune. I also consider the cost of living here by adding in state taxes. So if I'm paying $3k in rent or mortgage, and pay 5% in state taxes, thats adding $1666 per month to my expenses just to live in this state. I dont really see a solution because almost any city thats walkable with educated people will cost alot to live in. I guess we'll have to decide which is more important. My fiancee would not live in Richmond , Baltimore or Pittsburgh unfortunately, she has worked in 2 of those cities and had bad experiences. I'm trying to find a nice city in Florida thats inexpensive, but Miami seems to be the best option (walkable, somewhat educated, no state income tax), but its expensive :-/


We pay a lot in taxes. I don't know if that means we're getting killed. We look at it as we're fortunate to have high income at an early age. By keeping our expenses low-ish and saving up as much as we can in this high cost area we will be able to move to a less costly area and benefit from our savings working for us.

Personally I don't do much in the way of stocks - I prefer investing in rental real estate, but that's me. A solid stock portfolio is a perfectly reasonably way to get sound returns on your savings. Keeping it in the bank is not.

___

As others have suggested you need to start with determining what's important to you and your family. From those priorities start thinking about what type of lifestyle best matches them. Unless you plan to keep separate finances (and maybe live in separate cities!) this is a joint decision between you and your future wife.

The money and the mechanics of making it all happen are not that difficult.

If you want your proceeds from investments to cover your expenditures (the reason you're probably on this board) then you should start with your expenditures. How much do you plan on spending to achieve the desired lifestyle? Let's say it's $75,000 (roughly triple the MMM budget and 10 times Jacob over at ERE). You'll likely require something like $1.875M in investible assets to yield $75k/year (4% SWR). You could get there in less than 5 years most likely given your current stache and income. This is not an unreasonable choice to make, but you should certainly keep in mind that this is a massive amount of spending and you're living a super fancy lifestyle.

If you wanted to live the MMM lifestyle you could potentially retire within 6 months.

___

It's going to be really important for your fiancee to be on board with all of this. It's certainly ok to not want to live in a given city, but an open mind is very important in achieving financial independence.

travelbug

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #26 on: June 26, 2012, 06:31:28 PM »
We have been in a similar situation and really, really knuckled down to spend as little as we could with still having a great fun, yet simple, lifestyle.
We axed the food bill, the eating out bill, stopped buying stuff (as you really truly have enough already), and just kept focused on what really matters.
That is the time to be FI while we are still young; to travel and enjoy each other and our children.
No widget or meal on the planet can be better than our goal.
So it was easy once we had settled into that mind set.
But it is most definately a mind set that you and your partner have to be agreed on. It will not work with only one partner on board.
I wont post about what I think you should do and where you can cut your budget as you truly know that yourself and many PPers have explained that well.
All I can add is to follow your heart, it will not be the easy road, it will challenge you and everything you are and will become.
But you will be true to yourself andnin the end you will have that freedom you crave.
We have 12 more months to go, we are on a similar income, may a bit more than you, and have no debt. We want a reasonable slush fund as travel is important to us.
Good luck.
C

NICE!

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #27 on: June 27, 2012, 07:56:52 AM »
Hi 1%!

I also live in the DC metro area so I feel like I'm uniquely suited to giving you a take on this matter. You have options that will not cost you $3k...If you're spending that much I believe you're probably living in either one of the nicer areas in the District (Georgetown, Dupont, Penn Quarter, McPherson, Farragut, Logan, etc), Arlington (Clarendon), Bethesda, or Alexandria (Old Town). There are other options which are walkable if you don't believe you HAVE to live in the absolute nicest 1% type areas.

- Prince George's County (I lived near the Branch Ave metro for a year in a 2 bed apt for $1600/month, utilities ran $160ish and I had ridiculous cable. Probably not as walkable as you want and many people have their own, mostly stereotyped opinions of PG County)
- Alexandria (but NOT Old Town). Near the Huntington metro station (high-rise condo there for the low $2ks + tons of decent duplexes for well under $2k - look towards the N Kings Hwy side to avoid some of the not-as-nice areas) or Braddock Road metro station.
- Arlington (some places in Pentagon City/Crystal City are actually reasonable).
- Falls Church (would have to be near the metro to achieve walkability).

Avoid Dupont, avoid Penn Quarter, avoid the tourist areas. Hang out in Capitol Hill, U Street, Columbia Heights, Foggy Bottom. Maybe even live there.

The Trader Joe's in Alexandria has pretty reasonable prices as far as I'm concerned, can't speak for the ones in Clarendon, Bailey's Crossroads or the District. My girlfriend subsisted on a $34k/year income in Ballston with $700/mo rent (roommates) by eating a vegetarian diet from there and Giant. She spent about $20/week...She didn't have a family but the point remains - I don't see how you couldn't cut that bill in half.

I'm open to grabbing a beer/soda/water sometime if you want some help talking through your options in the area.

mm1970

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #28 on: June 27, 2012, 08:30:03 AM »
NICE has some good points, especially on location. It's good to see there are still decent places to live in Pentagon City.  I lived at the Bennington.  Ah, good times, and very walkable.  I walked to work, about a mile south.

Quote
For example, $1k/month for food, $400/month at restaurants, then tons of little charges, like $200 for cotton diapers + inserts (son's allergic to Pampers), $300 vet bill for dog (one time random bill), $100 prescription meds for fiancee, etc. It adds up after 80 or so little charges. Every month I look at it and am like, how the hell does this happen every month.

I just went through this yesterday.  I generally don't look at the credit card bill too much.  It's mostly my husband who does, and it's mostly the same every month.  It was pretty high this time, and I'm on maternity leave, so I have time to look now. 

The $400 for restaurants is pretty high.  Back in the day, we used to spend that much.  It took a lot of work and practice, but we got it down.  It seemed to me that we had a lot of restaurants on this month's bill, but it was really only $143 when I added it all up.  I still think that $1000 a month for food is pretty high.  YOu can cut that back gradually pretty easily.  But maybe not so much with a newborn infant.  And the cloth diapers - is that what you were saying - did you buy the cloth/reusables, or are you buying cotton disposables?  It's not clear.  But that's an area where you can save.

The medical bills is what hit us this month, it turns out.  $185 for acupuncture and $180 for new glasses.  That and Home Depot, as my husband is doing some home renos.

When it comes to the credit card bills, I have two methods:
1.  Look at every charge, and figure out if it's needed.
2.  Stop going out.  Really, just deciding to not shop or have "no spend" days can make a huge difference. In the end, there is very little that I can live without.

James

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #29 on: June 27, 2012, 09:39:55 AM »
My income is half yours but 3 years ago my credit card spending was similar to yours.  I think the key is definitely to know what you are spending and for what.  Actually look at every individual expenditure at some other point than the initial purchase.  That can be reviewing in Mint, going line by line through the cc statement, keeping receipts and going through them once a week, keeping a notebook and writing every expenditure down and reviewing the ledger from time to time, whatever works for you.


For us the knowledge of what we were spending (and knowing we would look at purchases later and not just ignore them) worked better than our budget.  The other key is to keep yourself thinking about these things.  I highly suggest finding a good roundup of blogs to read, and follow the threads in a forum like this.  Most of the information isn't really new, it's just put in different ways and applied to different circumstances, but just keeping those ideas in front of you keeps you on the path you wanted to be on.

elincolnp

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #30 on: July 10, 2012, 05:58:31 AM »
My goal is to not have to work so I can spend more time with my son and wife.

If that really is your goal, I think you have your answer. A lot of responses have made it clear that it's possible to live in a high cost area for a lot less then you're currently spending. I live in Boston, eat organic food, and just by eating simpler meals, have managed to cut my grocery bill in half.

Maybe you and your wife need to sit down and make a list of everything you would give up to spend every day with your child. I don't know about you, but I would give up just about anything, and often that helps me make the hard decision about a new expense/purchase.

It's all about choices - frugality with expenses/groceries may allow you to stay in your nice apartment. A new cheaper city may allow you to keep splurging on expenses/groceries. A cheaper apartment farther from the city may allow you to stay in DC, and keep some of those splurges. I think there's a lot of potential here to build the life you want. Good luck!

bogart

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #31 on: July 10, 2012, 08:44:20 AM »
@Jamesqf:  I have a newborn, fiancee , and dog with a crate we transport him in. I'd love to have a smaller car, but it isnt feasible with our situation as we have to fit in a car seat and dog crate when we go places frequently. I'm definitely downgrading to a used non-luxury car in the next 2 months and not buying a car again for a long time hopefully

I can fit my son (now 5, still in a 5-point harness carseat), my DH, and my 2 ~65 lb dogs, one in this crate:  http://www.petsmart.com/product/index.jsp?productId=3195394&lmdn=Brand , size large, in my Pontiac Vibe.  Doing it that way (with both dogs) does necessitate putting 1/2 the back seat down so the crate sits (partially) next to my son, something you might or might not be comfortable with (I do secure the crate), but if I didn't have two dogs, I could easily just put it in the hatchback section.  Both dogs fit loose in the hatchback section fine, but one barks at every human/dog/biker/deer he sees as we go down the street, so the crate helps.

crunchy_mama

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Re: Joined the 1% but hemorrhaging money in a high cost area
« Reply #32 on: July 10, 2012, 08:49:37 AM »
I think you need to be sitting down and having a meeting with your fiancee about your actual goals.  Even in your area there is ton of room to cut back.  Babies and food shouldn't cost $3k anywhere.  If you don't make a plan though you cannot succeed and if you don't start tracking and actually making a budget and sticking to it then you are going to have a hard time meeting those goals.  With that level of income you could still live very comfortably and save a ton of money really decreasing your amount of time you work.