Author Topic: Reader Case Study: Starting the Journey to FI (what to do with savings)  (Read 3117 times)

danb

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Hello all,  I am a new reader, and have read all 2011 & 2012 articles.  As the new year starts and we have changed our spending habits, I am looking for ways to accelerate our FI. Here are the details:

INCOME (Monthly)
Salary   7514
401k Matching 676
hsa employer contribution 97

Deductions
401K 373
Dental 19
Medical 172
Vision 4

Taxes
Federal Holding 758
Social Security 450
Medicare   100
State withholding   515

Net Pay $5086
+ VA Disability: $259
+Bonus: 7000/yr

Wife: Home Business
Income: $1500/mo
10% is tithed
40% put away for taxes (not sure if this is necessary, but it's what she does)
50% $750 goes towards our savings
at the end of the year, any money leftover after taxes will go into our savings. Not sure what this will be, since this is her first year running a business.



Annual Income:
Mine: $61032 + $3000 (VA) + 7k
Wife: $9000
Total: $80032



Current Expenses
Auto Insurance: $160 (Paid through February, will switch to a high deductible plan, covering only human damage)
My Gas: $32
Wifes work gas: $80
Mortgage: 1830 (Property Tax, interest and escrow included)
Payment received on 12/19/14   $1,829.79
Principal   $513.73
Interest   $870.99
Escrow   $445.07
Remaining balance: $278,202.36

Internet: $80
2 cell Phones: $136 (8 months left on contract, plan to switch to pre paid phones)
Power: $172 (Winter Temp: Variable 55 - 57, Summer Temp: 85)
Family Entertainment: $16 (Netflix $8, Google Music $8)
Personal Allowance ME: $200 used for gadgets, eating out, social events...
Personal Allowance WIFE: $200 ^dito
Donations: $500
Groceries: $500 (2 people, 1 animal)
Plant based diet (oatmeal, rice, potatoes, pasta, beans, fruits, vegetables, nuts, seeds)

Savings: $1960
Annual Savings: $23520 +  + 5.2k bonus = $28720

Assets:
2002 Honda Civic (my personal vehicle)
2009 Honda Fit (wifes work vehicle)

Home: Paid $299k, currently estimated at $390k (30 year fixed @ 3.75%)
We have done some work inside that this estimate does not take into account.
Family member built us a new kitchen for $10k
We had central air installed in the winter spent $2K
I think the house could sell for $400+, but i don't want to get it estimated because my property tax will rise
Bikes:
Trek madone: 1899 (summer racer)
Trek DS: 1300 (commuter)
Giant TCR: 1200 (wifes summer racer)

No Debt besides mortgage.

Specific Question:

I am saving close to $2k each month and not sure what the best thing to do with it.
Currently I am taking full advantage of my employer doubling my 4.5% contribution up to 9% on my 401k
I have considered switching to a 15/year loan at 2.9%, but I believe it would be better off to have the freedom to not have the higher mortgage and invest the difference in a low cost index fund that will yield me at least 5% Maybe a vanguard managed payout like the VPGDX?


We also have goals to move to the south in a few years or when the housing market jumps up in our current location so we can make a good profit off our house.
We intend to move to Augusta, where the housing market is very cheap and we can be close to family, pending i can find a source of income there.

We also want to have a child in the near future. My wife plans to home school the kid and we will take full advantage of the MMM's info on the true cost of parenting.

Anyway, I'm just looking for advice on options for this extra money, or advice on any of my goals stated above.

Thanks!


LadyStache

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Re: Reader Case Study: Starting the Journey to FI (what to do with savings)
« Reply #1 on: December 22, 2014, 03:25:55 PM »
Max out your 401k ($18,000 + employer contributions), max out a Roth IRA for yourself ($5,500), and max out a Roth IRA for your wife ($5,500).

neo von retorch

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Re: Reader Case Study: Starting the Journey to FI (what to do with savings)
« Reply #2 on: December 22, 2014, 03:29:54 PM »
This may help: http://www.madfientist.com/triple-income-value/

Basically, get all the tax advantages you can (particularly if you plan on early retirement down the road and can take advantage of a Roth pipeline and/or minimal taxes on a 401k.) Then consider allocation - for example: http://www.bogleheads.org/wiki/Three-fund_portfolio

danb

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Re: Reader Case Study: Starting the Journey to FI (what to do with savings)
« Reply #3 on: December 22, 2014, 03:50:16 PM »
Quick question on maxing out the 401K.  My employer informed me that I can not deposit directly to the 401K, I have to choose a percentage of my salary.  So this year, I am no where near close to 17,500. But for next year, i could configure my contribution to be ~29% ($1500) to reach the max of $18,000 for the year. Is this the best use of money? If so, I will have about $400 left in savings, which I could contribute to a ROTH IRA.  This is a better use of my money then refinancing from a 30 year @3.75 to a 15 year at 2.9% right? since, I will be making more than 3.75% interest in the 401k/roth IRA in the longterm?

BCBiker

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Re: Reader Case Study: Starting the Journey to FI (what to do with savings)
« Reply #4 on: December 22, 2014, 05:05:58 PM »
neogodless,

That Mad Fientist is one of my favorite Blog posts of all time, up there with MMM's Clown Car post and the The True Cost of Commuting.

Scandium

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Re: Reader Case Study: Starting the Journey to FI (what to do with savings)
« Reply #5 on: December 23, 2014, 11:25:21 AM »
You pay $160 per month! for car insurance?! We have never cars and pay $50.. You can (and should) change your coverage right now and lower it. You can also switch and they'll refund a prorated payment.