UPDATED! Case study: blended family, doing okay considering?

[mrsoski]

Take two.  So sorry, fat fingered first attempt. Okay, blended family, want to be FI in about 15 years.  DH and I have been together for 10 years, married 7.  5 kids, ages 15-12.   

Assets:  duplex, used currently as single fam home: 200k
           : 2005 Excursion, 140k, worth not much (maybe 5k, maybe)
           : 1999 Lexus, 140k, worth not much (5k maybe)
           : old travel trailer, worthless except that we use it for camping and vacations, thus priceless
           : 45k 401k
           : 2k in individual stocks
           :13.5k cash

Liabilities:  184k mortgage, 4.75 APR
              :  13k cc debt (facepunch!) (0% apr)
              : 32k student loans (facepunch!) (3.8% apr)
             
Income:  his 8833.33
               -883.33 401k contribution (50 percent matched, total monthly is 1250 or so)
               -415 medical insurance and FSA contributions
               -500 fed, state, local taxes
               -1000 child support
               = 6085.00 net income
             
                 mine:  approx. 2.5k per month after business expenses.

Expenses:  1545.00 PITI mortgage
                   650.00  food
                   150.00 restaurants (facepunch)
                   300.00 gas for cars (facepunch)
                    739.00 minimum monthly debt payments
                   30.00   internet
                   40.00 gym (facepunch)
                   300.00 utilities (facepunch)
                   350.00 other expenses for kids, us (clothing, etc)
                   775.00 sinking funds for annualized expenses (car and life insurances, Christmas, etc)

Total expenses: 4879.00 monthly
Total available income: 10833.00 monthly

Some explanations.  Our savings rate has been totally shitty for the last 10 years as we have been digging out of our respective divorce situations and some job instability, and a number of expenses we literally could not have foreseen, but are now poised to make some serious headway.  We share custody with the other parents, so have the kids roughly 50 percent of the time, hence our grocery bill. There is plenty of fat that could still be cut from expenses, but I am but one of two of the adults in the household and I have negotiated about as well as I can on all that stuff.  We tend to stay pretty cash heavy because my income is variable from month to month:  some months nothing, other months 6k.  It does average out to about 2.5 k monthly.  We are also more comfortable with a heavy cash cushion because, well, we have 5 kids to support. 

Other positives: a husband who can fix damn near anything, a wife who can cook damn near anything, both really hard workers who can put our heads down and get it done, really really good low deductible health insurance through his work, I work from home so my wardrobe is yoga pants and a fleece hoodie, no serious facepunch type habits like lunches out at work.  Kids are relatively happy and healthy. 

The negatives:  One ex likes to make life more difficult than necessary, but not too bad.  The other ex makes up for it pretty well.   My income is variable. 

We are on target to eliminate most of the debt in the next three years or sooner, throwing every penny toward debt.  In 3 years, child support obligation is reduced by 50 percent, and then to zero in three years after that.  The current plan is once the kids are launched (God I hope in 6 years) that we will maybe refinance the duplex, live in the upper half, rent the lower half for approx. 950/month (which is the going rate in this neighborhood), and live "free." Many of our expenses will be significantly reduced at that time as well.   We do not plan to pay for college, but do plan on guiding the kids to appropriate vocations (not everyone is designed for college). 

I anticipate that after the kids launch our expenses will be at the 3k/month mark, with our income at the same or higher rate.  We should be able to get to FI in 15 years, right? Please let me know what I'm missing. 

Thanks a bunch.







           

[2Birds1Stone]

Hard to say considering you listed 2 old cars and a primary residence.

Debt?

Liquid assets?

Income?

Annual expenses?

[Villanelle]

If those are truly your only assets, I would be *terrified* in your shoes, and pretty much eating rice and dried beans every night and doing whatever I could to earn any extra penny, as well as sending the kids out to work (mowing lawns, regular jobs it they are old enough, whatever).  Yikes. 

Do you really have no savings or investments?

What is your income?  How much do you owe on the townhouse? Any other debts?   

[2Birds1Stone]

If those are truly your only assets, I would be *terrified* in your shoes, and pretty much eating rice and dried beans every night and doing whatever I could to earn any extra penny, as well as sending the kids out to work (mowing lawns, regular jobs it they are old enough, whatever).  Yikes. 

Do you really have no savings or investments?

What is your income?  How much do you owe on the townhouse? Any other debts?

Not to mention if you look up those cars on Edmunds True Market Value site, are worth much less than you posted.

[Kris]

OP:  Check out this link on how to write a Case Study:

http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/

If you want people's help/advice, this will help you to give us the relevant information.

[HenryDavid]

OK, I think the responses so far have been kind of  abrupt.

I see 10k a month income, 5k a month expenses, and 45k in non-mortgage debts. Is that accurate?
With 5k a month available, those 45k can be gone in 9 months! Bonanza.
So why not do that? Done by Christmas.

Then, sure, there are ways to cut expenses: utilities seem high, car costs seem high, and there are other candidates for whittling away.
But even if nothing else changes, smashing the 45k in debt frees up 60k a year for savings.
That's a 50% savings rate. Not a bad place to start.

[Unique User]

Do you expect $5k a month in retirement expenses? If so then you need $1.5M.  You're only putting away $15k a year in a 401k of which $10,559 is your contribution and you have another $10,833 a year to invest.  Rough calculations including the $45k 401k show you will end up with approximately $830k after 15 years if you save $26k a year for the next 15 years or about half you need.  At those 15 years will you be close to retirement age so SS can take care of your shortfall?

I would sell the individual stocks and take it and some of your savings to knock out the CC debt.  You'll also need to lower expenses and/or ramp up income if you want to get there. 

[mrsoski]

Thanks for the input so far.  Yes, some costs are higher than I would like, but expenses will drop to 3k per month in 6 years (food costs, energy costs, etc, no more debt payments) and income will increase by at least 1k because child support ends.   If we lease out the lower apartment for approximately 950/month, our "expenses" will drop to 2k/month. 

Yes, plan is to pay off all non mortgage debt ASAP, likely by end of year.   At that point we will max DH's 401k and probably open a solo 401k for me and max that as well.   

Assuming 24,000/yr needed, I multiply that by 25, which gives me 600k needed.  At a savings rate of 60k per year we get there in 10 years, right?

[CommonCents]

Don't assume kid costs are zero when they are in college.  They'll likely stay at home for the summer/holidays, eating food and using extra utilities.  You'll likely still give them holiday presents, birthday presents, take them out for dinner etc.  Maybe pay for their health care while in college (or hey, even beyond these days!).  You may be the snowflake that sticks to your guns, but 99% of the time I've seen parents slide on the hard boot out the door when the kids go to college.

[mrsoski]

That's a good point CommonCents.  I'm forecasting a lot about what expenses 6 years and beyond would look like, but I expect:

Mortgage:     1545.00
Food:              300.00 (surely when I am feeding only 2 consistently I can do this)
Fuel:                200.00 (less kid driving, but maybe more driving to visit?)
Debts:             ZERO!
Restaurants:     150.00
Internet:             30.00
Gym:                  40.00
Utilities:             150.00 (only for upper apartment, lower pays own)
Clothing           350.00 (assuming we buy for college kids too)
Sinking funds   600.00 (court ordered life insurance premiums, school costs eliminated)

Still down to only 3365.00 monthly.  Maybe this is too optimistic?

[NoraLenderbee]

According to your list of expenses, you should be clearing $5K per month, which is 60K per year--a nice saving rate even by Mustache standards. Once the kids are on their own, you'll be saving even more. Are there perhaps other expenses that you left out? Business taxes?

[Giro]

What is the plan for replacing vehicles?  Unlikely that in 6 + years you will still have both of those older vehicles.

[mrsoski]

Hm.  Good point on replacing vehicles.  Probably should add a category to YNAB for that.   Right now I am hoping my awesome husband can keep both running until the kids launch, or at least the 7 seater for another 3 years.  I am also hoping I can get my awesome husband to buy in on going down to one car once all the kids launch.  I suppose by the time we would need to replace one we could buy a new to us car with cash.  It's something to consider.

My income is after all expenses, including taxes.  i could work more and as the kids get older probably will, but I like being available for them before and after school.  My income increased significantly in the last year and DH got a better job. Seriously, until last year we were treading water financially and just meeting expenses, so the turnaround has been dizzying.

[waltworks]

At a 50% savings rate (which should improve as kids leave the nest), and essentially starting from zero, you should be able to easily hit FI in 15 years.

-W