Hi Everyone,
Long time reader, shy poster, have been following the financials closely for years (it is quite enjoyable to follow the evolution of the NW year after year). SO and I are now quite at the middle point of the ladder towards FIRE and looking for ideas, challenges, face punches (if required), anything that can help us achieve our FI goals faster while taking into account our current and upcoming situation.
Life Situation: I'm 32 living in sin with my 31 SO up north in Canada. My SO is currently expecting and is due in March of next year (firstborn).
Goals:- Explore ways to cut back expenses and achieve FIRE as quickly as possible;
- Find ways to mitigate the salary shortcoming and additional expenses related to having a baby;
- Understand how Canadian tax will affect the FIRE drawdowns - how much additional capital should we have to cover taxes.
Gross Income: - I'm making 125k per year with an expected bonus of 15% (19k);
- SO is making 125k per year with variable bonuses (non expected this year because of covid);
- 14k per year from rentals.
SO's income will go down quite a bit next year as she'll be on mat leave. (-40k, but wer are hoping to reduce impacts by cutting the budget).
Both SO and I are feeling a bit burned out from the work environment some times and would definitely appreciate any ways we can attain FIRE as quickly as possible.
Total: 283K gross income
Taxes:Canadian federal and provincial taxes amount to around 90k per year.
Current annual expenses as budgeted: - Mortgages
- $13,200 for rental/main home ($1,100 monthly payments, $850 capital, 250$ interest) - we typically live there full time in the biggest unit, but have been living at the farmhouse during covid);
- $18,600 for farm ($1550 monthly payments,$1,250 towards capital, $300 interest);
- Property taxes: $7,500
- farmhouse repairs: 1,000$ (UPDATED)
- Insurance (car, houses): $5,000
- Rental services (snow removal, grass, repairs): $2,000 (partially offset through taxes)
- Gas/electric (both houses): $3,200
- Internet (both houses): $2,000
- Life insurance: $440
- Groceries: $6,240, or $120 weekly (we keep going over this one)
- Restaurants $10,000, or 200$ weekly (This may come as a lot as we eat out over lunch a lot, and has been near zero in the last couple of months. Planning to take this down a lot in the coming years)
- Cars (2 fully owned no debts, 2010 pickup and 2015 Volks)
- Repairs: $2,000
- Gas: $5,200 or $100 weekly (we're far from there these days, but our 2 properties are seprated by a 2.5h drive so it takes some)
- Plates: $500
- Professional titles maintenance: $7,500 (I could let go of one to save more than half of that, but keep it as a backup for now)
- SO hobbies (horses): $10,000 (yes, this is a lot but I don't think its negotiable, altough we had her horse at the farm over the summer so this year will be lower)
- Own hobbies (sports and hunting): $2,500
- Vacation: $4,000 (flat or nearly flat this year and next year as the firsborn is coming)
- Clothing and personal care: $6,000 (another one that is quite flat this year)
Total budgeted expenses (typical non-covid situation): 106k (yikes. 2020 will be lower for sure, but still)
Total without mortgages: 74k
Yearly savings:Around 90k with current budget, more likely to be 105-110k this year.
Expected ER expenses: Cutting off a lot of items from the budget and planning to be mortgage free by this time, our planned ER yearly expenses would amount to 50k (w/o mortgage).
Our plan would be to RE on our farm property while (a) keeping the rental (and fully rent it for a total of 26K yearly revenues) or (b) selling the rental and investing the proceeds in the stock market. We would be doing some hobby farming and raising our kids in the nature. Right now, this makes for a more expensive lifestyle as we have to maintain 2 houses (although we are putting minimal care in our old farm house).
We bought the farm 3 years ago as it was our dream spot and checked all the boxes. We are carrying a 115k mortgage that should be fully paid off by the time we FIRE (7 years left on the mortgage, we will most likely put down additional capital to pay it off earlier). The value is tied to the land more than the house (it is only worth 10k on the deed of sale). We are considering building a new house on the farm property to replace the current old/cold/undesirable house, so an additional mortgage could be set up once the current one on the farm is paid off (this would be an additional 12k expense yearly), or we could build up more capital before RE.
Assets (keep in mind the canadian flavor here):-RRSPs: 107k
-TSFAs: 6k
-Taxable: 3k
-Pensions current value: 155k
-Checking: 5k (covers typicall expenses)
-Rental: 334k
-Farm: 285k (excludes the old house value, this would be for the land and barn only)
-Cars and farm equipment (we can dispose of a good part of it is plans change): 35k
Total assets: 930k
Liabilities:- Mortgages
- Rental: 198k, 20 years left, 1.5% variable 5 years
- Farm: 115k, 7 years left, 2.9% fixed for 2 years
-Student loans: 13k, 0% until interest rates rise, payment planned stopped for now
-We pay our credit card in full each month so not a liability.
Total liabilities: 326k
Specific Question(s): 1) Expenses are definitely on this high end of the spectrum. Any ideas on how to cut back? I have in mind targeting food (groceries and restaurants) and hobbies. As we are currently high earners, we don't see the impact of small expense reductions and are having a harder time actually cutting back.
2) Mustachians with kids, please provide any feedback as to how much it costs to raise kids in our ways. Everyone around me at work says it's going to cost me an arm, but I'm not planning to let it happen! Also, how have you dealt with the lower income?
3) I calculate our nest egg by including the rental equity and farmland equity as both are/can be put to work and produce somewhere between 4 to 7% return yearly with minimal efforts. As such, it would amount to 569k. Does this make sense?
4) A SWR of 4% would mean that we should target a $1,250,00 stash. How would you deal with:
- Canadian taxes: By then, our income will come from a mix of taxable RRSPs drawdowns, taxable, TFSA, rental income, etc. How should I account for tax in this? Should I add a % to the total expenses to account for it?
- Additional mortgage: I would most likely be better off building a good portion of the required capital (200k ish) before calling it quit and FIRE, right? I'm planning to build the house as much as possible by myself to reduce costs
- Asset allocation: A lot of our capital is tied to the rental and farm. Would we be better off selling the rental and investing the equity in the stock market?
Any insights tips or advice would be greatly appreciated. Do not hesitate to put into question anything in there, I'm fully open to suggestions that go beyond my set of questions!
Thank you very much[/list]