Case study:Advice on future plans - possible job loss

[dakota5176]

I live in IL in the suburbs and am 45 years old.  I have three children ages 10,6,1.

I have a good job with a nice salary (90,000) but I'm worried that it will be phased out in the next few years.  It will be hard for me to find a job with a similar salary.

Spouse recently started a small business.  It's not making much now but looks like it could pick up and do better in the coming years. Income at this point goes back into the business and can't be counted for personal use. I can be of little help here as we work different shifts so one of us always has to be home for childcare.  This saves us a lot of money but we rarely see each other!

I own a house, (well with a mortgage $2200 a month).  You guys would say it is too big and not mustachian, but it is in a great school district for my three children.  I wouldn't mind downsizing but a sex offender moved in a few houses down from me and houses in my subdivision no longer sell even at cut rate prices so this is not feasible.

I have no credit card debt but one car loan that I'm working toward paying off ($356 a month).

I have about $100,000 in stocks and about $40,000 in bank accounts. (I also have an employee pension that is not counted here but will help with retirement.)

I have another house that I rent out.  This has been problematic in the past and I've had some really bad experiences.  Now things are better and we have reliable tenants.  I also have recently paid off the mortgage so barring unexpected repairs and of course taxes, I'm finally making some profit.  Rent is $1450 per month.

This is odd and I don't mean to seem cold blooded but I am an only child and stand to inherit a lot of money from my elderly parents and elderly aunt (all in their mid 80s).  I don't know exactly how much because they never discuss details but they all have lots of stock and property.  I would guess several million.  I obviously love them and hope they live long healthy lives.  I am the only heir.  I don't really know how I should factor this into my financial planning or even if I should. I don't really ask them specific questions because I don't want to seem greedy.  They are very good to us and treat us to family vacations at Disney every few years for the children.

What steps should I take now for my future? Obviously I'm trying to apply Mustachian principles and cut down on expenses.  This has been going well.  There isn't much we need materially but I am having trouble cutting activities for the kids like dance lessons and t ball etc.  Things are easy to cut out but I hate to deprive them of experiences that make up childhood memories.

mortgage - $2,285.83
cell phone - $98.46
car payment - $356.73
comcast - $154.83 (phone, internet and cable) I'm willing to let this go but not spouse yet
comed $ 150.00
nicor $ 140.50
water $ 38.65
 
food $650.00 (Once the baby is off formula this should decrease)
car repairs/gas $ 408.46
clothes $75.00
entertainment $ 84.00
gift $ 150.00 (many birthdays of kids and nieces/nephews
kids  $ 226.46
car insurance - $125.00
IRA - $250.00 (I often contribute more but it is always at least that much)

How should I plan for the future? I would like to increase passive income. Dividend stocks? More rental property? Go back to college for another degree? (I kind of hate to do that at my age)

[zolotiyeruki]

WRT the potential for inheritance, remember that it's purely *potential* at this point, and there are no guarantees.  There's a very long list of things that can wipe out a potential inheritance (long-term illness, scammers, they decide to donate it all to charity, a long-lost brother's-cousin's-aunt appears out of the woodwork, etc).  Also, expecting an inheritance can lead to fiscal irresponsibility.  My parents will likely be gone by the time I retire, but a potential inheritance doesn't even figure into my retirement projections.

Does the $2200/mo include your property taxes?  I live in the (outer) chicago suburbs, and I wonder if you're living in a house that's bigger than you need.  Downsizing would not only reduce your mortgage payments, but your property taxes as well.  And your heating/cooling bills.  I'm guessing your appraisal district didn't drop your appraised value when the sex offender moved in.  Even if you lose some/all of your equity in downsizing, there's still a return on that cost.

$155/mo for comcast is a lot of money.  Even if you want to keep it, you can cut the cost.  Figure out what AT&T/Dish/whoever is offering for a similar package for new customers.  Figure out how much Comcast charges new customers for your current package.  Call up Comcast and tell them you want to cancel.  They'll transfer you to their retention department, and (eventually) offer you the "new customer discount" on your current package.  Boom, you've saved $100/mo.

$100/mo is a lot for two (or even three) cell phones.

$40k in cash is less than optimal. Put those green soldiers to work.

I'm not a landlord, but from what I've heard, leverage is *good* when you're trying to amass a RE empire, and paying off the mortgage doesn't actually help you much.  What are your expenses on that property, and how much is it worth if you decided to sell?

For kids' activities, in our family we try to limit it to one extracurricular at a time, and no travel/league/select sports.  If you're trying to create childhood memories, you might consider spending less of your money on the activities, and more of your time on the kids :)

[Laura33]

First, can you add the tax details?  From the list below, I count close to $5K in monthly expenses before you get to any savings, on about a $7500 gross salary; similarly, you are currently bringing in $1400 on the rental, but we have no clue what the taxes or insurance are on that.  And there have to be expenses not covered here, like maintenance on both properties?  Travel?  Life insurance?  Netflix/Amazon Prime/magazines/other subscriptions?  Also, what loans -- what are the terms, how much time is left, what is the asset value, etc.?

Just from these figures, it seems like you are fairly tight/limited on savings, even on your $90K salary.  So the first step is to figure out a full listing of your expenses so you can see where the money is going and how much extra you have to save.  Second, how much do you think any replacement job would pay?  Once you know those two things, your job is to get 1 to be less than 2.  There is plenty of slack in your budget, from gifts to kid activities to cutting your power bills.  Also, you're spending almost $900/mo just on your vehicle(s); can you sell and downsize to something with no loan that would be cheaper to insure and drive?  Etc.

I think "what to invest in" isn't your top priority right now -- with a pending possible job loss and your SO's business in a fledgling state, you need to focus on setting yourselves up for the future, with a lifestyle you can sustain on your likely future income.