Author Topic: Early/Mid 30s Couple - Are We On The Right Track?  (Read 1629 times)

hoosierstache

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Early/Mid 30s Couple - Are We On The Right Track?
« on: December 19, 2023, 12:53:42 PM »
Life Situation: IRS filing status - Married Filing Jointly, 3 dependents (5, 4, 0), US Citizens (ages 34 & 33)

Hello all!  My wife and I are both teachers in our early/mid 30s.  We have 3 children and are trying to get a more solid plan for the next ~20 years (all kids will be out of high school). We are currently happy with our jobs/lifestyle/living situation but want to be prepared for anything and would love to be retired from teaching in this same time frame so that we’re really flexible after the kids are out of school.  Our main priorities at this time are to put away as much as we can while preparing for building a new house sometime in the next few years. We would also love to prioritize travel a little more w/ the kids now that we’re not planning on having any more. My main goal of this case study is to gather any and every constructive opinion/solution of our current situation. 
In our case, I don’t see FIRE as a possibility in the near future, but want to be prepared for anything.  Any suggestions for our cash? As kids leave daycare and go to school in the next couple of years, as well as a car payment coming off the books in 2024, we’ll have the following in extra money per month: Fall of 2024 = ~$950, Fall of 2025 = ~$1300.  Thank you in advance!  Please let me know if you need more information.  Looking forward to hearing from you.

Income (receive slight raises each year)
My gross yearly income - $56,000
My take-home yearly income - $31,150
Wife’s gross yearly income - $53,750
Wife’s take-home yearly income - $34,900
Monthly take-home income - $5,504

Current monthly expenses
Mortgage (30yr @ 2.85%) payment - $605
Land (10yr @ 5.25%) payment (we plan on building a house here in the next few years) - $515
Daycare - ~$1300 (may fluctuate slightly)
Car - $588
Phone - $80
Grocery - $600
Internet - $63
Utilities - $300
Gas/Fuel - $80
Auto & Life Insurance - $225

Total Budgeted Monthly Expenses - $4356

Annual Saving/Investments
My Roth IRA - (Max) $6,500
WIfe Roth IRA - (Max) $6,500
My Teacher Retirement Fund - (employer contributes 3% automatically, we put in 5% more) $5,824
Wife Teacher Retirement Fund - (employer contributes 3% automatically, we put in 5% more) $3,720
401a - $0
HSA - (Max) $7,750, invest any amount over Max Family Out-of-Pocket Expenses already in account, currently can invest all of yearly contributions

Total Invested Annually - $30,294
*Note: Teacher Retirement Funds cannot be touched until age 59.5 and separation from job.  Would it be better to reduce voluntary 5% contribution to this account and contribute elsewhere/pay down land debt? Account is up 17% this year.

Account Balances
My Roth IRA - $77,000
WIfe Roth IRA - $75,000
My Teacher Retirement Fund - $45,300
Wife Teacher Retirement Fund - $39,700
403b - $4,700
HSA Cash - $7,800
HSA Investments - $13,000
Emergency Fund (HYSA) - $10,000
Cash - $9000 (checking/savings)
Home Value - $215,000 (-$75,000 owed =$140,000 equity)
Other
Teacher Pension - unable to calculate a good estimate of what we’ll be able to collect at time of retirement.  Maybe $2000/month or more after age 55? Just a guess.

Liabilities
Mortgage (30yr @ 2.85%) - $75,000 remaining
Land (10yr @ 5.25%) - $42,000 remaining
Car (5yr @ 0%) - $5,800 remaining

Laura33

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #1 on: December 19, 2023, 03:12:57 PM »
So first, do you track expenses?  There are a lot of categories of things not listed here -- clothing, kid events, gifts, car maintenance/new tires/registration, home repair/maintenance, restaurants/entertainment, life/disability insurance, etc.  If you don't track, you need to start, so you can get a handle on all those little things -- otherwise you end up with death by 1,000 cuts.

Second, there are a number of things that you should be saving for monthly to ensure it's accounted for in your budget, so you have the cash saved for when the expense occurs -- I think of it as a slush fund.  The big ones from your post are a replacement vehicle fund and a vacation fund.  It's great a car will be paid off in 2024, but that car won't last forever, so you want to be saving for a new one so next time you don't need to take out a loan (or take a smaller one -- really, by your age, I'd have wanted to see a car fund sufficient to pay for the next car in cash, but I can imagine the cost of 3 kids would get in the way of that!).  This category also includes less-predictable things like a new roof for the house.

Third, do you have a budget/plan for the new home build?  If that is part of the short-term plan, you need to understand how much house you can get and how much it will cost.  Frankly, I'm concerned about whether your plan to build is feasible, at least alongside your other goals.  Your mortgage is very, very cheap; even if you took out a new mortgage for the same amount now, it would cost a lot more.  Assuming you get the land paid off before you build, you either need to fit your house costs into that combined $1100/mo. that you're currently paying, or plan for much higher housing expenses.  FWIW, my loan calculator says that at today's rates, a $175K house with 20% down wil cost you about $1150/mo., making some assumptions about taxes/insurance.  So if you want to maintain the same costs, that means you need to save about $40K (with closing costs/etc.), get the land paid off, and then build no more than a $175K house. 

Which brings me to my next point:  building costs are wicked high.  They have come down some since the Covid-induced supply chain hell, but at least in my part of the world, you can expect probably $200/square foot for a relatively low-end build.  And unfortunately, many of the things that make a house cheaper to run long-term/better to live in (like foam insulation, highly-efficient boilers/solar systems, quality windows, etc.) have bigger up-front costs.  So I am concerned that the kind of home you want to build will either cost a lot more per month or require a lot bigger downpayment (or some combination of the two).  Which means, if that is your priority for sometime within the next 5 years or so, you need to start assessing the likely cost, figuring out what you can afford, and cutting expenses/saving the delta so you can afford the house you want when the time comes.  Alternatively, if that analysis shows the dream home just isn't realistic given your other priorities, you can sell the land and save yourself basically 10% of your take-home pay every month. 

Ultimately, the key here is going to be for you to decide how to balance your priorities.  You have a lot of really good priorities here -- taking care of your family, enjoying family travel, financial security, a nice house, etc.  But a bunch of those are potentially big-money -- and you have only so many dollars, and you can spend each dollar only once.  If you want to end up in the happiest place, you need to find an appropriate balance between CurrentYou and FutureYou, and you need to then prioritize which of those current/future goals are highest priorities.  So, for example, you may decide that being able to travel with your kids while they're young is a higher priority than the dream house.  In that case, you defer the house fund and devote the savings to vacations and other priorities.  Or vice-versa -- if having the new house for the kids to grow up in is your absolute highest priority, then you cut vacations, entertainment, clothing, eating out, and all that other non-necessary stuff so that you can get that house within the next couple of years.  You're the only one who can decide what those priorities are.


hoosierstache

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #2 on: December 20, 2023, 07:38:24 AM »
Thank you so much for the detailed feedback!
We do not track expenses as well as we should, but on the other hand do not spend much on those categories.  Still should probably be a point of emphasis going forward, though.

I think we are going to discontinue (for the time being, anyway) the 5% voluntary contribution (it's post-tax) to our secondary teacher retirement for a couple reasons.  1) because the money is not super flexible once in that account and 2) I do think we need the extra cash (~225/month) for car/vacation/home maintenance savings. 

As far as the home build plan goes, that one is tricky.  We do live in a LCOL area and would be moving much closer to work, which benefits us in multiple ways, especially with the kids coming to school over the next few years. We also have a reasonable assumption that we'll be able to save substantially on contractor fees due to connections in the construction industry.  We're hoping that in that same time span, materials costs and interest rates may come down some. The home that we're planning to build is quite modest, in our opinion, and is probably priority #1, especially to my wife, going forward. We are waiting until the two older kids get out of daycare to build so that if need be we can put the money from daycare toward the house when the time comes. 

Laura33

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #3 on: December 20, 2023, 11:18:03 AM »

As far as the home build plan goes, that one is tricky.  We do live in a LCOL area and would be moving much closer to work, which benefits us in multiple ways, especially with the kids coming to school over the next few years. We also have a reasonable assumption that we'll be able to save substantially on contractor fees due to connections in the construction industry.  We're hoping that in that same time span, materials costs and interest rates may come down some. The home that we're planning to build is quite modest, in our opinion, and is probably priority #1, especially to my wife, going forward. We are waiting until the two older kids get out of daycare to build so that if need be we can put the money from daycare toward the house when the time comes.

FWIW, that sounds like a reasonable plan to me -- particularly if it is important to your DW.  ;-)  Any plan has to meet both of your needs. 

All I'd suggest is that you convert that house from a longer-term goal to an actual plan.  Design what you want.  Get quotes from the various subs.  Look at the prices of appliances and finishes you're interested in.  Look at how much gas/time you'd save by moving (the IRS mileage default is a good place to start). Figure out mortgage/insurance/property tax costs in your ballpark price range.  Figure out target dates and implement a savings plan to have what you need by then (including any closing costs plus moving costs plus another $5K+/- for "oops we forgot the new house doesn't have blinds" stuff).*  You obviously can't get super-specific right now, when you're several years away, but that gives you a baseline that you can track changes in mortgage rates/construction costs/etc. against, and savings to track to see whether you're still on track or need to adjust something.


*When DH and I bought our first home, it was a builder spec home.  We moved in, went up to bed that night, and for the first time realized that there were no blinds or drapes and anyone could see in.  Emergency Home Depot trip the next morning.  ;-)

roomtempmayo

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #4 on: December 20, 2023, 12:06:34 PM »

Teacher Pension - unable to calculate a good estimate of what we’ll be able to collect at time of retirement.  Maybe $2000/month or more after age 55? Just a guess.


You should be able to get a very good assessment of your pension payout based on various years of service.  You should be able to go to either HR or your union steward to get this info.  You're putting in ~$9500 annually for 30+ years.  You should be getting way more than $2k/mo back in retirement.

Freedomin5

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #5 on: December 20, 2023, 05:10:59 PM »
Your plan looks solid. After building your new house, would you consider keeping your current house and renting it out as an additional income stream? It would be a shame to lose such a low mortgage.

Also, just to put this on your radar (not recommending you pursue it now since it sounds like you have a good situation going on right now), but international schools absolutely love teaching couples. The compensation packages tend to be quite generous. We are talking about net income of around USD$5000-6500 per month (per person), with free tuition for your kids, free housing, free healthcare, free flights.  The school pays your income taxes for you. If you’re frugal, you can easily save $8-10k a month while living a very comfortable lifestyle.

I’ve had friends who worked as teachers in the US for many years to get their years of service in, then take a couple international contracts to pay off debt and fund their kids’ college educations, then move back to the US to max out their years of service and help get their kids settled into college.

hoosierstache

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #6 on: December 21, 2023, 06:38:28 AM »
Thank you!  That is enticing to think about, although I think we're most likely sticking around here for the long haul.  You never know though! Always have to keep options open. 
I think we would need to sell the house to cover the down payment for our new one.  Is this something we should look at more closely as an option?

Freedomin5

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Re: Early/Mid 30s Couple - Are We On The Right Track?
« Reply #7 on: December 21, 2023, 04:26:52 PM »
It really depends on the numbers and whether, in your area, the rent would cover all related expenses. It also depends on whether you mind becoming a landlord. And it depends on whether you’re able to save up another downpayment. I know there are several members of this forum, including myself, for whom this strategy has worked out well. Personally, I like diversifying and having multiple income streams as a safety net. It has also helped us grow our net worth more quickly.