Author Topic: Help! Too many expenses and strong desire for FI  (Read 12641 times)

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #50 on: July 28, 2019, 07:39:39 PM »
No, his pay comes from my business, the rental properties’ maintenance funds, and my husband’s business. It doesn’t come from our W2 income at all.

We use YNAB and have admittedly spent frivolously the past several months. I used actuals and projections for decreased spending for my budget numbers.

reeshau

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Re: Help! Too many expenses and strong desire for FI
« Reply #51 on: July 29, 2019, 03:24:52 AM »
No, his pay comes from my business, the rental properties’ maintenance funds, and my husband’s business. It doesn’t come from our W2 income at all.

This might be overstepping boundaries and the purpose of your post, but I think it would be better for your relative's development to pay him market rate, and charge him room and board.  In the current situation, it would be difficult / a dumb decision for him to move out--he can't afford it.  And depending on what you mean by helping him out, he is also missing the opportunity to budget for living expenses.  If you let him handle the value of his living, even if in the end it doesn't change your numbers, I bet it will help him build his self-esteem, and it should make the next step easier to do.  I would at least look to have his living "costs" model a roommate situation to prepare him to be on his own.

Stashing Swiss-style

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Re: Help! Too many expenses and strong desire for FI
« Reply #52 on: July 29, 2019, 04:31:16 AM »
I have just read through your case study and you have a great approach - very positive despite your difficult situation.  I think you must fix your own situation quickly.  Family life is tough and your kids are so young.  Burn-outs are real and serious - 12 hour days are unsustainable - you need to stop that.  Take care of yourself.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #53 on: July 29, 2019, 05:29:27 AM »
Thank you, Stashing!

Reeshau, you make some good points. The goal is to get him to be self sufficient. Will talk to my husband about this. In the meantime we asked our real estate broker to set up a search for properties that would give us more wiggle room in our budget.

mistymoney

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Re: Help! Too many expenses and strong desire for FI
« Reply #54 on: July 29, 2019, 07:17:05 AM »
Hi guys, yes I am completely burnt out. Having the kids, the side business and the rentals with my full time job is freaking exhausting. I’ve had breakdowns and I just recently took a week off from work to decide if I wanted to quit or not. Ultimately I deleted my Outlook work email account from my phone and established clearer boundaries for my staff regarding contacting me outside of my normal working hours and over the weekend. That had helped somewhat but I’ve always had this goal of quitting my job so that I can pursue my business and my rentals and not have to be somewhere else 12 hours out of the day, and so I can spend more time with family and try to enjoy life....because life sucks right now and it has for a few years.



That is a lot to keep juggling.

Can you push for working from home 1-2 days per week? Or look for another job that is a little less demanding, at least time-wise or commute-wise?

Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #55 on: July 29, 2019, 08:43:05 AM »
No, his pay comes from my business, the rental properties’ maintenance funds, and my husband’s business. It doesn’t come from our W2 income at all.

We use YNAB and have admittedly spent frivolously the past several months. I used actuals and projections for decreased spending for my budget numbers.

So why are you pushing the losses on to your personal finances?  Pay him market value (which sounds like it would be lower end because it's not specialized labor) and charge him room and board.  Right now, you are essentially channelling money from your personal finances to your business because you are paying him less and then compensating him with free room and board paid for by your personal accounts. 

Have you looked at the numbers yet for quitting your job?

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #56 on: July 29, 2019, 09:51:02 AM »
So it would save me $1,400 in daycare per month and around $300 I'm guessing in gas. I'm not sure what other expenses would be reduced/eliminated if I am not working. But, it would allow me to try and scale up my business and I could advertise for my husband's remodeling company as well. I don't think we'd be able to cover our basic expenses this way unless we have more $$ saved up. Perhaps I could get a part time job if I quit this one to help with expenses, one that would be much closer to home.

Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #57 on: July 29, 2019, 11:03:18 AM »
So it would save me $1,400 in daycare per month and around $300 I'm guessing in gas. I'm not sure what other expenses would be reduced/eliminated if I am not working. But, it would allow me to try and scale up my business and I could advertise for my husband's remodeling company as well. I don't think we'd be able to cover our basic expenses this way unless we have more $$ saved up. Perhaps I could get a part time job if I quit this one to help with expenses, one that would be much closer to home.

Isn't daycare $1900?

In addition to ramping up the side hustle, some jobs are pretty easy to find when you have availability.  You could get a weekend job since presumably your husband would be home (though that's lost time together, but it could be temporary while you hopefully ramp up your business).  You could also do things like watching kids during that difficult after-school time where parents scramble to bridge the gap between school ending and getting home from work.  And during school vacations, half-days, etc. 

You would also have more time to cook, carefully grocery shop, etc.  Anything that you currently spend more on because you just don't have the time (meal planning, scouring coupons, going to two different grocery stores to take advantage of loss leaders, etc.)

And it would allow you to move closer to your husband, and to have time to supplement a weaker school for your kids, allowing you to live in a cheaper home.

Zamboni

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Re: Help! Too many expenses and strong desire for FI
« Reply #58 on: July 29, 2019, 11:16:06 AM »
Good going trying to search for changes that will be positive for you and your family.

Based upon some of what you have written, I can't help but feel like you are doing too much guessing. You use YNAB, but do you enter every single tiny expense in there? I got a little Debbie snack cake yesterday at a quickie mart for 50 cents and I entered it . . . . that is the level you need to be tracking for at least 3 months. Then you'll know exactly how much you will save if you change something rather than guessing.

My brother's older sons work at his shop at he pays them the prevailing market wage for skilled shop labor even though they still live in his house. I have to agree with the other posters who are suggesting that this is what needs to happen for the cousin. By essentially compensating him "cash under the table" with room and board, you are gipping him wages that could count towards his social security benefits some day, for example. That's on top of reducing his ability to function like an adult who pays his own bills.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #59 on: July 29, 2019, 11:23:52 AM »
Daycare is $1,400 per month when school starts; closer to $1,900 during the summer. I should average this so that it's not more out of our pockets during the summer.

I do enter everything into YNAB so it's balanced with our checking account. We literally froze (in the freezer, in water) our credit cards that we use when we're short on cash over the weekend so that there's no temptation to use them, and I cut out a bunch of extra subscriptions and things like Hulu, ipsy, reduced grocery spending etc. so if there is anything that sounds like I'm guessing, it has to do with the fact that I am changing/eliminating expenses. We worked really hard at our budget and used YNAB back in 2014/2015 when our incomes were half of what they are now, and we still had extra money to throw at savings! So my goal is to get back into that sort of situation so we can put as much as possible into savings/stock market/pay off debt of course.


Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #60 on: July 29, 2019, 12:08:57 PM »
Daycare is $1,400 per month when school starts; closer to $1,900 during the summer. I should average this so that it's not more out of our pockets during the summer.

I do enter everything into YNAB so it's balanced with our checking account. We literally froze (in the freezer, in water) our credit cards that we use when we're short on cash over the weekend so that there's no temptation to use them, and I cut out a bunch of extra subscriptions and things like Hulu, ipsy, reduced grocery spending etc. so if there is anything that sounds like I'm guessing, it has to do with the fact that I am changing/eliminating expenses. We worked really hard at our budget and used YNAB back in 2014/2015 when our incomes were half of what they are now, and we still had extra money to throw at savings! So my goal is to get back into that sort of situation so we can put as much as possible into savings/stock market/pay off debt of course.

This proves what I suspected--these numbers aren't actual historical expenses over a long term.  They are estimates.  You don't spend $1900/mo for childcare.  You spend closer to $1525 (that's $1900 for 3 summer months and $1400 for 9 school months.)  That means your posted budget isn't at all accurate, and I am sure this isn't the only line item where you don't have actual expenses.  The mention of "not more out of our pockets" says, "we spend and don't track whatever is left". 

If you are entering things in YNAB, then you should know where that extra $4500 annually ($500x9 months) ended up.  It's not in your budget anywhere, which means it disappeared.  But "disappeared" is budget-speak for "wasted".

You need to know what you are actually spending.  That should be 100% based on what you have actually spent in the past, unless you have concrete reason to KNOW that something will change, like you've found a new day care or have decided to stop eating out entirely (and are SURE you will stick with that).  Otherwise, it's just a dream budget.  If you don't know what you are actually spending, you don't know what you can cut, or what things would look like if you made specific changes. 

gaja

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Re: Help! Too many expenses and strong desire for FI
« Reply #61 on: July 29, 2019, 12:17:24 PM »
Daycare is $1,400 per month when school starts; closer to $1,900 during the summer. I should average this so that it's not more out of our pockets during the summer.

I do enter everything into YNAB so it's balanced with our checking account. We literally froze (in the freezer, in water) our credit cards that we use when we're short on cash over the weekend so that there's no temptation to use them, and I cut out a bunch of extra subscriptions and things like Hulu, ipsy, reduced grocery spending etc. so if there is anything that sounds like I'm guessing, it has to do with the fact that I am changing/eliminating expenses. We worked really hard at our budget and used YNAB back in 2014/2015 when our incomes were half of what they are now, and we still had extra money to throw at savings! So my goal is to get back into that sort of situation so we can put as much as possible into savings/stock market/pay off debt of course.

Could you set up a new case study based on you quitting your job, and including all the expenses you know you can get rid of then? I think it is doable, but it is difficult to know without seeing all the numbers.

What is the current total take home pay from your individual jobs, and how much will it be if one of you quit (I would presume that would change something about tax and medical?).

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #62 on: July 29, 2019, 03:03:22 PM »
Sure I will work on the new numbers.

As for my budget Villanelle, you're right - it's not exact. Our spending was a little (a lot?) out of control over the past several months as we moved, rehabbed the old house, worked on our businesses and tried to balance everything (which meant paying for conveniences that I'm not trying to pay for now). My numbers are based on averages from previous months as well as my goal for August as we work to cut unnecessary items and reduce spending, paying more attention to the numbers. I'm not sure what more I can do at this point to narrow it down and make it more accurate.

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #63 on: July 29, 2019, 06:56:54 PM »
$36k/year in return for managing 19 properties? Geez that sounds like a significant amount of work and risk if I’m also working full time and raising a family. That’s less than $2k/unit annually. I wouldn’t own a rental property to make $2k annually. I’m not sure owning 19 such units is a good deal, but then I’m pretty skeptical of real estate generally. How much cash could you generate if you sold all of the properties?

I generally agree with the sentiments here. I would focus on either the rentals or your job - right now you have too many demands on your time.


Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #64 on: July 29, 2019, 07:43:12 PM »
$36k/year in return for managing 19 properties? Geez that sounds like a significant amount of work and risk if I’m also working full time and raising a family. That’s less than $2k/unit annually. I wouldn’t own a rental property to make $2k annually. I’m not sure owning 19 such units is a good deal, but then I’m pretty skeptical of real estate generally. How much cash could you generate if you sold all of the properties?

I generally agree with the sentiments here. I would focus on either the rentals or your job - right now you have too many demands on your time.

Yeah, I'm trying to figure out the numbers.  Rents for each property are posted, but it seems to me like the profits should be higher based on those numbers, because the rents compared to the purchase prices don't look awful.  So where is the money going?

Op, you said you have 19 units, then only posted values for 6 of them?  What about the others?  And what do your expenses look like?
« Last Edit: July 29, 2019, 07:45:30 PM by Villanelle »

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #65 on: July 29, 2019, 07:52:15 PM »
We are 50/50 partners on 4 of the properties which of course reduces cash flow. We are long term buy and hold investors. The idea was for this to fund our retirement (the cash flow will increase once the mortgages are paid off in 25-30 years) and to acquire so many properties that it could replace my w2 income so I could manage them full time.

I’d have to do some calculations to determine how much we’d net if we sold them all right now. Our partners would obviously have to be on board as well. I understand you guys are concerned about the returns, but our cash on cash return for each property is 16% or more so I do still strongly believe that they are all sound investments.

We have 19 units in 6 properties. We put aside 30% of the monthly rents for expenses and draw out of that for repairs, vacancy expenses etc. This is all in separate accounts (checking) and we hold security deposits in interest-bearing savings accounts.
« Last Edit: July 29, 2019, 07:56:36 PM by kdaniel1010 »

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #66 on: July 29, 2019, 07:54:24 PM »
Ptf

Thanks for your helpful comment.

a-scho

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Re: Help! Too many expenses and strong desire for FI
« Reply #67 on: July 29, 2019, 08:13:08 PM »
Ptf

Thanks for your helpful comment.

sarcasm?  i think they were "posting to follow" not "programmed to fail"

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #68 on: July 29, 2019, 08:17:12 PM »
16% return indicates you have ~$225k cash invested? How much time do you and your husband legitimately put into this enterprise to generate that return?

The two issues I see as a passive investor is that while the 16% return shows the power of leverage in driving RE returns - does that $36k return adequately compensate you for the time you are putting into this and the risks you are taking on? This is a job as much as it is an investment.

Finally, while it will feel good to have the mortgages paid off and the increased cash flow that will bring, realize that when you do away with the leverage of holding a mortgage, you lose most of the excess return RE is capable of bringing over and above the market as a whole. You may find you can get a similar return via a truly passive investment at that time (or, if your are still wanting to take an active role, turn that $2M into 40 properties, each benefitting from the cheap leverage of a mortgage).

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #69 on: July 29, 2019, 08:32:01 PM »
Ptf

Thanks for your helpful comment.

sarcasm?  i think they were "posting to follow" not "programmed to fail"

Omg, I’m so sorry! I took it as “palm to face” and started getting a little sensitive about putting all my info out there. 😳
« Last Edit: July 29, 2019, 08:44:53 PM by kdaniel1010 »

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #70 on: July 29, 2019, 08:37:36 PM »
16% return indicates you have ~$225k cash invested? How much time do you and your husband legitimately put into this enterprise to generate that return?

The two issues I see as a passive investor is that while the 16% return shows the power of leverage in driving RE returns - does that $36k return adequately compensate you for the time you are putting into this and the risks you are taking on? This is a job as much as it is an investment.

Finally, while it will feel good to have the mortgages paid off and the increased cash flow that will bring, realize that when you do away with the leverage of holding a mortgage, you lose most of the excess return RE is capable of bringing over and above the market as a whole. You may find you can get a similar return via a truly passive investment at that time (or, if your are still wanting to take an active role, turn that $2M into 40 properties, each benefitting from the cheap leverage of a mortgage).

I definitely see where you’re coming from here and get it. What drove me to this site was reading Quit Like a Millionaire. I have always been afraid of the stock market especially after the recession, and found real estate instead. It’s something I’m good at - I manage properties, lease them, like the financials and most of the stuff in between. I figured it’d be a natural course for us to take especially with my husband’s background in accounting and his ability to teach himself home repairs and renovations. We saw this as the best way to make money, although never believed it to be passive. I don’t spend a ton of time on our rentals except for when there’s an ongoing issue or I’m trying to fill a vacancy. That’s the story behind that.

After reading the book I’m very interested in the stock market and index funds as discussed there, which is why I came here. I’m just trying to get to the point where we can throw a bunch of money into those accounts every month.

Stashing Swiss-style

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Re: Help! Too many expenses and strong desire for FI
« Reply #71 on: July 30, 2019, 04:30:31 AM »


"Omg, I’m so sorry! I took it as “palm to face” and started getting a little sensitive about putting all my info out there. 😳
[/quote]"

Don't worry!  It's normal to feel a bit sensitive - the advice given is good, needed, comes from people wanting to help, but it's tough to hear sometimes.  You are handling it all very well.

ptf is what we forum lurkers do when we are interested in something but not quite ready to comment :-)

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #72 on: July 30, 2019, 05:48:00 AM »
New case study based on my quitting my FT job:

Category   Budget
Kid #1 braces payment   250 - this is now ZERO because I just found out our last payment was in July!!
Pet care   40
Daycare    0
Subscriptions    100
Kids Activities/Classes    140 - swimming lessons only?
Household Goods   100
Clothing    50
Medical   500
Restaurants    75
Spending - Husband   50
Spending - Wife   50
Fuel   300
Groceries, toiletries   850 (it was higher in July - trying to reduce) - don't think it can get lower than this but we will see in August
Mortgage - primary residence   1920
Donation    25
Natural Gas   75
Water   45
Electricity   100
Netflix   12
Internet     66
Phone - AT&T & T-Mobile   250 - still need to work on this.
Mortgage - Property for sale   1112
Christmas / Birthdays    100
Life Insurance    180
Car Insurance    242
Car Repairs   225
Debt Payments   450
Car payments (2 cars - truck paid by business)   550
TOTAL   7,607

Total income from my husband would be $3,800 from his job, about $1k from my business, and $3k from the rental properties which totals $7,800. HMMMM. What do you all think? What makes me nervous about this, is that we won't have much/anything to save on a monthly basis, until/unless I ramp up my business or get a part time job.

gaja

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Re: Help! Too many expenses and strong desire for FI
« Reply #73 on: July 30, 2019, 06:16:11 AM »
New case study based on my quitting my FT job:

Category   Budget
Kid #1 braces payment   250 - this is now ZERO because I just found out our last payment was in July!!
Pet care   40
Daycare    0
Subscriptions    100
Kids Activities/Classes    140 - swimming lessons only?
Household Goods   100
Clothing    50
Medical   500
Restaurants    75
Spending - Husband   50
Spending - Wife   50
Fuel   300
Groceries, toiletries   850 (it was higher in July - trying to reduce) - don't think it can get lower than this but we will see in August
Mortgage - primary residence   1920
Donation    25
Natural Gas   75
Water   45
Electricity   100
Netflix   12
Internet     66
Phone - AT&T & T-Mobile   250 - still need to work on this.
Mortgage - Property for sale   1112
Christmas / Birthdays    100
Life Insurance    180
Car Insurance    242
Car Repairs   225
Debt Payments   450
Car payments (2 cars - truck paid by business)   550
TOTAL   7,607

Total income from my husband would be $3,800 from his job, about $1k from my business, and $3k from the rental properties which totals $7,800. HMMMM. What do you all think? What makes me nervous about this, is that we won't have much/anything to save on a monthly basis, until/unless I ramp up my business or get a part time job.

1) 1112 will be gone as soon as you sell the house, and you mentioned that the debt payment of 450 (credit cards) will be taken care of then too? That gives you wiggle room of 1758/month. More if you ramp up the business. Also: a lot of your rental income goes to paying down mortgages. That is also a form for saving.

2) Do you still need two cars and a truck if you are not both commuting?

3) $100/month for Christmas and birthdays is a lot, and you have still kept 100 for subscriptions in addition to 16 for Netflix. Is all that necessary?

4) I support only keeping swimming lessons. My kids are much more happy if they don't have too many acitivities. Do not underestimate the value of free play for small children.

5) Phones seem crazy high.

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #74 on: July 30, 2019, 06:40:38 AM »
Yeah, as noted, once you sell that property you'll have a bunch of extra cash from that.

You would also want to make a plan to get out of those car payments. You should be able to go down to 2 cars and preferably both of them paid for. This will also allow you to reduce your insurance costs.

The Debt payments category should go away once you pay it off after selling the property, right?

I would not budget $0 to child care even if you will be staying at home. You will need some care for days when you need to pour more energy into the rental business or just need a break, summer camps, etc.

I don't see a category for maintenance and repairs on the house. That should be several hundred per month.

Altogether in the not-too-distant future, you could have a couple thousand dollars of slack in the budget to start saving more, and a tremendous amount more family/free time.

gaja

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Re: Help! Too many expenses and strong desire for FI
« Reply #75 on: July 30, 2019, 06:46:53 AM »
If I were in your shoes, I would think long and hard about whether I would take the kids out of daycare, or keep them there and get a job close to home (maybe part time) that pays at least 1500/month. That should not be hard to find.

But that is me - I'm not at all suited to staying home with kids, or other types of full time caretaking.

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #76 on: July 30, 2019, 06:56:53 AM »
Agreed. You should be totally honest with yourself about how well you will do being a full time at home caretaker.

Realistically I think you simply need to adjust any one of your major life variables - you currently are raising a family with both parents working full time, with long commutes, plus managing a bunch of rentals. The family has to stay so cut back/out one of the full time jobs, reduce a commute to near zero, or get rid of the side work.

Peachtea

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Re: Help! Too many expenses and strong desire for FI
« Reply #77 on: July 30, 2019, 08:09:56 AM »
If you have a 21 year old living with you room and board free and you employ him, thus controlling his work hours, why would you not arrange his work hours so he can do daycare pick up and drop off, or at least one as part of room and board? For example, you, husband and children could car pool to daycare drop off and then to train station(s) for commute. Then cousin picks up kids and starts doing dinner prep while waiting for your return from work. This would give you more time, more time with husband, help with burn out, and let you drop a car or replace it with a very cheap beater. You’d save on car payment, insurance, and maintenance, plus gas. You’ll have less maintenance if driving is significantly reduced. Probably it’d work out ahead, although maybe not by much, if after cousin left you hired someone local for 1-2 hours to do this as well (if you don’t quit your job). Plus, having to plan dinner for the week in advance to give cousin or part time sitter prep instructions would make you grocery shop once and likely save money in groceries too.

Also, in general if husband works downtown why isn’t he taking commuter rail? I see you worked out what it would take for you to take train, but I didn’t see anything about him (in current location), although maybe I missed it.

Roland of Gilead

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Re: Help! Too many expenses and strong desire for FI
« Reply #78 on: July 30, 2019, 08:36:29 AM »
One big item right away that I see if you quit your job is that your take home pay from your husband's job should increase because you can have a smaller amount of taxes taken out.  The less you make the less you pay in tax.   This is assuming that you were each withholding according to their gross income.

Could be an extra couple hundred a month in tax saving.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #79 on: July 30, 2019, 10:22:55 AM »
Hi everyone, thanks so much for the feedback.
Yes, I did miss home maintenance so that should be around $250/month (less if we downsize).
The $1112 mortgage would go away once we sell the house, but I realized after I posted that we'd need to pay another $1100 or so in insurance (medical) for myself and the kids based on a quote I received from the marketplace a few months back.

Regarding the daycare, you guys are right. I don't know how it'd work out with me as a full time caretaker and I'd need to budget in something for days/times when I need childcare. I'd just have my youngest (3 yo) since the older two are in school (during school year of course; summer would be TBD).

Yes I'd love to drop one of the cars and pay off the other two.

My husband used to take the train but has been driving lately because the train adds more time onto his commute; he can drive faster and get home sooner/leave later which saves him time.

The plan is to pay off all cc debt as well, so yes that'd be gone too.

I'd like to see if I can get a PT job too if I quit my FT job ... so I had some sort of extra income aside from the rentals and my business.

Regarding the cousin .... I'm not sure how to put this but having him start dinner or help with the kids is not an option. I'd feel much better having myself or my husband handling all of that.

 

Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #80 on: July 30, 2019, 10:37:31 AM »
Hi everyone, thanks so much for the feedback.
Yes, I did miss home maintenance so that should be around $250/month (less if we downsize).
The $1112 mortgage would go away once we sell the house, but I realized after I posted that we'd need to pay another $1100 or so in insurance (medical) for myself and the kids based on a quote I received from the marketplace a few months back.

Regarding the daycare, you guys are right. I don't know how it'd work out with me as a full time caretaker and I'd need to budget in something for days/times when I need childcare. I'd just have my youngest (3 yo) since the older two are in school (during school year of course; summer would be TBD).

Yes I'd love to drop one of the cars and pay off the other two.

My husband used to take the train but has been driving lately because the train adds more time onto his commute; he can drive faster and get home sooner/leave later which saves him time.

The plan is to pay off all cc debt as well, so yes that'd be gone too.

I'd like to see if I can get a PT job too if I quit my FT job ... so I had some sort of extra income aside from the rentals and my business.

Regarding the cousin .... I'm not sure how to put this but having him start dinner or help with the kids is not an option. I'd feel much better having myself or my husband handling all of that.

Understandable.  But then you need to find a way to stop the hemorrhaging of money from him.  He's an able bodied person.  Pay him for his labor, charge him for the resources he uses. 

Also, the more you post (all these forgotten and miscalculated expenses, the more I realize your case study is of little value.  And it makes sense because the numbers don't seem to add up.  You have 19 properties (full or partially) and the numbers on the ones you posted aren't bad.  But your profit on each is an average of less than $2000, if my math is correct.  That's >$2000 PER YEAR!  (You reported $3000 total per month, which is only $157 per property, times 12 is $1894 per property for a year.  If that is really all you are making with hundreds of thousands of dollars invested, you should dump every last one of them.  If that number is because some of the properties are losers or very low earners and they are dragging down the overall returns, then you need to dump those properties.  That will not only increase your cash flow, but it will also take a lot off your plate.

Your numbers on the rentals DO NOT add up.  It was very headscratchy to me that someone who owns 19 supposedly decent (from a $ perspective) properties is barely keeping afloat.  But a bit of digging shows that the reason it was surprising is that some major piece of this puzzle is missing. 

And that's where I'd start, in your shoes.  Downgrading cable and shopping for a better phone plan are great and you should do them, but they are not the low hanging fruit, or the types of things that are going to solve your problems and change your lives.  You need to dig in to the rentals.  Look at each property individually.  What were the expenses for the last 3 years? Projected future major expenses? Rents?  Which properties make the least, and what does "least" mean?  It seems like for at least some of them, it has to mean they are losing money, because the properties you posted about seem like they should be making decent cash, unless there are huge expenses (massive property taxes, huge HOA, old properties that require tons of maintenance, etc.  So if they are making okay money but your average is less than $2000 per property per year, then some of them have to be hemorrhaging money.

Determine the losers and weakest properties, and sell them. 


kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #81 on: July 30, 2019, 11:18:57 AM »
Hi Villanelle,

Again I apologize for expenses that were forgotten or miscalculated. As I stated previously I am in the process of overhauling the budget, using previous actuals as well as budgetary goals based on eliminating and reducing expenses. I'm not sure how much more accurate I can get at this point. I've seen other budgets posted here that are missing line items and that have estimates; I didn't realize that this was a requirement for posting here so my apologies if I missed that.

In any case, I own 19 units. These units are in 6 properties. The properties have anywhere from 2 to 5 units each. We are also 50/50 partners on 4 of the 6 properties. Each unit cash flows over $200 per month, which is the standard we had established when we first started investing and which is also the number that is recommended by other investors and resources like BiggerPockets. The rentals cash flow very nicely. I'm not sure if you're not understanding the above details, or if you think $200+/unit per month strict cash flow is not worth it. We put 30% of the gross monthly rents aside for maintenance, turnover, capex work, vacancy every month and distribute the remainder to the investors.

Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #82 on: July 30, 2019, 12:04:32 PM »
Hi Villanelle,

Again I apologize for expenses that were forgotten or miscalculated. As I stated previously I am in the process of overhauling the budget, using previous actuals as well as budgetary goals based on eliminating and reducing expenses. I'm not sure how much more accurate I can get at this point. I've seen other budgets posted here that are missing line items and that have estimates; I didn't realize that this was a requirement for posting here so my apologies if I missed that.

In any case, I own 19 units. These units are in 6 properties. The properties have anywhere from 2 to 5 units each. We are also 50/50 partners on 4 of the 6 properties. Each unit cash flows over $200 per month, which is the standard we had established when we first started investing and which is also the number that is recommended by other investors and resources like BiggerPockets. The rentals cash flow very nicely. I'm not sure if you're not understanding the above details, or if you think $200+/unit per month strict cash flow is not worth it. We put 30% of the gross monthly rents aside for maintenance, turnover, capex work, vacancy every month and distribute the remainder to the investors.

Definitely no need to apologize.  I'm not harping on it to shame you.  I'm trying to get you to see that your numbers don't make sense and that until you sort that you, you probably can't solve your underlying problem.

If each unit is cash flowing $200 per month (is that your share on the joint units, or total?), then 19x$200=$3800/mo, which would be $45,600 per year.  But that is far less than the number you listed in your budget.  (You said $3000/mo, or $36,00 per year.  So there is a roughly $10,000 discrepancy there. Also, depending on the total you have invested, $45k in returns may or may not be good, but it's definitely better than $36k

You have over a million dollars in property (between you and the other investor;  That is bringing in about $150k in rent annually, assuming few vacancies.  Yet you end up with only $36,000 (or maybe $45,000 )in rent.

So:
Property #1: purchased for $115k, worth $150k, gross rents $2,400/month
Property #2: purchased for $254k, worth just about that but could sell for more in this market, gross rents $3,330/month (Your half is about $130k,  gross rents are $1665)
Property #3: purchased for $100k, worth $120k, gross rents $1,750/month
Property #4: purchased for $135k, worth $150k, gross rents $2,350/month (Your half is $67.5k, $1175)
Property #5: purchased for $196k, worth $250k, gross rents $2,750/month ($175k, $1375)
Property #6: purchased for $109,500, worth $125k, gross rents $2,000/month. ($62.5k; $1000)

We are 50/50 partners on properties #2, 4, 5, 6. Let me know if you have any other suggestions? I really appreciate your guys' responses.

~~~~~
 Current value of your properties (though I'm not factoring in transaction costs if you sold) is $705,000.  Your gross rents are $9365/mo.  So you are grossing $112,000, yet net is $36/45k.  Where is the rest of that going?  And, let's say your new number of $45k is correct (in which case you can adjust the budget and that buys you 5 figures of space annually!!).  Are you good with a $45k return on $705,000?  45k/705k=a roughly 6% return (not factoring in equity growth).  That's... fine.  But given the work you are putting in to managing 19 properties, it seems like a poor choice. 

Do you see why I'm questioning your numbers?  Either 36 or 45k, don't seem to make sense if you are collecting $112,000 in rent. For each of your six properties, are you actually spending nearly $20k per year?  Maybe you are, but given the wiggle in your numbers, I have to question it.  And if that is in fact accurate, why not just sell, take all that off your plate, and get nearly the same results in the stock market, which requires almost no work at all?  Or at least sell all but your 2 most profitable properties? 

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #83 on: July 30, 2019, 12:41:40 PM »
Villanelle - you aren't factoring in that they have mortgages on these properties, taxes, and expenses. Their share of the property values is roughly $604k. They have $225k in cash down. So roughly assume $379k in their share of the mortgages at 4.5%, 30 year - that's $1920/month, $23k annually. Say another $20k in taxes and insurance. They are reserving 30% of rents for expenses - so $34k. That's $77k in expenses. The left-over is their positive cash-flow - in my case using estimated numbers - that's $35k annually, or $2900/month which is right in the ballpark of what they are getting.

Their return is $35k on $225k invested or almost 16% after most expenses which is pretty good if their numbers are accurate.

I think they are doing a much better job than the vast majority of people who post about their RE investments (real or imagined) which is why even me, as a real estate skeptic, is encouraging one of the options to be taking this side venture full-time.

(The skeptic in me does still wonder if they are paying themselves anything for their management time before calculating this return. If you assume $75/door in management costs, that suddenly makes a split of $17,100/year in salary for managing the property, leaving just $18,900 in real 'investment return' - or 8.4% on the $225k cash invested.)
« Last Edit: July 30, 2019, 12:54:12 PM by doingfine »

ontheway2

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Re: Help! Too many expenses and strong desire for FI
« Reply #84 on: July 30, 2019, 12:46:09 PM »
How much longer do you anticipate the 21 year old living with you? If the larger house was primarily purchased because of him, could you rent the other single family and move back in once he moves out? You could then sell your current house and save at least $800/month.

Roland of Gilead

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Re: Help! Too many expenses and strong desire for FI
« Reply #85 on: July 30, 2019, 12:48:23 PM »
I don't see it as a 16% return because technically they are on margin.  If I had $225k in a stock account and went on margin, I could get a decent return as well.

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #86 on: July 30, 2019, 12:56:03 PM »
I don't see it as a 16% return because technically they are on margin.  If I had $225k in a stock account and went on margin, I could get a decent return as well.

Leverage is how most people make money in real estate. It's not quite the same as margin though because the terms are much more favorable to the borrower.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #87 on: July 30, 2019, 01:36:59 PM »
Doingfine, you are correct. Thank you for explaining that. We collect a 5% management fee per month on all of the properties, and count that toward my side business income as my management company manages them (initially, we didn't charge a management fee but once I rolled out my company we realized it was stupid not to charge a fee, so we lowballed it at 5% with the understanding that future acquisitions would have closer to a 10% management fee. We just were really hungry for deals and should've charged from the beginning). In addition I have 3 other clients currently (2 acquired this month alone, so I'm hoping to continue to acquire more clients as I become more established as a business). The other clients are charged more of course, plus commissions and fees for renewals, new leases etc. consistent with competitors in the area.

I'm hoping the relative moves soon. The old house had 1.5 bathrooms; we had 5 people in the house prior to him moving in. Once he moved in, it was really difficult to share 1 full bath amongst us all. That was what really prompted me to look for something bigger. The extra bedroom was a plus and was something I factored in to the search. Now I am totally good with moving back down to a 3 bed, 2 bath ideally.......ugh, mistakes.


Villanelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #88 on: July 30, 2019, 04:27:46 PM »
Villanelle - you aren't factoring in that they have mortgages on these properties, taxes, and expenses. Their share of the property values is roughly $604k. They have $225k in cash down. So roughly assume $379k in their share of the mortgages at 4.5%, 30 year - that's $1920/month, $23k annually. Say another $20k in taxes and insurance. They are reserving 30% of rents for expenses - so $34k. That's $77k in expenses. The left-over is their positive cash-flow - in my case using estimated numbers - that's $35k annually, or $2900/month which is right in the ballpark of what they are getting.

Their return is $35k on $225k invested or almost 16% after most expenses which is pretty good if their numbers are accurate.

I think they are doing a much better job than the vast majority of people who post about their RE investments (real or imagined) which is why even me, as a real estate skeptic, is encouraging one of the options to be taking this side venture full-time.

(The skeptic in me does still wonder if they are paying themselves anything for their management time before calculating this return. If you assume $75/door in management costs, that suddenly makes a split of $17,100/year in salary for managing the property, leaving just $18,900 in real 'investment return' - or 8.4% on the $225k cash invested.)

I am definitely factoring that in.  And it all adds up to a very unremarkable 6% return, which is what I'm trying to get her to see.  If these numbers are even correct, and there's reason so suspect they aren't.  But if they are, then how is all this work worth it for a very modest return?  They could do as well in equities, with none of the workload.   

If starting from scratch, would you tell someone who was overwhelmed with work to buy properties if they were going to make a 6% return (and that may be before escrowing anything for future maintenance, since I didn't see mention of that)?  Does that seem like a wise path forward?  Keeping the 2-3 best properties and ditching the rest (and investing the money in index funds) will likely increase returns and decrease work.  Keep a few properties to increase diversity and because the best of the bunch are surely doing better than that 6% average.  Ditch those that are underperforming.  Oh, and simplify life considerably, which is the other main goal. 

ysette9

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Re: Help! Too many expenses and strong desire for FI
« Reply #89 on: July 30, 2019, 04:59:56 PM »
Posting to follow. This sounds like a tough nut to crack and I with the OP well. We have two kids and two full-time careers and often I feel that is more than I can handle. I agree that all of this sounds exhausting and something has to give.

doingfine

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Re: Help! Too many expenses and strong desire for FI
« Reply #90 on: July 30, 2019, 08:15:40 PM »

I am definitely factoring that in.  And it all adds up to a very unremarkable 6% return,

I laid out the numbers pretty clearly in my post. Your 6% return assumes $45k revenue on $705k investment - however they have $36k of revenue on only $225k cash invested. The $705k is ~the properties value, not how much they have invested personally. This is how leverage can work in your favor in real estate. (This is also why I stated earlier that even though the cash flow improves tremendously once the mortgages are paid off, the actual return falls pretty much in line with a passive market investment, making it a tough sell at that point).
« Last Edit: July 30, 2019, 08:19:54 PM by doingfine »

Peachtea

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Re: Help! Too many expenses and strong desire for FI
« Reply #91 on: July 30, 2019, 09:24:19 PM »
Does your husband pay for parking when driving to work? Is that in your gas budget? Does it really save that much time or is it worth it compared to the costs? Maybe the answer is yes. I was just surprised to read it because all the people I know in the burbs, as far out as Geneva and most of whom make more than you guys, all take the commuter rail in and then walk 15-20 min from Ogilvie to work, regardless of if they have kids or not. And these are not frugal folks by any means...so there must be a good reason they all take the train. Perhaps if your husband has subsidized parking when most don’t that makes the difference.


kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #92 on: July 30, 2019, 09:53:10 PM »
Yes he actually does have free parking - his boss owns a lot nearby. If it weren’t for that and the time savings, he’d still be taking the train for sure.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #93 on: July 31, 2019, 06:03:38 AM »
We saw a townhouse last night. Is it worth it to move to a fixer upper 3 bed/2 bath with the PITI + HOA fee totaling approx $1350/monthly instead of staying in the current home which is updated and $1920 monthly all in?

gaja

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Re: Help! Too many expenses and strong desire for FI
« Reply #94 on: July 31, 2019, 07:07:51 AM »
We saw a townhouse last night. Is it worth it to move to a fixer upper 3 bed/2 bath with the PITI + HOA fee totaling approx $1350/monthly instead of staying in the current home which is updated and $1920 monthly all in?

You already own two houses. I don't see how getting another one, and with the extra work of a fixer-upper, will help you simplify your life? Get at least one of them sold before you take the next step.

Hirondelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #95 on: July 31, 2019, 07:36:51 AM »

I'm hoping the relative moves soon. The old house had 1.5 bathrooms; we had 5 people in the house prior to him moving in. Once he moved in, it was really difficult to share 1 full bath amongst us all. That was what really prompted me to look for something bigger. The extra bedroom was a plus and was something I factored in to the search. Now I am totally good with moving back down to a 3 bed, 2 bath ideally.......ugh, mistakes.

Now I haven't involved myself into any other part of this discussion as I know little about real estate, but this boggles me.

Look, I'm from Europe and almost any SFH in my country comes with 1.5 bathrooms. I've never heard that this is an issue big enough for people to find 2 bathroom houses. I've seen most Americans here more often report multiple bathrooms for even 3 bedrooms houses only which only makes sense to me if you are a family renting out a room to a stranger. What makes it so hard to share 1.5 bathroom over 5 people of whom two are little kids?? Are y'all afraid to see each other naked? Can't you wait 5 minutes if you have to go to the toilet and both are occupied at the moment?

(this is a genuine question and I guess if others than the OP can enlighten me I'm happy to hear it too)

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #96 on: July 31, 2019, 08:20:53 AM »
We were okay with 1.5 baths with a family of 5 (2 adults, 10/11 year old at the time, 2 small kids). Once the cousin moved in, it became an issue. We were all on similar schedules, and the cousin took SUPER long showers even after we harped on him about it. Hope that makes sense? If not, I guess we must be spoiled!

Hirondelle

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Re: Help! Too many expenses and strong desire for FI
« Reply #97 on: July 31, 2019, 08:27:50 AM »
We were okay with 1.5 baths with a family of 5 (2 adults, 10/11 year old at the time, 2 small kids). Once the cousin moved in, it became an issue. We were all on similar schedules, and the cousin took SUPER long showers even after we harped on him about it. Hope that makes sense? If not, I guess we must be spoiled!

That makes more sense to me! 6 people of which 1 is not direct family (cousin) and being demanding in his shower activities. I somewhat misunderstood as you also said that you would like to go back to 3 bedrooms while keeping the 2 baths somewhere. On the other hand.. moving to keep up with the shower activities of someone that you're trying to help out is maybe a bit overkill :p.



It also wasn't necessarily something to judge you on btw, but I've seen it in threads here more often and never really get the point unless you're sharing with non-family members.

kdaniel1010

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Re: Help! Too many expenses and strong desire for FI
« Reply #98 on: July 31, 2019, 08:48:47 AM »
No worries! Lol. I figure that as our kids get older, their bathroom routines will become more intensive as well, so moving up to 2 full baths would benefit us, especially if we're all on similar schedules (which has been the case).

ginjaninja

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Re: Help! Too many expenses and strong desire for FI
« Reply #99 on: July 31, 2019, 08:58:33 AM »
I would encourage you to calculate how much of your current expenses are directly related to the cousin.

Things I would include: higher housing costs for the bathroom being an issue, food costs, car costs, utilities costs (electricity and you have mentioned really long showers so water costs too), and any other costs you are providing to him. 

I am all for helping out family, but it seems as if you are shelling out $800-1500/month for this relative to live with you, if not more.  Sometimes you need to put your own oxygen mask on before you can help others.  If having this kind of money every month back in your pocket EVERY MONTH would allow you to spend time with your family or get closer to your financial goals it could be worth considering having different conversations with your husband and his cousin.  He is not just couch surfing and using minimal resources, and based on your shower comment and your comment around him helping with child care and cooking I expect he is disruptive to your family and unwilling to help out around the house for the privileges he is receiving.  He should be doing a hell of a lot of work around the house for that kind of money.  If you are paying someone $15/hour this would be equivalent to 53-100 hours/month. 

If there is a light at the end of the tunnel for you with this family member, maybe a few more months is worth it.  From my perspective it seems as if he has no motivation to move out and be successful on his own.  You moved houses to accommodate him, this is not a normal thing to do for temporary assistance.  You are paying him through the business and not allowing him to understand his financial responsibilities of being an adult.  If I was in his shoes I would in no way be considering going out on my own, it is way too comfy of a position to live with you. 

I am making some assumptions in my post, I am sure there are some other reasons he is living with you that you have not posted here.  But from my perspective that is how things look and it seems to be causing you a great amount of stress.  Put the facts in front of your husband so you can talk about them.  His cousin needs to understand what a privilege it is to live under your roof and start learning skills to be successful on his own. 

I do not mean any of this in judgement, my mom's friend just went through what seems like a similar situation with her son.  The son was home using all of his money to fund hobbies and not become a real adult.  He would eat all of the food and never replace it, take extremely long showers, leave messes all around the house, go to work and spend all of his money on computers and guitars.  His mom didn't want him to fail on his own (he was only working part time, not enough to cover all of life's expenses), and his dad wanted him out so he can learn the hard way that you need to take responsibility for your life and rent isn't free.  Them kicking him out on his own was the best thing for the son, he found full time employment and sold some of his electronics and guitars to pay for food.  It reduced the stress on my mom's friend and her husband because they were not constantly arguing around what to do about their son, and they had the freedom to live in their house with the rules they choose. 

I think it is totally fine to provide assistance to family, just understand what it is costing you and ensure you are okay with the costs. 

A crazy thought: another option could be to have him move out and still provide financial assistance for a period of time?  Maybe $200-500/month for the first 6 months as he gets out on his own?  This might be cheaper for you, he can still work for the business, and he can start to learn how to live on his own.  I would try to look at other options that could work better for your family.