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Learning, Sharing, and Teaching => Case Studies => Topic started by: GeoMorph on April 24, 2019, 08:18:28 AM

Title: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: GeoMorph on April 24, 2019, 08:18:28 AM
First, long time lurker.  Thanks to this community, I have been able to use many (obviously not all) of the lessons here to get my family to the point where we are now.  I recognize I can do better.  Anyways, this is the first time I have put this much financial information about myself.  Let me know what y’all think!!!

Family:
Reside in Texas and work for a State Agency. 
Husband Age 30
Wife Age 28
Child #1 (starts college in 2028)
Child #2 (starts college in 2033)
Child #3 (starts college in 2038) [wife is currently pregnant]

Current Gross Income:
Husband:  $5,800/mo.
Wife:   $0/mo.  [She plans to stay at home until all children are in school]

Next Month’s Estimated Paycheck:
Husband:  $4150/mo.
Wife:  $0

Monthly Before-Tax Deductions:
Mandatory [State of Texas Employee] Pension Contribution: $551
Health Insurance: $600
Dental Insurance:  $100
Work Life Insurance (x4 salary): $20

Taxes:
Taxes:  $390

Monthly Household Budget:
Mortgage (Principal, Interest, Escrow, Property Taxes):   $1370
Utilities (Water, Electricity, Trash, Sewer):   $210
Internet:  $70
Phone: $50
Netflix/HBO/Hulu: $35
Term Life Insurance: $50
Vehicle Gas:   $150
Vehicle Maintenance: $80
Groceries: $600
Discretionary (eating out, entertainment, clothing, kid sports, dog supplies, etc.):  $400
Car Payment: $300
Student Loans: $0 currently by keeping AGI below 150% of poverty line [Hoping to have loans forgiven after 10 years of State service, which is 4 years from now.  Good plan or not?  What do you guys think?]
Contribution to IRA/457: $800
Total = ~$4115

Assets:
Checking Account: $2,000
House:  $225,000
Account Balance in Pension I Can Take If I Leave State Employment: $33,000
Taxable Brokerage: $20,000
Traditional IRAs: $57,000
457 Plan: $10,000
2017 Honda CR-V: $18,500 (KBB Trade-in Value)
Total: $363,500

Liabilities:
Mortgage: $ 173,000
2017 Honda CR-V:  $8,500
Student Loans:  $39,000 [Hoping to have loans forgiven after 10 years of State service, which is 4 years from now.  Currently able to keep AGI below 150% of poverty line to keep payments at $0 by contributing to Traditional IRA and/or 457 Plan.  I am aware of the problems pertaining to having the loans forgiven from news articles late last year/early this year.  Hopefully it pans out, but I am willing to hop jobs if the right opportunity presents itself.]
Total:  $220,500

Total Assets – Liabilities = $143,000
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: jwright on April 24, 2019, 08:33:47 AM
Do you have an emergency fund or any liquid savings?
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: GeoMorph on April 24, 2019, 08:47:04 AM
Yes, I keep $2,000 in my checking account as a barrier.  If it ever goes below, I replenish back to $2000, if it goes above, I stick it in brokerage or IRA. 
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: Enigma on April 24, 2019, 08:56:51 AM
I am not seeing a lot of credit card debt and overall think you are doing a pretty good job.  That aside I would shift at trying to stash away more for retirement.  You do not appear to have many areas to cut (increase income -or- decrease expenses strategy)

More income (better job) - Try not to think of the student loans as the reason not to get a better job.  Shoot for a 100k+ job now that you have your education and 6 years of experience.  Depending where you live in TX this may or may not be an option.  With a 401k matching, HSA, and increased income the student loan would disappear.

Keep up the good work!  ;-)
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: Freedomin5 on April 24, 2019, 09:06:16 AM
Oh boy...you guys are cutting it really close budget-wise. However, there are ways to create some breathing space in your budget.

By the way, your emergency fund should be 3-6 months expenses. So at a minimum you should keep around $10-12k within easy access.

The glaring item is that you’re spending $1000 PER MONTH on food and discretionary items. To feed four people (because kid 3 is currently still in the womb). Cut that in half, or more. Boom. You just saved yourself $500 per month.

Given that your kids are 5 years apart, the oldest looks like they’re already in school. And the second is either in kindergarten or about to enter school. Your wife therefore has time to compare prices and shop sales and get creative with cooking low cost meals. Check out the “grocery bill under $200” thread on this forum. And check out www.budgetbytes.com (http://www.budgetbytes.com) for cheap but yummy meals.

Why do you have no phone? There’s no line item for it.

Do you also have a dog? You mentioned dog items in the discretionary line. I’m not sure if you can afford three kids plus a dog on your income. If it were me, I’d say one of them needs to go, and I doubt you would want to get rid of one of kids. :P I know this comes across as being harsh, but if you don’t have some cushion in your budget, you’re one disaster or unfortunate incident away from losing everything you worked so hard build up.

Also, how much coverage does your term life insurance offer? As a single income household with three young kids, you want at least enough to pay off all debts and leave enough to sustain the family until the kids go to college. Do you also have life insurance for your wife? If anything were to happen to her, you need enough to cover hiring someone to care for your children while you work.

Finally, kudos for having only one car. I’m guessing you’re planning to drive the car into the ground? We generally frown on the idea of getting a car loan and buying a new car. I hope you at least got a superb interest rate on that loan. Otherwise please pay it off ASAP and never get a car loan again. If you need a loan to get a car, then you can’t afford that car.

Overall, you’re not doing too shabby in terms of your expenses. It looks like you have around a 30% savings rate when you add up the pension and IRA/457. But I’m guessing that you’re on the forums because you want to do even better.

Once the kids are in school and loans are forgiven, you and your wife may want to consider ways to increase household income.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: GeoMorph on April 24, 2019, 09:43:24 AM
Oh boy...you guys are cutting it really close budget-wise. However, there are ways to create some breathing space in your budget.

By the way, your emergency fund should be 3-6 months expenses. So at a minimum you should keep around $10-12k within easy access.

The glaring item is that you’re spending $1000 PER MONTH on food and discretionary items. To feed four people (because kid 3 is currently still in the womb). Cut that in half, or more. Boom. You just saved yourself $500 per month.

Given that your kids are 5 years apart, the oldest looks like they’re already in school. And the second is either in kindergarten or about to enter school. Your wife therefore has time to compare prices and shop sales and get creative with cooking low cost meals. Check out the “grocery bill under $200” thread on this forum. And check out www.budgetbytes.com (http://www.budgetbytes.com) for cheap but yummy meals.

Why do you have no phone? There’s no line item for it.

Do you also have a dog? You mentioned dog items in the discretionary line. I’m not sure if you can afford three kids plus a dog on your income. If it were me, I’d say one of them needs to go, and I doubt you would want to get rid of one of kids. :P I know this comes across as being harsh, but if you don’t have some cushion in your budget, you’re one disaster or unfortunate incident away from losing everything you worked so hard build up.

Also, how much coverage does your term life insurance offer? As a single income household with three young kids, you want at least enough to pay off all debts and leave enough to sustain the family until the kids go to college. Do you also have life insurance for your wife? If anything were to happen to her, you need enough to cover hiring someone to care for your children while you work.

Finally, kudos for having only one car. I’m guessing you’re planning to drive the car into the ground? We generally frown on the idea of getting a car loan and buying a new car. I hope you at least got a superb interest rate on that loan. Otherwise please pay it off ASAP and never get a car loan again. If you need a loan to get a car, then you can’t afford that car.

Overall, you’re not doing too shabby in terms of your expenses. It looks like you have around a 30% savings rate when you add up the pension and IRA/457. But I’m guessing that you’re on the forums because you want to do even better.

Once the kids are in school and loans are forgiven, you and your wife may want to consider ways to increase household income.

Yes, I should and now do plan to create an emergency fund.  Should i divert all of my contributions from IRA/457 into creating an emergency fund of 3 - 6 months, then go back to contributing to IRA/457?

Regarding food/discretionary, Yes, this one is definitely tough to swallow.  We will definitely look into budgetbytes.com to significantly lower the grocery budget.  Also, wife and I get bored and go to Target usually once or twice a week - of course we buy things we don't need.  I think the best thing we should do is find things to do that don't cost money when we are bored.  I also notice everytime we go grocery shopping, we also end up buying extra food not on the list!  We need to definitely work on that. 

Added phone of $50/mo.  I knew I forgot something!

We do have a dog.  My wife/kids would not be on board with getting rid of him.  Hopefully I can convince them to not get another once he passes (dog is 7 years old).

My wife and I each have $500,000 term life coverage.  I also have an additional $280,000 term life coverage from my work.

Car interest rate is @ 1.9%.  No more new cars again!

I am trying to convince my wife to at least get an associate's degree within the next 6 years so she can increase our income after child #3 enters school.  She is reluctant to go back.  I am not 100% why, but last time I asked her she brought up her auto-immune disease (Sjogren's syndrome) as a reason.  She gets tired really fast (due to the auto-immune disease) and I think she has general anxiety regarding that.  She has check-ups twice a year for that, and she fears her organs will go bad.  I try to tell her all we can do now is keep up with her regimen (vitamins) her Doctor has advised her of, and to keep moving forward.  She has worked periodically (retail), but I think the constant walking around puts a strain on her due to the auto-immune disease.  I try to tell her to get an office job via associate's degree.  I have a few more years to convince her to get this!
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: GeoMorph on April 24, 2019, 09:47:33 AM
I am not seeing a lot of credit card debt and overall think you are doing a pretty good job.  That aside I would shift at trying to stash away more for retirement.  You do not appear to have many areas to cut (increase income -or- decrease expenses strategy)

More income (better job) - Try not to think of the student loans as the reason not to get a better job.  Shoot for a 100k+ job now that you have your education and 6 years of experience.  Depending where you live in TX this may or may not be an option.  With a 401k matching, HSA, and increased income the student loan would disappear.

Keep up the good work!  ;-)

We pay off credit cards monthly.

Yes, I have started to look for a better paying job (oil & gas regulatory).  I need to brush up my resume and get out there and make it happen!
Title: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: pbkmaine on April 24, 2019, 09:57:00 AM
If your wife’s health makes it unlikely that she will find paying work outside the home now or in the future, you two can decide that her job will be maximizing your savings. As has been said above, there are areas that can be cut, and they will have a lot to do with her.

She might be interested The Prudent Homemaker website. Brandy Simper is a stay-at-home Mormon mother of NINE, and she can squeeze a nickel like nobody’s business. My life looks nothing like hers, but I have still learned a lot from her and the people who comment on her site.

https://theprudenthomemaker.com
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: Laserjet3051 on April 24, 2019, 10:22:03 AM
Good job on lbym.

What stands out to me are a potentially insufficient EF, especially with 3 kids and a SAHM plus no line item for college savings? Arent you 9 years from your oldest matriculating? What is your plan regarding paying for college? After our Golden Retriever passed last Thanksgiving, I conveyed the unfortunate news to the family that we would not be getting a new dog. While he brought immense joy to all of our lives, the cost and workload and restrictions on our life were quite substantial.

What is your student loan balance? Are you aware of the risks you are taking with the PSFL program and what you might do if that falls through?
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: former player on April 24, 2019, 10:32:53 AM
If your wife's health is good enough for her to have 3 children and keep house for a family then it is good enough for her to have at least a part time job outside the home when her youngest starts school.  I suspect her problem is more likely to be anxiety and unfamiliarity with paid work, given that she started her family so young.  Perhaps once the new little one is a little older she could start with hobby-type classes at a local college as a possible way into more serious vocational study and then into paid work?

Are you planning on having any more children after this one?  If not, going for the snip could be a good solution.

Otherwise, do please check over your paperwork for the student loans redemption and perhaps confirm with the relevant agency that you are on track for this - "hoping" is no way to live the next four years only to find out that it isn't panning out for you.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: freya on April 24, 2019, 12:00:09 PM
Your wife's medical condition underscores the need for an emergency fund - it should cover at least your out of pocket max for 2 years.  Thankfully everything is ok for the time being, but you never know.  You could do that by opening a money market fund at the brokerage and redirecting future contributions to that fund.

I agree that your state job may be serving as a set of golden handcuffs that might not be worthwhile.  If you can increase your pay by at least $20K/year, definitely jump and start paying down the student loans.  In the meantime, can your wife find some type of work that lets her stay at home?  Tutoring online or some such.   It might help her to break whatever barriers are keeping her from being employed.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: JSMustachian on April 24, 2019, 12:52:16 PM
How much federal tax is taken out of your checks? Is that the $390? With one income and 3 child tax credits this year you should be except. This should get you more money during the year so you can build your emergency fund.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: Freedomin5 on April 24, 2019, 05:00:27 PM
Quote
Yes, I should and now do plan to create an emergency fund.  Should i divert all of my contributions from IRA/457 into creating an emergency fund of 3 - 6 months, then go back to contributing to IRA/457?

I would continue contributing to those and divert your “not shopping at Target when bored” savings to building your emergency fund. I would also consider getting a side hustle. Deliver pizzas. Tutor online (you need a college degree for this one), Etc.

The dog issue is easy. Once the dog passes, let your kids know they can have another one, as long as they earn the money to take care of it. Let them know you (dad) can’t afford another one. The only exception is if you somehow find a way to double family income within the next few years, and even then you probably have better use for the money in terms of playing catch up on your retirement funds.

I agree with the poster who suggested that if your wife is averse to earning an outside income she can focus on maximizing savings. If she can get your family expenses down to $2000 per month (not including your IRA contributions), you guys would be doing really well.

Re: your life insurance, it looks like if anything were to happen to you, $180k would go towards paying off the mortgage and car so that your wife and kids aren’t homeless and stranded, leaving $320k+$280k (4x salary) or $600k to live off of until the oldest is old enough to start earning money to support the family. That seems reasonable, with a paid off house.

Regarding your wife’s education, she is really closing doors with only a high school diploma (I’m assuming she graduated high school since you mention pursuing an associate’s). Are there reputable universities in your area that offer online degrees? As long as she has a degree, she can earn money by working from home. For example, online tutoring pays up to $20/hr.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: ontheway2 on April 26, 2019, 09:16:32 AM
How much federal tax is taken out of your checks? Is that the $390? With one income and 3 child tax credits this year you should be except. This should get you more money during the year so you can build your emergency fund.

I imagine the $390 is primarily FICA. I know I pay zero fed income tax but have around that much withheld on a similar income although we have state income taxes
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: freya on May 01, 2019, 08:16:48 AM
As for loans, how much are your student loans?  And at what rates? 

This thread (https://forum.mrmoneymustache.com/off-topic/public-loan-forgiveness-program-anxiety/msg2324661/#msg2324661) sums up many of the reasons why I don't recommend relying on loan-forgiveness programs.  You'll find other such threads around here and elsewhere online...loan forgiveness can work out, but it's far less likely to than advertised, even if you do everything right. 

Plus, you cap yourself in terms of income and upwards potential because, at some level, you phase out of most programs and have to begin significant or even full repayment at income levels and timelines where that's not really feasible.

And, assuming you do it all right and it works out, you now (in some/many instances) face a huge tax bill. 

You would have to be pretty far underwater for loan forgiveness to sound like a good option.

Very important considerations.  Check the fine print on your loan forgiveness program.  Some programs pay extra to cover the taxes.  If that's not the case, then it's only a 1 - (your marginal fed + state tax rate) benefit.  If there are additional criteria like income exclusions, that will reduce the benefit further. 

Calculate the annual benefit, then compare to the amount of money you're losing by staying in the lower-income job (plus consider the extra 5 years.)  Look into pay + benefits for comparable jobs in your area (i.e. go interview and see what the offer looks like). If the math works out in favor of leaving then so be it.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: Peachtea on May 04, 2019, 07:41:37 AM
Your loan forgiveness plan really is good since you’ve managed to keep your payment at zero! Your a state employee, so automatically eligible for PSLF. PSLF has no tax implications, it’s a tax free forgiveness. No income exclusions if you’ve made your income low enough (through retirement savings and kids) to have payments of $0. Even if your income randomly shot up so much where you’re no longer eligible for an income based plan, you will still be eligible for forgiveness at this point. Since your payment is $0, only way to get that is to be on an income based plan, so no worries you accidentally chose the wrong payment plan like others. Although when checking your months qualified make sure you’ve always been on an income based plan. (You fill out the employment cert yearly to track this, right?) Double check all your loans are direct loans and you’re golden.

The closer to 10 years you get the more valuable the forgiveness is. You have 39k in SL and 4 years left. That means a private sector job would have to pay you $9,750 a year after tax more to be worthwhile. And that number goes up every year you stay with the state. Next year you would have to find a private sector job that pays $13,000 a year after tax more, the following year $19,500 after tax more, and last year 39k more after tax. So while it’s good your willing to make a switch and lose PSLF if overall more beneficial, it’s probably more realistic to stick out 4 more years for forgiveness and then move on to increase income. Depends on your field and how much of a boost you think you’d get in private sector.
Title: Re: Reader Case Study - $69,000/yr. Family Income, Texas
Post by: RedwoodDreams on May 08, 2019, 08:15:49 PM
Sorry to hear about your wife's health challenges. Sjogren's can be quite debilitating. Taking care of three children and a home is plenty of work for someone already battling pain and fatigue. If she's worked in the past, has she considered applying for SSDI? Even if she didn't work for long, it could provide a stipend that helps the family out. If she doesn't want to apply now, she can help her future self by making sure to visit doctors regularly so there's a written record of her symptoms and struggles--so that if things take a turn for the worse and she changes her mind and wants to apply, she'll have the history there in writing.

I think overall you're doing pretty well. I wouldn't stress about college savings. If your income looks low, the kids will qualify for more financial aid.