Reader Case Study- Clueless Noob – Aspiring FIRE

[cluelessnoob]

Reader Case Study- Clueless Noob – Aspiring FIRE

This is my very first post here. My goal is to get objective advice to make changes where possible by live within my means and to use the numbers to find a realistic goal.

Life Situation: Married with 1 child (2.5 yr old). DW is 32 and I am 36. DW is home maker

Gross Salary/Wages:

$78K

Individual amounts of each Pre-tax deductions: (All numbers are based on 2018 numbers)

401k - $403/month - Employer matches 50% up to 6%  of my salary  (4828+2414 = $7242/annual)
HSA - $475/Month – with Employer contribution of  $1200 to max HSA Limit ($6900/annual)
Insurance: (9.92% of annual income)
Dental -   $24.88/month ($298.56/annual)
Medical    -$227.54/month ($2,730.48/annual)
Vision -   $13.00/month ($156.00/annual)

In additional contributing 7% to ESPP - $469/month ($4,828.18/annual) - Getting 10% discounted price of starting or ending price of a qtr.; whichever is lower

Adjusted Gross Income after tax:

 $50.4k

Taxes: $14.7K + $325 property tax on car

Current expenses:
Rent: $870.00
Renters insurance: $10
Internet: $45.00
Cell Phones: $35.00
Gas: $100.00
Electricity: $85.00
Groceries: $400.00
Clothing and other household goods: $150
Car Insurance: $83.00
Support to Parents expense: $240.00
Charity/donations: $50.00
Dinning out: $100.00
Gifts: $20.00
Car Maintenance: $30
Laundry and Saloon: $30
Online services: $9.00
Vacation/travel/shows: $350

2018 Total expense = ~32k/yr

Assets: Amount & description

Employee 401k- $26.3K
HSA. - $7K
ESPP – $35K (Need to reduce exposure. Have been 25%+ cagr until recent meltdown)
Taxable Account - $114K
2014 Honda – paid off. Resale value around $10k
Cash under mattress = 1K for cash emergency
House in home country, not estimating for current evaluation
Total = $226K


Liabilities:
$0 debt
However, yet to have a life insurance (apart from company sponsored basic life of$65k), no disability insurance

We are planning to have another baby within 2-3 yrs. My spouse is actively looking for a job. I am on work visa with GC under process. Ageing parents and delay in getting GC has limited our traditional investment options like IRA & 429 options. Planning to put cash into  VWAHX.

Experts please suggest best possible options for us to proceed 

How are we doing?
How to derive a realistic FIRE number. Is that even possible?
Where are some areas we could use some improvement?

Thanks in advance for all those who take time and energy to read my post and possibly helping out to figure out FIRE options.

[FreeBear]

Congrats Noob, looks like you are doing a great job so far! 

I find it useful to look at saving rates (percentages), not just absolute dollar values.  It allows quick comparison to how you are doing compared to others.  For example, it's commonly recommended in the USA for workers to save 10-15% for retirement.  This is great if you want to retire in your 60's, but this isn't the typical MM reader.  I believe MM and many here recommend a 50% or better savings rate (net, take home-after taxes). 

I assume you are investing your $50K take home - $32K expenses = $18K into your Vanguard taxable account.  Correct??  If this is true, than your gross savings rate is around 36% and your net (based on take-home) is around 56%.  This is quite impressive!  As a guideline, your need roughly 25 to 33 times your yearly expenses (4% and 3% guidelines, respectively) saved and invested to reach financial independence and have the opportunity to retire. 

I'll focus on big picture risks.  Others are better qualified to help optimize your expenses.

1) With a kids, I strongly recommend additional term life and disability insurance that is not tied to your job. What would happen if you couldn't work??  Would your family return to your home country or tough it out hear as a single mom with possibly 2 kids? 

2) What's a realistic nearly-worse case with your support to parents in terms of our finances?

3) My biggest concern is lifestyle inflation with 1-2 kids.  Are you budgeting for a bigger home or even a home purchase?  If your wife is planning to w*rk for pay, have you budgeted for daycare or is it more cost-effective to have her stay a home until they are older?  Have you budgeted for college savings?  Of course, you have at least some control or even total control of all of these expenses.  I strongly suggest that you form a rough plan/budget before having another child. 

4) Where are you planning to retire?  Back in your home country or here?  If you'll return to your home country, is the cost of living much lower?  What about your kids and grand kids, one day?

5) When are you planning to retire?  If in your 60's (traditional) you'll probably be OK even if your savings rate slips somewhat.  If you want out much sooner, I suggest some planning regarding the above.  Ideally, I'd suggest learning to use a retirement planner like Firecalc or other free tools others can suggest. These are all just estimates, but the exercise encourages thinking things through!

[Freedomin5]

Goldielocks has covered the big questions, so I will nitpick a bit at the expenses.

A few items jump out at me:

1. $30 in laundry fees? (And I’m assuming you mean hair “salon”, not “saloon” which is a bar where you drink alcohol). Your wife is a homemaker. She can do laundry. If you’re talking about dry cleaning costs, get rid of the clothes that need to be dry cleaned. Potential Savings: $360 per year

2. $500 in food (groceries and dining out). This can be reduced by 40-50%. There are many creative ways to eat healthily and cheaply. When DH was a SAHD, his job was to grocery shop wisely to keep food expenses down. Potential Savings: $2400-$3000 per year.

3. $150 on clothing. What is this? If it’s baby clothes, look on Freecycle or buy from thrift store. A two year old is not going to know the difference. If it’s household goods like toilet paper, I doubt you spend over a $100 on TP each month. Potential Savings: $1200 per year.

4. Travel/vacation. Those costs are quite high. Anyway to travel hack? Vacation in nearby locales? Starvation? Potential Savings: ~$1000?

It looks like you can easily save another $5000 per year without much sacrifice.

And yes, please get a bit more insurance. The last thing you want is your non-working spouse to have to find a way to survive with two young children and no income. You may also want to get life insurance for your wife. If something were to happen to her, you may have to hire someone to care for your kids while you continue to work.

To calculate your FIRE amount, estimate your annual expenses once you FIRE, then multiply by 25 (assuming 4% safe withdrawal rate).

[MDM]

How to derive a realistic FIRE number. Is that even possible?

Yes, it's possible.  Of course, even when realistic, there will be uncertainty.

What do you get using the simple "Time to FI" calculation in the case study spreadsheet, and/or more sophisticated tools such as those described in Best and/or Recommended Retirement Calculator - Bogleheads.org?

[spaniard999]

I think that employer contributions to HSA count towards the limit, at least mine does.

[cluelessnoob]

I assume you are investing your $50K take home - $32K expenses = $18K into your Vanguard taxable account.  Correct??  If this is true, than your gross savings rate is around 36% and your net (based on take-home) is around 56%. 

Yes. Notional savings rate been around 45-50% for last 3 yrs. However, all savings are not in Vanguard taxable account as it should be. Last 1 yr saving is in savings account since i felt market is overvalued (Market timing speculation mistake as always).

1) With a kids, I strongly recommend additional term life and disability insurance that is not tied to your job. What would happen if you couldn't work??  Would your family return to your home country or tough it out hear as a single mom with possibly 2 kids? 

Yes. Started looking for additional term life insurance

2) What's a realistic nearly-worse case with your support to parents in terms of our finances?

Didn't really get your question. This is a fixed amount I send to my parents back in my home country so that they can enjoy their retirement life

3) My biggest concern is lifestyle inflation with 1-2 kids.  Are you budgeting for a bigger home or even a home purchase?  If your wife is planning to w*rk for pay, have you budgeted for daycare or is it more cost-effective to have her stay a home until they are older?  Have you budgeted for college savings?  Of course, you have at least some control or even total control of all of these expenses.  I strongly suggest that you form a rough plan/budget before having another child. 

4) Where are you planning to retire?  Back in your home country or here?  If you'll return to your home country, is the cost of living much lower?  What about your kids and grand kids, one day?

5) When are you planning to retire?  If in your 60's (traditional) you'll probably be OK even if your savings rate slips somewhat.  If you want out much sooner, I suggest some planning regarding the above.  Ideally, I'd suggest learning to use a retirement planner like Firecalc or other free tools others can suggest. These are all just estimates, but the exercise encourages thinking things through!

These are the questions I having been struggling to put some numbers into it. Planning to retire here only unless parents fall sick and they want us to be with them back in home country. Planning to FIRE before 60.
Thanks for letting us know retirement planner tools.

[cluelessnoob]

1. $30 in laundry fees? (And I’m assuming you mean hair “salon”, not “saloon” which is a bar where you drink alcohol). Your wife is a homemaker. She can do laundry. If you’re talking about dry cleaning costs, get rid of the clothes that need to be dry cleaned. Potential Savings: $360 per year

Actual number is coming around $18/month. Being in an apartment, less flexibility on this with 2 yr old on a potty training schedule.

2. $500 in food (groceries and dining out). This can be reduced by 40-50%. There are many creative ways to eat healthily and cheaply. When DH was a SAHD, his job was to grocery shop wisely to keep food expenses down. Potential Savings: $2400-$3000 per year.

3. $150 on clothing. What is this? If it’s baby clothes, look on Freecycle or buy from thrift store. A two year old is not going to know the difference. If it’s household goods like toilet paper, I doubt you spend over a $100 on TP each month. Potential Savings: $1200 per year.

4. Travel/vacation. Those costs are quite high. Anyway to travel hack? Vacation in nearby locales? Starvation? Potential Savings: ~$1000?

$150 is clothing and household combined. Like furniture purchases and other expenses. We mostly buy kid clothes from thrift stores.Sure, we are looking into individual items to minimize this category expense as you mentioned. Trying to optimize on grocery, eating out & travel/vacations. Thanks for Freecycle info.

[cluelessnoob]

What do you get using the simple "Time to FI" calculation in the case study spreadsheet, and/or more sophisticated tools such as those described in Best and/or Recommended Retirement Calculator - Bogleheads.org?

Thanks.. will explore on these

[cluelessnoob]

I think that employer contributions to HSA count towards the limit, at least mine does.

My bad.. You are right.. i have corrected my OP.

[FreeBear]

[These are the questions I having been struggling to put some numbers into it. Planning to retire here only unless parents fall sick and they want us to be with them back in home country. Planning to FIRE before 60.
Thanks for letting us know retirement planner tools.

Thanks for reply back to us! 

The reason I ask about your parents is that sometimes parents end up living in the US with one of their kids, which can impact housing cost, but save on babysitting.  So the point here is whether you expect your financial responsibility is likely to be constant (fixed) over time or is there a  reason to expect to spend much more money later (move parents to USA, buy/upgrade house in home town, etc).

Have you planned for funding of your kid(s) college education.  College can be crazy expensive here in the US.  It's never too soon to start.  A friend of mine is saving $5K/year in a state 529 education plan; his son is about 7 years old.  This is expected to fund 50-70% of college costs at a middle quality state university. Something to think about while your kids are young!