Topic Title: Reader Case Study – next steps in this process? Will we ever be FI? Can Hubs RE?
First, a little about our values and goals:
We’ve always been financially frugal. No debt ever, except mortgage. We have smallish, reasonable cars and house. We have a mindset of minimalism, without the extreme lifestyle that goes with it.
I want to be FI, I don’t want to RE. (I’m a teacher and I love my job. Also, I’m counting on the pension…) Hubby would like to RE, he hates his work and has never been satisfied in any job ever. (But his mental health necessitates that he involves himself in some endeavor outside the home. And he’s not self-motivated or a visionary, so RE might not be the best thing for him either)
We want to use our money, time, and resources for the good of others. So our real goals are: minimize expenses, maximize earnings without compromising family time, contribute to investments that will afford us a comfortable lifestyle where we can invest our time, energy, money in others, fund kid’s college (though grandparents have said they would cover this expense, but who knows?)
Second, a little about our situation:
We’re recovering from a huge health setback that has consumed our life energy for the past 12 years. Due to the support of family, we are not financially ruined, but we’ve not been able to “get ahead” in the past 12 years…I’ve been a SAHM who has just recently gone back to work teaching part time and my husband is in a job that takes care of our needs. If he were to change jobs/profession, he could expect a 30-40% pay cut.
Finally, the financial break down:
Life Situation: Married, filing jointly, Hubs is 43, I am 40, two kids aged 11 and 9, we live in California, pretty HCOL
Gross Salary/Wages: Hubby makes 72K/ year
I make 26K/year (I just went back part-time in January; I expect I’ll be ready to go back full time @ 52K in about 2 years once I complete my master’s degree)
Other Ordinary Income: bonuses/profit sharing 3K/year
Assets: Investments: 119K Total in the following accounts:
Hubby’s work 401K: 78K (contributes @ 5% up to match)
Hubby’s other retirement account (I don’t even know what this is, need to find out): 13K
My cash balance in pension: 14K
Emergency fund cash/pop-up expenses: 12K
Coins: 2K
I’m not including the house and the cars
The following are monthly expenses:
Taxes: This is Hubs deductions only (Since I haven’t done taxes yet this year, I don’t know really how my extra income will affect our tax situation)
Federal: 180
SS: 358
Medicare: 84
CA State: 34
CA DI: 52
I’ll do the math: take home for hubs after deductions is 4760, take home for me is about 2200 (and I get paid 10x/year)
Current expenses: (this is average monthly spending based on the past 6 months)
House: we own a 50% share in a 330K house with a 127K mortgage at 3.4% (19 yrs left). Home expenses are $1100/month (P&I: $750, taxes: $300, insurance: $60)
Cars: both our cars are 10yrs old with over 150K miles on them, both running great and we’d like to keep them another 3 years at least. gas $335, reg and maintain $150, insure $80, etc: $565/month
Utilities: pge $200, water/sewer $100, cell phones $30 (total for all 3 phones), and internet $50: $380/month
Food: Eat out: $350/month (YIKES!)
Groceries: $ 400/month (this doesn’t really seem right, I guess we’ve just eaten out more in the last 6 months since I’ve been back to work, less at home meals, less groceries, it evens out I guess)
Healthcare: premiums deducted out of paycheck $230
Out of pocket expenses: orthodontia $200
saving up to meet deductible: $250 (best case scenario)
Other expenses which are likely to change as our needs change:
charitable giving: $500 (we’d like to up this to $700-800)
clothes (for the first time in my life I am shopping at upscale thrift stores and buying my kids new clothes instead of going to goodwill, and I like it): $80
toiletries (including diy hair dye, damn the grey): $35
entertainment (includes movies, and impulsive groupons): $50
subscriptions: gym membership $39 (need to cancel), Media: total $10/month, emeals: $5, total $54
kids extra curricular (music lessons, sports, scouts, after school care): $225
my master’s tuition: $625
vacations: mini-trips one year/big trip the next year:$300
amazon purchases: $50
target purchases: $35
home improvement: $35
hobby garden: $20
other hobbies (adventure sports, video games): $80
Self-regulated savings:
car replacement fund (anticipating 2 cars within 3 years): $550
home improvement fund (includes cost of new AC unit, washer and dryer, water heater within 5 years): $200
Expected ER expenses: Massive, unbearable health care costs (unless I continue working and receiving health benefits), car expenses could decrease significantly, vacation expenses and entertainment spending could go up, tuition will remain as I’ll probably continue my education to persue my Phd or advanced certification
Liabilities: none except the 19 year mortgage
Specific Question(s):
So, here’s my next steps I think…
1) Set a goal and a date that hubs could potentially RE or figure out if he could be a SAHD for a while, or find a more satisfying lower paying job…
2) Decide where we can trim the fat and reign in over spending.
3) Update our YNAB software and stick to the budget.
4) Allocate maximum we can afford of pre-tax income to Hubby’s 401K (up to 18K, but can we afford this?)
5) Based on actual healthcare spending, contribute necessary amount to FSA (use it or lose it, so I need to project accurately and conservatively here)
6) Open account and contribute as much as possible to Roth IRA (is 11K too much?)
7) Brainstorm side-hustle ideas (I’ll look at this more as a learning opportunity, hobby, or family project)
Any advice is welcome but also, specifically:
Given our situation, what is a reasonable amount to contribute to hubs 401K?
Should we contribute max to 401K first (18K), then open an IRA? OR should he contribute to 401K up to employer match then open an IRA for me just cuz I don’t have any retirement accounts except the pension? OR should he open his IRA now because he doesn’t want to work much longer and might not be able to contribute later? OR can we afford to do it all?
Any glaring, face punch worthy over-spending that hasn’t already been noted?
What is a reasonable FI goal amount given our expenses? RE date? How do I plug my numbers into this equation?
