Starting late.. or so it feels

[mgardner88]

Topic Title: Reader Case Study - Are we at least headed in the right general direction?

Life Situation: MFJ, Both 34, 3 kids (13,11,9) We live in CA in a HCOL area but not crazy expensive like SOCAL or the Bay Area. 

Gross Salary/Wages: DH base pay is $59k, mine is 48k.

Individual amounts of each Pre-tax deductions:
401k: DH $20,500 + $3,200 Employer match per year
457b: Mine $20,500 per year no match.
State Pension: Mine, $3,552 per year. I work for the State of California and this is my mandatory contribution.

Other Ordinary Income: DH makes roughly another $10k a year in overtime but this job is only 6 months old so this is not definitive.

Qualified Dividends & Long Term Capital Gains: None

Rental Income, Actual Expenses, and Depreciation: $7,200 yearly in rental income, we rent out our basement apartment. Long story with this one but basically its a low amount for a family member who helped rehab the apartment. Not even sure it covers the electricity/gas/water that is used by them. It was supposed to be kind of temporary (1-2 years, its been 4) while they saved up for a house but the market has gone completely insane here and idk if this will be a possibility in the near future.

Adjusted Gross Income: $69,000 (not going to include the possible OT yet)

Taxes: Federal, state/local, and FICA: We basically pay no taxes, with three dependents and our AGI it all comes back to us at the end of the year, if it gets taken at all to begin with.

Current expenses (Annual):

-Groceries and household: $8,000
-Mortgage and Escrow (property taxes, fire insurance, home insurance): $20,136
-Electricity: $4,800
-Propane: $1,200
-Water: $2,000
-Phone: $2,640 (this includes paying for my sister and parents phones, they provide before school care for my kids since i have to be at work by 0700)
-Gas: $14,400 (I'm very aware this is shocking, my husband drives our camry about 250 miles a day for work, I carpool and my parents use my other car to take my kids back and forth to school, gas is over $5.60 a gallon right now)
-Dining out: $1,200 (we dont eat out alot unless on vacation)
-Haircuts: $250 (my son and husband cut their hair at home, me and the girls get cuts 2x a year)
-Pet expenses: $1,000 (we own and run a small farm, i do the expenses and income from it separately but this is about what we spent after all income was accounted for, a hobby for sure)
-Health Co-pays: $500 (what we spent last year, hard to know what it will be this year)
-Auto (registration, insurance, maintenance): $2500 (roughly)
-Vacation: $5,000 (again roughly, we took two last year and this is what it costs us) will vary on the year.
-Tobacco and Alcohol: $1,000
-Debt repayment: $1200

Total expenses: $65,826


Expected ER expenses: Haven't gotten that far yet lol

Assets:

-House- $450k (assessed last year for refinance)
-401k - $63.3k
-457b - $38k
-CALPERS- $18.3k
-Taxable - $3.2k
-IRA- $5.4K

Liabilities:

-House: $229k (15 year loan at 2.3% refinanced in 2021)
-CC#1: $12K (Minimum payment $200, 0% APR until 2024)


Specific Question(s): Been working on paying off that card before the 0% goes away, i guess im looking for some guidance on where to go from here, we just recently started maxing our 401ks and during open enrollment are going to sign up for the HSA available at my husbands job. We have been clawing our way out of what feels like a bottomless pit for so many years with young kids, crazy work schedules to accommodate them, living in a place where the wages just dont keep up with the COL and no higher education.

[Sanitary Stache]

Great job putting this all together. It is often helpful to just see where your money is and is going in the case study spreadsheet.

I wonder what brings you to MMM and why you feel like you are starting late. I am finding that we all come to the awakening that financial independence is possible differently. And that MMMs path is really for those in their 20s or at least those without children. The financial independence path for families is different. For everyone it’s different of course, but for those of us not FI but with kids there are different options available.

I see your situation and think you started raising a family early. My family has 3 kids and we are slowly recognizing that it is un likely we will achieve FI before the kids are grown. Our decisions have adjusted then from making and saving as much as possible, to saving as much as possible while making time to be with the kids. That means saving less than we would otherwise.

We also try to work on our ethic. For us that means the food we eat and the energy we consume are as important as the money we save. In that light, $14,400 per year burning gasoline is a hair on fire emergency greater than your 0% interest CC debt.

I would refocus all my energy on reducing that carbon burden from my families shoulders. What life changes would address that cost?  Is that really an impact your want your family to be having on the world?

[MDM]

Specific Question(s): Been working on paying off that card before the 0% goes away, i guess im looking for some guidance on where to go from here....

The Investment Order post has suggestions that will be applicable for many.  How does that look to you?

Some tax planning might be worthwhile.  E.g., if you really will have a $69K AGI in 2022, making and deducting a $1K traditional IRA contribution would get you a $400 retirement saver's credit.  If you can use Excel, the case study spreadsheet can be useful for this.

[feelingroovy]

You're doing great.

If it weren't for that credit card, I would say you just need to do a little optimizing.

And you do have some options.

The biggest lever is the basement rental. Do you have any idea what market rent is? I suspect that if you raised rent by 50%, it would still be a screaming good deal for your relative.

The other big one is gas. The easy way to reduce that is for the kids to take the bus to school, if that's available. It won't help a lot, but it will help. Your husband's commute is the big one. It sounds like he just started a new job so maybe won't want to look for a new closer one. He should anyway.

[mgardner88]

Great job putting this all together. It is often helpful to just see where your money is and is going in the case study spreadsheet.

I wonder what brings you to MMM and why you feel like you are starting late. I am finding that we all come to the awakening that financial independence is possible differently. And that MMMs path is really for those in their 20s or at least those without children. The financial independence path for families is different. For everyone it’s different of course, but for those of us not FI but with kids there are different options available.

I see your situation and think you started raising a family early. My family has 3 kids and we are slowly recognizing that it is un likely we will achieve FI before the kids are grown. Our decisions have adjusted then from making and saving as much as possible, to saving as much as possible while making time to be with the kids. That means saving less than we would otherwise.

We also try to work on our ethic. For us that means the food we eat and the energy we consume are as important as the money we save. In that light, $14,400 per year burning gasoline is a hair on fire emergency greater than your 0% interest CC debt.

I would refocus all my energy on reducing that carbon burden from my families shoulders. What life changes would address that cost?  Is that really an impact your want your family to be having on the world?

You are right it was extremely helpful to see it all laid out like this. We had kids and married young, our son was born when we were 20. Ive known about MMM and have been reading his stuff for quite a few years (and before that Dave Ramsey). And during that time tried to implement changes to get us in the right spot (started contributing a small amount to retirement, saved our downpayment for our house, got into jobs that provide insurance and benefits, got rid of most of our consumer debt) Neither of us particularly like our jobs but mine is manageable, my husbands is very physically taxing. Same as you we want to save what we can for retirement (early-ish maybe early 50s) but not at the expense of losing all our time with our kids. Our youngest will be 18 when we are 42, hopefully launched by the time we are 45. Good question about why I feel we are starting late, perception I suppose. I am really pleased with our progress so far, we have taken some huge steps that i never even dreamed possible 5 years ago.

The gas, yes its totally insane. Its hard to stomach, we are not sure how to fix this. We have been toying with the idea of a hybrid, and have ran the numbers a few times. We live rurally and the job market here is not great, there's about 3 big employers and my husband has worked for them all in the last 17 years. His schedule is erratic so the one other coworker that lives up here never works at the same time for carpooling. We own a small trailer and we considered having him stay somewhere down there/near work on the weeks that he works.

[mgardner88]

Specific Question(s): Been working on paying off that card before the 0% goes away, i guess im looking for some guidance on where to go from here....

The Investment Order post has suggestions that will be applicable for many.  How does that look to you?

Some tax planning might be worthwhile.  E.g., if you really will have a $69K AGI in 2022, making and deducting a $1K traditional IRA contribution would get you a $400 retirement saver's credit.  If you can use Excel, the case study spreadsheet can be useful for this.

Thank you @MDM im going to work on filling out that excel sheet

[mgardner88]

You're doing great.

If it weren't for that credit card, I would say you just need to do a little optimizing.

And you do have some options.

The biggest lever is the basement rental. Do you have any idea what market rent is? I suspect that if you raised rent by 50%, it would still be a screaming good deal for your relative.

The other big one is gas. The easy way to reduce that is for the kids to take the bus to school, if that's available. It won't help a lot, but it will help. Your husband's commute is the big one. It sounds like he just started a new job so maybe won't want to look for a new closer one. He should anyway.

Thanks @feelingroovy market rent is probably at least double what we are charging. I will have to bring this up with my husband and see what he thinks about raising it a bit.

The gas, sigh, its horrible. We have been running numbers for a hybrid, or him staying down near work during his "on weeks" We are pretty rural and the jobs here just arent great, although wages have come up a bit since covid. There is a sister company about 30 miles closer to us that he is going to apply for when a position opens. No bus, we are technically within 2 miles from the school so they dont provide buses that close. The kicker is its down a two lane "highway". Way to risky to actually walk *facepalm*

[LifeHappens]

The gas, sigh, its horrible. We have been running numbers for a hybrid, or him staying down near work during his "on weeks" We are pretty rural and the jobs here just arent great, although wages have come up a bit since covid. There is a sister company about 30 miles closer to us that he is going to apply for when a position opens.

I've been there, OP. At one point I was driving 80 miles each way because I was working in a specialized field in a geographic area with few job opportunities. You do what you have to do.

That being said, is there any long term thought to relocating? Rural life can be great, but it can also be very economically, educationally and socially limiting.

[former player]

You've asked a question with an easy answer: you are definitely headed in the right direction and the hard work that has got you to where you are shines through your case study.

Your husband is doing a lot of driving for work.  Is there any chance of getting his work to reimburse some of the cost of the petrol and the wear and tear on the car?  Getting a mileage allowance for this is the sort of thing that a workplace union is very helpful in negotiating.

The situation with your basement rental is tricky.  If the amount of work your relative did on the rehab was originally done in return for a low rent for a year or two and it's now been four years then it looks like time to raise the rent.  That is a tricky conversation though.  I also wonder, given that you are so rural would you be able to find a satisfactory replacement tenant at a market rent if your relative did move on?  That could be a factor.  The other thought I had, which may be a bit out of left field, is whether you have enough land on your farm to carve out a small plot in a distant corner for your relative to build on or put a trailer on?  The relative would have to pay market rate for the plot (no more unquantified financial deals between you, please) but if it is possible your relative would get on the housing ladder and you would get a hopefully substantial financial sum.

[mgardner88]

The gas, sigh, its horrible. We have been running numbers for a hybrid, or him staying down near work during his "on weeks" We are pretty rural and the jobs here just arent great, although wages have come up a bit since covid. There is a sister company about 30 miles closer to us that he is going to apply for when a position opens.

I've been there, OP. At one point I was driving 80 miles each way because I was working in a specialized field in a geographic area with few job opportunities. You do what you have to do.

That being said, is there any long term thought to relocating? Rural life can be great, but it can also be very economically, educationally and socially limiting.

I cant see us ever moving closer to his current work, its in a pretty undesirable area and we were both born and raised here. The schools are good here, which is not the case in many of the counties that surround us. I see where you are coming from though and if he ever got a job offer in a better area i think we would consider a move, if all the boxes were checked.

[mgardner88]

You've asked a question with an easy answer: you are definitely headed in the right direction and the hard work that has got you to where you are shines through your case study.

Your husband is doing a lot of driving for work.  Is there any chance of getting his work to reimburse some of the cost of the petrol and the wear and tear on the car?  Getting a mileage allowance for this is the sort of thing that a workplace union is very helpful in negotiating.

The situation with your basement rental is tricky.  If the amount of work your relative did on the rehab was originally done in return for a low rent for a year or two and it's now been four years then it looks like time to raise the rent.  That is a tricky conversation though.  I also wonder, given that you are so rural would you be able to find a satisfactory replacement tenant at a market rent if your relative did move on?  That could be a factor.  The other thought I had, which may be a bit out of left field, is whether you have enough land on your farm to carve out a small plot in a distant corner for your relative to build on or put a trailer on?  The relative would have to pay market rate for the plot (no more unquantified financial deals between you, please) but if it is possible your relative would get on the housing ladder and you would get a hopefully substantial financial sum.

I do not think there is a gas reimbursement possibility, there is no union there either, unfortunately. As with the rental, you hit the nail on the head, it was too vague. Its my husbands younger brother (and his girlfriend) and we wanted to help them get on their feet. The irony in all of this is they probably make double the amount we do and kind of squander it. Clearly their lives and none of my business. Everyone has their own values and they value things we don't and that's okay. Rentals here are impossible to find, we could rent it no problem. Although at that point its kind of a wildcard on what kind of tenants we could get. We realize we cant have our cake and eat it to though. I know this is all over the place lol, just kind of thinking out loud. Our "farm" is only 2.5 acres so we cant divide.

Thank you everyone for your comments, my husband and I both grew up in poverty, with alot of uncertainty. We are trying to do better for our kids (and our future selves). This board has been so instrumental in everything we have done as we don't have anyone in our real lives to get advice from.