Hi everyone! This is my first post as a newbie MMM-wannabe. I’m a 41 yr old single mom of two boys, 9 and 7. After my divorce, I was a little lost financially for a while. I hired a financial planner 2 years ago, but then I found MMM 2 months ago (then JLCollins and MadFIentist). Wow, my eyes are open! I plan to fire my financial planner and move forward myself with everything I’ve learned between all the forums and blogs. Here’s my basic info, along with my questions. I summarized a few things that I didn't feel were important to my questions. I can provide more detail if requested.
Gross Salary/Wages: $10300/m
Pre-tax deductions:
401K = $1500/m (max), Dependent care flex = $416/m (max), HSA = $333/m (max) (Employer contributes $2500/yr, I wasn’t sure where to put this since it’s not direct income)
Adjusted Gross Income: $7701/m
Other Ordinary Income:
Stock award = $17,000 average per YEAR, this year I have about $23,000 vesting (after taxes)
Bonus = $7,000 average per YEAR (after taxes)
Taxes:
Federal = $1181, State (MN, high income tax) = $396, FICA = $702 (This doesn't include taxes on my stock award and bonus)
MONTHLY NET INCOME (NOT including bonus/stock) = $5741
Monthly current expenses:
Mortgage = $1000 (actual payment is $775 but I add extra to pay off sooner), interest rate is 4.125%
Property tax +Specials = $612 total ($282/m Taxes + $330/m Specials *I have about $23,000 remaining in specials, almost all @ 6% interest. Once I pay off the specials, this will make my taxes more manageable.)
Tithe = $900 (Non-negotiable)
Private school for both boys = $1111 (Non-negotiable unless I lose my job)
Daycare = $620 *This will start to drop within 1-2 years given the ages of my boys.
Life insurance = $111 total, whole life policy $80 for $250,000 (for the next 3 yrs), term life $31 for $625,000 ($425,000 through work, $150 personal policy)
Other (such as food, utilities, insurance, phone/internet, sports for boys, etc)* = $1283
*I have the breakdown of all these expenses, but I’m trying to shorten my post and these aren’t relevant to my questions.
TOTAL MONTHLY EXPENSES = $5637
Assets:
Cash = $16,700, Home = $350,000, 401K = $229,000, HSA = $15,600, Ameritrade account = $15,650, ESPP cash = $2,220, Indexed Universal Life Insurance = $20,659
TOTAL ASSETS= $649,829*
*I also have a Toyota RAV4 worthy $20,000, paid in full, but I don’t like to include that in my assets.
Liabilities:
Mortgage = $158,000 @ 4.0125%, 30 yr mortgage, I just bought this house, so most of the 30 yr remaining. $1000 Payment broken down as $775 + $225 extra principal. With extra principal, the house will be paid off in around 20 years
Specials = $23,000 @ 6%, repaying over 17 years
TOTAL LIABILITIES= $181,000
Plan moving forward
1. My monthly income covers my expenses, but my bonus and stock are sweet. After a ton of reading, I plan to do a back door Roth IRA through my company. My company allows $20,000/yr, with a quarterly roll over into the ROTH IRA. I’ll start funneling my income to that in Aug/Sept after I sell my vested stock so I don't have to dip into my cash emergency fund. Any remaining amount after the $20,000 will be put toward my $23,000 specials, since that is at a higher interest rate. After the specials are paid off (maybe 2-3 years), I’ll put the extra toward my mortgage. Yes, I’ve read a lot of the forums on paying the mortgage off early, but that is a goal before I FIRE.
2. I plan to roll over my Ameritrade account to Vangaurd. I was shocked when I saw the fees I was paying. (Thanks JLCollins for opening my eyes to fees!)
3. I currently have 15% of my check set aside for ESPP. That is converted to stock every quarter and I immediately sell for a 10% gain.
4. For the last 3 years, I’ve gotten large tax refunds (average around $7500). I file Head of household, and just bumped up my exemptions from 3 to 4. I can only claim one of my sons for taxes, but due to my charitable giving and mortgage interest, I have a large $ for itemized deductions. I’m debating whether I should increase my exemptions to 5, because this is my first year doing the full $18,000 into my 401K…..again stupid, stupid, stupid.
5. My goal for FI is 10 years, which I think is doable based on the different calculations I’ve done. I expect my expenses to be a lot lower (no daycare, no private school, much lower tithe due to lower income, two less boys to feed (which adds up fast). I love my job so I may work longer and possibly help the boys with college.
Questions:
1. Any mistakes in my plan? Anything I should do differently?
2. Should I bump up my exemptions even more now that I’m pumping the full $18,000 into my 401K? Previously I was only doing about $8000/yr (it pains me to write that).
3. Life insurance….this is where I need the most help. I know from reading that I really should be fine with only term life insurance. I already have $625,000 in term, which I think is plenty for my boys, considering their ages. My biggest dilemma is this stupid Indexed Universal Life policy. I previously had a ‘regular’ whole life policy, and my new financial advisor talked me into rolling that over into this new fancy IU life policy. Honestly I still don’t totally understand it (but I trusted her….face punch), and trying to find reliable information on the web is almost impossible. My premium is about $960/yr. Should I just cancel the darn thing and cash it out, and put the money into Vanguard? Right now I would take a $6400 penalty if I did that, so I would maybe net around $14,000. Plus, I don’t know what my tax implication would be. I found that I should only have to pay taxes on the gains and not the cash I paid for premiums, but I have no clue what that would be. If you need more info, I’ll try to provide it.
4. I’m currently paying $53/m for a security system (included in my Other expenses). I live in a really good neighborhood now, and don’t need it any more, as this was a carryover from my previous house. I cringe every time I see that monthly charge. I’ve tried to get out of the contract (of which I’m 2 yrs into a 5 yr contract) and I can’t find a way out. One thing I’m considering is just paying off the contract, which would be about $1800 (Ouch!). I rarely use the system. Maybe I could try and find someone to take over the contract, but I have no idea where to start. Any ideas?
Thanks for any advice.