HI all! I want to be FI!

[Mr.GrowingMustache]

I guess this is an intro, but I did not want to post in the sticky thread because there are no replies and I have a few questions, especially about having kids and how they affect the MM and your FI.

I discovered the MMM site about two years ago from the comments on some reddit thread and glanced over it but it never stuck to me. Now two years later I realize that I should have paid more attention to Mr.MM and that I could have been MUCH closer to Retirement!

So here is my short story. I am currently 29(going 30 :/), and have been working the same job since leaving college. Started off with around $55k a year and my current salary is just about $98k. I bought a house for $225k in 2010 thinking that I am getting a great deal but in reality I kind of screwed myself and the house is valued at $185k according to my tax statements and recent PMI evaluation, but I am sure that $200k can be taken. Two years ago I bought a Nissan Maxima for $21k (Cash) and I got married last year. My wife is a teacher with $50k salary, but not very mustachian :/ and loves to travel. We both like to travel and since we started dating we have been to many places including Dominican Republic, California, Europe, and are planning on going to Japan this year. We plan on having children so my wife wants us to travel while we can, and I agree but my new found love for having a mustache and FI clashes with the expenditures hehe.

Over the last 3 months I have completely rearranged my money, and priorities. I closed my savings accounts, drained and capped my two checking accounts ($2k and $5k max at any given time), and created a betterment account to invest the extra cash.

So here is what I did over the last few months.
- Removed monthly PMI insurance +$ 100mo (but paid $5k into the mortgage)
- Combined auto insurance (duh) +$50mo in savings
- Paid off a %5.5 $2.5k student loan ( $6k left total, $3,600 @ %5, $2,400 @ 0.07%)
- Have a %15 TSP contribution (for the last two years)
- Tried to lower food bills to $80 a week (or tried to get my wife to do it lol)
- Turning off and unplugging audio equipment/TVs/PCs/ lights
- Shorter(er) showers :)
- Cut down on restaurants (once or twice a month) and go out to lunch less (once or twice a month instead of say 5 times)
- Started using my wife's Civic to commute to work for the better MPG and regular gas. (wife's commute is 10mi total, and mine is 24mi)
- Try not to buy useless crap on Amazon (mostly successful)
- Try to convince my wife to get a betterment account and close her stupid CDs! She did put $10k in betterment but refuses to contribute monthly or do anything with the CDs.
- Trying to plan a "budget" Japan vacation (no souvenirs, or expensive hotels)
- Selling things on Craigslist
- Biking to do small errands to Lowes/Food Store
- Using the cars a lot less, especially the Maxima (hitting stores on my way back from work rather than doing a round trip from home)
- Walking in my job complex instead of taking my car from building to building.

My financials:
- Net worth is approx. =-$79k. Yes negative, since I factor mortgage and student loans.
- TSP approx. =  $52k
- Betterment =  $24k
- TD Ameritrade = $20k
- Cash = $5k
- Mortgage: = $-175k


So over the last few months I actually spent a lot of my checking account cash to pay off mortgage and some student loans, and it feels like I have been loosing money and barely saving, coupled with a 2% loss on my betterment account it feels like I haven't made progress, even though I know it's the right thing to do.

However I am worried because the wife and I really want to move out of our current house and get something better in the $300k range, and we also want to plan for a child in the next year or two. Those are some huge financial hits that will be taken during that time, and I feel that I will never be able to retire in a reasonable age. Ideally I want to do it in 10 years but it is hard right now for me to get to 50% savings rate (15% TSP, and 35% on take home check). However in the last 3 months I have been paying down on loans, repairing/prepping the house for possible sale, and I pay most of the utilities (water, electricity, gas, and mortgage) while my wife pays for TV/Internet, food, car insurance, and helps out financially with house repairs. The current house is mine and I am the single owner on paper but when we decide, my wife will be paying a share of the mortgage on a new home.

How do you mustachians manage to be FI with kids? Any of you FIRE with 2 kids? And have any of you been able to become FIRE while you had 2 kids? I am wondering if there is/has been anyone in my situation and how they managed.

Thanks all, looking forward to contributing!

[MDM]

How do you mustachians manage to be FI with kids? Any of you FIRE with 2 kids? And have any of you been able to become FIRE while you had 2 kids? I am wondering if there is/has been anyone in my situation and how they managed.

Mr. GM, welcome to the forum.  Only 2 kids? ;) 

See http://forum.mrmoneymustache.com/mini-money-mustaches/larger-family-forum-how-are-you-doing-it-3-kids/ for some thoughts about your question. 

Also see http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/ if you want to do a full case study.

Taking a quick look at your post, did you add the sale value of your house when calculating the -$79K net worth?  With only $6K in student loans and (at worst) being $40K underwater (e.g., if you financed the entire $225K and have been paying interest only), that's -$46K but you have your assets that more than compensate...?

Good luck!

[K-ice]

It sounds like you are on the right track. Your wife, not so much but it's a start.

Does your house have 2+ bedrooms and is it in a safe Neighbourhood?

If yes I would wait until kid number 2 is on the way before moving. I would hope the market goes up a bit in that time & you should be saving all the money it would take for that 300K house.

Rough calc, I would say you need $1000 more a month for the increased mtg, tax, utilities.
Based on your salaries you should put away about $650 & your wife $350/month for your dream home. Open a joint account for this since it sounds like need to bond a bit more financially.
DH and I have our own accounts but a joint one for the house.

At least see how easy saving the money is for 6 months before you decide to upgrade.
If it's easy do it for 2y and you'll have an extra 24K to put down on the house.
If it's hard, at least you'll know before buying something over your head.
(You may want to invest the savings but that has been discussed in other posts.)

We have 1 kid. Getting close to FI but not yet ~2y I hope. I think FIRE is possible with kids, in fact they are one of the best reasons to go for it.

[lostamonkey]

You should probably include the value of your house in your net worth.

[Davids]

When factoring your net worth make sure to include the value of your home. So assuming your home is worth $185K as you say that puts your net worth at $111K

[Mr.GrowingMustache]

Thanks for the replies!

-MDM I am yet to have one kid hehe but the wife comes from a 4 sibling family so kids have been a discussion. On the other hand I am an only child and I would be cool with 1 :), but I don't like to speculate, we will see what happens :)


K-ice my neighborhood is safe but ironically we did get robbed 1.5 years ago lol. The house is 1100 sq ft and we have a 2 bed, eat in kitchen, family room (can be a bedroom, but now is an office and guest room), an eat in kitchen, nice size living room, and 1 bath. The problem is that I am in a flood zone, paying $1600 a year for flood insurance, which brings me to $5.4k in taxes, which are usually for houses close to 2000 sq ft with two baths, more rooms and bigger garage. The house is also old (1956) and sits lower than others, but it has been renovated (kitchen, bath, floors) and has a good stone covered exterior, vinyl siding, circular driveway, and overall good curb appeal. It would make sense to create a house fund and both deposit in it.

Looks like I need to explain about my mortgage a bit, maybe you guys can help me get my total net-worth value

House
Purchase Price: $225K ( I did put down 10% only)
Current Morgage Owed: $175k
Current Value: $200k (tax, and PMI removal estimator put it at $185k, but that seems too low for having new kitchen, floors, bath and curb appeal with circular driveway)

So if I can sell the house for $200k on my own I would have $25k to add to my stash (or only $11k if I sell for $185k).

[11ducks]

Welcome!

I'm a single mom of 1 (10y), so from the kids perspective, I think the loss of earning potential and daycare are the biggest costs by far (assuming they are healthy of course). Kids can be raised cheap, we eat healthy whole foods, I shop for clothes the season before on clearance, and we spend time together, not money. I think you can definitely still reach FI with kids.

My career (teaching) was chosen due to the hours and stability, out of necessity, it's great but the pay is nothing spectacular.  I don't have the capacity to work overtime/ take on a second job to make more cash right now, much as id love to, I don't think it's worth it for quality of life, or stability for the kid. Once they enter school, you also become much more reluctant to uproot them to chase new jobs/promotions too. But it's not all bad; they can bring an enormous amount of joy to your life. I still manage to stash 30% of my pay away, and know that I have plenty more years of earning potential left.

[Mr.GrowingMustache]

..we spend time together, not money. I think you can definitely still reach FI with kids.

I like that line!

Thanks for sharing your experience. It looks like you are doing great for a single parent and stashing away 30%! Teaching doesn't pay great here too, at least I don't think it does, and my wife has a masters. I do think it is a steady job once you get tenure, and there are some good vacation benefits. I don't think my wife would want to quit her job ever, so we might have that income, but I on the other hand :)

[forummm]

You should probably include the value of your house in your net worth.

When factoring your net worth make sure to include the value of your home. So assuming your home is worth $185K as you say that puts your net worth at $111K

It depends on the purpose of the NW calculation. I don't include mine in my FIRE calculation because it isn't money I have invested somewhere that I can live off of. But on the flip side it does lower my expenses. So you have to be clear about NW for what purposes. If you are going to sell your house and rent, then the house equity minus transaction costs is good to keep in your NW, but then you have to include the cost of rent in your annual spending requirements that the NW needs to cover.

[Mr.GrowingMustache]

..it isn't money I have invested somewhere that I can live off of.

That is true, and is the reason why I am starting to think that maxing out the 401k/TSP might not be such a good idea for early retirement?!

[MDM]

..it isn't money I have invested somewhere that I can live off of.

That is true, and is the reason why I am starting to think that maxing out the 401k/TSP might not be such a good idea for early retirement?!

See http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

[BTDretire]

The current house is mine and I am the single owner on paper but when we decide,
my wife will be paying a share of the mortgage on a new home.

 

  Maybe you should be charging her rent, until you get the new home!
                             ;-)

[starbuck]

..it isn't money I have invested somewhere that I can live off of.

That is true, and is the reason why I am starting to think that maxing out the 401k/TSP might not be such a good idea for early retirement?!

FYI I don't think you're actually maxing out your TSP. 15% of your $98k salary is just under $15k, and the TSP contribution limit for 2015 is $18k. With 26 pay periods this year, you can elect to do a dollar amount contribution ($693 to be exact) which would get you to the $18k. This may vary based on what department you work for, but my dept allows either a % or flat amount contribution per pay period.

https://www.tsp.gov/planningtools/electivecontributions/electiveContributions.shtml

Are the betterment accounts IRAs or taxable accounts? Many forum members prefer to cut out the middle man and invest directly with Vanguard. There are a few forum threads on Betterment that you should read.

You'll get a lot of good feedback if you post a full case study. With whatever financial moves you're making, make sure your wife is a partner in it. Personally in our household, my spouse's reluctance to invest was more based on apathy than fear. I hit the books, came up with our investment strategy and allocation, and took over the financial reins for both of us.

Don't 'upgrade' the house unless it's not fitting into your current needs, trust me! Kids are such a wildcard. We bought a 4 bedroom house thinking it would be our forever home, and now we're selling it next year and downsizing drastically after I give birth and we relocate for a new job opportunity. I never would have expected it to turn out this way.

[BBub]

Agreed on delaying the home purchase.  Pregnancy takes 9-10 months and the child won't be running around for at least another yr after that.  You could even get by with the 1100 ft house until your second child begins to walk, if the SO is on board.  That would push the home upsize out 3-4 yrs and allow you to significantly pad the stash.  Get your ducks in a row for the next few years (at a minimum) before adding more house to both sides of the balance sheet.

[Mr.GrowingMustache]

Looks like I have lots to learn still, and really get a plan going.

MDM, thanks for that thread! I did not know that this can happen, I also learned about "tax drag" of a taxable account. Is that why people are maxing out their IRAs and TSPs? Because they can avoid tax drag for 10 years, and than in 5 years after that they can access those assets by doing a Roth IRA conversion?

Because the way I see it, is that you will need capital gains on stocks/bonds/ETFs to live off?

https://www.betterment.com/resources/retirement/401ks-and-iras/why-you-should-dip-into-your-taxable-account-to-max-out-your-ira/


BBub/Qmavam, I told her instead of doing that she should be putting this money into an investment account and saving it for the down payment, but maybe we should open a joint acct and contribute to it for house. And yes, the house can hold a family of 4 while the kids are small, and that was my initial plan, but I did have a big fight (verbal) with the neighbor that left me with sour taste, and my wife keeps saying that it's "not her house". If we put $500 extra a month... this house can be paid off in 13 years or less!

starbuck, you are correct, I am not maxing out, one because I might need funds for possible down payment on a new place, and to be FI I would need a taxable account that would generate dividents. Although MDM showed how to withdraw funds without penalty from the TSP, and there is a benefit of no tax drag on the TSP or IRA. Is that why everyone is maxing out? Because eventually they will do this conversion when they go FIRE?

[MDM]

Is that why people are maxing out their IRAs and TSPs? Because they can avoid tax drag for 10 years, and than in 5 years after that they can access those assets by doing a Roth IRA conversion?

Because the way I see it, is that you will need capital gains on stocks/bonds/ETFs to live off?

Is that why everyone is maxing out? Because eventually they will do this conversion when they go FIRE?

That is one reason.  Another is that your maximum amount comes one year at a time: you can't go back and make up for years in which you did not contribute as much as you could have.  In general people's income rises over time, potentially allowing one to contribute both the maximum to tax-advantaged accounts plus some to taxable accounts.