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One Income Family of 4 working towards FIRE! Feedback please!
Old 09-27-2012, 08:53 AM   #1
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One Income Family of 4 working towards FIRE! Feedback please!

Hi All! I've been thinking about early retirement since I was in my early 20s. And the numbers looked so good when I was single w/o kids and savings accounts were paying 6%! I'm 33 now and married with 2 young kids. DH is 35 and our DDs are 3 & 1. I work as an accountant full time, and DH stays home with the girls.

Having a stay at home parent is important to us. I stayed home for the 1st 15 months of DD #1's life, but as the primary earner, the plan was always for DH to stay home. I really disliked my job when I was pregnant with our first, and we ran the numbers and figured we could swing it for a year or so. We went from a combined income of 108K to just DH's of about 28K. Amazingly, we did not have to spend a penny of our savings, we just made do with the 28K. 399 sqft 1 BR apartment, but we loved our life. I was, and still am, so proud of that year!

Anyway, back to reality, I returned to work in early 2010, and now DH stays home. Had our 2nd daughter in 2011, and a 1BR apartment is no longer practical!

Here are our stats:

Income: 85K + Bonus (6-8K). I'll see an increase in March 2013.

Expenses for the last 12 months:
Rent- $14,400 (hope to buy a home soon!)
Groceries- $4,852
Travel- $4,712
Restaurants- $3,591
Utilities- $3,377 (1/3= heating oil, 2/3= electric, internet, other)
Insurance- $2,856 ($667 life, $1,883 2 cars, $281= rent, motorcycle, jewelry)
Gas- $1,987
Kids Stuff- $1,880 ($1,100 preschool, started this year, $500 Y dues/classes)
Auto- $1,844 (4 tires, 1 battery, 2 other repairs, inspections, maintenance)
Clothing/Shoes- $1,109
Other- $3,664 ($1,000 unaccounted cash, $870 Household, $490 Entertainment, $370 charity. $240 hobbies, remainder misc.)

Total: 43K spent in 1 year.

(Expenses do not include insurance premiums deducted from paychecks or taxes. This is a rolling 12 month expense report, so in the next 12 we will see higher expenses in preschool, but likely lower in travel. I'd like to bring expenses down to under 40K/year.)

Assets:

Cash: 136K ($120K earmarked for home down payment)
Mutual Funds: 27K
Retirement: 187K ($144K Roth, $43K trad. 401K, currently at max contrib.)

(I don't include personal property in my net worth. The way I see it, I'm going to use up my cars like I use up the groceries, and I'm not going to liquidate things with sentimental value, like my engagement ring.)

Liabilities: None

Total Net Worth: 350K

I think the glaring missing item is real estate. We currently rent. The cash in our net worth is going to be a down payment on a house. We want to buy something under $375K (hopefully soon) and get a 15 year mortgage. That way when the kids start college, there will be no mortgage payment.

The problem with that is I may not be able to max out retirement contributions if our housing payment goes from $1,200 to $2,500 (high RE taxes), I'm hoping my salary will continue to increase, and DH will get a side business off the ground. If not that, than he will likely take on PT work once both girls are in school. We don't want him to work FT b/c we want someone to be home whenever the kids are.

I'm pretty sure we are in good shape to retire at 55, but I'd love to be out earlier, maybe 48. Another thing- I long to spend more time at home with my kids these days, and when I'm 48, they'll both think I'm uncool and one will be off to school. Makes me a little sad, it just all seems backwards!

If you made it this far into the post, kudos! And if you have any feedback, suggestions, tips, etc, I'd be so appreciative! And one last thing: I don't use dryer sheets, we line dry everything!
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Old 09-27-2012, 11:10 AM   #2
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Welcome!

Like you, our top priority was to have one of us home with the kids and we were able to do it until the youngest was in college. I was the stay at home parent. You are off to a very good start and if you stay consumer debt free you'll always be ahead.

Others will be able to answer your questions about retirement. I just wanted to tell you that I've been there and we were able to do it on one income, but I think we live in a much lower cost area.
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Old 09-27-2012, 11:32 AM   #3
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Welcome to the forum!

Family of 4 here too, saving for ER on solo employment/income, but we have a 2nd income from a few rentals. I admit that's my part time job.

DW has been a SAHM for the last 7 years or so. She had to leave her job before our 1st child due to medical issues/risk, etc. It is a priority for one parent to stay home for us as well.

Our expense budget is a little higher ($55k) than yours with lower housing cost, but we are living the way we want, eg extra vacations, dining out, extra activities for the kids, etc. If we trimmed our budget by $4 - 8k it would still be comfortable, but it's not a race for us (we're both 43 this year) and want to enjoy this time we have. It's a nice balance.

I feel we are on target for FI so semi-ER or ER is possible between ages 45 - 55. The large range is due to the desire/enjoyment of working, funding majority of kids' college expenses, and a few extras.

I think you are off to a good start, keep up the good work.
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Old 09-27-2012, 11:39 AM   #4
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Our expense budget is a little higher ($55k) than yours with lower housing cost, but we are living the way we want, eg extra vacations, dining out, extra activities for the kids, etc. If we trimmed our budget by $4 - 8k it would still be comfortable, but it's not a race for us (we're both 43 this year) and want to enjoy this time we have. It's a nice balance.
Glad to hear this. I sometimes feel guilty for the extra $$ we spend on vacations (this year it was Turks & Caicos in the spring, a northeast road trip in the summer, and included in expenses are cross country flights for 3 this winter). But I really value those trips with my family.
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Old 09-27-2012, 11:42 AM   #5
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Sounds like you guys are doing things the right way. Wife and I have made raising the kids a higher priority than both of us working, especially since I am gone a lot for work. And also concur about real estate, but that is a localized business, and unless you're in the DC area, I'm not going to speculate as to whether or not to buy a house. We got lucky with our real estate purchases, and one in particular has appreciated very nicely as things went up prior to 2006, never decreasing like some areas of the country after that, just staying steady. Recommend sticking to your plan, especially until the kids are in school most of the day.
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Old 09-27-2012, 12:10 PM   #6
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Just one quick thought to consider. I certainly wouldn't use 90% of my cash for a down payment. You are giving up liquidity and control (although your mortgage payment will
be a little higher).

I'd much rather see you keep the 50K in cash for emergencies and opportunities. At 3-4% mortgages I'd get the biggest amount available (obviously without going overboard). That's an after-tax rate of 2-3% that will be fixed for 30 years. You'll be laughing all the way to the bank in just 5-7 years when rates are north of 6% and even CD's will be paying 4-5%+

just a thought... mark
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Old 09-27-2012, 12:21 PM   #7
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Originally Posted by Stress-Free Retirement View Post
Just one quick thought to consider. I certainly wouldn't use 90% of my cash for a down payment. You are giving up liquidity and control (although your mortgage payment will
be a little higher).

I'd much rather see you keep the 50K in cash for emergencies and opportunities. At 3-4% mortgages I'd get the biggest amount available (obviously without going overboard). That's an after-tax rate of 2-3% that will be fixed for 30 years. You'll be laughing all the way to the bank in just 5-7 years when rates are north of 6% and even CD's will be paying 4-5%+

just a thought... mark
I missed that in the OP, but IF you are going to buy, I absolutely agree. In fact, with today's mortgage rates (I'm doing a refi today at 3.25%, no points, and a lender credit of 2x my closing costs), make the smallest down payment you can to avoid PMI. Cash is king, so keep the king within your tight grip.
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Old 09-27-2012, 12:47 PM   #8
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I would look at the rent-equivalency for your area.
Not all areas make sense to purchase a home, even with low mortgage rates.
(I live in southern CA - one of those expensive places where you have to do the math to determine if it's cheaper (long term) to own or rent.)

In my case - it penciled out (barely) when we purchased. But we were willing to keep renting if necessary.
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Old 09-27-2012, 12:47 PM   #9
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Wow, we have very similar stats as you. We're both 33, kids 3 and 2, SAHW, net worth 400k, no house, accountant, and planning to retire at 52 or earlier.

Biggest expense right now is kids preschool cost. We're paying $1,700 for both but my wife might go back to work part time.... or she might not. Good thing about LBYM and having this cushion is we have flexibility for a parent to stay home. Compared to my co-workers with similar situation with fat mortgage, both parents have to work. Pretty sad.
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Old 09-27-2012, 01:51 PM   #10
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Originally Posted by Stress-Free Retirement View Post
Just one quick thought to consider. I certainly wouldn't use 90% of my cash for a down payment. You are giving up liquidity and control (although your mortgage payment will
be a little higher).

I'd much rather see you keep the 50K in cash for emergencies and opportunities. At 3-4% mortgages I'd get the biggest amount available (obviously without going overboard). That's an after-tax rate of 2-3% that will be fixed for 30 years. You'll be laughing all the way to the bank in just 5-7 years when rates are north of 6% and even CD's will be paying 4-5%+

just a thought... mark
Thanks, this is just the type of critique I want. Honestly, it just seems so freeing to know we'll be mortgage free after 15 yrs, and even with mortgage rates at 3%, I'm only earning 1% right now. I know rates will go up, but when is that going to happen? Are there any resources that project rates in the near future? Do you think I should go with a 30 year and have the option to pay it off early, even if it means higher interest costs initially?

Also, we cannot afford a 15 year mortgage unless we put that much down. The mutual funds at 27K right now could be liquidated, that would put us at 43K emergency/opportunity savings, and then we could still put 120K down. Actually, I didn't show this in my NW, but I have a "gift" of 26K cash that my sister & BIL gave to me, as a gift to help with the purchase of a home. I would like to give that back to her someday, so I pretend it doesn't exist. When I calculate my networth, I show it as cash and put a corresponding liability down for the same amount. But it isn't truly a liability. She is not expecting it back. I gave her 10K for her house years ago, and she repaid me 5 or so years later. So if we really put 120K down, liquidated the mutual funds, we'd have a cushion of 69K available.

Anyway, I hope I am laughing all the way to the bank with those interest rates in 5-7 years, regardless of the size of our mortgage...

Rodi, We are not renting the equivalent of what we want to buy. One of the reasons we want to buy is because we want to farm. DH is a farmer but we have no land to farm! So we see a future of homesteading once we buy a place. Hopefully this will become an income producing venture as well as a cost cutting venture. Becoming homeowners is possibly more of an emotional decision for us than a financial one. I know homeowners are generally less happy than renters, but it is still something we want to do.

Enjoy the ride- yes preschool costs just started hitting us. 3 half days a week is about $5k for a year. We'll likely do a private kindergarten next year which will also be about $5K, then public school. Then our 2nd daughter will be in starting preschool, so that's another 10K.

Thanks all for the responses, please keep them coming!
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Old 09-27-2012, 02:15 PM   #11
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I wouldn't concentrate on a 15 year mortgage. You can always pay off a 30 year one early, and 15 years from now, your finances are going to look a bit different.

As someone without kids, I hope it's not an offensive question, but why are you paying for preschool and kindergarten, while you have a stay at home parent? Can't they home school for preschool and kindergarten?

Oh, and I love the idea of you getting a place with room to farm. Good Luck on finding a great place.
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Old 09-27-2012, 02:23 PM   #12
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I wouldn't concentrate on a 15 year mortgage. You can always pay off a 30 year one early, and 15 years from now, your finances are going to look a bit different.

As someone without kids, I hope it's not an offensive question, but why are you paying for preschool and kindergarten, while you have a stay at home parent? Can't they home school for preschool and kindergarten?

Oh, and I love the idea of you getting a place with room to farm. Good Luck on finding a great place.
Thanks! No offense taken, totally valid question! We are not interested in home schooling and want to utilize the public school system. (unless we win the lotto, then our kids will go to a very expensive private school nearby that looks like Hogwarts on the insde...) We want to ease our kids into a classroom environment... I believe with the education system the way it is today, kids need to learn how to... learn. Our plan was for 1 year of preschool before public school. But I'm also a firm believer in 1/2 day Kindergarten, and our public schools are all full day kindergarten. 1/2 day K is only available in private schools. We cut the cost of preschool a bit by enrolling DD in a 3 day a week 1/2 day program, which we feel should be enough to get her ready for 1/2 day K.

I once saw a van with this bumper sticker "Caution: Unsocialized Homeschoolers On-Board!" I thought it was hilarious, but seriously, I truly believe that home schooling is a valid option, and I know some great home schooled kids and great adults that were homeschooled. But it is not right for us.
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Old 09-27-2012, 02:37 PM   #13
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...We want to ease our kids into a classroom environment... I believe with the education system the way it is today, kids need to learn how to... learn....
+1 We have SAHM and pay for part time pre-school also... for social and classroom experience along with providing parent a short break for errands and such.
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Old 09-27-2012, 02:39 PM   #14
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I'm at work taking a brief break, so can't analyze your numbers in depth. But one thing jumps out - if you can detail your expenses that precisely, and managed to amass the sums you already have, then b'gosh you are clearly doing a good (great?) job with your finances.
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Old 09-27-2012, 04:12 PM   #15
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I agree. You can't be that on top of things and not be successful. I bet your out at 48.
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Old 09-27-2012, 04:27 PM   #16
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You have an excellent handle on your situation and you're in really good shape, congrats. You're well ahead of most of your peers.

But this really isn't entirely a science, who knows how your career will play out, what returns will be, how long you will live or a host of other variables.

Figuring out how much you need to save to meet your plan should be a baseline to make sure you won't come up short of your own expectations. Once you know that, you should figure out how you can exceed those goals IMO.

You really can't save too much (though some will say otherwise), so save all you can stand and invest/place it as wisely as you can. IMO your goal at this point should be how soon can you reach FI, not 'when can I retire.' You can retire too soon, but you cannot reach FI too soon. If you reach FI at age 48, you can retire or keep working and have even more options.
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Old 09-28-2012, 01:40 AM   #17
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Welcome, catccc. I agree with others, it looks like you are in good shape.
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Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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