Hello and Thank You

[Fire Dave]

I don't normally do intro posts like this, but after lurking for a few months and constantly being surprised by how helpful everyone is and how just about every single thread gets a lot of really thoughtful responses, I wanted to ask for your input and advice to help achieve my goals.

I'm 34, wife is 32, kid #1 is 2.5, kid #2 is due in a few weeks and we're not planning on any more dependents. I've been a lifetime saver (thanks dad) but for most of those years never really knew what I was saving for, but having piles of cash at the right time worked out well for me on a couple occasions. I'm also very frugal (people close to me would say cheap but that's not true, I just find most things not worth spending money on. But I can certainly BTD if I see value. I tend to see value in things most others don't though and vice versa).

Income #1: $97,600 (plus 10% bonus)
Income #2: $77,500
Income #3: $10,800 (rental assuming it's rented every month, which it has been all but 3 months in the last 7 years)

Total Income: ~$190,000 depending on the bonus

Debt #1: $134,000 (home mortgage at 2.5% with a little more that 9 years left on a 15 year loan. We refinanced the first 30 year that was at 4.5% in 2016, 2.5 years after we bought it.)
Debt #2: $36,000 (rental mortgage - 30 year at 6 or so % that'll be paid off in 2044. We will never sell this house unless we sell our home as well which we have no plan to do, ever really. We like it here.)
Debt #3: $17,000 student loans at 6%. This will be paid off in 18 months.
Debt #4: $7,000 auto loan with 2 or 3 years left

Total Debts: $194,000

Net Worth: $360,000 (including $110,000 in equity between the two houses)
Cash: $55,000
$ Currently Invested (retirement): $200,000
$ Currently Invested (college): $12,500

Goal #1: Pay for full tuition for both kids. I'm using a reasonable tuition cost (the local public college I went to) as a target to save against which, according to their website, is just shy of $6,000/semester for this year.

Goal #2A: Retire in January of 2038. Semi-kinda-sorta-ramdomly picked this date for a few reasons...

A) It seems at least possible
B) It gives me an actual target to shoot for (5775 days from today) and measure against other than just saving a bunch of money with the hopes of retiring "early" one day
C) The date in mind is a Friday. The day before my 50th birthday. I wouldn't mind being able to say I retired "in my 40's".
Goal #2B: Retire as early as possible. I'm finally in a job that I really enjoy and definitely hope to retire from this company, but it's still work.

Current Investments:

401k: ~$80,000 combined - we both save enough (7% and 3%) to get the full match (7% and 3%)

HSA: ~3,000 - this year I started contributing the max and, more importantly, don't plan using it. Rather investing it for the whole triple tax advantage idea. We'll see how that goes. Still not sure about keeping receipts for 20+ and hoping that rule doesn't change that you can get reimbursed for expenses at any time in the future.

Financial Advisor Account: $105,000 - been with them for 4 or so years, 1% of the account/year in fees. I like them but I've planned to move away from them for a while, just to get lower fees. Just haven't pulled the trigger.

Roth IRA: $13,500 - with the same local financial advisor. Been giving the max (for one person) for a couple years now.

College: Vanguard account with $2,600 (VEXAX), $2,800 (VSMAX) and $7,000 (VFIAX). I haven't set it up but plan to start adding to this monthly sending it all into VFIAX. This is my test run into having my own account, plan is to basically open another account and move all the money from the financial advisor into VFIAX. I'm purposely avoiding a 529 or other college savings plan because I do NOT want to be locked into a plan where I MUST use my money for one thing and one thing only. As far as I'm concerned there are very real possibilities to where we won't be able to spend that money as it's intended. And I have no interest in funding any other kids colleges or paying 10% penalties.


That's about it. Open to any questions/comments/concerns and I appreciate any advice you might have.

 

[street]

I have no concerns or questions. I do have one thing to say and that is if every young couple had your vision and frugal ways all people would be able to FIRE.

You are doing very well for your age, and I have no doubt you will meet your goal and numbers you want.

 

[Out-to-Lunch]

Just wanted to say "Welcome to E-R.org!"

 

[ScoopKona]

Looks good to me. The only thing I can suggest is to close out that rental mortgage. (By making extra payments against the principle as convenient, not by siphoning cash on hand.) If opportunity knocks, having fewer open lines of credit can help you pounce on it. You're probably stuck with taking the student loans and possibly the car loan to term. If not, pay them off from smallest to largest -- again, as convenient. Even if you're on autopilot and are 100% OK with the price of money, throwing off each debt yoke is never a bad thing. Opportunity tended to knock when we were debt-free. Whether there was a causal relationship is debatable. But it worked for us.

My wife and I treat monthly payments like cockroaches. We can't squash them all. But we squash every one we can.

 

[Katiek]

While I'd definitely use my 401(k) up to the match, I'd also consider having two ROTH IRAs. Looking back, that is the one thing I'd wished I had done more of when I was younger.



But you are in great shape and your savings habit will serve you well.

 

[pacergal]

Welcome to the forum.

You don't say what your budget is or what % of savings/income, but you are looking pretty good to me.
The thing to watch for, as kids grow older, is costs and bottom line budget. Sports, school activities, clubs, etc are expenses that increase as kids age.

 

[Exit 2024]

Daviddavid, welcome!!!
That is good place to get the best advice and ask questions - people here have a lot of knowledge and ready to share it for free all the time

About saving for college, I would also consider to buy I-bonds, you can search this site for more information, it discussed a lot lately. At the end it does not matter what account you designate for college, money is a money and can come from any of your sources - whatever will make more sense at that time.

I also agree that being debt free can give you much more leverage going forward, but at this time when inflation is eating everyone's lunch it is actually beneficial to have low interest debt, although 6% I would not consider that low.

Overall I think you are in great shape, have very thoughtful approach and reasonable timeline. Will be following your thread if you decide to provide periodical updates here.

 

[Dash man]

You may want to reconsider not using 529 plans, especially if you’re in a high tax state. The tax savings is worth it getting the state tax deduction and not pay federal tax on withdrawals. You don’t have to fully fund that way, but why pass up the savings? They can be used for more than just college. Trade schools and private K-12 schools can also be paid for using a 529. The 10% penalty is only on earnings if not used for educational purposes.

 

[livingalmostlarge]

I'd max out the 401k before paying off the rental or current home. also backdoor roth ira

 

[finnski1]

Welcome to the forum.

You don't say what your budget is or what % of savings/income, but you are looking pretty good to me.
The thing to watch for, as kids grow older, is costs and bottom line budget. Sports, school activities, clubs, etc are expenses that increase as kids age.

Those were my questions as well. Expenses and savings rate.

 

[NgineER]

Welcome to ER.org.

You are doing well planning early and have started a nice nest egg. Your $36k mortgage for another 22 years seems a like you could pay it off now, or refi to better terms, although the best rates were to be had a year or two ago. I'd probably do a cash out refinance and drop the other debt that is not deductible.

Drop the FA as soon as possible, it doesn't seem like they are doing you much good based on the Roth they have for you.

I'd also echo others who advocate a Roth for each of you, it is nice to have a well balanced Roth/tIRA.

 

[mystang52]

Welcome and congrats on how you've done so far. My only suggestion is that on your path to ER be sure to 1) enjoy life along the way and 2) recognize that life has twists and turns that may affect financial plans. Be stoic, and stay the course.

 

[foxcreek9]

Welcome! College is going to change dramatically over the next 20 years, I would plan on having enough money in one 529 plan to pay 1/2 the total for the 2. You can always change then beneficiary, it doesn't all have to go the the first child. Then pay any more out of current income or make them borrow (skin in the game).

I think we are moving away from sending everyone to college, big tech is leading the way - a lot of programmers without a degree now.

 

[NoworLater]

I wish I was as focused as you guys are in my 30s- I didn’t start getting into gear until your age.

I’d agree with the rest about 529, the tax savings by far outweigh the potential 10%. And it’s 10% on earnings not the account withdraw. I was not completely clear on how much you are saving, but for state school plan on about 100k in todays dollars.

Good job on leveraging the HSA, keep doing that, if the law changes, just use the receipts you’ve already collected.

I’d 2nd doing another Roth, it’s key at your still relatively young age. And (at least for now) back door Roth is still available even as your income rises past the limit.

6% interest on debt is a bit painful, I’d keep working on getting that paid off. As well as ditching the 1% advisor.

Then, really important .. be sure to live now also, don’t become singularly focused and put off you “real” life for 20 more years.

 

[Fire Dave]

Looks good to me. The only thing I can suggest is to close out that rental mortgage.

Your $36k mortgage for another 22 years seems a like you could pay it off now, or refi to better terms, although the best rates were to be had a year or two ago. I'd probably do a cash out refinance and drop the other debt that is not deductible.

I've thought about this a lot actually. The way I view the rental is basically it's own business that has income and expenses and just takes care of itself (I do 99% of the maintenance/repairs/improvements myself but, other than the down payment....we basically have no "earned" money into it). I looked at refinancing it in 2016 when we did ours and it was going to take 11 years to break even. That was only 6 years ago so had we done that we wouldn't have had the cash to make improvements. Between the 1st and 2nd renters we upgraded the entire house ($8,000) with the cash in the bank. Upped the rent too. With the money made off the second renters so far we're going to be able to pay cash for the new septic system ($12,000 ish maybe?) it needs this year. I'd imagine by the time it needs a new roof, we'll be able to pay cash for that too. After that there will be nothing left to break or replace for a while. None of this would have been possible had we refinanced, well, not with getting another loan of some sort. So maybe we would have saved a bit in interest but added a ton of complexity and things to track and worry about.

Also, the plan in the back of my head all these years was to use any extra cash in rents to fund additional down payments for more rentals. We've almost purchased 2 or 3 in the past 5 years, but still only have the one. After the roof we'll either buy another house or invest the extra or maybe make extra payments. Not sure yet. But right now the system is working.

While I'd definitely use my 401(k) up to the match, I'd also consider having two ROTH IRAs. Looking back, that is the one thing I'd wished I had done more of when I was younger.

Once we have an additional $500/month (when the SL are paid off) this is the plan. $500 to second Roth IRA and the rest into the taxable fund. It's just a matter of not having any more to save at this point. And why do you wish you had more? Something specific or just in general would have rather had more in a Roth IRA?

Welcome to the forum.

You don't say what your budget is or what % of savings/income, but you are looking pretty good to me.
The thing to watch for, as kids grow older, is costs and bottom line budget. Sports, school activities, clubs, etc are expenses that increase as kids age.

Yep, whoops. Knew I forgot something.

And as for future kids expenses, there is no private schooling in the plans right now so eventually the daycare costs will go away and I'm assuming will go towards things like that. Hopefully not all of it because wow, daycare is expensive....

About saving for college, I would also consider to buy I-bonds, you can search this site for more information, it discussed a lot lately. At the end it does not matter what account you designate for college, money is a money and can come from any of your sources - whatever will make more sense at that time.

I also agree that being debt free can give you much more leverage going forward, but at this time when inflation is eating everyone's lunch it is actually beneficial to have low interest debt, although 6% I would not consider that low.

Overall I think you are in great shape, have very thoughtful approach and reasonable timeline. Will be following your thread if you decide to provide periodical updates here.

I-bonds...this is actually some thing new I'm not sure I've heard of or looked into, but will do.

I thoroughly enjoy reading the year/decade long threads like this that people update every few years and plan to do the same! Haven't made it through yours yet though.…

You may want to reconsider not using 529 plans, especially if you’re in a high tax state. The tax savings is worth it getting the state tax deduction and not pay federal tax on withdrawals. You don’t have to fully fund that way, but why pass up the savings? They can be used for more than just college. Trade schools and private K-12 schools can also be paid for using a 529. The 10% penalty is only on earnings if not used for educational purposes.

We had a bad experience with an FSA in 2020. Almost lost a couple thousand dollars. That's not the only reason I don't want to tie up a bunch of money into a 529 but it is definitely part of it.

The fact that the 10% is only on earnings is something new, maybe I just assumed it was all of it. Even if I am successful and end up with $150,000 saved for 8 years of college and they go to trade schools, I'll still be left with a bunch that is stuck there.

Drop the FA as soon as possible, it doesn't seem like they are doing you much good based on the Roth they have for you.

What do you mean by this?

Welcome and congrats on how you've done so far. My only suggestion is that on your path to ER be sure to 1) enjoy life along the way and 2) recognize that life has twists and turns that may affect financial plans. Be stoic, and stay the course.

Fantastic advice. Currently struggling with this now. I enjoy myself just fine but the wife always wants more things (and usually we all end up enjoying those things, but she normally has to pry the money out of my hands first...I just need to make her work for it to see how badly she wants that expensive thing before I give in) growing family is making it hard to save more and with a second daycare bill coming in 4 months gonna be hard to stay at current saving rate honestly. I'm in the middle of re-working our entire spending/savings plans right now and am trying to find ways to fund certain purchases the wife wants to get (giant play sets are really expensive).

Honestly, the more I think about my 2038 date the less I actually expect to hit it. Retiring when the kids are 16 and 18, even if the money for college is there, just seems like probably not the best idea. While I don't even know what life could throw my way, I am very well aware that things will be thrown. Maybe my Goal 2A should be changed to retire the day after the last kid graduates, or they day after the last one starts their high paying post-college job, or the day after....
...
.....
OMY is already happening...

 

[Fire Dave]

I've been tracking expenses for 15 months, average monthly is ~$9,000 (not including my most recent bonus which really throws things off)

Taking out the "eventually ending" expenses (mortgage, auto loan, student loan and daycare - I count rental mortgage/property taxes and insurance as "expenses" to be removed from the "income" of rents since I treat it as a business that runs itself) our monthly expenses are ~$5,200/month.

401K (including match), HSA, Roth IRA, post tax account works out to about $2,800/month. Once the student loans are gone this will be upped to $4,000/month.

College savings is $200/month/kid

Retirement savings (all that really counts, because college savings, emergency savings, other things are really just saving money this month to spend it next month/year whatever) = ~25% of take home pay (take home = gross, minus taxes, plus 401K match)


It's at least 25% anyway...The spreadsheet I'm using is one from another forum, it's massive and I have been tweaking it for 15 months to make it work for me. I just checked last years file and it says savings was 35%. That seems high maybe it's including college or something I'll update again when I get better numbers, but it's at least 25% I know that much.

 

[skyking1]

Welcome Daviddavid. I can't add anything, except:
Be prepared to loosen up that grip when those once in a lifetime experiences come along with your family. When the kids get to the age when they can travel and do things and enjoy them, let your excellent savings habits pay off with those experiences.

 

[NgineER]

I've thought about this a lot actually. The way I view the rental is basically it's own business that has income and expenses and just takes care of itself (I do 99% of the maintenance/repairs/improvements myself but, other than the down payment....we basically have no "earned" money into it). I looked at refinancing it in 2016 when we did ours and it was going to take 11 years to break even. That was only 6 years ago so had we done that we wouldn't have had the cash to make improvements. Between the 1st and 2nd renters we upgraded the entire house ($8,000) with the cash in the bank. Upped the rent too. With the money made off the second renters so far we're going to be able to pay cash for the new septic system ($12,000 ish maybe?) it needs this year. I'd imagine by the time it needs a new roof, we'll be able to pay cash for that too. After that there will be nothing left to break or replace for a while. None of this would have been possible had we refinanced, well, not with getting another loan of some sort. So maybe we would have saved a bit in interest but added a ton of complexity and things to track and worry about.

Also, the plan in the back of my head all these years was to use any extra cash in rents to fund additional down payments for more rentals. We've almost purchased 2 or 3 in the past 5 years, but still only have the one. After the roof we'll either buy another house or invest the extra or maybe make extra payments. Not sure yet. But right now the system is working.

I think you should think about the end game with the rentals. What you are doing now works, but any gains you are locking in as equity in your property.

If you are looking to buy more, refinance and leverage the improvements you've done in the property to get money out for down payments for future rentals. Your current strategy is locking your free and liquid cash up in an illiquid asset.

If you'd like more cashflow, be aggressive about paying down all your debt and go about it that way. Much more conservative and less risk/reward, but you'd sleep well at night.

We decided to leverage, but do it conservatively. Not max the cash out when financing (but in hindsight we should/could have).

Our first duplex we purchased for land value, sunk a bunch of money into it, but then financed it and we now have about $2k of our initial investment locked in the property. We used the financed money to buy two more properties two years later, a two month rehab of one of the units. A year after that we purchased another property, turn key and a year after that another property for land value. We are a little late financing it now, but will get almost all our investment back and have money for down payment for 2-3 properties. The plan however is to add the money we are getting out to our investment/savings pile and let it grow. We gross about as much as my W2 income, net about 25% (PITI, utilities, maintenance and capex set aside). After financing we will have about 41% equity (conservatively), but we have only put in 40% of that equity as "New" investment, the rest is from getting cash out after financing our appreciated assets after rehabbing them. We also gain about 10% equivalent of my W2 income in principal payments annually.
Our net cash flow investment equivalent using the 4% rule is about $1M, which is about four times more than our net investment into rental real estate.

We also live in the midwest, so we haven't seen the crazy appreciation HCOL areas have seen, but we have a healthy appreciation also, which I am not using for any of my rental real estate projections.

What I was trying to show is that for us leveraging was good, but all our properties are within 2 miles from my house, so I know the market well.