29 Year Old Looking For Wise Counsel :)

[whytdrumer]

Hi everyone,
I'm new to the forum, so i wanted to introduce my self and also get some advice and feedback on where I am, and how I can improve.

Sometimes I get discouraged when I read stories of people retiring in the 30's because I'm 29 right now and it seems that the other late-20's folks are way ahead of me. I'm married with two kids (20 months and 4 months, and we would like to have more). My wife works part-time at a christian private school and I work in marketing as well as do some consulting on the side.

Other folks my age make salaries twice of mine and have two working adults, so it gets discouraging sometimes because I feel behind. We don't have any debt except the home and a few investment properties, but those are rented out and are being paid down so I'm not worried.

I'd love to hear your thoughts/critiques on my budget and current situation. I’m working towards getting extra spending down to where I’m saving 50-60% of my income but this has been a challenge so I'm also focusing on increasing my income. Currently I am at 40-48% (it varies each month).

My Gross Salary: $65,000
Wife's Gross Salary: $15,000
Income from real estate: $8,400
Income from consulting: $35,000 (this varies because clients come and go)

Total Gross Income: $123,000
Total Net Income (assuming 25% tax bracket): $92,000

The below numbers are our monthly expenses.

Mostly Necessary: $2746

• Mortgage: $1250
• Groceries: $300
• Health Insurance: $605
• Car expenses (insurance and gas): $250
• Phones: $60
• Internet: $72
• Netflix: $9
• Utilities: $200 (we just moved into a new home so still calculating this)

Other Stuff: $730

• Personal spending money: $200 ($50 for me and $150 for the wife because I'm doing BJJ)
• Dining/Date money: $100
• Gifts: $20
• BJJ (for me): $110
• Baby sitting: $250 (my wife's mother watches the kids so this is more of us paying her for helping us out).
• Special dog food: $50

Spending Total: $3476

Right now we save everything that isn't an expense. Our saving's rate in August 2015 is 46%. We do tithe 10% each month which is roughly $900.

We put in $400 into our emergency savings each month as well as $500 into a special savings account earning 4%.

Intentional savings total- $900

Current Assets:

• Investment property #1: Duplex: $250k with $151k mortgage (cash flows $550/m)
• Investment property #2: SFR: $90k with $68k mortgage (cash flows $250/m)
• Available cash: $43,500
• Stocks: $3,800
• Roth IRA: $5,000
• Commodities: $15,000
• Specialized savings account: $20,000 (this is a specialized whole life insurance policy that acts as my own bank)

I did not include my home in assets because we're living in it and it does not cash flow.

Total Assets: $208,300

Debts: none (other than mortgages on each property)

Here are things I plan on doing to reduce our expenses and increase income:

1. Continue to grow my consulting business so I can eventually go full time.
2. Later this year we will be changing our insurance which will reduce that by $200.
3. I could bike to work every day but I live in Texas and about 6 miles away so the heat gets to me. What are your thoughts?
4. Once I go full time in my business I will bike more which should drop the car expenses by $50-80.
5. I am currently using Airvoice but could switch to Republic wireless which would drop the bill by roughly $25.
6. I plan on reducing our Internet speed saving about $25-30/m.
7. Doing some home efficiency updates should reduce utilities by $50/m.
8. I plan on buying more real estate to keep growing my passive income.

Questions:

1. What are your thoughts on where I am now?
2. Where do you see room for improvements?
3. How can I reduce my expenses?
4. How can I reduce the time until retirement? (I'd like to retire in 5-10 years)

Thanks for you help and apologies for the long post.

JC

 

[Katiek]

Welcome. And don't get discouraged. The people your age who aren't saving at all don't post here, so you tend to see a lopsided view on the forum.


The one thing that struck me was the "specialized whole life" policy. I don't know what the terms of your policy are, but many whole life policies have high fees and aren't the most efficient savings vehicles.

But it looks like you're doing a great job of saving a high proportion of your income, so I'd be happy you're on a good path and not worry about getting to the finish line by 35.

 

[soupcxan]

Specialized savings account: $20,000 (this is a specialized whole life insurance policy that acts as my own bank)

Please, please consider ditching this. The "be your own bank" / "infinite banking" scheme is 100% marketing by insurance salesmen.

 

[Ian S]

Am I missing something? You have $92,000 after tax income which amounts to $7,667/mo. Take out of that your expenses of $3476 and tithing of $900 which leaves $3291. But you're only saving $900/mo? Where does the remaining ~$2400 go? Also, I assume your rental property cash flows are net of all expenses and repairs.

If you're really saving $3291/mo, then I'd say you're really doing very well. Keep in mind those friends with higher income are also apt to be spending a lot more too. You might consider putting money away for your kids' education as that may be a big expense down the road.

 

[Options]

Let's see:

1) You're 29, married, with two children;
2) You have a total gross income of $123K, and a net worth of approx. $208K;
3) Your savings rate is 40-48%;

and...

you have a plan to further reduce expenses.

Discouraged? Looks to me like you are doing extremely well, particularly for your age group, and particularly for your age. People who retire in their 30's are the rare exception, far from the rule. Your spending numbers look very good for a family of four, and you have a good handle on the concept of frugality. I'd say keep doing what you're doing and you'll be pretty amazed where you'll be in ten years.

It does look like some of your money might be in individual stocks, and other in commodities as well. I would consider moving that into index funds--a target date fund, total stock market fund, bond fund, etc. A representative at any of the low cost mutual fund companies (Vanguard, Fidelity) can help you select, at least before you become more knowledgeable.

 

[whytdrumer]

Hi Ian,

My bad on the confusion. All the money that isn't an expense is technically being saved. When I say I'm saving $900/m I mean it's going directly into our savings account. The remaining $3kish goes into various checking accounts (real estate buffer, business checking, personal checking).

Soupcxan, thank you for your concern. If you can provide data/evidence to support your opinion I would love to take a look. Thanks.

Thanks everyone for your advice. I'll keep doing what I'm doing.

JC

 

[Ready]

Welcome to the forum. You seem to be managing your expenses quite well. Actually, just knowing what your expenses are puts you ahead of most people.

As your salary increases, if you keep your expenses the same, your percentage of savings will automatically increase.

Am I reading your post correct in that you are giving $900/month to the church, or $10,824 per year? For someone at your income level, trying to put money away for your future (and your kids), that seems excessive to me. At the risk of sounding politically incorrect, that money should be going into your 401K first, and then only if you are maxing out the $18,500 per year per person, should anything left over be considered for charity. Doing otherwise will simply drag out the length of time you need to reach FI and be able to consider a comfortable retirement.

 

[Totoro]

A few random things:

Your mortgage is part savings (any principal reduction). Also you'll need to add back a provision for house maintenance if it's not already somewhere in your budget. In addition, your home is an asset because it offsets rent.

I realize it's very personal, but tithing can be classified as an expense. In addition, you are tithing 20% of your savings or 20% of expenses, and it postpones your time to retire. Are you planning to still tithe or volunteer time after retirement? For example, I help out a non-profit, which is possible now because I have enough savings built up so I don't have to worry about money in the short term. With tithing, I wouldn't have been able to do that.

In terms of expectations, at first glance and with current income you might not make it in your preferred time frame, but you are in a marvelous position compared to most nevertheless.

Options to shorten time frame: I would keep going in the direction you are going (more consulting, higher fees), reconsider tithing through money and think about your wife moving to better paid work.

That said, I'm not sure that package is right for you. Better live within your values and quality of life and take a bit longer. FIRE is not a goal in itself.

 

[frayne]

You may want to check your tax calculations as $123K is gross income and not taxable income. I would venture to guess with your deductions, exemptions, etc. you should be able to get your taxable income down in the five figures. Just something that caught my eye after a quick first pass.

 

[nash031]

Please, please consider ditching this. The "be your own bank" / "infinite banking" scheme is 100% marketing by insurance salesmen.

Seconded.

Give us the details of the account (i.e. who it's through, etc.) and we can probably pick it apart appropriately.

 

[whytdrumer]

A few random things:

Your mortgage is part savings (any principal reduction). Also you'll need to add back a provision for house maintenance if it's not already somewhere in your budget. In addition, your home is an asset because it offsets rent.

I realize it's very personal, but tithing can be classified as an expense. In addition, you are tithing 20% of your savings or 20% of expenses, and it postpones your time to retire. Are you planning to still tithe or volunteer time after retirement? For example, I help out a non-profit, which is possible now because I have enough savings built up so I don't have to worry about money in the short term. With tithing, I wouldn't have been able to do that.

In terms of expectations, at first glance and with current income you might not make it in your preferred time frame, but you are in a marvelous position compared to most nevertheless.

Options to shorten time frame: I would keep going in the direction you are going (more consulting, higher fees), reconsider tithing through money and think about your wife moving to better paid work.

That said, I'm not sure that package is right for you. Better live within your values and quality of life and take a bit longer. FIRE is not a goal in itself.

Thank you Totoro, great advice. The reason I classified my primary residence as a liability is because I'm using Robert Kiyosaki's definition of an asset, in that it has to put money in your pocket, not take money out.

I agree with you on priorities, honestly, I'd rather give more and prolong FIRE a little than not give.

Thanks everyone for the kind words.

JC

 

[whytdrumer]

Seconded.

Give us the details of the account (i.e. who it's through, etc.) and we can probably pick it apart appropriately.

Hi Nash031, well my current policy is through a group called National Life Group but I am switching to another company called Forester to consolidate some things. I haven't finalized the new policy yet so any info you guys have would be great.

I have heard mostly good things on IFL/Bank of You policies so I'd like to hear the negatives.

Thanks.

JC

 

[Texas Proud]

I agree with the post that say do not be discouraged...

At your age you are very high into the top 1%.... the few that you read about hit some kind of jackpot.... I never compare myself to a jackpot winner.... (but then again, I try not to compare myself to others as that is a losing game... there will always be many people who are better at whatever it is you do.... but I am human and do it anyhow)...

I agree about getting rid of the whole life and going to term...

I do question why you are putting $3K per month in varying checking accounts.... you have a good cash buffer and need to get those investment assets up... why $15K commodities? Is this gold?

Your total stocks and bonds (we do not know the breakdown) is puny... start putting aside money in an IRA or 401(k).... if your tax rate is already low, then do it as a ROTH...

So far, you are doing a much better job than most.... even people on this board at your age....

 

[Greencheese]

Regarding your comment as to someone being near retirement in their 20's...

I find that more common with MMM or ERE than this forum, which contain their own weird ideas. I've seen living in a van down by the river regarded as a great idea on some of those forums . What I like about this place is its more of people who shoot for 45-55+ and want to have a "normal" lifestyle where one can indulge in some luxuries. So you've got time until retirement or a debate as to when you'd like to, 20's are for people who live down by the river

 

[whytdrumer]

Regarding your comment as to someone being near retirement in their 20's...

I find that more common with MMM or ERE than this forum, which contain their own weird ideas. I've seen living in a van down by the river regarded as a great idea on some of those forums . What I like about this place is its more of people who shoot for 45-55+ and want to have a "normal" lifestyle where one can indulge in some luxuries. So you've got time until retirement or a debate as to when you'd like to, 20's are for people who live down by the river

haha well with a wife and two kids I think that is out of the question. Unless you're talking about glamping... my wife enjoys campers.

But you're right, I'd rather enjoy my life while working my way to FIRE.

JC

 

[rb35]

You're doing an awesome job. No need to be discouraged at all.

I think your expenses are well under control and the potential for reducing them further is really limited. You'll get a lot more bang for your buck focusing on the income side of the equation. I know you're working on transitioning to consulting full time. Do you think that will be the best way for you to maximize your working income? I'd give that question some serious thought. Maybe seek out a mentor who is in an executive in your field.

I've switched jobs twice in my career and increased my compensation by multiples as a result. I was in a similar situation as you in my 20s and while expense management was important in the beginning, it was only through career advancement that I was able to make rapid progress toward FI. Are you able to seek out a more senior / higher paying role either at your current company or elsewhere?


Sent from my iPhone using Early Retirement Forum

 

[growerVon]

Great to have this level of financial organization at your age - and two properties, to boot! Looking at you list with an eye to asset allocation, you are very light in stocks & bonds. Suggest directing more that way. Also check the fees and expense ratios of the things you're currently invited in. If necessary, move out current funds...


Or even financial advisors, because you don't want to be paying some 5.77% front-end loads plus 1%+ expense ratios - even if the FA is your mother!

 

[papadad111]

Am I reading your post correct in that you are giving $900/month to the church, or $10,824 per year? For someone at your income level, trying to put money away for your future (and your kids), that seems excessive to me. At the risk of sounding politically incorrect, that money should be going into your 401K first, and then only if you are maxing out the $18,500 per year per person, should anything left over be considered for charity. Doing otherwise will simply drag out the length of time you need to reach FI and be able to consider a comfortable retirement.

+1. I'm Politically incorrect too! Too much to the church and that's after tax money. Perhaps too much Dave Ramsey now days. It's noble and all but ... I looked at it this way : My charity "tithe" went to the U.S. Government in the way of taxes every paycheck, it's way way more than 10 percent and that takes care of the poor the homeless the elderly the sick and the disabled. It also takes care of a few who are none of the above but bilk the system. After that, charity starts at home so ... I paid myself first and took care of my family ( education savings for kids ). I crossed the finish line and FIRE at age 45.

If it were me, that 10 k after tax per year would be either retirement savings (Roth) or educational savings for the kids. If making more babies is the new full time job for the foreseeable future then this becomes even MORE important.

You're off to a solid start with the fundamentals. Goals now should be centered around maximizing your and wife's income. You're already living frugally so saving 25 bucks here or there on your internet package and a push bike won't really make much long term difference and might be wasted time and effort that could otherwise go into something more productive like marketing/ getting new clients or getting more education.

After 25 years of investing and having advanced education in finance, thinking I could consistently beat Mr market was wrong !!! I switched to fully passive index investing -- I recommend all young people with time on their side to do the same.

Keep your head down. Do some projections to see long term what you will spend and what savings is required to provide passive income at that level. Then divide by per year savings and that's your target age. Your debt level is pretty high due to the rentals. Be cautious and don't assume they always cash flow or that they will be worth more tomorrow vs today. Be conservative.

Most people have deer in headlights look when I talk about early retirement. It's just not a concept that most folks wrap their head around in the consumption oriented society we live in. You're ahead of the game just thinking about it.

 

[Gumby]

+1. I'm Politically incorrect too! Too much to the church and that's after tax money. Perhaps too much Dave Ramsey now days. It's noble and all but ... I looked at it this way : My charity "tithe" went to the U.S. Government in the way of taxes every paycheck, it's way way more than 10 percent and that takes care of the poor the homeless the elderly the sick and the disabled. It also takes care of a few who are none of the above but bilk the system. After that, charity starts at home so ... I paid myself first and took care of my family ( education savings for kids ). I crossed the finish line and FIRE at age 45.

Someone has to pay the pastor, keep the lights and heat on in the meetinghouse, etc. In my church, the vast majority of my regular pledge goes to these purposes. Christian outreach (helping the poor, hungry and homeless) is usually accomplished by separately raised funds. So if you go to church for worship services and to have your kids in Sunday school, keep in mind that there is an expense directly associated with that, and you should help pay it. Think of it as a user fee, not charity.

 

[pb4uski]

whytdrumer, you've got to be kidding me! You're doing great... no need to be discouraged at all. There will always be someone out there that is doing better.... and good for them.

IMO, building wealth is less how much income you have and more living below your means and regularly investing in no-load, low cost index mutual funds or ETFs.

Those who retire in their thirties are a select few... less than 1% of the population... so while it is a laudable goal it may not be realistic. Even at a 3% WR to generate $42k a year that grows with inflation you would need $1.4 million. For your peace of mind, set a more reasonable goal.. use Quicken Lifetime Planner, included in Quicken Deluxe and higher, to plan your financial future and see how your savings and investments will grow so you can achieve your goals.

Like others, I similarly skeptical of this Bank of You stuff but haven't been able to find enough on it to point out its flaws so please give us the details. I can tell you that there is no free lunch, no secret sauce... and I worked for over a decade in the highest levels of financial management for a mutual life insurer that sold whole life insurance. The real test is if you compare what you have paid in over the years and what you could get today if you cashed out and walked away.... how do the two compare? How has you balance grown in 2014 after considering the beginning CSV and what you put in to the ending CSV? In my experience and the experience of most people who post here and retired early, people are best off buying term life insurance and investing the difference in no-load, low-cost index mutual funds or ETFs.

 

[papadad111]

Someone has to pay the pastor, keep the lights and heat on in the meetinghouse, etc. Think of it as a user fee, not charity.

Good point.

Solely as an economic comparison, I pay 120 dollars per month at the 24 hour gym. There are 200 "members" at the gym to sustain it, cool or heat it, keep the lights on and pay the trainers and coaches. That's 20k per month for operating budget. Oh and said gym also needs to earn a profit.

So how much do churches take in and need to operate ? I'd guess 100 - 200 bucks per family for a church with 200 families is more than adequate.

1000 dollars per month just seems astronomical to me for a young family to pay as a "user fee" every month .. and that budget in improper hands seems very prone for misuse.

My opinion only. No intent to hijack the discussion of budget and FIRE. Tithe is a choice and is discretionary in nature hence the pause and debate. For some it's a non starter to adjust. For others it can be reduced when other objectives take higher priority.

 

[Del Q]

You remind me of me when I was 29. I'm 50 now.

If I had it over again:

- I wouldn't get fancy with picking investments, I'd invest 100% in Vanguard index 500 and forget about it. I tried picking hot funds and it cost me money and sleep.

- I wouldn't take out any type of permanent life insurance. I'd get a 20 year term policy for yourself and the wife. I have a couple VUL policies with a lot of value, they've actually performed quite well, but my trouble is I can't get at the money anyway. It costs a FORTUNE to keep a VUL policy going in your later years, just look at the mortality cost at age 95 and you'll see that all the cash value you've accumulated will be needed to pay the cost of insurance. I'm cashing mine in as soon as I'm retire and am in a lower tax bracket.

- Get a line of credit instead of being your own bank.

- HSA accounts are great.

- Drive good used vehicles and keep them for a long time.

- Don't worry about paying off a long term mortgage early, it's cheap money. Invest the money instead.

Good luck to you and your family.

- 529 plans for your children really do work, I'm sending my youngest to college and there's enough to pay for all of it. It feels great.

- at age 29 down markets are your friend, don't panic.

- Most important, enjoy your youth and your family. Get a good plan in place and stick with it and spend your time enjoying your family.

 

[pb4uski]

I wonder if it is this: http://www.early-retirement.org/forums/f28/bank-on-yourself-770-accounts-70876.html

 

[Texas Proud]

Someone has to pay the pastor, keep the lights and heat on in the meetinghouse, etc. In my church, the vast majority of my regular pledge goes to these purposes. Christian outreach (helping the poor, hungry and homeless) is usually accomplished by separately raised funds. So if you go to church for worship services and to have your kids in Sunday school, keep in mind that there is an expense directly associated with that, and you should help pay it. Think of it as a user fee, not charity.

Agree... DW's church has figured out what this cost is and sends us a bill every year.... she also puts in some small donations when she goes, again to keep the church going.... we also donate food etc. for church activities... one year I cooked 5 briskets for an event....

 

[whytdrumer]

Thanks everyone for the advice. It is much appreciated. I do agree I don't know much when it comes to the stock market as most of my "expertise" is in real estate.

JC