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Old 09-30-2018, 11:14 AM   #1
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Health Check (29 Years Old)

Hi everyone,

I've been away from this forum for too long, and hoping that I can get some advice. I've just freshly come off several years of serious financial mistakes (costing $60k), but looking to hit a hard reset of my financials and get back on track to early retirement!

My spending had gone out of control due to having 2 kids, a major spending binge gone wrong, speculative investments (as awful as it is to admit), and spending way too much on a car (recently paid off by using investments to get rid of the payments that were killing me). Regrets are many, but I'm hoping prospective improvements can help me get back on track!

Here's my financials as of today:
Cash: $2k
Taxable: $6.5k
Non-Taxable: $85k
ESA/529: $4.5k

Home: $300k ($226k mortgage balance remaining, $1.4k monthly payment)
Auto: $40k value (totally regret the purchase, but owing nothing now)
Credit Card: $6.5k debt

Salary: $85.5k/annual

Taxable contributions: $500/monthly - EDIT - Planning to increase contributions by $50/monthly every year
Allocation:
55% - U.S. Growth
10% - International Large Cap Index
5% - Emerging Markets Index
5% - Gold
25% - U.S. Bond Index

401(k) contributions: $380/biweekly (7% with a 4.5% employer match) - EDIT - Planning a 2% increase annually, in line with expected salary raises.
Allocation:
55% - U.S. Large Cap Index
10% - International Large Cap Index
5% - Emerging Markets Index
30% - U.S. Bond Index

ESA/529 contributions: $300 monthly

Cash savings: $100/biweekly

Being 29, and turning 30 in February next year, I'm hoping for some advice on whether this currently makes sense. I'm hoping to pay off my credit card debt as soon as possible, to end the year completely debt-free. My cash savings are low, because I'm planning to schlep more cash into paying off my debt.

My main issue is that I'm running a 4-person household (wife is a SAHM), and I'm worried that I might not be able to afford retirement. Can someone please provide some advice? On my current plan, I'm saving roughly 25% of my income in relatively safe investments (learned my lesson the hard way).

Hoping to retire by 45 (projecting roughly $1.5M in the kitty) but given that my wife isn't projected to make any income, and we'll have a 15-year-old and an 18-year-old, I'm not sure if we're on track. Any suggestions will be greatly appreciated!
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Old 09-30-2018, 11:38 AM   #2
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Do you plan to carry debt (ie your mortgage) into retirement at age 45 or are you on track to pay that off during the next 15 years or so?
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Old 09-30-2018, 12:11 PM   #3
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Good question. I don't plan to carry that into my retirement at age 45. Hoping to pay off my mortgage early (currently contributing slightly more than the monthly payment), but at the current rate, will only extinguish this debt after retirement (around age 55), unfortunately.
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Old 09-30-2018, 01:07 PM   #4
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Having had discussions with other friends on having a SAH Parent, your kids get a different experience vs a childcare child. However I had a friend who didn’t want to go back to work because she felt that after 401K and tax contributions etc, that her income mostly went to childcare (75%+ iirc). The part she didn’t take into account was the impact to 401K, SS credit and potential pay raises. 15 years later, she now realizes she has given up quite a big chunk of progress towards FI, let alone the option to RE.
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Old 09-30-2018, 01:19 PM   #5
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I agree with the sentiment. However, I feel like the benefits of having the kids grow up at home outweighs the drawbacks. Personal differences, perhaps? In addition, the calculus gets harder because my wife is trained as a florist, which is an industry full of small businesses that don't provide retirement benefits (not to mention healthcare, where possible). Her annual wage was about $15k, which would more than get eaten up by childcare for two. Unfortunately, that's the reality of the situation...
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Old 09-30-2018, 01:21 PM   #6
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wzxchange, at 29 you're doing great. When I was 33 my soon-to-be-ex moved out of the house and left me hanging by my financial fingernails. The house finally sold about eight months later and when the dust settled I had a net worth of about $7,500 but at least no debt. Eighteen months later I was back in debt up to my eyeballs between a house (in that location and at that time a wise move) and a new pickup truck (not so wise).

Sixteen years later I was free of debt and about to retire.
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Old 09-30-2018, 01:27 PM   #7
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Thank you for the encouragement! It's always terrible to lose one's hard earned assets to events such as the one you describe, not to mention the emotional pain. Your testimonial is definitely a positive!

I've been having a lot of doubt as to my dreams of ER, especially with the crazy debt bingeing of the last two years. Learned things the hard way!
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Old 09-30-2018, 02:08 PM   #8
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Originally Posted by wzxchange View Post
I agree with the sentiment. However, I feel like the benefits of having the kids grow up at home outweighs the drawbacks. Personal differences, perhaps? In addition, the calculus gets harder because my wife is trained as a florist, which is an industry full of small businesses that don't provide retirement benefits (not to mention healthcare, where possible). Her annual wage was about $15k, which would more than get eaten up by childcare for two. Unfortunately, that's the reality of the situation...
Perhaps it would make sense for your wife to go back to work part time when the kids are older. No reason she needs to be at home all day when the kids are in school. Even if she doesn't make a lot of money, every little bit helps.
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Old 09-30-2018, 02:11 PM   #9
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That's definitely something to consider, since she can always enter the workforce a little later!
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Old 10-02-2018, 10:34 AM   #10
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Sell that $40k mistake.....
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Old 10-02-2018, 10:51 AM   #11
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Put the kids in day care. Hard for them to get socialized by staying at home all day with mom. Sure...you can do 1 hour play dates every now and then...its not enough. They gotta be around other kids all day.
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Old 10-02-2018, 10:57 AM   #12
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You are only 29yo, maybe consider more risk by dumping the bonds and gold funds and plowing more into equities? Don't beat yourself up on the car, we all make mistakes. I too am a believe of raising my kids at home, the benefits are huge, so good for you.
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Old 10-02-2018, 11:40 AM   #13
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Thanks for all the feedback! Selling the vehicle has definitely been on my mind, but hard to pull the trigger on such an illiquid asset, as well as having to replace it with another vehicle (transactional costs for a sunk asset?). I think we've should keep the vehicle, having already absorbed the first-year depreciation, and the reliability of the vehicle should allow it a longer life than average (is this subjective?).

I'm also not sure if selling my 25% allocation to bonds and 5% to gold is taking on too much risk, given the recent bull run in the market. I've always thought a 70/30 or 60/40 portfolio would provide some good growth over the long term, but limit volatility somewhat?

Many thanks to the thoughts on putting the kids in daycare. Definitely a consideration, especially in the near future, but the costs are incredible!
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Old 10-02-2018, 11:44 AM   #14
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I'm older than you with 100% equities exposure. Risk is relative, but you are leaving a lot of chips on the table, sir.
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Old 10-02-2018, 12:01 PM   #15
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I think that allocation's done well over the 10-year bull run we've had, but do you think that's reliable? My understanding is that research has shown a 70/30 and 60/40 portfolio is a pretty reliable long-term vehicle for investments, with lower risk than a 100/0 portfolio. Rebalanced annually of course, so there's a bit of buying low/selling high in the mix.

Opinion: Here’s proof that an all-stock portfolio doesn’t really pay off
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Old 10-02-2018, 02:12 PM   #16
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Originally Posted by wzxchange View Post
Thanks for all the feedback! Selling the vehicle has definitely been on my mind, but hard to pull the trigger on such an illiquid asset, as well as having to replace it with another vehicle (transactional costs for a sunk asset?).
At this point I'd just keep the car since you've already "eaten" the worst of the depreciation. Selling it now won't change that. As my father used to say "Chalk it up to tuition" and keep the car until reliability or parts availability become issues.
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Old 10-02-2018, 03:45 PM   #17
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Originally Posted by wzxchange View Post
Cash: $2k
Taxable: $6.5k
Auto: $40k value (totally regret the purchase, but owing nothing now)
Credit Card: $6.5k debt
You're better off than a lot of folks, but have a ways to go. First, I would work to pay off the credit card debt (interest if likely more than you're earning on your taxable investments/cash). If you can sell the taxable investments without incurring too large of a tax hit, I would, and use that to pay off most of the CC debt.

Consdier selling the $40K auto. Depreciation is a sunk cost, but future depreciation is not, at this point (e.g., it will continue to depreciate). It's better to have a cheaper used auto depreciating than an expensive one.

Then, get serious about never accruing credit card debt, and upping the savings, if possible!
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Old 10-04-2018, 06:57 AM   #18
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You are doing fine-but you won't be able to retire at 45 unless you set aside some serious cash. You essentially have $100k in investable assets at this point - your home equity won't do you any good unless you plan to sell the home when you retire.

The kids will take as much as you give them (you can sign them up for all sorts of extracurricular activities because it is "good" for them). Set a budget and stick to it, one sport or whatever at a time in order to put a limit to the spend. You are the parent and you set the rules.

I'd get a HELOC to pay off your credit card debt and then use your extra mortgage payment to pay off the HELOC.

You are too conservative at this point with your AA I think, provided you rebalance at the right time when we hit the next bear market, you'll come out ahead, but I plan on just let my equities ride.

If you want to retire in 15 years, you need to save about 50% of your income (read the blog post for assumptions etc). The Shockingly Simple Math Behind Early Retirement
The same blog post says that if you save 25% of your salary you'll be able to retire in 32 years.

Make sure you excel at work and get promotions etc, look for new career opportunities to increase your salary. I make about double of what you make, but started with your salary 10 years ago.

My DW is a SAHM and we have four kids, but our expenses are about the same as yours. My savings rate at this point is greater than 50%.

If your wife is a florist, have her start her own business and focus on weddings. Have her do a couple at cost + $100 for friends and friends of friends until she has enough of a portfolio to do this as a paid gig.

Sorry if this seems harsh, but if you want to make retirement in 15 years happen, you will have to be in charge and super charge salary increases in order to be able to save more.
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Old 10-04-2018, 05:21 PM   #19
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Thanks for all the advice! We definitely have our work cut out for us! Hopefully we'll have more positive news to share next time around!
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Old 10-04-2018, 05:30 PM   #20
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wzxchange,

but the experience gained is priceless , and the great part is you did this while young enough to recover

good luck , and take care
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