Rocky Mountain Retirement

[davebobk47]

Hello,
I'm new to the forum however I read ERE a few years ago. I haven't had much success since then due to numerous reason however I'm more motivated now and I've gotten some buy-in from my wife. My plan is to keep a journal on this forum that way I have someone(or the internet hordes) to answer to. A non-ERE person would likely think I'm doing great in term of finances and retirement however any ERE person (including myself) know that I have a ways to go.

So a bit about me- 35yo, married, 1 kid (1yo), 1 dog (12.5yo). Live in the mountains of Colorado, working from home as a consultant. Goal is to be FI in 8 years(or less). My wife will continue working as she enjoys her job and gets a lot of time off.

Hobbies that I look forward to spending more time doing once FI - mountaineering/hiking, running, photography, brewing, etc...

Thanks for reading, more to come...
-Dave

[davebobk47]

Current state:

My employment- I currently work as a project manager for a small consulting company. As far as corporate jobs go it is the best one I've had... however, there are other things I'd rather do - that's why I'm here! This job allows me to work from home which is a huge plus. They also pay for my internet and cell phone bill, so for now those items are not something I need to look at cutting. While contractor jobs typically pay well they are also known for not having great stability. In my current role I'm fairly certain I have about 1-2 years of stable work and future engagements look promising at this time. Having 8 years (or however long it takes to become FI) of stable employment would be nice but I'm not 100% sure this will happen. If I were to lose my job I would look into perhaps doing something part time if I am close enough to FI.

Wife's employment- A school teacher - likes her job and gets holidays and summers off. Her continuing to work will allow me to retire much sooner. I can get good health insurance through her job, she will continue to have a decent income and good job security. If our FI journey is going well she could even work part time (job sharing, traditional part time, 1 year sabbatical, etc)

Housing- This is the big one. I have 2 houses - 1 that I live in with my family and a second that I rent out. While this provides me some income the combined debt from these 2 houses is massive. My thought is (please feel free to chime in here if you think a different plan of action would be better) that I pay off house 1 (rental property) first, followed by house 2 (where we live). If I have a savings rate of 50% I could pay off the rental property in under 3 years. Once that is paid off if I continue to have a savings rate of 50% I could pay off my house in about 7.5 years. At this point, with no mortgages, we could live entirely off my wife's salary and even save some from the rental property income. However, that would mean about 7.5 years of no investing. Am I better off putting this money in PP or other investment tool? Or should I do a combination of fast pay down and investing?

Dog- I've had my dog for what I would consider my entire adult life. He's been with me over 12 years now and when the day comes when he is no longer around will be difficult to say the least. At this age it's always a question of "is it worth it to keep going". An example - 4 years ago he was diagnosed with toe cancer (a form a skin cancer). It cost about $1800 to remove the toe and all related meds/follow up visits. It's been 4 years now and we're cancer free and still going. Was it worth it - absolutely without a doubt. Now as he approaches 13 would it still be worth it? what if the cost was $5k? I guess when the day comes we'll have to see. In the meantime minor medical costs will happily be paid to keep him around and maintain his quality of life.

Target improvement areas-
Food. This is the biggest one. I go out to eat for lunch far too often. Working from home has its benefits but sometimes it's nice to get out, run some errands, and grab lunch. Instead, I'll eat at home and get back into my routine of running most days. This is a free way to get me away from the computer. My wife and I will also try to limit going out to eat only for special occasions and not - "oh there's nothing in the frig, let's go out and I'll grocery shop tomorrow".

TV- I've been pushing for this one for a long time. I'm currently in a contract but it seems there are some ways to break the contract without paying an early term fee. Will most likely have to get something like Netflix to appease my wife. This should still result in a savings
Clothes- I can't remember the last time I bought new clothes and my wife only buys new clothes once or twice a year. Additionally, most of my son's clothes are hand-me-downs but sometimes my wife does like buying the latest "cute" outfit from Target. This is something we should be able to completely cut out.

Skiing- I live within 30 minutes of 5 world-class ski resorts. It's fun, somewhat of a workout, and it's something to do during our long winters. All that considered it is over $400/person for a ski pass. Since we already have ours for this year nothing can be done but in future years I will consider foregoing this as there are other options for skiing that are much cheaper if not free.

Amazon/Target- Target is magic. You walk in the door and when you walk about you have $100 less. Target and Amazon are where we get all of our consumables (toothpaste, baby wipes, etc) as well as an occasional grocery item (Target is located much closer than the grocery store so if it is just 1 or 2 items we end up going there). We need to limit purchases here to only things we actually need

So... in summary (aka Cliff Notes if you don't want to read my ramblings)
1)my job - work from home, pays internet and cell phone
2)wife's job - will keep, source of insurance
3)housing- 2 houses(1 is rental property). Do I pay these down first to eliminate debt? or do I invest? or do both?
4)areas to improve - Going out to eat, TV, baby clothes, Amazon/Target purchases

[singvestor]

Interesting journal! How high are the interest rates on your mortgages? This would probably determine how fast you should pay those loans off.

Working from home as a consultant sounds interesting. It might be somewhat of a black-hat technique, but have you thought about outsourcing some of your work to the Philippines? That would buy you a lot of free time for your hobbies... I am only half serious about the idea, but have sometimes entertained the thought as a 'what if' scenario...

[davebobk47]

@singvestor
The rental property is 5.5% fixed while my home is 4.25% fixed.

Outsourcing some parts would be interesting however I'd have to have a way to get them access to all necessary systems and as I contractor I cannot grant access.

[wheatstate]

Regarding paying off the rental faster, what will your annual return rate be?
Return rate = (Annual rent - insurance - RE taxes - maintenance) / Current market value of rental

in my low COL area, I paid off my rental and it felt great to be less in debt. When I calculated my return rate, I realized that it was too low for an active investment. I do think rentals are great piggy banks to increase wealth, build sweat equity and leverage your capital and time. Know your rental niche and a good game plan.

I, also, believe a paid off rental can be the target of a tenant lawsuit of landlord wrongdoing. Be sure you have proper coverage to protect your asset

Sounds like you are building a great life. Keep living the dream.

[davebobk47]

@wheatstate
cool idea/formula. My RoR works out to 5.15%. This has actually dropped due to the value of the house rising recently. There will certainly be years where this drops due to major maintenance but thus far maintenance has been minimal. Based on that RoR I'd say it makes sense to keep the house but also get it paid off. Current insurance covers me for up to $300k.

[LiquidSapphire]

Hello fellow Coloradan!
Basic rule of thumb is if you have debt - you should pay it off if, net of taxes, the interest rate is higher than you can generate with investments. Mortgage interest is tax deductible, and you have to pay taxes on investments if you put it in a taxable portfolio, generally speaking (lots of exceptions) so you'll have to run the numbers and see what your gut tells you. If it's close, do what feels better to you. Being debt free can be empowering, but having a portfolio that you can draw on is also empowering, albeit in a different way (you can just use that to pay down your mortgage if you have a spot of unemployment)

TV - break your contract yesterday - I haven't missed it at all. Just get a decent antenna + netflix.

Do you keep a shopping list? I have a whiteboard on my fridge of all the things I "need". Maybe try "shopping only what's on the list" for a while and see if that helps things. What kinds of stuff are you buying to magically be $100 poorer at target/amazon?

[LiquidSapphire]

also on food - try to make a night of trying new recipes at home. And get picky about the food you eat... most restaurant food kinda sucks once you're trying to live a healthy lifestyle. I don't really skimp at the grocery store much when it comes to ingredients - figure no matter what I am buying there, it's cheaper than a meal out!

[davebobk47]

@LS
Thanks for the reply.

Regarding food, we typically buy better quality ingredients (after reading Omnivore's Dilemma we only use grass fed beef and eggs) and yes it is still way cheaper than going out. Unfortunately due to town restrictions we can't keep chickens for eggs.

I am a fan of paying off the debt - I don't like it hanging over my head. I've already determined that it makes sense to pay off the rental house. My current home has a lower rate so will have to check the numbers. However, another way to look at it is that if both houses are paid off we could live off my wife's salary even with pre-ERE lifestyle.

We tried an antenna when we moved in but we are too far out even with a boosted antenna. I've talked my wife into cutting down to just netflix or similiar (hulu maybe?).

For shopping lists my wife and I use Wunderlist (a list sharing app that is kinda cool). I'm good about sticking to the list because I want to get out of the store ASAP. The extra Target stuff typically changes although for the past year it tends to be baby stuff, new outfit, toys, random widget, etc. 90% of the time my kid grabs an empty box or rubber spatula to play with - he doesn't need the extra toys. Will definitely try to work on sticking to the list.

[LiquidSapphire]

Sounds like you're all set then with where to put your money

Netflix is pretty good and it's all I use, Hulu, Amazon Prime, are pretty much the big players. You can find a surprising amount of stuff on Youtube. Even paying for things like NFL Game Rewind and actually buying television episodes is worth it sometimes depending on how much your bill is and how attached you are to a show (though I challenge you to consider how much a typical network show is really worth). What types of shows are you watching? Maybe you can split certain costs with a friend.

You could also consider getting a coupon book or just check out Groupon and make a rule if you're going to go out to eat- you have to use a coupon/groupon thingy, unless it's a truly special occasion. It's a possible middle solution if you're finding just stopping cold turkey too hard.