As most readers know, Mrs. RB40 is still working and earning a paycheck. That’s one big reason why I could quit my job to become a stay at home dad/blogger before I turned 40. She likes working and she enjoys her work so it’s a win-win situation for both of us. Of course, the future is never certain so I like to run the numbers once in a while to see if we can survive financially without Mrs. RB40’s paychecks. I think late April would be a good spot for an annual checkup. The taxes are done and it’s a good time to take stock of our finance. I just added the annual event to Google calendar so I’ll get a reminder to do it again next year.
I’ll use the cash flow data from Q1 2015 for this article. This is why it’s crucial to track your cash flow. It gives you the ability to forecast your finance if anything changes. We’ll make some modification to this table and see what our income would be without Mrs. RB40’s paychecks.
|Take Home Income||Average Q1||forecast|
|Mrs. RB40’s paycheck||5,472||0|
|Total Take Home||5,652||3,246|
I made 4 big changes to the table.
- I reduced Mrs. RB40’s paycheck to 0.
- I reduced our rental income to 0. I’ll explain why in the next section.
- I reduced our pre-tax saving to 0. We’ll curtail pre-tax saving until our income increases.
- I increased my estimated tax to account for not contributing to my solo 401k.
With these 4 changes, our take home income would be reduced by about $2,400. Actually, that’s not as bad as I thought. At first glance, it would seem like our take home would be very low, but that’s not the case. By reducing our tax advantaged saving to 0, we will be able to keep our take home income at a moderate level. However, is $3,246 enough to cover our monthly expenses?
I’m keeping most of our expenses the same because the goal is to maintain our current lifestyle. There are 2 major changes in this table.
- We can reduce our housing cost to about $1,000 per month by selling our rental and using the proceeds to pay off the mortgage on our primary residence. The $1,000 would cover property tax, insurance, utilities, and maintenance. We won’t have the income from the rental anymore, but our cash flow will improve.
- Medical care is where I’m not sure about. We will go with Obamacare if Mrs. RB40 doesn’t have a job anymore. I went to healthcare.gov and checked the price for a mid level health insurance plan (silver). Our annual income would be about $40,000 without Mrs. RB40’s paychecks. I put this into the estimator and they said we could be eligible for $216 tax credit toward the insurance premium per month. We’d pay $214/month after the tax credit. That’s actually not too expensive for a family.
With these two changes, our projected month expenses came out to be $2,793. That’s pretty good! We’ll have about $450 as a cushion every month.
Things look good for Mrs. RB40
All in all, I’m pretty happy with the result. We wouldn’t have to change our lifestyle much even if Mrs. RB40 quits her job today. However, there are a few of things I’m concerned about.
- Health insurance – That estimate seems low to me. If you’re buying insurance through the healthcare market place, can you give us some feedback?
- Travel – We would like to travel more once we both are retired. This expense sheet doesn’t include travel because we haven’t gone on a holiday yet this year.
- Cushion – The monthly cushion of $450 is too small for my liking. Inflation will eat into this in a few short years.
So while we are in good shape, we’re not quite ‘there’ yet. We could start withdrawing from our retirement fund via rule 72(t). That would provide us with a nice travel fund and give us a comfortable cushion. I wouldn’t be happy with raiding our retirement this early in life, though. So what can we do over the next 12 months to improve our outlook?
- Increase dividend income – We will continue to invest in dividend stock to increase our dividend income. At the current rate, our dividend income should surpass $1,000/month in about 18 months or so.
- Pay off the mortgage on our primary residence – Our mortgage will be paid off in 15 years if we don’t pay extra. If Mrs. RB40 can last that long, we would be set financially. I’m not sure if it’s worth paying down the mortgage at this interest rate. What do you think?
Yes, we can survive without Mrs. RB40’s paychecks, but our finance will be really tight. We could take distribution from our retirement fund, but that would be the last resort. It’s probably best for Mrs. RB40 to keep working for a few more years while we shore up our passive income. She doesn’t want to quit working right now anyway so I can’t complain.
Would you be comfortable retiring if you were in Mrs. RB40’s position? Hmm… I really should calculate the income we’d receive from taking early withdrawal via rule 72(t). The extra income would improve our prospect quite a bit.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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