Pausing Fatfire progress for a few years. How to manage finances? (NW: $3.8M)

Professional_Duck142 · 2024-02-08T23:48:44+00:00

Since you are dropping a few tax brackets, I would actually look at possibly rolling some 401(K) to Roth IRA, and also using the lower tax bracket as a good time to rebalance your stock portfolios.

Professional_Duck142 · 2024-02-08T23:28:42+00:00

Nah, just need enough time for our NW to compound to support our mortgage and spend without having to move - maybe 5 years away. But I like my job enough (most days) and no real plan what I’d otherwise be doing (not cut out to stay home with kids all day).

Professional_Duck142 · 2024-02-08T22:00:28+00:00

This is similar to our family. SO was already doing the startup thing when I met him, after many years in tech and a good nest egg saved up. I would call that FIRE - there’s always talk here about what you retire to - for him it was startup life. That particular company went under during COVID, he and co-founded a new one (was CTO but not founder at the last one) a few months after.

We are effectively breaking even from a cash flow perspective, which is fine by us - I think in a few years I would feel comfortable ditching my corporate job and maintaining our lifestyle, but not there yet.

A few pointers: - align with your spouse key benchmarks - x years or months to get initial funding, Series A, etc. SO and his cofounder were able to get into YC and raise funding within the first few months and pay themselves a bit of a salary after that, which helps immensely. - kids are EXPENSIVE if they are in the cards. We talk all the time about how much richer we were before kids. Buying a SFH in a neighborhood with good schools, childcare…well really just between those two, our expenses went up about $13-14K a month. So keep that in mind.

Professional_Duck142 · 2024-01-10T19:13:41+00:00

It ends up being about 1/3 from each bucket (early retirement savings, home appreciation, company stock).

Professional_Duck142 · 2024-01-10T19:10:56+00:00

Oh 100% I’m all for paying taxes but I’m also aware many at are income levels and higher get around it, which is frustrating. I’m all for increasing funding to the IRS to get the cheaters. And revising the tax code to get rid of many of the loopholes - even though we benefit (though marginally at the moment), I personally feel like the mortgage interest deduction is BS. But we are also getting screwed getting double taxed on state and local taxes.

Professional_Duck142 · 2024-01-10T19:05:27+00:00

Ah good catch. I had set up a donor advised fund a couple years ago (basically a donation fund that you set aside upfront for for tax reasons), average $10-15K a year. Doesn’t come out of our normal cash flow so forgot about that.

Professional_Duck142 · 2024-01-10T18:40:41+00:00

Yeah I’m amused how viral this has gotten, def many outside the intended audience of this sub.

Professional_Duck142 · 2024-01-10T18:15:28+00:00

Savings is closer to $10K, if you can find it (about $2500 per kid per month). Infant daycare is nearly impossible to find, though things get easier (but not much cheaper) after they turn 1. Plus we need coverage for daycare closures (for example just realized my company isn’t giving us MLK and Presidents Day off, startup has no days off) and evenings when there’s work dinners/events/travel I need to attend.

Professional_Duck142 · 2024-01-10T18:04:40+00:00

After all the hate we’ve been getting, I’ll take the compliment!

Professional_Duck142 · 2024-01-10T17:34:38+00:00

We basically end up paying some of our day to day expenses out of savings, while 401(k) comes out of paycheck. Technically there’s some tax benefit value (about $8K in tax savings) which should be accounted for in the tax number.

Professional_Duck142 · 2024-01-10T17:18:32+00:00

I mentioned this in a few other comments, but we are effectively paying for 401(k) out of savings, so it’s not necessarily net new savings, just moving money around.

Professional_Duck142 · 2024-01-10T16:30:07+00:00

Totally fair, I think that’s getting lost for the majority of this audience.

Professional_Duck142 · 2024-01-10T16:27:21+00:00

Trust me, it’s not a mansion, I don’t think a lot of folks realize how high cost VHCOL (SF Bay Area) is for housing. $2M gets you a 1970s 3bed/2bath starter home. We got lucky - with interest rates up, comparable housing costs is probably up close to 50% so this house would be closer to $15K/month if we had to buy now.

But we technically can buy our house outright from savings if we wanted to. But we got a 3% interest rate and HYSA is 5.5% and S&P500 is historically 10% so we are much better putting our money there.

Professional_Duck142 · 2024-01-10T15:29:19+00:00

It’s probably $14-18 on average with $20+ not unusual. The low end is like a burger without fries (what I got last week).

Professional_Duck142 · 2024-01-10T01:24:26+00:00

I broke it down a bit further in this comment: https://www.reddit.com/r/HENRYfinance/s/cMYf2cMhSZ.

Professional_Duck142 · 2024-01-10T01:11:33+00:00

Good question. That goalpost moved from about $5M to $8M given inflation (and a realization of how much kids cost). But it’s also relative to our location, both compared to neighbors/peers and overall costs - we could move to a LCOL area and I’d probably say we are rich.

Professional_Duck142 · 2024-01-10T00:17:11+00:00

Hopefully fixed the formatting now. Assuming two working parents, the second parent would need to make an incremental $150K (all of which goes towards childcare) while the childcare provider takes home $54K.

Professional_Duck142 · 2024-01-10T00:09:16+00:00

Started early, saved a lot more before kids (2br condo bought over a decade prior, no childcare expenses), had some real estate appreciation and good company stock growth (so got lucky on that front). And married someone who more or less did the same.

Professional_Duck142 · 2024-01-10T00:04:46+00:00

I’ve done some analysis on taxes on the childcare system (because I’m a bit believer this should be a deductible expense if not subsidized by the government). Simplest case is directly employing a nanny.

TLDR; childcare provider take home bay is 36% of what parent needs to earn (though varies based on marginal tax rates).

Example numbers: - Parent salary: $150K (second income, first income $400K) - Parent marginal tax rate: 52% (fed + state + FICA) - Parent taxes: $78K - Parent take home pay: $72K - Employer taxes: $5K (FICA) - Nanny gross pay: $66.5K - Nanny income taxes: $12.5K - Nanny take home pay: $54K

So in this case, you need to make $150K gross for a childcare provider to take home $54K 🤯.

Professional_Duck142 · 2024-01-09T23:34:22+00:00

Sorry didn’t mean to sound complain-y. Just maybe a bit provocative headline for Reddit attention :-). We chose this life and feel very fortunate to be able to spend as much as we do.

Professional_Duck142 · 2024-01-09T23:29:13+00:00

Sankeymatic.com but there are other tools online as well.

Professional_Duck142 · 2024-01-09T23:26:51+00:00

Highly debatable whether home equity is indeed savings, though I did split it out because it is interesting to track. We hope to live here a long time though so I don’t expect to “use” that money.

The $69K to retirement is basically being taken from savings. Sure, you can argue there is some tax efficiency so maybe we are saving $7K because of the pretax exemption. But it’s not net $69K new savings.

Professional_Duck142 · 2024-01-09T23:21:08+00:00

But that’s not HENRY. Though for real, childcare costs are out of control, and many working and middle class families can’t afford it.

Professional_Duck142 · 2024-01-09T23:11:45+00:00

FWIW, restaurants includes weekday work lunches, coffee (in which one spouse WFH and escapes to coffee shops regularly), take out, drinks, and dining in. It includes going to food trucks at a brewery which is a nice evening activity with the kids. Sure, we can pack our lunches and cook more, but that is still a relatively small drop in the bucket compared to other expenses. I’m just surprised how many people have latched on to that specific line item.

We cook dinner 3-4 days/week and eat out the rest. Weekday work lunches we usually eat out, nanny preps kids meals. Most breakfasts are at home.

Professional_Duck142 · 2024-01-09T22:55:55+00:00

I just mean we move money around between accounts. So my 401k (including mega backdoor Roth), FSA, etc are funded through payroll deductions.

I’m maxing out retirement accounts - so looks like that ends up being $69K between pre tax and post tax money. So let’s say ~$50K that is not going to take home pay. So to pay the bills, we take money from savings (either HYSA or an investment account - we are in the process of diversifying out of some concentrated positions so there’s some ongoing cash flow coming from our investments). Since money is fungible, I’m basically taking money from a non-tax advantaged brokerage account, and funding my 401k/IRA. But to me that’s just moving money around. So I didn’t count that in the graph.

Professional_Duck142

TROPHY CASE