I’ve written a few articles on personal finance type things, probably the best one with my approach is this knowledge bomb. It’s interesting to read old posts, amazingly some are actually pretty good.
It’s been a little tumultuous for us this year, as my wife lost her job mid-way through. In the grand scheme, it may have been for the best as she landed with a good, small firm with unlimited growth potential. All of what follows is not intended to be braggy or anything, I just want to share where we are, where we hope to get to and this applies to our situation alone. Yours is obviously different, but I have to think many out there have similar aspirations and goals and are trying to do the right thing to get there. If you care about one person’s look financially ahead, keep reading, if not, check back another day.
So one of our big goals is to retire. And not just retire, but to retire early. I don’t know if it will happen or not, but that’s the dream scenario. As I mentioned in another financial post, we’re about a year into being pretty financially sound for the first time ever. We’ve made mistakes that took time to dig out of, but have turned the corner. I still feel we have a ways to go, and we need to have sitdown about our financial situation, but here’s the basics.
We still have some student loans (at low interest rates), have a 3 year car loan (roughly 2.6 years left on it), and our standard 30 year mortgage that we’re only about 2 years in. That’s our debt. It was important for us to only have a 3 year loan, so put more down to afford payments. Carrying that payment for 5 years always sucked. We’re more buy-and-driveIntoTheGround people, so owning makes sense to us. My last car had about 155,000 miles I think, and I upgraded to more of a family size from a sub-compact moreso than because I didn’t want the car.
The 401k has been the primary savings vehicle we use. We won’t be getting any sort of pension, so savings is all on us and whatever shell of Social Security remains by the time I’m old enough to retire. With every job we’ve had, both my wife and I have put a fair percentage into our 401k, usually at least 10%. Now I hope to do a write-up on the 401k as a savings vehicle at some point, but in general I like it, but there are things I absolutely hate about it. The good is that it makes savings easy and you often get employer match up to a certain percent. The bad is they railroad you into high-fee funds, which erode your overall return, somewhat significantly over time. Regardless, before my wife lost her job, we had bumped up our savings percent into this vehicle to somewhere around 13-16% for each of us. We weren’t maxing it out, but were getting close.
For jobs where we no longer are there, we rolled those 401k’s into IRA’s. It sounds intimidating, but it was actually really straightforward. We have a well-diversified portfolio in an on-line brokerage that I manage, the majority of which are in Vanguard Index Funds. I don’t try to time the market and am a buy-and-hold type investor in this arena, so really only look at my balance maybe twice a year and may rebalance a little every year or two. In total, we are probably somewhere between $250-$300k saved in this vehicle. I wish it were higher, and if you read the Financial Samurai article about 401k savings, he would agree. But I also realize we’re probably ahead of a large majority of individuals. We need to be if we want to retire at say, 50 or 55 years old. We aren’t there yet.
We have a very modest amount saved in the kid’s 529 college accounts, I think roughly $5k for each kid. We contribute a little each month, but the reality is that unless we bump this up considerably, we’ll be massively in the hole in 10 years when BirdsNest starts school. We’re ok with that since you can borrow for college, but you can’t borrow for retirement. We do want to help cover some of the costs, but there’s only so much money to go around.
The other thing we’ve done is start to accumulate an emergency fund. We use a bricks and mortar local credit union for checking and savings account, with some money peeled off into a Capital One 360 (formerly ING) account that pays 0.75% interest which is way better than my local. FS just did a review on 360 here as well, though I’ve been using it for maybe a year or so. We tapped into this fund a little when Holly lost her job, and are in the process of replenishing it. Though we’re both in a stable industry and what we believe to be stable jobs, we hope to eventually get this to 6 months living expenses. What was interesting though after going through the job loss was that once the dust settled and we looked at our finances, we knew we’d be ok. With unemployment funds, no child care costs, and throttling back our savings (we owned both our cars free and clear) we could have handled about 1.5 years of her having no job without having issues and that was with much less than I hope to save in the E-Fund. That was like a weight lifted at that point and allowed her to be selective on choosing her next job.
Thoughts and Goals:
I grew up in a frugal middle-class family. We didn’t have a lot of money and thriftiness was a virtue in my house. Holly was also a middle-class child until her parents got divorced, and then her lifestyle dropped some. She’s had stories of not having money for new clothes so had to wear the same pair of pants to school most days of the week. This value system is still prevalent in both of us, and while we are generally able to afford nice things, we sweat about those decisions. Our vacations are still camping (though this year we splurged on a cabin for a week), weekends to nearby hotels or combining work trips with family vacations to save money. We had two major vacations together – our honeymoon and a trip to Alaska pre-kids. The kids don’t know differently, and we are thankful we live in a nice community with friends and a pool, and many summer days are like a vacation for us. (and that’s not to say we live a boring life or don’t have plans to travel – my wife lived in Denmark for a year and we want to go there among other trips, but doing it when we are in a good financial situation is important)
We do our best to keep expenses low, and have added on to our home gym with expanded space, some more bumpers and a nicer barbell, and stopped the $150/month membership fee at our local Crossfit gym. Financially, four months of no membership dues pays for our expansion. Our biggest expense is healthy eating – buying grass fed meat and locally raised hog isn’t cheap, nor is organic local milk or other food. Healthy eating and living is a big priority for us.
Our jobs are interesting as I will be getting promoted soon, along with a pay bump, and we’re guessing Holly may get offered ownership opportunity. Also, both our companies did well this year, so we’re hoping for some sort of bonus too. I feel we’re about to enter the prime of our earning careers, so need to continue to keep the eye on the prize. I realize that if we do retire early, we’re going to need more of a nest egg than our 401k’s. Ideally, in the next couple years we’ll max out IRAs/401ks and I hope to open up a taxable investment fund, with some of the same Vanguard Index Funds I currently have. I’m a big fan of Boggleheads and though I’ve talked to financial advisers, think you can do pretty well on your own with low expense index funds appropriate for your risk level. The two Boglehead books (Investing and Retirement Planning) should be must-reads for those interested in the do-it-yourself approach. And remember, check your local library first, my favorite frugal resource for all things books, movies and audiobooks. Fidelity has some retirement and saving calculators which are pretty good at big picture look ahead.
Now one day, I’d like to develop some passive income. I’m not sure we’re cut out to be landlords or speculate on real estate, but that thought has crossed my mind. Another thing is to do what everyone else out there is doing and get my AMD book written. Again, not to keep hitting on Financial Samurai, but he recently wrote about building a Passive Income Portfolio. Keep in mind, he’s coming at it from a very different place and had a nut to build from, most of us aren’t in the same universe.
Anyways, there’s a brief snapshot of us. My wife and I are very appreciative of our life, and sometimes we still can’t believe where we are now from our humble beginnings. But a lot of my notes from the post referenced in the beginning were key: no credit card balance, try to be frugal, save. And maybe most importantly – have Patience, money compounds but it doesn’t happen overnight. Slow and steady is the way to go for this average married dad.