Now that the Powerball shenanigans are over with, I can talk about what most people are really looking for when they buy a ticket: 1) Financial Stability and 2) Financial Freedom. Financial stability is what I define as having your ducks in a row so that you are slowly creating wealth and even if something bad happens, you have a safety net in place so life will continue to go on as you currently have it and you won’t find yourself out on the street. Financial freedom is the next step, where you’ve built up enough passive income or savings that you have the ability to choose how you spend your time, including walking away from your W-2 earning job. Today, I’ll talk about financial stability, because that is where I’m at.
When I was born my parents lived in a trailer. Though we eventually moved to a 1,000 SF ranch (for a family of 5) we never had AC, a dishwasher, cable, or any of the other things many middleclass families take for granted. It was ok, but handmedowns and leftovers were the norm. My wife’s early idyllic childhood was shattered when her parents divorced, and she lived with her mother where she had to have a part time job to help pay her mom’s bills since her mom wasted a large divorce settlement. Holly still talks about what that meant to her growing up, having to wear the same pair of jeans every day to school and moving every few years due to her mom’s inability to have steady employment.
We’ve both come a long way since then, having paid our own way through college and now find ourselves in the meaty part of our professional careers. In just the last few years it feels like we’ve turned the corner on everything, and find ourselves in as stable of financial situation as one could feel as self-made people still collecting a salary from an employer.
So what does that feel like? The two most common things couples fight about are sex and money, and the biggest thing I feel about our current situation is little to no stress about money. The worry of paying bills, or losing a job, or the future dissolves when you are rolling steady toward your goals. Less stress in our lives means more contentment, happiness, and headspace to focus on other things that matter to us. That to me is what financial stability feels like.
Each year has improved incrementally for my wife Holly and I. I’ve talked before about how we turned around a large negative net worth into positive one, and it just keeps snowballing. With raises and bonuses we continue to find ways to improve. We’re fortunate to work for companies that provide matching contributions to our 401k, as well as company shares (in ESOP), and bonuses if times are good. In total, cumulatively we received an additional ~13% of our salaries in “free” extra money, much of which we aren’t eligible to collect until retirement, but that further helps reach our long term goal of financial freedom.
Here are the big things along the way that have helped get where we are today (along with this mostly stress-free mindset about money), most are “duh” but still bear repeating:
- Pay off debt. Being free of credit card debt is a huge burden to lift off, and should be a priority. We pay off our bill every month. Due to low financing rates, we usually go that method when buying a car, but aggressively put extra money towards principal to be free of a car payment (while at the same time putting money towards future cars – more on that in a bit). We are also throwing extra money at our home mortgage, to own our home free and clear by the time we stop working. This was a huge way we were finally able to start making traction.
- Save for Retirement. Since our early 20’s when we finally got access to a 401k program, we’ve been socking 10% or more into this mechanism, usually receiving a match ranging from 1.5-4% depending on where we worked. Despite the lost decade of the 2000’s, we’ve done ok to start the ball rolling and look to be on track to have a good nut one day. And yes, we were socking away into these accounts even while we had a huge credit card balance we were chipping away at.
- Keep costs low. We aren’t the most frugal people, but we do pretty well to keep regular costs down. We built our home gym that paid for itself after a short time. We usually brown bag it for lunches. We might pick up take-n-bake pizzas or restaurant food once a week at something like $20-30 a pop on a busy day, but most weeks we don’t go out to eat. We have child care costs, that seem to lessen each year as the kids get older. But without car payments (probably 60% of the time) or other on-going debt payments, depending on our whims we can tighten up pretty damn well if need be. When my wife lost her job a couple years ago, our timeframe until we’d be really fighting for monthly expenses was nearly 2 years. Talk about peace of mind.
- Build up a savings nut. The other part of the equation noted above (wife losing her job) was that we had an emergency fund built up (earning 0.75% interest at Capital One 360, there are other on-line plans that pay more like Ally, but this is what we use and is much more than the 0.00X% interest you’ll earn at most bricks and mortar). This emergency fund could have been tapped if needed, and is really more of a “peace of mind” fund. We have multiple other sub-savings accounts as well. These include vacation, new car, new flooring in our home, and savings for a future rental property. Regular savings additions to goals add up over time, and time ends up moving pretty fast, hence, savings adds up pretty fast. Before you’ll know it you’ll have that emergency fund in case you do blow that transmission or kids need braces. And after that, it can help you reach your long-term goals, including fun ones (like vacations – paid with cash).
- Saving for college. This was probably one of our lower priorities until recently, since maximizing retirement savings and getting out of debt trumped that. As such, as we looked at financial goals in 2016, bumping up our college savings for Loudboy and BirdsNest was at the top of the list since everything else was on autopilot already. We’ve been adding regular savings into their 529 accounts (another tax shelter, at least from state taxes) since they were babes, but not a lot – $25 a month, then $50, then $100. It has added up, but we are woefully behind given the projections for costs of tuition and room/board. We are certainly not opposed to alternatives (skilled trade, military, entrepreneurship), and expect our kids to have skin in the game (through loans or cash from part time jobs), but education is a priority and we don’t want to burden our children the same way we were burdened (or moreso since the college costs have risen astronomically since we attended in the mid-90’s). Hence, with everything else in order, and child care costs continuing to drop, we’ve drastically bumped up college savings to catch up here.
Everything is on autopilot right now. We have life insurance, health insurance, and automated savings across the board so we pay ourselves first, using what is left for life’s other day-to-day bills and events. While I didn’t dig into insurance, having appropriate levels is important should tragedy strike, so that’s also a piece of the puzzle. I’m not sure we’ll ever get to Mr. Money Mustache territory on savings percentages (with people saving 40 or 50%), but incrementally we are continuing to step in the right direction. The next steps are strategizing on money issues assuming we can retire early. That means trying to save and invest more, finding outside income opportunities, or building passive income streams (like rental income) to fill that gap between not drawing regular paychecks to accessing retirement funds.
Our whole approach on finances is to have “enough” and not think about it or worry about it. We are there right now, and are letting it take care of itself. Getting away from the debt load and setting things up to automatically reach for our goals has taken a large burden off our mind and frees us up for doing the things we like to do. We’re lucky in this matter, but it has taken years and a lot of effort to finally be here, and we don’t take that for granted. We invested in ourselves, continued to learn on the job, switched jobs at various times for both income and life opportunities, and always continued moving in a positive direction both in and out of our paying jobs. Hopefully you are working to get on track and be in this place as well. Even though we’re still a ways away from Financial Freedom, financial stability feels pretty dang awesome.