The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.
If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.
Also, please leave constructive comments, questions, and so forth. Simply telling someone what a mess they have, how they have made poor decisions, and so forth is not helpful. There is a way to say, "That was a mistake, but here's what you can do to correct it" that both acknowledges the problem and offers a solution. It's this sort of feedback that this series is intended to solicit.
Next in the series is FMF reader MB. She answered my questions (in red below) as follows:
Please tell us a bit about yourself.
My name is MB and my husband and I are “older parents,” meaning I am 43 and my husband is 42 and we have two young children (8 and 4 years old respectively). We live in an expensive area, Boston, having moved here 6 years ago from yet another expensive area, San Francisco. Both of us are in the tech industry and have experienced the tumult of the various recessions having both been laid off twice each in the past decade. Our last one ended up being a joint experience when I was laid off right before my daughter was born and my husband finding out he too was out of work when he called his manager around 8am to tell him that our daughter had been born in the middle of the night and he would not be into work that day. We were both out of work for 7 months then. I became obsessed with personal finance at that point with trying to plan for the ebbs and flows of our industry, saving for retirement, and ensuring we do our best for our children.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
Both my husband and I work full time and our salaries are good. I make $103k and my husband makes $80k. I think that we should be in much better shape than we are and this is why I have reached out to the readers here to get their feedback. I have to share that we do not own a house, we rent a smallish 3 bedroom/1 bath in a nice suburban neighborhood and we are getting a really great deal on it because the landlord likes how stable we are.
We don’t have any debts other than credit card debt of $6k that we are trying to pay off as swiftly as possible without adding more to it.
We currently try to save money for the 20% downpayment for our own future home. Since single family houses in this area cost minimum @$400k (and that is for a small 3 bedroom/2 bath), that means we need to save up $80k cash. To do this we have started this and other “Smartypig.com” accounts that we put money into 2x/month with each paycheck.
- My 401k/IRA balance: $250k
- Husband 401k/IRA balance: $125k
- Emergency fund: $22k
- Kids 529 college funds: $18k
- We own both cars outright: 2007 Toyota Prius and 2008 Toyota Sierra (bought used)
Smartypig fund balances:
- $21k for house fund (goal $80k)
- $4k for kid’s summer camp fund (camp costs $7k)
- $250 for holiday gifts (goal $600)
- $300 for new computer (goal $750)
- Rent: $1600 (believe it or not, a good deal here)
- Childcare/Daycare: $2000 (this is $2k/month from September-June. July and August alone cost $3.5k per month)
- Gas/Electric: Varies from $400/mo in the winter months to $125/mo the rest of the year. Our rental home is not energy efficient.
- Food: $800 ( we buy a mix of organic and conventional foods. I cook a lot)
- Gas: $150
- Cable/ internet/Netflix: $100
- Cell phone/data plan: $125
- Life insurance: $142
- Disability insurance (husband): $142 (we got the policy when he was a contract employee and are queasy about if we should cancel it or not)
- Car insurance: $100
- Rental insurance: $30
- Kid stuff (clothes, haircuts, birthday party gifts, gymnastics and other classes): $250
- Target stuff (cleaning supplies, hair dye kits, cosmetics, toiletries): $50
- Credit card payments: $600
- Babysitter: $80 (they cost a lot here. We go out one date night a month)
- Gym/Weight Watchers membership: $60 (I lost 30 lbs this past year – 20 more to go!)
- Entertainment - $150 (anything we do together on weekends like go to a museum or jumpy house place, eat out at Chipotle/pizza, etc)
We max out our 401k contributions. Unfortunately neither company provides matching. In addition we save the following each month:
- Kid's 529 accounts: $100
- Smartypig savings - $1600 (divided between the different goals, most going to the home fund)
- Through work we also save up $5k pre-tax money for Dependent Care and $2k for FSA per year through paycheck deductions.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
We are trying to make sure we have no consumer debt (paying off that $6k and not adding to it) and also saving as much money as possible for the inevitable layoffs that will happen in our industry.
As older parents, we are trying to make sure that we save as much money as possible and also try to buy a house. Right now we are in a catch 22 situation wherein we usually owe more Federal Taxes come April 15 ($1300 this year) because we don’t have enough deductions. Yet, if we don’t have enough money for a 20% downpayment we would have to pay PMI.
We also don’t want to be house poor when we do buy a home. In our area, modest size and condition homes are expensive (average is about $500k) and we don’t want to live so far away from where the jobs are that we spend most of our time commuting (a major reason we left the San Francisco Bay Area).
I don’t want to be a burden on our kids when we are older which is why we focus so much on saving as much money as possible not just for the “rainy day” but trying to save more for retirement too. Who knows when the time will come when we will be considered too old and undesirable a hire compared to someone younger? I am looking into seeing if we can open a Roth IRA but I confess I don’t as yet know too much about those and if we could qualify with our income.
I know our income seems high but it often times feels like we are living a very bare bones and frugal experience. We take one week long vacation trip a year and it is always to visit my ailing in laws who live across the country from us. In addition, we try to do 2-3 long weekend car trips a year to the beach or to visit friends on the east coast. We don’t do anything extravagant. We clean our own home and when we do have the babysitter come for our date night, we tend to use that time to see a movie and get a cheap meal. Our whole family gets the cheapo SuperCuts hair cuts and I buy second hand and discount clothing for us all.
What are your plans for the future (retire early, build your career, etc.)?
Save as much money as possible and work until I can’t work anymore but try to enjoy life as much as I can in the process. Thankfully, I like the work I do and I want to continue learning more skills to make myself more marketable. I think retiring early is a fantasyland for us unless we win the lottery so my hope is that we stay healthy and active enough to see our kids through college and established in their careers. Basically just save, save, save!
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
Start early!! I spent most of my 20s in graduate programs and didn’t start working and savings in earnest until my 30s and that decade flew by faster than I would like to admit. I oftentimes look in the mirror now and wonder how I got so old so fast and why we are not in better financial shape at this stage of our lives. My biggest piece of advice is to live below your means and save as much as possible and to be responsible with your money. This is what we are working on now. I just wish we had started doing this in earnest a decade ago. I still wonder where all my money went way back then!