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 JN. He answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I am 48, married (wife is 49) and have two girls who are 14 and 18. I am an in-house real estate lawyer and VP of a investment real estate company. I have been with the same company for 22 years. I live on the east coast in an expensive city. I have done pretty well -but because of high living expenses—it continues to be a challenge to tackle all of the financial challenges and still live a modest but nice lifestyle.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
My wife and I both work. I earn about $180K (plus a –sometimes- bonus) as a lawyer/ real estate executive and my wife runs a home based design company and earns about $50K. I realize that this is a substantial amount of money and that we are incredibly lucky. My wife uses her money (about 25K/year NET or $2000/mo NET) for daily living expenses for all of us—every day stuff…clothing, medical co-pays, gifts, restaurants, kids expenses, tutoring, kids camp/ summer activities, tennis lessons for the kids, etc… It basically gets spent and allows my income to be allocated toward saving. I pay the “bills” that come in the mail -- the mortgage, taxes, utilities, pest, alarm, cable, etc…and am in charge of “savings” and investing.
We, over time, have been able to max out in my 401K for many years, max out a KEOUGH retirement account for my wife, and currently save about $1800 a month on top of that. With that $1800/mo I put $600 into college savings and $1200 into investment accounts at fidelity each month allocated to a conservative mutual fund portfolio. My savings rate has not always been so high—it has slowly increased over the years. Each time I get a raise—I try to increase my monthly savings.
My net take home after all of the taxes, medical, 401k retirement savings, life insurance etc… is about $8000/ month. So the $1800/month saved amounts to about 22% savings from my net take home pay. Add the 401K savings and my monthly savings are about $3450/month or 43% of my net take home pay. This makes me very proud. And it just goes to show that it is possible. And trust me— although we do not live high on the hog and we are not social climbers or “show-offs”—we live a nice life.
All of this has allowed us to have a net worth of about $1.5 million dollars. $1 Million in various retirement accounts that are not assessable until 59 ½ of age and about $500K in fidelity investment accounts.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
- Paying for college
- Saving for and executing my own retirement
- I am an employee—and as such, my job is never really secure…..
What are your plans for the future (retire early, build your career, etc.)?
At this point I have the following goals:
- COLLEGE- I have always dreamed of paying for my kids education. I would like them to enter the world without school loans. My oldest will be going to college this year. The costs, as you know, for a private school are about $40K year. If both of my kids go to private colleges—it will cost $320,000. I am not eligible for any need based scholarships because of my income level. I plan to pay for much of this out of current income ( since the mortgage is now paid) and the balance with my “college savings” account which has about $150K in it. Is it smart to put all this cash into college tuition or should I get loans?
- RETIREMENT- I would love to retire a bit early. Maybe early 60’s? Not sure if it’s feasible since Medicare and social security do not kick in until 67 I believe. And I would need to have a lot more money saved to pull this off safely. I am a conservative chap and would never do it unless I could really afford it.
QUESTONS for the group:
- RETIRE - How much money will I need to realistically retire. Can I live on less than I make now since there will be no need to save? I realize that medical and travel will be large expenses in retirement. I also realize that I spend a lot more money when I am not at work (weekends…) If I am retired and “every day” is a weekend--- My expenses could skyrocket! Although we make $230K /year (gross) – after deductions and savings--we only spend about 75,000 (net). I figure to earn $75-80K/year I will need $2 Million invested at 4%. If rates go up—I would need less. That gets me over the hump until social security kicks in 5-7 years later. Does this make sense? Is it possible to achieve this in the next 10-15 years?
- COLLEGE - How should I pay college costs? Out of income and savings as planned? Or should I get loans? Did any of you other high earners fill out the FAFSA student loan government form? It seems like a waste of time since I am not likely to get any aid based on my circumstances.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
- FEAR is your friend. Protect yourself from the unknown by having a financial cushion.
- No one will ever care about your finances as much as you should.
- Live below your means and think long term.
- Tackle milestones early—plan-plan-plan!
- Living paycheck to paycheck is self defeating.
- Strive to always increase your net worth and become financially independent.
- Pay yourself first.
- Become debt free.