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March 11, 2011

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Seems like there is nothing "bad" about Brad. He seems that he is in a good situation with a good job. His mortgage payments must not include taxes, etc., because they seem low for the loan amount. For example, my wife and I are paying (with taxes, etc) close to $2,500 per month on a 15 year $250,000 note. It seems that Brad does a lot of networking to be reasonably confident of finding another six figure job within 7-8 months, as that is a more difficult feat today than it should be. Hopefully Brad has some sort of income diversification since he does not have any with his wife staying home to raise the children. Great idea for a new series!

Thanks Bad_Brad... very nice of you to kick this off!

Bad_Brad should actually be Great_Brad. Yeah, being underwater on the house is a bummer, but at least he isn't walking_away_from_my_mortgage_Brad. Tons of people bought homes that were overvalued.

Brad donates money, saves money, is preparing for his children's future, makes enough money to live the lifestyle they want (mom staying home). I hope Brad is able to attain his teaching/coaching goals.

Really enjoyed this post. Thanks for sharing.

Thanks for sharing. Wish you luck in the early retirement quest; it would seem that with young children and the need to pay for (at least some of) their college costs, plus the need to pay down $400k in mortgage debt, and the need to build a seven figure retirement fund...means you'll be working for at least 20 more years. Unless that lottery ticket pays off.
I think many of us are in the same boat.

I am looking forward to this series. I found Brad's sharing of his financial situation to be very interisting. I hope that's not too voyeristic...

I did find it interesting that he included severance and accrued vacation as part of his safety net. I also include that it my estimations for a short term emergency fund.

Wow Brad, you're doing so well for 36!

Do not sell your dreams short if they really mean that much to you, you're in such good shape they seem completely reasonable. I agree that "Money is viewed as something that you spend on stuff, ostensibly, that stuff is supposed to make you happy" but that one should instead view monehy as "Freedom to do what lights you up inside, what you are passionate about." Make a plan for the mid-40s retirement. Maybe you will not like the consequences and will make a rational decision to not pursue it, or some things will just not work out but, given your current income & savings, your ability to downsize home by moving to a lower cost area to teach, and the fact that you know your passion and it could produce a decent income, I don't know if you should push off your dream a decade so quickly. I wish I knew my work passion.

Not bad for bad brad. Pretty well plan if not how you can get what you have now. Pretty simple, life simple as you can. Good luck brad. No more bad.

I am the same age as Brad and my base salary is the same. I think I pay a lot more in taxes, because my take home pay each month is several hundred dollars less than his expenses. Being married is the difference I guess (I'm single).

Mistake was buying ahouse he couldn't afford (2 mortgages not enough down payment). Needs more emergency liquid savings, even more retirement savings and probably don't even THINK abiut not working full-time until the kids are off the Bank of Mom and Dad. Miost folks have to work harder in late 50's to recover from teh outgo of college costs, why not be sure kids go to community college, then STATE U unlesss they can scholarship, then something more expensive in eduation might be possible. Have them "buy in" with work and loans too. Don't put ANY extra $$ into the underwater house. Maybe by time you are mid 50'sthe house and mortgage can be even and you can sell....

This is a very neat and insightful series. I would love to be a part of it. I am sure everyone is curious about the financial condition of a 26 year old!

I'm going to disagree with jeffinwesternwa and say that I would be totally focused and throwing every penny I could at that $40,000 2nd. With that albatross gone, Brad would be in so much better shape financially.

I agree with Robert M about the 2nd mortgage, especially if you're paying PMI. Paying PMI is just like lighting money on fire every month. You also should bump up your emergency account to at least $40K (~6mo expenses). Personally, and I'm guessing that FMF would agree, I'd like to see you give more to charity. Your #1 listed priority sure seems like you're aiming to store up treasures on earth.

FMF I think this is a great idea. All to often we need a guide post of where we are at and how we are doing. Everyone's situation is different but we all can learn something. I see Bad_Brad is doing well with this situation and I like his attitude and direction. I think we all can learn something from each other and where people have set goals and how they are doing. I think anyone would be intereded in being profiled to some degree if they feel they are on the right path.

Responding to a few comments ...

brooklyn money - the $3000 figure does include everything (taxes, insurance).

jeffinwesternwa - I can afford the house, but I would love to have paid about $100k less for it (which is about what I would pay today). I can't really help the timing of when I moved to this area for my current job. The market was red hot at that point. I threw up in my mouth a little bit when I signed the mortgage papers, and part of me screamed "just rent for now". Hindsight is 20/20, it is possible the housing market could have increased another 10% and then I'd have been kicking myself. Plus, with a 3-year-old daughter at the time, I wasn't really keen on moving into one place only to move to another not long after. I wanted to get settled in a home. I did put 10% down (I did an 80/10/10 to avoid PMI).

Robert M / Jeff - I agree, which is why I'm putting an extra $100 every month on the 2nd mortgage. I have a pretty sizeable chunk of company stock vesting this summer ($20,000+), I may sell some of that and put it toward the 2nd as well. The payment is $376 per month and is mostly interest. I would love to knock that thing down. It's the only aspect of my financial life right now that I'm not that crazy about.

Jeff - I'm working toward getting up to a tithe. I am fairly new to the Christian faith. Each time my comp changes, I bump up my giving such that I am a little bit closer to a tithe. And two years ago when I did not get a raise, I still bumped my giving up. I know that's not what Christ commanded us to do, but hey, no one's perfect. I also give money automatically every month to a couple of non-profits (which is matched 2-to-1 by my employer).

I am also looking forward to getting a peak behind the curtain of the financial lives and attitudes of other peers that take part in this forum. Thanks to FMF for putting this on.

BadBrad:
I started 40 years before you but you are mirroring my life in many ways and are on a very good track.
When I was 36 I had also been married for 14 years and had three children, two girls age 11 and 9, and a boy of 6. I could have very easily been living in Seattle because I had a nice offer from Boeing in 1960 but I decided on Lockheed in the Santa Clara Valley in California instead, primarily because of the climatic differences.

The main difference between our lives is because of what I have discussed earlier about many of the critical events being outside of your control and a function of Good Luck or Bad Luck, which is largely dependent upon the year you happened to be born.

In 1963, I had just got my MS degree, courtesy of Lockheed, and was making $11,200/year as a junior engineer when we bought our first brand new 4br,2ba home after being married for 7 years, it was $27K with 25% down on a fixed 4.5% conventional 25 year loan. We spent quite a bit on landscaping, and custom carpets and drapes and if we had been forced to sell it during the first 2 or 3 years we would have taken a significant loss, but real estate prices rose steadily and when we finally sold it 14 years later in 1977 it had appreciated to $90K. Real estate prices continued upwards and there was full employment and a lot of growth, largely a result of all of the computer related companies that started springing up all over the valley right up until the great recession started in 2008.

When I arrived in 1960, Lockheed was by far the largest employer in what is now Silicon Valley. Today, Lockheed is a shadow of what it used to be during the days of the Cold War and the Exploration of Space, and now the largest employers are companies like Apple, Cisco, Google, Yahoo, Facebook, Intel, AMD, Applied Materials, HP, NETFLIX etc., etc.
In 1960, NASA, GM, and Ford each had a very large presence and the Moffett Field Naval Air Station that I could see from my office window was operating a large fleet of P3V planes constantly patrolling the Pacific Ocean looking for Russian submarines, today they have all closed down completely. That's how everything changes if you hang around long enough.

Well done, Brad. I think you and your family are off to great places.

Just one question, do you also contribute to your wife's 401(k) or IRA?

To be honest, I've read plenty of articles about US retirement funds but hardly about contributing to your non-working spouse's fund. Back in Australia, it is a common advice to give, especially when the couples are in their 40s and 50s.
I think it's fair because the wife has to stay back and needs to catch up on her retirement savings. We all know the distinct difference between male's and female's average retirement savings.
Currently I'm the sole breadwinner and I contribute to my husband's retirement fund as well as mine. Even though the amount is relatively little, this small contribution will make a huge difference in 30-40 years when we cash it out.

When I look back to when my husband and I married, I realize how much we did not save. We rented in Chicago, moved to MO and for the first 20 years lived in houses provided by our farmer employers and lastly in my in-law's farm house.

When we moved into town we bought an old home for $7,500. The price had been cut in half for us. We sold it later for $3k, the price of the lot. And moved into a 29 y/o double wide trailer that had belonged to my in-laws. Their other children gave it to us in thanks for taking care of their mother for 25 years. I am still living in that trailer and it is now 45 y/o and has been updated in the last 10 years with a new steel insulated roof, all double paned windows and insulated siding. My total utility costs in 2010, except for telephone, averaged $126 a month. We just have a city bill that charges for gas, electric, water, sewer, trash.

So, we actually spent $4,500 and owned 2 homes. I got to musing one day, that if we had saved $100 a month in lieu of rent, I would be much better off today. The only excuse I have is that much of the time we were making very little money. When we moved to MO we got a house to live in and $50 a week, plus 1/2 beef and a hog.

I think stories like these, tried and true, help others to see mistakes we made and how to start trying to set their savings up for the future. Thanks FMF for having this forum for all who need it and all who feel they have experiences that will benefit others.

I'd like to commend Brad for going first in this series. It takes a good amount of bravery to "put yourself out there" on the web for everyone to comment on, so I applaud him for doing so -- and doing it first. ;-)

The next post in this series is up in a couple weeks or so. Stay tuned.

Brad: You are well on your way to an early semi-retirement, and your dreams of a more fulfilling occupation.

I would never suggest putting more money into real estate that is underwater. If you had to move, or really wanted to move someday, there's no guarantee you'll have enough equity to pay off the mortgage(s) and cover realtor commissions. I also have a 2nd mortgage, which was part of an 80/20 strategy to avoid PMI in the first place. Your second mortgage seems to have a very high interest rate and is all-interest payment, which I suspect is really a HELOC and not a true amortized second mortgage. Am I correct?

As long as you are contributing the maximum amount to your retirement funds, maintain a healthy emergency fund, keep your expenses low, and don't get into any other type of debt like a car loan, then absolutely pay off that $40,000 high-interest albatross. Just don't do it for the wrong reasons. Remember that I said you may want to move someday. Focus on paying down the mortgage ONLY to the actual current value of the home, at some point in the future. If paying off the second mortgage accomplishes that, then pay it all off. Don't ever assume your house is more valuable than your comps, despite how much you may have put into improvements or maintenance, because part of the "new normal" is that buyers will be in the driver's seat for several more years.

Paying off your second mortgage at 8.75%, gives a very good return versus the stock market. Unless your company is doing extremely well and you expect to beat 9% annual returns.....it would even be too much risk for me not to sell them and put the money to better use.

Brad, just one question. Based on Biblical principles why are you not giving to your favorite religious organization 10%?

To comment on a few of the questions / issues raised ...

RE: the underwater house. It's probably tempting to picture me as a guy in a 4,500 sq ft McMansion with gleaming hardwood floors and granite counters and a big pool and hot tub out back. That picture could not be more inaccurate. My home is an 1800 sq ft 1970's era split level with 3-bedrooms and 1.5 baths. My two older kids share a bedroom. I could have bought a cheaper home, maybe $450k instead of $500k, but it would have been 10+ miles from my work. As is, I am about 4 miles away, my commute is short, I have more time with my kids, and on nice days, I can ride my bike to work. And with $4 per gallon gas just a month or so away, there is a real cost savings, too. Plus, my home is in an award-winning school district and my kids can literally walk to school K through 12. My home is just about the smallest in the sub-division and we have less money than most of our neighbors (or our neighbors bought their homes 20 to 30 years ago for much less money). So at times, we do have to resist the urge to keep up with Jones'es.

RE: tithing. I accept this as a valid criticism. It is my goal to grow to 10% giving and beyond. There is an income level beyond which I would donate every incremental dollar of income to some charity, and frankly, I am not that far away from it. My only challenge back to those who have called me out is to consider your own giving - I hope you are giving 10% or more.

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