The following is the latest post on my new "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.
Next in the series is FMF reader "KH". I asked her some questions (in red below) and she responded accordingly. Here goes:
Please tell us a bit about yourself.
I’m a woman, 49 years old, divorced with custody of two almost teen-age children.
What's your financial situation (who works in your family, what your income is (general), how your expenses are, etc.)?
Currently I’m working full time doing research and teaching as a professor at a private medical school in the Midwest. My salary is $100-200K plus excellent benefits and we also receive $16K child support from my ex which will stop when the kids start college in a few years.
What are the current financial issues you're facing (saving, paying off debt, etc.) and what are you doing about them?
My primary financial concerns are the impending kids’ college costs and my own eventual retirement. In addition my family (parents, siblings) is not wealthy and I may need to help them out as they get older.
I’ve had a lot of “catching up” to do in terms of saving and investing because I’m an academic, and because of bad financial choices I made in my marriage (ie I paid no attention to what my ex-husband was actually doing with our savings).
Nobody goes into an academic career to get rich. It’s basically a life of hard work but relatively low pay for 20 years, and then if you’re successful, you can get a good job when you’re 40. On the other hand, it’s very rewarding. I like the independence and creativity of my job, and also the fact that I’m doing something worthwhile. I’ve always been more worried about being bored than making money and I wanted to do something interesting with my life. My career has gone very well--I held multiple jobs while I was getting my education that not only paid the bills but helped give me a head start with extra experience, connections, presentation skills, and business & financial acumen that most of peers didn’t have--all essential in my current position and helpful life skills as well. I’ve worked at least part-time since I was 15 years old and all during undergrad and grad school. I had only minimal loans from undergrad and I spent 2 years working in biotech to pay them off before going to grad school for my PhD. After 5 years in grad school, I spent 8 years in low-paid postdoctoral positions--typical in my field. I’ve been a faculty member now for 11 years now and my job is as secure as it gets.
I married as a postdoc, and I had 2 kids during my first years as a professor. Unfortunately, my ex left me for one of his students (he’s also a professor). The divorce was a big economic drain for me, not only in legal fees but also because I discovered that his “saving and investing” of half our combined salaries didn’t exist. Yes, I was stupid to not notice this, but in my defense I was busy with two small children and working at a challenging job, and you’d think you could trust your spouse! Because some people think divorce is a big payday for women, I’ll include some details. My ex makes the same as me, and when we married he had debts while I had savings. Our divorce after 12 years together split our assets exactly in half except the judge ruled I wasn’t liable for his credit card debt that I didn’t know about. I get child support until the kids turn 18 (they live with me), but no spousal support. So, not a “payday”.
After the divorce I was starting over economically, but at least I had a good job and no debt except the mortgage. On the other hand, I had only $60K in savings, college for the kids was looming, and it is unclear if their Dad could/would help. I decided to take my finances seriously. I set out to get myself educated and made a commitment to myself to follow through with what I learned. I read financial blogs, track all my spending in Excel, and try not to leave money on the table--I take advantage of my workplace benefits (health savings account, dependent care savings account etc), and of every rate or tax regulation change, and I meet with a financial advisor (fee-based) and my tax preparer once a year and I follow their advice. Over the past several years of doing this, I think I’ve gotten my financial house in good order.
I don’t have any debt except a $40K mortgage at 4.5%--too little to help with my tax bill so I prepay at $7K extra/year and it will be paid off in 2013. After the divorce, I kept the inexpensive “starter” home that my ex & I bought when we got married instead of trading up--my kids have benefited from not having to move and I like the small mortgage. It’s far from a Mc Mansion but very nice. If I had moved I would have had to pay $200K more for basically the same size house just newer & in a different neighborhood--not worth it in my opinion. My car is 3 years old and paid off--I bought it new for ½ cash and the rest financed but I paid it off right away--I just did the financing to keep my credit score up.
We currently live on about 40% of my after-tax pay and I save and invest the rest. Annually, I put $22.5K (the max) into a Roth 403b (this is a 401K for academics; there’s no match available for me unfortunately), $6K into 529 accounts (very conservatively invested) for the kids’ college, and $40-60K into other savings.
I never accumulated much credit card debt--not even when I was a grad student living on $10K/yr. If there’s no money, I’ve just gone without because going into debt just isn’t worth it. I think that’s a benefit of growing up poor--you know you really don’t need much to get by, and you don’t expect to live a lavish lifestyle or strike it rich some day so you don’t spend in anticipation of that. There’s been many times when I couldn’t afford bus fare so I just walked everywhere and lived on ramen and vegetables for months--it’s not that terrible.
I calculate that there should be $90K total in the 529s when the kids start college and I can contribute another $25-50K/year from my income, and hopefully their Dad will contribute some too but if he doesn’t it doesn’t matter. We make too much to expect financial aid, and, unlike at some universities, a discounted undergrad education for faculty children isn’t available at my institution. With scholarships (my kids do very well in school) and some minimal loans I think college costs will be covered without me having to dip into my other savings. I also have $400K in life insurance and a will with an estate & trust plan--so if I die I know the kids will still get their educations.
What are your plans for the future. (retire early, build your career, etc.)?
I’m a little behind with my retirement savings for my age, but my planned savings should catch me up. I’m lucky to have a partial fixed-benefit pension from my workplace (discontinued for new hires but I’m partly grandfathered in) that should cover 1/3 to 1/2 of my expected expenses in retirement plus a retirement health plan. I also have $150K in tax-deferred retirement and other accounts, that is half in a low-risk fund returning 4% (with my life insurance company) and the other half is invested in mid-risk mutual funds. I don’t plan to retire until at least 67 probably closer to 70--I like my job and I can transition into administration and teaching that won’t be as intense as research if I need to. I’m not interested in traveling--I’ve already traveled all over the world for work--but I do have lots of hobbies that it would be nice to have time to enjoy.
I feel very blessed by my circumstances in life that give me such a big difference between income and expenses right now, but you never know if this will last so I plan to take advantage of it while I can. I’m comfortable investing with some risk but I don’t feel at this point that I need the high returns that would come from investing aggressively so I plan to keep risk/returns of my investments moderate.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
My financial philosophy is summed up in the phrase “it’s just money”. I don’t think money is much good as an “end” in itself and I also don’t think a person’s life is necessarily miserable if they don’t have any. I grew up working class and I’m a child of the 1960’s & 70’s. Anti-materialism was cool back then--I’m an ex-hippie and those are still my values. Not being rich is not a problem if your ego doesn’t depend on possessions. Our society today is different--everyone seems so obsessed with money, and many people apparently feel like their life is essentially over if they can’t afford a huge TV or a fancy phone or if they’re in debt or underwater. I think money is functional--you need some, and you need to pay attention to getting what you need to live and enough to do what you want or take care of yourself & your family in case of disaster or old age. But it won’t make you happy--I think your self-worth and happiness have to come from living with integrity and doing something worthwhile and from something inside yourself.
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