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. I need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)
Next in the series is FMF reader TL. He answered my questions (in red below) as follows:
Please tell us a bit about yourself.
My wife and I are both in our mid-early thirties. We have two children that aren’t in school yet. We are coming up on our 7th anniversary. I work in the financial industry, and my wife is in the fitness industry. My wife has her master’s (paid for), and I am a couple classes from finishing my MBA from a private college (work pays for it). We both had our undergrads from state schools, and master’s from 2nd tier schools that are respected in our area. Both of our parents helped with college, but did not cover everything. Any college debt we had was paid off long ago.
As far as career success, I think my wife is more successful given her industry. It is my opinion that she became successful due to her love of fitness. I am more average in terms of success compared to my peers, but I usually try to position myself as an expert in niche areas of the business. This has made me more valuable and prominent while not necessarily being smarter or better than the next guy.
I love reading anything to do with personal finance and my wife has no interest, other than to be updated occasionally on our status. We are both fairly conservative in our spending, but are not super frugal either. I am technically a CFP®, but do not practice or sell services to clients. It was largely done for personal knowledge, and was not a job requirement (although work paid for it). I generally take advantage of any and all free benefits my employer is willing to give.
I do think we have had a little luck, but I like to think we positioned ourselves for the best opportunity to be lucky.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
We both work. Staying home for either of us was not really considered, as we both love our jobs. Also, our daycare is provided by a relative (she’s great). However, we pay her the market rate to be fair. Both of our incomes have steadily increased over the past several years, increasing by double digit percentages for both of us. We both make just north of six figures.
We have 1.3 times our income in retirement savings. We also have $100K in company stock between the two of us. Half is vested ($50K), and the other half will vest over the next two years. I expect continued grants in increasing amounts from both of our companies in the years to come. I also have a small pension for a former employer that will pay $3-500 monthly for life after age 55. I realize this may not seem like much retirement savings given the income level, but the increased income has been fairly recent (last 2-4 years).
We only have two debts. Our home, which is barely above water, that we have 15 yrs. left at 4.375% for $300K. Also, recently a small car loan (>$10K) that was done mainly for cash flow reasons, but it will be paid off in a month or two. The car was needed and it’s a Honda Pilot, so it should last us a good while. I did not want to dent the emergency fund when auto loans can be had for 3%. Cars are my hobby, but I prefer the wife to have something newer and safer. I usually drive vehicles that require some tinkering. The total amount I’ve paid for labor on car repair items I could not do, or did not want to do, is maybe $500 over the last 10 years. I have and will do major repairs, such as engine replacement.
Emergency funds sit at about 4 months of living expenses if both of us lost our jobs at the same time (unlikely). Our home is an energy star qualified home in a good neighborhood (don’t plan to move for a long time), and energy bills are low. Daycare is our biggest expense, aside from the mortgage. Our employers pick up the tab for cell phones and internet. My employer also reimburses for mileage, which after expenses (gas/oil/tires), nets me about $4K a year. At the end of the month, after all expenses, 529 contributions, 401 max, etc. We have anywhere between $2-6K excess. This excess has been fairly recent. It is also what I struggle with the most (where is the best focus for it?). Should I focus on one goal, or spread it around to many goals and let them build. What are these goals? Maybe a trip once a year and a newer car every 3-5yrs, that is about all I can come up with.
College funds for the kids are well on there way. The 2 yr. old has about $7K, and the 4 yr. old has almost $9K. We contribute every month systematically ($200 each). At the rate we are going, I’m not sure I want to put too much more in their 529s. I’m not a big believer that college is the answer for everybody, so it won’t be forced, only encouraged. I’d even consider helping them start a business if I thought the idea was sound. Kids will go to public schools for k-12; they are excellent in our area.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
To me the biggest issue is do I start trying to pay off the house? That seems like a big amount that would take years to accomplish, and there may be better things to do with the money given the low rate. There are relatively few tax-advantaged areas that I know of, left to us.
I’m concerned that our employer stock is growing too fast and becoming too big of a percentage of our asset allocation. Anyone have experience diversifying out of the concentrated stock positions? I’m open to suggestions. Or should I leave it, and ramp up my taxable investments to balance it out?
Another item is my parents have a family lake cabin that they want to give to my sister and me. They no longer use it (they live next door on another property), and they want it to stay in the family rather than sell it. It was given to them by my Dad’s parents. What is the best way to keep it in the family, and not have spouses (or future spouses) try to force the sale in the event of a divorce? I’ve heard establishing an LLC or something to that effect, but I’m not sure the best approach. I may want to some money into a more substantial cabin, but it is not necessary right now (maybe 5-10 yrs from now). My wife’s parent’s also have a year-round cabin on a lake.
I’m sure someone will suggest it, so I’ll mention that we are going to build out our emergency fund to a full years worth of expenses. We are also set for life insurance (term), we have an umbrella policy, and health/dental/disability is covered by the employers.
What are your plans for the future? (Retire early; build your career, etc.)?
The wife and I were talking the other night and we are really content where we are right now, and honestly the thought of retirement is kind of daunting. I mainly want to have enough saved to give us options. I’d like to reach the point where I have enough money that I could walk away if I needed too. My wife will continue working/volunteering in some fashion. I’m pretty good at wasting time, so no work for me. Given how young our parent’s seem in their 50-60s, I’d guess retirement for me would fall in the 55-60 range. Retiring any sooner than that would require us to really tighten down spending to generate the millions needed to be confident. I’m not sure I want to sacrifice today for tomorrow.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
Of course, spend less than you earn. We tend not to sweat the details of our investments, merely a balanced allocation of mutual funds only (except company stock). We like saving, but if there is something we want we try to make it happen. We both despise credit, but do see its place. We tend to spend more time evaluating big purchases, but don’t worry about getting a latte if we feel like it. We’ve never had a budget per se, all savings has come from pay yourself first mentality.
Educate yourself. I took a personal finance class in my undergrad, and loved what was taught. I followed that with another personal finance class at my graduate school. They should be mandatory and not just elective. I studied and received my CFP® designation from my employer, but anyone could do it. It was a huge eye opener to what was out there from a larger personal finance perspective, trusts, estates, employer plans, etc. Much of which I will never use, but that is not the point. None of this was necessarily career driven, but more personal curiosity and wanting to be in control of my financial destiny. I’m sure many of the readers of this blog are here for the same reason.
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