Reader Profile: MG

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.

Next in the series is FMF reader MG. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 27 year old, married, 2nd year full-time MBA student. I graduate this summer, and will begin a new job shortly afterwards. My husband and I currently rent a condo in the suburbs of a major metropolitan area. We have no kids, but are currently thinking that we'll start trying after I have been at my new job for about a year. That way, I will have built up enough "credibility" at my new workplace to not raise any eyebrows and will go on maternity leave shortly before my 2 year anniversary with the firm. Of course, knowing that the best laid plans...

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Although I do not work (since I am a full-time student) right now, my husband has a full-time job making just over $60,000/year. Once I start working, I will be making $98,000/year. Before we got married and I went back to school, we were both working and saving a significant portion of our incomes (I was making $75K at the time). As such, we were able to have a wedding, an awesome honeymoon, and a couple of other trips this past year (traveling while we are young and childless is a priority of ours) with no debt. We both paid off our undergrad loans a couple of years ago, and were able to each buy a new car with cash when the old ones died. I got a free-ride for the first year of my MBA program, and I have been paying the 2nd year's tuition with our savings (no debt!).

Although we have historically been great at putting cash away, living on one income has been tough (but manageable). While we aren't adding to our emergency fund/cash savings right now, we also aren't using it for everyday expenses. We currently have $40,000 in cash savings, and I anticipate graduating with about $25,000 in savings after paying spring tuition and going on a few trips during school breaks (seriously, I want to get all the vacation in while I still can!)

As far as retirement goes, my husband currently puts away 15% of his salary into a Roth 401K, of which his company matches 50%. We have about $48,000 in retirement savings right now, and I plan to get the full match on my Roth 401K once I start working again, as well (25% match on the first 6% of contributions). That is pretty much the extent of our retirement savings strategy right now... to save up to the level of the company match and invest in the most "index fund-like" options possible.

We have a total monthly spending budget of $3,275 each month, including rent, gas, groceries, etc. We each get $150/month of "fun money" which goes very, very quickly.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Since I have been in school, we have just been focusing on our "household austerity measures" to make sure that we live within our means and don't spend more than my husband's income. We use savings for tuition and vacations, but everything else comes from his paycheck.

Once I start working, our income will dramatically increase. Although I do want to loosen our monthly budget a bit, I want the majority of my income to go straight into our savings account, to begin re-building our cash cushion. I should be able to save over $4,000/month this way... bringing our cash cushion to almost $75,000 within a year.

What are your plans for the future (retire early, build your career, etc.)?

With this savings, I would like to put a down payment on a house, but I am really nervous about making such a huge financial commitment. The area in which we live is rather expensive (you can easily spend $450-500K for a moderate single family home), and I want to keep our fixed monthly expenses as LOW as possible, but also have a nice place to live and grow our family. And my husband is considering scaling back his career to part-time if/when we have kids, so I really only want to depend on my income for the mortgage. Houses are SO expensive. Ugh.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Living below our means and staying debt free has been the single most important principle of my personal finances. Neither my husband nor I have ever had consumer debt, and we manage to keep our spending within his paycheck without too much hassle (I'm sure we can cut more, but eh). The way we have been able to do this so relatively easily is by not growing our expenses when our income grows. Every time I got a promotion in my last job, I channeled the extra money to my savings account without increasing my monthly budget. I started making $30K/year, and 4 years later I was making $75K/year but living with the same budget. It was easy to do because I never grew accustomed to a more "lavish" lifestyle. We plan to do the same with the "newfound money" I'll be getting in my new job next summer. (After one last vacation and a small shopping spree, of course-- gotta enjoy life, too!)

Comments

[Nate]

I love the focus on balance (you go girl – enjoy that spending spree! Haha!). One thought for you. You do NOT have to buy a house… Like period… For the area you live in it might totally make sense to rent for a long period of time. If you end up moving to a part of the country that has more reasonably priced house (but is still fabulous) pull the trigger at that point! I guess if you are SURE that you want to live where you are now for a long (long) period of time you could make the argument – but houses are an investment (whether people want to believe it or not). I like rules of thumb. My wife and I make well over 6 figures and we don’t feel comfortable buying a house that is more than 2X our annual income. So if we lived in your neck of the woods we would be renters (until prices dropped enough to make sense for us – if they ever did). Use your judgment and don’t make a mistake you will regret (I would hate to see you lose all of the wonderful savings you guys have accumulated).

Great job by-the-way!!! I love that you guys are thinking about balance with all the travel and shopping – because you can afford it that’s great.

Cheers!

[HappyGuy]

This posts are discouraging. Seeing other people with their perfect life of making 75K, 60K, 98K a year and still coming of as that they are having hard-ish time is just, I don't know, wrong.

I manage a family of 7 on 36K salary. I'm not failure for not having 48K cash saving. I provide for my parents, grandmother, brother, sisters and having nothing in saving. I'll just rely on God to keep me going.

[Luis]

Definitely keep renting until you see a real good reason to buy a home. Renting is a great way to keep your monthly expenses in control and when the day comes to have a family, who knows you may have enough to buy a house outright? You can follow your instincts on this one because when you are ready you will know it's right.

@ HappyGuy I'm sure the FMF community can do all they can to help you if you send in a reader profile. God bless you.

[TA]

@Happy Guy

Maybe try to look at these profiles for motivation?

I posted my story about 2 months ago and got bashed for the position I am in, so please take my opinion as from someone with perspective.

I admire the work of a young couple who has put themselves in a spot to have high lifetime earnings. I respect her even more for "glossing over" the difficult side of things. Normally, to be in a position such as theirs comes a LOT of hard work, stretching back into High School or earlier. People don't just wake up with good paying jobs typically. It requires a level of commitment to school work and social life. If you choose to not take High School seriously, end up with no marketable skills and no clear prospects for an after high school degree, you have put yourself at a disadvantage. Those willing to work their butts off will often be rewarded down the road. Just because they have not faced an instance of EXTREME adversity, does not mean they are not extremely committed, and hard workers, deserving of what they have.

I am speculating here, but I would assume that the OP was committed in HS, undergrad, and finally in graduate school. This hard work is paying off. Congrats to them!

[Evan H.]

@ HappyGuy

What can we do to help? There are some very knowledgeable people in this forum that routinely give great advice. Is it a matter of not having extra money to save? Is it a budgeting issue? Please don't be discouraged and always keep your faith in God strong!

[AN]

Nice work--especially on keeping lifestyle inflation under control thus far...it can be a challenge (albeit a good challenge to have)!

I second the comments on holding off on purchasing a house until you have enough of a cash cushion that you are no longer "really nervous" about the financial committment. While $75k is a very healthy amount, don't forget all of the extra costs involved with a home purchase: closing costs, movers, minor updates/repairs. These can add up fast, especially given the larger price tag on homes in your area. An occasional commenter here, Leigh, laid out detailed calculations of these costs on her blog...(unfortunatley, I didn't bookmark it; hopefully she will comment!) You will also want to have a savings cushion remaining for any unexpected repairs/issues that can arise.

My husband and I are in a similar place to you guys (saving to purchase in a higher COL area in a few years). One tactic that helps me when I get antsy is to look at the housing stock currently available online; use the time while you're saving to learn more about what is truly a good value in your area and potentially explore other neighborhoods that could be a good fit.

Good luck!

[Jane]

Sounds like you guys have made a lot of the right decisions!

If you want to keep your fixed expenses as low as possible, then just keep saving cash towards a house and eventually, you will have the funds to do so. It just takes time, but if you're already living off of less than your husband's salary now, it can't take you that long (a few years) to save up for a down payment once you are working as well.

Good luck finishing school and embarking on your next adventure! It sounds like you are well-prepared and committed to it.

[Leigh]

Thanks for the reference, AN! I still haven't closed on my condo, but I have been making some detailed posts on how I wrestled with the idea of whether or not I could afford to buy despite having a 20% down payment and 6 months of emergency reserves of $18,000. I'm keeping track of the closing and moving costs and will definitely have a post on that after I'm fully moved in!

You can find all of the posts on that topic here: http://leightpf.wordpress.com/tag/condo/

One thing that really helps me is knowing that if I run into any major cash flow problems, I can always lower my 401(k) contributions to the minimum to get the match and free up about $1,000 in cash flow for the month. I can also stop putting money aside for my next car since that's super far off ($250/month) and I really do have an amazing cash cushion since I save all of my bonuses and live off of less than my net pay after 401(k) contributions.

The short answer is that I thought I needed way more money than I really did since the math I did to determine how much money I needed had no real logic backing... You sound like you have a bit of a better idea than I did - I thought I needed a 25% down payment and would buy a $400,000 place. I ended up doing a 20% down payment on a place in the low $300s.

Good luck, MG!

[jim]

MG, sounds like you're doing well and on the right track.

[jim]

happyguy, said : "Seeing other people with their perfect life of making 75K, 60K, 98K a year and still coming of as that they are having hard-ish time is just, I don't know, wrong. "

I really don't read this post as whiny or complaining about having a hard time. MG does complain that housing is expensive where she lives. But wouldn't you agree that $400k-$500k definitely IS very expensive even for their high income?

"I'm not failure for not having 48K cash saving."

No you aren't. But nobody said you were.

[brooklyn money]

Congrats on getting all your ducks in a row, so to speak. And also for having a husband that is clearly supportive of your ambitions and willing to consider a somewhat non-traditional role of SAHD. I love to see other women succeeding!

[JimL]

MG,

You appear to be on track, but I would not rush the house. Prices are still likely to drop and you can take the time to build cash. After 3 or 4 years, you could end up with a very modest mortgage and have little stress.

Happy Guy- why are you having to support parents, grandmother, brother and sisters? Your first priority is your immediate family.

[BD]

@HappyGuy: I know, huh? They kinda are discouraging sometimes. But I'll be getting my profile in soon... I have even less than you do, so you won't feel bad. :)

[Luis]

MG,

I have a rare tip for you. When you are ready to have children try to have it so that health insurance plan is provided by your husband's employer. If you happen to need longer postnatal recovery, regardless of FMLA, your employer may stop paying your health insurance premiums. If you want more than one children perhaps reconsider your husband going part time?

[RYP]

I'd really like to see your budget to see what you spend on each category. What are you largest monthly expenses? My biggest expenses are housing, giving, and retirement. I cannot cut retirement savings any further, so its always helpful to see what others are spending on the usual categories. How much do you contribute to charity each month, if any?

[Alex Morgan]

Seem to be in a very good position. I'm actually surprised on a 60k a year salary you can still manage to have a ~$3200 a month budget (maybe your education is giving you a good amount of tax write-offs).

The only thing that caught my eye... "Once I start working, I will be making..." be careful! Economy not being what it used to be and all, I hope you have some backup plans and some patience in case it takes longer or the graduate degree doesn't immediately pay off etc. Other than that, kudos!

[Bad_Brad]

Sounds like you've dealt with the biggest trap that many in similar shoes fall into - "lifestyle inflation". I did my MBA over a decade ago, and I saw it time and again with my MBA classmates. That new job, that signing bonus, that promotion, always turned into a bigger house, fancier car, huge vacation, etc. Then the dot-com bubble burst and a lot of them were suddenly out of work. Most of them were unprepared.

My two bits of advice for you are these ...

* Don't feel like you have to apologize to anyone for wanting to have a family. Your employer realizes when they hire a female (or male) in their late 20's that there is a risk that they might decide to follow the hard-wired biological desire to pro-create and therefore be out of the office for a few months. Any employer worth its salt will not hold that against you, provided you can show that you are willing to also make sacrifices for them when the time comes, and that you can bring real value to them. If you are really good at what you do and really confident in your ability, it shouldn't take more than a few months (or even a few weeks, depending on how quickly they start giving you deliverables) to prove that. I wouldn't wait just for the sake of your employer if you really want to start a family now.

* What I would wait on, however, is buying a home. Housing prices in most areas are not going anywhere except possibly down in the next 3 to 5 years. There is just way too much inventory and not a super-strong economic or employment recovery going on yet. For me, buying a home was the worst financial move I ever made and the only major financial move I've ever made that I would take back if I could. It partly depends on what area you are in, but if you are in California, Florida, Nevada, or Arizona, FOR SURE I would not buy a home right now. And if you are in any major coastal city, I would also not buy a home right now.