Reader Profile: RM

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 RM. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 38 year old working and married mother of 3.  I received my education both before and again after joining the US Military, and am fortunate to have a solid educational background that makes my skills very marketable.  I’m lucky to believe I’ll be able to stay employed, even in tough economic times.  My husband is in the same industry, and we count ourselves very fortunate.

I grew up in a family where money was never, ever discussed.  I had no idea what my parent’s incomes and expenses were (when asked, was told it was none of my business).  I remember spending most of high school not being allowed to answer the house phone because we were being hounded by bill collectors.  I emulated much of that well into my adult life (I’m very sad to say).

I left home at 17 and have worked my way through college and the military, as well as settling down for rewarding post-military career with my wonderful family in the Southeastern part of the US.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

My husband and I both work, though that was not always the case.  We met in the military when we were quite young, and because I had more education than he did and had a marketable skill set, we decided he’d stay home with the kids while I worked when we were both honorably discharged in the late 1990’s.  He eventually went back to work, and we are now a dual income family.

Our combined yearly income is approximately $200k.  And to be honest, I’m just now getting a handle on what our expenses are.

We have a total debt of $59,150, which includes my student loans, credit cards, and my car payment, as well as some medical debt from an illness.

Our monthly non-negotiable living expenses total about $6745 (rent, car payments, groceries, etc), which is 60% of our net income.

We’ve started putting 24% into savings and/or retirement accounts.  That percentage really needs to go up in the coming years.

15% of our income is our WANT expenses, things like cable, gym memberships, dining out.

I have two children in high school who will be heading to college, and a third in grade school.

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

Well, things have been quite the mess.  My husband and I (both with no good financial role models) have not paid much attention to our finances.  We live paycheck to paycheck, pay the minimum on our bills, end up carrying debt forward, and have destroyed our credit scores.

Thankfully we have come to our senses, but realize it’s going to take us some time to undo all the damage we’ve done.  We have a budget that we’re following, and a plan using the snowball method via an application called Debt End to eliminate our debt.

Our biggest financial issue is the time it will take for our credit scores to improve over time as we’re becoming diligent in bill paying and savings.  Our dream is to own a home, and we know we have a long road ahead of us before we can make that happen.

In addition to this is to save for retirement.  Neither of us has saved adequately, and that is a priority as well.  Most financially well-adjusted people my age have a home and are building a sizeable retirement.  I feel about 15 years behind the game on all of this.  But late is better than never, right?
 
What are your plans for the future. (retire early, build your career, etc.)?

My plans for the future right now center more on short term goals (5 yrs or less).  Pay off my debt, build savings, put my kids through college, and buy a house.

My long term desires of early retirement will be predicated on my ability to increase savings and create another income for myself.  My dream would be to do that via writing.  While I absolutely love my career, I would prefer a way to work from home and maintain my income.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I’m probably the last person who should be giving out financial advice right now. :)

I would say:

1 – it’s never too late to wise up and take control of your finances and your future. 

2 – Don’t assume a college education gives you the skills to manage your personal finances.  That’s a totally different skill set that must be learned.

3 – Talk about money.  Talk to your kids and to your parents.  Be transparent, open, and honest. 

And of course 4 – leave beneath your means, be happy with life instead of things, and pay yourself first every payday.

Comments

[Nate]

Great post RM!! I am so excited for your family – because you have a HUGE income (big shovel) and your debt is very manageable. If you haven’t already – I would pick up Dave Ramsey’s book or better yet attend his class (Google it). Your family is the PERFECT candidate for that material – because from the way you are writing, I get the feeling you think it’s going to take you longer to get out of debt then it really will (if you get intense and excited!). You guys just need to learn how to manager you money more effectively. I bet if your “non-negotiable” expenses have some room for comfortable cuts. Go get his material – you will thank me later :-)

How much is your car payment – what interest rate? I don’t have all the information but I bet you could be out of debt in 12 months – and setup to begin building a huge nest egg. I don’t know what state you live in – but if could get a house for around 100K? If so – your 3 year plan could be 1.) Get out of debt in 12 months. 2.) Buy a house for around 100K. Then after that (you would be 41 at that point) – but several thousand a month into retirement (because you have no payments – the world is yours).

Thanks for posting!!!

[Rick Francis]

RM,
It sounds like you’ve wised up and are taking control of your finances and your future. It takes a lot of courage to admit you’ve made mistakes- but it opens the door to a brighter future. The great news is that with $200K of income at age 38 it is certainly not too late.
I wouldn’t worry about what you think others have- unless you have seen all of their statements you don’t really know. People that “own” a house may be very much underwater and have a variable rate mortgage that could cause them to lose their home. Do you really know how much your peers have saved for retirement? Many of them may have nothing.

>monthly non-negotiable living expenses total about $6745 (rent, car payments, groceries, etc)

That is a LOT- over $80K/year, most families do not gross that much. Hopefully you can change your lifestyle to have much lower non-negotiable expenses. This may require lifestyle changes- moving to a less expensive home, selling a car or giving up some luxuries. However, most families live on a lot less and are still happy.

It’s great that you can put 24% into savings that is a huge percentage to start off. However, I would knock out the credit card or other high interest debt first. Remember that paying off debt is an investment too. It has a known rate of return and isn’t taxable either. If the CC interest is 10% or more I would pay it off first before contributing to the 401K. With at least $48K/year I bet you could still contribute to the 401K this year after getting rid of the CC debt.

If you keep up the new determination to get your finances I think you will be surprised at just how fast you can turn things around.

-Rick Francis

[Luis]

Take care of EVERYTHING first before you save for your children's college. In the end there's always scholarships and student loans.

[Keith]

"Things have been quite the mess." The good news is you have a large shovel. At 200k, I think getting rid of the 59k in debt is in your near future. The children going to college can also work and save and work some more for their college education. You do not owe it to them.

[CoolMouseLuke]

I agree with the above. I'm not a total fan of Dave Ramsey, but agree it would apply nicely to this situation. I didn't hear you mention if you were now communicating with your children, setting good role models, as you said you and your husband didn't have. Ramsey talks about "changing your family tree". Maybe this would be your driving motivation to stay focused and cut some of the "wants", which is always hard.

Forget your credit scores. Clean up your mess, and they will be there, but you don't need any more debt till you clean up your mess anyways. And I agree about not necessarily paying for college, but understand that is always about as controversial as tithing, i.e. everyone has to make their own decision.

From you numbers, I'm betting there is at least one large car payment involved, with a corresponding large debt, and you may have to trade down to a "beater" car for a while.

With both ex military and two kids approaching college, check out the military scholarships, and all the details of the GI bill. I've heard that depending on circumstances, whether either of you used the benefits or not, how long you served, and others, sometimes it can be passed on to kids. I'm not an expert, but at least check it out. You also may or may not be surprised when at least one of the children of two ex-military wants to join up, and thus college may be taken care of. So again, focus on the debt, then retirement, and only college after that.