Reader Profile: TN

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 TN. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 27 years old, married for four years to my wife who is 28.  We have two children – 5 and 2 – and have talked about having a third.  We both have B.A.’s.  My wife worked in bank customer service until our second child was born while I work as a fundraiser for a national healthcare non-profit.

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

My yearly salary is $42,000 with the opportunity to earn another $1000 or so through limited overtime.  Those paychecks are bi-weekly and about $1225 each after taxes, 403(b), and other deductions.   My company generously contributes 6% to my 403(b) and matches another 4% that I contribute. 

We have no credit card debt though we maximize our cash-back and interest free loans by using a set of credit cards.  My education was almost exclusively financed through scholarships but my wife has $1000 left on her loan (after starting with $20,000+).  The interest rate is only 2.3% so we pay the minimum typically with extras occasionally.  Should be paid off by next year. 

We do have a mortgage through a government subsidized program – total payment is $700 month.  We’re assessed 1% interest currently with another 3.5% to be paid off at the end of the loan period/when we sell. 

Other expenses $250/groceries, $200 for gas, $200 for church/giving approximately $200 for utilities (heat/electric, water, internet and cell phone). 

As I mentioned I have a total of 14% of paycheck put in 403(b).  My wife and I both contribute about $175/month to a Roth IRA.  Total retirement savings is $40k.  Total other assets (checking, savings, and savings bonds) is $22,000. 

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

Trying to maximize the return on my savings/checking money.  Recently purchased some Series I bonds to get 3% interest.  Earn about 1% on the rest.  I’ve taken a fairly aggressive portfolio for retirement savings so look for more conservative means of holding our non-retirement savings.

Both of our cars are getting older (1999 and 2001) with (130,000 and 150,000 miles) on them though have been running well lately.  When one goes and/or we have a third child will need to replace that with a larger vehicle - probably a “nice” used minivan that can last a while.  Not sure how/when that will happen which is part of the reason for holding extra “cash.” 

Looking to protect my family as well since I’m the only income earner.  Have high limits of 30 term life-insurance for my wife and I as well as additional coverage through employer.  Thinking of wisdom of LTD insurance as well giving a 60% coverage through work. 

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

Would like to continue building my career.  My degree is in Political Science and would love to explore that more in the future.  My current job limits that.  Have thought about exploring a Master’s program if I could get grants/scholarships.  My wife will return to work when we’re done with pre-school age children so keeping her skills up through volunteering, etc in the meantime. 

Had the benefit of traveling extensively (army brat) as a child and want to do that with my family too.  Not worry about “enough” for retirement – be sure we have it and I think we’re on a good track. 

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

Don’t spend more than earn and don’t spend as soon as you want something.  Delayed gratification is still gratifying.  Figure out what you really need/want.  We don’t have cable or the newest phones or most of that fancy stuff – we don’t want it just because we’re “supposed” to want it and we certainly don’t need it. 

Also know what your money is doing – educate yourself about everything so you know the best options for you and don’t take the first answer you get about a product, investment tool, etc.  I research things to death before committing major funds towards an item.  It’s your money so make sure you know the answers you need.

Comments

[Luis]

Sounds like you are on good ground. In your shoes I'd wait until moving into a new job before deciding on a third child. Things are still kinda tight financially and you never know what the expenses of a new child will amount to. Never forget to show the love of responsibility for the children you have right now through financial security.

[08graduate]

I am impressed by your savings rate. For a family of four, your spending is stunningly low.

My gut reaction was the same as Luis, but after contemplating your numbers, I realized that I don't really know what children cost. How much do you expect a third kid would increase your monthly expenses?

[SA]

The amount you have saved up considering your age and salary, and your spending level considering you're a family of four is amazing. I don't have much to add here, but wanted to tell you I'm super impressed. Best of luck in the future to you and your family.

[Kurt]

Sounds like you're setting the standard that others should be following, way to go! One comment on what may be a delicate, personal area, so take it or leave it: While your commitment to help others is surely admirable, $200/month for charity strikes me as a rather large portion of your income. I wonder if you might substitute some of your time for part of the cash you're donating now and still feel you're fulfilling your obligations to those less fortunate? No doubt there are many opportunities to volunteer your time to worthy causes in your community, and your time is worth money to charitable organizations and their 'customers.'

Best of luck.

[Carol]

Forget the third kid. You're doing ok now; the third child will tip the balance. You didn't mention if you owned your own home or if you had an emergency fund. Are you saving for your two children's education? First things first: emergency fund, yours and your wife's retirement funds; college funding; and, buying a home.

[TN]

A third kid would be an expense certainly - one reason we've waited a little while. Insurance/FSA would keep the delivery cost reasonable though, have most of the kid "stuff" from first two yet. Biggest cost would be delaying my wife's return to work, but having kids closer together allows more shared space, clothes, toys, experiences and gets them out of the house sooner! Tax credits would help some too of course.

RE Kurt - Thanks for the feedback. I was hesitant to to "budget" that much, but God has blessed us and we want to share that. Defintely agree though that time can be as valuable as money and try to do that as well.

RE: Carol - We do have our own home, purchased in May 2011. Mortgage $700/month. Don't have an emergency fund per say but $22k in short term savings for that purpose, replacement cars, etc, plus aprox. $20k in ROTH IRA that is accessible if needed. Will help kids with college some but as w/ wife and I they will be expected to get scholarships/loans/work.

Thanks all for the feedback.

[jim]

I'm just curious: What is the government mortgage program that is giving you a 1% loan? Is that a federal or state program?

[Mike]

Just curious, how are you able to keep your monthly grocery bill so low for a family of 4? A lot of ramen noodles/pasta for dinner?? I had a grocery bill of $300 a month as a single guy living in FL - perhaps the groceries are more expensive here.

[TN]

@ Jim - it's through Dept. of Agriculture - Rural Development loan. So it's geographically and economically limited.

@ Mike - Not too much ramen. Cereal/sandwiches for b-fast/lunch and "regular" dinner. Helps to have lots of grocery competiiton. Also shop sales mostly, use coupons, make "simple" meals. Helps that kids are small eaters still as well.

[jim]

OK its a USDA loan then. I heard of those but I wasn't aware they could come with low interest rates.

[Melissa @ Little House in the Valley]

Congratulations! Sounds like you are doing great. We have 3 kids, so I am partial. :) If you are not sure, take a bit more time to consider if you want to add another child or not. However, I am impressed with how well you are doing so far.

[Concojones]

TN, I admire you for giving so much money (relative to what you're saving). Using part of this to fund a third child is something I would think God would approve of.

It looks like you're saving about $12k/year, that's $6k for you and $6k for your wife. Which is admirable in your circumstances, but a minimum in absolute numbers, if I'm not mistaken: $6k at 3% above inflation amounts to half a million (in today's dollars) over a career - that's $16k/year in safe withdrawal per person. If social security still exists by then, you're fine. But not if you lose your job (happens to the best of us!).

It would be nice if you could rent out a room, or have the wife do a bit of work part-time, or a side job or substituting time for some of the money you're giving now... Good luck!