Reader Profile: KK

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.

Also, please leave constructive comments, questions, and so forth. Simply telling someone what a mess they have, how they have made poor decisions, and so forth is not helpful. There is a way to say, "That was a mistake, but here's what you can do to correct it" that both acknowledges the problem and offers a solution. It's this sort of feedback that this series is intended to solicit.

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

Please tell us a bit about yourself.

I am 30 years old and my wife is 28.  She is a Nurse at a University Hospital and I am a construction engineer working for a private firm.  We have been married for 2.5 years and live in a larger Midwestern City.  I was lucky enough that my company paid for me to get my MBA part time after work. It took me two years and I graduated in 2011.   We have a 16 month old and are expecting our 2nd child in September.  My friends would probably call me cheap but I prefer thrifty.  We were lucky enough, me because of my parents and my wife because of sports skills, to not have any student loans.

I have always used credit cards to gather points but lately I have started to “churn” credit cards.  It’s pretty crazy how fast you can earn free trips.   We put everything we can on our credit cards and pay them off monthly.  We haven’t had to touch our vacation fund for a year because of this and we have been on 3 trips requiring either flights or hotels.  Since our daughter will no longer fly free in the fall when she turns 2, I have really been focused on collecting even more points.  It’s a fun hobby!

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

I work full time and my wife works roughly 32 hours per week.  I contribute 8% toward a Roth 401k, my company offers no match but we expect to receive ESOP profit share allocations of roughly 5k this year.  Since my wife works for a state university her retirement benefits are top notch:  she contributes 10% and they contribute 13%.

Average monthly net income: 6600

• Mortgage – 940
• Prop Tax – 525
• Prop ins – 67
• Cable/internet – 145
• Cell phones –160 (100/month paid by employer)
• Utilities (water/gas/electric) – 250
• Gym – 90
• Day care – 250
• Term Life insurance (500k each) – 50
• Car insurance – 95\
• Car Payment – 505
• Groceries/diapers/household items - $700
• Misc baby items – toys/clothes - $250
• Eating out - 150
• Gasoline - 460
• 529 - 100
• Vacation fund - 100
• Savings - 650
• doctors visit copays average - 50

Assets:

• Employer retirement accounts:  130k
• Roth IRAs: 32k
• Taxable Accounts: 6k
• Emergency Savings: 21k
• Vacation fund: 3k
• House Value: 275k
• 529: 5k (grandparents are contributing also)

Liabilities: 

• Mortgage: 209k recently refied to 3.5% 30yr
• Car: 33k – 0%

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

It’s all about the kids.  We want to make sure we can offer our kids awesome opportunities:  elite sports teams, international travel, enrichment camps etc.  We know this is many years down the road but we figure we need to start now.  What’s sad about doing this profile is I look at our cash flow and I can’t figure where it’s all going!  We honestly have never had a budget but maybe it’s time to start tracking the outflow a bit closer. 

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

With each kid, my wife plans to work less and less.  Because the plan is 3 kids, I make a good effort to reign in on lifestyle creep.  Sometimes it’s very hard especially when close friends get caught up in it.  Retirement wise, we have no idea.  I would love to start my own business or pull a Tim Ferris type lifestyle change in the next ten years.  With one failed internet side business under my belt it can’t get any worse, only better!  We go back and forth on how much we should be saving for retirement.  As many people have talked about, we want to enjoy our 30’s and not have to wait until we are 60 to enjoy our savings.  I also want to start saving for a piece of land where I can build our next home in roughly 5 years.

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

We try to keep things simple.  We are pretty anal planners so we usually have a good idea of upcoming expenses.  We set a savings goal and adapt to it.  Sometimes I think splurging on a few items actually helps our finances because we feel the buyer’s remorse and we learn from it.  I think everyone interested in money should read the wall street journal, fortune & other personal finance mags, blogs etc.  I read both for the ideas and for the motivation.  I would like to thank all the others who have submitted profiles over the years.  I have learned a great deal from those profiles and this blog.

Comments

[SR]

Good job on saving and building a nest egg. One suggestion: you need to get a better track on your monthly spending. I suggest you consolidate your spending from one bank or credit card account. My bank offers a quicken type program (finance works) that allows us to easily track our spending. Further, I wouldn't be surprised if some of your purchases are rationalized because of the miles or points you'll earn. Essentially, I believe that you end up spending more when you are building points.

I'm curious if your property taxes are 525 month, which would seem very high.

[getagrip]

First, you two are in a good position, congrats on that.

I see a few things. First, your net minus expenses seems to leave around $1200 missing (which you hint at). Sadly, talking from experience, you can nickel and dime yourself to debt. I thought we were doing good, but until I took three months and really kept track of every expense, I had no idea all the little ways we were tossing money away without thinking. That, to me, is the key, thinking about it versus just doing it without consideration. So I suggest before you budget, just use an empty pretzel jug or big jar or whatever works for you and both of you put every single receipt into the jar or log it down somehow. No judgement, no blame, just looking for the leaks and reality versus your perception (like I thought I had only been spending $15-20 a week at lunch, and it was more like $30-35). Keep a small pad of paper with pen or pencil next to the jug and when you put a receipt in and then also recall you dropped three dollars on two vending machine trips that day or gave $5 to an office pool, use the pad and pen to write it down and add it in. End of week, month, two months, when the jug gets full and needs emptying, whatever, just put it all into a spreadsheet. I suggest three full months worth before really analyizing the data, but that is up to you. It will likely be eye opening, possibly alarming. But you can't work on something until you've identified what the issue(s) might be.

Okay, now another point. You are spending $100 dollars a month for your child's future education, and $250 a month for kid stuff. Stuff, future, stuff, future, Hmmmm. 'nuff said.

I know you're young, but as the anticipated primary breadwinner in the near future I strongly suggest re-evaluating your life insurance now, prior to being struck down with some vile pestilance like office butt spread. You want enough insurance, but not enough to make you worth more dead than alive (particularly if your in-laws don't like you :-).

Speaking of nasty things like pestilance, death and in-laws, you got a kid now (not that I'm suggesting a kid is like pestilance, or death, or in-laws, though now that I think about it...:-). In any case, if you don't have one already, a will is another strong suggestion. Particulary one that identifies who gets the kid if you and your wife leave this plane of existance. Trust me, your parents likely already figure it will be them. Imagine each of them, in fifteen years, dealing with troubled teens. My mother thought she should get the kids, but would have been in her 80's. Didn't matter, she was not happy with our decision. Fun stuff to consider but do not avoid them.

"With each kid, my wife plans to work less and less." LOL!!!!!

Sorry, that line was a hoot. I really wouldn't say that in public or ladies you've never met will gang up on you like lioness' on a wounded zebra.

With respect to retirement, you may want to add slowly to your percentage. One thing that worked for me was if I got a raise of say, 4%, I'd add 1% or 2% to retirement savings. I think this is more important for you if your plan is for your wife to work less at an income producing job over time. Obviously if you are starting your own business, you'll have to figure out something else.

Best of luck.

[Noah]

Unless you get some sort of deal through the university, I'd be very concerned about paying $250/month for daycare for a 16 month old. Most places charge 3-4x that.

[Noah]

@GetAGrip

Maybe I'm the exception, but unless it's an absolute necessity, what parents in their 60s, 70s, and 80s would want to be in charge of handling grandchildren full time? I certainly would not want that responsibility unless it was the state or me.

I also never had any problem telling people that my wife would not be working once we had a child. People may have talked behind my back unbeknownst to me, but I never received any flack and I live in the one of the most materialistic parts of the country. Had I, I would have discussed the behavioral problems that my wife saw with children who were dumped at the "child development center" she previously was employed by for anywhere from 8-12 hours a day.

[Old Limey]

I am not a believer in spending money on international travel for one's children. Once children become teenagers they want to spend their time with their friends, not Mummy and Daddy. There's plenty to show them in the United States, especially the wonderful National Parks. I used to take our children on many backpack trips into the Sierra Nevada mountains and they enjoyed fishing for trout in some of the lakes and climbing up some of the peaks. We also reaped a lot of benefits from buying a cabin at Lake Tahoe, the lot was $4,000, with another $12,000 to have the cabin built, and another $2,000 for buying some secondhand furniture for it. As a family we spent many, many weekends there, skiing in the Winter and hiking, fishing, and boating in the summer. We purposely never had a phone or a TV set there but did many things as a family. Sometimes my wife and the children would spend a week or so there in the summer and I would visit at weekends. Inevitably children become teenagers, and inevitably they don't want to do many things with their parents so we sold the cabin for $90K and moved the money into a condo overlooking the Pacific ocean that was only 30 miles away. The condo turned out to be a great investment and has increased in price fivefold since we bought it.

It's very important that married couples get babysitters frequently so that they can do the things that they really enjoy and to keep their relationship happy and growing as the years slip by.

The other MAJOR thing that young couples like yourself need to avoid is, of course, Divorce. The divorce rate is sky high in this country and is devastating to families and devastating to one's finances.

The parents of our first grandchild got divorced and it was devastating for our young granddaughter. My daughter was working so we cared for her quite a lot. I remember that we looked after her on her birthday soon after the divorce. My wife baked a birthday cake for her and at the appropriate time said, "Elise, why don't you blow out the candles and make a wish". Her sad reply was, "Grandma, I don't make wishes any more because they never come true". She is 23 now and over it of course and is leading a very happy life working as a paralegal.

By all means when children are older help them financially to go on organized, supervised, trips with kids their own age to foreign countries or within the USA, but realize that, sad to say, teenage kids would rather do fun things with their friends than have their parents around at vacation time.

[JM]

$33k car loan? It's 0% interest, but that seems pretty excessive.

[Noah]

@Old Limey

I agree 100% about all the very interesting and beautiful things that exist within the US. I wish I had more time to visit all the states.

[Mark]

@Old Limey...you are so right about divorce and the effect it has on kids. I think a lot of people don't want to admit this truth.

[LaurS]

@Noah, I think Getagrip meant that KK shouldn't have said his wife would be working less with each child, rather that she would be working less OUTSIDE THE HOUSE. More kids definitely equals more work, unpaid! :)

[Kay]

I've been following the comments closely today because this profile so closely matches what I expect mine to be in the next few years... maybe minus the kids, or part time work.

Old Limey makes a great point though... you have to keep investing in your marriage, too... sometimes it's not just about the tangible dollars but the intangible benefits of spending a nice dinner without the kids, or a weekend away from them at the beach.

[Noah]

@LaurS

Good point! If that was the intention then I am in agreement.

[Mark]

@KK....If you care to share your tips on making the most of travel credit cards, I'm all ears!

[jim]

The property tax is pretty steep. But that must be the nature of local taxes.

The daycare seems quite low, but I"m guessing its subsidized in some way? Some employers have subsidized daycare.

[Old Limey]

@Kay
Once the three children started arriving I am glad my wife insisted that we get a babysitter every week and go out to dinner on our own. Even though at 78 and 79 and 56 years of marriage the fire we once had has turned into embers I believe we about as happy after 21 years of retirement as it's possible to be. We ended all of our global travelling after a cruise down the Rhine and Moselle rivers in Germany in 2010. We stopped home entertaining years before that and life today couldn't be more tranquil and perfect. Our investments along with the two pension checks we get every month put us in a position where we have no money worries, if we want something we have it, but our wants are pretty small. We stay in close touch with the kids, and one daughter has become my weekly hiking companion since the Bay Area has more hiking trails than anywhere else I know about. The highlight of the day is usually "dinner". My wife is a fabulous cook and I'm a pretty good gardener and have just taught myself how to fillet fish, which is very plentiful at a nearby Asian supermarket. How about a beautiful, wild, Petrale sole, flown in from Canada for $3.99/lb, along with home made red potato french fries and a 3 bean salad.

We used to entertain a lot years ago but can't remember the last time we used our formal dining room - it's nicer using a small table in the family room in front of a lifelike gas fire, and watching a favorite program or something pre-recorded on TV while enjoying a home cooked meal and a nice bottle of Chardonnay before retiring at 10pm.

[KK]

Thanks for all the comments.

1: I appreciate the budget/spending ideas comments. I definitely plan to track receipts. I have always thought about doing it but I honestly didn't want to face the facts: that I spend money on some dumb things. ha!

2: Property taxes: In my area that is just how it is. We have great schools, parks & rec, services etc.

3: Daycare: My wife works nights so we really only utilize daycare for 8-10 hours per week the way our schedules work out. At first we wanted to keep the hours down because we thought day care was bad and we were bad parents. Boy were we wrong, she has learned so much. She loves to interact with other kids and it's great to pick her up and see how much fun she has there.

4: @old limey I agree international travel doesn't make sense for us anytime soon. I was thinking more on the line of semester abroad type stuff. I also 100% agree on the date night and short weekend trips. We are lucky enough to have our parents around who will babysit on weekends so we have done this and will continue to do so.

5: Wife work comment- I guess that came across wrong. Every guy on here knows how hard mothers work!! My wife has the option to drop NURSING hours but still keep full time benefits. So what I meant was that she will drop to 24 nursing hours per week next year when baby 2 is here. She dropped to 32 after number 1. This was discussed and debated many times but it's what we think will work best. Once all the kids are in school she plans to go back to full time.

@ JM 33k excessive - yes, probably it is. It's a family SUV that keeps my wife happy! It also has all the bells and whistles to entertain kids on road trips. We plan to keep it at least 8-10 years.

@ mark - I learn most of my credit card points tricks from blogs such as: million mile secrets, noob traveler, mommy points. Flyer talk also has a great forum. Anything you want to learn can be found there. There are some great tips out there for beginners.

Thanks again for all the comments!

[Mike Hunt]

I've been to Old Limey's house, last November. I can attest that he is a very nice, hospitable individual with a lovely wife. They live in a very comfortable house, and are wonderful hosts, full of great stories and wonderful observers of life and welcoming to all.

-Mike

[Nick @ ayoungpro.com]

It sounds like you guys are doing great! I would highly suggest tracking your expenses for a few months though, it is a very enlightening experience!