Reader Profile: NY

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

Please tell us a bit about yourself.

I am a 28 year old recent college graduate. I landed a job during my last semester and I am now a Business Intelligence professional. :) I am married and have an 18-month old daughter. I enjoy both reading and writing blog posts. When I got married 4 years ago I got addicted to the personal finance blogosphere; I wanted to make sure that I was able to put my family on good financial footing.

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

We are still working our way out of debt. We are down to one car loan left and two mortgages. I just joined the professional ranks and I am making approximately $70,000 per year. My wife is a stay at home mom. Here are the basics:

Assets:

• Savings: $4,500
• Car 1: $14,500
• Car 2: $11,450
• Scooter: $600
• Rental Condo: $108,000
• House: $271,000
  ------------------------------------
  Total Assets: $410,050

Liabilities:

• Car Loan: $12,000
• Rental Mortgage: $110,000
• New Home Mortgage: $256,000
  -------------------------------------
  Total Liabilities: $378,000

Monthly Expenses:

• Groceries: $600
• Car Loan: $250
• Recurring Bills (phone,subscriptions,gas,etc): $550
• Fun Money: $300
• Rental Loss: $300 (currently subsidizing my wife's brother while he finishes school)
• Tithing: $500
• Mortgage: $1300
• Savings: $1200

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

We have a number of things that we are saving for within the next 1-2 years. Our first order of business is to build up enough savings for another adoption. Adoptions are heavily subsidized by our church and our last adoption cost us around $9,500. In addition to the adoption we would also like to pay off the rest of our car loan, put a fence around our new house, and landscape our new house as well.

One area we are severely lacking in is retirement savings. We recently cashed out our Roth 401ks to help us with the down payment on our new home, and now we have no retirement savings. I am eligible for my company's 401k in April and we will start saving 6% plus the company match of 3% as soon as we can.

Additionally, my brother-in-law should be done with school soon and we will no longer rent our condo for a loss. We should be able to net $300 on the rental, helping us to pay down the balance of the rental mortgage.

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

Currently I am focusing on building my income level while keeping our expenses low. I anticipate that within the next 3-5 years I should be able to increase my salary by $15,000 - $20,000 as I am currently underpaid for my profession. I plan on paying off our car loan and then knocking out the rental mortgage as soon as possible. Eventually I would like to buy a few more rental properties. If all goes as planned, I intend to "retire" somewhere in the 45-50 range and work part-time as a professor at a local college. Ideally I would do that for 10-15 years and then retire for good.

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

My favorite piece of advice comes from Dave Ramsey: Live Like No One Else, So That Later You Can Live Like No One Else.

I believe in sacrificing now for the increased prosperity that it can bring you in the future.

Comments

[Paul]

You have a good plan for the future. It would be nice if it worked out that way.

But I'm wondering if you're being realistic about it. I suspect living off one-income will not leave you enough to achieve those goals. Even making 33% more money in a couple years (a pretty big leap) you will probably have to continue to neglect retirement savings. It's difficult to retire early, and I would say impossible without substantial savings.

Cashing out your 401k could have been a wake-up call.

While your experience may differ, I'm a part-time professor. It pays vastly less than a full-time professor. I enjoy it, and it's worthwhile, but it's not enough to support a family. Also I receive benefits through my real job. If I took them from the school, my paycheck would obviously be even less. I don't think it's enough to be your primary source of income.

[getagrip]

In our will we also have allotments set in time so an 18 year old doesn't get a big windfall. But we also leave discretion to a named, trusted guardian so that they can authorize borrowing against each child's future allotments for things like that child's education of any type past high school. Point being we wanted someone to have an ability to make a decision we might make to help our kids in a reasonable way. Regardless, they get their last major allotment in their early 30's.

Once we're into retirement mode, the idea will be to help the kids in specific areas while we are alive (being careful to avoid economic outpatient care). I've made it clear to my kids it's our money (the wife and I), not theirs, and they had better live their lives like they're getting nothing, because there is a very good chance given medical costs and taxes that will be the case. I hope and plan so that there will be something left over and transferable (mainly because I'm planning on living into my 90's but expect I'll die sooner) upon our passing, but I can't guarantee it. That said, I'm thinking if I can put a relatively small amount away, say $1-2K a year per kid, over time no matter what else they get, they'll get a little something upon our passing. That could be in a irrevocable trust, family trust, or life insurance policies, not sure exactly what I'll do yet as I'm still kicking the idea around. Obviously if I couldn't afford to fund that, then it wouldn't happen.

[getagrip]

Sorry, commented on the wrong post.

[Mike Hunt]

Hi NY,

You are 28 and want to retire at 45 - 50... that is only 17 - 22 years away. To do it you need to look at saving 30+% of our income and do this fast... earning more will help but so will spending less.

On the plus side you are starting your family at a relatively young age so will find by the time you are 45-50 you will have more time for either working or other activities.

-Mike

[Steve]

I think its a pretty good semi-retirement plan but will take constant monitoring and no increase in expenses.

The rental prop/house being totally leveraged out is a bit risky with no real savings and only one income, but hey, risk is what it'll take to get to the early semi-retirement. Plus I've learned something through the housing bust that I had never considered before, if my paid for house takes a hit in value I've lost that money. If a totally leverage house takes a hit there are often many ways to hand that loss back to the bank and then move on to the next one.

I agree with Mike that you should be saving one-third, but maybe increased earnings with no expense creep could take care of that in a hurry. The part-time professor plan does sound a little flawed (the couple I know make very little with no benefits), but I think the plan for reduced hours (consulting 20 hrs/wk from home?) by 45 is completely doable. You just need to be pricing/planning preparing until then if you want it to go smoothly.

You make $70k just graduated with no student loans, must have very good health insurance sense i dont see a separate expense for that, and save $1200/mth. You're definitely getting off to a stronger start than i did...

[My Financial Independence Journey]

If I've read everything correctly, you have a non-working spouse, an upcoming second adoption, $6,000 a year in tithing, your condo is producing substantial negative cash flow, and I haven't even mentioned college costs yet. I'm actually pretty impressed that you can save $1,200 a month and soak all those losses. But even if you increase your income, I think that you're going to have a hard time retiring as early as you want and still meeting all of your expenses. $15-$20K per year is not very much additional money after taxes are ripped out.

Bottom line is I feel that you're going to have to either rethink your expenses or adjust your retirement plans.

[Angela M.]

Are you renting your condo for below fair market value rent? If so, do you consider it personal property and not income property for tax purposes? I ask because I also have a condo that my mother is planning on living in soon and I will only charge her the cost of the mortgage ($300 below fair market rent). I am curious about the tax implications of this.

[Mark]

Unless you are willing and able to sell them, cars and scooters should not be counted as part of your net worth. I know this sounds harsh but I don't think you're really "living like no one else, so you can live like no one else". You have minimal or no savings (retirement or of the regular savings accoutn variety) and a lot of mortgage debt. I think you're kind of in a shaky position based on all the obligations you've taken on.