Reader Profile: TW

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

Please tell us a bit about yourself.

My wife and I are in our early/mid-thirties and have been married 11 years as of June 29th.  I am the father of 2.75 kids...that means we have one due in about a month.  The oldest is 4.5 y/o while the second one is 20 months.  I currently work as a Business Analyst for a very good company and have been here almost 8 years (1.5 years in my current position).  My  undergraduate education is in General Agriculture and obtained an MBA in 2008...how I went from farming to tech is a long story but I wouldn't mind getting back to my roots some day.  My wife holds a Ph.D. from the University of Michigan and currently teaches Chemistry 4 nights a week at the community college.

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

I am the main breadwinner working full-time while my wife works part-time anywhere from 2-4 nights per week.  Since she stays at home during the day this opposite work schedule means we don't have daycare costs which in our area is quite expensive.  However it does mean we effectively single parent most of the week since we are rarely together with the kids.  After annual bonus I gross ~$65,000 while my wife average gross wages are $12,000

We are also accidental landlords in that we moved 3 years ago due to neighborhood crime and are unable to sell the house since we are underwater (from $175K at the high to a current of ~$94K).  We effectively break even on the rent but have a special situation since we bought from a builder running a special to guarantee rent whether or not the tenant pays.  They have followed through since the first tenant they placed in the house didn't pay and was evicted after 6 months.  We have 3 years left in this agreement at which time we're hoping to sell because the numbers don't make a good rental.

I get a 100% match on my 401K up to 4% of my salary and contribute 4% getting an overall 8% after the match.  My wife is required to contribute 3% to a state pension that we will never get since she is a part-time employee but we'll at least get our contributions/earnings back at some point.  Aside from this we also contribute to an HSA and have a ROTH and a Traditional IRA from when we were childless and both working full-time.  Here is a look into our financials, noted items are savings for future expenses:

AVG TAKE HOME

• Salary $4,947.26/mo
• Rental $950/mo

AVG MONTHLY EXPENSE

• Expense $4,552.07/mo

EXPENSE DETAILS

• Tithe, World Vision $654.43
• First Mortgage $1,573.02 (includes HOA dues $51.50 & is high because refinancing snafu cleared escrow so we're replacing funds)
• Second Mortgage $950.38 (includes $40/mo to a maintenance/repair fund)
• Home Repairs/Maint. Fee $25.00
• Gas/ Electricity, Water, Mobile, Internet $371
• Grocery $550.00
• Gas, Insurance $354.16
• Car Repairs, Tags $45 (savings)   
• Clothing - Adults/ Children $20.00 (savings)
• Vet $20.00 (savings)
• Life Insurance, Long Term Care $143
• Hair Care $10.00 (savings)
• Subscriptions (Mozy) $7.00
• Gifts $20.00 (savings)
• Blow $125.00 (A buffer in the budget not actually spent every month)
• Entertainment $73.00
• Student Loan $109.58

ASSETS

• Honda CR-V $4,250
• KIA Sedona $17,300
• Primary House $192,500
• Rental House $94,000
• Household Items, Jewelry $10,700

SAVINGS/CHECKING

• Emergency $5947.49
• Lump Sum Savings $1,396.02 (highlighted categories above)
• Checking $3,474.63
• HSA $627.91
• 529 $2,282.06

RETIREMENT

• 401K $52,021.03
• ROTH $1,332.50
• Traditional $2,369.21
• Pension $2,302.53

DEBT

• Primary Mortgage $170,825.26
• Secondary Mortgage $120,142.10
• Student Loans $26,912.44

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

Aside from wanting to pay down student loans we are about to make a huge change that could significantly impact our financials.  We currently live in Michigan but all our family is in Oregon.  My dad passed away recently, my brother had his first baby, my brother in-law will have his first baby soon, and my father/mother in-law have failing health so we've made the decision to sell and move to Oregon.  We are doing FSBO and are currently under contract with closing set for Aug 29th.  With a baby due in June and two small kids moving/selling is real a challenge.  We are selling most all our stuff (furniture, clothing, second car, etc) to save on moving costs and will get some used items from my in-laws once in Oregon.  Even with this moving is looking to run us ~$5K.  While I am lucky enough to keep my job and work remote my wife is not so we lose her income which is significant.  We will also lose some ground to cost of living (COL) since Portland Oregon is estimated to be 15% higher. 

Another burden is our rental which has become an albatross.  We never wanted to become landlords this way but are stuck for now.  Our rent is guaranteed until 4/2016 (see above) but barely break even since we pay a management fee of 1 month's rent every two years effectively negating any net gain.  All we can do is wait in hopes of a recovery in the local market.  We currently owe ~$120K with estimated market value of ~$94K.  The mortgage is an ARM which has worked well for the past 10 years but rates won't stay this low (currently 3.25%).  We can't refinance since we are underwater and are not eligible for HARP/HAMP since we are not backed by Freddie/Fannie.  At best in 3 years we'll owe $109K but would need $117 to break even after realtor's fees and taxes.

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

I plan to build my career for now and have made steady jumps over the last few years to position myself to do so.  I've considered making a move to programming and have taken some into work via Coursera, Udacity and Code Academy.  It's slow going working full-time and caring for the kids.  With the move to Oregon it might be a good time to test the market to see if I can get another bump in pay/responsibility.

My wife and I have talked about getting back to my roots and starting a niche market farm venture.  Of course this requires time/money and space all of which are limited right now.  However, as we settle permanently in Oregon this will be a driving factor in where we live and how we structure our time/money.

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

Do it while you're young and childless.  Life before kids is much easier to control your time and your money...not saying kids are bad they just change the dynamic and you no longer have the flexibility of working odd hours or picking up side jobs at a moment's notice.  Work like mad before so you don't have to after.

Hone your focus and don't try to do everything at once.  We only have so much time and energy (both physically and mentally) so think about whether it makes sense focusing time/energy on not buying a $3 latte or is it better to make more money allowing you to enjoy that $3 latte.

Comments

[TW]

A quick update on our situation.

We are still on track to move in August but have had quite the run of bad luck over the past 2.5 weeks which capped off with having to renegotiate with the buyers to keep the sale afloat costing us an extra $500 from the proceeds of the house (cheaper than taking the down payment and re-listing). All I can really say is thank goodness for an emergency fund. Here is the list of what we had to deal with:

* A dryer malfunction and melted the outlet in the house we are selling. $450 after dryer replacement and electrician to assess the damage.
* Replace burner on glass top stove. $50
* Lawnmower stopped working $65 to repair
* Had to replace brakes/rotors in the front of CR-V in order to sell. $225 to repair
* A/C went out on rental unit. $1,825
* Bikes I used to commute to work broke. Sold/returned and still looking for a replacement

[No Waste]

The closing advice is incredibly accurate.

Kids make life better, but they also make it tougher and a little(?) more hectic.

Knock out whatever you can when you have that free time, because it goes away for a little(?) while once the stork drops off those babies.

[Mrs PoP @ Planting Our Pennies]

Congrats on your upcoming move to Oregon. I wish you guys the best settling into your new location.

But considering your situation with the "albatross" of a rental in Detroit, which recently filed for its own bankruptcy, are you really confident that the real estate market will come back enough for you to continue to carry this risk? As you saw recently with the AC unit, even though you don't have rental risk at the current moment with your builder's guarantee, maintenance expenses can be unexpected and quite significant.

I know there's a moral element for many people involved in letting a house go into foreclosure (or negotiating a short sale), but if we were in your situation it would definitely be an option that we would research and talk to someone who understands the laws in your area. (I think Michigan is a recourse state, but how often is recourse actually sought, and could you negotiate the recourse away if your mortgage holder accepted a short sale?)

The prospect of not being nearby AND losing a chunk of your income would feel incredibly risky for us to have that big of a liability (and at this point the house isn't really an asset, it's a liability) someplace where you can't keep an eye on it or DIY repairs if needed.

[TW]

@ Mrs Pop

I don't see how it makes financial sense to try to bail on it when we have guaranteed cash for the next 3 years while the property is being managed for us. This fully covers our mortgage (PITI) and gives a small positive cash flow each month. I see no reason to consider looking at a short sale until we are past our guaranteed rent period and then can assess at that time. If the market goes up we're in good shape, if not then we're no worse off than we are now.

The fact is the risk for us is the same whether we are in Michigan or in Oregon since we have the house either way. Any major systems failure would likely be contracted to someone else anyway. Plus Ypsi is actually next to Ann Arbor or about 45-50 mins away from Detroit so more likely to recover than Detroit but you never know.

[Adam G]

You have a good base but look to be in a tough spot. Since your wife has PHD, I would advise her to seek out a higher paying job, at least temporarily. I know childcare for 3 would be pricey but if she can make close to $100k in Oregon with that degree then you can pay down student loan debt and start funding retirement accounts at a greater pace.

I think moving to Oregon will allow you to start fresh, which is nice. And I think you're being smart about the rental property...might as well keep it rented and hope it appreciates some. I would be curious when the ARM changes as that could be a big hit if the increase is before you want to sell.

Anyway, you seem to have a good head on your shoulders so my advice would be to try to make more money (easier said than done I know) but that would help appease many of these issues. Best of luck and thanks for sharing.

[TW]

@Adam

Thanks. The income potential is there if she goes to industry which is quite demanding and not something she enjoys. That being said we, well she, home schools are kids which is tough to do working FT. It's a bit of a sacrifice but one that we feel is worth the investment.

However, we may look at having her teach again in the near future at the local community college once we settle and know where we'll be. It's actually a pretty sweet gig in that she works only a couple hours a night 2-4 nights a week depending on class load and in OR the per contact hour rate is $43/hr which is slightly lower than what she gets here.

The ARM is already in the adjustment period and it has a max 2% per year rate cap with an overall rate cap of 8% (I think). This is the biggest unknown in the short term with renting the house and one that we'll evaluate on a year-to-year basis

[Blake]

I say if you are starting fresh in OR, then get a new job to. Should be able to at least make up the cost of living difference. Additionally, with and MBA and your experience level, I tend to be optimistic think you eek out some more income just on a job change alone.

Keep your current job through the move, but start interviewing and applying now. May land something in Oregon that would pay for relocation as well.

[TW]

@Blake

I agree that a new position will likely garner a pay increase or at the very lest make up for the cost of living difference as you said.

I've done some prospecting and submitted a couple of apps. In fact I've passed the initial review on one of these and will be completing a skills test this afternoon. However, with the move a month a way and a new baby due any day now I'll likely hold off on any additional active job searches but will continue to keep options open once we hit Oregon.

[reader]

What about a tenure-track professor position for your wife? My friend who is a tenure-track professor in science pulls in six figures and gets to send her kids to the university preschool for free, which is run by masters and PhD students and is the best in the best preschool in the state, IMO. Just a thought.
What about leaving the money in the HSA and paying for medical expenses with cash? It's a nice way to get the triple tax benefit (deductible going in, grows for free and you don't pay taxes when it goes out). I view it like the best part of our retirement plan. It's a small amount annually but if you're able to invest, it can grow to a nice little stash and it's nice to know you're covered for a health emergency or if your kids need braces, etc.

Does your primary house have equity? If not, I'd walk from both and take the hit. The cash flow isn't enough to account for expenses and you probably are at a loss on an annual basis. I see it as a business decision - what is your credit worth to you over the next 7 years? If you're underwater $100,000, for example, is your credit over the next 7 years going to make or save you $100,000?

[TW]

@reader

Tenure track is not an option since she opted to teach at the CC instead of taking a post-doc. A post-doc needs to be done, by most university standards, within 5 years of obtaining the Ph.D of which we're past. Post-docs pay maybe $40-$50K and take about 5 years then you can move onto the tenure track and the publish or perish life style.

Not sure how paying with cash for medical expenses is better than utilizing the HSA. Regardless our medical expenses are quite low so I don't see much in the way of potential savings.

The primary house has equity and we'll walk away with a good chunk of money (~18K) since we've by-passed the relator fees. Walking away from the rental is not just a credit hit but also tax hit. We'd likely be on the hook taxes on the canceled debt (in addition to depreciation recovery) but it's hard to say since it would also be sold at a loss so perhaps the two could offset each other. I don't know what this comes out to be as of right now but at least we can minimize it by waiting. I also don't know fully what is involved in a short sale and whether the lender would approve one when our finances clearly show an ability to pay.

As of right now we basically break even, before tax benefits, on the house on a month-to-month basis. If this continues for the next three years we at least have an opportunity to break even or possibly make some $. Of course we could lose money through things breaking, ARM increasing, or anything else. This is a risk that we're ok with right now...the option to short sell is always going to be present so we can change course if needed

[reader]

Sorry I just wanted to clarify my HSA comment - our strategy is to put the full amount in the HSA each year ($6450 this year). The HSA holding bank (not sure that is the right term) we use allows us to invest it in the market. We've done this for about 7 years now and never touched the money. So we're sitting on a ~$40,000 HSA and plan to continue this course until retirement or semi-retirement. We pay cash for medical expenses. I just think it's a great little trick.

Now that you've clarified your situation, it doesn't sound like it makes sense to do a short sale. I didn't know how difficult tenure-track jobs are to secure. I'm sure you've considered all the options (like private sector, etc) and are already doing what's best for your family. :)

[TW]

@reader

I understand what you're saying now. However until we can fully fund our 401K I don't think we'll be going that route.

[Paul]

Situation's pretty tight right now, but I think the move will make it better. You can probably make substantially more in a new position in the northwest.

Plenty of time until you have to worry about the rental, nothing to do about that right now.

For-profit colleges pay more than community colleges. With your wife's credentials and teaching experience, she could probably get a job at one of them. As a bonus, many of their classes are online.

Good luck with the move!

[Mike Hunt]

Your last bit of advice is spot on... having our first child 3 weeks ago, I can see that everything else ends up taking a back seat until the routines become more smooth.

I can't imagine being in this place while also facing significant financial challenges- that would be super tough!

-Mike

[JimL]

Things do look tight and it looks like you will have some financial challenges if your wife is unable to bring in some income. I do understand the family dynamics and wish you success.

[Mc]

Science PhD here, professor, and mom to teenagers: your wife can easily get a higher paying job working full time, either as an academic postdoc or in industry, in the Portland area.

Academic postdoc grants are available from the fed government specifically to support women PhDs to re-enter the profession after their kids are older....so there would not be a barrier to her and in fact she would be more eligible for a good postdoc position than a new PhD because she would be eligible for support this way. Just check the NIH website and talk to professors at a local university to learn about thise options.

Also, the typical postdoc is for 2 years, not 5 years, and after that she could get a good paying job in either industry or tenure track at a teaching college (tenure track will oay her far more than the peanuts she currently gets from being a cc teaching adjunct). Besides the pay, which is $40-50,000 for a postdoc she will be eligible for excellent benefits including usually low cost and high quality medical and dental and 401k/403b----these are often more generous from university employers than private employers, so you might consider covering your whole family on her medical benefits.

Regarding daycare, yes it will be somewhat expensive for a few years, but it is only a temporary expense and goes down and disappears as kids get into school and after age 11 or so dont need it at all. Also, there are enormous tax write offs for daycare expenses....you can often pay for all your daycare using pretax dollars, and/ or deduct 100% of daycare costs from you earned income on your 1040. Many states also have additional programs to offset daycare costs depending on your income, number of kids, etc.I recommend that you check with a tax professional in Oregon to find out exactly what these benefits are and how you could take advantage.

In contrast to the temporary investment in daycare, the investment in her career will pay off far higher in the long run than any daycare cost.

Regarding home schooling, in Portland the public schools are good in contrast to Detroit, and your kids will likely thrive in the public school system so you could consider that. Personally, I dont understand the point of home schooling unless the local schools are awful. After all, even if your kids do attend a public school for a few hours a week you still have lots of time to teach your kids values and other critical things the entire rest of the time.

[Anon]

You should not be donating to charity.

[TW]

@Anon

Why?

[Brooklyn Money]

I would think Anon wrote that because you have a very narrow savings cushion and your expenses just went up with the new baby.

[LTW]

Could your wife go back to work and have the in-laws look after the kids 1-2 days, your mom/relatives some and day care the other days? That would be an easy way to increase income and decrease some resulting expenses.

[KateH]

As a fellow home-educator, also in a forced-landlord position, with a degree from a great school, I see TW's reasons to have his wife stay home and educate the children. Our financials are similar to TW's and while we're in our 30s, we are choosing to heavily invest in my husband's skills and earning potential, while I keep the home and children and am there to pick up the pieces and support him. We tried the dual working situation and the stress and hurry in our lives wasn't worth it; I felt my entire body and mind suffering constantly. It's "risky" by some measures financially, but we believe the investment into him and the investment into our family and children will be worth it - things that moth and rust do not destroy. :) Plus, I can go to work from age 45-65, and ideally, save and invest all of that money. We wish you the best, TW and fam!

[TW]

@Brooklyn

Depends on your perspective I guess. Numbers show we have about $1,300 leftover after each month. Income state above is net not gross.

Once my wife loses her income the giving will drop a little due to her loss of income and once we move the first mortgage amount will go down a couple hundred so we'll still have a cushion each month. Giving is something we feel privileged to be able to do. We have it extremely good in this country and to know that I can help give basic needs like food and water to someone is immeasurable.

[TW]

@LTW

In-laws work FT 40+ hours per week so no free daycare from them at this time

[TW]

@KateH

Thanks and good to know we're not the only ones who think like this. Other than what I stated above for growing my knowledge we're also considering a CBAP (Certified Business Analyst Profession) especially if I don't change jobs before or shortly after moving.

We know this is risky but feel in the event of job loss for me we would both hit the market and see who gets something first. Even tech work for my wife while not ideal could provide a decent income.