Reader Profile: GB

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

Please tell us a bit about yourself.

My wife and I are both in our early thirties.  I used to work in IT and she is a physician.  I never finished more than ~40 hours toward my undergraduate degree, she finished school a few years ago.  After we got married we moved to Boston and worked for three years, then moved back home to the south to settle down.  I am going back to school full time and she is working full time.

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

A somewhat brief history that I think is beneficial to know: When I was 23 and still messing around in school part time I had some sort of crisis where I realized I was spending money toward a liberal arts degree and that had nothing to do with IT.  I quit school and tried to get back into a “real” full-time IT job because I was stuck in a dead-end job where IT wasn’t even half of my work. 

In a moment of frustration (I am imagining FMF wincing as he reads this) I gave notice at the job and started looking for work.  It was a huge mistake and cost me over a year of misery and debt…but eventually I found a permanent job. This job paid maybe 25k a year, but at the end of that six months I had paid off most of the $4000+ credit card debt I had accrued.  The best part was as terrible as the job was, it allowed me to network and I found a much better job. 

The new job offered me a permanent position after six months, and then a promotion after a year.  Meanwhile my girlfriend had earned three degrees that only cost her 44K in student loans due to scholarships.  We got married, moved to Boston, and after two years there I got a great promotion and raise.  At this point I had basically tripled my salary in four years... I was ecstatic.

During our three years in Boston we lived on my income and saved everything my wife earned (she earned a little less than me).  We ate out only on special occasions, walked or took public transportation almost everywhere, barely used our old car except for trips around New England, and traveled to Europe during off-peak season.  We paid off 25% of my wife’s student loans, fully funded our Roth IRAs every year, and saved up over 100K for moving back home and buying a home.

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

We are frugal people…so we don’t really know what to do with our money other than pay off debt and max out our retirement funds.  For example, we received an inheritance and used it to pay off my wife’s student loans (there was about 28000 left).  This may have seemed like an odd choice considering we had a mortgage, but it has been great freeing up the cash flow.

As you can see below…just about every penny that comes in is allocated somewhere:
 
Income

• Me: 0 /mo (unpaid internship + school!)
• My wife: ~9250/mo take home after tax and 403B etc. 
• 12000-20000/yr in bonuses (this is buffer money, it is not allocated for any purpose.  In the past we have used it for extra mortgage payments or in place of the emergency fund)

Monthly Expenses / Savings: ~9250
 
Monthly Expenses

• Mortgage: 3100 (it’s actually 1500/mo, we pay 1600 extra)
• Groceries, dining out, bars: 700
• Car: 420
• Utilities: 400 max (water, electricity, gas, cell phones, internet, alarm system)
• Clothing, Shopping, misc.: 350
• Gas: 150 max (2 cars)

Monthly Savings / Escrow accounts

• Roth IRAs: ~915
• School: 800 (will go down to ~500 at end of this year)
• Charities: 585
• Property Tax: 450
• My wife’s continuing education: 350 (conferences (incl. travel), courses, licensing)
• Insurances: 330 (life, disability, car, home)
• Home Improvement: 300  (ends this year, we are going to have some small work done)
• Vacation: 200
• Gifts: 200 (niece/nephew college funds, Christmas, housewarmings, weddings etc)

Assets

• 138,000 equity in house bought in 2011
• 92,000 in various retirement accounts (my wife maxes out her 403)
• 81,000 in two Roth IRAs
• ~30,000 Emergency Fund in a simple savings account
• ~24,000 in various savings accounts that are escrowed for annual costs listed above such as school, vacations, insurance, home improvement projects, charity
•  ~19000 in checking
• 2 cars, one paid off (14 years old now)

Current (and future) debts

• Mortgage: 172,000 remaining at 3.25%.  At this rate will be paid off in 2018.
• New car from 2011: 420/mo, paid off in late 2016.  15900 left @1.9%
• New car at the end of this year: Early graduation gift I suppose.. replacing the 14 year old car.  ~500/mo

We prioritize our money as retirement, then mortgage. 
 
What are your plans for the future. (retire early, build your career, etc.)?

My plans revolve around starting a new career, most likely in research.  Other then that we feel like we’re pretty set on what we want... work, save, and travel.  I graduate from undergrad in 2014 and grad school in 2016 (assuming I do not decide to pursue a PhD), and hopefully join the workforce shortly thereafter.  However, once I start working and we are no longer eligible to contribute to Roth IRAs, we don’t really know what to do to save for retirement other than max out our work retirement accounts.  We are not interested in having children, so that is not a necessary savings goal.  It is also our hope that once the house is paid off and /or I’m working, my wife can cut down to four days a week to pursue other professional interests.

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

Self-control is everything...I think that applies to every aspect of personal finance.  Motivation is also important; make charts in Excel so you can see those pie charts fill in and numbers reach 100%.  Celebrate major accomplishments in whatever way you can afford... a nice dinner, a fine bottle of bourbon, or a new toy.

Force yourself to not eat out; that may be the biggest drain on someone who is trying to save (especially in their 20s).  If you do want to join friends for food and drink, eat before you go out so you can have a couple of drinks without breaking the bank.  Half of my cooking repertoire can be made in 15 minutes and it is healthy, so we never can use “oh I’m so tired and hungry I don’t feel like cooking”... make leftovers for lunch or for when you really ARE too tired.

When you do NEED or even want to buy something, price-stalk it.  For months if possible... especially if it is something that you just want.  I once price-stalked a video game for months just to save $8, since I was in no rush to play it.  I knew it would drop to $20 eventually; I just had to be patient.

If you are going to get married, do not go through with it until both of you understand all aspects of the other’s debts and ideas of spending.  Marriage is insanely easier when you rarely fight about money.  Similar to this - an emergency fund allows you sleep easy at night and shrug off money bombshells, especially if you are a homeowner.

Automate it all.  As you can see above I have escrow accounts for even the tiniest of things so I never think about it.  So when I look at our checking account I don’t need to worry that suddenly $4000 is coming out of it next week to pay my tuition.  That $4000 will go out but I’ll transfer from the savings to cover it.  I like that our checking account reflects the “true” balance.

Comments

[Elizabeth]

It sounds like you and your wife are doing well and headed in the right direction. Good job. I especially liked and agree with the advice about not going through with marriage until you know and understand all aspects of each other's spending/saving/financial goals, etc.

[JTS]

Good job on your finances thus far. I'm curious, is your 2nd career in research IT-related, or are you going down a different path? What brought on the career change, given you had quite a bit of success in the IT realm?

Also, to add to your first paragraph of advice: self-control and motivation are definitely important, and I would also add patience to that list. It is especially key during times of frustration since big change does not happen immediately.

Thanks for sharing your story.

-Jon

[[email protected]]

I think you guys did a great job financially speaking. I hope you can keep it up, most people have trouble doing so. :)

[Jonathan]

Think bigger on savings. Every time you referenced savings it was about retirement using retirement accounts. There are many other ways to save and to grow your money - don't limit yourself to thinking that once you're beyond income limits for an IRA, you're stuck. There are millions of things to invest in, and most of them don't require you wait until you're old to access your return. For me it's rental real estate, but for you it may be stocks, bonds, index funds, or startup companies. But take that surplus and start investing beyond the standard retirement avenues.

[JNEW]

I agree with Jonathan above.

You are doing great and it looks like it is time to diversify your investment outlook. Read a little, research a bit and make yourself comfortable with the process--its not that hard.

Start to dollar cost average into a taxable brokerage account. Look into Vanguard (which is owned by the account holders-- ) for their very low costs, great customer service and abundance of ETF's and index funds.

You can set up an allocation that meets your risk tolerance and start monthly investments.

The power of compounding is amazing (just ask Albert Einstein) and at your age-- you can use it to its full advantage.

[GB]

Hello all! Thanks for reading and responding.

@Elizabeth - Yes, my wife and I were together for eight years before we were married. It gave us plenty of time to learn about each other's spending habits. Luckily I passed her frugal tests!

@Jav - Yes, indeed. I'm not going to pretend to be perfect; we have caught ourselves a few times this year being indulgent. This is a big part of why we shove so much money at our mortgage... we want to ensure that we have less income to "grow into" while paying off a big debt. We do a good job though of keeping the other in check, and in a nice way.

@Jon - My new career will not have anything to do with IT, although having an IT background has already helped me and will undoubtedly help in the future. Unlike many of my classmates I'm very comfortable with software and not afraid to find out how to take full advantage of it. I didn't include this in my original write-up because it was already so long, but to make a long story short- I did not choose to do IT. I "fell" into it, and it was good to me many times and provided for me, but I realized if I wanted to do anything else now was my last chance. I was starting to have a lot of success with it and make good money, so if I didn't quit now I probably never would. I didn't intend to pursue a research career when I started back at school, but I worked with researchers when I worked in IT, and there are technology aspects to it that I enjoy (statistical software + killer hardware). So in a way, it is not surprising to me that I've become so interested.

@Jonathan and JNEW - We are getting to the point where we want to do more (it's been on my to do list since summertime). I just need to set aside some time to do so. A lot of our free time is spent on work, but I'm sure in the next few months I'll be able to set something up. It would be nice to have some experience with investing before I start work, as I anticipate we will have more surplus income then.