Free Money Finance

FMF on Hiatus

Well, as they say, all good things must end. Or at least take a break.

I started this blog over nine years ago simply to chronicle my financial thoughts and progress. Now, nearly a decade later, it's time to put down my keyboard. Whether that's for a moment or forever is yet to be determined. But as of now, it's clear that I need to take a break.

The simple reason for this is that maintaining the blog is much more time and effort than I have at the moment. Even to write one post a week. Even to manage guest posts. It's just too much. Because running a functioning blog is not just posting. It's also managing comments, answering emails (and I get 30-40 a day!), keeping up with trends, looking for story ideas, and on and on.

At this point I just have other things in my life that are more pressing/important. Namely:

• My kids are in high school and making decisions on college/jobs that I need to help with.
• My wife will need my help/guidance as she moves from a homeschool mom to whatever is next for her.
• My job is great and very fulfilling, but also very demanding. The time at work I once had (for the first several years of FMF) to write is now gone, which means the only time I have left is time that would be spent with my family or in leisure. Which is time I don't want to spend writing.

This doesn't mean I'll never blog again, but it does likely mean FMF will never be what it once was. Perhaps I'll post now and then, but the truth is most readers will move on (and who can blame them?).

So as I bow out, I thought I'd give you all a list of where I intend to go from here financially. Consider this the best guess at the next financial chapter of my life:

• The kids will be off to college in a year or two. We've saved a good amount, but whether it's enough or we'll need to supplement it remains to be seen. This is our last major expense before retirement.
• I'll keep saving, of course, to try and hit the don't-spend-principal retirement. I'd like to have. At the current rate, I should be able to hit that level in 5 years or so.
• I think I've mentioned here previously that I could retire in five years if I wanted. As of now, I'm having a blast at my job and can't see leaving anytime soon. Perhaps I'll work until 59 1/2 (closer to 10 years) when all my IRA funds will become available.
• A key part of my retirement plan is my rental properties. I think they will conservatively generate about $50,000 after all expenses. If all goes well, I could earn $60,000 a year.
• If my wife decides to go back to work (which I think is unlikely), that would be an unexpected extra income.

As I go, I want to thank all the readers and commenters here over the years. It's been you who have made this site so great. I've learned so much from you and appreciate you being part of FMF.

I can't connect with everyone, but if you're a regular reader here and want to connect, send me an email with your FMF commenter name (so I know you) and we can link up via LinkedIn.

As for now, I'm signing off, and wishing you all God's best blessings.

Help a Reader: Maxing Out after Reaching 401k Limit

Here's an email I recently received from a reader:

Some background info: My baseline gross salary is $74k, but with recent overtime it's looking like I'm on pace to make closer to $85k this year. I've been contributing 30% pre-tax dollars to my company 401k plan. They match 50% up to the first 8% I contribute, so basically I get a free 4%.

On my previous pay period, I hit my max $17,500 pre-tax contribution limit. In that same pay period, there was also a new line item for after-tax contribution spillover, so now I have $280 of after-tax money in my account.

My max employer match is 4% if I put in 8%. I just called my benefits office and they clarified this is applicable to both pre-tax AND after-tax contributions to the retirement account.

I'm 25 years old and don't have a Roth IRA setup yet.

My question is: Should I contribute 8% of my after-tax dollars to my retirement plan so I can get the 4% match from my company? Should I start/max out a Roth IRA? Should I do some combination of both? Any other recommendations?

What's your advice for him?

Reader Profile: KP

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 KP. She answered my questions (in bold italics below) as follows:

Please tell us a bit about yourself.

My husband I are both 36.  We have been married about 18 months; this is the second marriage for both of us.  Between us, we have 3 elementary-school-aged children.  We do not plan to have any more.

I graduated with no student loans and have been working for 14 years.  My husband dropped out of college after a year and has been in his industry for almost 15 years.

We live in a suburb of a large city in Texas, which has relatively low COL, no state income tax but really high property taxes.  We moved to this particular town last summer (from a small town 50 miles away) so that we would be closer to our childrens' other parents and so that I would have the option to pursue other job opportunities.

Describe your financial situation.

Income:

I am in IT and make $105k per year.  I changed jobs last month.  The new job cuts my commute time by 15-30 minutes per day, has a higher 403b match, offers more room for advancement, and is allowing me to learn a new and highly in demand technology.  However, I took a 3% pay cut, now have to pay tolls, and am no longer eligible for a bonus (averaged 4-12%) or a pension.
 
My husband is an auto tech and makes about $36k per year.  He has been at the same very small shop for over 10 years; they offer no benefits.
 
I receive approximately $22k per year in child support for my biokids.   This will decrease in 10 years and go away completely in 13 years.
 
After taxes/deductions/403b, we net about $8200/mo
 
Annual Savings:

We are currently saving about 20% of our gross income each year. Currently, this breaks down into:

• 403b: 8.5%  (13% of my salary.  My employer will match 6% dollar-for-dollar after 2 years of service. )
• Roth IRA: 4.375% (max out H's; $1500 for mine)
• Brokerage Account: 1.5%
• Short-term Savings (cash): 2.25%
• College funds: 3.625%

Of this 32k, 4k is deposited into the college funds in January when I reimburse myself from the dependent day care account (pre-tax money). Since the 403b contribution is also pre-tax, the rest of our contributions add up to about $1233/month out of our net pay.
 
Monthly Expenses:
 
Fixed expenses:

• Child support for his bio child: $250;  this will end in 11 years
• Mortgage (incl ins and taxes): $2000
• HOA: $40

That leaves about $4600 for the rest:

• Day care: $1000 (average: more expensive in summer/holidays, less during school)
• Automotive (tolls, gas, insurance, maintenance): $700
• Utilities: 335
• Cell phones: 120
• Satellite + Netflix: 120
• Internet: 65 (high speed internet is necessary so that I can work from home occasionally)
• Groceries/eating out: $850
• Children's extracurriculars: $170
• Medical:   500 (we had a high-deductible plan through June; now on a more normal plan)
• Gym: $50
• Children's allowances: up to $50, depending on how many chores get done
• Extra life insurance: $70 [extra $500k for me, $150k for him; through my company I have $50k on him and 4x my salary]
• Home Improvement/Entertainment/Clothing/vacation fund: up to $600

If there is anything left over I transfer it to short-term savings.
 
Assets:

• $230k in rollover IRA
• $20k in Roth IRAs
• $56k brokerage fund
• $15k cash emergency fund
• $5k cash short-term savings (currently earmarked for a new car; ours are 8 and 9 years old)
• $1.5k in HSA
• $1k in 403b

Our home is worth between 215-250k.
 
We have $43k saved in Coverdell ESA and 529 plans for the kids' college. My xH is supposedly also saving for our two children.
 
I will get a small pension from my last job; it is calculated to be about $1600/mo if I start drawing it at age 60 (or $200/mo if I start drawing now).  The monthly payout is locked in when withdrawals begin.
 
The emergency fund may seem low but it will cover the rest of our essentials for 6 months if I were to lose my job.
 
Debt:

• Mortgage: 162k left at 2.625%; we have 14 years remaining on a 15-year mortgage

Last year we paid off all other debt  :)
 
What are the current financial issues you're facing?
 
I started tracking our spending in January to see where the money is actually going.  In the first 7 months of the year we are averaging about $600 over budget each month but our income easily covered that.  With my new reduced income (less pay + tolls!) this is not going to be acceptable.  Some of these were unexpected medical expenses, which should be greatly reduced next year on our new health insurance plan.  Other overages were related to the new house (landscaping, setting up our media room, etc)...but we have a list of small renovations we would like to do, so I can't just assume those types of costs will magically go away.  
 
We are considering pulling $40k from the brokerage account as a down payment on a house that we could rent out.  There is a 3-year-old home down the street from us that is in foreclosure and only needs about $5k to make it ready for renters.  I estimate we could net $5k per year after the mortgage, which should cover current maintenance costs/future maintenance fund and leave a cushion for times when the it is empty.  That house would also be an option for us to downsize into when our children are out of the house in about 20 years.
 
I also don't think we are allocating our savings in the right way.  I'm debating putting less in the 403b and instead maxing out my Roth IRA...or maybe putting more money into the brokerage account.  I'm also considering closing out the HSA since I can't contribute to it anymore and repay myself for all the medical bills accrued this year (money would go into the car fund).

What are your plans for the future?

My job change gives me a lot more opportunity to grow my career.  Within 3 years I will be an expert in a field that is growing by leaps and bounds.  I'll either be able to parlay this experience into a higher-paying opportunity elsewhere, or I will be able to move around - and preferably up - within my current company.

I would like to pay for 100% of the children's college tuition/fees/books (at a public university).  For housing, they can live at home, get scholarships, work, convince their other parents to help, or take out loans.

My husband is likely going to have to stop working in his current career by the time he is 55.  At that point, he may segue into more of an office/sales type job, but that is not guaranteed.  I would like to retire, or at least work part-time, at 60.  We plan to stay in our home for the next 20-25 years and then downsize.

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

In my first marriage, I trusted my husband to be in charge of all the finances.  I knew where the money was and what it was invested in and was content to ignore it.  That was dumb.  I ended up a single mom with half the assets and no idea what to do with them...and no idea how much I was actually spending each month or how to live on a budget.   I did a LOT of reading (including blogs like this one) to educate myself.  Even if you aren't the money handler in your relationship, make an effort to sit down once a month or once a quarter and discuss everything with your partner.  Not just where the money is, but WHY it's going there and HOW that decision is helping you meet your mutual goals.
 
In that vein, I am teaching my children about money matters - they get allowances and have bank accounts and college funds, and we go over the statements with them every quarter.  When we go on vacation, we match whatever money they save during a certain time period and that is the only souvenir money they get. The 5-year-old does an excellent job at budgeting and assessing value; his sisters are getting there.
 
I have a 5-year plan for my career at any particular company. I don't want to plan much longer than that because there are so many different kinds of opportunities; what I am doing now I never would have really imagined when I started working 14 years ago.  I've learned that if you haven't reached that goal in 5 years, it's time to move on to a new job, develop additional skills, or look for a different kind of opportunity.  I absolutely do not regret walking away from the money from my last job; as hard as it was to leave the pension behind, in the long run I will be much happer in the new position and have the potential to make a much higher overall salary.  There was no room for advancement in my previous company.

Help a Reader: Dealing with a Pension

Here's an email I recently received from a reader:

I was hoping to get some help from your readers in determining my best option.

I received an offer from a former employer with whom I am entitled to receive a pension when I turn 65.  I am currently 51.

I have 3 options:

    1. Do nothing.  When I turn 65 I would receive $187 a month for life with a 100% survivor payment for my wife.

    2. Take a lump sum payout now of $13,705 which I could take as cash, rollover to an IRA or Roth IRA.

    3. Take an immediate annuity that pays $67 a month for life with a 100% survivor payment for my wife.

What's your advice for him?

The New Retirement Rule?

I'm not sure they were trying to do this, but I think Time magazine just came up with the new rule for having a great retirement nest egg. Their thoughts:

Save 15% of pay for 30 years and you will be fine. Save for longer, and it gets much easier.

A few thoughts:

• Ok, so the guideline isn't really theirs. It's from study done by the Center for Retirement Research at Boston College.
• I love the focus on time being more important than the amount saved. Plus the fact that return rate isn't even a factor! Isn't that what I said when I detailed The Best Way to Maximize Your Investment Return????
• They say if you have longer than 30 years, you can save 10% versus 15%. Makes sense but I'd personally go for 15% for longer just to deliver the type of retirement I want.
• The study also says, "one in two U.S. households is destined for a lifestyle downgrade in retirement." Frankly, I'm surprised it's only one in two. It's probably the upper half of people today who will fall a notch or two down. Probably those at a lower economic level will do a better job of staying flat.

I thought these findings were interesting as well:

The typical wage earner planning to retire at age 65 in 2040 would need to build a nest egg of $538,000, the paper states. By purchasing an immediate annuity, you would replace 34% of pre-retirement income. Social Security would replace 36% of pre-retirement income—in all giving the household 70% of pre-retirement income, which is considered an acceptable minimum level. To reach this savings goal this household would have to save 15% of every paycheck starting at age 35. But if the household planned to work to age 70—or started saving five years earlier—it would need to save just 6% of every paycheck.

In general, the typical middle-income household must save enough to produce a third of its retirement income. Low-income households need only get a quarter of retirement income from savings. High-income households (with a more expensive lifestyle) need to save enough to produce half their retirement income, the paper found.

I'm working towards funding 100% of my retirement needs (which is about 1/3 of my income) myself -- not counting on Social Security for a penny. Furthermore, I want my assets to generate enough income so I don't have to spend any principal, just live off the income my assets produce. So far, my plan is on schedule.

Anyone have anything else to add to these thoughts?

10 Things Americans Waste Money On

Dave Ramsey lists 10 things Americans waste money on as follows:

1. Credit card interest
2. Deal websites
3. Appetizers
4. ATM fees
5. Overdraft fees
6. Speedy shipping
7. Designer baby clothes
8. Unused gym memberships
9. Premium cable packages
10. Daily coffee trips

Personally, I think some of these are wastes (like #1) and others are just personal preferences (like #3). I'm much more "spend your money however you like as long as you still save a bundle" today than I was a few years ago. Everybody has things they like and things they don't. So as long as they practice moderate and selective frugality, it all works out for the best IMO.

That said, here's how I rank on these:

• Credit card interest -- Never pay it. In fact, I pay no interest at all these days and haven't for well over a decade.
• Deal websites -- I don't use deal websites, but I do search for coupons before making online purchases.
• Appetizers -- I skip these unless it's a special occasion or I have them alone as a meal.
• ATM fees -- Nope, don't have any.
• Overdraft fees -- Nope, don't have any.
• Speedy shipping -- My job pays for Amazon Prime and that's fast enough for me.
• Designer baby clothes -- Nope.
• Unused gym memberships -- I belong to a gym/pool and go 3 to 5 times a week.
• Premium cable packages -- We do have cable and lots of channels we don't watch. But it was more expensive (believe it or not) to have fewer channels.
• Daily coffee trips -- I drink some coffee, but not much. We do have a Keurig machine but I use it usually only now and then in the winter.

How about you? What do you think of this list? Do you use/incur any of the ten above?

Costs of Commuting

Personal Capital lists the surprising costs of commuting. The author begins with this story:

I usually leave the house each morning at 6:50. I hop in the car and drive to the train station, usually getting there around 7:05. I spend eight minutes waiting on the platform, using that time to catch up on news or download a podcast for my train ride. My train arrives at 7:13, and I get off at 8:02. From the train station, I walk 1.2 miles to the office, usually arriving by 8:30. My total commute time? An hour and forty minutes, one way.

Ugh. How brutal is that? An hour and forty minutes each way. This would not be living for me.

They then give some stats on commuting:

About 3.5 million Americans are also extreme commuters, averaging more than ninety minutes each way. One in six spends more than forty-five minutes commuting each way, while the average American spends about twenty-four minutes.

The post then weighs the cons of commuting (of which there are many) versus the pros (which is basically to buy a house you can afford -- and to live in a "nicer area" I assume as well). The piece ends up where it began IMO -- there's no way a long commute would work for me.

We just went through this decision-making process a few months ago. When we moved to our new city, people we knew here as well as those we knew who had friends/family here told us to check out one particular part of the city. Sure enough, it was great. It was new, vibrant, and was an awesome place to live. The problem? It was in the northeast part of the city and my work was in the southwest. The drive would be 30 minutes one way on a good day, but there were often traffic issues on the interstate (winter storms, spring storms, accidents, etc.) which made the commute an hour or longer in bumper-to-bumper traffic.

Despite these facts, we still considered the "great place" up north. But not for long. Why? Because we did the math. 30 minutes each way was an hour a day in the car (at a minimum.) Five hours a week. 250 hours (10.4 days) a year. And that's if traffic was always good.

So we started looking at a place closer to work and discovered many good options. They weren't as "great" as the place up north, but they were good. Very good in fact. We settled on a spot in an awesome school district in a new subdivision that was five minutes from work. I could walk it in 30 minutes or less if I had to. Do the math on that one. Do you know how much time, effort, frustration, etc. -- not to mention cost -- I saved? A ton.

What made the difference is that one option forced me to lose a lot of time with my family. The other was the shortest commute I've had in my career. No brainer.

Coming back from a business trip a month ago I was going the opposite way of what my commute home would have been if I had moved up north. There was a small fender bender and one car was on the side of the road. The traffic was backed up for MILES! I just smiled to myself, thankful that my commute is what it is.

All this to say that I feel one of the greatest costs, if not the greatest, of commuting is the time spent. It's one that needs to be looked at and considered just as much as the hard costs (gas, maintenance, etc.) do.

What do you think?

Happy Labor Day

Just wanted to say "Happy Labor Day" to my readers in the U.S. I hope you are enjoying a day off.

I'm not blogging today -- plan to spend time with the family today. I'll be back on Wednesday with more money news, commentary, tips, and thoughts.