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.
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