I admit we're not doing much with our TMM right now given me being in school. But I still feel the need to post occasionally given how prevalent our long-term financial situation still sits in my mind. And besides, I only have 9 months of school left! My goal is to be working by Feb of next year, and I am pretty sure I will be starting around $59K.
I want to dump as much of that new income as possible into my student loans so that we can finally be done with them once and for all. Even still, I'm guessing that's going to take about 5 years. Because I owe A LOT. Currently $121K and counting. Thankfully, there is a union work program I will qualify for that will pay off about $25K of that over 5 years, starting after 1 year of work. But, that's still $96K and I'm barely keeping up with the interest payments right now.
We could probably get it done in 4 years if we were really strict about it. But then I would lose $10K of the tuition repayment benefit. And we're going to be trying to save for a house down payment for part of that time as well. The boys are in kindergarten right now, and by the time they're in middle school (6th grade), we want to be in a better school district. So that again gives us about 5 years. (2021 should be an interesting year for us!) We have a fair amount of equity in our current home right now, but I don't want any PMI next time and who knows what the market will do by then.
Right now we're kind of treading water financially. I'm not working anymore now that I'm in school fulltime. And we have new before/after school care expenses on top of it. Medical expenses have gone down a little, but tuition/fees have gone way, way up. I managed to avoid taking out more student loans while doing just my pre-reqs part-time, but at this point its costing about $12K/semester and there's just no way around it. Ugh, ugh, ugh.
On the bright side, the amount I paid/borrowed for this career change is equal to or less than the gross amount I will make in just one year of working. And I will have a pension. So I think it will all be financially worth it in the end. And emotionally it's not even a question. A change was necessary.
Hubby got a nice bonus again this year, but not a very nice raise. We had kind of figured that due to the job hopping he did this year (3 different positions within the same company in 1 year). He seems happy now in his new position and hopefully next year will be a little better. But this new position is not as demanding as before, and therefore it is unlikely to come with the large pay increases he was getting for a few years while working his butt off. We'll manage though. Work/life balance is more important to us than higher paychecks.
This year, the bonus money was spend in some fairly unexciting ways. A lot of it just went into our emergency fund, to top it back up after the dips we had been making into it since I quit my job. Hopefully a combination of hubby's pay increase and some further belt tightening will keep that from happening again this year.
We also got a new water softener, which has been sorely needed for over a year now. We set aside some money for summer daycare since it will be double what we're used to paying during the school year. And then with the remaining amount we bought new deck furniture (our last set was about 14 years old and in poor shape) and new beds/dressers for the boys. They were finally getting too big for all their old toddler/preschool stuff. Now they have big boy beds and are no longer sharing an old dresser. All grown up!
Oh wait, and I got a new laptop. My old one was about 5 years old and died. The new one is nothing fancy, but a must for school. But that reminds me, the boys broke our old TV so we got a new one of those too. So I guess we did get a few fun things after all, even if they were mainly replacements. Hubby wanted one that was about 10 inches bigger than our last one, but I think TVs that big are just ridiculous. We compromised on one that was 5 inches bigger and it seems like a good fit for our living room, even though I can't, for the life of me, figure out how to use it. (Gosh that makes me sound old.)
Looking ahead to next year, a "new" car for hubby is on the horizon once I get a job. His car is about 12 years old now and is starting to show it. I know I had posted previously about planning to pay off my current car loan with last year's bonus, but somehow that didn't happen. Probably because of all the medical expenses we had for the boys back then. It's hard to remember now. By this time next year, I think we will still owe about $7K. Which, after taxes, is going to eat up most of hubby's next bonus, but so be it. I don't want to take out another car loan until we have that one paid off.
Someday, somehow, I really, really want to be able to take an awesome family vacation together to someplace like the Grand Canyon or Disney World. Not to mention a romantic vacation with just hubby to someplace like Greece or Machu Picchu too. But it's really hard to picture that being in the cards anytime in the next 5 years. Especially when I start thinking about retirement on top of it. None the less, I need to at least throw that wish out there.
We're both turning 40 this year, and should have at minimum about 2 years worth of income saved at this point. Instead, we have more like a quarter of 1 years income. In 5 years, I think we'll finally be ready to start tackling that head on, but by then we should have 3 years saved! Pretty sure retirement is going to have to be closer to 70 than 65 at this point. Just need to stay healthy so that I can still enjoy it!
Viewing the 'Education' Category
I admit we're not doing much with our TMM right now given me being in school. But I still feel the need to post occasionally given how prevalent our long-term financial situation still sits in my mind. And besides, I only have 9 months of school left! My goal is to be working by Feb of next year, and I am pretty sure I will be starting around $59K.
Our Total Money Makeover is in need of a makeover itself. It's been a pretty crazy year for us financially speaking. We started off 2014 with a lot of monthly surplus after having finally paid off all our credit cards in 2013. A surplus we may have gotten a bit too used too because it didn't last for long.
I started back to college (approx $2000/semester), we bought a "new" car (approx $175/month), we got slammed with unexpected medical bills after our identical twin boys' autism diagnosis (approx $8000/yr), and most importantly, we finally started a 401K for retirement (approx $500/month+match). All said and done, we're spread pretty thin these days, but we're still spending discretionary money as if that were not the case.
In fact, although we haven't yet had to carry an interest bearing balance from one month to the next on the card we use for most discretionary purchases (due to the 3% cash back we get), we've certainly come close. And at this point I'd say we're actually carrying about $1500 in credit that just hasn't come due before we could pay it yet. In short, we've jumped back on to that dangerous spiral of spending slightly more than we make each month.
Additionally, Xmas is around the corner, next semester's tuition is due in a month, and we're pretty sure that this is the winter we're finally going to have to buck up and buy a new furnace. It's feeling a little overwhelming at the moment.
It's time to reign it in and accept the financial reality of our current situation. After talking about it, hubby and I have decided that despite having less surplus than before, we should still be aiming to save at least enough per month to replenish our $5000/yr emergency fund (ie about $415/month). Unfortunately, we haven't been doing that these past few months, and after I pay this next tuition bill (my aunt is no longer helping me), the EF will be pretty much empty. We'll restock it when hubby gets his bonus in Feb, but that will be a big chunk of the bonus, and we certainly won't be paying off the car too like we had once planned.
We're going to make paying off that current $1500 credit debt a priority, and we're going to cut our Xmas budget in half too. I'm going to start printing out weekly reports of where we're at in our spending categories so that we can see if we're on track or not. And since we haven't been sticking very well to those limits the past few months, that's going to feel like a big cut at first. We've done it before though, we can do it again.
Hopefully hubby will get a nice raise this March, like he's been promised, and things will get a little less tight, but we can't wait for (or count on) that to fix it. Thankfully, in only two more years I should be done with school and we can finally kick our TMM into high gear again. In the meantime, home prices rising is at least helping our net worth to look less depressing. Still negative, but not nearly so much as in the past. Will be so exciting to get to an even $0 some day!
I was feeling a bit lonely and neglected today, but then hubby brought me home flowers (most unlike him) and it made the whole rest of my day better. Just needed to tell someone that. Things have been so busy lately and I've just been stressed.
Got the final medical insurance refund check today from all the crazy bills we had to pay before the TEFRA coverage for our twin boys' autism disability came through. We're still going to have to plan for fairly high medical expenses. Probably about $5000/yr for the TEFRA and at least another $2K/yr for hubby and I, if not $5K to max it out and be safe. This is in addition to our regular monthly insurance premium mind you. But at least we know everything is covered now, and the payments will be more spread out and manageable. Additionally, the refunds will allow us to payoff the balance transfer we did in Jan of this year in order to max out our HSA.
Tuition for fall semester is paid, though I still have one text book left to buy. My aunt hasn't said anything yet about helping us out again with it like she has the last two times. I'm guessing she will, but I would never ask. Regardless, we had to dip into our emergency fund to cover it which is why it's still looking pretty tepid. If you count our slowly growing 401(k) though it looks a little better!
We had a series of misfortunate plumbing issues this past Aug, almost all of which were related to one of our "darling" boys. All said and done we spent over $700 on repairs. Ugh. It seems like such a paradox to me that at the same time in a child's life that you would prefer to keep the bathroom off limits, you also need to be teaching them independence in potty training. No bueno.
I calculated out that even if we apply my hubby's entire after tax bonus this winter to the car loan we got in May, we will still be $1000 short of paying it off. We probably still will but this bums me out as it means the payments won't be done like I had hoped. What with tuition around every corner though, I just can't see how to do it any faster right now. And with my student loans on deferment right now, we should really take advantage of any "extra" cash to pay that primary down. Will reaccess come Jan though.
Also have been really bummed about the dive our home price is taking again lately. We have a couple new foreclosures in our neighborhood which is probably why, but it still makes my net worth look sad(er). Easy come, easy go.
That's all for now!
Gosh it's been forever since I wrote! Actually, I did write a post a few months back, but it got deleted accidentally and I was too annoyed to retype it (don't know why, but I always have to post a new entry twice for it to work correctly). Going to be more careful this time!
Part of why I haven't written for a while is that, to be honest, we haven't been working very hard on our TMM since April. We started hubby's 401K at the end of March and are adding the full amount each month to get the maximum company max (6% for us, 4.5% for them). It feels great to have started that, and with the matching it is growing nicely. But it is also untappable money that has really lowered how much extra we have to throw at other goals each month, and that has slowed some of our momentum.
The other thing that has taken some wind out of our sales is medical related, which is what the post that got deleted was about. Basically, our identicals twins have been diagnosed with asperger's (ASD) and we suddenly have very high medical costs that were not factored in to our original planning. Long story short, despite our medical insurance, back in April we thought we were going to start needing about twice as much as we had budgeted for medical expenses each year (including 2013, which we were still getting bills for). So, $10K/yr instead of $5K budgeted. And what with the prior year, the current year, and trying to better prepare for the coming year (2015), we were trying to figure out where the hell to come up with $15K all of a sudden.
We started by getting a no monthly interest balance txfr on a CC for one year (though the txfr itself cost 3% that we paid off right away). Our thinking being that while, yes, it is a credit card, we have regular payroll deductions deposited to our HSA that can be used to pay it off over the course of the year. We also started setting aside an additional $315 each month to be more ready for next year. Which still left us short $5K, but we downgraded our expected May car purchase by $10K to help it all work out better eventually.
The good news, come May we found out that due to having a certified "mental disability", the boys qualify for some federal medical disability funding that is going to help us out. I'm still not sure how it's all going to work out eventually, since everything takes a year and a day to get "processed", but my best guess is that it will be better than our worst fears, but worse than before this all started. In the meantime, we are still working on paying off the CC balance txfr and saving for next year, but we're assuming that the money from the gov't will at least cover last year's extra medical expenses (about $5,900).
Unfortunately, this all began to balloon as we were preparing to make the "new" car purchase we've been planning for over a year now (to replace our 1999 family SUV). Had it not been for already promising my daughter the old SUV come this summer, so that she could look for a summer job over her college break, and sign for a new lease for housing next year without having to be limited by bus transportation issues, we may have tried to put that off for another year. Though in the end, it's probably good that we didn't because within a month of our purchase, the SUV came up with another $1800 in repairs it could use (only $600 of which was decided was worth it, and which has been a good lesson in helping our daughter plan for financial emergencies!).
Anyways, another long story short, we love our new car (which is actually 3 years old, but that's the newest car I've ever owned!). It was about $15K total and we had save about $4K prior to purchase. We also dipped into our emergency fund a little to get our monthly payments down to about $175, which felt safe and doable. We're working on restocking our emergency fund (still about $1800 to go) and plan to pay off whatever balance is remaining on the car come Feb 2015 when hubby gets his annual bonus. The car we got is rated as very reliable and is in great running condition (pre-certified even, and with a 7 year warranty), and I feel like it will be great family car for years to come.
So, it's been a pretty financially disorienting few months. Really hard to gain traction when we're still dealing with some medical unknowns. Looking ahead to about $2350 in tuition/books that will be due in a couple months too for my fall term of school. We have enough if we dip into our emergency fund again, (and I certainly don't want to be taking out any more school loans at this point when we still have $100K of them that we've barely make a dent in), but in all likelihood we will have to, at least a little bit. Hoping that by the end of the summer we'll have a better sense of our financial position again so that we can feel more confident about where we're steering.
We've finally finished wading through all the home maintenance projects (including an unexpected $1000 repair on the roof a couple weeks ago) and even set aside $1000 for Christmas. We've reached our family health deductible for the year and are scheduling appts like mad for these next few weeks to take full advantage of paying only 20% rather than 100% for the rest of the year. And we were also incredibly blessed to have my aunt unexpectedly send me a check to cover my first semester of tuition and books for the community college I will be starting at in Jan. And so, with that all finally behind us, it's time to commence on our TMM baby step 3 (beef up emergency fund to cover 3-6 months of expenses).
It has been almost 4 months since we finished baby step 2, so I am relieved to finally be getting back on track again. We made a lot of prudent purchases and repairs, but as the money kept flowing out rather than in, I worried that our financial plan had become derailed. Apparently though, even without CC debt, we do still have some motivation and dedication to this plan after all. And it's time to buckle down again.
My main goal for this coming financial year is to see our next worth begin to rise finally. Although given it is currently -$46K, it might be more accurate to say we want to see our gaping net worth hole begin to be filled in. It's actually much better now that it was a year ago. Partly because of paying off the CC's and car loan. But also in a large part due to home values bouncing back again finally, and we can't really take credit for that. Plus that part could go again as easy as it came.
But I was realizing the other day that we are at an exciting point none that less because from here on out, we will mainly be investing in ourselves. Even the $25K we hope to save for a "new" vehicle over the next year and a half will be savings converted into an asset, rather than simply blown out the window. And yes, yes, I know their will be depreciation, but you get my point. We're finally investing in our own net worth. And that is exciting!
Plus, during the open enrollment period this year we made sure to max out our HSA contribution for next year, as well as bump up the life insurance and disability policies a little bit. And it feels wonderful to know we are getting an adequate financial safety net into place. Almost like we're becoming real adults finally!
From this point on though, we're going to be breaking a bit from strict compliance to the TMM plan. For instance, we're going to start baby step 4 (retirement savings) as soon as we get $5000 towards baby step 3. Which should be by the end of Jan if we practice restraint over Xmas. We are way too old to be putting it off any longer and we're going to be doing baby step 3 for quite some time. We want our final emergency fund to be around $20K, but we need to buy a car along the way, so almost as soon as we get it we're going to empty it out and start again.
I consider this an EF worthy purchase though because, as discussed previously, our current family vehicle is a 1999 and has over 225K miles. It's just not going to be around much longer, and when it does finally die, it will certainly be an emergency. After doing a lot of research we decided that the most financially wise options were to either buy a cheap 7-8 year old car in decent condition and plan to cover fairly regular repairs until we can afford an upgrade. Or to buy a reliable low mileage 1-2 year old vehicle that shouldn't need much work for a few years, and which would be just as affordable as long as we keep driving it at least 10 years. And given how very tired we are of highly used vehicles at this point, we have decided to go for the 2nd option.
We're going to save as much as we can for it until May and then get a loan for the remainder. We want to give the old one to our daughter when she comes home from college for the summer so that she will have her own vehicle to get to and from her summer job. And then we're going to pay off the car loan as fast as possible, though right now it's looking like Feb 2015 before we get there.
So that's the plan right now. Hubby is in the process of applying for new jobs that pays more though, and if one of them pans out, maybe we can even do this without a car loan. Hoping for the best!
I had this entry all written last week, but the blog site was acting funny that day, and when I submitted it, it just went off into the oblivion somewhere. Was too annoyed to retype something right away, but I am trying really hard to get caught up today.
So anyways, apparently our $8000 some dollar tax return was a bit too good to be true after all. You see, that tax form our DD said was from her school, the one we thought we already had, was really from her 529K that we just opened this year. Entering that form changed the picture a bit because apparently, you do not qualify for education tax credits if you pay for education expenses using a 529K. Huh? What the heck is the point then? Well okay, I get that they are tax deferred and gain interest if you start when they're young. Ours was more of a savings account tool that would penalize withdrawing funds for non-education expenses. A disincentive we felt our spend thrifty daughter needed. (To be fair, she's done quite well with it.) None the less, our tax return will be at least $2000 less than we had thought due to losing the credit. And I have to amend.
Really, it hardly matters because due to our mortgage interest credit and congress's ineptitude, our pending tax return will be delayed until lord only knows when anyways. I just hope they don't realize our mistake and allow me to fix it instead of holding the fund until I do (or auditing us!) because who knows how much longer that will take then. Had originally thought that check would be coming late this month but now we're thinking more like April. Boo!
Eventually I need to figure out how to adjust our with holdings so that our returns aren't so big. Our tax situation has changed so much over the past 4 years though that its hard to sort it all out. Buying a home, starting a small business, getting married, changing jobs, promotions, having twins, sending a child to college (while still paying on my own student loans). Turbo tax informs me that due to all these things, our effective tax rate is only 4.4% right now. So our checkbook may have taken quite a hit from all that, but we're beating Warren Buffet's tax rate, so we must be good! Probably makes us part of Romney's 47% though.
One of the few topics in Dave Ramsey's Total Money Makeover that really irks me is his discussion of student loan debt. I'm not saying his points are all without merit. But when he talks about credit cards, he seems to understand that the mental/emotional game is just as important, perhaps even more important, than the financial one. And so he recommends paying off your lowest balance card before your highest interest card, purely so you can see results sooner. And I totally get that. But he does not allow for the same types of emotional weakness when it comes to student loans. Consider the rant of his in this link for instance:http://www.daveramseyfan.com/dave-ramsey-rants-stupid-on-edu... Ouch. That's all I can say. And since I am one of those previously professional, now stay-at-home mom's with over $100K in debt he's ranting about, it can't get much more personal than that.
When I look back over my life, there is only place I can think of that I maybe should/would have made a different decision about my education. And that was when I chose to keep pursuing a PhD in a field I wasn't sure was a good fit for me, instead of being willing to start graduate school over, or at least stop with a masters. Given that my graduate tuition was paid for, however, and that I was receiving a stipend for most of my living expenses, cutting out that leg of the journey wouldn't have changed that much. Maybe $20K less at best.
Growing up, we were poor. Like free school lunch, hand me down clothes from cousins, can't afford a school yearbook poor. I vividly remember my mom dividing one family size can of spaghettios between the 4 of my sisters and I, plus a glass of milk, for lunch. I was a small, hungry, skinny and very active kid, who hung out a lot at my friend's houses bumming snacks. My mom and dad fought constantly, and would have no matter what, but certainly a major theme of their blowouts was money. There was never enough of it, and it seemed that would never change. My mom often grew wistful in private about how, despite how smart she had been, she had dropped out of college after only a year or so at her first husband's insistence (my father) and never found her way back once the babies started coming with her second. And worse, how she could never leave her abusive second husband because she could never support the 5 of us on her own.
I'm not sure how directly it was ever stated, but I grew up with the clear impression that it was absolutely imperative that I go to college some day so that I would be able to support myself without a man. But that there would be absolutely no financial help for me to do so. This was further complicated by my step-father's abusive put downs of me compared to my sisters, and his continuous proclamations that I was never going to be good enough for anything.
Given the trouble I was often into growing up in a home like that, there were many years it seemed like he was right. There were many years I didn't bother with homework. For a period of time, I was suicidal. And I was pregnant before I was out of high school. But I harbored a deep, driving need to prove him wrong as well. And despite his insults otherwise, I was actually quite intelligent. And seriously driven to believe that there was a way out of my childhood and into the type of future I had always dreamed of. Halfway through high school, I turned over a new leaf and started to show what I was capable of academically, though my new daughter senior year complicated things a bit.
When I was applying to colleges, the last thing on my mind was the amount of money I was taking out in student loans. Certainly I qualified for every need based option possible, not to mention a few merit based ones as well. Imagining what that payback would look like 5 to 10 years down the road when I finally had a real job and was out of this mess seemed besides the point. My burning questions were: Am I really capable of this? A 4 year degree at a respectable university with a child? What if they see only what my step-dad saw? What if I am doomed to repeat the same life for my daughter as the one that was given to me?
But I got in and I did my best. My first year I did outstanding actually, but the second year my young marriage began to fall apart and afterwards, it took a couple years of struggle before my daughter and I found a new equilibrium. My last two years of undergrad I did much better for the most part, and somewhere during that time, I realized that to become anything more than a lab rat with my degree, I would need to apply for graduate school. In this sense, Dave's rant doesn't completely apply to me. I did understand that I needed to be highly marketable to pay for all this.
At that point in life, I was pretty clear that I wanted to be a working mother. I loved my daughter dearly, and was very much looking forward to being done with school and having more time eventually. But I was the kind of person who got depressed without something intellectual to pursue. Something for myself separate from my role as a mother. Perhaps partly because I had become a mother before I had gotten time to be just myself. As exhausting as it was during the semesters, school holidays were often worse because I just got so depressed with nothing to work towards.
If you had told me that I would one day choose to be a stay at home mom, I would have laughed in your face. Dave can say that young women without kids yet have no idea how they're going to feel when they do, but I think that's overly simplistic and implies we all want to stay at home deep down. I'm a stay at home mom now, and I'm still not always sure its what I want to be doing. Furthermore, I already had a child at that point. I did know what it was like. If I could have had the option to work only part time with a young family, that probably would have been my first choice. But that is not a realistic possibility in most fields, least of all mine, and I was not unrealistic. I figured with a PhD, I could make enough that my future husband could stay home if we wanted.
Graduate school was hard though. Really hard. My fears about not being good enough were constantly at an edge when surrounded by so many other brilliant people. I had developed a fuzzy, idealistic picture of my doctoral field while leisurely pursuing undergraduate research with lower expectations I had no trouble meeting. This vision was shattered to make room for the more brutal and difficult reality of what higher academia really was. The relationship with my advisor slowly went from love to hate. Somewhere along the way, I began to question whether I was really doing this for myself, or just to prove that I could. Some days, I began to acknowledge that despite how far I had come, it was possible I was moving in the wrong direction.
That is the one point in my academic journey I regret. If I had been brave, or maybe even just less tired, I would have thrown in my first 2 1/2 years of research and allowed myself to start again in a new field. If I had done this, perhaps I would be happily pursuing my new career even now? I had an inkling of what at least some of those other possibilities could have been. It wouldn't have set me back more than a couple years (though that would have added even more to my debt!). But that light at the end of the tunnel I had been impossibly chasing for so long was finally so close. I had already passed my preliminary doctoral exam. I had my project all mapped out. I just needed to buckle down for 3 more years and do it.
And so that's what I did. I figured when I was done I could work on re-branding myself in an area of research I was more interested in for the job hunt. Instead, I found myself perfectly trained to do exactly the type of research I did not want to pursue. But it sure payed well. Even if it did necessitate moving halfway across the country.
It seemed like that would be enough, eventually. But it wasn't even close. And despite my husband (then boyfriend) being brave enough to come along with my daughter and I and start this new life together out west, it just never felt right there. We just couldn't get settled. We couldn't get to a place where the future we had pictured together seemed possible. We couldn't define what needed to shift. And despite crossing the 30's threshold, we couldn't possibly imagine starting a family in that life and place.
Through all of this, my daughter moved into her teenage years, and despite being very close when she was younger, she suddenly wanted nothing to do with me. It became painfully obvious that though my school was finally done and I was ready to focus more fully on her, she no longer had any interest in focusing on me. That ship had sailed, so to speak, and I had missed my boat. That was hard. That was very hard. And it made me reflect a lot on my plans to start a family again soon. The role I wanted to play in my new children's life and the type of mother I wanted to be. As my regret grew, I also stopped giving a crap what other people thought about how capable I was. I had gotten a PhD for cripe sakes. What more could they expect of me? And it was my right to decide what I wanted to do with that degree from that point on. Obviously, it was always my right. But that was when I finally realized it.
So anyways, long story short, with my boyfriend's blessing, I quit my high paying job and decided to become a stay at home mother with over $100K in student loans instead. It was a rough few years of transition. At this point, my husband finally makes a pretty decent income. Almost as much as I used to (and adjusted for the midwest, probably a lot more). But with three kids, primarily one income, and a student loan payment of over $600/month, it never goes as far as it seems like it should. It's going to take us a while to get out of this mess. And though we are now over 4 years into this new life path, it's hard sometimes to accept where we are now compared to where we used to be. Hard to know that we will probably never live in a beautiful home/location like that one ever again. That it will be years, eons, before we can afford another fancy trip. That given the realities of our budget, money is going to continue to feel like a struggle for probably at least another 5 or so years until I'm working again. My husband and I find that hard. And depressing. And Dave would probably just say "What did you expect!?!"
...A chance to live a life much different than the one my parent's gave me I guess. A chance to feel like I had enough money to never be trapped in a relationship that was bad for me. A certainty that my children would always have enough to eat, as well as year books and new clothes and maybe even stories about trips to Disney World with our family last summer. I probably didn't need a $100K education to secure all those things, but it was an emotional journey for me that took a while to figure out.
For now, I comfort myself with the fact that though this is not always the life of my dreams, it is finally the life of my choice. I am choosing to be much poorer than I could be. I am choosing to temporarily give up most personal and intellectual pursuits (though I did start a secret blog!) so that I will have fewer regrets next time about the mother I am to my children. I could do it differently, and from time to time I check in and make sure this is what I still want. So far it is.
Sometimes Iím a little surprised to find myself with debt troubles, because back when my husband (then boyfriend) and I were both working 6 years ago, there was a point where we were making quite a bit of money. During that two year period, we managed to pay off all the credit cards we had at that time (due to divorces and our big move west for my job) as well as the remainder of hubbyís student loan. We did not, however, manage to save a dime towards retirement or anything else. And we went on at least two fancy trips. And ate out a lot. And didn't even look at price tags in certain stores. We also did not own a home at that point, and were paying a small fortune to rent a very nice one (we needed one with with space for our huge dog to run!), while paying only the minimum on my student loans.
Each month we wondered how we could possibly make so much money (some months we brought in more than $10K total - after taxes) and still have nothing left to save towards a house or retirement by the end of the month. I have a few defenses for this. One is that I was less than two years out of graduate school (finally!) and after having been a young, poor, and mostly single mom for that difficult 11 year period, I had a big wish list for life. I needed some fun time. Additionally, my field was very specialized, and required us to live in a very expensive area on the west coast. We were both completely shell shocked by the cost of living adjustment our first year. The price of things like cheese always floored me. Plus, Hubby and I weren't actually married yet at that point, and despite entering our 30's, we were simply not ready yet to buckle down and get serious about financial planning.
So thatís my list of reasons, minus a lot of things I could say about hind sight that you can fill in for me if you like. That period of my life ended almost 5 years ago when hubby and I made the difficult, but long coming decision for me to quit my job (or really career in this case) and move back to our hometown in the Midwest. At that point, we did begin to reign it in a bit in preparation for the 60% reduction in income we would be undergoing in a few short months. We stop planning for the next big vacation and started planning for the journey home instead. We cut back on spending, and put a little away each month for the huge moving expenses we knew from experience that we would be racking up soon. Not nearly enough, but it helped. And I began to look into information on starting a new home business.
We made a mix of good and bad financial decisions over the next few years, but also worked very hard. That first year back, I often spent upwards of 50 hours a week laying the groundwork to get my business up and running, and even took on housecleaning jobs in the meantime until my cash flow became more regular. Thankfully, hubby's job was able to come with him on our move, but the recession had just kicked in and there would be no cost of living raises that year. We had a few thousand in credit card debt again from the move we had to pay on, but we put my student loans on temporary forbearance (which sadly wiped out all progress we had made thus far). My daughter had hit the difficult teenage years, and no matter how much we made, it could never be enough to acquire all the things she was certain she needed (and that every other person she knew already had). Additionally, I felt bad downgrading her too much from what she had become used to at that point, given that the second move was hard enough on her, and certainly not what she had wanted or expected. In all honesty, we had a bit of a hard time adjusting to all of that ourselves actually, and though our rent was much cheaper than it had been out west, it was still much more expensive that what we probably should have taken on. But we felt we needed to step into our new cost of living situation gradually, so as not to give up everything we'd had all at once.
Now that we were back in the much more affordable and homey midwest, we finally felt able to settle down and begin working towards our future together. We got officially engaged and started looking into homes and saving for a down payment. I settled in to my new work routine and despite how much tighter things were, we managed to put away at least $700/month during most of that first year. And though I feel our wedding was perfect, it was a small, elegant but inexpensive, at home affair that did not set us back too much more. Can't say the same for my amazing ring though. (I made it clear there was no way we were spending less than he spent on his ex and I still do not regret that!) We also had a short, but sweet honeymoon that added a little more. And within two months of all that shenanigans, we dropped all our saving and then some into our new house.
Despite putting a little more on the cards to get all settled in, I think our house was a good purchase. A huge step down from what we'd had out west, and more than $1000 per month less than our rent had been even after moving back to the midwest. But a respectable, comfortable, suburban home in a good neighborhood none the less, with a payment we could afford. We bought it at what was the market low (at that point) and with a great fixed interest rate, and it has plenty of room for a family. Therefore, we immediately jumped into the next stage of our long term life plan - babies! And what with that first "Holy Shit" ultrasound, and the later preterm birth that twins tend to bring, less than 12 mos after we said "I do" we had two of them! Not to mention a lot of unexpected time off from work (and savings) on my part due to bed rest.
Somewhere in all of that, there was also a long distance wedding trip, a number of car issues and more than one or two home owner issues as well. We did not have an emergency fund yet at that point, so anything extra was a problem. Plus, my daughter had turned 16 and began driving, and no matter how crappy a car you give them, the insurance still sucks. Its no secret that kids tend to be the most expensive at the bookends of your 18 years with them, and unfortunately we had some on each end. I had to keep my work hours while I was breastfeeding (and not sleeping) to less than half of what they had been pre-baby. We started getting a grocery delivery service rather than shopping ourselves, despite the extra expense, cause we couldn't figure out how to manage life without hating each other otherwise. And as thankful as we were for hubby's work from home job that came with us on our big move, it was far from competitive in pay (though excellent in health coverage thank goodness), and yet we just didn't feel like we could manage him finding something out of the home until we got closer to the boys first birthday.
Lest I mislead you, there were some toys in there too. We got a new flat screen tv, and we had cable, netflix and audible subscriptions. We both got iPhone 3's when the 4's came out and have since upgraded. We got a new laptop when the old one died. We ate out a couple times a week at least. We took a couple modest vacations. We purchased memberships to the zoo and museum. We weren't partying, but we weren't suffering.
None the less, fast forward to about 18 mos. later and we have finally begun to catch our breath again. Hubby did find a new job outside the home that pays much better (though that required me to cut my hours even more initially, and necessitated another car purchase). We stopped hemorrhaging expenses and started simply treading water instead. I think its been over a year since we even used a credit card,which means we have mostly gotten the hang of living within our means (pre-child support loss at least!). And we did finally get an emergency fund going. But its been pretty clear that we haven't made much of any real progress towards wiping out the debt we accumulated either. And as we slowly inch towards the end of our 30's, it is clear that the time to start planning for our financial future is now. Like, so right now, its yesterday.
So that's how we got here. Nothing completely stupid I don't think (well, maybe the ring. But since I'd do that one again, I don't think it counts), though lots of things we could have done a bit better. And today, on this Thanksgiving Day 2012, I am thankful that hubby and I have both the means and dedication to tackle this massive financial overhaul, so that our future can be a bright one.
This may be simply an exercise in idealistic dreaming, but I want to paint for you (or maybe mostly just me) a picture of how I see this new financial plan unfolding for us in the coming years. Cause I have big, unrealized but hopefully not unrealistic, dreams. In Dave Ramsey's book, he tells you that it takes most people about seven years to reach Baby Step 7: Build Wealth. Longer still to get to the Pinnacle Point where your money finally starts working harder than you have to. Certainly, that is the long term goal. And the short term goal is the credit card/car payment debt payoff I've already outlined. But it'd be nice to have a picture of our mid-term plan as well. Especially given that I don't think we will be following the Baby Steps precisely.
So, one year out, give or take a few months, and hopefully our small debts (non-mortgage/student loan) will be paid off. At that point we will hopefully be more used to getting by with a lot less monthly discretionary income. Maybe we can at least add enough back in to be able to go on monthly date nights again though. But I don't want to get too slack because we still have a lot or work to do. Baby Step 3 is to Finish the Emergency Fund, which he defines as 3-6 mos. worth of expenses. For us, that would roughly be $15K-$30K.
Projecting out both raises and expenses, once we get our small debts paid off, I think we could save roughly $25K/yr. So, that should take us 7-14 mos. depending on how much cushion we want. My thought is that we should save as much as possible, setting aside the minimum $15K to touch only for emergencies, but then factor in the fact that our family SUV will be 15 years old (already has 223K miles) by then. I am fine with driving it until it dies, but its pretty much a given that that is going to be before too much longer (please, please, please not this year!). I am also fine with not getting a new car when it does die. But I would prefer to get something gently used with at least a few more bells and whistles than our current one has. I think we could probably get something 5-6 years old for between $15-$20K.
That's not the only big ticket item we need to save for though. In a few more years, the boys will be ready to start school and I will be more than ready to jump back on the career train. But that is probably going to require a bit of retraining on my part, and I am not willing to take out any more student loans. (Above and beyond the $105K I already put my foot down on of course). So, if I want to go back, which I very much do right now, we will need to save for that too. I am conservatively estimating about $20K for that right now, plus after school daycare (maybe $5K? Though that will be more of an on-going expense), but given the rising cost of education these days, who knows?
The point of all this speculating is to point out that with these extra purchases, the time it takes up to save about $30K for an emergency fund is going to be more like 2-3/4 to 3 years rather than 14 mos. That's a long time. And who knows how many set backs there might be in the meantime. At some point, hubby's car will need to be replaced as well, though it is 5 years newer than the SUV at least. But I guess I'm okay with it as long as we get to Baby Step 4: Retirement Investing, by the time I re-graduate, which I am predicting will be in 5-6 years. If we get to that step before I graduate, then I guess we will start putting at least the company matching amount into hubby's 401K. Actually, if we don't get to that step before 40, we probably should do a lot more than that, and I kind of doubt we will. Once I do graduate and start working again though, we are going to kick step 4's butt.
And then we get to Baby Step 5: College Funding for the kids. Except we're going to re-package that one as college payoff for the adults. By then my daughter will be done with college (or darn well better be at least). Until we get fabulously wealthy, I have done the best I can for her by insisting that she go to a school where she would graduate with a maximum of $40K in debt. Still a lot I know, but less than half as much than me, and within the amount considered reasonable by the income to debt calculators. She hated me for it at the time, but now seems mostly happy.
I am hoping that with a new masters degree I will be able to make at least $50K, although about half of that will probably have to go towards retirement, and the rest will get taxed. But lets just say that after stocking up our emergency fund, we have about $25K/yr extra from hubby's income and $25K/yr from mine. So $50K/yr extra after I start working to do with what we will. (OMG, is that really possible?) What to do with all that cash?? Pay off my damn student loans!! If we stick to the plan, that should take us only two more years. At that point, we can look into some minimal investing for the boys' college (and maybe some back pay for my daughter). But they are going to be expected to chip in as well because we are heading off to...
...Baby Step 6: Pay Off the Mortgage! Honestly, not quite sure what's going to happen when we get to this step because you see, before we focus on paying off the mortgage, we'd like to focus instead of getting the house we'd really like to have. The exciting thing is, once the student loan is paid off, we could afford about $600 more per month for a mortgage without changing anything else. Assuming the market continues to improve, we should also have a fair amount of equity at this point, having lived here for about 11 years. I am not sure yet whether we would rather buy or remodel. It will probably depend a lot on the location of our jobs at that point. There are some things I really like about both this home and this area, but our home was built in the 1960's and it really needs some updating. I think it would take between $175K-$200K to get it to where we want it, and only about 60% of that could be recouped in re-sale value. Whether or not that's worth it will depend largely on what we could get for the same value given the housing market at the time.
I also really like Dave Ramsey's idea of taking out only a 15 year mortgage and keeping your mortgage payment to less than 25% of your take home pay. Whether we decide to buy or remodel, I do very much want to keep those rules in mind. After all our hard work, I certainly do not want to end up house poor. It will be hard to feel like we can't afford just about whatever we want once we've taken care of all that other debt. And I do love big, pretty homes. Nonetheless, regardless of what we choose to do, at that point it should be a maximum of 15 years until we are entirely debt free, and if we continue with the $50K/yr rule, I think we could take that down to 6 years.
Which means this is more like a 14 year than a 7 years plan for us, but by the time we enter our 50's, it is very possible we will have no debt remaining (maybe we'll bump up the boys college fund at that point) and hopefully by the time we hit our 60's we will have reached that fabled Pinnacle Point which will leave us set for a long, happy retirement. Its certainly not a get rich quick scheme. which makes it seem somewhat more believable. Though it will certainly require a lot of dedication and sacrifice. But it seems like by the time the boys graduate from high school, we will finally have both the time AND money to do all sorts of things.
So that's the big picture. And now back to Baby Step 2.