Recently Kosmo gave himself a midlife financial check-up. While I’ve been writing about my financial life for a number of years here, a lot of the details are scattered throughout the site. I think it’s valuable to put it all in one place and give it a look.
One thing to keep in mind as you read this, is that I’ve been writing about my financial journey for 13 years now. I suspect that because you are reading this, your financial life is probably in a good place. However, I’ve found that writing about personal finance may have kept my focus on money more than the average person. It also helps to have a very successful pharmacist wife and some other fortunate circumstances.
This is all to say… don’t be discouraged if your financial life isn’t in the same place. We are typically all at different places in our financial journeys with different sets of challenges.
Having said that Kosmo is an interesting comparison for me personally because we are essentially the same age (43 and 42, respectively), have two children, and share some common interests. There’s going to be some similarity here.
As Kosmo put it, at age 43 (or 42 for me), we’re halfway through this journey on this blue/green marble. (Although it recently feels to me more like a “horrible, rotten slog towards rigor mortis” that he quoted from Sam Miller.)
I’ll use roughly the same template that Kosmo put out. I think it does its job well.
Employment is an area that has been nebulous for years for me. I work on this website, sit dogs, and edit a corporate blog, and do customer service for a cloud service company. However, I think my main job is taking care of the kids and household. My wife’s military pharmacy job has become more demanding in the last couple of years and she’s added other responsibilities like getting her master’s degree online.
She’s looking to take a gap year in the next year or two and simply refocus on parts of her life that aren’t about work. I completely support this, but financially it may need we need to be lean with our money for a bit. The good news is that with her master’s degree, when/if she does go back to work, she’ll be in position to do something in pharmacology business management that makes my head spin. However, I guess it pays a lot of money.
Fortunately when she retires from her military position, there will be a pension and good healthcare options.
So we have some options here. I had planned this in my head for a dozen years and though things have changed with the kids, it’s not uncharted territory.
Immediate cash flow
We have actually been living paycheck to paycheck for quite some time. It’s a little embarrassing to say that as a personal finance writer.
However, we also spend $23,000 on the kids private school and another $8,000 a year on my wife’s online master’s degree. We have 4 mortgages that are at 15-year fixed rates (refinanced at low 2012 levels). We do collect rent on 3 of them, but they barely break even. We sacrifice a little cash flow for bigging gains in building equity and appreciation. We’ve had some surprise condo assessments that haven’t made it much easier. Our own primary residence with mortgage, maintenance, taxes, etc. is around $36,000 a year.
Add up the education ($31,000), rentals (~$3,000), and primary residence ($36,000) and we have about $70,000 in big expenses each year. That’s all after tax money. In any kind of financial emergency, we could make some changes (postpone education, refinance to 30 year mortgages). We have our cars paid off. I’m a very frugal grocery shopper. We do have a bigger than normal vacation budget, which is another place we could make some changes.
With the big expenses, it has been difficult to increase savings. We also put a lot of money in our retirement accounts. Some people say that counts in savings, but it’s not in a way that helps with immediate cash flow.
I look at the big expenses as quality investments in our family.
I covered a lot of this above, but I can go a little deeper. All the 15-year mortgages with finish up around 2027 (within a few months or so). At that time, the 3 rental properties should start to throw off enough money to pay off almost all of our other living expenses (especially since the primary mortgage will be gone as well). By that time, we’ll be back on car payments as the cars in New England snow and salt don’t typically last 15 years. That should be manageable.
My wife and I did well with our college expenses back in the day. I got a full scholarship. My wife went to a state school that provided a very reasonably priced pharmacy degree… something that she was able to pay off not too long after college.
The kids will both get great scholarships due to all the money we’re paying for private school, right? If only it were that easy. My wife’s GI Bill will cover half of college expenses unless they go to private more expensive schools. We are saving a little extra money on the side, but as noted in the immediate cash flow section, our other expenses don’t allow for it. We’re hoping that the money from the rentals will cover any gaps. After all, we’ll still have my wife’s pension and hopefully the other income I’ve been able to bring in (though the form may change).
Would we be better putting the private school money in a college fund and going with public school? That’s an interesting question. I’m hoping that there’s an education snowball where investing young pays big dividends down the line. By the time you get to college, it feels like a large part of your education is decided. We’re also betting that we can do both.
We would also like for them to pay for part of their own way so that they have skin in the game. You can read more of my college thoughts: College Costs: What We Owe Each Other.
I’m not expecting that we’ll get any need-based financial aid, but I haven’t looked at the FAFSA too closely. I did note that our rental properties would probably prevent us from trying to be in a lower-income bracket (which we probably wouldn’t be anyway.)
We had been maxing out our retirement accounts for a number of years, but the hope is to never need them. We may be able to do well with my side businesses, rentals, wife’s pension, plus whatever she decides to do that might make money. We expect there will be Social Security, even if it pays less, because some people will still be paying in. At age 70, we’ll probably have to take RMDs unless there’s a tax trick in there we can use. (Maybe something like a QLAC.)
We have a good amount of life insurance. It’s term life to cover expenses through the kids’ age 20 or so. We’d probably need to work out a deal with the kids’ school if we wanted to continue that in the case of an untimely death.
It’s possible that we are far enough into financial independence that we might be able to get by without life insurance, but I can think of no good reason to leave that up to chance.
Once my wife gets to her pension, we’ll very likely purchase some pension insurance. It will reduce the amount of pension she’ll get, but it will be great piece of mind that our family has that amount of locked-in income.
Keeping my eye on the ball
I’m stealing Kosmo’s outline and this is an appropriate one. He’s tracked the growth of 529s against projected college, balances of various accounts at retirement, and estimated expenses. He has a set with and without Social Security.
That actually sounds little more than I’ve done. We’re further way from college. We have the GI safety net, rental properties, and some 529 savings. It’s kind of a melting pot of assets that should be significant.
“How much is college going to cost?” is another question entirely. I did some math in 2012 and it would be a good exercise to update that with 2019 numbers. (I’ll try to get to that soon.) With a little more wisdom, I realized that college planning is impossible, but you should do it anyway.
I keep a spreadsheet of expected balances at retirement like Kosmo and an estimated list of necessary expenses over the next 45 years. I did it for 45 years, because our expenses now are going to be drastically higher than in 2035 or so (no mortgages, no college expenses). That allows me to come up with some kind of average, which is a little more useful (even if we don’t live in the average at any particular time).
The main message of Kosmo’s here is that he’s done the planning and is continuing to plan.
That’s one of the reasons why I started and continue to write this blog. I’ve done the same. I’ve let you in on my financial thoughts and journey now for years. You can see an example of the things that work and things that didn’t work. Though your journey will be different, it’s possible that you incorporate some of the same things and achieve your own financial goals.
Overall, I’d say that things have gone a little better than I really could have expected them to be financially. While I had always wanted to retire early, I never had a net worth goal in mind. And at the time of starting the blog, I didn’t know all the things I didn’t know. That’s a good thing, because I learned quite a lot along the way.