Lazy Man and Money

My Estate Plan Journey (Step 1)

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Regular readers may know the drill – I spent the summer focusing on dog sitting. It was an extraordinarily good time to make money with everyone getting a pandemic dog and then traveling with vaccines. I didn’t think I’d be doing this much dog sitting in October, but it hasn’t stopped. For this reason, some of my articles have been a little brief.

My wife has been wondering if it’s time to retire. The answer to “where do we go from here is “one more year.” This will give us time to tie up a lot of loose ends, dot the i’s and cross the t’s… and any other cliche that you can think of.

The military has had a couple of good seminars and she’s starting to have some confidence in the steps. I’ve only been preparing for it for fifteen years, but I guess some “Dan guy” who doesn’t know our money situation sounds trustworthy. I’m not bitter, not one bit. Well, as you can tell, I am, but it is kind of nice to have her interested in finances. She’d mostly been focusing on work and now that she’s turning her attention to retirement, she’s starting to realize the position we are in with multiple streams of income and a nest egg that is double what he recommends.

One of his recommendations is one that I’ve been trying to get done for a couple of years now… set up an estate plan. It seems that many of my online blogging friends set theirs up at age 47, so we aren’t too early at age 45. My mother set hers up around age 70, I think. She might have had something set up before that, which I didn’t know about.

My initial thought was to reach out most popular lawyers in town. They already do some incorporation stuff with Lazy Man and Money, so we have a relationship for a couple of days of the year. However, our neighbor across the street is a partner at a firm that does estate planning as well. He’s mostly retired I think, but I see him leaving for the office now and again.

I wanted to give our neighbor the business, but I didn’t want to confuse our friendship. My wife figured it would be fine. We called up the office and mentioned we knew him, but I think they are setting us with someone else at the office. This is perfect because I honestly want someone closer to our age working on it if we are going to keep this for the next 40 years.

They emailed us a PDF of a packet to complete. I remember thinking, “This is going to be easy. I have our net worth for every month of the last decade and all these equations to produce nearly anything they want.” I was prepared!

I was NOT prepared!

There was a list of things to gather such as account numbers. I didn’t include those in my spreadsheets.

Then it asked for the location of our safety deposit box. Ummm, what year is it again? I once asked on Twitter if people still get them and it seems they are very, very uncool.

Copies of insurance policies? I know I must have those somewhere, but that’s going to be a search.

Deeds? Ummm, I guess we have those on the cars. We still have mortgages on the real estate though.

I went ahead and started to fill out the packet without all this stuff. At the very least, I should be able to get my name and address areas completed. However, after that section, I found I could the next section and the next one. Sometimes, I had to stop and look up some information online, but I was able to get a good amount done.

The Big Initial Surprise in Setting up an Estate Plan

I knew that somewhere it was going to ask stuff about guardians and health proxies, so it’s not a surprise. However, the depth of the questions certainly made me realize that I hadn’t covered as many bases as I thought I did. In a lot of ways, this is an excellent exercise to plug up the financial holes in our plans. These holes are mostly administrative. They aren’t the kinds of things that I write about on this site because I find them very boring. Sometimes the most important things are boring.

I’m not sure if getting an estate plan is right for you, but it may be worth looking into it. I imagine you’ll learn a few new things about your financial situation.

After I get this packet into the lawyers and we review it, I’ll be back with another article about the next steps. I anticipate that some of these are personal, so I’ll try to generalize the things that would most apply to this broad audience.

Our Next 5 Years of Expenses

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expenses

Today I wanted to look at our next several years of expenses. Most people are probably fine with looking at one year of expenses. However, we have two Big Financial Events (BFEs) colliding that will drastically change our financial picture. In 6-7 years, we’ll finish paying off our primary mortgage and two investment property mortgages. Around the same time, the kids will be graduating from their expensive private school. That may translate to ditching $50,000 in investment expenses while adding $25,000 in income.

That’s a great BFE down the line, but we have to get there first. So let’s look at where our money goes until the BFE.

[Note: You might be asking, “Why did you choose 5 years in the title?” Well, choosing 6-7 years just looks weird. I think there’s more value in people looking at 5-year chunks anyway.]

Expense 1: Kids’ School

Currently the kids go to private school. It’s an exceptional school. In one of my kids’ classes, two of the ten kids’ parents are public figures with an estimated net worth of hundreds of millions of dollars. You could call it the best education that money can buy.

We are lucky to get a large military discount. We think it’s a good value even though it is clearly still very expensive at $25,000 a year for the two kids.

I realize it is a great privilege to send your kids to a private school. We’re very frugal in a lot of other areas, so we’re okay with investing in our kids’ education.

School Annual Expense: $25,000

Expense 2: Housing (and Rental Properties)

We have our primary residence and 2 other rental properties on 15-year fixed mortgages. The idea was to front-load the expenses while we were making good money, pay less interest, and not have to worry about mortgages in retirement.

We recently sold one investment property (via a 1031 exchange to limit taxes) and bought another one closer to where we live since it would be easier to manage. The good news is that process reset the mortgage for 20 years so now it is cashflow positive as opposed to the other two slightly negative, cashflow properties. Between maintenance and such, we can probably consider the three investment properties – all in an LLC to be cashflow neutral. In around 6 years, we should be able to bring in around $25,000 in additional income. In the meantime, we don’t have to plan any significant annual expenses due to the income from the tenants. (This could change, so we need to keep an emergency fund for it.)

Our primary house though is a big expense. We have about another 6 years on that mortgage. I’ll round it up to $3000 a month to make it $36,000 a year. In fact, I’ll bump it up a little more to include some maintenance. (I’ll be adding some extra money to pad all the expenses at the end, so let’s not quibble about whether this enough padding for now.)

Housing Annual Expense: $40,000

Expense 3: Transportation

I haven’t looked at our transportation costs in a long, long time. I typically don’t worry about breaking it out, because we do the best we can – there’s no fat to trim. We’ve paid off our cars, but they are 7-8 years old now. We are the type of people to drive our cars into the ground. The timing of paid-off cars is good because we can probably get by without a car payment until the mortgages (noted above are all paid off)

Of course, there’s more to transportation than just the car. I’ll budget another $3,000 for gas, maintenance, insurance, etc.

Transportation Annual Expense: $3,000

Expense 4: Food

Food is like transportation. I don’t typically look at the numbers because I’m frugal with our shopping. Fortunately, we have an American Express card that gives us 6% cashback on groceries. Since we use that card for food religiously, I can look up our annual spending on the card and use that number.

In 2020, we spent $6,253.28 on groceries. In 2019 we spent $5,585.16. So on average, we can expect to spend $6,000 on groceries. However, our 7 and 8-year-old boys will probably eat more, so I better boost this up to $8,000 to be a 6-year average.

Our restaurant spending is a little more difficult. We do have a credit card for that, but for some reason, Chase disables the year-end reports for that one particular card. I added up each month’s statement from 2019 (restaurant spending in 2020 was off due to the pandemic) and found that we spent about $8000 there as well. As we found out in 2020, this is an area we can cut back on if we ever need to.

Food Annual Expense: $16,000

Expense 5: Healthcare

Healthcare is provided by my wife’s work. It comes out of her paycheck, so I don’t notice it. It’s great for now, but my wife will likely retire within the next 6-7 years. It’s a good idea to include this category to plan for that scenario.

We can get Tricare for Life, which is relatively cheap military healthcare. My wife is an expert in healthcare and it’s her main business to know the economics of this stuff. It looks like the deductible is $300 per family with a catastrophic cap of $3000. It seems like most other things are covered in some way.

I have to admit that I don’t understand any of these things. Maybe I should read “Healthcare Plans Explained for Dummies”, but I know this is our best option, it’s cheap, and my wife knows all this.

Healthcare Annual Expense: $1000 (but no more than $3,000 – I think?)

Expense 6: Miscellaneous

I’m adding $15,000 to the final number for things that I’m just too lazy to add up. That can include the kids’ extracurriculars, kids’ camps, house cleaning service, utilities (lowered by our solar power), landscaping, emergencies, entertainment, vacations.

We’re fairly frugal with some of these items. We can stretch our vacation dollar with our Aruba timeshare and stored up airline miles. We can also use numerous military perks in retirement. We can skip some kids’ camps if we have two adults around all day.

Miscellaneous Annual Expense: $15,000

College Savings

It may seem weird to spend tens of thousands of dollars on a private school for a first grader and save next to nothing for college – yet here we are!

The reality is my wife’s GI bill can effectively cover half of the college expenses for both kids. We have some money already saved for college and a little time for it to double. We’ll ask them to cover some expenses so that they have “skin in the game.” After the BFE in 6-7 years, we’ll have more cash flow for college. Hopefully, they’ll get some grants and scholarships – they better for all we are spending on their education now, right?

In reality, we’ll save more than $0 as we have been doing, but we don’t need to factor this in as a requirement.

College Annual Expense: $0

Final Expenses

Here’s what our expenses look like in a table:

Housing$40,000
Schooling$25,000
Transportation$3,000
Food$16,000
Healthcare$1,000
Misc$15,000
Total$100,000

I’m certainly making that $15,000 Miscellaneous section do a lot of work, but that nice, even $100,000 number is so damn attractive. I definitely let the tail wag the dog to reach that number.

If we presume a 20% effective tax rate we’ll need a pre-tax income of around $125,000 before taxes. That may be a bad assumption of taxes, so it’s a question that I’ll have to ask our tax preparer.

While that $125,000 sounds like a ton of money, after the 6-7 year BFE, it would effectively be closer to $45,000 – with $25,000 of income from the rental properties. That’s a lot more manageable, especially with our other income sources.

Why These Expenses are Important

You may have caught a hint of why I’m going through this analysis. It was originally intended to be part of a bigger article analyzing a bigger question. Expense analysis is a critical factor in determining if you can retire.

Next week, we’ll revisit these numbers in a larger context.

The Financially Independent Baby

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invest baby money
Look at all this money!
Thanks to a tip from Joe at Retire by 40, I learned that Bill Ackman recently wrote about an interesting idea. I joke that Bill Ackman is my best friend because I met him once. Maybe Bill Ackman is a reader of this blog, because his idea is suspiciously close to something I wrote about several years ago.

Here’s is Bill Ackman’s idea:

“There are a number of potential solutions to this [wealth inequality] problem. Among them, the government could establish and fund investment accounts for every child born in America. The funds could be invested in zero-cost equity index funds, be prohibited from withdrawal until retirement, and could compound tax free for 65 years. At historical rates of equity returns of 8% per annum, a $6,750 at birth retirement account – which would cost $26 billion annually based on the average number of children born in the U.S. each year – would provide retirement assets of more than $1 million at age 65.”

To bring you up to speed, but the wealth inequity problem that Ackman writes about it is the fact that many, many Americans do not own stock on equities of US companies. The ones who do own stock, presumably all the readers here, have seen their wealth grow greatly. Those that have not owned stock have not enjoyed compounding wealth. They gotten left behind with stagnant wages, rising health care costs, and other systemic problems.

Mr. Ackman’s idea is simply to have Uncle Sam ensure that every new, tiny American human will be included in America’s corporate financial success.

A one-time investment of $6,750 to (somewhat likely) solve America’s financial retirement crisis?

Count me in. That’s why I wrote about this article five years ago. My projection was that we’d need only $6,622, but I like that Bill decided to round up to a more even number. (I’m leaving the projected growth rates in place, even though they may be aggressive in 2020.)

It’s very hard to get the government to act on an idea that is so big. Millions would complain that it would raise the national debt which is already sky-high. Millions more would say that it lacks fairness as they didn’t get a million dollars at retirement. These criticisms are fair and worth discussing. I think there are solutions to these complaints, but that’s an article for another day. For now let’s agree that the government isn’t going to just approve Ackman’s idea overnight and save every baby’s retirement.

In other words, we are going to have to try to do this ourselves…

… And because I like to go to extremes, rather than trying to solve retirement, why not solve all of a baby’s biggest life milestones.

The Financially Independent Baby

I had a crazy idea yesterday in 2015. Let’s imagine that a blessed baby was born today. For lack of a better name, we’ll call him Baby Gronk.

The parents of Gronk aren’t what you’d call traditionally rich. They live a frugal lifestyle and have saved up some money over time. What they lack in excess money, they make up in wisdom… wisdom of personal finance and compound interest.

These parents decide that they are going to use that personal finance wisdom to spoil Gronk by covering some of his major life expenses on the day he is born. (While I believe that little Gronk should learn to “financially fly on his own”, we’ll leave those personal decisions to the reader.)

The question is, “How much should they put aside to cover all the expenses with life’s major milestones?”

Gronk’s parents proceeded to make a bunch of assumptions, many of which will turn out to be wrong. That’s the nature of predicting the future. Their plan is to use the information they have at their disposal to make the best possible estimates and adjust as time marches forward.

They also realize that if their calculation is a little off, Gronk will pitch in the difference. They aren’t going to let a quest for perfection stop them from a great attempt.

First Car (Age 16)

Gronk’s parents have set up a budget of $6,000 for his first car at age 16. Using the rule of 72, they realize that their money may reasonably double when Gronk turns 8 (a growth of ~8.5%). They also realize that it may double again when he’s 16.

Working backwards from their budget, they decide to put aside $1,500 hoping that it turns to $3,000 (age 8) and $6,000 (age 16).

College (Age 18)

Gronk’s parents decide to make this calculation easy and limit this expense to tuition. Yes, there are going

The big question is whether Gronk’s parents want to fund in-state public college or private college. The price difference between the two is huge. Public in-state tuition is ~$9K while private is ~$31K. Multiply that out by four years and it is either ~$36K or ~$124K.

Since the calculations are so different, Gronk’s parents decide to do the math separately.

Age 18 is very close to the age 16 exercise with the first car above. However, it’s just different enough that Gronk’s parents decide to break out a calculator instead of using the rule of 72. They use the “y to the x” key to calculate compound interest. They specifically type in “1.085”, “y to the x”, then “18” to arrive at 4.34… a key number we’ll use. The 1.085 comes from projecting a 8.5% growth on the current investment (the “1”).

Why pick 8.5%? Your guess on the growth of the market is as good as mine. In 2020, I would adjust this lower. I originally went with 8.5% because it was reasonable enough (near Ackman’s 8% assumption) and it was a convenient number coming from the car example above. Now that you know how to do the calculation, feel free to substitute your own growth assumption.

This tells us that every dollar we invest will yield 4.34 dollars… giving our assumptions and uncertainties in the market. We can mentally check this using the above example of doubling, and doubling again. Double a dollar once and you get two. Double it again and you get four. In this case we have a little more time (two years) so it’s a little more than four, 4.34.

Now that we think we can grow one dollar to $4.34 in 18 years, we just need to divide our total expenses…

… for public in-state college, we’d need to roughly put aside $8,300 ($36,000/$4.34).
… for private college, we’d need to roughly put aside $28,571 ($124,000/$4.34).

What’s interesting to me is that this almost comes out to exactly one year of tuition. In fact, if we used an expected return of 8% it comes out to exactly one year of tuition.

It’s impossible to say whether Baby Gronk’s parents should plan for public or private school. Perhaps they could plan public school, because they are already going far above and beyond what most parents would ever do. It’s not too much to ask Baby Gronk to bridge the gap to private college with financial aid if that’s a decision they make down the line.

Wedding (Age 25)

The average cost of a wedding varies greatly. Since Gronk is just a baby, the parents use this to estimate $30,000, a nice round number.

They use the same math as in the previous example and realize that at 8.5% growth a dollar is worth $7.69 in 25 years. This means that they need to put aside $3,900 at birth to pay for the wedding.

(We’ll ignore outdated traditions of the bride’s side of the family paying for it. Additionally, we’ll presume Gronk’s parents want to pay for the whole wedding instead of half. Or we can keep the traditions and calculate the wedding expenses for Gronkette.)

Down Payment for First Home (Age 25)

Who buys a home the same year they are married? I’m not sure and neither are Gronk’s parents. Sometimes people buy homes before they get married and sometimes they get married before they buy homes.

Since we have the same age and the same interest rate, we have the same growth of a dollar – $7.69.

Gronk’s parents decide to put in the 20% down-payment and not buy the house outright. (They’ve already spoiled him more than enough as it is.)

They think a starter home should cost around $200,000. This depends greatly on where they live and what they agree is a starter home. The parents may have to adjust this to their area of the country. The parents budget $40,000 which is 20% down on that $200,000 home.

Anticipating a dollar grows to $7.69, they realize that need to only invest $5,200 to cover the $40,000 down payment.

Retirement (Age 70)

Up to this point, many would say that Gronk’s parents are ridiculous. They don’t care. Instead, they say, “In for a penny, in for a pound!”

They estimate that Gronk will want to retire at age 70. That’s where the trend is nowadays with improved health care. They start with the rule of 4%. This rule of thumb suggests that one can withdraw 4% of his/her investments to live for 30 years. (This is an over-simplified version for the sake of this exercise.)

They realize that they need to get him 2 million dollars at age 70 so that he can withdraw $80,000 a year (4% of $2M) to live off of.

Getting Baby Gronk 2 million dollars sounds absurd, but Gronk’s parents realize that time is on their side. At 8.5% growth, a single dollar grows to $302 in 70 years.

Let’s pause for a minute. In a previous version of this article, I didn’t calculate the inflation and just added it at the end as an apology. That’s simply not good enough with projecting things 70 years in the future. Inflation is huge over that time.

How big is inflation? Typically it is around 3% a year. That means a dollar growing at 8.5% a year really only has only 5.5% more buying power. So if you do 5.5% over 70 years, $1 can have the buying power as $42.43, not $302.

They divide $2,000,000 by $302 $42.43 and realize that they need to put aside $6,622 $47,136 at his birth to cover his entire retirement. That’s far more than most people have around. However, Gronk’s parents could choose to fund a retirement of only $40,000 instead of $80,000. They could also spread it over a few years.

Final Thoughts

Smart readers should be screaming “Shenanigans!!!” I didn’t factor inflation in any of the examples above. You got me. I also didn’t factor in taxes. These are very significant. Gronk’s parents might end up having to put twice as much in. Or they may have settle with the idea that they are only covering 2/3rd of all Baby Gronk’s major life expenses. My guess is that they’ll sleep well enough at night if it is the latter.

The idea of this exercise was never about complete accuracy. It’s impossible to accurately plan out a person’s expenses at birth. Instead, it was about illustrating how the idea of applying compound interest at birth could work.

Let’s add up all the expenses:

Car – $1,500
Public College – $8,300
Wedding – $3,900
First Home – $5,200
Retirement – $47,136
———————–
Total – $66,036

If Gronk’s parents were able to put aside around $66,000 at Gronk’s birth, he’d have most of life’s major milestones covered. To be clear $66,000 is a lot of money. However, for a lifetime of near financial freedom it isn’t as much as you might think.

This article was originally published Nov 23, 2015 at 12:15 PM

Do I Need a Certified Financial Planner?

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For decades now, I’ve been studying personal finance. It’s gotten to the point that sometimes, I don’t know if I have anything new to add. In fact, one my goals this year is to organize the 2 million words I’ve written… maybe cut it down to a million words that cover all the major points.

(Don’t worry I intend to keep a back-up of my articles around if you are curious about my money thoughts on March 8th, 2007… and I know you are!)

After all of that, that title was surprise, even to me. I think the answer is, “Yes, I do need a Certified Financial Planner.” However, it’s probably not for what most certified financial planners typical do. I have a few advanced questions.

I’ll cover the advanced question that sent me down this rabbit hole in a minute. For now, let’s consider a simple possible conclusion. If I can benefit from a CFP, there’s a strong chance you can too… or maybe not.

Why See a Certified Financial Planner Now?

The simple answer is that my finances were easy. There were a set of relatively basic rules and we had the income to cover them. For example, we maxed out retirement accounts and invested them well. We bought rental properties and built and empire. I’m extremely good at saving money on all sorts of expenses from food to clothes to electricity (solar panels).

It’s all worked out very well, much better than we could have expected…

…and that’s the “problem”

Our finances have gotten fairly complex with the diverse number of income streams we have. It’s made me start to look at things that many people perhaps should not focus on. One of those things is income tax. As our money continues to compound and snowball, we may reach higher tax brackets. I don’t mind paying my fair share, but I don’t want to give them any more than I have to. I’ll play the game that they created to pay less taxes if I can. Also, if the government is going to act like it currently does, well I don’t want any part in funding this absurdity – or any more than I legally have to.

I’d rather:

  • Donate to charities that I believe in – in the best possible way.
  • Leaving behind a financial family legacy
  • Maximizing the amount of sunsets, museums, and any other wonderful things I can fit into this short life

Details of the Financial “Problem”

I keep putting “problem” in quotes because it’s a situation at least 99% would love to deal with. The issue is about optimization. If we make some mistakes with our money, we’ll likely still be in tremendous shape. However, we’ll limit those three things of above and have less money for them than we could have.

I’ve already mentioned my biggest concern. It’s taxes.

Many of the personal finance writers who retire early have saved up a lot of money when they were young and are living frugally off of the investments generated by those savings. They earn a low income, but it’s enough through their frugal activities like travel hacking, geographic arbitrage, and owning a home in a low property tax area. This low income can often be so low that they pay very little in taxes.

(Note: Some criticize them for not paying their fair share, but I’m not going to pass judgment. Don’t hate the players, hate the game, right?)

This is a tremendous plan for them, but it’s not likely to work for us.

My wife’s pension alone is substantial already. There’s no tax trick to make it look lower. We have investment properties and the income from those could be substantial as well. We may be able to reinvest that money in upgrades or further real estate, so that income doesn’t get too substantial. However, we’d like to be able to use that money for things like college expenses.

The biggest thing coming down the road is our investments. We’re 43 now and after years of saving for retirement in those accounts, they are doing quite well. We might not touch them for another 30 years, meaning that they’ll be very big when it comes time to take them. Many are in TSPs, SEP-IRAs, and Rollover IRAs (from 401Ks), so we’ll have to pay taxes on them then. We could be in a high tax bracket.

Most people who retire earn less in retirement, so their tax bill on deferred taxes is less. I have a feeling ours could be more. A certified financial planner could give us a second educated view into all this.

One thing that intrigues me is that the taxation of qualified dividends is very low – potentially even zero. It’s quite possible that it’s better to hold stocks (including ETFs) outside of our tax-deferred accounts. It looks like we’d only pay 15% maximum on the income from these dividends vs. the 28% (or more) that we’d have to pay when it comes out of tax-deferred accounts.

All of this goes into main financial question of the year (so far): Is it okay not to save for retirement?

Of course, we’d still be saving, but doing it in a way that potentially allows us to pay fewer taxes in the future.

This all me a case of me overthinking things. (I have a tendency to do that.) In this case, getting a second opinion can only be seen as a positive thing, right?

And that brings me to my original thought, “If I can benefit from a certified financial planner, there’s probably a good chance you can too.”

Fact Check: Money Magazine’s “I Saved $100,000 in 3.5 Years on a $54K salary”

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A couple of days ago, I was reading the September issue of Money Magazine and found an interesting article: “I Saved $100,000 in 3.5 Years on a $54,000 Salary.”

The article in the magazine is a substantially different from the online version. It was the print version that pushed me to write this… I only looked at the online version as a means of conveying the print version. That (print) version leaves out a critical phrase of “from 2004 to 2008 before she was married” at the beginning of the article, which is extremely important context. I’ll dig more into this at the end of the article.

My mind immediately starting doing the math on saving $100,000 with a $54K salary. That seems like a huge amount especially on that salary. With the aid of a calculator, it looks like Bola Sokunbi salary was $189K over 3.5 years. If I presume a 20% tax rate, it is around $150K in take home salary. That’s an exciting savings rate of around 66%. Wow! Great job!

It would seem that she lived on the remaining 40K for 3.5 years. I really need to know more about this! Everyone’s life circumstances are different, but maybe I can learn some new frugal tips.

As I started to read the article, Money Magazine’s narrative unraveled.

Sokunbi works in New York City and commutes from Hunterdon County, N.J. BestPlaces.net has the cost of living at 134. That’s 34% more than the national average. Translation: It’s not a cheap place to live.

She has twin 4 year olds. As a father of a 4 and a 5 year old, I can say that childcare is expensive. I think it could eat up the 40K alone in 18 months, especially when considering two children… especially in a place that a high cost of living. It’s not the kind of thing that you can be frugal with… it’s almost directly paying someone else’s salary. It’s not the kind of think you’ll get a discount on… and even if you could, would you want a discount on childcare?

So the expenses seem to be high. How could Sokunbi make it work? The article mentions in passing that her husband is a doctor. I’m sure having a spouse who is a doctor doesn’t factor into the finances much… or at least that seems to be what Money Magazine thinks.

What else could be a factor? She launched a website 3 years ago that made $25,000 in the first year. That’s not in the salary number. We don’t know what it made in the next few years. According to the article, “She developed it on the side for a year…” We’ll get back to this in a bit.

Does she have more income that’s not salary? Yep, her wedding photography business brings in between $3,000 and $5,000 per wedding.

This is where I stop and stress that I’m not criticizing Sokunbi. She’s obviously working extremely hard and making a number of great financial moves.

I’m criticizing Money Magazine’s title and premise, because the $54K annual salary is extremely misleading. There’s probably another $65,000 between websites and wedding photography. I’m conservatively estimating just 10 weddings a year ($40,000) and the $25,000 from her website (presuming the income didn’t grow from the first year). So that’s around $120K before we factor in what her doctor-husband makes. If he makes $200K (probably not unusual for a doctor in that area), that’s a household income of $300K a year.

If my assumption of a household income of 300K a year is wrong, I apologize. However, the article doesn’t seem to give us a better household number to do a real income/expense analysis.

At least the article does mention that Sokunbi’s mother paid for her college so there’s no student loan debt to worry about. I didn’t see any information about student loan debt for husband, which could significant considering that he’s a doctor.

Let’s dig a little deeper, shall we?

“None of Sokunbi’s friends were saving as aggressively as she was right out of college. Some were making twice what she earned and saving nothing at all… Another tailwind was the fact that she didn’t have much time to spend money. She travelled a lot for work during the week and began a side gig as a wedding photographer on the weekends.”

I find this confusing. The article title sets a focus on the timeline of the last 3.5 years. However, this anecdote seems to go back to the time after graduating college, which the article states was 2004. In the context of the article’s title (“saved $100,000 in 3.5 years”) I thought that travelling for work and being a wedding photographer was part of the “saving $100,000” equation. It wasn’t until I thought, “Hey she had two twin 1 year olds 3.5 years ago, how does ‘traveled a lot for work during the week’ logistically work?

(That’s not to say that it couldn’t work if someone else caring for the twins, but that’s information that I would have liked to know.)

Let’s get back to the Clever Girl Finance website and her “salary.” The Money article also states:

“Two years ago, Sokunbi quit her consulting job to focus on the business full time.”

Well, that undermines the whole 3.5 years of a $54,000 salary, right? It seems like we are looking at 1.5 years of the $54,000 salary, plus whatever the undisclosed amount Clever Girl Finances has made in the last couple of years.

I feel like Money Magazine put me on a roller coaster of mystery income and expenses.

Finally a Lesson!

Yes, “Finally a lesson” is borrowing from one of my favorite cartoons Finally a Lesson about investing in real estate to earn passive income.

After writing all this up, I decided it might be best to go to the source rather than Money Magazine. Fortunately, Sokunbi has explains how she saved $100K on her website.

It seems that most of my confusion here is caused by the context of the prit article. From the source, Sokunbi, it seems the article is cover two different times. The saving of $100K in 3.5 years seems to be about 2004, after college. The stuff about today, well… that’s not relevant. Please forget about the doctor-husband, kids, and the website. Perhaps she didn’t live in NJ at the time either.

Given the true source of the information, we get new, important information (besides that Sokunbi can completely rock a white dress):

She “got a raise and a bonus every year and got promoted raising my salary by the end of the 3.5 years to ~$74,000 (which was really ~$52,000 after taxes).” It seems to be completely false that she “Saved $100,000 in 3.5 Years on a $54K salary.” Even aside from all the misleading stuff I mentioned above, the salary was not $54K for 3.5 years. In addition, the author of the Money Magazine article seems to omit the mention of a bonus. It’s not a big bonus ($1500 after taxes), but it’s “still something” in Sokunbi’s words. It buys a lot of Ramen which seems to have been her food of choice.

The next critical thing missing from Money Magazine’s article is that the money is 401K, which includes her employer’s match. That’s pre-tax money, and free money, which is important context.

Next we have:

“This was also before the last major US recession and so the money I contributed had grown because the stock market had been performing pretty well.”

That 401K had really grown due to the timing the stock market as well. It’s not “saving” in the context of “contributions”, but more of a net worth thing. I’ve been fairly sarcastic here, but if invested $15K in Facebook around $25 (a target=”new” href=”https://www.lazymanandmoney.com/ask-the-readers-is-this-trading-or-investing/”>I did buy Facebook stock at this price) and it grew to $100K, is that really “saving $100K?” I don’t think so.

There’s more:

“I lived at home for six months after graduating from college before moving into my first place which helped me really kickstart my savings because I was able to save most of my pay for those six months.”

Well this didn’t make the Money Magazine article at all, but even Sokunbi acknowledges how much it helped. This could have been part of “her mother paid for her college education” that was mentioned in the article.

And then there’s this:

“The first year of my [photography] business I earned around $10,000. The second year I earned around $30,000. Subsequent years I earned more.”

This appears to have started in her 2nd year of saving. I’ll ignore the subsequent years, because that might be outside of the 3.5 years timeline. Still, we have another $40K of income aside from salary.

Final Thoughts

There’s so much here that my head is spinning.

If we amoritize the photography business ($40K over 3.5 years) we get around $11K a year. If we take a guess about the average salary (starting at $52K) that “grew every year, plus promotions and the bonus” (my quote not hers), I’d say it’s around 62K (it topped at $72K aside from the bonus).

I think we are looking at around $70K+ income (maybe $75K) and a living-at-home situation which helped her save most of her income. Those savings could be mostly pre-tax in a 401K account that benefited greatly from a bull market.

I need to stress once again that I’m not criticizing Sokunbi. We actually have a lot in common (living at home for 6 months, saving largely in a 401K plan, side hustles including a personal finance website). I’m criticizing Money Magazine for their marketing and confusion about recent stuff (doctor husband, twins, etc.) when they should have covered the story literally a decade ago.

I want to give credit to Sokunbi for working extremely hard and making great financial decisions. At the end of the day, that’s what this article should have been about.