In the series Naked With Cash, seven Consumerism Commentary readers share their financial progress on a monthly basis. They are joined by Certified Financial Planners who provide feedback on their journey. Read this introduction to learn more about the series. This month, the participants are discussing education, where applicable.
Anne and Matt are twenty-seven years old, living in the Midwest, with two children. Read their bio here for background about their financial situation. Anne and Matt are on Team Neal, with Certified Financial Planner Neal Frankle. Review their July update for last month’s progress.
Their goals are to strike a balance between putting aside money for the future and enjoying the present and to save enough for retirement. Keep reading to see their net worth report, comments about the report and their progress, and thoughts from Neal Frankle. Following Neal’s thoughts, budgeting expert Jacob Wade from iHeartBudgets offers commentary.
Anne’s comments and analysis
Matt had his first annual performance review with his current company, and it went well. He got solid feedback and a fat raise. I was hoping for 10%, not wanting to get my hopes up. Turns out, he’s more around the 22% mark for the boost, but possibly more than that depending on overtime.
His new annual gross is $158,000 with no overtime, and he’ll earn $52 per hour for each billable hour beyond 40.
My mind is blown. We are blessed way beyond what we deserve.
I’m thinking we’ll leave our monthly spending alone, since there aren’t any standard-of-living updates we’re wanting. There is a one-time purchase on the horizon — Matt has been wanting a bicycle for exercise and fun.
Beyond that, I’d like to ramp up Matt’s disability insurance policy to reflect his new income, open and max out a health savings account for 2013, and pick a savings goal amount for future house repairs and replacement vehicles, then automate saving for those. These were all goals we had anyway, but now they’ll be sped up. The SIMPLE IRA is supposedly still in the works. I hope it’s in place before October so we can contribute this year.
We’re meeting with a CPA in a few weeks to see if we need to do anything differently with regard to our tax planning.
This month, we’re discussing saving for college. Matt and I were extremely blessed to graduate from our state schools with no student loans. We had some credit card debt that we could have avoided if we were smarter. But, thanks to the hard work and generosity of our parents, grandparents, scholarships and part-time jobs (sometimes several at once), we got through school. I think avoiding that debt helped us tremendously when we graduated and were living on a lower income. We were able to pay off our credit cards and car much faster, and build up savings.
We’d like to do the same for our children. Right now, we’re contributing a little more than $5,000 per year to our state’s 529 plan for our two children. We’re getting the maximum state income tax benefit for this dollar amount. After our third child is born later this year, we’ll increase contributions to give the baby a college fund, too. The plan is to have the mortgage paid off by the time our oldest child graduates high school. With 14 years left on our mortgage with no extra payments, this is doable.
Even if we can pay for three undergraduate educations, we don’t want the full cost to be on us. We plan to encourage and require our children to do their part — things like taking Advanced Placement courses and trying to test out of undergraduate classes, starting at a community college for a summer or year, working part-time jobs in high school, through summers and during the school year if possible, and of course applying for scholarships. It has been our observation that it’s best if students have a financial stake in their own educations.
Feedback from Neal Frankle, CFP
Your entire family must be very proud of Matt. Sounds like he is really hitting it out of the park at work. Nice! That salary is really fantastic. Congratulations.
I like that you’ll be leaving your spending as is but will be celebrating this success by purchasing a bike for Matt. Awesome decision.
Your thoughts about the disability insurance are spot on. I would also encourage you to re-evaluate your life insurance coverage at the same time. That’s quite a jump in salary. And when you also consider that a new family member is on the way, it is just smart to make sure your life insurance coverage is adequate. These are two life events that normally trigger a life insurance review.
With respect to a savings goal for maintenance of the home, this is another great and solid decision. I suggest looking back over your history of annual repairs over the last several years and calculate an average. Once you have the number it is smart to automate that savings. My question is; how are you going to do that? I like using auto debits so the money comes right out of my account. What is your strategy?
Your college savings plan is smart -– very smart. I strongly suggest you give your children the same gift you got -– a debt free graduation. But that doesn’t mean that you have to mortgage your right lung in order to pay for expensive schools. Community college is a great start for kids. Introduce them to the concept of work and modest spending. Explain the important of remaining debt free. I had the same attitude with my college age children and it has paid off handsomely. Not only did they graduate college without having any debt, they became debt-a-phobic. I believe that they will try their hardest to always stay out of debt. By adopting this approach, you are really giving your children a fantastic head start in life.
Finally, I applaud your idea of getting rid of your mortgage. Even though rates are very low right now, it’s a huge psychological boost to be debt-free. All in all, I think you are absolutely doing fantastically.
Feedback from Jacob Wade
Wowee! Congratulations on the awesome raise, what a cool surprise! Honestly, with your expenses, current lifestyle and aversion to inflating that lifestyle, you guys are set. Just keep maxing everything out, and heck, maybe even start looking at investment properties to build out your long-term portfolio. As far as education goes, you land almost exactly where we land. My wife and I were chatting about it, and love the idea of having our kids have a stake in their own education as well. That way it’s much harder to take for granted, and it feels more real to them.
Feedback from Luke Landes
After asking the Naked With Cash participants for feedback about the series, I heard that at least some were interested in commentary from me. The experts generally cover everything, but I’ll add my thoughts as well.
Anne, your family is placing a high priority on education, and that’s excellent. You are setting your children up for a successful future, not only through your goals for them for their own education, but by being great role models yourselves. With Matt’s nice salary and the expected continual growth in income once one is at that level, and with your continued attitude towards living within your means, you should have no problem paying off your mortgage, funding retirement, and assisting with your children’s higher education costs.
It seems like you’ve been waiting a long time for the Simple IRA at Matt’s job to kick in. I wouldn’t wait or keep cash on the sidelines. If you have the cash flow, maximize your traditional or Roth IRAs this year, which I think you are doing, and create a taxable investing account designated for long-term growth at a discount brokerage. You won’t get the tax benefit like you would in a retirement account, but you won’t be neglecting the advantage of time.
Your updates each month are inspiring. Keep it up!
Updated August 22, 2013 and originally published August 21, 2013.