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Naked With Cash: Laura and Leon, February 2014

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Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Laura and Leon earn more than $124,000 a year together. Currently, their goal is to tackle their student debt. Right now they don’t have children, but they are considering starting a family soon. They max out contributions to tax-advantaged retirement accounts and are actively trying to change their financial habits so that they are ready for a possible family and for retirement. (Read last month’s update.)

After reading Laura and Leon’s comments, you can read commentary from Roger Wohlner, CFP. Roger Wohlner appears courtesy of The Chicago Financial Planner.

Laura and Leon’s Net Worth Statement

Laura and Leon’s Income Statement

Comments and analysis from Laura

The month of February saw the largest month-to-month jump in our net worth since we started keeping track around December 2012. This is mostly due to the fact that the markets went up quite a bit and we received our tax refund of $1,355 between federal and state.

There’s also a possibility that due to a peculiarity in how Mint processes our accounts, I may or may not have been counting my 2nd monthly paycheck in our net worth on previous months. This could account for as much as a $1,700 swing from one month to the next. I will try to be more consistent from here on out but I think this is a good lesson: even with great tools you still have to apply some critical thinking to your finances in order to make sure everything makes sense.

In other news, I was granted a raise starting February raising my salary to an even $64,000 a year, though this was below the 2% baseline extended to the department in general. My boss was frank that I had some performance issues last year, and though I am improving, I need to step it up a bit more. He agreed that we could revisit salary if I reach a point where my PE stamp has demonstrable value to the company.

I’ve only been working with the company for about two years, but I’m wondering if it’s time for me to start looking for a place more suited to my career desires. My current job relies heavily on project management, and engineers at this company function as jacks-of-all-trades-but-masters-of-none. I personally prefer the more scientific side of applying engineering theory to a design.

I recently ran into a friend of the extended family who is an established engineering consultant in the area and we had some really great conversations. I may start by contacting him to see if he can recommend me to anyone in the area who would be willing to hire and mentor a new PE. The hard part is that I suspect no one will be able to offer nearly as much in compensation as I’m earning now, so this is really going to take some serious thought about what I/we really want for career and family.

Now on to our topic du jour, insurance. My philosophy on insurance is to consider what would happen if the item or person in question were lost. Would it be financially devastating or could I weather through it?

As a good example, if our apartment were to catch fire, the costs to replace all our furniture, clothes, electronics, kitchen essentials and other items would be beyond what we could afford without disrupting our life goals. For that reason we carry renter’s insurance which covers a bit of liability plus household replacement up to $20,000. Conversely, I don’t pay to carry extra insurance on my engagement ring; even though there is tangible worth to this item, the real loss would be sentimental, not monetary.

Our auto insurance coverage falls somewhere between these two extremes. The one car is a salvage with very limited resale value and we only carry liability for it. The other car is currently covered with collision and comprehensive insurance; it wasn’t that long ago that losing and replacing this car would have been highly financially detrimental. However, as I look at our current numbers, I believe we would be able to buy a reasonable replacement without breaking the bank, so I think I’m going to drop this coverage level when our contract renews in the next few months.

We’re also at a point where it doesn’t yet make financial sense for either of us to carry the big million-dollar life insurance policies. We each have equally lucrative careers and a lifestyle that can be reasonably supported on just one income. Our employers offer some complimentary and optional group rate insurance, so I have about $190,000 on myself and Leon has about $100,000 on himself. While it would be emotionally devastating for one of us to lose the other, this level of payout is plenty for the survivor to adjust to life and move forward without disrupting any financial goals. If we were to start a family or a relative became dependent on us, we would increase our coverage immediately.

For health insurance we have a High Deductible Health Plan (HDHP) with an attached Health Savings Account (HSA). Our deductible is $3,000 and our annual out-of-pocket maximum is $6,100. My employer also contributes $2,600 annually to our HSA as part of our benefits, which is more than enough to cover our usual health expenses. I like the HDHP because our medical bills are really simple (just pay with the HSA debit card) and I know we could afford that maximum if we had to.

I have a suspicion, though, that if we wanted to start a family, it would be better to at least temporarily switch to my husband’s more traditional health plan for the pregnancy and first year of child care. His open enrollment will come around August, so I’ll run the numbers again at that time and we’ll see if it’s worth pursuing.

Feedback from Roger Wohlner, CFP

Regarding your employment situation, I concur that it is time to look for another position, especially given your boss’s comments. I suspect that if your employer needed to downsize, you would be near the top of the list. Further, if the position is not to your liking (which is what I gathered from your comments), I’d offer the same observation I’ve given to my kids: “It really stinks to go to a job you don’t like everyday.” I get the money part, but at some point if you aren’t happy it will be reflected in your performance, consciously or not.

I also agree on the life insurance, but should you decide to start a family, certainly buy coverage for your husband, and for yourself as well (if you plan to continue your career). You should look at a minimum of $1 million in term life on each of you. The only argument for buying it now is to make sure you are covered in the event of any future health issues which might prevent you from getting a policy — or at least a decent rate on your coverage.

I didn’t notice any mention of disability insurance. At this stage of life, disability is probably more important than life insurance. This is “lifestyle insurance,” and you should both take as much as you can get at work.

Feedback from Luke Landes

Congratulations on your biggest net worth jump since you began tracking! Whether it’s due to the stock market, a tax refund, or day-to-day choices, it’s still a nice accomplishment.

I understand your frustration in your job. I can’t speak to the culture in your company specifically, but when raises and bonuses are on the line, suddenly middle management is more critical of employees’ performance. It’s worth exploring your options to find a job that’s more satisfying.

The fact that you’re thinking ahead regarding your health insurance coverage as you plan your major life decisions — specifically, starting a family — is a great sign for your future financial stability.

Published or updated March 29, 2014. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 7 comments… read them below or add one }

avatar Leonard @ The Wallet Doctor

I really like your philosophy on insurance. I think checking in with how devastating an event will be is a good method to decide what deserves insurance and what doesn’t. Very interesting post! Thanks

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avatar Laura

Roger,

I appreciate your point about starting $1M life insurance policies sooner rather than later. We’re in fairly good physical condition now and it makes sense that we can lock in good rates.

As for disability, I can get Long Term Disability insurance through work that will cover up to 60% earnings but I’m not sure if Leon has such options available to him. I will have to wait until next Open Enrollment before signing up for such services. Personally, I’m not convinced that amount would be enough to qualify as “lifestyle insurance” if my disability came with increased medical costs but it would be better than nothing.

There are a few other minor benefits I’ve not yet brought up. I currently get Accidental Death and Dismemberment insurance through work. This only pays out $50k and must be related to a workplace injury or fatality. I am also entitled to 13 weeks of sick pay which can be used for any short term illness or disability.

I’m curious though, what is our individual risk of suffering a disability? Obviously we’ll all die eventually (though hopefully not for a long time) but disability seems like such a remote possibility by comparison and the benefits just don’t seem that great. This was the same reasoning I used when I turned down optional Flood Insurance and Earthquake Insurance back when we owned a house. I appreciate the notion of being prepared for anything but there some possibilities that are so remote that I just don’t see the value. Where in this spectrum would the potential for disability lie?

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avatar Mr. Utopia @ Personal Finance Utopia

This is my first exposure to your story (haven’t read prior updates), but I see that you are being pretty aggressive against your student loans. Having been in a similar situation a few years ago, I can say you guys are doing the right thing. Getting them all paid off will feel like an immense relief. Keep at it!

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avatar Laura

Thank you so much for your encouragement. I followed your link and read a little bit about your story and I must say I’m quite impressed. You say you and your wife used a system where you lived on one of your paychecks and paid down debt with the other.

My husband and I are using the same system with a slight twist in what I like to call our “Racehorse Method”. I pay most of the living expenses while he focuses mostly on paying down debt. Initially, his goal amount for each month was relatively small, then grew significantly the 2nd year, and will jump again when we enter the 3rd year for a sprint toward the finish line. This has so far worked out great. We weren’t sure if we could handle payments that size at first so we got to ease into the process and feel like champs every time we beat our own monthly goal by a little or a lot. My projection is that we’ll be completely paid off in July 2015.

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avatar Mr. Utopia @ Personal Finance Utopia

Whether you ease into extra principal payments or dive in head first, the key is to attack the debt aggressively. You’re doing that, so you’ll be to the “promised land” before too long. When you’re repaying, it seems like it takes forever, but afterward it feels like it went by pretty fast. And, then, you get to use your “extra” money for better things like investing!

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avatar Ivan Widjaya

It’s nice seeing how your financial situation has improved from the last time I read your story. I agree with Mr. Utopia. You are doing a good job in addressing student loans first. I can only see good things happening. I’ll keep on reading.

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avatar Kacie

For us, we feel like it’s more likely my husband would need to file a long-term disability claim than a death benefit in the next 20 years (we hope he needs neither!). But just all the random crap that can happen to someone and make it impossible to work. And he works at a desk, so it’s not like he’s a tree-trimmer or anything.

Get the term life insurance policies in effect *before* becoming pregnant. Otherwise your premiums would be higher and if you want them lower, you’d have to get a new policy after baby. I did that. Pain in the butt.

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