What I Do & What I’d like to do - Ahead full Wealth Managment

In this dialogue, I’m going to describe some of the things I’m doing in my financial world. Like many of you my family falls into the demographic of married couple, age range thirties through forties, and we have two beautiful little girls. We absolutely don’t have buckets of cash to invest, but we do have a lot of moving parts and life transitions that make planning paramount. It’s important for me share with you some of my values and opinions so you can better understand some of the decisions I’ve made along the way. It’s also important to be aware that I’m not the only decision maker; my wife has her inputs, and our environment has a say, too. Some key things that are important to me are; continuing my education and building platforms to share that knowledge and those experiences, providing experiences for my girls as they grow up and an education for them in the future, spending time together and traveling with my family, I started a new business and I’d like to see it thrive as a lifestyle practice, and lastly, I do not like debt and want to be free of it (but I understand it’s a tool to be leveraged).

DEBT AND CASHFLOW

When I came out of college, I had significant (like six figures worth) student loans to repay. My private loans had interest rates that were as competitive as you could possibly get them, like barely over prime. My federal loans, I managed to get knocked down to 6% by working with a Fleet and Family Support Counselor through the Navy. This was possible through the Servicemembers Relief Act. Furthermore, I took advantage of a military deferment option on all of my loans, and this was I think, my first mistake. So, I’ll get to what my strategy is today later on, but here is what I think I should have done back then: Since I was newly married and a geo-bachelor (meaning I was stationed somewhere my wife wasn’t), I had very little strain on my budget. But I got sticker shock and didn’t know anything, so I kicked the can down the road. I should have figured out what I needed, how much I wanted to do for entertainment, and dropped every other cent into those loans… They’d be gone years ago.

For us, the math worked out that it made sense for us to refinance my federal loans around the same time we refinanced the house we were living in. The interest rates were super low, we could reduce the term on our mortgage (and still pay less per month!), and it would be easier for me to pay a single monthly amount by combining the several payments; so that’s what we did, I paid off two of my four federal loans from cash flow and lumped the two higher balanced ones into my mortgage. So, I went from 5 monthly payments with interest rates all over the place to one, not including other obligations like my car or private loans. Our mortgage went from 30-year to 15-year. A nice little icing is that interest paid is still deductible in April.

Three years ago, this summer, we moved to our current house. We love the town, the neighborhood, the schools, the property (obviously), and this is to be our forever home, so we bought it. If you think you’re going to move in less than ten years, don’t buy. Do the math before you even start shopping for houses to determine what you can afford without being house-poor, to see the difference of cost-of-ownership versus renting, will it fit your family over the years, etc. In my opinion, it’s a waste of money that you could be allocating to something you value more than the appearance of success through homeownership, if you just rent. Even when you first start having kids, if you don’t think you’re going to be there long enough to recover your investment and build equity, why not just wait? So now we have two mortgages…

and a car loan… and the remainder of my private loans, plus sprinkle a little credit card debt in there. The way I’m attacking these and all my other family expenses, is through a bucket system. I have my static monthly bucket which consists of all my debt and fixed monthly obligations. I have my weekly bucket, this is my “control” cash, used for all those variable monthly expenses like groceries, beers, zoo trips, and movies. The last bucket is my Goals cash. In here, I’ve got retirement savings, the girls’ college, vacation money, etc. The way I filled these buckets is I assigned accounts to them (multiple when it comes to the goals bucket) and I estimated my annual income from all sources, subtracted my fixed obligations from that number, and put it and a little extra into the monthly bucket. The remainder, I used my budget to determine roughly my weekly needs and what I could spend less on (by cutting it, or coupons, discounts, self-control, whatever); that amount goes in bucket number two, and the last bit goes in my goals bucket. This part right here, is where my values come into play because I’m taking a little extra and putting it into my first bucket and I’m not a big fan of trimming the fat on my second bucket, I’d rather just try to earn more. If this were a Ven Diagram, though, my first bucket and third would over lap and you’ll see why in a minute. Inside my monthly cash, I’m using an Avalanche to pay down my debt. This means that I pay the minimum on everything, except the highest interest-bearing obligation I’m paying that little extra I dropped in. This overlaps the third because debt freedom is one of my goals, too. Skipping to that third bucket, I have monthly payments going to 529 accounts for my girls’ educations, a little bit going to cash value life insurance policies (for a hundred reasons!), and believe it or not, I recently stopped contributing to my retirement. Oh man, that’s taboo, I know! But I did that thoughtfully. I need that little bit of cash flow to help launch my new business and stabilize my cash flow until I’m paying myself a regular salary. So, it’s ok to pause retirement savings when you’re young to pursue opportunities or protect yourself for accumulating more debt. I give you that permission, so long as you don’t let it fall off your radar for the future. I review my personal and business budgets and cashflow about monthly to see how well I did and to adjust for any changes in goals or circumstances. What’s also important to note that what Erin (my wife) and I are doing, is that we aren’t living like paupers. Anyone that knows how often we go to Disney, knows that, and we make room for other trips together, too. We do take advantage of discounts where we can. We don’t buy things that we don’t find value in. In fact, I unsubscribe from newsletters and emails regularly because I want everything I see, I just don’t need them or value them. Ironically, I sign up anytime I am shopping for membership (not credit cards or store cards) in order to get whatever deals the retailer may have. We both have a history of driving our cars into the ground; I had my last one for ten years and so did she! So, we only spend on things that are valuable and important to our family like food and Disney trips. In planning, you have two choices when a goal has a shortcoming or not enough funding; save more by spending less, or just earn more. A lot of advisor, don’t discuss this viable option. When we moved, we didn’t sell the other house. I really, really wanted to because I do not want to be a landlord, I do not want the carrying costs of another house, and in the current market my return on investment is more than I can get mathematically selling than renting and depreciation. But I’m coming around to renting it because it will free up cashflow for our other family goals and ease some of the pressures today.

MY PLANS FOR THE FUTURE

I said before that I stopped my retirement contributions. Well, that is only temporary. Every dollar I contribute today towards debt will be reallocated to long-term savings in the future. The majority will be to retirement, the next bunch to the girls’ futures, and the last to some nice vacations with family. My retirement considerations are not as simple as deferring income to get the company match or just putting money back into my Roth while I qualify. The decision I’m going to make will consider funding a SEP or a Solo 401(k) plan, and under the circumstances what will be the most bang for my buck there. Small business owners and contractors stay tuned for that blog because I’ll go through the pros and cons of all of our choices.

I am also working on cultivating additional sources of income and “side-hustles”. One example, is by leveraging my Post-911 GI Bill to obtain my master’s degree. I’m getting additional education which I value personally and professional, plus, my tuition gets paid and I get a small monthly stipend. That monthly stipend helps me offset our family costs while I transition and launch the new practice (thus allowing my savings to stretch further, less risk). As that comes to fruition this Fall, I will work on teaching a couple classes at a local university. Again, not only will this bring in additional income, but helps me fulfill my goal of sharing knowledge with others. It might even help with my girls’ cost of education in the future, too. What I would suggest to you, is that you can’t do what I am doing anymore than I can copy your life, but the approach I think is the same. Identifying the things we value, knowing our numbers, and being systematic towards pursuing the lives we want are things everyone can do at home.

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