We’ve been through a lot financially. We got married in 2001 with very little debt. I had a student loan of about $23,000 and my new husband had about $6,000 left in credit card debt. He was blessed with no student loan debt and his credit card debt was from living beyond his means and not realizing how much interest he was paying on things he purchased. We got a modest apartment together and began simply by contributing to our 401K’s and we thought that was enough.
Flash forward to 1 kid and needing a house and we decided (bad idea) to use the 401K as our down payment. That was when banks were handing out mortgages. We had a low rate but it was a 5 yr arm and that is not good to do either. So we paid our 401K back and soon were pregnant with a 2nd child and moving half way cross country. Thankfully the job paid for the cross country move but we lost our shirts on the sale of our house and walked away with about 10K in additional debt. We kept paying down my student loan and by this time our credit cards were paid off in full. We probably had about 25,000 total in debt at that time.
This was our 3rd home in Seattle, WA and we lived there for only 18 months- we learned from that experience that if we were going to move again and not sure how long we’d stay that renting was a far better fiscal option. We put new windows in the Seattle home and moved back due to a medical issue so our plan of staying for 5 years didn’t pay off (as we actually checked the house value 5 yrs after we bought it and had we sold then we would have made out really well) so we ended up walking away with a break even on the house and the 19,000 dollar window loan. Really? YUP.
Now it’s 2005 and we move into our “forever home” in Somerset, MA and we begin to rebuild our savings. We have our 401K back up and running and a few jobs later but we are ok. We do not have a financial planner and we simply save money by buying store brands, me staying home as it was cheaper than paying for day care and after and before school care. I planned to return to the workforce in the kids school after our youngest was in Kindergarten.
We did fairly well but our personal savings didn’t grow and in November 2010 we were struck with a horrible medical situation and John- our only income earner was down for the count for the next 9 months. Thankfully he got back to work but those 9 months drained us. We had to borrow money from our parents and friends and some anonymous family members provided funds as well (and as much as we’ve offered they won’t take the money back). This taught us a huge lesson- we needed to figure out how to have a safety net.
I began to read all the books- Suze Orman,Dave Ramsey, and books on how to save money. I realized that we were living beyond our means and that it was ok to say “No I can’t afford that.” We began to make home-made gifts for Christmas for each other and give baked goods to friends and family. That saved maybe a few hundred dollars a year but it wasn’t giving us the 6 months emergency fund that we read about. We would need to save approximately $24,000 in order to survive for 6 months paying the house bills (mortgage, insurance, property taxes), the utilities and food etc. If we were in a real pinch we could move into an apartment and drastically cut costs. We began to be more aware of our money and how we spent it but we were not investing and we were not saving enough money.
Years went by and we managed and in 2013 we moved to Palatine, IL and we were smart as we opted to rent vs. buy. We rented a house for $2200 a month. It wasn’t cheap by any means but it was a known cost and we could work around it. First we began to save $250 a paycheck and it was automatically deducted. I built that up to nearly $1000 a month and in 2 short years we had enough for a down-payment on a house. We opted to buy in the area of town with the less expensive but nice homes and with the lower tax rate. Taxes in IL are insanely high (nearly $9,000/year) but that was a far cry from the $15,000+ for the same size house which was nearly 100 grand more on the other side of town.
By chance one day the doorbell rang, and Derek Wichman from Edward Jones was there. He asked to make an appointment with us about our financial health and we thought- “why not?” Well about 2 hours of education on finances and we were hooked. The upside was that there were really no out of pocket costs to us. We turned over our old 401K and rolled it into an IRA with Derek’s help with Edward Jones. We then began to invest $498 (that is all the extra funds I could finagle) each and every month. The first year we made over $4,500 on our IRA and investments- far more than the piddly pennies that show up as interest ever single month. Our IRA that we originally rolled over was just at 50,000 so we made about 8% return on our investment. This was good news and the first time we let our money work for us. Yes Derek works on commission but it’s like 1.5% and it’s not another bill we have to pay.
Getting a financial planner was probably the best move we made. We are looking forward to saving even more every month. Derek’s advice to us was with every pay increase to invest the money rather than get accustomed to the new income level and we are planning on doing that. We actually did get a small raise and we used that to open up 3- 529 plans to save for the kids college. It won’t add up to much- on our current trajectory we’ll have saved $10,000 per child before they go to college- a far cry from the needed money for college but something is better than nothing.
Next we need to ensure we have enough for retirement. As I’ve read and been advised saving for US is far more important than saving for college. One must in today’s day and age be able to survive without Social Security in case that doesn’t pan out or it goes away. We need a lot more savings in order to be able to live in this house into retirement. We will take each year and any pay raises to invest and we hope that we are financially secure as we age. Meanwhile we are building up that 6-month emergency fund. We are only about $2,500 into it but every penny adds up to ensure we are safe in case of a job loss or medical event.
So be sure to save money- pay yourself first and start earlier than we did. If we had saved just $500 a month and invested in in 2001 we would have a nice nest-egg right about now and we would have no worries about saving for retirement. But for now- we can recover- we are still young enough to save for our future and for the kids. Start saving now.