Where we started
We were a Dual Income couple without kids that lived in an expensive city; just like many other SF Bay Area or New York City or London dwellers. High incomes and the jobs that come with it – Grizzly Mom working as a corporate attorney, me working in operations at a tech company.
Along with our friends and coworkers, We worked crazy hours, never saw our friends, barely saw our families. Everything was a never ending chase of MORE: more money, more stuff, more prestige. We were locked on a path that leads to an early grave after accumulating a large pile of expensive crap. Since this is supposed to be a blog about money, let’s get into some cold hard numbers. What did this life look like? Here’s where we started. As of January 1st of 2016:
|Dad’s Old 401k||$12,345||A bit left over from a previous company|
|Dad’s ROTH IRA||$40,848|
|529 Plan||$22,564||Baby Bear’s College Fund|
|House||$1,100,000||Up by about $65k, $0 down – Thanks VA!|
|Liabilities||Student Loans||$(94,677)||5% interest – Thanks Sofi!|
|Home Loan||$(948,576)||3.25% interest – Thanks VA!|
|Total Net Worth||$484,768||Most people would say – ‘Not Bad!’|
34 years old and sitting on half a million dollars. This was the product of diligent saving and investing. We’ve only been anywhere near our current salaries for a couple years (Unfortunately, Army Lieutenants don’t make as much as tech executives). But we’ve always maxed our 401ks, IRAs, and I managed to sock away a little bit every year in a taxable Vanguard account. That $485k represents our previous 10+ years of savings starting from the day we left college. Starting early helps. Never forget this simple truth. Start early, save often.
|Income after tax||Monthly (Dec 15)|
But now we’re bringing in a ton more. Going to business school and law school at Stanford will do that. Our current income is over $300k per year after tax. But where was all that going? Unfortunately, after we left grad school we did something we had avoided during my years in the army – we let our lifestyle expand. Below is our spending as of December of last year:
|Student Loan Interest||$400|
|Lawn + Cleaning Service||$230|
We were spending over $200k per year. This could support 4 normal US households. Or 20 normal human households. I’m a big guy, but not that big. When we started looking at it this way we realized just how much we had let our lifestyle expand as we climbed the salary ladder. Net we were saving around $100k per year. Compared to most folks this is doing very well. But our goal is to achieve financial independence by the time our daughter turns 3. That’s two years from now.
Time to Financial Independence
|Target net worth (how much we would need at current spending levels)||5100000||$204k * 25, 4% annual withdrawal assumption|
|Financial Independence Year||2035||Starting with our $428k and saving $100k per year, 7% return|
Not so good on that front. But at least we’ll be able to visit her in college – kids love that! Sure, this is assuming our salaries don’t go up. But the BIGGEST assumption was that our lifestyles wouldn’t go up. That is a terrible assumption. There is always a bigger house, always another trip, and always another Tesla to buy.
I’m showing all of this to illustrate a point. We made high salaries, but it wasn’t enough. We let our lifestyle expand. We made a lot of money, but every day still started with us packing our daughter off to daycare and ended with us both exhausted. In order to actually make our goal, we’d need to make some changes. So let’s see if we can do better… see you in the next post!