I’m just a couple weeks into this website and now is the moment of truth. I have decided to come clean about our own finances and where we stand financially.
Since June 2017 was the first month for this blog, I’ll give you a snapshot of where we stand, and then list our goals for the next several months and years.
But first, let me tell you a little about me personally. I’m a 41-year-old Father and Husband. My wife and I have 3 children, ages 7, 5, and 3. It’s a crazy household, to say the least. We live in a “modest” home in the suburbs – about 2,000 square feet, nothing fancy. We bought this house in 2009.
My wife is a stay at home mom, which is to say she works a lot harder than I do during the days. I’m an attorney and I own my own law firm. I do well financially, but our income is irregular. I’ve started several “side hustles” over the years, none of which has panned out long term. I will discuss those businesses, and what happened with each of them, in future blog posts.
The purpose of this post is to be completely transparent with my readers. In previous posts, I discussed how much money you would need to retire. For our family, that number is approximately $1.5 million (this assumes we have paid off our house and student loans).
Because I’m a lawyer with a firm, (and am currently looking for a position at a firm), I will remain anonymous until one of two things happens – first, I become financially independent and no longer require the income from my law firm to support my family or second, this blog makes me enough money that I no longer require the income from my law firm.
Our Current Financial Snapshot
Here is how we stand right now, as of today. I’ll start with an overview, and then dig into each asset with more details.
So as you can see, we aren’t in the poor house, but there are definitely areas for improvement. In addition, we are a long way off from the $1.5 million we need to achieve financial freedom.
Here is my analysis of where we are and where I would like to see us get to.
First Things First… The Debt Snowball
The most obvious number that stands out at me when I run this snapshot is the amount of debt we have. I honestly did not realize how big this number was, in part because I never counted my Wife’s student loans in the total (her’s are $84k). Clearly, the majority of this debt is in student loans. You should be aware that both my Wife and I financed our law school education with student loans, (and I financed my undergrad with student loans as well).
Just so you are aware, neither of us have family members to fall back on or assist us out of this financial hole we have dug while pursuing higher education.
I think it is important to point this out because I’ve read so many stories of people getting out of debt by moving back in with their parents and plowing all their income towards their debt by virtually eliminating their expenses.
This is not an option for us as #1, we don’t have any family members that live within a 10 hour drive of us (and as a lawyer, I’m not inclined to take another bar exam and uproot my practice to another state), and #2, even if we did have family that was willing to “take us in”, that would also mean taking in our children. This is most definitely not an option.
Keep in mind, I’m 41 and my Wife will be 40 this fall. We aren’t DINKS anymore (dual income no kids). Our budget is higher and tighter because we have kids and are completely self-sufficient. (We don’t even have grandparents that can help us with babysitting).
I’m not saying this for pity – but when you are reading other articles about how someone saved a million bucks in 5 years or paid off $250,000 of debt in 2 years, you need to read it with a grain of salt. If you have parents or family that can help you and support you while you pay off debt, fantastic. More power to you. But that is not our situation.
That being said, knocking out the debt is our #1 priority in the coming months. And since we are dealing with this on our own, some tough financial decisions will need to be made.
To do this, you can either use a pad and paper and do it the old-fashioned way, or you can use a spreadsheet. I recommend a spreadsheet from Vertex42. You can download it here. (Affiliate link). Just click on the debt reduction calculator. It’s free for up to 10 accounts. If you have more than 10 accounts, there is a small fee to purchase an upgraded account.
Just click on the link for the debt reduction calculator. It’s free for up to 10 accounts. If you have more than 10 accounts, there is a small fee to purchase an upgraded spreadsheet. This is the spreadsheet I’m using to calculate my own personal debt snowball.
Using the calculator above, if my Wife and I can afford a payment of $2,500 towards our monthly debt service, (the minimum payment is $1,432), then we could theoretically pay off all of our debts within 7 years.
As we move forward on our path to financial freedom, getting out of debt is priority number one.
Paying Down the Mortgage
The second biggest priority for us is to pay off our mortgage. I’m currently speaking with an advisor about how to accelerate the paydown of our mortgage. It’s a complicated strategy that involves the use of a home equity line of credit (HELOC), but if executed properly, we should be able to pay off our mortgage within 7-10 years. Currently, we are 8 years into a 30-year mortgage.
An alternative way to accelerate the pay down of our mortgage would be to refinance into a 15 or 20 year fixed rate mortgage and make an extra payment every year. This is another strategy that we are considering, and I have already submitted an application for a fixed rate, 3.1% refinance over a term of 15 years.
One way or another, by the end of July we will have a plan in place to start moving towards paying off our mortgage.
Increasing Our Assets
At the same time that we are paying off our debts through a debt snowball, I intend to continue contributing to our savings accounts and investment accounts.
One way that we can begin to do this is with an app called Acorns (affiliate link). I discussed this app in a previous post on how to start investing with little to no money. Basically, the program will round up every purchase you make to the nearest dollar, and invest the difference into a basket of investments based on your risk tolerance.
If you use my affiliate link, we will both receive and additional $5 in our accounts.
Why the Large Cash Balance?
You may be wondering why we don’t take the large cash balance (almost $40,000) and apply it to our debts to start to snowball them even faster. There are two reasons.
First, a portion of this cash is made up of our safety net fund. So if I have a bad month with the law firm, or we have an unexpected expense (as we did this month with approximately $1,000 in vet bills for our cat who was diagnosed with cancer), then we have cash to fall back on to pay that expense.
Second, a portion of this cash is allocated for my retirement accounts. By September 15th I need to transfer $27,000 into my SEP retirement account. If I don’t, I will have a huge bill from the IRS. But by funding my retirement account, I will receive a small refund when I finalize my corporate taxes.
What’s Coming Next?
So in the coming month, my Wife and I will need to determine how much we can afford to apply to our debt snowball. We will also need to decide what to do about our mortgage so that we can start to pay it off as quickly as possible.
Next month I will bring you up to speed on where we stand, provide you with a new snapshot, and start the process of tracking our monthly net worth.
Is this helpful to you as you move forward on your path to financial freedom? Do you have any advice or guidance about what we should or shouldn’t be doing financially? Please comment below and let me know.