The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.
If you're interested in contributing to this series, then drop me an email. We've had a good number of these lately, but I'm always interested in more.
Next in the series is FMF reader GB. He answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I am a 47-year old, former D-1 basketball player who now works as a teacher, coach and administrator in south Georgia. I am married and have a son in kindergarten. My greatest joys in life are being a husband and a father. I also enjoy working with my students and athletes; I sometimes feel like I am an uncle to about 500 nephews and nieces.
While I was not always the greatest student, I did manage to will myself through four degrees: B.A. in History, M.B.A., M.A.T.L. in Spanish / TESOL and an Ed.S. in Administration and Supervision. I also completed an online Certificate in Financial Planning from FSU. My wife only has three degrees, so naturally I lord this over her every waking moment.
Away from school, I enjoy long distance running, weight-lifting and Pilates. I especially enjoy trail running during the cooler months; there are so many awesome timber / farm roads here. As of January, I have been on the Slow Carb diet, and I have lost 35 pounds without counting a single calorie! This dietary change has greatly helped my running and improved my overall health. This year I plan on running my first marathon. Depending on how I progress, I might also try to run an ultra marathon event.
At home, we watch a lot of cartoons, TV shows, movies and documentaries on Netflix; we have not had cable TV in almost three years. I do not miss cable's high prices and commercials! When I tell people that we do not have cable, I see a combination of disbelief and pity on their faces as if we lived in a cave. Don't worry about us folks; we have more than enough entertainment options. We also use the public library to the max. For example, I currently have 45 books checked out. We pay very little for entertainment ($10 for Netflix), phone ($60 a year for an unlimited Skype plan with “regular” number) and internet ($45). We eat out about once or twice a week.
At home, my wife and I split the cooking duties. Fortunately, we are both decent cooks, so we eat very well at home. My specialties include: jerk pork steaks, curried lentils, and curried chicken. We always have lots of good things to eat at home. (People should learn to cook the dishes they like the most. It’s much cheaper than eating out and it’s awesome to see your fridge loaded with leftovers that you actually want to eat!)
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
My wife and I make about $133,000 together. Our current district does not participate in the Social Security plan, so we got a 6.2% raise by taking this job. Our district kicks in another 5.24% into a 403b pension plan in place of Social Security. In our eyes, that nets an 11.44% raise from our previous school district, so we are very pleased with these financial aspects of our jobs. (We changed jobs in August of 2009.)
In addition to the district's retirement plan, we also contribute to Teacher Retirement System of Georgia. Our monthly contributions are 5.25% our salaries. The GA TRS starts paying out pensions at age 60. Our district also provides us access to optional 403b and 457 retirement plans. The last two years we have both fully funded our 403b and 457 accounts to the amount of $66,000 ($16.5K x 4). We also fully fund our Vanguard traditional IRAs ($5K x 2 = $10K); we both use the 2025 Target Retirement fund. In 2010 we saved over $82K in our retirement accounts, and we are doing the same in 2011.
Overall, we have retirement savings of about $415,000 invested in IRAs at Vanguard and 403b accounts at Vanguard and Valic. We also have $110,000 in Valic 457 accounts which we view as our emergency account since these accounts do not have early-withdrawal penalties like other retirement plans. All investments at Valic are invested in the short-term fixed account earning about 2%. I realize that we are losing money to inflation, but we prefer that option to being subject to stock market volatility AND Valic’s excessive fees. (I used to blog about the issue of 403b fee pillaging, but it was changing my naturally gregarious personality for the worse. Suffice it to say that I think the vast majority of 403b annuity products SUCK due to excessive fees.)
We have a 2,200 sq. ft. home in our previous hometown valued at $160,000. We owe $75K on the mortgage (@ 5.875%) and we owe almost $45K on a HELOC on the home. (More on the HELOC later) We also have $11K in credit card debt that we transferred to a 0% interest credit card (0% until 9/2012). Both of our cars are paid off, so we have no auto loans. We paid off our student loans for graduate school within two years of graduation ($40K). Good riddance to those loans!
In 2009 we took new jobs and began renting our home to a teacher friend. We feel fortunate to have a great renter in our home. The rent pays most of the mortgage, so we have not explored the idea of selling it. We presently live in a farm house that we rent for $750 a month. We are not sure if we will look to buy another home near our current job.
For our son we have contributed $2K in a Coverdale ESA every year since he was born. We also have a GA 529 account with Tiaa-Cref; we contribute $25 a month. Overall, we contribute $2,300 a year to his college accounts. Currently, they are worth $13K. I plan on discouraging him from taking on any student loan debt…what a racket that has become!
What are the current financial issues you're facing (saving, paying off debt, etc.)?
Our first financial concern is to pay off our credit card debt before September of 2012. I am sure that I could get another favorable balance transfer if we still havs a balance, but we are both ready to slay this beast. Next, we want to work on our HELOC balance. Our HELOC and credit card balances got so big when we used them to cover living expenses when moved from our previous jobs in 2009. Basically, we fattened our retirement accounts ($60K in 2009) via debt. I realize that most financial planner would recommend against doing what we did, but we will take care of this problem over the next three years. Currently, the HELOC has a 2.9% interest rate, and we are only paying the interest on the balance (about $110 a month). Eventually, we will use the HELOC and its lower interest rate to accelerate the payment of our mortgage.
For the remainder of 2011, we still need to plow $23K in our accounts to max our retirement savings. At the same time we will pay off at least $6K of credit card debt. Slowly but surely we are making progress towards our goal of having a $1,000,000 net worth.
What are your plans for the future. (retire early, build your career, etc.)?
At some point we would like to take a sabbatical in South America for at least a year. We want our son to learn Spanish and Portuguese, so we would like to get him there while he is still young enough to absorb the languages. As for career development, we plan to continue teaching and coaching but with more frequent “sabbaticals.” I do not see us teaching beyond age 60. Eventually, I hope to write a book about our alternative financial planning ideas. (I keep saying “we” and “our” because if my wife were not financially on board, few of our financial goals would have ever been achieved. Thanks Honey!)
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
Like most people, my financial worldview was shaped a number of influences. The first tidbit that springs to mind is something that Andrew Tobias wrote. Basically, if you do not save money regularly, your income level and investment prowess are both moot points. Saving money is the first step; in our consumer society that step is often overlooked. In some ways, a commitment to saving money is more important than increasing your income or investment return.
From John Bogle, I learned how investing fees can consume your return; consequently, I try to be a cost-efficient investor. Since Bogle also helped me understand how difficult it is to "beat the market," I use index funds (or funds made up of index funds) to "buy the entire market." My favorite financial writers are Scott Burns, Jane Bryant Quinn and Mary Beth Franklin. Finally, I think everyone should read Paul Terhorst’s “Cashing in on the American Dream: How to Retire at 35.” While I did not retire at 35, Terhorst’s book changed the way I thought about money. It really made me focus on gaining my economic freedom through saving and investing. (Thanks Paul!)
Simply stated, my financial philosophy for success is: 1) to under consume, 2) to over save and to over invest, and 3) to almost pathologically avoid taxes and investment expenses (the 15% tax bracket is too much for us and any investment fee beyond 20 bips is ridiculous!). At the same time, I try to keep in mind that money’s value is that it can free up your time and allow you to enjoy life. So far this formula has worked for us.
