Author Topic: 100% debt free life but low income and low assets  (Read 2403 times)

OK

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100% debt free life but low income and low assets
« on: May 24, 2018, 04:01:35 PM »
Hello,

I am posting our case study here - be warned though, it is a bit unusual :-) - we have never in our life bought anything on credit - but our income is low and so are our assets.

We are a family of 5 - my husband, myself and 3 children, 2 teenagers and one pre-teen. We live in Europe.

My husband and myself both work part time (22 hours per week each). I have worked part time for about 15 years now. My job pays a mediocre wage while my husband is only earning quite a low income. Due to health reasons he was unabIe to work for 8 years (he did get state payments during that time though) but has thankfully been able to take on a part time job about 3 years ago. I drive to work (unfortunately ... about 40 minutes ... however, I own a hybrid car which brings down petrol costs), my husband works locally and travels to work by bike.

I have 23 years to go until the official retirement age, my husband has 10 years to go. We will both qualify for a state pension. I will most likely switch to full time work once our children are in college. My husband will stay on working part time due to health reasons.

Due to our situation FIRE will not be possible for us, but as we both only work part time I guess you could say that we already have a bit of that :-)

We are a one car family and own our 2006 hybrid car outright, bought in cash.

We do not own the house we live in but have been renting from day 1. Where we rent at the moment is just right for us and we hope to stay on for at least 5 more years.

We would consider ourselves quite frugal but are prepared to spend more for local / organic produce.

Without much further ado - here is our yearly income based on 2017 figures:

income 1: 25500$ (after pension and taxes were deducted)

income 2: 13920$ (after tax)

child benefit: 5627$

additional child benefit due to low income: 4115$


Our yearly expenses last year:

groceries 9516$ -- Two teenagers! Nough said ...

rent 9145$ -- this is extremely low for our area

petrol 1986$

miscellaneous 1879$

holidays 1676$

clothes 1511$

gifts 1408$ -- (errm, bit shocked about that one, actually!!) within the family and children's birthday parties etc, as our children get older the latter will decrease

car maintenance & repairs & tax etc. 1329$

electricity 1117$

school transport 897$

days and meals out 858$

school (books etc.) 850$

house and garden 783$

heating 724$

treats for my husband and me aka fun money 586$

internet 506$

phones 351$

after school activities 306$

birthday parties/hosting 262$

donations 250$

waste disposal 218$

pet 92$

Assets:

* We own a site that is lying idle. I am not sure of the current market value but estimate it to be around 46000-55000$.

* See above for our car. (Not really an asset as such, I know!)

* Pension attached to income 1 - current value: 6300$ (I cannot access this pension fund until I retire.)

* Savings in various savings accounts: 41000$

Our parents on both sides had money issues and I think as a result we have become debt averse. This means that we never got onto the property ladder as we haven't been able to buy a house outright. We hope to be able to afford to build before we retire - a small 1 bed home, as the children will have flown the nest. Having said that we really like renting, no headaches, no hassle, if something breaks the owner has to fix it. We love the area we live in and would not be able to afford buying here. We are not even sure if we want to build on that site - we might decide to sell it and keep renting. We really like the freedom of renting, too, if for some reason the rental doesn't work out any more or we want to move to a different area (and this might well be the case once the children have flown the nest) we can just move.

A note on education - our children will qualify for college grants, we will not have to pay college fees.

A note on health care - we do not have private health insurance but have some free state cover and live healthily (we are active and eat healthily).

Any thoughts, please? Does anything jump out? We are quite happy with our situation as it is but feel our assets could be higher and more diverse. As we are quite risk averse we have not considered investing (apart from the pension fund, does that count?). I have thought about buying gold but would have to look into it more, any thoughts on that, please?

I would welcome any suggestions :-)

Thank you!

fell-like-rain

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Re: 100% debt free life but low income and low assets
« Reply #1 on: May 24, 2018, 06:03:34 PM »
It definitely seems like there's fat to trim from your budget, but the big thing that jumps out is the food expense. I don't know what food costs are like where you live, but around here, that's a lot of money for 4 people, teenagers or no.

On the other hand, do you have a real need to save more? It doesn't sound like you have major financial goals (other than maybe-possibly building a small house), your needs are covered, you'll be able to retire at the normal time, and you don't work all that much. Unless you have something you want to save for (travel, house, early retirement), there's not a huge need.

Freedomin5

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Re: 100% debt free life but low income and low assets
« Reply #2 on: May 24, 2018, 06:18:00 PM »
Youíre bringing in $49162 after tax. Thatís a very generous income for two part-timers.

The things that jump out at me are the gifts, fun money, holidays, clothes, birthday parties, house and garden (if youíre renting why do you have additional housing related expenses?), and meals out. It all totals up to $6498. Thatís 13% of your after tax income. At least part of that could be put towards savings.

Also, on one hand you say are risk averse. On the other hand you want to buy gold?! If youíre risk averse why not buy a low cost index fund? Donít just buy one thing; buy the entire stock market via an index fund and really diversify.

OK

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Re: 100% debt free life but low income and low assets
« Reply #3 on: May 25, 2018, 03:11:15 PM »
Freedomin5 - Thanks for your comment! Definitely must improve on gifts indeed, I was a bit shocked myself when I copied down that figure. Having said that, some gifts are thank you gifts for people that save us money, like the parent that always brings one of ours to sports events and training and friends that pass on clothes to our children.
House and garden - we are allowed to use wood from the trees on site as fire wood, so we buy wood chopping/cutting/storing materials. We also buy plants and pots etc for the garden. I would put electrical appliances etc under house when doing our expenses.
Travel - we visit close family relations once a year, this is important to us.
I was under the impression that gold is on the up again, thanks for pointing out that it is still risky! I would indeed consider low index funds - must really look into that, total newbie regarding investing!

fell-like-rain - Many thanks! I agree, there's always fat to trim! There's 5 of us though, not 4 :-)
Food wise we are 4 adults and one child, because the teenagers eat as much as us adults, if not more. Also, we buy a lot of fresh good quality produce as food is sorta a form of health insurance for us :-)
True, our goals are a bit vague at the moment - unless you count increasing our assets as a goal in itself?

Freedomin5

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Re: 100% debt free life but low income and low assets
« Reply #4 on: May 25, 2018, 09:22:53 PM »
Good for you for wanting to broaden your investment horizons. And yes, anytime you invest in just one thing, it is considered risky -- it's kind of like putting all your eggs into one basket. Check out jlcollins investment series to learn more about index funds -- it's what I read when I was a newbie about three years ago.

http://jlcollinsnh.com/stock-series/

Good luck!

Also, I wonder if you could find some way to maintain your lifestyle but at a lower cost. For example, give thank you gifts that are lower cost. Can you DIY a thank you gift (e.g., plate of cookies, offer to help chop wood, etc.)?

Or, since you have a garden and enjoy eating local/organic produce, can you grow your own? There are several gardeners/homesteaders on this forum and several threads on growing your own produce. You do have free labour two teens who can help with the garden. That should help bring the grocery costs down.
« Last Edit: May 25, 2018, 09:30:35 PM by Freedomin5 »

OK

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Re: 100% debt free life but low income and low assets
« Reply #5 on: May 26, 2018, 03:53:50 PM »
@Freedomin5  - Thanks for that link, will indeed check it out! We grow some greens plus herbs and have a few fruit trees & soft fruit bushes in the garden but we find the constant battle against wildlife a struggle (birds! wood lice! slugs! you name it!) ... maybe time to put that free labour on to pest control :-)

Wayward

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Re: 100% debt free life but low income and low assets
« Reply #6 on: May 29, 2018, 12:05:55 PM »
If your goal is to increase your net worth you need to increase income, lower expenses, or a combination of both.  As others have stated, almost $50k income for two people working part time is pretty good.  It seems many ďsmallĒ things are adding up per month (misc $156.58, meals out $71.50, treats $48.83, etc.) that really impact your total spending.  Itís excellent you found MMM to start making improvements there!

Annual income: $49,162
Annual spending: $36,250
Difference to invest: $12,912 (26% savings rate)

Iím in the US so my investment knowledge in your country is limited, but some things to research are:

*What are the tax advantaged options in your country (pre-tax 401k/IRA equivalent)?
*What options do you have for low-cost index funds (Vanguard equivalent)?

Other thoughts:

*What is the interest rate on your savings account?  If itís not keeping up with inflation, you are losing money!  That $41,000 needs to be working harder; keep enough for an emergency fund of about 6 months or so, and put the rest to work in investments (not gold!!).

*If you don't already, track spending more closely (bi-weekly or monthly) and keep an Excel or similar, that way you have time to make adjustments.  Make yourself a budget so you know your target spending per month.  Set up savings goals too (perhaps with a small treat for reaching goals to make it fun); it's really motivating for me personally to see my investments rise on my Excel spreadsheets!  You can also get your family involved, especially your children so they can learn about budgeting/finances.

*If you are not planning to do anything with the idle site you own, I would look into selling it and putting that money into investments as well.

The good news is you have great potential to drastically improve your circumstances!  Don't let family issues and fear hold you back :)

elliha

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Re: 100% debt free life but low income and low assets
« Reply #7 on: May 29, 2018, 12:34:11 PM »
If your kids are teens, why not full time now and not wait until college? If you don't want to go full time, is there a chance of part time but more hours. 22 hours is not a lot, I have never worked less than 30 hours a week and I have small children (in daycare).

I think that high quality food is a good thing to spend money on but I would still advise you to be smart about it. Compare prizes and if you are a regular customer with a certain seller/farmer perhaps you could get a discount. I do get not wanting to do too much about food costs if you really feel you get good value for money but think about it at least.

Clothes sound a bit high to me too. Second hand clothes may be an option, and to hold on to the ones you have and not buy more. Most people have tons of clothes, much much more than what they actually need.

As to gifts and such, discuss it with friends and family and offer not to get anything from them for your own birthdays and see what they say. I have done so and several friends and family members have said that they don't want anything either, they have all that they need. It can really open up a new way of seeing birthdays which has only been positive to us. If I do find something I really want to give a friend I give them that but no gifts of obligation anymore for the most part and everyone is happy. It is one of the best things I have ever done.

OK

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Re: 100% debt free life but low income and low assets
« Reply #8 on: May 29, 2018, 02:50:55 PM »
@Wayward -- Thanks! I have looked into low index funds in my country a little bit since it was suggested here and have to admit that the whole thing is WAY too complicated for me. Even if I manage to buy funds the whole tax issue is so complicated and you are right there, that's where fear comes into play, I don't want to get in trouble for tax reasons! Arrgh! I might talk to my bank or a financial advisor, I feel I have no other option, no way am I going this alone, totally out of my depth. :-(  /// Savings accounts vary, best rate is 3% at the moment. /// Happy to report that I do our expenses once a month! /// If only I could decide regarding the site! I keep putting off a decision. It's an emotional thing so I just have to put my rational hat on for a change. Easier said than done but I will get there!

@elliha -- Thanks for your reply! I don't want to work full time at the moment :-) Tax wise it makes sense to work less and I also find life really busy as it is :-) Right now, part time work suits me down to the ground but once everyone has flown the nest I might feel different. Another 5 years to go at least! /// We already get some second hand clothes - our biggest expense are shoes, they are growing out of them so fast! /// The no gift option sounds fantastic! Won't get out of birthday party gifts for school friends (it's very much the done thing around here) but will indeed suggest it to some family and friends, I have to agree, so many of us have everything we need, it's the logical conclusion to stop the madness.

elliha

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Re: 100% debt free life but low income and low assets
« Reply #9 on: May 30, 2018, 03:12:04 AM »
@Wayward -- Thanks! I have looked into low index funds in my country a little bit since it was suggested here and have to admit that the whole thing is WAY too complicated for me. Even if I manage to buy funds the whole tax issue is so complicated and you are right there, that's where fear comes into play, I don't want to get in trouble for tax reasons! Arrgh! I might talk to my bank or a financial advisor, I feel I have no other option, no way am I going this alone, totally out of my depth. :-(  /// Savings accounts vary, best rate is 3% at the moment. /// Happy to report that I do our expenses once a month! /// If only I could decide regarding the site! I keep putting off a decision. It's an emotional thing so I just have to put my rational hat on for a change. Easier said than done but I will get there!

@elliha -- Thanks for your reply! I don't want to work full time at the moment :-) Tax wise it makes sense to work less and I also find life really busy as it is :-) Right now, part time work suits me down to the ground but once everyone has flown the nest I might feel different. Another 5 years to go at least! /// We already get some second hand clothes - our biggest expense are shoes, they are growing out of them so fast! /// The no gift option sounds fantastic! Won't get out of birthday party gifts for school friends (it's very much the done thing around here) but will indeed suggest it to some family and friends, I have to agree, so many of us have everything we need, it's the logical conclusion to stop the madness.

We do gifts for school friends too and our kids get birthday gifts but I try to make many of them things they need. My daughter starts school this autumn so we will give her a wrist watch, back pack and pens and such as part of her birthday presents on her birthday in July. My son also has a July birthday and he will be 2 so he will get a second hand fire truck instead of a new one because he doesn't know the difference and it is in playable condition and we don't cry if he breaks it. If my children want to give up gifts themselves at some point I will support them but I expect kids to be kids and want gifts.

I do understand why you don't want to work full time, it is truly great to have time for yourself and your kids. I hope to do so from time to time until they are 8. In Sweden you have legal right to reduce your hours down to 75% until they are 8, after that it is up to the boss to allow it. I don't want to do so permanently but for 3-6 months at the time so I can relax a bit and have fun with the kids and then work more for a while and focus on work. I do like my work and my kids so that is a nice compromise for us. My husband might also reduce hours once he gets a more permanent position.

Wayward

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Re: 100% debt free life but low income and low assets
« Reply #10 on: May 30, 2018, 08:38:29 AM »
@Wayward -- Thanks! I have looked into low index funds in my country a little bit since it was suggested here and have to admit that the whole thing is WAY too complicated for me. Even if I manage to buy funds the whole tax issue is so complicated and you are right there, that's where fear comes into play, I don't want to get in trouble for tax reasons! Arrgh! I might talk to my bank or a financial advisor, I feel I have no other option, no way am I going this alone, totally out of my depth. :-(  /// Savings accounts vary, best rate is 3% at the moment. /// Happy to report that I do our expenses once a month! /// If only I could decide regarding the site! I keep putting off a decision. It's an emotional thing so I just have to put my rational hat on for a change. Easier said than done but I will get there!

You don't mention which European country you live in, but you could try posting under the investor alley section for specific information for your country (someone on this blog may live there too).  Also, perhaps there is specific information online if you search "investing options in (country)" or "reaching financial independence in (country)" or beginner investing books?  If you could get pre-tax deductions from your pay that would help with taxes.  Otherwise, finding a reputable fee-based financial adviser could be good for you; research any products they try to sell you and watch for high expense ratios! 

Please keep in mind, investing information can be complicated and scary at first.  Don't let that stop you and keep reading as much as you can; none of us start out geniuses at investing, many (myself included) had to learn the hard way.