Author Topic: Advice for Sudden Life Change/ Financial Blow  (Read 5538 times)

crawfishman

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Advice for Sudden Life Change/ Financial Blow
« on: December 03, 2015, 08:51:49 AM »
    Hi and thanks for the help in advance.

    My wife and I are both young (23 for me 21 for her) and were well on our way to an early retirement. We make a combined 102K a year, I am an engineer she is in sales, max out my 401k, have a monthly budget of only 1600 a month, and are saving like crazy for a large down payment on a house. Our current goal was to wait and have children until we had enough saved for retirement, then she would stay home with the children, and I would continue to work until about 35-40 where I would go part time (30hrs a week). At that time I would be making around 50k a year salary and with our retirement savings we would be golden. I could garden/ run a small farm (chickens and goats), help home school, eat lunch with my family everyday, pretty much enjoy our blessings to the fullest. Well, those plans got a wrench thrown into them the other day.

    Just found out my wife is about a month pregnant, we are unbelievably excited but at the same time a little apprehensive/unsure of what the future holds as this obviously changes our plans. So, my question is, how feasible is our plan of me cutting to part time at 40 years old with our income being almost cut in half?

    I currently make 59K a year and my company gives 2-4% raises every year based on performance plus a large raise when I pass the PE

    My wife will be a stay at home mom, but will continue to babysit/run her side business. So, that is a few thousand a year (untaxed, I know that is probably shady but whatever)

    We currently have about 9K in my 401k (I only graduated 7 months ago and paid off all of our debt in the first 3 months)

    We have no debt whatsoever

    We have our 1 year emergency fund in the bank (should I move that?)

    We have about 20K saved up for a down payment on our first home

    I want to work part time (30 hrs a week) in 17 years assuming I can pass the PE in 3 years Ill make about 50K doing that

    Does having our entire retirement saved by 35-40 and then cutting to part time still seem possible?


    I appreciate any advice and will provide any other info yall need as soon as I can.
    Thanks for the help!



FrugalZony

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #1 on: December 03, 2015, 09:13:14 AM »
First of all, congratulations on the baby!
Second, life is what happens while you make other plans ;)
Third, you are WAY AHEAD of the game than most of your peers! Give yourselves a big pad on your back!!

Regarding your plan to buy a house, have you read this yet?
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

You may still be able to make it if you adjust your lifestyle and don't fall for the "having a baby, gotta have ALL THIS STUFF, gotta move into a GOOD HOOD" etc. trap.

Just food for thought!
Congrats again!!

crawfishman

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #2 on: December 03, 2015, 09:22:39 AM »
That was a pretty good read thanks! As far as the house goes, for us it seems to make sense, rent is almost twice the cost of a mortgage where we live, not too many houses are for rent in safe areas, and we would be moving close to my parents who can help with free child care etc. We also really want to have a nice sized property for gardens, animals, children to play etc. As far as the have a baby gotta buy nice things trap, we have already discussed that we will do everything in our power to avoid it! But, it is something to watch out for.

little_brown_dog

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #3 on: December 03, 2015, 09:42:41 AM »
My best advice would be to 1) practice living off just your income for the duration of the pregnancy just to be 100% sure you will still be able to live and save well, and 2) practice living off that 1 income with extra expenses built in to make sure you arenít caught off guard when your expenses increase when baby arrives. Expect costs for supplies, utilities and groceries to increase. Build in extra costs for baby supplies (wipes, ointments, etc), higher water/electric/heat bills (extra laundry increases water use, a parent at home means more lights/appliances used during the day, and many couples prefer to keep the house a bit warmer than usual with a newborn), and higher grocery bills due to a breastfeeding momís need for about 500 extra high quality calories every day. We built 200/mo into the budget to safely accommodate these increases.

I would also add an extra general house expense into your current budget to account for the fact that being a homeowner is often more expensive than being a renter, even if the mortgage is lower than your typical rent costs. Utilities are higher in single family homes, and things are always breaking or requiring fixes/updates.

crawfishman

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #4 on: December 03, 2015, 09:53:49 AM »
Very good ideas I had not thought about the need for extra calories, extra power with her at home, or raising the temp a bit, Which wont be too hard where I live!

Cpa Cat

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #5 on: December 03, 2015, 09:56:38 AM »
Life is about choices. If you two choose to remove your wife's income this early on in your plan, then you're right that retiring early will be a challenge.

If the plan is for her to be a SAHM for the first 2-3 years, then go back to work, it's not really a big deal.

If the plan is for her to be a SAHM for the first 5-6 years, it turns into a bigger deal, but going back to work at 27 isn't too hard - especially with some kind of self-employment on the resume.

If the plan if for her to be a SAHM forever and for you to have more children in the next few years, then early retirement may be a struggle for you. In that situation you're taking the double whammy of cutting your family's earning potential in half AND the added expense of additional children. You'll be faced with decisions about how to balance retirement savings and college savings on only one income.

The idea of cutting your expenses immediately so that you're living on only one income is a good one. That's your life now, and it will be good to get used to it while building some padding into your savings. Get used to that budget before you rush into a house purchase. Make sure you buy a house that is affordable on only one income (if you buy one at all).

With your ages, I would warn against getting pinned to one geographic area. You are early in your career and you may find that you'd prefer the opportunity to move if a better opportunity comes up elsewhere. In fact, with being on a single income, I would encourage you to aggressively seek opportunities that increase your salary.

crawfishman

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #6 on: December 03, 2015, 10:11:54 AM »
I hadnt thought about pinning myself to one location so early on, and not being able to seek better paying employment in other locations. Thanks !

TheOldestYoungMan

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #7 on: December 03, 2015, 10:17:45 AM »
Good luck on the PE.  I think California lets you take the test sooner, if you wanted to try that to get the added income faster. The "large raise" that was promised for getting it amounted to less than $500/yr at the company I was at (after leading us to believe it would be closer to 30%), so be careful about depending too much on that.

I've been using mine on the side to moonlight as my current employer allows that, and am finding that the potential earnings are huge, so your part time estimate may be on the low side if you've got the drive to make it work well.  I made 20k in one week about a month ago, but have had zero leads since then.  Prior to that I was getting maybe an extra 1k/mo.  It varies, and you'd need the temperament to handle that.  Also, collections /sigh.

I don't know what discipline you're in, YMMV.  I can say that aggressively staying on top of your total compensation you should be able to hit 100k by your 30's, especially as a PE.  You will probably have to change jobs to do this, and you will probably have to be an asshole at some point to someone.  I don't know if it's like this in other professions, but people seem to really like not paying for good engineers.

Engineers get busy focusing on the work, solving the problems, and don't remember to demand adequate compensation.  Try to get a feel for the actual value you are contributing (I saved this project $2 mil, project duration is 6 years, I provide $330,000/yr to that project, I have ten just like it at any given time, I'm providing $3.3 mil/yr to the universe, not unreasonable to expect compensation at least 1/20th of that).

And then also:  the spouse won't necessarily want to stay home with the kid.  Everybody thinks they'll want to, but a huge percentage actually hate it and end up preferring to go back to work.  There is so much poop.  So much.  It's important that you sort of go with the flow the first couple years and figure out what your new normal is.

life is short

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #8 on: December 03, 2015, 10:36:59 AM »
First off, congratulations on the baby!

My wife and I are close to the same age as you guys and had/have a similar plan to you. We plan to start having kids in 4 or 5 years when she will quit and stay at home at least until they start school. We make a little bit less than you combined, but are saving ~50%. I have plans to be retired by 45 at the absolute latest, mid 30s at the earliest, probably somewhere in between.

Shortly after getting married we started looking at houses because, "it's just what you do". But finally after looking at a few we were riding around and I finally asked, "wait, why are we buying a house?"

I would recommend you do some research on what it would cost you to buy compared to what you're paying for rent right now. ~1%/yr in maintenance, insurance, higher utilities, temptations to update/addon for higher QOL, property taxes..

If we were to buy we would almost definitely be making a huge upgrade (nice neighborhood, bigger/newer house) and that would mean our retirement plans get pushed back.

It does not always make sense to buy, especially if you don't know that you want to be in the town you're in for 4 or 5 years.

I also think as far as early retirement goes, a mortgage and building equity in a home makes little difference in the retirement date if rent and cost-to-own are similar. A lot of people, MMM included, don't count the principal payment in their expenses, but from what little calculating I've done (especially if you plan to retire well before your mortgage would be paid off) it can slow you down since that money is tied up in your home and not being invested instead.

All that said, I think we will buy a house eventually, but I would recommend you get a better idea of the numbers and decide how important the flexibility of being able to move on short notice is. I also might consider the additional responsibilities being a new home owner entails on top of having a newborn.

I'm not sure any of this is helpful it's mostly the rants of someone who thinks about this stuff way too much. But whatever you decide, good luck and congrats!

Edit: As far as careers go, I am also an Engineer. I only started working about a year and half ago, and had assumed I would stay at the same job at least for 3 or 4 years, but I just recently got a new job making ~10% more with much more potential for growth. Flexibility is important and as others have said, tying yourself down to one place might not be the best idea this early in your careers. Having the freedom to move can mean a huge bump in pay.
« Last Edit: December 03, 2015, 10:45:15 AM by life is short »

TrMama

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #9 on: December 03, 2015, 10:43:19 AM »
Congrats on the baby! With your wife being so young I'd reconsider the idea of her quitting work to stay home. I know it's considered the holy grail around here, but it makes FI so much harder. As Cpa Cat pointed out, the longer she's home the harder FI becomes. Plus, many women (like me) hate it. I was so incredibly bored at home and started turning into Martha Stewart just to have some kind of outlet for all my energy.

I'd try to negotiate a long mat leave (6-8 months) and then have her go back full time. Frankly, it's easier to work when kids are daycare age, it actually gets trickier once they're in early elementary school with all the holidays, professional development days, summer break, etc. At that age, they're too young to be left alone and arranging child care is a huge PITA.

Bracken_Joy

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #10 on: December 03, 2015, 10:56:58 AM »
Following! Congratulations on the surprise =) As someone else said- life is what happens when you're making other plans! We recently thought this was going to be our situation- turned out just to be stress, but BOY do you get creative with the numbers when you think a babe is on its way sooner than planned!

While pay can vary massively depending on living area and specific discipline, $50k max for a PE seems way too low. Have you considered contract work? That's what DH does in EE in an industrial setting, and he doesn't even have his masters or PE yet (they are in progress), but makes $75k+/yr. He also gets to work from home many days, and set his own hours for contracts.

Just be sure you're not limiting yourself by making assumptions about your place of work or your income. Even with a baby on the way, your 20s is when you should be pushing yourself to grow your income and your potential.

Cassie

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #11 on: December 03, 2015, 11:00:04 AM »
Working f.t. with a baby is awful. Everyone is tired all the time and it is hard to spend time with the baby & do everything else that is required when 2 people work.  If she hates staying home she can always go back to work in a few years.  She is young so have lots of time to work-kids are only small once. I stayed home with 3 kids & did not return to my profession until I was 34 & I don't regret it one bit.  I tried working when they were tiny for a short amount of time & it was terrible.  Everyone suffered & I was tired all the time.

Exflyboy

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #12 on: December 03, 2015, 11:17:37 AM »
I second the compensation argument.

I am a Mechanical PE worked mostly in wafer fabs with 30 years experience and could make in the $110 to 150k range FT.

I am currently contracting part time and will easily cross 6 figures on an average 75% time. And this is in Oregon which is not the highest places to be paid.

Like others have said, you need (must) be able to move jobs. I was an engineering manager before I RE'd and know full well they will pay new grads more than the old hands.. like 20 to 25% more!

Every 3 years you should be applying for a new job... I didn't and I know it cost me hundreds of k in lost income.

Get your Linked-in profile done and keep it up to date. You can make it generate a resume automatically from Linked-in (Google resume builder).

At $50k for a PE your way under selling yourself, but of course experience counts for a lot too.

Good luck, read my profile, your way ahead of where I was at your age.

little_brown_dog

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #13 on: December 03, 2015, 12:00:02 PM »
Oh forgot to mention – hobby farming/homesteading is way more expensive than many people think. Our flock of 7 blows through a 50lb bag of feed each month, and home dairying is way more expensive than poultry keeping. Ultimately, I find my birds to be totally worth it (we get a Ĺ dozen of beautiful eggs every day!) but the idea that raising your own food is automatically cheaper than what you can buy is not accurate (especially in regards to dairy). In reality you will most likely break even or spend more on feed and care costs, but you do it because you like the lifestyle, knowing where your food comes from, enjoy animals, etc. Anticipate spending a couple thousand (if not more) per year on your animals, excluding startup costs like building their pens, and try to find a home that has some existing infrastructure that you can use (shed/barn) so you aren't stuck building everything from scratch.

Bracken_Joy

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #14 on: December 03, 2015, 12:09:29 PM »
Oh forgot to mention Ė hobby farming/homesteading is way more expensive than many people think. Our flock of 7 blows through a 50lb bag of feed each month, and home dairying is way more expensive than poultry keeping. Ultimately, I find my birds to be totally worth it (we get a Ĺ dozen of beautiful eggs every day!) but the idea that raising your own food is automatically cheaper than what you can buy is not accurate (especially in regards to dairy). In reality you will most likely break even or spend more on feed and care costs, but you do it because you like the lifestyle, knowing where your food comes from, enjoy animals, etc. Anticipate spending a couple thousand (if not more) per year on your animals, excluding startup costs like building their pens, and try to find a home that has some existing infrastructure that you can use (shed/barn) so you aren't stuck building everything from scratch.

+1. The savings you see is if you compare it to buying yuppie foods- organic, local, free range, etc. It's only cheaper comparing apples to apples. Compared to random stuff you get at the grocery store? Will almost certainly cost more.

(Not that I'm against it. I'm one of those yuppies, so it saved me money when I did it. And it brings a lot of learning and joy. But it doesn't automatically save!)

elaine amj

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #15 on: December 03, 2015, 01:40:12 PM »
You say your monthly budget is $1600/month or $19,200. Even giving yourself a more generous $2000/month or $24k/yr budget (for baby's extra costs), your cost of living is very low.

I don't know if the math will work for you, but putting this idea out there...

If you have an annual income of $60- $70k/yr (with wife's side gig), it may not hurt too much financially for your wife to stay home. You could possibly even consider your wife staying home long term and your doing long-term part-time work instead of FIRE. So 30hrs/week (maybe $50k/yr). That would still give you a 50% savings rate which would give you 17 years (40yrs old) until full FIRE.

Of course, all this is thrown out of the window if you do not manage to maintain your current frugal lifestyle.

Like your wife will be, I was 22 when I gave birth to my DD. I was young enough that I transitioned directly from university to being a SAHM. My DH brought home about $60k a year and we consciously decided to put his career growth on hold until our kids are older. He stayed put at his cushy, stable, low stress job with tons of time available for his family...for 10 years. A few years ago, he went back to school (while still working full time) for his Masters. Last year, he got a new, much more stressful and time consuming job. We are looking at him being able to FIRE in about 4-5 more years. My calculations actually show that we can FIRE now, but we're dealing with OMY. Plus I don't have a firm handle on our annual expenses yet and think my numbers are too optimistic. It was well worth it for our family's quality of life to put his career on the backburner for all those years. Side note: we lived much more frugally back then and did have some lifestyle inflation when I started earning a steady paycheck.

Worth it to think outside the box when considering your future. Maybe FIRE is not the main goal. Maybe it's lower stress part-time work through the years your child is young.

Your wife sounds like a go-getter who will be able to keep building work experience even as a SAHM. I ended up founding a not-for-profit which allowed me to pad my resume with relevant work experience through the years I was a SAHM. That helped me immeasurably when I went back to work "for real".
« Last Edit: December 03, 2015, 10:02:37 PM by elaine amj »

iknowiyam

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #16 on: December 03, 2015, 04:53:35 PM »
Check out Frugalwood's blog. She writes all about financially-savvy baby preparations. In fact, I think she is due like this week or something...

Polaria

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #17 on: December 04, 2015, 05:52:58 AM »
Check out Frugalwood's blog. She writes all about financially-savvy baby preparations. In fact, I think she is due like this week or something...
http://www.frugalwoods.com/2015/12/02/introducing-babywoods/

boarder42

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #18 on: December 04, 2015, 06:06:02 AM »
dude so you spend around 20k a year now
and you bring in 59k ... pre baby you're saving 66% why would you even be considering going parttime at 40 you'll be FIRE'd way before then.

you said you're an engineer.  start doing the math. 

say your baby inflates your life by 10k/year(way on the high side) 

even if you started at 0 savings the day your baby was born you're still saving 50% a year. 

that puts you at 41 years old when you are 100% FIREd and never have to work another day.  But you already have savings and your baby likely wont inflate your life by 10k AND your wife is going to work..

you'll probably keep a savings rate somewhere in the mid 60s with all that info.  putting you FIREd in you mid 30s.  meaning in your late 20s you could go to PT work and still be FIREd by 40.

boarder42

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #19 on: December 04, 2015, 06:08:29 AM »
also 59k for an engineer with only 2-4% raises... you must be a civil or in a very LCOL area.  i'm gonna assume civil if you have huge raises tied to your PE.

crawfishman

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Re: Advice for Sudden Life Change/ Financial Blow
« Reply #20 on: December 04, 2015, 09:00:51 AM »
you actually hit the nail on the head with both of those I am a civil engineer and I live in south alabama.