Can the MMM philosophy work with certain mitigating factors?

[starfish]

Hi,

I have a question.  Sort of complicated.  I haven't had time to read the whole of MMM's blog yet... not sure I ever will, but here's hoping. 

Here is what I want to know.  When I looked at the post about how he and his wife saved X amount after finishing school, before having kids, and buying their first home, etc... it looked to me like they made a LOT, compared to average income.  And they were in a place where homes didn't cost a lot.  And they delayed having a kid, etc, etc.  What if you are in the opposite situation?

We aren't deep in debt.  We have student loans, but they are being paid down (one by the government, because of our low income, the other by us).  We have only one income, because we have three children.  Neither of us has very high income potential.  There is chronic illness to deal with that further limits income potential.  We live in a city that is very expensive - real estate is out of the question.  What we pay in rent is 1/3 of what we'd pay for a mortgage, even with 20% down (homes are between 600-800K, for a bungalow, unrenovated, small).  We'd love to buy a Triplex, but when they come up for sale, rarely, there is a bidding war we can't win.  We can't leave the city, even for nearby towns because that would be too far from the hubby's job.  The job is a super duper unionized amazing early-ish retirement amazing medical benefits deal.  A job he lucked into as a temp who got hired, and he would not make what he makes with his level of education anywhere else. 

We inherited a modest amount (~60K), plus he has a retirement saving plan his grandpa bought when he was born (~23K).  Our luxuries are few and far between.  No cars, new clothes, etc. 

Is there still hope for retirement?  We can't contribute a lot each year.  Obviously we should save/invest what we can, something is better than nothing, but I wish we could do better.  My father has been saving his whole life and still doesn't feel like he will have enough.   

I'd love some advice.  :)

[Greg]

Stupid question; why does 3 kids = 1 income?  Plenty of parents both work. 

Anyway, lots of people can get by on one modest income, but you'd do better with more income.  Probably always the case.  Renting is ok if it's in the budget.  You could layout your situation following the "case study" model and probably get better answers.

[markbrynn]

The biggest thing that stick out for me is that you say that your husband has this great job with early-ish retirement and great medical benefits. Isn't that your retirement plan?

If it's not, then I suggest quitting the amazing job and moving somewhere cheaper and with more opportunities for a good income (as well as you considering working, cutting expenses, avoiding commuting and cars in general, etc., etc.).

[Alfred J Quack]

Stupid question; why does 3 kids = 1 income?  Plenty of parents both work. 

This would be my primary question as well but the chronic illness would need some clarification on why that is a problem for employent.

Regarding your question about retirement, it doesn't only hinge on income but expenses as well. I don't see any hard numbers so it is difficult to give any advice. Letting everything hang on your husbands current employment is a choice but it does not neccecarily have to be the only choice...

[ender]

Yes it can.

If you don't think so, post your budget somewhere and get people's thoughts. Plenty of people here make a lot less than MMM and his wife did. Plenty of people here also don't buy homes.

[happy]

The MMM philosophy can still work, but it may take longer. you haven't given any details so we can only give vague answers. You'd do well to read the key blog posts. eg "The Best of Mr Money Mustache" in Welcome and General discussion.

The answer to your question lies in this one:
www.mrmoneymustache.com/.../the-shockingly-simple-math-behind-early- retirement

How long it will take you  to retire depends on your savings rate, not your income.

All the factors you mentioned will make it faster and easier,  so whatever you can do to reduce expenses and increase income will help. 

Read enough of the blog to open your mind to  new possibilities. Question all your assumptions.  If renting is  so much cheaper than owning, then rent. Have you actually done the math on moving to a low COL area, with potentially not such a good job?

[starfish]

That's a lot of food for thought.  I'll keep reading the blog.

Further clarification - my hubs suffers from a mental illness, which while under control, causes some limitations to his ability to work.  His unionized job cannot fire him for those, and must make workplace accommodations for him.  There is a savings for his retirement through work -  The report from last year said that at 50~is he could retire and receive about $1000/month.  I didn't know enough to look at the actual RRSP and what it does, at the time.  The health benefits (which we use) have some years equaled $30,000 in benefits.  This year is probably less.  But if he worked for the same income, without benefits, we'd pay for that out of pocket with taxed income, right?  I've thought of taking evening minimum wage work at the local grocery, but I don't think the extra stress on him to take care of family at night on his own would work out well for us.

My husband is also religious - so, if we want our marriage to work, we are tied to communities with an orthodox walkable synagogue.  That really rules out all the small affordable towns outside the city.  There is one medium town, where you can commute to the city, but the commute would be costly and grueling.   Also, our rent in this city is tied to inflation - can't be raised much each year - so since we've been living in the same place for 7 years, our rent is much lower than the market rent for a new lease. 

I stay home because we are homeschooling - the cheaper option than private jewish day school (he wants otherwise).  He is against public school.  Plus, we have a 2 year old, and if I went to work right now my whole income would cover his daycare costs.  But I do have plans for a career in two years - there is a short training program I want to do that would lead to work I can do in the evenings that pays well per hour.  By then the evenings will be easier with older kids, I think my husband could handle it at that point.

I'll probably come back at some point with hard numbers. After I've read more.  We've begun using YNAB to try to track expenses.  Until this year I made a budget in excel that didn't track expenses - which worked well for keeping us out of debt but not for saving up. 

Just offhand - does anyone know if FAFSA student loans can be paid with extra payments to pay down faster?  My husband says they don't allow that - you don't save any interest by paying toward the principle extra. 

[Thegoblinchief]

You can always pay student loans early. But if the interest is below 4%, you'll probably be better off sticking extra money into retirement accounts than paying the debt down.

What about work from home options for you? Not sure what your career/field is in, but if it's something that's amenable to working from home, try building some evening/weekend earnings while the kids are either sleeping or playing.

I homeschool while my wife works a 8-4ish M-F, but then work weekends in retail. It's actually a decent paying part-time job, and my yearly income adds 15-20K a year depending on commissions. All of that money goes straight to debt/FI.

[randymarsh]

Just offhand - does anyone know if FAFSA student loans can be paid with extra payments to pay down faster?  My husband says they don't allow that - you don't save any interest by paying toward the principle extra.

You definitely can. I do this myself and I'm still in school; my regular payments don't even begin until December 2014.

It saves interest because the interest accrues every single day based on the remaining principal balance. Less remaining principal = less interest accrues.

[Greg]

Sounds like some of your decisions are based on your (or your husband's) faith, which is fine if you make that choice, but if it hurts too much financially you might have to make different choices.  Home schooling doesn't preclude working, especially if you do some sort of (or several) from-home things.

I'd look to that temple community for more help, school subsidies, child care, side jobs etc.   

[beanlady]

It sounds like your husband's mental health issues tie you to his current job and expensive area. Another option, assuming he can handle child care, would be for you to take over the wage earning, which could enable you to move somewhere less expensive (that still had a synagogue) and earn more money (it sounds like his is pretty limited). This may not be the right choice for you but it is another outside the box option if financial independence is more important to you than your current lifestyle.

(But you're right, getting there is a heck of a lot easier if you make lots of money, are healthy, married, and don't have dependents.)

[starfish]

Its nice to read all of these options.  Yes, I believe we are prioritizing some things over building wealth - our religious community (they don't have anything to help us financially, but luckily they are ok with us not paying membership), free babysitting from family near by.

If we moved and I took over earning, my income would be less than his is now, without such great retirement and medical benefits.  Its possible that the drop in living expenses would still put us on top...  I got a stupid degree that doesn't qualify me for anything great and puts me in competition with those who have a masters (Environmental Studies).  And I'm ten years out of school, so dated.  I explored working from home, but my skill set isn't going to make me money.  I looked into some online options, like typing, writing, etc... but after reading reviews it looked like they pay a pittance, way less than minimum wage.   

TheGoblinChief - Can you tell me how you manage to get things done?  I'm trying to imagine working evenings/Sundays, but I spend most of that time these days doing all the paperwork/organizing/preparing for the week (and I don't mean homeschool stuff... I mean making meals, packing hub's lunches, etc, finances, phone calls for medical appointments and that sort of thing)  I do what I can during the days, but I find that I can't fit much of that kind of stuff in.  Sunday morning is devoted to grocery shopping (walk there, take a taxi back for $7). 

I'd love to retire when my husband is eligible, if we can't retire earlier.  I really would like to own some land in the country, and live out there, at that point.  Ok.  I think the starting point here is three-fold - keep reading MMM, figure out how to invest what we have (I got it into TFSA's, but I don't know what the process is for investing it), and figure out how much we can save a year and how to increase that.

[CommonCents]

I have a lot of Jewish friends (live in a Jewish community now, went to Penn Law School, and married a non-practicing Jew).  You mention working when the kids are older perhaps.  My understanding that big families are more the norm with orthodox families.  Is it likely that you would have more kids instead?  If so, you should plan for that now.  Can you take in another kid or two for additional income?  Can you get scholarships for the school?

[lcg377]

It sounds like your home setting might make you a very desirable daycare provider for other families in your community! I second the idea of taking in one or two extra kids for a little side-income, while your children are still so young.  :)

[Jamesqf]

Can I be blunt here?  It could work for you, but it isn't going to.  If you want to save, you either have to earn more or spend less (or both, of course).  Your husband's religious strictures are no different (in their effects) from choosing to spend all your income on consumer goods.

[marty998]

Can I be blunt here?  It could work for you, but it isn't going to.  If you want to save, you either have to earn more or spend less (or both, of course).  Your husband's religious strictures are no different (in their effects) from choosing to spend all your income on consumer goods.

Yeah I was thinking that.... It seems like it is deliberately making life harder than it needs to be. I have never truly understood the "suffering is good" aspects of some religions, but I can understand that it can bring comfort to people who are genuinely suffering.

In your shoes I would lock that $60k inheritance away in a portfolio of index funds for 20 years and in the meantime continue to save with the mindset that the pot of gold won't be there in the future. Of course, it will be there, but pretending it's not will stop complacency creeping into your savings habits.

[beanlady]

The reason I suggested moving was for long term income possibilities. It sounded like your husband's income is unlikely to ever substantially increase. But yours could over time even if you started at less to begin with. It is another option at any rate.

[starfish]

Yeah, I can see the impossibility of it all, with our choices and limitations.  They are choices, fundamentally. We could move to, for example, Baltimore, own a house with almost no mortgage and still be in a Jewish area, and then be able to save lots more with even lower income.  I get afraid of leaving family - I don't think our marriage would have made it this far without the family support we've had over the years.  I'm rethinking the nearby city here - Hamilton . Plenty of people commute, and when its not rush hour, it might only add 15 minutes to his current commute.  His job is also paying his tuition to go to school, so that's another savings that should result in increased income eventually.

I don't think I'm willing to give up homeschooling - its become something we all love.  I see the families with school in their lives here, private school, and even on scholarships they are crippled.  The schools bleed you of everything you've got and punish you for what you haven't got.   I don't think we'll have more children - I'm still torn on one more, but after I get my training and career and we start saving.

I don't think I want so much to retire early or build so much wealth in a short time.  I'm ok taking a longer route.  I just want to do what will make it so we can eventually retire at all.  To that end...

You suggested putting the 60K away, basically for retirement.  Do you think that would make more sense than buying a home in this nearby town (for under $400,000 and renting out the basement)?  We might also get some help from our parents to bring it up to 100K down.  I'm not sure if it makes sense to cash out my husbands retirement savings of 23K in the USA from his grandpa.  Its matured, but I'm sure there is a financial downside to that route.

And, is there any article on the blog about what happens to the indexes/investments when the economy crashes?  My father says people lots a lot, even in indexes, if they needed to retire when things crashed this past time.

[Rural]

It could be a problem if you retire right at a crash and if you have everything in index funds, but that's why you should not have absolutely everything in stocks, especially as you get closer to retirement. My parents retired right at the last crash, so they planned to take money out of bonds that they had while they waited for the stocks to recover. As it's turned out, they've had plenty in plain old laddered CDs that have been maturing, and no good reason to put money back in CDs right now with interest rates so low. So they've lived and traveled on that money and have watched their stocks recover just like everyone else who hasn't had to take money out because they still were getting a paycheck.

[Wanderer]

Buying a house with the $60k would be locking all of your wealth into one asset with a massive ongoing liability (a $300-340k mortgage) that you might end up not able to make the payments on, which could lead to a foreclosure. 

I would not buy anything that expensive, and since it sounds like that's cheap for your area, I don't see how it is feasible for you to buy unless you move. 

marty998 suggests using index funds because it's a cheap way to invest in the stock market, and the volatility is limited to the volatility of whatever index the fund is designed to mimic (assuming it's a good index!)  These track the market, so if the market loses 30% in a year, so does the fund.  Yes, this sometimes happens.  But then what happens is the stock market recovers, and the losses are eventually recovered and the investment becomes profitable again.  You just need to have a long enough timeline that you can sustain large drops in value and be able to wait for the money to grow back.  That's why people who are nearing retirement (and not just drowning in money) need to be shifting their investments to less volatile sources as they get older.  People within a few years of retirement shouldn't have everything in a stock market index fund. 

In the 2008-2009 crash, the S&P 500 peak to trough lost about 50%.  But after the crash it actually made some sharp gains in 2009.  People who had money in S&P 500 index funds in 2008 and stayed invested at this point have recovered all of their losses and more. 

I think generally it's recommended not to put money in the stock market that you need within the next 5 years.  If you know you won't touch it for longer than that, the stock market historically has given the best growth. 

I don't know what this 23k retirement fund is, but if it's like most money intended to be used for retirement, cashing it out will involve income tax on the total and penalties for early withdrawal.  What kind of fund is this and how is it invested? 

[totoro]

I think you are doing well.  Living with a spouse with a mental illness is challenging and you are still married and he has a good job.  Those are two very big positives.  You also love home-schooling and I presume your children are doing well with it and you are close to family.

So, I just wanted to say that in your shoes I would not work right now, unless it was to care for an additional child at home, or move.  I would stay put where I was and keep going on a stable path in the lowest stress way possible.  Stress is not good for people with mental health issues and this job is important for your family, as is your marriage. 

I presume you are somewhere near Toronto and prices there are high.  I'm not sure it is a good idea to purchase a home there or in Hamilton - my guess is that continuing to rent is your best bet given that it is affordable and capped and prices might drop anyway.

Read MMM and other books on saving money and investing - the Canadian Couch Potato is a good site.  Research the tax implications of cashing the $23,000.  Then start investing what you can little by little for retirement. 

[frugaldrummer]

My sister does home day care in her home, this has allowed her to be a stay-at-home mom for her two daughters.  You could take in a toddler full-time, or take a couple of older grade-school-age kids that come after school is out.  If you cleared, say, just $500 a month extra doing this, that would be an extra $30k plus interest over the next 5 years in your savings.  If you cleared $1,000 a month by taking in more kids, that would be $60k+ in 5 years.

[starfish]

I hadn't thought of after-school care!  Brilliant, lol.  Whenever I thought of taking children in, it seemed like it would really crimp our style, since we got out a lot.

Yes, we live in Toronto.  Its crazy here.  Homes are not under 500K, and in our neighborhood they are 650K-1.5M.  But our rent is very reasonable, with the caps, as you say.  It seems like investing in the indexes has better growth potential than owning a home in Hamilton anyhow.  There's no compound interest with a mortgage, right?  Well, there is, but in the opposite direction, from people to the bank.   

Does it make sense to eventually invest in property somewhere, if we could save enough up?  Not to live in, but to get rental income, like it seems MMM does?

I also thought that if we wanted to move into a nicer apartment, or a house, eventually, for the niceness, not the money sense, it makes sense to hold onto and sublet our current apartment, because we could charge the market value which would be higher than what we would pay.  Does that make sense to do?  I like where we are living, but it would be nice for our kids to be able to walk out and visit friends and play in the neighbourhood in a more independent way than our apartment allows.

I'm still reading about the indexes and investing.  I need to find out how my husband's Pension Plan through work works.  The report from 2011 we had filed says that he contributed ~2K, and his work contributed ~7K (crazy, right? my dad was flabbergasted).  I wonder if we can or should contribute more... and I wonder if its the best place to invest extra or if we would be better elsewhere.  I should also find out, as you've said, how his american savings plan works, how its invested, etc.  And then there is just the money sitting in the TFSA that I'll need to think about.  I saw there is a Canadian subforum here, so I'll take a look at that next.

[plainjane]

I also thought that if we wanted to move into a nicer apartment, or a house, eventually, for the niceness, not the money sense, it makes sense to hold onto and sublet our current apartment, because we could charge the market value which would be higher than what we would pay.  Does that make sense to do?

Your landlord would likely not be happy to hear that you were sub-letting and charging people the market rate.  I'm pretty sure they can kick you out for that.  And in a tight-knit religious community, that sort of thing is more likely to be found out.

[starfish]

I haven't looked into that, whether its legal or anything.  I know subletting is legal.   It doesn't seem nefarious to me.  We'd be stuck only being able to raise rent that max percentage as well, for however long they stay.  I'd look into it before doing it - and it doesn't look like any time soon.

[CommonCents]

You are assuming that if you move out and talk about subletters, the landlord would keep the rent the same.  I imagine the rent is below market due to 1) not knowing there is rent to capture, 2) desire to keep you as tenants and not have churn.  If you say you want to move out (always wear & tear on that process) and sublet, the landlord will be curious why, and likely raise the rent to eliminate the middleman (you).