Author Topic: Three buckets approach: Saving, having a life, leaving an inheritance  (Read 11048 times)

Workinghard

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How in the world do you balance the three? We're still in the accumulation phase but will be winding down on that in a couple of years. Scary thought.

We have sacrificed a lot  for our kid. He's appreciative and never expected or acted entitled. Having said that, I know you can't appreciate the magnitude of something until you've struggled yourself.
Yet I'm torn between wanting to leave him money so he can be financially secure and wanting to enjoy things with my dh.

For those that received an inheritance, how old were you and did it affect/change your life?

For those that want to have a life and leave an inheritance, did you mentally separate the money and only dipped into the inheritance if necessary?

And for those who could care less about leaving an inheritance, was there a certain percentage of your portfolio that you set aside for "fun"?

DocCyane

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I'm not terribly concerned about leaving my nephews money. I would rather help them along the way when an extra nudge might mean a big increase in quality of life -- when their own effort is added, of course.

sheepstache

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Out of curiosity, what are you thinking of as an inheritance?  Is it supposed to make him FI?  Cover a house purchase?  Cover his retirement?  I'm not nearly at this point of thinking myself and am wondering how others think about it.

greaper007

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You make a decent salary as a business owner or employee and live slightly below your means while investing the rest.   Or you make some smart investments or become a savvy hands off business owner.

My dad is 63 and 2 years away from a forced retirement (airline pilot).    He'll walk away with about $5 million.    But, he didn't start saving until he was 30, and had to pay my mom lots in a divorce about 12 years ago.    He always had a really high savings rate though.    And even though he made a really good salary, we never really lived like he did. 

My parents drove mid-level Toyotas and we kept them for 10+ years.    We always took advantage of cheap vacations for airline employees.    My mom bought our clothes at garage sales and thrift stores.   Basically we lived a higher end mustachian life (still had a big house, ate dinner out fairly often and drove everywhere).   

My parents weren't savy, they just plugged away and invested with average financial advisers and now they're both millionaires.   Based on my dad's lifestyle I can't imagine he'll ever spend his yearly investment return let alone the principal.

Workinghard

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That's a good point about helping along the way. And ditto for them adding effort and doing their part!

I'm not terribly concerned about leaving my nephews money. I would rather help them along the way when an extra nudge might mean a big increase in quality of life -- when their own effort is added, of course.

Actually I hadn't thought about those questions! Hmmm. I don't care about making him FI and technically we could probably help with a house purchase depending on the timing. On the other hand I think a little struggle is good. That type of gift might be appreciated more after you have been dealing with mortgage payments, insurance, taxes, maintenance, and then children start coming into the picture. Definitely no on covering retirement. Again, I think there's value in learning to delay gratification and it enhances appreciation. In answering your questions, it doesn't sound like I should worry about leaving an inheritance. Haha.

Out of curiosity, what are you thinking of as an inheritance?  Is it supposed to make him FI?  Cover a house purchase?  Cover his retirement?  I'm not nearly at this point of thinking myself and am wondering how others think about it.

Greaper007, kudos to your parents. After years of living a frugal lifestyle, it's hard to change and not feel guilty when you do spend money.

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Another thing you may (not) want to think about is your own mortality. If you died tomorrow (or just after you FIREd), how much would your kid need? When I retired, I no longer had the automatic death cover insurance I had when I worked. This was no drama for me, but it could be for others. MMM tends to self-insure - and that is fine, if you have thought things through, and have an appropriate will.

What about in x years time - you may want to go through the scenario for 5 year intervals.

I have been thinking about this and trying to come up with a reasonable will for my own situation, and it is hard. I don't want to leave people destitute, but I also don't want to leave a 20 year old with enough money that they never have to work in their entire life. I want them to be able to value their own effort, and any money I leave them.

My great great grandfather left all his money to be divided between his children when the youngest turned 21. Unfortunately by that time, one of his other children had recently died, leaving a 4 year old and a 6 year old  grandchild. They received nothing.

I admit that I am much more worried about having enough to last through my declining years - a great aunt died at 106, and a great uncle at 101. It is amazing how expensive life can be during that period.

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For me its more important to help along the way as long as it doesn't interfere with our Fire Goals.  With 4 Kids in high level sports the cost is ridiculous so right now were trying to accumulate as much as we can to help with college. Our goal is 50% per Kid. I think if the money is invested in them and explained why as you go there is less worry about there needs later on in life. If we are fortunate enough to do better than we expect than we can leave something but right now in this regards I find it more important to live in means to obtain the goals we have set and they can have any icing on the cake.

MayDay

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We don't have a ton saved yet (around 300k right now).  Our will gives money for college provided grades are kept high, and then chunks at different ages, up to 35, I think.  We hope if they do something bone headed with the money at 25, they will learn their lesson by 30 or 35

Speaking as someone who is in her 30's and so far has not received an inheritance, but I expect to in the next the years (amount totally unknown, maybe in the 1-5k range).  Inheriting a small amount will just be out towards other goals.  If we did inherit a large amount, it still wouldn't change anything, would just accelerate FI.  But, we are obviously already frugal people, and have spent 10-15 years working and saving, so we know the value of frugality, hard work, etc.  if we were talking over 5 million, it would probably change our behavior, we would probably start buying fancy things ;)

I think you know your kid best.   You can have a will that does different things based on your child's age when you die.  You can change it if you see his behavior and responsibility change. 

DocCyane

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My great great grandfather left all his money to be divided between his children when the youngest turned 21. Unfortunately by that time, one of his other children had recently died, leaving a 4 year old and a 6 year old  grandchild. They received nothing.


Two things:

1) I am presently helping with the execution of a trust for a woman who died a couple months ago. She made the trust so complex that it may take a year to unravel where her money is and who is legally entitled to it.

The verbiage is literally, "10% for Bob and $5000 for Mary and Joe gets a gold coin and Susie can have a candy dish...."  One heir has Alzheimers and is in a nursing home. (Problem). Another is on state aid and can't receive money without it interfering with her benefits. (Another problem.) Between all the charities and individuals, and the convoluted math (both percentages and flat dollar amounts), there is a lot of room to contest the fund disbursal.

Keep things simple. Her family thinks poorly of her for putting them through this nonsense.

2) My dad has always said he will not try to control us from the grave. Half the money comes to me and half goes to my brother. No strings attached, no age nonsense. Your great great grandpa may have been well intended, but it's all controlling from the grave. And it nevers works out as intended.

Keep it simple and give freely if there's any left over.

BuzzardsBay

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My Mother has mentioned not wanting to spend what she has saved so she can leave something to me.  She's 72 and I'm an only child.

I've told her - what she has given me is the ability to take care of myself.  She saved that money and she should use it to enjoy life and take care of whatever she needs.

CarDude

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #10 on: June 16, 2014, 06:56:19 AM »
What DocCyane said. Look at how many people you want to give money to and divide it evenly between them. The end. For us, I suspect that will be simple division between the number of kids we have.

frugaliknowit

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #11 on: June 16, 2014, 07:51:45 AM »
I would not focus on leaving an inheritance.  Instead, beef up the retirement savings as much as possible to the point that it is likely your children will inherit the excess. 

zhelud

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #12 on: June 16, 2014, 08:25:45 AM »
I don't care at all if I inherit anything from my parents or not- after all they raised me and paid for college and have been there for me my whole life. They are good planners and I know that they are well prepared for retirement, and I hope they manage to use every last cent having a good time, and that when they do die, their last check bounces.

That's how I feel about my kids too- I will do everything I can for them while they are young (education etc) and if I can, and they need it, I will try to help out in young adulthood, but after that I don't intend to make an effort to leave a financial legacy (I'll contribute to grandkids' education funds if I can, though.)

begood

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #13 on: June 16, 2014, 08:39:58 AM »
Having the financial stability to cover your own needs in retirement is the best possible gift you could give your children. If you do that and there's some leftover after you pass, then that's a bonus for your children.

Villanelle

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #14 on: June 16, 2014, 09:08:53 AM »
I am anticipating an inheritance.  I hope to be well into my 50s by the time I receive it, it not older.  My dad has said that his goal is to leave 7 figures to both my sister and I, and given that they are retired with great health insurance and their net worth is still increasing, he seems to think that will likely happen. 

It will change my life in that it will likely be the tipping point for our FIRE.  Though we might be in a position to retire before then, I doubt that we will.  Having such a giant cushion will ease our irrational minds and allow us to pull the trigger, if we haven't already.

That said, if I get nothing, I will be fine and not disappointed, and if/when the money does come, I will receive it with some regrets.  My mom, sister, and I recently went on a Mediterranean cruise.  It was just the three of us.  My mom has always wanted to go to Italy, so my sister and I decided to make it happen.  We planned it and she paid.  Having those experiences and memories with her will be far better than the $1m that might show up in my account some day.  My mom never would have done that if my sister and I hadn't pushed a bit and made it happen, because they just don't spend money on frivolous things.  We had so many special moments in that time, and I will treasure those moments for the rest of my life. That's far better than a few bucks (or more than a few) that I could have earned on my own eventually.  We are encouraging my parents to do more of these memory-making activities (with each other, alone, and with my sister and I) and do more things that are on their bucket list (like Italy was for my mom), and if that means the inheritance is smaller, that's wonderful.  I'd rather they go back 45 years later to the place where they honeymooned, even if it is now $500 per night, than I would have that $5000 in a couple decades.

Raising me in a loving home and instilling responsible values was their gift to me.  Making sure their finances were in order so that any eventuality that might reasonably come up is covered and they will not be a financial burden to their children is a bigger gift.  Making memories with us is a bonus.  An inheritance, while it may improve my life, will be bittersweet as it will remind me of the opportunities they gave up so that I could have that money.


DoubleDown

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #15 on: June 16, 2014, 09:13:14 AM »
I say everyone's first priority should be to take care of themselves. Give freely while you are still alive, live a meaningful life for you (neither scrimping nor blowing it all at the end), and anything left over is an unexpected blessing to your heirs or charitable causes.

arebelspy

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #16 on: June 16, 2014, 09:49:13 AM »
I don't think of these three (Saving, having a life, leaving an inheritance) as separate things.

I earn money.  I spend as much as I want, enjoying myself (the "having a life" bit).  I invest the rest (the "savings" bit).  When I die, all that is left will be left as inheritance*.

Where is the need to split that income into separate buckets?  They all naturally flow into one another.

Income->Spend->Save->Inheritance.

(Note that some flip around the save/spend in that model, and do the "pay yourself first" method.  I prefer to spend what I want, then save the rest.  Personal choice, either is fine.)

I guess I just don't see the dilemmatrilemma between these three things - they all naturally flow one right after the other.


*Though personally it will go to charity, but if you want it to go to a relative, or whomever, that's fine too.
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CommonCents

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #17 on: June 16, 2014, 10:04:29 AM »

My great great grandfather left all his money to be divided between his children when the youngest turned 21. Unfortunately by that time, one of his other children had recently died, leaving a 4 year old and a 6 year old  grandchild. They received nothing.


Two things:

1) I am presently helping with the execution of a trust for a woman who died a couple months ago. She made the trust so complex that it may take a year to unravel where her money is and who is legally entitled to it.

The verbiage is literally, "10% for Bob and $5000 for Mary and Joe gets a gold coin and Susie can have a candy dish...."  One heir has Alzheimers and is in a nursing home. (Problem). Another is on state aid and can't receive money without it interfering with her benefits. (Another problem.) Between all the charities and individuals, and the convoluted math (both percentages and flat dollar amounts), there is a lot of room to contest the fund disbursal.

Keep things simple. Her family thinks poorly of her for putting them through this nonsense.

2) My dad has always said he will not try to control us from the grave. Half the money comes to me and half goes to my brother. No strings attached, no age nonsense. Your great great grandpa may have been well intended, but it's all controlling from the grave. And it nevers works out as intended.

Keep it simple and give freely if there's any left over.

In the above instance, the problem would have been solved by proper drafting so that that the grandchildren could inherit if their parents pre-deceased them.  A good lawyer should walk you through all of those scenarios to find out if you want the children to stand in the shoes of the others.

I'm not advocating for complexity over simplicity for the sake of being complex, just suggesting that if you do have complex wishes you consult a (good) attorney.  I just read a case last week about how a person did a will from off the internet, but it had an error, so the person she wanted to inherit could not inherit.  And just because something is complex does not mean that it is therefore controlling.  (And if the actual wishes are controlling, the person always has the option to decline to accept the inheritance.)

Towards the OP, I think that the time period where help is most appreciated by children is earlier than I would expect to die.  I hope to live beyond college years and buying a first house!  My parents have explained to us they have an intent to leave us their IRA and their house, but spend everything else.  I don't feel owed an inheritance, or that I owe any kids an inheritance either.

So although I don't yet have kids, my accumulation will not include plans of an inheritance for those kids.  (But, as my plans are to not go into my stash, I will incidentally leave my kids some money along with charity.)

Workinghard

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #18 on: June 17, 2014, 09:20:14 AM »
I actually thing about mortality a lot due to working with the elderly. Most of them wish they had done more when they were younger versus waiting until retirement. I often hear the Golden Years suck (yep, they really use that word), but I'm dealing a skewed population due to my job.

It is hard to project 10-15-20 years out. I like your idea of shorter intervals.

My dh was vacillating whether he should go with me on a short trip due to the extra expense. He's already going to a reunion (paid for out of his OT work), and we're planning on a few days away for our anniversary. I told him $400-$500 isn't going to make or break us. Something he has not heard from me very often! We won't have a car rental, or motel expenses, or meals, since we will be with family, and we were able to get two round-trip tickets for around $650, so even less than we estimated. Yep, he's going with me to an important 20 year military retirement!

Another thing you may (not) want to think about is your own mortality. If you died tomorrow (or just after you FIREd), how much would your kid need? When I retired, I no longer had the automatic death cover insurance I had when I worked. This was no drama for me, but it could be for others. MMM tends to self-insure - and that is fine, if you have thought things through, and have an appropriate will.

What about in x years time - you may want to go through the scenario for 5 year intervals.


CommonCents, we are past the college age with the youngest but not marriage, which will probably be next year. My goal also is not to touch our stash which by default led to to the whole inheritance thing. There's a difference between that and saving for an inheritance. Thanks for pointing that out.

Arebelspy, I have a tendency to compartmentalized things. Guess I need to look at the bigger picture. We give a lot to charity now and it is by far our biggest expense, thus I'm not looking at leaving to charity in the future.

Villanelli, I think it's wonderful that you and your sister were able to go with your mom on a vacation. As a parent, it would be hard for me to do something I considered frivolous. However, if I thought someone else would benefit from it i.e. my kids, then it's totally different and easier to justify.

Begood/DoubleDown, you're right of course about meeting our needs first to avoid being a burden.

Zhelud, I'm actually starting to think more about grandkids....

MayDay, not sure what I'd do with a 5m inheritance but I suspect I'd replace our 13 and 14 year old cars. Maybe even with new ones. And I would probably keep our house rather than renting. We would just hire someone for yard and house and pool work. Sounds like winning the lottery. Ha ha

I appreciate all the comments and the different perspectives. I know there's not a right or wrong way of doing things per se. I also know I'm not the first one to struggle with balance especially factoring in a spouse.

ivyhedge

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #19 on: June 17, 2014, 09:54:29 AM »
I don't think of these three (Saving, having a life, leaving an inheritance) as separate things.

I earn money.  I spend as much as I want, enjoying myself (the "having a life" bit).  I invest the rest (the "savings" bit).  When I die, all that is left will be left as inheritance*.

Where is the need to split that income into separate buckets?  They all naturally flow into one another.

Income->Spend->Save->Inheritance.

I guess I just don't see the dilemmatrilemma between these three things - they all naturally flow one right after the other.



^ Agreed.


And this sentiment is just horrid (from above, not referring to the poster but to the "family"): <<Her family thinks poorly of her for putting them through this nonsense.>> 

Cassie

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #20 on: June 17, 2014, 10:12:36 AM »
When our kids were younger we had tons of life insurance and we had our will give it out at various ages. It is too big a risk to give an 21 yo a ton of $.  If split into different ages it gives them a chance to recover if they screw up.  NOw they are older & so are we so we don't have the insurance.  We help them when they need it. I don't care if there is anything left for them to inherit.  For many people inheriting a ton of $ would make them lazy.  I think there is real value in working for what you have.

Trudie

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #21 on: June 17, 2014, 12:23:36 PM »
I am anticipating an inheritance.  I hope to be well into my 50s by the time I receive it, it not older.  My dad has said that his goal is to leave 7 figures to both my sister and I, and given that they are retired with great health insurance and their net worth is still increasing, he seems to think that will likely happen. 

It will change my life in that it will likely be the tipping point for our FIRE.  Though we might be in a position to retire before then, I doubt that we will.  Having such a giant cushion will ease our irrational minds and allow us to pull the trigger, if we haven't already.

That said, if I get nothing, I will be fine and not disappointed, and if/when the money does come, I will receive it with some regrets.  My mom, sister, and I recently went on a Mediterranean cruise.  It was just the three of us.  My mom has always wanted to go to Italy, so my sister and I decided to make it happen.  We planned it and she paid.  Having those experiences and memories with her will be far better than the $1m that might show up in my account some day.  My mom never would have done that if my sister and I hadn't pushed a bit and made it happen, because they just don't spend money on frivolous things.  We had so many special moments in that time, and I will treasure those moments for the rest of my life. That's far better than a few bucks (or more than a few) that I could have earned on my own eventually.  We are encouraging my parents to do more of these memory-making activities (with each other, alone, and with my sister and I) and do more things that are on their bucket list (like Italy was for my mom), and if that means the inheritance is smaller, that's wonderful.  I'd rather they go back 45 years later to the place where they honeymooned, even if it is now $500 per night, than I would have that $5000 in a couple decades.

Raising me in a loving home and instilling responsible values was their gift to me.  Making sure their finances were in order so that any eventuality that might reasonably come up is covered and they will not be a financial burden to their children is a bigger gift.  Making memories with us is a bonus.  An inheritance, while it may improve my life, will be bittersweet as it will remind me of the opportunities they gave up so that I could have that money.

I am in a similar situation (stand to inherit) and agree with all that you have said.  You will never regret the memories.

I guess this is how I would prioritize (recognizing these are values questions):
(1)  Put retirement first.  A kid has more years to work and can save for their own retirement.
(2)  After you are comfortable with #1, focus on making memories with your family.  You will not regret these times, and when you do pass on your child will know that you did most of what you wanted.  This will enable them to enjoy what they do receive from you even more.
(3)  Try to help your kid while you're alive... not with frivolous stuff (not that you would) but when it really counts.  You can gift up to $14K per year tax free under gift exclusion rules (increases annually).  There are ways you and your spouse can split this up to do even more, to benefit more people (grandchildren).  Over the years we received gifts that helped us buy our house and buy down our mortgage.
(4)  If you want to leave something to your child, but don't want to give them so much that they don't have to expend any effort, put a part of your inheritance into a charitable remainder trust and do some good.

Finally, enjoy the here and now.  I see so many people, including my in-laws, salting away money and not doing things.  When you've done well, and then you start drawing SS it's icing on the cake.  My MIL is continuing to accumulate.   She has no interests.   And while I am very grateful for what we will receive, it's more than enough.  It will be life changing, but it feels a little hollow.

sheepstache

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #22 on: June 17, 2014, 01:40:49 PM »
Actually I hadn't thought about those questions! Hmmm. I don't care about making him FI and technically we could probably help with a house purchase depending on the timing. On the other hand I think a little struggle is good. That type of gift might be appreciated more after you have been dealing with mortgage payments, insurance, taxes, maintenance, and then children start coming into the picture. Definitely no on covering retirement. Again, I think there's value in learning to delay gratification and it enhances appreciation. In answering your questions, it doesn't sound like I should worry about leaving an inheritance. Haha.

Interesting, I've often thought funding a child's retirement would be great.  That gives your money the greatest amount of time to compound and, if the money is tied up correctly, avoids anxiety about the potentially degenerative effects of the child not having to work.  In fact, a family would be much better off if they could always cover the next generation's retirement because the initial investment would be smaller and the timeframe longer providing less risk. 

It sounds like you do put thought into what really matters to you in terms of spending money to enjoy life which is important.  I would add that you don't have to ignore the enjoyment of having the money and/or giving it to your kid in the equation.  Whenever I get asked how I can stand giving up so much "enjoyment" by not spending money, I'm a bit confused because naturally having a large net worth gives me enjoyment.  It means security and flexibility.  I imagine many others here are the same way.

I don't expect an inheritance but knowing my dad was comfortably well off I did hit him up for a loan to help with a home purchase...  Also I shamelessly asked him if he would pitch in for wedding expenses.  So, what I'm saying here is your kid might some day speak up for himself about what he'd like.

Cpa Cat

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #23 on: June 17, 2014, 03:22:12 PM »
I don't see why you would work extra years just so that you can die and leave your child money. If there's money left over after you're done with it, then great. But to actually build it into your retirement plan? All you'd be doing is delaying your retirement so that he can have a little extra when you're dead. I just can't see the logic of it.

But I don't have kids. Only cats. I will certainly leave my leftovers to the cats (or cat-related charities), but I won't be working extra years for them.

We build fun into our budget. There's a "fun" line item. I also build in an amount to fund lump sums that recur every 5 years, assuming we'll want to take a big vacation, remodel something in our house or whatever that is outside our ordinary budget.

Workinghard

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #24 on: June 17, 2014, 04:51:28 PM »
Trudie, it's sounds so easy the way you prioritize it! Seriously, it would "feel comfortable" doing it in that order even though we no longer have children at home. For me the memories would include doing things with my husband.

I love, love CPA Cat's idea of building fun into our budget.  I don't know why I've never thought of that other than being hyper-focused on saving. I really think that's the only way I could have fun without feeling guilty. We do set aside money special trips, but that's money from working overtime. It's not monthly outings do fun stuff.

Haha, sheepstache. It will be interesting if we're ever asked for help. My older son never did once he left home. It's also hard picturing our younger son asking for help. We would be there in a heartbeat, for either one, if they needed it. Growing up without security, I also appreciate the security of having a stache.

Villanelle

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #25 on: June 18, 2014, 09:49:27 AM »
One thing my parents did for us is fund our mortgage.  Our first house purchase was actually my grandmother's home, which my dad inherited.  We would have easily qualified for a regular mortgage, though we wouldn't have had a huge downpayment since the house coming available accelerated our home ownership plans a bit.  Instead, my dad became our lender.  It was done officially and legally, with a set interest rate and even a lien on the property, to protect both sides.  We paid an interest rate at the very low end of standard rates at the time.  And our interest stayed in the family, rather than going to BigBank's pockets.

When we moved to a larger home, we kept the loan with the Bank of Dad and financed only the increased amount with a regular bank. 

And recently, we wanted to re-fi because rates had gone down but we didn't qualify because the property is no longer owner occupied.  Dad re-fied for us, so we are back to him carrying 100% of our loan balance, and gave us the rate we could have gotten if we'd lived in the property. 

He makes some money off the deal and it is essentially guaranteed returns since I am very unlikely to stiff him and our income situation is extremely secure.  We do slightly better than we otherwise could have, so it saves us a bit of money.  And we were able to set terms exactly as we wanted them.  We went with an 18 year term on the re-fi, because that was the payment we were comfortable with.  We all come out a bit ahead.

I am pointing all this out to show you that there are ways you can help your children along the way that are likely to be more meaningful, come at times when the help means more, and save more money in the long run than an inheritance would.  Of course, you need to be careful not to give too much and leave yourself coming up short, but using methods like my family did, the cash isn't just gone as it would be if you gifted a down payment.  My parents have an income stream.  And as we like to say, my interest payments are basically just contributing to my future inheritance.   That money stays within the family so that my parents can use it now, should they need it, and so that it comes back to me (and my sister) in the future.

Workinghard

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #26 on: June 18, 2014, 10:25:14 AM »
That's a great idea. My first husband use to carry the papers when he sold property so he would get the interest payments versus the bank. Course there's always a risk, but he would go through a credit union or bank (can't remember which) and they could deal with any problems. We "sold" our oldest son a car years ago, and with the payments, we opened up an IRA for him. That was before Roths. After he paid the car off, we gave him the money. It's definitely something to think about and like your dad, I prefer to keep things in the family!

One thing my parents did for us is fund our mortgage.  Our first house purchase was actually my grandmother's home, which my dad inherited.  We would have easily qualified for a regular mortgage, though we wouldn't have had a huge downpayment since the house coming available accelerated our home ownership plans a bit.  Instead, my dad became our lender.  It was done officially and legally, with a set interest rate and even a lien on the property, to protect both sides.  We paid an interest rate at the very low end of standard rates at the time.  And our interest stayed in the family, rather than going to BigBank's pockets.

When we moved to a larger home, we kept the loan with the Bank of Dad and financed only the increased amount with a regular bank. 

And recently, we wanted to re-fi because rates had gone down but we didn't qualify because the property is no longer owner occupied.  Dad re-fied for us, so we are back to him carrying 100% of our loan balance, and gave us the rate we could have gotten if we'd lived in the property. 

He makes some money off the deal and it is essentially guaranteed returns since I am very unlikely to stiff him and our income situation is extremely secure.  We do slightly better than we otherwise could have, so it saves us a bit of money.  And we were able to set terms exactly as we wanted them.  We went with an 18 year term on the re-fi, because that was the payment we were comfortable with.  We all come out a bit ahead.

I am pointing all this out to show you that there are ways you can help your children along the way that are likely to be more meaningful, come at times when the help means more, and save more money in the long run than an inheritance would.  Of course, you need to be careful not to give too much and leave yourself coming up short, but using methods like my family did, the cash isn't just gone as it would be if you gifted a down payment.  My parents have an income stream.  And as we like to say, my interest payments are basically just contributing to my future inheritance.   That money stays within the family so that my parents can use it now, should they need it, and so that it comes back to me (and my sister) in the future.

Villanelle

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #27 on: June 18, 2014, 11:40:16 AM »
Just remember that IRS gift rules till apply if you aren't charging fair market rates, and that the interest you collect may be considered income.  Maybe there is some fancy way around that, but if you do it in a straight forward set-up, look into those things to make sure you are staying legal or are comfortable with the risks if you don't.

rujancified

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #28 on: June 18, 2014, 01:51:07 PM »
My Mother has mentioned not wanting to spend what she has saved so she can leave something to me.  She's 72 and I'm an only child.

I've told her - what she has given me is the ability to take care of myself.  She saved that money and she should use it to enjoy life and take care of whatever she needs.

I feel the same way. My parents are in their mid-60s with paid off houses. They have shared general details on pensions and retirement account and they could retire, but are stalling on retiring...for some reason.  I'm hoping they have a long, lovely, fancy-ass retirement, rather than saving any of it for my family or my brother's. 

rujancified

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #29 on: June 18, 2014, 01:59:46 PM »

Raising me in a loving home and instilling responsible values was their gift to me.  Making sure their finances were in order so that any eventuality that might reasonably come up is covered and they will not be a financial burden to their children is a bigger gift.  Making memories with us is a bonus.  An inheritance, while it may improve my life, will be bittersweet as it will remind me of the opportunities they gave up so that I could have that money.

Beautifully stated. I feel the same way.

Workinghard

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #30 on: June 18, 2014, 02:44:03 PM »
Rujancified and Villanelle, I hope our kids feel the same about us as you do about your parents. It's hard to break habits of sacrificing for your kids though when you gain pleasure from helping them and especially if they're appreciative.

And good point about the IRS and potential tax consequence.

sheepstache

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Re: Three buckets approach: Saving, having a life, leaving an inheritance
« Reply #31 on: June 19, 2014, 11:15:48 AM »
Haha, sheepstache. It will be interesting if we're ever asked for help. My older son never did once he left home. It's also hard picturing our younger son asking for help. We would be there in a heartbeat, for either one, if they needed it. Growing up without security, I also appreciate the security of having a stache.

Similar to what others have said, knowing you're there for them is many times more important than whether that is ever demonstrated.  I think people who grow up in insecure situations are less likely to take risks that others wouldn't even consider risks.  For example, they can put everything they want into an education savings account for their children rather than worrying about saving money to provide for you.

Our bias towards action is delightfully pinioned by the value investor slogan "Don't just do something, stand there!"  By just going on as you are, you are providing benefits to your kids.