Author Topic: The Knuckle Down Period 30-40 Years Old  (Read 7433 times)

Auckland Stubble

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The Knuckle Down Period 30-40 Years Old
« on: July 11, 2016, 05:21:38 PM »
My partner is about to turn 30 and I'm about to turn 28. We are in the position where we own 2x rental properties with quite a lot of debt on them.

We plan to have children in 2-3 years when she turns 32/33.

We are therefore quickly approaching the "knuckle down" period where we just focus on starting a family, scrimping by on one income and paying back debt on our rental properties.

When we have kids, we have decided she would like to be a stay at home mother. I therefore don't see us getting ahead as quickly financially when we start to have kids with the added expenses.

How does you mindset and your strategy for frugalness/mustachianism change when you enter this period? What are some good guidelines or tips to do?

Appreciate in advance the advice!


Typhoid Mary

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #1 on: July 11, 2016, 05:34:15 PM »
I think half the battle is accepting the stage of life. I'm a nurse, but currently a SAHM to two kids. I've been home for 7 years.  It's hard to come on the forums and see people maxing out 401ks and 50% savings rates, but we are living on one income. 
It's easy to get frustrated by the lack of progress.  Only you and your wife can decide if one income and not hitting financial goals is an acceptable trade off to having a parent stay with the children full time. For us, it was worth it ten times over.  Do you want time? Or do you want money? When kids get thrown into the equation, it's my opinion that it's damn near impossible to have both. 

boarder42

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #2 on: July 11, 2016, 05:35:53 PM »
I would think this greatly depends on how well you did saving and cutting expenses in your 20s. We're both 29 and if we decided to go to one income at 33 we would be fine it would add one year to my fire date. You didn't really provide any info

Auckland Stubble

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #3 on: July 11, 2016, 06:53:05 PM »
You didn't really provide any info

I earn 65k, she earns 70k.

We have houses worth 1.1million with 800k debt on them. Interest rates around 5% and we top up the houses about 10k a year with the shortfall. Between the two of us, we save around 30-35k per year.

lostamonkey

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #4 on: July 11, 2016, 07:20:47 PM »
You didn't really provide any info

I earn 65k, she earns 70k.

We have houses worth 1.1million with 800k debt on them. Interest rates around 5% and we top up the houses about 10k a year with the shortfall. Between the two of us, we save around 30-35k per year.

How much rental income do your houses generate?

Metric Mouse

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #5 on: July 11, 2016, 07:30:03 PM »
You could focus on understanding that it's probably only for a few years until the kids start school; then the SAHP can return to work, if they wish.

Or, since you've decided having kids is more important than saving money, you could focus on maximizing joy every day with the pipsqueaks.  Be thankful that your stable employment has made it possible to have a SAHP, your kids' lives as awesome as any time in history and, even without a second income, your financial future is pretty secure.  Sounds to me like that 'stage' would be even more fantastic than the current stage!

Auckland Stubble

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #6 on: July 11, 2016, 07:42:15 PM »
Quote
How much rental income do your houses generate?

48k based on $920 per week x 52

gooki

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #7 on: July 11, 2016, 07:54:56 PM »
My advice is to start cutting back expenses now if you aren't already. And then move all excess money into debt reduction/investments.

The big kicker is once you move to a single income, you have a lot less capacity to respond to risks - loss of income from extended vacancy, property burning down, loosing job etc.

With the rental properties effectively providing 0% return, what's your long term plan?

Capital gains? If so when do you plan to cash up? Would you consider diversifying you investments/selling one property when becoming a parent?

gooki

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #8 on: July 11, 2016, 08:00:24 PM »
I also used this time period (stay at home wife) to focus on perusing jobs with a higher income, that also provided the right work life balance.

At fist you just have to accept the lower income, but if you can play the job market salaries can increase. FWIW when we had our second child, my salary increased 60% within 6 months as the result of job hopping twice.

Auckland Stubble

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #9 on: July 11, 2016, 09:29:11 PM »
With the rental properties effectively providing 0% return, what's your long term plan?

Capital gains? If so when do you plan to cash up? Would you consider diversifying you investments/selling one property when becoming a parent?

Don't think we would consider selling. Why would you when you can have the loans being paid down slowly and the capital gains/leverage working for you? Have dabbled in the sharemarket previously but have seen far better returns in property.

EcoCanuck

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #10 on: July 11, 2016, 10:20:49 PM »
I'm just about to enter this stage - excited and terrified - but have to accept that savings will not be substantial at this time. Every bit helps though so I'm hoping that if I'm the SAHP that I either pick up some babysitting work and/or work part time from home or out of the home to add to the retirement savings. Even if it's a small amount I can daydream about it compounding for 30+ years.

My first thought when you mentioned dropping to one income and having two rental properties was to make sure you can cover the properties if they are vacant for any significant amount of time. Essentially having 10k easily accessible as opposed to using that 10k to pay down the mortgages.

Good luck!

EcoCanuck

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #11 on: July 11, 2016, 10:59:20 PM »
I'm just about to enter this stage - excited and terrified - but have to accept that savings will not be substantial at this time. Every bit helps though so I'm hoping that if I'm the SAHP that I either pick up some babysitting work and/or work part time from home or out of the home to add to the retirement savings. Even if it's a small amount I can daydream about it compounding for 30+ years.

My first thought when you mentioned dropping to one income and having two rental properties was to make sure you can cover the properties if they are vacant for any significant amount of time. Essentially having 10k easily accessible as opposed to using that 10k to pay down the mortgages.

Good luck!

EcoCanuck

We have a mortgage offset/revolving credit set up so that was the intention. Build it up to 50-60k over the next few years and then if money runs a bit tight for a few years, there is the buffer there for future use.

socalteacher

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #12 on: July 12, 2016, 12:50:18 AM »
I can only speak to our experience. My wife works two days a week and stays home with our three kids the rest. We built up a cushion fund of about 60K that was supposed to last us for 3 years. In reality we became so good at living off my income and her part time work that the 60K has been able to stretch into 5 years and we are looking at her working part time for 8 years total. I would not change the decision and she actually likes working part time.

It is hard because from a financial perspective as you feel like you are just treading water or running in place. Our finances really are not moving forward but the time will come when they will. When that happens our family will be in a position to use that extra money to our advantage vs just allowing lifestyle creep to take over. Just accept the stage you are going to be in. Try to prepare for it so that money is not a huge stress and enjoy it. Time moves fast and kids grow quickly. You will be on to the next stage before you know it.

Good luck! Our family has been a huge source of satisfaction and joy, way more than more money could have afforded us.

DeltaBond

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #13 on: July 12, 2016, 05:23:44 AM »
You could focus on understanding that it's probably only for a few years until the kids start school; then the SAHP can return to work, if they wish.

Or, since you've decided having kids is more important than saving money, you could focus on maximizing joy every day with the pipsqueaks.  Be thankful that your stable employment has made it possible to have a SAHP, your kids' lives as awesome as any time in history and, even without a second income, your financial future is pretty secure.  Sounds to me like that 'stage' would be even more fantastic than the current stage!

+1... focusing on money when you have kids takes the fun out of it, and its really difficult anyway.  Kids are expensive, in more ways than you can imagine, and you need to just accept that life change.  If you can sell a rental for a profit in a pinch, that would be a good thing to lean on someday.  But, being frugal when you have kids teaches them better life lessons than if you're extremely affluent and have no struggles.

Fishindude

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #14 on: July 12, 2016, 05:46:40 AM »
I would agree that you build your business and / or your personal nest egg in your 30's & 40's.   These are very important times because in your 20's you are just getting started, are just learning and have very little experience, then by your 50's and surely your 60's you have likely lost some of the energy and drive required to really push ahead.

boarder42

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #15 on: July 12, 2016, 05:54:44 AM »
You could focus on understanding that it's probably only for a few years until the kids start school; then the SAHP can return to work, if they wish.

Or, since you've decided having kids is more important than saving money, you could focus on maximizing joy every day with the pipsqueaks.  Be thankful that your stable employment has made it possible to have a SAHP, your kids' lives as awesome as any time in history and, even without a second income, your financial future is pretty secure.  Sounds to me like that 'stage' would be even more fantastic than the current stage!

+1... focusing on money when you have kids takes the fun out of it, and its really difficult anyway.  Kids are expensive, in more ways than you can imagine, and you need to just accept that life change.  If you can sell a rental for a profit in a pinch, that would be a good thing to lean on someday.  But, being frugal when you have kids teaches them better life lessons than if you're extremely affluent and have no struggles.

these two bolded statements seem to contradict each other to me???

Reynolds531

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #16 on: July 12, 2016, 10:08:20 AM »
I like the title of your thread except from 18 to 44 I've never let my knuckles up!

Auckland Stubble

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #17 on: July 12, 2016, 04:32:40 PM »
Do you just accept the fact that you can't have both?

Being a big savings rate and getting ahead with your finances on one income?

Family life and being able to give my partner the ability to stay home and be with the kids might delay early retirement by as much as 10 years perhaps, but is it worth it?

boarder42

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #18 on: July 12, 2016, 05:22:17 PM »
It doesn't have to you can cut your lifestyle. Life's full of choices no one else can make for you

englyn

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #19 on: July 13, 2016, 01:01:46 AM »
Family life and being able to give my partner the ability to stay home and be with the kids might delay early retirement by as much as 10 years perhaps, but is it worth it?
Well, if you're home with kids, you're already not working? For example if you had 7 working years left until FIRE but you stayed home with kids you wouldn't be extending those years, just postponing them, right? Especially if you and your partner can take turns taking a few years getting a taste of RE in the sense of doing work that's meaningful to you rather than employment.

little_brown_dog

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #20 on: July 13, 2016, 08:11:01 AM »
Although we are still in our late 20s, we have entered the childbearing/baby/young kid years with the arrival of our daughter. We are also a one income family (I’m a SAHM). It is definitely true you won’t be able to save as quickly with kids in tow, unless your income is also rising. For us, we are lucky to have a high income and my husband’s routine raises, bonuses, and promotions keep us on the savings upswing. So even though our expenses are higher, we are still saving more and more each year. Yes we would be saving a bit more if I was also working, but we aren’t cutting back or downshifting our goals – we are still accelerating (although at a slightly slower pace than if we had 2 incomes). 

I think having a SAHP during the baby years is 100% worth it if you can afford it and still save a bit. Many mothers absolutely hate leaving their babies in daycare. It is something that is really hard to explain if you are not one of those women, but many women become very upset, distressed, resentful, and distracted if they are forced to be away from their infants. Full time work can also interfere greatly with breastfeeding, which is very distressing to those women who want to breastfeed for an extended period of time and can make things worse. The baby years are hard enough as it is without this type of festering resentment.

Also, something to remember – having a SAHP often allows the other partner to be more involved in their career. My husband has fewer home responsibilities now that I am home full time, so he can spend more time chasing promotions and raises during the work week. At home, I spend more time actively managing our money, looking into investments, and planning out future goals. As a result, he is making more and our finances are far more organized and goal-oriented than they ever were when both of us were working. In many ways, our finances are better now in part because I stay home.

As for tips - best thing we did hands down was practice living on one income for a year before baby arrived. We did this by finding a way to essentially save my entire income (or most of it) given that my income was going to be eliminated. You have 2-3 years to get super motivated. Find new ways to save/cut costs. Try to bank most if not all of her income or use it to pay down the rental debts. This will not only give you an idea of how much wiggle room you will have on just your income, but it will help you accelerate your savings before the hit comes.
« Last Edit: July 13, 2016, 08:28:31 AM by little_brown_dog »

Prairie Stash

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #21 on: July 14, 2016, 02:05:12 PM »
I figured out how many years until retirement without kids. Then I figured out how many years until retirement with kids. Not surprising, the total amount of years to work in both scenarios was very similar (a little less by taking time off to have kids, the stash will compound for those years), the only difference was taking time off from work delays the date.

Basically I have to work 15,000 hours more, its just whether I do it in a hurry or spread it out over more years. At this point if I work for 20 years I wouldn't need to save another dollar, compound returns takes care of it. Same with you I bet, in 20 years you'll have those houses paid off and can retire, even if you don't save anymore.

Guesl982374

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #22 on: July 15, 2016, 02:22:48 PM »
Not surprising, the total amount of years to work in both scenarios was very similar (a little less by taking time off to have kids, the stash will compound for those years), the only difference was taking time off from work delays the date.

Family life and being able to give my partner the ability to stay home and be with the kids might delay early retirement by as much as 10 years perhaps, but is it worth it?
Well, if you're home with kids, you're already not working? For example if you had 7 working years left until FIRE but you stayed home with kids you wouldn't be extending those years, just postponing them, right? Especially if you and your partner can take turns taking a few years getting a taste of RE in the sense of doing work that's meaningful to you rather than employment.

These two comments. I am 31m with a 9mo and a working wife. We have the discussion about her staying home often. We will reach FI at ~38 if we both stay working and ~43 if she stays at home. Notice its 7 years both working (ie 14 years total) or 14 years with one income.

While there are many factors like who earns more, market return, savings rate, other life changes (moving jobs, houses, more kids, etc), the fact remains that you as a unit will need to earn [FI amount - current NW] until you are FI. Whether one does it over a longer period of time or both earn over a shorter period of time or the couple swaps who's earning over a longer period of time the math is still *roughly* the same.

Guesl982374

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #23 on: July 15, 2016, 02:23:52 PM »
We are therefore quickly approaching the "knuckle down" period where we just focus on starting a family, scrimping by on one income and paying back debt on our rental properties.

Also not that your "scrimping" is probably saving more than the average/median family so make sure to keep your lot in life in context.

arebelspy

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Re: The Knuckle Down Period 30-40 Years Old
« Reply #24 on: July 17, 2016, 02:16:12 AM »
Can you FIRE or semi-ER before having them?

You have equity of 300k, plus presumably other investments, plus a HH income of 135k and at least 2-3 years.  You may be able to crank up savings over the next few years, and get enough that you can at least downshift to semi-ER by then, depending on what your spending level is like.

Also, kids don't have to be that expensive.
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