Author Topic: Case Study - Annoying Rich Folk  (Read 15501 times)

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Case Study - Annoying Rich Folk
« on: February 19, 2018, 09:33:15 AM »

We’re another couple of annoying rich folk. Not currently interested in early retirement, but trying to keep our options open.

Life Situation: DINKs, MFJ, very early 30s - intentions of starting family soon

Gross Salary/Wages: ~$250k (was 125k just 2 years ago)

Annual Retirement Savings: ~$40k (18.5k to Roth 401k, 6.8k to HSA, rest to traditional)

AGI/Taxes: New tax plan deductions roughly=  standard deduction

AT Monthly Takehome: 11000
AT Bonus: 10000-15000


Current expenses:

Mortgage PITI: 3000 (950 TI)
Student Loans: 1200
Personal Loan: 800
Cars: 0
Gas/Maintenance: 350
Mass Transit: 100
Utilities (Gas, Electric, Water, Sewer, Cable): 500
Phones: 175 (roughly 100 when phones paid off)
Groceries: 525
Restaurant/Takeout: 300
Lunch/Coffee at Work: 200
Insurance (Auto/Life/Umb): 200
Animals: 150
Other: 500

TOTAL EXP: 8000

Expected ER expenses: 3000 + Cars + Travel/Entertainment

Assets:

Checking: 5-10k
Emergency: 10k
Liquid Stock Investments: 20k
Cars (2): 5k (combined)
House: 525k
Taxable Ret: 235k
HSA: 15k

TOTAL ASSETS: 820k

Liabilities: 

Mortgage: 400k (3.75% 25+ yrs remaining)
Student Loans: 165k (5% 15+ yrs remaining... original balances close to 250k)
Personal Loan: 45k (7% 5 yrs remaining)

TOTAL LIABILITIES: 610k

Specific Question(s):

Based on our current savings, we expect to retire at 59.5 with $5M in addition to stock options that we currently ignore (likely to be worth another 1-2M). At any time by my estinates we could dial back our careers and make 160k combined (WFH or in philanthropic pursuits). It’s unclear how we can spend this amount of money in retirement (excluding travel/entertainment SS will cover all of our expected expenses)

In the meantime, we’re trying to enjoy life as much as possible now. The bonus goes towards travel and house stuff. We’re Cash Flowing $3000 per month and for the next year or 2 we plan to spend it all. We plan to have 2-3 kids and save for their college (any inheritance will be small, want them to be productive members of society).

Any extra money will go towards causes/charities we’re passionate about.

Am I crazy to think it’s ok to spend this money (including setting some of it on fire upgrading our cars)? We’re  trying to reconcile  our frugal tendencies with our income. The personal loan was a really difficult leap for us to turn some of our future cash flow into something tangible that we really wanted (we’re very happy with the decision and would do it again in a heartbeat).

Is there anyone else dealing with similar issues?

Laura33

  • Magnum Stache
  • ******
  • Posts: 3479
  • Location: Mid-Atlantic
Re: Case Study - Annoying Rich Folk
« Reply #1 on: February 19, 2018, 10:01:30 AM »
You have a loan at 7%.  Get that paid off before you start living up to your income.  Might want to consider doing the same with your student loans, depending on how risk-tolerant you are; you'll probably do better in the market long-term, but some people aren't comfortable with that risk.  More to the point:  regardless of whether paying off 5% loans or investing in the market is a better use of your money, either of those options is infinitely preferable to buying more stuff.

I also want to challenge your thinking about "reconciling" your frugal tendencies with your income.  That is just a euphemism for Lifestyle Inflation 101.  Do not go there.  Every $10K/yr you get used to spending now is another $250K you will need to have saved to retire on (and, of course, every $10K you spend is $10K less you have to save to give you that extra $250K you need).  You can tell yourself that, well, it's just this one car purchase -- but I guarantee you that 10 years from now, you will look back and realize that it was "just" something every single year.  Once you get used to spending the money, your brain is very, very efficient at continuing to come up with more and better ways to do so. 

And trust me:  at this point in your life, you have no idea whether your jobs will be around in 10-20 years, or whether you will be remotely interested in them.  Set yourself up now by choosing giant piles o'cash over better stuff, and in 10 years you will have the freedom to keep working or quit and travel the world or take a different job that totally floats your boat but pays for shit.

How do I know all of this?  Because I am you in another 20 years.  And I am locked into my job and my lifestyle for another @7 years because my DH really, really enjoys nice things.  It's fine -- it doesn't suck, I am well-paid, love my house and car, and my job can be pretty enjoyable at times.  But really, am I more happy than if I'd never become accustomed to our current lifestyle?  Somehow I doubt it (given that I grew up poor and managed to be pretty damn happy back then, too).  And TBH, I'm getting antsy.  I'd have totally walked away after my stepdad died 5 years ago if I believed I could.  I wish that we had tamped down the lifestyle inflation 20 years ago so that I would have felt like I had that option back then. 

RWD

  • Walrus Stache
  • *******
  • Posts: 6527
  • Location: Arizona
Re: Case Study - Annoying Rich Folk
« Reply #2 on: February 19, 2018, 10:21:42 AM »
If I'm understanding correctly your annual income minus taxes is roughly $182k. Of that ridiculous firehose of money roughly half goes to your expenses/loan servicing and half to savings/investments. Based on what you already have invested it should take you about 15 more years until you are financially independent.

Your ~$5k/month in expenses (I removed loan payment portions that go towards principal) is higher than the average around here, but not unbelievably terrible (though you're spending ~3X what my wife and I are on food/dining/groceries). Your loans amounts are quite high though and are keeping your invested assets from being as impressive as they would otherwise be.

With your intentions of starting a family soon I think now is a terrible time to start ramping up the luxuries. Your current spending level plus a couple kids could easily keep you working until 60 or longer. If you increase your indulgences now you're sort of counting your chickens before they hatch and may find yourself wondering what happened to all the money from your quarter million dollar income.

Some additional questions to ask yourself. How stable/secure are your jobs/income? If you have kids will both you and your spouse be able to continue working full time? You may want to factor some periods of lower income into your retirement plans.

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #3 on: February 19, 2018, 10:38:29 AM »
I appreciate the point of view and it certainly is the norm around here, so I expect it.

So I defer my consumption into the future by paying off a loan I can comfortably afford. Then it’s gone in 1 year  instead of 5 years. Now I’m cash flowing 4k per month instead of 3k for 4 years, at the cost of 36k of spend (vacations, dinners with my wife before kids, once in a lifetime experiences  with aging parents). When does it end for me? Do I optimize my finances until I defer my life into my 50s or 60s? We could easily pay of all of our debt in the next 7 years, but it has a cost.

We have so little debt in the grand scheme of our future income. The downside is we spend more money and we like it and want to keep doing it? In 20 years we’ll have 2.5-3M and no deb anywayt. I’m trying to wrap my head around this because if we keep deferring it just gets worse the longer we defer.

I’m by no means suggesting we go blow all our extra cash flow on junk that won’t improve our happiness, but if we consciously decide to spend this money it will be done to gain experiences and improve life. The decision to optimize finances at every turn is easy when your goal is to retire as soon as possible, but when that’s not the goal... what do you do? Is it lifestyle inflation if it doesn’t stick (spending that goes away with kids)?


Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #4 on: February 19, 2018, 10:49:58 AM »
It went toward the house, and is likely not fully valued in estimated home value.

Kids would  only require part-time care (20hrs per week) , and we may have some support from family.

ice1717

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Case Study - Annoying Rich Folk
« Reply #5 on: February 19, 2018, 10:59:25 AM »
Am I correct in seeing that you are investing in Roth 401k instead of before tax?

"Annual Retirement Savings: ~$40k (18.5k to Roth 401k, 6.8k to HSA, rest to traditional)"

At your income level, it makes more sense to invest that $18.5k before tax rather than after if you can.  It will save you a bunch on taxes.

BrandNewPapa

  • 5 O'Clock Shadow
  • *
  • Posts: 96
Re: Case Study - Annoying Rich Folk
« Reply #6 on: February 19, 2018, 11:00:55 AM »
...
TOTAL EXP: 8000
...
Emergency: 10k
...

Am I crazy to think it’s ok to spend this money (including setting some of it on fire upgrading our cars)?

Is there anyone else dealing with similar issues?

IMO, the answer to both of these questions is "YES".

Yes, you are crazy to start spending your excess cash right now. The two big issues I see are your emergency fund and your personal loan.

You have less than 2 months saved for emergencies. With your level of income and high expenses you should have at least 6 months, ideally 1 year saved for emergencies. What happens if you have a car accident and can't work for 3 months? What if you have a serious health problem and are out of work for a year or die?

You have a 7% personal loan. Pay this off! you have the cash flow to do it in a few months. You won't be getting 7% in the market right now. It's currently the best bang for your buck to pay this off, and it makes your necessary emergency fund savings lower.

Yes, I'm sure there are 1000s of high income young people dealing with similar issues. It sounds to me like you're getting sucked into lifestyle inflation, but something in the back of your mind is telling you its a trap. It is!

Get your E-fund shored up, pay off that loan, then you can spend a bit of money to celebrate!

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #7 on: February 19, 2018, 11:09:02 AM »
Am I correct in seeing that you are investing in Roth 401k instead of before tax?

"Annual Retirement Savings: ~$40k (18.5k to Roth 401k, 6.8k to HSA, rest to traditional)"

At your income level, it makes more sense to invest that $18.5k before tax rather than after if you can.  It will save you a bunch on taxes.

All previous savings was pretax. Tax law puts us in 24% bracket, using opportunity to diversify tax obligation (current plan would put us in 22% bracket in retirement even if rates don’t rise)

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #8 on: February 19, 2018, 11:12:45 AM »
...
TOTAL EXP: 8000
...
Emergency: 10k
...

Am I crazy to think it’s ok to spend this money (including setting some of it on fire upgrading our cars)?

Is there anyone else dealing with similar issues?

IMO, the answer to both of these questions is "YES".

Yes, you are crazy to start spending your excess cash right now. The two big issues I see are your emergency fund and your personal loan.

You have less than 2 months saved for emergencies. With your level of income and high expenses you should have at least 6 months, ideally 1 year saved for emergencies. What happens if you have a car accident and can't work for 3 months? What if you have a serious health problem and are out of work for a year or die?

You have a 7% personal loan. Pay this off! you have the cash flow to do it in a few months. You won't be getting 7% in the market right now. It's currently the best bang for your buck to pay this off, and it makes your necessary emergency fund savings lower.

Yes, I'm sure there are 1000s of high income young people dealing with similar issues. It sounds to me like you're getting sucked into lifestyle inflation, but something in the back of your mind is telling you its a trap. It is!

Get your E-fund shored up, pay off that loan, then you can spend a bit of money to celebrate!

We would easily survive 18 months of dual unemployment with UI, emergency, AT savings and loan deferments. Jobs are very secure. We also have ample life and disability insurance.

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #9 on: February 19, 2018, 11:17:07 AM »
I think you may be in the wrong place.

This is the MMM forum.  Not the YOLO forum.

You can do whatever you want.  But most of us here are more interested in attaining Financial Independence as soon as possible than enjoying lots of dinners out, new cars, and fancy vacations.  The RE is a separate piece, but most of us who have reached FI at a relatively early age are very happy to have the RE as an option.  If you spend all your money on stuff/experiences when you are high earning, you won't have that option.  And then what happens if your industry tanks, or you don't make partner, or you face a health crisis or disability?  Having a large stash gives you options, gives you choices.   If the money has all disappeared into the ether, your life can go from great to grim in pretty short order.

You can spend time with your parents without spending tons of money.  A fancy cruise or tropical beach vacation is one way to make memories, a modest camping trip or cabin rental in the mountains is another.  The expensive route is not necessarily the only/best option.

It doesn't have to be either/or, feast or famine, either.  You might want to think about putting a modest amount -- say 10-20% -- toward those special items/experiences, some towards debt payoff, and some towards longer-term savings.   See how it works for you.

It is dated, but you might benefit from reading Your Money or Your Life and tracking expenses/alignment with values as they suggest.   If spending the money on the splurgy stuff really does improve your quality of life, that is a way to track/quantify it.

I like the thoughtfulness of MMM philosophies, but also you do only live once and the future is not guaranteed and people die (yourself and people you love). I’m trying to toe then line between the 2 extremes (MMM vs YOLO) and find the healthy middle ground. I’m sure there are others here in similar a situation

trollwithamustache

  • Handlebar Stache
  • *****
  • Posts: 1146
Re: Case Study - Annoying Rich Folk
« Reply #10 on: February 19, 2018, 11:21:57 AM »
so I mean, this is an FI/ER forum and you don't want to do either. These guys are gonna rough you up. Boggleheads will result in less face-punching! :)

Laura33

  • Magnum Stache
  • ******
  • Posts: 3479
  • Location: Mid-Atlantic
Re: Case Study - Annoying Rich Folk
« Reply #11 on: February 19, 2018, 11:34:36 AM »
I appreciate the point of view and it certainly is the norm around here, so I expect it.

So I defer my consumption into the future by paying off a loan I can comfortably afford. Then it’s gone in 1 year  instead of 5 years. Now I’m cash flowing 4k per month instead of 3k for 4 years, at the cost of 36k of spend (vacations, dinners with my wife before kids, once in a lifetime experiences  with aging parents). When does it end for me? Do I optimize my finances until I defer my life into my 50s or 60s? We could easily pay of all of our debt in the next 7 years, but it has a cost.

We have so little debt in the grand scheme of our future income. The downside is we spend more money and we like it and want to keep doing it? In 20 years we’ll have 2.5-3M and no deb anywayt. I’m trying to wrap my head around this because if we keep deferring it just gets worse the longer we defer.

I’m by no means suggesting we go blow all our extra cash flow on junk that won’t improve our happiness, but if we consciously decide to spend this money it will be done to gain experiences and improve life. The decision to optimize finances at every turn is easy when your goal is to retire as soon as possible, but when that’s not the goal... what do you do? Is it lifestyle inflation if it doesn’t stick (spending that goes away with kids)?

1.  Your personal loan is costing you over $3K/yr.  Your student loans are costing you over $8K/yr.  If paying someone $1K/mo in interest for the privilege of borrowing their money is so insignificant it isn't even worthy of consideration, then you might be in the wrong place.

2.  You are looking at this wrong.  You are living your life right now; your happiness and success are not related to how much you spend.  If there is a specific thing you want, like a particular trip your aging parents want to take, then yes, by all means, work it into your budget.  But the very fact that you are referring to an $8K/mo lifestyle as "deferring life" suggests that your "wants" are broader than that.

3.  Lifestyle inflation always sticks.  Period.

The larger points are:

1.  Saving a metric shit-ton of cash now gives you flexibility.  Maybe one of you wants to stay home with the kiddos -- hell, maybe you both want to take a few years off while the kids are young.  Maybe you want to take a sabbatical.  Maybe you burn out.  Maybe you find a completely different opportunity that sounds awesome.  Maybe you are permanently disabled.  Maybe your job goes away entirely.  Whatever.  Having a very healthy savings account and lower lifestyle demands puts you in a position to follow your heart instead of having to work at your high-paying job forever.

2.  Life gets more expensive on its own.  Add kids and now you have daycare or loss of one income, more mouths to feed, more clothes to buy, more doctors' bills, summer camps, college savings, etc.  IOW, the delta between income and expenses is probably as big right now as it will be for the next 20+ years.  Socking away that extra bit of difference now gives you room to cut back if you need to when the kids come, and not feel like your lifestyle is taking a huge hit.

3.  You need more savings for expected expenses.  You are very short of accessible funds, and I don't see any entries in your monthly budget for savings for future home maintenance/repairs/appliance replacement, replacement cars, replacement phones, vacations, etc.  You should set aside a "sinking fund" for those sorts of "it's gonna happen but I don't know when" expenses.  Especially given your desire to get nicer versions when the time comes.

4.  Your plan assumes $36K/yr for RE expenses.  That is already cutting back from what you are currently spending, even if you take the loans/mortgage out of the equation, so that's already unrealistic (i.e., just because you're no longer at work doesn't mean you'll stop buying lunches -- when you're used to eating lunch out, you will keep eating lunch out).  So say $40K -- that's $2M, ok, you're covered.  But now you buy nicer cars; then you get used to having nicer cars, so you get tired of yours after a few years and start trading them in every 5-6 years.  And maybe you take a nice, big European vacation before the kids come -- but then a week at the beach doesn't feel special any more, and then you start to think, well, we really need to show the kids Europe, and after a few years, your vacation expectations become international travel.  And 10 years down the road, instead of having a base spend of $40K, you're at $80K, and now you need $4M to retire.  Which is still fine, as long as everything goes as planned.  But things usually don't go as planned. 

Please believe me when I say I was you 20 years ago -- hard-charging, ambitious, loved my job, could not even envision not working, ever.  And like I said, I still like it.  But I am also a different person at 52 than I was at 32 -- not nearly as ambitious or energetic as I was back then.  I also didn't get much value-add from half of the stuff I blew money on -- we had a lot more fun going offroad in DH's POS Isuzu than I had in my money-pit BMW.  Keeping that kind of "stuff' low frees up your time and attention to focus on the things that really matter:  the people around you.

Ben Kurtz

  • Stubble
  • **
  • Posts: 144
Re: Case Study - Annoying Rich Folk
« Reply #12 on: February 19, 2018, 11:46:04 AM »
You're not rich.

You are high income, but you have a pretty mediocre net worth, from the perspective of regulars here: $210,000, including equity in your primary residence.

Now, you are relatively young, so there is no shame in not being rich yet. But there should be a bit of shame in mistaking high income for being wealthy or "rich." High net worth is a far better place to be than merely high-income, and even better would be high net worth coupled with a moderate lifestyle that is easily supported by the passive income generated by your wealth, coupled with rewarding work or business pursuits that general additional active income and happiness. You are very far from that goal. The default goal that I recommend you young couples thinking of starting families is to shoot for $1,000,000 in investments (in a mix of retirement and non-retirement accounts) plus a paid-off house -- a family could live off of that comfortably in most parts of America without anyone working another day, but in most cases the adults will still want to do something productive with their time.

You are also contemplating starting a family, which I wholly endorse. But kids will soak up a lot of time and money and may affect your willingness to continue doing the kind of work that generates a high income. They definitely change a family's outlook, philosophy and lifestyle!

In a high-income career, it is not that hard to put yourself on a sustainable path to wealth and financial security simply by retarding your lifestyle inflation a bit, making it easy to save a substantial amount of money each year. Your path so far has not, in fact, been too far from this model; I'm here to give you a bit of an attitude adjustment and tell you not to give up on your discipline. Dr. Dahle at White Coat Investor has a blog very much aimed at your demographic which makes just this point -- worth checking out.

In terms of concrete recommendations:

1. Maximize and optimize contributions to tax-sheltered accounts before spending money on anything frivolous, like upgraded cars.

Does a Roth 401k make sense any more? At your newly-achieved income level the tax deduction of a traditional 401k probably makes more sense. Also, if you are dual-income, why isn't there a second 401k? Does the spouse's employer not offer one? I also don't see any "Backdoor Roth IRAs." There are numerous posts here and on the wider internet about this technique. Max this out as well.

1a. Your emergency fund is unreasonably small, given your mandatory cash flow items. It should be at least $30,000 (if not $50,000, given your $8,000 / month burn rate) and be invested in something stable like a bond fund, not stocks. You should set up backdoor Roth IRAs for each spouse for tax years 2017 and 2018 right away ($22,000 in total contributions), invest those in bond funds, and consider that your "stealth" emergency fund for now, because you can withdraw principal contributions to Roth IRAs tax and penalty free. As you build up your real emergency fund outside your retirement accounts, you can re-balance your Roth IRAs into a more traditional retirement investment mix -- at least you've taken advantage of the contribution space when you could.

2. Pay off that 7% loan before spending money on anything frivolous.

3. Figure out how to pay off those student loans within the next 3-4 years; curb your lifestyle inflation to make it happen. The one luxury or frivolous spending category I would endorse spending on before fully repaying your student loans is international travel -- once you have kids it will be far harder to take some of those dream vacations to Europe or Asia or wherever. So that is the exception, because of the time constraint. But upgraded cars, new kitchens, fancy consumer electronics? Not now. You can enjoy those with kids in the house.

Once your family has no debts outside a reasonable mortgage and a $500,000 net worth, we can then start talking about splashing out on frivolous luxury lifestyle upgrades. But until then you aren't rich, you just have the illusion of rich that every big-spending upper-middle-class family in America has. While you might end up retiring rich in your 60s, you risk spending a good portion of your life financially insecure, with massive required monthly cash flow demands and not a lot of buffer in case you hit a bad break. The fact that you maintain only $10,000 in your so-called "emergency fund" is proof of this. You have the next $20,000 sitting right there in "liquid stock investments," but if it's in stock instead of a stable value investment then it isn't an emergency fund.

You have the resources to do fantastic things with your lives, and you've actually managed to chart a somewhat reasonable course so far. But I strongly suggest you resist the urge for lifestyle inflation and instead build some real wealth while things are going your way: Even if you come to realize that you want to pursue a work-hard / play-hard lifestyle with big salaries and big luxury expenditures, you'll be far better served doing that from a position of strength -- with minimal debts and good-sized nest egg, so you can always rest assured you are doing things on your own terms.

PBandJelli

  • 5 O'Clock Shadow
  • *
  • Posts: 42
Re: Case Study - Annoying Rich Folk
« Reply #13 on: February 19, 2018, 11:46:31 AM »
Others have spoken to the numbers, but I'd like to jump in to speak to my experience.

My husband and I are DINKs, also high income, and at one point sounded like you but without the aspiration of having children.  The sky was the limit, yadda, yadda, can't possibly spend all this money with these great jobs.  Thing is: one day I woke up and decided I fucking hated the things I have to do for/at my job.  You might find you fucking hate your job in a couple of years because it suddenly, unexpectedly becomes soul crushing.  Maybe you just want to be a dog walker, or yogi.  Or maybe you have a health issue that prevents you from doing the hours.  Or perhaps you're expected to do more hours than practical with kids, or -- you get the point.

Save as much as you can now.  Get to the 75% of the number you feel you need to FIRE, and if you're still feeling as you do now about your job, then start to loosen the purse strings.

I wish you wealth, health, and happiness :)

omachi

  • Handlebar Stache
  • *****
  • Posts: 1158
  • Location: Minnesota
Re: Case Study - Annoying Rich Folk
« Reply #14 on: February 19, 2018, 12:12:38 PM »
We’re another couple of annoying rich folk. Not currently interested in early retirement, but trying to keep our options open.

You have, according to what you've laid out, a net worth of $210k, of which 60% of your net worth is tied up in home equity. You have high incomes. You are not, however, rich. Not by a long shot. Better off than many? Sure. A repeat of the past few posters? Yep, they piled on while I was writing this. Read it again. It's good for you.

Your current income allows you to out-earn your spending, including servicing your debts. Congrats. If everything keeps going the way it is for you, earning, spending, saving, you should eventually wind up rich. Double congrats.

Of course, you want kids which will be expensive, have tasted the immediate gratification of spending tomorrow's money with moderate interest loans, and don't seem to get that not spending a pile of cash now just because you have it or expect to have it isn't deferring life.

On your current trajectory, I'd bet on difficulties in keeping things stable. You'll reduce retirement saving rather than other spending to raise the kids. You'll take out another loan for some big purchase down the road, because you don't want to defer spending while you wait to earn your income. You'll continue to spend more as your tastes become refined, because you can't take it with you. You'll probably wind up merely well off, mostly from choices you've made to this point in socking away retirement savings, not from future choices. If you're unlucky you'll end up hating your jobs while you get to well off.

oldmannickels

  • Stubble
  • **
  • Posts: 249
Re: Case Study - Annoying Rich Folk
« Reply #15 on: February 19, 2018, 12:13:06 PM »
At least you got half the title right.

EmFrugal

  • Stubble
  • **
  • Posts: 147
Re: Case Study - Annoying Rich Folk
« Reply #16 on: February 19, 2018, 12:13:16 PM »
How do you know you and your wife want to stay at these high paying jobs for the long-term? How do you know your wife won't want to stay home after that first baby is born? You cannot possibly know these things until you are there. So why not save more to give yourself flexibility and options in the future?

My husband and I used to be like you and your wife before our first child. We grossed well over $200K in a HCOL area. We saved like crazy knowing that he did not want to kill himself at his private practice law job for an infinite amount of years. We also saved so that I had the option to stay home with our now three children when he took a big paycut to go into the government. I am so thankful I had the choice to be at home with my kids while he simultaneously took a pay cut. That pay cut allowed him to be a present father and husband rather than working 80-90 hours a week as a zombie. And he still enjoys his current job and finds it intellectually stimulating.

Car upgrades, etc are fleeting. Precious time with your family, having the flexibility to pursue passions outside of your career, and not to mention time to devote to taking care of your mental and physical health (which let's be honest, doesn't happen when you're working crazy hours) make for a fulfilling life in my humble opinion. I am so thankful we made the choices we did early on. I hope you will consider all of that, too.


Zamboni

  • Magnum Stache
  • ******
  • Posts: 3882
Re: Case Study - Annoying Rich Folk
« Reply #17 on: February 19, 2018, 12:13:27 PM »
You're not rich.

You are high income, but you have a pretty mediocre net worth, from the perspective of regulars here: $210,000, including equity in your primary residence.

Wealthy people do not take revolving interest loans to buy inexpensive, mundane, depreciating items like a phone . . . at least not if they plan to stay wealthy very long.

I'd make more suggestions, as that is what the Case Study section is for, but your posts already tell me you are insincere. Most likely you will continue to self-justify and argue away about the unrecognized genius behind all of your sub-optimal choices.

Carry on.

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #18 on: February 19, 2018, 12:21:38 PM »
In our short time so far we’ve:

Paid down $100k in student loans, saved $100k for a house and $250k for retirement.

So while “not particularly robust” given our current income, it is a feat we’re proud of  since our income was 1/3 to 1/2 of what it currently was for most of that period. We could certainly continue that path and be FIRE by 40, not our current desire. Chances are even if we “open the purse strings” we still will save most of the CF because it’s in our nature.

I could certainly try to plan for everything that could possibly go wrong (although I’d just end up with a stack of guns, non-perishable food and gold and zero investment vehicles). My plan if my job “goes away” is to retool myself and start a new career. For insurable events, we have insurance.

I appreciate the thoughtful response Laura33, a lot of it gets to the MMM part of me. A couple comments, projected retirement spending is really just current spend with debts paid off (and a few work related expenses reduced... but mostly debt). Also, I don’t see myself requiring a 2% safe withdrawal as I expect to work a mostly full career and be willing to draw my assets down as I age.

So if life happens and we end up with only half of our expected retirement balance, it will produce $8000 of monthly income in addition to roughly $4000 of expected SS.

I know these are total rich high income people problems, but my biggest fear right now is over saving and wishing I did more “when I was young”. Especially since although we don’t plan for it, our income is likely to continue to rise over time.

I know the forum is skewed but I’m  a little surprised there hasn’t been a single response from a person currently dealing with this. I understand there is a difference between CF and wealth, but I also understand that CF is intimately linked to human capital (the “imaginary” asset that we’re all converting into tangible assets each day). I do find the attitude that MMM philosophy has it all figured out to be quite off putting, but again you don’t have to watch me on my deathbed fade away with an 8 figure net worth. All you have to do is try to stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, their lives are shaped by different experiences (hell maybe they’ve seen the end for an unnecessarily frugal individual)

« Last Edit: February 19, 2018, 12:25:01 PM by Happy_Lyfe »

FIFoFum

  • Handlebar Stache
  • *****
  • Posts: 1938
    • Captain's Log - Mission to Puppy Waystation on Puppy Island
Re: Case Study - Annoying Rich Folk
« Reply #19 on: February 19, 2018, 12:44:47 PM »
I know these are total rich high income people problems, but my biggest fear right now is over saving and wishing I did more “when I was young”. Especially since although we don’t plan for it, our income is likely to continue to rise over time.

I do find the attitude that MMM philosophy has it all figured out to be quite off putting, but again you don’t have to watch me on my deathbed fade away with an 8 figure net worth. All you have to do is try to stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, their lives are shaped by different experiences (hell maybe they’ve seen the end for an unnecessarily frugal individual)

The disconnect is that your biggest fear doesn't match the reality of the experiences for people posting who have been in your shoes and are older than you.

At your age, I was also a high-income DINK with high spending (even though we were also saving!).

Guess what?

I had equity tied up in my housing because I envisioned staying in the same place for a long time, only to find my life situation (including jobs, family, relationships) warranted moving. Having to sell in the wrong market time wiped out a lot of this equity. My 5 year out projections were consistently wrong about where I'd want/need to live.

Then I got divorced. Like 50% of couples do. Divorcing leaves 2 people each worse off than they would be at 1/2 of their net wealth, and that's without even bringing kids into the mix. Do you have divorce insurance?

I also had a job that was as secure as jobs get, except no one protects your job rights if your entire institution fails and goes belly up. This happened to other people I know in secure jobs, even if it didn't happen to me.

From my life experiences, I look at your situation and see someone who is doing well, but one bad event away from it all falling apart. You came here asking for advice and then seem to reject it because you're not getting other people encouraging spendier/riskier choices.

For me, the point of MMM is not to win frugality medals or compete in the face punch Olympics. It's to tailor your spending/saving to what you value and being able to live the life that gives you fulfillment.

The core of your question seems to be - why should I bother saving more? Won't I oversave and then wish I hadn't saved as much/denied myself?

The responses here are asking - what do you value so much that it is worth spending on? When you save, what are you saving for? 
« Last Edit: February 19, 2018, 12:47:06 PM by FIFoFum »

RWD

  • Walrus Stache
  • *******
  • Posts: 6527
  • Location: Arizona
Re: Case Study - Annoying Rich Folk
« Reply #20 on: February 19, 2018, 12:47:22 PM »
In our short time so far we’ve:

Paid down $100k in student loans, saved $100k for a house and $250k for retirement.

[...] it is a feat we’re proud of  since our income was 1/3 to 1/2 of what it currently was for most of that period.

We're 32/33 and our average income in our 10 years of marriage has been "only" $100k. We have paid down $50k in student loans, made a $50k (20%) down payment on a house, and have $450k in investments. This is all with making several sub-optimal decisions like buying a house in 2008 which promptly lost half its value and a brand new car in 2013. We haven't deprived ourselves of anything and I feel like we've been living a life of luxury. You're doing better than the average American but only because you're significantly out earning them.

omachi

  • Handlebar Stache
  • *****
  • Posts: 1158
  • Location: Minnesota
Re: Case Study - Annoying Rich Folk
« Reply #21 on: February 19, 2018, 12:49:48 PM »
All you have to do is try to stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, their lives are shaped by different experiences (hell maybe they’ve seen the end for an unnecessarily frugal individual)

Aww, defensive much? Hurt your feelings to have it pointed out that living life doesn't equate to how much you spend? Maybe try taking some of your own medicine and realize that people are taking time out of their day to weigh in with advice you asked for, from the position you asked for, and that you're the close minded one rejecting it.

Or go find some spendthrift forum and brag about how much spending you can cashflow while putting enough away to retire later in life. I'm sure you'll get all sorts of applause, plenty of envy, and will walk away feeling rich and superior. Of course, you probably won't get any good advice with such a plan, but you actually seem to be after validation, not advice, so no biggie, right?

Zamboni

  • Magnum Stache
  • ******
  • Posts: 3882
Re: Case Study - Annoying Rich Folk
« Reply #22 on: February 19, 2018, 12:53:15 PM »
I know the forum is skewed but I’m  a little surprised there hasn’t been a single response from a person currently dealing with this. I understand there is a difference between CF and wealth, but I also understand that CF is intimately linked to human capital (the “imaginary” asset that we’re all converting into tangible assets each day). I do find the attitude that MMM philosophy has it all figured out to be quite off putting, but again you don’t have to watch me on my deathbed fade away with an 8 figure net worth. All you have to do is try to stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, their lives are shaped by different experiences (hell maybe they’ve seen the end for an unnecessarily frugal individual)

Ummm, 7 posts and this is where you already are? Why did you post this case study, exactly?

People have given you some concrete suggestions and you come back with
"stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, their lives are shaped by different experiences." Wow.

So you are basically asking us: Do I struggle with "couldn't I just buy this now" quandaries?
Sure, sometimes, but less and less these days as I
a) have the excess money floating around to buy whatever I want anyway and
b) continue to mature and figure out what is really important to me.

Certainly I don't come here with a "I'm in debt up to my eyeballs but I'm going to blow all this money anyway and y'all are narrow minded zealots if you don't agree with me" attitude that you are bringing here again this time.

Ben Kurtz

  • Stubble
  • **
  • Posts: 144
Re: Case Study - Annoying Rich Folk
« Reply #23 on: February 19, 2018, 01:06:37 PM »
Quote
In our short time so far we’ve:

Paid down $100k in student loans, saved $100k for a house and $250k for retirement.
...
I know these are total high income people problems, but my biggest fear right now is over saving and wishing I did more 'when I was young.'

You need to pay your dues. Either you do it when you are young, and reap the rewards of a secure and free adulthood, or you do it your entire life, always a slave to fortune. You've paid maybe half your dues so far, but not more -- you borrowed heavily for your education and your house, which set you back.  The progress you recount is why I acknowledge your course has been somewhat reasonable to date, but perhaps you didn't realize how long the journey had to be when you took out all those loans.

You need to be exceedingly critical about those things that are truly "need to do now while young" if you are ever going to have the chance to do them at all. I've already put international travel up on that list -- so you tell me, with specificity, what else falls in that category. Fancy cars? BMW will still be in business five years from now. Fancy restaurants? Michelin will still be handing out stars five years from now. Exciting concerts? Musicians will still be performing five years from now; in fact, Bruce Springsteen himself will probably still be touring five years from now at the rate he is going! In fact, you'll probably enjoy a nice night out even more when you leave the kids with a sitter or grandparent to have an adult night out alone; these days, you can have a quiet, candle-lit delicious meal in your own home in a way that you probably won't manage with kids in the house.

Your time is precious both now, when you have youth, freedom and your parents to enjoy, as well as later when you'll have your own kids you'll want to raise and your own grown-up interests you might want to pursue. You need to plan around both time constraints, not just the former.

I've been in your shoes. Still in your shoes a little, in that I still work at a very high paying job -- higher than yours. But when I was your age I put my head down and saved hard for several additional years before thinking about loosening the purse strings for anything other than travel that I wouldn't be able to do as a parent. And I am very grateful for the freedom and security that it has brought.

Repeating myself a bit, you really should check out Dr. Dahle's blog at White Coat Investor. It's aimed squarely at someone in your shoes, and does a very good job pondering the balance between growing into a high income and holding back enough to grow one's wealth and financial security.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Case Study - Annoying Rich Folk
« Reply #24 on: February 19, 2018, 01:35:48 PM »
to me this is laughable my wife and i are in your situation and do everything we want to do and will be pulling the plug with 2 kids around 36 with 2MM in the bank.  we live in a house of similar cost to yours on a lake and own a boat and travel all over the world -  we make less income than you - we spend our money where we get the most value and invest the rest

why is your post laughable - b/c this isnt a forum you come to and ask for some one to rubberstamp you wanting to spend more its somewhere you come to understand how to optimize and spend less. 

you're more likely to regret undersaving than cutting your 500 dollar a month food and eating out budget --- you're not gonna look back and say damn why didnt we go to that pizza place when we were 31 instead of eating some chili at home - you're going to look back and say damn look at all that money we wasted and now all these medical issues we have that we have to keep working for b/c of that pizza i ate when i was 31

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #25 on: February 19, 2018, 01:38:46 PM »
I’ve read a lot of posts on this forum over the years. I’m not looking to insult, or be insulted. I’m questioning my personal situation from both sides of the fence. I feel as though I more than adequately save for future consumption, I also have used debt to pull some future consumption forward for something I felt was worth it. Now I have more resources at my disposal, I’m not looking to use it to leverage more debt to bring more consumption forward, but I also don’t think I need to defer any more consumption. It’s an odd situation in my opinion because essentially I easy spend it or save it, but I’m damned if I do and I’m damned if I don’t.

I don’t hate my job, I don’t work long hours. I do, however, question  whether 750 per month  for 4 years (deferred 12 months) is better than 3000 per month for the next 12 months. Not because I don’t understand Finance, but rather because I understand how economics interacts with finance.

Let’s pretend for a second we take all of our CF and pay our debts off in the next 7 years. Now we have 0 debt, and 7000 of CF. Now I have $1.3M in assets and 0 debt. I still don’t want to retire early... should I spend more then? Aren’t we all in the business of trying to optimize what’s best for our personal situation? Maybe for me minimizing my spend and paying off debt as fast as possible isn’t right? Our debt load is light relative to our income... like someone making  $125k having 300k including their mortgage or someone making 60k having 150k. We can also pay off the non-mortgage debt in a few years at anytime, why does it have to be now without question?

Our current spend is supported by half our income, we still don’t actually have any kids. Why is the idea of “living it up” for 2 years pre-kids so crazy. We’re still savings on target with our personal goals, and paying down our debt. Admittedly we’re not “maximizing our net worth” but that’s not my goal in life.



Zamboni

  • Magnum Stache
  • ******
  • Posts: 3882
Re: Case Study - Annoying Rich Folk
« Reply #26 on: February 19, 2018, 01:42:41 PM »
You do understand the point of posting a case study in this forum, right?

Because you seem quite confused . . .

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #27 on: February 19, 2018, 01:49:22 PM »
I’m not really confused... if everyone was the same you wouldn’t need a case study forum you’d just post the optimal budget and everyone would follow it.

I just can’t grasp the perspective that im “under-saving” when we save close to the  the median income in the US and are on target to retire when we want with 100% income replacement and a target spend of 15% of that  income. I know the target retirement is slightly different then the majority of the forum, but I’m pretty open about the different target here.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Case Study - Annoying Rich Folk
« Reply #28 on: February 19, 2018, 01:52:08 PM »
you made 125k 2 years ago and presumably were saving something

you make 250k now and are saving only 40k

you have inflated your lifestyle by at least 85k

i dont know how you can claim your current spend is supported by half your income - if you're not saving it you're spending it

Tuskalusa

  • Bristles
  • ***
  • Posts: 442
Re: Case Study - Annoying Rich Folk
« Reply #29 on: February 19, 2018, 01:53:08 PM »
Agree with IAHMO. The folks on this forum are thoughtful. We don’t all subscribe to the same versions of Mustachianism. However, what you are seeing here are some thoughtful warnings. You might benefit from reflecting on the overall theme.

We were exactly like you. We had plenty of cash from high income jobs. We thought our jobs were secure. Cash in the bank. Retirement savings. It was a great position. We figured we were set for the rest of our lives.

Then we had a (super awesome) kid in 2006, and my husband was laid off the week our bundle of joy was born. And then we rolled into 2008, and our portfolio started to dry up. Our house went underwater. We went from cash coming out of our ears to living check to check. Good times.

The big difference was that we had no debt (except for a mortgage, such as it was) and an emergency fund. We lived off that thing until times improved...after several years. It worked out okay in the end.

But if we had had more debt and less cash, we could have been in for a rocky ride.

The economy looks great at the moment. It won’t forever. Jobs that seem stable can turn on a dime. The people on this forum know that.

Make your own choices. Just know that the advice from people here often comes from experience, and from hoping that we can all learn from each other.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Case Study - Annoying Rich Folk
« Reply #30 on: February 19, 2018, 01:54:22 PM »
I’m not really confused... if everyone was the same you wouldn’t need a case study forum you’d just post the optimal budget and everyone would follow it.

I just can’t grasp the perspective that im “under-saving” when we save close to the  the median income in the US and are on target to retire when we want with 100% income replacement and a target spend of 15% of that  income. I know the target retirement is slightly different then the majority of the forum, but I’m pretty open about the different target here.

b/c you're not in a forum where the goal is to retire at 59.5 years old when you find it as a 30 something.  This is about FIRE - and you obviously have waste in your budget - either be happy with that waste or try to eliminate it - if you're happy with it fine - you just wont get anyone here to say go ahead spend that gross amount of money you deserve it.  - may want to try the hummer forum or something along those lines with whatever your expensive tastes are.

Ben Kurtz

  • Stubble
  • **
  • Posts: 144
Re: Case Study - Annoying Rich Folk
« Reply #31 on: February 19, 2018, 01:58:46 PM »
Quote
Let’s pretend for a second we take all of our CF and pay our debts off in the next 7 years. Now we have 0 debt, and 7000 of CF. Now I have $1.3M in assets and 0 debt. I still don’t want to retire early... should I spend more then?

Yes. That's exactly the point that I have been trying to make, along with most of the others here.

Or at least, split the difference: Be very careful with luxury spending now, spend the next 4-odd years getting your net worth up from $210,000 to something like $500,000+, have those children, and then figure out how you want to spend money on luxuries. The luxuries are much nicer when served with a side of freedom.

Don't mistake your current positive trend lines with permanent security. Spend the next few years converting your current positive trends into a good measure of security, and then you will be well placed to loosen the purse-strings.

FIFoFum

  • Handlebar Stache
  • *****
  • Posts: 1938
    • Captain's Log - Mission to Puppy Waystation on Puppy Island
Re: Case Study - Annoying Rich Folk
« Reply #32 on: February 19, 2018, 02:00:55 PM »
I just can’t grasp the perspective that im “under-saving” when we save close to the  the median income in the US and are on target to retire when we want with 100% income replacement and a target spend of 15% of that  income. I know the target retirement is slightly different then the majority of the forum, but I’m pretty open about the different target here.

Being "on target" doesn't mean a lot because of how early you are in this plan/trajectory.

When someone scores a goal in the first game, they are on target to score 82 goals that year. When the team wins the first few games, they are on target to be undefeated. We know that these projections are false because of the inevitable regression to the mean.

People are explaining to you why your current plan may be insufficient for the future and giving specific reasons that being "on target" now doesn't mean a lot. Yes, if you wound up debt free and with $1.3 mil in 7 years, that would be fantastic. There is no evidence here that this is what would happen. If you came here even half of the way to that path (and with evidence of a history of maintaining the trajectory), I think you'd get different answers.

HPstache

  • Magnum Stache
  • ******
  • Posts: 2858
  • Age: 37
Re: Case Study - Annoying Rich Folk
« Reply #33 on: February 19, 2018, 02:06:45 PM »
I came here to see what "rich folk" net worth looks like... severely disappointed.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Case Study - Annoying Rich Folk
« Reply #34 on: February 19, 2018, 02:10:06 PM »
I came here to see what "rich folk" net worth looks like... severely disappointed.

haha thats why this forum need favorite buttons right there.  820k assets - seems rich til we see 610k in liability - now you're 30 and havent even saved what you make ina year yet-

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 985
Re: Case Study - Annoying Rich Folk
« Reply #35 on: February 19, 2018, 02:25:14 PM »
I am going to say much the same as others.

1. When I was 31 I couldn’t have imagined how tired and burnt out I would be by 45. Things change. I am so glad today that DW and I have always been fairly prudent (can’t claim to be frugal) with our money, and have well over $2M USD in NW today - which is a great place to be now I want to opt out of the rat race.

2. Your income is high and your NW low. You need to address this. I have no problem enjoying the fruits of success (I just spent a long weekend at a 5* resort in Goa India 👀), but I would strongly recommend that at an absolute minimum you always save 30-40% of after tax earnings no matter what. Live well on the other 60%. The more you save today, the more you will thank yourself 10 years from now. I also have a high income, and live the high life, but make sure DW and I save 50% of what we earn.

Chrissy

  • Handlebar Stache
  • *****
  • Posts: 1498
  • Age: 46
  • Location: Chicago
Re: Case Study - Annoying Rich Folk
« Reply #36 on: February 19, 2018, 02:31:37 PM »
Not currently interested in early retirement, but trying to keep our options open.

Specific Question(s):

Am I crazy to think it’s ok to spend this money (including setting some of it on fire upgrading our cars)?

Is there anyone else dealing with similar issues?

Spending all the money isn't "crazy" but IS antithetical to having options.  If you want options, you need to keep some of the money.

We're 8-10 years older than you.  Our income is a little lower than yours.  We have a 2-year-old and another on the way.  We don't have stock options, and my understanding is that stock options are not a "sure thing".  It seems like you, however, are really banking on those options, despite saying you ignore them. 

We meant to do some travelling, fix up his lake-side shack, etc. before having kids, but we don't regret that we didn't do these things.  Our desires were kinda vague.  Now that we have a lot of demands on our time, we've honed our priorities, and know exactly what we want to do:  we know exactly what we want the lake-side shack to look like.  Husband wants to eat fancy desserts in every country in Europe.  We want to take a long vacation in the Nordic countries when the kids are older, and see if we're interested in emigrating.  I want to check out some specific foreign architecture.  Singly, I did travel, and he did have all manner of boy-toys.  Married, we have a lot of luxury... our kid had a French nanny with a Master's for awhile, we only buy new, I get weekly massages, we have house cleaners, we don't cook and have coffee habits.

WE ALSO SAVE 40% OF OUR INCOME.  But nearly 50% of your income goes to debt.

My husband's take home pay from his bonus was $20k last year.  I urge him every year to take 10% of the bonus and spend it on himself, which is how we ended up with a monstrous piece of exercise equipment that he does use, but I loathe, specialty gaming equipment that is still in the boxes in storage somewhere, and a fancy keyboard primarily used as a laundry area.  At some point, he will probably attend a high-profile, multi-day tennis tournament.  (I actually tell him to do this NOW while his favorite players are still in the game.)  He tells me to go ahead and buy the $2k designer handbag I've been eyeing for 3 years.  So, you know... we believe in a little YOLO.

BUT NEITHER ONE OF US HAS ANY DEBT.

So, we have ALL the options.  We can have as many kids as we want, using whatever expensive science is available, and send them all to private schools.  We can FIRE.  One of us can FIRE in a couple years, and then we can just blow the other's salary like drunken sailors... or give it all to charity... or amass an empire.  We can both keep working, and spend even more.  We can emigrate or just live abroad.

If half the money is for today, and half the money is for the future, the future comes pretty darn quick.  We're going to be out exercising our options WAY before 59.5, and we would laugh in the face of $1-2M in stock options.

Now a word about family and PT childcare.  My sister had her first baby 3 weeks after I had mine.  My mother & father moved here expressly because my father was convinced he wanted to be Mr. Poppins to the kids.  Within two weeks, he was like, "Oh, god, I have made a mistake."  Fortunately, we had been skeptical all along and had already hired a nanny to share.  We've paid our nannies $17-18/hr (+ unlimited sick time, 3 weeks vacation), guarantee FIFTY hours a week though we use 40-45, and still had to fire one after 3 weeks for unreliability, two left for better paying jobs, and the current only agreed to 35/hrs/wk with the understanding that it was temporary.  She also wants FIFTY hrs/wk minimum. 

My family is moving away from the nanny model shortly.  My kiddo only needs part-time care, and all the centers list 1-4 day pricing options, but the reality is there's a year-long wait list for full-time slots, so none of them take part-timers.  Period.  So, we will pay for a full-time slot, but we will use it part-time, and we've just decided to be okay with that.  Baby #2 will arrive any day now, and together will cost us $40k/yr in childcare.  YMMV.


ice1717

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Case Study - Annoying Rich Folk
« Reply #37 on: February 19, 2018, 02:51:55 PM »
Beware of thinking/speaking in absolutes.

You: "Am I crazy to think it’s ok to spend this money" (Forum: "This silly couple wants to spend ALL of their money on silly bullshit while they are still in debt.")

Forum: "You should save money.  Life changes, jobs aren't secure, kids give you a new perspective, etc. " (You: These asshole want me to save ALL of my money and never have any fun)

Why is this happening?  Your stated goal of retire at 59.5 doesn't match many (most, all) of those on a FIRE forum.  The folks here are about early retirement.  The main difference between forum members here is what defines early, 20s, 30s, 40s, 50yo.

You might be better off taking some time to figure out your FI goals, what age you want to hit them, and then asking the forum's opinion on your goals. 

The number #1/2 cause of divorce is financial problems.  Expensive cars and experiences are nice, but they aren't financial stress relievers. 

Slow&Steady

  • Pencil Stache
  • ****
  • Posts: 698
  • Location: Midwest
Re: Case Study - Annoying Rich Folk
« Reply #38 on: February 19, 2018, 03:55:20 PM »
Here is my 2 cents, not always very MMM approved.

A little about me first, in case that helps you.  Our income is less than half yours, our NW is more than yours, our ages are around 5 years older than you, our 2nd (and last) kid is due in March, and we plan to retire around 55.

You are not rich, if you remove the house/cars from both sides of the equation your (modified) net worth is $90k on an income that is $250k/year.  According to Fidelity (who assumes you will retire at age 67) you need 1x your salary in in retirement by the time you are 30.  You are behind the recommendation for the average American (not the average MMMer).

About spending more money now on experiences.  I do feel that for some people this makes complete sense.  My spouse was Dx'd with MS a month after he turned 30, other than that he is and was a completely healthy average 30 year old male.  We hope to still be able to complete all the retirement travel that we always planned but we have chosen to slow down our route to FI so that we can purposely enjoy some things today, when we know he will not need any additional assistant to do those things.  HOWEVER, we only budget this extra spending after we know we are putting enough away for a rainy day, retirement, and accelerate debt pay-down. 

Why not increase retirement savings, emergency fund, and debt pay-down then use extra money to enjoy some of the things you want?  Is there a reason that you only list 1 401k and an HSA?  Why isn't the other spouse also contributing to a 401k?  Why aren't both spouses contributing to an IRA?  If you know kids are in the future you could do some research on what the average cost is for childcare and start putting that into a savings account now or apply that to debt pay-down so that after a baby gets here it doesn't have an impact on your budget. Once you do these things then see about adding some extras to your budget.  You want to take everyone on a fancy vacation, great, save for it every month until you can pay cash for it.

Here is another story for you.  A member of my extended family worked his way up in a company so that he was making around your income is a much lower cost of living city.  He felt his job was very secure, he was in a very executive position, helped make decisions for the company that resulted in very good profits, and was very friendly with the owner/CEO.  The CEO brought in a consultant to help optimize and make the company more profitable.  My family member and the consultant butted heads on a personality level.  It took 4 years and the consultant convince the owner to let him invest to become a partner but eventually the consultant was able to get my family member laid-off.  He received a very nice severance package and had enough in savings to last an additional year.

This family member believed in experiences and spent most of the money he earned on trips or pro sporting events, taking large groups (parents, brother family, sister family, friends, etc).  He put some into savings (1 year living expenses) but most was spent on experiences.  About 1.5 years after be laid off he had not found a job that he felt he would be fairly compensated for based on his experience (and I will not take a pay cut attitude) so he decided to start his own company.  He now works 80+ hours a week make less than half of what used to make, his previously happy SAHM wife is also putting in 80+ hours a week at the business and his father has extended his own retirement time frame by 5 years due to the money he has been pulling from investments to help out his son.  I can promise that the father would rather be retiring this year than have gone to all the fancy experiences that his son paid for in the previous years.

renata ricotta

  • Pencil Stache
  • ****
  • Posts: 703
Re: Case Study - Annoying Rich Folk
« Reply #39 on: February 19, 2018, 04:13:45 PM »
I haven't read all the replies, but FWIW, I'm also a DINK with a $260k base salary before bonus, and also don't really anticipate retiring early in the usual sense.  If I were you, I would pay down the 7% personal loan and keep paying the regular payments on everything else, because a 7% return is what the rest of us are crossing our fingers we will get in the market over a long enough period of time.  You could get that back guaranteed just by cash flowing the loan. 

If you pay that down now instead of later and then you have $1.3M and still don't want to retire, great.  What you've bought yourself is a whole lot of options in the event life goes sideways.  It could be that during parental leave one of you discovers that it's really really important to you to be a stay at home parent.  Or one of your parents gets very sick and needs a lot of time and resources to care for them.  Or one of your kids is severely disabled.  Or something changes at your job and what was originally pretty enjoyable turns into misery.  Or your company implodes. 

I value life flexibility more than I value two upgraded cars.*  What do you value?  Pay for that.  Just note that if the answer ends up being "two upgraded cars," you won't get a lot of people who can relate to you here.  :)


*Also FWIW, I spend pretty freaking freely compared to other people around here, and estimated my spend last year at $107k.  You can still have a pretty nice lifestyle - like maybe one upgraded car and one regular car - and save a crap ton of money to give your future self the gift of options. 

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8955
  • Location: Fayetteville, NC
Re: Case Study - Annoying Rich Folk
« Reply #40 on: February 19, 2018, 04:42:49 PM »
My wife and I, with our salaries and investments, make close to what you do.

I started off really enjoying my career and all its challenges.

Then those challenges got to be less challenging.  And boredom started to set in.
And the limited time off really got in the way of things I really wanted to do more.

But I didn't give up.   I re-invented myself in my career to get more pay and get new challenges.

Then those challenges got to be less challenging.  And boredom started to set in.
And the limited time off I got REALLY got in the way of things I really wanted to do more.

Lather, rinse, repeat.   Made more money but that time was slipping away.
Money wasn't the problem.  Time was.

And then I got saddled with a sociopathic boss.   Not a merely lazy boss, or a merely selfish boss, or a merely incompetent boss, or even merely  lazy, selfish, incompetent boss.

A sociopathic boss.

It only takes one to take all the joy out of your job and career.

Saving more gives you more options.  Options to keep working until 59.5, or quit much sooner and do something completely different.   



Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1809
  • Mustachian-ish in Live Music Capital of the World
Re: Case Study - Annoying Rich Folk
« Reply #41 on: February 19, 2018, 04:53:08 PM »
Hi, OP.  You should maximize happiness, but this forum's stock in trade is using a bit of Stoicism/effort/thrift to achieve it on much lower spending than what you do. 

http://www.mrmoneymustache.com/?s=stoic

You seem to want affirmation that the happiest route is to assume your new high income will last, future expenses will be stable, and the maximum happiness is from spending your income, so you should spend your exciting new income.  My friend jumped up to 250k income once.... it lasted four years, hasn't been back.  I suggest heeding the other posters' advice to be careful.

You might want to review the hedonic adaptation post.  I admire your persistence in reading this far.

http://www.mrmoneymustache.com/?s=hedonic

« Last Edit: February 19, 2018, 04:54:49 PM by Bicycle_B »

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 534
    • The Upwardly Mobile Life
Re: Case Study - Annoying Rich Folk
« Reply #42 on: February 19, 2018, 05:33:57 PM »
In our short time so far we’ve:

Paid down $100k in student loans, saved $100k for a house and $250k for retirement.

So while “not particularly robust” given our current income, it is a feat we’re proud of  since our income was 1/3 to 1/2 of what it currently was for most of that period. We could certainly continue that path and be FIRE by 40, not our current desire. Chances are even if we “open the purse strings” we still will save most of the CF because it’s in our nature.

I could certainly try to plan for everything that could possibly go wrong (although I’d just end up with a stack of guns, non-perishable food and gold and zero investment vehicles). My plan if my job “goes away” is to retool myself and start a new career. For insurable events, we have insurance.

I appreciate the thoughtful response Laura33, a lot of it gets to the MMM part of me. A couple comments, projected retirement spending is really just current spend with debts paid off (and a few work related expenses reduced... but mostly debt). Also, I don’t see myself requiring a 2% safe withdrawal as I expect to work a mostly full career and be willing to draw my assets down as I age.

So if life happens and we end up with only half of our expected retirement balance, it will produce $8000 of monthly income in addition to roughly $4000 of expected SS.

I know these are total rich high income people problems, but my biggest fear right now is over saving and wishing I did more “when I was young”. Especially since although we don’t plan for it, our income is likely to continue to rise over time.

I know the forum is skewed but I’m  a little surprised there hasn’t been a single response from a person currently dealing with this. I understand there is a difference between CF and wealth, but I also understand that CF is intimately linked to human capital (the “imaginary” asset that we’re all converting into tangible assets each day). I do find the attitude that MMM philosophy has it all figured out to be quite off putting, but again you don’t have to watch me on my deathbed fade away with an 8 figure net worth. All you have to do is try to stifle any free thought that differs from your closed minded view of life and the world. Spoiler alert: everyone else isn’t stupid, they’re lives are shaped by different experiences (hell maybe they’ve seen the end for an unnecessarily frugal individual)

Literally multiple of us have weighed in saying that we’re in nearly your exact same situation, we’ve just made different decisions.

You don’t need permission from the people here to spend how you want to spend, which is good because you’re not likely to get permission from the people here for the kind of spending you want to do.

What exactly are you looking for?

He’s looking for us to approve of high debt and high spending.  Seems like half of us have $200k+ income and we’re not going to approve of spending crazily.  Fortunately, he doesn’t need our approval.  He can do as he wishes.

This is a case with someone that is young and new to being higher income.  It’s classic hedonic adaptation creep or lifestyle inflation.

Personally, I’d be freaking out about throwing away tons of cash on a high interest personal loan(7% is insanity for debt), or six figure student loan debt (I can’t abide the casual treatment of a six figure hair on fire student loan debt with 5% interest).  I certainly wouldn’t be investing in a taxable account until that’s paid off. 

Also, 200k+ income, a huge burn off rate, and cash emergency fund is 10k? He should have closer to 50-80k cash.  We own a tiny co-op, my cash position can manage life with a new born child for 8 months.  That makes me comfortable.

What should this young pup actually  do?

First and foremost, the 7% loan needs to be dead.  All non essential, non 401k money should pay that
High interest loan down.  Second the student loan should be refinanced (probably doesnt qualify for much better rate with the high interest loan and inadequate emergency fund, but might get a rate that’s a percent or two lower once that cash position is closer to 25k).  After the emergency fund is up to 25k, then it’s a matter of building it while attacking the student loans.

He can sprinkle vacations and globe trotting around the next few years, but wasting money on nonsense and letting debt take its course will hinder wealth building and travel.  Kill the nonsense debt, organize the savings, travel will be easy and affordable.  Spending money on fancy cars is just crazy talk.

« Last Edit: February 19, 2018, 10:46:19 PM by MrUpwardlyMobile »

Tuskalusa

  • Bristles
  • ***
  • Posts: 442
Re: Case Study - Annoying Rich Folk
« Reply #43 on: February 19, 2018, 09:41:26 PM »
Agree with MrUpwardlyMobile. At that income level, this plan should be achievable. There should also be plenty of room for vacations sprinkled in. At a high income, one key luxury is the ability to reduce debt/build cash while being able to splurge a bit.

Happy_Lyfe

  • 5 O'Clock Shadow
  • *
  • Posts: 12
Re: Case Study - Annoying Rich Folk
« Reply #44 on: February 20, 2018, 05:59:44 AM »

Out of fear of angering the MMM gods I won’t mention some of the upsides of long-term moderate rate unsecured debt.


For the TLDR folk, income increased significantly and  current 10 year plan would leave us with enough $$$ to cover our debt free retirement spend but we’d still have $300k of debt (possibly at rates barely outpacing inflation).

Additionally, we have $50k per year AT to decide what to do with. Current debt ratios in the top ~10%, not interested in more debt or reducing debt faster, or retiring in 10 years.

Majority of folk say “hair on fire, all extra cash to debt”, some say “most extra money to debt, a little splurge”. No one thinks we should spend freely (for a couple years  without additional debt) to see if there is room to improve our quality of life.

Possible outcomes:

-Save everything and glad we did
-Save everything and regret we did
-Save nothing and glad we did
-Save nothing and regret we did
-Try to save nothing, but end up saving lots anyway after a brief taste of the fleeting joy of being a spendypants

Current plan is to work to 59.5 or as long as possible and direct excess funds charity. MMM community does not give consideration to future income, which makes sense given most people’s goals. Under a “coast to 59.5 plan” we already have enough saved for retirement and just need to cover expenses.

In conclusion, because we’re going in circles... I got the MMM answer. If anyone else stumbles on this in the future... probably not a useful forum to consult unless you’re hellbent on FIRE (thanks to the few posters who warned me early on). Personally we could sprint to FIRE and it would take 7-8 years, but we’re likely to coast there in 12 years anyway. With our current extra cash we’re likely to settle on some combination of save/spend/donate but won’t take any additional debt (unless it’s a sucka 0% loan on something we were going to buy anyway).

Good luck to everyone. I hope your journey is every bit as good as the destination.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Case Study - Annoying Rich Folk
« Reply #45 on: February 20, 2018, 06:14:58 AM »
so throw in the towel and leave when you dont get the response you want rather than understand that spending money wont buy you happiness.  to each their own

https://www.huffingtonpost.com/gobankingrates/40-crazy-ways-to-have-fun_b_9430730.html

here's a list of some great ways to spend that 50k disposable income now so you dont regret it in the future.  i'd go with 19 or 7. 


RelaxedGal

  • Bristles
  • ***
  • Posts: 359
  • Age: 46
  • Location: 495 corridor, Massachusetts, USA
Re: Case Study - Annoying Rich Folk
« Reply #46 on: February 20, 2018, 07:17:27 AM »
Am I correct in seeing that you are investing in Roth 401k instead of before tax?

"Annual Retirement Savings: ~$40k (18.5k to Roth 401k, 6.8k to HSA, rest to traditional)"

At your income level, it makes more sense to invest that $18.5k before tax rather than after if you can.  It will save you a bunch on taxes.

All previous savings was pretax. Tax law puts us in 24% bracket, using opportunity to diversify tax obligation (current plan would put us in 22% bracket in retirement even if rates don’t rise)

Yes.  Though it kills me to pay the taxes now, not having required minimum distributions on Roth IRA (or rollover IRAs from Roth 401k) in retirement is why we contribute to Roth 401ks.

I've skimmed the responses, and this is what I can tell you.  We pay(!) an Ameriprise financial advisor.  He is the impartial outsider that keeps us focused and working toward our goals. 5 years ago he was trying to get us to spend money.  We were just hoarding buckets and buckets of money because I'd come out of several unstable jobs and the market crash of 2008.  We were shoveling money into the "early retirement" non-qualified account because my husband hated his job.  Fast forward to last week's annual review and he was freaking out that we have succumbed to lifestyle creep.  2 new jobs we love, 2 new cars (with payments), only 1.5 months of expenses in our savings account, and not a wrinkle of worry on my face.  It has been raining money for a while, why worry?  And this is why we have the impartial advisor.  We're now going to build up a proper buffer, take a look at our spending, and keep these cars for a while.

The point of the case study is to get an outsider's view.  You're definitely getting plenty of opinions, and on this forum they're the opinions of people who want to be financially independent at 30 or 40.  As others have said, bogleheads might be a better fit.  They probably are for me, but I have never tried and just stick around here because I like the conversation :-)  You could also get a professional's opinion like we did.  It's WAY more detailed and a real pain to put together all of those numbers and voice all of your short and long term goals, but we find it worth while. 

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22318
  • Age: 66
  • Location: NorCal
Re: Case Study - Annoying Rich Folk
« Reply #47 on: February 20, 2018, 07:19:48 AM »
What exactly are you looking for?
Funny, I'm trying to get through all the comments before saying anything, but that damn song "Looking For Love In All The Wrong Places" will not get out of my head.

Ben Kurtz

  • Stubble
  • **
  • Posts: 144
Re: Case Study - Annoying Rich Folk
« Reply #48 on: February 20, 2018, 07:48:39 AM »
Quote
No one thinks we should spend freely (for a couple years without additional debt) to see if there is room to improve our quality of life.

Are you cold at night? Do you go to bed hungry? Do all your clothes have holes in them? No? Then how are you so sure that spending more money will improve your quality of life? Read up on Maslow, because by the sound of things you are well past half way up his hierarchy of needs, meaning the connection between spending more money and improving your life will be non-linear at best and downright tenuous at worst. Do you rush into most major life decisions without any real sort of plan and without doing your homework?

Spend some time talking to your spouse and writing down a list of specific and concrete things that you think you want to spend additional money on to improve your life, before going out and just doing things willy-nilly.

Think about how you'd rank them in order of anticipated awesomeness. Think about how you'd rank them in order of "now-or-never-ness;" and on the flip side, think about things that might actually be better later, when your life has changed, even if they'd be pretty neat right now.

Then post all that here, for laughs if nothing more.

But saying that you want to spend a bunch more money of a bunch of undefined things because you think that the spending will, by sheer weight of dollars, propel you to happiness and absolve you of regrets... that's just silly. You need to look at yourself in the mirror and ask yourself what you are actually afraid of, if all you can put into words is: "I don't want to look back and regret not doing stuff, even if I have no idea what that 'stuff' might be."

If you tell us that after talking with your spouse that you really want to take a mind-blowing two-week wildlife safari in Africa followed by a hot air balloon ride, a trip on the Blue Train to Cape Town, a case of the best wine from Stellenbosch and a diamond ring straight from the mine in Kimberley, book-ended by first class airplane tickets to and from home -- and that you want to do it now while you are young and energetic and don't have kids getting in your way -- I'd say great and give you the name of my travel agent. It'll be the most memorable $20,000 you'll likely ever spend. When you are high income, there is room to splash out on now-or-never opportunities, delaying slightly the day when you officially become a millionaire. That's one of the perks.

But if you tell us that you want a new BMW car and a wakeboat to zoom around the lake on the weekends -- we'll tell you to stop being silly and delay that gratification for a few more years. Because you're pushing the definition of "now-or-never" beyond the breaking point. Responsible living requires some sacrifices.

The weight of the advice here is to avoid the temptation simply to pull up into a financial equilibrium that will, eventually, if all goes well, make you wealthy when you are old -- in the meantime spending prodigiously simply for the sake of spending prodigiously, without having first achieved financial independence and security. That sort of plan is actually more or less anathema to the ethos of the blog and the ethos of the people who hang out on the forum -- which an intelligent person like yourself should understand perfectly if you've paid a reasonable amount of attention.

At a minimum, the philosophy here is to make hay while the sun shines and get ahead of the financial treadmill when momentum is on your side. The proprietor of the blog here, Pete, has a rule of thumb to the effect of "no motorized toys or hobby vehicles until you are a millionaire." No boats or snowmobiles or ATVs or light planes or whatever. Some of us might think $500,000 is plenty; others might wait until $2,000,000 before loosening the purse strings that way, or never do so. But it's the same basic point: use a high income to build some wealth before becoming a big spendypants; don't trick yourself into thinking it will be easy to do both at the same time.

libertarian4321

  • Handlebar Stache
  • *****
  • Posts: 1395
Re: Case Study - Annoying Rich Folk
« Reply #49 on: February 20, 2018, 07:58:01 AM »

We would easily survive 18 months of dual unemployment with UI, emergency, AT savings and loan deferments. Jobs are very secure. We also have ample life and disability insurance.

"Jobs are secure."

You might be shocked at the number of people who have believed that right up until the day they lost their job.  You don't have to go back all that far (2008) to see a situation where well paid professionals, who had "secure jobs" and thought they were Masters of the Universe, quickly found out that things weren't as rosy as they thought.

Stuff can happen.  National Economies change.  Industries change.  Companies change.  Tragedies happen that result in a person no longer able to do his job.

If that happens, its better to be FI than YOLOish.

And honestly, you ain't rich.  Not even close.  You have a high income and low net worth.  I had a  larger net worth (and no debt other than a very small home loan) at your age, at a fraction of your income.

Your net worth is pretty paltry given your age and income.  Plus, I really don't see why you need all that debt.

Do what you want.  It's your life.  But I, and I think most of the folks here, would rather be FIRE than YOLOish.  Even if it means turning down a few meals at Mortons and going to Longhorn Steakhouse instead.