I've made EVERY financial mistake, here's my new plan....

[ChpBstrd]

Be careful about extrapolating monthly rent into ROI. 10% will not be your return.

To be realistic, you'll need to:

1) Budget for some vacancy rate between tenants, such as occurs when it takes you a month to clean out the unit, make repairs, recruit your next tenant, get the paperwork signed, and have their move-in date occur. LLs are notoriously optimistic about getting 12 months of rent every year. 11 months is a more reasonable expectation, because in some years you might lose 3+ months of rent evicting tenants, repairing their extreme damage, etc. This adjustment alone reduces expected revenue from $60k to $55k.

2) Budget for maintenance and depreciation. The roof, kitchen counters, bathrooms, etc. will all become ratty and need to be replaced at various times in the future. If you aren't setting aside funds each year, you're accumulating  a hidden liability. For a very basic small apartment or cabin, if you're not spending or setting aside $3k per year, then you don't have a sustainable business. The place will eventually get so bad it hurts your ability to attract high rents and you end up being forced to sell to a remodeler at a steep discount. Let's set aside a mere $5k/year for annual maintenance and depreciation on a brand new $600k structure, which reduces revenue from $55k to $50k.

3) Budget for insurance, including extra liability coverage. I'll spitball $3k, which brings net revenue down to $47k.

4) Budget for increased property taxes. I'll WAG $3k (a mere 0.5% of your improvement's value), which brings net revenue down to $44k.

5) Because you have lots of assets a litigatious renter could go after, you should probably establish an LLC. The problem is, your main house is on the same property, so the LLC may be unable to shield your biggest asset. So budget for a few hours of legal advice, and maybe also hire an accountant to do the taxes. Let's generously say $1k per year for legal and tax service. Now revenue is $43k.

6) Budget for either:
     a) the interest you'll pay on a mortgage or HELOC to finance the place, OR
     b) the opportunity cost of the cash you pay for the place - i.e. what you could earn in a similarly risky investment.

A lot of people don't understand opportunity cost, but consider that by spending $600k cash on the ADU, you are passing up the opportunity to instead spend the same cash on bonds or preferred stocks yielding 6% per year or stocks with an expected return around 9%. Thus, you are trading the opportunity to earn $36k-$54k/year hands-off for the opportunity to earn $60k/year in rent minus all the deductions in #1-#5 and minus the value of your labor in running the business. You'll probably come out worse than the financial markets in the first few years but then your returns might pull ahead if rents can be increased.

Compounding works in either the LL or the paper asset investor scenarios. Rents could rise every year faster than expenses rise, but similarly the earnings of the companies whose shares you own could rise every year faster than their expenses. As a new LL, you're betting that your ROI will exceed the market's ROI - otherwise all your labor and risk would not be worthwhile. But as the math above illustrates, it's far from certain that your ADU will outperform.

[cardifftodd]

ChpBstrd - Very good points, thank you. 

Villanelle - I spent a lot of time every day looking at real estate.  There truly isn't anything less expensive in our immediate area.  We could try to relocate somewhere a little less expensive after my daughter is out of high school but it's not going to cost any less than we paid 6 years ago.  We would just be cashing in the equity we have.  People are paying what we paid 6 years ago for total crap.  But our home isn't fancy... at all.  It's 1370 sf of 60's beach house that we did a very modest remodel on when we purchased.  The house functions fine for us, we don't need a lot of space, and we don't crave or care about fancy.  We don't even have AC.  The value is in the land/location and the fact that we have very nice whitewater ocean views.  Lot down the street from us just sold for $2M.  The 2750 sf home built a few years ago on the corner in front of us just sold for $6.3M cash.  I understand that it is difficult for a lot of people to wrap their minds around those numbers.

We would like to stay in the home forever. But that's impossible with a mortgage so we realize that at some point the house may have to go.  The ADU idea was the workaround plan. 

And I would love to retire on the lake but there's not much to do out there during the long, dark, cold, and wet winter.  We'd have to travel... a lot. 

[MrSpendy]

ChpBstrd - Very good points, thank you. 

Villanelle - I spent a lot of time every day looking at real estate.  There truly isn't anything less expensive in our immediate area.  We could try to relocate somewhere a little less expensive after my daughter is out of high school but it's not going to cost any less than we paid 6 years ago.  We would just be cashing in the equity we have.  People are paying what we paid 6 years ago for total crap.  But our home isn't fancy... at all.  It's 1370 sf of 60's beach house that we did a very modest remodel on when we purchased.  The house functions fine for us, we don't need a lot of space, and we don't crave or care about fancy.  We don't even have AC.  The value is in the land/location and the fact that we have very nice whitewater ocean views.  Lot down the street from us just sold for $2M.  The 2750 sf home built a few years ago on the corner in front of us just sold for $6.3M cash.  I understand that it is difficult for a lot of people to wrap their minds around those numbers.

We would like to stay in the home forever. But that's impossible with a mortgage so we realize that at some point the house may have to go.  The ADU idea was the workaround plan. 

And I would love to retire on the lake but there's not much to do out there during the long, dark, cold, and wet winter.  We'd have to travel... a lot.

While I think this is far from optimal, have you considered, instead of doing the ADU, just simply re-casting your primary mtg with the proceeds of the toys/lakehouse sale? It's not what I'd personally do because your rate is so low and I would just put in in diversified stock/bond portfolio, but you seem to regard your mortgage payment as immutable, which it is not given your income and assets.

[Villanelle]

ChpBstrd - Very good points, thank you. 

Villanelle - I spent a lot of time every day looking at real estate.  There truly isn't anything less expensive in our immediate area.  We could try to relocate somewhere a little less expensive after my daughter is out of high school but it's not going to cost any less than we paid 6 years ago.  We would just be cashing in the equity we have.  People are paying what we paid 6 years ago for total crap.  But our home isn't fancy... at all.  It's 1370 sf of 60's beach house that we did a very modest remodel on when we purchased.  The house functions fine for us, we don't need a lot of space, and we don't crave or care about fancy.  We don't even have AC.  The value is in the land/location and the fact that we have very nice whitewater ocean views.  Lot down the street from us just sold for $2M.  The 2750 sf home built a few years ago on the corner in front of us just sold for $6.3M cash.  I understand that it is difficult for a lot of people to wrap their minds around those numbers.

We would like to stay in the home forever. But that's impossible with a mortgage so we realize that at some point the house may have to go.  The ADU idea was the workaround plan. 

And I would love to retire on the lake but there's not much to do out there during the long, dark, cold, and wet winter.  We'd have to travel... a lot.

So you plan to live indefinitely in the ADU while renting out the main?  Is the ADU smaller/more modest than the current 1300sqft place, or is it actually bigger and nicer? 

And CB makes some great points about your calculations.  If you are renting the main house and living in the ADU, I think his maintenance numbers are much too low.  A 1960s home is going to have significant on-going maintenance needs.  Given that the numbers are so neck and neck but the ADU plan comes with additional risk (though admittedly perhaps some slight additional possible rewards, if rents skyrocket--though the market can do that, too), I don't see how it makes sense.  You are fixated on "additional income", but that can come from stock market returns instead of an ADU that brings additional risk and puts even more of your net worth into this one asset. 

I'd conservatively invest the proceeds from home, boat, and spare vehicles, and if the mortgage truly haunted me (which it wouldn't, but it seems like it does for you), then once that money had grown to be enough to pay off the mortgage, I'd write a big check at that point.

And I'd take a massive hatchet to the budget because you are spending gobs of money. 

[Dicey]

Around here, the running gag is, "Don't build an ADU, buy a house that already has one." But it's a gag that has limitations. If you did so, besides building costs, you'd have selling, moving, and buying costs, plus your taxes would increase. Interest rates would at least double.

I love ADU's and tiny houses. I own a house with a JADU, but I added it when the house was built. It's hilarious to me now that it only cost $25k extra back then. It was my tiny sanctuary for many years. It's kind of like a miniature version of your lake house, lol.

It was unclear in your original post how much thought and work you've already put into this. The cost of building materials is starting to drift down, so time is on your side in that respect. The recent passage of SB9, a bill designed to make the ADU permitting process easier and cap other related costs, should also reduce costs.

My suggestion would be to take your existing plans and look for ways to cut corners relatively painlessly. Can you use quality RTA cabinets instead of site built? Do your dimensions take advantage of standard sizes of building materials?

We recently made over a small condo. Our goal was to maximize space and create a cohesive style throughout. We added built-ins everywhere we could. We used RTAs, but when it came time to buy the countertops, we had to go with custom, because our dimensions weren't standard.  We had to buy an entire slab for just one set of cabinets.

The difference is that we had to work within very rigid existing parameters. You have the freedom to make cost-effective adjustments before you build, which I encourage you to explore. Did you know that everything in an Eichler is a function of the size of a 4' x 8' sheet of plywood? The entire home was designed to be built as cheaply and efficiently as possible. Now, they're selling for millions.

If you're interested, I  chronicled our adventure here: https://forum.mrmoneymustache.com/real-estate-and-landlording/west-coast-rta-cabinet-maker-recommendations/250/

My battery's dead, so I'm posting without proofing for typos. I'll check back later to correct them. Apologies in advance.

[former player]

ChpBstrd - Very good points, thank you. 

Villanelle - I spent a lot of time every day looking at real estate.  There truly isn't anything less expensive in our immediate area.  We could try to relocate somewhere a little less expensive after my daughter is out of high school but it's not going to cost any less than we paid 6 years ago.  We would just be cashing in the equity we have.  People are paying what we paid 6 years ago for total crap.  But our home isn't fancy... at all.  It's 1370 sf of 60's beach house that we did a very modest remodel on when we purchased.  The house functions fine for us, we don't need a lot of space, and we don't crave or care about fancy.  We don't even have AC.  The value is in the land/location and the fact that we have very nice whitewater ocean views.  Lot down the street from us just sold for $2M.  The 2750 sf home built a few years ago on the corner in front of us just sold for $6.3M cash.  I understand that it is difficult for a lot of people to wrap their minds around those numbers.

We would like to stay in the home forever. But that's impossible with a mortgage so we realize that at some point the house may have to go.  The ADU idea was the workaround plan. 

And I would love to retire on the lake but there's not much to do out there during the long, dark, cold, and wet winter.  We'd have to travel... a lot.

Your house and location sound amazing.  I'm definitely in the "don't sell" brigade: the chance of regret and not being able to get anything like it again is too high.

But: your mortgage is $1.15m at 3%.  If you put your $600k into paying off mortgage you are left with only $515k.  That more than halves your payments, meaning that every month half your current mortgage payment now goes into investments instead.  Easy peasy, big increase in investment savings for no work and no disruption.

Plus, let's consider your asset allocation.  You've given a value for your current home of $2.9m.  You are proposing to build an ADU to give a value of $3.5m.  It is utterly asinine to put so much money in a single property, and that's not even considering earthquakes and future sea level rises.   Your problem is not that you don't have enough invested in property, it's that you don't have enough invested in index funds.  If you invest in this ADU you are just carrying on with more of what you've been doing, and what you've been doing isn't getting you to retirement. 

So please, forget the ADU, sell as many of the toys and extraneous belongings as you can bear to, put the money either into paying off most of your mortgage or into index funds*, and in a few years' time you can sit back and relax on the proceeds.

* Interest at 3% would tend to say keep the mortgage and dump the whole proceeds of sale into index funds which should have a higher return.  But I think you are emotionally concerned about the amount of your mortgage payments and having those substantially reduced may help you to take a calmer view of your financial position.

[ChpBstrd]

ChpBstrd - Very good points, thank you. 

Villanelle - I spent a lot of time every day looking at real estate.  There truly isn't anything less expensive in our immediate area.  We could try to relocate somewhere a little less expensive after my daughter is out of high school but it's not going to cost any less than we paid 6 years ago.  We would just be cashing in the equity we have.  People are paying what we paid 6 years ago for total crap.  But our home isn't fancy... at all.  It's 1370 sf of 60's beach house that we did a very modest remodel on when we purchased.  The house functions fine for us, we don't need a lot of space, and we don't crave or care about fancy.  We don't even have AC.  The value is in the land/location and the fact that we have very nice whitewater ocean views.  Lot down the street from us just sold for $2M.  The 2750 sf home built a few years ago on the corner in front of us just sold for $6.3M cash.  I understand that it is difficult for a lot of people to wrap their minds around those numbers.

We would like to stay in the home forever. But that's impossible with a mortgage so we realize that at some point the house may have to go.  The ADU idea was the workaround plan. 

And I would love to retire on the lake but there's not much to do out there during the long, dark, cold, and wet winter.  We'd have to travel... a lot.

While I think this is far from optimal, have you considered, instead of doing the ADU, just simply re-casting your primary mtg with the proceeds of the toys/lakehouse sale? It's not what I'd personally do because your rate is so low and I would just put in in diversified stock/bond portfolio, but you seem to regard your mortgage payment as immutable, which it is not given your income and assets.

Here's a checkmate in five moves play @cardifftodd could make if locking in their ability to live in their home was their only concern.

1) Extract $650k equity from the sale of the lake house.
2) Extract $100k from the sale of just part of the fleet of motor toys.
3) Save $200k of the $450k-500k income over the next 12 months (40 - 44.4% savings rate).
4) Apply (650+100+200=) $950k proceeds and savings to the 1.15M mortgage on the main house. Mortgage is now $200k.
5) Kill the remaining mortgage from the following year's savings at a >40% savings rate.

Result: All mortgages killed in just 2 years and the home where you want to stay is owned outright. Annual expenses are reduced by some massive six-figure amount I cannot calculate with the information available, and this makes it even easier to save a christload of money in year 3.

Of course, this plan is insane. Your mortgages and your education debt are in the 2-3% range and you can't get those anymore!!! You say you made every financial mistake, but I think you were very timely in locking in some excellent rates! To be clear, I would not prepay a dime on either your primary home mortgage or the education debt - not when you could earn twice in bank CDs. We are going to have to sacrifice the lake house mortgage though, but at least it's relatively small.

It's costing next to nothing to have those debts, but you simply have so many payments that it is interfering with your ability to save up a cash flowing liquid nest egg. Even if the only bills you need to pay are food, property taxes, insurance, and oil changes for the Porsche(s) you will eventually need a bigger nest egg.

A wealth-maximizing approach that keeps the main house and most of the motor toys might look something like:

1) Extract $650k equity from the sale of the lake house.
2) Extract $100k from the sale of just part of the fleet of motor toys.
3) Save $200k of the $450k-500k income over the next 12 months (40 - 44.4% savings rate).
4) Apply (650+100+200=) $950k proceeds and savings to your investment accounts.

Net result: In just one year, paper investments are now (1.1M+950k=) $2.05M and that's assuming 0% growth. If you only earn a 6% rate of return after this point, this nest egg either spins off or grows by $123k per year.

Now that you're down to only paying the one mortgage and aren't paying quite as much for vehicles and lake house expenses, your annual spending should be much lower. Saving up the rest of your nest egg therefore gets much easier as cash flow is freed up and as the size of the portfolio required to support your spending goes down with the spending. If you keep pounding $200k per year into savings, it's a matter of math before you're financially independent - even with the primary house mortgage.

Year 2: 2.05M + 123k returns + 200k savings = $2.37M
Year 3: 2.37M + 142k returns + 200k savings = $2.72M
Year 4: 2.72M + 163k returns + 200k savings = $3.08M
....

[cardifftodd]

CB - I like these approaches, a lot.  I don't think we could save $200k/year but I'm going to play with the numbers.

Our current mortgage/tax payment is about $6650 and, ultimately I want to be out from underneath that.  Is there any scenario in which people would invest the money and then use the earnings to pay down the mortgage?  Or better to let it grow and, as mentioned above, right the big check when the money is there?

[ChpBstrd]

CB - I like these approaches, a lot.  I don't think we could save $200k/year but I'm going to play with the numbers.

Our current mortgage/tax payment is about $6650 and, ultimately I want to be out from underneath that.  Is there any scenario in which people would invest the money and then use the earnings to pay down the mortgage?  Or better to let it grow and, as mentioned above, right the big check when the money is there?

If your investment assets are earning 6% (just to pick a reasonable number), you'd need $1.33M to completely pay for $79,800 in annual mortgage payments.

Note that you're already most of the way there. You could pay off your primary mortgage tomorrow if you really wanted to, but that would be insane. It's much more optimal to borrow at 3% when you can invest at 5-6%. I would personally leap at the opportunity to take on debt at those rates, but I have no such opportunity. You do because you locked in the debts earlier! One way to frame it is if you would be happy to borrow at 3% when you can walk down to the bank and earn 5.7% absolutely risk free. Um, yes please. That's free money. Thus you should not pay off the mortgage from any financial assets you can accrue.

You could mentally frame this as:

Goal 1: Accumulate and invest 1.33M so that I have enough income to at least pay the mortgage forever. This is housing security for as long as you can earn at least 6%. Lots of quality corporate bonds are paying these rates right now. And if the available interest rates ever dip below 3% again, you can always just pay off the mortgage.

Goal 2: Accumulate and invest 25x my remaining annual spending, which it total spending minus the mortgage, minus the lake house expenses, and minus some of the expensive motor toy expenses. This is financial independence.

Goal 3: Accumulate and invest some extra if I want to increase my spending above the financial independence baseline, continue to have expensive hobbies, etc. This is the option to increase your standard of living even if you retire, although many on this board deride this as One More Year syndrome.

If your annual spending is so high you can't save 40% then yea, it's time to do a deep dive and figure out where the money is going. Mint.com could be helpful to disentangle it all.

I strongly suspect the lake house and motor vehicles are consuming at least a high-five-figures amount each year. As those costs are eliminated, it becomes much easier to save 40-45% of your income. $200k/year in savings should be within reach unless you are unwilling to make changes. You might find restaurants or subscriptions or something else are consuming five figures per year too.

It's really the same process as a person earning $50k per year, just at a different scale and with fewer hard limits.

[roomtempmayo]

The comments on this thread have us thinking about whether we really should do the ADU, and that is why I posted in the first place. 

Rarely is the solution to money problems spending more money.

[Kris]

The comments on this thread have us thinking about whether we really should do the ADU, and that is why I posted in the first place. 

Rarely is the solution to money problems spending more money.

Words to live by.

[Villanelle]

CB - I like these approaches, a lot. I don't think we could save $200k/year but I'm going to play with the numbers.

Our current mortgage/tax payment is about $6650 and, ultimately I want to be out from underneath that.  Is there any scenario in which people would invest the money and then use the earnings to pay down the mortgage?  Or better to let it grow and, as mentioned above, right the big check when the money is there?

Okay, how about $150k/year savings?  Your house is costing you <$80k. You make about $450k, so let's say you take home around $325k, minus 80k for the house, leaving about $250, so if you are saving $150k, that still gives you $100k to spend. . Are you saying you simply can't survive on about $100k/year *after* housing expenses?  What happened to "we are frugal and eat at home and don't have cable"?  Do you really think that spending more than $180k/year isn't a very expensive lifestyle, even with an expensive home? It seems that at the moment, you have no idea where a couple hundred thousand dollars a year actually goes.  Getting a handle on that seems essential, and also figuring out what is reasonable, and what is most important to you--both in terms of expenses and in terms of your goals to pay off the house and retire someday.

Yes, I get that SoCal is expensive.  I grew up in OC, still have family there, and own a home in San Diego. And I currently live in a pretty high COL area, too.  (Greater DC area.) But if you can't live on about $100k/year after housing is taken care of, there's something very wrong and your goals to retire someday not decades from now, and to be able to pay off your mortgage (or have the money to do so, but make the varsity decision not to) aren't actually as important as you say they are.  If you actually want those things--retirement and paid-off home-- you probably need to reexamine your priorities.  Because despite what you claim, you are spending gobs of cash on your lifestyle. 

~~


Could you rent space on your land to someone with a semi-portable tiny home?  That might bring in more income (though your's is not actually an income problem) without you having to front many costs for it.  Running electric and sewer and maybe paving a pad, if that's even necessary. 

[cardifftodd]

Yes, I think I can do this.  I've been going through credit card statements all day.  Holy shit.  I won't humiliate myself any more than I have but there is a lot of unnecessary spending and some big ticket incidental item almost every month.  I think I have a plan that will enable us to save at least $150-155k/year (this includes $53k 401k contribution with catch up and match since I'll be 50 soon), probably more.  And going to a W-2 in a couple months may actually help this because I can take the 3rd of my income that is paid quarterly and divert it directly into a brokerage account before we ever see it.  I'll still need my family to buy in and do their part on the spending end, which won't be easy. 

Anyway, I do appreciate all the comments, insights, and suggestions.  Having people who look at their finances from a much different perspective than we have has been eye-opening, even just in the couple days since I posted this thread.  As as bad as me and my family may look, we have a lot of friends who are in a much worse position.  We have a path out if we make a plan and stick to it.  And we can always sell the house in a few years and relocate if it ever came to it. 

Thanks.

[Sapphire]

Great re going through credit card statements.  I suspect you will get buy in from your family if the end result sees you staying in your home. 

[iluvzbeach]

So much great advice in this thread to get you started.

I just want to comment on the idea of the ADU and how I would strongly recommend against this, for so many reasons. In addition to all the headache & expense related to building, being a landlord, vacancies, etc., what happens if you decide you hate it (for whatever reason)? You are then either stuck with a very expensive, vacant structure on your property or you have to sell and move to find a different property without an ADU. You’ve said you love where you are, don’t potentially screw that up. You can pull all of this off in much smarter, more cost effective and less headache-y ways than building an ADU.

ETA: And don’t even think the ADU or main house could be a place for one of your kids to live if you end up hate being a landlord. Chances are you’d let them live there for free or way below market value and that would not help you accomplish at all what you’re trying to achieve financially.

[reeshau]

Yes, I think I can do this.  I've been going through credit card statements all day.  Holy shit. 

[Midwest_Handlebar]

Yes, I think I can do this.  I've been going through credit card statements all day.  Holy shit.  I won't humiliate myself any more than I have but there is a lot of unnecessary spending and some big ticket incidental item almost every month.  I think I have a plan that will enable us to save at least $150-155k/year (this includes $53k 401k contribution with catch up and match since I'll be 50 soon), probably more.  And going to a W-2 in a couple months may actually help this because I can take the 3rd of my income that is paid quarterly and divert it directly into a brokerage account before we ever see it.  I'll still need my family to buy in and do their part on the spending end, which won't be easy. 

Anyway, I do appreciate all the comments, insights, and suggestions.  Having people who look at their finances from a much different perspective than we have has been eye-opening, even just in the couple days since I posted this thread.  As as bad as me and my family may look, we have a lot of friends who are in a much worse position.  We have a path out if we make a plan and stick to it.  And we can always sell the house in a few years and relocate if it ever came to it. 

Thanks.

Best of luck to you! I think most of us on this forum had a "red pill" moment that crystallized what was really important in life. Often times it takes an illness, job loss, eviction, foreclosure, or another very painful experience to realize that trading your life away one hour at a time is not optimal, and there are alternatives.

If you can avoid the pain and reach that conclusion with this discussion it will be a huge win. Feel free to DM me if you have specific questions working through all this... I have plenty of time on my hands now. 

[Villanelle]

Yes, I think I can do this.  I've been going through credit card statements all day.  Holy shit.  I won't humiliate myself any more than I have but there is a lot of unnecessary spending and some big ticket incidental item almost every month.  I think I have a plan that will enable us to save at least $150-155k/year (this includes $53k 401k contribution with catch up and match since I'll be 50 soon), probably more.  And going to a W-2 in a couple months may actually help this because I can take the 3rd of my income that is paid quarterly and divert it directly into a brokerage account before we ever see it.  I'll still need my family to buy in and do their part on the spending end, which won't be easy. 

Anyway, I do appreciate all the comments, insights, and suggestions.  Having people who look at their finances from a much different perspective than we have has been eye-opening, even just in the couple days since I posted this thread.  As as bad as me and my family may look, we have a lot of friends who are in a much worse position.  We have a path out if we make a plan and stick to it.  And we can always sell the house in a few years and relocate if it ever came to it. 

Thanks.

Great attitude.  It may seem that people, myself included, were harsh, but it truly comes from wanting to help.  Sometimes, being slapped upside the head with the halibut of reality can lead to great changes. 

With your income and lack of consumer debt, and the assets you can sell, you are in a great position and if you put your mind to it, you could easily be retired quite soon.  If you want advice for getting family buy-in, there's a thread (I think it is a pinned post) about how to get your spouse on board.  Many of the tips can also work with children, too.

[Freedomin5]

Yes, I think I can do this.  I've been going through credit card statements all day.  Holy shit.  I won't humiliate myself any more than I have but there is a lot of unnecessary spending and some big ticket incidental item almost every month.  I think I have a plan that will enable us to save at least $150-155k/year (this includes $53k 401k contribution with catch up and match since I'll be 50 soon), probably more.  And going to a W-2 in a couple months may actually help this because I can take the 3rd of my income that is paid quarterly and divert it directly into a brokerage account before we ever see it.  I'll still need my family to buy in and do their part on the spending end, which won't be easy. 

Anyway, I do appreciate all the comments, insights, and suggestions.  Having people who look at their finances from a much different perspective than we have has been eye-opening, even just in the couple days since I posted this thread.  As as bad as me and my family may look, we have a lot of friends who are in a much worse position.  We have a path out if we make a plan and stick to it.  And we can always sell the house in a few years and relocate if it ever came to it. 

Thanks.

Great attitude.  It may seem that people, myself included, were harsh, but it truly comes from wanting to help.  Sometimes, being slapped upside the head with the halibut of reality can lead to great changes. 

With your income and lack of consumer debt, and the assets you can sell, you are in a great position and if you put your mind to it, you could easily be retired quite soon.  If you want advice for getting family buy-in, there's a thread (I think it is a pinned post) about how to get your spouse on board.  Many of the tips can also work with children, too.

It’s this thread: How to Convert your SO to MMM in 50 Awesome Steps

[314159]

Good job for going through credit card statements. Good luck on your new path!

[cardifftodd]

Random thought and perhaps best for the RE forum but what about this idea?:

Offer seller financing to my friends/renters at the lake cabin....
Maybe something like 20% down which almost pays off the mortgage.  I'd have to pay the small difference.   Loan  7-7.25% so they save half a point and avoid some closing costs.   5 year balloon, possibly even interest only to avoid capital gains
I end up avoiding  selling costs ($40-45k), secure a good return over the next 5 years, and I can be investing 100% of the payments over those 5 years. 
Maybe I'm thinking about this wrong but that would be close to $250k in interest PLUS I can be investing and earning returns on that money.
In five years I get my $600k balloon payment

All the while we're doing our $160k/year savings plan

[Midwest_Handlebar]

I personally like the idea as long as it's executed well. Have a competent lawyer draft the agreement, and be ready to foreclose on the property if they stop making payments.

Make sure your friends are competent with money and can afford the payments. I would do the same due diligence as a bank would.

[Villanelle]

Random thought and perhaps best for the RE forum but what about this idea?:

Offer seller financing to my friends/renters at the lake cabin....
Maybe something like 20% down which almost pays off the mortgage.  I'd have to pay the small difference.   Loan  7-7.25% so they save half a point and avoid some closing costs.   5 year balloon, possibly even interest only to avoid capital gains
I end up avoiding  selling costs ($40-45k), secure a good return over the next 5 years, and I can be investing 100% of the payments over those 5 years. 
Maybe I'm thinking about this wrong but that would be close to $250k in interest PLUS I can be investing and earning returns on that money.
In five years I get my $600k balloon payment

All the while we're doing our $160k/year savings plan

Interesting.  Do you have specific friends actually interested in the house, and who have 20% to put down?  And are you prepared to charge the late fees if they miss a payment and come to you with a sob-story?  Are you prepared to foreclose if they can't pay, even if that's because dad got cancer or mom died or daughter has a life-altering car accident?  What happens if if are in deep recession in 5 years and they can't refinance, can't sell for what they owe, and can't make the balloon payment? How important is this friendship?

I'm interested to read what others have to say about this.  To me, it sounds like a decent plan, except for the fact that it is a friend, and that makes it harder to enforce your rights to the property.  Could you list it for sale (by owner) with these same terms and sell to a stranger?  You are going to have to pay a lawyer, file a lien, etc., either way.  But selling to an outside might make it easier to view as a business transaction. 

[ToTheMoon]

Financially, it could certainly work.

However, because it involves friends, it would be a hard pass (unless you really don't care about your friendship).

You have enough and earn enough that simplification needs to be your primary focus here. Ditch the excess, put the ADU plans on the back shelf (any money spent on the idea is a sunk cost already) and keep moving forward! The less stuff you have to manage, the more mental bandwidth you will have for the day to day, and the relaxation and money will come.

Simple and easy is 'boring' but it works.

Wishing you all the best on this journey!

[Hadilly]

I find your post fascinating because my family is in a similar place in terms of hcol and income.

A few thoughts, ditch your adviser. 1% a year is a lot to lose in returns. Have you read JH Collins? You can manage something simple yourself.

Sell the toys, sell the lake house. Take the money and put it in Vanguard. Don’t sell to your friends, get the money out and invest it.

Do not build an ADU now.

Doing these things will simplify your life and your financial life.

Why are you so worried about the mortgage? I ask because our current costs, mortgage/hoa/taxes run about 6k for us. I don’t really see it as a problem. It is the cost of living where we do. It’s also doable with high income.

Questions, how are you funding college for your kids? What are your fixed expenses besides the mortgage?

Additional ways to bring in income down the road: med-legal work, rent a room in your house once your youngest is out of the house, moonlight, consult.  One of my step-parents retired and hasn’t touched any of their savings because of consulting work. Our neighbors cover a good chunk of their mortgage by renting their upstairs to students.

You implied that you need to get family buy-in on cutting expenses. Good luck!

I liked reading The Millionaire Next Door and thinking about financial offense and defense. I also liked the thought exercise of coming up with core family values, then allowing those to inform spending.

When I look at our spending, it is food, kid sports, braces, my sports, travel. What is yours?

[cardifftodd]

Random thought and perhaps best for the RE forum but what about this idea?:

Offer seller financing to my friends/renters at the lake cabin....
Maybe something like 20% down which almost pays off the mortgage.  I'd have to pay the small difference.   Loan  7-7.25% so they save half a point and avoid some closing costs.   5 year balloon, possibly even interest only to avoid capital gains
I end up avoiding  selling costs ($40-45k), secure a good return over the next 5 years, and I can be investing 100% of the payments over those 5 years. 
Maybe I'm thinking about this wrong but that would be close to $250k in interest PLUS I can be investing and earning returns on that money.
In five years I get my $600k balloon payment

All the while we're doing our $160k/year savings plan

Interesting.  Do you have specific friends actually interested in the house, and who have 20% to put down?  And are you prepared to charge the late fees if they miss a payment and come to you with a sob-story?  Are you prepared to foreclose if they can't pay, even if that's because dad got cancer or mom died or daughter has a life-altering car accident?  What happens if if are in deep recession in 5 years and they can't refinance, can't sell for what they owe, and can't make the balloon payment? How important is this friendship?

I'm interested to read what others have to say about this.  To me, it sounds like a decent plan, except for the fact that it is a friend, and that makes it harder to enforce your rights to the property.  Could you list it for sale (by owner) with these same terms and sell to a stranger?  You are going to have to pay a lawyer, file a lien, etc., either way.  But selling to an outside might make it easier to view as a business transaction.

Yes, my current renters.  They made an offer already but it was a little low.  They are well-qualified., I would have very few concerns about the financials.  I'll be up at the cabin with them this weekend, selling the boat:-(

[cardifftodd]

I find your post fascinating because my family is in a similar place in terms of hcol and income.

A few thoughts, ditch your adviser. 1% a year is a lot to lose in returns. Have you read JH Collins? You can manage something simple yourself.

Sell the toys, sell the lake house. Take the money and put it in Vanguard. Don’t sell to your friends, get the money out and invest it.

Do not build an ADU now.

Doing these things will simplify your life and your financial life.

Why are you so worried about the mortgage? I ask because our current costs, mortgage/hoa/taxes run about 6k for us. I don’t really see it as a problem. It is the cost of living where we do. It’s also doable with high income.

Questions, how are you funding college for your kids? What are your fixed expenses besides the mortgage?

Additional ways to bring in income down the road: med-legal work, rent a room in your house once your youngest is out of the house, moonlight, consult.  One of my step-parents retired and hasn’t touched any of their savings because of consulting work. Our neighbors cover a good chunk of their mortgage by renting their upstairs to students.

You implied that you need to get family buy-in on cutting expenses. Good luck!

I liked reading The Millionaire Next Door and thinking about financial offense and defense. I also liked the thought exercise of coming up with core family values, then allowing those to inform spending.

When I look at our spending, it is food, kid sports, braces, my sports, travel. What is yours?

I just feel that having a mortgage is a hindrance to ever retiring.  But I'm seeing some of the logic in other people's thinking.  The real issue is that our discretionary spending is so high.  We spend a lot of happy hours, travel, and my wife/daughter have an Amazon problem.  I paid for a lot of braces but it was a good investment.  I paid a lot of child support for 18 years but, thankfully, that ended about a year ago.  But, as I go back through our credit card bills, I see at least one expensive splurge every month.  We never just say no.

My oldest is 2nd year in college with a full-ride.  She lives at home with her mom in AZ.  So there's not much else to cover.
I have $125k in 529 account for my younger daughter.  I told her we'd support a state school education and that should be pretty close.  We are still contributing to her 529 but I may start scaling back.

[RWD]

Why is retiring to the lake house *kidding*? That seems like a nice plan to me.

^^^

[Villanelle]

I find your post fascinating because my family is in a similar place in terms of hcol and income.

A few thoughts, ditch your adviser. 1% a year is a lot to lose in returns. Have you read JH Collins? You can manage something simple yourself.

Sell the toys, sell the lake house. Take the money and put it in Vanguard. Don’t sell to your friends, get the money out and invest it.

Do not build an ADU now.

Doing these things will simplify your life and your financial life.

Why are you so worried about the mortgage? I ask because our current costs, mortgage/hoa/taxes run about 6k for us. I don’t really see it as a problem. It is the cost of living where we do. It’s also doable with high income.

Questions, how are you funding college for your kids? What are your fixed expenses besides the mortgage?

Additional ways to bring in income down the road: med-legal work, rent a room in your house once your youngest is out of the house, moonlight, consult.  One of my step-parents retired and hasn’t touched any of their savings because of consulting work. Our neighbors cover a good chunk of their mortgage by renting their upstairs to students.

You implied that you need to get family buy-in on cutting expenses. Good luck!

I liked reading The Millionaire Next Door and thinking about financial offense and defense. I also liked the thought exercise of coming up with core family values, then allowing those to inform spending.

When I look at our spending, it is food, kid sports, braces, my sports, travel. What is yours?

I just feel that having a mortgage is a hindrance to ever retiring.  But I'm seeing some of the logic in other people's thinking.  The real issue is that our discretionary spending is so high.  We spend a lot of happy hours, travel, and my wife/daughter have an Amazon problem. I paid for a lot of braces but it was a good investment.  I paid a lot of child support for 18 years but, thankfully, that ended about a year ago.  But, as I go back through our credit card bills, I see at least one expensive splurge every month.  We never just say no.

My oldest is 2nd year in college with a full-ride.  She lives at home with her mom in AZ.  So there's not much else to cover.
I have $125k in 529 account for my younger daughter.  I told her we'd support a state school education and that should be pretty close.  We are still contributing to her 529 but I may start scaling back.

So are these friends, or are they just people who happen to currently rent the home sometimes?

Harder with your wife, but with your daughter, give her a monthly Amazon gift card (or just a visa gift card, or similar, so she can spend it anywhere).  When that's done, she's done spending.  If she wants to spend more, she can get a job (if she's old enough) or perhaps do extra chores, if that's something you want to pay for.  If she wants bigger ticket items, she can save up for several months. 

I think $125k in a 529 for a kid who, from the sounds of it, is only a few years away from college, and for whom you only plan to pay for in-state tuition, is probably sufficient.  Run estimated costs, but you can probably stop contributing entirely, or at least stop fairly soon.  Also, there's nothing wrong with telling her she needs to get at least a couple thousand dollars in scholarships, or self-pay that each year, in order for you to pay the other 9x%. 

Also, it sounds like you are someone who needs to automate the savings, and step that up in a huge way. All that child support money you are no longer paying?  Any portion that you aren't using to support that daughter in some way should now be channeled directly into savings.  (I'm using 'savings' and "investments' pretty much synonymously here.) 

You mention the "Amazon problem", but if your wife and daughter looked at this question, what would they say is your part of the problem.  Address that first.  It creates savings, even if nothing else changes, and it leads by example.  (Again, do check out the post about getting a SO on board, which someone has now linked in this thread.)  See what your wife is willing to commit to, especially if you talk about it in the context of larger goals that benefit everyone.  Being fully retired (or working limited, part-time, mostly from home, flexible hours as a consultant or similar) in 7 (+/-) years?  Imagine that life.  Talk about it.  Discuss the trips you'd take.  The slow pace of life.  The meals cooked from scratch together.  The [whatever interests both of you] classes you take together.  Volunteering together for causes that mean something to you both.  And also having time and bandwidth to do her favorite sport (just her) and for you to pursue an interest you've never had time to dig into.  Imagining herself going on a trip with friends or joining a Tuesday morning running group, while you are at home practicing guitar and doing yoga, and then that evening you attend a lecture at a local museum and then cook dinner together--or whatever that looks like for both of you--can make it a lot easier to turn away from Amazon or skip happy hour (or order a Coke or drink water).  "Saving money because that's good to do" is much harder than "saving for a very specific life that I really want and can be a reality if I just spend less".  That's true for both of you, and it may be enough motivation to get her to go on an Amazon break.

In fact, you have enough money that you could even find a way to scratch that dopamine itch.  Instead of buying something on Amazon, she can transfer $20 into an investment holding account, to be invested at the end of each month.  And enter that amount into a spreadsheet with a note or column that says what it's for.  "Month long trip to Europe fund" or "future yoga lessons" or "future donation to the Blind Rabbit Assistance League".  That makes it an actual task, which takes a little time and feels exciting, so it may be easier than just "don't buy that".  Also, cancel your Amazon Prime.  For so many people, if they have to pay shipping, it's easier to not buy.

[cardifftodd]

Why is retiring to the lake house *kidding*? That seems like a nice plan to me.

^^^

The crazy thing is, the path to FI going that route is VERY short IF we're willing to live there year round.  There would have to be a good amount of travel in the budget.  Our biggest hangup is that it's pretty rural so there's not a lot to do up there off the lake, especially from October thru May or so.  But fixed expenses would be negligible - the cabin is on septic and has a well for water so just about $200/month for internet/power is what we pay.  Property taxes are $340/month but they do go up slightly.  10 years and $250k left on current 2.75% mortgage.  Cabin is in WA so no state income taxes.  I used to work up there about 45 minutes from the cabin  so I could probably get part-time work to keep benefits and that would be fine with me.

It could looks something like this:
Sell alll the non-essential toys (around $300k) and add to current investment balance of $1.05M or so
Using ChpBstrd's plan at that point
$1.35M + $160/k year and using a very basic compound interest calculator
5% return x 5 years = $2.63M
5% return x 10 years = $4.3M

Write a check to pay off remaining mortgage.  At some point along the way we could choose to sell the CA beach shack which would probably net $1.5M after sale in today's market, hopefully quite a bit more down the road.  Or, we could keep the shack and rent it out as we'd probably be able to net $2500+ after paying mortgage/taxes/landscaping in today's rental market. 

Hmmm.  I do like to water ski.

But what I have realized about any potential scenario is that we absolutely must cut our current spending.  Nothing works unless we can do that.

[cardifftodd]

Villanelle- they are good friends and used to be our next-door neighbors while we lived in WA.  The cabin is about 45 minutes from their house and where we used to live.  They have a nice boat and a lot of family up there.  They are originally from the mid-west and they enjoy being on the lake.  Even when we are up enjoying the cabin, they come out and hang out with us.

I like your ideas for getting the wife onboard, helping our daughter budget, and focusing on being an example to both. 

[patchyfacialhair]

@cardifftodd , Judging by your username...I'll say I understand the draw to the area. We just vacationed in Carlsbad at a very nice 5 star resort, and we've always said that San Diego Metro beach towns are a bucket list destination to live. All the awesomeness of SoCal weather without near the amount of riff raff like in OC beach towns, LA proper or SD proper. Love it. Doubt we'd ever do it while the kids are young though.

I think you're going to be fine, but communication is key. You don't want to be approaching your wife and daughter as though they're the sole source of the problems. Demonstrate what you're willing to do to cut expenses (get rid of cars/toys/lake house). Explain to your ladies what the goal is. Financial freedom and more choices. Truly listen to their objections and work with them to see that it's a group effort and it doesn't have to be painful.

Shoot, even just planned indulgence will make a huge difference. Instead of doing an expensive activity unplanned, set a monthly budget limit, and if the fun falls within that amount, then great. If not, they've gotta wait a few weeks. I bet if you get rid of all the toys, lake house, boat, set an Amazon allowance, you'll find you're more than on track to retire in your current place without the nonsense of an ADU.

I truly wish you the best!

[cardifftodd]

Why is retiring to the lake house *kidding*? That seems like a nice plan to me.

^^^

Also, just got my mortgage statement and I was wrong... the interest rate is 2.25% on the lake cabin.

And, although I agree with the idea of simplicity in general, my ADD tends to do a little better when I have something on the burner.  Still, most of the advice is in favor or letting it go, which I understand.

[lhamo]

Oh wait -- is there someplace called Cardiff near SD?  I've been trying to figure out how you ended up in So Cal from Wales (I finished high school at a private school about an hour outside THAT Cardiff).

I would sell both your SD beach house and the WA lake house, get a job at one of the big hospitals in Seattle, and buy this place:

https://www.redfin.com/WA/Seattle/4526-55th-Ave-NE-98105/home/122632

It has been on the market 96 days so you can probably get it for under 6 mill.  Live in the cabana and rent the main house out for 10-15k/month.  Walk to UW hospital or take the light rail/tram to First Hill.  Or if you don't mind a cross-lake commute get a job at EVergreen or Overlake.

Keep your boat. If you want waves, you can take it out through the locks.

[cardifftodd]

Oh wait -- is there someplace called Cardiff near SD?  I've been trying to figure out how you ended up in So Cal from Wales (I finished high school at a private school about an hour outside THAT Cardiff).

I would sell both your SD beach house and the WA lake house, get a job at one of the big hospitals in Seattle, and buy this place:

https://www.redfin.com/WA/Seattle/4526-55th-Ave-NE-98105/home/122632

It has been on the market 96 days so you can probably get it for under 6 mill.  Live in the cabana and rent the main house out for 10-15k/month.  Walk to UW hospital or take the light rail/tram to First Hill.  Or if you don't mind a cross-lake commute get a job at EVergreen or Overlake.

Keep your boat. If you want waves, you can take it out through the locks.

LOL - yes, that's the kind of bone head plan we usually talk ourselves into.  I do love it up there, and Lake WA is nice, but I'd rather be over on Lake Sammamish where the water skiing is better!  My niece just started at UW and my wife's cousin, who lives in West Seattle, used to work as a CRNA at UW Medical Center. 

Yes, Cardiff-by-the-Sea, 92007.  But I have also been to the Cardiff in Wales and am Welsh by decent.  Enjoyed a couple pints watching the incredible tides come in and out there many years ago.

I'm heading up to the lake cabin on Thursday to meet a likely boat buyer and, at least for now, the plan is to list the cabin and host a couple open houses  - Friday and Saturday.  We are really struggling with it.  It has definitely been our happy place and created a lot of memories. 

And I"m in negotiations with 2 guys on the GT3.  Ugh. 

[lhamo]

I spent a little over a year at Issaquah High before I went to Wales.  Lake Sammamish is very nice. 

Good luck with listing/selling the other lake house.  You can always buy again after you are FIREd if the pull is really strong.

[Freedomin5]

I'm so impressed by how quickly you take action. Sometimes, we have people who talk and talk...and then talk some more.

[cardifftodd]

I'm so impressed by how quickly you take action. Sometimes, we have people who talk and talk...and then talk some more.

Don't give me too much credit... I buy and sell a lot of cars and boats.  Dozens of them over the past 15-20 years.  The key will be to sell what I don't need and not buy again.

I have made some progress on the discussions about spending habits.  Even changed from plans to meet friends at a restaurant tomorrow evening to a meet on the beach with takeout pizza.  Baby steps.

We are pretty emotional about the lake cabin, wife has been in tears all evening.  Still searching for a rational argument to keep it.  We also won't just give it away even if it is on the market a few days from. now.  Raising the monthly rent beyond $1400-1500 seems unlikely. 

[cardifftodd]

I spent a little over a year at Issaquah High before I went to Wales.  Lake Sammamish is very nice. 

Good luck with listing/selling the other lake house.  You can always buy again after you are FIREd if the pull is really strong.
[/quote

I would love to retire in a lakefront home.  Nothing beats that experience for me. 

I didn't share it with this forum but we have actually owned this cabin twice.  Bought it in 2013 for $275k from a probate sale.  Somehow we got it despite 15 offers in the same day.  Then we sold it a couple years later for $325K when we moved down to San Diego.  Then bought it back 1.5 years later for $403k by a strange set of coincidences. The sellers already had an off-market buyer but when our lake neighbor told us it looked like it was for sale, I contacted them. It was supposed to close a week later and I was devastated.  Told them to call me if anything fell through. Got a call one week later and agreed to buy it back.   Those sellers had done a complete remodel during their ownership.  So, yes,  I worry about the regret we will feel if we let it go a 2nd time.

But maybe this is just a step in that process.

[MaybeBabyMustache]

Lake Sammamish is fabulous.

[ChpBstrd]

We are pretty emotional about the lake cabin, wife has been in tears all evening.  Still searching for a rational argument to keep it. 

This is a flag indicating a need to invest in counseling. Questions to explore include how you make decisions as a couple, how you orient yourselves to shared values and move forward with painful sacrifices, and whether your relationship to each other is de-prioritized when there are all these fabulous luxuries to experience.

A LOT of people learned early in life that "spending money on me equals love", and if you had workaholic parents (hint1: dad had a Porsche) this was probably their go-to tactic to assuage their own feelings of guilt and express affection (hint2: you are sentimentally attached to his old car). Now you're talking about taking something away that maybe has been equated in everyone's minds with the success of the marriage.

Couples get divorced over far more fickle reasons than "he made me sell my beloved lake house" so the investment of a few counseling sessions (what? $25 copays at worst?) is very justified. It's good preventative healthcare, but there's also the possibility of uncovering new ways to think and be happy without such extravagant spending habits. That possibility alone should be a thrilling enticement if you and DW understand what it means. It means layer upon layer of problems and stressors and disatisfactions dissolving before your eyes. It means life becomes sustainable and meaningful. A good counselor can help you with the pathway here.

[former player]

Yes, I'm sorry to say that there are red flags all over OP's ADD decision to make sudden and major changes in his life, such as selling the lake house and checking family spending, and the effect that this is going to have on the life that his wife and daughter have become accustomed to over the years.

OP has been divorced once already, the financial effect of a second divorce would not be pretty.  Perhaps there's a pre-nup that will help a bit?

OP needs to take his wife's tears over the sale of the lake house as a Force 5 hurricane warning.  And remember that his wife and his daughter will make two against his one.

[cardifftodd]

Whoa, whoa, whoa... we are just fine.  It's just the idea of letting go of something that has been an important and enjoyable part of our lives as a family that is difficult.  Nobody has said they are unwilling to do it or that we're getting divorced if we do. 

And I've only been married once, never divorced. 

[neo von retorch]

Whoa, whoa, whoa... we are just fine.  It's just the idea of letting go of something that has been an important and enjoyable part of our lives as a family that is difficult.  Nobody has said they are unwilling to do it or that we're getting divorced if we do. 

And I've only been married once, never divorced.

It's a tenet of internet forum-ing to infer a lot with the smallest amount of information. I think you mentioning child support led some to believe you had a previous marriage, but it only tells us you had a child before this marriage.

And "tears" can happen for a wide variety of reasons on a broad scale.

My (now) wife cried a lot when I discussed options for an engagement ring, and we decided not to get a $7000 Tiffany band, but instead go with a $1500 used *audience gasps* wedding + engagement set from an escrow web site ("I do now I don't dot com"). Ask her now 9 years into our marriage (or a day after the tears) and she'll tell you it was the right choice for us because we had (and have) more important uses for money.

[Villanelle]

Whoa, whoa, whoa... we are just fine.  It's just the idea of letting go of something that has been an important and enjoyable part of our lives as a family that is difficult.  Nobody has said they are unwilling to do it or that we're getting divorced if we do. 

And I've only been married once, never divorced.

If it helps at all, I didn't see any flags, red or otherwise, about the cabin crying comment.  At a minimum, there just wasn't enough there for us to tell.  I once cried when getting rid of my collection of flags from my high school colorguard days.  That doesn't mean it wasn't the right decision or that I was being unduly pressured to do it.  It just means it felt emotional.  OP knows his wife better than any of us, of course, and he seems like a savvy, somewhat self-aware guy, so it doesn't seem there's good reason to doubt that he's gauging his partner's feelings and being sensitive.

That said, from the posts here, all this does seem fast, OP.  It's entirely possible you've been talking about these changes for months (certainly the ADU plan has been in the works at least that long, so it seems the need to change things isn't entirely sudden) and there have been many partner/family conversations.  But do keep in mind that if you've been stewing on this for a lot longer than your wife, she may not be quite as ready as you are, so you may need to give her time to process and start implementing a couple changes at a time, rather than entirely revamping everything about how your family does money, unless she's ready for that.  I don't really see the red flags others do in your posts, but it's still worth point out that you need to keep everyone's feeling and comfort levels in mind as you go forward (wife much more so than DD, but DD's feelings do matter, too.)

In the case of the cabin, this is where I think it really helps to have that specific vision of the future you are buying in part with that cabin money.  When it's sad, you can remind yourself that your retirement budget includes plans to travel to Europe for a month every year, so you can rent a house on Lake Como or in Venice or the heart of Dublin.  Or you can enjoy not having work and sitting on the deck of your current home and enjoying the spectacular view. Of you can fly your DD home from college or wherever she's working (perhaps eventually with a partner and your grandkids) several times a year if they are interested.

Because it's probably not losing the lake house itself that feels sad, or at least not entirely.  When you are there, you are relaxed, away from work, spending time with family, doing favorite activities, and focusing on one another instead of the to-do lists that you currently have to cram into evenings and weekends.  That has nothing to do with a particular building, or even with being at the lake.  And all those are the things that you 'buy' when you retire.  Once you don't have a full-time job, everyday can be a lake-house-style day.  When a change feels hard or you notice an emotional resistance to what you know rationally is a wise change, remember that.  Go back to that specific vision of your future and remind yourself that what you are doing now is what buys you that future, in much the same way that going to work everyday (for now!) buys you the roof over your head and the food in your belly. 

[reeshau]

I once cried when getting rid of my collection of flags from my high school colorguard days.

My wife still has hers, after 29 years.   The decluttering pile is getting lower, and there isn't anything left that doesn't have some sentimental value.  One day, there will be tears.

I have plenty of things on my side that I am "diamond hands" holding on to, as well.

[cardifftodd]

Whether it seems reasonable to others or not, letting go of the cabin would be a loss for us and I think it's pretty natural to grieve that.  Doesn't mean we don't do it.  And certainly doesn't mean that there is marital strife... LOL.  We have been together for 17, almost 18 years.  We have been through a lot together and we are quite happy.

As Villanelle points out, it doesn't all have to happen overnight.  I'm am just making the case for it because 1) the sooner we get our act together, the better off we'll be in 10 year or more and 2) My 1099 arrangement ending and my W-2  arrangement starting seems like a very good time to implement these changes and it will be A LOT easier to track spending.  And, like I said earlier, there is about $150k of gross annual earnings that will be paid out quarterly.... perfect opportunity to divert that directly to investment accounts.  Just doing that and maxing out 401k/match will be over $150k/year in retirement savings with about $100k net going to taxable/liquid accounts.

Again, there has been lots of great insight and advice and this has been a useful exercise for me.  At this point, we need to digest it all, really dig deep into our spending habits and identify areas where we can cut back significantly, and, IMPORTANTLY, we need to create a shared goal for the future along with a reasonable and achievable path to reach it.  I think we can.

[iluvzbeach]

Please keep us informed of your progress. It’s always fun to see someone new jump onboard and begin to figure things out.

[BlueHouse]

I think I have a plan that will enable us to save at least $150-155k/year (this includes $53k 401k contribution with catch up and match since I'll be 50 soon), probably more.  And going to a W-2 in a couple months may actually help this because I can take the 3rd of my income that is paid quarterly and divert it directly into a brokerage account before we ever see it. 

You can also take $7K from what you'd divert into a brokerage account and put it into a tIRA, then convert to a Roth IRA.  This is called a backdoor Roth, it's legal, it's very simple, and it's a great tax shelter and savings method for the future.  It's just another way to get a tax benefit on some money that you otherwise wouldn't.  And $7K/year with tax-free growth adds up quickly.  I had $100K in 5 years!  Now that I'm retired, I'm converting some of my 401k into the Roth every year to create income. 

[Laura33]

Wow, a lot of stuff in a short amount of time!

Before I start with the hard stuff, let me start with the nice stuff:  stay put if that matters to you.  I am extremely jealous and would love to live in SD -- was just never willing to pay the $$$ to do so.  So if that's your priority, do it.  And congrats on the big salary and on your willingness to change.

Also: no point kicking yourself for stupid past decisions.  There are many of us who chased high incomes because we wanted All The Things, and it took longer than it should have to figure out that all that stuff doesn't actually make you happy in the end.  Ask me how I know.  The important thing is that you are figuring this out, and you're trying to make changes that prioritize your family and your future and your health. 

Now. . . .

Someone above said the most important thing:  there is no magic pill.  You have ADD'd yourself into a lot of fun, flashy stuff, and now you're looking at ADD'ing yourself into some sort of quick fix.  But quick fixes don't work.  Sure, there are things you can do as an immediate cash influx or to cut expenses.  But it took you a lot of years to build your current habits and current debt levels, so you need to expect it to take a lot of years to break those habits and dig your way out.  Selling toys and cabin is a great start, but it's just that:  a start.  I think you've already figured this out by reviewing your CC statements.  It's what you do month-in, month-out from now that will decide your long-term success or failure. 

Cars:  Please challenge your thinking on how much money you actually make on them.  For each car, start with the purchase price and date and selling price and date.  Subtract the former from the latter -- looks like a lot of $$, yes?  Now take your insurance, registration, maintenance, sales tax, title transfer costs, gas costs, and other carrying costs; add all those up and subtract from the first profit number to get to your actual profit over that period.  Now:  assume you took that purchase money and invested in some low-cost index fund or ETF (e.g., VTSAX) on the same day you bought the car -- figure out the share price on that day and calculate how many shares your purchase money would have gotten you.  Now calculate how much those shares would be worth on the day you sold the car.  How does that growth compare to the profit you got from the car?  I bet you that overall, you'll find you'd have come out ahead if you had just invested the $$ in the market in the first place.*  Remember, it's not just the profit you make, it's the opportunity cost of not putting that $$ somewhere else instead.

ADU:  I am very, very against the ADU simply because of the eggs-in-basket issue.  You don't choose to put your money elsewhere because that other option is going to get you a better return than the ADU, just like you don't maintain a diversified portfolio because it will get you the best returns.  You do it as a way of protecting your downside.  You do it because if you have so much of your net worth tied up in a single piece of property, you are completely, 100% fucked if something happened to that property.  What happens if you have an earthquake that makes your property uninhabitable and unsellable?  Most of your value is in the land, and home insurance covers only structures.  So if that land itself becomes unreachable/unlivable, all that $$ is gone.  Or what if we have a major recession that kills the SD real estate market because people can't afford those prices anymore?  You're still stuck with the big mortgage and the ADU investment, even if you can't rent either out to save your life.  Sure, maybe those sorts of things are very unlikely to happen.  But bad shit happens all the time, and sometimes it happens to you.**  The best thing you can do for your family is make sure that your entire future doesn't get fucked when it's your turn for the bad luck. 

Side note:  if you had $5M in investments, I'd be telling you to go for the ADU full steam ahead.  Because that $5M will cover you even if the ADU goes into the total shitter.  But you don't.  So I'm not saying never -- just not now.  Build up your other assets that are NOT tied to that one teensy piece of land first. 

Net worth:  your net worth is entirely useless in getting you set for retirement.  For retirement planning, count on only what you're willing to sell.  If your dream retirement involves staying put in your current location, then you can't count the value of your house in your retirement planning.

To put all of that in a slightly different way:  almost everything you list in your "asset" list is in fact a consumption item, not an investment.  You have an almost $1M lake house because you enjoy it.  If you were looking at it as an investment -- $1500/mo for only part of the year, on a $900K value? -- it would be a royally shitty one.  You have all those toys because you enjoy having and using them, not because they are actually making you any money; in fact, most of them are depreciating every day you own them.  If you want to argue the Porsches are investments, treat them like it -- do the math above to see how much they really make you compared to other options, and buy/sell for profit, not because you like having them.***

Being straight up with yourself about how much of your money is consumption vs. investment is key, because that is the only way you can actually make good financial decisions.  You make a lot of money and so can afford a lot of nice stuff.  But you can't afford all the nice stuff -- and you certainly can't afford All The Stuff and retire in 10 years.  You can spend each dollar only once, and the number of dollars you have coming in is finite (even if you do have a lot of zeros to the left of the decimal point).  Therefore, if you want to be able to retire, you need to add that onto your priority list, decide where it goes on that list, and then be absolutely ruthless about cutting back on all the things that are lower priorities in order to free up $$ to fund that retirement.  The really, really good news is you have a metric shit-ton of low-hanging fruit if you're actually spending $16-20K/mo. 

And in the "don't bullshit yourself" category:  stop saying you don't actually spend that much money.  It probably does feel like that, because when you live in a super-high-COL area, you're surrounded by people who make super-high salaries and spend those salaries on super-nice things.  But you need to realize that that's not normal.  In reality, even putting mortgage aside, you are spending a metric shit-ton of money every month on stuff you don't actually need, just because that's what everyone around you does, so you don't even think about it.  The key to getting ahead is to start thinking about it -- to make everything a conscious decision, in full awareness of the tradeoffs.  You can absolutely keep your home and your lake house, if you're willing to work a lot longer and/or cut way back on everything else.  You can absolutely keep your current monthly lifestyle, if you're willing to work a lot longer and/or get rid of some of the property and toys.  Etc. 

The really great news is that your salary gives you a whole world of options.  The really tough news is that your salary gives you a whole world of temptations.  The only way to weave your way through that is to have a plan, and then religiously track how well you're sticking to that plan -- track your expenses, note what is working/what isn't, adjust as needed, rinse/repeat. 


*You argue that your car habit isn't any different than trading in and out of stocks "when you know what you're doing."  The problem is that there are exponentially more people who think they know when to trade stocks than who actually do.  The problem with trading is that you need to get the buy and the sell right, over and over and over and over again.  And almost no one actually does that. 

**My whole house burned last year -- freak electrical arc flash on new, modern wiring!  Fun!

***BTW, I have a Porsche myself -- 2015 911 Carerra 4 GTS Cabriolet.  I absolutely love it.  So I am the very last person to shit on you for having a StupidCar, because my own personal StupidCar is some of the best StupidMoney I've ever spent, even on a dollar-per-smile basis.  My objection is to deluding yourself that these are great investments.  Maybe you can make money on them, maybe not.  But you're buying them because you're a car guy and you want them, not because they're the best possible investment (after all, you haven't even done the math to determine how good of an investment they are, have you?).  So calling them "investments," and telling yourself you make money from them, is just rationalizing buying another toy.  You want a toy?  Buy a toy.  But own that -- don't bullshit yourself by calling it an "investment."