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For today’s Money Snapshot, we’re talking salary, net worth, debt, and more with reader A, who lives in a HCOL area and works as a marketing professional. She noted, “A couple of years ago we decided to change the course of our financial future by flipping the script (as I call it). With three kids, we sold our house and became renters. We paid off my student loan too and became debt-free for the first time.”
We got a few requests from readers to launch our own “money diary” series, so we’ve asked willing readers to fill out a form with lots of details about debt, spending, saving, and more! If you’d like to fill out the form and be considered for a future personal money snapshot, please click here to submit your response! You can see a PDF of the questions if you want to review them ahead of time. See others in the Personal Money Snapshot series.
Please remember that this is is a real person who has feelings and isn’t gaining anything from this, unlike your usual friendly (soul-deadened, thick-skinned, cold-hearted, money-grubbing) blogger — so please be kind with any comments. Thank you! — Kat
Name: A
Location: HCOL — within 30 minutes of Boston
Age: 40
Occupation: Marketing professional
Income: $145,000
Household income: $300,000
Net worth: My husband's and my net worth is $3.2M. We were very fortunate to receive inheritance during our 30s, so that made a big impact in our net worth.
Net worth when started working: I've worked since I was 13 but never worked during my college and graduate school years. My first real job was at age 25 and our net worth was maybe $50,000. (I really don't remember!)
Living situation: Live with husband (same age) and three kids; rent (about $3,100/month for a 3-bedroom apartment)
Psst: In honor of this series' original title, Tales from the Wallet — here's a wallet we love!
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Debt
What does your debt picture look like?
Zero debt. This part is key because for years we had my student loan and a mortgage to pay off. I borrowed $20,000 for my loan and managed to lock in a super sweet rate to pay it off, which was less than 2% interest. We also became homeowners in our mid-20s and held a mortgage for over a decade. However, a couple of years ago we decided to change the course of our financial future by flipping the script (as I call it). With three kids, we sold our house and became renters. We paid off my student loan too and became debt-free for the first time.
My husband and I both went along with the idea that we needed to be homeowners and were encouraged by my parents to buy a house shortly after we married. It's the “American Dream,” right? However, home ownership is a massive burden on any plans to save and retire early. Home ownership should NEVER be considered as an investment vehicle, and there's a common misconception that everyone needs to own.
How did you pay for school?
My parents paid for my college education as they'd always planned. Higher education is highly valued in my family so it was always expected I'd earn a degree and that it would be paid for by my parents. I used money from my grandfather and a loan to pay for graduate school and I deliberately went for a one-year graduate degree in a low-cost area so I didn't have to take on much debt. I have always been naturally averse to debt.
Do you own or rent? How much do you pay monthly?
Rent — about $3,100/month for a 3-bedroom apartment
If you have children, how much do/did you spend for childcare and/or education?
Our three kids are in public school.
If you have any other large expenses each month, please list them here.
Credit card, which we use for all purchases so we can earn cash back, and it's paid off each month. We don't treat it as credit. We only spend what we can afford.
Home debt: Share your theories and strategies with us (including any that lead you to rent rather than own).
We borrowed money from family for down payments on our first and second homes. Then we used inherited money to put down 40% on our last house. After seven years in that house and having spent an exorbitant amount of money on making all kinds of home improvements and putting an extra $300/month towards principal, we flipped our thinking.
Here's how I summarize the flip in our thinking. We'd just been going along like almost everyone else of our generation and in our demographic. We went to college, got married, got jobs, bought our first house, started having kids, went to a bigger house, got better jobs, and so on. We were just going on to get on with this expectation that this is what life would look like for the next 30 years. Our 30s were primarily spent growing our careers, having a family, and investing in making our house a very comfortable place to live. We had a modest mortgage ($200,000) and were set to pay it off seven years early, and we never borrowed to make those additional investments. Then, we hit a wall in our late 30s and both felt that this was the wrong approach for us.
We started thinking about what our cost of living was and what our goal should be to achieve that cost of living. After much discussion and a detailed analysis of our spending, we saw the numbers all point to home ownership as a massive burden on our ability to hit our number sooner. We decided that being renters would provide us with a steady cost of living and sold the house. We love being renters and knowing exactly how much our cost of living is each month. No more surprises, and all that money that was stuck in our house and would never grow has tripled in the market.
We asked A if she had advice for readers who are considering a big financial decision, and she shared this:
Trust your gut. If you're on the fence, don't rush it; consider it for a while. Journal or confide in close friends and confidants. Consider discussing with a trusted manager or colleague. We spent a full year analyzing our finances and having regular discussions before making our major financial decision (e.g., selling the house), which felt like such an anomaly at the time. In retrospect, I'm glad we spent a year discussing it, even though it felt ad nauseum at times, but it normalized it in our heads and made it more real when we finally decided to take the plunge. We had to discuss how the scenario (of selling the house) would play out too, which really helped too.
Have you paid off any major debt?
We paid off all debt when we stopped being homeowners.
Have you ever done anything noteworthy to avoid or lessen debt?
Sold our house.
Savings, Investments & Retirement
How much do you save each month or year in retirement vehicles like 401Ks, Roth IRAs, and others?
That's difficult to say since it varies each month. Here's what we do annually though. We max out our 401ks, HSA, and Roth IRAs. I manage our day-to-day expenses, and anything that I don't need for the next month is transferred to savings. When there's overflow, I let my husband know how much and he'll add it to our portfolio to invest.
How much money do you allocate to other tax-savvy investments/accounts like HSAs, 529s, FSAs, and others?
I max out my HSA. I don't do FSAs since I learned early it was a use it or lose it prospect, so I just never went there. I should note, and this might surprise a few folks, that we chose to not open any 529s for our kids. Our rationale was that we'd rather not tie ourselves to a fund that limits how we can use it. Rather, we decided to use traditional investment vehicles, grants, and smart choices for educating our children (e.g., state school vs. private college).
How much do you save outside of retirement accounts?
We have a weekly automatic transfer to move $250 to a retirement account. However, we have traditionally operated with me overseeing our monthly expenses. Since we're salaried, it's easy to forecast how much money will be in checking at the start of each month. I know approximately how much we'll need each month so any excess goes into savings. When there's excess in savings, I let my husband know and he'll shift that money into our investment portfolio.
Talk to us about investments.
We had a financial advisor a decade ago and wish we'd never done so. He convinced us to buy VULs and life insurance policies. Then, he invested our inheritance money with such a scattershot approach and fees buried alongside. What happened to us must be pretty common. We are both working full time, raising a family, and spending weekends on home improvement or whatever, that you think “Well done for us that we got a financial advisor” and you meet a couple times a year, hear that everything is fine, and become complacent.
Around the time we started rethinking how we'd been thinking about money and finances, I started digging into how much we were handing over each month to our financial advisor. Within a couple of years, about eight grand was taken away from about a $250,000 investment. Doesn't seem like too much, but it adds up, and all that money going to him means it's not being reinvested for us.
We also met with a fiduciary at the time we dove into all of our finances who said, “You don't need life insurance policies of this size, you don't need VULs (these are bad!!), and his investment strategy makes no sense — it's almost like he doesn't know what he's doing at all.”
That meeting (which wasn't cheap) was eye-opening. We ended the relationship and will never use a financial advisor again. However, I would recommend a fiduciary. The difference is that a fiduciary is obligated to look after your money first and not their best interest. They usually charge a set fee that IS NOT hidden within your dividends and interest payouts.
Do you have an end goal for saving or are you just saving for a rainy day?
Yes. We're working toward a specific number that would allow us to live off of 4% interest and let the “nut” grow for the remainder of our lives. It's essentially the FIRE model. Once you start thinking about the nut and what you want/need your number to be, it changes how you see money. You don't see things as “How much do I need to save?” You think about “How much is my cost of living so I KNOW what I need to save?”
It was eye-opening for us, because we stopped trying to save every year and instead took a long look at our cost of living and what we'd need our cost of living to be with kids and after kids have left. Once we figured that out, we determined that we need X amount for our nut. We then took significant measures like selling our house and consolidating our finances and are focused on growing our nut to what we need it to be for us to no longer work for a living but perhaps work for fun or as we want.
When did you start saving seriously? How has your savings strategy changed over the years?
Read above. We started saving seriously in our late 20s, then REALLY started saving in our late 30s. If we'd had the mindset of our 30s in our 20s, I can only imagine what our lives would look like.
What’s the #1 thing you’re doing to save money, limit spending, or live frugally?
We limit our spending, and admittedly, it's not too much fun. While all our friends and peers have taken amazing vacations and bought new cars, we've done none of that. I can't say that we live frugally though.
Have you ever made a big money move or investment with savings in mind, such as rolling over an older IRA into a Roth IRA or superfunding a 529?
Again, selling our house, firing the financial advisor, and doing an overhaul in our thinking from what I can best describe as complacent to intentional.
Do you have an estate plan in place? A trust?
Yes. We put one in place a decade ago when our kids were young and are revisiting it now that kids are older and our financial situation has changed. I recommend doing it regardless of what you have because it also just simplifies things for everyone around you should the worst happen. My husband and I have been on the receiving end of a clean and clear will and trust process versus a mess that doesn't have clear ownership — it's not worth the hassle. Spend the $ and get a will.
How much do you have in cash that’s available today?
$40,000
How much do you have in cash that’s available in a week?
$40,000
How much is in your “emergency fund,” and did you include it in the previous question?
$75,000 (no)
How much do you have in retirement savings?
$600,000
How much do you have in long-term investments and savings (CDs, index funds, stocks) that are not behind a retirement wall?
$1.5M
If property values (home, car) are included in your net worth, how much are those worth?
$1M in a property that we inherited
Spending
How much do you spend on the following categories on a monthly basis?
Groceries: $2,000
Restaurants, bars, takeout, and delivery: $200
Clothing and accessories: $100
Transportation: $100
Rent/living expenses: $4,000 ($3,100/month rent)
Entertainment: $50
Health care – premiums and other costs: $200
What’s your spending range for these things? What’s your average?
Vacations – Average: $1,000 — we haven't taken a vacation in years but our first planned one would have been about this amount.
Charity – Average donation or giving amount: $1,000/year
Clothing: $600 for the family, I'd say. I use bonus points for myself and buy for the kids when things are on sale.
Fill in the blank on this question: I could save _____ if I stopped ______, but I don’t because _______.
I could save $1,000 a month if I stopped buying quality food, but I don't because I want me and my family to eat well and we can afford to do so.
If you're married: When was your wedding, how much did it cost (total), and how much did YOU pay?
Our wedding cost about $10,000 for the entire thing, and that was 15 years ago. My parents paid for it and were happy to do so. My husband and I wanted a quiet affair, and we're frugal anyway, so we picked a place with a beautiful outdoor garden. I bought a bridesmaid dress and made a weekend of it since family was flying in for it. It was great!
If you own, how much did your car cost?
$20,000
If you have vacation homes, timeshares, or income properties, how much did those cost? (If you have income properties, please tell us more!)
We did not plan to buy a vacation property but ended up doing so during the pandemic. We own it outright, and while we had no plans to own again, at least this time we own it without debt and will enjoy it while we have it. I feel less tied to property after having unloaded our “forever home.” I appreciate this place for what it is for our family now and how we needed it to get through the pandemic, but I could list it tomorrow and be okay with it.
At any point in your life to date, has inheritance played a role in your money situation?
Yes, very much so. We received inheritance in our 30s, and I wish we'd just put it away. Instead, we invested some and used a lot of it to make lots of improvements to our house at the time.
How has your family provided financial support in your adult life, if any? (Or, do you provide support to them?)
We leaned on family to help fund our first down payment, and our parents funded our college educations entirely.
Does your family provide any non-financial support?
My mother watched our kids one day every week for nearly a decade, which saved us some money during the daycare years.
Money Strategy
Do you have a general money strategy?
Yes. Divide and conquer. I handle day to day; husband handles big picture. Fortunately, we're on the same page when it comes to finances.
We asked A whether this has always been the case, and she shared this:
Yes, and this is most likely a coincidence as it certainly wasn't something we knew about each other until sh!t got real in the relationship. We're both just naturally debt averse and financially conservative (ironic since our politics are anything but conservative — in fact, a friend once told me that qualifies us as libertarians). We met in college and I do have memories of noticing him spending money wisely. Meaning, he wasn't frugal per se but he was conscientious of how he spent money. I wasn't much different. I had a credit card in my parents' name during the college years and I was extremely conscious that this was borrowed money, so I didn't borrow a dime more than I could afford. My kids aren't even in high school and we have regular discussions about credit cards and debt.
Time vs. money — do you spend money to save time (e.g., cleaning service)? Do you donate your time instead of money? What else does this phrase mean to you?
I became a big fan of spending money to get back time. My husband and I have both seen our careers and income triple over the past decade, so even though we have a clear financial goal that's attainable within a few years and we know the less we spend, the faster the goal comes, we still treat ourselves to paying for services that at one point we'd have done ourselves. Although, I'll say that not being a homeowner any more means that we don't need to make those decisions any more!! It's wonderful and gives us so much freedom.
What are your favorite resources for personal finance?
My favorite resource is my husband. This is his thing. He reads Mr. Money Mustache, Millennial Revolution, JL Collins, and various other resources. I give him a tremendous amount of credit for digging into this stuff and getting us to the point where we have a strategy that's simple and doesn't require any advisors. We do have a tax accountant though.
What advice would you give your younger self about personal finance?
Be intentional. Think about what kind of life you want to live. Is the big house and big yard what you really want even though that's all you know from your childhood?
A explained why she chose to share her Money Snapshot:
One, there wasn't much representation from my age group. Two, if younger readers see my story, maybe they'll think twice about their intentions and financial plans. Three, my husband and I are outliers at this point. I'm not sure that any of my peers think this way — I suspect many are doing what we were doing, which is going through the long slog (as I call it). Just operating under the assumption that you work until 65, must buy a home, must have the newest stuff, etc.
Our financial picture changed significantly when we made the conscious choice to stop operating like this was normal and started discussing what kind of life we want to live instead. I don't regret any of our decisions, even if I consider them mistakes. We had two dogs and three kids who loved having a big yard and house. Moving into an apartment was a shift, but we're happier and spend a lot more quality family time together. Plus, we're no longer stressed about what's going to break next and how much will it cost.
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Anonymous
So interesting about renting v. owning. I feel the same way, but I’m constantly fighting the “renting is throwing money” away crowd – even from people who lost money or made 1% profit on their homes in the end!
Anon
Thank you for being honest of about the hundreds of thousands of dollars in gifts and interest free loans that allowed you the unusual amount of financial freedom you’re experiencing at 40. For people not as lucky, owning a home is the fixed home costs that will allow them to retire early (or at all). Home ownership obviously has its ups and downs but the only way some people can retire is to have a paid off home by the time they retire. I’m glad this works for you, though.
Anonymous
+1 I appreciate the honesty. I purchased my first home at 27 and almost all my friends asked ‘how much did your parents give you’ it was nothing, and at that moment I realized I thought I was keeping pace with my peers but we weren’t even running the same race.
Anonymous
If you bought your “first” house at 27, you’re running a different race than many others as well. I know very, very few people in my age group (early 30s) who are able to afford a home in our VHCOL.
Anonymous
Well it is also my only house and forever house, I never plan to upgrade or get a beach house or whatever nonsense. I paid my own education, earned my job without connections, saved for my down payment, etc so my successes are my own, I’m not running some privileged race.
Anonymous
While I agree that home ownership has its downsides, everything about this seems sad to me. Putting off vacations, in a place that’s not truly yours, all in the name of what? Early retirement? What if you don’t make it?
anon
+1 I don’t really understand the FIRE movement at all for this reason. We are on track to retire early but it’s a balance between enjoying life now and retiring earlier. We try to design our lives in a way that it doesn’t feel like we need to retire from it because who knows what the future holds
Anon
+1 I’ve seen too many people die young to just defer everything for later. We save responsibly for retirement but it’s very important to me to budget for vacations, kid stuff and other things I care about while we’re still able to enjoy it.
Anonymous
I think the kid thing is so important. I am not going to sacrifice important experiences in my child’s life – quality childcare, summer camp, team sports, vacations, etc. – so I can retire early. What is the motivation there? So you can retire at 50 and sit around regretting all the things you didn’t do with your child when you had the chance? You don’t get that time back with your kids; once it’s gone, it’s gone. We’re going to live now, have experiences now, be happy now, while being prudent and planning for the future. My FIL was killed in an accident at age 57. Sometimes there isn’t a “later.”
Anonymous
But living in a place that’s “truly yours” has costs too – how many times have we seen posts about being “house poor,” which also prevents you from taking vacations? That’s what OP is saying, that intentional decisions that align with your goals and values is important. That will differ for everyone.
Senior Attorney
Right? Remember Bear Bryant? Winningest coach in college football; died 37 days after he retired. No, thanks.
anonshmanon
On the other hand, the OP makes these choices deliberately. We don’t all enjoy the same things. Maybe big vacations with her three kids at this time are more hassle than pleasure. They did buy a vacation home, so it’s not like they sit at home all the time.
Smart to not throw money at a thing you don’t want, just because everyone else is crazy about the thing.
Anon
THIS! I do a lot of the things people who are into FIRE do, for various reasons. I’m not doing them *at* anyone – my choices make sense for me and I live my life on my terms.
JD
Agreed, it can be personal. My husband and I really enjoy a vacation and have loved going to Hawaii (not that expensive since we’re on the West Coast) and a few international vacations.
My best friend regularly goes home to see family but otherwise doesn’t care about travel. It blows my mind that she’s perfectly fine with only a few driving distance camping trips. I think some people feel the same about cool hobbies or restaurants/bars.
I also wonder about how old their house is. If this is Boston, maybe it’s a hundred year old house that constantly needs fixing versus renting a newer apartment.
anon
Totally agree with this but I think the point holds, sacrificing whatever thing (vacation, dinner out, concerts, etc.) to save money for FIRE is a bit of a risky move in that you may never actually make it to retirement to enjoy the things you could have enjoyed today.
Anon
Right, but if I don’t sacrifice now (I’m not in an income bracket where I can do vacations/dinners/concerts AND save for retirement), I will definitely not be able to retire, early or ever. If I sacrifice now, there is a chance. I’ve made my peace with that and enjoy my staycations, Shakespeare in the park, and excellent food cooked at home.
anon
That’s a completely different scenario though. Someone electing to retire 5, 10, 15 years early is making a tradeoff. That’s of course their choice but it’s also a risk that they are sacrificing now for a payoff that never comes to fruition.
anon
I agree – I’m all for being frugal (I’m fairly frugal myself) but not at the expense of vacations, eating out, having a yard and doing other fun things!
lifer
What an interesting money snapshot. Thank you so much for sharing.
I am also in your demographic, although a bit older and I am single. I completely agree with your attitude about home ownership, and realized that in my 30’s too. Investing the $ that would have been tied up in my home has rapidly pushed me to affording early retirement, and a difference in mindset about spending money thoughtfully has made me more at peace with my financial plans. I love not having to worry about house maintenance, lawn care and all the increased costs of utilities and unexpected expenses with owning a home. However, sometimes the trappings of apartment living can get old (ie. neighbors), and maybe I would feel differently if I had children.
I also grew up in a lower middle class household, with a lot of stress about money. However, my parents were very careful about money and they never upgraded to the bigger home and instead saved money like crazy for retirement. But unfortunately they both died or became disabled young, so it also made me realize that you can’t wait forever to enjoy your life. Retiring early became a goal of mine, and investing in experiences and not things, at that point.
Starter home forever
I’m a little confused – I get that you rent an apartment, but you have both a fully-paid-off vacation home and a $1m property you inherited? Are those two separate pieces of property? How much was your inheritance? It’s hard to judge how much of your net worth is from your aggressive savings and how much is from your inheritance (including inheritance cash you invested directly, inheritance cash you got back from the sale of your house and invested, and the inherited property value.)
I do like the idea of keeping your primary residence costs low and fixed – home ownership does come with a lot of extra expenses that can pop up. Plus, if home maintenance isn’t enjoyable for you – it is for me – then having a landlord is definitely the way to go. I’ve rented as an adult after owning a home (I now own again) and there were downsides to having a landlord as well. But I completely agree that the main thing is to not keep up with the Jones – don’t buy the next bigger house or renovate just because you can, but stay in the “starter home,” keep your fixed costs as low as possible, and bank the increasing difference between your income and housing expenses.
How old are your kids? Do you not have/need any extra childcare help? Do they not participate in any activities or sports? Are your family all local?
I also hope you will take a vacation! (Although it seems like you own a vacation home and have spent time there this year but have not considered costs of being there as vacation costs, which makes sense.)
Pretty much
This. It’s all blurred. I’m tired of folks who have such insane head starts in life ($1 million in INHERITED PROPERTY?!) trying to “teach” the rest of us their frugal and virtuous ways.
Anon
I’m not getting a super teacher-y tone from this, FWIW. I do appreciate folks sharing their situations.
Anon
+1 I actually really appreciate each of these posts and their honesty
Starter home forever
I appreciate the honesty of these posts, too – especially when posters divulge inheritances or trust funds – but this one was not very clear about the size of the inheritance.
I will also admit that I’m a little defensive at the position that home ownership is complacent and not intentional. The financial calculus on renting v buying (and what size of apt to rent) is going to vary widely based on location/market. And I admit I still don’t quite understand the exact numbers that make a monthly rent of 3100 better long term than owning.
Seafinch
Agreed. This was very confusing to me. Choosing to rent it fine but saying, “we rent and don’t take vacations so we can retire early” with the caveat that they have at least one paid off vacation home plus possibly more is pretty disingenuous. I have four young kids and we have a summer home that I a 16 hour drive away. We don’t do big foreign vacations but we explore our way out to our summer place every summer for a month and try to do something like a March Break Ski trip relatively close by (max two hours) and for cheaply. I would never say that I didn’t take vacations and for the two years we were posted overseas (and rented our primary residence) I never once called myself a renter since we still owned a home!
Anon
Right. We have received some modest inheritances (under $50k total) from my husband’s dad and grandfather after they passed away; nowhere near a $1 million property. On my side of the family, so far I have received a $1000 contribution to my son’s college fund from one grandma’s estate, and my other grandma’s wedding/engagement rings, which are priceless to me but worth about $2000. We got no help from our parents (either side) when we bought our first house or our second house. We paid for our undergraduate and graduate educations ourselves with no parental help. My parents and my MIL have never contributed one dime towards my son’s daycare, camp costs or sports costs. My parents are middle-class; my grandparents were poor. My husband’s grandparents were just barely middle class; his parents were flat-out poor. We are doing well now and I’m happy with where we are but I feel like sometimes on this board, there is just not a lot of acknowledgement that those of you who got substantial help with education, home-buying, childrens’ educational expenses, etc. or who have inheritances or trust funds, are basically living on a different financial planet than those of us who didn’t get help. We did not start from the same place, so don’t break your arm patting yourself on the back.
Anon
I don’t really get the concept of investing the mortgage in favor of renting. In a HCOL market where owning is more expensive the renting I totally get the calculus. But in different markets, doesn’t the same amount as your mortgage or higher go into the pocket of the landlord never to be seen again? Or are you only referring to the saved unbudgeted maintenance costs? Or is there something else there?
Anon
No, you’re right – in a hot market especially this isn’t a great move. I fail to see how giving up a small mortgage (on 200k, you’re not going to owe much, probably less than 1k a month, and far less than 3k in rent, plus you can pay that off fast and living in an appreciating asset). I feel kind of bad for the OP, she got a head start with some inheritance but seems to have a proclivity for listening to people who don’t quite know what they’re doing. Even the FIRE model is reliant on 4% interest and nothing passive brings that in and hasn’t for years. The better strategy is what someone above mentioned, don’t handcuff yourself to more life than you can afford but love your and design your life so you don’t want to retire from it.
Anon
This whole idea is bananacrackers crazypants to me. We make $200k a year and when something breaks, we use cash flow or dip into savings to fix it (which is then replenished). There’s no way, on their HHI, household repairs were that much of a burden, unless they bought a lemon of a house (which I can relate to as our first house was kind of a money pit). In which case, sell the lemon and buy a different house. I think the whole “we avoid maintenance by renting” thing is an emotional decision and not a financial one. I understand it, because getting things repaired is a hassle, but I just do not understand why someone with big long-term financial goals would think that paying someone rent instead of building equity in a house is a good idea. I also don’t understand the attitude of, “Our kids and dogs really loved having a house and a yard, but whatevs, we have financial goals to accomplish.” Would love for the OP to come back in 20 years and let us know how that decision worked out long-term, in regard to how the kids feel about it. They may have some opinions the OP doesn’t expect around getting crammed into an apartment for their childhood so their parents could retire early – despite the fact that their parents inherited over a million dollars in property.
On FIRE
Appreciate that everyone has their own values around money, but i think it’s a bit off to talk so much about being frugal when you bought a million dollar vacation home with cash during the pandemic.
If only we all could lead such frugal lives…
anon
Just cut out those lattes and avocado toasts and you too can be a home owner!
Anonymous
What makes you assume it’s a million dollar vacation home? This is a person who had a mortgage of 200k and decided even that was too much debt.
Anon
I think the million dollar home was inherited. The vacation home they bought in cash could be a lot less. But yes I’m very confused how someone who owns two homes is not a homeowner. You rent a third property that is your primary residence, sure, but you are by any definition a homeowner if you own two houses!
Anon
I believe the homeownership point is location dependent. I purchased 7 years ago in a VHCOL city, and at that time my mortgage payments were about $400 more than I had previously paid in rent. Since then, rents have drastically gone up. For at least the few years, my mortgage is lower than rent on a comparable place. When in factor in the huge increase in my property value, I’m far ahead by owning. I pay less than I would to rent, and I will own my property outright in another 22 years.
Anonymous
I think this is a factor not addressed — whether you buy or rent, you will end up paying the increased costs of taxes and maintenance one way or the other, unless you are somehow in a rent-stabilized situation (does that even exist anymore though?). I guess the upside with renting is that it’s fixed and definite over the lease term?
Anon
Actually a mortgage is far more fixed and finite – a lease is typically a year, a mortgage can be 30.
Anonymous
Yea, this is very situation-dependent, I feel like. There are various rent vs buy calculators online. In my location, you almost always come out ahead buying if you own a home for more than 3 years or so, even factoring in maintenance costs. Doesn’t include the time spent on maintenance, of course.
Shelle
Agreed on your last point – at some point your mortgage loan ends so that your housing cost drops dramatically, plus you’re left with the equity. On top of all that, it blew my mind when I realized that a fixed mortgage payment today will cost much less relatively speaking in 2 to 3 decades due to inflation.
anon
Rent v. Buy is a really good conversation. And I’m sure this poster is a lovely person. But using her as an example is just not very instructive since she has so much other help and inherited wealth. IF you were given 40% of the down payment for your first house plus have another million from inheritance, the buy v. rent calculation is completely skewed. This debate is better if you have a person deciding whether to tie up their own savings on a down payment versus put it in the market and keep renting.
Anonymous
This is my story so I’ll clarify a few things. First, I’d say about half our net worth is a result of inheritance, which includes a commercial property valued at approx. $1m – it’s not a vacation home. The vacation home we bought during the pandemic is actually a condo, was affordable by most standards ($200k), and not in a HCOL. I wanted to share my snapshot because I wish we’d thought about money, lifestyle, and savings during our late 20s/30s the way we do now. Our careers and income grew significantly during our 30s (as did the stress levels!) and we became very fortunate to receive inheritance – I know and appreciate that I’m privileged in that regard. Our perspective has changed 180 degrees since our younger years when it was practically expected to buy a house, have mortgage debt for 30 years, retire at 65, etc. I shared my snapshot to provide a different perspective and was my way of saying, I wish we’d asked ourselves what kind of life we want to live instead of just going along. Although, perhaps you have to live that life to know it’s not what you want. For us, that’s the high pressure jobs that pay well enough but don’t exactly get you ahead even if you’ve already made a lot of sacrifices for them in terms of weekends, evenings, etc. Instead, we hit the pause button and made some drastic changes that we expect will allow us to “retire” in 2-3 years (without inheritance, it would probably mean within 8 years), which means working jobs that we want, giving back to the community, and spending even more time with our family (hopefully abroad or a on a summer road trip) w/o feeling obligated to check email, respond to calls, finish that presentation, etc. That’s entirely because we became intentional with where and how to invest our money (home ownership in a tiny town with no growth potential vs. a thriving market in diversified funds). Oh, and to answer another question, the year after we sold the house we booked two vacations – one for the family, another for us – but pandemic struck. We’ll get those and many more on the books now that we’re seeing a rise in vaccinations and life returning to normal.
Anon for this
$200K in cash is not exactly “affordable” to most people, but you could have spent that money to pay off your mortgage entirely and then really had the freedom to do whatever you wanted, while still investing your inheritance in the market. As of now, you’ll still be paying rent in “retirement” – you and the 3 kids can’t exactly live in an RV.
Anon
+1 My only home (5 bed 3 ba single family house) was purchased for $300k and it’s expensive for our area. $200k is a lot in many places!
Anon
Adding that we own our house outright and invest a ton in the market since we have no housing costs besides taxes and maintenance. We daydream about buying a vacation home in a similar price range as OP, but likely won’t do it because we love being debt free and having a huge budget for luxuries like travel. If your goal is being debt free and retiring early, I’m pretty confused why you would put the $200k into a vacation home while paying rent on an apartment, instead of paying off the mortgage on your primary home and getting your monthly housing costs to zero.
Starter home forever
Thanks for the update. Rereading this, it makes a bit more sense. For one, the home you would potentially own in the town where you live is unlikely to appreciate while still requiring . I’m still not quite sure how the monthly rent expense squares with a low-interest mortgage on an affordable home, but I can certainly see the other payoffs in terms of flexibility and the psychological freedom of not having any debt. Second, you are not really talking about retiring but changing careers into something less stressful – you still intend to keep working and bringing in at least some income and presumably health insurance, etc. This is totally laudable and probably relatable to a lot of people.
I’m also curious now about the commercial property – do you derive any passive income (like rent) from that? I could also see how having such non-realizable assets tied up in property would push you to not invest in other real property for diversification purposes.
Gov Atty
Is the $3100 monthly rent a long term deal? I rented for 15 years in Chicago, then in DC, and faced rent increases every two years (and ended up moving multiple times) making it steady but only to a certain extent. I couldn’t keep thinking of it as truly fixed, which stressed my financial planning in a way I didn’t enjoy. The stress alone of moving was enough to make home ownership appealing.
Jae
I simply don’t understand why renting is better than owning in this case? Is she saying the money being put into the mortgage is higher than rent and therefore the differential can earn more via investments? Because otherwise the rent money is still a monthly cost that you’ll never see again? Plus mortgage interest and property taxes which makes up a part of the fixed costs are deductions whereas rent payments are not. And mortgage payments are more fixed than rent especially in a city like Boston or NYC? I would think owning is more compatible with FIRE. Also buying a vacation home outright seems incompatible with her thesis regarding money working better via markets. Given the low interest rates I don’t see why you wouldn’t take a mortgage Over putting away so much of your liquidity.
Faith2014
I hate to be critical, but the house and inheritance don’t rub me the wrong way like they seem to for some others. But with a HHI of 300K, you only give 1K to charity?