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Somehow I’m in my 40’s now – how did that happen? Turning the Big 4-0 spurred me on to review and improve my finances.
I‘ve always been wired to be good with money. I’m naturally a saver instead of a spender so it’s been easy to live below my means and not do anything too stupid with money. But of course I’m made my fair share of mistakes and it’s been more challenging when having a wife that’s a natural spender and having kids (they’re expensive and priceless at the same time!).
With moving into my 40’s, I was moved to look at my family’s finances to make sure everything was in place that should be there. I started that journey at the end of 2018 and wrapped at the beginning of 2020 – just over a year’s journey. I share that journey with you here.
RELATED: My philosophy on managing money and step-by-step instructions can be found here – “The Ultimate Guide to Getting Wealthy“.
Found Dave Ramsey
I found Dave Ramsey online on Christmas Day, 2018. I’d heard the name but never looked into him. I instantly fell in love with his teachings. He teaches people how to succeed with money through a simple, down-to-Earth approach called The 7 Baby Steps. I binge-watched his videos and started thinking through how are our finances compared to what he was teaching. This kick-started me into wanting to review and improve our finances.
I realized we had about 80% of what we needed in place but that last 20% was really holding us back (80/20 rule). We:
- Didn’t have any credit card balances or school loans – good.
- Had about $7,000 in a near 0% interest-rate checking account – not good.
- Had two car loans – $8,500 left on mine and $23,000 on Jenn’s – bad.
- Have a mortgage with a balance of $183,000 – it’s fine (I’ll explain later).
Paid Off My Car
I started working through the Baby Steps to improve my finances. We already did Baby Step 1 – having our initial $1,000 emergency fund.
So I moved onto Baby Step 2 – pay off all debt except for the mortgage, from smallest to largest balances. That meant I was going to tackle my car first (Honda CRV 2015).
I put all the money in our savings except for $1,000 towards paying it off plus overtime I worked. I was able to pay it off – $8,455.52 – in 17 days (from 12/25/2018 to 1/11/2019). This paid it off 19 months early and freed up $411/month. I was ecstatic and it got my momentum going.
Got Wills in Place
In addition to working the Baby Steps, I got some other things in place.
For example, while saving up money to pay off Jenn’s car, I got to work getting our wills in place.
I decided to use Quicken WillMaker Plus. Legal in all 50 states. Well regarded.
I wrote the following documents for myself and walked Jenn through writing hers:
- Health Care Directive (Living Will & Power of Attorney)
- Durable Power of Attorney for Finances
- Final Arrangements
- Information for Caregivers and Survivors
Those took a lot of work because Jenn and I had to figure out what we wanted to happen with the boys, our belongings and our estate if different scenarios happen. We also had to talk with family members on both sides of our families who we asked to be responsible for certain aspects of our plans.
All of our documents were notarized 2/2/2019. It brought a great piece of mind knowing when we die, we have our information, plans and wishes legally documented.
Got Life Insurance Policies in Place
After getting the wills in place, we got life insurance policies in place as well.
I shopped around and settled on Protective Life Insurance Company through Zander Insurance. Found Zander through Dave Ramsey. I started the process on 1/14 and the policy went live 2/21/2019. It took a while because they require a physical exam.
We also went through Zander Insurance for Jenn and got the policy from Banner Life Insurance Company. Jenn started the process on 1/29/2019 and the policy went live 3/24.
By putting in life insurance policies, it continued to build our “chess moves” of life and that no matter what happens, my family will be OK. If either of us die early, the other will be financially taken care of through these life insurance policies.
Paid Off Jenn’s Car
While getting our wills and life insurance policies in place, we tackled paying off Jenn’s car (Honda Pilot 2017).
It took six months to save up enough to pay it off (from 1/11 to 7/11/2019). That was a long haul since we were also balancing having great family times including trips to the Outer Banks and Gettysburg.
But we did it. I paid the regular payments of course ($544/month) plus the $411/month that was freed up from paying off my car. And I sold some stocks ($9,000) and cryptocurrency ($2,000) and continued to work overtime.
All told, we paid it off on 7/11/2019 for $22,858.14, 32 months early. I remember thinking this was a big milestone to improve our finances!
Built up Emergency Fund
With both cars out of the way, we finally moved onto Baby Step 3 – building up our ‘real’ emergency fund beyond our ‘starter’ fund. We saved up our emergency fund from 7/1/2019 – 12/25/2019 – $11,575.00
Related: Our emergency fund saved our butts quite a few times already. Read about it here: “How Our Emergency Fund Saved Us – 7 Times in 3 Months for $1,365“
Opened High Yield Savings Account
Right as we started building our emergency fund, I re-evaluated our savings account. We had a savings account through our bank. It was only giving a paltry %0.1 interest rate. Most banks were similar the last time I look but I researched again and discovered a lot of online banks came along and were offering rates that would meet or beat inflation.
I chose Wealthfront and opened our account on 7/22/2019. The rate was 2.57% when I opened it. It fluctuates and is currently 1.78%. It’s close to beating inflation and as good as saving rating can be nowadays (or at least close to it – other online banks are coming on strong and they’re all jockeying to be the best rate).
This went far to improve our finances. At least our money won’t slowly lose value due to inflation.
Switched Car Insurance Company
This wasn’t as a big of a win to improve our finances as I hoped, but every little amount helps.
Figured Out Estimated Social Security Payouts
Next I moved onto Baby Step 4 – Investing 15% of our household income into retirement. We had been investing near that for 20 years now but I bumped up our percentages.
First I wanted to find out how much we’re estimated to get from Social Security. We signed up for a free account from the official Social Security website here. It pulls in your actual work history and gives you an estimate of what you’ll receive depending on what age you start collecting Social Security – 62, 67 or 70.
Next I documented all of our retirement accounts (401(k), etc.) and ran them through a bunch of online retirement calculators to get a sense of if we’ll have enough money in retirement. I really like using Dave Ramsey’s calculator.
Monte Carlo Simulator
Consulted with Financial Advisor
It looked like we’re on target to have enough money in retirement based on the retirement calculators and Monte Carlo simulators I was using but it was hard to tell. Some were saying we’d have more than enough, some said just the right amount and others were saying we’d be woefully short. There was no way to know which was right on my own.
I inquired about if I could meet with a financial advisor through my bank and they set me up with Karl – a certified financial advisor. He was great to work with. We hit it off on a personal level and he’s really knowledgeable.
After analyzing our numbers and running through hundreds of scenarios (early death, disability, recessions, etc.), his systems estimated we have a 97% chance of success of Jenn being able to retire at 55 and me at 59.
This was a huge relief to me because I thought we’d be way short and would have to really increase the amounts we were investing monthly. But, no, we’re good.
With that said, I moved onto Baby Step 5, saving for our kids’ college fund.
I had originally opened 529 plans for both of our boys years ago but stopped adding funds to them because my attitude changed. I started thinking that they’d set out on their own and take out loans. But I’m against debt of any kind at this point (except mortgages – see the next point) I started adding to both again automatically monthly.
With that, I moved onto Baby Step 6 in the pan to improve our finances – paying off our mortgage early.
Why We Won’t Pay Off Our Current Home Early
I’ve looked at both sides of paying off the mortgage early and ultimately decided this is where I’m not following the Baby Steps and we’re not paying off our current house off early – it doesn’t play a big part to improve our finances. A couple reasons…
We ended up getting just about the the lowest 30-year fixed mortgage rate of all time (so far) by happenstance. The lowest ever was 3.31% in November 2012 and we signed ours in October at 3.37%. Subtracting inflation of 2%, it’s as if our rate is 1.31%. That’s hard to beat. I understand we’re still paying interest and it’s not actually “free money” as some would call it, but, man, that’s an amazing rate.
We’re planning on moving and not living in this house forever. We’re going to sell this house and build a small ranch out in the country once the boys move out. Between what we’ll get for this house and savings/investments, we won’t need to have a mortgage on the next house.
Even if our rate was higher or we were planning on living here forever, I still don’t think I’d pay it off early. I think there’s some great reasons not to that Dave Ramsey isn’t aware of disagrees with. Graham Stephan does a great job explaining them here:
Build Wealth and Give
With that, we’ve moved onto Baby Step 7 – the last step – build wealth and give.
I needed to figure out where I’d park our extra money that we have left monthly. I settled on a two-prong approach: 1) Continue to build savings and 2) open a Roth IRA.
We’ll keep growing the savings for expenses we’ll have in the next five years or so that we’ll pay cash – both of our boys’ first cars and braces for one for sure and maybe the other as well. Wealthfront’s rate will hopefully at least keep up with inflation. And the savings will grow no matter what happens in the stock market. On the other hand we won’t get the growth that we could get in the market.
That’s why I also opened a Roth IRA too. The money goes into it post-tax so we won’t have to pay tax on it when we withdraw it in retirement. Plus, we can pull out our contributions (but not growth) after five years of opening it for any reason without penalty. So it’s almost like an extension of our emergency fund. We wouldn’t touch it unless absolutely necessary but it’s a great option if we need it.
We’ll max out the Roth annually. So, adding $6,000/year from my current age (just about 42) to say 65, at 8% annual growth minus 2% for inflation, it could grow to about $300K in today’s dollars. That’s a great additional buffer above and beyond our 401(k)s.
Like I said at the beginning, I’m a natural saver. It’s hard for me to spend or give money. I have to make myself do it. But I’ve realized from looking at our numbers, I’ve actually have been saving too much. Sure, it allowed us to pay off both cars and build the emergency fund quickly, but I’ve really had to have a mental shift and tell myself that we’re investing enough for the future, saving enough for now and that it’s OK to also spend and give me now.
I’m just learning how to do that so it’s been small steps. But I’ve been buying our boys things more freely lately. Not just mindless stuff, but I when I see a real need. Which I would do before but now I do it without feeling guilty or stressed. I’m also more on board with Jenn wanting to take trips this year (it’s our 15th wedding anniversary this year).
I’m working towards how I want to give to the larger society as well. I’m passionate about some causes and am evaluating which charities I want to donate to.
All told, it was a real journey working through evaluating our finances over those 14 or so months. It was a lot of things. Hard work. Fun. Stressful. Interesting. But overall, it has been deeply rewarding. I take managing my family’s resources very serious. I feel a deep honor that comes with it. At the end of the day and at the end of my life, I just want to know that I’ve done good. The greatest feeling was when Jenn says she doesn’t worry about our money because she knows I do and that I do a good job at managing it. That’s all I want to do – a good job.
With that said, I got a lot done in those 14 months. To recap:
- Paid off both cars. Freed up $955/month. No debt left other than mortgage.
- Put wills and related documents in place
- Got life insurance policies in place
- Switched car insurance companies
- Built emergency fund
- Reviewed retirement planning with financial planner – Jenn and I are on track to retire at 55 and 59, respectively.
- Opened Roth IRA
The end result is that I’ve confirmed that our finances are healthy now and we’re our target to have a wonderful retirement and that we’re prepared no matter what happens. None of this is about being rich or flashy. It’s more about contentment. Living stress free.
Related: Read more about getting happy/content/centered in my “The Ultimate Guide to Getting Happy.”
What’s next for our financials? With starting off feeling we were 80% good with our finances, I say this push has moved that to 95%.
The only immediate plan I have is to put in a trust fund (go head, insert “trust fund baby” jokes here). I already got the required documents in place when I created our wills and related documents and they have a lot of advantages.
Andrei Jikh does a great job at explaining the benefits of trust funds and how to put one into place:
I wanted to walk you through what I’ve been up to with our finances. I wanted to show that all of this stuff is do-able and you just have to… do it. You can improve your finances.
Each individual step wasn’t hard, but I did have to work hard at sticking with it. Researching it. Explaining it to Jenn. Making phone calls, making appointments, etc. It was a long haul. But all worth it. It’s all worth it. To make sure we’re as financially prepared for now and in the future. Helping fulfill our overall goal to not have financial stress, not get sucked in or trapped by money and to enjoy life to the fullest.
I hope this inspired you to improve your finances. Take action today. Look at your finances. See where you stand. Figure out where you want to be, where you stand and then take the steps to get to your goal.
If you need help to improve your finances, read my “The Ultimate Guide to Getting Wealthy.” It walks you through step-by-step on how to get wealthy – for “regular” folks just like you and me. We’re doing it and so can you. It is possible. To your prosperity!