Being the only child of a broken home is the gift that keeps on giving. Nearly every day, since about the age of seven, has found me fretting about how thee heck both of my parents will navigate retirement after a lifetime of insufficient financial planning, chronic indebtedness, and singleness for as far as the eye can see.
What happens if/when one (or both) of them gets sick or runs out of money? Though I can see Wisconsin in the distance while peering out of this nearby window, I live hundreds of miles from the two Wisconsinites, who also live hundreds of miles from each other. The state seems enormous when I ponder this. A sibling who could share in present and future burdens would be most welcome. This reality has shaped me in ways I might never fully understand, but it’s undeniable that 40+ years of observing how not to handle money has impregnated my DNA with a saver/investor mentality.
Debt of any size has always been an absolute emergency in my book. Something to lose sleep over. Though jobless at the age of 38, I found a way to pay off the student loans in the days prior to hitting the 4-0 milestone, because I would’ve lost it if I was saddled with student debt in my 40s.
We currently have zero consumer debt, but do carry a mortgage in the mid $50K range (been in this house for 15+ years), and owe a few thousand dollars to the USDA for a very low interest business loan that helped launch Tiny Farm Duluth. This lack of debt, in tandem with a frugal lifestyle, has enabled us to survive during this crazy transition from losing my corporate job and the four+ years of self-employment that have followed. Somehow, miraculously, we’ve even been able to save a little money this year on a combined 2018 household salary that’ll fall somewhere between $28-$30k (the low number is buttressed by various small biz tax advantages, as well as the fact that 99% of our charitable giving has come from the remnants of stocks in a taxable account. Those stock options at 1% of my salary-$400 at the time- really added up considering UNH stock has quadrupled since I got sacked. Even with yearly giving, we still have about $6k sitting in there for future years. Perhaps I’m cheating, but this has been an easy button on the charitable side, because I don’t want to just be a money hoarder over here.)
Not bad, perhaps worthy of a pat on the back even, but it’s still not good enough. Though 12 years of corporate work were soul-sucking in the extreme, I am thankful for a generous 401k match during those years that essentially forced me to save for retirement (not being one who’d ever leave money on the table). In the years since then we’ve saved virtually nothing in our retirement accounts. This is an unacceptable emergency, that has recently sent me spiraling down an OCD rabbit-hole. This post, in fact, is merely an attempt to articulate an action plan so my obsessive brain can hopefully move on to more interesting ideas, perhaps even resulting in a return of a little creativity so I might even be able to make meaningful progress on that next book. Creativity, after all, is next to impossible when you’re stuck in survival mode. So, buckle up folks, here we go. I think you’ll find something immediately applicable to your own life here somewhere. Pay attention!
A couple months ago, after the dust settled following 6 months of exhausting twice-per-week farmer’s markets, I realized I had six grand sitting there interest free in my business checking account doing nothing. Are you kidding me???!!! That is so not ok. Furthermore, my online savings account paid a paltry 1% interest. Folks, if you’re not making more than 2% interest on your cash, you’re losing money to inflation each and every day. Stop reading this now, and open an online savings account with Synchrony, Ally, or a host of other online banks that will pay north of that critical number. Since I took care of that important business, I’ve taken big steps to drastically simplify our family’s financial picture, while simultaneously setting us up for greater success in the future. Now, after making weekly deposits to our local bank, which allows me to walk right in with my dog, I immediately transfer the funds to our interest-bearing account online after we return home. Previously a minimum of $2k sat in a checking account doing nothing every month, just waiting to pay bills. This alone is now worth an extra $45 a year in interest, and the rest of our savings is now working twice as hard as well.
To reduce complexity, I’ve closed two credit card accounts (which I always paid in full, but I find multiple websites and passwords to be a big hassle. Even if the reward dollars were nice, I’ve learned to be content with a good deal, and not necessarily the very best deal). Now we have one business card and one personal card through our online bank, which allows for a single sign-on to the website). Now to the more controversial stuff..
Currently, I’ve contributed just $800 to my Roth IRA for 2018, which is ridiculous, even more so considering this all resulted from just this past couple months of obsessing. Though we have a capital-intensive building project for the farm coming up in a few months, we’re going to bring that up to the $5500 maximum prior to the April 15th deadline. Every month, come Hell or high water, I’m sending $100 in there, which brings us to the still paltry $1100. This we’ll match with proceeds from our anticipated tax refund, which should be awesome thanks to the Earned Income Credit, and the rest will come out of our emergency fund. GASP!
We have about $12k set aside in said emergency funds, enough for about six months of bare bone expenses (along with additional funds set aside for the upcoming building project). I recently put 15% of this into a total world index fund, because I can’t have our dollars just sitting around. They are our employees. We need them to work their asses off. That said, I’m loathe to sell investments in a taxable account. At last check, the Earned Income Credit allowed just $3k in investment earnings in any given year. Also, since I do our taxes myself, I see how drastic these capital gains are. Even though we fall comfortably within the 10% tax bracket, we lose roughly 50% of capital gains due to a corresponding decrease in Earned Income Credit, among other things. Thus, we now do our giving to church through a charitable transfer of stock. Selling the stock for the gains is a real killer, and makes no sense for us.
The simple solution is to invest a portion of our emergency funds in the Roth IRA. Since we don’t currently have the means to max it out anyway, there’s no downside to this. Contributions could be pulled out in the future due to something unforeseen, heaven forbid, whilst any gains would remain within the Roth, tax-free. And so, I’ll be investing the remaining $3300 into the Roth from our emergency funds. While it might be a good idea to keep this in cash, we’ll plow most of it into low-cost index funds instead. We are a bit behind in retirement savings, so measured diversified risk is a worthwhile tradeoff.
Furthermore, Shawna (my wife, the fantastic artist) is now making a bonafide income that has matched mine for the first time in our marriage. We are now like two horses hitched to the team, pulling equally. Thank goodness! We have yet to set her up with a Roth, so I’ll transfer another $3k from the emergency fund to get that going. All our money is together over here. What’s mine is hers, and vice versa, but we need to make up for lost time by finding a way to fund both accounts in coming years, as impossible as that sounds. It’s crazy hard to do this with kids in the house too, and we only have about five years left before they grow up!
That said, considering the stress I feel with my parents, the sacrifices we make today, will hopefully relieve them of similar stress in the years ahead. I’ve even established Roth IRA’s in their names (matching small amounts that they’ve earned in random jobs), but don’t tell them. I hope to surprise them when they turn 18 with a meaningful start to their retirement accounts. Six decades of compounded growth is pretty incredible when you do the math.
Perhaps equally controversial is the fact that I’m going to dump the bond portion of our portfolio and go 100% stocks (broad-based index funds like the Total Stock Market and Total International). As Jack Bogle says, “Don’t look for the needle in the haystack (referring to individual stocks). Just buy the haystack!” 100% equities is indeed aggressive, but we need to make up for lost time. We have decades to recoup any losses. Put the pedal to the metal, stay the course, and steer clear of financial news as much as possible. When one reaches a quarter mil in retirement assets it might make sense to draw down the risk a bit. Additionally, while I’m not going to count on Social Security to take care of all our needs, I think it’s reasonable to consider SSI as the bond component of our portfolio at this stage in life. In future years I might pay down the mortgage a little early, another way to incorporate bond-like performance, although we have less than a decade to go towards paying off the house. I have a feeling I’ll have a similar urgency to pay it off before turning 50, but that’s still a long ways off. For now, we have to be funding those retirement accounts urgently.
(Update, due to further OCD rumination…. Ok, I might keep 5% in a money market fund at 2.5% interest. While the stabilizing effect of this in a steeply downward stock market would be negligible, the benefit of an opportunity fund like this is that it can cause you to rejoice at a 20% drop. Meaning, stocks are on sale at those times, and it’s an opportunity to be somewhat greedy when others are fearful. More importantly, it provides a shift in the brain to see the opportunity rather than fret about meaningless losses on paper.)
I’m aware this is a first-world sort of problem, but this doesn’t absolve us of being responsible human beings in the culture we find ourselves in. I don’t wish to be a burden on our kids or society. Furthermore, I’d like to live generously. This, of course, needs to be present tense and not just future. Be generous AND save. Easier said than done, but possible. Much of this depends on focusing on the supply side of the equation, rather than simply playing around with asset allocations. We simply need to start earning more money, which I’ll be focusing on like a freaking laser throughout 2019.
Brief aside, I looked into a paper route. A daily delivery of 100 papers would have paid just $123 per week. That’s seven days a week. No days off, and having to drive to get the papers every day. Why does anybody do it???? I was eager to split the money with the kids, sharing the responsibilities, but having just sixty bucks a week leftover to add to the retirement stash for all that stress and lack of sleep pretty much sounds ridiculous. Plus, we already have a difficult enough time stepping away from Gilmore Worldwide HQ as it is.
Though 90% of the solution can be found in an increase of income, we’ll continue to scrutinize expenses. 2019 brings me another tool that I’m growing to love: the Buddy app. The free version, with limited categories (aka, less decision fatigue), is good enough for me. We’ll continue with manual ledgers for the businesses (see prior post), but this works great for personal expenditures. It’s as simple as can be. Come out of the grocery store, simply type in $120, grocery category. Boom. Done! No need to enter name of the store, date, etc. Quick as can be, and no annoying two-day delay while waiting for credit card information to feed through, after which you’ve already forgotten. This app is made for living in the present, and not focusing on the past at all.
I wrote this post in an effort to establish a plan, and dislodge my brain from an unhealthy fixation. That said, before you get all judgmental, people in self-employment need to think deeper about these topics than folks who can count on steady paychecks. It’s absolutely essential. Is self-employment working out for us? Is the stress of running an urban farm, a wee bit of writing on the side, and marketing art, worth it? If I don’t pick up my game, and soon, it might not be. Now Shawna is definitely meant to be an artist, and will continue indefinitely. She’s kicking serious butt these days. I, however, am flexible. I could run the farm more on the side, pick up another side hustle, or quit altogether. Should I just get a job with actual benefits? Everything needs to be considered. My goal is to keep farming and writing, but at some point we’ll need to face reality. Also, what if I get hurt? Just last week I fell while skiing, and likely broke a rib. I also have a bum shoulder.
So, I covet your prayers and good will dear friends. We are reasonably healthy, financially speaking, with a positive net worth and all that good stuff. BUT, at this stage in life, we need to be making significantly greater headway. All the while living generously, and not hoarding the resources we do have. This makes my head spin.
Are you taking drastic steps in 2019? Any side hustles to share? Do tell!