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Holy crap I’m 40! My 30s financial review.

Holy crap I’m 40! My 30s financial review.

Dang time flies. It seems like just a couple years ago I was starting the blog and my career and I swear just last year I was writing my holy crap I’m 30 post.

Well the bad news is time flies and the good news is well nearly everything has gone exactly according to plan.

Here are things that I accomplished in my 30s

  • Had two more children to bring the total to 5
  • Added over $345,000 in contributions to our nestegg
  • Grew our retirement nestegg by over $1 million dollars
  • Able to have my wife stay home with our children
  • Remained debt free other than mortgage and student loans at very low rates
  • Built our dream house with basketball court
  • Resisted the Tesla urge and still driving a crappy car
  • Achieved a 7 figure retirement nestegg at age 38
  • Started partial early retirement at age 39 (summers off)

Obviously the huge amount of contributions we made in our 20s and 30s got us to where we are today. Ultimately though living well below our means allowed us to do this basically on 1 income for the vast majority of our 20s and 30s while supporting 5 kids and to be perfectly honest it wasn’t all that difficult.

Simply prioritizing things in our life that lined up with our values made things just fall in place without really ever feeling like we were sacrificing something for the future. We went through two decades of life probably spending less on all of our vehicles combined than a lot of people do on one new vehicle.

We probably spent less on eating out and drinking in those two decades than most people do in one year. Probably same with clothes or a host of other material examples.

We did spend money on things we knew we would enjoy like family vacations, but even there our lifestyle allowed us to enjoy those vacations at a lower cost and I’d argue an increased enjoyment than the average family.

Ultimately the thing that I am most proud of was hitting that partial early retirement goal this year at age 39 as that was the whole point of everything since this blog was started. That idea even predates the blog in that I always knew that I would want work to take a back burner to spending time with family.

I now have an arrangement where I don’t need to work in the summer going forward and my wife’s job also allows her to be off in the summer so we have a maximum amount of time to spend when our kids are off school. The best part about this is the retirement nestegg giving us the freedom that if for whatever reason this arrangement with the employer went away we could just find another arrangement that worked without fear of affecting our finances or our future or our kids future. This freedom is what this financial journey is all about and as time goes on that freedom will continue to expand.

Financial Mistakes I have made or areas where I’ve fallen short

  • Sitting on too much cash
  • Putting my health on the backburner
  • Likely spending too much money on our house
  • Don’t have a will

Honestly I made some mistakes in hindsight. I was overly conservative with my cash holdings where if I had more of that money invested I would clearly be more wealthy than I am now. Probably not the worst flaw to have in that I have too much money saved on the sidelines in emergency funds.

We did spend a lot of money on our dream house and have continued to throw lots of money at it. If we had not splurged here I’d have many millions of dollars no questions asked, but my quality of life probably not affected too much other than I would have likely started early retirement a few years earlier.

Now the two areas that I would for sure have changed. We have 5 kids and a large net worth and have no will. This is probably pretty stupid especially if my wife and I die.

Probably the biggest thing I’d change is probably not directly a financial item, but a health one. I’ve worked a desk job my entire life and while I was athletic most of my life and generally ate healthier than most people I basically got to my late 30s as a broken down old man. I had serious back issues and basically had 18 months where it was difficult for me to even play with my kids. All of this was self induced by sitting on my butt for 20 years and gradually removing all forms of exercise from my life as I was chasing my 5 kids around.

I recently rectified this in the last year and even built a weight room in my basement. I feel 15 years younger and honestly probably consider this a bigger accomplishment than anything I have done for myself financially. Combining them both leads to a pretty happy low stress life.

In my holy crap I’m 30 post I wrote

In general I think by the time I hit 40 things should really be in cruise control. I hope to have most of my house paid off and a very nice cushion in my retirement accounts. When I hit 40 my oldest kid will be 14 years old and I hope that at this point in time since money will be less of a concern that I can become a free lance consultant, become a teacher, or do something that will afford me considerable free time where I can enjoy summers off and vacations with my family.

–30 year old MFJ

That was the rough idea a decade ago and for the most part I think things came together exactly as planned. I spent this entire summer with my kids. Took them on a trip to Europe and can confirm that money is less of a concern for our family at this point where we can concentrate on things that matter without money being the primary deciding factor.

As I look forward to my 40s I would expect that my wife and I will continue to trade less work for less money. Time and freedom will be more important than the size of our paycheck. I hope we will use this next decade to truly enjoy our kids as a few of them will leave the house this decade. From a financial standpoint I expect our nestegg to continue to do all of the heavy lifting and the only wild card out there will be helping 5 kids attend college. I expect at some point one of us will look into starting a business in something we are passionate about and if things go really well I could see both of us retiring fully before we hit 50.

Regardless of what the future holds I know that we have set ourselves up for a great future and I really look forward to time slowing down and being able to enjoy life to the fullest

–40 year old MFJ

What am I saving money for?

What am I saving money for?

This seems like kind of a horse after the cart type of moment, but I’ve more recently started to wonder what I am saving all of this money for. My retirement nestegg has grown exponentially and overall I think I have done a pretty decent job of saving a significant portion of my income for retirement.

I’ve set goals and have met them and I have toyed with setting new goals for myself. For example I set that $1M for 40 goal 2-3 years ago and never wrote a post as to what, why, or how I was going to do that. Part of the reason was that I didn’t know really the why and well the how part really relied on my investment returns which as we no tend to not be a linear/stable thing you can project over a short period of time like five years.

So take a step back – ever since I was in high school I knew that I wanted to live below my means and let compound interest work its magic. I am sure in high school I was leaning more towards the man if he let this money compound for 50+ years would have many millions of dollars at his disposal at 70 years old.

Then as I left college and began my working career and contemplated a family I knew that the idea of retiring early would definitely appeal to me. In fact my wife was going to school for teaching and shortly after graduation I was seriously considering going and getting a masters degree in teaching so that I could have summers off with my wife and our future family.

Then I realized teachers don’t make much dough so maybe it would be better for me to stay in a high paying field like computer science, get my MBA instead, save like crazy when I was young, and then when I was older and money didn’t matter that much maybe pursue that teaching thing as an early retirement.

In my MBA classes we had a class where you basically figure out what you want from life and what you want your career to be – in the end somehow I settled on college professor. Again I would have summers off, flexible schedule, and well the money was better than teaching high school, but then there is that whole PHD thing.

So while I never had a solid plan one recurring theme was having summers off with the family and saving money early on in my life to give me the freedom to pursue other options where the schedule was great and maybe the pay was not so great.

Well here I sit I am 34.5 years old and have accumulated 4 children that I have grown fond of. I have a retirement nestegg of nearly $370k, another $170k+ in cash savings, and a few other assets. I still have my mortgage $110k+ and some student loans of about $40k. So right now I have a liquid net worth of $400k+, though most of that is tied up in retirement plans that aren’t easily touched before age 59.5.

My career is going very good and I am able to save support my family of six while saving a significant amount of cash each year. I could have actually made probably a lot more money in my career, but have I shunned overtures by my bosses to take on higher roles or to relocate to Europe for the sole reason that I like my current work/life balance and if anything I would like to scale it back even further rather than go the other direction with more responsibility and more money. I have more money than I can use right now and the call of more money, a fancier title with more responsibility, advancing my career, or relocating to fancy places around the world does not appeal to me at all.

My wife has been able to stay home with our children and has graciously put off using that teaching degree until our kids are all in school. Ideally it would be awesome if when she decides to go teach full-time again that I was also able to convince my work to allow me to have a similar schedule if I took a proportional paycut. I am not sure if this will fly or not. I am well respected and valued and I do work for a European company where in Europe many of my colleagues have 6 or more weeks of vacation, but I do work in the USA and my boss even in my last performance review said he was disappointed that I was looking to keep a good work/life balance and not interested in taking on higher roles with my skill-set – so me turning around and asking to reduce my workload by 25-30% more might not go over well.

I could also take another step backwards in my career and go back to consulting and just work it out with a local consulting company that I don’t work during the summers – I think this may be more doable.

Regardless I need to be in an even better financial situation where I am not so dependent upon my primary job to provide for my family. This may require me to start saving more money in taxable accounts that are more easily accessible while I am younger than age 59.5

So if I had to cut this very long post down to a simple conclusion it is that I am saving money so that I have the freedom to spend more time with my family while they are young – especially during the summers. I want the flexibility and freedom from not having to pursue a job that does not fit this schedule.

$100,000 in principal by Age 30 – Final Recap

$100,000 in principal by Age 30 – Final Recap

Well 3.5 years ago I wrote this original post where I set a goal for myself to have saved $100,000 in principal by the time I reached age 30. By principal it meant money that was contributed to my retirement accounts only and not the current value of the accounts. This allowed me to have complete control over whether or not I reached my goal as I would not have to worry about market fluctuations (like those ever happen anyway 🙂 ). It seemed like such a steep goal because at the time I barely had $30k put away for retirement at the time.

The whole purpose of the goal was to put me on a solid track for saving for retirement. I understood the power of compound interest at an early age and knew the cost of waiting to save for retirement. $100,000 is really not an important number and there is no science behind it, I just knew that if I had roughly $100k put away by the time I reached age 30 I would be on a very good track where if I were to sluff off on retirement savings to do other things (build dream house, pay for kids college, etc) that it would not hurt my retirement as bad because I had done the grunt work up front and had 30+ years and the power of compound interest on my side.

Over-simplifying things, but if I had $100k in my accounts at age 30 and never saved another penny and it earned 10% annually in the stock market for the next 35 years I would have over $2.8 million in my retirement account at age 65. Again over simplifying things, but that is the general concept. Save as much as you can as early as you can and get time on your side and saving for retirement will seem easy, especially compared to those that wait till they are 40 or older to start saving.

Below are the final results of my goal. I’ll provide more detail after you review the results.

The gameplan

Year Age Roth IRAs Traditional 401k Roth 401k Total Contributions
2004 24.5 $6,000 $1,146 $0 $7146
2005 25.5 $8,000 $8,268 $0 $16,268
2006 26.5 $8,000 $0 $9,380 $17,380
2007 27.5 $8,000 $0 $11,424 $19,424
2008 28.5 $10,000 $0 $9,710 $19,710
2009 29.5 $10,000 $0 $10,281 $20,281
Totals 30 $50,000 $9,432 $40,795 $100,027
The Actuals

Year Age Roth IRAs Traditional 401k Roth 401k Fully Vested Matching Funds Total Contributions
2004 24.5 $6,000 $1,146 $0 $0 $7,146
2005 25.5 $8,000 $8,268 $0 $0 $16,268
2006 26.5 $8,000 $0 $10,592 $0 $18,592
2007 27.5 $4,750 $13,852 $2050 $3,134 $23,786
2008 28.5 $8,700 $14,505 $0 $3,386 $26,591
2009 29.5 $0 $3,867 $0 $2,548 $6,415
Totals 30 $35,450 $41,638 $12,648 $9,068 $98,804

As you can see the first thing you probably noticed is that I fell short of my goal. I will address that in a little bit. The other thing you might have noticed is that there is an additional column where I decided to count all of the matching money that my employer has contributed that is 100% vested. Originally I said I was not going to count on this money, which is good when setting a goal, never count your eggs before they are hatched, but in the end this money was contributed to my retirement accounts and it is 100% mine so its really no different than if I had contributed it myself. I made a conscious decision for taking this job over others and the retirement package was one of the reasons and I think I should be able to count those contributions.

Now to address me falling short. This certainly was not because I couldn’t reach my goal, its sort of that I decided reaching the goal wasn’t as important as saving for our dream house. As much as I like to go on and on about saving for retirement and how buying houses may not be the best financially for some people (wow had some foresight there) as was pointed out to me so eloquently by Doug in this post – you have to balance long-term savings vs spending some money now and enjoying life today. While this may sound goofy as I’m forgoing one savings to save for something else, I sort of view saving for a house as a short-term lets waste money on something and enjoy life now thing versus anything that would be smart financially. We already have a house it suits us fine and there is no reason we could not live here the rest of our lives. We just want something bigger and better and one of us has some crazy ideas on ways to waste money 🙂

So while I fell woefully short of my intended savings for this year – in the last 2 years I’ve been able to save $35,000 for our new house. In fact an automatic deposit today went to our house fund for $1,175 which ironically would have put me right at $100,000 if I had directed it to our retirement savings instead. So all in all while I feel some disappointment for falling just short of my goal – I do feel very good about where we sit financially right now and think our retirement savings is very much on track. The last two caveats I will throw in here are that originally the goal stated Dec 31 of the year in which I turn 30 which I will easily get (I changed the goal about a year ago when I thought the goal was getting too easy) and I also have $8,382 of contributions that I am not counting because they are not 100% vested until Jan of 2010. So I guess depending upon how you look at it I may have actually met my goal. Like I said this wasn’t rocket science I just wanted to make sure I was headed in the right direction and I feel very much so that I am.

Either the world is going to end or the market is going to recover. If it’s the end of the world, I’m going out fully invested :)

Either the world is going to end or the market is going to recover. If it’s the end of the world, I’m going out fully invested :)

I wish I knew the origin of this quote in the title – I heard it from someone the other day and couldn’t find the source but I think it pretty much sums up my investing philosophy right now.

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How to do a Roth 401k rollover

How to do a Roth 401k rollover

Seeing as how the Roth 401k has only been around for a little over a year and a half, there isn’t a lot of information out there about rolling these things over. I have a Roth 401k at a previous employer and while the fees and funds are very acceptable at the previous employer I just want total control over my choice of investments and want to consolidate some of my accounts, so I will be rolling over my Roth 401k into my existing Roth IRA.

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Ask the readers – How do you come up with that magical retirement number?

Ask the readers – How do you come up with that magical retirement number?

One thing I’ve taken a little slack for is right now my only public goal is that I want to have $100,000 in principal deposited by the time I reach age 30. This is a good goal and has been pretty popular with many of my readers, however as a couple of you have pointed out – it’s a short term goal and really says nothing about how, when, and how early I can retire.

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