September Mortgage Update: Changing Plans (Help?)

Last month (August):

Balance: $100,747.56
Years left: 8.5
P = $803.97, I =$410.44, Escrow = 621.66

This month (September):

Balance: $99,268.01
Years left: 8.25
P = $809.78, I =$404.63, Escrow = 621.66

One month’s savings from prepayment:  $2.62

This month I was going to talk about being under 100K and playing with the amortization spreadsheet, explaining exactly how mortgage loans are different than student loans or credit card loans, and go into the details of how student loans and CC loans basically recast automatically, but you have to pay money to recast a mortgage loan.  Instead a modified version of that post will be next month.

The tenure committee voted 7-1 against tenure for DH.  He’s teaching 4 days a week, with a 3/3 load not counting the capstones he is advising, no graders or TAs, and they just switched out his elective with the second introductory course.  (He’s already teaching the 101.  Now he has 101 and a new prep for 102.)  The department is dysfunctional, the students are terrible (though the worst ones flunk out by the time they get to the 300-level courses!).  As a spousal hire, he makes about 20K less than the other folks hired the same year.  And quite a bit less than someone with his degrees and experience and productivity should be making.  I do *like* having his salary, but today we decided we needed his time and happiness more than we needed two years of salary.

So he’s going to withdraw his tenure packet on Monday and leave the university in August 2013.  We don’t know what he’s going to do next.

I still don’t want to go on the market this year– I’d still like to stick around another 2 years.  I have an interdisciplinary project that I would really like to finish and it is a 2 year project.   Though going on the market would be worth a raise of at least one month’s worth of summer salary equivalent, so maybe that’s not reason enough.

So this weekend we sat down with our credit card statements and bank accounts and calculated how much we actually spend each year.  It’s a lot.  (Where does our money go?  Childcare, mortgage, private school, insurance, food, limited but overpriced travel to such exotic places as the rural midwest, medical, auto upkeep.)  Then I added projected childcare expenses for DC2.  Then I calculated my projected take-home pay with projected additional benefits with DH on my plan.

If, once DH leaves his job, we stop prepaying the mortgage and stop putting extra away for retirement, and stop the 529 payments, then our spending is about equal to my take-home pay.  There’s not a lot of wiggle room.  We can recast the mortgage (from 8.25 years back to ~18 years) and that will bring our required monthly expenses down about $530/month (0r ~$6300/year) given our current pre-payment so far.  We also already have a nice emergency fund saved, so it might not be horrible if we didn’t have extra to add to that immediately.

I did a few thought exercises… if we spend $200/week at the grocery store, we would have to stop shopping for almost an entire year to save $10K.  If we assume $100 of eating out per week (I don’t think we actually spend that much), not eating at all would take 33 weeks to save $10K.  We already went through and negotiated on things like insurance and cell phone bills and so on.  It makes more sense to try to make additional money.

My interdisciplinary project has been funded for one year with promise of a second should this year work out.  One of my colleagues who wants me to stay has also added me to a two year grant to replace a colleague who just left for greener pastures.  If these work out then I’ll have two months of summer money for two summers.  I have an additional two grants awaiting word from the government, one of which may actually get funded, though only for a year.  Pubs are light this year, but grant applications were heavy!

DH is also worth a lot more than what he’s been paid.  But I want him to be happy more than I want him to be a wage slave.  He’s a scanner (in Barbara Sher’s terminology) and contract work may be a better fit for him than working locally (unless locally means moving to Northern California), but contract work takes some time to build up into real income.  So I don’t think we can count on him bringing in regular income, at least not right away.

So that leaves us with the question of what to do with DH’s salary this year.

With the two-year plan, we were going to put his additional salary towards the mortgage rather than towards the 457 plan he’d been funding this year.  Then in the second year we were going to put the extra money towards cash in case we have to move.

Now we’re on a one-year plan.  I’m not sure what to do.

(Note:  We’re required to put 12% of our income into a 403(b), the retirement savings I talk about below is on top of that saving.)

DH is going to stop contributing to his 457 plan.  That frees up ~15K.  Some of that money is going to be going to mother’s helpers who are more expensive than daycare will be the following year.

Maybe we should cut off my extra 403b payment as well and/or DH’s, for an additional 16.5K in cash (each), though we’d have to pay some of the retirement money in taxes come tax time.  And what would we do with that cash?  Another year and a half from the mortgage is still more than 5 years remaining (and still only cuts another $50 off a recast monthly payment).  If DH starts making income sooner rather than later, or if I get nice grants, we might regret the decision not to put money away while DH still has access to these tax advantaged funds (though presumably we could figure out a SEP if he did contract work).

The mortgage may not be the best place to put the money.  15K would cut 1.5 years off the mortgage as it currently stands, and after a recast an additional 15K would only cut $50 off each mortgage payment, or $600/year.  Since we have 8.25 years remaining and are going to have to stop any pre-payment to keep up with expenses in August, we can’t pay the mortgage down enough to make a real difference in our monthly payments.

We could even stop the pre-payment on the mortgage we’re already doing.  That’s about $650/month or $7800 for the year.  But where would that go?  Cash?

Cash is still paying nothing, and we’re not sure when we’re going to need to tap into that money, or if we’ll need to tap into it.  I can’t get fired, so our first tier emergency fund generally sits at 2 months of regular expenses (plus whatever we’re saving for the unpaid summer).

I’ve already funded our 2012 IRAs (had to sell some taxable stock because a company was getting acquired), but we could put 10K towards the 2013 IRAs in 2013.  Roth IRAs can be used as emergency funds if you’re willing to take out principal.

We could buy taxable stocks with that money.  We could even undrip dividends in the future.  The risks would be that the stocks could lose rather than gain value before we have to sell in the near future rather than the far future.

Another thing we could do would be to convert taxable stocks we already own into tax-deferred savings.  But then we no longer have that secondary emergency fund.

We don’t know what we’re going to be doing in two years.  On top of that, the uni has messed with sabbaticals so in two years when I’m eligible again I may have to be able to commit to not getting paid even half a salary if I want to take time off.  The timing between applying for a sabbatical at the university (October) and applying for and getting an external fellowship or external teaching assignment (generally March) doesn’t mesh with the new competitive sabbatical process at the uni, so having money I can access would really help with planning, even if I don’t end up needing it in the end.  I suppose I could try to sabbatical at Berkeley or Stanford assuming that DH would get a real job to pay our bills.  Not so easy to get a real job if I sabbatical at say, Michigan.  (#2 is insanely jealous that #1 has already had a sabbatical, and has even the chance of going such awesome places as Stanford or even Michigan.  Sigh.  I am in the wrong field.  Whine over.)

So I don’t know what to do.  Keep money in tax-deferred savings we can’t access, move it to cash where it won’t be making any interest, buy taxable stocks, pre-pay the mortgage?  What we can’t do is get used to having it around and spending it.  I’m really going to miss having that income cushion– the knowledge that if I screw up with money one month I can untap DH’s hidden salary in the future to make up for it.  When your income and your outgo are really close, you don’t have that luxury anymore.  I really liked not having to worry about money and it is difficult to have one’s income cut rather than having it grow each year.  But more difficult having an unhappy DH who has no time to do anything other than teach and do service.

(#2 thinks DH needs to quit sooner rather than later.  Otherwise, I got nuthin’.  Help out, homies! #1 notes that DH is contracted through the year and wants to quit responsibly and we can use the transition time money-wise, so quitting any sooner isn’t really an option.  We did talk about quitting at the semester but he doesn’t want to.)

Any thoughts?

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78 Responses to “September Mortgage Update: Changing Plans (Help?)”

  1. mom2boy Says:

    I’d say stop pre-paying on the mortgage and do with that whatever you did with DH’s income that you weren’t living off of. I get the sense that in two years unless something amazing happens with your job, you guys will be move and have to sell the house. You don’t love the town, DH has limited employment options, etc. A house is a good investment if you want to live in it, not so much if you want to get cash out of it…well depending on your area I guess.

    • nicoleandmaggie Says:

      Stopping prepayment this year would free up 7800 this year. We had been putting extra money in DH’s 457, but we’re not doing that this year (freeing up an additional 15K) because even though we could get that as cash at the end of the year it isn’t as easy to tap as the mortage, cash, or taxable stocks would be. (And we would probably roll it over into an IRA at that point, losing our chance to convert it back to cash). So I don’t think putting this year’s mortgage prepayment back into retirement would make it easier to get at in the short-term future.

      We can turn mortgage prepayment into monthly income through amortization if we need to cut our monthly payments. Right now a prepayment of 15K turns into about $600/year in extra cash (on top of what we’ve already paid). Of course, 15K/600=25, so just keeping it in cash would be 25 times 600. Reamoritzation costs a one time cost of $250 to do, so it is much less expensive than refinancing.

      But there’s also taxable stocks it could go into or just cash. Should extra salary go into one of those?

  2. Kellen Says:

    Personally, I keep comitting to focusing all my energy on paying off my student loan ASAP, and then later regretting I don’t have more cash, because I could use the cash in an emergency, but the student loan folks won’t give me back my prepayments to use…

    As long as the home is worth more than the mortgage balance, and if you’re potentially going to sell in a year or two, I wouldn’t focus as much on paying it down, since you’re not going to realize too much of the benefits if you don’t have the mortgage after a year anyway.

    Also – what is the worst case scenario? I know you said you “can’t be fired” – but what if those grants don’t come through? I’m not really sure how that works for you. (I assume that the university keeps paying your salary, but is just not as happy about it?)

    So… my personal opinion, which is not very educated, and doesn’t really know all your facts ;), is to have enough in cash and taxable stocks not to have to feel stressed out. It may feel like you’re wasting money by not pre-paying the mortgage for awhile, but I imagine DH having to switch jobs and having DC2 around now are probably going to be enough to worry about, without also wishing you have 6 months expenses in an e-fund, rather than two, but having already put it to the mortgage.

    • nicoleandmaggie Says:

      Worse case scenario: We bring in as much take-home pay as we spend without making spending cuts while putting 12% of my income away for retirement. No extra money for savings. Alternatively, we have to start budgeting. DH has already started doing things he didn’t do before like looking at the price difference of the store-brand for things like aluminum foil. (Stuff I do automatically, but it’s harder for me to get to the grocery store.)

      If we move, then we sell some stocks to get the house in salable condition and use the emergency fund for moving (presumably we get reimbursed for some of that) and when/if the house sells we have a lot of cash. If the house doesn’t sell, well, presumably we don’t move unless we make enough money to deal with that contingency as we have no desire to be landlords.

      I’m hard money. Any grants I get are just gravy. Something they like, but I’m not expected to get them.

      • mom2boy Says:

        We are moving to California in a week. Cost of living differences are already scaring me into comparison grocery shopping. We go on one income until I a. get a temp position and b. take another bar exam…
        We get a break on school costs, yay california public school system isn’t bankrupt just yet, but it is really scary doing such a big move on one income. No more unplanned Target trips, etc. It’s different. I’ll be so glad to get a job again. This is off topic but I don’t like not having outside income of my own even if it all goes into the same pool after. I hope if DH wants to start up a contract work/consulting business, he can sooner than later.

      • nicoleandmaggie Says:

        Groceries are less expensive in CA than they are where we live currently. Meat is more expensive than where we live, but produce much less so. What really gets a person in CA are the taxes and housing costs. If you can keep housing costs down, you’re doing good.

        We can still do unplanned Target trips on my income where we’re living, but we can’t do heavy savings and unplanned Target trips. (If we were in California, we’d have to have more income than what I currently make in order to keep our current standard of living. The last time I did a BOE for moving to the bay area, we’d need about 20K/year more, I believe, and we would have to rent instead of buy and do public school.)

        DH is pretty good at not worrying about money. He has an allowance and that’s what he tends to focus on, though now he also helps think about the big picture of finances. As an academic wife, having a flexible husband is amazing. I have colleagues in the discipline who are not so lucky and it causes marital strife.

        Good luck and have fun in California! We would do it if we weren’t professors (or if we were better at being professors!).

  3. bogart Says:

    Oof, no time for deep thinking at the moment but wanted to say I’m sorry you’re dealing with this, ugh, stress. And how frustrating for DH. I know of course things could be (and of course as I know you know for plenty of people are) much worse, but that still doesn’t make this fun or easy. Will try to add more later.

    • nicoleandmaggie Says:

      He’s pretty upbeat. If he stayed in this job they would make him chair. And he could get to herd cats. He’s really a scanner so he’s eager to move on.

      By myself I do make a nice amount of money. As a couple we’re no longer in the 5% on just my salary, but we’re doing pretty well. Just not quite well enough to hit all my savings goals without cutting spending. But they’re not really necessary savings goals.

  4. Leah Says:

    Can you reduce child care costs by having DH care for the DCs next year? Or will he make more money doing some work and having DC2 in daycare?

    This is quite a kerfluffle. I know cash doesn’t make much, but liquidity is nice. I’d also just pay the minimum on your mortgage and then divert a lot of cash to savings. I’d concentrate on living a little more minimally this year when you have the cushion of his paycheck in case it doesn’t work out. That will give you a better idea of how to function next year.

    • nicoleandmaggie Says:

      Daycare for DC2 will be less than $8000 for the year. So DH should be able to beat that. Also, at a month old, ze is already too much for one person to handle (even with a sweet nature, ze doesn’t sleep much most days and gets bored easily)! And we love the preschool ze will be going to.

      • Leah Says:

        oh, that’s not too bad. I should hope DH could make $8k no matter what.

        Honestly, then, I’d say to save up a lot of liquid cash this year (as in, try budgeting somewhat now). Then, plan on staying around for one more year to finish out your project while you look at two options:
        – if DH can hustle and make a decent enough amount to consider staying a little longer (or at least staying until you get a prime job and not just any job elsewhere)
        – you and DH shopping around for better jobs elsewhere and taking whatever gets you into a better position

  5. What Now? Says:

    I have no financial advice, but I wanted to say that I’m sorry DH is going through this — even though he’s upbeat about it, which is great, it’s never fun to have colleagues vote against you! And also I wanted to thank you for introducing me to Barbara Sher’s terminology of “scanners,” which is totally what D is but we haven’t had a term for it. But just last night I was saying to her that in many ways I think she would do better as a consultant than working within an institution because she likes new challenges and new situations and tends to give radical advice of the sort that people want from outsiders but reject from insiders. So thanks for that, and good luck to DH in finding the next thing.

  6. GMP Says:

    I am sorry about DH’s tenure denial and your financial woes…. I am curious — what went wrong with DH’s tenure package? From your posts I understand he’s an engineer or something similar. Did he not bring in enough grant money, or publish enough, or just internal politics? Sorry, I don’t even know how good his department is in his field and how research-intensive, but I am always curious what went wrong when someone is denied tenure…

    I am no financial whiz, so I can’t recommend anything that you probably don’t know or already do, so let me just say good luck!

    • nicoleandmaggie Says:

      It’s kind of complicated, but mostly comes down to this is what happens in the sciences when you go directly from graduate school to a TT job without having a post-doc in between. His colleagues like him a lot (hence the, he would end up being their chair), but he just doesn’t have a strong enough packet.

      • Comradde PhysioProffe Says:

        Yeah, going right into the tenure-track without doing a post-doc puts you at a disadvantage for a number of reasons. (1) You have not received the additional training in designing a research program, grant writing, giving presentations, and manuscript writing that post-docs obtain. (2) You have not fattened your CV with additional publications as a post-doc, which makes it much harder to get grants as a new faculty member. (3) You have not made a reputation for yourself as an up-and-coming player in your field through your post-doctoral research program, and the default assumption is that grad students did not create their own research program.

        This is obviously water under the bridge at this point, but it is too bad that his department didn’t realize that these things were going to present an obstacle to advancing rapidly enough to make tenure on the usual time scale, and take measures to ameliorate them. For example, he could have come in on a non-tenure-track appointment and functioned essentially as a post-doc before transitioning to the tenure-track.

        Anyway, bummer that it turned out that way, and best wishes to him in his future endeavors.

      • nicoleandmaggie Says:

        Yeah, those are all definitely true. And he’s learned a lot about how to succeed… but he’s also learned it isn’t really what he wants to do.

        The two people in his dept who have gotten tenure both came in mid-career from industry with a lot of pubs and contacts already. I think with the teaching load + the grant and publication expectations (neither of which were ever clearly laid out… I imagine the department didn’t even really know as it hadn’t tenured anyone in decades) it would really be impossible to get tenure without coming in with contacts and pubs already. Especially since there’s no graduate students (or post-docs) in the department, just undergrads (and not very good undergrads). It’s a teaching department, and a quantity over quality publication requirement. (Something DH also didn’t want to do– we were both trained quality over quantity.) Just not really a good match.

      • Comradde PhysioProffe Says:

        I’m glad he’s philosophical about this and is happy to move on to doing something else. I have a few colleagues who really wanted to make tenure and stay where they were and didn’t. It was truly heartbreaking for them at the time.

      • nicoleandmaggie Says:

        Honestly I think if he’d really wanted it he could have gotten it. One of the two people who got tenure last year got it by writing a ton of repetitive really awful papers and publishing them in no-name journals. But DH couldn’t get it the way he would have wanted to at the level he was at, and he just didn’t want it enough to spend time and stress doing something he thought was worthless. (The woman in the dept managed to get tons of money and write a bunch of high quality papers… but some of that was helped out by her subfield being one that attracted a lot of mentors collaborating with her on their grants and papers. Mainly though she did it by being awesome, working hard, and always being late for everything, not to mention being constantly stressed out.) Also… we might have decided not to have two kids while on the TT. (Though technically I believe I was pregnant with DC1 before he got the job offer.)

      • GMP Says:

        In my field, getting a TT position without a postdoc used to be common, but is becoming increasingly more rare. My postdoc, who’s on the market this year, says the people who have been getting hired recently were all coming out of longish postdocs and with 30+ pubs to their name.

        I got my TT position right out of grad school and it was a trial by fire. Plus, it was just my kid and me for the first two years. The first year almost killed me (I think I gained 20-30 lbs in that year alone due to stress). Learning to play the grants game is a really big one, as is, as CPP says, quickly being able to build your group and get productive so you can make enough of a name for yourself in the 5-6 years to have the external letters come in all glowing… It worked out for me, but, in hindsight, I think I would have been considerably less stressed (and less bitchy overall) on the TT if I had had a postdoc first.

        Good for your DH that he knows academia is not what he wants. If your heart is not in it, then the stress and low pay are certainly not worth it. I am sure there will be other opportunities for him, especially if you move.

      • nicoleandmaggie Says:

        Yeah, he thought about leaving earlier than this (and in fact, took some time off in the middle to work on a start-up)… in the end he decided to keep the paycheck until the end (but now it’s the end minus a year) and do what he wants to do (while being responsible with the teaching and service components) rather than focusing on tenure. It’s definitely been a lot less stressful than if his heart had been in keeping the job.

        When we started here we thought we’d only be staying a couple of years, but my job here has been much more awesome than I thought it would be, which makes it more difficult to leave. Plus one gets used to not having to deal with snow. And the town has been getting better, I mean there’s a food truck now, and it’s a good food truck. And a surprisingly large amount of yummy ethnic food that wasn’t here when we started. And it is really inexpensive to live here meaning that living on one salary is manageable. (Our 265K house is a McMansion…) But we’ll have to see what he wants to do and what our other options are going forward.

  7. Que Sera Says:

    I’m sorry you are going through this but I’m really grateful for the detailed post on what you could change and where your money goes. N and I chatted a bit about where we could cut because of your post.

    Our IRAs are getting way less in interest than the interest is on our mortgage. Is it wrong that we decided to pay down the mortgage this year instead of doing IRA’s? Perhaps I’ll search the archives for the answer. I’m not a financial whiz at all, so just sending my sympathy.

    • nicoleandmaggie Says:

      It depends on how much you’re saving for retirement in other venues, and also (sadly) whether you’re in a community property state etc. (That is, do you get a cut of his retirement savings if the marriage dissolves– both spouses need protection, and putting money in your IRA protects you more than sharing it in mortgage prepayment depending on where you live.)

      IRAs should be invested in stocks while you’re young, and long-term they should be making more than your mortgage unless your mortgage rate is unusually high. Depending on what your mortgage rate is, refinancing may be worthwhile. (It isn’t for us at this point.) A lot of that mortgage vs. retirement decision is about diversification after a certain point. (We do have a post on it somewhere!)

  8. rented life Says:

    Re: DH quitting…could he quit in Jan.? He’d be giving them enough notice to cover Spring 2013 courses, and he can start focusing on what’s next sooner. I’m just suggesting this having been in a similar unhappy position and I’ve done the whole sticking it out thing and ended up a lot worse on the personal/family level.

    I have zero financial advice. I’m a saver so I’d save save save for any worst case scenario and then if that didn’t happen then I’d re-evaluate what to do with that money. Nothing else would make me, personally, feel secure. I know that’s not helpful. :P

    • nicoleandmaggie Says:

      We talked about it, but he doesn’t want to.

      His situation isn’t as horrible as a lot of academic situations. He does truly like his colleagues and they truly like him and he feels responsible for finishing the year, among other things (there’s also university politics involved in here involving budget cuts). As a lame duck, he should be able to cut way back on service which has been a huge time-suck for him. And they’re accommodating his need to change his labs next semester when I’m teaching even if they didn’t this semester. (Plus I do like the extra income.) It isn’t a horrible situation, but it is taking up too much of his time and he wants to move on to other opportunities. And I’d like to be able to lean on him a bit more at home while the baby is still small (while still paying for full-time one-on-one childcare! We can’t actually afford 35 hours of mother’s helpers without his salary or dipping into savings, although we can afford daycare– just can’t actually get into infant care until DC2 is 8 months or so and off the wait-list.).

      I guess the question is: where do we save? taxable stocks, tax-deferred stocks, savings, mortgage prepayment? They all have trade-offs between return, cash-flow, and accessibility. It isn’t a bad problem to have. We have the luxury of trying to figure out how to make the pain of next year be smaller.

  9. retirebyforty (@retirebyforty) Says:

    Sorry to hear about DH’s trouble. I would stop the mortgage prepayment and save up as much cash as possible. You said you have 2 months of EF and I think that’s way too low if your expense is almost the same as your income. You have the 2nd tier EF in a taxable account, but what happens if the stock market go down over the next few years? I would save up at least a year of expense in a saving account/CD even if it doesn’t pay anything. That’s just me though.
    Good luck. I hope DH will find a way to generate some income.

    • nicoleandmaggie Says:

      I can’t get fired, and two months of expenses is a lot of money. It isn’t 2 months of fixed expenses, but 2 months of everything including fancy cheeses. (We could buy a car with our EF, for example.) It’s also assuming that neither DH nor I bring in extra money, even with DH doing something with his time. (Plus most of the year we have some money in savings for the unpaid summer that could be tapped into in a true emergency.)

      If the stock market went down, we’d have to make more money or cut spending.

  10. J Liedl Says:

    Sympathies to DH. Science disciplines can be very dysfunctional on mentoring to tenure. I don’t see why they don’t realize what a waste of the department’s energies and resources it is to hire in a new person, start them up and then not pay attention to how they’re making progress but so many of them do. I hope he can take some of the time he’d normally pour into service to start exploring his contracting options.

    Can you use GICs or the equivalent for some money you’d want to have reasonably available? We keep some in six-month GICs which don’t pay a lot but are better than straight-on savings. 5000 at .9% is what my bank offers (you don’t get a better rate until you’re over 100,000). It isn’t fabulous, but it’s better than nothing. If we move to one year GICs, we can get up to 1.25% but Eldest starts uni next year and I need to see which offer she accepts before I know what our needs will be for liquid capital!

    • nicoleandmaggie Says:

      What is a GIC? Is that like a cd or termshare? Wikipedia says it is. Oh you Canadians and your different acronyms.

      Hm. termshare rates have gone up since I last looked. I’ll have to see what that translates to in dollar amounts to see if it is worth the time of opening one vs just using savings.

      • nicoleandmaggie Says:

        Looks like 10K put away over a year in a termshare will earn me $40 more than putting it away in savings. Not sure that’s worth it. It’s worth the gas and probably the time cost of setting it up, but not also the added risk of locking it away on top of that.

        The one year savings of 10K on the mortgage is $465 more than savings.

  11. Dr. Koshary Says:

    My sympathies to DH on the tenure denial. Like you lay out, it’s really not a great fit for him, and he had some unavoidable structural disadvantages working against him, but that’s only of limited comfort when you are suddenly forced to recalculate everything.

    Best of luck rejiggering your household budget, and on figuring out what to do (and where to go) next!

  12. femmefrugality Says:

    I’m sorry he didn’t get it. It’s hard when decisions that effect your entire life are put in the hands of idiots. I don’t know what to tell you to do; other than I agree that the mortgage may not be the best place to put it. I’d make sure I had a super beefed up emergency fund. Cash or however. And then…I don’t really know. I’m sorry you guys are facing this, but kudos for deciding on happiness over money. That’s a decision not a lot of people have the courage to make.

    • nicoleandmaggie Says:

      In fairness, I don’t think they’re really idiots. It’s just not a good fit, and DH didn’t really want to do the things he would have needed to do in order to have a better chance at getting to keep a job he didn’t really want at a salary that isn’t as high as it should be for the rest of his life. Among other things. And I’m grateful for that as it has meant he’s been an equal co-parent and my career has been able to flourish with a minimum of stress.

      Hm, I wonder how much of a beefed up emergency fund we actually need. At what point do we have enough in there. Hm…

  13. Leigh Says:

    I’m sorry that your DH was denied tenure, but it sounds like it wasn’t really what he wanted anyways.

    It sounds like the mortgage isn’t the greatest place to put your money since putting it there doesn’t save you much with a recast and it’s not like you can afford to pay the whole thing off in the next year.

    I would almost stop the mortgage pre-payments. Is building up cash really so bad when you don’t know what your plans are? But then you said you don’t know if you’ll even need it.

    One thing – every employer covers moving differently. Some pay for it for you, some give you a lump sum to do everything yourself, and some make you pay and then reimburse you later. I would almost consider upping your emergency fund by an estimation of moving costs + one more month’s expenses and then leave cash alone and put the rest into retirement accounts? The IRAs seem safer than the other ones, so maybe fund those first overall?

    • nicoleandmaggie Says:

      The IRAs are already funded, though I guess we can get the next year’s after the new year. We definitely won’t have to worry about income limits unless DH starts bringing in some major cash within the next year. This year we’re already putting an extra 42K towards retirement on top of the required 12% unless we reclaim the 32K currently going into our 403(b). Next year we’ll just do the 12% of my salary unless we do the 5-10K for the IRA. (We should probably aim for DH’s IRA no matter what. Plus in a Roth that’s like an emergency fund.)

      We will definitely need to think about what kind of a cash cushion we should have.

  14. undinenotofgeneralinterest Says:

    Sorry to hear about DH’s tenure bid. It sounds as though you are well prepared financially.

    • nicoleandmaggie Says:

      Yeah… that’s a big benefit of him not actually getting the job until we’d planned our fixed expenses on my salary alone (and him not being all that crazy about his job from the get-go, so no incentive to find ways to spend). We’d be doing great if we’d been getting cost of living increases each year!

  15. Debbie M Says:

    The situation as I understand it: You will both work for another year and then you will work for an additional year, and then after that you are going to go on the market for a new position.

    The problem as I understand it: If you continue as you are now, you have no wiggle room, which is not only bad in itself but also lowers your quality of life even if it turns out you don’t need wiggle room because of the stress.

    So given those, here is my plan for you:

    1. Figure out how much extra money you would need each month to have enough wiggle room to feel good. (For example, $1500/month.)

    2. Figure out the minimum you expect DH to be able to bring in during this period. (For example, $8,000/year = $667/month.)

    3. Subtract that from the wiggle-room amount to find the amount of cushion you’ll want saved per month. (So $1500 – 667 = $833/month.)

    4. Calculate the number of months you would want this cushion for. How long would you expect it to take for you to find your next position? (For example, 1 additional year.)

    5. Then calculate the total cushion. (24 months x $833/month = $20,000)

    6. Put that money in accessible but good places. I’d pick the 457, but it sounds like you feel that it’s easier to tap the “mortgage, cash, or taxable stocks.” (For tapping the mortgage, you must mean it’s easy to recast the mortgage, right?) As you mentioned, there’s also the principal in the Roth IRA. A lot of this cushion should be very easily accessible. But if your calculated cushion is huge, some of it should be somewhere that’s both accessible in case you need it and good in case you don’t need it (like the Roth IRA and the 457). I’d hold off on rolling over the 457 until you know what’s next. Yes, you will probably have much better choices in whatever you would rollover to, but delaying that might give you a lot of peace of mind.

    7. Over the next year, pay attention to how much wiggle room you would have actually needed this year (or get DH to!) and revise your figures and strategies if desired.

    Another question: If DH knows he’s not getting tenure anyway, can his job start taking less time, and he can start trying out money-making or money-saving activities now? (Like cheese making?)

    Another idea for the cash: You could buy some I-bonds soon–they pay a little better than cash (especially if official estimates of inflation are positive), and you’re allowed to cash them out (losing the last three months of interest, which isn’t much) after only one year. The limit is pretty low for someone of y’all’s income, but it’s per year, so you could max it out this year and then get some more in January if you want. (And some more if you want if you get a refund of your federal income tax.)

    Finally, remember, you don’t have to go all-or-nothing with your changes. You could reduce but not eliminate the mortgage pre-pay and other retirement things while increasing your cash substantially but not maximally.

    • nicoleandmaggie Says:

      We might not go on the market.

      DH is going to take some time trying to figure out what he wants to do, and that might involve telecommuting. The problem with us doing something in his industry is that I would have to get a job at Stanford or Berkeley or one of the tiny little schools that pay nothing and have horrible teaching loads (and don’t hire people with my PhD anyway because they trust that Berkeley and Stanford grads will actually come) or I’d have to give up a tenured academic position. The chance of me getting a TT position anywhere at Berkeley or Stanford is quite a bit less than 1%. There are other places I could get a tenured job, but no guarantee that DH’s opportunities would be any better than what they are here.

      With the 457 either he would have to tap it this August (in which case, what’s the point) or roll it over into an IRA and not be able to tap it. I don’t think he gets to keep it and then make decisions about it later. I could be wrong about that, but it sounded like he could only tap it at the point of losing state employment (possibly plus a time-cushion). I will have to look into that deeper.

      DH has known (been pretty sure) for some time that he’s not getting tenure and has been exploring stuff. The reason for quitting this year instead of waiting until next year is that as a lame duck he doesn’t have to go to the weekly (yes, weekly… apparently despite being STEM they don’t know how to use email, though they do send a lot of emails) department meetings or do other service stuff. And with a new baby we sure could use more of his time.

      He’s actually done cheesemaking as a hobby. It’s cycled through two or three times and is yummy. But not something he could do for a job. He gets bored.

      I will look into I bonds.

      • Comradde PhysioProffe Says:

        weekly (yes, weekly… apparently despite being STEM they don’t know how to use email, though they do send a lot of emails) department meetings

        AIEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

      • nicoleandmaggie Says:

        SRSLY
        Ours are monthly and get canceled if there’s nothing to discuss. They’re also catered if over lunch.

      • Comradde PhysioProffe Says:

        I have appointments in two departments. In one the faculty meetings are monthly, are very efficiently run, and are always finished in one hour. In the other department, the faculty meetings are not regularly scheduled, but we usually have one or two per semester (more if we are doing a faculty search). These meetings tend to be a little more free-form and take longer than one hour.

      • nicoleandmaggie Says:

        I’m a fan of short and efficient.

      • Debbie M Says:

        When I recently quit, they let me keep everything as it was–pension, Roth 403b, and 457. I wanted to roll over the Roth 403b, but the paperwork took too long–I was either still showing up as employed or already showing up as about to be re-employed. I did cash out the 457, but I had to go through a lot of paperwork there, too. There was no sending me any forms making me choose whether to take a payout or do a rollover. They did eventually send me a form where you get to say if you want to keep having insurance even though you have to pay the whole cost yourself (forgot what that’s called), but since I was able to get individual insurance I liked more, I hadn’t been worried about that.

        So back to the situation–so might you be on only one good salary indefinitely? In that case, maybe six months of expenses in savings would be better than two. Also, I’m wondering if you can do like retired people–look at your resources and allow yourself to pull out no more than 4% each year (or no more than the dividends), plus recast the mortgage. How much would 4% of your IRAs, 457, and savings be? How much would just dividends and interest be? And how does the amount extra you’d be able to free up recasting the mortgage change with different amounts of mortgage prepayment? And how does that amount compare to the amount extra you could collect by saving or investing that money elsewhere instead?

        One more factor: If you have too much savings that you end up not needing by the time you’re bringing in more money, you will be able to throw it all at your mortgage at that time if you want to, though you may have lost the opportunity to throw some of it at retirement vehicles.

      • nicoleandmaggie Says:

        Hm, that is interesting. I thought the penalty-free cash-out had a limited window. I know that he can keep the retirement funds at the uni instead of rolling them over to an IRA, but we’ll want to roll them over.

        I hope that at some point DH would start bringing in money of some kind, it just may not be right away. Also I don’t think we’ll be needing to pull out any of our savings, though in an emergency we could undrip dividends. We’re still really young and have two small children, so we’re needing to save.

        We free up about $600/year with 15K to the mortgage, on top of the $6300/year we would free up with what we have already pre-paid. We tried to figure out dividend investing in taxable accounts, but it’s difficult because really you want the capital gains, not the dividends (for tax reasons, among other things), and different funds make different trade-offs between company reinvestment and dividends (ranging from utilities to new tech companies). In general, putting money in the stock market will bring more return than mortgage, but it is more volatile.

        The most we can save on the mortgage by prepaying is around 20K.

      • nicoleandmaggie Says:

        hm, the wikipedia article on 457 plans says there’s never a withdrawal penalty, though withdrawals are taxed as income. If that is true perhaps we shouldn’t have stopped DH’s. He does have last year’s contributions in there still.

      • rented life Says:

        wtf on the weekly meetings? And I thought my last department was punishing by making them 2+ hours… (I was spolied, prior to that I had three years of 50 -60 min once a month dept meetings with lunch provided)

      • nicoleandmaggie Says:

        I bonds look like they can’t be redeemed for 5 years. So too long-term, among other things that make them less attractive for us than they would be for other people. If we move to California, they become more attractive!

  16. chacha1 Says:

    I have to add my squeaky little voice to those saying “stop pre-paying the mortgage.” From everything I’ve read here, you don’t want to stay in that town forever. You’re going to be selling that house.

    As long as you’re not underwater … why worry about pre-paying? It’s not going to help you buy a new house, especially if you move from unspecified Red State to California, or some other desirable Blue destination; it’s not going to help your credit rating; and it’s not helping you “get ahead” in any sense other than being forced savings (i.e. building a higher amount of equity in the house for when you sell, which, see point 1).

    Free up the cash flow! Get your living expenses as low as they should be in the easiest possible way, by reducing your shelter cost.

    • nicoleandmaggie Says:

      I think it would help us buy a house, in that it’s equity– forced savings, as you say. There’s no way we would buy a new house without this one being sold first, so it would also keep us from buying one too soon. (And it does free up cash flow if we re-amortize.) But who knows, we might stay here forever. (#2 hates where she’s living more than I hate where I’m living, small town red state aside– we have a food truck! and yummy Korean food! and no snow! and a good private school that didn’t go out of business last year!)

      I’m surprised nobody is saying to pay off the mortgage (to get rid of that monthly expense) and to cut spending to do so. (Not that we’re going to do that…but we could.)

      I also wonder if responses would have been different if I said that DH was planning to be a SAHD… or different still as a SAHM. I guess that has a lower probability of eventually moving.

      • oilandgarlic Says:

        I would say cut spending and prepay the mortgage only if you’re pretty sure you’ll stay put. It takes a long time to find work, and even longer to find one with a good salary, so I would definitely try to save more than 2 months of living expenses. DH might be unemployed while you’re the sole income earner for a while, even if you do eventually move.

      • nicoleandmaggie Says:

        By myself, I do make a bit more than we spend with just my regular salary. (That’s spending including “emergencies” and 12% retirement saving.)

      • Revanche Says:

        (Yay to the yummy Korean food access ;) )

        And still mulling this over but the idea of killing the mortgage did cross my mind rather lightly. Not totally as I don’t think it’s really a fit exactly, but I tend to like that idea, as you know.

  17. chacha1 Says:

    Oh, and as to where to save it … cash cash cash. Yes, interest rates are low, but cash = mobility. Stocks are for long-term savings, and you want options within the next 5 years.

    • nicoleandmaggie Says:

      How much cash? If we undid all the extra retirement saving that would be ~45K this year. Undoing the mortgage prepayment would be another ~8K. Stopping 529 is another ~12K. We already did the IRA for this year but we could not do 2013 at 10K. And we’ve already got the emergency fund in there. How much is enough?

      • becca Says:

        I presume it wouldn’t literally be cash, but a CD ladder or something. Or maybe TIPS via Vanguard (or am I misunderstanding what those are for)?

        Just hypothetically, in your shoes I might find “enough” cash to be “assuming we both got offered Amazing Jobs in the Bay area, how much would I need to make relocating feasible/enough for the difference between what I could realistically get for the current house (if we were in a hurry) and an appropriate down payment out there”.
        Where “appropriate” means a down payment large enough the mortgage payment would be manageable on the hypothetical lowest non-insulting salaries.

      • nicoleandmaggie Says:

        We can’t afford a house in the bay area, period (well, we could but we’d need a jumbo loan and it would be risky). I do, however, know exactly how much we need to bring in in order to rent out there.

      • nicoleandmaggie Says:

        (Our friends who live in the Bay area put down 400K on a 2br house that they had to completely renovate including termite tenting before moving in.)

      • chacha1 Says:

        If I’m not mistaken you’re both in your 30s, which leaves you a lot of time to do retirement savings. Having a ton of cash gives you three options that additional retirement savings, and home equity, don’t (because they’re illiquid): 1, DH can not work full-time for a longer (potentially much longer) time. 2, you could both potentially stop work for a time (unpaid sabbaticals?) without concern. 3, you could move to your most-desired area (SF Bay?) with sufficient funds to renovate the termite-ridden, foundation-settled, new-roof-needed three-quarter-million-dollar 950 sf house of your dreams. :-)

        I personally find spending more money on housing in order to live in the location that is best for us (for work and leisure) is a damn good “investment.” The ROI is TIME … and access to the things that, to us, make working so hard for so long seem worth it.

        So I personally, in your situation, would sock every extra dime into the best-returning liquid vehicle I could. That might still mean only 2% in a money-market account or a CD ladder. “Enough” would be whatever is there when I was ready to change my situation. If you decided NOT to move after a few years, no law says you can’t dump all that money into paying off the mortgage or funding another set of IRAs then. :-)

      • nicoleandmaggie Says:

        I don’t think we could afford even a termite ridden small place in CA. We don’t have 400K. :/

        I tend to think of the mortgage and the IRAs as somewhat liquid. The mortgage can be recast or the house can be sold. Roths can be tapped in an emergency fund with no penalty for the contributions.

        Where are you getting 2% rates?

      • chacha1 Says:

        I’m not. I’m in a money-market account now with my “down-payment” fund, but it’s sadly under 2%. However, I haven’t shopped around, and it’s still a low balance. I could probably do better somewhere. It’s not really important though. I like cash because I want to put money (cash) down on a property within five years. I’m getting the sense that you don’t like holding a lot of cash, and don’t foresee a short-term need for same, so you’ll be wanting to look at different vehicles. :-)

      • nicoleandmaggie Says:

        If I were getting 2% I’d be a lot more likely to want to do that!

        I think next Monday’s post will be a pondering on how much cash we need in cash. I know we need some and we may need more than we have (I’ve already doubled what we keep in), but I’m also not convinced we need, say, a full year’s salary. In theory we would be able to tap more illiquid assets by the time we ran out of the liquid ones. Or, if there’s a huge stock market crash, stop spending so much money.

        We kept our house downpayment in the stock market until shortly before buying. (It was in there for several years, but we didn’t sell until we knew we wanted to buy.) I think if the stock market had crashed we just wouldn’t have bought right away.

  18. MutantSupermodel Says:

    Yikes, this is an interesting situation. I am not even going to pretend I have some financial savvy to share with you so I won’t.
    I’m surprised so many people assume you are going to move. I didn’t get that impression because I know how much you love your kids’ school. I know for me personally I like cash when I find myself in limbo, which is often. It doesn’t really sound like you’ll be hoarding money forever so I don’t think the potential interest earned thing should factor much into your decision making but what the heck do I know?
    I like CD ladders. I think they’re nifty.
    I used to hang out in the Berkeley campus… *sigh*

    • nicoleandmaggie Says:

      Moreso than DC1’s school, I love my job. (Though one of DC1’s classmates mom’s decided not to accept outside offers based solely upon the school, her son being both an underrepresented minority and a total nerd.) I’m not so much a scanner (at least, the occasional sabbatical and being in social science and occasionally taking a break from teaching stats is enough changing things up for me). A worry is that we move to the bay area, I lose my job, get one I like less outside of academia, and DH realizes he doesn’t really want to be working for a company after all. Then we’re worse off than we are here because we can live on one salary pretty easily here without sacrifice. It’s cheap to live and I can’t be fired. Any little amount DH brings in is just nice.

      • GMP Says:

        In my family, I have always been the one with the plan do we have followed me and it has been working out OK. My DH is also a kind of guy who would have like trying to get work in the Silicon Valley, but as you say what if he doesn’t like it? He is happy at a staff position at my university with one of the big labs — hard money position, not very stressful, decent salary. I know he used to think he should try the Silicon Valley, but honestly his temperament is better suited to be in a laid-back environment and definitely not to be the primary bread winner. This way, he has plenty of time for his multiple hobbies. If you don’t necessarily need your DH’s money, if I were him I’d count my blessings and really devote myself to what I enjoy… Do you think he could go to school, get a law degree and do patent law? One of the most restless scanners I know did this after a phd in biology.

      • MutantSupermodel Says:

        Yeah I think your present situation is a good one. It’s just going to be a little different but hopefully you guys can make it work without going anywhere, just tweaking things here and there. I’m willing to bet you won’t really end up needing major overhauls anywhere. Or even medium ones.

      • nicoleandmaggie Says:

        My sister considered becoming a patent lawyer for a time. But she’s making too much money right now to do that. Law school would be a hefty commute and probably not worth it on that alone. He was going to look at staff positions before he got offered the TT position, and perhaps he should do so now. He really likes working with other people.

  19. Nurse Frugal Says:

    That’s a big bummer about DH and his job. Warning: I’m not a financial expert, I’m a nurse…..so keep that in mind as I ramble some ideas: First few things I’m wondering is about how old you two are, how much do you already have saved in retirement, and how many children do you have. I’m curious about the age because I think that it would be important for DH to start putting the feelers out for his next job stat if he is relatively young. It sounds like you guys have put his money to great use and should continue to do so in a job that he can love. What is concerning is that it sounds like he has no idea what that job will be, so possibly saving that money for the time being might be a good idea. I think the ideal situation would be for him to find another job so that you can continue with the mortgage thing.

    • nicoleandmaggie Says:

      We’re not yet middle age and on track for retirement given our current joint income. We’ve got two kids (one in 2nd grade, one brand new). We’re still in the 25% tax bracket even on just my income alone. He’s definitely going to be exploring his options this year if he can just spend less time on teaching and service.

      • Nurse Frugal Says:

        You guys are doing awesome!!! I say save the extra money and stop paying extra on the mortgage until he can secure his next job since it sounds uncertain.

  20. Carnival of Personal Finance #378: “You Better Work!” Edition Says:

    […] from Nicole and Maggie: Grumpy Rumblings of the Half Tenured presents September Mortgage Update: Changing Plans (Help?), and says, “Nicole’s partner just quit his job, effective next year. Help her figure […]

  21. How much should we have in cash? « Grumpy rumblings of the half-tenured Says:

    […] answer to this question seems important when trying to decide what to do with money this year and what to do with extra summer salary or uncertain future DH income.  Especially since the one […]

  22. Amit Says:

    Seems to me this is the ideal case for which HELOCs were designed.
    I would suggest signing up now for a Home Equity Line of Credit of 100k or so. This can then serve as your emergency fund. Since your home is nearly paid off this would be a great option.
    From what I understand your finances are probably okay – since you are spending a teeny bit less than you are earning and saving in long-term investments. In the off chance that you do end up needing some cash, the HELoC is great.
    The nice thing about these credit lines is that they don’t cost you anything unless you actually use them. And even then they are daily interest – so if you only use them for a couple of thousand dollars and pay them off in a week or 2, you’d only pay a dollar or so in interest.
    For someone who is responsible with money, they are a great option to supplement an emergency fund. You should then continue with paying your mortgage the way you are right now.

  23. October Mortgage Payment: And why it is a big one « Grumpy rumblings of the half-tenured Says:

    […] the end, I ignored almost everybody’s good advice and did a big mortgage pre-payment, a little more than half of what DH is not putting into the 457 […]

  24. June Mortgage update and another wishy-washy post on our uncertain money plans | Grumpy rumblings of the (formerly!) untenured Says:

    […] or two we’ve been trying to decide how to deal with a 40% drop in income when it comes [DH resigned his TT job], and what to do with any surplus before said drop came.  As of last month we still […]


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