#2 is on a two-week honeymoon in Italy so we’ve solicited guest posts from readers and will be running them along with random kitten pictures and hopefully(!) food pics from Italy.
Anandar is kicking us off with a money Monday question about long-term financial planing. Help her think through her options!
For the first time in a loooong time, we have what feel like real choices in our financial life, and so I took the opportunity to write up a guest post in hoping of thinking things through (and getting feedback if you feel like commenting!). My spouse and I are both professionals around age 40. In our 20s, we were in grad school and/or making peanuts. In our 30s, we were still (!) in grad school, and generally felt urgent about working to pay off the school loans/get established in our careers while paying daycare bills/afford a downpayment in our crazy-high cost-of-living area. Now, we own a house, just paid off law school loans, our youngest is starting public kindergarten, and we generally feel less strapped.
Additional background: We both have the sort of jobs (teacher and legal aid lawyer) that are meaningful but also very time consuming and stressful for conscientious types. We live in a very high cost of living area, and while our fixed expenses are lower than many people of similar age and socioeconomic status—we are debt free except for an affordable mortgage, with no expensive habits–the whole working-parent-modern-life thing leaves us susceptible to throwing money at problems and “treating” ourselves in ways that we suspect we wouldn’t if we worked less. While I wouldn’t say we live in Paradise, it is definitely a place where spending a lot of money can be fun, interesting and/or delicious. We’re not interested in easing our finances by moving to a cheaper area, because we don’t want to reboot our community from scratch. Our savings are on track for retirement at a typical age (we’re steady savers when working but also spend many years in grad school, including a spare PhD, not contributing to IRAs or 401(k)s). Our savings for kids’ college are relatively modest, but we are taking a “we’ll cross that bridge when we come to it” and “you can borrow for college but not retirement” approach (our privileged kids’ grandparents have also started 529 plans).
Here are our four options for the future, ranked from least to most expensive, and I’d love to hear readers’ thoughts on how you’d evaluate them:
1) Save up for a sabbatical year of living in another country with kids (the teacher could do this easily; the lawyer would probably have to quit current job). This is on our “bucket list” of things to do with our children before they old enough to prefer international adventures sans parents.
2) Save up for major house renovations to make our small home more liveable long term, including separate rooms for each child; a second bathroom; a real guest bedroom for visiting grandparents (who may in the far future want to live with us, so heck, let’s call it an in-law unit); a deck for eating al fresco.
3) Same as #2, except borrow the money in order to enjoy the benefits of renovation much sooner, while locking ourselves in to higher fixed monthly expenses due to debt.
4) Save like crazy in order to achieve financial independence (FI) before standard retirement ages. Neither of us has any desire to stop working entirely, but working on a very part-time or volunteer basis would allow for more flexibility and creativity in our professional and personal lives. Once we hit FI, we could dramatically increase our charitable donations, which we would really like to do. I am not sure exactly how long this would take, because I am not sure how frugal we can really be and still preserve our equilibrium.
I can already hear you all saying: since all of these options cost money, and you seem not to know what you want, why not just save as much as you can and decide later! And for goodness sakes, these options aren’t all mutually exclusive—if you were financially independent, you could drag the kids on an international sabbatical every year!
There are a several reasons why I’d prefer to have a plan. First, we are thinker-aheaders (if one were taking a deficit approach, we’d have anxiety issues). Second, there are practical differences in how we would be spending our scarce free time today depending on which option is our top priority for the future (language learning! home cooking all meals!). Third, to my mind, these options involve different mentalities with respect to our jobs and our finances, as well as our underlying value sets. Trying to achieve FI early requires a substantial commitment to frugality. Saving or borrowing money for home renovations entails a certain amount of doubling down on our paid work, while planning for a sabbatical involves thinking about detaching from our jobs. And so forth.
So, thoughtful readers, how would you prioritize these options in our circumstances? What additional questions would you ask yourself?