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|Subject: What to do AFTER the house?||Date: 5/5/2005 9:44 PM|
|Author: PaulEngr||Number: 38232 of 46787|
My wife and I are now "struggling" with what to do after paying off most of the major expenses.
We've got a substantial emergency fund. At this point, it's way more than 6 months of expenses. It's more like 6 month's salary (gross). It shouldn't be so high but simply put, we keep parking the money there and forgetting to sweep it out.
We've got the house. We've retired all the college loans. We paid off all the car loans a while ago. In fact other than a conventional mortgage, we have no debts. Our credit scores are so ridiculous that we get every conceivable credit card offer in the mail, multiple times a week. The existing credit card limits get bumped up almost quarterly and we almost can't conceive of ever actually limitting one out anymore. And we never maintain balances. I've had a card denied recently mostly because of "strange activity" issues. I paid for a few business expenses on a personal card because work won't get P-cards. So the credit card got frozen just because I bought several pallets of brick, some mechanical parts, a corporate training class, and mixed that in with the usual groceries and gasoline purchases. Like I explained to the CC company, "who in their right mind would be buying that stuff from those companies anyways if it was a stolen card?"
We have the retirement funding off to a huge start. It's growing so fast now that just the earnings on the retirement accounts are exceeding what I'm putting in each year. As it stands, the retirement accounts will grow to be substantially larger than our actual needs at retirement. So I've been cutting back the investments into them a little bit over time. I'm down from 10% to only 8% investment rate. I thought about cutting back more yet, but then what would I do with the extra money?
We started a Roth and just funded it to the limit because we intended on using it to help pay for college for our kids (exercising the option to withdraw principal first without touching the earnings). We debated for a while about how much to put in the Roth, but the annual contribution limit is so "small" that logic failed us on justifying smaller amounts. After looking at ESA's, 529's, and such, this is the best option for us. It gives us the insurance that it doesn't lock our kids into college-only as an option and produces good options even in the case of no higher education at all.
Our basic "problem" is that we started saving a lot when we were living on a $50K a year gross income and saving for a house and making vehicle payments. Basically, we were living then like we were only making $40K a year. It worked because we went from essentially living like we were poor to having a decent income. So we never really missed $10K a year.
We don't live on stir fries and other cooking techniques supplemented with lots of pasta and rice where we can stretch a pound of meat out to 3 days worth of meals and limit eating out to once a month. But at the same time, our income has grown substantially larger over the past several years. It's just that our lifestyle simply hasn't keep pace (fortuitous that it might be). I hesitate to say how much but let's just say I've had a couple promotions and my wife is now working more or less for sanity reasons in a good paying job (management level), even though she doesn't have to work at all at our current income levels (and never did before either).
My family is now at the point where we simply don't really have to worry about money anymore. We actually spend quite a bit less than we have coming in. We could be keeping up with the Jones's, but every time the Jones's visit us, they seem to be trying to keep up with us. My wife actually gets concerned about having "casual" friends over because the jealousy thing gets really annoying and strains relationships. We really can't hide some aspects of our life. The same people that get a jealousy streak simply don't understand that we worked hard to get where we are today. They don't realize that I once had a 500 sq. ft. studio apartment with NO WINDOWS on a basement floor simply because my idea of splurging at that time was to be able to have a place without room mates.
I guess my question for those who have "made it" financially in life is, then what? Once you are no longer struggling mostly towards reaching the 'essentials' in life, how do you decide what the heck to do with the money that you are still saving?
We of course keep socking the extra into various accounts. But we're getting to the point where we need to do something more. Essentially, the problem is that saving money with no purpose in mind is pointless. You keep getting into a "then what?" sort of question. As I see it, our options are:
1. Start paying down the mortgage. Great option but I'm a little concerned about this simply because it's sort of a one-way street. I mean, sure I could pay that 30 year mortgage off very quickly but I look at the money as "locked in" once it has been used for this purpose. On the other hand, it will "earn" 5%, gauranteed. Can't beat that with ING. But if we change our minds or "the big one" hits, it's really too late to turn it around even if we could take out second mortgages and such. In a lot of ways, this used to be a nice "quality of life" type issue...a must do when you can for peace of mind. But heck, I seem to be able to land good paying jobs in less than 2 months with my current skill set even in "rough times" like 2001. So I just don't put the same "peace of mind" value on paying off a mortgage that I may have once put on it.
2. Start paying for substantial home improvements. This is kind of like #1 except that the house probably really could use those improvements and I'm confident that we can definitely get the money back out in resale value. I look at this one more like an investment in "hard assets" instead of just an investment against a negative one (a debt). I'm going to do this stuff anyways, but I just want to kind of spread the hits out over time. Last winter, I just got through doing a 100% kitchen remodel. I stripped it all down to the subfloor and redid it from there. We essentially bought every single feature we wanted and did the kitchen exactly how we wanted it without regard for the cost. We need to do the same thing with the driveway and the landscaping too. I just have a hard time rationalizing spending over 10% of our gross income per year in home improvements. Our current savings rate is close to 1/3 of our income.
3. Start buying depreciating assets...err, toys, like four wheelers, RV's, boats, or my wife's current wish (brand new cars even when the economic useful life on our existing ones says wait 3-5 years more). I'm troubled somewhat by this because we're comfortable in our current lifestyle and these things have a way of ballooning your budget once you start down this path. I mean...yeah, we can afford it. Heck, we can afford to pay for these things in cash (no loans). The bigger question is "do we want to"?
4. Start getting very philanthropic like being one of those "big donors" that you see on signs in libraries and such. Yeah, it's a tax write-off. But other than the intangible ethical argument, I just don't see this as being tremendously rewarding. We already do all the usual small-time donation stuff. I just can't get into making huge donations.
I realize that some of you are nowhere near this kind of decision. Not too long ago, my wife and I were struggling to come up with a downpayment for a first home buy. Not too long before that, my GROSS annual income was $9,500 a year. Almost every penny went towards living expenses and I laughed at the very idea of a 401K. Before that, my parents (midwest family farmers) netted about what my family saves in a year (which mostly went towards living expenses). So believe me...one of the reasons that my wife and I save money like we do is that we still understand and appreciate what it means to be on the other side of the world because less than 10 years ago, we were there.
So for those who have also "made it" financially, now what? I don't know exactly how to describe my hangup. But suffice to say that I find it is actually difficult to spend money instead of saving every penny. I mean...making decisions about retirement is easy. That's a "must do" kind of decision. Making decisions about saving for our kids education is a "must do", even if we are dealing with a lot of unknowns.
I don't want to get into "money worship". My grandfather was a child of the 30's. He was an unbelievable penny pincher. He died leaving behind millions of dollars. He was essentially mentally unable to spend money on anything other than the "must do's". Everything else got plowed back into investments to earn more money, even though he had absolutely no need for it.
He wouldn't spend the money frequently even when he had it and needed it. He was one of those guys that would save old rusty, bent up, blunt nails and screws in mason jars that were painstakingly labelled just because they might be needed some day. He would go buy the absolute cheapest used tires for the cheapest used car that would do the job when he needed new tires even if he could afford something more expensive that would last longer. And spend twice as much maintaining it just because he got a good deal on it.
I don't want to BE the "Jones's" either. My wife and I don't need Cadillacs, Hummers, or Lexus SUV's just because we can afford it and want to show it off. We don't need to buy the most expensive sofa in the show room and replace it every 2 years with a new one. My wife doesn't shop at the boutiques. This is far, FAR too much on the other extreme.
So, how do you find that happy balance between investing your assets on the "can do's" like paying off the mortgage early or buying rental property against the "quality of life" fun things that even though every investment advice book or web site screams out "don't waste your money on these", they still have entertainment or quality of life value?
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