So I'm new to the forums. My spouse and I are in our early 30's and have relatively high incomes ($430k gross~$250k post tax/year). We live comfortably on her salary (about $150k gross/$80k after tax and retirement contribution) and save/invest/pay off loans with my income. We live in California, but not in a particularly desirable area so our cost of living is relatively low. I realize that our monthly budget of $7k might seem excessive to some here on this forum, but when compared to many of our colleagues, we spend almost nothing. We would like to retire early (before 50) and are on our path there, but we do have about $270k in student loans (fixed 3.5% rate), which we plan to pay off within the next 5 years. We have about $250k in investments/savings (this is low relative to our income because I just got a "real" job in July). We could probably retire potentially earlier, but I don't think we are ready for the ramen/hypermile-ing/micro-house lifestyle quite yet. My job is pretty stressful, but my spouse enjoys work and wants to continue at about 60% after I retire (thus we wouldn't have to worry about health insurance).
Can anyone point me to a journal or resource here with people in similar circumstances i.e. high income/high debt?
Howdy From Cali
Re: Howdy From Cali
Not sure you will find a lot on this here, but I come from this space.
You will have a lot of options, but need to be jointly focused on your collective long-term goals and whether they involve moving, travelling, children, etc.
If you have avoided the temptations to spend like your colleagues and upgrade your lifestyle as your income increases, you should do well. You'll want to max out on all available savings mechanisms to reduce your tax bills. Make sure you get good tax advice if you need it and itemize deductions; your high CA state taxes give a huge deduction on the federal side.
DW and I also committed to doing a couple simple things when we were in your shoes: (1) put 100% of all raises and bonuses towards reducing the debt; (2) pay cash for everything, especially big ticket items like cars, appliances and travel -- if you don't have the cash saved, you don't buy it.
You might also want to look into zero-based budgeting, so you two can sit down and re-evaluate all of your expenses. It's easy to acquire a lot of "subscriptions" or "memberships" for things you barely use if you are not careful.
Banks like to have customers like you and usually have specialists to give you premo individualized service, multiple linked accounts and even credit lines at low interest rates. Look into it.
Finally, pay attention on the income-side. For higher income earners, it may be possible to increase your income by a significant amount with a relatively reasonable amount of effort for the money gained. Paradoxically, although we talk a lot about DIY here, you may also need to spend some money to free up some more time for the job. At these incomes, your time is generally so valuable you can't afford to use it on menial tasks unless you actually enjoy those tasks.
In short, you have many options. Make sure you are exploring all of them.
You will have a lot of options, but need to be jointly focused on your collective long-term goals and whether they involve moving, travelling, children, etc.
If you have avoided the temptations to spend like your colleagues and upgrade your lifestyle as your income increases, you should do well. You'll want to max out on all available savings mechanisms to reduce your tax bills. Make sure you get good tax advice if you need it and itemize deductions; your high CA state taxes give a huge deduction on the federal side.
DW and I also committed to doing a couple simple things when we were in your shoes: (1) put 100% of all raises and bonuses towards reducing the debt; (2) pay cash for everything, especially big ticket items like cars, appliances and travel -- if you don't have the cash saved, you don't buy it.
You might also want to look into zero-based budgeting, so you two can sit down and re-evaluate all of your expenses. It's easy to acquire a lot of "subscriptions" or "memberships" for things you barely use if you are not careful.
Banks like to have customers like you and usually have specialists to give you premo individualized service, multiple linked accounts and even credit lines at low interest rates. Look into it.
Finally, pay attention on the income-side. For higher income earners, it may be possible to increase your income by a significant amount with a relatively reasonable amount of effort for the money gained. Paradoxically, although we talk a lot about DIY here, you may also need to spend some money to free up some more time for the job. At these incomes, your time is generally so valuable you can't afford to use it on menial tasks unless you actually enjoy those tasks.
In short, you have many options. Make sure you are exploring all of them.
Re: Howdy From Cali
Thanks for your input. My spouse and I are on the same page. She is even more fastidious about tracking expenses than I am. Regarding "extra" money, you think it is better to pay down our debt rather than investing it? Increasing my income is definitely possible if I wanted to work weekends which I'm not sure I do. My contract includes a 10% raise next year.
We pay cash for most things and never carry a credit card balance. Do you think we would be better off saving for 5-6 years and paying cash for a house or take out a loan sooner?
We pay cash for most things and never carry a credit card balance. Do you think we would be better off saving for 5-6 years and paying cash for a house or take out a loan sooner?
Re: Howdy From Cali
Sounds good. Not sure I would work weekends if it becomes a physical or mental health issue. But I would think about it. It's the raises that really make a difference for high income earners. 10% of your salary ends up being a lot of dough compared to an average worker (who is probably only going to get 3% anyway).
A lot of the other issues you raise end up being about taxes. Your marginal tax rate (state plus federal) probably exceeds 40%. This means that in order for a taxable investment to beat paying down your debt it would have to yield about 5% and be completely risk-free. You won't find that in today's interest environment. Unless you are an investing genius, you'd likely be better off making all your investments in tax-sheltered vehicles and using excess taxable income to pay down the debt. But there is nothing wrong with taking some and investing it if you are so inclined if the investments are liquid, because you can always sell them and pay the debt at any time. Having liquid investments (or just plain old cash) does create flexibility. (Whenever faced with two reasonably good options, my inclination is to "Do Both", simply because the future is unpredictable.)
Buying the house again ends up being about taxes, because that's one of the few loans that carries a tax deduction. Therefore, I would take out the mortgage, at least to begin with. (I'm mortgage free now and very happy with that. Have a line of credit if we ever need it.) But you will need to do the "buying" vs. "renting" math, which is always about local conditions. Make sure you factor in real estate taxes, insurance and home upkeep in that equation. And make sure you plan on staying in the house at least 5 years. There are a lot of hidden transaction costs involved in real estate that make frequent transactions generally undesirable.
We did buy a house when in your shoes, but it was quite small and we stayed in it until our debt was paid off. More importantly, we spent very little on furnishing it. It declined in value the first few years, but then came back and we were able to sell it at a profit. So it worked out well for us in the end. YMMV.
A lot of the other issues you raise end up being about taxes. Your marginal tax rate (state plus federal) probably exceeds 40%. This means that in order for a taxable investment to beat paying down your debt it would have to yield about 5% and be completely risk-free. You won't find that in today's interest environment. Unless you are an investing genius, you'd likely be better off making all your investments in tax-sheltered vehicles and using excess taxable income to pay down the debt. But there is nothing wrong with taking some and investing it if you are so inclined if the investments are liquid, because you can always sell them and pay the debt at any time. Having liquid investments (or just plain old cash) does create flexibility. (Whenever faced with two reasonably good options, my inclination is to "Do Both", simply because the future is unpredictable.)
Buying the house again ends up being about taxes, because that's one of the few loans that carries a tax deduction. Therefore, I would take out the mortgage, at least to begin with. (I'm mortgage free now and very happy with that. Have a line of credit if we ever need it.) But you will need to do the "buying" vs. "renting" math, which is always about local conditions. Make sure you factor in real estate taxes, insurance and home upkeep in that equation. And make sure you plan on staying in the house at least 5 years. There are a lot of hidden transaction costs involved in real estate that make frequent transactions generally undesirable.
We did buy a house when in your shoes, but it was quite small and we stayed in it until our debt was paid off. More importantly, we spent very little on furnishing it. It declined in value the first few years, but then came back and we were able to sell it at a profit. So it worked out well for us in the end. YMMV.
Re: Howdy From Cali
Just saw this now.MedSaver wrote:So I'm new to the forums... We could probably retire potentially earlier, but I don't think we are ready for the ramen/hypermile-ing/micro-house lifestyle quite yet...
I think you're misunderstanding the underlying philosophy of (Jacob Fisker's) concept of ERE. The point is not to suck moist from wood and live under a tarp, the point of ERE as it it 'preached' here, is to have awesome stuff and skills to cook tremendously awesome meals, but you have to learn how to do it/fix it yourself so you don't spend time at work to pay others to build/maintain your stuff.
There are many variations on Financial Independence, many users on here promote the renaissance approach. This is a vastly different take than living like a hobo to save money.
What will most likely happen over time, is that as part of the FI crowd, there are a lot of minimalists/declutterers and a lot of stoics (in the ancient sense of the word, not the modern glum/unresponsive sense of the word). In time most people find that they own too much stuff. Not because of an anti-commercialism drive, but because once people start on the path to Early Retirement, you'll become aware of where you're spending your time.
At some point you'll realize that you're spending time: cleaning, sorting, washing, choosing between, shopping, hauling, putting-back-in-place, reading manuals for, calling 'certified' experts to fix, online browsing for, yearning for, looking at, polishing, walking around, storing, moving, and looking at too much stuff.
All that time could be spent playing the guitar out-freakin'-loud, reading interesting things, loving, hiking, cooking, laughing, and calling people you love. People don't move into small houses because they want to save money, but because they have internalized just how f***** much time we spend on completely useless STUFF! Once you get rid of that stuff, you find that 1300 sq feet for 3 people can comfortably be reduced to 860 sq feet, with room to spare... From the outside it looks like you're a cheap bastard, on the inside you're living a much more intentional life with less shit to clutter up your existence.
The stoics have simply taught themselves to think everything is pretty much fraggin' great all the time. They COULD live under a tarp and be perfectly fine with it
