Reader Case Study: With Twins On The Way, Should We Quit And Move?
Rose and David are expecting twins and, as a result, are questioning their long (and short!) term plans. Today we’re going to help them decide if one of them should quit their job in order to stay home with the kids AND whether or not they should sell their home and move. Read quickly, everybody! We have a lot to figure out before these two babies are born :)!
Case Studies are financial and life dilemmas that a reader of Frugalwoods sends to me requesting that Frugalwoods nation weigh in. Then, Frugalwoods nation (that’s you!), reads through their situation and provides advice, encouragement, insight, and feedback in the comments section. For an example, check out last month’s case study.
I provide updates from our Case Study subjects at the bottom of each Case Study several months after a Case is featured. You all have requested an easier way to track Case Study updates and I have heard your pleas :)! Here’s list of all the Case Studies that currently have an update provided at the end of the post (and a hint that if you’re a past Case Study participant who hasn’t sent me your update yet, send it on over–your fans want to hear from you!):
- Reader Case Study: Earn More, Spend Less, Or Both? (Julie’s story, published October 2016)
- Reader Case Study: Stay Home With Baby or Return To Work? (Kelly’s story, published November 2016)
- Reader Case Study: The Case Of The Over-gifting In-Laws! (Grace’s story, published December 2016)
- Reader Case Study: Renovations and Vacations (Audrey’s story, published January 2017)
- Reader Case Study: Help Me Decide How To Pay Off $185K In Student Loans (Bridget’s story, published February 2017)
- Reader Case Study: The Grad School Dilemma (Emily’s story, published March 2017)
- Reader Case Study: Can We Buy Our Dream Home? (Jack & Elizabeth’s story, published April 2017)
- Reader Case Study: We Have A Van, Now We Need A Plan! (Florence & Anna’s story, published May 2017)
- Reader Case Study: To Buy Or Not To Buy In Sydney, Australia? (Jemma & Greg’s story, published June 2017)
- Reader Case Study: Starting From Scratch In Canada; Where Do I Go From Here? (Alison’s story, published July 2017)
- Reader Case Study: Moving To Europe From South Africa, Trying To Make Ends Meet (Clara’s story, published August 2017)
- Reader Case Study: Should We Stay (In San Francisco) Or Should We Go Now? (Melanie & Kurt’s story, published September 2017)
- Reader Case Study: Having A Quarter-Life Crisis in Nashville, TN! (Steph & Zach’s story, published October 2017)
- Reader Case Study: National Park Rangers Figuring Out Finances (The Ranger’s story, published November 2017)
- Reader Case Study: Londoners Wonder About Buying A Property (Betty & David’s story, published December 2017)
- Reader Case Study: At Age 57, It’s Not Over Yet! (Lucy’s story, published January 2018)
- Reader Case Study: Debt And Dreams In Queensland, Australia (Sam & Keith’s story, published March 2018)
- Reader Case Study: Single Psychologist Saving In NYC (Lauren’s story, published April 2018)
- Reader Case Study: How A Cancer Diagnosis Changes Everything (Emily & John’s story, published May 2018)
- Reader Case Study: Should We Buy A Campground And Laundromat? (Payton & Riley’s story, published July 2018)
I probably don’t need to say the following because you all are the kindest, most polite commenters on the internet, but, please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not to condemn.
And a disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I encourage everyone to do their own research to determine the best course of action for their finances.
With that I’ll let Rose, this month’s Case Study subject, take it from here!
Hello, fellow readers! My name is Rose. I’m 28 years old and live in the upper Midwest with my husband David (also 28) and our dog. David and I met back in college–nearly a decade ago–and got married a few years after we graduated once we were certain our relationship was tenable in the real world (and once we both had real jobs). We both work in the software industry although we both have a degree in chemical engineering.
Continuing on with our similarities, David and I actually work for the same company. I do IT support with some software development on the side and David recently switched positions (still at the same company) and is primarily in management now.
I want to preface my story by saying that David and I have always been incredibly lucky. We both had generous parents who helped pay for our undergraduate educations, which meant we graduated with no debt. Then, we were able to find good jobs, which we’ve held since that time. We also understood the dangers of debt and were careful not to let our expenses exceed our incomes. We thought we were doing well until we discovered blogs like Frugalwoods and realized that we could be doing even better. Since then, we’ve cut expenses greatly and are actually on track to comfortably retire early in 3.5-4 years if we both keep working until that time.
Right now, David and I spend a lot of our time working at our jobs and working on our house. When we do have free time, we enjoy gardening, hiking, reading, playing board games, and building things (it’s the engineer in us). We constantly have projects that we’re actively working on as well as what seems like a never-ending stream of things we want to be working on but don’t have time to do.
I predict that list will keep getting longer, however, because I’m pregnant and due March 28, 2019 (although I expect to deliver early, as often happens with multiples). We’ve been trying to get pregnant for about three years and ended up conceiving through IVF. What surprised us is that–despite only transferring one embryo–we’re having twins! This is both exciting and terrifying and it has led us to seriously reconsider our future plans. Before this, we’d always planned to both keep working after having our first kid and then re-evaluate how things were going if/when we decided to have a second and possibly have one parent quit at that point. But now the second is coming with the first!
I’m a math person, so I’ve done the math for a lot of different scenarios. Technically, we’re still financially better off if we both keep working, even with two daycare fees (which we calculate will be in the neighborhood of $2,250 per month for both babies). However, I also fully acknowledge that I have no idea how much work a baby will be, much less two, so I’m not really sure how feasible it will be to both continue working after they’re born.
David and I both work 50+ hour weeks right now and, while we can probably decrease that a bit, our jobs will always be demanding and take a lot out of us. On the other hand, having one of us quit next year would increase the working time for the other person by about two years.
Considering A Stay-At-Home Parent
Originally, we were thinking that if a parent were to stay home, it would be David, but more recently, we’ve swung over to me. David really likes his new position whereas I’m feeling a bit stuck in my job. I am currently taking classes that will net me a computer science degree–which would allow me to switch to full-time software development–which appeals to me. However, I’m frustrated with how long it’ll take to complete this coursework and make the job transition. I have about a year left if I take a class during January-May 2019. That’s a pretty big if since I’ll be, you know, giving birth during this time period. We could likely work it out, but we’re not sure if it’s even worth it given that I might quit my job before finishing the course (and would then have to pay back the cost of the class since my work is paying for it).
Technically, David and I make exactly the same salary, although he’s withholding more in his 401K at present. Our salaries are consistently very similar, as are our raises. The most salient point is that his new job is more enjoyable, but is unlikely to net a large change in salary. Conversely, if I transition to full-time software development (after completing my coursework), I’m more likely to net a larger increase in salary and would, at that point, make more than David.
Other factors we’ve considered are that David is more likely to bike to work, but I’m more likely to get smaller things around the house done (he would get larger projects done but tends to get very focused). Breastfeeding will also make things interesting–I can and will pump if I go back to work, but it’s obviously logistically easier for me to be around the babies more often. We’re planning to have one of us home full-time for a month while the other works during our FMLA (Family Medical Leave Act) to test things out.
David and I can each take up to three months of family leave when our kids are born, which is nice. Our plan right now is to try and split it up so that one of us can be home longer and so that we both have some time home alone with the babies to see how it goes. Right now, the plan is for us to both take the first two weeks off, and then I’d stay home for another month while my husband goes back to work. Next, David would stay home for a month while I go back to work. I have a major project in May, and his job works better if he’s not gone for extended periods, so that’s actually a good schedule for both of us. I would then finish out my three months after which he would finish out whatever paid leave he has left (he has 30+ sick days banked right now). It’s complicated but it should work.
Rose and David’s House
The second big decision we’re grappling with right now is what to do about our house. We love our current home, but we bought it with an eye toward what we want in the longterm as opposed to thinking seriously about what made sense for where we were in life at the time (honestly, this is probably the biggest financial mistake we’ve ever made). We have a nice house on 17 acres out in the country, and we have grand plans for what to do with that land. . . which we haven’t been able to make much progress on due to our work schedules. But we do keep around 15-25 chickens for meat and eggs!
We also have grand plans for the interior of the house, including a major renovation that we’ve been working on for the better part of three years. On top of it all, the house is about 14 miles from our work. We can carpool and there’s never any traffic, which makes our commute a consistent 25 minutes, so it’s not the worst situation we could be in, but it could certainly be better. We also try to bike a couple times a week (though it’s been hard for me lately with the pregnancy) which takes about 50 minutes each way. However, since there are no daycares that take infants near our house, if we both keep working, we’d have to drive every day to get the kids into daycare near work.
We purchased our home in March 2014 for $359,900. The selling price would depend on whether or not we finish the renovation and how we finish it. If we were to list it right now, we would probably have to list it for close to what we paid for it since it’s a bit of a mess (okay, a lot of a mess–there are walls missing). In a few months, it will probably be closer to $450,000-$500,000 based on other home prices in our area.
I think we could hopefully get the house ready to sell before the babies come. This would let us move somewhere within walking distance of work and daycare, which appeals to us because we want to be less reliant on cars, but we also like having the land we currently have out in the country. We’ve tossed around the idea of renting/using our house as an AirBnb until we’re finished working. While we’re open to that option, I don’t know that it’s financially feasible given the type of property we have (rural, on 17 acres, 500ft driveway that we shovel by hand, etc.). If one of us quits, however, a lot of this becomes moot since one person could bike into work most days.
If we moved closer to work, we’d likely buy a home and we’re looking at places in the $225,000-$275,000 range. A home equivalent to the one we have now would be closer to $400,000, and we’d like to spend much less.
The other consideration here is that, ultimately, we want to be back in the country. After we reach financial independence, our plan is to return to the country. We would love to live in our current home after quitting our jobs, but we recognize that there are other homes out there we would enjoy as well. Regardless, moving closer to work would mean two moves for us–one to finish out our careers and one to our forever home (which doesn’t have to be our current home but could be).
Another factor is that most of David’s family lives within 2 hours of us and his parents are only 20 minutes away. One option we’ve entertained with the two move plan is: 1) move closer to work until we finish our careers; 2) then move closer to David’s parents. Our twins will be the first grandchildren on both sides and so we anticipate some grandparent care, but don’t want to rely on it, which is why it’s not accounted for in our daycare cost calculations.
Where Rose and David Want To Be in Ten Years
- Family: This is our biggest priority. Both of us would like a large family (at least right now—we’ll see how we feel after two babies ☺) and also want to make sure we can help our kids grow up to be smart, inquisitive, productive members of society. For this reason, we were considering waiting until we were financially independent before having kids, but given the high costs of birth in this country (which are completely covered by our employer-provided health insurance) and the fact that we’ve already struggled with infertility, we didn’t want to wait any longer.
Finances: We would like to be financially independent in 10 years.
- Careers: Neither of us hates our job, but neither of us is particularly interested in spending the next thirty years working our job either. David has some great ideas for other businesses he would like to start and prefers to be his own boss. I struggle with doing the same thing every day (and to wake up in the morning with enough time to get into work at a reasonable hour, but that’s a different story). I would much prefer a lot of variety in my days—a couple hours of hiking, some work in the garden, a bit of work on the house, writing a bit, and maybe 2-3 hours of software work (I fully acknowledge our hobbies will change drastically with small children, but I’m giving examples from life right now). I am also a scientist/engineer at heart. I have admittedly strange plans for future projects like teaching my kids about flame tests by soaking our logs in lithium and copper salts before Christmas so they burn red and green or building a whole house server that can connect everything and be accessed from anywhere.
- Lifestyle: Part of the reason we bought the land where we live is that we want to be as close to self-sufficient as possible one day. This includes money, food, and energy. David is currently building a masonry heater so that we can heat our whole house with wood and possibly our hot water as well. All of our heat is electric now, which is both inefficient and expensive. On the food front, we’ve done some basic growing in the past but haven’t had the time with both of us working and the house. It’s definitely an area where we want to improve.
Rose and David’s Finances
|Rose’s income||$6,014||This is after taxes, 401K contributions, healthcare plus Flex (cheaper for us both to be on single plans for now), and longterm disability.|
|David’s income||$5,901||This is after taxes, 401K contributions, healthcare (plus Flex for IVF), and longterm disability. David has more than he needs going to his 401K at present, so I expect this to jump significantly in the next couple months when he readjusts his contributions.|
|Annual Total||$142,980||We typically receive bonuses, which I don’t include in any calculations since I don’t want to rely on them. This also does not include 401K matching.|
|Item||Amount||Notes (all values averaged over the last 12 months of expenses)|
|Mortgage||$2,588||10-year, 3.25% fixed rate mortgage. No escrow. One thing we learned in the past couple years is that, while it doesn’t make sense to pay off your mortgage early, if you have extra money you want to throw at it, you should look at a shorter term, lower interest rate loan. We’ll save ~$200,000 by switching from a 30-year to a 10-year mortgage, even with the lost opportunity cost from not investing that extra payment money each month.|
|Doctor/Pharmacy||$1,452||All for IVF. I expect this to be close to $0 next year since our healthcare is actually very good overall.|
|Charity||$600||This is high, but it’s important to us given our income level and lack of time to volunteer. If we quit and have more time to volunteer, we’ll consider reducing this amount.|
|Property Taxes||$521||Paid once a year in January. Not horrible for 17 acres in a relatively high property tax state.|
|Groceries||$277||Mostly organic, local food. We try to eat in season. We did buy a quarter steer about 15 months ago that we’re still eating through and since we have the chickens as well, this includes very little meat.|
|Home Improvement and Household Supplies||$231||This is cheating a bit since most of the renovation supplies were front loaded, but I expect it to continue to decrease as we finish up the rest of the renovation, so I’ll leave it.|
|Electric||$88||Pretty proud of this since we have baseboard electric heat|
|Chicken feed/bedding/other items||$70||We keep about 15-25 chickens for meat and eggs. I do sell some eggs (amount subtracted from total) and give some to people as small thank-you gifts|
|Eating Out||$51||Definitely an area we could reduce. This is mostly lunch at work and a few dinners out with David’s parents. I had been doing better about cooking for the week so we didn’t have to buy lunch at work and then I got pregnant. I’m still adjusting to how much I actually eat (a couple weeks ago, I’d eaten half the food I planned for the week by Sunday night. . .)|
|Gas for cars||$49||I’m a wuss and don’t bike as much as I should.|
|Tools||$42||Technically bought for the renovation, but we can use them for other projects as well.|
|Other||$42||Passport renewal, 401K fees (can’t get rid of them until we quit and move our 401K’s), a board game, a couple of used books, a Target purchase that was probably soap/shampoo/etc., camera card, parts to fix my phone screen/battery|
|Dog food/vet care/supplies||$40||Partly frugal because we buy most of her food with Menards rebates.|
|Internet||$37||One of the greatest things about living in a small town: they actually called me to say they were changing their tiers and, since we only get the lower tier where we are (fine for our need), our price would be halved!|
|Bike parts/other biking items||$33||Should decrease soon as we have pretty much everything we need.|
|Gifts||$29||Almost all for Christmas; we do buy some things with gift cards that were gifted to us as well.|
|Home Insurance||$26||Have a high deductible and pay in full.|
|Cell Phones (two)||$26||Two lines with Ting|
|Car Insurance||$23||Geico. No comp/collision. 2004 Subaru Outback and 2012 Subaru Impreza|
|Clothing||$10||Two new pairs of running shoes (bought on clearance), two pairs of jeans and a couple shirts from Goodwill.|
|Trash||$5||No pickup; we take it to the dump|
|Baby items||$3||One crib/mattress/mattress covers and a bunch of clothes. I expect a lot more here in the coming months.|
*A note on travel: Both David and I travel quite a lot for work (working on changing that), so we either combine trips to see our families and/or use points for flights/hotels/etc. if we take a special trip for holidays/events. That’s why there’s no line item for travel/vacation.
|Taxable Investments||$217,597||All in index funds, mostly a total US stock market fund, a bond fund, and a developed international one. See notes below for more details.|
|IRAs||$107,139||Mostly in Roths except for a bit in Traditional that I need to roll over|
|Cash||$32,973||Honestly higher than we usually keep it. We use asset allocation across a few different types of index funds, and we rebalance once a quarter. A good chunk of this cash will be used to supplement any categories that need it this quarter to reach our allocation targets.|
Investing notes: Our 401Ks are through Fidelity. We have a Charles Schwab account that was David’s before we got married and the rest of our funds are through Wells Fargo because I was grandfathered into a sweet deal that gives me 100 free trades a year (more than enough for our rebalancing). We’ve talked about combining accounts, but we’d have to realize a bunch of capital gains to do it, so it doesn’t really make fiscal sense. We have a few different index funds for our asset allocation, but they’re mostly Vanguard, Schwab (no transaction fees in David’s account), and Fidelity (no transaction fees for our 401Ks) with a couple ETFs for some more specific indexes for the allocation. Our biggest chunk is in SWTSX, VWLTX, VVIAX, and SWISX. We do also own some FSRVX for our REIT diversification and then our smaller funds.
|2012 Subaru Impreza||$9,000||Own outright|
|2004 Subaru Outback||$1,500||Own outright|
|Mortgage||$222,002||10-year, 3.25% fixed rate mortgage. No escrow. The last valuation before the renovation for the house was $331,000. Based on what similar houses are selling for in our area, we could probably get more like $450,000-$500,000 for it after the renovation is complete (we’ve added about 25% more finished space, a half bath, and will have updated the original baths and the kitchen, which hadn’t been touched since it was built in the 1970s).|
Rose’s Questions For You:
- Should one of us quit our job to take care of the twins? Or should we both keep working until we’re financially independent? I’m especially curious to hear from readers who have experience with multiples and/or dad staying home with the kids since I know that’s less traditional but may make sense given that I have the potential to take a higher paying job in the future.
- Should we move closer to work (and our future daycare) even though it would mean giving up a home we love?
- Any suggestions for side hustles and/or ways to save even more money that we could do once the babies get older if one of us quits their job? I don’t expect to make nearly as much as we do now, but it would be nice not to lose all of that income.
Mrs. Frugalwoods’ Recommendations
First of all, congratulations on expecting twins!! Second of all, congratulations on being in such a wonderful financial position!! Rose and David’s story is the perfect example of why you want to manage your money wisely. They have an unexpected surprise on their hands–two babies instead of one!!–but they’re in a financial position to not stress out about it. This is why I constantly preach saving more than you think you need to, investing those savings, having no debt, and maintaining a healthy emergency fund. By doing this, Rose and David will be able to make a decision based on what they WANT to do for their children, not what they HAVE to do. This is true financial freedom and it is the cornerstone of what Frugalwoods is all about. Thank you Rose and David for giving us this great example today!
For anyone who’d love to get to the place that Rose and David are at, here’s a quick rundown of the steps I’d advise you take:
- Track your expenses religiously. Know exactly what you’re spending every month. If you’re not tracking your spending, you can sign-up for the free service Personal Capital, which is what I use and recommend for expense tracking (affiliate link).
- Pay off high interest debt. List all of your debts in a spreadsheet and sort by interest rate. Prioritize paying them off in order of highest interest rate first.
- Build an emergency fund. An emergency fund should be kept in an easily-accessible bank account, such as a checking or savings account, NOT in investments, retirement funds, or cars/houses/expensive china. An emergency fund is cash money you can access immediately in an emergency. I recommend saving three to six months’ worth of expenses (meaning three to six months worth of what you spend every month, which is why it’s important to do #1: track your expenses).
- Contribute to retirement accounts. Especially if your employer matches your contributions, putting money into a 401k or 403b is a no-brainer. Here’s more on why: 401ks Are Your Friend: Demystifying Personal Finance Part 3.
- Start investing! Investing in the stock market is how you grow your wealth. Without this crucial step, you won’t reap the advantages of compounding interest and you’re unlikely to build your net worth in a meaningful way. I use and recommend investing in low-fee index funds through the brokerages of Fidelity or Vanguard. I personally use Fidelity (I primarily own FSTVX), but Vanguard offers a similar product. You can do this yourself (it’s just like any other form of online banking) and there are more details here: For the Love of Frugal Hound, Manage Your Money Yourself! (by following The Simple Path to Wealth).
- Explore other options for investing in order to achieve diversification. After completing steps 1-5, you should continue investing in your low-fee index funds (and rebalancing them) on a regular basis (I recommend automating this process) and you can also start to look around for diversification options. This might include, for example, real estate. Mr. FW and I rent out our home in Cambridge, MA for a profit. Renting a property can be a fabulous financial decision and it can also be an absolutely abysmal one. It depends on many factors, including the rate of return you’d receive. For more on renting out properties, I recommend the site BiggerPockets, which discusses real estate investing.
- Analyze your income. Concurrent with all of this should be an analysis of your net income (that means the dollar amount you bring home every month, minus taxes and any other withholdings). In some cases, the best route to financial stability will be to increase your income while also lowering your expenses. Income is the crucial second piece to this equation and, the more you make, the more you can save. That’s just a solid math fact.
I hope that helps give you a sense of the basic outline of how to get yourself onto solid financial footing. Ok, back to our friends Rose and David!
Should One Of Them Stay Home With The Twins?
I have no idea. And neither do Rose and David. And neither does anyone else. Rose, being an organized engineer, has already calculated that it’s essentially a financial wash. It’s true that their combined incomes outstrip their projected daycare payment, but it’s not a make-or-break decision for them, which is a fortunate position to be in. Enjoy the below chart I’ve made to analyze this from a financial perspective:
|Rose’s Income||$6,014||This is after taxes, 401K contributions, healthcare plus Flex (cheaper for us both to be on single plans for now), and LTD.|
|David’s Income||$5,901||This is after taxes, 401K contributions, healthcare (plus Flex for IVF), and LTD. David has more than he needs going to his 401K, so I expect this to jump significantly in the next couple months|
|Current Monthly Income Total:||$11,915|
|Daycare Cost for Both Babies:||$2,250|
|Monthly Total Minus Daycare:||$9,665||Total take-home pay if BOTH Rose and David continue working and they pay for daycare.|
|Loss of David’s Salary:||$5,901|
|Monthly Total Minus David’s Salary:||$6,014||Total take-home pay if David quits his job and they don’t pay for daycare.|
|Difference:||$3,651||Total amount of money saved every month if they BOTH continue working.|
As we can all see, from a purely mathematical perspective, it makes more financial sense for Rose and David to continue working–and she already knows this and mentioned it in her narrative. Thus, it’s clear that this decision isn’t purely a financial one (decisions rarely are) and is much more a question of how Rose and David want to raise their children and use their time. Again, since they’ve put themselves in an excellent financial position, they can afford to make the less financially wise choice of having one of them quit their jobs if they want to.
I rarely give hardline advice, but I’m going to in this instance, and here it is: do not make this decision now.
That’s right, the trumpeter of “plan everything ahead of time” (that’s me!) advises Rose and David to WAIT. Why? Several reasons:
- They don’t need to make this decision right now. I advise that they proceed as if they will both go back to work after the birth. They should do all the necessary FMLA paperwork ahead of time and they should put themselves on the waiting list(s) at the daycare(s) of their choice. They should not tip off their employer that they’re considering having one of them stay home. There’s simply no reason to do so.
- They are not in possession of all the data points. I understand (keenly) Rose and David’s desire to make this decision ahead of time (trust me, I feel like I’m advising myself here), but they simply do not have all the necessary information at this stage. Namely, they don’t have their kids yet!!! My worldview radically changed after the birth of my kids and Rose and David can’t predict how they’ll feel after having theirs. Rose has already articulated that they know they can’t predict what life will be like with their twins and so, trying to make this decision before the twins are born is–in my opinion–nearly impossible.
Since Rose and David have a fabulous FMLA plan, they will have the luxury of both experiencing at-home parenting as well as working away from home after the birth. I love their plan of staggering their leaves and thus extending the time before they need to start paying for daycare and also giving each other the opporunity to fully engage in at-home parenting. I advise that they follow their well-thought-out FMLA leave plan and both stay home with the kids and both go back to work.
I also suggest they simulate taking the kids to daycare and both going into work–perhaps on a weekend day. Why? Because I find that one of the more difficult junctures of parenting is getting both of my kids up and dressed and fed and out of the house at a given time in the morning (and now you know why we’re late to church EVERY week… ). I HIGHLY recommend Rose and David do this simulation a few times: get up at the time they’d need to on a workday, shower, dress themselves for work, eat breakfast, take the dog out, dress the kids for daycare, load everyone in the car, drive to daycare, and then drive to work.
This will provide valuable data points and a more realistic view of what their days would be like if they both continued to work. Since David’s parents live nearby, if they’re amenable, I highly recommend doing a test full day of “work” whereby they leave the kids with the grandparents until the end of their traditional workday so that they can experience both the morning and the evening routine they’d have if they both worked.
There’s no one right answer here. While Rose and David are certainly considering the financial implications of this decision, it’s also important that they choose the best route for their family and their overall happiness. If they find–after their FMLA leaves– that they’ll both be happier working, then they should do that. Conversely, if one of them finds that they dearly want to stay home with the babies, then they should do that. I’ll reiterate again that their prudent financial management means they can afford to make the choice they want to make and won’t be forced into doing something they don’t want to do.
Should They Sell Their Home?
In my mind, this question really boils down to whether or not Rose and David feel that their current home is their forever home. If this is the house they envision themselves always living in, raising their kids in, and creating their lives together, then I see no reason to move. As Rose outlined, if they were to move for their jobs, they’d be looking at two moves–one to be near their jobs and then another move back out to the country. My advice here might be biased, however, because I hate to move. I don’t think I said that strongly enough: I HATE MOVING. I’ve done it a lot and, after our most recent move to our homestead, I’m pretty sure we’re never moving ever again. Packing up, loading a truck, unloading, organizing a new house, selling the old house… aaaaggghh! That being said, moving might not strike fear in Rose and David’s bones quite like it does in mine. So you know what I’d do if it were me…
On the other hand, if their current home is NOT their forever home and NOT their ideal location, then they might as well move closer to work and make their lives easier for the rest of their careers. It’s expensive to move–and they’d likely lose money as a result of moving twice in such a short period of time–but, again, this isn’t strictly a financial calculation for them. I don’t think that moving closer to their work will really save them much money because their commuting expenses are already so low and they’d be using the same daycare regardless of where they live. I don’t see that moving closer to work would make all that much of a difference in either their lifestyle or their budget, but I might be missing something there.
Another question I have for Rose and David is about the current state of their home. Rose noted several times that the house is undergoing some major renovations and that it’s something of a construction zone. This is very manageable when your household only contains adults (plus a dog), but it could quickly become untenable with two babies and then… two crawling and walking toddlers who put everything into their mouths. It’s really difficult to get anything done with little kids underfoot and I think it’d be nigh on impossible to complete a DIY renovation while caring for two kids. In addition to the sheer logistical challenges, there’s also construction dust and debris to consider with tiny lungs in the home. I don’t have a clear sense of how far Rose and David are from completing their projects, but if there’s any way they can hustle up and get it done before the kids are born, I think they’ll be eternally thankful. Otherwise, if they stay in this home, it’s likely they’ll be looking at delaying their renovation projects for a number of years. This isn’t to say that it’s impossible to do interior work with little kids, but oh man, it is SO TOUGH. So a salient question is if Rose and David would find it easier to sell their current home now and move to a smaller place near their office that doesn’t require any renovation work. Then, in a few years, they’d have the freedom to explore other rural properties, possibly near David’s parents.
Rose also mentioned the idea of renting out their home and that could work, but they’ll need to gather data on their local rental market to determine the viability of that plan. They should research what similar homes (with land) in their area rent for and also the feasibility of either self-managing or hiring a property manager. In my opinion, the two reasons to rent it out would be:
- If they can command a high enough rent to make it profitable (minus all fees of course: insurance, property taxes, property manager, maintenance, emergency reserve, vacancies, etc)
- If they are certain this is their forever home and they want to return to it. In that case, I would really question the desire to move twice, but if they do want to move, renting it out could (potentially) at least cover their holding costs of the property.
If Rose and David decide to rent their home, they should be aware of the potential loss of the capital gains tax exclusion if they decide to sell the home after it has not been owner-occupied for a certain number of years.
Either way, I encourage Rose and David to have a Realtor come to their home soon and outline a list price and selling strategy. This is a free service (confirm this with the Realtor you call) and a valuable element of determining whether or not to sell. If rental brokers or property managers are common in their area, they should also have them come to assess the property’s rentability. People do rent out rural properties, with land, all the time and it’s often with contingencies in the lease regarding property maintenance (for example, the tenant can be designated as responsible for snow removal, assuming that’s allowed under tenant laws in their state). I don’t have enough data to make a concrete recommendation on renting, but Rose and David can gather all this material and make an informed determination.
At the end of the day, I think the move question boils down to whether or not this is the home they want to live in after retiring early.
Achieving Financial Independence
Speaking of retiring early, since Rose and David articulated that retiring early is a goal of theirs, let’s dig into their numbers. First of all, let me share a few definitions. “Financial independence” is widely interpreted as meaning that a person has enough in assets to cover their expenses for the rest of their life, such that they don’t need to work for compensation.
People who are financially independent may choose to continue working because they find their work fulfilling (this is the category that Mr. Frugalwoods and I fall into). “Early retired” is a subset of financial independence that refers to folks who are financially independent (see preceding definition) and who have quit their jobs and no longer earn money, but instead live off of a safe withdrawal rate from their assets/investments (this is not what Mr. FW and I do at present). There are a million different ways to construct a financially independent/early retired (abbreviated as FIRE) lifestyle and there’s no one right way to do it.
FIRE is calculated based upon two primary factors: your spending and your assets. The basic question is: Do you have enough in assets that a safe withdrawal rate will cover your expenses in perpetuity? There are different schools of thought on what constitutes a safe withdrawal rate and it boils down to your personal financial philosophy and your tolerance for risk. In light of that, only Rose and David can truly know when Rose and David are ready to FIRE. However, there are some broadly accepted maxims around safe withdrawal rates that we can dig into.
The 4% Rule Of Thumb
A widely (though not universally) accepted early retirement maxim–which is enshrined in the academic Trinity Study–is that you can safely implement a 4% annual drawdown on your investments. This means you’re skimming 4% off your investments every year to cover all of your living expenses. The research in this study demonstrates that this level of withdrawal–4% annually–is a rate that won’t result in your money running out, according to any 30-year period in the history of the US stock market.
According to this calculation, you need to have a total dollar amount in assets whereby 4% equals (or I prefer exceeds) your annual living expenses. This is yet another reason why it’s vital to track your expenses and know what you spend. Let’s do some math to illustrate the 4% rule: If you spend $40K a year, then $40,000 / .04 = $1,000,000. That means, in theory, you’d need $1M in assets (and there are different interpretations of ‘assets’) in order to be financially independent and, if you so choose, early retired.
At present, Rose and David spend $75,216 a year. This means in theory they’d need $1,880,400 in assets in order to retire early, in accordance with the 4% rule ($75,216 / .04 = $1,880,400). Put another way, 4% of $1,880,400 is $75,216.
Of course, before making such a consequential decision as retiring early, anyone–including Rose and David–should research from multiple sources, run their own numbers, and determine a rate of withdrawal that’s tenable for them. For more on the theories behind withdrawal rates, I recommend the following series from Early Retirement Now: The Ultimate Guide to Safe Withdrawal Rates.
A Primary Residence Is Not An Asset
I noted that Rose said they’d be able to comfortably retire in 3.5 to 4 years and I surmise that the primary discrepancy between her math and mine is that she’s counting the equity they have in their home in their assets list. The thing is, you typically don’t count your primary residence in an assets list because you’re living in that house, which means it’s not something you can draw down on to cover your expenses. I personally don’t include my primary residence at all in my assets and most FIRE folks don’t either. The caveat here is that I am a fairly conservative FIRE calculator and am comfortable with a larger buffer than some other folks who adhere to a “lean FIRE” philosophy. Again, there’s no one right way to do this.
If you rent out or sell your primary residence, then it might toggle over to the assets list. But a house you’re living in isn’t an asset that you can liquidate/draw from easily (except for the possibility of getting a HELOC, which is usually not a good idea). So, minus their home, Rose and David currently have $636,413 in assets, which is TREMENDOUS! Serious congrats to them for garnering the income to make this possible and then having the determination to save a lot of that income. A major game changer for Rose and David, however, would be if they stayed in their current home and paid off their 10-year mortgage. If they were mortgage free, their annual expenses would dramatically decrease, which would decrease their overall asset needs.
How Rose And David Can Reach FIRE
If Rose and David maintain their level of expenses, they’ll need to save another $1,243,987. This, of course, does not account for fluctuations in the market, which are certain to happen as sure as the sun rises and sets (and this is largely where your tolerance for risk comes into play).
Once their house is paid off, however, they’d be looking at a reduced outlay. On the other hand, their current expenses don’t include daycare or kid-related expenditures. In that light, the absence of their mortgage could be a wash with the addition of childcare expenses. Another question is if they plan on having more children (which sounds like it might be a possibility) and if they envision needing IVF again? Those costs could further negate the savings from the mortgage. Further, I wonder if their current health insurance offered any coverage for IVF? That could be an argument for continuing to work until their family is complete. As Rose noted, births (and prenatal care) are expensive in the US and, if they have health insurance that covers it, they might want to take this into account when determining their quit date(s).
Financial independence is definitely a possibility for Rose and David since they have both the income level and the financial savvy and determination to make it happen. How and when they get there will depend on what decisions they make regarding childcare and their home. There aren’t wrong answers, just different pathways they can take.
Since Rose and David have a lot of unknowns right now, I recommend they redo their FIRE calculations after they’ve ironed out:
- Whether or not a parent is staying home.
- Whether or not Rose wants to complete her computer science coursework and what the increase in her salary might be as a result.
- Whether or not they sell their current home. If they stay where they are, and pay off their mortgage as they plan to, their monthly expenses will be dramatically lower. Alternately, if they move to a much cheaper place, their monthly payment would also be lower.
- Whether or not they plan to have more children and whether or not they’d need IVF again, and thus would occur the attendant costs.
- What their expenses shake out to be after a year or so of having kids. My own expenses increased after having kids and it’s tough to project this out. I think it’s easier to have a year or two of expenses to rely on and calculate from. Additionally, this would need to be reevaluated if they have more children. Another consideration is whether or not Rose and David want to help their children with college costs (through 529s or other savings vehicles).
If Rose and David decide to both keep working–and thus pay for daycare–at their current incomes and current level of spending, they’d be able to save $3,397 per month, which is fabulous! Here’s a full calculation:
$9,665 (total take-home minus daycare payment) – $6,268 (current monthly expenses) = $3,397 saved per month x 12 months = $40,764 saved per year. At this rate, it would take them over 30 years to reach that total $1.88M needed to facilitate an annual withdrawal rate of 4%. But I don’t think it’s going to take them anywhere near that long given the above bullet list of unknowns.
I know Rose and David want to FIRE sooner rather than later and there are two primary ways to manipulate this equation:
- Increase income
- Decrease expenses
Rose and David are already actively considering salary increases, which would certainly help them reach FIRE more quickly. Another element of this equation is Rose’s question regarding…
Rose asked about potential side hustles in the scenario that one parent decides to stay home with the kids. I think this is a great idea for the longterm (as in, when both parents are retired), but I wouldn’t count on being able to do much with two little babes in tow. That being said, what I recommend they explore is anything they’re already good at. I think people sometimes assume that a side hustle needs to be way outside of their regular work, but often, you can make the most money by doing more of what you’re already proficient at.
To that end, I’d look into freelance software engineering jobs and see if there’s an opportunity to make a few extra bucks doing that from home. In general, I’m a fan of side hustles that have low (or no) overhead and that don’t require you to leave your home (especially if you’re parenting small children). Hence, working on a computer is a big winner in my house!
Anything requiring Rose or David to leave the house wouldn’t make sense in light of the childcare component. And anything with overhead might defeat the purpose of trying to earn extra money. But parlaying their engineering experience into freelance software development/web design could be golden!
Now let’s take a look at the other end of the equation.
Rose and David’s Expenses
Rose and David are already quite frugal, so I’m honestly not sure there’s going to be much for us to cut! But, as is Frugalwoods Case Study tradition, we’ll take a stroll through their expenses anyway.
- IVF: Since this expense will be eliminated in 2019, that’ll be a savings to the tune of $1,452 per month (a whopping $17,424 per year!). The caveat is if they plan on having more children and if they’d need to incur this expense again.
- Charity: I don’t advise that they eliminate this line item (I give to charity too), but at $600/month ($7,200 per year) it is something for them to consider. I liked Rose’s statement that they’d likely decrease their donations once they’re able to volunteer their time more.
- Eating out: At a mere $51, this isn’t really all that significant, but it is a discretionary expense, so I’ll note it here (but if it were me, I probably wouldn’t eliminate it!).
Although Rose and David’s monthly spending seems high–at $6,268–a whopping $4,040 of that is their mortgage ($2,588) and their IVF payments ($1,452). Minus those outliers, they’re spending $2,228 per month, which is downright excellent. Sure, they could probably trim around the edges, but the real savings will be in no longer paying for IVF and the date when their mortgage is paid off (or if they move, a lower monthly rent/mortgage).
Rose and David have done a magnificent job of setting themselves up for financial success and–most of all–for having options. They have great salaries and they’ve been diligent about saving and investing, which is a winning combination. In summary, here’s what I advise they do:
- Delay the decision about having a parent stay home to care for the twins until after the end of your FMLA leave. Utilize your leave to test out the different scenarios outlined for each of you taking a turn working and staying at home. Additionally, do several trial commutes to simulate both parents working and both kids going to daycare. Proceed as if you’re both going back to work: get on daycare wait lists now, fill out all FMLA paperwork, etc.
- Decide about the house sooner rather than later. Determine if your current home is your dream home. If it is, I recommend staying put. If it’s not, figure out what it would take to sell it and move before your due date. Price out whether or not moving now would actually save any money in light of the future two-move factor.
- If you decide to remain in your current home, consider the construction zone of the house vis-a-vis having two small kids. Prioritize completing projects that are messy/difficult/loud/encompass a lot of living space. If possible, invite a friend with a toddler over to get a sense of how a child moves around (a better word might be “dominates”) the space.
- Recalculate your FIRE math after your immediate unknowns (moving vs. staying, daycare vs. staying at home, expenses after kids, etc) are resolved and reconsider how much you’ll need overall in order to adhere to a safe withdrawal rate for the longterm.
- Look into side hustles that could be done from home and that don’t entail a lot (or any) overhead expenses.
- Enjoy life! You’ve done a marvelous job and are entering the exciting chapter of becoming parents! We’re all rooting for you and can’t wait for you updates!
Ok Frugalwoods nation, what advice would you give to Rose? She and I will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (email@example.com) your brief story and we’ll talk.
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