Two animal lovers need our help this month! Harry and Sally (not their real names, but very cute!) are a young married couple living in Connecticut, along with their two dogs and two cats. They’re debating selling their home and carving out a simpler, happier life with a potentially gigantic career change.
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: 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)
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 Sally, this month’s Case Study subject, take it from here!
Hello Frugalwoods Nation! My name is Sally and I’m 33 years old (I’ll be 34 next month). My husband is Harry, he just turned 33, and we celebrated our seven-year anniversary this month! We met at the ripe old age of 11 on the bus in middle school. Harry and I were both born in Massachusetts, but I grew up in Illinois outside of Chicago and then moved to South Carolina in 7th grade. Harry grew up in Massachusetts and moved to South Carolina in 4th grade. We were friends in high school and he dated a good friend of mine and I dated a friend of his. We then just so happened to go to the same college (Winthrop University in South Carolina) and started dating our freshman year. We dated off and on all 4 years of college before graduating in 2007. I double majored in history and psychology and Harry majored in political science and minored in psychology.
After college, I got a job teaching English in South Korea and Harry joined the Navy. We reconnected long distance when Harry went to “A” school (technical training as an Aircrewman). He was then stationed in Pennsylvania and when I returned to the states from South Korea, he asked me to move in with him and I did! Harry served for four years in the Navy and traveled the world before his contract ended. He proposed to me at the Philadelphia Art Museum and we got married in 2011 at the State Room overlooking Quincy Market in Boston. A few months later, I graduated with a master’s degree in Public Administration from Villanova University.
Hobbies and Pets!
Harry and I have four beloved pets: two dogs (Alexandra, age 9 and Aiden, age 4) and two cats (Henry, age 4 and Peter, age 3), and no human children. I volunteer at a cat shelter every weekend in order to satisfy my urge to bring home and love more animals (because we can’t afford more pets)! Harry and I both like to exercise. I walk the dogs every day and do yoga or go to spin at the gym before work and on the weekends. Harry prefers plyometrics and weight lifting. We also enjoy going to the movies (mmm popcorn) once and awhile, but otherwise we stay home on the weekends with the animals. I like to read and bake (I have a shop on Etsy) and Harry likes to watch sports (especially football) on TV. Once (maybe twice) a year, we travel.
Where Sally & Harry Live
When we first moved to the suburbs of Philadelphia in March 2008–where Harry was stationed with the Navy–we hated it. Compared to South Carolina, it was densely populated, the traffic was terrible, and the cost of living was much higher. In October 2017, after living in Pennsylvania for seven years, we made the decision to move to Connecticut so that Harry could go to the Connecticut School of Broadcasting to pursue a career in sports broadcasting.
We bought our first home in Connecticut in January 2017 for $290,000. We thought the grass would be greener, as the saying goes, but now that we’re on the other side, we find that we actually miss Pennsylvania! Harry graduated from the CT School of Broadcasting this year, but unfortunately wasn’t able to find a job in the field of sports broadcasting. After nine months of unemployment (while in school and after graduating), we decided we needed a second income, and so Harry found a job in shipping for a health and nutrition distributor, which is similar to the job he held back in Pennsylvania.
Another thing I didn’t realize until we moved away is that I miss the familiarity of knowing a place and the connection I felt to my dad since he grew up in Pennsylvania. I also miss my aunt (my dad’s sister) who still lives there and who I spent summers with while growing up. In general, I miss the city and the easy access to entertainment, arts, and culture.
I started working at the United Way soon after graduate school almost seven years ago and spent 4.5 years at United Way in Pennsylvania and have been at the United Way in Connecticut for two years. I work in the Community Investment Department (or Community Impact, depending on the United Way). I collect data around community conditions in our service area and support our grant making process and funding decisions for programs and initiatives. I also manage program evaluation and reporting and write grants to support our work.
Somehow, I thought I wouldn’t hate the same job in another state… go figure (the definition of insanity, right?!). But honestly, I am not enjoying my work and the two things I hate most about living in Connecticut are my job and our house, which I’ll get into in a moment. I don’t have a passion for health and human services or the mission of United Way, which is supporting education, income, and health. My passions and interest ares are caring for animals and the environment. What I’d love to do is work for an animal shelter/humane society, or a non-profit that supports environmental causes (e.g. fighting climate change and sea level rise or supporting green energy solutions and zero waste), but I don’t have the science or research background that would qualify me for that type of work.
And aside from fundraising, which I don’t want to do, most animal shelters are volunteer-run and the only staff positions (if they exist at all) are the Executive Director, veterinarians/technicians, and animal care attendants that make minimum wage. I get discouraged looking for a new job because there are so few job opportunities out there in the fields I love. However at the same time, I realize I’m not happy in my current work and would like to make a change. Given this, I’m considering making a total career change and going to veterinary school or pursuing a science-related degree.
Sally’s Side Hustles
During the summers I work as a consultant for the local Boys & Girls Club in Lansdale, PA. I compile and analyze data including attendance, grades, and reading scores for students enrolled in Project Learn at Club sites in order to produce a year-end report for their Homework Assistance Program. It takes about 40 hours to complete piecemeal and I’m able to do everything remotely.
I also have an Etsy shop where I sell homemade baked goods! Both of these side hustles help supplement our full-time job income.
My father passed away in 2016 and when he died, his inheritance was divided amongst his four children (after taxes, medical and estate bills and lawyer’s fees) and included proceeds from the sale of his house, life insurance policy, money market account, and an inherited IRA account. My inheritance totaled $329,003 and with this, I paid off our car loans and credit card debt, paid for Harry to attend the CT School of Broadcasting, and put a down payment on our first house.
Regarding my inherited IRA account, a minimum distribution is required annually, but you don’t have to withdraw the money, you can reinvest it. I’d hoped to reinvest it this year, but with credit card debt and small emergency savings, I thought it was wiser not to. I’d like your advice on what to do in the future. The minimum distribution amount is dependent upon your age and grows over time. I don’t know the exact calculation but I can expect a similar amount next year as I did last year, which was my first deduction.
Sally’s Desire To Make A Change
I discovered Frugalwoods in February 2017, about six months after my father’s passing. Before receiving the inheritance from him, my husband and I were living paycheck to paycheck (beyond our means) and using birthday and Christmas money gifts to get out of debt every year and then falling right back in debt shortly thereafter.
I found Frugalwoods because I was looking for help. I felt like I was squandering my inheritance, making poor financial decisions, and I knew that if my behavior didn’t change I would end up back in debt. After reading every Frugalwoods post and the Simple Path to Wealth book, I invested what money we had left in low-fee index funds.
Unfortunately at that point, Harry and I realized that our house is too big and that we can’t afford it. Now we find ourselves in the position of being house rich and cash poor. In light of this, we decided to put the house on the market in December 2017. After several months on the market with little to no interest, we accepted an offer only to have it fall through after inspection. We’ve spent $7,000 (and counting) on home repairs since we moved in, using a combination of our savings/emergency fund and credit card. We’d like to be rid of this house! Built in 1974, it’s 2,903 square feet and located in Simsbury, which is a desirable suburb of Hartford, due to the great public schools here.
Another option I envision is to stay the course and practice more gratitude for my good fortune. I know how much privilege I have, but I struggle with not being happy (or feeling fulfilled) with all the good things in my life. The job that I have pays very well for the position and I couldn’t expect to get paid more for the same job. Additionally, I have a responsibility to support our family because Harry’s income alone could not support us, at least not before selling the house.
Where Sally & Harry Want to Be in 10 Years:
- Ten years from now, I want to have enough money saved for retirement.
- I want to break the cycle of living paycheck to paycheck or needing a credit card.
- I want to step off the consumer carousel, lower my expenses, increase my savings, and not be worried about money all the time.
- Harry wants to own a home outright along with some land (enough that we don’t see our neighbors). I’m still not sold on homeownership after our current experience, but having multiple pets (which we always will) makes it very difficult to rent. I also don’t like the feeling of being tied to the house and unable to pick up and go, which is the situation we’re in now.
- I would like to have the option of living abroad short-term or traveling for extended periods.
- Right now, Harry and I do not want children. We may reevaluate that decision in 5-7 years as I near 40 before totally ruling it out (if by then I can still have children).
- Quite simply, I want to have a job that I like. I want to have the freedom and flexibility to work at a job that pays much less if it makes me happy or be able to work unconventional hours from home and volunteer when I like or decide to go back to school to become a veterinarian or explore another degree.
- Harry would like to find a job in broadcasting.
Sally & Harry’s Finances
|Sally’s Full-Time Job||$3,964||After taxes, 403B contributions, charitable giving and health insurance. I currently set aside 10% of every paycheck for retirement (403B) and put $100 into savings.|
|Sally’s Inherited IRA||$814||Required Minimum Distribution paid out in December; $9,762 total annually|
|Harry’s Full-Time Job||$460||After taxes, excluding time and a half for any overtime|
|Sally’s Summer Job||$230||This is $2,771 (after taxes) paid out as follows: $500 in June, $1,000 in July and August, and $500 in September.|
|Side Hustles||$111||Average monthly sales from Amazon, eBay, and Etsy Shop|
|Annual Net Income Total:||$66,948|
|Mortgage||$1,229||Mortgage includes homeowners insurance and taxes|
|Home Maintenance||$598||Monthly average home repairs including: fixing a leak from upstairs bathroom through dining room ceiling, fixing the dryer, pellet stove, replacing rotted wood, replacing the electrical circuit panel (twice), plumbing fixtures in the basement, chimney flashing, and mold remediation in the attic (covered in part by homeowners insurance), as well as mold remediation in the basement. We will need to replace the septic tank in the very near future. The tank has cracks and is bowing and will cost $4,800 to replace.|
|Groceries||$450||Trader Joe’s and Costco only (includes non-food items bought at Costco such as: detergent, toilet paper, paper towels, etc. )|
|Medical||$400||Harry just started seeing a therapist once a week (this is $100 per session)|
|Automotive||$300||Monthly average for car maintenance and repair|
|Gasoline for cars||$300||Sally’s daily commute is 28 miles; Harry’s daily commute is 32 miles|
|Pet Care||$275||Includes cat and dog food, cat litter, monthly pet medications (from California Pet Pharmacy, which is cheaper than Allivet): Advantix, Heartgard, Revolution, and $52.70 prescription eye drops, dog grooming, vet appointments, etc.|
|Utilities||$250||Monthly electric, oil heat November-April, 3 pallets of pellets to reduce oil heating costs, and trash removal paid quarterly|
|Household and miscellaneous||$195||A catchall for the various and sundry: coffee, toiletries (e.g. deodorant, eye drops, shampoo/conditioner, toothpaste, etc.), garage door opener, etc.|
|Restaurants||$100||We try not to eat out more than once a week and alternate between Domino’s Pizza (sacred cow) and Chinese food. This total also includes eating out while on vacation.|
|Car Insurance||$82||$1M in liability coverage through Geico (Thank you, Frugalwoods!)|
|Cable and Internet||$79||$46.98 internet year-round, Netflix subscription June-August, and Playstation Vue (Cable TV) September-May|
|Travel||$70||Includes airfare, parking and EZ-Pass, Airbnb/hotel (not food or entertainment)|
|Haircuts||$61||I get my hair cut every 4 months. Harry goes every month. I tried cutting his hair once… it didn’t turn out well.|
|Clothing and shoes||$50||Hard well water is turning my colored clothes white. Does anyone have a solution?|
|Entertainment||$50||Examples include: Redbox, movie tickets, sports tickets for our anniversary/Christmas, golf for birthday, etc.|
|Telephone||$50||Two phones through Boom! Mobile (Thank you, Frugalwoods!)|
|Gym Membership||$42||For both Sally and Harry|
|Online Services||$37||Harry’s music and sports betting. Grr…|
|Service Charges/Fees||$30||Amazon Prime membership (to be cancelled) and YNAB membership. Also, costs associated with sales from Amazon, eBay, and Etsy|
|Postage & Shipping||$25||Largely costs associated with sales from Amazon, eBay, and Etsy.|
|Gifts||$19||Birthdays and Christmas gifts for family|
|Charitable Giving||$6||NPR/PBS donation|
|Sally’s Inherited IRA||$501,553||VTSAX- Vanguard Total Stock Market Index Fund|
|Sally’s 403B Retirement Plan||$45,601||Mutual of America- 2050 Retirement Fund|
|Sally’s Brokerage Account||$45,268||VTSAX- Vanguard Total Stock Market Index Fund|
|Regular Savings Account||$9,146|
|Harry’s Thrift Savings Plan||$3,877||G Fund- Government Securities Investment Fund|
|Mortgage||$97,379||Traditional 30-year fixed with a 4.25% interest rate|
|Bank of America World Points MC||$3,720||9.9% interest rate; this is used mostly for home repairs|
|Harry’s Car: 2014 VW Passat||$9,877||Paid off. Harry got in a car accident in May and totaled his Jeep Wrangler (not his fault). We bought a used car from the settlement with better gas mileage. We use Harry’s car whenever we drive together.|
|Sally’s Car: 2001 Toyota 4Runner||$2,775||Paid off. This is the dog-mobile! I love this car and hope to drive it until it dies.|
Sally’s Questions For You:
- Should we sell our house? We purchased it in January 2017 for $290,000 and it is currently listed at $290,000 and has been on the market for nine months. We want to get out from under it, but is that wise, knowing that we’ll lose $20,000+ in sellers’ fees on the sale?
- Should we move back to Pennsylvania? We moved to Connecticut in October 2017, but we now realize that we preferred living in PA. The job market is stronger there and the cost of living is less. Harry has the ability to be re-hired at his previous job there. If I wanted to pursue going to veterinarian school, UPenn is close by (assuming I was accepted). The closest vet school to where I live in CT is Tufts, which is in Boston and nearly two hours away.
- Should I go to vet school of pursue another science degree? And oh by the way I probably need two years of science prerequisites before I can apply. How could I afford to go back to school?
- Should we take out a Home Equity Line of Credit to pay for ongoing home repairs? We need to replace our septic tank (which will be circa $4,800) in the near future. The tank is functioning properly right now, but the inspection noted cracks and the tank is starting to bow.
- Should I continue to withdraw the minimum required distribution annually from my inherited IRA account or should I reinvest this money?
Please help Mrs. Frugalwoods and Frugalwoods Nation! I could really use your sage advice. This is probably sounding more like Dear Abbey and I can’t wait to hear from you all!
Mrs. Frugalwoods’ Recommendations
I am proud of Sally for pulling all of this information together and for putting herself out there. It’s not easy to ask for help and it’s doubly hard to ask for financial help! I am always in awe of the bravery (and organization) of Case Study subjects and commend Sally heartily.
She is doing an excellent job of thinking critically about their lives and her desire to make actionable changes in order to create a happier future. Sally is already on the right track in many, many ways and I think that with a few tweaks she’ll be in even better shape.
It’s Not All About The Money
I think that the nexus of Sally’s questions today aren’t really about money at all. In reading through her case, it strikes me that she is primarily grappling with how to create a fulfilling life. She’s unhappy with where she lives, with her home, and with her current job. At the same time, she has articulated passions in other areas that’s she’s actively exploring through both her Etsy shop and her volunteer work. I get the sense that she’s been trying to achieve deeper fulfillment through these extracurriculars, but that they’re not cutting it anymore. Sally wants to live in a place she loves and do work she loves. While money is part of this process–and money can certainly help you achieve some of these goals–money in itself won’t make you happy.
I encourage Sally and Harry to spend time examining where they want to be in the future and considering what they think would bring them happiness. I will go through all of her specific questions, but I really want Sally to take this opportunity to do a broad examination of her life. One avenue for starting that conversation is to follow the guidelines I have in this post: How I Figured Out What I Want To Do With My Life (And How You Can Too!).
Moving To Find Happiness
I’ve followed Sally’s pattern of moving to a new town and hope, hope, hoping that a new job (in the same field) will make me happier. In fact, I did it four times before finally landing on the right place (rural Vermont) and the right profession (writer). So, uh, yeah, you could say I have some experience with this cycle of trying to achieve happiness through relocating and new-jobbing.
Given this, I will caution Sally that her desire to move back to Pennsylvania might not deliver the euphoria she’s seeking. On the other hand, since she and Harry have experience living there and thus have a sense of what they’re going back to, they just might find true happiness. I moved to Cambridge, MA twice and went back to THE SAME ORGANIZATION in the same department TWICE before realizing that I wanted to work for myself as a writer. So, again, I really do feel for where Sally is coming from here. If she and Harry aren’t happy in Connecticut, then I agree a change is in order.
Selling Their House?
Sally has identified a situation that’s likely going to help them out in the long term: their house is too big and too expensive. Housing is the largest expense most of us have and realizing you’re spending above your means and wanting to live smaller is commendable!
In general, the housing market is good right now and since Sally noted that their home is in a desirable school district, I’m wondering why it hasn’t sold and if perhaps it’s not priced appropriately? I’d be curious to know if their real estate agent has offered any specific insights into why the house isn’t selling. If there are specific fixes/improvements that the agent deems important to making a sale, then Sally and Harry very well might need to make them. Also, since it seems likely a family with kids would want to purchase their home given its size and school district (and they might not be inclined to move during the school year), I wonder if they’ve considered taking it off the market for the winter, doing any recommended improvements, and then re-listing it in the spring when the market heats up again?
It sounds like Sally and Harry might lose money on this sale, but, if they don’t want to live there and are losing money to home maintence every month, then this might just be a bitter pill they’ll need to swallow. In general, I think this a reinforcement of the idea that you shouldn’t buy a home unless you’re very certain you’ll be staying there for a number of years. But aside from this, a big question I have is where Sally and Harry plan to go once they do sell their home? As Sally noted, renting can be extremely challenging (if not impossible) with pets–and especially with multiple pets–although she’s also a bit hesitant to buy again. While they seem resolute in their decision to sell their house, having a contingency plan for their next home is an important part of the process, which brings me to Sally’s question of…
Should They Move Back To PA?
I really can’t answer this for Sally and Harry as there’s no slam-dunk right (or wrong) answer. However, if they’re unhappy in CT and identified that they were in fact happier in PA, then why not? They’re selling their house anyway and so will already be incurring moving costs and hassle (which are not insignificant). While there a lot of intangibles involved in this decision, there are some concrete questions Sally and Harry can explore:
- Would their job prospects (and salaries) be better in Pennsylvania?
- Do they know what neighborhood they’d like to live in?
- Could they reconcile Harry’s desire for some land with Sally’s desire to rent?
- Would renting with the pets be feasible?
- Could they get by with one car (and thus reduce a lot of their car maintence and gasoline expenses)?
All of these considerations also call up Sally’s pressing desire to change careers…
Should Sally Pursue Veterinary Medicine Or A Science Degree?
My knee-jerk reaction to this question is a solid no, based on the expense and time and unpredictability of the job market. However, I’m also ALL FOR people pursuing their passions! And so, my suggestions are more along the lines of getting into a vet-adjacent career as opposed to going whole hog on a veterinary medicine degree. A few thoughts along those lines:
- What about going to a community college for a vet tech program? This would be shorter, less expensive, and would still enable Sally to explore whether or not she loves veterinary medicine enough to become a veterinarian. It might be a way to dip her toes into the profession without the full expense and time commitment. I realize the salary would likely be lower, but the degree would also be cheaper.
- I encourage Sally to heavily research the profession and the likelihood of getting a job after graduating, etc.
I’m not saying that going to veterinary school is a bad thing–it’s not–but it will entail a good deal of time and money before Sally would be able to enter the job market as a vet. And at present, there’s no way she and Harry can subsist on Harry’s income alone, especially with the added expense of tuition. My feelings on a science-related degree are similar.
Sally Should Leverage Her Work Experience And Master’s Degree
Overall, I understand that Sally wants to change careers (I’m a career-changer myself!), but I’m not convinced that she needs to go back to school in order to do so because… she has a master’s degree in public administration and loads of experience in this field!
I strongly encourage Sally to leverage both of these things in making her career change. I think Sally is discounting her professional prowess here. I also have a master’s degree in public administration and worked for ten years at different nonprofit organizations, primarily in major gifts fundraising. In my experience, a program-specific degree or background is not a pre-requisite. What is a pre-requisite is robust experience in the field, which Sally has. She’s worked at not only her full-time job with the United Way, but also with the Boys & Girls Club! Her specialty seems to me like something that could indeed translate to an environmental nonprofit or an animal-related organization. I advise Sally to start combing through job postings in PA for positions of a similar level to her current role at nonprofits that she would enjoy working for. I imagine she’s already done this and so, if she’s serious about moving to PA and changing jobs, I encourage her to start applying. Sally is a nonprofit professional and she has the experience and the education to hop to another organization with ease (in my opinion). Don’t discount your credentials, Sally!
And a note on fundraising: I know that Sally said she’s not interested in working as a fundraiser, but, as a former fundraiser, I encourage her to at least peruse job postings because a lot of what you do as a fundraiser is talk and write about the mission of the organization. And if it’s an organization she’s deeply passionate about, I think she just might enjoy talking and writing about it for similarly-minded donors.
Plus, taking a job at a nonprofit whose mission aligns with her personal interest areas would be a relatively easy and inexpensive next step. She could see if she enjoys doing program evaluations for, say, an environmental nonprofit. Or she could test the waters in fundraising for the Humane Society or ASPCA. Or any number of other potential jobs! This would be a much cheaper, much less dramatic change than leaping into vet school. If after a year or so she finds that her passion is really in medically treating animals, then she could reassess.
$$$Money, Money, Money$$$
Alrighty, it’s time we delve into Harry and Sally’s finances. First of all, they are doing a lot of things right and I commend them!!! Second of all, there are a few minor edits I suggest:
1) Pay Off The Credit Card NOW
Sally and Harry are carrying $3,720 in credit card debt on a card with a 9.9% interest rate. This should be paid off immediately. ASAP. Like before you even finish reading this. How? With some of the money that’s currently invested in their brokerage account through Vanguard. I commend Sally for opening up a low-fee index fund investment account (WOO HOO!!!!!) as this is, in my non-financial-professional opinion, the best way to DIY invest. However, EVERYONE WRITE THIS DOWN:
Do not invest while carrying high-interest debt
There’s no reason for Sally to pay the interest on the credit card while she has a whopping $45K hanging out in the stock market. Yes, investing is the longterm path to financial stability and wealth, but you’ve got to pay off high-interest debt first because you’re losing money in interest every month. The stock market is very unlikely to return a rate higher than her current interest rate on the credit card, so there’s no reason to have that debt.
2) Build Up That Emergency Fund
Secondly, Sally and Harry have a decent emergency fund, but at $9,146 it’s clearly not enough. Their current monthly spending is $4,698, which means their emergency fund wouldn’t cover them for a full two months.
Without an emergency fund to handle the unforeseen–but entirely predictable–“emergencies” of life, such as a car breakdown, a roof repair, or a job loss, you’re at constant risk of sliding even further into debt. An emergency fund serves as your buffer against financial catastrophe and is a mandatory part of everyone’s finances. Yes, everyone!
An emergency fund is typically three to six months’ worth of your expenses held in an easily accessible checking or savings account. At their current rate of spending, that would be $14,094 to $28,188. However, if they’re able to decrease their monthly spending, they can have a smaller emergency fund. The less you spend, the less you need to save.
In light of this, I think it would be wise for Sally to liquidate more of their VTSAX account in order to properly fund their emergency fund. Again, investing is 100% what you want to do for the longterm, but it can’t come at the detriment of your short-term financial security.
3) Do Not Get A HELOC
Sally asked if she and Harry should take out a Home Equity Line Of Credit (HELOC) in order to pay for ongoing repairs on their home and my advice here is an unequivocal no. Since they have money (currently in that VTSAX account), there’s no reason to take on what amounts to another loan and more debt. Instead, I suggest they use money from the brokerage account (by selling stock) in order to pay for needed repairs. They should stop putting repairs on the credit card and start paying for them with cash from their formerly invested funds.
4) Invest Again
Once they’d paid off their credit card, built up a proper emergency fund, and paid for all needed home repairs, they should absolutely go back to investing in VTSAX. Sally was spot on in her decision to open a low-fee index fund account and she can stay this course once the more pressing financial issues in her life are dispensed with.
Sally’s Inherited IRA
I first want to note that I’m very sorry that Sally lost her father. I can’t imagine the pain of losing a parent and she has my deepest sympathies and condolences.
Sally’s inherited IRA boosts her prospects right now and is what’s keeping her and Harry afloat and out of deeper debt. She fully realizes this and makes note of that and so I’m not telling her anything new. Sally asked if she should re-invest the annual distribution from the IRA and my advice is very similar to what I wrote above.
Yes, of course, it’s always good to invest your money, but you have to be in a position to responsibly do so. Namely, you’ve got to have no high-interest debt (I don’t include a mortgage here) and a proper emergency fund saved up. The inherited IRA is essentially part of Sally’s income and I don’t think she necessarily needs to consider it in any other light. She should spend it when she needs to and invest it when she’s able to. I don’t have any personal experience with inheritances or inherited IRAs, so I’m hoping that readers with this experience will chime in!
Sally is a superb expense tracker! She’s been using YNAB (You Need A Budget) and it shows! I know she’s thorough because what she’s given us are the annual averages for each category, which is the only way to truly represent what you spend. I share my expenses with you all every month and, as anyone who reads regularly knows, they vary WILDLY from month to month.
Looking at just one month of spending DOES NOT give you the full picture of your true annual spending since we buy different things every month (and in different quantities!). Plus, one month’s spending wouldn’t reflect stuff like Sally’s home repairs and my recent purchase of an electric water heater. The only way to truly know what you spend in a year is to track every single month for many years. This is why I use and recommend Personal Capital for the task of tracking expenses–I find it a lot easier to automate and track through their website than writing it all down myself. However you do it, financial management starts with knowing what you spend. If you’d like to know more about how Personal Capital works, check out my full review.
Savings Accounts Side Note
One of the easiest ways to optimize your money is to keep it in a high-interest savings account. With these accounts, interest works in YOUR favor (as opposed to the interest rates on debt, which work against you). Having money in a no (or low) interest savings account is a waste of resources because your money is sitting there doing nothing. Don’t let your money be lazy! Make it work for you! And now, enjoy some explanatory math:
- Let’s say you have $5,000 in a savings account that earns 0% interest. In a year’s time, your $5,000 will still be… $5,000.
- Let’s say you instead put that $5,000 into an American Express Personal Savings account that–as of this writing–earns 1.70% in interest. In one year, your $5,000 will have increased to $5,085.67. That means you earned $85.67 just by having your money in a high-interest account.
And you didn’t have to do anything! I’m a big fan of earning money while doing nothing. I mean, is anybody not a fan of that? Apparently so, because anyone who uses a low (or no) interest savings account is NOT making money while doing nothing. Don’t be that person. Be the person who earns money while sleeping. Rack up the interest and prosper. More about high-interest savings accounts, as well as the ones I recommend, here: The Best High Interest Rate Online Savings Accounts.
All that to say, HUGE CONGRATS to Sally for having a thorough handle on what they spend every month. Now, let’s see if we can identify some areas for savings.
In every single Case Study, I like to point out that what you choose to save or not save is a very personal decision. Cutting every last expense is NOT the right answer for everyone and I am NOT an advocate for making yourself miserable in the process of achieving financial stability. I AM an advocate for values-based, goal-oriented spending. I think it’s important to assess whether all of your expenses bring you fulfillment and a good return on your investment.
I think it’s also important to question if your rate of savings will help you to achieve your long-term goals. But what you spend on? That’s a very personal choice and one that you have to make for yourself. My job is to point out areas where you might be able to save, but only you can decide if that level of savings is right for you. If you’re struggling with where to save more and how to map out a longterm financial plan, I encourage you to take my free 31-day Uber Frugal Month Challenge.
The primary issue with Sally and Harry’s spending right now is that it almost outstrips their income. They’re spending $4,698 per month, but their monthly net income (without Sally’s IRA inheritance) is $4,765 (see spreadsheet below).
|Sally’s Full-Time Job||$3,964|
|Harry’s Full-Time Job||$460||After taxes, excluding time and a half for any overtime|
|Sally’s Summer Job||$230|
|Side Hustles||$111||Average monthly sales from Amazon, eBay, and Etsy|
|Monthly Income (minus inheritance):||$4,765|
Sally noted that prior to receiving the inheritance, she and Harry were living paycheck to paycheck (or beyond) and that they cycled in and out of debt on a repeated basis. However, with the inheritance distribution, they are solvent and able to save every month. It’s not necessarily a bad financial decision to spend the inheritance distribution every month (as opposed to reinvesting it), but it’s not a recipe for the longterm financial stability and flexibility Sally noted she craves. With the inheritance added in, they are essentially treading water financially. They won’t be in debt, but they won’t be saving at a remarkable rate either.
At the same time, Sally is keenly aware of their two largest expenses–their mortgage and home repairs–and is actively trying to sell the house. Selling the house would dramatically alter their monthly spending (assuming they found somewhere much cheaper to live) and might make all other expense reductions moot. But, since they haven’t sold the house quite yet, we’ll proceed with analyzing the expenses we can control right now.
Here are some areas where Sally and Harry could consider reducing their spending:
- At $300 per category, both car repairs and gas for the cars stood out to me as pretty high line items. If Sally and Harry are able to sell their home and perhaps live closer to their jobs, this would be an area ripe for reduction–especially if they were in a more urban environment and able to get by with just one car.
- $275 for pet expenses seems reasonable for four animals, but I wonder if there might be any opportunities for savings here? I’m not sure what foods they eat, but I recommend researching generic versions (I used to get grain-free kibble from Costco, which was a generic version of Taste Of The Wild). Additionally, if Sally and Harry could insource dog grooming, that could be a few dollars saved.
- Utilities seems high at $250, but then again, they have a large, older home, so these expenses might be unavoidable. If there are energy-saving techniques to implement (lowered heat and less AC for example) or any weather-proofing to increase insulation, this might help them reduce these bills.
- At $100, the restaurants category isn’t terribly high, but it’s also one that could be easily eliminated.
- Then we get into the drips and drabs of a budget that all seem like very small amounts on their own, but add up over time. I made a spreadsheet because I heart them:
|Travel||$70||Includes airfare, parking and EZ-Pass, Airbnb/hotel (not food or entertainment)|
|Clothing/Shoes||$50||Hard well water is turning my colored clothes white. Does anyone have a solution?|
|Online Services||$37||Harry’s music/sports betting. Grr…|
|Service Charges/Fees||$30||Amazon Prime membership (to be cancelled) and YNAB membership also costs associated with sales from Amazon, eBay, and Etsy|
|Postage & Shipping||$25||Largely costs associated with sales from Amazon, eBay, and Etsy.|
|Gifts||$19||Birthdays/Christmas gifts for family|
At the end of the day, $384 isn’t huge money, but it’s not nothing either. It’s $4,608 a year, which is a tidy sum. Making the decision to reduce their spending would give Harry and Sally more flexibility as they make plans to move and change careers. Of course the other option is to increase…
The other side of the equation is income!! The more you make and the less you spend, the higher your savings rate will be. That being said, Sally is already hustling hard with a whopping three jobs!! I am seriously impressed! Plus she volunteers. Way to go, Sally! I don’t know that there’s much room for Sally to earn more (unless she finds a new position with a higher salary), but I do wonder if Harry could increase his income? Sally mentioned that if they move back to PA, Harry would be able to get his old job back and so I wonder if that might pay more than his current position? If so, that would certainly be a pro in the “move to PA” column.
In sum, I advise Sally and Harry to do the following:
- Liquidate enough of their VTSAX fund to:
- Pay off the credit card in full
- Build up their emergency fund to 3-6 months’ worth of expenses
- Pay cash for needed home repairs
- Work with their real estate agent on a game plan for getting their home sold. What does it need? New paint? A new septic tank? Consider taking the house off the market for the winter and performing needed repairs/updates and re-listing in the spring.
- Spend time discussing their future together. Where would they love to live? What type of lifestyle (urban, suburban, rural) would most nearly meet their goals?
- Decide where they’ll move when their current house sells.
- Job search in Pennsylvania and make a move!
Ok Frugalwoods nation, what advice would you give to Sally? 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 (firstname.lastname@example.org) your brief story and we’ll talk.
Update from Sally on 1/8/2019:
Here’s what’s happened… We took the house off the market in September and ended our contract with our realtor (also a former co-worker). In October, I contacted another realtor in our area and after looking at the house she recommended that we re-list it in the spring – which we plan to do. She also suggested painting the brick fireplace white and replacing the gold fireplace insert with a black one – which we did in November with the help of my father-in-law. I also went to the emergency room (not to worry all is well). I just got my bill – $2,300 after insurance that I plan to pay off in 12 installments (0% interest) through my HSA. In December, we replaced the septic tank.
Our realtor referred us to another local business who replaced the tank for $4,300 ($500 less than what we were quoted by the first company). By December, our credit card balance had risen to $5,000 in part from having to fix the heat in Harry’s car that cost $1,800. So when we got the Required Minimum Distribution for $8,000 (after tax) we paid off our credit card in full and put $3,000 in savings. It feels really good to be out of debt!
In addition, I am putting $200 into our savings account/emergency fund (up from $100) every month; $100 into my HSA to help pay for my medial bill (see above); and $80 into Qapital to save for future travel. Also note, at the time I wrote our case study, Harry had just started a new job and I used a calculator to estimate his take home pay after tax. It was incorrect. His average monthly salary is $915 (not $460).
Finally, I wanted to thank Frugalwoods Nation for weighing in on whether or not I should go to veterinary school. I was surprised at the resounding “no” from the peanut gallery as it were and I was disheartened at first, but after some thought I have decided not to pursue a career change. I have another year left until my retirement savings are vested with my current employer and then I’ll reevaluate either staying put or changing employers within the non-profit field. Right now, my goal is early retirement!