Reader Case Study: We Just Moved In Atlanta With Four Kids And We Might Want To Move Again!
Naomi, her husband Jon, and their four children recently sold their home in an Atlanta suburb and moved to a new home, also in an Atlanta suburb. Case closed, right? Not quite! Hoping for a lower cost of living, a smaller home, proximity to grandparents, and more diversity, Naomi and Jon are grappling with the idea of moving again. Let’s help them iron this out in today’s Reader Case Study!
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: From Brooklyn to LA With a Baby (the FrugalBrooklyn’s story, published February 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 Naomi, this month’s Case Study subject, take it from here!
Hello Mrs. Frugalwoods and Frugalwoods nation! I’m Naomi, I’m 37 and my husband Jon (age 39) and I have four children ages 3, 4, 11, and 13. We live in a suburb of Atlanta, Georgia. The question we’re coming to you for advice about is our recent move, which might not have been the best idea.
In March 2018, we sold our home with the intention of avoiding major road construction that was slated for our neighborhood. We planned to move to a less expensive area that’s closer to my in-laws, who live an hour away. Our house sold quickly but it was harder for us to decide to leave our highly-rated school district than we’d thought it would be. It was also a challenge looking at homes for sale in another area with two little kids in tow, and two older kids in school, while navigating Atlanta area traffic.
We ended up purchasing a more expensive home in a neighborhood we’ve always admired, that’s actually only a mile away from the house we’d just sold. On the positive side, the road construction was completed after years of hassles. I’ll admit I kind of rushed the decision to purchase this home in order to avoid moving twice. Plus, this home is located in the same school district and so our children didn’t have to change schools.
I immediately regretted the decision to “upgrade” and stay in our current area, because we only had $123K remaining on our former mortgage and it would’ve been paid off in 11 years. Despite putting $150K down on our new home, this mortgage is more than double that amount. We have $257K remaining, and it’s a 30-year mortgage, with a slightly higher interest rate. Our home owner’s association (HOA) and utility bills are higher as well. Given all of this, I am seriously considering having us move again in order to more nearly meet our goals of a smaller mortgage, a more diverse neighborhood, and proximity to the grandparents. But, I hate the idea of moving again in such a short time period!
My husband, on the other hand, is fine with the idea of moving again to save money or staying put and just paying down the mortgage more aggressively as our incomes increase. He is a very joyful, adventurous person and can be content almost anywhere and under almost any circumstances. I have a strong–perhaps impatient–desire to be debt-free (and mortgage-free), sooner rather than later.
A Desire for More Diversity
I should add that I also wanted to move to a more diverse area, as we are an extreme minority (~1%) in this neighborhood, despite being within an hour of metro Atlanta. Additionally, the type of work I hope to do in the future intersects with diversity–socioeconomic diversity and otherwise–and issues of policy and education reform. These are the main reasons why I went to law school. In light of this, living among or at least closer to diverse populations would be practical, should I pursue my intended career field of a public interest attorney. Realistically, I may end up simply writing about these issues from afar if we stay put, and doing mainly research/computer-based work from home, but I would like to be more directly involved in the community at some point.
While Jon and I are open to living almost anywhere in the world, realistically we will probably stay in Atlanta for the duration, as it’s where we’re from, where our extended families live, and we like the weather.
Jon and Naomi’s Careers
Jon works from home 100% of the time as a Senior Project Manager in Financial Technologies. I’m currently a stay-at-home mom to our four children and I help lead a women’s Bible study twice a week (our youngest goes with me to interact with other little ones). In addition to my law degree, I have a BA in Political Science, and a minor in Spanish (for which I completed a semester study abroad in Spain. I’d like to be back in the workforce by the fall of 2019, which is when our youngest will start preschool. I haven’t figured out exactly where I want to work, although I have a few ideas and options. I expect to earn around $2K/month working essentially part-time, mostly from home and largely around our kids’ school schedules. Given this and our plans to continue working from home, a commute is–fortunately–not something we need to think about with regards to moving.
Jon and I have had an income of well under $80K for most of our 14.5 years of marriage. We got married my second year of law school, and had our first child at the end of following year. We moved to another state the day after I graduated from law school and I stayed home with the baby. Then, we had another baby two years later, so I’ve never actually practiced law, despite earning a law degree. Over the years, I’ve worked part-time as a preschool teacher and watched other children in our home in order to help out financially. I currently don’t earn an income and our youngest child is at home with me.
After a few years of working in his degree field of mechanical engineering, Jon worked full-time in youth ministry for about a year with a $40K salary. Then, we returned to Georgia and he began working in the field of finance IT, which is not related to his degree, and so he started over with an entry-level salary of $46K. I’m sharing this background to explain our lower savings accumulation, as there were years when we contributed nothing or very little to retirement savings because we simply couldn’t afford to.
Frugal By Nature
With the exception of our large food budget, we live pretty frugally. We have no car payments because we’ve bought used vehicles for cash over the years, and we have no interest-bearing credit card debt. I buy clothing at thrift stores and consignment shops, gladly accept hand-me-downs, and the rare splurge item usually comes from Target’s clearance rack. Nearly every piece of furniture in our house was purchased secondhand. We take small road trip vacations, if we go anywhere at all. When our income was lower in the past, we didn’t eat out at all. I have no desire to change much regarding these frugal ways as I enjoy getting a good deal and recycling/reusing items, so a salary increase wouldn’t change these habits.
Jon and Naomi’s Home Buying and Selling Adventures
We bought our current home in March 2018 for $410K, using $150K of the equity from the sale of our previous home as a down payment, leaving us initially with a $260K mortgage (30 years fixed at 4.625%). I think we could break even (or close to it) on the sale, if we were to sell in the Spring/Summer of 2019. The home is located in a sought-after neighborhood and school district and our purchase price was under value with a little built-in equity. If we were to sell in this short time frame, we’d aim to walk away with what we put down on the home ($150K).
The house is 4,200+ square feet with 5 bedrooms, 4.5 baths, and a finished basement with a kitchenette. Our previous home was 2,700 square feet and it was a foreclosure when we bought it. It was located in an older, smaller neighborhood with no amenities. We lived there for seven years; however, most of our close friends have moved away from that area in the last few years, so we don’t have strong personal ties to the area, with the possible exception of our teenager’s friends.
We bought our new home because we liked the neighborhood and its amenities (pool, tennis, etc) and the fact that there are more children for our kids to play with. Additionally, this house has a more comfortable workspace for Jon. I also wanted to leave open the possibility of a close relative and their child having a place to stay with us if needed, although that didn’t end up happening. Despite the expensive purchase price, it was actually at the lower end for this area.
The Current Conundrum
Now—after moving into this new home just eight months ago—we’re considering going back to our original plan of leaving this more affluent area and “cashing in our chips,” so to speak, in order to buy a smaller home in a less expensive area. To make house hunting less challenging this time, we might wait until summer to sell our current home and temporarily live with the grandparents during our search. We would then target buying a home in the price range of $150K-$300K, with either no mortgage (that’d be my debt-free dream!) or a 15-year mortgage that we’d pay off sooner with larger monthly payments. We would focus our search in the area that’s close to the grandparents.
The grandparents that we would move closer to would not become our childcare, but they would be able to see our kids more often if we lived closer to them. They both lead very active lives with work and other personal commitments, and now that our younger two are a bit older, the desire for childcare help isn’t as strong as it was when this idea first gained traction a few years ago. Still, it would be nice to be closer to them as we all enjoy one another’s company. Plus, moving again in order to eliminate or lower our mortgage would allow us to become debt-free before our oldest leaves for college and allow us to better help pay for her education, as needed. I would prefer a smaller home anyway, for ease of cleaning/maintaining, but we do have a large family, so I’m trying to be realistic with just how small we can go. We’ve looked into downsizing in our current area, but smaller, less expensive homes are rare here.
Pro and Con Outline of Not Moving vs. Moving
Pros of NOT moving:
- Our schools are considered excellent.
- The area is very affluent, which means that everything is new or well-maintained, well-manicured, convenient, and opportunities abound. Social capital is frankly higher here and friends and acquaintances can offer jobs and other resources more easily; for example, I’ve been offered tutoring or teaching jobs while at my kids’ school, while shopping at the grocery store, even while just pumping gas.
- The ease of continuing our current routines and schools.
- Jon now has an office in our finished basement, which has heat, and a door he can close for privacy. In our old house, he worked in the unfinished, unheated, basement. Our next house might not have as much room or as many creature comforts, but we think could figure it out.
- The kids wouldn’t need to change school districts.
Cons of NOT Moving:
- Our cost of living is higher.
- The area is very affluent, which means there’s an assumption that everyone can afford everything or wants to buy all the things. For example, school field trips are much more expensive than your average field trip (think Disney World). Our kids sometimes ask for extravagant things that their peers have as if these were typical expenses, such as going on a spring break trip to South Africa.
- There’s an extreme lack of diversity, both socioeconomic and otherwise.
- Our increased cost of living might push me into working more than we’d originally planned and in types of work that I might not prefer (read: less flexible and less family friendly). Ideally, we’d like for me to continue to be available during the work day for all the various things our four children require (sick days, regular doctor and dentist visits, school club activities, school holidays, field trip chaperoning, homework help, meal prep, grocery shopping, etc… as every parent knows, the list just goes on and on).
Pros of Moving:
- The schools are well-rated in the area we’re considering moving to, so there wouldn’t be a significant change in education in terms of academic quality, although the kids would be changing schools.
- There are smaller, less expensive homes readily available.
- We would live closer to the grandparents
- There is socioeconomic diversity, as well as racial/ethnic diversity, which we value for many reasons, one being the type of work I may do in the future (with under-served communities). Additionally, this would give our children a more realistic view of the world around them and a more representative view of themselves.
Cons of Moving:
- The hassle of moving and selling again so soon with four kids (although at least some stuff is still in moving boxes, ha!).
- The area we’re considering has more traffic, but, we both work from home for the most part, so that’s not a big deal.
- Our oldest child is somewhat attached to our current location (her school, her new room, the neighborhood, her friends) and would be sad/annoyed to leave.
- The kids would have to change school districts.
Where Naomi and Jon Want To Be in Ten Years:
- Jon would like to be in Senior Management with his current company.
- I’d like to do something that really makes a difference in someone’s life. Serving at an underprivileged school or helping at a like-minded non-profit organization. I really hate that your zip code can determine your lot in life, what schools you go to, the quality of your education, college prospects, and job opportunities, I’d like to do something to impact that, big or small. I haven’t given a “career” a lot of thought lately; I’ve been so focused on the “move or stay” question, but I realize it all goes together. As we still have young children that we spend a lot of time with, and I’ve never practiced law (other than some brief internships in law school), I’m not sure attorney is a career path I’d pursue in the near future, if ever, but who knows. I’ve only thought a few years down the road, not ten, with regard to my career. Since I’d like to work a school year schedule, spending the breaks and summers with our kids, my most favorable work options (I think) are the following:
- freelance writing/blogging
- virtual teaching (cyber academies or VIPKID)
- telecommuting customer service type job (least favorite but flexible)
- a family success liaison or child advocate (though not sure if summers would be off)
- Debt-free! Mortgage-free!
- 15% going to retirement.
- Living generously.
- Modest college or future funds for the kids.
- While we don’t have any interest in increasing our regular expenses, we would like to add some travel into our lives, now that no one is in diapers, naps are less needed, and before our older two kids leave for college.
- We’d also like to help pay for college for all four of our children, give more generously to those in need, and perhaps add in some small hobby-type expenses.
- Jon plays basketball on the weekends, but would like to join a league and participate in triathlons and other races.
- We also spend a lot of time at home, and would like to interact more with our community in ways that honor God.
- Hobby-wise, I wouldn’t mind taking an exercise class at a gym, growing a good-sized garden, and cooking more elaborate meals to share with family, friends, and even strangers. I’ve also contemplated writing a book. All of these “extra” activities (in my mind) require chunks of free time, which would mean either no work, or very flexible part-time work.
Naomi and Jon’s Finances
|Gross Income (Jon)||$9,500||$114K salary, divided by 12 months. Jon also receives a 12% annual bonus, but we don’t include that here because we prefer not to depend on it.|
|Statutory deductions||-$1,198||Federal and state taxes, Social Security, Medicare|
|Health, dental, and vision insurance||-$285|
|Health Savings Account (HSA)||-$642||We contribute the maximum amount to our HSA right now in order to pay for an upcoming bill for an ER visit earlier this year as well as braces for our older two kids. This contribution will likely be cut in half starting in January 2019.|
|Monthly net take home pay after the above deductions:||$6,805|
|Annual net income:||$81,660|
|Mortgage||$1,776||Includes property taxes and home owner’s insurance. 30 year, fixed at 4.625%, would like to change to 15 year (if we stay here), once I begin working or income increases.|
|Groceries and Household Supplies||$1,060||For our family of 6. Includes lunch money for 2 kids as well as household products.|
|Tithe||$916||Non-negotiable. We tithe (give) as part of our faith.|
|Clothing/Shopping/School activity fees/misc.||$300|
|Auto Maintenance/Repairs||$248||We don’t spend this amount every month, but this is what we budget/save for this category.|
|Naomi’s student loan payment||$216||1.625% interest rate. This payment increases gradually every two years. The original total on this loan was $58K.|
|Home Maintenance/Repairs||$213||We don’t spend this amount every month, but this is what we budget/save for this category.|
|Gifts||$186||For birthdays and Christmas|
|Gasoline/fuel for minivan||$150|
|Refrigerator payment plan||$128||0% interest, pay off date is April 2019 (the house we bought had no refrigerator)|
|Missionary Support||$100||We give monthly to friends in a foreign mission field and will continue to do so until they return in a few years.|
|Cell phones (through Verizon)||$66||Three iPhones. The actual bill is $146, but $80 is reimbursed by Jon’s work. Our teen “pays” for her portion of this bill by babysitting her younger siblings three hours per month.|
|Jon’s student loan payment||$61||1.75% interest rate. It will be paid off in March 2019. The original total on this loan was $31K.|
|Jon’s personal money||$50|
|Naomi’s personal money||$50|
|Internet (through Comcast)||$25||The actual bill is $70, but $45 is reimbursed through Jon’s work.|
|Car tag and registration||$14|
|Total Monthly Expenses:||$6,553|
|Total Annual Expenses:||$78,636|
|Difference Between Monthly Income and Monthly Expenses:||$252|
|Home||$180,000||Estimate of equity based on down payment of $150K|
|Emergency fund||$27,500||Held in a savings account with 2.01% interest|
|Mortgage||$257,000||30-year mortgage fixed at a 4.625% interest rate. I’d like to change this to a 15-year (if we don’t move) once I begin working or if Jon’s income increases. This includes property taxes and home owner’s insurance.|
|Naomi’s Student Loan||$44,900||1.625% interest rate. I currently pay $216 per month and this payment increases gradually every two years. The original total on this loan was $58K.|
|Jon’s Student Loan||$181||1.75% interest rate. He currently pays $61 per month. It will be paid off in March 2019. The original total on this loan was $31K.|
|Refrigerator Payment Plan||$513||0% interest; we have four more payments of $128; pay off date is April 2019 (the house we bought had no refrigerator)|
|2004 Honda Odyssey Minivan||$3,000||We own our car outright. We only have one vehicle, but since we’re both home a lot, it works out well for us.|
Naomi’s Questions For You:
- Should we move and aim for quicker debt freedom and a more diverse neighborhood?
- Should we stay put and enjoy the many things our area has to offer and pay off our mortgage at the usual speed? Diversity would simply have to be sought out more intentionally and less frequently.
- Jon’s position at the company he works for changed last year, and with the new position comes an annual performance bonus. It’s not guaranteed, so we don’t count it in our budget, but he did receive it this year, and will likely continue to receive it. This year’s bonus was $11,702 (after taxes) and that amount didn’t cover the full year due to when he started his new position. In looking at our budget, what would you recommend we do with it? Pay down the mortgage, pay down the student loans, add to retirement, start college funds, or all of the above in some combination?
Mrs. Frugalwoods’ Recommendations
We have to start today with a tremendous round of applause for Naomi and Jon. They are crushing it! They have four children (I’m in awe as I can barely manage my two… ), they are in good financial shape, they are living in the city they want to live in, and they are pursuing lives they love! Way to go, you two!!!!! I have so much I want to highlight about what they’ve done right before we tackle Naomi’s questions, so I hope she’ll bear with me as I outline how awesome she is.
A+++++ On The Car
I am SO impressed with their fantastic decision to own just one car for a family of six in an area without public transportation (and I’m not just saying this because I also used to own and adore a Honda Odyssey Minivan). Hold on, I’m going to say that again, a little bit louder this time:
Naomi and Jon own ONE CAR for a family of SIX in the suburbs where there’s no public transportation.
That’s an impressive feat!!! And it’s saving them a BOATLOAD of money. Seriously, an entire boat of money just backed up to their savings account. Here’s the other reason why this is so excellent: it’s an older car that that bought used FOR CASH. Did everyone catch that? THEY DO NOT HAVE A CAR PAYMENT. And it’s not because they’re millionaires, it’s because they made a judicious decision to buy something they could afford to pay cash for and they don’t have plans to upgrade it.
I am willing to bet my Christmas Tree (which I really like, by the way) that their 2004 Honda Odyssey is one of the oldest/least flashy cars in their expensive neighborhood. It’s not easy to be in this position, but Naomi and Jon seem impervious to the insidious desire to keep up with the Joneses. They’re like– Joneses? Who cares!!! We’d rather be financially stable and have lots of time to spend with our children, thank you very much. You might think I’m talking an awful lot about a car here, but this is important, people. SO MANY FOLKS are saddled with one–or two–car payments that drain their budget every single month. Buying a new car is a horrendous idea and buying a car you can’t afford is a similarly horrendous idea (with the caveat that sometimes a person must have a car in order to get to work and doesn’t have the liquidity to buy in cash). But if you DO have the liquidity–or the option to WAIT and save up–you will put yourself miles ahead financially.
Here’s more on why buying (and keeping) used cars is such a great idea:
- Why We Buy Used Cars And You Should Too
- Why We Broke Down And Bought A Used Truck
- Our Frugal Solution To The All-Wheel Drive Conundrum
- Ode To An Old Car: Our Money-Saving Machine
To Move Or Not To Move
That is, indeed, the question. This is one of those questions that doesn’t have a clear right answer, so I can’t give Naomi and Jon a definitive response. But what I will say is that if they are considering this so soon after moving into a gorgeous home in a desirable neighborhood, they probably really want to move. And if that’s the case–if they dearly want to move–they should do it. They’re in good enough financial shape to swing it and, while it won’t be an immediate financial win, it might pan out for them in the long run.
Naomi has done the herculean job of outlining every possible pro and con of this move, which indicates that this is on her mind constantly. There’s no reason for Naomi and Jon to live somewhere that they don’t love–they don’t need to do so for jobs, for commutes, or for financial reasons. Naomi and Jon have made prudent financial choices over the years, which means they have the flexibility to take a bit of a bath on this sale.
From my perspective, Naomi wouldn’t be asking us about this if she didn’t truly want to do it. If she was content with their new home and felt settled there, the thought of moving again won’t even flit across her mind. But the idea is seeded and she is laboring over it. That level of pondering, I think, indicates that she wants to move. Yes, it’ll be a massive hassle, yes it’ll uproot the kids, and yes they might lose some money. But if it gets them into the home and the neighborhood they really love? They should go for it.
Truly, Truly Downsize
If they decide to make this move, they need to commit to a massive downsizing. In order for the finances to work out in the long run, they’d need to target homes that are dramatically less expensive than their current property. From a financial perspective, it wouldn’t be worth it to downsize to a home that’s say, $50K less expensive. But if they went for a home that’s $200K less expensive? They could be living Naomi’s debt-free dream sooner rather than later!
I get the sense that Jon and Naomi are a lot like me and my husband: the two of us could live in a very small space and be perfectly content. However. It’s not just the two of us or the two of them. Children have a way of transforming how you view, utilize, and prioritize space. In light of that, I encourage Jon and Naomi to outline how they’d fit their brood into a smaller house. Could the kids share rooms? Could Jon’s office be in the master bedroom? What other considerations do they need to take into account? Is having a guest room a priority? What about a play/rec room? The reality of children is that they require space and working from home also requires space. Since Mr. FW and I both work from home (something that Naomi and Jon are considering), we need two dedicated offices. Mr. FW’s is up in our master bedroom and mine is downstairs in a room behind our woodstove (this room doubles as a guest room too). Point being: there are ways to make it work in many different size homes, but Jon and Naomi are currently situated in a house that meets all of their bedroom and office space needs.
House Hunt In Advance
I feel Jon and Naomi’s pain on trying to house hunt with two little kids in tow, and so, I recommend they start perusing homes now. Go whenever they can–even if it’s just one or the other of them–and get a true read on the market in their desired neighborhood. How old are these homes? Would a lot of maintenance be required? How little can they spend and still get enough space for their family? If Jon and Naomi can visit some potential homes in their desired price range, I think that would go a long way in helping them make this decision. Looking at properties online is a good starting point, but seeing them in person allows you to visualize yourself living in a space. Be honest about where the kids and the offices will go.
Make A Move Before High School Starts
As a kid whose parents bent over backwards not to move while I was in high school, I want to strongly recommend that Jon and Naomi do the same. Sometimes, moving during high school is unavoidable, but Jon and Naomi can avoid it and so I suggest they do. Naomi mentioned that their thirteen-year-old would be annoyed to move, and I imagine those sentiments will only increase as she gets older. Ideally, the family would move during the summer so that the kids aren’t changing schools mid-year.
Identify Homes Before Selling
It sounds like Naomi and Jon sold their old home prior to purchasing their new home and then felt in a scramble to buy something. I don’t advise they buy a new home before selling their current home, but I do suggest that they get a really good idea of the types of homes they might buy. They don’t want to find themselves in this position again. Naomi has already identified that they could live with her in-laws after selling their current home and before purchasing a new home, which sounds like a great idea. Buying a house while rushed is not a wise plan and rarely results in getting exactly what you want and can afford. If Naomi’s in-laws are fine to host them for an unspecified amount of time, that seems ideal since they live in the new school district the kids would be attending. Naomi has already outlined this timeline and it makes sense:
- Sell their current home in late spring/summer 2019 (they’d want to ensure that the kids could finish out the school year in their current district)
- Move in with Jon’s parents
- Start the kids in their new school in fall 2019
- Naomi starts part-time work in fall 2019
- House hunt
- Buy a new home in fall 2019/winter 2020
A few other considerations:
- Would they need to put their belongings in storage while staying with Jon’s parents? How much would that cost per month?
- Would they pay Jon’s parents rent/utilities/food? I suggest they have a frank conversation ahead of time and iron out how this would be handled in addition to where everyone would sleep and work.
- Would Jon’s company reimburse him for a co-working space during this time period (if there’s not a good spot for him to work at his parents’ home)?
- Is it feasible for the family to move, buy a new home, and have Naomi start a new job all in the same time period? I’m not saying it’s not, I’m just saying that it’s a lot.
The Financial Angle
I can’t say that it’s a fabulous financial decision to sell a home so quickly after buying it. However, there’s also the sunk costs fallacy and the idea that if this isn’t where Naomi and Jon want to be, they shouldn’t stay. I’m not sure they’ll be able to break even on selling their home, but I don’t know anything about the Atlanta area housing market. With Realtor and transaction fees, it’s usually tough to break even when selling a home in such a short time frame.
That being said, if they commit to buying a vastly cheaper home (in the range of $150K), they could do just fine even if they lose some money in this sale. Run the numbers, have a Realtor come over to appraise the home, and do some serious house hunting in the desired new neighborhood to gauge what’s realistic from both a size and a price perspective.
Naomi and Jon’s Expenses
These two are already in the frugal category, so I don’t think we’ll find a lot of room to decrease their expenses. As Naomi has already identified, their real challenge is how much they spend on their mortgage every month, which could be yet another reason to go ahead and downsize. But it wouldn’t be a Frugalwoods Case Study without an expense perusal, so let’s take a peek.
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 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.
Ok, with that said, let’s take a look at potential savings for Naomi and Jon:
- Groceries and Household Supplies: $1,060. This sounds really high, but then again, this is to feed six people and manage the household needs for six people, so from that perspective, it actually sounds quite reasonable. Without knowing precisely what they buy in this category, it’s tough to say whether or not they could save. But, this could be a spot to reduce spending. If they feel there might be an opportunity to reduce spending in this category, I recommend the following posts for ideas:
- Clothing/Shopping/School activity fees/misc: $300. I always encourage people to do a bit of digging on any category that contains “miscellaneous.” It’s highly possible these are all mandatory expenses, but, if Jon and Naomi are hoping to reduce their spending, identifying some of the misc here might be helpful.
- Dining Out: $219. Not a deal-breaker for Jon and Naomi, but it is an area they could reduce or eliminate, depending on how quickly they want to reach debt freedom.
- Gifts: $186. This doesn’t sound high until you realize that it’s $2,232 per year on birthday and Christmas gifts. That being said, Naomi and Jon have four children. But, this seems pretty steep to me. I suggest taking a look at this category and identifying if gifts need to be restructured. For example, perhaps used gifts for the younger kids (that’s what I do) and activity or sport-specific gifts for older kids? Or perhaps whole family gifts such as a museum membership or a pool table? These are just random ideas I’m spouting, but the point it, there might be a real opportunity to both spend less and teach their kids about reducing consumerism and material needs.
- Vacation: $73. This isn’t a massive dollar amount, so I’m not really concerned, but I am pointing it out as a discretionary expense.
- Individual money for Jon and Naomi: $50 each ($100 total). Not a ton of money, but again, another discretionary expense that could be eliminated depending on how desperate they are for debt freedom.
Naomi and Jon aren’t in a desperate financial situation, so they’re fortunate that they don’t have to make these cuts to their spending. However, Naomi reiterated several times that she really wants to be debt-free. Given that, if they decided to reduce their grocery bill by $75, reduce the clothing/shopping/school activity fees/misc by $50, eliminate the $219 in dining out, reduce gifts by $100, eliminate vacation and personal money, they’d be able to save $617 more per month (which is $7,404 per year).
Again, I’m not saying that they have to or need to eliminate these expenses, but these are the discretionary categories as I see them.
Furthermore… Naomi and Jon are about to get a boost to their monthly savings in the form of the final payments on Jon’s student loan and their refrigerator! Those final payments are coming up in spring 2019 and, after they’re paid off, Naomi and Jon will save an extra $189 per month (also known as $2,268 per year)!
Furthermore… IF Jon and Naomi decide to move and IF they’re able to downsize and find a cheaper home, it’s highly likely they’ll be able to reduce their mortgage, spend less on utilities, and eliminate HOA fees, lawn care, and perhaps pest care too.
Ok so if they decided to save the outlined $617 per month and then we add in the $189 they’ll start saving once Jon’s student loan and the refrigerator are paid off, they’d be on track to save an additional $806 per month, which is also known as $9,672 per year.
This additional savings, coupled with a less expensive home (and cheaper utilities, no HOA, etc) would fast track Naomi and Jon to debt freedom in a very short amount of time. Then, they could start building up their retirement and college savings for their kids. Speaking of which, let’s discuss their…
A fancy way of saying “how you use your money.” I am thrilled to see Naomi and Jon’s healthy emergency fund! At $27,500, their emergency fund would cover just over four months worth of expenses for them, which is perfect. An emergency fund should be kept in an easily-accessible bank account, such as a checking or savings account (like Naomi and Jon have done), 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 crucial to track your expenses and know what you spend 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). 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.
Next up, I’m glad to see that Jon is contributing to his 401K and that the couple has an IRA. As Naomi noted, however, they could stand to beef up their retirement savings given their ages and the dollar amounts they currently have saved. To give Naomi and Jon a general sense on how much they should have saved for retirement at this stage, Fidelity has a helpful rule of thumb:
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
Given this, Naomi and Jon should have saved three times Jon’s gross salary (he’s 39). That’d be 3 x 114,000 = $342,000. While this might seem insurmountable right now, I’m not worried about Naomi and Jon. As Naomi outlined, Jon’s salary only recently increased to six figures and they are clearly adept at frugalizing and making it work. Plus, Naomi has her eye on reducing their monthly outlay while increasing their income. All that to say, while they do have some catching up to do–and I would recommend prioritizing their retirement savings–I’m also confident they’ll get there.
Now let’s tackle their debt. Naomi and Jon are carrying debt with very low (or no) interest rates, which is what we like to see if we see debt at all. I recommend they pay off Jon’s student loan and the refrigerator as scheduled this spring (no reason to accelerate these payments given the low interest rates). Next up is Naomi’s student loan of $44,900. Normally, I’d push for her to pay this off ASAP; however, the interest rate on this is a paltry 1.625%, which means I’m less concerned. I share Naomi’s aversion to debt, but she’s wise to see this interest rate for what it is: very low. Given how low it is, and how little they have in retirement and college savings, I’m going to recommend Naomi just continue to pay this off as scheduled–as long as that interest rate is fixed and won’t balloon in the future. If Jon and Naomi reduce their cost of living and make other cuts to their spending–and if Naomi goes back to work–they might have enough cash to wipe this debt out completely, which would be wonderful. But given their current asset allocations, I wouldn’t recommend accelerating payment here.
What To Do With Jon’s Bonus?
I LOVE this question because I LOVE that Jon and Naomi want to be thoughtful about this extra cash. They’re not going to blow it on a new car or clothes, they’re going to wisely allocate their resources. So, from that perspective, as long as they make a rational decision, there is no wrong answer. With money, the wrong answer is usually the un-considered, un-thoughtful, un-math based answer. And Jon and Naomi don’t roll that way.
At this point, I think that any extra money should be prioritized towards maxing out their retirement savings, as I discussed above.
As I mentioned, I wouldn’t necessarily prioritize paying off Naomi’s student loan. And I personally wouldn’t prioritize paying off their current mortgage at an accelerated rate. This debate is as old as the hills and people fall into one camp or another, but for what it’s worth, here are my thoughts:
- A paid-off house is a wonderful thing, but you can’t use a paid-off house to buy groceries or pay for health insurance if you’ve lost your a job (you might be able to get a Home Equity Line Of Credit, but that’s not a guarantee and certainly not if you’ve lost your jobs). A paid-off house is an illiquid asset (unless you’re able to sell it quickly, which is an unknown).
- There are opportunity costs to paying off a mortgage. Namely, you’re missing out on the potential investment returns you’d enjoy if your money was instead invested in the stock market. Mr. FW and I choose to hold mortgages on both our primary residence and our rental property because, mathematically, our money is better deployed in the stock market thanks to the average annual rate of return (7%) that you can expect after many decades of remaining invested in low-fee index funds. Essentially, money is better leveraged in the stock market than in a paid-off house.
- If you have a low fixed interest rate mortgage, then from a mathematical standpoint, I wouldn’t pay it off early. I view holding a mortgage–and having money properly invested in diversified assets (aka low-fee index funds)–to be a much less risky decision.
- A mortgage is an excellent hedge against inflation. Inflation is when money becomes less valuable and the neat thing about a mortgage is that it’s denominated in the dollars you originally paid for the house and so, over time, as inflation increases (which generally happens), the money you’re using to pay off your mortgage is “cheaper.” Essentially, it’s not bad to hold a mortgage and it’s actually a fine component of a diversified portfolio of assets. Paying off your mortgage to the detriment of investing is a lot like putting all of your eggs in one basket.
- It’s not that it’s a bad thing to pay off a house–it’s just that it comes at the expense of other opportunities to grow wealth. Many of us who are early retired/financially independent choose to hold mortgages–even though we could afford to pay them off tomorrow–for the above reasons. Bottom line: financial independence can happen with a mortgage; but it absolutely cannot happen without cash on hand.
However, if they were to get into a home with no mortgage, or a very small mortgage, and debt-freedom is their dream, they could easily funnel extra savings and Jon’s bonuses into paying off their mortgage.
Naomi also asked about saving for college for their kids and I’ll tell them what I tell everyone: you can take out loans to pay for college, but you cannot take out loans to fund your retirement. It’s very much a “put your own oxygen mask on first” type of situation. Parents need to ensure their own retirement is solid before starting to save for their kids’ higher education. However, since it seems very likely Naomi and Jon will have more discretionary money in the future, setting up 529s or other savings vehicles for their kids could be wise. 529s can be a good idea as contributions are sometimes tax advantaged (you don’t get a federal tax deduction, just a state tax deduction in some states), but this is really dependent upon your income tax rate and the laws governing your state. Naomi and Jon should certainly do more research into 529s and decide if that might be right for them.
A Note On Gross vs. Net Income
Naomi and Jon get a gold star on this one. You know how I’m always harping on the difference between your gross income and your net income? That’s because there’s a HUGE difference between those two numbers. Naomi did an awesome job outlining Jon’s salary and so I’m going to paste it here again for reference:
|Gross Income (Jon)||$9,500|
|Statutory deductions||-$1,198||Federal and state taxes, Social Security, Medicare|
|Health, dental, and vision insurance||-$285|
|Health Savings Account (HSA)||-$642|
|Monthly net “take home” income after the above deductions:||$6,805|
It’s easy to overlook deductions and just assume that your gross and net (aka your “take home”) pay are the same, but they never are. As you can see from the above, with a standard set of deductions, Jon’s take home pay is fully $2,695 less per month than his listed salary. Naomi and Jon are all over this, which is why they find themselves in such a comfortable position. If you’re unsure of your gross vs. net income, take a close look at your paycheck stub or talk with your HR department.
P.S. thank you for letting me use you as a wonderful example, Naomi!!
- Start looking at houses in their desired neighborhood ASAP to get a sense of how small they could go and what price range they’d realistically be looking at.
- Have a Realtor appraise their current home.
- Decide if they want to move.
- If they DO want to move, decide if it’ll be this spring/summer or next spring/summer. In light of the school schedules of Jon and Naomi’s kids, as well as the likely kids of prospective buyers, I imagine summer is the time to sell for top dollar.
- Iron out the details of living with Jon’s parents in advance: rent, utilities, food, bedrooms, workspaces, storage unit, etc.
- List the house and hope it sells quickly!
- Prioritize beefing up their retirement accounts with any extra money that comes their way (via Jon’s bonus or a less expensive mortgage).
- Determine if they want to reduce their expenses further in order to make faster progress on paying down debt and/or building up retirement savings and/or investments and/or college accounts.
- Enjoy life! Naomi and Jon are doing wonderfully well and should appreciate and enjoy it.
Ok Frugalwoods nation, what advice would you give to Naomi? 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.
Updated by Naomi on 2/24/20:
We finally decided that we wanted to move. The pros seemed to outweigh the cons, and with our oldest child about to start high school, it felt like a good time to do so. We replaced the roof on our current house in preparation for listing it. I toured the new high school and went to parent meetings and perused real estate listings, BUT THEN the circumstances changed. Jon was offered (and is accepting) a senior management position with his current company (something he’s hoped for), but the new position is supposed to only last about a year and then we have to decide if we’re willing to relocate to continue to advance his career and if so, where to.
So this position change that ends with a possible future move (perhaps to another state or even a different continent), made the more local move to a different Atlanta suburb (for potentially only one year) seem like not such a good idea after all. So, long story short, we will likely stay put in our exact same area and then decide where to go when Jon’s new position ends next year. I’m happy for Jon, his career is advancing and we will be better off financially, but I’m somewhat in a bit of limbo, as any job I would pursue (law or education related) requires licenses or certificates that are state specific. I was already working on both of those credentials (just in case) and I will have to start over with a future move, but it is what it is.
I’ll seek out some opportunities to volunteer in the meantime. I’m also concerned about moving our oldest while in high school, but if it has to happen, we will make the best of it, and on the bright side she admits she’s excited about the possible adventure of a overseas move. Thank you for checking in with us, and for all the advice from both you and the Frugalwoods nation, it’s greatly appreciated.
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