Reader Case Study: Three Kids, Two Engineers and One Dog

Matt lives in a suburb of Boston with his wife Laura, their three kids, and their yellow lab Waffles. Matt and Laura both work as engineers and share a love of outdoor recreation–skiing, hiking, kayaking and camping. Their oldest child is a freshman in college and his siblings–ages 16 and 14–will each be headed off to college in a few short years. Matt is concerned about their ability to afford college, plan for retirement and pay off their mortgage. While he and Laura earn superb salaries as highly qualified engineers, these competing financial priorities have Matt concerned. Let’s help him sort through it all together!

What’s a Reader Case Study?

Case Studies address financial and life dilemmas that readers of Frugalwoods send to me requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight, and feedback in the comments section.

For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.

The Goal Of Reader Case Studies

Reader Case Studies are intended to highlight a diverse range of financial situations, ages, ethnicities, geography, goals, careers, incomes, family composition, and more!

The Case Study series started in 2016 and, to date, there’ve been 56 Case Studies. I’ve featured folks with annual incomes ranging from $17,160 to $192,720 and net worths ranging from -$317,596 to $1.5M.

I’ve featured single, married, partnered, divorced, child-filled, and child-free households. I’ve featured gay, straight and trans people. I’ve featured cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, and France.

I’ve featured folks with PhDs and folks with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.

The goal is diversity and only YOU can help me achieve that by emailing me your story! If you haven’t seen your circumstances reflected in a Case Study, I encourage you to apply to be a Case Study participant by emailing mrs@frugalwoods.com.

Reader Case Study Guidelines

I probably don’t need to say the following because you folks 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 condemn. There’s no room for rudeness here–the goal is to create a supportive environment where we all acknowledge that we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.

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. I am not a financial advisor and I am not your financial advisor.

With that I’ll let Matt, today’s Case Study subject, take it from here!

Matt’s Story

Matt and his family going sea kayaking

Hi Frugalwoods! I’m Matt, I’m 50, my wife Laura is 48 and we have an 18-year old son, a 16-year old daughter, a 14-year old son and a yellow lab named Waffles. We live in a suburb outside of Boston where we both work as engineers. Our oldest son is in his freshman year of college in Boston studying computer science. Our daughter is a sophomore in high school and our youngest son is in his final year of middle school.

Careers

I have a degree in chemical engineering and an MBA. I worked in engineering firms for the first 15 years of my career, but I always wanted to own my own business. As my experience and job responsibilities grew, I was spending more and more of my time overseas. At the time, my three children were all very young so I began looking for opportunities where I could do something closer to home.

I ended up buying a small water analysis company where the owner was retiring. This was in December of 2007 – little did I know the Great Recession of 2008 was right around the corner. It was an incredibly challenging time, but it taught me some valuable life and business lessons that I’m eternally grateful for. The business grew slow and steady over the next eight years, but I was working really long hours and making about 60% of my previous corporate salary as I was putting most of the profit back into the company. With my kids entering their teenage years, I knew I needed to make more money if we were going to be able to fund their college tuitions and retire one day. I sold the business in 2018 and began the transition back to the corporate world.

Fortunately, it didn’t take long to land a great job at a large chemicals company, even though it was quite the change from the small business I’d run for a decade. Things I took for granted in the corporate world before, like getting a paycheck every week and having a 401K, I was so grateful to have again.

Laura has a degree in electrical engineering and works in robotics. She’s been with the same company for the past 10 years.  She’s really bright, loves her work, and is very good at it. Because of that, she doesn’t have the same desire as I do to sacrifice now in order to retire early.

Hobbies

We both love outdoor adventure in New England. We love to ski the mountains of Vermont, hike the high peaks of New Hampshire, sea kayak along the Maine coast, and camp on the beaches of the Cape and Islands. We also love to travel.

We also have hobbies that we enjoy on our own. Laura enjoys cooking, reading, yoga, and running. My solo hobbies include cycling, motorcycling, technical investing, and home remodeling.

Our Version of Frugality

Matt and his family camping on the Maine coast

Laura and I have always been frugal. We’ve always tried to make choices as if we only had one salary. We bought a modest home in a nice neighborhood when we could have afforded something twice as expensive. Over the 17 years we’ve lived here, we’ve slowly renovated every room in the house doing much of the work ourselves.

We’ve never felt the need to buy new cars, always opting for older quality vehicles that are known to last. Almost everything we own, we bought used on Craigslist – our cars, bicycles, kayaks, skis, Honda snowblower, Honda Generator, etc. However, as our kids have grown, so has our spending and our frugal discipline has slipped some. Doing this case study has made me realize it’s a good time for a reset.

The Pressing Issue: College Costs

When researching colleges with our oldest son, we learned that most of the private schools we looked at cost $70,000+ per year and we were not going to qualify for any financial aid. While we’ve been investing in 529 plans since the kids were little, there was little chance we’d be able to save $280,000 for each child. Our goal now is to have $140,000 for each child’s education. If they choose a state school, that amount will cover it. If they choose a private school, they’ll have to take loans out for the difference. We did save $140,000 for our oldest, have almost $130,000 for our second child, but only have about $70,000 saved for our youngest. We’re concerned we won’t be able to save enough by the time our youngest goes to college in four years.

Retirement

On a vacation to Paris: in Montmartre

Based on Fidelity’s rule of thumb, we should have 6x our gross salary saved for retirement by now (age 50). Based on my current salary, I’m quite a bit behind because, for the past decade, my salary was much lower while I was self-employed.  I’m currently investing about 20% of my gross income into retirement, maxing out my 401K contributions including the catch-up provision. Given our shortfall in retirement and our shortfall in the 2nd and 3rd children’s 529 plans, where should we invest more?

Investment Property

For some time now, we’ve wanted to buy an investment property to add diversification to our stock portfolio. I would love to build a side business over the next 10 years with a real estate portfolio, but I don’t know where to begin. We would prefer to buy a property–or properties–that we would enjoy using and also renting out on AirBnB, such as a small beach house and/or ski condo. We don’t want to be landlords of multi-family units even though we recognize that might be the most lucrative path. I have a lot of tools and experience with home remodeling so I’m not opposed to buying properties that need work.

The Best Thing Right Now?

Working from home during Covid is the best part of my current lifestyle. Not having to commute 40 minutes each way allows me to work out or cycle at lunch time and is saving a lot of gas to boot. Life has become much simpler without all of the after school activities/sports where my wife and I felt like we were Uber drivers.

…And The Worst?

I’ve come to realize that we’re not working from home, but rather living at work. The days and hours are long and blend together. It feels like groundhog day every day. The other downside to my current situation is a lack of job security. When I owned my own business, making payroll and employee issues kept me up at night, but I never had to worry about someone firing me. In the corporate world, there’s constant “restructuring” of the work force and I notice the older population getting pushed out. Even though I’ve been working for more than 25 years, I’ve only been with my current company for 2 years, so if a restructure comes along based on company tenure, I’d be one of the first to go. As I age into my 50’s, the ability to quickly find jobs with comparable income may be a significant challenge.

Where Matt Wants To Be in Ten Years:

  • Finances:
    • Have our primary residence paid off
    • Be done paying for all 3 kids’ college tuitions and have no other debt
    • Have an established real estate portfolio to diversify our stock market investments
    • Have retirement savings large enough to have the option to retire and live off the 4% rule
  • Lifestyle:
    • Still married!
    • Have time to enjoy hobbies: skiing, hiking, sea kayaking, cycling, motorcycling
    • Have the time and means to travel in the US and Europe
    • Be involved in our kids’ lives as they start their careers and families
  • Career:
    • Have the option to continue working full-time or retire
    • Be actively managing our retirement portfolio
    • Be actively managing a real estate portfolio

Matt and Laura’s Finances

Income

Item Amount Notes
Matt’s net income $7,580 Net salary, minus health, dental, vision insurance, 401k contributions and taxes
Matt’s annual bonus $833 Net bonus, minus taxes. This varies year to year, but this is what it was last year
Laura’s net income $7,338 Net salary, minus health, dental, vision insurance, 401k contributions and taxes
Laura’s annual bonus $1,167 Net bonus, minus taxes. This varies year to year, but this is the average over the last 2 years
Monthly subtotal: $16,918
Annual total: $203,016

Assets

Item Amount Notes Interest/type of securities held Bank/brokerage
Primary Residence $750,000 Based on similar homes sold in last 6 months NA NA
Matt’s Traditional IRA $377,140 Rollover IRA 19 Individual Stocks Varied
Laura’s Traditional IRA $366,451 Rollover IRA Mutual Funds Fidelity, Columbia, Blackrock
Laura’s 401K $346,235 From Laura’s current employer
Rainy Day Fund $232,000 Savings account to fund potential real estate purchase(s) Earns <1% interest Bank of America
Savings Account $164,315 This is our emergency fund Earns <1% interest Bank of America
529 Plan Child 1 $129,354 College Savings Account Age Based Fund U Fund Fidelity
529 Plan Child 2 $128,784 College Savings Account Age Based Fund U Fund Fidelity
Joint Investment Account $115,679 Taxable investment account Index Funds Vanguard VOO
Matt’s 401K $92,000 From my current employer Age Based Fund Fidelity
529 Plan Child 3 $69,534 College Savings Account Age Based Fund U Fund Fidelity
Matt’s SEP IRA $55,027 Self-employed IRA Index Funds Vaneck SMH
Matt’s Roth IRA $49,993 Rollover Roth IRA Index Funds Vanguard VOO, Biotech ETF XBI
Laura’s Roth IRA $20,827 Rollover Roth IRA
Checking Account $4,280 This is the account we pay bills from 0% interest Bank of America
Total: $2,901,619

*Matt’s total retirement savings: $574,160

*Laura’s total retirement savings: $733,513

Mortgage Details

Item Outstanding loan balance Interest Rate Loan Period and Terms Amount paid off Purchase price and year Current Market Value Equity
Mortgage on primary residence $132,740.00 3.375% 30-year fixed-rate mortgage; prepaying at 15 yr rate so will be paid off in 2028 $222,260 $355k, purchased in 2003, refinanced in 2012 $750,000  $617,260

Vehicles

Vehicle make, model, year Valued at Mileage Paid off?
2013 Honda Odyssey $11,000 105,000 Yes
2003 Toyota Landcruiser $10,000 185,000 Yes
2008 Honda Accord $6,800 75,000 Yes
Total: $27,800

Expenses

Item Amount Notes
Mortgage $1,494.72 Includes extra $500 monthly payment to pay down mortgage in 15 yrs. Mortgage will be paid off in 2028
529 Plan Investment $1,300.00 Monthly investment into 529 Plans
Groceries $1,095.20 Yikes – teens eat a lot!
Property Tax + Insurance $838.12 Includes property tax + home owners insurance
Restaurants $575.74 We only get takeout ~1x week, but it’s easy to hit $100 for family of 5
Costco $507.72 Meat & fish, coffee, paper goods, cleaning supplies, wine, dog food, and Lord knows what else
Shed materials $471.91 We built a large shed during Covid
Kids Clothing $252.05 Kohl’s, TJ Maxx, Marshalls
Charitable Contribution $250.00
Auto Insurance $224.50 Geico – Went from $800/yr to $2,700/yr when our son was added to policy
Verizon Wireless $209.80 5 lines, unlimited talk, text, data $40 per line – we all have older iPhone 6, 7, and 8’s. Looking for suggestions here to lower this on an unlimited plan
Shed Labor $175.00 One-time expense
Gas $163.16 This is typically >$250/mo pre Covid
Home Improvement $161.35 More shed supplies
Utilities: electric $148.00 Would solar make sense at this monthly electric cost?
Sporting Goods $147.41 Hockey, Lacrosse, and Field Hockey equipment for the kids’ sports
Verizon Fios $138.00 WiFi and Basic Cable
Auto Service $132.35 We DIY most auto work, but use a local mechanic for jobs I can’t do
Utilities: natural gas $125.00
Lodging $118.06 We took a family vacation to Florida last year
Hockey $112.99 Ice time and league fees
Skiing $111.30 Skiing is expensive – usually >$400/day if all 5 of us go – we only got out about 4 days last year
Gifts $109.55 Mostly Christmas
Auto Parts $99.45 Parts for DIY work
Entertainment $96.55 For our Florida vacation
Life Insurance $76.25 $1M 20 yr term policy for Matt w SBLI
Furniture $74.83 Bought two new mattresses for kids
Dr. Visits $63.54 Co-pays
Walgreens/CVS $59.29 Prescription meds, other medical supplies
Travel $58.76 This is typically >$250/mo pre Covid
Life Insurance $55.00 $750k 20 yr term policy for Laura w SBLI
College books and fees not covered by the 529 $50.00
Hair Cuts $46.67 Me and boys haircuts – cut my own hair during Covid and the boys refused to let me cut theirs
Beer & Wine $46.03
Autobody Repair $44.40 Son hit a deer – $500 deductible
Veterinary $43.39 Dog needed some xrays, meds
Motorcycle rental $38.48 Weekend trip with Wife 1x per year
School Sports $32.92 Field Hockey & Lacrosse fees – pre Covid
Pet Supplies $32.22 Dog food, frontline flea & tick, heartworm
Contact Lenses $30.42 Daily Wear for Presbyopia
Motorcycle membership $29.92 Eagle Rider rental credits – this is intended to make our 1x a year motorcycle rental cheaper – with this program the cost to rent per day is $60 vs $200 – I will still likely cancel this after this years trip
Dog Grooming $28.38 Gave up trying to do this myself, it cost $65 per grooming which is about what an oil change costs these days so I opted to do the oil changes myself and pay the groomer
IBD membership $24.97 Investors Business Daily subscription
Ski Helmets $23.88 Two younger kids needed new helmets last year – one thing we don’t buy used
Ski Rental $19.83 2 younger kids get seasonal rentals
Netflix $15.99
Turbotax $15.05
Kayak Lessons $15.00 Sea Kayak Instruction – will go away in April
Building Permit $12.50 one time charge for shed
Krown $11.66 Undercarriage spray for Landcruiser
Amazon Prime Membership $9.92
Crafts $8.99
Movie Rental $7.99 Amazon Prime
Car Wash $7.50
Plumber $6.80
Cinema $6.62
Dry Cleaning $6.27
Annual Park Pass $5.00
AAA membership $4.50
Parking $3.90
Office Supplies $3.53
Mail $2.72
Cloud Storage $2.51
Games $2.19
Tolls $1.67
Dog License $1.25
Lyft $1.07
Monthly subtotal: $10,089.74
Annual total: $121,076.88

Credit Card Strategy

Card Name Rewards Type? Bank/card company
Costco Visa Cash Back: 4% on gas, 3% restaurants & travel, 2% on Costco, and 1% on everything else Citicard
Double Cash Mastercard Cash Back: 2% on everything Citicard

Matt’s Questions For You:

  1. We are currently investing $1,300 per month into the 529 plans. If our goal is to have $140,000 for each child’s education, how much additional investment do we need to make each month?
  2. Should we take a portion of our rainy day fund to fully fund these 529 plans now?
  3. We currently owe ~$132,000 on our mortgage and are prepaying an additional $500 per month to pay it off in 8 years. Should we continue to prepay or divert these funds elsewhere? Or should we use the rainy day fund to pay off the mortgage now?
  4. With the real estate market off the charts in our area, it may take quite some time to find the right property at the right price. We’re using this time to do our research. In the meantime, we have a lot of money sitting in cash. Do you have any recommendations for what to do with these funds in the short term?
  5. In addition to a real estate business, I’m interested in starting a trading business where I use technical analysis to buy and sell stocks and options. Do you have any recommendations on how to get started in this area?
  6. We are both maxing out our 401K’s. For me, that’s $19,600 + $6,500 per year (catch-up for age 50+) and $19,600 for Laura. Our companies also provide a 4% to 6% match. If we stay gainfully employed for the next 10 years, and continue to max out our 401Ks, how large would our retirement portfolio be given an average rate of return?
  7. Since we are W2 earners and have little in the way of deductions, we are paying upwards of $120,000 a year in taxes. Do you have any recommendations on how to reduce our tax burden? Are the potential write-offs from a real estate business the best path?
  8. We need to do a reset on our expenses. We used to live on one salary and save the other. Now it seems the more we make, the more we spend. Please give us your recommendations on where we can cut spending?

Mrs. Frugalwoods’ Recommendations

Paris! As seen by Matt and family on vacation

Matt and Laura are doing a fabulous job!  I’m so excited they came to me for a Case Study because they’re at a juncture many parents face: planning for retirement and paying for college.

Matt and Laura have done an excellent job over the years of increasing their salaries and saving a decent percentage of their earnings. While yes, they have high salaries, they’ve also been careful not to live above their means.

I commend Matt and Laura for making these prudent choices over the years and for setting themselves, and their kids, up for success. Let’s dive right into Matt’s questions!

Matt’s Question #1: We’re investing $1,300 per month into the 529 plans. If our goal is to have $140,000 for each child’s education, how much additional investment do we need to make each month?

Since the 529s are invested in the market, part of this answer depends on the rate of return the market delivers between now and when Matt’s second and third kids go to college. Since no one knows what the market will do in the future, we’ll  ignore this fact and do the math assuming a 0% rate of return.

Kid #2 is a sophomore in high school and will presumably go to college in circa three years, aka 36 months. Kid #2’s 529 account balance stands at $128,784. If the goal is $140k by the time she enters college, that equals a deficit of $11,216. Spread out over 36 months, Matt and Laura should add $311.55 to this 529 every month ($311.55  x 36 = $11,216). Again, this assumes a 0% rate of return from the market, which makes it a very safe, conservative estimate. We can always be excited when it ends up being more!

Kid #3 is in 8th grade and will presumably go to college in circa five years, aka 60 months. Kid #3’s 529 account balance stands at $69,534. If the goal is $140k by the time he enters college, that equals a deficit of $70,466. Spread out over 60 months, Matt and Laura should add $1,174.43 to this 529 every month ($1,174.45 x 60 = $70,466). Again, this assumes a 0% rate of return from the market, which makes it a very safe, conservative estimate.

Matt and Laura are currently putting $1,300 into these two accounts, which is just a bit shy of the targets I outlined above ($311.55 for kid #2 + $1,174.45 for kid #3 = $1,486). Bumping the total up to $1,486–distributed between the two accounts as noted above–would put them on a safe trajectory for achieving $140k by each child’s freshman year. When kid #2 goes to college, they’ll cease contributing to her 529 and their monthly outlay will drop down to just $1,174.45 for their third child.

A Few Caveats About 529 Plans

The real benefit of using a 529 is when the appreciation on the money you put in is not taxed. Given that, the closer you get to spending the money (as in, the older your kids are), the less of a tax benefit you’ll see. The money in a 529 grows tax-free and isn’t subject to federal income taxes when it’s withdrawn for educational expenses. This is what makes a 529 a better college savings vehicle than, say, a regular taxable brokerage account. The major tax advantage of using a 529 is if you start one when your kid is a baby because then you have 18 years of tax-free appreciation.

What if a kid doesn’t go to college? The simplest way to think about a 529 is that it’s an investment account that has potential downsides if your kid doesn’t go to college. That’s because the money in a 529 can only be utilized for specific, higher-education-related expenses. However, you can transfer money between children. In Matt and Laura’s case, since they have three kids, they have the flexibility to transfer funds between accounts. For example, if kid #2 doesn’t go to college, they can divide up that 529 between kids 1 and 3. 529s can also be used for graduate school, so in the event that there’s money leftover in one of their children’s 529 plans after undergrad, it can be transferred to a child attending a graduate program.

Read more here: How We Use 529 Plans To Save For College

Matt’s Question #2: Should we take a portion of our rainy day fund to fully fund these 529 plans now?

In short: no. There’s no tax-advantaged reason to do so and it’s highly likely this money can be better deployed elsewhere, as we’ll address in a moment. Since kids #2 and #3 aren’t going to college tomorrow, there’s no reason to park this money in 529s right now, especially given the restrictions inherent to 529s. Plus, as outlined above, Matt and Laura only need to contribute a teensy bit more every month in order to fully fund the 529s for kids #2 and #3.

Matt’s Question #3: We currently owe ~$132,000 on our mortgage and are prepaying an additional $500 per month to pay it off in 8 years. Should we continue to prepay or divert these funds elsewhere? Or should we use the rainy day fund to pay off the mortgage now?

This is a really good question. Matt’s correct that it doesn’t make sense to have a mortgage AND this much money in cash. Both a paid-off house and a savings account represent low-risk, non-aggressive, low-return places for your money to sit. Matt and Laura have a total of $396,315 sitting in cash at present (that’s their $232,000 rainy day fund + their $164,315 emergency fund). This is an impressive stash of cash and I heartily commend them for saving up so much!

Matt and Laura on vacation in Italy

However. There’s actually such a thing as having TOO much money in cash (bet you never thought you’d hear me say that!). Why? Because that much cash represents a major lost opportunity to invest and earn a return on this money. Money sitting in cash isn’t doing anything for you; conversely, money invested in the stock market or in a paid-off house IS doing something for you.

The other disadvantage of having so much cash is inflation. Holding this much cash is not only causing you to lose out on return opportunities, it’s likely to cost you money due to inflation. With inflation, every dollar is worth less because the cost of goods and services rise. Hence, if your cash isn’t keeping up with inflation, you are essentially losing money.

Here are three things they could do with this cash:

1) If Matt & Laura paid off their mortgage tomorrow, they’d get a 3.375% return on their money. That’s because their mortgage interest rate is 3.375% and by paying off their mortgage, they’d essentially accrue that return on their “investment” of paying it off.

2) If Matt & Laura keep their $396,315 in cash, they’ll get a sub 1% return as that’s the interest rate of their savings account.

3) If Matt & Laura funnel this money into a taxable investment account, made up of diversified total-market low-fee index funds, they can project receiving a 7% annual rate of return from the market–provided they keep the money invested for several decades. 7% is the accepted historical rate of return that the market has delivered; of course, past performance does not predict future results, but it’s the number most economists use to determine long-term market gains.

A side note here: One of the hallmarks of our current market is that there’s no good place to put cash conservatively because savings account interest rates are abysmal as are bond return rates. Both are returning less than 1% right now. Savings accounts and bonds represent low-risk, low-return vehicles for storing cash, but right now they’re even more low-return than they were a few years ago. At present, the only way to get a return is to become more aggressive with your cash.

Of these three options, #3: investment in the stock market, is likely to be the mathematically better solution given the projected rate of return. However, since Matt and Laura are chomping at the bit to pay off their mortgage AND they have so much cash on hand, there’s not much of a downside to paying off their mortgage in full tomorrow.

Amount of cash $396,315 – Amount of mortgage $132,740 = $263,575

As we can see, even after paying off the mortgage, they’re still left with a gargantuan amount of cash money! Plus, if they needed to, Matt and Laura could later take out a HELOC or a cash out refinance in order to access the cash that’s tied up in their house. I don’t strictly recommend HELOCs, but, they can make sense and it’s good to remember that they are options.

Next up, it’s–of course–wise to keep a robust emergency fund on hand. Based on their current spending of $10,089.74 per month, they should target an emergency fund of $30,269 (three months’ worth) to $60,538 (six months worth). If we go with the more conservative six month’s worth, Matt and Laura STILL have $203,037 left hanging out in cash. Woohoo!

Bottom line: do not keep this much money in cash because it’s not doing anything for you. As we can see, Matt and Laura could easily pay off their mortgage, invest in the market and retain a robust emergency fund. All of those options would put their money to work in a far more advantageous way than sitting in savings accounts.

Oh but wait, what about their real estate dreams? It’s convenient that the next question is…

Matt’s Question #4: With the real estate market off the charts in our area, it may take quite some time to find the right property at the right price. We’re using this time to do our research. In the meantime, we have a lot of money sitting in cash. Do you have any recommendations for what to do with these funds in the short term?

Matt and Laura on vacation in Italy

I kinda scooped myself and answered the question about what to do with the cash in the short-term, so let’s dig into the real estate question.

A question I have for Matt is why they’d need this much cash in order to pursue a real estate portfolio? With two W2 incomes and a low debt-to-income ratio, they’d likely qualify for a mortgage with a good interest rate. I’m a proponent of leveraging a mortgage on an investment property because it’s typically a better rate of return to keep that excess cash invested in the market than in a paid-off property (see again the math in question #3).

I agree that taking the time to do a lot of real estate research makes sense. If they haven’t already, Matt and Laura should create an evaluation spreadsheet and use currently available properties to start punching in the numbers. Getting a sense of what their expected rate of return might be, how much their expenses would be, whether or not they’d hire a property manager, how they’d manage the maintenance fund, how they’d vet tenants and manage the legal aspects of a lease, how they’d respond to middle-of-the-night phone calls from frantic tenants, who they’d contract with for repairs Matt can’t do on his own, etc is all a great exercise in preparing to own a rental.

Once they fully research the financial realities and the anticipated rate of return, they’ll be ready to jump in. Real estate investing is a slow process and typically does not reward people who jump in without research.

Matt’s Question #5: In addition to a real estate business, I’m interested in starting a trading business where I use technical analysis to buy and sell stocks and options. Do you have any recommendations on how to get started in this area?

In my opinion, I do not consider this an investment where you’re likely to see a return on your money. Is there a 1 in a billion chance you can beat the markets? Sure! Is this a likely outcome? Nope. If you want to budget money for this, do so, but consider it an expensive hobby. For example, if this is a priority to Matt, he might need to give up motorcycles in order to afford this hobby. Don’t invest your family’s future in this, but if you want to have play money for gambling, go for it.

Matt’s Question #6: We are both maxing out our 401K’s. For me, that’s $19,600 + $6,500 per year (catch-up for age 50+) and $19,600 for Laura. Our companies also provide a 4% to 6% match. If we stay gainfully employed for the next 10 years, and continue to max out our 401Ks, how large would our retirement portfolio be given an average rate of return?

A note of clarification here: the IRS-established contribution limit for 401ks in 2021 is actually $19,500, not $19,600. Matt is correct that the annual allowed catch-up amount for folks over age 50 is $6,500.

Combining all of their retirement accounts–401ks, Roth IRAs, IRAs–Matt and Laura currently have:

  • Matt’s total retirement savings: $574,160
  • Laura’s total retirement savings: $733,513
  • TOTAL: $1,307,673

To project Matt and Laura’s retirement portfolio in ten years, we need to use an investment calculator.

  • For ‘starting amount,’ I input their total current retirement amount ($1,307,673).
  • For ‘annual contribution,’ I input $52,660.64, which represents the maximum allowable combined contribution for Matt and Laura [($19,500 + $6,500) + $19,500 = $45,500] + their employer matches of 4% ($3,638.40 + $3,522.24 = $7,160.64)
    • 4% of [$7,580 x 12 = $90,960] Matt’s annual income is $3,638.40 and 4% of [$7,338 x 12 = $88,056] Laura’s annual income is $3,522.24.
    • From Matt’s question, it wasn’t clear to me if their matches are 4% or 6%, so I went with the lower number. They can plug in their actual match percentages if 4% isn’t accurate.
    • Additionally, sometimes the match percentage is calculated on net income and sometimes on gross. Since I only have their net incomes, I used those numbers. Matt and Laura can check with their HR departments to determine the actual numbers.
  • For ‘rate of return,’ I input 7% as that’s an acceptable historical rate of return for the market.
  • And for ‘years to grow,’ I input 10.

Their projected retirement investment value in 2030, according to this calculator and these variables, is $3,299,965.

Caveats:

  • The IRS sets the contribution limit for 401ks on an annual basis and, historically, this limit increases over time. Given that, it’s likely Matt and Laura will be able to contribute more than $19,500 per year for the next ten years.
  • Once Laura is over 50, she too will be eligible to tack on the catch-up provision, which in 2021 is $6,500.
  • The 7% rate of return I used is an estimate based on historical rates of return. It may or may not be born out in the future.
  • If they leave/lose their jobs, they’d no longer had access to the employer match they currently enjoy.

Don’t Forget About Social Security!

The other variable we haven’t considered yet is Social Security. Since Matt and Laura have both been working for decades, they should qualify for Social Security. They can calculate their expected monthly Social Security payments by following these instructions on how to retrieve their earnings tables from ssa.gov (the government’s Social Security website).

Then, to determine if they’ll run out of money in retirement, Matt and Laura can input variables into Engaging Data’s Post-Retirement Calculator.

Matt’s Question #7: Since we are W2 earners and have little in the way of deductions, we are paying upwards of $120,000 a year in taxes. Do you have any recommendations on how to reduce our tax burden? Are the potential write-offs from a real estate business the best path?

Matt and Laura are already participating in most of the standard tax-advantaged opportunities: they’re contributing to their retirement accounts and they have 529s for their kids.

Another avenue for tax breaks are Donor Advised Funds, which are charitable giving vehicles. Contributing to a Donor Advised Fund enables you to take the full tax write-off for the money you contribute in a calendar year, whether or not you donate all of that money in that calendar year.

If Matt and Laura envision making charitable donations every year, a DAF can be a great way to be philanthropic and accrue tax advantages. I myself have a DAF and wrote several articles about them:

Another thing they could consider is getting solar, IF they plan on being in their house for a long time. There are good federal tax credits for solar and Massachusetts has historically been pretty generous in terms of credits as well. They’d need to calculate the ten-year rate of return on this, as solar is usually pretty expensive up-front, but it could be a good investment. It’s probably worth having a solar consult done to see if they’re well-sited for panels.

To Matt’s second part of the question, be forewarned that real estate is not a magic font of write-offs. If Matt or Laura decides to quit their job and become a full-time real estate professional, maybe then they can explore this in earnest. But the IRS is pretty good at figuring out if you’re not doing this correctly. As a W2 employee, you can’t deduct paper real estate losses against your W2 income.

Matt’s Question #8: We need to do a reset on our expenses. We used to live on one salary and save the other. Now it seems the more we make, the more we spend. Please give us your recommendations on where we can cut spending?

This is really a question of how much they’d like to save every month. Given their salaries, they’re doing really well in this department! Yes, their spending is high, but so are their earnings. Their monthly income is $16,918 and their expenses are $10,089.74, which means they’re saving $6,828.26 per month.

If Matt is feeling the urge to save more (an urge I’d never argue with 🙂 ), there are some obvious targets that would reap rewards. In a case like this, I’m a fan of going after the big tuna expenses–the stuff that’s going to move the needle the most. For Matt and Laura that’d be the following:

  • Mortgage $1,494.72: As outlined above, I think it makes sense for them to go ahead and pay off their mortgage
  • Groceries ($1,095.20) + Restaurants ($575.74) + Coscto ($507.72) = $2,178.66: Some savings in here will probably make sense. I get that teenagers eat a lot and that this isn’t going to be $0, but there’s likely an opportunity to bring this total down.
  • Kids Clothing $252.05: I don’t have teenagers, but this seems like a lot every month? Other folks with teens, please weigh in on your advice for used/second-hand options.
  • Cell Phones $209.80: time to investigate the wonderful world of MVNOs! Here’s my post explaining how: My Frugal Cell Phone Service Trick: How I Pay $10.65 A Month

They can keep going down the list, but these are the really big expenses I’d start with. The other question I have is whether or not any of their kids have part-time jobs and thus any responsibility for paying for their own clothes/cell phones/sports equipment? Just throwing it out there. Additionally, might there be an opportunity for some of the sports equipment/ski fees/etc to serve as Christmas or birthday presents? A reader-sourced article on this topic might be helpful food for thought: Reader Suggestions: How To Save Money While Raising Teenagers And Teach Them Financial Lessons In The Process

I do not have teenagers, so I know not of what I speak, but I know many readers do and I look forward to their insights.

I also want to point out that it’s obvious Matt and Laura do a fantastic job of tracking their expenses every month! The fact that they have a bunch of one-time expenses divided out over the year is a dead giveaway that they are expert expense trackers. If you’re not tracking your spending this carefully (or at all–no shame!), I recommend you find a system that works for you. I use and recommend the free expense tracking service from Personal Capital, which I explain here (affiliate link).

Sidenote: Matt and Laura should remember to factor in the increased contribution to the 529 Plans when calculating a new monthly expense rate.

Summary:

  1. Increase monthly 529 contributions to $1,486 ($311.55 for kid #2 + $1,174.45 for kid #3). This’ll put them on a safe trajectory for achieving $140k/each by each child’s freshman year. Note: if either kid is going to college at a different point in time, Matt and Laura can adjust the number of months in the formulas I used above.
  2. Don’t fully fund the 529s now. Instead, spread the contributions out over the number of months until each kid enters college.
  3. Do something with their $396,315 in cash. If it were me, I would probably do all of the following:
    1. Pay off the mortgage immediately
    2. Set aside a six-month emergency fund
    3. Invest the rest in diversified total-market low-fee index funds
  4. Proceed with exhaustive real estate research. Consider getting mortgages on rental properties instead of paying cash (see the math in #3 for rationale).
  5. Retirement: Calculate their anticipated Social Security payments and adjust the variables as needed in the retirement portfolio equations outlined above.
  6. Tax breaks to research: Donor Advised Funds and solar.
  7. Expenses: determine how much more they’d like to save every month and begin by focusing on the largest expenses that’ll deliver the highest rate of return.

Ok Frugalwoods nation, what advice would you give to Matt? We’ll 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 (mrs@frugalwoods.com) your brief story and we’ll talk.

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208 Responses

  1. Ashley says:

    “ As a W2 employee, you can’t deduct paper real estate losses against your W2 income.” What about depreciation? Is that in the same category?

    Fun to see a family is such good financial shape! I hope to be there someday soon 🙂

    • Matt says:

      This is a good question – thanks Ashley. Hope Mrs. FW or someone else can answer it!

      • Donna says:

        You can take passive real estate losses of up to $25,000 against ordinary income as long as your adjusted gross income does not exceed $100,000 and fully phases out at $150,000. This income level would preclude you from currently taking advantage of any real estate losses generated.

        • Matt says:

          Thanks Donna. I was thinking real estate could be set up as an LLC and any loss would come over as a schedule C, but didn’t think it was income limited.

          • Donna says:

            If it is a single member LLC, it would still be reported on your individual tax return on schedule E.

  2. Jennifer B says:

    Regarding college costs Matt has mentioned “ Our goal now is to have $140,000 for each child’s education. If they choose a state school, that amount will cover it. If they choose a private school, they’ll have to take loans out for the difference. ”

    The maximum amount an undergraduate student can take in loans in their own name is 31k – for all 4 years. It’s not spread out equally (it goes up a bit each year), starting at $5,500 the first year and $7,500 in the 3rd and 4th years. Any loans beyond that amount will either need to be co-signed by a parent/other responsible adult, or, more commonly, taken out in the parents name directly.

    So Matt and his wife will need to decide what their approach to colleges will be with their kids in light of this. You can focus on in state public schools, OOS schools with friendlier tuition costs, schools that offer great merit for students, suggest that their kids start at community college for two years then transfer, finance college through ROTC, become an RA to cover housing costs, live at home etc. Just don’t count on the student being able to take out the loans themselves. That just doesn’t happen any more.

    Also know that even though you know you won’t qualify for any financial aid, you’ll probably still need to go through the process and fill out the FAFSA as many schools require it in order to qualify for any merit awards. And remember that if your kid is counting on a merit award to be able to afford the tuition at a school that there are often requirements to maintain a certain GPA. What will happen if their GPA drops broke that minimum? Will you require them to drop out or transfer, or will you pick up the tab?

    Start having these conversations with your kids now. Set the expectations regarding the financing of college now. Do not wait until your kids have been accepted into their “dream school” at full tuition.

    • Matt says:

      Thanks Jennifer for the sound advice – I didn’t realize that the max student loan is $31k. We did have to fill out the FAFSA for our oldest child who is a freshman now. He did receive a merit scholarship, which puts the tuition in line with a state school.

      • Nora says:

        Matt – I also have friend’s parents and grandparents who are on the hook for private loans. It’s not a pleasant boat to be in. 🙁 I had the privilege of graduating before costs got astronomical but my brother went to a state school as a result of the high high costs.

        • Christy says:

          Mother of three teenagers here just chiming in to say that the clothes spending seems reasonable. The food spending seems pretty high to me though. So impressed with how you have been able to provide for three children’s college journeys.

      • Sarah says:

        Matt, I highly recommend the book The College Solution and the blog by the same name. It lays out a common-sense approach to finding the right school at a price your family can afford. We have a similar income to yours and are getting our kids through small liberal arts colleges debt-free thanks to merit scholarships, and the advice in the book was enormously helpful.

  3. Matt says:

    Thank you Mrs. FW for taking us on as a case study! We really appreciate your thoughtful answers to our questions. And thank you to those FW readers who read and comment – I’ll be sure to keep monitoring and comment when I can.

  4. Matt says:

    To answer Mrs. FW’s question “do any of the kids have part-time jobs and thus any responsibility for paying for their own clothes/cell phones/sports equipment?”

    Yes, our oldest has had a part time job since he got his license at 16.5 and was paying for his own cell phone, clothes, and half the car insurance prior to college. He’s not working while in school so we’re paying the cell phone and insurance now. Our daughter will start looking for a part time job once she gets her license later this year to help pay for her phone and clothes.

    • Shey says:

      We also set a cap on what the kids can spend our money on. Hair cut or clothing for the same dollar amount. Cell phone or gas. Etc. Give them choices and they’ll help you to be more frugal about it. Plus, you’re teaching them good habits.

  5. The way mortgages work, the percent doesn’t directly translate with prepayment savings the same way that it does with a credit card or auto loan. Prepayments early on are worth a lot more than prepayments later. In order to truly understand the percent savings from prepayment, you need to use a mortgage amortization calculator or spreadsheet. I like the one from get rich slowly. Obviously in terms of cash flow, you would be saving each month whatever you’re currently paying in principal + interest.

    • Cathy says:

      You all are doing so well with your planning and saving! I would like to suggest that before you invest in any properties with the intent of using them as Airbnb’s or other rentals that you do research into the local regulations. Many communities have developed limitations on the number of rentals allowed and there are fees involved. They have found that they don’t create a stable residential community and force real estate prices up so that locals can no longer afford to live and work in their own town. Just something to check out.

  6. caryatis says:

    The adults in this family are in great financial shape—I’m not so sure about the kids. It’s great to have a $140k nest egg, but that’s only $35k per year for living expenses and tuition. And that’s not considering the likelihood that at least one will want to go to grad school. Since the parents are already millionaires, they should consider putting the kids in a place where they can graduate debt-free.

    • Kathryn Rohdy says:

      I totally disagree. They are giving their kids a great start. College isn’t a need and kids learn a lot from working some, spending with in their means and working hard to pass those classes the first time. If they dont want to debt, they will choose a state school! I did all these things with no money from my parents. Worked hard after college and paid off my debt. It set me up for a great financial life.

      • Laura Lee says:

        I upvote Kathyrn’s comment.
        *Only* 35k/yr for college is no snub to their children. That is a gift many would love to have. I am child-free but having every want ticked off seems like it may devalue appreciation and honestly, parents aren’t obligated to save for college. At all.

        The more common absurdity seems that every kid should be going to college these days- in a broader sense and not exclusive to this family. A rant for another day. Overall this couple seem really on track and sharing their story has helped them to re-invest in their own values and goals pertaining to frugality and long term planning. A tip of the hat!

        • Kara says:

          While I agree that our society should develop meaningful alternatives to getting a college degree, the reality is that individuals with a college degree earn substantially more than those with only a high school diploma. According to the Social Security Administration: ” Men with bachelor’s degrees earn approximately $900,000 more in median lifetime earnings than high school graduates. Women with bachelor’s degrees earn $630,000 more. Men with graduate degrees earn $1.5 million more in median lifetime earnings than high school graduates. Women with graduate degrees earn $1.1 million more.” My guess is that even for jobs that don’t require a college degree, individuals that have them will earn more than their peers. If you have any interest in trying to achieve financial security, a college degree seems to be more of a need than a want at this point.

    • Sarah says:

      It sounds like the kids are graduating debt-free because as Matt explained, their oldest has a merit scholarship that brings costs down to the equivalent of an in-state public. UMass-Amherst costs about $31,000/year for tuition, room, and board, so the kids should be fine. RE grad school, I don’t believe that Matt said that he and his wife intend to pay for the kids’ grad school costs, which is completely reasonable.

      • Matt says:

        Correct Sarah – grad school will be on them! Our first will likely graduate debt-free and we will encourage our other two to select schools in which they don’t have to take on a lot of debt, if any.

    • Jaime says:

      While it would be nice for the kids to graduate debt free…it certainly isn’t a requirement for the parents.

      I completely disagree that the kids aren’t in good financial shape. $140k would be a blessing and a great start. Better off than most their age I would bet. The majority of my schooling was paid for in loans. My parents never started 529s for any of us. Heck, I didn’t even know what a 529 was until I graduated undergrad and worked for a financial firm.

    • Jennifer says:

      Having $35,000 a year to go towards college is amazing! My #3 is about to start college. For my oldest the most expensive year was the first year when we had to pay room and board. it cost us about $14,000. My #2 first year cost us $16,000. My #3 first year is going to a private school in the fall, got a lot of scholarship money and it will cost us $12,000 a year. If done right $35,000 is PLENTY!

      • Matt says:

        Thanks for sharing Jennifer. Not sure where you live, but those are very reasonable college costs! The engineering school I went to 30 years ago cost $15k per year tuition and another $5k room, board, and fees. Today, that school charges $55k for tuition and $18k for room, board, and fees = $73k per year!

        • Jennifer says:

          Matt, you are assuming your children will get zero scholarships. My kids have not gone to need-based aid schools, they have received various scholarships based on GPA and test scores. All have gotten some help. I am in OH. My oldest went to school at WVU and got in-state tuition and a $2500 scholarship. My second went to a state school and earned a large scholarship. My third as I mentioned is going to a private school in Vermont and has good, not great GPA and test scores and got a ton of scholarship money. You can’t count on money, but if they have good-great grades and test scores and apply to the right schools you can get the cost down significantly.

      • I think it does depend where you’re at and what type of program you’re doing, but college costs have really skyrocketed. The cost of attendance at the school I attended 15 years ago (“public Ivy” but in-state for me) was about $12k, including room and board; that’s about $17k in 2021 dollars. But the current cost of attendance is listed at $34k for in-state residents!

  7. Jenny Trostel says:

    Matt and Laura have done a great job. Being able to fund your children’s education and to fund your retirement is great. Regarding college tuition, let your kids look for scholarship opportunities to help cover the costs. Also, if one child does not use all of the money saved in a 529, the next child can use those funds since college costs continue to rise, this may help with child #3. I agree that paying off the mortgage would be a smart thing to do. It will free up cash while you continue to look for a rental property. Thanks for sharing.

  8. Beth says:

    As someone who grew up “poor” and is still currently “poor” as I stay home with our littles and my husband is starting a business I wonder about some things as it relates to the teens. (To define, we aren’t actually poor – we aren’t hungry, we own our small house, and we aren’t in debt except for the mortgage. Our needs are met which is more than a lot of people.) When we think of college (still about 10 years out for us) we’re discussing the unlikeliness of our kids going to top school. How can we prepare them for a decent career without that? You don’t have to have a degree depending on your field. My brother is in tech and has a well paying job. He doesn’t even have a bachelor’s degree. He and several of his friends in college dropped out and started a game development company. It went nowhere but now they all have good jobs because of the experience they got. Obviously you can’t go into medicine that way but we are seriously looking at alternative methods of education and/or alternative careers that don’t require the over valued bachelor or even master’s degree.
    Second, I think teens can get used to a certain standard of living that makes it hard for them to adjust when they hit their careers that don’t pay as well initially and also are carrying student loans. My husband and I (both the oldest) remember growing up when our parents could barely afford a trip to McDonald’s every once in a while. My sister however, who is 12 years younger than me, grew up in a very different financial situation. My parents had more discretionary income and ate out more, bought better groceries, etc. Now she’s newly married with low income jobs and school bills. But they still felt like they could take a vacation because the housing was free. They bought lobster on vacation but then when they got home they had to postpone getting their cat fixed because they didn’t have enough money. Thank goodness they don’t have credit cards!
    Anyway, my point is, I suggest making your teens pay for as much as possible. By highschool I had jobs, basically bought my own clothes and other things, and was expected to save for college. I would look at your grocery and eating out habits too. Maybe make a challenge of it with your kids. Even reward them with something special at the end of six months if everyone could figure out how to cut the food budget by a significant percentage. It would help your budget but more importantly it would help them learn how to live cheaply before they end up on their own with an income that doesn’t match the lifestyle they’re used to.

    • Matt says:

      Thanks Beth for your comment. I left the corporate world when my kids were 6, 4, and 2 and my wife stayed home with the kids during that time so we were in the same boat as you. In those days, we were not able to save much if at all, let alone fund their 529 plans. Eventually, over a long period of time, we were able to start saving again and investing in their 529’s. We don’t expect any of our kids to go to a “top school”, but even the state schools are $35k per year (around here). Your point is well taken about having the teens pay for as much as they can to understand the value of the dollar. We’re doing this the best we can.

      • Holly says:

        Kind of off topic but I wanted to plug that Canadian international tuition may be cheaper than your state school 🙂 McGill university is currently $25,000 Canadian dollars per year and living expenses would be in Canadian dollars too.

        • Matt says:

          Thanks Holly – we actually looked at McGill. It’s a great school and a good value, even for US residents. It’s an incredible bargain for Canadian residents.

          • Coll says:

            One of my sisters went to McGill and it was a bargain and a great experience! However, a word of warning: as an American who returned to the U.S. to work after graduation, she found the benefits of being an alum of a top school didn’t transfer here from the Canadian system. She had no real network of McGill grads to tap into here when getting started in her career in the way that a school of similar rank in the States would have provided. It worked out fine and she has a lucrative, successful career in business now, but she attended an American business school.

          • Emma says:

            Just wanted to say I went to McGill and there were a lot of Americans attending. Most went back to the US and have great jobs now.

          • Holly says:

            As to being a bargain – yes, but now I’m paying the taxes! But I like our system better as progressive income tax seems like a much more equitable way to fund education than private debt. As to alum networks, it’s true that this isn’t really a thing in Canada, and while McGill would like to sell itself an Ivy of the North, there really is no such thing. Most Canadian universities are about equally good, unless you’re looking at a specific graduate or professional program.

    • An says:

      I agree – I also grew up in a family that would order takeout or eat out only a few times a year, and our outdoor/recreation activities involved hiking in the mountains rather than expensive sports.

      Those may be priorities for Matt and Laura, but I would also suggest lowering expectations where it makes sense. The idea isn’t to make anyone miserable, but to explore other sources of pleasure and entertainment that come with a lower price tag. In fact, with the changes brought on by COVID, it may be a perfect time to reassess whether the lacrosse or the skiing, etc is something they truly want to continue investing their time, energy and money into.

    • Jackie says:

      Perhaps, but if the other kids choose fields such as CS (like the first one did), this is unlikely to be a problem for them!

    • Alexandra says:

      Beth I love your comments!!

  9. Kimberly says:

    It’s wonderful that you are saving so much for your children to afford higher education. Considering you both make excellent incomes, funding 529s makes sense. However, if you are concerned about downsizing and losing income, then I think your savings should be focused on retirement.

    Ideas for making the most of the 529 accounts include going to community college and then transferring to a 4-year college. For example, I went to a community college nursing program and have been able to make $70k/yr while finishing my bachelors. This could get the most bang for your buck. If they are doing sports, then potentially a sports scholarship could help as well. I agree with Ms. Frugalwoods about a part-time job or having them have some skin the game for paying for their hobbies. I have seen where parents have matched what their kid could pay for what they wanted (ex, they save $2,000 for a car and the parents match the $2,000).

    I agree that there is too much money in cash. Paying off the mortgage will pay off the debt and meet this goal. I think they need to clarify their goal of the real estate investments. They said that they wanted diversification in real estate. I recommend Paula Pant’s Afford Anything blog and online course if they are interested in real estate. However, there are other ways to add real estate to a portfolio without owning property. A REIT could be a good option. A rental might not be the best solution for the level of risk and amount of money dedicated to this plan. I think they need to think with the end in mind since they are so close to a traditional retirement age and voiced concerns about downsizing.

    If money is moved from the real estate goal to your taxable accounts, then it will make quite a bit of passive income immediately and bridge them to accessing their 401Ks penalty free.

    Another question is if they are going to downsize once their kids move out. This could free up cash for rental properties or retirement (property taxes, home care, improvements).

    Finally, their cost of living is going to go way down once/if their kids are independent in terms of food (1000 for groceries and eating out), tuition (1300 and 50 books), and hobbies (250 clothes, 120 phones, 147 + 112 + 32 for sports, 50 haircuts). This is 3061 a month for expenses for your children or 36,732/ yr. Removing this cost takes your annual spending down to 84,336. A change in spending such as this should be considered in their projections. If this assumption is used, a portfolio of 2.4 million with a 3.5% withdrawal rate should cover those expenses assuming history rate of returns and a 25 year retirement period. However this does not include future expenses (health, etc) and inflation.

    • Matt says:

      Thanks Kimberly for your comment. To clarify our real estate goals, we’d like to purchase up to two properties w 15 yr mortgages (one beach condo, one ski condo) that we can use (in the off season) and rent out to hopefully cover the majority of the annual cost of mortgage, taxes, maintenance, etc. If we could make this happen, we would have 3 properties paid off in 15 years by the time we turn 65. At that time we would likely sell our primary residence, move into one of the condo’s and cashflow the other one.

      Can you explain this further?: “If money is moved from the real estate goal to your taxable accounts, then it will make quite a bit of passive income immediately and bridge them to accessing their 401Ks penalty free.”

      • Anne says:

        Having seen parents go the seasonal rental route, run conservative numbers when estimating what you may earn with this. The problem with seasonal rentals in the northeast is that there is a very short peak season (summer only gets peak rentals July-August and sometimes half of June). So you are covering 12 months of mortgage, property tax, condo fees, and maintenance with 8-10 weeks of income. Plus you deal with 8-10 separate renters each year, having to get the place cleaned in a short time between rentals, and headaches if anything breaks during someone’s vacation. It is unlikely you could get a 15-year mortgage that would cover all the fees, so either you would be looking at a 30-year mortgage that is potentially cash-neutral or a 15-year mortgage where you have significant monthly expenses to cover it.

        It looks like you have the finances together to cover your other goals (paying off your mortgage, supporting your kids through college, and retiring comfortably) pretty easily without getting into real estate. So I would ask yourself very seriously if the real estate is really about an investment, or if it is really about wanting a beach or ski place to enjoy. If it is about investment, I would skip the hassle in favour of stocks. If it is about wanting a beach or ski place to enjoy and to help cover the cost through rentals, then by all means do the math on if you can afford the monthly outlays with a conservative rental market, and go for it if it makes sense financially and you will enjoy it.

        • Matt says:

          Thanks Anne – we need this sort of reality check from those who’ve gone down this path before us. Much appreciated.

      • Kimberly says:

        I can clarify what I meant. Moving $300,000 to your taxable accounts would make about 10,500 with a 3.5% withdrawal rate. Since you can’t access your 401ks until 59 and 1/2, you could use this passive income either to reinvest or use for fun. This is like what Our Next Life did as part of their retirement plan (https://ournextlife.com/our-early-retirement-vision/ ). There is an opportunity cost of not investing in real estate, but it is another option for passive income. It would be awesome to have a place in the mountains and water to go to. That is very much in line with your outdoor goals!

  10. Nora says:

    Matt – you’ve done a lot of research and I LOVE this case study as someone in MA who is debating the cash/benefit argument right now. The market is insane – for condos, houses, etc. My parents were looking to buy a ski condo and the market just skyrocketed. Homes in my area (near Foxboro), are going the same weekend for asking or higher. I wouldn’t invest in real estate right now but that’s just me. I’ve been casually tracking the market and it doesn’t make sense to jump at a high cost property as an income property. HOAs and maintenance in ski condos tend to take most of the profits unless you give up a lot of good on season days. My parents decided to do seasonal rentals for that reason – obviously missing out on the market gains – but I have serious concerns about the viability of many NH/VT/ME ski mountains. Unless it’s in a major area, I’ve seen too many go down recently and their condo owners SOL.

    For the technical investing, Matt, you seem very well educated. I’m in finance so I’m harkening back to my college days, but our professor always showcased the studies that showed the S&P/DJ beat the brokers every time. People get lucky (Hey Gamestop!) but it’s rare. If you have a long lead time, I’d invest in the market instead of real estate and sit on my hands. However I’m more risk adverse and I hope to see an update on this case study!!

    • Matt says:

      Hi Nora – yes, the RE market here in MA, NH, ME is insane! Homes in my town are selling above asking with multiple offers in one weekend as well. Thanks for your thoughts on investing. My investing philosophy is a mix of Warren Buffet and William O’Neil. I believe in buying great companies and holding them forever and use charting from O’Neil to figure out when to buy.

      • Kathy E. says:

        Invest in some of the indexes or ETFs, but also invest in dividend stocks. Your dividends will compound. Be aware that when you sell in a taxable account, the gains are taxed either at short-term (as income) or long-term at (0/15/20%) according to your tax bracket. An advantage of a taxable account is that if you have short-term or long-term losses, you can offset your gains with your losses, and for the excess losses, you can carry-over to the next year.

      • Kate says:

        I’m in Worcester which has gone wild. We wanted to buy a 2 or 3 family but nothing makes sense. Friends are offering 35-55k over asking and still being outbid.

        • Michelle says:

          I’m 20 minutes north of you Kate & it is insane. I would love to have Matt’s challenges right now, even with a master’s degree due to health issues I’m “poverty level” and if it weren’t for my folks assisting me with my condo rent (ex bailed) I’d be homeless. My folks still owe on their home at 77 and they have poor health but can’t sell because it’d cost more anywhere else. I’m paying more rent than Matt is for his mortgage. Central MA is crazy right now with rent & housing prices. At least my landlord is an old high school friend of mine so I at least feel good about writing the check.

  11. Marie says:

    Hi, I’m 18, and I’ll be a freshman at Vanderbilt in the fall. I received a full merit scholarship to attend. Here are some tips to do the same: apply for EVERY merit scholarship the school you’re applying to offers. American University, University of Richmond, Vanderbilt, and BU all have really great merit scholarships you can apply for. If applying to private schools, only apply to ones where you can apply for a merit scholarship. In terms of making yourself attractive for a merit scholarship, it helps to have good grades so a GPA >3.75. Mine is a 3.8. Also being a National Merit Scholar is a fantastic way to save money too. Also, you all might be able to qualify for some financial aid since you’ll have multiple children in college at the same time. This is super random, but check less prestigious state schools like University of West Virginia. UWV in particular offers really great merit aid.

    • Matt says:

      Congratulations Marie! Wow, a full merit scholarship to Vanderbilt is something you should be extremely proud of. And the fact that you read this blog tells us something about your maturity at such a young age. I’m curious, what will you be studying?

  12. Natalie says:

    Matt,

    I am retired from a university teaching job. Over the years I observed that too many students don’t know how to study or do not want to study. They are not prepared for the academic options nor are they prepared to be so enticed by social activities as they are. I saw the annual tuition increase from a truly reasonable and affordable amount to, 4 decades later, a breathtakingly ridiculous amount. I saw the classrooms filled with fewer of the highly paid professors and more of the adjuncts, piecing together an existence on $15,000 a year and being unable to meet individually with students. (I should also stress that many adjuncts are more talented and accomplished teachers than the full professors). I saw some students who were determined to become engineers repeatedly fail math. I saw a lot of students repeatedly failing foreign languages.

    I suspect that you and your wife have prepared your children to evaluate their positions and to pursue not only what interests them but to have specific goals in mind. When the goal changes (as they often do) the swifter the pivot, the better long-term.
    The only helpful thing I have to say is that students with strong purposes and clear knowledge of their limitations and their gifts can end up saving a lot of money by NOT spending it on such things as year 7 of undergraduate school or year 12 of graduate school.

    • Matt says:

      All good points – thank you Natalie for your unique perspective!

    • Elizabeth says:

      Adjunct teaching is truly poverty level employment. My husband was recently offered a summer Intro to Physics course at his R1 University with a compensation of $1800 for 9 weeks. He would make more ringing up purchases at Costco part-time.

  13. Aurora Leigh says:

    I’m excited to actually have something help to add regarding cell phones! Check out Cricket (uses ATT&T towers I believe). They have a 4 lines unlined plan that is $100/month. My hubby and I split this with his parents and have been very happy with the phone service and the customer service at our store was super helpful as well.

    • Matt says:

      Thank you Aurora – our phones are linked to Verizon I believe so we’re limited to MVNO’s that use Verizon. I think we must be the last one’s paying full price on Verizon ha! Anyone use Mint Mobile?

      • Lindsay says:

        If your phones are paid off, you should be able to go to the Verizon store and have them unlocked (un-linked from Verizon). They can only keep them locked for 60 days after you pay off the phone, but they do make it challenging to unlock them without going in person.

      • Laura says:

        Yes Matt I use mint mobile in north central MA and I love it

      • Laura says:

        We have used both Page Plus and RedPocket which use Verizon towers. Both have been good for us.

      • Valerie says:

        I switched to Mint about a year ago after reading about it here, I would never know the difference. I pay for a year in advance and it boils down to about $15-20 a month. I have plenty of fast data everywhere. I highly recommend it!

    • monica says:

      Also-make sure you look at Verizon prepaid plans! I have 3 phones on Verizon prepaid with unlimited voice and text, and 6G data on each line. Cost is $85/month. I know people love unlimited, but in the last 4-5 years non of us has ever reached our 6K limits , and in fact typically use less than 1K, so you might reconsider the necessity of unlimited data – almost every where we are has wifi.

      • Matt says:

        Thanks Monica – we’ve tried plans without unlimited data and the kids all go over because these days it’s all about watching tick tock videos on their phones which chews up data. I’m going to look into switching us over to Mint with separate plans as my wife and I don’t need unlimited data.

  14. Kristen says:

    I don’t have teens yet so this is all good info! A small thing Matt could do is add 529 contributions to the kids’ birthday and Christmas “wish lists.” I know it’s not always the kids’ favorite gift. But it really adds up. I’ve done that since my kids were born. It reduces the number of toys in the house and enables us to save more for the kids.

  15. Casey says:

    Nice work! Since it appears you already have plenty saved for retirement, instead of contributing more to the 529’s have you considered using your IRA money to fund university? IRA funds can be withdrawn penalty-free for education expenses, don’t typically count against financial aid (I’m pretty sure 529 funds do), and can be used for anything once you are actually retirement age.

  16. Stephanie M says:

    Have you looked into a health savings account, if your employer offers a high deductible plan?

  17. Trish says:

    I absolutely loved this Case Study and just want to congratulate Matt & Laura for setting their family up so well. Not everyone gets this kind of great example or start to their college education. I agree with all the advice Mrs. FW gave (not surprising as she is my guru) but if I were in your shoes I would save a little bit more in the emergency fund, maybe up to one year of expenses, only because right now Matt you’re feeling like a restructure may come your way. This would cover one year of your expenses without feeling like there was an elephant on your chest. This is something you could do just through the rest of 2021, as I think the economy is still in a bit of a lurch from the pandemic. Once it settles down and you’re feeling more confident with your position you could bring the emergency fund back down to 6 months of expenses and throw the balance at your brokerage index funds.

    Another thing you may consider is front-loading Kid 2 and Kid 3’s 529’s – instead of paying monthly installments you can deposit your yearly total in one chunk- earning you a bit more compound interest on the accounts. Not a necessity but one more thing you can do to get a tiny more oompf into the accounts for the kids.

    Again, amazing job you two. And thanks for sharing this Case Study, Mrs FW!

    • Matt says:

      Thanks Trish – we agree, our current emergency fund will cover about 16 months of expenses. We will likely reduce this based on Mrs. FW’s recommendations above.

  18. Alexa Kvande says:

    As the mother of one student in college and the other just graduated (and finally employed and fully independent as of 3 months ago!) I want to comment on the issue of working/not working part time while in college. Both my children qualified for financial aid from their expensive OOS private schools. The older one didn’t work; the younger one has a part-time job at the university. They qualified to work on campus BECAUSE they were eligible to receive financial aid. Neither has a car so working off-campus was not an option. I’m glad my first child didn’t work part-time as he struggled academically. I’m glad my second child works part-time as she is a strong student, is very organized with her time, and has more expensive tastes. Both worked full-time most summers, with the expectation that some of their earnings went to tuition. In my experience, it’s something of a paradox: students who qualify for financial aid qualify for on-campus jobs, while students who don’t qualify for on-campus jobs may need a car to get to a job to pay for the car (and other expenses).

    Apart from the financial aspect, however, I think working in any capacity as a teenager is a wonderful experience–even a bad job teaches a person about what work they DON’T like, how to manage their time, how to work with others, what makes a good work environment, how much time it takes to earn the money for the things they want to buy, etc.

    Three final thoughts about teaching teenagers about finances (which I know you didn’t ask about but I thought might be helpful to you or another reader): in talking with my children about earning/saving money, here’s a simple exercise: What can you buy for $1, $10, $100, $1000, $10,000, $100,000, $1,000,000? Sample answers: a candy bar, lunch out, a week’s (month’s?) groceries for one person, a month’s rent, a used car, a small house (outside major metropolitan/coastal cities), a really nice house. Your examples may differ, but learning about the scale of expenses is helpful. I also discussed why buying and having insurance (not just car, but medical especially), is really important, and finally, I urged them to start saving as soon as they start earning a salary, and always to contribute to a 401(k) if they were eligible for matching dollars from their employer.

    Thanks for sharing your story and best wishes to you and your family!

    • Matt says:

      You bring up an important point Alexa. My son wanted to work on campus, but couldn’t because he doesn’t qualify for financial aid. As a Freshman, he’s not allowed to have a car on campus so it’s certainly the paradox you speak of. We’ve tried to ingrain in our children an understanding of work ethic and the value of the dollar. They all don’t seem to have an issue with working, it’s getting them to not spend their hard earned money on a $7 drink at Starbucks that needs work, no pun intended. 🙂

  19. Julie says:

    Why did you recommend to save for college slowly? We just put $10,000 into 529s because that’s the Max we can deduct on our state income taxes and putting them much into a 4 year old’s account should see good gains vs over longer time.

    • Elizabeth says:

      I think it’s because their kids are much older. The youngest is 14. They shouldn’t assume any returns at that age and the whole draw of a 529 is to get that tax free growth. But the savings on state taxes should be considered as well. I live in NH so I forget about that.

  20. Kate says:

    I admire your commitment to pay for your kids’ schooling, but you also don’t HAVE to. My parents didn’t pay for a penny of my college education, but were super supportive in many other ways. I ended up keeping a 4.0 and a full tuition scholarship and working part-time jobs and internships to help pay for living costs. Because my parents DIDN’T pay for college, I graduated at the top of my class, debt-free, and with five years of work experience. Just an alternative viewpoint to consider. Both paying and not paying for college are valid options as parents.

    • Matt says:

      I absolutely agree with you Kate. But my parents helped me get through engineering school (with loans) and my wife’s parents helped her get through engineering school without loans. We’d like to do the same for our kids, but recognize it doesn’t create the same “fire in the belly” when one is on their own.

    • Cara says:

      I just did the math. I looked up the tuition of the university I attended straight out of high school (I’m the same age as Matt). It’s $16000 a year (within state). If I’ve done my math correctly, a student would have to work 30 hours a week at $10 an hour (before taxes, also $10 is higher than the minimum wage in my home state) to pay for tuition. But when I went to college, my hourly pay was $3.65 an hour (again, before taxes) and tuition was $3000- that’s only 15 hours a week. I’m all for hard work and autonomy too but nearly full time hours with a full course load is a big ask (and my calculations didn’t factor in living costs, transport, fees or textbooks).

  21. Noel says:

    I have 2 in college using 529’s, one at private college one at 4yr state/jr college.
    My problem is with their choices of Jr college, some of the expenses were greater than “528 qualified amount for that school” housing fees.
    50/50 Roth/529 combo may be a better option for you as you can withdraw the principal for college expenses offer them a bonus if they don’t use them.
    My 529 accounts have increased in value substantially and i have rolled them between kids as needed.
    College hacks for my 4 kids have included: dual enrollment, living at home (thanks corona), & 50% scholarship to private college (thanks son!).

    • Matt says:

      Appreciate the college hacks Noel. We don’t qualify for Roth – are you talking about Roth in kids names?

      • Jessica says:

        Some employers offer a Roth 401K option. Some employers also offer an “after tax” account which can then be rolled into your Roth IRA. The after tax account is particularly great, if offered, because it allows you to greatly exceed the normal retirement contribution limit (something like 37k more per year). Look up the “mega backdoor roth ira” and see if your employer 401k offers it!
        There is also a “backdoor roth ira” but I know less about that.

    • Jessica says:

      Roth is also great because retirement accounts don’t count in financial aid calculations!

  22. Rachel L says:

    Impressive. What, no picture of Waffles?

  23. Cari says:

    Thanks for sharing! I’m finding this very helpful for discussions. I’m in Seattle with a similar situation, just 10-15 years younger.

  24. Paula says:

    Matt, we have 2 professional jobs, a real estate portfolio, and no kids. It sounds tricky to manage a vacation rental and make it work for personal and investment use. With $1m net worth, you should investigate RE opportunities for accredited investors. Places like FundRise and a NoteFund from PPR Note Company are things we’ve invested in for a really good return, sometimes as high as 12%/year for a 3 year term as a way to get into another asset class besides index funds. It’s a way of staying passive and making good returns for no effort. We are converting our rentals to these sorts of instruments as we consider hanging up our jobs and moving overseas within 2 years to a place with lower living costs and universal healthcare, like Portugal.

    • Matt says:

      Thank you Paula – I will look into FundRise and NoteFund. We still have about 8-10 years before all of our kids are out of the nest, but I envy your position to hang up the jobs and move to Portugal!

  25. alysta says:

    My oldest is a sophomore, so just learning about FAFSA, but isn’t your primary residence basically “free?” That would make sense to pay off your mortgage so you have less cash. You’ve done very well (so less likely to really help you), but there’s a chance there may be some benefit to this when you have 2 in college. I’m all for the merit scholarships. I’m also all for kids having some skin the game and helping to pay. It may be a little late for this though since one is already in college.

    For real estate, I would run the numbers on existing properties and see if it’s worth your time. It is a hassle and is a slow road to wealth. You are likely to need a small portfolio, and plan on paying someone to manage it for you. Remember all the things that can go wrong, and replacing a water heater, HVAC, etc. is a greater proportion of incoming rent for a cheaper unit. There are sites that provide basically mid-western homes that are cheap and prescreened, but I would ask how the pandemic (rent moratoriums) impacted landlords. You could get stuck holding a mortgage and having a vacant property. Or the mortgage and someone living there an not paying rent. It also can take quite a while to remove bad actors, which is why you want to pay someone else to manage it.

    Also, there are times when you can pick up properties with good cashflow (search the 1% rule). In most locations, this time is not one of them. Maybe dip your toe into being a landlord by looking into building an accessory unit at your house (aka, garage that you rent out, tiny house for Air BnB, etc.). When I’m done renovating the house I just purchased, I’m going to either build a tiny house or find a cool travel trailer to rent out to offset my mortgage. I also recommend taking a real estate class to get a better overview to the market – best $500 I spent and it has saved me from incorrect information provided by owners even though I have 0% interest in being a realtor.

    Ultimately, you may be able to make more extra cash by doing consulting gigs on the side, but keep exploring to see which option is best for you.

    • Matt says:

      Hi Alysta – the FAFSA doesn’t include the value of your primary residence, but the CSS profile does (mostly used for private colleges). Household Income is the primary factor in determining financial aid.

  26. Ian West says:

    Congrats Matt for getting to such a great financial position. You have both worked and saved very hard to get to this point.
    A left field suggestion (because it is not something you asked about) for you: take the potential restructuring at your employer as an opportunity rather than a threat. If you can exit with a payout, and after resetting your expenses as you already intend, then you have more than enough for a comfortable early retirement and can spend more time with your teenagers before they go out into the world. This is something my wife and I did (I benefitted from a redundancy payout) and, after wrestling with all the usual “it can’t be done, what will people think?” issues, it has turned out to be one of the best things we have done and we are loving all the extra time together as a couple and with our children (19 and 16) and friends.
    This approach also takes the stress out of your current employment situation; you may even find that, if you are not retrenched, you end up retiring anyway! 😁

  27. Shey says:

    Has anybody mentioned high-yield checking/savings accounts? I use a checking that pays 3% a month. I have a variety of savings accounts, ranging from 6.2% to 1.25%. They usually have max limits or tiers on them. T-mobile ($25/a line for us) has a checking account that pays 4% interest up to $3,000 then 1% interest after that. I love BofA (have their accounts, too), but that’s not where I keep my money.

    • Matt says:

      Thanks Shey – who are you banking with to get 3% on checking/savings?!

      • Jackie says:

        Lake Michigan Community Credit Union has a 3% max checking. I know you’re not in MI, but maybe a local credit union in your area has something similar. Usually there are requirements such as x amount of debit card transactions, direct deposit, paperless billing, and so on. They also cap the amount they will give you 3% on. Ours is 15k. Each spouse can have an account, so I have and and so does my husband. We stash a chunk of our emergency fund in these accounts since the rates are better.

  28. Kathy E. says:

    No one has mentioned this, but have you prepared your legal documents such as wills, trusts or power of attorney ? You have 3 children, and with your assets it makes sense to have these documents in place so your heirs are protected and your wishes are followed.

    • Matt says:

      Good point Kathy! These have all been taken care of.

    • Christy Jones says:

      I second Kathy’s comment. I was reading this case study and hoping/praying they’ve taken care of their wills, POAs, trusts, etc. We just did this ourselves through an attorney and it wasn’t cheap ($1500 total) but I sure sleep better at night now.

  29. Lindsay says:

    My parents paid my tuition and some of my living expenses during my undergraduate years (top-tier state school), and I worked part-time as a waitress to cover the rest and save. In retrospect, while I appreciate their generosity, I wish they’d been more flexible with their plans for getting me started in life, which were limited to immediate enrollment in a 4-year university. Had I been given the option, I would have transferred from a community college after my general-education credits and saved thousands. I also hugely appreciate that part-time job. I graduated in 2010, at the height of the recession, and got one of the few entry-level finance positions available because my boss raved about me and because my resume demonstrated work ethic and time management skills. Every applicant they interviewed had a 4.0 and a bachelor’s degree; it was the work experience that put me over the top.

    • Matt says:

      Thanks Lindsay for sharing your story! Congrats on landing that job during the Great Recession – I believe it makes us all stronger as I graduated from engineering school and 10 yrs later the MBA both during recessions, then bought my business just as the Great Recession was unfolding.

  30. Elisa says:

    If you decide to keep your mortgage for now, be sure that instead of a “prepayment” you are making a “principal payment”. A prepayment includes interest, whereas if you call or instant-message the bank (because it’s usually not an option in online banking – they don’t make it easy!), you can make a payment all towards the principal so you don’t waste some of that money on interest. I rarely see this mentioned anywhere so wanted to give you a heads up.

    • Matt says:

      Thanks Elisa – I wasn’t aware of this distinction. I will call my mortgage lender to verify.

      • CH says:

        This is a very important point. Unless you are very specifically putting the extra payments to principal, you aren’t making the most of those extra payments. It was easy for me to do this when I was paying extra on my mortgage because there was actually a box for this on my coupon and I walked into the bank to process the transaction, but it might be a bit harder to get this done online these days as certainly your mortgage holder has an incentive to make this hard to get done – they don’t actually want you to pay it off early.

  31. Jennifer says:

    Teens eat a lot, and they grow a lot. I had 4 at once and currently my kids are 22, 20, 18 and 16. I had 7 at home for 6 months of quarantine. I spent around $1400 a month on food total. I’m sure Boston is more expensive than the midwest but what they are spending is high and they could reduce it.

    Also, the sports your kids have chosen are super pricey. Those costs really add up. A lacrosse stick can cost hundreds. Any sport with ice time? super expensive. I’m not bashing these sports – just stating a fact and this will impact how expensive raising your kids will be. I paid over $400 a month per kid for 2 kids for a decade for them to do competitive gymnastics so I totally get it.

    You are saving an amazing amount of money each month. Based on your interests, investing in another property in a place you like to vacation might be good. You could rent it out when you aren’t there for more income.

    Pay off the mortgage and move a bunch of money into a higher earning account and your savings will grow even quicker.

    • Matt says:

      So true that ice hockey is prob the most expensive kid sport! I swore we would never be a hockey family but it was the one thing our youngest gravitated towards so we gave in. Lacrosse isn’t too bad as our oldest played and our youngest got the hand me down equipment. With 4 kids of similar age, nice to see someone else having this sort of food bill! 🙂

  32. Jessica says:

    Are you hoping to start those businesses for fun, or for money? As engineers, an alternative for some side income would be consulting gigs.

    I mentioned backdoor roth iras and mega backdoor roth iras in a reply above (obviously those reduce tax burden in the future rather than now, but are at least another tax advantaged account). Another option to reduce your tax burden is an HSA. This is only available for some types of health insurance, but if it’s available, it can function as another retirement account. (Note, this is different from an FSA which requires you to use it or lose it every year).

    • Matt says:

      Hi Jessica – guess the answer to fun or money, I’d say both. We’d like to use the RE for some family fun, but also generate rental income from them to help pay them down. The investment business objective would be to generate a better return than the S&P500 while having more control over our investments than a total market index fund. Although after reading Mrs. FW’s comments and those of the readers, I will likely just keep this as a hobby.

  33. Julie says:

    Can you cut the cord on cable if you have netflix and amazon prime? If you want sports looks at hulu live as a cheaper option. The librarian in me needs to remind you that you can get tv shows and movies on Hoopla and Kanopy streaming with a Boston Public Library e-card and check your local library card for streaming options and DVD borrowing—with 3 teens always check the library before paying for any books, audio books, music, tv/movie, newspaper, magazine or video game!

    • Matt says:

      Thanks Julie – we love the library! Kids too. But, we don’t think of it for movies. I don’t think we even have a way to play a DVD anymore. We’re close to the end of our 2 yr contract w Verizon so I’m going to look at cheaper options for cable – we hardly watch tv. Anyone happy with YouTube TV?

      • Rosie says:

        We live in the Boston area as well — we just dropped cable (finally) and got an indoor antennae for $25.00 — it picks up loads of local channels. Also, we have found RCN to be less expensive for internet than Verizon — they may buy your contract with Verizon if you switch (although maybe not if you only want internet).
        Also, re cell phones — the basic Verizon unlimited data, text and phone package in the Boston area is $35 a line with tax, so you could switch to that while you figure out if other options are better. (Although there may be an additional discount if you continue with Verizon for cable as well as phone so you would need to do the math for your specific case.)

      • Sherri says:

        We had hulu, switched to YouTube TV and love it. Highly recommend.

      • Dana says:

        Yes – we cut the cord and switched to YouTube tv years ago. Tried out several similar options and found it has the best quality, UX, etc. We have Comcast still for Internet (no other options in our area) but our cable bill has luckily decreased significantly. Good luck!

      • Katharine says:

        Our library can stream movies too (besides just checking out DVDs). Maybe not the newest and shiniest movies, but we enjoy many of the ones we’ve found. It means we usually only keep one streaming service at a time, and rotate around, though we’ve kept Disney Plus through the pandemic since our kids are younger.

  34. Michelle says:

    I have one seemingly totally left-field suggestion-resell. If you resell online say eBay, Poshmark, Mercari, you’d be able to deduct home office deductions & anything over $600 in MA in sales you’ll get a 1099-K form & you’re considered a “business”. With the whole family pitching in you could make some decent cash and then take deductions as well. Watch some YouTube videos. Hustlin Hooks is a couple that resells used items. The husband still has his day job & the wife just left her part-time job. They have a young child & made over 100K last year! I’ve been reselling as a side hustle. I’ve got a Master’s degree & I was surprised to learn of many professionals/highly educated folks were reselling by choice, for me it was something I could do at home with my health challenges. You’d be surprised though how much $ your kids could make from home & be self-employed! It certainly beats the $5 an hour at GNC when I was 18 and in college working 25 hours a week 😉 lol. Best of luck to you all Matt & kudos on your success thus far 🙂 ~Fellow MA resident

    • Matt says:

      I love this idea Michelle – thank you! My daughter is incredibly creative and is trying to sell her homemade jewelry on Etsy, but hasn’t had much success yet. I’m going to do some YT research with my kids.

  35. MrBojangles says:

    This blog should be mandatory reading for anyone with kids in high school or college and this can be compared to other blogs on this forum where others show their income, which is far less, and their background, usually a college degree in a useless field. I can say that because I have one. Worst advice was when asked what I wanted to do by college guidance counselors in college was to study liberal arts as corporations love this. I had visions of a massive salary and, instead I had few interviews and did not land that corporate job.

    With very few exceptions, IF you are even going to go to college you should study engineering, with few exceptions. I sure wish I did. If you don’t think so, reread the income section of this blog.

  36. MrBojangles says:

    I don’t know how to edit my thread, but what I meant to say, and further clarify, is, as follows:

    College guidance counselors would inquire what you wanted to do with my life. I said I wanted a corporate job. My reason was so I could quickly become management and gave a massive salary. I had taken one accounting course and found it boring. The guidance counselor said I didn’t need to do that as corporations love liberal arts graduates. So I did that. Discovered I wasn’t marketable upon graduation and am doing okay, but am middle class and never had the opportunity to pick amongst multiple job offers and never got paid a huge amount.

    The teenage and early 20-something brain cannot grasp this concept. I remember thinking how highly marketable I was when I graduated. That was in my mind, no one else thought so.

    I simply was not mature enough to pick the right option amongst a sea of majors at that age. Why give me that option? Engineering, maybe business or medicine—or don’t waste your time and money on college.

    I thought it was the route to instant riches. It isn’t, but an engineering degree sure helps!

    • Matt says:

      Totally get your point MrBojangles. I was fortunate that my high school guidance counselor (that I think I met with once) told me to go to engineering school because I was strong in math and science. I had no idea what engineering was! My Dad was a state trooper (back when pay was modest at best) and my Mom stayed at home so they couldn’t offer me much guidance. Best thing my parents taught me was to never quit as Engineering School is not easy and many of my friends dropped out back then. I’m glad we both stuck with it – it only took us 25 yrs to become an overnight success 🙂

      • MrBojangles says:

        My father was in law enforcement as well. We lived in a wealthy town and barely scraped by as the pay was terrible and living expenses were high. I will have to say this is not my parent’s fault. I saw lots of trust fund babies who did very little, went to expensive schools, and got out ans were wealthy. Again, the immature brain cannot understand that, my parent’s told me repeatedly “this isn’t the real world” and I thought they were smoking dope!

        I have at least done things frugally since then. I attended state universities (the cheapest option) and haven’t been a big spender as I have few desires in life that are costly (prefer home cooked meals, etc), and I will eat dirt before I don’t contribute the maximum to my retirement plan. But, I CANNOT stress enough that liberal arts degrees are for the independently wealthy/trust fund babies. Everyone else cannot afford that option! Trust me on that one!

        Fortunately, I’ve done okay with what I have, but I could not find anything more than minimum wage jobs locally, had to relocate 400 miles for my only real job, and have not had the luxury–then or now–of having multiple job offers and a choice as to where to reside. It was basically take this job and deal with it!

        I MUCH rather would have had choices as to what I would do for a living, where to live, etc. An engineering degree provides that.

        Ultimately, the blame lies with me, but I do place the blame on the HORRIBLE guidance counselors who steered me in the wrong direction. Fortunately, you had a good one! Also, what didn’t help things was a calculus class, which is inherently difficult to begin with, taught by a TA who didn’t speak English. Plus I had a roommate who studied engineering and decided I didn’t need that aggravation.

        So, Matt, and others, let me ask you a question. WHY is it that engineering schools try and discourage you to study engineering, why is it so difficult such that many drop out along the way? It’s the ticket to becoming a millionaire and having multiple job offers, so it should be encouraged, not discouraged.

        Even graduate degrees are not the ticket to this sort of success. My wife has one, I have one. It provides for a decent income, but, in the end, hers (law) and mine (veterinary medicine) were not worth the cost and the effort in the end. A law degree isn’t what it used to be and a veterinary degree never was a path to a good income.

        I really wish I was in my first day of college again and was starting out in Engineering 101 instead of garbage like Philosophy and Logic and Biology 101.

        • MrBojangles says:

          EDIT: Does anyone know how to edit this?

          I should have stated I relocated 400 miles for my first job, the pay was okay, but it was a job with limited opportunities. I knew I needed to go back to school, so nearly a decade later, I did, and looked into what my options were, including engineering. The trouble is to go to graduate school in engineering, you need a background in that, which means my options were a liberal arts type of graduate degree (wasn’t going to make that mistake twice!), law, or medicine. The most appealing for me was to go to veterinary school, and the intent was to get a corporate job with that degree–but easier said than done. I have little interest in working at a mom and pop vet clinic–long hours for low pay and ZERO benefits. And so I work as a veterinarian at the government level. Pay is okay, nowhere near yours, but benefits are decent. BUT, if you figure in the cost of this degree, student loans, and 4 additional years out of the workforce, NOT worth it at all!

          So, I wanted to clarify.

          Maybe I should give some numbers, to compare:

          Over 20 years in the government, and I have yet to crack $100K a year base pay.

          Student loan debt–almost paid off, and mine was never greater than $80K. There are folks I know getting out of vet school with over $500k in debt and they get out and find out how horrible the pay is. I count myself LUCKY having chose only to go if I paid in-state tuition and having attended before school tuition became BLOATED. Plus, I had nearly 10 years work experience before attending veterinary school and had saved some money and had zero debt at that time.

          FAR, FAR easier to just get an engineering degree starting at age 18 and get it over with! 🙂

          • Jessica says:

            I totally agree that engineering is a great field, but I don’t think it’s unreasonable that engineering degrees are hard. Firstly, lots of engineering jobs have responsibilities that would cause huge problems if they went wrong. Secondly, engineering jobs are also hard, and you need to be prepared to do them. Thirdly, I imagine that part of why employers want to hire engineers (even for positions that aren’t actually related to their field of study) is that they know engineers will be smart problem-solvers.

            The advice to go into engineering (or even better, computer science) if you are good at STEM classes is good. However, I know way too many people who tried to study engineering based on adult’s expectations who were not a good fit and wasted a semester of class before changing majors. They didn’t enjoy or understand the subject matter, while others did. I don’t think anyone should go into engineering that isn’t interested in it & willing to put in the work. If you’re just interested in a major that will pay the bills, business is much easier and can also be plenty lucrative.

          • Laura says:

            As an engineer, I would say the main thing that it does is retrain the way you think so you are a better problem solver, cause ultimately, that’s what we are. As far as being difficult, its super important that you don’t make a mistake. In my field if I make a mistake, thousands of people could die instantly, and others in long term consequences (I work in water resources on water supply, hydropower, and flood control structures mostly). Its extremely high risk work that not everyone is cut out for. There are obviously other areas of engineering that are not as high risk but I know my field is not for everyone.

    • JessMarie says:

      I completely disagree with this as a liberal arts Philosophy major who has parlayed that into a rewarding corporate career. When hiring into the management consulting world we weighted candidates who demonstrate the ability to problem-solve and think critically more favorably- these often were candidates with liberal arts degrees rather than business degrees. I think regardless of degree, the important component to getting multiple offers is being able to demonstrate how your talents will add value to the corporate world. What my philosophy degree gave me was an ability to navigate complex situations and information to understand the root cause and distill a simple logical solution.

      • Allison says:

        I’m with JessMarie on this one. I have several friends and relatives who are multi-millionaires with liberal arts degrees. My best friend has an anthropology degree and has worked in finance all her life; she jokes that it gave her a good understanding of primate behaviour in brokers. She’s the VP of sales right now in a big multinational. My old boss, also a multi, has a film degree; my cousin, who until recently was CFO at a housing organisation in the UK, has a degree in old Norse (nope, I’m not making that up people!). And my oldest brother, by far the richest one of them all, has a year and a half of college under his belt, before deciding it wasn’t for him. And I’m very proud of my English degrees, but then I knew I wasn’t gong to be rich, ever; I just loved doing them for their own sake. And I’m not even remotely a trust fund baby either!

  37. KP says:

    For tax savings, this will be fairly insignificant, but it all helps… do you have an option in either company to do an HSA? You’d need to be on a high deductible health plan which may not be what you’d like given the kids, but it’s an option if your companies offer it. Taxes suck… we’re in a similar position and you’re maxing out most of what you can do!

    Real estate everywhere is nuts right now. We’re in CO and our area is one of the many that everyone seems to want to move into. People are paying tens of thousands over asking, I’ve heard sometimes over like 100K, and what seems extra-nuts is the homes are actually appraising! There are many cash offers as well. I’d never consider buying a 2nd home in this market. It’ll have to settle down at some point you’d think. Besides it not being an ideal time to buy, it sounds like you’re looking for property in another location. While Matt is skilled at DIY, that’s not a great option if the 2nd home is 5+ hours away. Working remotely has the advantage that he could stay in the 2nd home while repairing/fixing it up, but if the plan is to rent it out when not in use…. probably going to need to pay a property manager, cleaner, etc which eats into profit. It’s a great idea, in theory, to have rental properties, but there are many factors that go into this being a money maker. If one doesn’t care to cover the mortgage, taxes, insurance, and extra costs, then sure, have a 2nd home. But if it’s to make money, replacing the AC eats into profit, every repair and improvement eats into profit. It definitely can work, but my friends who do well w/it bought during recessions and those who are not doing well didn’t do ALL the math and figured a couple hundred profit a month was “good enough”. It’s just not. 🙂

    Best of luck to these guys. They have most of this figured out!

    • Matt says:

      Thanks KP – Laura does have an HSA, but not sure we’re using it as much as we could in terms of a tax shelter. The RE we’re considering is at most 2 hours away so while DIYing a rehab would still be difficult with our full time jobs, it’s not impossible to stay up there during the week and work on the home in the evenings. Our goal would be to best case break even on the annual costs of the property through short-term rentals, but recognize that this may not be realistic.

  38. Nancy says:

    Matt, this is an amazing column and you deserve to be proud of your planning and execution of a well-planned and thought-out financial situation. Two thoughts: do your children know and understand how well you have planned and are providing for them? If you haven’t had age-appropriate family conversations about your overall financial picture, you should do so (not for pride, just for facts). Children should know how their family has been able to provide for their present and future (or not provide, if that’s the case). Consider their input too as far as ways to hold down food and hobby spending and lifestyle inflation. The more they can absorb now the better they will be able to face their own personal financial futures…..and even their college/major choices. Hopefully it will also foster gratitude for what you are doing to provide so well for them. Secondly, encourage them to do part-time work. Whether or not they need to is not the point….the experience and skills learned should be considered part of their education. I work in food service, and our team includes many high school and college students. Watching them develop as workers, team members, and responsible young adults is not just rewarding but fun. It enables them to learn time management skills, consistency, responsibility, hard work, and to earn for needs and wants….all part of developing the next generation of responsible adults, not to mention a valuable addition to any resume.

    • Matt says:

      Thank you Nancy. To be honest, before compiling all of the information for this case study, I don’t think we were aware of “how well we’ve planned and are providing for the children”. It’s the conundrum of the paper millionaire – we don’t feel like millionaires. We drive old cars, we wear old clothes, we buy used stuff, we bargain hunt our vacations, etc all so we can save enough for college and retirement. We do need to share more with them about our overall financial picture – great advice! The kids will all work part-time jobs. Our oldest started at Dunkin Donuts – a staple here in MA.

      • priskill says:

        I second Nancy’s point — you have much to be proud of!! And your kids would benefit from understanding the full nature of living below your means in order to fund all the good stuff (if they don’t already know) and it does sound like you have instilled the idea of value and work in them — Bravo!! Enjoyed reading this and all the sage advice given. Good luck to you!

  39. Erin says:

    Promo’ing Mrs. Frugalwoods’ great blog post about a frugal approach to college. Good to share with your kids. I’d echo other comments about a BA not necessarily being worth it. I work for the government and there are no educational requirements; I work with a lot of smart people who just did high school and maybe some college/trade and make the same as me with my with two degrees. https://www.frugalwoods.com/2015/07/15/our-guide-to-a-very-frugal-yet-still-awesome-college-experience/
    Echoing an earlier reader comment about Canadian schools. Lower tuition and the exchange rate plus a great experience. 😊
    If you want to play around with investing, I recommend a practice investing account. No risk!
    I’m going to be a bit of a downer and recommend you put a good chunk into your emergency fund and pay off your mortgage. Health issues do pop up, especially in middle age, and can decimate your savings, even if you have benefits. “Nobody regrets having too much money saved” is one of my mottos now due to an out of nowhere serious diagnosis for my husband.
    Sounds like you have a nice, smart, sporty family! Best wishes Matt and Laura!

  40. Margaret says:

    https://www.mass.edu/strategic/cdep.asp

    Dual enrollment in Massachusetts

    Something to think about if it is a good fit for your 2 youngest. This program can help a college student finish in 3 years or be able to have first choice for classes, as they may enter College as a Sophomore

    It is a gift to children if the amount of debt they leave college with is minimized or eliminated

    • Matt says:

      This is interesting Margaret – thank you. This is something we’ll keep in mind with our daughter as she enters her junior year this Fall.

      • Lindsay says:

        These programs are great! Being able to register earlier is a godsend, especially if you do a tough program or 2 simultaneous bachelors (I did). It’s awesome that MA has one; I’d recommend it over AP/IB classes.

  41. S&M says:

    Shey,

    I’m curious about the saving accounts you mention that pay 4% or even 6.2%. Knowing the interest rates today, what’s the catch with the accounts you mention? Matt has $200k+ of cash (assuming they’ll use the rest to pay off their mortgage or divert to investing in a taxable account). Considering their busy work schedules (he says that it feels more like “living work” than working remotely from home), it might take too much time and effort to open say 20-35 accounts (considering $4k-7k) to reap 3-4% especially if they require to jump through various hoops to satisfy requirements each months to earn that interest (e.g. make 10 debit transactions a month or make sure to login online a few times a week, direct deposits in each account, etc.). If there are no such requirements then I’d be curious to hear about such accounts too if you could divulge a few.

    @Matt,
    It’s not a problem that you earn too much to invest into Roth IRA directly. There’s a thing called “Backdoor Roth IRA” that you can google. However, considering that you both have Traditional IRA’s, this might not be good for you unless you can you roll them into your current 401k’s if your employers allow. In addition to that, I’m not sure if your SEP IRA would still hinder to do backdoor Roth IRA for you or not. Since I’ve never had SEP IRA, I don’t know.

    A great case study. I’ll revisit this blog again to see if more people share tips re college education as I have two kids slightly younger than your two young ones. I’m also concerned about education vs. ROI value. I’ve come to view college education is this country as a serious business machine which frequently leaves people drowning in debts upon graduation due to mis-presentation by colleges or wrong profession choices by students and unfortunate timing (graduating when job market is very weak, etc.)
    I am sometimes conflicted as a parent in regards to advising my kids in terms of their career choices because of my approach to money in general and how the kids might interpret my advice. We’ve lived quite frugally compared to the Joneses generally speaking and we’ve tried to explain to them that there is more value in saving than in spending on things. However, it’s much harder to explain whether it’s better to study in the field that will pay a lot of money, but that degree also costs a lot or study in the field whose tuition should be way less, but the job if it can be found will also pay not much. E.g. one of my kids had a variety of aspirations (granted they began in the middle school and they might still change before graduating HS in 3 years) such as being a vet, then becoming a physician, and now is very interested in marine science whatever it is. I’ll need to explain better that once I spend on tuition in marine science, I won’t be able to sponsor another education or even support living expenses as the jobs are not that well paid and they are scarce too. OTOH, I don’t think I want to convince my kids study something that would pay good living but be accused later that it was my ‘dream profession’ imposed upon them and they hate the job.

    • Matt says:

      Thanks S&M – I will certainly look into the backdoor Roth. Every parent has the same conflict – some good friends of ours just had this discussion with their daughter (Senior in HS). She said she was interested in teaching and nursing. They didn’t push her one way or the other, but showed her the expected incomes and future expected demand for both professions. Since she was equally as interested in both, she decided to apply to Nursing school.

      • And the great thing about doing nursing is that you can very easily pivot into a nursing education career track (e.g. faculty of a nursing school, preceptor for junior nurses, etc). Whereas if you train as a teacher, you can’t exactly get a job as a nurse.

        It’s the same way in medicine — I’m a doctor but back when I was in high school, I thought about teaching literature instead. (I had some really inspirational lit teachers/professors in HS and college). Now I spend 50% of my time seeing patients and the other 50% teaching literature to medical students!

        Careers are funny and flexible things.

  42. LongTime Frugal says:

    If your your college age child does *not* have a car at college, you should be able to get a lower rate during the school year. We did this for 7 years when ours were in college.
    The main reason we always took frugal vacations when our kids were growing up was to save money for college and not jeopardize our retirement. In various numbers of family members, we’ve vacationed together once the kids were out of college (I am not fond of “traveling”, unlike the rest of the family. But I have no issue holding the fort when they want to travel).
    Get used to filling out the FAFSA. I hear you re: no help. I am not sure what their formula is for living expenses but in a nutshell, our expect contribution was equivalent to sending our kid to Harvard.
    While you strive to lower the amount of taxes paid, remember there is no such thing as a free lunch. Once I hit my 50s, Roth contributions only for me. And I’ve started thinking long and hard re: withdrawals from my taxable retirement accounts.

  43. Tom Marshall says:

    Matt- I am very impressed with the way you and your wife have handled your expenses and investments. As a widower grandpa I have set up 529 accounts for my five young grandchildren and both of my sons have done the same. For birthdays and Christmas I add $100 to their 529 accounts and give them a smaller value gift.

    My wife and I tried to save and I was fortunate to cash in some stock options to help pay for expenses. My wife also earned a good income. Both of my sons worked while they were in college as well as summers (no going to Florida for spring break). We were able to fund their books and tuition with some help for their room and board. One son graduated in 3 years (cum laude) so he saved us some money.

    Regarding community college, we were fortunate to have a high quality community college near our home and my sons took some classes there that saved us some money. My wife graduated from there and eventually finished at another university and taught elementary school for five years before passing away from cancer. I also went to a community college in another town before transferring to a university and finishing my degree. Community colleges are very good and it was our collective experience that the quality of education was comparable to the universities we attended.

    I hope my experiences have helped. Good Luck. It looks like you are well on your way to achieving your goals.

    • Matt says:

      Thanks for reading my case study – appreciate your comment Tom. So sorry for your loss. One of the greatest gifts grandparents can give their grandchildren is contributing to their 529’s, but not all are in a position to do this. There are some excellent community colleges that have built-in transfer programs to 4 yr colleges (in engineering for example), but none near us. Still, we will look at this as an option for our younger 2.

  44. AJ says:

    2 fulltime work out of the home parents, 3 kids (much younger than yours) and a real estate portfolio here. Your case study seems like my future!

    I agree with Ms FW about using the rainy day fund to pay off your mortgage. You still have plenty leftover for a down payment on a rental. At your savings rate you’ll be able to replenish that fund quickly too. (And possibly cash flow some college too if you want).

    We have 3 rentals, all single family homes located close to where we live. We manage them ourselves and do 80% of the repairs too. Some times it’s a lot of work but we think it’s worth it. The houses may also serve as each kid’s college fund- we should be able to do a cash out refi on each house if we need to when we get to that point, as I doubt we will qualify for financial aid. We have 529s for each kid too but haven’t been contributing a lot there as we haven’t chosen a goal for that yet.

    Your real estate portfolio sounds like a dream scenario but I think it would be pretty expensive to manage. I’ve heard it said that short term rentals are not in the real estate business, they’re in the hotel business. There’s a lot more to deal with when you’re turning the property over frequently.

    If you are concerned about having enough for retirement, have you considered doing backdoor roth contributions? Check out the White Coat Investor blog for a tutorial and more info. He’s also got really helpful financial advice for high income earners.

    We have Mint mobile and it’s been fantastic! Totally worth checking it out. We used to get fancy Samsung phones but have switched to cheaper Motorola phones and they are amazing. I’ll never go back to Samsung. If you are stuck with locked verizon phones maybe now is the time to switch to Motorola and try Mint mobile.

    Your life insurance payments are inexpensive but you have a lot of assets and if you pay off the mortgage you may want to reevaluate whether you still need the policies.

    Your expenses look pretty good, I’d probably cut the cord on cable though!

    • Matt says:

      Hi AJ – congrats on establishing a RE portfolio with 3 single family home rentals! We missed the boat on that one and homes now cost so much around here we could never make the numbers work. I’m likely underestimating the work involved with owning, maintaining, and renting 3 properties, but I sometimes wonder if we would have been better off with 3 rental properties compared to 3 529 plans? No point in second guessing, too late now anyways 🙂

    • Kristin Jacobs says:

      My experience with rental properties and the FAFSA is that while your primary home is “free” the full equity in the rental property is fair game. We used a small inheritance to fund the down payments on rental homes for a secondary college fund for the kids (we targeted 50% in 529’s). Due to favorable appreciation, we were able to sell two of the three rentals so far and fund an after tax brokerage account that mimics the age related products offered in 529 accounts for the other 50%. Our remaining rental (which is targeted to be our early retirement money – hopefully in 4-5 years) took our expected family contribution value through the roof. I literally laughed when they said we should fund in excess of $150k per year for our son’s college based on the financials (is there even a school that charges that much a year?!?!?). It was driven by the equity in the rental home as well as the fact that I have $ in the college brokerage account and $ in the two 529’s. They assume all assets are available all at once for the first kid going to college – you don’t get to say that half of the assets (or a 2/3 if you have 3 kids) are earmarked for the other child(ren). We knew that we would not get any money based on need and we are happy to leave grants for students/families that need the assistance. We worked had to be in a position to save adequately for our kid’s college. We complete the FAFSA since it is required for merit scholarships.

      As a side note, our position on college funding was to try and pay for the in-state school with limited scholarships and allowing for a 5th year to encourage some study abroad. Instead of a vague money promise each child has been given a set amount of funds available – $150,000 each. Once that amount was determined and funded (with the sale of rental homes) I was surprised about the stress that was relieved. The unknown monetary responsibility was really causing stress. Now we have quantified it and figured out how to fund it. This can be used in either undergraduate or also for graduate school. The kids know their budget as they look at schools and that if they decide to go the $65k/year school route they will need to get scholarships, will end up with personal and federal student loans and will have to work more than they had hoped. Anything leftover from their $150k will go to them after they graduate to be used to seed their emergency fund or be a down payment on a house or maybe even fund a gap year. I have found teenagers don’t really understand the difference between $30k and $65k – just big numbers for a kid making minimum wage. But when they know they have 5 years at $30k or 3 at $50k it becomes a concept they understand.

  45. Allison C says:

    Am I the only one who finds it visually hard to read these? The font color looks grey and the background iis too bright. Is there a way to darken the text?

    Thank you!

    • Mrs. Frugalwoods says:

      I’m with you, Allison! I don’t like the font color either. I really need to redesign the website, but it just hasn’t risen to the top of the priority list yet. Fear not, I will darken the text when I do! I actually highlight it when I read it

  46. Thomas Lee says:

    For Matt’s question #4, I suggest that they consider investing in REITs. After owning a rental property for a year in the Silicon Valley, I realized that REITs are better alternatives because you get better ROI and diversification. It is especially true if your local real estate market is very hot.

    • Matt says:

      Thanks Thomas – any recommended REITs you could point me to?

      • Thomas Lee says:

        You will have to do your own research. I am not making recommendations here, but I personally own these REITs : O, FRT, SPG. I also invested other real estate related stocks : CBRE, Z, BEKE, IRM. I am considering AMT, DLR.

  47. Steveark says:

    Smart parents usually pass on the DNA to have smart kids and also the attitude that education matters. I’m also a chemical engineer and all three of my now grown kids got 100% free rides to in state public universities including tuition, fees, books, housing and meal plans. And I was earning about what the two of them make combined so we certainly couldn’t pass any means testing. But you don’t have to, there are lots of scholarships out there that don’t care if you are a millionaire, they just want to get your smart kids in their school to improve their US News college ranking. Its similar to athletic scholarships, but given for brain instead of brawn. Every high school junior and senior should be spending hours each week applying to scholarships, there is no reason for great students or their parents to pay for college regardless of family income. Many of my affluent friends kids also got their four year degrees for free. Private schools don’t offer that of course, which is another reason to avoid them. In addition to the fact that they are overpriced for the same quality of education.

    • Jessica says:

      I got a full tuition merit scholarship at a private school in Boston – it’s certainly not impossible. My education was cheaper than my (also very smart) sister’s was at an MA state school.

  48. Helen in OZ says:

    Congratulations Matt, you and your family are doing well! I’m in Australia and many of the issues here are a bit different, plus our family is two decades on from yours. Our three adult children are working as professionals, and their university degrees were affordable. BUT a challenge here has been the high cost they all faced when it came time to buy their own homes. In the cities here the cost of real estate has grown hugely, to the point where family help is often needed to supplement what can be saved as a deposit. If that is the case where you are, it may be something to consider for the future?

    • Matt says:

      Hi Helen in OZ! Thanks for commenting – we hope to visit your lovely country someday. I’m not sure what you mean exactly by “affordable”, I’m assuming the cost is similar to Canada or Europe? If we didn’t have to earmark so much of our savings for the kids college tuition, I’d be more than happy to help them with a downpayment on a house. But, for most of us in the US it’s hard enough to just get them through college and have enough leftover for retirement.

  49. Aislinn says:

    Random thought and it might have been mentioned, but have you considered using a variant of the snowball method? Normally, when you use the snowball method, it’s towards paying off debt making minimum payments on all debt and using everything extra to pay off the smallest amount until it’s paid off, then snowballing that amount into your next smallest debt, etc. You’ve already organized your goals / obligations, in part, by amount. If your expenses are 6,000 a month on average under your monthly income, start throwing that 6,000 into the most attainable goal first. Once you’ve hit that goal, take the 6,000 plus whatever you were paying into that first goal and tackle the next.
    I get wanting to have that cash cushion, especially with job uncertainty. I’ve tried my damndest to keep a cushion which helped save me during a 5 month furlough last year. I’m rabid about keeping track of every penny spent under normal circumstances and have contingency budgets in place for a variety of situations. At nearly 39, I don’t have job security in a position where I don’t make that much. A variant of the snowball method (alongside annual spending freeze months) has helped me greatly in long / short term planning.

  50. KnoxPatch says:

    Matt and Laura: Well done you guys!

    The typical arc for most Americans who have a choice is live beyond their income levels. You guys opted to save one income and buy used. Congrats for being different and fortunate! We don’t have your income but we have so many parallels in life choices. Also, we’re 10 years older than you and our kids are at the beginning of their independent lives: grads of 4-year college, attending or considering grad school, and beginning their professional and family lives. It’s nice!

    Here are my recommendations:
    Work: I get the issue with the age/target-on-your-back for layoffs. I recommend keeping your corporate job, keeping your network up, getting some professional certifications (project management, contracts management, technical) and doing some committee work so you’re recognized and valued outside of your core work group. That was my strategy. Having a steady income, 401K/403b matches, med insurance, and other benefits far outweighed my desire for starting my own business. Looking back, do I regret that? No.

    Tech trading: I absolutely agree with Mrs. Frugalwoods regarding the tech trading. It’s a hobby, not a job.

    Real estate: As for real estate, you’ve got PLENTY going on and don’t need the the cops calling you because they just raided the duplex (my parents lived through that one), nonpayment/squatters, and so on. And it’s not just low income housing that attract these challenges. People at all income levels are slobs and lots don’t pay rent for all kinds of reasons, legit and otherwise. At this point in your life story, rentals will more likely be a problem and money pit.

    When your last kid goes to college, you likely will have slightly higher incomes and overall, less tuition and kid cost so you may be able to cash flow all or part of the last couple years for kid 3. Our story: one of our kids did a BSN (nursing) at a state college and the other did biological sciences at a private liberal arts college. The nurse entered the Peace Corps – it has a seriously competitive application process – and is now back in hospital nursing. She has sizable savings and a side hustle selling vintage clothes. The bio sciences kid is in Europe doing a masters in biomedical sciences and is velcro’d to her boyfriend who’s getting an engineering degree who that she met when studying abroad in Germany. All are happy, well, and have great futures ahead of them. My opinion: your kids can get a great education and prep for life at institutions that cost less.We had nowhere near your 529 savings. Kid 1 did a year of community college (TN has GREAT CCs) and then transferred to the 4-year. Kid 2 did all 4 years at the liberal arts college. Both had top notch experiences and gained what all want for our kids to gain from college: perspective, positive experiences with people different from themselves, knowledge, skills, friends, and opportunities. For us, study abroad was also in the mix.

    Basically my advice is to stay the course, which is often the tough thing to do. It’s not sexy but’s it a great strategy. You guys have done so very well!

    And I second the request for waffles pix. 😉

  51. Morgan says:

    So I am a Canadian so this advice might not align exactly. But I’m a few years out of university and now looking at starting graduate school in the fall. And one of the best things I ever did was 1) work in the summer while living at my parents I ended up saving up enough money to pay for all my housing and living costs during the year and 2) complete coops (cooperative education) during my degree which are basically 4 month (can be 8 or 12 but I would start with 4) stints working but they are specialized to your degree and usually jobs you can’t get easily. I ended up working with Agriculture and Agrifood Canada in two labs at a research centre , as well as with Canada Border Services Agency as a border officer, and at an archaeological firm as a junior archaeologist. Overall these jobs provided me with a wealth of knowledge and skill sets that I could highlight on my resume after I graduated. Also I would say don’t forget to let your kids go for diverse degrees, I ended up with a Double Major in Anthropology and Chemistry which have given me skills that are very diverse and useful!!
    Anyways, it looks like you are doing great I wish you good luck and happy times!

  52. Rachel says:

    Loved reading your case study. I don’t have much to comment on except the college experience. I am a *relatively new* recent grad. As in, I graduated with my BA in Spanish and Biology in 2015, and my Master’s in Biomedical Sciences (biochemistry) in 2018. I am currently going back to school for nursing this fall. I received many merit scholarships, so I thought I could afford a private school. My parents contributed a small amount (a couple of thousand every year), I worked 3 on campus jobs (tutoring, RA, student center programming), and still had to take out loans. This is what I wish I had known about finances and college before starting:

    1.) Even a small total loan debt of 20-30K can really hinder future buying power and future financial decisions. At the time when I took out those loans, I absolutely thought I would be able to get a job making 60K a year, and then pay off that debt in 2-3 years. My parents agreed with this idea, my career counselors did too. However, that is absolutely not the reality in this job market.

    2.) Along with number 1, I wish I would have considered alternative school choices to take out less debt, such as 2 years community college or a cheap state school where I could live at home. I thought having a more prestigious degree would matter in my career. However, when I entered the workforce, nobody really cared where I got my degree from. They only cared how well I did, and what skills did I have. I realize this may not be true in all careers, but I was a science major and schools really pushed the idea that you needed a “quality” education to get into grad or medical school. The education matters more on the individual and how committed they are to succeeding, not so much on the institution that you get it from.

    3.) I wish I would have considered a gap year more thoughtfully. I entered college with many interests and ambitions, and a plan to “figure it out as I went along.” This was not a great plan hahaha. Students who are more focused on a specific career, then pick classes geared towards that career, and also tend to be more committed to their studies. I was always committed to having good grades, but I wish I would have gone in with a stronger knowledge of what my end goal was. I’m not sure a single gap year would have necessarily cemented that for me, but I do think I would have been more on target.

    4.) Do NOT trust anybody who tries to predict your future salary. No website, no person, no career counselor. I went to grad school for passion, that is true, but also because I thought it would really boost my potential salary earnings. However, with a Master’s in biochemistry (and numerous awards, presentations and strong references), depending on the kind of work I wanted to do, the majority of positions start at 40K. That is half of what I expected to be able to start making. And a job is not guaranteed. While it is true people working in labs can make 80K with a Master’s degree, that is not the majority of people, and that is not a starting salary. I wish I would have more carefully researched potential employment with that specific degree instead of listening to the old advice that “science degrees are highly valuable. You can do anything you want with them.” That is simply not true anymore. My husband has a PhD in physics, 10 years of work and research experience, and still had a hard time finding a job. He currently works in academia, making 60 (ish)K. He applied to over 200 positions.

    5.) Lastly, working while aiming for a science or math degree (and other degrees too of course, depending) has both pros and cons. It does help you manage your time more efficiently. You make money. You gain experience. You learn responsiblity. All great things. But it comes at a price too- less time to study. No matter how well you manage your time, there are only 24 hours in a day. Social time- college is a time when many young adults begin serious romantic relationships and create and cultivate lifelong friendships. That isn’t something to take lightly, as much as people scoff at the idea of protecting social time, it does matter for quality of life. And many of the skills gained at a job may be better gained in a related extracurricular. It’s great if you can find something where you can do a job relate to your future career, but that sometimes isn’t possible. So if you are studying for law school, is it better to work at Dairy Queen part time, or to be in student government (which is a very time-consuming extracurricular). These are all just ideas to think about as you decide your time and money priorities. There is no right or wrong answer, but I do wish I had thought about them more, and maybe from a more financially frugal perspective than before I began.

    Good luck on your journeys!!

    • MrBojangles says:

      This is why college is a SCAM (other than engineering)! You can be middle class without a college degree (shhh-don’t tell Bill Gates that), why go to college and have student loans and STILL be middle class? All your education to start at $40k?

      These colleges all BEG for donations. Why should I give? You go to college, the path to riches should follow.

      Why should one take on all these student loans and get such a poor return on investment?

      The days of going to college to be “enlightened” are long gone, BTW!

    • Matt says:

      Thank you Rachel – your comments are incredibly helpful as we are only at the beginning of navigating many years of college choices for our 3 kids. Good luck to you – sounds like you are going to do very well!

  53. Chi says:

    I would tell your daughter to check out the seven sister colleges, they give great merit scholarships. also random but NYU Abu Dhabi also offers full tuition scholarships and is a really unique uni experience. also if any kids are adventurous, they can study in Europe for almost free…or Canada for cheaper. depends what they want to do though. I know someone who studied business at a Chinese uni. Basically became fluent in Chinese and learned some good finance math etc. also an American who did law in UK and now is a corporate lawyer in Dubai. Obviously this is not for everyone but there are many more options beyond the typical saving $ (though their costs have ballooned!) at state school vs spending top $ at Williams or Swarthmore….

  54. Allison K says:

    I’m not sure if this is a good option for you but if your children do work at all in high school I would consider opening an IRA in their names. I would put up to their annual income level into an IRA instead of the 529. They can still use the IRA for college (after exhausting the 529 account) but it shouldn’t count against them for financial aid purposes. Also, if they don’t use the full $140k, then they have an early start on retirement. Your children are very blessed.

    Additionally, I agree with Frugalwoods about paying off the mortgage. Once you pay it off, you can start putting that money into investments or a high interest savings for additional real estate goals.

    • Matt says:

      Thanks Allison – maybe this is something we should have done instead of the 529? Our household income seems to be the largest factor affecting financial aid so even if we had $0 in 529’s, we wouldn’t qualify.

  55. PennyP says:

    Hi all
    Chiming in from the UK here. I don’t usually comment but some of my experience might be relevant this time.
    Matt and family you’re doing a great job well done!
    We partly supported our daughters through university. We asked them to take out government student loans which covered their tuition fees. They will have to pay them off. The student loan payback is slow and forgiving, currently if you haven’t repaid after a number of years it’s written off. This may not continue forever! Our eldest qualified as a veterinary surgeon ( OUCH!) and we paid her accommodation, food and living expenses, textbooks and equipment, necessary car and expenses, clothes etc. She wasn’t able to do typical student work in a bar etc because vet students have to spend their holidays working on farms, lambing, milking cows etc and “seeing practice” with small and large animal vets. They also have to study so hard we assured our daughter we would rather she studied than try to have a part time job. We were fortunate to be able to do this. She did have a part time job while at senior school so knew about working and saving.
    Our younger daughter did a nursing degree and at the time the government paid her tuition fees provided she worked in the NHS for a few years post qualification. We funded everything else as we had done for the eldest. She has paid back her dues to society by going through hell nursing high dependency Covid patients for a year. She doesn’t owe anything!
    Since they finished uni we have put savings into accounts for them to help put down a deposit on their first homes. Yes they earn their own money and are self supporting but property prices in the south of England are crazy and we choose to help them.
    We paid off the mortgage on our house early and I highly recommend that for the great sense of security it gives. We have owned two rental properties, one a holiday home in France at Omaha Beach and one locally.
    Please think carefully about the holiday condo option. Given our time over we wouldn’t do it again. For the first few years the holiday home covered it’s costs mainly because visitors from the US came to Omaha to pay their respects etc. Then the terror attacks started in France and the US visitors dried up. As the house aged maintenance costs increased to keep it up to scratch.
    Also we loved it there but realised we weren’t going anywhere else on holiday, there was always something to do or check( did the plumber do a good job? ) etc. We sold at a loss but that loss can be held to offset any capital gains when we eventually sell other properties.
    The second rental is a small modern house in our nearby County town. We chose it as there are several big employers there and young professionals are always looking to rent. It has been our best investment ever! Most tenants stay for one/two years and we have never had a letting void. In fact we have to engineer voids between tenants sometimes so we can decorate etc. We paid a large deposit and have a low rate mortgage which rental income covers , plus a maintenance fund and income for us. We are shortly going to start researching a second property to buy.
    We took early retirement( earlier than most people but not super early) and again I would urge caution on the holiday condo. When you retire and the children have gone your world opens up tremendously, you clearly enjoy travelling in Europe and can indulge that. The costs of a holiday home are considerable and the letting season may not cover it all and you are ‘tied’ to the property when the world is your oyster! Enjoy your freedom!
    Best wishes in whatever path you choose.

    • Matt says:

      Hi Penny – thanks so much for your experience with the rentals! Since this case study, I’m now rethinking the holiday ski/beach condo property. Properties near us have gone up so much in price that the rentals are typically underwater so that doesn’t seem like a viable option at least in the near term.

  56. Linda says:

    Good job on the college savings! We have 5 children. I was a stay at home/homeschool mom while they were growing up, so we had no college savings when child #1 got ready for college. Our lofty goal was for all of them to be able to graduate from college debt free. The oldest three have. Child #4 will graduate in December (yay!) also debt free. Child #5 is a freshman. All of our children got full or partial scholarships to state schools by doing well on the high school ACT/SAT tests. We’ve been able to help with the costs that scholarships didn’t cover with my husbands income. Child #3 really wanted to go to a more expensive in-state school, so she spent the summer before her junior year in HS studying for the ACT. She got a 35 and a full ride. There is a free website called Khan Academy that “tutors” your child and helps prepare them for the ACT test. There are thousands of dollars in scholarship money that go unclaimed each year. I would definitely check into finding out about scholarships. As for grad school, our oldest got his Masters in Computer Engineering. His employer paid for 90% of the college costs. My husband got his MBA a few years ago and his employer paid for it. Some employers do that since it benefits them if you have more education.

    • Matt says:

      Thanks Linda – what state are you in? In MA, the state schools have already or are moving away from making the SAT/ACT a requirement so the potential for a full ride based on SAT/ACT doesn’t seem to exist here?

      • Linda says:

        Wow! Didn’t know that. We’re in Alabama. Is that due to COVID or another reason?
        Our state schools give merit scholarships based on high school GPA plus SAT/ACT scores. What do they base them on in MA?

  57. Josh says:

    I wouldn’t be in a rush to pre-pay the mortgage. You already refinanced to a low rate in 2012. Personally, I might even do a cash-out refinance now to capitalize on both lower rates AND the additional equity in the home. Right now you have $617k of “dead equity” sitting in your house that you do not own outright and the sum of which is doing nothing to add to your financial goals.

    • Matt says:

      This is the reason we haven’t paid off the mortgage yet, figuring we could earn more in the market than the 3.375%. However, we’re obviously risk averse engineers as you can see we have too much cash earning basically 0% so refinancing the house to pull equity out to put in the market is simply too risky for us..

      • Lena says:

        I recently bought a condo in a pricey Boston suburb off the T. Interest rates are very low right now. If you opt against paying off your mortgage (and based on above I would pay it off in your shoes), I’d look into refinancing.

  58. Matt and Laura,

    Thank you so much for sharing your current financial position – and congratulations on having saved so much already!
    It may make sense to consider moving your emergency savings fund into a high yield savings account to, at minimum, generate a little higher interest rate than what you could in the regular bank savings account. I know that Bankrate offers some insight into the current interest rate environment (which honestly is not very great at the moment).

    Keep up the great work – and good luck on your continued journey!

    Cheers,

    Fiona

  59. monica says:

    Hi- I think Matt and Laura are in Great Shape! I also live in MA – just 6 miles outside of Boston and have two boys (high school senior age 18 and college junior age 21) , so can speak to the cost of raising kids and college in the area. I am a Single Mom by Choice (so no dad ever in the family), and it looks like my salary is about what either Matt or Laura makes, so we live on about half the income. I think that they will easily save the 140K for each kid if they just continue to add as they have been. Also, given their nervousness about it, I would at least consider using some of the cash to get to that 140K quickly so they can stop worrying and also let the interest build over the next years. Another thing to consider is that kids may get some merit money for college depending on their grades and the schools. With both of my kids, almost all of the private schools gave them enough aid to bring the cost of attendance to about the same as going to UMass Amherst, so that 140K may actually be close to what they need for a private collage as well.

    Next: food and teenager eating, sports, clothing. For the last 3 years I have spent $8,009, $7953, and $9396 for ALL of our food, pet food (1 cat, 1 dog) & household items from grocery stores, Costco, Walgreens, CVS etc. That means around 2800 per person over the last 3 years, including 2020 when the college Jr was home more than he should have been. Looks like Matt and Laura spend around 3800/person, so likely some room to cut there in the basic ways: less food waist, fewer name brands, less juice or other non-healthy drinks, soda stream instead of seltzer etc. We also only spend around 500 on eating out per year (as opposed to per month) we just don’t eat out that much. During the pandemic we have been getting pizza and Chinese food to support our local businesses, but that is usually just a 15-25 dollar cost per meal 2x/month. Sorry Matt, but we spend nowhere near $250 a month on clothes for boys- it is actually less than $250 per kid a year. They shop at TJ Maxx/Marshal exclusively, except for shoes. That said they also get a lot of clothing (T-shirts, sweatshirts etc) from the various sporting activities that is the actual basis of their wardrobes !

    I would also advise consider refinancing if they can deal with it. I am a math person, so am comfortable keeping my mortgage and investing the money instead of paying it off. I just refinanced to 15 years and got a 2.5% rate.

    Finally, I am a big fan of HELOCs. I have a 100K HELOC with the bank my checking account is in (a big evil boston bank!) and I find it to be very useful. An example: A tree just fell on my car last week and the insurance company has deemed it a total loss. They will cover a rental car for a while, but my 18 year old can’t drive the rental, and since we only have the one car, I do need a new-to-me car soon. They will be sending me a check for 20K so that I can buy a car, but this is going to take some time (week-10 days), and I found a car that I would like to buy today or tomorrow. Instead of having to wait for the check to come and the deposit to clear in my account or me taking money from a brokerage account which also would take a few days, I can transfer HELOC money to my checking account and it is available immediately. This way, I can get the car I want before someone else buys it, and when the insurance company check clears, I will just transfer to the HELOC immediately. I may pay a few dollars interest for having the HELOC money for a few days, but find this to be a worth it for the convenience of immediate money without having to draw from my brokerage accounts (which also takes time). Of course, one has to be disciplined enough not to draw for things if you do not have the cash, but for me it is the perfect emergency/convenience fund.

    Good luck- you are in great shape!

    • monica says:

      Also forgot to mention, that I purposely keep very, very little in cash accounts because cash will count against you on the FAFSA form, while money in retirement accounts hurts less and is another reason I use a HELOC for immediate money emergency fund. Also, I chose to get one with Evil Bank because of the immediate transfer to my checking. I did not worry about interest rates, because I will never keep the money for long – only as long as it would take me to liquidate other savings.

      • Anne says:

        As a single mom with 2 kids who will go to college simultaneously, I would LOVE to hear more about how you structured things to make the system work. Maybe there is some way we can connect?

        • monica says:

          Anne- I would be happy to connect, but do not feel comfortable sharing contact info here. If you do, you can put email here and I will contact you.

    • Matt says:

      Thanks Monica and hello neighbor 🙂 Congrats on doing so well as a single Mom! Our oldest did get a Merit scholarship which brought the cost down to the same as UMass Amherst. We used UMA as our baseline to arrive at the $140k figuring it would cover 4 yrs of state school. In terms of food and clothing, it is an area that we could do better. We did look at refinancing to a 15 yr as well, but the savings didn’t look substantial once the closing costs were taken into account. We’re going to take Mrs. FW’s advice and pay off the house.

      • monica says:

        Just a note to all- I used Costco to refinance and had very low closing costs, also just used Costco Auto Service to buy a car for significant savings. If you are a Costco Member, don’t forget about all of their other services!

  60. Anne says:

    In terms of other ways to maximize tax savings, for your kids that have summer/after school jobs, or really any kind of paid employment, you can use a Roth IRA. Parents can match their income into a Roth IRA up to the annual max (6000), which can later be used for college or anything else. Best, you can use it to jumpstart their retirement savings at an age when they wouldn’t be able to contribute yet – think how much that would grow by the time they retire! I plan on doing this with my kids to demonstrate the importance of saving and future planning.

  61. Michele says:

    Great case study, and one that I can relate to. Here are my thoughts for Matt:

    -Definitely look into doing backdoor Roth IRAs. I’m not very familiar with them, because I can use a regular Roth IRA, but I think they would be beneficial to you, especially because you have a lot saved in pre-tax or taxable accounts. I would also look into opening Roth IRAs for your kids and seeing if you can contribute, as another commenter mentioned.

    -I agree with the advice to pay off your mortgage with the one caveat that I would encourage you to run the numbers on tax itemization. In essence, do your property taxes + mortgage interest + donations + medical expenses add up to over $25.1k? If they are close to that number, can you use a donor-advised fund and make a large one-time contribution to it in order to get your itemizations well over that $25.1k number? Mrs. FW did a post about DAFs a while back.

    If you can’t get itemization to work for you, then I would pay off your mortgage using your rainy day fund. Normally I wouldn’t tell someone to pay off a fairly low-interest mortgage, but in this case it makes sense because a) it’ll bring you peace in case something happens with your job b) your mortgage rate is actually not rock-bottom based on today’s market c) interest rates are so terrible right now and d) you can use the freed up monthly cash flow for college (see next point).

    -Once the mortgage is paid off, use the monthly cash flow that remains to either make direct payments to college or put it into savings. I agree with amping up the 529 contributions as Mrs. FW suggested, and then put the rest into your taxable funds. You could probably get away with not contributing quite as much to the youngest’s 529, because I believe you’ll have a couple of years where all of your 529 savings will go toward him.

    -I would look into i-bonds for part of your emergency savings/rainy day fund. The fed adjusts them automatically so that you beat inflation slightly. Although you need to hold them for a specified amount of time, they’re currently paying 1.68%.

    -I suggest using FIRECalc to double-check that you’ll have enough saved for retirement. Key is what you anticipate your expenses to be like in retirement. You’re like me and my husband–the bulk of our expenses are our mortgage and daycare–so you are likely fine, but I would use that calculator to be sure. Mrs. FW’s calculation is based on 7%, which is a bit high IMO given inflation. I prefer to use 4% or 5% growth to be safer.

    -I don’t see many people commenting on your investments, but from what you’ve posted here, they could use some review. I would highly recommend checking out Bogleheads.org and looking at their suggestions for investing in index funds. You could even post to their message board and get help with your investments. It would terrify me to have my largest retirement account held in 19 individual stocks. Basically, you pick an asset allocation — for your age, 40% bonds, 60% stocks would be appropriate — and you set up all of your accounts with index funds according to that allocation. I don’t have enough specifics on your holdings, but it seems like they aren’t set up that way. If you are using your taxable fund for possible college payments, or even retirement, I would not have it all in VOO (100% stocks).

    -This brings me to my last point, which is that at your family’s income level, you should be focused on minimizing taxes and getting your investment strategy right. This seems to come through in your questions, but a blog about frugality is not exactly what you need. Don’t get me wrong–I am a longtime FW devotee and am NOT throwing shade at Mrs. FW or the other commenters. I just think that your situation is what happens when you live a life of frugality, combined with having two high incomes–you wake up one day and it’s like, oh my goodness, I don’t need to minimize my grocery bill–I need to minimize my taxes and make sure that I have the right mix of stocks and bonds! It’s a different mindset. I would either hire a fee-only financial planner or use the Bogleheads message board. Those folks are super good at advising on taxes and investments, including backdoor Roth IRAs.

    Oh, and I don’t like the idea of real estate investing for you, as you are so close to winning the game I don’t see why you’d make yourself crazy trying to beat the stock market, but that is just my opinion.

    I hope this is helpful!

    • Matt says:

      Thanks Michele for your detailed reply! Yes, we don’t come close to the $25k to itemize our taxes so paying off the house doesn’t hurt us in that regard. I will def check out FIREcalc and Bogleheads. Your last point is spot on – I’m less concerned with lowering my grocery bill and more concerned with lowering our tax burden and setting up our retirement accts properly.

      • Jen says:

        I just thought I’d drop this article right here https://www.mrmoneymustache.com/2011/08/01/a-millionaire-is-made-ten-bucks-at-a-time/ . You guys are high income earners and with that (in your case) comes larger expenses. I look at your monthly expenses and I’m just (mouth open) wow that’s a lot of money going out every month with a low mortgage payment and no car payments. My husband is enlisted in the military (14 years now) I’ve been a stay at home parent (2 kids) for most of our marriage. Our net worth is $450,000 at age 32 and 36. We would literally have what most Americans have NOTHING if it wasn’t for one thing, our mind set. So you think focusing on your tax burden would be better then your grocery bill but your grocery bill is a dollar for dollar return where as saving on your taxes is a 22% return on the dollar. I’m not saying don’t focus on reducing your tax burned but I wouldn’t disregard focusing on your expenses. I would always go for the dollar for dollar return over .22 cents on a dollar.

        • Sarah says:

          Respectfully, I disagree. Even with the mortgage and 529 contributions, their expenses are only 60% of their take-home pay. Their groceries, restaurants, Costco, clothing, Sporting Goods, and Hockey line items will go away or reduce drastically in the next 5 years. Not to say there’s zero room for improvement, but that’s not going to yield the best results for their efforts right now. Their time is better spent creating a tax-efficient plan that unlocks their spending power for college and enables them to move towards and into retirement with ease.

          • Jen says:

            Matt’s concern is he won’t have enough money saved for his youngest kids college and retirement. He’s not going to hit those goals without changing his spending.

          • Matt says:

            Thanks Sarah – it’s an interesting debate. At the end of the day, I think we need to look at both our expenses and to make sure we’re doing everything we can to reduce our tax burden.

        • Matt says:

          Thanks Jen for commenting. Boy, you guys are doing really great on one income especially at such a young age! I too was amazed at how long our expense list was when I put this case study together, hence the reason I was saying we need a reset. On the tax front, we fall in the 32% tax bracket so we pay well over $100,000 in taxes each year so it’s also an area we want to look at.

    • Sarah says:

      *Echoing others and chiming in on the mechanics of the Backdoor Roth: you’ll need to consolidate your rollover IRA and your SEP-IRA into your 401k, and Laura will need to consolidate her rollover IRA into her 401k. I recommend checking the Summary Plan Descriptions (SPDs) for both 401ks to ensure they allow contributions from these accounts. If you can execute these soon, you can make your $13k ($7k for you, $6k for her) in backdoor IRA contributions for 2020 prior to the 5/17 tax filing deadline. As Michele mentioned, the Bogleheads Wiki has good info: https://www.bogleheads.org/wiki/Backdoor_Roth

      *I’ll reiterate the flexibility of the Roth IRA; funds can be used for educational expenses without penalty, but they can also act as backup retirement savings per your note about “restructuring” and wanting a safety net

      *Also check to see if your employer retirement plans offer After Tax contributions for a Mega Backdoor Roth: https://www.bogleheads.org/wiki/After-tax_401(k)

      *With respect to the HSA: be mindful that you must be on a High Deductible Health Plan (HDHP) to use it. With 3 dependents, you may have a large Deductible / Out of Pocket max you’d have to hit first. If you do use it, here’s a good article on the triple tax benefit: https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp

      *I’d recommend an FSA instead. It could pay for the Walgreens/CVS and Contact Lenses line items as well as other OTC items on a pretax basis

      • Matt says:

        Thank you Sarah – this is really helpful! If I understand it correctly, the backdoor Roth is aftertax dollars so there’s no tax benefit for 2020 even if we sneak it in before 5.17?

        • Sarah says:

          Correct, there is no tax benefit, but you have a finite amount of contributions allowed per tax year. So if you can max for 2020 then you’ll still have the full 2021 space as well. Hope that helps!

  62. Matt says:

    I just wanted to thank the FW community for all of your incredibly thoughtful (and sometimes very lengthy and detailed) responses. I’m still reading through them all and will reply when I get the chance.

  63. Marjie says:

    Long time reader;first time commenter here. Fantastic job on all your savings so far! Point 1:I concur with the advice to put some (maybe half?) of college funds in a 401k or similar account. We had 529s and savings acts for each child. Anything college costs beyond those was the kid’s responsibility. We used funds from 529’s first for my kids’ colleges and told them anything leftover in the other accounts were theirs. Child 1 graduated a semester early and has transferred her “extra” into a higher interest account. She plans to put it toward a house eventually. Child 2 is using her extra for grad. school. Both chose reasonably priced universities and got merit based scholarships which is why they had extra. 529 money MUST go to education, which is why we went the 1/2 way route. Point 2: it appears that both of you are having health care deducted from pay. Why? Would it be less expensive to have deductions taken for a single family plan? If so, those savings could be put elsewhere. Point 3: check out Visible (Verizon affiliate) for phones. point 4: we have been extremely happy with Ally bank (online only but GREAT customer service via phone); best interest rates we found for regular checking/saving.

    • Matt says:

      Thanks Marjie – I need to look into this. Do you know if we can withdraw 1/2 the funds from the 529 plans to put in kids IRA without penalty?

      • monica says:

        Am pretty sure you have to pay regular interest on the 529 gain if you don’t use if for education. My older son got much more scholarship money than my younger, so I plan on using what was left in older son’s 529 for younger son’s education and then gifting the amount that was left in his 529 to my older son, but taking it from another account.

  64. Jen says:

    Regarding colleges kids can always go to a community college for their associates and then transfer to a university to significantly save money. When I was scrolling their list of expenses I was in shock at how long it was! I think they could scale back big time. Our rent alone is $1,950 significantly more then their mortgage payment and we only spend around $3,900 a month on expenses and that does include my sons ice hockey! The food budget can definitely be cut significantly. Lastly, do you have access to an HSA that is another tax-differed account?

  65. Julie says:

    Hello,
    This is a wonderful case study. It is very detailed. I am trying to wrap my head around the $120,000 tax bill. With your current 401k contributions reducing your taxable income, the taxes seem way too high. Is this federal and state income tax combined?

  66. Claire says:

    Great job, guys! Two thoughts for you:
    1. Mortgage payoff – We paid our house off last year and when deciding whether to pay it off (lump sum pay off) or use that money for something else, we looked at the amortization charts for our specific mortgage and HOW MUCH INTEREST we were actually paying each month. Forget your “rate,” which is pretty meaningless. For us, it was about $450 per month in interest (of course, the number changes by a bit each month). We decided we could not invest our money and earn a reliable $450/month in any other venue. That, with the satisfaction of having a paid off house, motivated us to just get it done.
    2. College – We are also staring down the barrel of college tuitions (for six kids!). Yikes. I am wondering why you seem to need so much money for college. We live in NC, and to send our children to UNC Chapel Hill, it only costs about $23k ALL IN each year. Are in-state schools that much more up there? Also, keep in mind that community colleges can provide a few years of education that can be transferred into a state 4-year school for a significant savings. You have saved an impressive amount for your children’s higher educations! Just remember that all of this is a gift and a privilege, not a requirement. For us, private schools are absolutely out of the question without scholarships. I, personally, would not make the 529s my primary focus, financially speaking.
    Keep up the great work!!!

    • Matt says:

      Hi Claire, 6 kids God bless you! We have friends in NC and they’ve noted how affordable (and good) your state schools are. Up here the MA state schools are about $31k/yr so bit more. Our oldest is going to a private school in Boston and with a merit scholarship, it’s about $38k/yr.

    • monica says:

      As Matt noted in state schooling in MA is around 31K, but it is important to note that it is VERY COMPETITIVE. One of my kids who had a 3.9 GPA was not accepted to the main campus, so not only are MA state school expensive -m they are also competitive!

  67. Emily says:

    I just wanted to say — because I didn’t see it mentioned elsewhere — that one piece of the equation to give some thought to is what your expenses will really be like in retirement. A lot of the rule of thumb calculations (like 10X your salary) assume pretty high levels of income replacement are needed (sometimes like 75% or 80% of your income). But you already only spend 60% of what you earn, so you aren’t going to need to replace 80% of your income to retire! In fact, that 60% includes the savings to the 529, your mortgage, and lots of expenses for your kids that will go away when they move out. Retirement can come with some new expenses (especially around health insurance), but you might need less than you think and probably a lot less than the standard calculators assume.

  68. R quinn says:

    Less than $9600 a year for property taxes on a $750,000 house near Boston. That’s quite a bargain. Why are they both paying for health, dental, ins? It may be less expensive for one to have family coverage, especially if there is employer based coverage.

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