Reader Case Study: Military Family Prepares for Civilian Life
Kate and her husband Will lived the military life for the last decade. Will, who is currently an Army Officer, begins his transition to civilian life this summer. The couple–along with their cat Oliver–live in the Seattle metro area, where Kate works in higher education. With this huge change on the horizon, they’d like our help determining where they should move, what types of jobs Will should pursue, if they should buy a house and whether or not Kate should leave her current position. Their families live in Texas, but jobs for Will seem scarce there. Let’s help them think this through as the Frugalwoods team!
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 began in 2016 and, to date, there’ve been 57 Case Studies. I’ve featured folks with annual incomes ranging from $17,160 to $200k+ and net worths ranging from -$317,596 to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight and trans people. I’ve featured men, women and non-binary folks. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, and France.
I’ve featured people with PhDs and people 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 firstname.lastname@example.org.
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 Kate, today’s Case Study subject, take it from here!
Kate & Will’s Story
Hello, Frugalwoods! My name is Kate and my husband is Will. I’m 31 and he’s 32. We live in the Seattle metro area where Will serves as an Army Officer and I work in higher education. We don’t have human children yet, but we do have a fur-baby kitten named Oliver who is 5 months old. He is curious, full of energy, a little mischievous, and brings so much joy into our lives.
We’ve been married almost 4 years and have lived in three states together. I like to think we make a great team. We are both planners, rather studious, and get a lot of personal satisfaction from our careers. At the same time, we try not to take ourselves too seriously and are both a bit quirky.
Will is an eternal optimist and always expects the best. I am more of a realist/plan for the worst, so his positivity is a good balance! We love to explore new places, eat good food, and tour wineries. We also enjoy walking the trails in our neighborhood and hiking the national parks in Washington.
Education is very important to us. We are very fortunate that the military paid for Will’s Bachelor’s degree and about half of his Master’s degree; we covered the rest out of pocket. My Bachelor’s degree was funded primarily through need and merit-based scholarships. I graduated with $15,000 in debt that I was able to pay off within 6 years. For my Master’s, I was able to work as a graduate assistant in exchange for free tuition and a small monthly stipend. Given the current student loan crisis in our country, we are very thankful to be in this position. I may want to pursue a Ph.D. in the future, but I would only do so if it was fully funded. It’s also a goal that I go back and forth on every week since it’s such a huge commitment.
Will has an undergrad degree in IT from West Point and a graduate degree from UW in Cybersecurity and Leadership. As he explores his post-military options, he is most interested in working at a tech company such as Microsoft and Amazon. However, he’s definitely open to smaller tech companies too. He also has a variety of IT certifications and is PMP certified. He sounds very “techy” but is actually much more skilled as a manager. As an Officer in the Army, he gained a lot of experience in operations and managing people vs. being the one on the keyboard doing programming.
I currently work in higher education and would like to stay in this field. I’m most interested in university career services, academic advising, and working with veterans. I don’t want to work in university recruitment, but otherwise I’m fairly open. I’m also open to working for the state in an agency that provides support to individuals trying to find jobs.
The Money Journey
Will and I have always been debt adverse and lived below our means but have just recently begun leaning into frugality. Once I began reading Frugalwoods, I immediately started tracking every dollar and eliminating unnecessary expenses. We were able to save $200/month from recurring charges alone (negotiated a lower rate for internet, cut HBO Go, etc.).
We’ve discussed finances throughout our marriage, but Will primarily handled the bills up until now. Money has always stressed me out. I’m proud of myself for working to change my mindset toward money and being a more active participant in our finances.
While we have made good decisions overall with our money (I think), we do have our vices. I love clothes, shoes, and beauty products. Will likes to splurge on golfing, craft beer, and “treats” – candy, energy drinks, etc. We also both love to eat out at nice restaurants on the weekends (take-out during the pandemic). This is entertainment for us and something we really enjoy. As long as it fits comfortably within our budget, it’s not something we want to eliminate entirely to save money.
Will grew up in an upper middle-class family and learned about investing from a young age. He started his Roth IRA at 18. I grew up in a blue-collar family and my mom handled the finances. I’m thankful she was a saver and always made sure we had everything we needed (and more); however, I don’t think I even heard the term “investing” until after college. For this reason, and the belief that I needed to pay off my student loans first, I didn’t start investing until my late 20s. Thanks to Will’s early investing, we are still on track to retire comfortably at our target age of 60 in spite of my later start. At this time, we don’t aspire to retire any earlier than that. We do aspire to be more thoughtful consumers and to build wealth for a rainy day (or in case we want/need to retire earlier than 60).
The Big Change on the Horizon
We are approaching a major life change this summer! After 10 years of military service, my husband will be transitioning to life as a civilian. This is very exciting, but also a little scary especially in the midst of a pandemic. Despite deployments and frequent moves, the military has afforded us a comfortable lifestyle. Will is well paid, has ample vacation days, his income receives tax breaks, and perhaps the biggest perk of all – entirely free healthcare for both of us!
We agonized over this decision for at least a year before feeling at peace with what to do. Ultimately, we found middle ground as he will continue to serve as an Army Reservist. He will serve one weekend each month, two weeks each summer, and as needed for missions. If he serves 10 years as a Reservist (for a total of 20), he will receive a pension starting at age 59.5. We will also be eligible for low-cost healthcare during the time he is serving as a Reservist.
When you leave the military, you have an official “end date” that is determined months in advance (in Will’s case, a year out). This is a challenge to the traditional notion of waiting to leave your current job until you have a new one lined up. It’s also hard to know what salary he will end up with as a civilian.
Will gets his last full-time military paycheck in July 2021, but he can begin working as early as May 2021 due to saved vacation time. Given that, it’s now crunch time for deciding what to do next! We have always been told where and when to move by the Army. This is the first time in a long time that we get to make that choice entirely on our own, which is actually a bit stressful because we want to make the right decision!
Where To Move As Civilians?
We’ve narrowed down our top choices down to Seattle, Denver, Dallas, and Austin (Will grew up in Texas and I lived there in the past). These locations meet the following criteria:
- A variety of job opportunities/growth potential for Will
- Multiple university options for me
- All are somewhat progressive (Dallas being the least so)
- All are closer to family/friends, excluding Seattle
- All have good public schools
- All have year-round sunshine, excluding Seattle
From this list, I think it’s obvious Seattle is the least desirable! However, it’s still a good option because I love my job here and higher education is a bit of a mess right now. I worry there won’t be many job prospects for me until the pandemic calms down. There are also a lot of job opportunities for Will in the Seattle area.
We know we don’t want to stay in Seattle for the long term, but this could be an option for a couple years or until my work contract is up. However, then Will would have to search for a new job if he couldn’t transfer or telework. Also, the Army will pay for full-service movers to our next location but there is a time limit, so we could end up having to move ourselves if we stay here for a year or more. This is more of a minor issue, but it would be stressful/pricey moving ourselves. I’m not sure if the plan to stay in this area is just kicking our problems down the road?
We are fairly open to the other three cities, but Denver is the only one where neither of us has ever lived or spent an extended period of time. It feels like a bit of a gamble, especially since I’ve never lived anywhere that snows frequently. Will has a few solid job prospects in this area and based on our research, I could see us really liking it there. It’s also a short flight from family.
The two cities in Texas are both within driving distance of our families and quite a few close friends. The main issue is finding a job for Will because so far, there aren’t any solid leads (although this could change in the coming months). Finding a job for him is our top priority since my career field pays much less and I could potentially be pregnant during our move/not able to get a job right away (not how we planned it, but more on that below…).
To Buy or Not to Buy?
The next big dilemma is whether or not to buy a house. Housing prices in all of our desired locations are on the high end. If we stay in Washington state, we will not buy a house since we’d be planning to leave within a few years anyway.
If we move to Texas, we would like to buy since that’s where we want to end up long-term. Texas also offers property tax exemption for disabled veterans ranging from $5-12K/year. Will sustained injuries on active duty that make him eligible, but we won’t know the exact amount until this summer. Real estate in the Dallas or Austin suburbs is a lot more reasonable when you remove/decrease the property tax payment. This is not related to housing, but Texas veterans can also take advantage of free college for themselves or their children at a state school. Texas also has no state income tax (neither does Washington).
We’re not sure what to do if we move to Denver. The housing costs in the suburbs are pretty high, but from my calculations, the monthly amount would be considerably less than renting. The goal would be to stay in Denver around ~3-5 years (or longer if we love it).
If we do buy a house, the next question is how much to put down. As a veteran, Will is eligible for a VA Home Loan. This allows us to buy a house with 0% down with no PMI. However, there are some other fees involved unless you put down 10%. We originally planned to put 20% down, but we’re now wondering if the 10% makes more sense since we could then divert the remaining money to our non-retirement investment account, which we just started last year. I think this could be a bigger return on our investment vs. putting 20% down on a house.
In addition to moving and potentially buying a house, we hope to have a baby in the near future. This is a major reason why we’d like to be closer to family or a tighter-knit community. I plan to continue working outside the home, so we’ll also need to plan for childcare costs plus saving for college and other baby-related expenses. So far, this journey has had a lot more bumps than anticipated. I had some health issues that derailed our plans for about a year, and we’ve now been trying for six months with no luck. I hate to be negative this early, but I’ve already started thinking about what we’ll do if we aren’t able to get pregnant naturally. It makes me wonder if we should hold onto some of our savings in case we need it for treatments or adoption expenses.
We are fortunate to live near our jobs and to spend a lot of time together. We’ve traveled internationally three times and visited cities/states all over the U.S. We hope this will be a bigger part of our life when Will has a more flexible schedule and the pandemic ends.
We love going on evening walks and playing board games or watching TV together in the evenings after dinner. Our lives are very simple right now, but we’ve learned to embrace the calm since we know so many things could change this summer.
Another pro of our current lifestyle is that I love my job! I started my career in corporate America and quickly realized it wasn’t for me. I really feel like I’ve found my niche working with non-traditional students in higher education.
I began working in this field because I’m passionate about it, but my current job also happens to pay well (for education standards) so I feel like I’ve hit the jackpot. In my previous jobs, I made anywhere from about $20K (grad school) to $50K. The only bummer about my job is that it’s a contract that will expire in summer 2022. There is potential for it to be extended, but I have very little chance of retaining it permanently due to various bureaucratic reasons. If/when we move or this position ends, I will likely take a significant pay cut.
Will is currently interning with a start-up company (an amazing perk allowed when you’re within six months of leaving the Army). So far, he really likes the work and the challenge of learning a new industry, which is a good sign for him starting a new job this summer!
…And the Worst?
When I reflect on our lifestyle, the biggest downside is location. There’s a lot to appreciate about Washington (natural beauty, summer, hiking), but the long rainy season and lack of sunshine between October-May really gets me down. We also don’t have much of a community – nearly all the friends we’ve made here have moved on to new duty assignments; this is a common challenge as a military family. The majority of our family and close friends live in the southern/central part of the country. Due to flight schedules and time zone changes, traveling to them takes a full day and is an expensive endeavor. We love our neighborhood as it’s very safe and close to work, however, we don’t like that it’s 8+ miles from anything else. The traffic is also a challenge – if my husband were to take a job in the Seattle area, he would be looking at a 1.5-2 hour commute each way.
Where Kate & Will Want to be in Ten Years:
1) Finances: We would like to own a house and be on track to retire comfortably at 60. We would also like to significantly grow our non-retirement investment account.
2) Lifestyle: We hope to have a child and be in a financial/career position to travel regularly, we also hope to be closer to family (at least within 1-2 states away vs. half a country away).
3) Career: Will would like to be in a managerial position within a company that is family-friendly and allows for good work/life balance. I would like to be working for a university. I hope to have made a decision about whether I want to pursue my Ph.D. The goal is for neither of us to commute farther than ~30 minutes.
Kate & Will’s Finances
|Will’s Net Income||$6,640||Will’s net salary minus taxes, dental insurance, 15% TSP contributions, $500 Roth IRA contribution|
|Kate’s Net Income||$3,655||Kate’s net salary minus taxes and 10% TSP contributions (agency matches 5%), $500 Roth IRA contribution|
|Item||Amount||Notes||Interest/type of securities||Name of bank/brokerage|
|Will’s TSP||$134,446||15% contribution||C, F, G, I, L 2050, S Funds||TSP|
|Will’s Roth IRA||$114,729||Currently maxing this out||Large mix of ETFs||Charles Schwab|
|Savings Account||$101,039||We consider $25K of this to be our emergency fund||Earns .5% interest (higher pre-pandemic)||Marcus by Goldman Sachs|
|Kate’s TSP||$23,707||10% contribution, 5% match||L 2050, C Fund, S Fund||TSP|
|Kate’s Roth IRA||$23,513||Currently maxing this out||Large mix of ETFs||Charles Schwab|
|Taxable Investment Account||$15,797||We started this in 2020||SWPPX, SWTSX, SWAGX, QQQ, FBT||Charles Schwab|
|Checking Account||$5,750||Earns .01%||USAA|
|Vehicle make, model, year||Valued at||Mileage||Paid off?|
|2018 Toyota Highlander||$27,000||41,000||Yes|
|2015 Ford Escape||$9,500||71,000||Yes|
Credit Card Strategy
|Card Name||Rewards Type?||Bank/card company|
|American Express Platinum||Points||The $550 yearly fee is waived for military. We put all expenses on this and pay in full each month. (affiliate link)|
|USAA Visa||Cash back||USAA, only used when AMEX is not accepted.|
|Rent||$1,810||Includes sewage; good price for the area|
|Miscellaneous||$1,583||These are mainly 2020 expenses that have been eliminated entirely: we paid off Will’s car, met with a pricey financial advisor (will not do this again), invested in home gym equipment, some one-time cat expenses (rental deposit, adoption fees), family photos, and naturopathic care that was not covered by insurance.
In 2021, we have spent less than $5,000 each month (total), so we’re trending in the right direction!
|Eating Out/Alcohol||$543||Down to $266 in 2021|
|Groceries||$495||Includes household supplies; it’s important to me to buy organic/non-toxic products.|
|Gifts||$210||For each other, family and lots of friends getting married/having babies.|
|Travel||$207||This is higher in non-pandemic years.|
|Life Insurance||$172||30-years terms, we shopped around, it’s high due to a few health issues, it’s worth it to us (my Dad died young).|
|Auto/Renter’s/Wedding Ring Insurance||$166||USAA|
|Personal Care||$153||Includes shampoo, soap, etc. as well as hair cuts for me, non-toxic make-up and skincare, occasional waxing and manis. Down to $89 in 2021.|
|Clothes/Shoes/Accessories||$145||I love clothes and shoes, but trying to cut back.|
|Cell Phone||$120||This includes Netflix plus payments for our two phones (no interest). We just learned about MVNOs.|
|Alcohol||$96||Mostly Will. Down to $21.87 in 2021 but this includes “dry January.”|
|Housekeeper||$75||1x/month. We could do without but don’t want to lay off our housekeeper during the pandemic.|
|Internet||$74||Just got this down from $111!|
|Entertainment||$63||Will likes to golf. On trips, we include “entertainment” under Travel.|
|Coffee Shops||$58||Well this was eye opening! Down to $9 in 2021.|
|Health||$55||Prescription co-pays, vitamins|
|Cat||$45||Litter, food, vet|
|Peloton App||$43||Will uses this almost every day.|
|Car Maintenance||$36||Oil changes, tags, etc.|
|Gas Station “Treats”||$33||This one is Will too. He loves to pick up energy drinks and candy.|
|WSJ/NYT Subscriptions/Books||$28||Will would like to keep his subscriptions. We use the Libby app when possible.|
|Technology||$27||Amazon Prime, password protector app, VPN, Microsoft Office, etc. Will’s background is IT. This is important to him.|
|Charity||$27||We would like to increase this in 2021|
Kate’s Questions for You:
- Should we stay in Seattle or should we move? If so, where? What about if Will gets a telework job?
- Should we buy a house? If so, how much should we put down?
- Related to the last question, what should we do with our savings, assuming we don’t spend it all on a down payment?
- How do we draw the line on gift giving? I have a hard time with this and often feel obligated in social situations such as office baby showers, or when friends suggest going in on a group gift for someone. We have pulled back on gifting to nieces/nephews, but feel kind of guilty about it. It’s hard because we (and they) know we can “afford it,” but it’s not an area we want to keep spending $200+ a month on. Help with this would be much appreciated!
Mrs. Frugalwoods’ Recommendations
Kudos to Kate and Will for their excellent financial position! They’d done a fabulous job spending and investing wisely over the years. Given that, they’re in a superb position for their upcoming period of transition.
I want to take a moment to thank Will for his service to our country and for the sacrifices he has made so that we can all enjoy our freedom safely. Thank you, Will!
And now, let’s dig into Kate’s questions.
Kate’s Question #1: Should we stay in Seattle or should we move? If so, where? What about if Will gets a telework job?
To answer this question, I’m going to quote Kate to herself. Kate, here are just a few of the things you said about Seattle:
From this list, I think it’s obvious Seattle is the least desirable!
We know we don’t want to stay in Seattle for the long term, but this could be an option for a couple years or until my work contract is up.
I’m not sure if the plan to stay in this area is just kicking our problems down the road?
In addition to moving and potentially buying a house, we hope to have a baby in the near future. This is a major reason why we’d like to be closer to family or a tighter-knit community.
When I reflect on our lifestyle, the biggest downside is location [Seattle]
…the long rainy season and lack of sunshine between October-May really gets me down. We also don’t have much of a community [here in Seattle]
The traffic is also a challenge – if my husband were to take a job in the Seattle area, he would be looking at a 1.5-2 hour commute each way.
As I understand it, the only upsides to staying in Seattle are Kate’s current job, the fact that they wouldn’t have to go through the hassles/decision-making of a move and the potential for Will to find a job. These are not insignificant factors, but I question if they’re reason enough to stay. As I read through Kate and Will’s story, it felt like a flashing red light kept popping up in the margins announcing, “They want to leave Seattle! They want to leave Seattle!”
What stands out to me the most is Kate’s reiteration that Seattle is not where they want to end up long-term.
Yes, they could stay until Kate’s contract ends in 2022, but as she pointed out, if she gets pregnant soon, she’d then be on maternity leave for part of that time anyway. Additionally, moving will only become more challenging once they do have a child. I’ve moved without a baby and I’ve moved with a baby… it is VASTLY easier to do it sans bebe.
If you can swing it, I’m all for moving pre-children. Plus, the fact that the army will pay for movers in not insignificant in terms of cost and hassle. Furthermore, Kate’s notation that they’d like to be close to family when they have children moves the needle in favor of moving now.
I envision two scenarios here:
- Rip off the band-aid and move to where they ultimately want end up: in Texas, close to both of their families. Potentially endure some job uncertainty with this plan.
- Stay in Seattle and go through this whole ordeal of deciding where and when to move in several years with a potential baby in tow.
Remote Work for Kate?
We’re in the accidental golden age of remote work for white-collar workers (thank you, pandemic) and assuming Kate is already working from home, could she continue working from home in, say for example, Texas? Is there an imperative for her to return to in-person work post-pandemic? Since her job seems to be the only real benefit to staying in Seattle, I strongly encourage her to begin exploring the options for remaining remote, at least until her contract ends in 2022. If she’s able to continue remotely, she can use that time to job search for a higher ed position in their new Texas city.
I think the priority right now should be for Will to start an aggressive job search. Once he has a feel for what’s available, and in what locations, I think the “where do we move” question will feel less overwhelming.
Will’s job is more precarious at this stage since he’s essentially changing careers and entering the workforce anew, in a new capacity.
I hope that Frugalwoods readers who’ve made the transition from military to civilian life will weigh in with their advice on how best to navigate the next few years.
As I understand it, the most important thing Will can do in the next few years is establish himself in a civilian career. I say this because his first civilian job will likely set the tone for what he’ll do for the rest of his life.
Given that, I might be inclined to suggest they consider sacrificing other goals in order to establish Will in his career in the location where he can get the best job. Once Will has established and proven himself, more location-independent opportunities may present themselves.
Another thought: if he has a high security clearance, he might think seriously about working with a defense contractor and renewing that clearance as needed.
On the other hand, a major question here is how hard-charging Will wants to be in his career. He has already worked tremendously hard serving his country and making unimaginable sacrifices for the rest of us. Given that, it may very well be that he is ready to slow down. Will may be happiest with a job that allows him to work from home, that doesn’t require business travel and that lets him enjoy a wonderful work/life balance. He may be ready to clock out at 5pm every day and not have to worry about work after 5:01pm. There’s a lot of wisdom and beauty in knowing that about yourself and in finding a job that’ll suit where you’re at in your life.
My answer to the “where do we move” question is multi-fold:
- It seems pretty obvious they want to leave Seattle
- It also seems pretty obvious that Texas is where they’d like to end up long-term
- Much of this depends on Will’s interest in climbing a corporate ladder:
- If he wants to advance rapidly in a career, they should prioritize Will finding the best job possible and consider location later.
- On the other hand, if Will would rather live in his desired location near family and be content with whatever job he’s able to find in that location, they should prioritize location.
- Of course, both of these things might be possible, but I’m noting that there can be an inherent tension between living in your #1 location and having your #1 career/job.
- There is no right or wrong answer here.
- Kate’s job seems a lot more mobile since there are universities everywhere and state governments everywhere. I love that she loves her current job, but the fact that it ends in a year anyway makes it slightly less of a factor in my mind.
Kate’s Question #2: Should we buy a house? If so, how much should we put down?
My answer is as unsatisfying as nachos without cheese: it totally depends.
Buying a house depends on:
- Where they move
- How long they think they’ll stay in that location
If they remain in Seattle, but know they’ll be leaving within five years or so, it probably does not make sense to buy. Conversely, if they move to Texas and know that’s where they’ll be staying forever, it probably does make sense to buy.
Buying a house is pretty contingent upon how long you intend to remain somewhere and the prevailing rental/purchase prices for the area.
Unfortunately for Kate and Will, the real estate market is bananas right now. Bananas with a capital B. I can’t say I’d encourage anyone to buy a house right now, unless they have money to burn. It may be that the market is Texas is untouched by this pandemic-house-buying-craze, but it’s certainly not a good time to buy in most parts of the country. Given that, and given how soon they might move, renting is likely to be the best course of action in the near term.
Plus, I always make the argument for renting in a location before buying. Renting gives you the opportunity to determine if the neighborhood is right for you, if the job is right, if you want to be closer/farther from your family/friends, what the public schools are like, etc. Diving into a new location and buying can be risky because if it turns out you don’t like the neighborhood, you’re kinda stuck until you can sell without losing a ton of money. It’s a lot less expensive and way easier to terminate a lease and leave a rental than it is to sell a home.
To the “how much should we put down” question, I say: as little as possible. Let me expand.
Since Kate and Will qualify for the awesome VA home loan program, they should take advantage of it and put down the smallest amount that’ll make financial sense. If they can put down 0% and avoid PMI and fees, they should go for it. If they can put down 10% and avoid PMI and even more fees, they should do that. I see no reason for them to put down a cent more than that loan program requires. Reason being? There’s a lot of other stuff they can do with their money that’ll deliver a better return than a down payment.
Kate’s Question #3: What should we do with our savings, assuming we don’t spend it all on a down payment?
A grand question indeed! Let’s take a step back and do an overview of Kate and Will’s financial picture.
1) Cash Savings: $106,789
Kate and Will are in great shape on this front. This amount more than covers an emergency fund, which is always priority #1 for your savings. An emergency fund is held in easily-accessible cash, such as in a checking or savings account, and it’s enough money to fully cover all of your expenses for three to six months. Since Kate and Will spend $6,636 per month, their emergency fund should be in the range of $19,908 (three months worth) to $39,816 (six months worth). Based on that math, they’ve overshot by $66,973.
Side note: In order to know how much money you need in your emergency fund, you must know how much you spend every month. One way to accomplish this is to track your expenses with a free expense tracking service. I use and recommend Personal Capital because it’s free and easy to use (affiliate link).
However, unlike my advice to our last Case Study participants, I think Kate and Will should probably keep all of this money liquid because they’re at a transition point. And the best thing to have a junctures of uncertainty is cold, hard cash. Normally, I’d say this is too much cash money (again, see the most recent Case Study for a full explanation on this), but since Kate and Will might move, might buy a house, might have a baby, might both be unemployed for a brief period, all within the next few months, having this cash on hand might be a lifesaver.
This amount of money will enable them to smoothly transition into their new civilian life. Will doesn’t have to get a job ASAP, Kate doesn’t have to get a new job ASAP, they don’t have to buy a house ASAP, they have options. Their frugality over the years has given them the best gifts of all: options and time.
Once Kate and Will decide where/when to move, once they both have new jobs, once they’re settled, they can turn their attention to this cash since yes, it is too much to have on hand if you’re not going through a major transition. The most obvious places for this money to go are their taxable investments and their retirement accounts.
2) Retirement Savings: $296,395
Between their TSPs (Thrift Savings Plans) and Roth IRAs, Kate and Will have a combined $296k in retirement investments. I commend them for taking advantage of both their employers’ retirement plans as well as opening Roth IRAs. One question of clarification is if Kate’s plan is actually a TSP (which is typically for federal employees and the military) or if it is a 403b (which is a much more common retirement offering from a university).
Kate and Will are about 30 years away from retirement, so they’re in great shape. They’re correct that starting to invest for retirement early is the best way to grow your investments over the decades (here’s an explanation of the math of compounding interest).
To give them some context of where they stand, we’ll use Fidelity (somewhat oversimplified) retirement rule of thumb:
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67
Since Kate’s 31 and Will’s 32, we’ll go with 1x their salary, which would be $123,540 (this is their net, not gross income, which means their savings are likely closer in line with their combined gross income). Based on this metric, they are doing fantastically well!
3) Taxable Investments: $15,797
A quick moment to define terms: “taxable investments” are investments in the stock market that are not retirement vehicles (such as 401ks or IRAs). Broadly speaking, taxable investments are stocks. So when we talk about “investing in the stock market outside of retirement,” we’re talking about taxable investments.
They are called taxable investments because you pay taxes on the gains you make when you cash them out. These are called long-term capital gains taxes and they apply as long as you are invested for longer than one year; you pay more in taxes if you liquidate sooner than a year. Conversely, retirement investments are referred to as “tax advantaged” because they have a different taxation structure.
Starting a brokerage account of taxable investments is something I recommend once a person has satisfied all of the following:
- They are debt-free (other than a low-interest rate mortgage)
- They have a robust emergency fund
- Their retirement accounts are fully funded and on track for their projected retirement age
Kate and Will have satisfied these three criteria, so they were spot on with their decision to start investing!
It’s important to note that the money you invest in taxable investments is money you don’t anticipate needing anytime soon. Ideally, and in order to see the best return on this money, you need to leave it invested in the market for decades. Given that, Kate and Will have very wisely kept $100k in cash because they’re about to move and/or buy a house and/or have a baby and Will is about to change jobs. All of those uncertainties indicate that they should keep their asset allocation (fancy way of saying “where your money is”) just as it is. I think it’s great they started this brokerage account and I think they can invest more into it once they’re settled in their new location, once Will has a job, once Kate knows what’s happening with her job, and once they’ve bought their home.
This was a long answer to Kate’s question, but anytime you’re considering what to do with “extra” money, it’s imperative you analyze all of your assets. Bottom line: don’t do anything with your cash until everything settles out. Then, feel free to invest more in your taxable investment account, provided you continue to be debt-free, fully fund your retirement accounts, and have a fully funded emergency fund. Taxable investments fall firmly into the ‘nice to have’ category and are the way to build wealth, but they shouldn’t come at the detriments of the basics. More on investing here.
Kate’s Question #4: How do we draw the line on gift giving? I have a hard time with this and often feel obligated in social situations such as office baby showers, or when friends suggest going in on a group gift for someone. We have pulled back on gifting to nieces/nephews, but feel kind of guilty about it. It’s hard because we (and they) know we can “afford it,” but it’s not an area we want to keep spending $200+ a month on. Help with this would be much appreciated!
This is a great question and one that comes up quite regularly in the Frugalwoods community. I agree with Kate that $210 every month feels like a lot, and in fact, it’s $2,520 per year. I also understand the desire to be generous and to demonstrate your care through giving. I suggest Kate and Will break out their spending into the two categories they mentioned: 1) Colleagues and friends; 2) nieces and nephews. Additionally, just because you can “afford” something doesn’t mean you’re required to do it.
Nieces and Nephews:
Some of my nieces and nephews are now teenagers and so they prefer cash or gift cards, which works for me! This is an easy way for me to keep to a budget, ensure fairness among the kids, and give them something they actually want. I allocate a specific dollar amount for their cash or card and everyone is happy.
For little kids, as you all know, I am a huge fan of buying used. My girls receive all second-hand gifts for Christmas and birthdays and they are thrilled. If Kate and Will’s siblings are up for it, second-hand gifts are vastly cheaper, a great way to reduce the environmental impact of buying new, and you can find really cool stuff at garage sales! My sister gives used or hand-me-down gifts to my kids and they are IN HEAVEN. Any toy is a good toy when you are three and five years old.
If giving used gifts isn’t going to fly in Will and Kate’s families, I highly recommend my patented method of “buying toys, books, puzzles, clothes WITH TAGS ON” at yard sales. You’d be amazed at how much tags-on stuff I find! These items go into my box for us to gift to other kids at their birthday parties, for baby showers, etc. My own children do not receive the tags-on items. Pro-tip: second-hand books in particular often look brand new!
A few posts to get you started on the buying used journey:
- How to Thrift Like a Rockstar: Plan Ahead, Buy Ahead and Focus on Depreciation
- How To Find Anything and Everything Used: A Compendium Of Frugal Treasure Hunting
- Dryer Parts And Other December 2020 Expenses
In terms of colleagues and friends, I think there are three options:
- Choose not to give gifts
- Give homemade gifts
- Set a strict budget
Here are a few posts on how to give gifts on a budget:
- Reader Suggestions Of A Frugal Holiday Gift Guide (aka Staying on Budget the Non-Grinchy Way)
- Reader Suggestions: Holiday Gifts That’ll Spread The Love But Not Break The Bank
- Reader Suggestions Of Frugal, Fun, Inexpensive, and Festive Holiday Gifts
- How To Give Frugal Gifts With Joy And Generosity
A Note on Expenses
I want to highlight that, at present, Kate and Will are essentially spending Will’s salary every month and saving Kate’s. Since Will is about to be unemployed, they may need to recalibrate their spending until his new job kicks in. Fortunately, they have a lot of discretionary expenses that could be paused until Will settles into a new job. I encourage them to consider this so that they don’t have to dip into their savings to cover their monthly expenses.
- If he hasn’t already, Will should start an aggressive job search. Determine if the priority is for Will to find the best job possible or if the priority is to move to their ideal location now.
- Kate should start a conversation with her employer about the possibility of taking her job fully remote.
- Be honest with themselves about where they’d like to end up. It seems pretty clear they don’t want to stay in Seattle and that anywhere else would be a weigh staton on their eventual journey to Texas. Moving to Texas now might not be a possibility, but it certainly seems like that’s their end goal.
- Research home buying within the context of #1-3, with all the caveats I outlined above.
- Keep their excess cash liquid until their new jobs and new location are ironed out.
- Consider reducing their expenses until Will finds a new job so that they don’t need to raid their savings in order to pay their bills.
- Analyze the gifts they’re giving and make a plan for how to reduce this amount to something they’re comfortable with.
- Enjoy this exciting journey they’re about to go on and feel confident that they’ve put themselves in a superb financial position!
Ok Frugalwoods nation, what advice would you give to Kate? She and I will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (email@example.com) your brief story and we’ll talk.
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