Reader Case Study: Fix the Fixer Upper or Move On?
Elisabeth and her husband James live in New Hampshire with their two young sons. James works as an architect and Elisabeth is a private reading tutor for students with dyslexia. The couple live near Elisabeth’s extended family, which is perfect. What’s not quite so perfect is their fixer-upper home. They’ve invested time and money into renovations and, while they can see a route to staying in this home, they’re wondering if they should sell it in favor of something with fewer needs.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send in 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.
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The Goal Of Reader Case Studies
Reader Case Studies highlight a diverse range of financial situations, ages, ethnicities, locations, goals, careers, incomes, family compositions and more!
The Case Study series began in 2016 and, to date, there’ve been 84 Case Studies. I’ve featured folks with annual incomes ranging from $17k to $200k+ and net worths ranging from -$300k to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight, queer, bisexual and polyamorous people. I’ve featured women, non-binary folks and men. I’ve featured transgender and cisgender people. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, Spain, Finland, Germany 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 your brief story to me at email@example.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 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 Elisabeth, today’s Case Study subject, take it from here!
Hi, Frugalwoods! I’m Elisabeth, I’m 33 years old, my husband James is 32 and our two little boys are ages 4 and 4 months. We live in New Hampshire and bought a fixer-upper house right before the pandemic hit in January 2020. My main focus right now is raising our boys and acting as keeper of the home, but I also work part-time as a private reading tutor, specifically for students with dyslexia. I am a trained Orton-Gillingham practitioner. James works full-time as an architect at a local firm.
We have been debt-free–minus our mortgage–since we got married in 2016. Our ability to be debt-free is due in part to privilege: my parents helped pay for college and James got a full scholarship and temp job for grad school. We love our community and our access to so many outdoor spaces. In less than an hour we can get to the beach, the lakes region, or up to the mountains!
Elisabeth & James’ Background
I’m originally from NH, but James is from the midwest where we met. I moved out there in my mid-twenties for a job and a family friend introduced us. We lived there together for five years and took full advantage of what city life had to offer, renting an apartment within walking distance to both our jobs. Once our first son was born, we decided to move back to New England to be closer to my huge blended family. Including step-siblings and half-siblings, I have 6 siblings, and 5/6 live within an hour of us as do my parents. We spend a lot of time together, and are thrilled our boys are growing up close to so many cousins.
There has been a lot of change for us in the past four years. Besides growing our family, we moved from the midwest to an apartment in MA, then to live with my parents in NH for 9 months while we navigated the challenging housing market.
Our lives right now are very full and busy! Our oldest boy is always full of energy. He’s curious, observant, and loves to be outside. He is a hilarious story-teller, and a sweet big brother. Our littlest is a big and healthy baby who is super smiley.
Renovations + Parenting
We are always sleep-deprived and still very in the weeds with renovating our home. James is handy and willing to learn and figure things out, but projects take super long when you’re wrangling little kids too. We are always going back and forth about doing it ourselves or hiring out. We live in a 1950s ranch, the previous owners did not take good care of the home, and it was in pretty bad shape when we purchased it.
Some of what we’ve done ourselves so far: removing 1,000 lbs of trash from the yard and clearing space for new plantings and flower beds, painting every inch of the interior (including 3 coats on the ceilings), replacing all electrical outlets, and completely renovating our mudroom. The full bath and deck are still in process of being renovated. We installed new kitchen appliances, blinds, and ceiling fans. We’ve hired out help for refinishing our hardwood floors, some plumbing work, a new electrical panel, roof work, replacing a handful of interior doors, and mold removal in our garage. We both really value a comfortable home that works for our family, which is why we put a lot of time, money, blood, sweat and tears into our house.
As a family, we love to be outside. I am a former children’s librarian and an avid reader. James loves to bake, and frequently tries out King Arthur recipes.
What feels most pressing right now? What brings you to submit a Case Study?
James and I know we need to make our budgeting and financial decisions a priority. But before reaching out to a financial advisor, and spending more money, we thought we’d try here first. We feel we’re stable enough now–after all the changes of the past few years–to really get a handle on our finances and make some big improvements.
We’d like some help with our expenses. You’ll see there’s a $16,008 deficit between our annual take-home pay and our annual spending. We’ve very carefully tracked our spending for the last 8 months or so for this Case Study. Here’s what has happened: We had a hefty amount in savings when we bought our home. We break about even each month and sometimes go a couple hundred over, which we cover with money from our savings. We also dip into our savings for our home improvement projects/maintenance. This is really the root of our angst. We want to improve this!
And more broadly, how can we balance our careers while raising our young boys and managing our extensive home projects? How can we financially do this in an efficient, smart way? We want to be saving more!
What’s the best part of your current lifestyle/routine?
Every day we’re grateful for our access to so many incredible outdoor spaces, and living so close to a lot of our family. We visit the beach year-round. When we lived in MA, James worked in Boston and the commute was awful. With his demanding job, some days he’d be gone from 4AM to 10PM. It was brutal. We broke that pattern after a year, and are happy living in NH now, with James working at a new firm and commuting only 20 minutes. I, in particular, spend a lot of time with my parents, siblings, nieces and nephews.
What’s the worst part of your current lifestyle/routine?
James’s job is demanding, and his hours can be long and varied. James takes over childcare when I’m tutoring, which has been healthy for all of us: it gives me time to keep up my private practice and not be the primary caregiver for a few hours, the boys get special time with dad, and it forces James to step away from work. That being said, it’s still logistically tough to figure out sometimes.
With house renovations, it’s hard to balance the time to do them when we have such limited family time as is. Also, we tend to “divide and conquer” a lot, which isn’t ideal. I tend to care for the boys while James does projects. The easiest time to “work” together as a family is outside in our yard.
Where Elisabeth and James Want to be In Ten Years:
- We’d like to have a comfortable amount of savings for retirement.
- We’d like to have a good start on savings for our boys so that we can help them with their pursuits after high school; whether that be a traditional four year college, trade school, or community college. What should these numbers look like? We aren’t sure!
- We want to be able to travel as a family at least once a year for vacation (not counting back to the midwest.)
- We’d like to still be debt-free (minus mortgage.)
- Ideally we are in a newer home with less maintenance.
- I’d like to continue working part-time as a reading tutor until all our kids are in public school. Then, I’d like to significantly increase my hours.
- James might want to leave architecture…
Elisabeth and James’ Finances
|James’ net income||$4,517||James’ net salary, minus the following deductions: health, dental, and vision insurance, 401k contributions, and taxes.|
|Elisabeth’s net income||$696||Elisabeth gets paid $80 per hour as a private tutor. Her income fluctuates month to month. This is the average total income over the past 6 months|
|Item||Outstanding loan balance||Interest Rate||Loan Period and Terms||Equity||Purchase price and year|
|Mortgage on Home||$229,001||3.38%||30-year fixed-rate mortgage||$43,499||$272,500 in 2020|
Note: Equity amount listed based on purchase price minus outstanding balance. Actual loan was for $236,000. We refinanced once to take advantage of lower interest rates. Current Zestimate lists home at $414,700 and doesn’t take into account all of the improvements we’ve done.
|Item||Amount||Notes||Interest/type of securities held/Stock ticker||Name of bank/brokerage||Expense Ratio|
|Prior Employer 401K (no longer contributing)||$51,861||401K from previous employer. Stocks selected using their goalmaker automated system, moderate risk profiles||Stocks using their goalmaker automated system, moderate risk. Money distributed through 10-15 funds at any time||Empower (previously Prudential)||ranges from .5 cents to $8 per $1000 invested|
|Savings||$24,160||This is our emergency fund. We dip into this for home renovation costs frequently.||Fifth Third Bank|
|Checking||$4,138||We use this to pay all our bills.||Fifth Third Bank|
|Savings Boy #1||$4,041||We don’t touch this.||Fifth Third Bank|
|Vanguard Investment||$3,207||This is our taxable investment account||VMRXX||Vanguard||not sure|
|HSA from Previous Employer (no longer contributing)||$2,188||We use this for big medical expenses, such as Baby #2 being born. We’ll slowly use this up||Optum Financial|
|James’ Current Employer 401k (contributing)||$1,823||Contribute 3% of pre tax income per pay period, $200 a month. Enrolled in plan this year despite being with employer for 2 years||American fund 2045, 2050, 2055, 2060||Empower||1.02%|
|Savings Boy #2||$1,000||We don’t touch this.||Fifth Third Bank|
|Vehicle make, model, year||Valued at||Mileage||Paid off?|
|Subaru Impreza 2013||$7,500||106,943||Yes|
|Ford Edge 2010||$4,300||119,196||Yes|
Credit Card Strategy
|Card Name||Rewards Type?||Bank/card company|
|Capital One Quicksilver Cash Rewards Credit Card (affiliate link)||Cash back||Capital One|
|Fifth Third Bank Cash Rewards||Cash back||Fifth-Third|
|Mortgage Payment||$1,662||Payment includes property tax and home insurance in escrow. P&I is 1043.35, Property taxes is $560, Home insurance $58 from State Farm|
|Home Projects/Maintenance||$1,054||Ah, the joys of owning a 1950s fixer-upper! *Read our story above for full description of recent projects|
|Groceries||$867||Only food. Personal items like toothpaste, toilet paper, etc. are in separate category|
|Childcare||$670||Part-time preschool for our 4-year-old|
|Fuel Oil||$247||Oil is so high right now. December 2021 we paid $464 to fill our tank. May 2022: $854|
|Gifts||$210||We have a huge blended family, who is also very generous to us! This includes everything (even shipping costs) for: Christmas, mother’s day, birthdays, graduations and weddings. We do not buy each other anniversary gifts. Our boys also only get 1 gift from Santa, under $50. A few years ago, Elisabeth convinced both sides of the family to do a 1 gift swap during the holidays at $50 for adults, $25 for kids. Each family member randomly gets assigned one other family member each year.|
|Car gas||$208||For both cars|
|Baby||$185||Note that diapers/wipes are in a separate category. Recent items here include a highchair and crib mattress (new) and a portable play dome and beach sun tent (used)|
|Personal Care||$174||This includes items like lotion, toothpaste, shampoo, and deodorant, but also household cleaning supplies, toilet paper, and soap. I list it all together as I buy it from the same supplier. See below|
|Clothing and Shoes||$166||This is for the whole family. We try to buy used a lot. Biggest investment is quality winter gear as we’re outside so much. Elisabeth also spent a significant amount recently on nursing bras and postpartum clothes to comfortably breastfeed in.|
|Home Goods||$154||Recent purchases include LLbean rugs for our mudroom, new bedding for our oldest, beach towels, and an umbrella for our deck.|
|Eating out||$132||This has gone up a lot recently with having an infant! Solely convenience. When we get together with extended family, we sometimes order out.|
|Water||$98||Paid 4 time a year, average per month shown. Having kids and doing bath time uses a lot of water|
|Internet||$95||Comcast. Internet only, no cable TV or other bundles|
|Medical||$95||This includes co-pays and $500 for a doula during the birth of our youngest. This does not include the cost of our son’s birth at the hospital. We used our HSA savings account to pay the $4,500 bill.|
|Electric||$85||Averages out to $85 a month over the course of a year|
|Vitamins||$46||Buying from a local B Corp for our vitamins matters to us. Megafood is great quality and offers free shipping.|
|Charitable Giving||$45||Elisabeth donates to Planned Parenthood of New England regularly. Other donations include to Everytown for Gun Safety, and the local chapter of the Dyslexia center where Elisabeth was trained and certified.|
|Diapers/Wipes||$37||Only our youngest is in diapers now. We buy Target Up&Up diapers, and prefer Seventh Generation wipes .|
|Elisabeth’s cell phone bill||$36||Note that James does have a cell phone, but he is still on his parent’s family plan. They very generously pay his bill each month, and refuse payment from him.|
|Ford Insurance||$34||State Farm|
|Car Maintenance||$32||For both cars|
|Haircuts||$31||James and our 4-year-old go often. Elisabeth goes once a year.|
|E-Z Pass||$30||This is for both cars. There are a lot of tolls around here! Sometimes we can use alternative routes, but the most efficient routes for us to work and visiting family involve going through at least 1 toll.|
|Subaru Insurance||$29||State Farm|
|Lawn Maintenance||$29||This includes mulch once a year for our flower beds, that we do ourselves, plus leaf clean-up every fall. We did the leaf clean-up ourselves when we first moved. We have a lot of mature tress, and it took us probably 10 hours total. Worth it to us to pay a local landscaper to come one day every November.|
|Car registrations||$28||For both cars|
|Activities||$25||This has been really low during the past 2 years especially (Covid) we spend most of our time at free, outdoor spaces. For gifts, we usually ask for park passes. This number includes the cost of Pee-Wee soccer for our oldest.|
|City trash bags||$20||Our city requires residents to use special bags. This is a common practice around here. You pay for what you use. Current prices are $3.91 for a 30 gallon bag.|
|Personal Articles Insurance||$9||State Farm. Insures Elisabeth’s wedding ring|
|Professional Development||$8||James gets reimbursed for his licensing PD, so this is not listed here. Elisabeth does not get reimbursed, but her PD cost is much lower.|
|Electronics/Subscriptions||$5||Right now this is for our AppleTV subscription. We love Ted Lasso!|
|Grove Co. yearly subscription (personal care, *see above)||$2||$20 a year|
Elisabeth’s Questions for You:
How can we make the most of our money, and where should we put our savings first? 401K? Investments?
- How can we be smarter investors with our Vanguard account?
- Should we continue down our path of home renovations?
- The next big ones would be finishing our basement. Especially with a growing family, this would be a game-changer. Worth doing?
- Or should we wait until the market is better and move to a newer home with less maintenance?
- Boiler replacement and a new roof are both on the horizon for the next 10-12 years.
- Do I need to amp up my tutoring practice?
- This would mean paying for more childcare (over the next 5 years or so until the boys are in public school.) I do not have much consistent help from family members or James at this time.
Liz Frugalwoods’ Recommendations
I’m delighted to have Elisabeth and James as our Case Study today because they’re at an important juncture in their financial journey. As Elisabeth noted, they’ve experienced a lot of change in the past six years–marriage, a cross-country move, the birth of two children, purchasing a house, COVID–and now’s the time to re-assess and stabilize. Those two concepts will be our guiding principles today: re-assessment and stabilization. Elisabeth and James have been flying through these seismic alterations to their lives and now’s the time to settle and analyze. Thank you Elisabeth and James for trusting us to help you out today!
Elisabeth’s Question #1: How can we make the most of our money, and where should we put our savings first? 401K? Investments?
This is a great place for us to start because Elisabeth and James really need a holistic analysis of their finances, top to bottom. I congratulate them for carefully tracking their spending because it’s only with data that we can make good decisions! If you’re not tracking your spending every month, I use and recommend the free expense tracker from Personal Capital (affiliate link).
Spending vs. Income
As Elisabeth noted, the major red flag is that they’re spending more than they make by ~$16k per year. While they’ve been able to float this by dipping into their savings account, that’s not a viable longterm strategy. Eventually, the savings account will run dry and they’ll be faced with putting their expenses on a credit card and racking up debt. Let’s make sure they don’t get to that point. It’s always easier to make changes to your spending when things aren’t on fire.
As I love to say, there are two sides to this equation:
You can increase income, decrease expenses, or do both. At the end of the day, that’s pretty much it.
On the income side, Elisabeth could ramp up her hours; however, they’d then incur additional childcare costs. If Elisabeth wants to work more, they should investigate childcare options and price it out. It’s important for Elisabeth to consider her personal fulfillment/preference here: if she would rather work more, she absolutely should! If she would rather not work more, then she shouldn’t! Elisabeth and James have options and I don’t want to lose sight of the fact that many people work for reasons other than money.
I think it’s imperative for parents to consider the fulfillment/ preference angle and not just the dollar amount comparison of income vs. childcare costs. I personally am a MUCH better parent and happier person when I’m able to work and pay for childcare. COVID taught me that in excess!
Whether Elisabeth decides to work more or not, the family will still need to decrease their spending. At the bare minimum, they need to break even every month and eliminate their current ~$16k deficit.
The obvious area for savings is home renovations. Financially, Elisabeth and James need to stop paying for elective/cosmetic renovations and only do mandatory/safety-consideration repairs. Before doing anything else to the house that’s not strictly necessary from a safety standpoint, they need to do the below:
- Get their spending in alignment with their income
- Re-stock their emergency fund
- Catch-up on retirement
Thankfully, doing these three things will likely mean they’ll be ready to re-start renovations when their boys are older and not as likely to chew on dry wall. One of the main reasons my husband and I waited six years to start renovations on our home are our kids. It’s not too bad to do renovations with a 4 and 6-year-old underfoot–they’re great about not touching tools or exposed walls and it’s been way less stressful than I imagined. I cannot imagine living in a construction zone with a baby/tiny toddler.
To that end, I encourage Elisabeth and James to consider putting the renovations on hold until:
- They have enough money saved up to cash-flow them
- The kiddos are old enough to not eat nails
Eliminating their $1,054 monthly ($12,648 annually) renovation line item would bring that $16,008 annual deficit down to a much more manageable $3,360 annual deficit.
Here are some ideas for eliminating a $3,360 annual deficit:
|Item||Amount||Notes||Proposed New Amount||Liz’s Notes|
|Mortgage Payment||$1,662||Payment includes property tax and home insurance in escrow. P&I is 1043.35, Property taxes is $560, Home insurance $58 from State Farm||$1,662||Fixed cost|
|Home Projects/Maintenance||$1,054||Ah, the joys of owning a 1950s fixer-upper! *Read our story above for full description of recent projects||$0||See notes above|
|Groceries||$867||Only food. Personal items like toothpaste, toilet paper, etc. are in separate category||$867||Any opportunties to reduce this?|
|Fuel Oil||$247||Oil is so high right now. December 2021 we paid $464 to fill our tank. May 2022: $854||$247||Have they done an energy audit of the home? Are there any low-cost opportunities to increase their energy efficiency?|
|Gifts||$210||We have a huge blended family, who is also very generous to us! This includes everything (even shipping costs); Christmas, mother’s day, birthdays, graduations, weddings. James and Elisabeth do not buy each other anniversay gifts. Our boys also only get 1 gift from Santa, under $50. A few years ago, Elisabeth convinced both sides of the family to do a 1 gift swap during the holidays, $50 for adults, $25 for kids. Each family member randomly gets assigned one other family member each year.||$100||I understand the need to be generous with family members, but this totals $2,520 per year. I encourage them to look for opportunities to reduce this.|
|Car gas||$208||this is for both cars||$208||Fixed cost|
|Baby||$185||Note that diapers/wipes are in a separate category. Recent items here include a highchair and crib mattress (new) and a portable play dome and beach sun tent (used)||$0||Can they expect for this amount to go down? I encourage them to look for free hand-me-downs, yard sale items, at thrift stores, etc. There’s a lot of free/cheap baby stuff out there!|
|Personal Care||$174||This includes items like lotion, toothpaste, shampoo, and deodorant, but also household cleaning supplies, toilet paper, and soap. I list it all together as I buy it from the same supplier. See below||$174||Have they done a price comparison exercise on this category? I wonder if generic Walmart brands (or similar) would be cheaper?|
|Clothing and Shoes||$166||This is for the whole family. We try to buy used a lot. Biggest investment is quality winter gear as we’re outside so much. Elisabeth also spent a significant amount recently on nursing bras and postpartum clothes to comfortably breastfeed in.||$0||Can they expect for this amount to go down? I encourage them to look for free hand-me-downs, yard sale items, at thrift stores, etc. There’s a lot of free/cheap stuff out there!|
|Home Goods||$154||Recent purchases include LLbean rugs for our mudroom, new bedding for our oldest, beach towels, and an umbrella for our deck.||$0||Another area that could be reduced. Again, shopping second-hand would help|
|Eating out||$132||This has gone up a lot recently with having an infant! Solely convenience. When we get together with extended family, we sometimes order out.||$0||Time to enact an eating-out ban, at least until the expenses are under control.|
|Water||$98||Paid 4 time a year, average per month shown. Having kids and doing bath time uses a lot of water||$98||Fixed cost|
|Internet||$95||Comcast. Internet only, no cable TV or other bundles||$95||Fixed cost|
|Medical||$95||This includes co-pays, and $500 for a doula during the birth of our youngest.This does not include the cost of our son’s birth at the hospital. We used our HSA savings account to pay the $4,500 bill.||$0||Assuming this will go down?|
|Electric||$85||Averages out to $85 a month over the course of a year||$0||Fixed cost|
|Vitamins||$46||Buying from a local B Corp for our vitamins matters to us. Megafood is great quality and offers free shipping.||$46||Is this a mandatory expense?|
|Charitable Giving||$45||Elisabeth donates to Planned Parenthood of New England regularly. Other donations include to Everytown for Gun Safety, and the local chapter of the Dyslexia center where Elisabeth was trained and certified.||$45||Fixed cost|
|Diapers/Wipes||$37||Only our youngest is in diapers now. We buy Target Up&Up diapers, and prefer Seventh Generation wipes||$37||Fixed cost|
|Elisabeth phone bill||$36||Note that James does have a cell phone, but he is still on his parent’s family plan. They very generously pay his bill each month, and refuse payment from him.||$15||Time for an MVNO! Mint has plans starting at $15/month (affiliate link).|
|Ford Insurance||$34||State Farm||$34||Have they comparison shopped insurance lately? A good idea to do every now and then just to see what’s out there|
|Car Maintenance||$32||this is for both cars||$32||Fixed cost|
|Haircuts||$31||James and our 4 year old go often. Elisabeth goes once a year.||$0||Do they want to do home haircuts? Or reduce spending in another category?|
|E-Z Pass||$30||This is for both cars. There are a lot of tolls around here! Sometimes we can use alternative routes, but the most efficient routes for us to work and visiting family involve going through at least 1 toll.||$30||Fixed cost|
|Subaru Insurance||$29||State Farm||$29||Have they comparison shopped insurance lately? A good idea to do every now and then just to see what’s out there|
|Lawn Maintenance||$29||This includes mulch once a year for our flower beds, that we do ourselves, plus leaf clean-up every fall. We did the leaf clean-up ourselves when we first moved. We have a lot of mature tress, and it took us probably 10 hours total. Worth it to us to pay a local landscaper to come one day every November.||$29||Again, do they want to insource this or reduce more in another category?|
|Car registrations||$28||this is for both cars||$28||Fixed cost|
|Activities||$25||This has been really low during the past 2 years especially (Covid) we spend most of our time at free, outdoor spaces. For gifts, we usually ask for park passes. This number includes the cost of Pee-Wee soccer for our oldest.||$25||Fixed cost|
|City trash bags||$20||Our city requires residents to use special bags. This is a common practice around here. You pay for what you use. Current prices are $3.91 for a 30 gallon bag.||$20||Fixed cost|
|Personal Articles Insurance||$9||State Farm. Insures Elisabeth’s wedding ring||$9||This is a small amount, but is it worth it?|
|Professional Development||$8||James gets reimbursed for his licensing PD, so this is not listed here. Elisabeth does not get reimbursed, but her PD cost is much lower.||$8||Fixed cost|
|Electronics/Subscriptions||$5||Right now this is for our AppleTV subscription. We loveTed Lasso!||$5||This is an obvious one to lose, but it’s so low it’s not going to make that much of a difference if they want to keep it.|
|Grove Co. yearly subscription (personal care, *see above)||$2||$20 a year||$2||Again, my question is if they’ve comparison shopped these items?|
|Monthly subtotal:||$6,547||Proposed new monthly subtotal:||$4,515|
|Annual total:||$78,564||Proposed new annual total:||$54,180|
The goal of this spreadsheet is to highlight Elisabeth and James’ discretionary expenses–which are the things that can be reduced–versus their fixed costs, which can’t be easily changed. Having an awareness of what’s discretionary and what’s fixed is the easiest way to identify where you can save more money. It’s one of the first exercises we do as part of my free Uber Frugal Month Challenge. If you’re curious about how this might look in your own budget, sign-up for the UFM!
The categories Elisabeth and James choose to reduce/eliminate will be a very personal decision. It’s my job to identify where savings can happen. It’s their job to decide where to make the savings happen.
Assuming they reduced their spending per the above, their new annual numbers would be:
– Expenses: $54,180
What should they do with this extra money?
Funnel it into priorities 1, 2 and 3:
- Building up (and maintaining) a robust emergency fund
- Catching up on retirement
- Saving up for the boiler and roof replacement
Between their savings and checking accounts, Elisabeth and James have $28,298 in cash. Since an emergency fund is three to six months worth of your spending, they should target having $13,545 to $27,090. That’s working from the above proposed reduced monthly spending of $4,515.
At their current spending level of $6,547 per month, they’d need an emergency fund of $19,641 to $39,282. But assuming they do reduce their spending, their current cash reserves make for a perfect emergency fund. The key will be for them to stabilize their spending and not dip into their dwindling emergency fund every month to cover regular expenses.
I also recommend they look into putting their cash in a high-yield savings account, such as the American Express Personal Savings account, which–as of this writing–earns 1.75% in interest (affiliate link). This means that in one year, their $28,298 would earn $495 in interest!
Elisabeth and James’ retirement investments total $53,684, which puts them behind. At ages 33 and 32, according to Fidelity’s retirement roadmap, you should:
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
As they near their mid-30s, they should have 2x their annual salary in retirement investments, which would be $125,112 ($62,556 x 2). Given this disparity, I encourage them to beef up their retirement contributions. Since James’ employer offers a 401k, that’s the easiest place for them to start. James can contribute a maximum of $20,500 into his 401k annually. While they likely won’t be able to meet that amount, anything additional they can throw in will be extremely valuable.
Looking to the future, if they’re able to get James maxing out his 401k, Elisabeth can explore self-employed retirement accounts, such as Solo 401ks, IRAs and Roth IRAs. These all have different tax advantages and implications, many of which I addressed in this previous Case Study. Wherever they choose to park this money, the key is that they start putting more money towards their retirement ASAP.
The reason for this urgency is that your retirement accounts are invested in the stock market and investments need time to grow. Ideally, many decades. The earlier you start investing, the more money you will have in the long run, thanks to the magical unicorn of compounding interest. It’s imperative that Elisabeth and James don’t put this off any longer since they’re already behind.
A Note on Fees
Elisabeth and James should investigate the other fund options James has for his employer-sponsored 401k because the expense ratio on that account is criminally high at 1.02%!!!!
Ask HR for all of the investment options and look for something with lower fees! If nothing better is available, make sure to–at the very least–roll the old 401k into something with lower fees.
For reference, the following three brokerages offer DIY low-fee investment options:
- Fidelity’s Total Market Index Fund (FSKAX) has an expense ratio of 0.015%
- Charles Schwab’s Total Market Index Fund (SWTSX) has an expense ratio of 0.03%
- Vanguard’s Total Market Index Fund (VTSAX) has an expense ratio of 0.04%
Wondering how to find a fund’s expense ratio? Check out the tutorial in this Case Study.
Create A Savings Account for Upcoming Capital Expenditures
Elisabeth mentioned that both their boiler and roof will need to be replaced in the next 10-12 years. In light of that, I encourage them to create a savings account for these two capital expenditures now. It is a lot easier to plan ahead for major expenses than to have them sneak up on you. When your boiler dies, you can’t exactly wait to replace it until you have the money–you’ll have to go into debt unless you’ve saved for it. By holding off on elective home projects and reducing their spending, Elisabeth and James should have no trouble saving up to cash flow both the boiler and the roof, when their times come.
Elisabeth’s Question #2: How can we be smarter investors with our Vanguard account?
At this point, Elisabeth and James aren’t ready for a taxable investment account. They need to first focus on:
- Reducing their spending
- Stabilizing their emergency fund
- Catching up on retirement contributions
- Saving up for future boiler and roof replacement costs
A taxable investment account is a great step to take after all of the above are done. A taxable investment account isn’t something you want to pull money in and out of–it’s meant to be left alone to grow over the long-term. That means you should only put money into this account that you do not need.
The reason I suggest they focus on maxing out James’ 401k–as opposed to putting more into their taxable investment account–is due to the tax advantages. Contributions to a 401k are made pre-tax, which means you don’t pay taxes on the money you contribute. You do pay taxes when you take this money out in your retirement.
Elisabeth’s Question #3: Should we wait until the market is better and move to a newer home with less maintenance?
This is a great question, but it’s not one we can answer right now because we don’t know what the housing market will do. If James and Elisabeth are interested in exploring this option, then it’s a good idea to keep an eye on area real estate to see if they’d be able to trade up for a lower-maintenance home in the future. It may very well be that they want to cut their losses with the fixer-upper and perhaps make some compromises (on size, location, outdoor space, etc) in order to get into a newer, less needy house.
Look for ways to reduce spending immediately.
- Plan to hold off on all elective renovations until you’ve saved up enough to cash-flow them and the kids are old enough that it’s easier to work around them.
- Begin catching up on retirement contributions ASAP.
- Investigate lower fee options for James’ current and former 401ks.
- Stabilize your emergency fund and stop spending it down to cover monthly expenses.
- Consider if Elisabeth wants to work for the fulfillment/preference angle or the financial angle or both. Run the numbers on daycare vs. income.
- Create a savings account for the future boiler and roof replacements.
- Congratulate yourselves for taking the time to do this difficult work! The financial choices you make now will set you both up for a lifetime of financial success and security. Hooray!
Ok Frugalwoods nation, what advice do you have for Elisabeth? We’ll both reply to comments, so please feel free to ask questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk.
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