January 29, 2018 Adventures Careers Family Household Personal Finance 24

 

Hey, remember how Mr. Adventure Rich and I just moved to one income?  I’m diving into the great financial questions submitted to our AMA request.

 

If you are just joining in, here are the previous installments in this series:

And Then There Was One… Income (Part 1: Quitting)

And Then There Was One… Income (Part 2: Privilege and Opportunity)

And Then There Was One… Income (Part 3: The “Non-Plan”)

And Then There Was One… Income (Bonus #1: AMA Questions Answered!)

And Then There Was One… Income (BONUS #3: AMA Questions Answered)

 

 

Financial Plan

 

Also curious (since this is a finance blog) how you’ll be adjusting your finances and lives to a smaller income. Will you sell one of the cars? Change your savings and investing strategy? Where/will you cut your budget?  ~ Carissa

 

Are you making any immediate changes in your spending or lifestyle to accommodate for the sudden loss of the second income?  ~ Erin from Reaching for FI

 

I’m also curious about how you guys are adjusting your spending/monthly budget, as well.  ~ Farmhouse Finance

 

I’d love a chart that details your spending before and after, if in fact your spending plan will change. At some point my husband and I will have to make a similar decision so would love more practical info on how you made the decision.  ~ The Luxe Strategist

 

Ooooh, let’s dig into these juicy financial questions!  I will be using a few hand-drawn visuals to help me out 🙂  To start, I believe it may be helpful to lay out what we were doing so you can see what changes.  I will outline our pre and post-change priorities, what we did with excess income, and what is shifting.  Then, I’ll elaborate on the areas I believe will go up or down in the spending category.

 

Cash Flow

 

Two Income Status:

 

 

— Max our Mrs. AR’s 401k

— Max out HSA

— Paid Mortgage + $400/month (Goal: Pay off House during AR Jr.’s Senior year of high school)

— Fund Dependent Care FSA for pre-tax daycare payments

— Additional Income = Build Up Cash Savings (Emergency, House/Re-roof, Charity, Fun, Next Vehicle, Future Investment funds)

 

 

One Income Status:

 

 

(Note:  This is our goal, but we may need to be a bit flexible depending on how things go!)

— Max our Mrs. AR’s 401k

— Max out HSA

— Paid Mortgage + $400/month (Goal: Pay off House during AR Jr.’s Senior year of high school)

— Fund Dependent Care FSA for pre-tax daycare payments

–Additional Income = Not sure if this will exist anymore!  We are taking a few months to adjust and will have a better picture of leftovers after that!

 

The biggest change in cash flow initially will be the lack of additional cash savings.  We are at comfortable places with our Emergency fund and our House/Re-roof fund, so I am ok with that so far, but we also have areas we can adjust if needed.  We can stop paying extra on our mortgage and/or put less into my 401K if we need additional cash flow.

 

I also have some company stock I recently sold (see our next Net Worth update for details!) which has been deposited into savings for an additional buffer.

 

 

Spending

 

Increased Expense Areas

 

 

One of Mr. Adventure Rich’s first focuses in his new setup is his focus on several home repair and home improvement projects.  He is in the midst of installing a wood looking laminate flooring and building a wall for our room (yes, we have lived in this house for 15 months with no wall/door to our room…).  He is also hoping to invest more time in his health and having adventures, so there will be some cost there too.  For example, he recently bought used cross-country skis and new cross-country ski boots in order to take advantage of the groomed trails in our area for some exercise and fun!

 

 

Decreased Expense Areas

 

 

Both Mr. Adventure Rich and I have found a renewed love for cooking with more time on our hands!  With the cold winter months, I have been making huge batches of savory soups, freezing over half each time in order to have plenty for last minute meals.  Mr. Adventure Rich is baking bread on a regular basis and is whipping up some great lunches and dinners.  With our increased time and focus on cooking more from scratch, I anticipate some reduction in cost.

 

Mr. Adventure Rich is also cutting out his commute (45 minutes each way) which will reduce gas and car wear costs.  And we are focusing on limiting eating and drinking out (again, more cooking/freezer meals help with this!).  We don’t eat out a ton in general, but it is easier to prepare for nights out by packing sandwiches, inviting people over vs. heading out, or just planning our week in general without two full-time jobs.  Plus, for us, this area (along with extra “fun expenses”) is an easy area to limit spending in order to adjust to our new income situation.

 

 

Areas Remaining the Same

 

 

There are a few areas I do not anticipate much change with our shift – such as our mortgage, utilities and daycare.

 

 

Lifestyle Changes

Carissa brings up an excellent point… will we keep our two cars and two trucks (oi, the sound of that still sounds crazy)? Initially, we did not think we would change on the vehicle front.  We have two trucks:  1 solely for “work” (plowing and hauling on property) and 1 that is a sentimental 1972 F250 Mr. AR bought for $700 and has been fixing up.  Then we have two Subarus: a 2008 Outback and a 2004 Forester.

 

Things might be changing… we honestly couldn’t get much for the trucks, but our Forester is in the shop right now.  Having one car over the past week made us realize that we could cut out one of the Subarus (likely the Forester) and both bank the sale money plus the savings on Michigan’s crazy high insurance premiums.  No final plan yet… but this is an area we are scrutinizing!  (Thank you for the idea, Carissa!)

 

Overall, the biggest lifestyle change comes with more time to get things done together.  I think this will both increase and decrease expenses in different ways.  If we prune our apple trees, we spend less on fruit come harvest.  If we plant a garden, we have the initial cost of supplies and setup, but we reap the rewards later.  With more time, we are cooking more from scratch allowing for less expensive grocery bills (and possibly less grocery delivery).  And as we make our home our own, we will pay for supplies but save on what could be a contracted job.

 

 

Shifting Priorities and Preparation

 

XC Ski Date 🙂

 

How will your spending/budgeting change with this new path and what tips do you have for others that may be looking to shift priorities?  ~ Christine

 

What do you recommend for a family to do (financially) to prepare and take some fear off?  ~ Lily The Frugal Gene

 

I am going to tackle the questions submitted by Christine and Lily together.  I covered a bit of how our spending and budgeting will shift with one income above, so let’s dial in on the tips for others looking to shift priorities and recommendations for financial preparation and fear reduction.

 

 

Shifting Priorities

When Mr. Adventure Rich and I started dating, we both were in debt (a mix of a car loan, student loans, and credit card debt).  We were both doing fine and chipping away at our payments, but as I learned a bit more about personal finance, we decided to really dig in and get out of debt.  From there, we started saving for options.  We wanted options… like the “money options” I wrote about a few months ago.  We wanted to be able to purchase a house if it made sense, make a move, be able to drop an income or be in a position to pursue other goals that require financial means.

 

This mindset helped us immensely over the years and continues to aid our financial progress. But then we stumbled on the concept of Financial Independence… and it made sense.  Grow wealth and position yourself to be free to make drastic moves (even retire early if we felt like it someday)… awesome.

 

 

But FI Isn’t Our Ultimate Goal…

But here’s the thing, financial independence and retiring early isn’t our goal (hence- we don’t have an FI date or number right now!).  Sure, it’s a “nice to have”, but our priority is to “not just live, but to live well”.  We want to live a life that allows us to work hard, generously give of our time, money and talent, instill a sense of adventure in our family and in those we meet, and continuously improve and pursue things that challenge us.

 

Dropping one income currently means it will take longer for us to reach financial independence.  Who knows, maybe through a business or some other opportunity, it will eventually accelerate our path to FI, but right now, it is slowing us down.  But our priority is to live a good life every day, not just in our “FI days”.  We have a young son, an old-ish house, plenty of energy and plenty of passion projects… so we want to take advantage of all of the opportunities our current life status provides.

 

I think ultimately, we realized that numbers in our Net Worth column are incredibly helpful… but time is our priority right now.  Without time and energy to pursue our adventures or at least live a less stressful life, the Net Worth is actually worth very little to us.

 

 

Health as a Priority

Beyond the “money vs. time” priority discussion, we decided we wanted to prioritize our health.  The long commute, mismatched schedules, and constant juggling was a lot.  And I know it is a lot for so many people in similar situations… we are very grateful to be able to have the privilege of making a change.  This change allows both of us to focus on our health and wellness (both mental and physical) a bit more, as well as the health of our family and our relationships.

 

And for the record, I am not saying Mr. AR taking a new job or starting a business would be an unhealthy thing.  Depending on the job/business, it may be a very healthy move!

 

 

Financial Preparation

A huge part of our ability to drop to one income was the financial preparation aspects.  It’s funny, we didn’t have a grand plan to shift to one income.  If you asked us 4 months ago if this would happen, I would have said: “maybe someday, but not now!” (Oh, how things change! I have been well fed while eating my own words recently…).  So while we didn’t plan this specifically, we always planned for options.

 

#1 Living Below Our Means:  We have worked hard to live well below our 2 income means so that we would be able to handle a job loss in any form (illness/injury, layoff, choice, etc).  Knowing we were in this position gave us comfort, even when both our jobs felt awesome and life was great all around.

 

#2 Buying a Reasonable House:  Our home was purchased well within our means.  We actually applied for the loan based on one income instead of two (Mr. AR began his job merely weeks before we were looking to buy), so we were approved based on my income alone and still bought well below that “approval number”.

 

#3 Emergency Fund:  After we nearly depleted our emergency fund during the home buying process, we worked for over a year to replenish it.  This gives us a cash reserve and an initial sense of security.

 

#4 House Fund:  We know we need to re-roof our house.  So, about a year ago, we began saving for the roof (separate from our emergency fund savings!).  We now have $11K in a fund specifically for this cause ($8K estimate + extra in case something comes up and increases the cost).  If we had not saved this cash in advance, the move to one income would have been more difficult.

 

All of these pieces (and I’m sure more I am not thinking of at the moment) helped us to find a level of comfort with our new financial situation and our ability to drop an income.

 

And to add a quick note specifically on the fear aspect, I covered my fears a bit in our Bonus Post #1, but I will say that running “what-if’s” really helps me.  If I can come up with a decent response to my “what if’s”, it gives me a sense of calm as I remember we are hard working, flexible people who will be able to find a way to move forward, even if it isn’t ideal.

 

 

Long-Term Plans/FIRE Plans

 

That time we had to dig out our firepit…

 

My question for you is how are you adapting your long term financial goals with this change (you mention retirement saving, rental investments, etc.)? What are the quality of life benefits that you weighed against the change in money?  ~ Femme Cents

 

Does this slow down any FIRE plans?  ~ Fervent Finance

 

Our move to one income certainly delays our achievement of financial independence.  Dropping one entire income will mean less left over for our savings goals.  We will still be investing and saving as much as we reasonably can, but it will be less than when we brought two incomes in the door.

 

To that end, I am trying to approach our long-term goals with flexibility.  This means we will have to work harder to save for certain goals (retirement, college, real estate, etc) and we will need to cut back in some areas to help achieve greater savings.

 

That being said, I responded to a question above about shifting priorities and I think a huge piece right now is that our priority is to live a good life every day, not just in our “FI days”.

 

Financial independence is an excellent target and something I hope we achieve someday.  But we want to live an adventurous, flexible life along the way.  This was a driving factor in our refusal to calculate an FI date or an FI number.  We have too many variables right now!

 

While we do have a general aim at financial independence, we want to live a life that allows us to work hard, generously give of our time, money and talent, instill a sense of adventure in our family and in those we meet, and continuously improve and pursue things that challenge us.  And this move allows us to do this more fully.  If we tied ourselves to an FI Date or Number, we may not have felt as free to make this move which is improving our lives in drastic ways already.

 

So yes, this will delay a true independence from a typical job income stream.  But it opens the door for us to fake financial independence each and every day 😉

 

 

Alrighty!  We have one last Bonus post featuring the “Fun Questions” coming on Wednesday.  Have a wonderful week!

 

Always an Adventure,

Mrs. Adventure Rich