Category Archives: Family

The House We Did Not Buy

Buying a house is a major decision.  For most people, it is the largest major financial decision that they will ever make.  There are many aspects to consider when deciding on a house.  Do you want to live in a city, the suburbs, or in a rural area?  Finding your dream house and neighborhood can be a major undertaking.

My wife and I have lived in our current house since we were married.  She bought the house from a relative before I was in her life.  It is nice house and we live close to many of her relatives.

The house did need some upgrades when I moved in.  It was built in 1964 and much of the house was outdated.  After I moved in, we remodeled the kitchen, bathroom, added a deck, as well as many other upgrades.

The house was about 1,200 square feet and we wanted a little more room.  We added a nice 320 square foot addition.  That addition is our sitting room and we spend most of our time in there.

The house is almost paid for.  We only owe about $30,000 on the mortgage.  The house was appraised for $226,000 in 2012, so we have a nice amount of equity in the house.

By staying in this house, my wife and I have avoided lifestyle creep.  Having a small mortgage and low taxes enabled us to have a high savings rate.  If we upgraded to a $500,000 house, we would not have been able to save 50% of our gross earnings over the past 10 years.

We are not planning on retiring until 2028.  After we retire, we are planning on buying a house on a lake because we enjoy kayaking, boating, and fishing.  We are planning on staying in Pennsylvania for 9 months per year.  For the winter months, we plan on becoming snowbirds and head south for the winter.

A major life event caused us to rethink our plan.  A close family member recently passed away following a four-year battle with cancer and other major health issues.  Watching him suffer made us think about living more in the present and not focusing on what our life will be like in retirement.

We decided to look at some houses that were for sale on the lakes that are close to where we currently live.  The nice thing about living in the Pocono Mountains is that there are many nice lakefront homes.  The region is also known for private gated communities that attract people from New York City, Philadelphia, and Boston who buy weekend homes in these developments.

We started by looking online.  What I found did not surprise me.  Most of the lakefront houses were very expensive.  Older houses that were lakefront cost $400,000 and needed upgrades.  The newer houses are much more expensive.

Our next move was to look for a house that was not lakefront but had lake rights.  This was a more modest priced market.  Houses that were only 5-years old were less than $350,000.  That was more in our price range because we would be putting about 60% down on the house.

We found a few that we really liked and decided to spend a Sunday looking at these houses.  The first few were nice but way too big.  We do not need or want 4,000 square feet of living space.

After looking at 5 houses we were starting to get tired.  It is fun to look at these houses, but also overwhelming.  Before we called it quits for the afternoon, I wanted to look at one last house.

The last house was a little less expensive.  It was listed at $258,000.  This house was in a private community that is only 8 miles from where we currently live.  It also comes with lake rights to a private 150-acre lake.  It is a serene lake that does not allow outboard motors.  Only sailboats, kayaks, or boats with electric motors are allowed.  It is also a catch-and-release lake that is stocked with bass, trout, catfish, and walleye.

For me, it was love at first sight.  For my wife, she really liked the house, but more legwork was needed before we decided.  We both agreed that we needed to do our due diligence and not buy a house after our first visit.

The next day, I called the realtor to set-up an appointment to tour the house.  The realtor was nice as well as transparent.  She gave me some interesting details about the house.  In 2010, the house sold for $389,000 and is now listed for $259,000.  I did not want to admit it, but that was the first red flag.

I asked why there was such a deep discount on a 10-year old house?  She said that the taxes doubled because of a county reassessment.  There is also a homeowners association (HOA) that charges $2,500 per year.  The total annual cost of the taxes and home owner’s association fees would be $8,200.  We now pay $2,700.

I was not happy about the major jump in taxes and fees.  It was, however, not a deal breaker.  I was smitten with the privately stocked lake.

The next evening, my wife and I decided to take a ride over to see our potential new house.  We were excited.  Our excitement, however, did not last.

We pulled into the driveway and got out to walk around the house.  It was not currently occupied by the owners.  We only took about two or three steps and we saw the neighbors Doberman Pincher as he came barreling towards us.  Luckily, the dog’s owner was in his yard and called the dog back.

The Doberman caused me great concern.  I am not afraid of big dogs, but my wife and I have a little dog.  His safety trumps everything.

I was happy that the neighbor was outside.  He came over and spoke with us.  He seemed like a nice guy.  He was young.  I would guess in his early 30’s.  We spoke about the house and of course what the fishing was like at the lake.  I asked him about the homeowners association.  He said they are not too bad to deal with, but he gets in trouble with them often.  He said that he gets in trouble with the homeowners association for driving his ATV and snowmobile at night.

On our drive home, I was still thinking about fishing on a private lake every evening after work.  At this point, my wife decided that she did not want to buy the house.  She did not say anything to me on our drive home because she did not want to bust my bubble.

That evening, I could not sleep.  My anxiety was out of control.  I did not fall asleep until after midnight.  The house was very nice, and I loved the lake.  Deep down, I knew that it was not a good fit.  All those red flags would not go away.  They kept running around in my mind.  I could not justify all of these issues.

As a member of the financial independence community, I do not like to pay taxes.  I love fishing but hate taxes.  Having my taxes go up almost 200% did not sit well with me.

The second source of anxiety was our dog.  We don’t have children, so our dog is our baby.  He currently has his own two-acre field to enjoy without worrying about being eaten by a Doberman.  I would never do anything to put him in an unsafe situation.

The third warning sign was the neighbor.  He did seem like a nice young man.  However, I am not willing to put up with him driving his ATV at night.

When I awoke, my wife said that she wanted to talk.  She told me that she loved me and wanted me to have a lake house.  I worked and saved for over two decades and she wanted me to be happy.  She just felt that this house was not for us.

I told her that I agreed with her.  There are many reasons why my wife and I have a happy and successful marriage.  We love each other, communicate well, and think alike.  If a situation is not right, it is wrong.  The house was not the right fit for us.

We could have afforded the house.  It might have caused our saving rate to go from over 50% to 40%.  That does not sound like a big deal, but I am more interested in saving and reaching early retirement than owning a lake house at this point in my life.

We have not since looked at any other houses.  It was too emotional of a process for me.  At this point, I think that we are going to stay in our current house until we retire.  I have said this before, once you become a saver, you will never be a spender.  As a saver, I will have to settle for fishing at our local state parks and public lakes instead of a private lake until we retire.  Life can be much worse.

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2017: Year in Review

2017 is in the books.  2017 was a year to remember.  It was full of surprises.  You never know what is around the corner.  At the start of 2017, creating a blog was not on my list of things to do.  The Financial Journeyman blog is now almost 9 months old.  That is just the result of being present and taking advantage of what life has to offer.  I have even greater expectations for 2018.  Below are some of the major highlights from the past 12 months:

Career

2017 started off on a high note.  My boss called me the first week of January and told me that I was getting a promotion. With the promotion came an 11% raise and a $1,000 bonus for a project that I completed in the fall of 2016.  I was excited and did not know that this promotion was coming.

The only major change the occurred was that I now had one employee to manage.  I did not see it as a challenge.  My new employee Jill is a super smart and motivated Millennial who has overcome some major hurdles in her life.

Over the past 12-months, it has been a pleasure to help my assistant develop.  Jill is on the right path.  She is contributing to her 403B account, just completed a Graduate Leadership Training course at Binghamton University, and is consistently asking me to be a part of projects that I am working on.  It is my goal to help her transition into a management role in the future.

Meeting the Bogleheads

In February, I attended my first local chapter meeting of the Bogleheads in Philadelphia, Pa.  I have read the Boglehead’s two books and browsed the forum for many years.  To break-up the boredom of winter, I decided to attend a local chapter meeting.

It was great to meet and spend time with this group of people who are working to reach financial independence by following the teachings of Jack Bogle.  If you are interested in passive investing and using low-cost index funds, I suggest you visit Bogleheads.org and check out a local chapter meeting.  I am looking forward to attending the February meeting in Philadelphia.

The Financial Journeyman

On April 8th, The Financial Journeyman was created.  It has been quite an experience.  As a result of creating this blog, I have been able to interact with so many great people.  I am meeting new people every week.  The purpose of this blog was to share my journey toward financial independence with the world and to try to help others who are on a similar journey.  This blog has become so much more than I expected.  I look forward to what the new year has in store for this blog.

Reaching $1,000,000 Net Worth

I was not sure if I was going to share this milestone.  After much thought, I have decided to share it because my blog is anonymous.  The purpose of sharing this milestone was to inspire others what is possible if you live below your means, limit debt, save as much as you can, and invest your money wisely.  It felt great to reach a $1,000,000 net worth at age 40.  I am grateful to have this financial foundation as my wife and I continue to work on our ultimate goal of early retirement.

10th Wedding Anniversary

In August, my wife and I celebrated 10 years of marriage.  It is crazy that 10 years went by so fast.  It has been a productive decade.  It has been the best decade of my life.  I feel blessed to have Lori as my wife.  She is my best friend.  There will always be ups and downs in life.  While I have experienced more ups, it is great to share all of it with my wife.  I truly believe the best is yet to come.

London & Paris

To celebrate our 10th wedding anniversary, we traveled to Europe for a week-long vacation.  It was our first trip to Europe. We had an amazing time visiting both London and Paris.  We got lucky with the most favorable exchange rates between the Dollar to Pound in recent history.  If you like to explore new cities and enjoy history, take a trip to London.  You will not regret it.  Just be prepared to spend some money because it is expensive.

Rockstar Finance

I have been a fan of J. Money for a few years.  When I created my blog, I had the goal of writing a post that would be good enough to be featured on Rockstarfinance.com.  It took me about 10 weeks to write and edit How the Mob Influenced My Asset Allocation.  It felt great to see my post shared there.  I now feel like a legitimate personal finance blogger.  I am proud of the “As Featured on Rock Star Finance” tag on my blog.

If that was not exciting enough, I had a second post Keep Your Hands Off My 401K featured as well.  My audience has grown tremendously as a result of the exposure that I received from Rockstar Finance.  The personal finance bloggers who hang out on the Rockstar Finance Forum are a great group of people who work to help everybody in the personal finance space succeed.

ESI Money

ESIMoney.com is one of my favorite personal finance blogs.  Some people build wealth by way of entrepreneurship and others do it by working for someone else.  ESI Money is focused on building wealth by climbing the corporate ladder.  That has been the approach that I have followed up to this point in my career.  Along with providing comprehensive investment advice, ESI Money has a cool motivational series that features interviews with millionaires.  I was featured as M25 in this series.  The interview received a great response.  In case you have not heard, John from ESI Money now owns Rockstar Finance.

New York Personal Finance Meet Up

I was not able to attend FinCon 2017.  I did, however, attend the next best event for personal finance bloggers.  That event was the New York Personal Finance meet Up.  The New York Personal Finance Meet Up was an informal meeting of more than 20 personal finance bloggers and internet entrepreneurs.  It was great to meet and chat with some of the financial independence bloggers who I often read.  It was also an opportunity to meet new people who are working, saving, and investing with the goal of reaching financial independence.

Keep Thrifty

The last highlight of the year was to be interviewed on Keep Thrifty.  Keepthrifty.com was one of the first personal finance blogs that I started to read after I created The Financial Journeyman.  Chris and Jaime write excellent content about paying down debt, saving, taking a mini-retirement, and raising a family.  It was a pleasure to work with Jaime to write and edit this interview.  She did a good job of getting me to share more about myself than I have in any previous post.  Please check out the interview if you would like to learn more about the beginning of my journey to financial independence.

Conclusion

2017 was a great year.  There were many pleasant surprises.  While I had high hopes for a productive year, I did not expect it to be as good as it ended up.  Moving forward, I am simply planning on continuing to do what has worked in the past and keep my eyes open for new opportunities.  My goals for the upcoming year are:

  • Continue to save at least 50% of our total gross income
  • Become proficient in Travel Hacking (Travel to Ireland for free)
  • Publish 5 blog posts per month
  • Continue to grow blog traffic
  • Attend FinCon 2018

Please keep an eye out for the fourth quarter blog performance metrics from The Financial Journeyman in early January 2018.

My Uncle Xavier: Veteran, Millionaire, Mentor

I have been thinking about writing this post since I started my blog.  As you will read, Veterans Day might be the most fitting day to publish it.  This post is about my Uncle Xavier.  As the title suggests, Xavier was a veteran, millionaire, and mentor to me.  Below is his story and a little bit about our relationship.

Like many members of the Greatest Generation, my Uncle Xavier had humble roots.  He grew up in West Scranton, Pa during the Great Depression.  His Father owned a small corner grocery store.  His mother was home-bound because she went blind at an early age from diabetes.

After high school, there was not much opportunity for Xavier.  He lived with his parents when he was in his early 20’s.  Jobs were hard to come by in those days.  He used to tell me about taking the Laurel Line Train from Scranton to Pittston to work at McCrory’s Department Store.  He described the scenery as “the outskirts of hell” as the train would pass by the stripping pits where coal was once mined.

When Xavier was age 26, he was drafted into the U.S. Army.  It was the early 1940’s and the world was at war.  While in the Army, he served on 2 major theaters in Northern Africa and in Europe during World War II.  Even though he saw horrific fighting, he spoke highly of his time in the service.

After the war ended, he returned home to Scranton, Pa.  While the economy was booming for most of the country, the good times skipped Scranton as they always seem to do.  He could not find a decent paying job.  He decided to take advantage of the newly created G.I. Bill and went to The University of Scranton where he earned a BS Degree in Economics. He then moved to New York City and went to graduate school at NYU.

My Uncle was a straight-laced guy.  He did not enjoy living in Greenwich Village all that much.  He said the bohemian crowd was not for him.

Following graduate school in New York, he decided to move to the Washington D.C. area.  He said that there was a tremendous amount of job opportunity there.  He had an easy time landing a government job because he was a veteran.

While in Washington D.C., he met and married my Aunt Ann.  They both worked for the State Department.  They settled into a townhouse in Arlington, Virginia.  He said it was a great investment because it was near a new Metro Station.  They also bought a weekend house at Bethany Beach in Delaware.

My Aunt loved to travel.  She made my Uncle Xavier join a travel club.  They took many trips to Africa, Europe, Asia, and South America.  They were truly jet-setters.

Even though they lived the high life, my uncle was a great saver and investor.  This was many years before index funds were available to individual investors.  My Uncle invested his money in blue-chip stocks.  He was a big believer in the consumer staples sector.

My dad would talk about Uncle Xavier from time to time, but I do not remember meeting him until 1998 when I was age 21. He moved back to the Scranton area because he had to move his wife into a nursing home and wanted to be closer to the family.  One Saturday evening, he called my dad and said that he wanted him to come to his apartment to talk about money.  He brought me with him for the visit.

It was a surreal meeting.  My Dad was an Accountant and he wanted him to be the executor of his will.  He also needed help picking out a PC because he wanted to track his investments online.

When we were at his apartment, he showed my dad his investment portfolio.  He had $1.8 million dollars invested in stocks with Merrill Lynch, tax-free bonds with Fidelity, and mutual funds with Vanguard.  I think my dad almost had a heart attack when he found out he was worth so much money.

I never met a millionaire before.  I was taken aback.  It felt surreal.  I thought that this would be a great opportunity to learn more about the markets.

Moving forward, my dad felt obligated to spend time with Xavier.  It was truly a pleasure to hang out with him.  We went out to the local diner for breakfast almost every Saturday for many years.  We took him to see a Notre Dame football game at FedEx Field in Washington D.C. and my parents took him to Las Vegas twice.

I was already saving and investing for over one year when Xavier came into my life.  Meeting him enhanced my desire to become financially independent.  He taught me so much about living below your means and investing.  He was worth almost two million dollars and lived in a one-bedroom apartment.  He spent his days reading the Wall Street Journal, watching CNBC, and taking two trips per day to the nursing home to have lunch and dinner with his wife.

Uncle Xavier was in my life for seven years.  I spent a great amount of time with him.  Other than going out to eat, I would take him to his appointments as he was getting older.  I was in college, so I had some free time to do so.  My Aunt passed away in 2001 and he passed away in 2004.

I have experienced death before, but never mourned anyone the way I mourned when he died.  It hurt.  I felt like I was punched in my chest.  I remember crying for a good 10 minutes when he passed away from a heart attack.

I miss him.  It has been a while since I gave him this much thought.  He was my Uncle, but also my friend.

While other 21-year old kids were out messing around, I was learning how to live and be a man from a guy who truly was the millionaire next door.  Spending time with Xavier has shaped my life.  I am truly grateful for the time that we spent together.

I hope you enjoyed this special veteran’s day post.  It is a tribute to my uncle, my father, as well to all the men and women who served in the armed forces.  Thank you all for your service.

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10 Years Later

This week, my wife and I celebrated our 10th wedding anniversary.  It had a surreal feel to it.  It is hard to imagine that 10 years have gone by.  In all honesty, it has gone by in a flash.  This post is a brief review of the past 10 years.

Our Wedding day

My wife and I were married on August 10th, 2007.  It was the best day of my life.  Sorry, if I sound cliché, but it was the day I married my best friend and the greatest person who I have ever met.

Even though it was 10 years ago, I remember the day like it was last week.  Our wedding was on a Friday night and it rained the entire day.  My day started by going for breakfast with my dad and uncle who came in from out of town.  After breakfast, I had to take my grandmother to the hairdresser.  After that, I went home and relaxed.  That afternoon, I watched the first 2 episodes of Mad Men and just reflected on my life.

At 5 pm, it was time to get ready.  I put on my tux, jumped in my car, and headed to the hall.  On my way there, I popped in Exile On Main Street by the Rolling Stones and headed to the hall to get hitched.

Our Wedding

We were married in an unpretentious hall in Olyphant, Pa.  For wedding gifts, both my parents and my wife’s parents gave us each $5,000 to use towards the cost of the wedding.  We managed to keep the cost of the wedding close to $10,000.  My future sister-in-law paid to have the string section from Marywood University’s Music Department play for one hour while guests were arriving.

When we were planning our wedding, my dad gave us a solid tip.  He said that people will be coming after work on a Friday night, so be sure to have plenty of food and alcohol ready for them as they arrive.  We followed his advice and our guests were pleased.

Our wedding went off without any hiccups.  We said our vows, ate, danced, and had a great night.  It was the beginning of a new life.

Our House

After our wedding, I moved into the house my wife owned.  My wife had purchased this house from a relative a few years after she finished college.  The good news was that she almost had the house paid for.  The bad news was that it needed to be remodeled.  Over the past 10 years, here is what we accomplished:

Doors: $2,000

Garage door: $1,200

Shed: $1,400

Windows: $3,500

Bathroom remodeled: $6000

Kitchen remodeled: $8,000

Deck: $9,000

Roof: $8,000

Addition: $30,000

Lawn & landscaping: $5,000

Awning: $2000

Generator: $3000 (following Super Storm Sandy in 2012)

All the projects other than the addition was paid for in cash.  A home equity loan was taken to pay for the addition.

Salary & Savings

The first year we were married our combined income was just over $80K.  Since then, it has doubled.  Every year we have maxed out our Roth IRA accounts.  We also fund our 401K/403B accounts.  We started by contributing 10% of our salary to the 401K/403B accounts and have increased our contributions to the maximum amount allowed.  We also save money in a taxable account.  Our savings rate has increased from 40% to almost 55%.

Education

My wife is a public-school teacher in Pennsylvania.  To get to the top of the pay scale, she had to complete 60 credits beyond a Master’s Degree. When we were first married, my wife had her Master’s Degree.  For the first 4 years of our marriage, she took classes and finished the required 60 credits.  She did so without incurring any student loan debt.

When we were married for 5 years, I switched careers from Marketing to HR.  My new employer offered tuition reimbursement as a benefit.  It was my goal to go to graduate school.  I took advantage of that benefit and went back to school to earn a Master’s in Organizational Management.  The degree cost me about $2,000 and my employer paid for the rest.

Volunteering

Prior to getting married, my wife did a great deal of volunteering.  She did mission work in China where she volunteered to teach English to children in orphanages.  After we were married, she has shifted her efforts to volunteer more at her church.  She has inspired me to be more community focused.  I have become active in helping teach career and interview skills to young people who are developmentally delayed at The Arc of Luzerne County.  We also volunteer together and have taken on a commitment to pick up roadside litter as part of an Adopt-A-Highway project.

 

(Actual Photo of us wearing matching shirts)

Travel

It has not been all work since we have been married.  We have gone on many nice trips.  Here are some of the places we have visited:

San Francisco, Ca (honeymoon)

Tampa, FL

Las Vegas, NV

Miami, FL

Key West, FL

Puerto Vallarta, Mexico

Bermuda

Charleston, SC

Burlington, VT

Ocean City, MD

Washington D.C.

OBX, NC

Asheville, NC

Virginia Beach, VA

Quebec City, Canada

London, England

Paris, France

Our Relationship

My wife is my best friend.  She is also the kindest person who I have ever met.  Our relationship is based on trust, honesty, respect, and communication.  We are not perfect, but we try to be good to each other and to be considerate.  I am not going to lie, it has been easy.  I would not change one thing about her and would marry her again.

Conclusion

Looking back, it has been a great 10 years since we have gotten married.  Moving forward, we are planning on doing more of what has gotten us to this point.  Our goal is to retire in about 11 years, so we need to continue to work hard, save, and invest.  Life is short, so we are also going to continue to travel and enjoy every day we have together.

How I learned about money

I learned about money from my Grandmother.  I was a precocious kid.  As an only child, I spent a great amount of time with adults.  The adults in my life had the tendency to try to have a dialog with me as if I too were an adult.  Friends from school would come over to my house to play quite often, but I remember spending a great amount of time with my Grandmother.

My Grandmother owned her own small business.  She was a seamstress.  She worked for a few different bridal shops.  She also worked for a men’s clothing store.  Most days, she would pick me up after school and take me to her shop.  She would watch me until my Mother would pick me up on her way home from work.

It did not take me long to catch on to the theory of commerce.  Her customers would drop off clothes to be altered.  She would make the alterations with her sewing machine.  The customers would pick up their clothes and pay her.  When I earned good grades, she would take me to KB Toys and buy me Star Wars action figures.  Even though I was only 5 or 6, I understood this process.

There were also times when I would ask her to buy me a toy and she would say that she could not afford it.  She would explain that business was slow and she did not earn much money that week.  She said that she only had money for food, gas for her car, and other needs.  She taught me at a young age that if you want money, you must work to earn it.

That was a complex theory to comprehend at such a young age.  I was only in first grade.  I do not have a psychology degree.   I can, however, see that my frugal ways and entrepreneurial spirit were shaped by her teaching me how the business worked.

The second lesson that she taught me was equally as profound.  She and I would sit together in her shop.  I would do my school work and she would be sewing.  I would spend about one hour per day with her.  We would have conversations.  She would ask what I learned at school that day?  She would tell me about her work and other stories.  She would talk about her life when she was growing up, her church, and money.

Money was her favorite topic.  She once told me that she invested in CDs that had paid out an interest rate of 13%.  She would double her money in 6 years.  She was so excited.  I am now referring to the early 1980’s when inflation and interest rates were sky high.  She explained that she would let the bank borrow $1000 from her and in 6 years they would give her $2000 back.  I found that fascinating.  Now, remember, I did not understand compound interest.  I was not introduced to multiplication yet.

This first blog post is a tribute to my Grandmother.  Looking back, she truly shaped my view of money.  If you want money, you must work for it.  Also, if you have money, you should invest it.

In case you might be interested, my Grandmother is still alive.  My parents take care of her now.  She is 94 and ran her business until she was in her 80s.  She had to finally give it up because her body was breaking down.  Sewing was her passion.  At the end of her career, she was just doing alternations for her neighbors.  I don’t think she even charged them.  She just liked them coming over to talk with her.

Occasionally, my Grandmother will call my wife and ask her to come over for a visit.  She wants to teach her how to use her sewing machine and pass on her legacy.  Maybe she will also share some investing tips with her too.  We have never consistently earned 13% returns on our portfolio.

How did you learn about money?

The Power of a Dual Income Couple

Albert Einstein said that compound interest is the 8th wonder of the world.  He who understands it will earn it, and he who doesn’t will pay it.  If compound interest is the 8th wonder of the world, then I feel that the power of a dual income couple is the 9th.  Being in a dual income couple can be a powerful wealth building partnership if managed correctly.

At my first full-time job, I worked with a guy named John.  John trained me when I first started at the company.  He and I became friends and we would often have conversations during lunch hour.

John was more than 20 years older than me.  He and I would talk and he would give me advice about life.  He told me that his wife was a stenographer and they lived off her salary.  They used her salary to pay their mortgage, car payments, buy groceries, and all their other expenses.  He said that they saved all the money he earned from his position.  They invested all his earnings and were planning on retiring in 20 years when they were both age 60.

I was a young man at the time and never heard of living off one salary.  This was just around the time that I was getting interested in personal finance.  It truly did sound like an ingenious plan.

When my wife and I got married, this was the basic strategy that we planned on using.  In my own experience, I have found that being in a two-income household has many financial advantages.  Here are some tips on structuring a plan to get the most out of a dual income household:

Salaries

Start by analyzing both salaries and identify the higher of the two.  Use the higher of the two salaries for paying all the reoccurring monthly expenses including housing, food, insurance, recreation, miscellaneous expenses, and child care if you have children.  Set a goal of one day being able to use the lower of the two salaries to pay these expenses.  This can be done by focusing on reducing expenses, career growth, and even side jobs.

You might be thinking that living on one salary would be impossible.  It might not be easy, but it is defiantly doable.  Check out the Story about Liz who was featured on budgetsaresexy.com.  Liz provides for a family of five people while also saving to reach early retirement (FIRE).  Liz is also the author of the blog Chiefmomofficer.org.

Debt

Before you start saving and investing, you want to analyze your debt.  If you are part of a dual income couple that has a debt, first work on paying that down.  If need be, take a few years of using the lesser of the two salaries to pay down your debt.  Start by paying off all credit cards, auto loans, and any personal loans that you might have.

Next, pay down your student loans and mortgage.  Once you are left with only student loans and a mortgage, pay them down to a debt-to-income ratio (DTI) of under 15%.  After your debt-to-income level (DTI) is at a manageable level of under 15%, the higher of the two earners can work towards reducing the (DTI) even further.

To calculate your Debt-to-Income Ratio, see the formula below:

Debt-to-Income Ratio = Monthly Debt Payments/Monthly Income x 100

Example: $1000 in Monthly Debt Payments/$4000 in Monthly Income x 100 = DTI of 25%

Savings

When you are in the paying down debt stage, you should also contribute to a 401K if there is an employer match.  You want to contribute to get the max amount of what your employer is matching.  To do otherwise would be to refuse compensation.

Now it is time to start saving and investing.  First, establish an emergency fund of 3-6 months of expenses in an FDIC insured savings account.  Second, max out both 401K accounts to take advantage of tax-deferred savings.  Third, max out both Roth IRA accounts to grow that portion of your savings in a tax-free account.  Forth, use any additional savings to invest in broad market ETFs in a taxable account.

Conclusion

No matter if you are newly married or have been in a dual income couple for many years, you too can take advantage of the powerful wealth building capabilities that you have been blessed with.  My wife and I have been following this approach to reach financial independence for almost ten years.  Our savings rate is over 50% because we have learned to live on one salary.

One last note, I ran into my old co-worker John last summer after not seeing him in many years.  I was having breakfast at a local diner one Saturday morning and John was there with his wife.  We had a brief conversation.  He told me that he is retiring next year and moving from Pennsylvania to Texas where his wife has a family.  It appears that he truly did follow the simple yet profound approach to reach financial independence that he introduced to me a long time ago.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer Page.