Welcome to the next episode of The Finance Plan! Here we’ll look at real people’s incomes, net worth, and plan to pay off debt and invest. You’ll see exactly how they’re spending money now and what recommendations I have.
This double income, no kids’ household in Sacramento, California brings in an impressive $181,167 annually.
Job and Income
She’s 52, a dental office manager and makes $79,040 gross annually. Before taking Best Money Class Ever her salary was $71,479, but she said after class, “I asked (for a raise) because I realized I needed to bring in more money to get to our goals faster.”
This is a 10.5% raise and increase of $7,561 annually.
She’s now paid $3,040 gross biweekly and contributes $105 into her 401(k) plan. She receives a 3% company match ($91.20). Her take-home is $2,035.48 every other week.
He’s 56, a Whole Foods Assistant Store Manager and earns base pay of $89,368. He’s paid $3,347.26 gross biweekly and currently contributing 4% ($275) into a 401(k) with a 50% match up to the first 4% ($68.75). His take-home pay is $2,339.37 every other week.
He receives regular bonuses throughout the year ranging from $500- $3,615. Last year his bonuses totaled $10,705.
They receive monthly veteran’s benefits of $171.23. Their combined take-home pay is usually $8,920 monthly. Since they’re both paid biweekly for two months of the year, they each receive a third paycheck.
With the bonus and veterans benefits their household gross income is $181,167.
Their goals
He wants to retire by 65 and able to live a modest lifestyle, prioritizing taking two ten-day vacations abroad a year. They’re considering buying a second home in the south.
Current Net Worth and Balance Sheet
The Balance Sheet is a snapshot or picture of exactly where you stand at a specific point in time. It shows the total current assets (everything you own), total current liabilities (everything you owe), and net worth (assets- liabilities).
This couple has a net worth of $578,719.
Assets
This is the total current value of everything they own right now. They do have a healthy emergency fund and are automatically investing for retirement every month.
Liabilities
This is everything they currently owe right now.
Most of this is from a mortgage, but they do owe $92,081 in consumer debt with high interest.
How they spend their money: Cash Flows
They both value travel, enjoy breweries, and caring for their dog. Here’s their spending.
Fixed Expenses:
Saving: $1,280 ($300 went to IRA and $980 went to savings)
Housing: $1,679.81 went to their mortgage including homeowners’ insurance, electricity, water, and trash
Insurance: $619 for two life insurance policies (one paid monthly and another quarterly) and car insurance
Services: $900 for lawn care, gym, dog walker, cell phone, internet, pest control (every other month), water delivery, cable, streaming, and car wash
Debt: $3,423 for a car loan, ac loan, home equity line of credit, and multiple credit cards.
They pay property taxes separately twice a year for a total of $5,496, but often get thrown off by this large payment.
Flex Expenses:
Weekly Cash: $1,669 on groceries, gas for their car, breweries, eating out, etc.
Medical: $76 on pet grooming
Maintenance: $84.81 on car part and pest control
Projects: $35 on a Fed Ex shipment
Debt Payoff
They owe $92,083 in consumer debt with interest rates ranging from 0% introductory rates up to 30%.
My take-aways and recommendations:
To reach their goal of retiring within nine years, they need to gain control of their spending, pay off the high interest debt, avoid taking on new debt, and boost retirement investments.
The best way to get control of money is to have monthly executive money meetings where before the month starts as a couple, they forecast what they think they’ll spend, and then fill in their actual expenses at the end of the month. This will give them accountability to pay off debt and to pay larger purchases in full versus relying on debt.
I encourage them to focus on not taking on any new debt. If a true emergency happens, they can use their emergency fund versus paying on a credit card.
Since he wants to retire and live off a modest income in retirement, right now they need to practice the art of living below their means. They’re investing and have an emergency fund, but their home maintenance expenses (like the AC repair) and other larger items (like their Vacation Club purchase), are financed. Their income is high enough to pay for these items in full!
The Finance Plan
With money, it’s hard to know where to start. The Finance Plan is a roadmap and your step 1, 2, 3, and 4 with money.
Here’s a quick overview:
- Step 1: Save 10%- when paying off debt, I recommend putting 5% for retirement (to take advantage of company matches) and 5% to a starter emergency fund.
- Step 2: Get out of Debt- pay off debt (excluding a mortgage within 36 months or less).
- Step 3: Emergency Fund- save 3-12 months of expenses
- Step 4: Life Purchases: Save for a home, car, or early retirement
If they follow this plan and modify a few things, they’ll be debt-free in 36-months and can retire as millionaires!
Here’s this couple’s monthly budget following The Finance Plan:
First off, I’m creating a budget based on two paychecks monthly.
- Take-Home Pay: $8,920
- Retirement Investing (After-Tax): $300 into IRAs
- Housing: $2,098 for mortgage, homeowners’ insurance, electricity, water, and trash. I want them to put $450 monthly to savings for property taxes.
- Insurance: $437 for life and car insurance. They’ll budget his policy for $272.37 quarterly separately.
- Services: $489 for gym, cell phone, internet, cable, streaming services, and car wash. They’ll budget for pest control separately every other month ($74). They decided to cut the lawn care, dog walker, and water delivery which is a savings of $5,340 annually!
- Debt: $2,875. Their debt minimum payments are $2,075, by paying an extra $800 monthly to the highest interest debt they’ll be debt-free in 36 months. Again, the KEY is to not add additional debt and cash flow larger purchases versus financing items.
- Weekly Cash: $1,440 (or $180 per person weekly) to spend on groceries, gas for their car, breweries, eating out, etc.
- Cashless Online spending: $1,282 monthly to spend on medical, maintenance, projects, celebration, travel, and fun each month.
This is their base budget, but again historically he received $10,705 in bonuses and they’ll have two months with additional paychecks, or $8,749.70 over the year.
I want them to have a plan for their bonuses and the months they receive a third paycheck. I recommend they throw an extra $500 into debt anytime there’s a bonus or third paycheck month. Additional money above the $500 they can spend to pay for larger cashless flex expenses, like vacations or home repairs.
Car and Retirement Vacation Home
Likely in a few years they’ll need to replace their older car. They can use their bonus money to save for a car too.
As far as purchasing an additional home, I’d think twice about taking on a mortgage entering retirement. As you get older, it is a lot of time and energy to maintain a home (not to mention additional costs). I recommend considering renting Airbnb’s for month long periods in various locations in retirement for $1,600 – $2,000 monthly instead! You get a vacation home without the hassle. A couple months rented is less than they’d likely spend on property taxes alone on owning a vacation second home.
Retirement Plan
Three years from now they’ll be debt-free plus have a nest egg of $449,396 assuming 8% returns. As a recap he’s contributing $275 per paycheck with a match of $68.75, and she’s contributing $105 with a match of $91.20. After tax they’re investing $300 into an IRA.
If they follow The Finance Plan and turn a liability into an asset (start investing what they were paying to debt, $2,875), or then $4,345 monthly they’ll have a nest egg of $1,235,421 by the time he turns 65. If she continues to work until she’s 65 (four more years) and contributes to her retirement, when she’s 65 they’ll have a nest egg of $1,855,718!
Amazing things happen when you have a plan!
❤️Carly
P.S. Are you ready to turn things around? I’ll show you how to start a plan to pay off debt and invest. Download the free guide and then save your spot for your free 20-mintue 1:1 coaching session with me here.
