Evaluate my Financial Status

CoolToyz wrote:

Comin' to Reality wrote:

Seriously, time to come to reality.

Sell the house. Invest at least 200k of that. Add 1k per month to a retirement fund of some sort. If you can average 8% return over the next 20 years you can have about $2,000,000 to retire with. Get rid of the helicopter. You make 165k/year, not 1.65mil/year.

F this guy!

OP: Do NOT give up your helicopter. Keep that bad boy. Peeps be jelly is all.

I also support keeping the helicopter .

I'll show you mine wrote:

Not until you evaluate mine:

Married mid 40s with 3 young kids (11,9 and 7)

I make $200K a year (with a redic pension for life excluding deferred comp below if I stick it out to 60ish)

Wife makes $300K a year (but will only work for 10 more years tops)

House worth approx. $900K; owe $450K on it

Deferred comp for both of us: $1.1 million (will be taxed on back end)

Roth: $50k

Own approx. $200K worth of stocks

Kids 529 is approx. $100k (for all 3)

Other savings and assets: $150K

Owe approx. $30K on our cars

That's about it. How we looking?

Valuation based on non-liquid assets, heavily discounted fantasy future payouts, and your kids getting an AA at a community college.

Better get saving.

JCCB wrote:

I make 65k.

Husband makes 100k.

We rent out our guest house and make approx. 24k a year on that.

House worth 1.2 million.

390 mortgage.

140 K owed on Heloc.

85k in retirement fund.

20k in savings.

We are in our mid 40s. 3 kids. Little has been saved for college.

Pics and PRs, please ....

Does anybody have a good financial tracker app that allows you to input symbols and shares, home value, cash, etc without actually linking your accounts? I've searched the App Store a little bit and haven't found anything I like.

I agree with the Millionaire Next Door.

Your retirement fund is concerning; you should have 10 times that!

Not kidding.

And $20K is not enough for an emergency fund; it won't cover your mortgage and living expenses for 6 months.

Advice:

Max out your 401Ks and more importantly fully fund your ROTH IRAs.

Don't pay for college, you cannot afford that.

Your kids can take out loans for college, or better yet join the military or get a scholarship;

there are no loans for retirement.

It's not hard to be this guy, it just takes a little discipline.

https://www.washingtonpost.com/business/get-there/the-remarkable-life-and-lessons-of-ronald-read/2015/04/24/7c12a26a-e944-11e4-9a6a-c1ab95a0600b_story.html?utm_term=.b13d703792d1

Downsize your current house to the 500-600k range (or smaller) to pay off both your mortgage and HELOC.

Invest any excess cash you receive from this sale in an indexed universal life insurance policy (assuming you don't have any life insurance right now). If you don't have life insurance right now, your husband passing away would be financially devastating to your family.

The indexed universal life policy would kill two birds with one stone. You would protect yourself against the risk of your husband passing, and you would get to participate in market returns while receiving tax-deferred growth. If you reach an age

where you feel you no longer need the life insurance protection, most insurance companies allow you to take free withdrawals from the policy that you can use for retirement income or even long term care someday.

You seem to be behind the ball with retirement savings, so I would try to target saving at least 20% of your household income into multiple different retirement accounts. Diversify yourself between your employer's retirement plan (such as a 401K), Tradtional IRA's, and Roth IRA's.

Don't save for your children's education at the expense of your own retirement. If you're in a position to pay off their school loans for them in a few years, then do that, but don't save specifically for that now.

ActualCFP wrote:

Invest any excess cash you receive from this sale in an indexed universal life insurance policy

.

I just threw up a little bit in my mouth. What a scam.

AVOID UNIVERSAL LIFE INSURANCE AT ALL COSTS.

pop_pop!_v2.2.1 wrote:

48yroldrunna wrote:Always thought net worth is based on liquid assets. Home value/equity being separate.

Right answer.

This makes no sense to me. A house is easily liquidated under most circumstances (sold), can generate cash flow (rented), or the equity can be accessed via a line of credit (HELOC). Sure there are transaction costs and uncertainty around the valuation at time of sale, but those same issues apply to liquidation of any financial asset (even money market funds "broke the buck" during the financial crisis).

Net worth = assets - liabilities. Simple as that. There is certainly risk in insufficient diversification, but that is not the same thing as net worth. The OP has a reasonable net worth for his/her age and income level, their just insufficiently diversified across asset classes (with an obvious over concentration in real estate).

I agree with most above.... I am 8 years younger and my wife and I make half combined what you and your SO make and we have more invested and saved and our debt is 160k house only....

Getting Old wrote:

pop_pop!_v2.2.1 wrote:

Right answer.

Net worth = assets - liabilities. Simple as that. .

Agreed. People can't just go changing accounting definitions by what they feel it should be. Net worth is on the balance sheet and is the balancing act between assets--what you own(future economic benefits) and liabilities--what you owe(future economic sacrifice).

OP is not in great shape. They're top line is nice with $189k of income but they're obviously big spenders. Sell the house. Payments on the two mortgages are hurting their wealth building abilities. I would also venture to guess they have some car notes. May have to move down in car as well. At best they're worth $775k but on a $190k income and being mid 40s that's not a whole lot to show for. It's not too late. Sell the house, pay off the debt, and build up a cash reserve to approx. 90k. Then start maxing out retirement. Once that's all done you can start funding a 529 plan and help the kids with school. Doing this will help teach your kids good spending/wealth-building habits as well.

95% of home owners should not count their home as an asset. You can realistically only count your home as an asset if:

You have a LARGE amount of equity you're willing and able to liquidate.

The problem for most, and why it should not be considered an asset, is because if you liquidate you must have something to replace it. Or get a van down by the river.

make your long run 20% of your weekly mileage

HELOC wrote:

95% of home owners should not count their home as an asset. You can realistically only count your home as an asset if:

You have a LARGE amount of equity you're willing and able to liquidate.

The problem for most, and why it should not be considered an asset, is because if you liquidate you must have something to replace it. Or get a van down by the river.

He's talking about net worth.

Assuming a home isn't under water, please explain how it isn't an asset. What happens when a 28 year old who has no debt but $100,000 in savings buys a $200,000 home using up $80,000 of savings. Did his net worth just decrease by $80,000? His debt just jumped to $120,000. So is he now worth -100,000?

Late to they party wrote:

HELOC wrote:

95% of home owners should not count their home as an asset. You can realistically only count your home as an asset if:

You have a LARGE amount of equity you're willing and able to liquidate.

The problem for most, and why it should not be considered an asset, is because if you liquidate you must have something to replace it. Or get a van down by the river.

He's talking about net worth.

Assuming a home isn't under water, please explain how it isn't an asset. What happens when a 28 year old who has no debt but $100,000 in savings buys a $200,000 home using up $80,000 of savings. Did his net worth just decrease by $80,000? His debt just jumped to $120,000. So is he now worth -100,000?

It's an asset which has value to the OP. But only if they sell it.

There are several reason you might sell: downsize, upsize, lateral move, rent, move in with mom & dad, die.

They have 600k something if they move in with mom & dad, or rent, then. Otherwise they can only turn a portion of that into cash.

blort wrote:

Late to they party wrote:

He's talking about net worth.

Assuming a home isn't under water, please explain how it isn't an asset. What happens when a 28 year old who has no debt but $100,000 in savings buys a $200,000 home using up $80,000 of savings. Did his net worth just decrease by $80,000? His debt just jumped to $120,000. So is he now worth -100,000?

It's an asset which has value to the OP. But only if they sell it.

There are several reason you might sell: downsize, upsize, lateral move, rent, move in with mom & dad, die.

They have 600k something if they move in with mom & dad, or rent, then. Otherwise they can only turn a portion of that into cash.

Same with stocks by that argument. The have value only if you sell them.

NEXT

I would not be comfortable with this level of debt and so little savings. I would probably sell the house and downsize/rent to pay off the debt. With your income, I would be comfortable with retirement and savings that are 5-10x what you currently have. If your three kids want to go to college or one of you loses his income source, you'd be in deep trouble.

my 2c.

Millionaire Next Door wrote:

This Book while outdated (1996) has a fairly good measurement for wealth as adjusted for income and age.

You are Mid 40's, let's say 45, and your total household income is $189k (including rental income). Their formula suggests your net worth should be 10% of these numbers multiplied. Therefore your net worth should be $850k

Your actual net worth as measured by Assets minus liabilities:

Assets: $1.2M Home +$85k+$20k = $1,305,000

Liabilities: $390k + $140k = $530,000

Net Worth = $775k

You are below where you should be. This is most likely because your savings is incredibly low, and your debt is relatively high. You most likely over extended on your home given your income level, but even still with some dividend producing investments, you could still be in a better position. With three children and college to pay for, you may be in trouble down the line.

I did not think you could get so much bad advice in one place. So many people want to sell your house and take the money and invest it and get 4-7% return. Selling the house will incur cost, about 6%+ and trigger capital gains taxes. You would net around $600K after all said and done. At 7% return on $600K for 20 years will get you $2.3 milion. Now if you keep the house and get the same 7% return, you will have $4.6 million. Their advice will cost you $2 million. As long as you have the income to pay the mortgage, keep the house.

Are you over extended on your home given your income level? Let's look at the numbers. Income $189K, Debt $530K

Income/Debt ratio = .3566. Ideally, this could not be over .3333 but you are close.

You are house rich and cash poor. You need to start saving as much as you possible can. Up your liquid savings to 6 months of your husband's salary, about $50K. That way if either of you lose your job you will have a cushion until you can find another one. The next thing to tackle is your retirement and college savings. You need to up your yearly saving to $30-35K range. By the age of 40, you should have 3 times your salary saved. By the age of 45, you should have 4 times and by 50, you should have 6 times. It's time to catch up, but you have plenty of time if you start now.

My advice:

1. Keep the house, pay down the mortgage.

2. Up your savings to $50K

3. Save more for retirement/college, $30-$35K per year

OP here. I am a teacher, so will have a pension. My husband was in construction, lost his job during the recession. He became a self employed general contractor because he had no other options. I wasn’t teaching, but was home with the kids. My take home pay would have been minimal had I worked with three in childcare. For 7 years it was a huge struggle financially but we got the mortgage paid every month. Nothing went towards retirement or savings during these years. Obviously we took on quite a bit of debt. He recently took a job with a private builder and now will be contributing to an employer matching retirement fund. We owed about 10k on a car but put that on the Heloc. We never take fancy vacations and neither of us have expensive habits. We bought our house in 2006 for 375k, put about 200k into it to fix it up. It had been a rental for 30 plus years and was a dump. This is in Seattle where prices have increased a great deal, hence the current 1.2 value.

My kids know unless they get scholarships, their only options for college are in state public schools. The mayor of Seattle just signed legislation that will provide free community college for all Seattle high school grads which may be an option we will use. I agree with the poster who said incurring debt when two years of free cc is an options makes no sense.

I appreciate all the opinions / advice. I have thought about selling but want to avoid that. There is a chance of money coming to us in the next 10 years from an inheritance. Approx 200k.

Spouse just received a 10k raise and will likely continue to receive at least that much each year. I am currently working a .8 teaching job and will likely go to 1.0 next year which will provide about 15k more.

My marathon pr is 3:08 and half is 1:28.

We’re not gay.

It's a mistake to consider a home an asset, because you MUST have a place to live. How much you spend it up to you. But "investing" in a home also brings on huge liabilities. That $200k value value can plummet and quickly turn upside down, natural disasters can take a toll, etc.

28 yo net worth $20, spends $8 on a meal at Chipotle, but doesn't eat the food because he plans to sell it later. What's his net worth now? Slightly oversimplified, but not that much different.