Friday, July 13, 2012

My Life After Debt

You know, for someone who hates debt as much as I do I’ve sure been talking about it a lot lately. This is why today I want to get back to the business of dreaming and planning my life after debt. Now that my wife and I have paid off over $80,000 of debt in three and a half years it is time to start having some fun and to also continue our sound personal financial practices that have brought us to where we are today.

Retirement Savings

Come hell or high water for the rest of my life I will always save 15% of my gross income to retirement. Currently I use a mix of 4% into my 401(k) at work – currently there is 0 match but I’ll take the year to year tax break from Washington. The remaining 11% goes to my ROTH IRA where all growth on my investments will be tax free. As of now there is also 0 required minimum distribution on the ROTH when I reach retirement age. Tax free growth and no RMD’s sound like a great formula to me!

Long Term Savings

The first thing that jumps to mind is paying for our future kids’ college. The vehicle we will use is an Educational Savings Account (ESA) which is like a ROTH IRA but for college. Although we can’t open an ESA until we have a child, we are going to start saving for it anyway and just let it sit in a simple savings account (the bank where we will open an ESA does not allow me to transfer mutual fund holdings into an ESA, only cash) and once the kid is born we’ll just move the money over. Current tax law allows me to save $2,000 a year in an ESA for each kid, so that translates into $166.67 a month from 0 to 18.

A house paid for in cash is also on our horizon. We are going to continue and consistently save for this goal as it will be a standard line item on our monthly budget. We’re not in a rush and are committed to find the right distressed property, in the right location at the right time.

We also want to save outside of retirement vehicles specifically for dreams and goals that are at least five years away without the handcuffs of having to wait until 59 and a half. For this we use a brokerage account where we can buy all of the best mutual funds that would even make Dave Ramsey salivate. Through this we’ll do things like: go on missions trips, live in Europe for a year, island hop our way across the Asia-Pacific, create college scholarships for high school students, buy a boat, travel the entire continental U.S – just to name a few. In other words: While I love where I am today, being 40+ won’t be so bad either J

Giving

This part is another one of my favorites. While giving is a piece of our long term investing we still give month to month in our current budget and have some plans to give more now that we’ve broken the chains of debt. My wife and I currently sponsor two children through Compassion International and give regularly to our home church. What we plan to do now is sponsor another child through Compassion and increase our regular giving to set money aside for special causes that may come about throughout the course of a year: friends going on missions trips, special collections through church and helping families in need during the holidays.

Travel

Yup, it’s time to see the world. During our expense sensitive time climbing out of debt our travel splurges, which were infrequent (1 or 2 a year), included: Milwaukee WI, Charlotte NC, Mackinac Island MI, Los Angeles CA and our honeymoon to the Mexican Riviera. Now on the horizon we have: Honolulu HI, Miami FL, Europe, Australia and Charleston SC..and that’s just in the next few years. Our plan for this is to put travel as a priority on our budget and always save a monthly minimum for it all year long, while putting extra in months ahead of larger ticket priced trips.

My imagination is running wild at the limitless ways we can use our resources for the future. Helping others, seeing the world, sending our kids through college debt free, paying cash for houses, I think financial peace is starting to crystallize within my vision!

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