Financial planner
/In January 2015, I set up a meeting with our life insurance/financial planner guy to talk about our options for preparing financially for this lifestyle alternative. I walked into the meeting and calmly explained what we are working toward, that we are a little bit ahead of the game at this point, but that I wanted to figure out all of the options available to me. His eyes raised slightly, but not so much in response to the adventure component, more in the multifaceted request I had laid out.
How can you max out your retirement savings, reduce your taxable income, save for a large purchase and payoff your house on a very expedited timeline?
Goal #1 - Accessible Savings
First, to make this alternative lifestyle happen, we need funds to purchase a boat. Having enough to buy the boat outright eliminates the burden of making a payment each month. While there are plenty of boats that can get us away from the dock for less than $30,000, the boat we have in mind is likely to cost three times that (more on what boat that is in a future post). And beyond the funds to purchase the boat, we would need some reserves for repairs, supplies and daily expenses. Basically, there can never be enough set aside, so we just need to save everything we can.
Goal #2 - Paying off the Mortgage
Cruising can be expensive. You can live for less than you would in a house, but it sure isn't free! I want to live this lifestyle for as long as I can, without having to pause to head back to the states to earn more money. At the moment, I see this happening by paying off the remaining balance of our mortgage and then renting out the house for some monthly income. Keeping the house while we are gone may prove to be a burden all on its own, but hopefully we can find a property management company that can keep that burden to a minimum for us. Then once we get to a point where we want to return to land, we have a house waiting for us.
Goal #3 - Reducing our Taxable Income
Toward the end of each year, I start to run calculations to see how we will fare in tax season. This time, I not only calculated what we would expect to be the outcome of the 2014 taxes, but also how things looked for the 2015 tax year. Usually, I focus on how much we are getting back, this was the first time I paid attention to what we still we're going to pay. In 2015, we knew Hubbie would complete his apprenticeship program and would therefore be earning a larger paycheck. This in combination with my salary, would put us into a higher tax bracket than we would like. And as such, we have goal #3 - reducing our taxable income.
Let's Get Real!
I started writing this post a while back, and reflecting now on the look the financial planner gave me, I know the answer. You can't. He even sort of told me that, but at the time I was convinced we could be strict and strategic with our spending and it would all fall into place, so I didn't really read between the lines. Over the past year, we have done better financially that we ever have, but we certainly haven't made much of a dent in saving the funds for purchasing a boat outright and we are still paying the same (slightly elevated) payment to our mortgage. The financial planner didn't have many suggestions to decrease our taxable income that I wasn't already aware of - mainly max out your retirement savings. He did suggest an account that could earn dividends tax free, but that wouldn't actually reduce the amount of taxes we paid in the end.
On top of all of this, it is basically impossible to be strict with your spending when your second half isn't completely committed to the goal. Hubbie has made great strides toward embracing this alternative lifestyle, but he isn't willing to pinch pennies quite yet.
One change we did make was to split up some of our finances. Since we got married, we have had two joint checking accounts, one for bills and one for spending, and I kept track of it all. As you can imagine, that lead to some tense discussions, but over time we settled into a routine and the discussions calmed down quite a bit. Hubbie and I have different approaches to finances and he would typically spend the money first, so after a while I was feeling like I never had money to do with what I wanted.
We now have three checking accounts, one for the paychecks and bills and then one each to spend from individually as we please. As the paychecks are deposited, I balance the accounts and set aside what is needed for the next month's bills. (On a side note, since we moved to Oregon we have managed to stay one month ahead so that the paychecks received in January would be used for February's bills. It has proven very helpful to maintain that little buffer as we worked to build an actual savings and I would highly recommend working toward that set up if possible.) After the household expenses have been satisfied, the remaining of each of our respective paychecks are transferred to our individual checking accounts to pay for miscellaneous purchases over the upcoming two week period. This approach has resulted in my personal ability to start a small cruising kitty. Eventually this will have to become a joint effort in order to achieve the goal, but you gotta start somewhere!