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Late start in semi-crisis. Better late than never?
Old 01-09-2019, 08:25 PM   #1
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Late start in semi-crisis. Better late than never?

Hi everyone.

I went through several brushes with completely losing everything (this involved cashing out previous retirement money for a family medical emergency and narrowly avoiding bankruptcy).

I'm now 34 years old, married, and life is stable again. Both my wife and I freelance, but I am starting over again with debt I am still paying down.

I'm thankful to have learned about FI/RE which has given me some hope that through discipline and commitment there might still be hope for me and my wife.

Here is my current pretty sad picture.

18,500 left in credit card debt. This is our number 1 focus at the moment

My wife's Roth IRA still has $4413.13 holding VTSAX.

My Roth IRA is still empty. I intend to get this in VTSAX after eliminating credit card debt.

Have a $10,000 emergency fund at Ally which will get wiped out to some extent by taxes from my wife's self-employ freelance taxes.

That's pretty much it, sadly.

I'm a little overwhelmed by the wealth of information from all of the various FI/RE resources out there. It's all helpful of course but I'm not sure what the best course of action for me is.

Obviously, I am now in a position where I'm playing catch up to a large degree. I want to learn how to maximize/optimize everything. Checking, how much and what to put in brokerage, how to maximize retirement accounts, etc so that I can make up for lost time.

Checking right now is at Bank of America which I know I should change.

I'll continue to read and learn and participate in the community here. Thanks in advance to anyone willing to help a newb who is crawling out from desperation.

EDIT: For clarification, both my wife and I freelance so work/income is inconsistent. I know cutting expenses and save ratio are more important factors but thought I'd include that info.
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Old 01-09-2019, 08:42 PM   #2
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Hi and welcome to the forum. First thing to understand is that it’s not too late. In fact, you’re only a little behind the eightball. I made my money and got on track between 40 and 50. There are some basic things you need to do and it sounds like you’re already I tune with them. Pay off any debt that is not your home. It’s not that home debt is sacred, but it’s typically the only debt that is at an interest rate you can live with. You can focus on that later. Take advantage of any tax deferred savings you can, IRA, ROTH, 401K . . . Live frugally. We refer to it as Live Below Your Means (LBYM), which is synonymous with save all you can.

Hang out here, read, ask questions and try to make money. In five years, you won’t even be 40 and you’ll be in better, if not very good shape.

Others will help, but keep positive and it will work out. You’re still pretty young.
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Old 01-09-2019, 09:03 PM   #3
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Welcome aboard. I don't think you're too late. You've got the right attitude and you're moving forward. That's the most important thing at present. Heck, when I was 34, my net worth was almost exactly the same as yours. I'll be 60 next week and will retire at the end of May.
Living an analog life in the Digital Age.
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Old 01-09-2019, 09:24 PM   #4
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Welcome to the forum. It sounds to me like you have your head on right. As Jerry1 said, you are not too late. There are different FIRE cohorts, and the one here is mostly folks who ERed between say 45 and 60. With your mindset I think you are on track to join this cohort.

In my observation, one key is to avoid bad debt - most commonly credit cards that you can't pay off every month and car loans for "fancy" cars. You already understand this and are tackling it so that is good.

In my mind, you and most people your age should, above basic living expenses:

1. Eliminate debt other than a mortgage for your primary residence. Don't buy more house than you can really afford (including taxes, maintenance, utilities, furnishings, etc.)
2. Contribute to tax deferred savings plans where available, especially if there is matching. Megacorp slaves that have 401(k) matching have a big incentive/advantage here; as self-employed you still have tax advantages to i401(k)/SEP etc.
3. Contribute to after-tax savings. This turns out to be more important than I thought at your age - bridging from Early Retirement to, say 59.5 when you can draw IRA/401(k) is an issue. Further, overdoing the tax-deferred contributions leads to the dreaded tax torpedo. I personally am looking at the dreaded tax torpedo after I turn 70.5, while that is a bit of a winner's problem it could have been better optimized if I discovered at your age! Lastly, living on after-tax savings may optimize PPACA subsidies in early retirement, should such a thing still exist.
4. Contribute to Roth accounts. These are very good, but I have a little bit of an unconventional approach. Until you both optimize your current taxes and cover your needs for bridging from ER to 59.5 years old, Roths may not be ideal. I don't know what Federal tax bracket you are in, nor what State tax bracket, but you should try to do the math for your situation and understand the implications of Roth vs. Tax Deferred vs. Taxable for funding periods of: ER-59.5 : 59.5-SS : SS-RMD : RMD->... If you are currently in a low tax bracket, Roths make a lot of sense because you are not losing much tax savings, but at higher tax brackets I am not convinced.

Bottom line is Live Below Your Means (LBYM), prioritize savings, and avoid bad debt. From your introduction I think you are on the right path!
FI and Semi-ER March 24, 2017
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Old 01-09-2019, 10:12 PM   #5
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Track all spending. The original copy of Your Money or Your Life by Joe Dominguez and Vicki Robbin has a plan on how to do this in a meaningful way. It is a bit arduous to read, but stick with it. I followed this plan (not their investment advice) for over twenty years before I retired. This book changed my thinking and changed my life. Highly recommend it. Can probably borrow a copy from the public library or get a used copy through Amazon. I read it five times.
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Old 01-10-2019, 01:33 AM   #6
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Go cash only if you really want to control spending. And track every expense by category. Once the spending is under control and credit card is paid off then you can start using credit card for ease of tracking expenses. But always pay off card in full every month!!

Set savings target that is substantial percent of your income (which should hurt) like 50%. FYI: We save 60% of net income.

Once debt is paid off, you should fund in this order:
1. 401K up to company match (if you qualify)
2. HSA (if you qualify). DO NOT withdraw this money but rather invest it.
3. IRA and Roth IRA (Same order but maximize both before moving down the list)
4. 401K up to deductible limit
5. If you have kids and live in a state with tax benefits then fund collage savings account at this point.

If you have any money left:
6. Brokerage and 401K after-tax (Same order but I prefer 401K after-tax over brokerage)
7. Private equity
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Old 01-10-2019, 05:13 AM   #7
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You're not screwed. Good for you for digging in. It will be fine.

+1 on all the advice above.

I will amplify the Live Below Your Means point.

You ability to invest = income - expenses

How much you're worth over the long term is driven by how much you save and a disciplined, repeatable investment plan much more than all star investment picks. (Actually, aiming for all star investments will likely destroy wealth rather than building it.)

Pay yourself first. Set aside a sizable fraction of your income to invest each month and then sort how you will live on the balance. 50% is a great savings goal. If not achievable, get to something strong now (25-30%) and then use raises to nudge towards the 50/50 goal.

Last thought: make sure your plan is sustainable. Living on cat food so you can save a pile of money is not helpful if you give up in 6 months b/c life stinks. Life is still to be lived.

Save hard, live life, repeat.

You'll do great.
Luck is when Preparation meets Opportunity.
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Old 01-10-2019, 10:05 AM   #8
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Welcome! Setbacks like the medical emergency and CC debt can be discouraging but it sounds like you're doing the right thing.

I'm replying with another recommendation to Live Below Your Means. It can take awhile to stand up to the constant onslaught of marketing etc. that is trying to get you to spend for whatever. Keep in mind what really matters (hint - it's not stuff). I second Closet-Gamer.
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Old 01-10-2019, 11:13 AM   #9
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Welcome, you can't fix a problem until you have identified it. You are now on that corrective action path. You have time to make it to a successful result. You already know the CC debt is bad and working to get that eliminated. Being freelance, your income may not be as steady, so you need extra discipline to ensure that you keep expenses down and have left over moeny for savings. That often repeated LBYM works every time. The more you can save, and earlier you can save, the better off you will be later. That's the power of compounding. Depending on your age goals for retirement, you should be saving 15-20% of income now. Saving more is better if you can do it.

Lot of good wisdom and advice in replies above mine.
I used to have a handle on life, but it broke.
You can't spend yourself to prosperity.

Semi-Retired 7/1/16: working part-time (60%) for now [4/24/17 changed to 80%]
Retired Aug 2, 2017; age 53
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Old 01-10-2019, 12:56 PM   #10
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You are on the right track, you are doing good. We can't change the past, so look forward (but learn from the past where you can).

edit: ooops, sorry - missed this"Have a $10,000 emergency fund at Ally which will get wiped out to some extent by taxes from my wife's self-employ freelance taxes."

Well, the below concept still applies, when you have the opportunity.


One thing that I think was not suggested (I may have missed it) - does it really make sense to maintain a $10,000 emergency fund when you have $18,500 in CC debt? Why not use maybe $8,000 of it to pay that debt down?

The consideration is, if you did have an emergency, is there a chance that your credit would not be available? I would think it would be - you just gave yourself $8,000 in 'headroom'. Unless they change your limit on you, but I doubt they would if you showed you just paid that much off. Knocking the CC debt down means you can get it paid off faster, as there is less of it and the interest will be lower.

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Old 01-10-2019, 01:19 PM   #11
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My biggest advice, do not let minimum balances become a barrier to entry for investing for you. Start with Roth, $1000 turns into 2000, and 2000 turns into $3,000 but you can buy an ETF with less than $100.

INVEST today, like literally say okay I am putting $20 a week into Vanguard Money Market and when I have enough for 1 share of an ETF (VTI for instance) in 6 weeks you buy your first share. Do this in a IRA. Then don't let not having access to an IRA be a barrier. Open an IRA via Vanguard and start funding that...another $20 a week. What is that, $2080 a year, you can do it! I started somewhere so can you, welcome aboard.
Time > $$$ ~ 100% equities ~ FIRE @2031
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Old 01-10-2019, 04:01 PM   #12
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Welcome to our forum. You have the right attitude and that is half the battle.
Can't say more than what was already mentioned, but also hats off to the responders to this thread for their warmth and support.
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Old 01-10-2019, 05:00 PM   #13
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Originally Posted by kgtest View Post
INVEST today, like literally say okay I am putting $20 a week into Vanguard Money Market.
This right here. Pay yourself first, even if it's just a few bucks at a time.

I can't provide anymore solid financial advice than what other posters already have. I can, however, sympathize 100% with your current situation. Although the particulars might differ from yours, what DW & I faced early in our marriage with two young, chronically ill children put us on the brink financially, as well.

I had employee sponsored health insurance at the time, but it wasn't the greatest. Our youngest was born prematurely, spent time in the NICU and after release from the hospital, was on an infant monitor for the 1st year or so of his life. With me being the higher earner at the time, it was DW who had to quit work. Our oldest son, only a year old when his younger sibling was born, had acute, chronic asthma that required frequent hospitalization.

We were buried financially with medical debt and wrung out emotionally. At times, it was depressing. But eventually, over time, we dug ourselves out. It took a lot of discipline, hard work, stick-to-it-ness and stick togetherness for us to come out the other side financially and emotionally intact. You and your DW can too. Going forward, continue reaching out for support to those who have your best interests at hand - whether that be family, friends, colleagues and even members of this community forum.
“Before you criticize someone, walk a mile in their shoes. That way, you’ll be a mile from them, and you’ll have their shoes.” – Jack Handey
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Old 01-10-2019, 05:10 PM   #14
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Welcome. Today is the first day of the rest of your life.... You can't do anything about what is in your rearview mirror other than remember any lessons learned.

On the credit card debt, what interest rate are you paying? How much can you dedicate towards extinguishing it? Assuming that the interest rate is high then it makes sense to focus on that.

With your employment situation, a healthy emergency fund is important.

I've had our checking and savings with a local credit union since I was your age and have never paid a fee for anything (though I do pay for checks but don't use many anymore).

Another thing that I would highly recommend is to get Quicken Deluxe or higher and use their Lifetime Planner to sketch out the rest of your life financially.... then regularly use Quicken to monitor your progress.
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Old 01-10-2019, 05:12 PM   #15
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Aside from the great advice already provided, my only other comment is to take a close look at the life decisions you have made so far, particularly in regards to your money habits. What decisions led you to the position you are in now and what you can learn from them so as not to repeat any past mistakes?
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Old 01-10-2019, 06:22 PM   #16
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Welcome to the forum. Maybe one (or both) of you should stop freelancing for now and find an employer with good benefits. Don't know if you are freelancing by choice but it sounds like you need a steady income.
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Old 01-10-2019, 06:28 PM   #17
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If I were you guys, I'd:

1) Pay my taxes.
2) Take what's left over of the emergency fund and pay down your credit card debt.
3) Pay quarterly taxes on your freelance income, so you're not hit with huge tax bills you can' pay at the end of the year.
4) Contrary to what most would advise, I'd liquidate your wife's ROTH IRA, paying the penalty on the early withdrawal part (contributions can be withdrawn tax and penalty-free). Use whatever this yields to pay down credit card debt.
5). Finish paying off credit card debt. Saving $ earning 2% or less doesn't make any sense when you're paying 18%+ on credit card debt.
6) Evaluate your spending and earning. Find a way to earn more and spend less. Ditch cable TV, leased cars, cars with loans, etc.
7) Re-establish a $5K emergency fund.
8) Fund an IRA (not ROTH), so that you can deduct the full amount from your income.

Just a few thoughts on a starting point. Good luck!
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Old 01-10-2019, 06:30 PM   #18
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I'll focus on one thing: The $10,000 in taxes. I realize it include FICA/medicare/income, but perhaps also state. Nevertheless, to get that amount of taxes requires a lot of income or very poor tax planning. Can you hint at which one it is please?
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Old 01-12-2019, 02:36 AM   #19
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Welcome to your new attitude. Don't let comparison with Internet high
achievers dampen your spirit. Most people in the real world don't get their
financial heads on straight until at least their 30's (if ever). As a comparison, at
age 36 I was literally homeless, couch surfing with friends, with nothing but an
old pickup and $75K in assumed debt from a fresh divorce. You aren't starting
late at all, as long as you are starting strong.

I don't have any tips to add to the good ones above, except maybe to reiterate
the idea that one of you getting a mega-corp job with good benefits would be a
great boon. There are lots of downsides to being a mega-corp wage slave, but
there is no denying the strong foundation a solid benefits package and regular
tax withholding is for a family.
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Old 01-12-2019, 12:34 PM   #20
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Welcome to the forum! You are NOT too late! At age 37 I changed careers (drastically) with a wife and 4 children. We were paycheck to paycheck and not a nickel saved. 23 years later we both retired with healthy 401K's, money in savings and no debt except a house payment that I chose not to pay off (preferred to invest).

It sounds like you know what to do. Consistency matters! Good luck!
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