I want to share Rick and Ilsa’s story with you: Both 43, raising a beautiful 5-y/o daughter, Willow. Rick is a Sr. Director and Ilsa works part-time.
In our annual financial plan update, we were excited to discuss their large raise—Willow was going Kindergarten, no longer requiring daily childcare.
Many of you can relate, childcare is very expensive. For Rick and Ilsa it was $1,400/month.
The question of the day, how do they best utilize this increase in income?
First, we took inventory of their current situation, where do they stand today?
- Debt: None outside of the mortgage.
- College Planning: Goal of $120,000 by the time Willow turns 18. They are on pace to have $119,000. No changes required.
- Financial Independence: Goal to be financially independent at age 60, needing $2.6M. They are on pace to have slightly over $3m. No changes required.
So by all measures, they are on pace, winning the game. Slowly, methodically, automating their way to funding their most cherished long-term goals. So what’s else?
- Cash: Emergency funds have ballooned $50,000 over their original target amount of $25,000. Currently stands at $75k. Changes required.
- Vehicles: Rick and Ilsa’s vehicles are fine and paid/budgeted for, 2019 Ford Explorer and 2021 Acura RDX, respectively.
- Home: Have been discussing necessary home improvements, likely $19,000. Have been hesitant, weighing their options; put cash into current home or explore moving into a new home? What should they do?
- Ilsa debating going to back to work full-time to help fund some of the above.
Here’s how we proceeded:
The home improvement projects officially got the green light. It’s a lot cheaper and makes more sense based on their location to make the home improvements than to purchase a new home. Not to mention, they have a juicy 3% mortgage that they’d prefer not double.
We reset their emergency fund target amount to $50,000, which raised it by $25k but also freed up $25k.
The extra $1,400/mo “raise” from no longer needing childcare will be reallocated to into their joint brokerage account, invested in liquid assets for the future. Over the next 10 years, at a 7.8% return, the new investment will grow to approximately $253,000. This could result in financial independence five years earlier than originally planned (55), or it could simply create a greater margin for the family to enjoy vacations and trips in the coming years.
Ilsa will remain part-time so she can be available for Willow and her activities.
How did Rick & Ilsa feel? Elated. Relieved. Excited for the future! The most rewarding part of my job 😊
If you or someone you’re close to could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers,
Nic
