When Wendy Mays was in her early 20’s, she earned $12 an hour working as the office manager of a pest control company.
She wanted higher income, so she enrolled in college at age 22. By the time she finished her undergraduate degree, she was 26, married, with a child.
Her husband worked low-paying jobs to make ends meet. They struggled to pay the bills. Wendy decided to enroll in law school, so that she could bring in more money. She graduated around age 30, and became the primary breadwinner for the household. She opened her own law practice.
The couple starting bringing in a combined household income of around $200,000 annually. They bought a large house, with a swimming pool. Sounds like the American Dream, right?
Except it was all financed.
By age 38, Wendy and her husband accrued nearly $800,000 in debt. Around $480,000 came in the form of mortgage debt. Another $20,000 comprised of vehicle loans. The other $300,000 came in the form of student loans. They lived paycheck-to-paycheck.
They decided to expand their family through adoption. Rather quickly, Wendy and her husband had six children.
They realized they needed to repay their debt in order to give their family a more stable home life. At age 38, Wendy and her husband committed to repaying their debt, building their retirement accounts, and getting themselves onto a smart financial track.
How did they re-start their financial life at age 38, with six children and $800,000 in debt? Find out in today’s episode.
Here are some of the takeaways:
#1: Always save for retirement.
Regardless of your debt level, there’s never a time when your retirement savings should be zero.
Save something, even if it’s just the employer match. If you don’t have an employer match, then at a minimum, start with saving one percent of your income for retirement while focusing the rest on debt payoff. After a month, escalate to one percent more. After another month, ramp up to one percent more.
Even if you’re laser-focused on debt payoff, aim for saving at least 5 to 10 percent of your income for retirement.
Otherwise, you’ll approach 40 and realize that you’ve been so focused on debt payoff that you don’t have any retirement savings. That’s demoralizing.
When it comes to the age-old question of “repay debt vs. invest,” choose the one that lights you up.
#2: You always have a choice.
Many people complain that “I can’t save money because I have children.” But Wendy, the primary breadwinner in her family and a mom of six, points out that everyone has a choice.
“Do you need a 3,000 square foot house? No,” she says, which is an impressive statement for a family of 8.
Having children doesn’t mean that you “need” an SUV; when Wendy became a mom, she bought a Honda Civic. She doesn’t have cable TV; the kids watch Netflix. Her kids participate in YMCA sports leagues, rather than expensive afterschool activities. She shops her pantry first, before going to the grocery store. Her kids wear clothing hand-me-downs.
“It’s little things like that,” she says. “It’s buying things that don’t have a high cost per meal, like rice and beans or pasta.”
She stays out of Target and CostCo. She knows those stores are impulse-shopping-triggers.
#3: Your retirement is a higher priority than your children’s college.
They have time on their side. You, frankly, do not. Your retirement must be a higher priority than supporting your children through college.
Your children are young and energetic; they can work part-time, they can attend community college or receive vocational training, they can test out of certain courses through AP exams and CLEP exams. They’re also more likely to value college if they have some skin in the game, and they’ll learn how to start at the bottom and work their way up.
One of Wendy’s sons accepted a part-time job at McDonalds as a student. He wanted a more glamorous job, but she reminded him that everyone needs to start somewhere. He can put in his hours, and over time, he’ll escalate to better-paying jobs.
(Incidentally, my first job was also at McDonalds. I applied for Taco Bell, but they turned me down because I was 15 and they required a minimum age of 16, so I settled for working at the McDonalds drive-thru.)
#4: Avoid lifestyle creep.
Keep living at the same level that you did when you were younger. As your income grows, the gap between your rising income and status quo spending grows wider and wider. You can apply this gap towards debt payoff and retirement savings.
Lifestyle creep is the killer of wealth.
We discuss these takeaways in today’s episode. Enjoy!
- Big Ern, Early Retirement Now
- ChooseFI podcast
- Info (at) houseoffi (dot) com
- House of FI podcast
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