Steven is stuck on the question of financial stability. How do you know if you have it? Is there an objective answer based on net worth? Or is it a calculation relative to your income and age?
Jack isn’t sure how to factor his house into his net worth. It’s an asset, but he has a mortgage against it, and there are transaction costs associated with selling it. How should he frame it?
Patricia and her husband are debt-free with a $2.2 million net worth, but she’s constantly stressed about their finances. Are her concerns valid? Or is she a financial hypochondriac?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Steven asks (at 02:53 minutes): In Episode 542 when you interviewed “Money With Katie” about money dysmorphia, you said that “the objective truth of somebody’s situation is that they’re financially stable and they just don’t realize it.”
How do you define the objective truth of financial stability?
“The Millionaire Next Door” provides a formula to calculate that number based on your income relative to your age. Is that the standard we should follow? And if you don’t meet that formula, does that mean you’re financially unstable?
What’s the objective truth? And how do you decide?
Jack asks (at 35:04 minutes): I don’t know how to factor our house regarding our net worth. It’s an asset but we have yet to own it outright, plus there are fees, closing costs, and interest to consider. So do we use the Zillow estimate and subtract the debt? Or should we just leave it out of our net worth?
Patricia asks (at 52:09 minutes): Am I a financial hypochondriac? My husband and I are 58 and 56 with a debt-free $2.2 million net worth but I’m stressed about our finances. How do we know if we’ll have enough in retirement?
My husband works from home and I retired when our first child was born. He makes $165,000 a year with additional cash bonuses of up to $100,000 gross, plus restricted stock and performance units, averaging $35,000 annually.
We spend $100,000 a year on living expenses. This will drop to $65,000 a year in retirement after direct costs associated with our kids are gone.
For the past three years, we used the cash bonuses to buy cars for our 19-year-old son and 18-year-old daughter, and replace our much-loved travel van.
Both kids have college costs covered between scholarships and tuition reimbursements. They also have 529 accounts with $60,000 each for additional expenses.
We have $1.2 million invested between our IRAs, a target date 401k that we max out, and an HSA that we max out and don’t touch. We also have $150,000 of emergency funds in a high-yield money market account.
The remaining $950,000 of our net worth is our primary residence valued at $625,000, a second home near Lake Michigan, and our cars.
My husband plans on taking a pre-retirement in 2030, where he’ll work from a travel trailer while we tour the US with an eye out for possible retirement locations. If we don’t find anything, we’ll stay here or head back to Michigan.
Full retirement will be in 2031 when I’m eligible for Medicare. I’ll start taking my Social Security of $1,700 a month and use our savings and investments for living expenses until my husband takes his $4,300 a month of Social Security at age 70.
Even with this plan in place, I feel like we’re not doing enough. Am I right to feel this way?
Resources Mentioned:
The Millionaire Next Door | Book
The Next Millionaire Next Door | Book
Marketing to the Affluent |Book
Selling to the Affluent | Book
Networking with the Affluent | Book
#190: The Next Millionaire Next Door, with Dr. Sarah Stanley Fallaw – Afford Anything | Podcast
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