by Karen Kuebler
My husband and I had been married nine years before we really started to take control of our financial situation. We made all of the same financial mistakes other couples make. We had not set future goals and never thought about priorities in terms of our spending. We spent everything we earned and when that was gone, we used plastic. We did not have a short term savings plan, and we hadn’t saved anything of our own toward retirement. I guess it took a 2’ X 4’ to finally cause us to focus!
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My husband’s loss of job after 28 years with the same company, and our subsequent relocation to a new city, served as a good whack on the side of the head. It was June, 1986, and we were both employed for the first time in years. We decided we had spent enough time *fooling around* with our future.
We questioned where to focus first. Deciding there were two major areas needing our immediate attention, we took a careful look at our mortgage and our savings/retirement plans.
We had made no progress whatsoever toward paying down the principle on our mortgage. We had initially financed our new home with an ‘interest only’ loan, planning to start paying some toward the principal after I graduated and found a job. Now I had the job, it was time to pay up! But interest rates had dropped significantly over the last few years. We were paying 11% on our loan and current rates were running about 8%. We refinanced the loan and obtained a 15 year loan at 8% interest. What a great feeling it was to watch the principal balance decreasing each month and to know the home would be paid for in 15 years.
My husband had been with his new company for two years. We realized we were missing a significant opportunity by not investing in the 401k plan offered by the company. He started to save the maximum allowed, 6% of his income. The company matched 3% of his investment. We had missed a year he could have been saving, but at least we started! Sometimes getting started is the hardest part of getting the ball rolling.
His company also had an employee stock plan that automatically deposited a certain amount of stock at the end of each year into an account for each employee. The shares received were determined by company profits. This stock was only redeemable when the employee left the company.
My company also had very similar plans. After I had been employed for one year, I began saving the maximum allowed (also 6% of my salary) into my 401k plan. My company did not have a matching plan, but they did have a stock option plan. Every six months, employees were given an option to purchase a number of shares (determined by salary) at a predetermined price. These options could be exercised within an 18 month period, so it was a matter of tracking the stock to determine whether this would be profitable. The nice part about this plan was that you couldn’t lose money. If the stock didn’t do well, you just didn’t have to exercise your options.
A few years later, my husband’s company began to experience a series of "downsizing" (otherwise known as layoffs!) He was in a position where he had to let go many loyal employees. Since he had been doing this for several months, he really wasn’t surprised when his turn came. In March, 1989, he received word he was being laid off. Although this is never good news for anybody, we counted our blessings. I was employed in a secure job (or so I thought at the time) and we *knew* how to live on one income.
We didn’t panic, but this round of unemployment caused us to think differently about our future. We hated that sinking feeling that comes when you are told that you will be out of a job. The days of staying with a company for a lifetime had come to an end. We were living in the days of *downsizing* and *rightsizing.* We wanted to be in control of our financial future, not the ‘victims’ of corporate decisions.
My husband found another job after three months of job hunting. The company was small and did not offer a 401K plan. They did have stock options. In fact, we still have a stock certificate somewhere for many thousands of shares of this company stock which has long since gone out of business. Between his 401K and company stock plan from his previous company, we had built a nice little nest egg to rollover into his IRA.
Beginning in 1987, when we refinanced our mortgage, I began tracking all of our expenses. I tracked every single expenditure! I actually love playing around with the calculator (my *binky*) and numbers. Using envelopes, I began a *cash only* system. This worked very well to limit our spending in areas where we had previously overspent using credit cards. I had a cash envelope for groceries, gasoline, recreation, and garage sales. I wrote every expenditure on the outside of the envelopes. When our envelope was empty for recreation, we stopped going out. Sometimes I borrowed from one envelope to another, using my own form of an inter-loan system. It kept us extremely *focused* and always *aware* of our expenditures.
Saturday was garage saling day for us. I absolutely love garage sales! One year I was able to keep our Christmas expenditures to $88 for 33 people, mostly with the help of yard sale finds.
Through a variety of techniques I have used through the years, I kept our grocery bill to $125 a month. Our recreational budget was $50 a month. We found ways to do many of the things we enjoyed for free or very inexpensively. We kept our utility bills very low, limiting our use of heat during the winter and rarely using our air conditioner during the summer.
I know our family thought we were *cheap* at times. Probably most of the time! They were right. We had to be, to stay focused on our goals of becoming financially independent.
When we refinanced our mortgage to a 15 year loan in the early part of 1987, I developed an amortization worksheet to track the monthly payments. With this form, we knew at any given time what the balance of our mortgage was and it encouraged us to make additional payments on our mortgage principal each month. We would try to add $100 or $200 a month. It was fun watching the principal amount decrease.
We began thinking about the equity that had built up in our home over the five years we had lived in San Diego. It had almost doubled in value! We started reconsidering our long term plans. We had planned to retire in this home. Maybe it would we wiser to buy some land and build a home, using the increase in equity to our advantage.
We built our liquid savings. Up until now, our savings had all been in long-term IRA accounts. We wanted to build a good contingency savings account for emergencies (such as layoffs) and also to add to our retirement. We had a fixed amount automatically deducted from our checking account into an interest bearing money market account each month. We also had a fixed amount taken from the money market account each month and invested in a mutual fund.
We continually read retirement planning books and attended several workshops. We determined how much money we would need to save in order to live without being forced to work. Many of the retirement planning tools state that you will need about 70% to 80% of your current income to live. But that isn’t necessarily the case. It depends on a lot of factors including your age, your spending patterns, whether you have a mortgage or rent payment, what retirement benefits are available through your company, etc.
We determined how much we should save by considering both worst and best case scenarios of the economy. I developed our savings goals for the next 10 years on a spreadsheet. I spent a lot of time with the spreadsheet and my *binky* tracking where we were financially compared to where we wanted to be. We didn’t know for sure that we could achieve our goals in 10 years, but it gave us a good target.
I share my story because I want to give hope to others. Our financial journey was very rocky in the beginning. We made so many of the same mistakes that others make. But we learned from our mistakes and eventually made our financial path a much smoother one. We’ve discovered that the journey is filled with learning – learning how to sacrifice, developing personal creativity, growing from our mistakes, recognizing opportunities, and realizing our true life’s priorities. It isn’t about money. Money just makes it easier to live the life we were meant to live!
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Copyright © 2001 by Karen Kuebler. All rights reserved.