Finding Balance

March 20, 2015

I met with a young woman recently who had a few options in front of her and we talked through the choices in front of her.She had just graduated from business school and accepted an offer with her current employer. She is in a two year long leadership development program, and during that program, the company is paying for her living expenses. They do that so that she could maintain her home back in her hometown since that’s where she will eventually live again. This woman had just gotten married and her husband moved to the new city with her and he will look for a job there since he just finished school as well.

It is an exciting time to be them and they have the potential to really make a lot of financial progress or they could see the next two years zoom by and be in no different position than they are today. They can comfortably live on her salary alone at this stage so when he gets a job that income can be pure surplus. Their housing options are:

  1. Sell their house in the Midwest and live rent-free for 2 years, saving their mortgage payment.
  2. Keep their house and go back for holidays and vacations to be near family.
  3. Keep their house, rent it out for two years and save their mortgage payment.
  4. Any of the above, but increase spending on fun, entertainment and really nice cars (his idea!).

Their debt options are:

  1. Continue to pay the minimum on their student loans.  (They have no other debt.)
  2. Use the surplus income to rapidly pay off their remaining student loan debt.

Their retirement plan options:

  1. Fund each (when both are employed) plan up to their employer’s matching contribution level.
  2. Fund each plan up to, or as close to, the IRS maximum of $18,000 annually.

The “wild card” in the conversation is that they are newly married, have no children and their cost of living is very low. They have a strong desire to get passports and travel extensively since they are free from encumbrances right now.  Of course, there are a whole lot of options other than those I listed, but that is the framework of the decisions we talked through.

During our initial conversation, we discussed the pros and cons of each approach. We talked about what’s important to them now vs. what might be important to them later. We talked about the unique nature of this window in time. We talked about goals, hopes, dreams, fears and the current business climate, where employment doesn’t exactly come with a lifetime contract. They had a whole lot of thinking and evaluating of their options to do. And we talked about all of that again during a second quick conversation.

So….what did they do?

  • They are going to keep their house and rent it out since they just bought the house and plan to move back there someday. They see the benefit in having someone else pay their mortgage AND make a few hundred dollars above that in positive cash flow.
  • They are going to only pay the minimum on their student loans since the payments are very manageable and doing that will allow them to pursue other goals.
  • They are going to fund their 401k plans at 10% in order to do more than the minimum, capture her 6% matching contribution (and hopefully his shortly) and get a solid start on retirement savings. They are also going to enroll in the rate escalator feature so that the contribution rate increases to the IRS maximum level within 5 years.
  • With the difference between the IRS maximum and their 10% contribution, they are going to spend some money on experiences.  They have filled out passport applications and are getting their photos taken shortly.  The added cash flow from renting their house plus their surplus income will allow them to take a few “real vacations” together before they start their family.

So often as a financial planner it is easy to get caught up in the numbers and a narrow concept of what constitutes “progress” that it can almost be blinding. The key to real financial wellness, financial happiness, and balance in life is when we expand the definition of progress and look at many angles. When taking a look at the big picture, they found something that worked for them in the short term and the long term while allowing them to make progress on not only financial goals but life goals as well.

Take a look at your goals. Are you measuring only the financial goals or not measuring at all? Find ways to achieve the kind of balance in your life that this couple found.