Now that tax season is over, it’s a good time to reflect on why you are saving and investing so diligently. Reminding yourself of the why is an important motivator to keep going. Goodness knows it’s too easy to eat one more cookie and find ourselves unrecognizable 10 years later when we live in a free and abundant country.
Since graduating from college in 1999, I’ve been motivated to max out my 401(k) and save as much as possible because I knew there was no safety net. My parents drove an eight year old Toyota Camry to their government jobs. We lived in a cozy townhouse. And they worked until their 60s. After sending my big sister to college, I wasn’t sure they had much to spare if I faltered.
After saving enough money to live off ~$80,000 a year in passive income in 2012, I continued to try and save as much of my after tax income as possible because I was unsure whether I had made the right move. Walking away from a six figure salary at the age of 34 is not normal. Some might even call it stupidly stupid.
Given I’ve survived more than six years of unemployment, there’s a growing chance I’ll continue to stay unemployed for the foreseeable future. That said, I plan to continue saving aggressively for many reasons. I’d love to hear yours as well.
Why Save And Invest For The Future
1) A family to support. Life was relatively easy financially when it was just my wife and I. We could adjust our spending down if necessary or find freelance work if we needed extra money or excitement. Now that we have a toddler, we have fixed costs that must be spent and a lot less time to do anything outside of childcare and Financial Samurai.
Although we made a pact that my wife could leave Corporate America when she turned 34 as well if Financial Samurai was still running, when she finally did renounce her steady paycheck in 2015 I felt added pressure to save, invest, and write because I became the main revenue generator. When our son was born in early 2017, the pressure to provide grew even more.
2) Paying for college. I have no doubt by the time my son goes to college in 2035, the all-in cost will rise to $125,000+ a year. Goodness forbid he decides to take five years to graduate! To pay $500,000 – $600,000 for him to attend college in 18 years requires $28,000 – $33,000 a year in savings.
My hope is that he either gets admitted to a fantastic state school or is smart enough to get merit based scholarships. But I won’t count on it. Perhaps there will be a movement by 2035 where college will either be free for everybody as we move towards a more socialist regime or that attending college is no longer necessary thanks to even more enriching courses online.
3) Affordable housing. I’m also certain the cost of housing will also be much more expensive by the year 2040 when he finally graduates from college. For example, the median house price in San Francisco will rise to $3,250,000 from ~$1,600,000 today if prices grow by just 3% a year for 24 years. Meanwhile, if you don’t have a $650,000 downpayment to buy the median $3,250,000 home in the future, it will cost you over $8,000 a month to rent the place under the same metrics.
Once housing costs are squared away, it’s much easier to pursue your interests. What a shame it would be to turn down a wonderful opportunity that doesn’t pay the greatest due to an absurdly high cost of living.
4) Car maintenance expenses. The warranty on my 2015 family car is running out this year. As a result, I’ve got to budget for the inevitable costly repairs that could range from $1,000 – $5,000 on average. The amount of parts and electronics that go into cars these days compared to 30 years ago is night and day. In the past, we could easily fix our own vehicles. Now, we’ve got to hook our cars up to an electronic diagnostic and then go from there. Finally, replacing four 22″ mud + snow tires and breaks look like it will cost me $3,000.
5) Property taxes. Although I got rid of $23,000 a year in property taxes by selling one of my properties last year, I’ve still got to pay ~$16,000 a year in property taxes for my primary residence, $9,600 a year for a SF rental condo, and $4,800 a year for my Lake Tahoe property. That’s $30,400 a year just in property taxes. Yes, the rent I receive from two properties will cover the $14,400 in property taxes, but it’s still a never ending wealth tax that will only grow over time.
Related: How To Reduce Your Property Taxes
6) Home maintenance. Besides property tax, there is constant home maintenance expense to deal with. The big ones include replacing a roof every 15 years for $15,000 – $20,000, painting the exterior every 10-15 years for $10,000 – $15,000, and regular upkeep of the grounds that might run $1,000 – $2,000 a year. I’ve become very handy at fixing leaks, replacing caulk, and interior painting as a landlord since 2005.
7) The possibility of having a second child. There’s less than a 25% chance we’ll have a biological second child due to our advanced ages, but there’s still a chance. We are also considering adopting or fostering a child as well. If we have a second child, our costs will increase between $1,000 – $5,000 a month depending on the age and time the second child comes.
8) A Hawaiian dream home. This is our biggest future expense that doesn’t have to come true. We’ve thought about living on a flat piece of land near the beach for a while now. Unfortunately, a four bedroom, three bathroom home on a 10,000 sqft lot within a 10 minute walk to the beach will cost around $3,000,000. Ideally, we’d like to purchase the property by 2023, when our son is eligible to begin kindergarten.
One can always dream right? When you dream you tend to find ways to make things happen. There’s a good chance we’ll just settle for a smaller house for 30% less if it’s just the three of us. Check out this sweet house with panoramic ocean views.
10) To be able to comfortably provide for our parents for the rest of their lives. If there is one thing we must get right, it’s to be able to provide everything our parents want or need for the rest of their lives. There is no way we will ever let them live in a strange place if they don’t want to. Instead, we will customize their respective houses and pay for care to come to them if that is what they prefer.
We estimate that it will cost around $15,000 – $20,000 a month per set of parents to be able to provide for such care, excluding any customization work that is required to the house e.g. building a wheel chair entrance ramp, installing an electronic chair that gets them up the stairs, installing communication devices in every room, cleaning, landscaping, and live-in care, etc.
We also anticipate having to pay for food delivery, transportation, and their vacations as well. If there is one area where we should spend the most money, it’s on our parents.
Save For The Unknown Future
After a while, saving and investing will become part of your DNA. You will do so unconsciously because you’re unconsciously preparing for an unknown future.
The more you save, the more secure you will feel. If you end up with too much, there are plenty of people out there who could use your financial help.
Recommendation: Take a look at CIT Bank for one of the highest yielding savings account online. Their rates are regularly much higher than comparable banks. They also offer an 11-month penalty-free CD at a very competitive rate as well.
Readers, what are some things you are saving and investing for?