Launching Pad - How we spend $120,000 a year

“Well, we’re no longer upside down on our budget!”

“Great, let’s get a bigger house!”

If you’re just catching up to my posts, let me recap the story thus far:

2007: I was arrested by immigration and fought deportation for three years.

2011: Having no career and no money to my name at 27 years old, I decided to go back to school.

2014: I graduate with a bachelor’s in finance/management and get a $40K/year job.

2015: My wife and I buy a house and have our first child. We make the very unexpected decision that she will stay home. Our combined household income drops from $95K back to $40K (we had bought the house based on both incomes, and yes, she was making more money than me). This same year I get a new job making $62K.

2016: I am promoted to make $75K

2017: I finish my MBA and get promoted to make $95K

2018: I get a new job making $120K

When I got my latest job, making $120K, it was the first time in three years that we would be making more than what our expenses amount to. This had been a decision my wife and I had made to allow her to be a stay at home mom to our son. Up until this point, this decision had been quickly draining our savings to the tune of us only having about $6,000 left by the time I got this job.

My wife and I also had to reconcile the fact that these large bumps in pay were over. Between 2015 and 2018, my salary grew from $65K to $120K. This happened because I knew where I wanted to get (to my current position), and got on the fast track to getting there. Now, I am at the top of the pay scale and should expect between 2% and 3% bumps annually, unless I change my employer again, which I won’t do for a few years.

While $120K probably seems like a lot of money for some folks. It’s worth mentioning that we are in a Boston suburb, where the cost of living is incredibly high. Here’s what my paycheck and our expenses looked like in 2018:

As seen above, I net just over $3,000 per paycheck, and I get 26 paychecks per year. My wife and I came up with a plan that involved saving $500 per month and living on only two paychecks per month (living on 24 checks annually vs. the 26 I receive). If done successfully, this would result in us saving just over $12,000 per year. This would be “free cash” in addition to my $3,250 contribution to a 403(b), which is the public sector’s version of a 401(k), and my $13,200 compulsory contribution to the Mass Teacher Retirement System, which will eventually allow me to retire with a pension that pays 80% of my salary. 

This would be the first time that my wife and I would actually be living by a budget. We crunched some numbers and came back with the below spending plan:

So, we would be netting $79K and spending $67K, saving $12K per year. What do we do with this cash? “Great, let’s get a bigger house!” is what my wife’s first instinct was. I couldn't really blame her - we do live in a 1,000 square foot home, and we’re hoping to expand our family at some point. I reminded her of some great points made by the authors of The Millionaire Next Door about the wealthy in America, and the types of homes they live in. This led us to a wonderful conversation about money, investing, and real estate ownership. Ultimately, we agreed on living in the same house we currently own until we have purchased five cash flowing investment properties. I feel that this compromise will be a game changer for our family and look forward to documenting this journey on this blog!