Thursday, January 19, 2017
Life is always throwing curveballs at you. One minute this is happening, the next there's something else coming down the line.
As many of you know the 9 months or so have been full of changes for me and my wife. We went from me being the solo income earner while my wife was pregnant. Then I was laid off in April and we were technically a ZERO income family for 6 months. We welcomed our wonderful daughter to this world in July and my wife returned to work in October. In the meantime I became a stay at home dad and have been taking care of our daughter since she was born.
When we were expecting our daughter to be born my wife and I both preferred to have one of us home with her. Ideally one of us could be home with her until she went to school once she turned 5. I think there's nothing better, more important or more satisfying than being with your child as much as possible. It's amazing to watch her learn and grow and even though I see her on an hourly basis you see all of the changes that she goes through.
Unfortunately being only on my wife's income has really stressed our finances. Since she returned to work we've been facing significant shortfalls each month to the tune of about $1,500. While we could easily get through this by drawing down on the portfolio it just doesn't make sense to undo all of the work that we've done over the previous 6 years to build our investment portfolio up to around $200k.
This just reinforces how important it is to keep your expenses to a minimum and to always be mindful of the gap between your income and your expenses. So now I'm faced with a difficult and important decision and I wanted to go through the various options that we have that would keep me at home.
Choice 1 - Sell investments to pay off debt
We currently have a little over $40k in debt that isn't related to our house. Some things were in our control such as buying a more affordable car for my wife, but some was out of our control and related to our son's passing and the associated funeral costs that were just weren't really prepared for.
This would help but would only lower our monthly shortfall to around $1k so there just isn't quite enough bang for the buck.
Choice 2 - Sell entire taxable portfolio to pay off all debt including the house
Money is nothing more than a tool to provide you the freedoms you want in life. So what good is it to amass a significant amount of money if you're still having to work day in and day out.
While the ~$200k value that my portfolio sits at would allow us to pay down our entire house and most of the other debt we're still not at the gap that I would like to see. Doing this would wipe out essentially all of the cash on our books and make us take a large step backwards in our journey to financial independence.
The positives of doing this is that it would open up the budget some and give us around a $500 gap with our monthly income. However, as I said earlier we would have essentially no cash on hand. I'm not about to put ourselves in a situation that's just inviting Murphy to take up room in our house so this option doesn't work either. I'm also not entirely confident that we'd be able to pay off everything due to having to set aside some of the proceeds to handle the taxes.
Choice 3 - Liquidate taxable portfolio and make up the gap with option income
This option runs into the issue of capital gains taxes as well; however, I think this one could work despite the lower starting balance. To make up the ~$1,500 gap between our income/expenses that would require me earning about 0.75% per month via options on the total balance of the portfolio or 1.0% per month after accounting for the capital gains taxes that would need to be paid for the option premium profit.
While I think this choice would be possible using my fairly simple strategy of just selling puts/calls I would want to go about it in a more systematic way. Until I learn more about options trading and get more comfortable with other strategies that could limit the possible risk and allow me to be a bit more aggressive with the capital at play at any given time.
Choice 4 - Go back to work
Over the last couple of years I've become a much bigger believer in things happening for a reason. Whether you say it's a higher power, destiny or whatever you want to call it there's been countless times where things all kind of fell into place. For example if you look at my layoff last April it worked out beautifully because it allowed me to be home with my daughter, take a break to kind of recharge and between the severance package and a class action lawsuit we were set up wonderfully with cold hard cash in the bank account.
I've been thinking about how I'll likely need to go back to work within the next year or so and last week everything fell into place again. I received a call from one of my old bosses saying they were wanting to get some of the hands back by going through a consultant firm. My wife and I sat down and really hashed out where we sit financially and the best thing is for me to go back to work.
Everything happened very quickly but between Monday and Wednesday of last week the wheels are in motion for me to go back to work.
The biggest downside to taking this job is that I'll be back out on the oil rigs and not at home every night. But in all reality this was the quickest way for me to get back to work, heck the job was offered to me without me even asking, and if I work just 2 weeks each month I'll make more money than I could at any other job. I contemplated searching for a job that would have me home, but my fear is that it would take much too long to be able to find a job that makes it worthwhile to be away from home while still providing ample cushion in our monthly budget.
Unfortunately going back to work will increase our monthly outgo in the form of day care expenses now coming on board. The day care we've decided on runs about $250 per week or roughly $1k per month. My take home pay, after taxes, should bump us up to roughly a $1,500 surplus, assuming I work only 2 weeks per month, even after accounting for the day care expenses.
That should allow us to pay off a significant portion of our non-mortgage debt this year and potentially all of it if work stays steady and I end up getting a pay bump too as the oil field continues to recover.
Also by being back at work and with things running smoothly 12 hours per day to work on things I'll have more time to write and develop a lot of the ideas that I have floating around my head. And every dollar earned from my writing can be used to accelerate out debt payoff.
I'll also have more freedom to decline jobs or to take a bit longer break between jobs if I feel like I need it which will be very much welcomed.
Our Plan Moving Forward
Since the process is under way and a start date of February 1st is set it's important to at least develop a general plan for when my income starts rolling in.
The first priority is obviously to cover all of our expenses each month.
For long term goals that means boosting up our invested assets. I don't foresee much if any being added to our taxable accounts during 2017. However, we do need to start funding an ESA for our daughter. Another big goal is to fully fund a Roth IRA for both my wife and I to be able to shelter $11k from taxes. Depending on how much I work this year and how much progress we've made with our debt payoff these could be put on hold until later in the year.
The important thing is to focus on debt payoff with the goal of knocking out at least the 2 small debts that we currently have and then make a run at the next smallest balance. It's a bit hard to project how much progress can be made because I have no idea how much I'll work. I suspect it'll be 2-3 weeks per month on average, but if the oil field falls out again then who knows.
This obviously isn't the ideal situation, but it's the right thing to do while keeping a long term perspective. When I think back on the last 6 months I've spent as a stay at home dad I wouldn't trade it for the world. I feel extremely blessed to have been able to be with our daughter for her first 6 months and it's not like it's a completely unrealistic situation to have both parents working. Millions of households have to do that every single day.
While leaving my wife and daughter to go to work will never be easy this will be good for my daughter. She'll be exposed to more things and get to interact with other people and babies which should help with her development over time.
Another big positive to going back to work is that it will take a lot of stress off both my wife and I's plate, at least financially. We'll no longer have to be worrying about scrimping on every little thing and we'll have a bit more freedom to do things even if they do cost money. We won't go overboard, but not having to constantly have money and our budget in the back of our minds will be a huge burden to be rid of.
Have you ever had to make a really tough decision that you know in your head is the right thing, but in your heart you don't want to do?