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Bellevue, WA, 98007
United States

Refinancing (F)unemployment

Going Small(er)

Refinancing (F)unemployment

Marc Scattergood

My partner started a new job back in December. We had some concerns, specifically dealing with her direct manager, before she even took it, but it was an interesting opportunity to move into a new area - still tech focused, but within the real estate and management business sector. We decided it was worth the risk, and she accepted the offer.

It was clear within weeks the concerns about her manager were, well, underestimated. Like any large company, there were problems, but the single biggest one came from her boss. There was a host of issues, small to large, such as a complete lack of social skills, a tyrannical attitude about presence and micromanaging, an inability to ever say no to new requests of their team. The list goes on.

As part of our efforts to shrink our lives, we have done a lot on the financial side of things to create more flexibility around us both being employed full time. Within about two months, I suggested she think about leaving, whether she had a new gig lined up or not. It meant pulling the Bean out of daycare - $2400 a month is a substantial chunk of change - but otherwise, we'd be fine. When I first suggested it, she said thank you, but no, she was going to try and work things out, find ways to improve the situation, and see if things would improve.

Fast forward to mid March, and one evening, after a particular frustrating and infuriating week, she asked me if I had been serious. Thus began the work to figure out what we'd need to do after she gave notice. No daycare, check. But we had enough random bills, there were concerns  about continuing to do any saving if she quit.

This was, as it turned out, perfect timing to look at our mortgage and other debt, and consider a final consolidation loan. All told, we had about $370,000 in total debt remaining, about $259,000 on our house, and the remaining in a HELOC and miscellaneous short to mid term debt. For our income level, not bad, but higher than we typically allow - mostly stemming from our decision to not work for a good portion of 2015 so we could spend time with our child. As he was going to be our one and only, neither of us wanted to miss this chance to really be there for the first six to nine months, even if it meant setting back our financial goals a bit.

It was also great timing because even with Fed rates on the rise, mortgage rates were still near a 4 year low, and with our total debt, we could consider a 15 year loan - which would drop about 2 years off our existing 20 year - and still keep our total monthly outlay comparatively low.

As an aside, this is not in total disregard to my early posts about home ownership often not making sense. Where we live, even a $3000 mortgage is about at parity with what it would cost us to live in a substantially smaller 2 bedroom condo or apartment anywhere as close to Bellevue as we currently live. Whether we stay here 2 years, or 20, rents aren't likely to become much more competitive, and since we already have all the front loaded work and cost of obtaining the house, staying with it makes more sense than selling or renting it, and then being forced to rent as well. At least for now. If we can extract $500k in equity in a few more years, and move to a rental, we may do that, as that money in the S&P500 will vastly accelerate our retirement goals, compared to the 5% on average our house has been appreciating at. Which, is still better than if a similar chunk of money was sitting in bonds or a money market account.

A quick chat with our credit union, and we arrived at a good package:

  • Pay off $259k in mortgage, $73k in line of credit, and approximately $35k in credit card and other medium term debt
  • Switch to a 15 year fixed rate mortgage at 3.1% with discounted points (as in, they credited us about $2000 to take out the loan)
  • Total Monthly Payment: About $2600 (this dropped our total monthly outlay by almost $1500, while also making all the interest a tax deduction)

There were some caveats to us deciding to do this, one’s we have been pretty careful about regardless:

  • Our primary visa has to get paid off every month. If we weren't able to one month for any reason, ALL discretionary spending is on hold until it's paid off.
  • We would not be refinancing the house again, nor taking out any additional lines of credit.
  • Any major purchases would not be made unless we had cash to meet caveat one. Pay with the Visa, but pay off full balance by the end of the month.

All of this requires, and will require, continued practice and will power to maintain our good spending habits. Over the past few years, we've both gotten a lot better at eliminating random, unnecessary discretionary spending, looking at the long term,  and focusing on those goals. It can take awhile to realize that the short term pleasure is usually just that.

But what started as a discussion to leave a job turned into an opportunity to drastically reduce our annual budget. Without daycare figured in, this one change saw us go from a projected annual budget of $87,000 to $57,000. All in a single consolidation. And if we figured in additional tax savings from the larger loan, as well as no "thrown away money" going to credit card interest, the total is probably closer to a $35,000 drop. (Editors Note: Not having daycare while one of us isn’t working does have costs associated with it - sanity and food being the biggest ;)

All because of a crappy boss.

We still have a long way to go. Even with this change, it means we need to maintain more cash or easily liquid assets in case anything unexpected happens, and we're not saving as much in general, since we're now on a single salary for the time being. But: even when my spouse does go back to work, we'll end up way ahead. Any salary she pulls has, on average, been a multiple of what we pay annually for daycare, and while insanely expensive, daycare costs start to drop as the Bean ages out into older groups of children. And once he's four, he'll either be in a public pre-school, or a school of our choosing that, based on today's figures, is still quite a bit cheaper than infant day care.

Will we hit my personal goal of 50% savings rate this year? Almost definitely not. Next year? Far more likely. Will we possibly be able to get closer to 60 or 70% in years after that? I'd like to think so. But most importantly, we've made many of the big, hard to adhere to habit changes that make it even possible.

Simply put, our future goal is to be able to live a lifestyle that isn’t dependent on 40 hour a week jobs, by not having a lavish lifestyle today. Preferably before we turn 55. Future gain for near term “pain”, where pain in this case is simply “living with fewer luxuries and reducing necessities to the minimum”. That’s pretty easy to weather pain. We’re very lucky, and I recognize that.

As always, interested in hearing what others have done to work on their savings goals, and debt reduction plans. I should be writing again more frequently. I've been pretty sick for the last eight months, but after tonsil removal surgery a few weeks ago, I have reason to believe I may finally stay healthy for a while, which would be a great change!

Final Note: You may have noticed the 8 months between this post and the last [real] one. My sincere apologies, and I'm more than a bit embarrassed, but my health has been hell for most of the last 8 months, and as much as I wanted to write, battling to get healthy took any remaining energy I had - or often didn't have. We're back now, and my stalwart partner has said she has some topics she wants to talk about as well. More soon! Not committing to weekly, however, until I know I can maintain staying healthy.

Time for a cat nap... back soon!

Time for a cat nap... back soon!