Wednesday, April 23, 2008

Creating a Downshifting Timeline

Jessica asked me a great question this week - how did I go about setting the timeline for downshifting?

So I thought I'd talk a little bit about how I came up with our just-under-11-year timeline.

I have to admit, I picked December 24, 2018 kind of randomly. And it might shift around a little, say if I am employed in a company that gives bonuses in Q1 of a year, or some similar driver that might make the date move a bit.

But I picked 10 years because of a few reasons.

First, it would mean our first child is about the age of the preteen years - 9ish years old, if all goes well. For me, as much as I might enjoy being home when my kids are small, I almost feel as though it's more important to be there - if not home full time at least more available than my current career allows - when kids are getting older. When peer pressure, school pressure and activities start to pull more at my children's time. This is obviously a personal choice, but I think it's the right decision for us.

Second, and no less critical than the first, it's about the first window where we will be in a financial place to consider less income. By that time, we will have paid off our second mortgage, and we plan to hit a number of other targets that I have mentioned in the past, such as having a year or more's expenses liquid, enough saved to replace one car when needed, and sufficient retirement savings that we can reduce our contributions and still retire comfortably.

Now, if we were just starting out, and had made the decision to downshift before now, we might have made some different decisions, such as living only on one salary and banking the other.

But even then, it's not clear we would have made completely different choices. I know few people who can afford a home in our high cost of living area on one salary. And just moving is not so simple - we wanted to be close to friends and family, and raise our children knowing their extended relatives and the people important to us.
Also, my husband is committed to his work. It would have been difficult to uproot that.

The decision to live where we do was not without tradeoffs. It locked us into a large mortgage, for one thing. But it also allowed us access to a great job market, to be near the people we love, and so on. It's not a tradeoff that creates deprivation for us, although we are sometimes time poor.

An important point here, is that my downshift is probably not, unless we have financial fluke that occurs to allow it to be - an early retirement. I still fully intend to work. If I can, I'll make a living by writing. If that's not possible, I'll figure out what I can do that will allow me sufficient flexibility to be around more, but still allow us to say, eat.

Part of the downshift is figuring out exactly how much money we will need to have coming in and saved. I've got some general numbers, but they are hardly precise. I'll be reforecasting each year to figure out what we need and where we are.

So what can a future SAHM learn from my plans? The first is to make a plan. Let's say you want to stay home when you have children, approximately 3 years from now. You don't own a house yet, but are starting to save a downpayment. Here's some things you can do:

1. Check housing prices and calculate your monthly payment based on how much you will put down. Forecast for the worst-case scenario, the most expensive house you might have to end up in, or the highest interest rate you might have to pay just to be careful. http://www.bankrate.com/ has some great calculators to help you out.

2. Figure you can spend no more than 30% at the absolute outside of your post-tax income on housing, including property taxes. That gives you your limit.

3. Search http://www.realtor.com/ to find houses in your area in your price range. Calculate a payment and figure out what it's going to take.

4. Get rid of credit card debt and car payments. The fewer bills you have to pay, the more income can be put towards getting - and keeping - you home.

5. Save up an emergency fund. For a one-income family, I'd recommend no less than 6 months worth of expenses saved, rather than the 3 months typically advised.

6. Stay flexible. My sister, who is a stay at home mom, works a couple nights a week at a local restaurant. The money brought in there provides many of their 'extras' - vacations, dinners out, and so on. It gets her out of the house, and it allows her to work while still not needing child care.

7. Acknowledge that you probably aren't going to be able to keep up with the Joneses. If your neighbors or friends are remodeling their basement into a home theater, and you can't afford to do the same - even though you would really like to - just congratulate them and repeat to yourself "I am staying home, and that is more valuable to me than any consumer goods". Lather, rinse, repeat.

8. Beware of the risks. Women out of the workforce have a harder time re-entering it than they think they will. The stats bear me out here. That doesn't mean you shouldn't stay home, but it does mean that you might have trouble finding a job in your career after 5 years at home. And when you do your salary might be a lot lower than you wish for. That's okay - if you know it going in.

9. When the temptation to spend comes up between now and the time you do stay home, ask yourself "Is this what I REALLY want?". If those shoes mean your kids have to go to daycare, they might not be as tempting.

Jessica, I hope this helped answer your questions. I'm happy to answer more, or elaborate on my plans.

5 comments:

Jessica said...

That really helped. I think I'll probably have more questions, but I'm gonna digest this first and try to do some planning of my own. Maybe then I can have some more detailed aspects to ask about.

Also, my mouth must have dropped open when I read your example. That is pretty much exactly where we are- saving for a down-payment and hoping to start our family in 3 years. I actually went back to read my question to see if I had given any of this info, ha.

Ms.Moneypenny said...

I'm glad that helped. Definitely come back and ask more, I love writing about it. And I'd love to have you guest post about your progress if you wanted when you are ready!!!

Dunc said...

Thanks so much for more specifics on your plan - I'm sitting here with my budget in front of me, trying to do more forecasting for the future (instead of just constantly tweaking the monthly budget!).

sarahlindsay

Jessica said...

Okay, I've started on a list for us, based on your suggestions and my own ideas- haven't talked to hubster yet. I think my next question would be how did you forecast what the goal figures would be? Some numbers are obvious, like paying off a specific debt, but others are more ambiguous. Here's my list as of right now.

- draw up wills and poas
- make one extra mortgage payment a year (once we have a house)
- get inexpensive life insurance to cover mortgage and funeral costs
- increase emergency savings to 6 months worth, eventually more if possible
- get reasonable health coverage
- any major renovations required in house completed
- increase monthly retirement savings, eventually doubling
- aim to be able to pay cash for next car
- aim to have some income from part-time work

Opinions?

Ms.Moneypenny said...

Let me think this one over for a couple days, I have some thoughts, I'll pull them together and write back shortly.