Hey,

This week I heard from a couple in a high-cost-of-living city with specific financial goals:

• Save $7.5M for retirement
• Save $1m for kid’s education
• Cut mercilessly on the things we don’t love so we can spend on things we do — and meet our investment goals

I love it!

One thing they love is travel. They asked me:

“Is it irresponsible to spend $25,000 per year on travel given our retirement and savings goals?”

Well, let’s find out below.

So many couples on my podcast put their kids first. I get it, you want the best for them.

But I often see people who have zero savings of their own, yet are magically able to put away $500 / month in a savings account for their kids. Your kids have time, you don’t!

If you really care about your kids, the best thing you can do is make sure that they will be taken care of financially in case you get hit by a bus tomorrow. That means having term life insurance.

This episode’s sponsor, Fabric, helps you get a high-quality, surprisingly affordable term life insurance policy in less than 10 minutes.

Now let’s get into this week’s Conscious Spending Plan. Here are some details about this week’s couple:

• 36 and 37 year-old couple with 2 kids (ages 3 and 1) living on one income
• We live in Boston which is very HCOL
• Our goal is to save $7.5 million for retirement and $1M for kids' college and private high school education. 
• We have cut costs mercilessly in guilt-free spending categories that we feel don't add value to our life, such as restaurants ($200 monthly) in order to spend more on travel, healthy home-cooked meals and meet our investment goals. 
• Our $190K savings seems high but $100K is emergency savings and the rest is sink funds that we have saved for new car, home maintenance, travel, etc.
• Our preschool costs are low for Boston since one parent is primary caretaker for the kids at home. 
• How much can we spend on travel? Is $25K a year irresponsible given our retirement goals and spending? 

Let’s take a look at their CSP and see what we can find out…

Net worth

• Assets are $1.1 million, probably a house.
  
  
• Investments are $720,000. Nice. At mid-30s, it's a good sign of a high income and a demonstrated ability to invest.
  
  
• For 529’s they also have $120,000. That's fantastic, especially considering their kids are 3 and 1. They probably superloaded those and they’re going to grow over the next 15 to 18 years. That will double, double — and almost double again.
  
  
• Savings at $190,000. Fine.
  
  
• Debts $428,000 at a 4.5% interest rate. That’s their mortgage.
  
  
• Total net worth is $1.7 million.

Income

• Gross monthly income for one person is $27,000. That’s really good.
  
  
• Annual gross income is $324,000 — they make a lot of money.

Fixed Costs

• Fixed costs at 56%.
  
  
• Preschool at $2,500. For a couple like this, they’re going to have that expense until the kids are about 21 years old, maybe even beyond if they’re paying for grad school. A couple like this will make a lot of money, but they’re going to spend a lot of it on their kids. No problem with that.
  
  
• $300 a month on commuter rail, car, and gas. (Notice the benefits of living in a city.)

Investments

• 10% of take-home. Maybe they’re putting a lot into a 401k, which would be factored in net monthly income. It’s kind of hard to tell.
  
  
• They’re also putting away $2,000 a month which includes $500 for 529s — that’s $24,000 per year they are investing post tax.
  
  
• Wait — pre-tax they invest $42,000 a year?

Savings

• 16% in savings?

Guilt-free Spending

• Right now they spend $70,000 a year on whatever they want.

Overall

• Okay the answer to your question is: Yes, you could spend $25,000 a year on travel. Come on!
  
  
• Let me explain why I’m reacting this way… They have $720,000 invested. Their annual addition that they’re investing is $66,000 ($42,000/year pre-tax + $2,000 per month post tax). They’re 37, so in 28 years if they just continue on this path they’re on, how much will they end up with? $10.4 million.

• They’re already investing $66,000 a year, so they could theoretically take $36,000 EXTRA and spend it on vacation.
  
  
• My question is: Where did you get the $7.5 million you want to save for retirement? What does that number mean to you? It’s a big number and you are already overshooting it.
  
  
• So the question is, is $10,000 more valuable to you now or later? Is $20,000 to you a year more valuable to you now or later? Or $30,000, even $40,000?
  
  
• For somebody who's done as well as you, you might think about: “What are the things that would make our lives more convenient?”
  • Perhaps it's having somebody come over and chop up vegetables for you.
  • Perhaps it's having somebody come and help clean the house a little bit more. I don't really see too much of that stuff here.
  • Perhaps it's creating magical experiences for the kids.
  • Perhaps it's creating magical experiences for the two of you with a regular babysitter.

• The other question you have to ask is, what are the variables here? So, again, $7.5 million, why?
  
  
• Also, what if you just want to retire early? What if instead you want to retire at 60? Well then you may want to actually keep your investments going, but you can leave the workforce earlier. Or, on the other hand, you might love what you're doing, you might extend that by two years and you'll have way more money.
  
  
• The point is, you're already in the right ballpark, you're actually overshooting your goals. All answers are good answers at this point because of your income, your demonstrated ability to save and invest, and your low expenses, and finally a lot of luck that I'm sure you both have experienced. Great job, I congratulate you for that.
  
  
• Now, I would say worry less about the technicalities of the numbers. What I'm hearing from you is: “Hey, we've done a lot, we've saved a lot. Can we actually afford to use some of this money?” And the answer is yes.
  
  
• Think big. Think not just about traveling the same way you've traveled, think about how to make the experience truly magical. Get a travel advisor. Make these trips magical. Do you want to bring a nanny? Do you want to go visit a local and learn how to cook with them?