Amy and Jesse Dickinson
Ages: Amy 38, Jesse 41
Occupations: Technical Writer and Crossing Guard
Salary: $86,000 combined
401(k): $100,000
IRA: $50,000
Home equity: $143,000
Fixed rate home equity loan: $41,000 owed
Amy and Jesse Dickinson love their games. At their San Leandro, Calif. home, they challenge friends to Warhammer, a fantasy role-playing contest of knights and warlocks. But when it comes to financial planning, Amy doesn’t play around.
Amy, a technical writer, began investing during the dot-com bubble, putting her money in hot stocks. But she found the market too volatile, and decided to shift her savings over to mutual funds.
“I got the need to gamble out of my life early on,” said Amy, who still enjoys penny-ante poker games with Jesse and friends.
Her work provides the couple $71,000 a year, and Jesse’s part-time job as a crossing guard brings in around $15,000. The couple also gets $600 in monthly rental income from a boarder.
Amy uses auto-deductions, which do a lot of the heavy lifting in her weekly budget and savings. She puts $10,000 into her 401(k) every year, and her company puts in another $3,000. She deposits $230 a month into a bond fund that’s intended for emergencies and puts $2,150 a month into a money market fund to earn interest on the money she pays toward her mortgage.
Much of her savings are in stock funds. Amy says she prefers an aggressive investing strategy. “I know I have a good 20 or 30 years to recoup losses,” she says. The only individual stock she owns is that of her employer, Integrated Device Technology.
When the couple found their home in April 2002, she sold some mutual funds in order to put a $54,000 down payment on the $360,000 home. They now make payments of $2,150 per month toward their mortgage and home equity loan and expect to pay off the home in 13 years. The house was recently appraised at $490,000.
“I feel very, very fortunate,” said Amy. “Any stock can crash, any market can have a problem - but you can always live in the house.”
The couple keeps their budget balanced with real dedication to thriftiness – Amy has declared Jesse “a professional scrounger.” He’s learned to make his own shirts after buying the fabric, and she says the couple tries to prolong the life of all their belongings.
Amy budgets $400 a month for food and saves money by shopping at Costco and taking advantage of sales at grocery stores. The couple’s gaming hobby is a moderate expense. The miniature battles that incorporate tiny painted figurines are games of “fantasy as opposed to recreation.” House payments aside, their expenses total roughly $1600 a month.
As far as insurance goes, Amy has taken out a $300,000 life insurance policy in addition to the $120,000 policy she has through work. Jesse also has a small life insurance policy.
Looking ahead, Amy says she’d like to retire a little later than most people and be sure to have the house completely paid off.
Down the line when they’re close to paying off their mortgage, the Dickinsons would like to add solar panels and an additional room for gaming to their home.
They’re considering adopting a child in the future, but aren’t making the decision just yet.
“I don’t consider my budget strict, but others would,” she said. “I think of money as a tool to help you get everything else you need.”
Our Expert’s Take: The Dickinsons have gotten a good start on retirement savings but need to take further steps to protect themselves against possible outcomes, said Lee Pence, a Certified Financial Planner at Pence Financial Advisors.
“Protect yourself first, and then invest in further opportunities,” he said. “I’m concerned that because so much of their wealth is in their home, they’re underdiversified. All it would take is for the real estate market to go south, and they’d be in a difficult situation.”
Also, based on their monthly expenditures, said Pence, they’re spending over 50 percent of their monthly income on their daily expenses, mortgage and home equity loan combined – above the recommended level.
“Banks recommend that you spend less than 36 percent of your monthly income on expenses,” he said. If they need to take out a bank loan, they’re going to face higher rates because of that. They should work to either increase income or cut down further on expenses, he said.
They need to come up with a specific estimate of what they’ll need each year when they retire, he said. He projected that, with an average 8 percent growth in the stock market, the Dickinsons’ savings will reach $4.2 million in 26 years, when they are at retirement age.
He emphasized that they need to consider the potential costs of long-term care, which average over $75,000 a year.
“People are retiring earlier and living longer. What happens if they live to be 100? The house will be paid off, but you can’t eat a house,” he said.
He also said they should have an umbrella insurance policy of at least $2 million in order to supplement their other policies.
He said they need to keep their emergency money in a bank, not a bond fund.
“Bond funds can kill you if interest rates rise,” he wrote in an email. “The cash emergency fund is critical. I have seen people lose their homes because of unforeseen medical expenses.”
They need a minimum of six months’ worth of income in a secure cash account, he said.
–By Rob Kelley, CNNMoney.com staff writer
Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com
Note:
A number of changes needed to be made to this story:
Amy Dickinson does have a life insurance policy outside of work. It’s for $300,000.
The Dickinsons have a fixed rate home equity loan, not a home equity line of credit as previously stated.
The couple makes a total of $2,150 in mortgage and fixed rate home equity loan payments, not mortgage payments of $2,100 per month and home equity line of credit payments of $400 per month as previously stated.
The Dickinsons do not have a cash emergency fund of $7,000. They do have $7,000 in a bond fund.
The couple plans to hold off on installing solar panels or adding a gaming room until after they pay their mortgage.
The Dickinsons’ monthly expenses total $1,600, not $1,200 as previously stated.
I think it’s hilarious that some people actually fault this couple for buying a $360K house in San Leandro w/ an income of $86 K.
Note: if they hadn’t done this they’d now be priced out of the bay area w/o a glimmer of a hope to purchase a house. They absolutely made the smart choice in their house purchase.
Obviously the gap here is the husband’s $15k salary. If you can stand at a cross street for one hour a day (or whatever), you can sit at a desk for 4, 8, etc.
Maybe they have a good reason but this not only hurts how much they can save, it makes them very vulnerable to an emergency.
If she is out of work, they are in serious trouble.
I think a Roth IRA would be a better investment for retirement. Her 401K should be for what the company will match. 401K money is taxed on withdrawal. A Roth would give her tax free money when she retires.
I agree with Anon that the statement “Banks recommend that you spend less than 36 percent of your monthly income on expenses” is confusing. I think what the expert meant to say is banks like to see a Debt to Income ratio of lower than 36 percent. In California this can often times go as high as 45 percent for A paper. The only debt the article lists is a $2150/month home payment that would make this ratio at 27.6% if you use a $93,200 figure (most people are leaving out the $600 in monthly income they get from their renter). I am guessing that might not include other debts such as car payments, home equity loan, and so forth that would make this ratio much higher. I believe insurance and property taxes are also figured in.
Several people have mentioned that Social Security income will bump their monthly income in retirement. How about they take another look at their SS statement of benefits. Their will not be any left in 30 years for them to draw on. If there is any it will be dramatically lower than promised.
I think we’re all jealous of Jesse.
Make the woman work, while we stay at home and watch The Price is Right. She better have an expensive life insurance on Jesse and hopes an accident happens. She’ll defintely be a millionaire then, and earn a spot in one of the best investment ever in my book.
Interesting that there aren’t as many comments. I guess people only want to talk about the Millonaires in the Making if they can complain about them.
Being a millionaire is not all about how much you make. The Dickinsons are a great example that accumulating wealth is how much you spend and what you do outside of your vocation. A wise man once said, “The most powerful force in the universe is compound interest.” (Albert Einstein). Yet our schools curriculum focuses on Einstein’s mathematical equations and hardly any time (if any) on personal financial success.
By paying yourself first (saving at least 10%), charitable giving of your money (10%) and time, you will see both your portfolio and personal wealth grow exponentially. I have found that the most gratifying (and cheapest) part of life is giving of yourself.
Maybe possibly he has a health problem that prevents him from working more? They are doing well on their income, especially in pricey California.
If this couple had stuck to the 36% recommendation, they would never have been able to purchase the home in the first place. They would have missed out on home appreciation and would have been priced out of the housing market trying to save for a down payment that large.
They didn’t have much to lose and had so much to gain. Seems like the experts have a pretty narrow view. I really wonder if they would prefer we failed at our attempts so they could say, “I told you so.”
Am I missing something? Why do they have a HELOC of $41,000 - what was it used for? In addition, the remaining debt of $306,000 should also be mentioned in addition to the $41,000 HELOC. Why mention equity without debt. All in all I think they are doing great for their location and income level.
I’m impressed as well that she had $54,000 to put down on a house. The California housing market has gotten quite expensive the last 6 years. Average cost of a house is $500,000 so what she paid for isn’t that bad considering. I as well as many others, will have a very difficult time buying a house if housing prices remain this high.
I like this article & everyone’s feedback, it stirs us all to think about our situation. Now on with it:
These two need to save much more in their emergency fund as the priority & Jesse could contrubute something more, hands down. I think the idea of cutting back further is poor judgement if they want to stay put. This home sounds very modest by CA measures and they should be given great credit for building equity, including the 50K deposit. If they want to retire in this house I recommend scrounging less. They are not in terrible shape but the trend will hurt as it compounds (the lack of income).
If you take two seconds to actually do the math it works out how the planner says. $2100 mortgage + $1200 expenses x 12 months = $39600. $39600 / $86000 income = 46%.
It might be wise to use some of the equity in their home to invest in a second property. Equity is useless unless you use it. A second home would be a future asset and rent would pay off the monthly mortgage. When you retire you can sell one or both homes and live in a smaller home with money in the bank. As for the 4% “recommended” yearly withdrawl from their “million” in investments I assume this is so because the capital is left mostly untouched. Why? Why not draw down on the capital slowly during retirement. You cant take the money with you when you are dead and they do not have any children to leave it to. They will already have a huge asset in their home which might be considerable based on the current value. The so called experts that call for unrealistic 6 months savings and investments do not live the way most Americans do. Pay check to pay check. The rest of us spend to live not to save then die without having any fun. Our kids will have more money than us. So spend wisely but still have fun. Life is too short.
Hmmm. Basically 1 income, semi-expensive house (for most of the country, not CA, NY, or DC), considering adopting… these factors don’t seem to point to Millionaire in the Making.
They are in a position currently where a second “substantial” income would greatly increase their chances for a successful retirement. Spending 45% of their monthly income now, when they seem to have very few expenses, doesn’t leave a lot of wiggle room. And what about that $41000 line of credit? That may indicate they are living beyond their current means.
Since they are considering adding children, the $400 a month food expense will be increased substantially for baby food, diapers, etc. While the $100K in 401K is good, I don’t see how they can increase their contributions enough to meet the mark needed. They are going to need to kick it up a notch to retire in 25 or so years. And that $40K retirement income.. is that in today’s dollars? What will that buy them in 25 years?
I think the mortgage is ridulous, regardless of where they live. If home prices are that inflated, one shouldn’t overestimate a house’s projected appreciation.
The writer’s analysis that their retirement income will likely be insufficient not only neglects Social Security but it ignores the fact that their mortgage will be paid off prior to retirement. Not only will they be able to save more for retirement, their expenses after retirement should be considerably lower.
Gamers rule! If you can understand the jumble of rules that is Warhammer, you can understnad the rules of living within your means and increasing wealth.
It’s true that these folks have a house that cost more than one would like for a family with an $86K income. But those recommendations about 36% of income for mortgage and expenses do not take into account the fact that a decent house in this country now costs WAY more than it did just ten years ago. In case anybody missed it the housing market went nutso over the past decade and even with the slowdown it is still a totally different ballgame to buy a house now than it was a few years ago. $360K is not a big house in many areas and having $54K to put down sounds pretty good to me.
For those who posted about their house price, housing prices in California are ridiculously high. $360,000 is an “affordable” home, perhaps the equivalent of a $180,000 place in some other state.
Kudos to the Dickonson’s. I have to wonder why the husband is sticking with a $15K part time job - this family should be investing in education/occupational training to upgrade his skills. Perhaps not possible for reasons not disclosed, but there is potential for another $30-60K of earnings each year.
“Banks recommend that you spend less than 36 percent of your monthly income on expenses,” he said. If they ever need to take out a loan from the bank, they’re going to face higher rates because of the 45 percent figure. They should work to either increase income or cut down further on expenses.
Expenses? What expenses? Gross or net monthly income?
That is such an unclear statement. I’m assuming he meant housing expenses, but it’s not clear.
Good going! I like that it is another middle - upper/middle class family. That was a pretty pricey house to buy on an $86k income IMO though. I agree with the expert that they won’t have the income they need in retirement unless they buckle down now. However, if she wants to retire at 68, she still has 30 years and a pretty good income. I don’t know that I would make solar panels or an addition a priority. If you need an addition, just kick the roommate out. It will cost you less probably. 
In the writer’s analysis of eventual retirement income amount of around $40,000, he seems to omit any Social Security and possibly pension income. Social Security income alone in terms of today’s dollars would raise the total retirement income to around 62,000, perhaps adequate for a comfortable income stream.
I don’t think it’s a good idea for them to purchase a $360,000 home with a combined income of $86,000.
It always amazing me, when I read about a couple making a decent income ( above median income) that an expert always become critical.
She is making $71K a year and has disability insurance. She does not need 6 months of expenses. Their only debt is a HEL. She is a tecnical writer that can always find a job. They are doing very well.
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Crossing guard? Personally I’d like my kids to learn the value of looking both ways.