Tracy and David Seims
Ages: 41 and 43
Goals:
- Amass a seven-figure net worth
- Fund college for their two kids
- Retire in their early sixties
Assets:
- $300,000 in retirement accounts
- $200,000 in home equity
- $175,000 in business equity
- $67,000 in savings accounts
Growing up working class near St. Louis, Tracy and David Seim hoped that education and hard work would turn them into millionaires by age 40. Well, almost. Now 41 and 43, respectively, they have a net worth just shy of $750,000 - not a mill, but a very respectable sum. Still, measuring themselves against their more free-spending friends, the Seims don’t feel flush. They wonder if they’ll be able to afford college for Gabi, 13, and Gracie, 9, a comfortable retirement and, as Tracy puts it, “some fun along the way.”
The couple, who run a small company that sells industrial fasteners and other supplies, paid themselves $103,000 last year. They have no credit-card debt, have lived in the same house (worth about $300,000) for 14 years and don’t drive fancy cars. They’re so frugal compared with certain friends, in fact, that they wonder if they’re missing something. “Everybody’s passing us by,” Tracy says. “What are we doing wrong?”
Where They Are Now
The Seims have a total of $300,000 in retirement accounts, and they max out their Simple IRAs, adding $10,500 each last year. They’ve also been diligently salting away money for their daughters’ education - $52,000 so far, stashed mostly in custodial UTMA (Uniform Transfers to Minors Act) accounts, to which they added $1,200 in 2006. They also have about $15,000 in bank CDs.
Like most investors, Tracy and David had some setbacks. At the advice of a financial planner, they invested a rollover 401(k) from David’s previous job as a salesman into individual stocks. That was in 2000, right before the market tanked; the account lost more than a third of its value. The Seims have since switched advisers, moved their stash into blue-chip mutual funds and recovered most of their losses. “The only one who made any money was the adviser,” David laments.
What They Should Do
The Seims’ financial situation isn’t nearly as bad as they seem to think, says Jim Reding, a financial planner at Paradigm Wealth Advisors in Des Peres, Mo. College and a comfortable retirement on a seven-figure nest egg are well within their grasp, as long as they take some practical steps now.
Fix the investment mix. The fact that they no longer hold individual stocks doesn’t mean the Seims are diversified. To avoid ups and downs and maximize returns, Reding recommends that they add funds that hold foreign stocks, mid-size growth stocks and a few other asset classes. What’s more, between the 1 percent annual fee they pay their current financial adviser and the expense ratios on the funds they own (some top 2 percent), David and Tracy are shelling out way too much. Switching to funds with lower costs would wring more profit from their portfolio.
Make college savings work harder. Reding suggests that the couple open 529 plans and put new savings there. The money will grow tax deferred, and the Seims will get a state income tax deduction. To cover 75 percent of projected tuition costs, the Seims should ramp up their current rate of saving to $235 a month for Gabi and $289 a month for Gracie.
Don’t judge progress by looking at other people’s stuff. Just because a neighbor owns a vacation house or drives a Jaguar doesn’t mean he’s smarter with his money: He may be living scarily above his means. The Seims need to stick to their own plan and stop worrying about what everyone else is doing. Assuming they make the changes that Reding suggests - including increasing their retirement saving by 3 percent a year - he predicts that the couple’s net worth will hit the $1 million mark within a decade.
–By Yuval Rosenberg. This article appears in the October issue of Money Magazine.
Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com.
I think the couple needs to stop measuring themselves against others.
Also, Diane, I am a 23 year old recent college graduate, and my entire education was funded by my parents — yet I never ask them for anything. You must have some terrible friends if at 34 they’re still asking for money because their parents paid for college. Maybe if their parents raised them better, they would see the education as a gift, and respect it, not be spoiled old ladies/gentlemen.
Diane: My parents were fortunate enough to be able to pay for my college education and they did. Just because your friends wasted their experience doesn’t mean everyone does. I earn (and save) quite a bit now and am enjoying one of the best presents anyone can give you: a strong head start and a life free of debt.
Wow. Nice profile. I put together a list of all the profiles dating back to 2002. Check it out at Prime Time Money: http://ptmoney.com/2007/12/19/the-complete-list-of-cnn-moneys-millionaires-in-the-making/
Children should pay for part of their college education even if the parents are able to pay it all. It gives them a sense of ownership and a sense of responsibility.
All of my friends’ parents paid for their college in full and at 34 they are still asking for money from their parents and in debt and racking up more by the minute. It’s an expectation that their parents will fund their major purchases. I am quietly paying my student loans and thanking my parents for the frugality and good financial lessons they taught me. Those lessons gave me the tools to realize my dreams and now I’m in the best financial shape of everyone by far and ironically much closer to my parents and so thankful for all they did for all five of us kids. It’s the teaching a man to fish theory. My only request from my parents is that they spend all of their hard-earned money enjoying their well-deserved retirement!
They are doning a great job. Wish my parents were able to sock away money for my college.
gijanefinances.blogspot.com
Excellent planning, yet they would be considered poor by many of the people in my community. This is why you never, ever compare yourself by what others have. I have friends who built a four-story guest house (two-stories that stands four-stories high) that cost more than 15-million to construct. This is in addition to their almost 20-bedroom house. If I compared myself to them…I would go crazy! I can never reach their 100-million plus net worth. Every town in America has the wealthy standouts, I just have a few more around me in the Silicon Valley. What if everyone in Omaha strived to be like Warren? There would be a lot of unhappy people. Although, I understand he leads a rather simple life. Perhaps he really knows more about life than stocks. Be happy for all you have and forget what others may or may not have.
Given the number of financially savvy individuals who contribute to this site, I would like to request some assistance on a financial decision. The question is: Do I keep a 4.875% 15-yr mortgage loan(taken out in Jun-03) or refinance to a 5.875% 30-year loan. On its face, it may seem obvious to keep the 15-yr given the low rate. However, as I look at college costs for my 4 children (10, 8, 6, newborn) I’m wondering if I should take the incremental net cash flow from the lower interest loan (approximately $880/month) and invest more in my 529 college savings plans. I’m 40, in the 33% federal tax bracket and the mortgage amount is around $225,000 vs. a home value of $460,000. Any thoughts would be appreciated.
This is in response to those who think that home equity should not factor into net worth:
I am a CPA and have, on many occasions, needed to prepare personal financial statements for individuals or families to plan their financial affairs in general or for a specific purpose.
According to the rules that govern my profession, all assets(liabilities) should be stated at their estimated current value.
So the formula for would be Total Assets - total liabilities - estimated income tax = Net worth. Estimated income taxes are calculated as if the assets had been realized/liquidated.
Basically, home equity should be included in net worth, however it should be stated realistically based on CURRENT market conditions (not conditions 2 years ago).
The Seims family are doing great and I applaud them. I do beleive that educating the children is solely the responsibilty of the parents and not the government. The parents brought the children into this world and it is their job to prepare the children for adulthood which includes a good education.
Who is paying for the education has no bearing on how well the children will do in college. As a matter of fact seeing the kind of sacrafices their parents are making in order pay for their education should motivate them to do their best. When my parents handed me ALL the money they owned to go to college, I dare not waste a penny and did the best I possibly could knowing how hard they worked for it. I carried the same $5 in my pocket for the entire week. I walked a mile to and from school every day not willing to pay the 75 cent bus fare.
Show your children your commitment to them and they will show their commitment in return.
I think they’re doing a great job. They will have $1 million soon and they have many income producing years ahead of them. The greatest amount of net worth in the later years when your interest really starts compounding and dividend reinvest.
My parents paid for part of our college educations. We paid for the rest with scholarships and small loans. If kids aren’t working hard enough to get a merit-based scholarship then they should pay for part of their educations.
Kudos to the Seims family! They are SO far ahead of most of us….
I don’t completely agree with them regarding funding their daughters’ college education. My parents were quite clear in their expectation that we would go to college. They especially emphasized taking challenging classes and hard study, which really paid off (to the tune of a 4-year academic undergraduate scholarship). Parent contributions, loans and work-study helped pay the room & board. I never took my medical education for granted, because I paid (borrowed) for all of it. The thought of quitting med school never crossed my mind, especially when I thought about all the student loan $$$ that would have to be paid back….Though we had the means to foot the college bill for our children, they worked and saved for part of their education.
Their tremendous sense of accomplishment? Priceless…..
Kudos to you! Standing ovation for your retirement savings. I feel the same way about maxing out the tax shelters. My only advice for hitting the numbers is nothing helps your accounts more than handing your kids the financial aid packets for college and wishing them well! My wife and I went to college at no cost to our parents and feel we appreciated it more because of that. If you want to spoil them, then make them think they are doing it on their own and then pay off their balances on graduation day as a present. Guarantee it cuts your bill by 30%!! And you kids will be ecstatic to see that $30K debt go away in one day!
Interesting comments about including home equity, but if you don’t then you wouldn’t differentiate those with 70% equity from those who have financed 100% and have cash in the bank. I also owe 100k on a 300k home. I’d rather keep my savings in my home knowing I have home equity available for emergencies.
Also, I’ve always been troubled with including retirement funds in networth calculations. For one thing there will be tax consequences depending on the type of account. Second, how does this compare with the last generation who retired with valuable pensions that were not counted as part of their worth.
BTW, I’m 44, also from Stl, 2 incomes, one expensive child and either $350k or $1.2m in NW depending on what you count. I think $2m-$3m is a comfortable retirement goal. We both worked to pay our way through college but I don’t want my son to start his adult life with $20k in loans like we each had.
Tis family is doing a fine job in amassing retirement and emergency funds at relative young age. I think home and business equities are being overused in determining millionaire status. Liquid assets should be the goal post towards attaining MIM. I am 47 and my wife is 51 with 480K in retirement, 130K in taxable mutual funds and 80K in savings. The 2800 sf house we purchased for 310K in San Diego area(202K balance)in 1993 theoretically will make us millionaires, but is not the case because we don’t have intention of moving away from the area. Scaling down is not feasible due to high cost of condos or apartment rents. So for people living in paradise who won’t move to a cheaper area, 1M in cash is the real deal.
I think they are doing well, but I do not think that home equity or other personal possessions should be included in total net worth.
They are hard to liquidate and when you do sell it for a profit, how many people are really going to buy a smaller house and invest the profits?
I too do not think that 1 million should be the goal if you want to be rich or even comfortable.
I am 35, Make close to 400K a year, and have close to 950k. I am only including my SEP IRA, Cash accounts, and other stock accounts. I am not including my home or even the 110k I put into buying into my company eventhough if I leave tomorrow, i would get 110K or more in my pocket.
1 million today would be a great amount of money and if you invest wisely I think you could be set for life but anyone trying to achieve 1 million when they retire in 20-30 years would be fooling themselves.
1 million would not get much in 20-30 years.
I remember 15 years ago when gas was 85 cents a gallon. Milk was around $1.
In 20 years gas would be 10 bucks and milk 7-8 bucks.
All I can comment on here is the familes intelligence in using as many tax shelters as the US government allows them to have. Irregardless of whether the kids go to school or whether they are saving enough money or too much, it is Uncle Sam that is the biggest expense any of us will ever encounter. Owning your home, your own business, and taking advantage of tax savings through retirements and college savings plans are smart ways to avoid over taxation. I know some people will object and say everyone should pay their fair share, but would you rather fund your own retirement and your own childrens education instead of relying on SSI or government grants for schooling?
“Live simply that others may simply live.”
It’s great to see some “Millionaires in the Making” who are being financially responsible. Too many of the people in these stories are spending money like there is no tomorrow. How are they becoming millionaires? Mostly by owning homes in the right real estate markets.
I think it is a very good idea to let the kids provide for their own education. I have gone to school with many kids whose parents are paying, and you would be surprised how little they study! I realized from the get go that this was my own enterprise so I needed to get the grades to make it worth my while. Now I may have a lot of loans, but my grades got me into Harvard Law School. I’m guessing I’ll be much better off than my friends whose parents paid for their education.
I am in a very simmilar situation as the Seims and but at only 34 years old with one 9 year old son. Yuval Rosenberg hit it on the head: invest intellegently, work on the 529 and live within your means instead of chasing the Joneses.
One fun trick we have with our son is a matching investment agreement: any money he acquires from Christmas or Birthday cards, chores, yard sales, etc he wishes to invest in his 529 will be matched by me. This is now his investment for as much as it is mine.
First off, congrats to the Seims - they seem to be doing just fine, and I think most families would love to be in their position. And most of the world isn’t anywhere close…I think we often forget that as Americans.
Regarding paying for kids college educations: I was one of those kids who a) had parents that made “too much money” to qualify for financial aid, but b) had to contribute to putting myself through school as my parents simply didn’t have the income. Yes, it creates an added burden for the kid, but it also taught me to be more fiscally responsible at an earl(ier) age. I’m doing just fine now…and am honestly a bit thankful for it. It was a hard period, but I’m better off for it.
There’s no right or wrong answer on this one folks as I think there are benefits of doing both. I think the best scenario is probably one where both parties (kids and parents) contribute - that puts a little “skin in the game” for all involved. Just my .02.
The way FAFSA calculates the EFC is really not fair. Many of us are frugal and live a very frugal life to save for the future. My brother-in-law lives a flamboyant life and maxes out all 12 cards, owns his own business, drives a merc and has every new toy and gadget. So his net worth is zero even though he has every material object. His sons get subsidized loans and need-based grants. I get nothing! Drive 8 year basic chevy prizm and live in a small apartment with some 50k equity. But I have 350k total in various investments and savings. How can the government encourage us to save and then penalize us in terms of education for the kids? Many big investors and businessmen also benefit from this since they have such big debts/loans to offset their assets.
I think that the reason the financial advisor said their NEST EGG should be around 1 million in ten yearsis, that they really only have 300,000 plus the 67,000 saved for school that is truly adding intrest. The home value and business value are not usable unless sold. If that would be the case, they still would need to buy a replacement home(possibly cheaper, but unlikely), and get a job aleswhere . I do not like financial advisors who tell me my hom,e is part of my retirement assets, as I still will need a place to live, in addition to creating a revenue stream by which to live.
The Seims are people that I would like to meet and speak to and understand their attitudes and sacrifices. Here in LALA land few are so well prepared for the future and no one seems to be making any sacrifices for the future.
Given the bursting real estate bubble, I would not count the “equity” in their home as it is likely to dimiinish, maybe to 0 over the next few years. A home is where you live and not an investment. One of the biggest savings they could make is to pay off their home early and avoid all that interest. Then the house payment could go into their business or elsewhere.
It would be interesting to see how many of the respondents live in the midwest as opposed to either coast, where basic home prices are 6-8 times annual earnings. Clearly if your house payment is 60-70% of your net income it is much harder to accumulate savings. I think they should save for their childrens college, but at the same time, prep the kids for scholarships. Any savings that result are money in the bank.
I’ve seen statistics that 97% of Americans agree that a college education is the single most important indicator for future financial sucess. I think teaching your kids the same values of hard work, thrift and savings would be the best predictor, as well as leaving them with something like a paid for house that cannot be sold.
We are in rapidly changing times and a $1M net worth may fall far short of creating self sufficiency for anyone, but I would like to speak to any or all of your sucessful bloggers.
It was very intresting piece of article which cleary demonstrates how you should be tactful and reasonable. Filled with Positiveness.
Wow!!! They are doing great and I think it is a good idea for them to save for their children’s college education. I was just wondering if they take vacations and how do they manage to be so frugal in their savings. I guess they both must be very disciplined when it comes to money.
My parents made too much for me to get any government loans but were to far in debt to offer any financial help. They let me live at home paying $100.00 a month to help with groceries. I worked a lot harder than my partying friends in college and made it out with less debt than they did. Parents should help however they can but kids shouldn’t assume it’s the parents obligation to pay their way.
Wait until people start having negitive equity in their houses. Mortgage rates went up today despite the feds rate cut. The Dollar continues to fall. The counrty has had a negitive savings rate for over a yr. Credit is out of control. You are in the minority if you are saving.
I don’t see the direct connection between kids being more motivated in college if they foot (completely or partially) the bill for college. The drive to do well will come from lessons taught to them during the prior 18 years.
My parents paid for 100% of my college (and my sister) and we both had excellent grades and have done well. Now that I am in my 30s, I am grateful that instead of paying for college loans, I was able to build wealth during my 20s.
It is about the work ethic instilled in you otherwise, not who pays.
For accurate accounting, if you want to include college savings in your net worth, you should also recognize your pledge to pay for college (at least a portion) as a liability.
“he predicts that the couple’s net worth will hit the $1 million mark within a decade”
He didn’t exactly go out on a limb here. 750K earning a meager 4% annually should yield over $1.1MM. A more realistic 8% (long term avg is somewhere around 12% for equities) will yield almost $1.7MM.
I dont agree with the comment that the kids should be paying for their education completely. A more reasonable 50% contribution from parents and 50% contribution from kids make sense. 100% financial commitment from kids becomes a deterrent to pursue higher education.
One other thing.. 8 times out of 10 having a college education will help the kid come out on top as opposed to kids that dont have one. Just like how a high school education is essential so is a college education albeit to a lesser extent (hence 8 timesout of 10).
Just agreeing with those about financial aid… if the parents have enough $$, the kids won’t qualify for any need based aid, no matter how you feel about paying for college. My mother’s a teacher, my dad is a government employee-solid middle class income, not much debt. My 3 sisters and I didn’t qualify for any need based aid… my parents were told they were on their own, as far as financing college for us… This was 15 years ago, so maybe it’s better now, but don’t count on your kids being able to just get scholarships & loans. And who wants their kid to start life with $100K+ in debt anyways?? I worked hard during college and am grateful to my parents for not choosing to saddle me with student loans…
A couple of observations:
1. I noticed a number of posts from people who paid their way through school who indicated their children will do the same. I think it’s a great idea that children should contribute to the payment of educational expenses but I believe that the parents should definitely contribute.
2. I also noticed a number of comments related to the comparison of the Seim’s family lifestyle (conservative) to that of the more free spending counterparts. My family is fairly conservative, we do not drive fancy cars and we live in a moderate home. I cannot help but wonder what is going on around me. Every housing development I see being built advertises houses starting at $400k, $500k and up. I see more and more luxury cars on the road. Taxes keep going up (especially here in NJ, we love our taxes). How are people paying for this? Is everyone out there just piling up debt?? I think I saw the average household income in the US at $80k/year so how can this be?
We as a couple always did things late-but we still ended up helping our children(school,repairs to current homes,paying there auto insurance)we are not rich-but when looking at the past 60 years-we worked as a unit-and did not equate our net worth from a balance sheet of numbers.
I agree with Yadgyu, parents push their kids to get an education when that isn’t what the kids necessarily want or need, and if they definitely don’t enjoy school and they are just going to party it up then there is no point in wasting that money, help them get off in whatever direction in life they want to go, get them out of the house with that money and get them chasing after something that interests them! And at a net worth of 700,000, with a 100,000 income, investing on the side, hitting the big 1,000,000 should be simple within 3 years!
Sorry but I respect them in saving for their children’s education. It was my husband’s and mine goal in sending our only son to a private college. We are still in our second home for the past 20 years. We didn’t buy over our heads. Our son is the first in both of our families to go to college. He graduated with 2 degree’s and stayed and finished a MBA in Finance in 5 years. We were proud to give him this gift and what a start in life he has. In today time’s we need to cherish our children, teach them to think of other’s instead buying everything for ourselves. So young parent’s, as soon as you hear you having a baby-START SAVING! If only $10-save, we started with saving bonds and later open the 529 account. Good Luck to others.
I agree that parents should help with college when they can, but not so much that it limits their retirement. I took AP tests and community college classes while in high school and spent three years going to a public school, living at home, and paying my own clothes/gas/books/food with a part time job, with my parents covering my public university tuition. I think it’s great if you can afford to put your kids through college, but not everyone can or should be expected to. It’s perfectly acceptable to spend the first two years at a community college while living at home. And not everyone has to go to a private ivy league school; if you get the right degree after 2-3 years no one cares where you went to school.
I THINK THESE YOUNG PEOPLE ARE GREAT!
I WISH I HAD BEEN AS SMART AS THEY ARE.
I PAID FOR 3 YEARS OF COLLEGE. IT TOOK ME 10 YEARS AND NOW I WILL ATTEMPT TO FINISH THE LAST ONE WHILE WORKING, ETC. MY PLANT CLOSED. I HAVE SOME 401K
AND THAT’S IT SO THIS COUPLE SHOULD BE
VERY PROUD OF THEMSELVES!
To John Denver from Colorado - My wife and I are also in the mid 40’s and our annual income is about 150k. We have a net worth of about $3.2m and live in $500k house. We can definitely affford to live in a bigger house but we rather invest money in mutual funds. We started to invest about 600k in 2 China mutual funds 2 yrs ago and it grows to about 1.5 million as of today.
Agree with other posters - 1 million for retirement isn’t a great deal anymore. I am also 43, worth just over 1 million, and have 200K in 529’s for three youngsters. My house is small, cars not new but well taken care of, and we take one or two good vacations per years. That being said, I think I need about 3 million saved before I retire, becasue I want to really live it up.
I agree with the poster who said $5 million, rather than $1 million, is unfortunately a more realistic number to shoot for.
Add your children as employees to your business (I am sure you can find something for them to do) and pay them enough to fund a ROTH IRA. Of course they will pay income and social security and your business will have to match social security. That is not a bad thing since it will build their SS credits in case of disability. When they go to college they can use their ROTH for Higher Ed expenses.
Great story. I hope they don’t make the mistake of trying to invest themselves if they are not comfortable doing that just to save 1-2% with an advisor. I have seen many people try to invest themselves and it usally costs them much ,more than 2% in picking the wrong invetsments.
In response to John Denver, I believe this site has a net worth calculator/comparison where you can plug in you annual income and age and get a sense of where your net worth falls in comparison to others of similar age and income.
As for your teenagers and their comments about the size of your home, I also field similar questions from my kids in elementary school! It is difficult to explain the whole concept of “not judging a book by its cover” when you’re talking about money and what others seem to have. Kids assume that if you have lots of material possessions, you must be making more/have more, etc. For that matter, lots of adults have that perception as well! I’ve tried explaining that you’ve got to sock money away while you can b/c the time will come when you can’t anymore (isn’t there some fable about this having to do with a grasshopper and ants or something??!!), but it’s not unlike trying to convince a child of their own mortality–it’s too far away to make much of an impression. I would also appreciate advice from anyone who has successfully discussed this topic with their children.
You gotta love these stories that represent such a small percentage of families (upper middle class and educated). You people are unreal. Go ahead, keep saving. I hope you’re around to spend it some day. What a sad way to live, being frugal. Me and my wife make just under $100K, in our late forties, both on our 2nd marriages with 3 kids each, have a total of about $95K in a 401K, carry $42K in credit card debt, house worth about $250K. - and are as happy as could be. Live for now, not later !
After reading this article, I don’t feel so bad knowing my friend buys a new Escalade every year. My desire to be out of debt is greater than my desire to own material things.
“It is those neighbors that are going to be bailed out by the government. They will have had had their cake and eaten it too. Those of us that do save will pay for those having it all now.”
Not only that, but the children of those neighbors who spend everything to live in mansions and drive luxury cars receive scholarships and gov’t loans for college due to their parents low net worth. While those of us who save and live by modest means will receive nothing in the way of need-based scholarships or low-rate gov’t loans. I’m returning to school. Maybe I should take an extravagant vacation to blow all my savings so that I can qualify for financial aid…
Governments should find ways to encourage people to save, rather than discourage it.
John from Great Neck hit on a good point. The cost of living varies dramatically where you live. If you live in Great Neck, I’m guessing the median house sells for over a million. Where I live, a family making $200K a year, is just average.
Tea D. in Seattle. You’re right that the kids in this situation won’t qualify for goverment grants but participation in Stafford Loan programs and a number of other loan programs is open to all. (And there are a lot of scholarships out there that are merit based - not need based.) Still, I applaud those parents who don’t want their children to take on the loan debt. They are giving their children a clean slate out of college (assuming they can keep the kids away from the credit cards).
FYI: In 1993-94, the Federal Government removed the home equity of primary residence from the financial aid formula.
That philosophy is absolutely correct in the article. My wife and I have just started our careers. We don’t have much net worth, but we made frugality a part of our lives. We lived cheap for a while so we could put our money in a safe money market account.
We then had a tradgey strike our family. We were forced to hire an attorney. Because we had lived frugal and saved, we were able to get out of that event with just a few thousand in debt.
Had we succombed to the “Jonses” syndrome, we could have ended-up in bankruptcy, which would have kept us from buying a home for several years. I work in the mortgage business, and I see the consequences of not living within one’s means on a daily basis.
People will max out their equity on a subprime mortgage to finance their lifestyle in hopes they’ll be able to sell it. Interest rates go up and the housing market crashes. The 5 year ARM day of reckoning comes and they can’t afford their new payments, they can’t sell their home, and they’re so maxed out on credit, they can’t even refinance to a lower rate. All they can hope for is a miracle to avoid forclosure. I don’t mean to sound too negative, but the Bible says “Thou shalt not covet…” for a reason.
This is in response to John Denver’s (nice name, by the way) question regarding net worth of couples by age. Check out the site NetworthIQ.com. It’s free and gives you a good benchmark based on age. salary, etc.
“My wife and I are mid 40’s and have net worth of $1.3 million but do not feel like we are millionaires.”
NW of 1.3MM is good, but definitely not enough to feel wealthy. I think 5MM in liquid assets would make one feel wealthy. 5MM in liquid assets would generate 250K/year at 5% annual return annually. most people could lead a very comfortable life w/ that sort of annual income.
“No mortgage debt, no credit card debt.” Mortgage debt is not necessarily a bad thing since mortgage interest is a tax deduction. without mortgage debt, there’s no other significant tax deduction to offset income.
The questionI have is why with two healthy children, their own health, and a nice income, they still seem to think they are missing out on something? We are getting more jaded with each passing year. These folks should be thanking their lucky stars every single day.
There are many scholarships that are not need-based that the children would still be eligible. Also, 401K money and traditional IRA money are not considered by FAFSA so the children may actually get some subsidized student loans.
The last paragraph states that they will hit $1M in 10 years if they make the necessary changes. Why so long? That’s only a few % per year of growth? What did I miss?
Parents absolutely have a responsibility to pay for higher education for their children. I, like most others, paid for my own education. How much more I would have gotten out of it had I not needed to work 40 hours a week on top of that. I would have been involved so much more on campus, taken more internships, studied abroad, and probably mastered my subject more than I was able to. It is my job to instill in my children before college that education is something to value, appreciate, and engulf yourself in. If my kids throw away that opportunity with partying and whatnot then at least I gave them a better chance than was given to me. I want to give my kinds the opportunity to grow unencumbered by other demands.
Yadgyu, Harkeyville, TX, Sounds like you have had a bad experience with education. I think you would be hardpressed to find anyone who agrees that education is not important. Not every child will get the same thing out of it but it is important. I am sorry you are bitter about having to pay for your own, but there are many like myself who paid their way and feel it would be an honor and advantage to send our kids to college. Focus is important, but useless without the knowledge and experience to understand what you are focusing on. Do you honestly think a “focused” individual can learn to be an engineer or doctor or lawyer simply by focusing and without education.
These people have $367k only. Its not a good time to equate home or self employed business equity into the net worth.
John Denver, Littleton Colorado asked where you can compare your networth with others in similar situation, there is a great site for this: NetWorthIQ.com
Also, somebody asked about why they were including the home equity, because you have to live somewhere. I am financially very conservative and instead of leveraging myself via a large home mortgage, I have instead choose to live below my means and as such have well over $500,000 equity in my home. I absolutely count that as a part of my Net Worth. If I so desired I could certainly trade down to a less expensive home and realize some of that equity, yes it is my residence and not an investment property - but it is also absolutely part of my net worth.
Is there a law that says the parents have to pay for a college education? Do the kids even want a college education? Growing up one of 5 boys we weren’t even offered a college education by our parents because they couldn’t afford it. I joined the Marine Corps and got the job training I’m using now making 65k plus a year. Along the way the govt. paid 75% of my tuition while attending college and then my employer paid another 2k a year towards my schooling. All said an done I think I put in a little over 2k myself mostly for books and I have an aeronautics degree from one of the top schools in aviation. Sometimes the children need to learn that if they want something bad enough they need to work for it themselves.
I am sure that the couple is doing just fine living in the low cost area of St. Louis. These Millionaire in the Making articles should put these assessments of worth into context by factoring the the cost of living. You are living much better on 100k in St. Louis than you would be in the high cost areas of Northern Virginia, San Francisco or New York. Context is important.
RE: Paying off your home early - Outside of the psychological factor, you should never do this unless your rate of return on other investments is worse than your mortgage rate. (IE our primary is 5.75%, our 401ks/IRAs are pulling 10-18%) The only exception would be for retirement, so as not to worry about having such a huge monthly expense.
RE: Home Equity - Sorry, but this should NEVER factor into net worth on a primary residence. You have to live somewhere. So in reality, their effective net worth is $200K less - especially since the value of their house is going to drop most likely as all of ours will to some extent in the coming years.
RE: Rainy Day fund - I agree, for a couple that’s obviously not just “starting out”, that’s pretty small. My wife and I got married and bought a house this year/funded our IRAs/401ks/etc, so our rainy day fund is tiny after all those expenditures. But it’ll be $50K by the time my wife is 30. (She turns 27 in Jan)
RE: Paying for college - Even U. of MD is pushing 7-8k/yr after books/fees/etc not counting room & board now. Starting from scratch with loans would put kids $70-80k in debt for a good state school today including room and board, and they won’t grasp how much money that really is until it’s too late. People who are strict advocates of not paying for their childrens’ education are either living at/beyond their means, and/or grossly out of touch with the current realities of the expenses of college education.
maybe, your neighbors just make more money than you. if you make enough money you can retire a millionaire and get what you want. i have, a nice home, cars, motorcycle, boat and i’m on track to retire with well over a million.
A number of postings have made mention that the children should be paying for their own education with scholarships and loans. While that is a nice idea, if you have parents with a million dollars of net worth, a lot of scholarships and most government loans will not be offered to these kids. It can be cost prohibitive until the kids are old enough not to need to declaire the parents income as part of their FAFSA application without some help.
Al, the Net worth figure is correct. Saying $200K of equity is the same as saying owning a house that is worth $300K (as stated in the article) but still owing $100K. The mortgage debt is already considered in that figure.
I can relate to sometimes feeling like all my friends and family are driving better cars, and taking nicer vacations. But I live by the following philosophy:
“I do not want to have everything my heart desires, but rather have the money to buy anything my heart desires, if I so chose”.
Referencing the last paragraph in the article. It is those neighboors that are going to be bailed out by the government. They will have had had their cake and eaten it too. Those of us that do save will pay for those having it all now.
Just a correction to a correction. Net worth figure is accurate — the couple’s mortgage debt is accounted for. $300,000 house minus $100,000 mortgage equals $200,000 addition to net worth.
Very respecatable and obviously living below their means. My wife and I are about the same ages as the Seims and our income is nearly identical; however, our net worth is about 200k short.
Instead of looking at what depreciating assets others have amassed, we tend to try and see what others like the Seims are doing that works well for them.
At $100,000/year they are above the normal median income and well above most individuals. Take this into account that they own their business and therefore have different tax advantages the rest of us don’t. With all that being said, I’m glad they took a step away from the rat race and are just about to clear a million.
If the Seims feel fun is missing in their lives, they’re probably right. The Seims are still relatively young. They run their own business, so they probably work more than 40 hours a week. They should be able to enjoy the fruits of their success while still young. Frugality is great but should be tempered with relaxation. You don’t need a Mercedes to feel you are having fun. I would have them set aside $5,000 a year for a great cruise vacation or a home theater system.
Thanks for the update on the 529’s I appreciate that!
Hey Al Morrow from Chicago, IL. The $200k home equity is correct, the house value is $300k less a $100k mortgage = $200 equity which is what they list. Nothing wrong with that math, the loan is taken into consideration.
I am curious, are there any stats that list the net worth of married couples by age? My wife and I are mid 40’s and have net worth of $1.3 million but do not feel like we are millionaires.
No mortgage debt, no credit card debt.
We live in a $300,000 house in a suburb of Denver.
Net worth is a hard thing to explain to our two teenage sons, when they always comment that their friends have much bigger houses.
I would be curious to hear others thoughts on net worth and how to explain to kids about living below your means.
Thanks for the good story. I can relate to their angst over friends’ free-spending ways. I’m in a similar life situation (age/marital status) with a similar balance sheet - and constantly fight the temptation to splurge like many others do. Regarding funds, Vanguard’s Total Bond Market fund and Total Stock Market funds are great ways to get low-cost exposure to stocks and bonds. There are low-cost international index funds that will offer economical diversification, too. Brokers can make us ‘broker.’
The value of 1 million has diminished these days and I think 5 million is probably a more respectable goal. This couple is doing well but keep in mind that by reaching the 1 million milestone is just the beginning and still has a long way to go.
Congrats to the Seims family. The average income in the city of St. Louis is only 32K +/-.
I agree that the “rainy day” fund should be greater than 15K in a CD. If they gross 103K, there should be at least three months of cash put aside. So, maybe 22-24K in cash.
I like to have 6 months of salary in cash and ZERO credit card debt. Good luck and hope the market doesn’t CRASH
“I worked and paid for my own schooling. But setting aside $100k and saying “here kids get an education” is absurd.”
I agree.
I think that kids need to find their own paths in life to be successful. Not all kids are college material. Being focused in life is much more important than a degree.
There are many kids who had a wonderful freshman year, partying away while mom and dad foot the bill. When April comes around, the parents get a letter from the University stating that little Billy or Sally has flunked out of college and cannot return for a year.
It would be better for parents to use that college fund money to develop the kids’ knowledge so that they can get scholarships, start their own business, or go into the entertainment industry.
People act as if college is the answer to all of the problems that young people will face. There are many graduates who struggle more than those who were focused and pursued their won goals. Focus is the key, not education. If you are focused, you will earn what needs to be learned. If you get educated but do not get focused, you will continue to wander aimlessly through life, blaming others for your failures and being jealous of those who are successful.
Congratulations to them for having saved as much as they have. The obvious question is why is home equity considered part of their net worth? Surely they can sell the house, but they would still need a place to live. In my humble opinion, some of the metrics used here are suspect.
This article is misleading at best. The reality is they cannot possibly know what the business is worth or what their house is worth until they sell. I deal in credit. I see borrowers puffing up their balance sheet all the time. Cash is king…everything else is wishful thinking.
“Very respectable. My parents had 3 children and we all paid for collage with scholarships and jobs. It boggles my mind that almost every one of these millionaire in the makings and other personal finance articles insist that parents foot the bill for collage education. …setting aside $100k and saying “here kids get an education” is absurd”
(The obvious joke, of course, is that you clearly didn’t pay enough if you can’t even “college”.)
I’m not sure exactly when you went to college, but going to a top-tier private school *today* is painfully expensive (often in excess of $50K per year), and appears to only be getting worse. 15-20 years from now those costs could easily be 50-100% higher. Most students, even the ones who are looking at top schools, will not get that kind of scholarship money. And most teenagers would earn only a fraction of that in a year. If your kid ends up going to a top college and doesn’t qualify for some kind of amazing scholarship, either you’re going to help out a lot or one or both of you will be saddled with quite a bit of debt. Starting a career out $100K+ in the hole isn’t exactly comforting, and can limit your choices substantially (for instance, you might not be able to take a lower-paying but more fulfilling job because you have to make high loan payments). Also keep in mind that unless you’re going to disown your kids completely, they won’t qualify for most need-based financial aid if you are sitting on a huge pile of money and just aren’t willing to use it to pay for them to go to college — in general it’s your family’s ability to pay that matters, not their willingness to do so. So holding out completely doesn’t exactly seem fair either.
That said, I think it’s reasonable for a college student to bear at least some of their educational expenses. I certainly did. It’s also quite possible to get a top-notch education at a much lower cost at a public university or a smaller/less expensive private college. Or you can work your butt off and try to get a lot of scholarship money to minimize what you have to borrow.
While many articles/guides like this talk about education expenses, it’s because many parents want to make sure they can pay for their kids to go to college, or at least help defray the costs. Obviously, if you feel that you don’t have any responsibility to subsidize your kids’ education, you don’t need to set anything aside for it!
I agree with the comment below. My husband and I both footed the bill for our own college educations. Scholarships, loans, and a jobs is how we did it, and that’s how our children will do it too. There is more incentive to do well in school when you aren’t on mom and dad’s payroll.
To Al Morrow:
The NW in the article is correct. the Seims home is worth about 300K. If they still owe ~100K, then they do have 200K of home equity.
Regarding your comment about college savings not being part of NW…it’s an asset so it is part of NW even though it’s not earmarked for retirement. Net Worth is calc’d by adding up all of one’s assets and subtracting out all of one’s liabilities.
My parents paid for my college and I worked my way through grad school. If your parents make more than a certain income or have more than a certain amount of assets you will not be able to get financial aid and will be paying off your student loans for the rest of your life. Especially if you continue your education past college.
I am very grateful to my parents for paying for my college, although I certainly would have taken it more seriously if I had been paying for it. But unless you have a low enough income and net worth that your children can get scholarships I don’t think it is fair to saddle them with huge amounts of debt.
The Seims are doing great. they shouldn’t be too concerned about what others are doing…they have line of sight to a comfortable retirement in their early 60s already. the others may not have even started planning for retirement yet. they may be too busy spending on the nice cars and nice vacations, etc.
at work, almost everyone in my dept except me drives a nice luxury car, but i’m fairly certain that my NW far exceeds theirs. while they’ll be answering to the man well into their 60s, i’ll have been financially secure and comfortably retired for over 10 yrs doing things I want to do and going to work because i need a paycheck.
correction to al morrow–the equity is actually correct and the debt on the home is only 50k. equity = the difference in in what the family has in the home and what they owe
EX: 300k home with 200K equity means that they have paid 250K and owe 50K
250=amount put in 50=amount they owe
250-50=200 in equity
Isnt it amazing what a 21 year old knows sometimes,haha
I hope the Siems family can teach there friends how to SAVE. May be they read this article and become edumacated.
The 529 plan is not just for the kids. The parents can use the money for themselves. Take fun foreign classes during retirement. I would include 529 plan as net worth.
Very respectable. My parents had 3 children and we all paid for collage with scholarships and jobs. It boggles my mind that almost every one of these millionaire in the makings and other personal finance articles insist that parents foot the bill for collage education. I worked and paid for my own schooling. But setting aside $100k and saying “here kids get an education” is absurd.
I am happy to see the outlook for this family, as my family and situation is almost identical. I have the good fortune of having bought a house way before the boom that has (still!) a much higher appreciation than the Siems’. I guess I am a MITM too!
The Net Worth figure shown in the article is incorrect as the couple has $100,000 in home mortgage debt. The couple is certainly on the right path though I am somewhat surprised the financial planner did not recommend having more than the $15,000 in CD’s for an emergency fund. With their fortunes both tied to their business, a higher emergency fund would be appropriate in my opinion.
I don’t understand why college savings are considered part of a couple’s net worth. College costs and associated savings need to be considered within the financial planning process, but as part of net worth; no. College savings for children are not assets the couple will potentially liquidate in retirement.
Saving money and getting good grades always gets the same reaction. Why would you want to SAVE money? I have started to agressively pay off my house and my 15 year note will be cut down to 6 years. I guess we are weird and all of our friends will have it paid off right before they retire.
Good for the Seims family! They should be proud of themselves. I can relate to the feeling that others seem to be passing you by when you are not driving around in a Mercedes and are saving away when others seem to be spending, spending, spending! My husband and I take comfort in the security derived from knowing (not just wishing) we will have a comfortable retirement, as well as savings for an emergency or unexpected event. Nice to see a story like this–they are an inspiring example for others.
The Seims family may not be keeping up with their friends free-spending ways, but if you look at their net worth in comparison to their income it looks to me that they are doing fabulously.
In so far as investments go, I am a big fan of ETF’s for international index investing, the good old Vanguard S&P index is a great play for the US market.
Ahmen to the 529 plans, but be sure you fund them soon, in 2010 they are up for review by congress and may or may not continue after that time.
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They needn’t worry about “everyone passing them by.” Those “everyone(s)” are having their boats, jet skis, cars and homes repossessed at a record pace!!! Now those “everyone(s)” are trying to keep up with us “Jones’” who were frugal and didn’t get in over our heads during the frenzy of overspending and living like there was no tomorrow. Kudos to this wonderful family.