For a lot of people, the road to millions is not a straight line. It’s a winding path over hills and through valleys. Lora and Dan King are in the middle of such a journey, and even though they’re debt free, their budget is still too tight to allow for much saving or investing.
How can this family of five move on from just “getting by” to building real wealth?
Debt-Free in Just a Few Months
Lora and Dan met while Lora was searching for a job. “When I emailed one guy my resume, we just couldn’t stop talking,” she said. “In October (2004), we were engaged!”
Some “financially savvy” friends had introduced Lora to Dave’s Baby Steps and gave the couple a set of Dave’s books as a wedding gift. Lora, who was never a fan of debt, loved the idea of building an emergency fund. So, after their wedding, both Dan and Lora sold their houses and used the money to pay off their debt. By 2007, they had a fully funded emergency fund.
“It hasn’t been difficult to live without debt,” Lora said. “I don’t see how it’s difficult for others. I can see if they’re in it and used to the lifestyle, then it’s hard to change. But looking at it from the outside, there’s no temptation for me to join in the stress and the burden of a life of debt.”
An Unexpected Detour
A couple of years later, this family of three—Lora, Dan and Jeremy, Dan’s son from a previous marriage—became a family of four when Alex was born. Dan started working part-time and going to college, and the family’s road took an unexpected turn. Their plan was for Dan to take a semester off with Alex and then finish his engineering degree. By the time their second baby, Emma, was born, Dan was supposed to have a position as an engineer. This plan would allow Lora to stay home with both babies while Jeremy went to school.
But life happened instead. They used all of their savings, including money set aside for Dan’s degree, to replace a worn-out car. And, now that they were a single-income family, they found day care too expensive. Today, Dan stays home with Alex (3) and Emma (1) and has started a woodworking business in his spare time. But it hasn’t started turning a profit yet.
Getting Back on Track
Lora brings home $4,000 a month, and every bit of it is budgeted. Joseph Shortt, investing Endorsed Local Provider (ELP) in Madison, AL, reviewed the King’s budget and goals and made some recommendations to help smooth out their road to millions.
First, Joseph suggested the family could move toward its goals more quickly if Dan added a part-time job to help increase their income. An additional $1,500 or $2,000 a month would make a huge difference in their progress.
Next, Dan and Lora need to take a close look at their budget for items that can be trimmed or eliminated, Joseph said.
- According to the Baby Steps, Lora needs to stop contributing to her 401(k) and direct that $230 a month toward the emergency fund.
- Budget items for things like special projects and furniture savings need to go toward the emergency fund.
- The Kings should cut their current $400 budget for meals at restaurants by 50%, and funnel the savings into the emergency fund.
The Kings’ Road to Millions
With the additional income and savings from squeezing the budget, the Kings can build up their emergency fund in a few months. Then, they should:
- Begin contributing to Lora’s current 401(k) again. The current balance is $33,000.
- Dan and Lora each have old 401(k)s totaling $95,000. They should roll those into two Roth IRAs, one for each of them.
- To reach the goal of investing 15% of their income for retirement, they’ll need to contribute $335 a month to each of their Roth IRAs.
By investing in good, growth stock mutual funds, the Kings could see their current $128,000 in retirement accounts grow to $4.2 million in 25 years! Even more encouraging: When Dan’s business becomes profitable, or if he decides to work full-time, the Kings will have even more income to save for college and pay off the mortgage.
Start on Your Road to Millions Today!
Gazelle intensity isn’t just for paying off debts. Use it to maintain your momentum while working through Baby Steps 4, 5 and 6. You’ll also get a boost of confidence when you talk to an investing Endorsed Local Provider. Your ELP will help you make a plan to meet your investing goals using the same great advice Dave would give you. Contact your ELP today!