Personal Finance Case Study: Persistence Over Time For the Win
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Does your personal finance goal feel impossibly big? Here's a client case study that might give you tools for your personal finance toolbox.
Are We Ready Yet?
Occasionally I'll share real client case studies in the hopes that these challenges might be relevant for you, dear reader. In all instances, I've changed names and some identifying characteristics but the essence of the situation has remained the same.
Meet "Amanda" and "John".
I met Amanda and John in 2016. They came to me with a question: could they afford to buy a new home? The home they currently lived in was the first home they bought after they married. Their kids were now middle school aged, and they were bursting at the seams. Plus, the home was 100 years old, so every couple of years major home repairs were needed.
The new home would double their monthly home payments, but it would be so worth it – the new home would be their “forever” home. They imagined kids coming home from college filling the family room basement with Big 10 football cheers, and parties with their friends in a spacious backyard. In fact, Amanda had been taking walks in her neighborhood and wishing she could afford some of the new homes being built.
As we reviewed their financial situation at the get acquainted meeting, I noticed they had a large home equity loan on which they were only paying the interest. They had refinanced several times over the past, and even with real estate appreciation in their area, didn’t have much equity built up in their home. With the home equity loan, that didn’t leave much for the down payment on the new home. In addition, they felt like they were not on the same page about finances, and financial matters were often the subject of disagreement between them.
After multiple discussions and a deep review of their financial situation, it became clear that it was too soon to buy that dream home. John and Amanda were both disappointed and they felt upset that they hadn’t been able to pay down the home equity loan sooner. They asked for help in building a plan to get them ready to move before their oldest was in high school.
Action Plan: Pay Down Debt, Put Extra Income To Work
First, we looked at cashflow. John had a new job earning significantly more than he had ever earned. He felt confident that the family could still afford their lifestyle even if he allocated extra cash toward the monthly home equity loan. He immediately set up automatic bimonthly payments to the loan to correspond with his paycheck deposits.
Meanwhile, Amanda ran her own professional services firm which was booming with more clients than she could take on. We looked at her company’s financial situation and she developed a plan to hire 3-5 more new staff over the next 12 months. She knew she’d have the work to keep them busy, but she needed time to onboard each new employee. We projected how much profit the business could earn with each new employee. This was very motivating to Amanda, because she saw that this profit could get her family to the new home sooner. By the end of the year, she would have a significant amount of profit to use for paying down the home equity loan and saving for the down payment.
Changes Over Time
A few months later, we checked in. They were still diligently paying down the loan, and John had gotten a bonus. In past years, they would have spent the bonus on vacation, but this year they decided to do a smaller driving visit to family for a long weekend, and put the bonus money toward the loan.
Amanda’s hiring plan hadn’t gone as expected, and she was training three new employees at once. This turned out to be not so bad, since she gained some time efficiencies doing all the onboarding at one time. She still expected to be on track with the amount of profit we projected for the year.
The following year, it was clear Amanda and John had taken a team approach towards their shared goal of the new home purchase and they were thrilled with the progress they had made. They completely paid off their home equity loan, and had saved another large portion of cash for a down payment. They decided to once again forgo a family vacation so that they could save a bit more, and they opted for other cost-cutting things as well – Amanda had stopped window-shopping on her way home from work. She told me each time she saw a cute bag or kids’ outfit in one of the windows, she thought about how happy she would be in the new home and was pleased with herself for skipping the store.
It took 4 years, but eventually the family was ready to buy their new home. Prices had gone up, but so had their salaries while their lifestyle expenses stayed about the same, thanks to the intentional efforts they were making. They put in an offer on a brand-new build, and were able to work with the builder to choose some of the finishing touches themselves. We created a financing strategy, since they needed a bridge loan until their old home sold. They moved into the new home that spring and are there to this day. It’s still their dream home.
Persistence
This story is one of persistence. The family had fortunate timing regarding significant income increases, and that certainly helped achieve their goals faster. In addition, they also made mindful choices about fewer vacations and less spur-of-the-moment purchases. These day to day choices made a big impact on how they felt about spending so much on their dream home – ultimately, they felt comfortable buying the home because they knew they had done the hard work to afford it. They were also aligned on their family’s financial goal – so it was easy to make decisions together about new money like a bonus. They were in agreement that a bonus was best used towards their shared financial goal, instead of spending on something else right now.
Tips for Your Personal Finance Toolbox
Get clear. Do you (and your partner) have clarity around your financial, and life, goals? If not, spend some time working through this. Gaining clarity on the “why” can make financial choices easy.
Be persistent. Making changes and sticking with them over time is what makes a big difference. It’s the story of the ants and the grasshopper. The ants were busy storing up food all summer long so they had enough to last the winter. Granted, we should all have a bit of grasshopper in our lives to make music and dance, but consistent actions make a big difference over time.
Automate your goals. If your goal is to save for retirement, or pay down your credit card bills, use automation to set yourself up for success. Enroll in your employer’s retirement plan by making automatic contributions with each paycheck. Pay down your credit cards by automating minimum payments plus another automatic, additional payment two weeks later. Save for that down payment or Rainy Day fund with automatic bank transfers to savings on each payday. You got this!
Do you have a personal financial goal that feels impossible? Persistent steps over time can help you get there. Start today.