May, June and July 2016 have knocked my financial freedom plans right off the board.
Avoid my mistakes.
I can recover because I have a lot of savings, thanks to my proactive frugal living and personal finance software addiction and decluttering fascination and aggressive downsizing.
But my pride and confidence hit the surf and it felt like I slammed into concrete. Worse, it may have derailed complete financial freedom by a year or more. And some of it was my fault.
Surfing toward FREEDOM
Usually I love the whole inspirational journey of having a juicy, rich, fabulous life, by spending less. Sounds counter intuitive. But I believe it's true and others have taken the road to prove it. Ever read about the Tiny House Movement?
Using less resources means:
- Taking up less of my mental bandwidth with stuff to remember, to maintain, to repair, to store, to insure.
- Freedom from working 50 hours a week at a job that is completely unfulfilling at best, abusive at worst.
- Freedom from the anxiety of whether or not the rent will get paid, or there will be enough to repair/insure the car.
Which ultimately gives me and all of us the greatest gift of Time.
My husband died young, so I am acutely aware of how precious and limited our healthy life can be. Financial freedom to me = time to be with my friends and family NOW. Time to achieve a happy and meaningful life NOW. Before it's too late.
Sounds great, right? Just takes courage, planning, smarts. And listening to the sages who have gone before.
Surfing Lessons and the Sages
Lo and behold I wasn’t ready psychologically or emotionally. Therapy helped.
As the retirement sages on www.earlyretirement.org said might happen, I experienced a sudden depression.
Indeed, much to my surprise, a great deal of my selfperception was tied to my corporate title. It took about a year but I've come out with a much better sense of self. There is hope and I can detail some tools for you in another post in this series.
Sound financial planning is not an exact science. That must be why it requires building in a big margin of error.
I asked all the wise ones in the money advice forums "can I please quit this job and retire now?" But I wasn't liking the answer.
All the wise ones kept responding "Just wait! Yes, you are in a hellish situation. But can you hold on another year? You need more of a safety cushion. Nobody gets all the planning and figuring just right. Give yourself another 5-10% of a cushion.”
I hated the idea of holding on another year. There was $350K in 401Ks plus $65K in cash, two guaranteed pensions starting in two years that would provide $24K per year. That was before social security. Monthly spending was down to $3500 (plus or minus 5%). The corporate situation was brutal.
I took the leap anyway.
Looking back? It was the right thing to do. I learned a lot and can share it with you in these blog posts.
But the sages were right too. I needed a 20% cushion and only had 5% planned.
Killer Wave (Lesson) #1 401K withdrawals and taxes.
When I did my first trial run for 30 days into retirement, April 2015, I hadn’t figured out how to withdraw my savings in the most tax efficient way. 401K withdrawals I made for that month almost triggered a big taxable event.
I also learned that your 401K plan may very well be required to keep 20% of the withdrawal as tax withholding. No matter what your tax bracket will be that year.
Check your 401K withdrawal required tax rate. Because of how little I had made in 2015, I figured there was no way I would owe the full 20%, so I hadn't figured that deduction into my cash flow equations. I needed the cash (I only had a 5% margin of error, remember? Not 20%.).
So TIAACref help me rescind the withdrawal. I immediately went back to the drawing board. I had a year of after tax savings, thanks to frugal living habits, so not all was lost.
Killer Wave (Lesson) #2 My rent was cheaper than owning a home, right? It was. Then it wasn't.
I had downsized and done the Marie Kondo Magic on my stuff down to 600 square feet.
The rent was reasonable, it was a great neighborhood, I could walk to the grocery store and had covered parking. I originally signed a 6 month lease and intended to keep rolling over the 6 months leases figuring a 12% bump each lease increase.
Big joke on me. Rent went up with a 10% penalty for my next "short term" renewal, i.e., 6 months. Which had been the original lease term and wasn't considered "short term" before. And the 1 year and 2 year renewal rates? They were still higher than I had ever paid and more than fit into the budget. (WTF?)
“We changed our policies,” management told me, when I plead my case.
Someone else clued me in that it was a bait and switch played on most of the tenants. The demand was high for this area and a one bedroom unit. Management just assumed that people wouldn’t want to move, so they would pay to play.
Screw them. (Ah, the financial freedom to Say "Screw Them!")
So I went back to the drawing board, again, looking for a cheaper housing alternative. I had savings thanks to my frugal lifestyle, so all was not all was lost.
I decided to stop playing the rental shell game and buy a condo in the neighborhood instead. No more worrying about rent going up. And mortgages are smart financial vehicles for building wealth right? They are if you qualify for one...
Killer Wave #3 Getting a mortgage means you gotta' have a job.
No matter how much cash you have in savings. It also helps to have a fair and honest appraiser, clean credit record and fair mortgage lender. (Whoops...)
It's almost impossible to get a mortgage without employment income. No matter how much cash you have in the bank. A mortgage is based on your future W2 income ability to pay.
You also can’t get a great mortgage when a hospital has sent you to a collections agency for a $75 bill from ago that you never received, so of course, you never paid. How can you pay something you didn't even know existed?
And you only find out about it when the mortgage company mentions it, like "hey, what's this??"
So... Could I buy a condo outright with cash? Yes, but with 401K money. No issue with the credit reporting mistake that the hospital made. Would it trigger a 45% tax bill to pull out the $100K chunk all at once? Yes. Which would drown me financially.
Can you get billing mistakes like this reversed from your credit report? Yes, you can. I had the credit mistake completely removed from my credit report. (Let me help you do it I love to kick some bull sh*t creditor ass).
But it took months and months to complete. If you plan on buying a home anytime soon, follow that advice about checking your credit scores with all three companies. If I had done that earlier, I might have had enough time to straighten out the hospital’s mistake before I was stuck in a situation that forced my interest rate up to 4.65% in a 3.35% market.
By the way, a year later? I still have too many "hard credit pulls" on my credit report to get a perfect score, even though everything else is 100% perfect. Even though all the pulls are due to mortgage loan requests. Here are the resources I found to help me recover:
- My US Congressman's office.
- My state’s attorney general’s office consumer affairs department.
- Repeated calls to the hospital's billing department.
And are there mortgage scams out there in the housing market right now? Yes Sirree Bob! From mortgage lenders you would think are perfectly legit, like Capitol One 360.
Ask your title company if they've had any issues with local lenders.
If I had done that first, I would have heard the horror stories about Capitol One's "centralized" mortgage loan processing "bait and switch." Supposedly it protects local branches from making bad loans. That's the crap line that they spin. Really, it's corporate america's way to stay arms length distance from a customers they are going to screw over.
In my personal situation, after a month of working through all the paperwork, approvals, appraisals, etc., Capitol One bank was set to close on the loan on a Monday in August.
Then I got the email on Friday afternoon, "um, never mind. No money for you. We decided that this condo development isn't worth investing in."
Even though my real estate agent closed on a Capitol One condo refinance in the same development the same day. I went to the Fair Housing Authority to complain about this one and claimed sex discrimination. Capitol One had loaned money to a couple, but not to a single woman.
A local mortgage broker saved me from losing my condo purchase They found money for me within two weeks. One of the brokers had worked for Capitol One mortgage division. My mortgage business wasn't the first he had gotten because of his old employer's bad policies.
And then there are the appraisals that are total scams.
I paid for an appraisal from AmeriSave Mortgage Company and it seems that I got screwed over by them as well. So many people got screwed on this one that the federal Consumer Financial Protection Bureau stepped in and sued them. I had no idea. What a dumb bunny! The information is all over the internet.
The CFPR sent me a refund check. Love them, sending them many kisses, signed up for their email updates!
So I Cried Uncle. Got Schooled.
I went back to work in a minimal stress job and bought a condo. I also began cultivating a few side clients. No stress,working from home.
I shored up my resources, learned more about 401K withdrawal strategies and taxes, licked my wounds, and began preparing for a new financial freedom date January 2017.
A year or so delayed, but hey, I was getting there. And then?