While I just had a birthday, I did not receive any kind of ‘news’ on this day. I can still go by the moniker of NoTrustFund. However, I have been thinking a lot about what it would mean to have a trust fund. Not in a general sense, but for me specifically. Would I do anything different with my life? Would I choose to spend my time differently? In an ideal world the answer would be no, but in reality? And how much would I need to have so I could live my ideal life today, if I’m not already?
“It’s Between You Ears”
A very wise reader of mine who has many more years under his belt told me, “It’s between your ears”, when he first heard the title of this blog. And oh is he ever right. As I am still relatively early in my career, my human capital, or my earning power, is by far my most valuable asset and I don’t take that lightly. I have worked hard my whole life to study hard, invest in my education, and grow my career. I intend to keep growing and learning for the rest of my life.
However, I have also been focused on my finances and career from the second I graduated from college and I have seen how powerful it can be to have your finances in order. This focus has allowed me to graduate from business school almost debt free, put a 20% down payment on my first house, and build a nice retirement account for someone in their mid 30’s. With this kind of focus, and that of the like-minded Mr. NoTrustFund, what can we accomplish?
“Do Anything We Want But Not Nothing”
In my mind creating this ‘trust fund’ is very different than reaching our crossover point, or financial independence. While it might be somewhat close to this number, it is not a number that would allow us to stop working completely. No, when I think of creating my own trust fund I think of the line Buffet uses for discussing how much money he plans to give his children. He wants to give them ‘enough money so they would feel they could do anything, but not so much that they could do nothing”. This amount of money would be somewhere between a “F-You Fund” (a post I’ve been meaning to write since day one and still have not done) and financial independence.
Balancing Today With Tomorrow
Creating my own trust fund is about taking responsibility for my own life and thinking about what it means to have enough. It’s about coming up with a number where I would feel comfortable hitting pause for a couple of years. Not doing nothing, but also not gunning for the next promotion. Feeling like it’s ok to tread water for a few years while I put my family first. Or a number where either Mr. NoTrustFund or I could try something entrepreneurial for awhile.
The Specifics
Given the name of this blog I am a little shocked it has taken me this long to write this post. It seems so obvious as I write this, even though the idea only recently started forming in my mind. It is clearly at the root of wanting to take out a smaller mortgage and pay off our house as soon as possible. But beyond that how much would we need to have? College savings for the kids? Retirement savings of a certain amount? What if we want to send the kids to private school? Is just having the house paid off enough? These are the things I need to figure out, with Mr. NoTrustFund, but also for myself. As someone who has always been very financially independent, there are aspects of this idea that really are mine to figure out on my own before we can discuss the bigger picture as a couple.
So I’m curious. What would you need to have covered to feel like you had your own trust fund? Would you need to have reached your crossover point and be financially independent? Or some lesser amount? Are you shocked it’s taken me almost two years of writing this blog to get to this post?
This is where we are, though we’ve made the decisions on college (more on that July 9th in our deliberately controversial post for July) and, apparently, private school.
Like it or not, we are at the point, or will be in 2 years, where one of us can take more chances. (DH has 2 years left to his job as he’s unlikely to get tenure.) That’s a lot less money than the 2 million we’d need for Financial independence (1 million to buy a house in Northern California, 1 million to live off of.)
To be completely honest, I am the recipient of a trust fund… although it was worthless when it rolled over to me and I had to pay taxes on it anyway (company had gone bankrupt *after* I got married or turned whatever age it was that made it mine, but before I found out about it), even though I was only making 18K that year. It is now spitting out about 2K/year in dividends though so all is forgiven. 2K is not quite Buffett-size.
This is interesting because where we live, a million dollar house would run about $20k in property taxes so $2 million would put you in ‘you’ve created your own trust fund’ territory but not FI.
Do you already have enought money set aside for your kids’ educations?
And thank you for the disclosure. Don’t worry I have nothing against trust funds, I just don’t personally have one and like the idea of creating my own.
When I did the BOE, I included taxes in Northern CA. We need about 120K income to live simply in Northern CA while working and paying for housing. It would be less than that if we only have to pay the property tax portion of housing. We would try to live off the dividends, not the principal (until, say, college). Remember also that dividends are only taxed at 15%, so the federal taxes drop for the same amount of income (this is what the Buffett rule would want to change). There’s a lot of free stuff to do in Northern CA and food is less expensive than where we live now.
With 1 million in savings, and the rest in our house, some of that money would be going to kid’s education but we would also be not footing the entire bill. We’ll be talking about our 529s in our August mortgage update.
But it’s kind of moot since we’re not there yet (not even a simple million in net worth) and have no plans to be any time soon given competing interests on our dollars and time.
*not footing entire bill because kids would be eligible for financial aid. Unlike our hopes now to be so high income we’ll be ineligible.
What a great post and some great questions. I like thinking about the idea of a trust fund as a more theoretical thing. Thanks for the food for thought!
Have you read the Atlantic Monthly article “Why Women Still Can’t Have it All” – it’s only tangentially related to your post but the author talks about women in our generation wanting to take more career pauses to have better work-family balance. She talks about a career trajectory with steps (promotions and then plateaus) versus straight upward lines. I think about work-family balance a lot and financial independence is definitely a factor. It seems difficult to completely leave the workforce, probably easier to be on a “plateau” for a little while even if it means turning down promotions.
Yes, I really liked that article. Especially the part that compared marathon training to child rearing- probably because I seem to always work with guys who spend A LOT of time working out. The concept of a plateau is great. My question- can women who have put a lot into their careers be happy on a plateau? Maybe if it was a more socially acceptable thing to do and if viewed as just turning down promotions.
I don’t have a trust fund, but I’ve had a pretty decent amount of help from my parents at this point. They paid for my undergrad costs in full and gave me some money towards both a car and a down payment on a property. I would still be renting if they hadn’t given me that money. I didn’t buy a car any more expensive than I would have on my own though.
I’m confused about your concept of a trust fund and what makes you feel that you have created yours. I think I’m in the process of creating my own though?