2021 and beyond

[Yossarian]

Reviewed last year’s finances yesterday and I’m thinking about next steps because the next year or so will be a big one for my wife and I.

We are both 36 years old.

Our expenses for 2020 were around 5.2 mil which included over 1 mil for medical reasons. Our net worth increased by 3 mil during the same period. All NISA and iDeco deposits are included in the 5.2 mil expenses from 2020.

We moved to Japan at the end of 2018 and spent most of our savings to do so (approx. NZ$40,000). Since arriving in Japan our net worth has recovered to around 5.3 mil currently.

My salary was 5.3 mil for 2020 as a permanent employee. My wife’s was 3 mil as a contracted employee.

We have both maxed Tsumitate NISA and iDeco. We have around 7 months expenses (2.5 mil) in a cash emergency fund. We don’t know if we will be in Japan forever but we maxed iDeco (12,000 for me and 23,000 for my wife) just in case.

In spring 2021, our first child will be born and we are both taking 1 year parental leave so income will decrease. From my calculations, the money from the government might just cover our expenses if we can reduce them by about 50,000.

Edit: More details about the parental leave. My wife will take maternity leave for 3 months and then 育児休業 for 9 months. The government will give her 70% of her income during maternity leave and her company will give 30%. I will take 育児休業 for 12 months. 育児休業 is a legal right in Japan now - the government will pay 70% of gross income as an allowance for the first 6 months of parental leave and 50% after that. Overall, I should receive allowances worth 70% of my net income for the year of parental leave.

It's our first child so we have no idea what kind of influence having a baby will have on monthly expenses.

We will continue NISA during this period but iDeco will be paused as we will receive no salary.

Maybe taking a year parental leave is not such a smart financial decision but as it may be our only child we have decided it’s worth the risk to both spend a year with our baby before we both return to work.

Goals:
Only specific goal is to prepare for retirement hopefully in our mid-fifties.

2021 plan:
Continue maxing NISA.
Any cash above 2.5 mil put into a taxable mutual fund or ETF.
Reduce monthly expenses to around 300,000 from 2020’s 350,000 average per month. Cutting down on hobby costs and eating out.

My question for everyone on the forum is; Is there anything else we should be doing? Am I missing anything?

Thanks in advance!

[Kanto]

Both parents stopping work for an entire year is pretty extreme.



1. When you mention "income from the government" do you mean unemployment?

2. Have you created a detailed budget?

3. You spent 5 million last year on expenses. You have 2.5 million in savings. Do you now expect to live on that for 1 year, with a baby?

4. What happens after 1 year if you cannot return to your jobs? Now you have 0 cash savings? Will you sell all your NISA investments?

This plan does not seem to mesh with your plan to retire at 50.

[Yossarian]

We're not quitting work. My wife will do 産休 for 3 months and then 育児休業 for 9 months. I will do 育児休業 for 12 months. Neither of us are leaing our jobs - taking this time off is a legal right in Japan.

育児休業 is: 0~6 months government will pay 70% of gross income and 50% of gross from 6 months ~. So, during the year off, I will receive from the government around 70% of my 2020 net income.

[Yossarian]

1. When you mention "income from the government" do you mean unemployment?

I've added more details about this to the OP. No it isn't unemployment - neither of us is quitting. We will be receiving parental leave allowances from the government which will total around 70% of my net income over the year.

2. Have you created a detailed budget?

Yes, I know how much we spend and on what each year.

3. You spent 5 million last year on expenses. You have 2.5 million in savings. Do you now expect to live on that for 1 year, with a baby?

As above, we don't expect to live on savings or in fact touch our savings due to the government allowances.

4. What happens after 1 year if you cannot return to your jobs? Now you have 0 cash savings? Will you sell all your NISA investments?

Why wouldn't we be able to return to our jobs?

This plan does not seem to mesh with your plan to retire at 50.

50 is not a concrete age we want to retire.

[Kanto]

1. When you mention "income from the government" do you mean unemployment?

I've added more details about this to the OP. No it isn't unemployment - neither of us is quitting. We will be receiving parental leave allowances from the government which will total around 70% of my net income over the year.

2. Have you created a detailed budget?

Yes, I know how much we spend and on what each year.

3. You spent 5 million last year on expenses. You have 2.5 million in savings. Do you now expect to live on that for 1 year, with a baby?

As above, we don't expect to live on savings or in fact touch our savings due to the government allowances.

4. What happens after 1 year if you cannot return to your jobs? Now you have 0 cash savings? Will you sell all your NISA investments?

Why wouldn't we be able to return to our jobs?

This plan does not seem to mesh with your plan to retire at 50.

50 is not a concrete age we want to retire.

If you have a detailed monthly budget, then you already know you can afford to do it.

Have you budgeted for the cost of birth (averaging 50-80 man+)? And expenses for setting up for the baby (50-100 man)?

Besides that, there is the Junior-Nisa. Tax-Free investment of 80 man a year for your child. It ends in 2023. You may want to set this up and utilize it if you are already maxing out your NISAs.

[Yossarian]

If you have a detailed monthly budget, then you already know you can afford to do it.

Have you budgeted for the cost of birth (averaging 50-80 man+)? And expenses for setting up for the baby (50-100 man)?

Besides that, there is the Junior-Nisa. Tax-Free investment of 80 man a year for your child. It ends in 2023. You may want to set this up and utilize it if you are already maxing out your NISAs.

Yes, winter bonus will cover birth. Luckily we have many young nephews and nieces so minimal costs setting up for baby.

OK - Junior NISA sounds interesting but I remember some people on this forum being not too positive about it in the past?

Past Junior NISA is there anything should be doing? Just same investment strategy but in a taxable account?

[Kanto]

If you have a detailed monthly budget, then you already know you can afford to do it.

Have you budgeted for the cost of birth (averaging 50-80 man+)? And expenses for setting up for the baby (50-100 man)?

Besides that, there is the Junior-Nisa. Tax-Free investment of 80 man a year for your child. It ends in 2023. You may want to set this up and utilize it if you are already maxing out your NISAs.

Yes, winter bonus will cover birth. Luckily we have many young nephews and nieces so minimal costs setting up for baby.

OK - Junior NISA sounds interesting but I remember some people on this forum being not too positive about it in the past?

Past Junior NISA is there anything should be doing? Just same investment strategy but in a taxable account?

Junior Nisa has improved since they cancelled it! (Strange right?) You will be able to cash out before your child turns 18 now it seems.

If you have maxed out your Nisa allowance, and cannot use iDeco, it is your best way to save for your child's future tax-free.

Outside of that set a minimum monthly size for your savings and invest in anything over that amount.

You are both insured, correct?

[adamu]

Welcome to the forum and congratulations on starting a family.

Only specific goal is to prepare for retirement hopefully in our mid-fifties.

In Japan?

I've no experience of having children or the costs involved, but I'm guessing it's possibly the most expensive financial decision you can make. I think it would be very beneficial to project what your family expenses will look like with a child involved.

If we take your 2020 350k/mo expenses and use the ball-park 25x annual expenses guideline, you need about 100M savings to retire maintaining your 2020 lifestyle. Since you're mid 30s now, and you want to retire mid-50s, you need to save about 5M a year (not accounting for compounding).

[Yossarian]

You are both insured, correct?

Yes - both insured.

I'll look into Junior NISA. Seems could be a good way to go for a couple of years.

[Yossarian]

Welcome to the forum and congratulations on starting a family.

In Japan?

Thank you - and no, not definitely in Japan. It's possible of course but far from definite.

If we take your 2020 350k/mo expenses and use the ball-park 25x annual expenses guideline, you need about 100M savings to retire maintaining your 2020 lifestyle. Since you're mid 30s now, and you want to retire mid-50s, you need to save about 5M a year (not accounting for compounding).

OK - that's good info. 5 mil a year on current salary would be impossible but I'm working on increasing that through qualifications.

I'll do a more concrete budget with possible kid expenses.