Author Topic: Complicated financial scenario - could use help!  (Read 2906 times)

alxchang

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Complicated financial scenario - could use help!
« on: June 04, 2013, 06:29:05 AM »
Hello Mustachians,
I am new to the community and am an aspiring Mustachian who has been failing up to this point. I could really use some of your advice!
About me: About to start a physician career (salary to be $210k) and moving to a rural area in Pennslyvania and have essentially <5k in savings, 105k in med school debt (3.2%), no investments, excellent credit.
I recently met a wonderful woman and got quickly married about 1 1/2 years ago. While wonderful in many ways, she has some financial issues. She has not made a whole lot of money as an esthetician for a variety of reasons including health issues. She likely will not be working as we are planning on starting a family (and moving to a rural area where her esthetician career for her may not be realistic). She has about $16k in a higher interest bank loan (9.75%), and about $30k of student loans (~3%). Also, because of lack of health insurance and health issues, she has about $20-30k of hospital debt so that her credit is obviously nil.

We are planning on staying long-term in this rural area as this particular job is essentially my dream job.
So, clearly there are a multitude of things to consider and I have been trying to figure out the best way to address debt, but also become a home-owner as soon as possible. While I am interested in adopting a more Mustachian lifestyle, I think this is just something that my wife and I can strive for at this point but not achieve. (Moving to a rural area, not taking vacations, or getting married and having a honeymoon like last year will certainly help)
My strategy was to rent a place for a year, try to save $8k/month this year (I think this is a realistic goal for us) to build up enough for a downpayment in a year while paying minimal amounts on all the loans for now. I figure that we can meet these goals, and then pay off the high-interest loans quickly afterwards, and hopefully continue to strive to save more...I have been ignoring her hospital debt for now. We want to buy a house that we will want to settle in for many years and are thinking in the 350-450k range. And of course, all this in the context of starting a family soon...Clearly, I need a lot of help!

Questions that I have that I could use sage advice and opinions:
1) Should I not worry about her hospital debt for now?
2) Should she file for bankruptcy?
3) Is it better to try to save up quickly for a downpayment on a house or should we rent for a couple of years and pay off some of our debt and build up a savings cushion?

Any thoughts are greatly appreciated!
Thanks,
A

MustachianAccountant

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Re: Complicated financial scenario - could use help!
« Reply #1 on: June 04, 2013, 07:01:01 AM »
First off, NO to the bankruptcy question. For a couple of reasons:
1. You're married, so a bankruptcy will affect you as well
2. You are not in dire financial straits, where bankruptcy is your only option (as far as I can tell)

Saving 8k a month puts you at living on $30k a year, for a family of two (rough calc, after taxes). I'll let others weigh in on whether that's "mustachian" or not. Also keep in mind that once you cross the 110k Social Security tax threshhold, you won't be paying that tax anymore, so your paychecks will get a little bit bigger.

Here's what I would do, after you start your new job:
..First 2-3 months - kill that 9.75% bank loan
..Next 4-6 months - finish off that 30k in her student loan (assuming the difference between her student loan rate and yours is less than 1%)
...Remaining months of the 1 year - attack that student loan debt

I would then encourage you to take one more year of apartment living to save up a down payment for a house. $70,000-ish puts you in the 9 month range, and you won't have to pay PMI. Those last 3 months of that second year you can dump into your student loan, or just pay off the hospital debt, and be done with it.

350-450 for a house sounds pretty huge for rural PA, so just make sure that you're being mustachian about your housing choice (close to work. energy efficient) and not falling into the "Doctors have big houses" trap. A smaller and cheaper house will also mean your student loan gets paid off faster.
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zhelud

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Re: Complicated financial scenario - could use help!
« Reply #2 on: June 04, 2013, 07:19:16 AM »
Suggest that your wife work as long as she can before baby appears, even if it is not in her field- any $ she makes you can throw at debt.
You don't need a house right away, even with a baby. Saving and attacking debt a few more years will put you in a much better position to get the house you want.

bevathome

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Re: Complicated financial scenario - could use help!
« Reply #3 on: June 04, 2013, 07:23:38 AM »
I'm not sure about your credit scores, but paying off the debt before buying a house will help your credit scores.  This, in turn, should help you qualify for a lower interest rate.

matchewed

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Re: Complicated financial scenario - could use help!
« Reply #4 on: June 04, 2013, 07:24:26 AM »
Rent and pay off debts for now. If you're truly looking to stay in this place long term it is worth it to pay off any debts with higher rates than what you would pay on a mortgage. Debt is crazy bad; unless it is good. You have some of both.

pom

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Re: Complicated financial scenario - could use help!
« Reply #5 on: June 04, 2013, 07:25:15 AM »
That was my first thought: he is falling in the "doctor have big houses" trap.

My father is a pediatrician and he went the way "doctor has the house closest to the hospital" and has lived happily ever since. He would even come home to have lunch with us (admitedly sometimes he would just be home 30 minutes, it still meant a world to us). Another benefit was that being on call duty was never a huge issue as he could be at the maternity ward in 10 minutes by walking.

Anyway, my siblings and I had a fantastic childhood with a father that managed to be present in our lives while still being a really busy professional.

aj_yooper

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Re: Complicated financial scenario - could use help!
« Reply #6 on: June 04, 2013, 07:35:10 AM »
Your listed debt is nearly equal to your income.  You will need  more than $80k for a $400k house so then your loans will tally about 2.5 times your income.  You didn't mention cars.  Do not buy anything new, just keep what you have.  Read the MMM article: http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

I would defer the new home for at least two years to make sure you want to stay in the area; there should be nice homes that your employer might help you find, especially if you say you want a 2+ year lease.  Good doctors in rural areas are really needed.  The 2 years will give you a good idea on the area and housing market.    Build up a larger emergency fund, say 2-3 months of expenses so managing your budget will be simpler.  Consider using software, like YNAB (You Need A Budget) or a spending compiler like Mint.com to get a clearer focus on where the cash is all going.  If you aggressively pay down loans for 2 years and save, your cash flow will be much better, which will make life with children much easier.  This could be your fellowship time in becoming more mustachian.  Think of the Early Retirement possibilities if you use you good income wisely and not just build consumer sukka expenses!  MMM makes good points in:  http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/

Unless your wife is not able to work at all, I think she should.  Work gives us purpose; she has skills.  She did the loans and she should be hard at work fixing them.  Really hard.  If she can't work, your household should run like a top within a very tight budget.  Otherwise, I think you are sending a message that you will make it all better.  Where does that stop?

You are not Dr and Mrs. Fancy Pants! You could end up in bankruptcy which might have implications on employment prospects. You need the debt cure now. 

What is her plan to kill the debt?  Does your wife have an agreement with the hospital regarding a payment plan?  Rank order the debt by interest expense and start knocking it down; looks like the bank note would be done first or maybe the hospital bill.  Naturally keep everything current so your credit stays good.

A properly executed plan could cure the high rate debt in a relatively quick time.  Build more expenses and you will have mold in your finances.
The stock market is not an actuarial table with a known outcome.  Taylor Larimore on Bogleheads Forum

alxchang

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Re: Complicated financial scenario - could use help!
« Reply #7 on: June 04, 2013, 08:41:35 AM »
Thanks for all the quick replies everyone! I'm glad to hear some other input. I like the idea of renting longer and paying off debt which would make me feel much more comfortable. And yes, to one of the posters, you are correct, I really am not talking a "mustachian lifestyle" yet but am striving to turn ourselves more into that direction... As for the question about my credit score, it's in the 760 range. As far as I know, my wife's lack of a credit score shouldn't affect mine (and up to know we have kept separate accounts)...hopefully this assumption is true. There had not been any sort of plan to attack her debt prior to meeting me, which is why this is difficult...she had been essentially ignoring all the hospital debts because she was unable to afford them at all. The idea of filing for bankruptcy was strictly for her to get rid of the hospital debt, (I don't think student debt is forgivable in general) - perhaps this is the wrong crowd to ask about bankruptcy advice. I'm thinking if we have a child, it will be cheaper for her to be a full-time mom (with some part-time income) and having her run as a tight house budget as possible without worrying about childcare costs.

I guess it's time for more studying and fellowship for us to achieve this!


mlipps

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Re: Complicated financial scenario - could use help!
« Reply #8 on: June 04, 2013, 09:03:10 AM »
Have you looked at houses in this area? In the rural area of Ohio where my parents live, $450k buys you, literally, a 4000 sq ft mansion with 6-8 bedrooms. I can't imagine a scenario in which anyone would ever be able to justify that kind of a house, kids or no kids.

alxchang

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Re: Complicated financial scenario - could use help!
« Reply #9 on: June 04, 2013, 11:10:13 AM »
This is a good point...coming from the DC area, so housing prices are completely a relief. I think you guys are all right - there's no reason to spend anywhere near that amount in that region.

Thanks

TrulyStashin

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Re: Complicated financial scenario - could use help!
« Reply #10 on: June 04, 2013, 11:32:27 AM »

Unless your wife is not able to work at all, I think she should.  Work gives us purpose; she has skills.  She did the loans and she should be hard at work fixing them.  Really hard.  If she can't work, your household should run like a top within a very tight budget.  Otherwise, I think you are sending a message that you will make it all better.  Where does that stop?


Standing and clapping in response to this comment.  If you simply swoop in and fix all of it, you've (unconsciously) turned your wife into a little girl and you into the savior-man.  Not a good template for a life partnership.   Put her in the driver's seat of fixing her own debt.  How will she pay it off?  On what time table?  Long term, this empowers her, which is what you want.

Good luck.
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brand new stash

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Re: Complicated financial scenario - could use help!
« Reply #11 on: June 04, 2013, 12:11:58 PM »
1) Don't file for bankruptcy.   To me, it's irresponsible not to pay your debts if you can.  When you married her, her debts became yours and vice versa...not legally, but morally, and you can pay this debt.
2) If you rent for three years, and succeed in saving/paying debt at $8K a month, at the end of those three years, you will have $0 debt and $104K in savings.    At the end of those three years, you will have a much better sense of the area, where you want to live, the neighborhoods you like, commute length, etc.    Then buy a great house, but keep up with the savings, but put it towards the mortgage payment and you could have the whole house paid off within another 2 or 3 years.  So within 5-6 years you could be completely and totally debt free with a completely paid off house.     

Freestyler

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Re: Complicated financial scenario - could use help!
« Reply #12 on: June 04, 2013, 02:53:03 PM »
That was my first thought: he is falling in the "doctor have big houses" trap.

My father is a pediatrician and he went the way "doctor has the house closest to the hospital" and has lived happily ever since. He would even come home to have lunch with us (admitedly sometimes he would just be home 30 minutes, it still meant a world to us). Another benefit was that being on call duty was never a huge issue as he could be at the maternity ward in 10 minutes by walking.

Anyway, my siblings and I had a fantastic childhood with a father that managed to be present in our lives while still being a really busy professional.

This is so pertinent for my own situation and how I want to tackle it. I was thinking on trying to doi the exact same thing that your father did. Reading this from his child just dissipated any doubt that the crowds around me have been trying to instill in my plan. Thanks so much. You made my day.

StarryC

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Re: Complicated financial scenario - could use help!
« Reply #13 on: June 04, 2013, 03:09:33 PM »
I bet an esthetician could do well even part time in a somewhat rural area.  She could find an existing salon to hook up with and be an independent contractor/ tenant of that business.  She wouldn't have much overhead that way and could just take appointments one or two nights a week and Saturday morning.  She might even be able to do it out of your house.  I think rural people like facials just as much as city people if they are available and reasonably priced.  Does she do hair/nails or makeup application too?  Even doing 15 facials a month would probably net her about $1000.   If she does hair or makeup, she should get to know the local wedding/ senior photos photographers and offer free bridal/prom makeup with a 3 facial pre-wedding package advertised through the photogs.  It would also be a great way for her to meet people and make new friends in the new town.  I guess it depends on how "rural" but if the town has a hospital, I'm assuming you have a population of at least 10,000. 

She doesn't have $30,000 in school debt from beauty school, right?  What is her degree in, and is it something she could make more money at?


Joet

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Re: Complicated financial scenario - could use help!
« Reply #14 on: June 04, 2013, 03:09:52 PM »
a 400k house is really not 'too much house' on a 200k+ salary. But likely the entire MMM community will disagree on that point. Another somewhat reasonable choice is a 'median' house in a 'median' neighborhood, somewhat close to work [<10 miles] in a neighborhood with good schools or whatever other amenities you are likely to need. You dont have to buy the 'doctor' house in the gated community. But really you could. Nobody in this country has the same level of job security that you do. No one.

did your new wife surprise you with all this debt or you knew about it all along? this is ringing a mild alarm bell in my head. Not that the debt is a problem of course--you could pay that off in a couple of months I'm sure. For better or for worse, though.

Ethically I suspect you may have a problem with your state/licensing board if your wife declares bankruptcy. But I am no attorney and certainly not on the AMA or whatever body it is that supervises ethical issues.

ChiStache

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Re: Complicated financial scenario - could use help!
« Reply #15 on: June 04, 2013, 03:31:00 PM »
Hi A, welcome to the community!

I'm about 5 years down the road from you.  Graduated from professional school (law school, in my case) with a bunch of debt, got a high paying job right out of school, and then started dreaming about buying a house.

Here's my 2-bit advice, for what it's worth:

You need to really meditate on the fact that your net worth is NEGATIVE $175,000. That is a big negative number.  I say that not to make you feel bad, but because it will help you and your wife brace yourself from the influence of your soon-to-be spendy doctor coworkers. You're about to enter an environment where a lot of forces are going to pull you towards lifestyle inflation.  Remembering your debt, every day, will help you RESIST and PROSPER!

I recommend setting up a Mint.com account with ALL your accounts and start tracking your progress towards debt repayment and saving.  Live in small apartment, drive as little as you can, pack lunches, and attack the sh*t out of your debts. When you get to ZERO net worth, have a little pizza party, and then you can start thinking about a house.   

Best of luck, you're going to do great!

alxchang

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Re: Complicated financial scenario - could use help!
« Reply #16 on: June 04, 2013, 06:17:27 PM »
Hi guys, again appreciate all the comments. She had a degree in philosophy and had thought about law school, but decided against it. You are right about the potential in rural PA to make a living as an esthetician - I think that will be a good route - trying to do some wedding work and such or selling skin products at the very least. We actually have no interest in the McMansion gated community idea...our thoughts are more grand than that but probably need to be tempered. I'm seeing some nice 10 acre lots with old but decent houses going for 300k...I think after paying down our debt substantially after a couple years, that will be the target. We only own one honda civic and have no interest in more cars. Also, vegetarian and cook food at home. Probably the downfall has been living in a big city and doing the restaurant/bar thing which is no longer appealing anyways. As for her debt, I did know about. She has a medical issue where she would pass out frequently, and then of course, she would wake up and try to get the ambulance not to take her to the hospital. Obviously, this results in 10s of thousands of dollars of hospital bills, and I think she just kind of gave up on trying to address that part and tried to just tackle the college debt (unsuccessfully). So, you guys have inspired me to be a better person - and I've already contacted most of these places and start paying down these debts. Actually, a huge relief to me to stop ignoring these issues.

Thank you all!

Aussie

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Re: Complicated financial scenario - could use help!
« Reply #17 on: June 04, 2013, 07:36:51 PM »
Also, she may be able to negotiate her medical bills through negotiation.  If she had no insurance, she is probably being charged 3-4x the price insurance companies pay.  She can cry broke (she doesn't have to say you are a doctor) and ask for a reduction in her bills.

FlorenceMcGillicutty

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Re: Complicated financial scenario - could use help!
« Reply #18 on: June 04, 2013, 07:52:04 PM »
This is so pertinent for my own situation and how I want to tackle it. I was thinking on trying to doi the exact same thing that your father did. Reading this from his child just dissipated any doubt that the crowds around me have been trying to instill in my plan. Thanks so much. You made my day.

Freestyler, congratulations :). I read your post about France, and I'm happy to read this today.

Btw, your English is amazing.

FlorenceMcGillicutty

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Re: Complicated financial scenario - could use help!
« Reply #19 on: June 04, 2013, 07:58:26 PM »
Also, she may be able to negotiate her medical bills through negotiation.  If she had no insurance, she is probably being charged 3-4x the price insurance companies pay.  She can cry broke (she doesn't have to say you are a doctor) and ask for a reduction in her bills.

+1

I don't think she needs to cry broke, though. I assume that her debt has already gone to creditors, right? If so, her credit is shot and settling won't make a difference in her score. The creditors are like hyenas and will just take the scraps they can get. Have her call and see if she can broker a deal with them. They can arrange a payment plan or she can offer to pay a lump sum that is FAR less than the actual balance. It's completely doable for her to pay it off.

As far as what other posters have said, I'm not crazy about you patronizing her and insisting that 1) she pay it off all by herself, or 2) that you pay it all off for her. Both seem to diminish her capabilities as a strong woman and human being. I'm not sure what the right answer is, but I trust that the two of you will discuss it and find the balance. Just know that an issue worth handling carefully.

lhamo

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Re: Complicated financial scenario - could use help!
« Reply #20 on: June 05, 2013, 06:58:23 AM »
Are her medical issues now under control and stabilized?  Sounds like classic hypoglycemia/blood sugar issues -- I have that issue myself (passed out for the first time at age 7, and many times after that until I learned to carry a protein source with me at all times).  But maybe it is something else. 

Anyway, for me the fact that her medical issues have limited her ability to work and caused her to end up in serious debt are both huge red flags, especially with your plan to buy a big house on a large property in a rural area and have kids.  I hope you both have that figured out and dealt with already.  If not, that should be priority number one.  And like others have suggested, SHE needs to be centrally involved in resolving any problem, healthwise or otherwise.  If she isn't involved and committed, any fix is going to be temporary.

I love the "house nearest the hospital" suggestion above.  Think seriously about those kinds of suggestions.  Has your wife ever lived in a very rural area?  Why do you need 10 acres?  Even if you plan to grow your own vegetables and raise a few chickens/goats for eggs and milk, you don't need more than a couple of acres to do that at most -- probably even less (people in seattle are raising chickens and I think goats on city lots).  Given your current DC lifestyle I would be cautious about such a radical change, especially if you are indeed planning to have kids soon.  Rent a nice place in town, within walking distance to your job.  Get settled first and pay off your debts, and learn more about the community and start to build relationships.  If she is going to have kids and be a SAHM, having other moms and kids around is going to be important to her.  Better to plan for that from the early stages so you don't have  a sleep deprived, fainting prone, restaurant loving DW driving herself and your beloved child(ren) around on remote country roads all the time seeking out social support (and spending unnecessary money/time/gas/energy to do so). 

SunshineGirl

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Re: Complicated financial scenario - could use help!
« Reply #21 on: June 05, 2013, 10:00:46 AM »
Hi,

I'll just advise that you decide very deliberately what kind of life you want - what are your values? What kind of life do you want for your kids? Are you city people vs. country people?

Once you get your debt paid off, you will have so many options. I absolutely love the "live close to the hospital" idea. Also, your salary WILL allow you to create the life you want while you're working. A nice house in the city and a cottage close by for the rural getaways. Just take care of your debt and grow your marriage for the next couple years, and you'll have all the options you could want.

Freestyler

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Re: Complicated financial scenario - could use help!
« Reply #22 on: June 05, 2013, 03:51:28 PM »
This is so pertinent for my own situation and how I want to tackle it. I was thinking on trying to doi the exact same thing that your father did. Reading this from his child just dissipated any doubt that the crowds around me have been trying to instill in my plan. Thanks so much. You made my day.

Freestyler, congratulations :). I read your post about France, and I'm happy to read this today.

Btw, your English is amazing.

Just wanted to thank you for your support and kind words (I donīt want to hijack the post ;-).

I tried my best with my English though I know itīs far from perfect and probably a bit too baroque sometimes. Itīs the same with any language I try.

Regarding the OP as a general rule of thumb I would say I would try not to get excessively engaged, from an economical perspective, to any specific dreamed situation. It may be that you realize at some point you no longer care about what you thought you did or that you had any misconception due to age, external influences or others. You donīt want to be trapped and leveraged with that house/situation that does not make you happy any more. This approach has it drawbacks but has mainly worked in my favor thus far.

I truly wish you the best in any case.

Villanelle

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Re: Complicated financial scenario - could use help!
« Reply #23 on: June 05, 2013, 04:12:16 PM »
You can't afford to have kids right not, or any time soon.  It would be a stupid move.  Plan to rent for at least 3 years (a very modest place) and tackle the heck out of that debt.  That should include your wife working.  She should be able to do at least part time, private esthetician work, along with things like babysitting. 

At that point, if you have gotten rid of all the bad debt (al debt is bad, but you know what I mean), have at least 20% down plus a healthy savings account, then you can start expanding your family.  If you have specific parameters you must meet before you can think pregnancy, it should help motivate you and keep you doing what is necessary.

StashtasticMomo

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Re: Complicated financial scenario - could use help!
« Reply #24 on: June 05, 2013, 04:48:55 PM »

Unless your wife is not able to work at all, I think she should.  Work gives us purpose; she has skills.  She did the loans and she should be hard at work fixing them.  Really hard.  If she can't work, your household should run like a top within a very tight budget.  Otherwise, I think you are sending a message that you will make it all better.  Where does that stop?


Standing and clapping in response to this comment.  If you simply swoop in and fix all of it, you've (unconsciously) turned your wife into a little girl and you into the savior-man.  Not a good template for a life partnership.   Put her in the driver's seat of fixing her own debt.  How will she pay it off?  On what time table?  Long term, this empowers her, which is what you want.

Good luck.

Adding another vote for helping your wife take greater ownership and consider creative solutions to eliminating her debts. Finding that delicate balance between wanting to solve things for her, and helping empower her so she can "want" to pay off her debts by working, will require a lot of communication and honesty. Also, you don't indicate how she feels about her debt and you offering to help pay it off for her. Does she expect you to take care of everything financially? That is a huge difference (and potential concern) than her becoming a temporary stay-at-home mom in the future.

Does she read MMM's articles with you? If not encourage her to start with the financial and Mustachian basics so she feels this is something you are doing together.

I agree with others how your wife's health needs to be a top concern. I feel it deserves more of your attention than even your existing debts, desire to buy a home, and desire to start a family. Certainly exhaust all options to find a way to cure her of her condition if at all possible before embarking on the path of parenthood. A healthy mommy will only help make for a healthier baby.  Also I agree please not to buy a large house, rent, pay off debts, save like mad, and then re-examine whether or not you two really need to live in a rural area with so much space. Good luck and keep us posted. Cheers!
« Last Edit: June 05, 2013, 04:51:57 PM by StashtasticMomo »