New to this. Plan of action advice?

[csimpson]

Hello MMM community!
I am brand new to this, but can't stop reading it. Like day and night. Kinda addicted. I feel like I have been on "MMM light" just on my own, but I'm stuck for the next steps. Forgive the length of this, but I'm trying to be thorough...

I am a 37 year old woman with a 4 year old. Here are the rest of my stats.

INCOME
Variable. (Freelancer) Roughly $4,000/month.
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DEBT
Mortgage: $104,500   4.0% Rate, Payment: $750/month
Action: $400 every two weeks, which effectively makes an extra payment every year.

HELOC: $8,600   4.75% Variable, Payment: $35/month
Action: $200/month
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INVESTMENTS
Sharebuilder: $9,300
529 for son: $2,000
Stock account for son: $6,500
IRA/Roth IRA/SEP IRA: $21,000
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SAVINGS
Emergency Savings: 0.8% interest, $6,000
Cash: $4,700
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Car: 2002 Volvo S60 paid for.
Commute: 40 minutes, but I end up staying with my parents during the week because the commute is cut less than half and they provide childcare. I'm talking to my employer to be able to work from home one or more days, but he wants me on site, so there I am. It's a great place to work and I love it.

THE QUESTIONS THAT KEEP ME UP NIGHTS:
1. Do I get rid of the HELOC or invest first or a hybrid of the two?
2. I would love to retire early, but since I have a 4 year old, I prefer to spend time with him when I can. I could work 40 hours a week, but I choose to work 25-30 to be able to see him while he still wants to see me.
3. I am freelance and just came off a year where I had to use almost all of my emergency savings to keep things going. I've always had a bit bigger emergency fund b/c of the volatility of my job (freelance). Should I reduce my cash/emergency fund and pay of the HELOC and use that for part of my emergency fund? How much cash would you keep?

Basically I'm trying to strike a smart balance. I am sure there's room to cut expenses, but I'm decent at that. It's what do I do with the money when I have it and allocations I think I'm having trouble with. Opening myself up to any suggestions or judgements (which is a little scary).

Thanks!

[csimpson]

One more question...I save 30% of my checks for taxes, but generally don't pay quarterlies until the end of the year (January 15). Is there a good short term place to put this money that would earn more interest than the 0.8% for the savings account or should I just pay the quarterlies?

Thanks!!!

[twinge]

Why are you paying more extra to your mortgage at 4% than your HELOC at 4.75%?  If you're aiming to get rid of debt I would just direct all of it to the HELOC. 

[Another Reader]

As much as you want to give your son a good start in life, investing for him right now is the wrong thing to do.  Your income is sporadic and unpredictable.  Savings in his name reduce the amount of financial aid he can get for college.  My concern would be for my family today.

In your shoes, I would beef up the savings for living expenses when the work dries up.  How much was in savings when the work dried up last year?  I would aim for at least that much.  At your age, you need to focus on your retirement, so I would try to contribute the maximum there as well.  After that, I would hit the HELOC.  The interest is variable and the interest rates are going up.  I would not pay extra on the underlying mortgage until the HELOC was paid off.

Any chance you could move closer to your parents if they are taking care of your son?  Is there more work for you in that area than where you live now?  That seems like it has the potential to reduce your expenses.

[Rebecca Stapler]

THE QUESTIONS THAT KEEP ME UP NIGHTS:
1. Do I get rid of the HELOC or invest first or a hybrid of the two?
2. I would love to retire early, but since I have a 4 year old, I prefer to spend time with him when I can. I could work 40 hours a week, but I choose to work 25-30 to be able to see him while he still wants to see me.
3. I am freelance and just came off a year where I had to use almost all of my emergency savings to keep things going. I've always had a bit bigger emergency fund b/c of the volatility of my job (freelance). Should I reduce my cash/emergency fund and pay of the HELOC and use that for part of my emergency fund? How much cash would you keep?

You didn't post your budget, so I don't know what your expenses are. How much are you saving per month? This does have an impact on what you do about your debts and savings.

1. Instead of paying the mortgage every 2 weeks, I would pay the HELOC every 2 weeks. Your HELOC has a higher interest rate
2. Not sure this is a question? Are you asking if you should work more? If you want to work less and beef up your savings, the only other way to do this is to cut spending.
3. With a freelance job and 1 income, I would want a 6-month emergency fund. My E Fund is based on my budget if I weren't working, so it's not 6 months of my current expenses. I like the idea of paying off your HELOC and using it as "springy debt" -- you can use it if a true emergency arises. But would it cover 6 months' expenses if you needed it to? If not, and you think your job is so stable now that you won't be dipping into your EFund for a while, you might want to consider putting $5500 into your Roth IRA as your 2013 contribution. That way, you max out your 2013 contribution and know that you can take the principal out in a true emergency. That said, I would want to keep at least 1 months' expenses in cash.
4. re: Taxes -- is there a penalty for not paying quarterly? I heard this somewhere, but I'm not sure where. We don't earn enough 1099 cash to require it, but I like to keep it in our accounts anyway for peace of mind. I'll never touch it ... unless I really had to, which might happen if one of us lost our jobs and our lower income meant we didn't need to pay all the tax $$ we saved. 

You didn't ask about this, but I agree with Another Reader. At our age, it's important to prioritize our retirement above our children's college savings. If worst comes to worse, your child can borrow to fund his education; but you can't borrow for retirement.

[csimpson]

Thanks for the responses! Great thoughts here.

I'm actually not saving in my child's name anymore. I was, but I have redirected that toward retirement. The larger amount is money his grandparents are contributing, and I'm not sure how to tell them it might hurt his chances of getting financial aid, or where they could put money back for him to give him later.

I always thought about paying every two weeks on the mortgage as paying down principal slightly faster while paying the same amount, but you're all correct, it does add up to an additional $800 per year, plus the extra $50 each month I could put toward the HELOC.

Anyone have advice on where to keep the E Fund that beats inflation? I wasn't aware you could draw on retirement funds before retirement age. I like the HELOC as springy cushion, but wondered if it's a good idea to maybe have 2 months expenses cash or close, and the remainder as HELOC. There's plenty of room on it now, like $32K, but who knows when they might decide I don't need that much anymore.

Moving in with my parents isn't really an option, as they don't have the room, and possibly that I just don't want to, but I do stay with them a lot to reduce commute costs. I have a small house, so there's not really any room to rent out. I wish!

I would ultimately love to retire early, but I can't reconcile working the appropriate amount of time to get there when my son is small.

I welcome any and all advice here. As for my budget, I will post it later, but I've got it down currently to about $2,000, and have more cuts planned.