Author Topic: Case Study - New Mom and Planning for the Future  (Read 1563 times)

NewMom1519

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Case Study - New Mom and Planning for the Future
« on: March 06, 2017, 11:15:19 AM »
Hi All,

Longtime reader and first time poster.  I'm eager to hear your comments and tips on my situation.  All information is monthly.

Life Situation: I'm a married 30 something living in a big city in the midwest.  We just had an infant daughter and will probably have another in 2 years or so.  We recently bought a house in the city (not cheap by the way!) after living out of state for many years to be closer to family and our jobs.  We have a car but mostly take public transportation. 

Gross Salary/Wages: $11,000/mo
Husband and I both work

Individual amounts of each Pre-tax deductions:
$2,100/mo

401k/IRA: $1,200/mo
HSA and FSA: $200/mo
insurance (employer) and dental: $620 - I have PPO, my husband HSA
Transportation: $230 (we both take public transit - my work is 40 miles away by train; husband sometimes bikes when the weather cooperates. This will be more difficult with taking the baby to daycare)

Other Ordinary Income: $20K/yr
We will have some annual income from a family property each year that amounts to ~20K/year starting next year.  This money goes into a family account that we don't plan to touch. The property is located overseas and we haven't figured out tax implications of taking from this account.

Adjusted Gross Income: $8,900/mo

Taxes: Federal, state/local, and FICA.  $2,300/mo

Current expenses: $5,050/mo
Utilities + Condo Association:$500/mo (includes $120 cell phone, $200 condo association that covers water and maintenance, gas, electric and internet)
Mortgage: [/b] 30 year at 3.625%.  Payments of $1,700/mo.  Home purchased for $340K remaining balance of $255K
Roth IRA Contribution: $500/mo
*CHILDCARE*: $1,500/mo
Food and entertainment: $800/mo
Car Insurance: $50/mo

Assets: $220K
Retirement Accounts Balance: ~$200K most in target 2050 account; considering switching more $ to index fund
Savings Account: $20K; drained after we put down a large down payment on our home

Liabilities: None other than our mortgage (see above)

Specific Question(s): I know we need to decrease our food and transportation expenses but am feeling really locked in with our fixed expenses of mortgage, childcare, utilities taking up so much of our income. I didn't list other expenses we incur like traveling to visit family internationally.  I am looking for a job closer to home to cut down on commute time but transportation cost won't go down much unless I bike (public transit costs more or less the same). I'm stressed out trying to figure out how to pay for college and handle the new $1500/mo childcare cost. It doesn't make sense financially for me to quit work as I contribute half of our income.  Thoughts on changes we can make to better plan for the future?

ltt

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Re: Case Study - New Mom and Planning for the Future
« Reply #1 on: March 06, 2017, 01:04:21 PM »
If I'm right, you still have over $1,000 per month leftover.  Can you bump up your 401k or start a college fund, possibly 529, for your daughter?

Are you using your FSA (dependent care account) for child care?  Health care?

Laura33

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Re: Case Study - New Mom and Planning for the Future
« Reply #2 on: March 06, 2017, 01:50:41 PM »
Why the Roth?  If you put the same money toward either your 401(k) or a traditional IRA, you will get the tax deduction for it and so spend "less" out of pocket for that same $500 savings.  No matter what you think about Roth vs. tIRA long-term, right now you feel tight on the budget and are adjusting to a major new expense, so I'd think that a little extra breathing room would go over well for the time being.
Laugh while you can, monkey-boy

NewMom1519

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Re: Case Study - New Mom and Planning for the Future
« Reply #3 on: March 16, 2017, 07:07:40 AM »
Thanks for the responses - we have healthcare + FSA through my work and are unsure if we want to start a 529 account or just have a savings account (there are some limitations in our state on how you can use the 529).

My question is: Does my savings in retirement + savings account seem low? We still have several thousand left at the end of the day but end up spending on lots of random things - especially with a new house (furnishings, repairs, new furnace, etc.)

MrsPB

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Re: Case Study - New Mom and Planning for the Future
« Reply #4 on: March 16, 2017, 09:00:26 AM »
I feel your pain with daycare, we have 2 in daycare right now and are saving for their education too. I remind myself that daycare is not forever, it will go down some, although we will still need to pay for before and after school care and summer daycamp care etc. We also get a decent tax credit here in Canada, I can claim up to 8k per child per year against my taxes. Does something like that exist in the US? It means a nice tax refund, or you can request your employer reduce income tax at source if you want the cash now.

Platypuses

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Re: Case Study - New Mom and Planning for the Future
« Reply #5 on: March 16, 2017, 09:05:30 AM »
Just curious. Is your health insurance optimized? Typically it is cheaper to go full family as opposed to single coverage for your spouse and single+child for yourself if that is what you are doing. $620/mo is not a bad price for healtcare, but it might be worth it to look at going to family on the HSA and contributing $6,750/yr tax free.

You will also want to contribute $5,000 to a DCRA if one of your employers has the option since you are paying $1,500/mo. This is tax free money.

FYI I feel your pain with daycare as well, we have 3 kids in it paying ~40k/year. I constantly have to remind myself it is a temporary and needed expense. For what its worth we haven't started saving directly for college, but we live in a state without state income tax so we will use money from our savings account if we decide to help with college expenses.


NewMom1519

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Re: Case Study - New Mom and Planning for the Future
« Reply #6 on: March 22, 2017, 10:33:18 AM »
Thanks to you both - daycare is a pain and, yes, it's best to remember that it's temporary!

MDM

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Re: Case Study - New Mom and Planning for the Future
« Reply #7 on: March 22, 2017, 05:44:47 PM »
Gross Salary/Wages: $11,000/mo
Husband and I both work

401k/IRA: $1,200/mo
HSA and FSA: $200/mo

Retirement Accounts Balance: ~$200K most in target 2050 account; considering switching more $ to index fund

I'm stressed out trying to figure out how to pay for college and handle the new $1500/mo childcare cost. It doesn't make sense financially for me to quit work as I contribute half of our income.  Thoughts on changes we can make to better plan for the future?
College is a long way off - don't worry about that now.  See Investment Order, including the part about "... fund your own retirement before funding 529 or similar plans."  You are doing great just by putting $2K/mo into retirement, so breathe.... :)

The target 2050 account is a very reasonable choice.  You probably have better things to do now than tweak there.

Just asking: what would your cash flow be if you
- each contributed $18K to 401ks
- each contributed $5500 to IRAs
- contributed the family max of $6750 to HSAs?

If that still gives a positive cash flow, go for it.  If that has you going negative, how negative?