Case Study: Regrouping after having a kid

[Spondulix]

About us: I’m 38, DH is 41 and little dude is 2. We live in the suburbs of Los Angeles. DH works freelance from home and is Mr. Mom when he doesn’t have gigs and when I work. I’m the high earner in a full-time job (working swing shift) and daytime I'm Mom.

Financial background: I found MMM in 2014 when I doubled my salary. This group helped me work out a plan https://forum.mrmoneymustache.com/ask-a-mustachian/pay-off-student-loan-interest-free-loan-or-invest/. I maxed out my 401k and both Roths yearly, saved $20k in a brokerage (with the idea of using the interest to pay off student loans), and we saved $100k for a small home addition and remodel after a bad leak. In 2016 things went off-path - my job was cut to part time while I was on maternity leave, DH lost his biggest client, and we had a baby. We managed well for over a year on my part-time income other than an emergency home repair ($13k). We borrowed from family (no interest) instead of wiping our emergency fund. I went back to work full-time a few months ago and finally have a chance to dig into our finances again.

Goal: We both still love our work and LA is the place we need to be to do it (for the time being). If I got cut to part-time again (or lost my job or got injured) we want to be in a position where DH isn’t forced into a full-time job just to pay the bills. FIRE comes later when we’re ready to leave LA. :)

I'm a total penny pincher and I know a lot of these expenses will go down just because I can better monitor our spending (which I haven't been able to do the past couple years). Like, I know diapers are in here somewhere but I couldn't tell you where and that drives me crazy. Where I really need help is the extra money and how to allocate it. I'm seeing all these numbers together for the first time and that's where I'm stuck what to do next.

Gross wages: $11,250 monthly ($135k) + $1,000/month side hustle
DH: Varies $25-50k. 2018 will be around $30k

Deductions (monthly):
401k - $1,100 (+ employer matches 3% of salary)
Daycare FSA: $500
Taxes: $2,670
Union dues: $150

Total income
Take home pay: $6,830 (around $1700/week)
DH income and my side hustle: ~$1000-4000 depending on the month.

Current expenses paid by my paycheck (monthly)
** = more info below

Mortgage $1445
Property tax $500
Home insurance (+ earthquake) $173
Car insurance $185
Car maintenance, gas, etc $167
Utilities (gas, electric, water trash) $269
Student loan $125
Groceries $625 (this seems high to me - I’m going to go through receipts closer)
Pets $100 (4 cats who are getting older)
Dining out and booze for home (we do have a toddler…) $200
Family Loan $500
Personal care, medical, prescriptions $140
Home maintenance and home stuff $150
Clothes, shoes $60 (gonna look into this - it seems unnecessarily high)
Gifts, charitable contributions $25
Misc Shopping $85
Travel/activities $250 (visiting family out of state and 1 interesting vacation)
Preschool $500 (taken out of check pre-tax)
**Babysitters $720
**House cleaners $185
(I'm not counting kids toys, clothes etc cause I buy AND sell in consignment sales)

Total (not including preschool): $5,654
Note: doesn’t include contributions to Roth, 529, additional emergency fund or saving for future necessary house projects. This is what I need help figuring out

Paid for by DH’s business income and my side hustle
Business-related expenses: $1,475/month. I don’t want to get too deep into this but it does include expenses like internet and cell phones. I’m using last year’s actual costs but I think we can get it down 15-25% just because we have time for oversight again.

Self employment taxes (for accounting purposes): $100? (When he earned $40k, taxes owed after expenses were $2,500 with a deduction of $1,250)

Assets
Own 2 cars (fully paid)
My retirement: $136k (401k, Roth and SEP IRA)
DH retirement: $72k (Roth and SEP IRA)
Brokerage account: $28k
529 College Fund: $3k
Emergency Fund $10k
House worth $750k (house purchased 2008 at market low)

Liabilities:
Mortgage $256k, 3.875%
Student Loans $7,800, 1.75%
Family loan $6k, 0%

Notes
Babysitters: I hate spending this much but I’m not sure how to get around this. The going rate for a good sitter in our area (one that won’t flake or let our kid play with darts) is $20/hr. We can’t do daycare because of the hours we often need help. We don't know a lot of other parents yet (and won't know anyone well enough to leave our kid with them for a while!). A lot of these hours are covering so DH can work or I'm not stuck with 5 hours of sleep on a work day.

Cleaners: Before I get a facepunch… we’re both business owners (with clients sometimes at our house) who work opposite hours and cover childcare. I will absolutely be having my son help clean when he’s old enough to safely be around cleaning products but this is a temporary expense we’re ok with for our own sanity (and business use of home)

Questions
I'm just seeing all this together for the first time. I’d like to build up emergency fund (maybe $5k additional), contribute to DH’s Roth, and save $5k for a house project. What's a good plan of attack?

We have the option of paying less monthly for the family loan (but I would like to get it off the books).

It’s tricky to figure out how much to save (and what to save for) when our monthly income is variable. Any suggestions?

Anything obvious I'm missing?

[newloginuser]

Just a few things I notice:

You have $825 a month going to food/alcohol, $145 going to food/shoes/Misc. shopping, and babysitting at $720. You should be able to cut back on your going out to eat/misc. shopping budgets every month, unless this is really one large purchase (thinking a suit for example) that gets spread across multiple months. Going out less should mean your babysitting cost goes down as well, it's like a double savings.

Sounds like your emergency that can come up is a lost job/cut in hours. If that is the case, some of those expenses should go down naturally I would think (again babysitting, clothing, eating out, house cleaner, etc.). Depending on your level of comfort, most people recommend at least a 3 month emergency fund, and you currently are at about 2, not factoring in any cost cutting. You may want to up your emergency fund enough to your satisfaction first. My personal choice would be to pay off the family loan as fast as possible.

All families are different, but if I heard of a family member I gave $6K to was taking a vacation, I'd wonder why I wasn't getting paid first, because maybe I'd want to go on that vacation :) . Not owing family money usually leads to less awkward interaction, but that is again different for each family.

[Spondulix]

The shopping budgets (like clothes) are usually big purchases - like $100 for a good pair of shoes that will last years or a nice pair of pants that get tailored and wear for 10 years. Or an Instant Pot... stuff like that. I’ve gone through 3 clothes sizes (pretty normal post baby) but now that’s normalized that might drop spending too (I was buying consignment during that phase)

Like I said in the post I’m not sure we can reduce babysitting. These aren’t hours we’re hiring a babysitter to go out for dinner. It’s babysitting so my husband can take business meetings while I work or work while I sleep (and we’re talking 8 hrs max). We’re both working + doing 5 hours of childcare every day. So the babysitter expenses are for the sake of working, generally - but when business margins we so slim right now it’s a tough pill to swallow.

[Spondulix]

All families are different, but if I heard of a family member I gave $6K to was taking a vacation, I'd wonder why I wasn't getting paid first, because maybe I'd want to go on that vacation :) . Not owing family money usually leads to less awkward interaction, but that is again different for each family.

Yes, all families are different. I would NEVER consider asking family for a penny but DH’s family is very different. This person gave us the money for the repair ($10k) and said pay it back whenever. He actually told us to pay $2k into our son’s college fund as part of the payback. He didn’t want us to stop our lives to get the money back, either so he’s totally aware we’re saving for vacation (to visit family overseas). We’re very lucky.

[MrThatsDifferent]

I’m not sure I understand the issue? It seems you have $1200 left over from doing no changes, just with what you’ve got budgeted and that’s not counting DH income or side-hustle. Your goal is $10k and the building up DH retirement. It shouldn’t take more that 4-8 months to save $10k, once you do that, put the extra money into DH’s retirement. As for cutting expenses, you’ve got a lot on, but mostly it seems between food and going out, you’re spending a bit, but it’s not fatal.

Can you get a sense of how much extra you actually have each month?

[Spondulix]

I

I’m not sure I understand the issue? It seems you have $1200 left over from doing no changes, just with what you’ve got budgeted and that’s not counting DH income or side-hustle. Your goal is $10k and the building up DH retirement. It shouldn’t take more that 4-8 months to save $10k, once you do that, put the extra money into DH’s retirement. As for cutting expenses, you’ve got a lot on, but mostly it seems between food and going out, you’re spending a bit, but it’s not fatal.

Can you get a sense of how much extra you actually have each month?

Ahhh I hadn’t done the math to see how much I’d have over a year with just my leftover income. Duh! This totally makes sense. We keep our business income separate so maybe the way to handle it is I fill the emergency fund and Roth and the housing costs will come out DH’s income. That will incentivize him, anyhow, cause he won’t be able to do the work til he has money for it. Or, if he wants to pay his relative back sooner he could do that instead (or in addition, if there’s a good month)

[brooklynmoney]

Why does your husband make so little $? Is he mostly SAHD? If so maybe better to just have him cut his hours and not hire babysitters.

[Spondulix]

Why does your husband make so little $? Is he mostly SAHD? If so maybe better to just have him cut his hours and not hire babysitters.

Good point... He lost a big stable client a couple years ago and hasn't landed anything comparable since. Lots of clients are in and out in a few weeks vs ongoing throughout the year. There's ongoing expenses to the business whether he works or not so if he were to quit to be SAHD then come back to it, he'd have to pay for everything he didn't buy during his time off and probably all at once.

He's going to try to cover as much childcare as he can the weeks he's not working. In the past we've tried to keep some consistency with our two sitters (even if it's just once a week) just to help our son and to keep them incentivized working for us (instead of taking a gig with more hours with another family)