Author Topic: How to Include Alimony in Emergency Fund?  (Read 397 times)

Banana41

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How to Include Alimony in Emergency Fund?
« on: September 01, 2017, 02:03:12 PM »
Hi all!  We have a strange emergency fund situation, and I'm trying to figure out how much cash to keep.  I would also gladly accept general suggestions (and am anticipating a few face punches, but hey - nobody's perfect).

Life Situation:
Married, 1 claimed dependent (soon to be 18),

Gross Salary/Wages:
74,000 me (after a recent mega-raise)
125,000 husband (married less than a year ago)

Pre-tax deductions:
My 401k - $18,000/yr
My 457 - $18,000/yr
HB 401k - $6250/yr (with additional 4% match)
Pension (mandatory) – 8% of my pay, or $5920/yr
HB alimony / child support – $4038/month, $43656/yr for 7 more years (will go down by $400/month after one year, but yeah… he didn’t use a lawyer and got screwed)
Bi-weekly take home after all deductions (all insurances, taxes – already as low as they can be with me being comfortable) - $905 me, $1754 HB

Taxes:
We’re in the 25% bracket.  Hoping to get in the 15% bracket for married filing jointly eventually, but we’ll see.  Taxes are already subtracted above.

Monthly Expenses:
Mortgage - $1150 ($950 mortgage, $70 PMI, $130 T&I), this is the same as we would pay renting a 2bdr apartment
Car Insurance - $100
Gas - $140 (we both carpool and normally come in under budget)
Internet - $41
Trash (and recycle) - $24
Utilities - $250 budgeted, summer months are ~130, it gets cold during winter
Entertainment - $40
Life Insurance - $160 ($40 is mandatory from HB’s old divorce)
Booze - $40
Groceries - $360 (2 working adults and 1 teenager)
Restaurants - $80
Home maintenance - $200
Medical - $60
Birthdays, misc. gifts - $30
Kid braces, misc. expenses - $170 (totally a losing battle to decrease)
Shopping - $60
Car loan - $250
Student loan 1 (kid that’s no longer claimed as dependent) - $117
Student loan 2 (currently deferred) - $150
(We are just finishing a (diy) kitchen remodel so might have residual expenses from that)

Assets:
My Pension (cash value) - $5100
My 401k - $41,760
My Roth IRA - $500 (quit funding this when I realized I should be doing traditional, but I'm waiting for it to be 5 years old so I can dump the joint emergency fund into it)
My 457 - $15,170
HB 401k - $25,360
House - Zillow says $267,000 but I use $220,000 in NW calculations
Car – 2014 CR-V (you can punch my face but I like it and fully intend to drive it to the ground), $16,000
Car – 2004 Mercury Sable, $2000
Joint emergency fund - $16,000 (6 months of expenses - I want to raise this to $18,000 soon. HB's job situation isn't very stable at the moment, my job is very stable)
HB emergency fund for alimony and child support - $13,000 (this is 6 months of alimony and child support minus the unemployment he would get if fired)
Checking (on a regular basis) - $1000-ish
We also have a fairly large amount (~$40,000 tax free) coming next year, when HB's share of his old house is finally freed up (kid will be in college).

Debts:
Mortgage – (4.25%, 28 yrs left) $167,700, still paying PMI until $156,000
Car – (2.99%, 5 yrs) $14,000
Student loan 1 – (5% but deductible, 8 yrs left) - $8152
Student loan 2 – (6.4% but deductible, 10 yrs left) - $10,119
« Last Edit: September 01, 2017, 02:21:00 PM by Banana41 »

MDM

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Re: How to Include Alimony in Emergency Fund?
« Reply #1 on: September 01, 2017, 07:15:11 PM »
...I'm trying to figure out how much cash to keep.  I would also gladly accept general suggestions....

Life Situation:
Bi-weekly take home after all deductions (all insurances, taxes – already as low as they can be with me being comfortable) - $905 me, $1754 HB

Taxes:
We’re in the 25% bracket.  Hoping to get in the 15% bracket for married filing jointly eventually, but we’ll see.  Taxes are already subtracted above.

Assets:
Joint emergency fund - $16,000 (6 months of expenses - I want to raise this to $18,000 soon. HB's job situation isn't very stable at the moment, my job is very stable)
HB emergency fund for alimony and child support - $13,000 (this is 6 months of alimony and child support minus the unemployment he would get if fired)
Checking (on a regular basis) - $1000-ish
We also have a fairly large amount (~$40,000 tax free) coming next year, when HB's share of his old house is finally freed up (kid will be in college).

Debts:
Mortgage – (4.25%, 28 yrs left) $167,700, still paying PMI until $156,000
Car – (2.99%, 5 yrs) $14,000
Student loan 1 – (5% but deductible, 8 yrs left) - $8152
Student loan 2 – (6.4% but deductible, 10 yrs left) - $10,119
Using the numbers above, it appears your take home pay after taxes, alimony, insurance, and current retirement fund contributions is ($905 + $1754) * 26 = $69,134.  That seems consistent with the "Income before other expenses" in the table below (no insurance included there).

Then subtracting other listed expenses leaves ~$29.3K/yr extra cash flow.  That could be used to
- increase the e-fund by the $2K you want, and
- increase 401k contributions, at least to the point of dropping into the 15% bracket (~$6600; saving ~$1900 tax), and
- Pay down the mortgage enough to get rid of PMI ($11,700; saving $840), and
- fully fund two Roth IRAs ($11K)

That would leave $29.3K - $2K - $6.6K + $1.9K - $11.7K +$0.8K - $11K = $700

You could blow the $700 on anything you wish. ;)

Of course, there may be mistakes in these calculations.  What do you think?


CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$6,167$74,000
Salary/Wages for earner #2$10,417$125,000
401(k) / 403(b) / TSP / etc.$2,021Room to increase?$24,250
457 plans   $1,500Room to increase?$18,000
Subtotal 1$13,063$156,750
Pension contribution$493$5,920
Subtotal 2$12,569$150,830
Alimony-$4,038-$48,456
Federal Total Income (for IRS tax)$9,025$108,294
Federal tax$1,0012017 rates, MFJ, item. ded., 3 exempt.$12,010
State/City tax$396Guess, using 5.00% * (AGI - Exempt'n)$4,757
Soc. Sec. tax$1,028Assumes 2 earners paying$12,338
Medicare tax$240$2,886
Total income taxes$2,666$31,990
Income before other expenses  $5,865$70,384
Monthly Average Expenses:
Mortgage$950Input to Itemized Deductions$11,400
Property Tax$100Input to Itemized Deductions$1,200
Mortgage Insurance$70$840
Home/Rent Insurance$30$360
Car Insurance$100$1,200
Child activities $170$2,040
Dining (Lunch/Dinner/Etc.)$80$960
Gifts (not charitable contributions)$30$360
Electricity$250$3,000
Entertainment$40$480
Fuel/Public Transport$140$1,680
Groceries$360$4,320
Household; Maintenance$200$2,400
Internet$41$492
Life Insurance$160$1,920
Medical (Doctor, Hospital, etc.)$60Input to Itemized Deductions$720
Miscellaneous$60$720
Recycling/Trash$24$288
Wine/Beer/Tobacco$40$480
Non-mortgage total$1,955$23,460
Loans:
Student Loan$115$1,383
Student Loan$150$1,797
Car $251$3,018
Total Expense$3,421$41,058
Total to invest$2,444$29,326
Summary:
"Gross" income$12,545$150,544
Income taxes$2,666$31,990
After-tax income$9,879$118,554
IRA+401k/403b/TSP/457$3,521$42,250
Living expenses$3,398$40,780
Non-mortgage loans$516$6,198
After-tax investable$2,444$29,326

Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions3
# Children for EIC1
Adult #1Adult #2
Age2827
# of earners2
Total Income$108,294
Std. Deduct.$12,700
Act. Deduct.$13,013
Exemption$12,150
SL int. (approx.)$1,002
AGI$107,292
MAGI$108,294
Taxable$82,128
1040 Tax$12,010
Tax after n-r credit$12,010
Education Credit$0
Net Tax$12,010
Mtg. Int. (approx.)$7,056
State tax$4,7575.00%
Prop tax$1,200
Item. Deduct.$13,013
VersionV9.02

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Mortgage$193,11330$167,700234.250%
Student Loan$8,1527$8,15275.000%
Student Loan$10,1197$10,11976.400%
Car $14,0005$14,00052.990%

Playing with Fire UK

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Re: How to Include Alimony in Emergency Fund?
« Reply #2 on: September 02, 2017, 01:26:59 AM »
What would actually happen to the alimony payments if HB got fired? Is there any scope to decrease them or is it locked in?