CASE STUDY - 1 Income, 3 kids, ISO FI

[Stubbly in the City]

Case Study - Updates/Corrections in Blue

Hi, hoping to crowdsource some family financial advice on our way to financial independence.

About Us

Husband and wife, both 35 years old.  Three preschool aged kids (and just three, barring a big surprise or big change of heart).  We have finished our educations and are settled down in a not-too-expensive American city.  Family net worth is 325k per Personal Capital.  We both have some good frugal habits and some things that need work.

Job/Income

I (husband) make about 100k/year in a professional job.  Modest annual raises, about 2k/year.  Wife has put her own professional career on hold for right now to take care of aforementioned kids, but is considering getting back into some freelance work.  Prior to taking time off for kids, she earned a very good salary, and in an emergency situation, she could support the family, but it would likely require relocating to a much more expensive city. 

Home

1951 3 bedroom house, purchased for 240k two years ago.  Great neighborhood/public schools and just 3 miles from work and pretty much everywhere else we go.  We have made substantial improvements and the market on our street has since boomed.  Based on comparable recent sales of nearly identical homes on our street, I estimate that the house would now sell for at least 290k. 

Assets

House - 290k (approximate value).

Wife’s Investment Accounts - 102k

Wife’s Roth IRA - 80k

Husband prior job 401k, State Pension - 48k

Savings Account -  25k - earns about .9% interest (I know). 

Husband current job 401k - 8k

529 College Savings Plans - about $3,300 total for the 3 kids.

Checking Accounts - 3k

Health Savings Account - 1k

Liabilities - Total Debt 239k

Mortgage - 183k, 30 year fixed at 4.125%.  PITI is $1,300/month and $300/month goes to principal.

Student Loan - 56k at 3.875% (professional school).  The required monthly payment is $350/month, but we pay $550/month to beat down the principal.

No other debts except sometimes an American Express balance that is paid off monthly.

Cars - 2012 Mazda 5 (family car, driven by my wife), 2004 Honda Civic (my car).  Both paid for.  I mostly bike to work and each car gets maybe 5k miles per year. 

Insurance

Health - My health insurance premiums are covered by my job.  Most of the deductibles are covered by money that my employer contributes to the Health Savings Account.  For the rest of the family, we bought insurance on the open market, which was $630/month for a gold plan. 

Life Insurance - I have a 500k insurance policy for $260/year and it's locked in at that rate for 20 years.  Considering paying more to get a $1 million policy.

Disability Insurance - None, based on the fact that I have a desk job.  Is it common for white collar workers to buy disability insurance?

Spending

I’d like to think that we are frugal people.  We do our grocery shopping at Aldi and Costco, and travel rarely.  Here are some of the big ticket spending items, according to a 6 month breakdown from my Personal Capital page:

Health Care - 6k over the last 6 months, most of that related to a new baby’s birth and a subsequent hospital stay when the baby got sick.  (We have high deductible insurance).  Out of pocket monthly health insurance premiums are $630/month, but that is likely to increase next year.

Groceries - $550/month.

Pre-school - 3k for the school year for 1 kid.

Restaurants - $233/month.

Travel - $200/month

Clothing - $180/month

Home Improvements - $150/month

Gas - $133/month.

Utilities - $110/month

Internet - $62/month

We also tithe to our church.

Ongoing Savings

I’m pretty proud of our savings listed above, which mostly come from our double-income, no kids days.  Less proud of of our current savings situation:

Mortgage - $300 goes to equity every month

529 College Savings Plans - $75 to each of 3 accounts each month, total $225

401k - $100 per month

Student Loans - $400 goes to equity each month

Beyond that, we don’t have formal, automatic savings.  We do put money in the savings account when we have it and my wife occasionally gets money added to her IRA from her grandmother.

We just went through a period of having 3 kids back to back and paying a lot of high health insurance deductibles.  Now that that is over, we should be able to spend less and save more. 

Questions for you, the reader

1. By some rough calculations, I think if we came up with $400 more per month, we could refinance to a 15 year mortgage.  Right now we pay $200/month extra to pay down student loans.  Is it a good idea to move that $200 and find another $200 to get to a 15 year loan?  What about origination fees?

2. That question also implicates our other savings.  There is a 50% match for my work 401k, but right now we are only putting $100/month into it, while we put $225 per month into the kids’ 529’s.  I’m inclined to rebalance this. 

3. Home improvements - Generally, I think these are an investment is our area, where everyone lives in old houses and the price your house sells at tends to vary widely based on condition of the house.  Our next project is a bathroom.  My wife is in favor of hiring a contractor friend to gut the room when we have enough saved up.  I’m inclined to do more of a budget DIY-centered job that would start with hiring someone to resurface the 1951 tub/and tile.  Has anyone done this?  If it gets a good result, it could save a bunch of money.

4. Now that we are done having babies, we are hoping to take a cross-country flight to see family next year.  I’m leaning towards getting a credit card with an air miles reward and using it for groceries, etc., then paying it off every month.  I’ve raised the idea with my wife, who hates the idea of regularly using a credit card for anything.  Thoughts on how much we would save and how to do this effectively?

5. One place where I think there is a lot of room for spending improvement is restaurants, but my wife is reluctant to give this up.  When we are not eating out, most of our food is cooked from scratch by her.  She likes to eat out for the good food and the break from cooking.  One thing I have been leaning toward is trying to do more fancy cooking myself to try to replace some of the restaurant meals.  In our DINK days, I did a lot of the cooking, but now my wife likes to cook dinner while I watch the kids.

6. One other ongoing family debate is our savings account.  My wife wants to keep about 25k in the savings account as an emergency fund, especially since we are a one-income family.  To me, it doesn’t make sense to keep that much in an account that only earns .9% and I would like to put some of it in an Vanguard account, but my wife is concerned about exposing the emergency money to market risks.  Thoughts?

Thanks, Stubbly in the City

[mozar]

For the sake of peace in the house, I don't think it's so bad to keep 25k in emergency funds. Maybe negotiate to 20k? But maybe term life insurance would be a better idea.
Since you have the means I think you should get that 50% 401k match, then do everything possible to pay off the student loans. I would take the money from the college 529 plan, I don't think you can afford it right now.
It's true that mortgage rates are going up, but it depends on what can you get. You would have to do the math for that one. Have you asked your bank what the lowest rate you can get is and what their fees are?

[4alpacas]

1. I wouldn't worry about refinancing the mortgage at this point.

2. I would try to max out the matching at your employer. What contribution limit includes the 50% match?

3. Are you planning to resell your house soon?  If not, I would caution of thinking of your home as an investment. 

4. Why is your wife nervous about using a credit card for regular expenses?

5. If you want to stop going to restaurants, you need to help with the cooking.  I can't blame your wife for wanting a break from the kitchen.

6. I agree with your wife.  A single income family with 3 young children needs a bigger cash cushion than a single person with no dependents or a DINK situation.

[1967mama]

As a SAHM myself, I can relate to the desire to eat out.  It is also a big hole in our financial boat.  One way that we've been trying to curb this is by buying some meals from the grocery store that require very little prep by me. For example, after church last Sunday we pulled into the Walmart parking lot and bought buns, a great variety and quantity of cold cuts, some fancy honey mustard, cucumbers and potato chips.  It tasted like such a treat for me and my husband whipped up those sandwiches in no time flat. 

Also, over the years (20+) I have been refining my recipe repertoire to include some real winners. I LOVE my own stir fry sauce, and actually prefer my own pizza to any restaurant (see Goblin Chief's journal for his pizza recipe). This didn't happen overnight, and I do happen to love cooking (most of the time). Some nights, it's just ordinary fair, but I have fun trying out new recipes sometimes too.

Hope this helps :-).

P.s. library cookbooks are your friend

[Terrestrial]

1. I'd knock out the student loan before i worried about refinancing.  I know others may have different opinions and your student loan debt is at a pretty decent rate but I personally feel like the 'type' of debt matters too...having student loan debt lifted will 'feel' better and the interest rate spread you would be looking at is so minimal it's not going to make a huge difference which you pay down first.  Also you seem to be on solid financial footing so it probably makes no difference, but it should be noted that generally student loan debt is one of the only ones that you can't discharge in bankrupcy...so no matter what happens you're going to end up paying that money back, may as well get it over with.

2.  Contribute at least the max to the 401k to get the full match before you think about finding the 529's.  The match is the best guaranteed rate of return you will ever get (literally free money) and you can borrow money for college, you can't borrow money for retirement.  You have a lot of years on your side get that free money and let it compound for a few decades.

3.  I have seen resurfaced tubs turn out decent, but i've never done it or had it done in one of my houses.  I would imagine it somewhat depends on the skill/experience of the person you hire, so get references and if possible go see some of the previous refacing jobs, preferable a few years after they were done so you can see how it hold sup.  I can say I am a huge DIY proponent though from my own home renovating experiences...my wife and i have learned to do almost everything for our renovations and it makes the dollars go a lot further.  As long as you are not using real stone or designer tile, it's relatively inexpensive and pretty easy to lay if you are a handy type.

4.  As long as you pay it off every month credit cards can be amazing tools, not something to be feared.  Our chase card has provided us with at least 10 free flights worth of points in the past 3 years just from paying for anything we possibly could with credit, for zero real 'cost' (i pay for EVERYTHING with a card if they will take it)...also if a close relative has a big expense coming up like a few plane tickets, or a new refrigerator/couch, etc, and they don't have a rewards card or don't pay attention to the points, we will charge it on ours and they write a check to us.  it's the same thing to them and we get bunches of points without actually spending our own money. Also works when you are out at dinner with friends and people offer to pay with cash i will charge the whole meal then just take the cash, same for roadtrips and the gas...gas and dining usually get pretty good points multipliers.  I also have the option at work to either use a company credit card for my expense account or use my own card and submit a reimbursement report.  It's 'fancier' to have a company card and a bit more of a hassle to fill out the report and keep my receipts, but all those company charges cost me nothing but i get all the points.  Google credit card hacking, card rewards are the best thing to happen to a consumer who doesn't ever pay interest...all the people in debt are subsidizing your free flights.

5. Being a SAH parent can be a hard and under appreciated job...I have a lot of respect for all the SAHM/D out there, my wife is part time and stays at home part time and sometimes they just want to get out of the house...she probably doesn't get all the adult/outside interaction during the day that you would from working.  If your restaurant spending is reasonable and you can afford it, I say let your wife have the nights out.  I suspect (from my own experiences) that it's less about the food quality and more about the being dressed up and feeling pretty, and getting out and having adult time/conversation with her husband.  I know others will disagree and view dining out as wasteful but just my 2 cents.

6. You have plenty of equity in your house...compromise by keeping maybe 10k in your savings account, moving 15k to vanguard, and opening a HELOC to be an emergency cushion if needed.

[former player]

Agree with what has been said above.

The one thing I never understand is people who start "saving" for their children's college while they have their own student loans still outstanding.  Cart before the horse.

[bonjourliz]

On restaurants - we have small kids too, and we use meals out as a break.  We have started doing a lot of take out meals.  It allows us to order creatively (sometimes just for adults, sometimes just main entrees) and to avoid having to drag the kids out to a restaurant.

We also love discovering new ethnic restaurants. The Vietnamese place up the street is easily 1/2 the cost as an "American" option, but the food is unique - not something we would fix ourselves. 

We do still go out with the kids, but usually for things like frozen yogurt or the local Popsicle cart.  They like that better anyway.

[Fi(re) on the Farm]

4. Now that we are done having babies, we are hoping to take a cross-country flight to see family next year.  I’m leaning towards getting a credit card with an air miles reward and using it for groceries, etc., then paying it off every month.  I’ve raised the idea with my wife, who hates the idea of regularly using a credit card for anything.  Thoughts on how much we would save and how to do this

Thanks, Stubbly in the City

Last year my husband and I each got a southwest card. We had to spend a total of $4000 in 3 months and got 100,000 points. I bought gift cards for the home improvement stores to make sure I hit the goal.  So far we did a cross country flight and we're planning a trip down south this winter. The cards did have a $99 fee each but for $200 we're taking 6 round trip flights. It might be something to look into.

[engineerjourney]

and my wife occasionally gets money added to her IRA from her grandmother.

I agree with everything pp are saying.  Just wanted to point out that your wife needs to have some income for the year in order for a legal contribution to her IRA.  Does she have a side hustle that brings in some reportable money? 

[militaryincome]

I agree with everything pp are saying.  Just wanted to point out that your wife needs to have some income for the year in order for a legal contribution to her IRA.  Does she have a side hustle that brings in some reportable money? 

Not true. As long as husband/wife file a joint return and have income exceeding their total contributions to 401k/IRAs, then she can contribute to her IRA. This is the second year in a row I'll max out my wife's Roth IRA; She hasn't had any taxable income.

[sandandsun]

Agree w. Lot of what has been said... Just want to ask about the preschool expense- why? With stay at home mom, can't see reason for that? The socialization argument is a lot of BS , esp if they are around siblings and church kids... They'll be fine without it...

[foobar]

1.  What is the effective rate (after various tax subsidies) on the student and home loan. Pay off the expensive one first. Personally I think paying off 4% deductible loans is stupid but you have to run your own numbers and make a choice.

2. Don't invest a penny into 529s until you max out your retirement savings. Seriously do the math. You will not be paying taxes (assuming your income is below 100k or so during retirement. Fed only you have to look into your state) so there is no savings versus dumping it into a 401(k).  When the time comes, you either get financial aid (you can help the kid pay the loans back) or use savings (that you have because you didn't dump the money into a 529. The one exception would be if someone (grandparents are the normal one) wants to give you kids money for college on birthdays and the like.

3. Tough one. Partial remodels are often a total waste of money (some walks in and says nice tub but we have to tear it out because the rest of the room needs work). But unless you plan on moving in the next couple of years the full remodel is also a waste. If you go to sell the house in 20 years you "new" bathroom is going to look almost as dated as the current one. Do the remodel because it will make your live better not for resale

4. Some people overspend with credit cards. If you are one of them it isn't worth the 1% free cash.

5. You can try cooking and cleaning up after the meal to replace half of the restaurant trips and see how it goes

6. The amount you gain just doesn't matter.  Investing an extra 10-15k isn't going to change anything. Personally I am a fan of the 0 dollar ER (I guess technically it is a about a 1 ER as that is about what I keep in the checking account) and would just sell some bonds if anything ever came along that I couldn't just cash flow. As a compromise maybe you could start storing the ER in either a higher interest rate CD or iBonds. Looking into the access rules for both of them

If I did my math right, I am getting your current month expenses at jus over 4.5k + some one time health care costs. Making 100k and paying 6k or so for SS and another 6k for income and 6k for state (no clue obviously) and another 2k for misc taxes  or give you an income of around 80k or 6600 per month. Thats about 2k unaccounted for.  Even with a 10% tithe (if your doing that much you should be getting some tax breaks between it, your mortgage and property taxes) and the one time health care, there is still a bunch of cash missing.  You might try tracking every penny for 6 months to get a better idea of where you money is really going.   Personally I think that is the number 1 thing about using credit cards. Every month you get a bill saying where you spend your money.

[Hugerat]

Emergency funds are my biggest pet peeve. Your wife has $102k in (I presume taxable) savings in investment accounts. This is your emergency fund. Keeping an additional $25k sitting around earning nothing is stupid. Sorry for the face punch. Now for the constructive part: Convince your wife to combine questions 1 and 6. Put the $25k immediately toward your mortgage principal and refinance the now lower loan balance. You've now permanently improved your cashflow and made your overall financial position less risky, while earning a guaranteed 4.125% return. You can now likely move to a 15 year loan with a lower interest rate and there is no need to come up with extra money each month to pay it. Everybody wins.

[retired?]

One idea - if you pay off your home in 15 years, that would free up income to go towards college (as a friend once said "I'm saving for college by paying off my house before they turn 18"). 

Of course, you can do this without refinancing by paying more than the minimum.  Do a break-even analysis to see how long it would take to cover the cost of the refi.  Not quite apples-to-apples since you are comparing mortgages of different lengths.  Contact a broker to learn the costs of a refi.  They can be significant, but can be rolled into the new loan so no out-of-pocket expense.

First, though, as others have stated, I would make sure you get the max 401k match.

[engineerjourney]

I agree with everything pp are saying.  Just wanted to point out that your wife needs to have some income for the year in order for a legal contribution to her IRA.  Does she have a side hustle that brings in some reportable money? 

Not true. As long as husband/wife file a joint return and have income exceeding their total contributions to 401k/IRAs, then she can contribute to her IRA. This is the second year in a row I'll max out my wife's Roth IRA; She hasn't had any taxable income.

Duh, sorry, brain fart! I was thinking along the lines of parents putting money in for their kids since its her grandparent doing it not her spouse but they can just do it through the spousal IRA even though its the parent contributing :-)

[Stubbly in the City]

For the sake of peace in the house, I don't think it's so bad to keep 25k in emergency funds. Maybe negotiate to 20k? But maybe term life insurance would be a better idea.
Since you have the means I think you should get that 50% 401k match, then do everything possible to pay off the student loans. I would take the money from the college 529 plan, I don't think you can afford it right now.
It's true that mortgage rates are going up, but it depends on what can you get. You would have to do the math for that one. Have you asked your bank what the lowest rate you can get is and what their fees are?

Thanks, I actually have a 500k term life policy and I updated the original post with a section on insurance. 

[Stubbly in the City]

5. If you want to stop going to restaurants, you need to help with the cooking.  I can't blame your wife for wanting a break from the kitchen.

Just in my defense, my wife does most of the cooking now by choice.  I get home from work and she kicks me and the kids out of the house so they can play and she can get some alone time while she cooks. 

[Stubbly in the City]

I would definitely focus on your retirement plan before 529s.  You can put bonus money and your wife's freelance earnings toward the 529s, and ramp up that savings once you don't have preschool costs.  Speaking of which, what is the plan for the two youngest ones?  You are potentially looking at an increase to 9k/year or more once all three are in pre-school. 

Thankfully, we will only have 1 year with more than 1 kid in pre-school.

[Stubbly in the City]

4. Now that we are done having babies, we are hoping to take a cross-country flight to see family next year.  I’m leaning towards getting a credit card with an air miles reward and using it for groceries, etc., then paying it off every month.  I’ve raised the idea with my wife, who hates the idea of regularly using a credit card for anything.  Thoughts on how much we would save and how to do this

Thanks, Stubbly in the City

Last year my husband and I each got a southwest card. We had to spend a total of $4000 in 3 months and got 100,000 points. I bought gift cards for the home improvement stores to make sure I hit the goal.  So far we did a cross country flight and we're planning a trip down south this winter. The cards did have a $99 fee each but for $200 we're taking 6 round trip flights. It might be something to look into.

Thanks.  This is exactly the kind of thing I have in mind.  Maybe my wife would be more comfortable with the idea if we just got a card for her - she's the more financially responsible one.  I think the biggest concerns are (1) you're less likely to notice what you are spending if it's on a credit card, and (2) there's the fear that you might end up carrying a balance.

[Stubbly in the City]

Stubbly,  maybe you and the kids could have cooking night in the kitchen while your wife has alone time not in the kitchen.  Make is a weekly tradition.  Find a recipe that is kid friendly (they like to eat and like to make).  Your wife gets a break.  Your kids have fun.  And you don't have to go out to a restaurant. 

4. Now that we are done having babies, we are hoping to take a cross-country flight to see family next year.  I’m leaning towards getting a credit card with an air miles reward and using it for groceries, etc., then paying it off every month.  I’ve raised the idea with my wife, who hates the idea of regularly using a credit card for anything.  Thoughts on how much we would save and how to do this

Thanks, Stubbly in the City

Last year my husband and I each got a southwest card. We had to spend a total of $4000 in 3 months and got 100,000 points. I bought gift cards for the home improvement stores to make sure I hit the goal.  So far we did a cross country flight and we're planning a trip down south this winter. The cards did have a $99 fee each but for $200 we're taking 6 round trip flights. It might be something to look into.

Thanks.  This is exactly the kind of thing I have in mind.  Maybe my wife would be more comfortable with the idea if we just got a card for her - she's the more financially responsible one.  I think the biggest concerns are (1) you're less likely to notice what you are spending if it's on a credit card, and (2) there's the fear that you might end up carrying a balance.

Why does your wife not trust you with a credit card?

I think she's generally uneasy with either of us using a credit card on a regular basis, as they are basically a recipe for financial disaster in the hands of most people.  I just think that it might be an easier sell if she has it since she is responsible for the day-to-day bill paying etc.

[Stubbly in the City]

Stubbly,  maybe you and the kids could have cooking night in the kitchen while your wife has alone time not in the kitchen.  Make is a weekly tradition.  Find a recipe that is kid friendly (they like to eat and like to make).  Your wife gets a break.  Your kids have fun.  And you don't have to go out to a restaurant. 

4. Now that we are done having babies, we are hoping to take a cross-country flight to see family next year.  I’m leaning towards getting a credit card with an air miles reward and using it for groceries, etc., then paying it off every month.  I’ve raised the idea with my wife, who hates the idea of regularly using a credit card for anything.  Thoughts on how much we would save and how to do this

Thanks, Stubbly in the City

Last year my husband and I each got a southwest card. We had to spend a total of $4000 in 3 months and got 100,000 points. I bought gift cards for the home improvement stores to make sure I hit the goal.  So far we did a cross country flight and we're planning a trip down south this winter. The cards did have a $99 fee each but for $200 we're taking 6 round trip flights. It might be something to look into.

Thanks.  This is exactly the kind of thing I have in mind.  Maybe my wife would be more comfortable with the idea if we just got a card for her - she's the more financially responsible one.  I think the biggest concerns are (1) you're less likely to notice what you are spending if it's on a credit card, and (2) there's the fear that you might end up carrying a balance.

Why does your wife not trust you with a credit card?

I think she's generally uneasy with either of us using a credit card on a regular basis, as they are basically a recipe for financial disaster in the hands of most people.  I just think that it might be an easier sell if she has it since she is responsible for the day-to-day bill paying etc.

She doesn't know that I wrote up this case study.  It will be interesting when I sit down and talk it over with her.

[4alpacas]

Good luck talking to your wife!  It sounds like she has a solid handle on your finances. 

[Christiana]

Just comparing your family with mine (4 kids):

You do much, much better than us on gross income, health insurance costs, savings, and general financial prudence.

We do better on:  food costs (we spend $500 per month), eating out ($25 per week), education (we frugally homeschool and are thinking of non-college routes to careers for some of our children), cars (one car family), housing expenses (we rent for $1200), student loans (paid off), clothing (thrift stores and home sewing), and giving beyond a tithe (almost 2%). 

I will add, since you mentioned tithing, that we have never felt called by God to settle down to a conventional life in the suburbs, and that this has affected some of our choices, such as having more children and continuing to rent instead of buy.  If you are where God means you to be, that's wonderful.  But if you're not, the wisest choice is to align your personal and financial goals with God's, and then proceed.  Christian History magazine just put out an issue on the subject of vocation (full disclosure:  one of our friends works for the magazine; they operate on the basis of donations, not subscriptions).

[Target2018]

I am concerned about your lack of disability insurance.  You are much more likely to become disabled than to die yet you have life insurance.  I have seem several people at my office that have desk jobs but are now on disability.  One has Parkinson's so bad she could no longer drive to the office.  Another had heart issues and could not longer really put in an entire day of work.  Another had back problems that made sitting, driving and standing each painful in their own way.  Thankfully our company pays for disability insurance and so they were all covered.  It is generally not an expensive insurance to get for a healthy younger person like yourself.

[RelaxedGal]

Just in my defense, my wife does most of the cooking now by choice.  I get home from work and she kicks me and the kids out of the house so they can play and she can get some alone time while she cooks.

I feel for your wife; I do the same to my husband and I'm not a stay at home mom.

Also: dining out might be her chance to get out of the house.  I telecommuted for 6 months and we ate out more then than at any other time because I needed to get away from those 4 walls!  In that vein, maybe you could reduce the dining out if instead you took the kids for a couple of hours one day every week so she can do whatever she wants to do. 

I agree with several others above that getting the full 401k match is at this point more important than paying down debt or saving for kids' college.  Bring it up to the full match and see where that leaves you with regard to paying extra on loans

I also agree with Target2018 that disability insurance is a good thing.  All of my desk jobs have provided it, and I feel it's important enough that I've bought additional.  Short term disability insurance is pricey because it's more likely to be used.  You have a good buffer so I think you can skip this.  Long Term Disability is cheaper.  In the last 4 years I've seen lots of coworkers out on disability, all desk jobs, all unforeseen issues.  Definitely consider it, even though your wife could go back to work.  Also consider life insurance on her, while I'm acting as an insurance agent ;-)

[frugaliknowit]

1. It does not pay to re-fi a 4.125% mortgage.

2. Get your full match.  It's "free money".  Best "bang for the buck".

3. Home improvements are not a financial or net worth investment.  They are an investment in enjoying your home.  In fact they are usually a negative return in that they do not add less to the value of the home than their cost.

4. Contrary to what some folks on this blog say, I would get a travel rewards card, fill up the required amount of spending, book your trip before the annual fee kicks in, then when the annual fee kicks in, cancel the card.  Don't use it more than you have to.  Don't have it as your primary card because you'll get saddled with fees.

5. Get your wife out of the house for cheaper.  A walk in the park, a bike ride.  Yes, the gourmet thing is great.

6. What do you think you will live on if you lose your job?  What if the market crashes just before you lose your job?  25K will go in a heartbeat.

7.  You NEED disability insurance!!!!

[zinethstache]

First I want to talk a bit about disability insurance.
Typically your company, if a large one will have a long term disability insurance program, they might auto-deduct a small amount out of your paycheck for this coverage. Coverage varies, for my company it is 60% of my salary until I am recovered, retired or die. So research that through your HR to be sure about the options they have for it. Many now have added short term disability to their sick pay programs as well. So, you might have company coverage and don't even know it.

I would think that a white collar worker being at a desk all day would not need this coverage either, however, take my situation. I have suffered from lower back pain for 30 years. I always blamed it on my hobby of owning and competing with horses. So 2 years ago I sold my last horse to work on our FI plans. So far so good... in 2012 around Christmas time, LOOONG after the horse had been sold, I started having my same old lower back pain. It came and went and by June I was told by DH to get to the Dr. and find out if my back issue had returned. So I did that... and the Dr. put me on the same arthritis treatment I'd been on 10 years before. 1 week later I sat down in a meeting at work and wham, the worse pain I've ever felt in my life shoots up from my lumbar. I knew something really bad had happened. Long story short. I am now 2 failed surgeries in, the final surgery... fusion is next. Now, I suppose the massive rupture with hematoma blocking my spinal canal could just as well have happened while riding, gardening, getting out of bed, or at work so I feel that disability is important for just plain living life... I've used my company's short term disability 2x now and will use it a third for this next surgery. And IF the last surgery fails I am looking at yes... long term disability. Contributing factors as noted by my doctor's include riding, but they actually blame it more on my long hours sitting at a desk (I have a high tech job and often spend 12+ hours sitting, troubleshooting code issues) than anything else. I now have sit/stand stations at home and at work.

So, I suggest you do your research and if your company has no disability program you should look into it because if you do become disabled, the SSD (Social Security Disability) program is super, super hard to get into. Because you have a family you will need something immediately to support them.

Next your home -
Definitely don't think of it as an asset, it actually will tie up all your cash once you've paid it off, great psychologically, but not necessarily the best use of your money investment-wise. I would NOT refinance yet, if at all. If you plan to stay, let that great low interest loan run itself out...Invest the difference. I personally stopped paying extra once I had done all of my FI research. We are diverting funds to other investments. And I came from the old school of Dave Ramsey where your home is paid off asap. It is still strange to know I've changed my tune on our home, but I know its the right decision in the end.

Emergency funds - I opt for the traditional cold hard cash in the bank. We have rentals and need to be able to pay for whatever as needed, immediately. Your wife's Roth looks to be an excellent backup, backup fund. You can pull out whatever she contributed after that contribution amount has sat there for 5 years....  So I am more on the conservative side on this one.

Great responses from everyone. I enjoy this thread and will be lurking about to see what others post.

[Chrissy]

1.  Don't pay down or refinance the house.  The interest rate is plenty low.

2.  Stop paying down the principal on the student loan for the same reason.  Put that $200/mo toward the 401k... where it's closer $265/mo, pretax.  Also, stop putting money into the kids' college funds for now.  Put that $225/mo into the 401k.  (That money was already tax-advantaged, so it's a wash on tax savings.)  With those changes, you'd have an additional $425/mo flowing into the 401k, plus your employer's 50% match of $212/mo.

That's an additional ~$7,600/yr in your 401k as opposed to $5,100/yr to savings/debt reduction.

Now, that $7,600/yr could earn 7%/yr on average when invested in the stock market.  In your current plan, not only do you have less money, what money you DO have is generating less interest, because only the kids' college funds were eligible to earn 7% in the market, and the student loan pay-down is only earning you 3.875%.

Get me?

4.  Trade with your wife:  she keeps the emergency fund, you get the rewards credit card.  Leave it in a drawer or safe deposit box if she's really worried, but have every bill auto-pay to it, including preschool (if possible).  Then, pay the card once a month instead of every little bill.  Reap the rewards.  My parents just started doing it this way.  They're 70.  If they can make the adjustment, so can your wife.

6.  I agree with your wife about the emergency fund.  See if you can move it into a CD ladder or something.  Even a slightly higher interest rate would be something.

[RetiredAt63]

I also agree with the disability insurance - do you use your hands at work?  What if you developed rheumatoid arthritis, or really severe carpal tunnel syndrome?  And make sure it covers you properly - some policies won't pay out as long as you can work at something  - i.e. greeter at Walmart. 

Re the credit card - if it helps, treat it as a debit card. I pay mine off about 2X/week - yes I know I am not using the free time on it, but it makes me look at where the money is gong on a frequent basis.  My balance is always either zero or close to it.

[mm1970]

Hmmm...a few things:

1.  Restaurants.  I would definitely try to cut this in half.  Even then, you could get a nice dinner out once a month, or a couple of lunches.  But I *do* totally have sympathy with your wife.  I do ALL the cooking (and pre-kids, my husband did cook - first 9 years together he did all the cooking in fact).  And you know, for the most part, if I don't prep it, it doesn't get done (there are some exceptions, like washing and peeling carrots).  I also work full time.

So even having only one day a week that is not my responsibility would be awesome.  I get around that with pre-prepared meals.  Nope, not as healthy to throw in a Costco pizza or quiche, or Trader Joe's breaded chicken tenders.  But it saves my sanity.  If you could take on the cooking one night a week, that would be probably awesome.  The trade is who watches the kids, because she's with them all day too.

I often walk my little guy to the park on Saturday mornings (did the same with my 8 yo when he was younger).  Lot of dads there.  Maybe the moms are walking, running, or out having coffee at Starbucks.  Anyway, cheaper way to get your wife out of the house - let her go to breakfast with her girlfriends.

2.  Clothing: this budget seems high.  There are 5 of you, but are you getting a lot of used clothes for the kids?

3.  I don't think there is anything wrong with $25k in an emergency fund

4.  I would definitely rebalance the college funds down and retirement funds up.  No brainer, you are leaving free money on the table.

5.  Cross country flight, I can't help you there.  I suck at that.  Though my husband has been traveling so much this year that I think our trip XC to visit family next summer, we should be able to use miles for two of the four tickets.

[mm1970]

5. If you want to stop going to restaurants, you need to help with the cooking.  I can't blame your wife for wanting a break from the kitchen.

Just in my defense, my wife does most of the cooking now by choice.  I get home from work and she kicks me and the kids out of the house so they can play and she can get some alone time while she cooks.

It's the lesser of two evils.  (Sorry)

[mm1970]

Agree w. Lot of what has been said... Just want to ask about the preschool expense- why? With stay at home mom, can't see reason for that? The socialization argument is a lot of BS , esp if they are around siblings and church kids... They'll be fine without it...

It's not necessarily socialization.  Around here, it's glaringly obvious to the kindergarten teachers which students have had preschool and which haven't.  And it takes more than a year to catch up.

Kindergarten today is what 1st grade was when I was a kid.

[waltworks]

There is plenty of science on this. In the very short term (first few years of school) the preschool kids do better. By the time you hit middle school, it makes no difference at all. The exception is VERY disadvantaged/poor children who don't have the same amount of stimulation/learning available at home. This does not describe your kids.

So if you are just neurotic about little Johnny reading at age 3, by all means, spend a fortune on preschool. Otherwise, let him eat dirt and chase the dog around and generally wreak havoc. If you are a white collar sort of person and posting here, your kids are going to do fine in school. She'll still be ready for grad school when the time comes.

-W

Agree w. Lot of what has been said... Just want to ask about the preschool expense- why? With stay at home mom, can't see reason for that? The socialization argument is a lot of BS , esp if they are around siblings and church kids... They'll be fine without it...

It's not necessarily socialization.  Around here, it's glaringly obvious to the kindergarten teachers which students have had preschool and which haven't.  And it takes more than a year to catch up.

Kindergarten today is what 1st grade was when I was a kid.

[jamaicaspanish]

Re: tub & tile resurfacing:

We hired Miracle Method to resurface our bathrooms (ca. 1960--pink, blue, and green tiles) a few years before we sold the house.

In St. Louis, the price was ~1k for a tub and surrounding tile.

We were very pleased with the results.  Went with the plain white (80% + choose this option, according to our technician).   
However, dropping heavy stuff can chip the finish.
Even with the few chips, our bathrooms were magnitudes more attractive after several years than they had been before.
Just for our own pleasure, would 100% hire the same company to resurface an ugly bathroom.
YMMV