Author Topic: Case Study - 1st Child on the Way:)  (Read 3893 times)

SlowAndSteady

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Case Study - 1st Child on the Way:)
« on: October 30, 2015, 01:46:32 PM »
Edited: Originally, I incorrectly calculated taxes and thought we would have a $400 monthly shortfall for our anticipated post-baby budget. Thanks to KCM5 for pointing out the error! I edited the case study, and now we have an anticipated monthly excess of $160, but that margin seems awfully small. We're still looking for help optimizing, so thanks for any input you might have!

Life Situation:
Hi everyone! My DW and I are expecting our first child! Our long term goal is FIRE, but allowing my DW to be at home with our children until they enter Kindergarten is the biggest short term priority for us. Our goal is to be 100% solvent on my salary, and then anything she earns from part-time work or side gigs will go toward retirement savings and a future house down payment. We currently own a two-bedroom town home, and when our family grows we plan to buy a 3-bedroom SFH and keep the town home as a rental.

After looking at our average monthly spending so far this year, I've come up with my best shot at an accurate prediction for how we can cut expenses. Based on those numbers, we will have a monthly excess of $160 we can put towards savings goals. Thank you in advance for helping us find ways we can optimize further and stay solvent during this exciting chapter in our lives!

I'll list assets and liabilities first to give an overall picture of our situation. But more than anything, I'm looking for help with our monthly expenses below.

Assets:
Town home: $80,000
Retirement accounts: $27,000
Emergency fund: $10,000
Fund for future house down-payment: $10,000
Total: $127,000

Liabilities:
We purchased our town home for $75,000 with a 10% down-payment, so the original loan balance was $67,500. It's a 15-year mortgage at 3.625%. The balance is currently $62,000.
Total: $62,000

Gross Salary/Wages:
Total: $47,032/yr (Includes a 6% employer 401k contribution. 3% safe harbor and 3% match.)

Pre-tax deductions:
401k, employer contribution: $2,662/yr
Health insurance: $5,670/yr
Dental and Vision: $720/yr
Total: $9,052/yr

Adjusted Gross Income:
Total: $37,980/yr

Post-tax deductions:
Roth 401k: $1,775/yr (4% personal contribution. I don't want to go any lower, even during this stage of life.)
Life Insurance: $144/yr
Total: $1,919/yr

Taxes:
Total: $2,947/yr

Take-home pay:
Total: $33,114/yr
($2,760/mo)

Estimated post-baby expenses (monthly):
Our actual 2015 average is included for comparison.
Category         Post-Baby Est.       2015 average       Notes (re: post-baby)
Mortgage (P&I)    $536                         $536                         
Mortgage (T&I)    $100                         $100
HOA                     $145                         $145                       
Home Repairs      $30                           $28                      estimating a tiny increase
Car Maintenance  $100                         $208                    estimating a decrease, some big repairs in 2015
Car Insurance      $55                           $73                      just reduced by switching carriers
Car Gas                $90                           $87                      estimating a tiny increase
Car Misc.              $35                           $44                      prop. taxes, DMV fees, etc. (will drop AAA)
Medical                 $166                         $19                      $2k for the year to cover the birth
Elect. & Nat. Gas  $100                         $100
Cell Phones           $95                          $122                    2 smartphones, price will drop after contract
Internet                $15                          $15                         
Netflix                   $9                            $9
Pandora                $0                            $4                         we don't need ad-free music
Groceries              $300                        $297                     estimating a tiny increase
Restaurants          $40                          $76                       one dinner with friends per month
Work Lunch          $6                            $50                       one lunch out per month
Fast Food              $15                          $18                       one convenience meal per month
Coffee/Snacks       $3                            $8                         one coffee-date per month
Clothing                $70                          $95                       trying to estimate realistically, want to cut more
Home Furnishings $45                          $90                       trying to estimate realistically, want to cut more
Church/Charity     $240                        $477                     MMM says to spend according to values, right?:)       
Gifts                      $85                          $209                     trying to estimate realistically, want to cut more
Travel                   $200                        $540                     trying to estimate realistically, want to cut more
Hobbies                $25                          $35                       books, biking gear, art supplies, etc.
Toiletries              $20                           $23                       trying to estimate realistically, want to cut more
Haircuts                $5                            $11                       DW started cutting my hair, she gets 2 cuts/yr
Naturalization       $0                            $96                       one-time expense for DW is over
Misc.                    $50                           $62                       pharmacy, movies, turbo tax, stamps etc.                       
Baby Stuff            $20                           $0                         hopefully $20/mo is realistic
Total:                   $2,600                     $3,577

Excess:
$2,760 (monthly take-home pay) - $2,600 (estimated post-baby expenses) = $160 excess.

Specific Question(s):
I guess my question is pretty simple...
Where can you help us optimize further? :)
« Last Edit: November 03, 2015, 01:23:50 PM by SlowAndSteady »

KCM5

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Re: Case Study - 1st Child on the Way:)
« Reply #1 on: October 30, 2015, 01:57:36 PM »
Your taxes are off.

With an AGI of $36k, and 3 of you, you'll pay basically no federal tax. So you'll just pay payroll tax (7.1%?) and state/local taxes. I don't imagine that will add up to almost $10k. That could make up for your shortfall right there.

ShoulderThingThatGoesUp

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Re: Case Study - 1st Child on the Way:)
« Reply #2 on: October 30, 2015, 02:26:27 PM »
Rates are still pretty low. Since your intermediate goal is month-to-month security on a lower income, consider refinancing to a 30 year term?

SlowAndSteady

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Re: Case Study - 1st Child on the Way:)
« Reply #3 on: October 30, 2015, 02:36:49 PM »
KCM: Thank you!! You're right. I tried to skip the spreadsheet for case studies, and I shouldn't have. As soon as I have time to do the spreadsheet I'll update the original post. I think you just cracked the whole puzzle!

Since I've posted anyway, I am definitely interested in everyone's take on the monthly expenses. This an opportunity to optimize!

Shoulder: Thanks for the idea - this is the kind of thing I'm looking for to help us think outside of our own box.

Keep the suggestions coming! :)

formerlydivorcedmom

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Re: Case Study - 1st Child on the Way:)
« Reply #4 on: October 30, 2015, 03:02:49 PM »
Congratulations on your soon-to-be-addition!

Unfortunately, I think your baby stuff number may be way too low.

Are you going to be using cloth diapers or disposable?  Disposable diapers will run more than $20 per month.

Is your wife planning to nurse or use formula?  Formula is expensive.  You'll also need to take into account baby food when the child reaches about 6 months.  If you make it yourselves, it's cheaper, but it's more time-consuming, and it will make your food budget increase.

Babies don't need a lot of stuff, but the feeding and changing part can be expensive.

ShoulderThingThatGoesUp

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Re: Case Study - 1st Child on the Way:)
« Reply #5 on: October 30, 2015, 03:44:26 PM »
You don't need to buy special baby food. Research baby-led weaning.

marty998

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Re: Case Study - 1st Child on the Way:)
« Reply #6 on: October 30, 2015, 03:53:43 PM »
Thats a lot to church and charity on your income. I subscribe to the theory that you shouldn't make yourself poor whilst trying to help the poor. Some agree, some don't, it's up to you.

You also can't afford that much in gifts.

In your situation I would also pay for the birth from the emergency fund.

Interesting that you have to work 1 day per month just to pay for your smartphones - I find it helps/hurts to recognise how long you have to work in days just to pay for things. Make you want to figure out ways to cut more if you understand the effort required to earn the money for it.

Otherwise pretty good on things like utilities and bills.

Yankuba

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Re: Case Study - 1st Child on the Way:)
« Reply #7 on: October 30, 2015, 04:13:08 PM »
I recommend life insurance

SlowAndSteady

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Re: Case Study - 1st Child on the Way:)
« Reply #8 on: October 30, 2015, 04:31:32 PM »
Formerly: Thanks for the input. We haven't looked closely at how much our baby-related expenses will be, so it's helpful to get some insight there. Since my DW will be home, we do plan to optimize those costs as much as possible. (Breast-feeding, homemade baby food, possibly cloth diapers, etc.)

Shoulder: Thanks, again! We'll check out baby-led weaning.

Marty: Good thoughts! I agree we need to find a way to cut gifts further. And yeah - the smartphones... we need to look at more optimization. Putting it in terms of "days of work each month" we have to do to keep the phones will be good motivation!

Yankuba: I do have a life insurance policy through work (see "post-tax deductions"). But you're right, now is probably the time to get a separate term policy.

Teacherstache

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Re: Case Study - 1st Child on the Way:)
« Reply #9 on: October 30, 2015, 06:51:48 PM »
If you plan to have low eating out expenses as mentioned above, which is awesome, look into making a bunch of freezer meals before her due date gets here, because the first month (or two or three) can be overwhelming. This will prevent you from spending more on takeout.

SlowAndSteady

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Re: Case Study - 1st Child on the Way:)
« Reply #10 on: October 31, 2015, 07:21:44 AM »
Teacher: Excellent idea. I hadn't thought much yet about meals around the due date. We've been meaning to start dabbling with freezer meals - now is definitely the time!

pbkmaine

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Re: Case Study - 1st Child on the Way:)
« Reply #11 on: October 31, 2015, 08:01:41 AM »
I used to make big batches of mild chili and freeze for my new mom friends. I added lots of different chopped up veggies to the usual recipe and put it in quart freezer bags so that they could have one-stop meals. No need to make anything else - it's all in the chili.

SlowAndSteady

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Re: Case Study - 1st Child on the Way:)
« Reply #12 on: November 03, 2015, 01:39:59 PM »
Thanks everyone for the great ideas so far! I wanted to post an update and share two actions we've taken based of your feedback so far.

I applied for term life insurance (20-year term) for myself and my DW. After the underwriting process is complete, we'll drop the voluntary life insurance we have through work. Now we won't have to think about coverage if I switch jobs.

I nixed my portion of the cell phone bill! I recently got a phone through work, but I had been hesitant to pull out of my personal phone contract because of the hassle of switching numbers twice. (Once now and once whenever I move to a new job or get a promotion. If I get a promotion it will likely be to a position with less on-call hours and no need for a phone.) My hesitation was silly, and it feels good to knock $40 off our monthly expenses. Our bill just dropped from $122 to $82 since it's now just my wife's phone (still a crazy expense). It will drop to about $55 when our contract ends, and we'll continue to think about cheaper options for her phone.

So thanks for the suggestions so far, and please keep them coming! :)
« Last Edit: November 03, 2015, 01:42:25 PM by SlowAndSteady »

Yankuba

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