Author Topic: Case Study: Baby on the way  (Read 2587 times)

WhoDey

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Case Study: Baby on the way
« on: September 11, 2015, 09:35:34 AM »
Life Situation:
The SO and I are expecting our first child in October.  We have already made the decision that my wife is going to be the “stay at home parent,” but she has found a gig working part time at a local university and will begin that in 2016.  I would not say we have been living mustachian, but I have always been conscious of our spending.  My SO is also onboard due to the fact that she is not bringing in any income.  We are married, fling taxes jointly, and will have 1 dependent before the end of 2015.

Gross Salary/Wages:
$67,000 - my wages, before taxes.  My SO would be bringing in $1,519.62 per month after tax – not sure exactly what it is before tax

Pre-tax deductions:
401K 8% $5,360 – no pre-tax deductions for my wife as there are no benefits with her part time gig.

Other Ordinary Income, Qualified Dividends & Long Term Capital Gains, Rental Income, Actual Expenses, and Depreciation
None.

After Tax Income:
$64,354.16 - $5362.85/month

FUTURE Anticipated Expenses
First time parents – so no idea what this expense is going to be.

SAVINGS/ PAYING OURSELVES FIRST:  $1,809.33
Retirement (Roth IRA)    $ 916 (maximum contribution, to my Roth IRA and wife’s Roth IRA)
401K $893.33 with 8% contribution from myself and 8% company match from my $67,000 salary (this is the maximum match for my company).

TOTAL FIXED HOUSING BUDGET:    $ 2,005.40
Mortgage (P&I)    $ 987.36
Escrow T/I    $ 456.57
Cable/Internet    $ 155.39
HOA 83.33
City Taxes 35.00
Utilities gas/electric (annual average)    $ 170
Water/Garbage (annual average) $70
Security System Monitoring   $47.75
   
TOTAL FIXED OTHER BUDGET:    $ 369.68
Car Insurance/Jewelry Insurance    $ 167.04
Cell phone    $ 110
Life Insurance mine/wife – LTD for me $92.64
   
TOTAL VARIABLE BUDGET:    $ 620
Food    $ 500
Gas    $ 120

TOTAL PERSONAL ALLOWANCES:     $ 200
Me $ 100
Wife $ 100

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TOTAL ACTUAL EXPENSES  $3,195.08
INCOME MINUS ACTUAL EXPENSES  $1,755.24

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NOTES:
My wife and I planned our young cub, so last year during my company’s healthcare enrollment I opted for the Low Deducible/High Out of Paycheck option as I figured the doctor visits/birth/hospital would satisfy the out of pocket maximum (which is ~$4,225 of which we only have ~$1,500 left as the baby is due next month).  So I only have $1,500 left out of pocket before the company covers 100%.  With this health plan $101.42 is removed from my paycheck every other week so basically $202.84 for the month or $2,434.08 for the year.  With this option the company also provides an HRA and funds ~$900 each year

We currently do not have Roth IRA's open at this moment, but plan to open and fully fund by the EOY.

Through looking at my budget that are expenses such as cable/internet that I know we can reduce.  We have the “whatever bundle package” deal they have at the time and basically watch 10 channels of the over 250 they provide.  The next is the home monitoring system, but they got us on a 5 year contract when they built our house for running all the wiring for free (there is 2 years left on this).  The other expenses are possibly Home/Car/Jewelry insurance?

Other note is that I completed my Masters in Business Administration program 3 weeks ago.  This program was completely paid for through my company – although they have a 4 year retainer on me.  So hopefully this will help me in my career until I can retire.

Assets
Total of $27,208 sitting in cash at the moment.

My 401K totaling $32,741.

2 cars that are completely paid off and are no older than 3 years old.  1 is a 2012 volkswagen jetta SE and the other is a 2013 Honda CRV Eco.

We built our home a little over 3 years ago and is worth an estimated $275k; we've still got a lot of mortgage on it (below), but put down 20% to avoid PMI.  It is energy efficient as it is basically a brand new home and energy star certified.

Liabilities
We have ~$188k left on our mortgage at 4.25%.  No PMI, but we took out a 30 year loan when built it a couple years ago (way before I found this blog), but we should not have to buy another house until our children have left the nest, unless we wanted to move me close to work as we are 19 miles away right now and the HOA is pretty ridiculous at $250/quarter.

No student loans.

No consumer debt.

Specific Question(s):
1) What would you do in our situation with $27,208 sitting in cash with no debt besides mortgage?
2) Should we re-finance our house to a 15 year mortgage?
2) Employee max contribution is $18K per year – should I max this out?  I am already at the maximum for company match.
3) What else should we be doing differently?  Feel free to bring out the face punches!

Ready...  set...  go!

Edit:  Security cancellation is $985, but would save us $400 over the next 2 years and 5 months payments of $47.75.
Updated question:  Should I just max out my 401K and invest the rest after tax in a taxable account?  Roth vs Traditional?
« Last Edit: September 12, 2015, 05:03:27 PM by WhoDey »

MayDay

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Re: Case Study: Baby on the way
« Reply #1 on: September 11, 2015, 09:43:31 AM »
1.  Leave it as cash until you get through the birth.
2.  Depends how much better a rate you can get on a 15 year, but I would look into it. 
3.  I would max it.
4.  You touched on some..... get rid of home security (check if there is a early termination fee- it might be worth it).  Lower cable and/or get rid of it (although if your wife is nursing, you might want to wait to get rid of it entirely until spring- I spent a lot of evenings with a baby attached to my boob from 7 -10 pm).  But if netflix would work, cancel it now.  Internet alone should be around 50$ a month.  Why jewelry insurance?  Get rid of.  Have you shopped car insurance lately? If not, do, and call costco too, their savings on insurance were well worth joining.  Possibly consider setting a baby budget in your mind, anyway, of what you think might be reasonable.  100$ a month, perhaps.  More if you end up needing formula for some reason.  Diapers should be 30-50 a month, giving you leftover for clothes, toys, etc. 

My advice would be to stock your freezer with easy meals now so you aren't eating out and getting takeout after baby comes. 

Thegoblinchief

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Re: Case Study: Baby on the way
« Reply #2 on: September 11, 2015, 02:35:47 PM »
My advice mostly echoes MayDay.

Why are you doing a Roth? At your income level, a trad IRA is better unless you're planing  to retire with a very large stache and would be making very large withdrawals each year. At least do the math and see what your effective federal tax rate is.

Edit: Your food is high for just two adults. Try to get that below $400 at minimum.

lbmustache

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Re: Case Study: Baby on the way
« Reply #3 on: September 11, 2015, 08:22:29 PM »
Get rid of the security system. There are multiple options: drop cam, some cheaper Samsung dealios, and my favorite (because I was gifted an iPad and don't use it) an app for $5 that let's you stream live video to check and see what's going on in your house.

wordnerd

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Re: Case Study: Baby on the way
« Reply #4 on: September 11, 2015, 08:34:35 PM »
Get rid of cable altogether. So many cheap/free options exist online (hulu, Nextflix, even Youtube, which I use for John Oliver clips) that there's really no reason to have it.

Security system should go too. Think about what you really want out of it. Noises were keeping my husband awake, so he got a small motion sensor from Home Depot and set it to detect movement on the stairs/in the entryway, so if it didn't go off he knew no one was coming upstairs. Cost maybe $15 and let him sleep.

Jewelry insurance? Self-insure. Consider a safety deposit box for anything super valuable.

Overall, looks like you're doing well. You should definitely max your 401K. Congrats on the baby!

MBot

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Re: Case Study: Baby on the way
« Reply #5 on: September 11, 2015, 08:38:50 PM »
With 19 miles to work and a HOA of 250, what would it take for you to move closer? Are you in an area where you could cut down to one car and live closer? Or are houses twice the price near work?Even if so, MMM makes a compelling case for living closer

WhoDey

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Re: Case Study: Baby on the way
« Reply #6 on: September 12, 2015, 05:01:15 PM »
1.  Leave it as cash until you get through the birth.
2.  Depends how much better a rate you can get on a 15 year, but I would look into it. 
3.  I would max it.
4.  You touched on some..... get rid of home security (check if there is a early termination fee- it might be worth it).  Lower cable and/or get rid of it (although if your wife is nursing, you might want to wait to get rid of it entirely until spring- I spent a lot of evenings with a baby attached to my boob from 7 -10 pm).  But if netflix would work, cancel it now.  Internet alone should be around 50$ a month.  Why jewelry insurance?  Get rid of.  Have you shopped car insurance lately? If not, do, and call costco too, their savings on insurance were well worth joining.  Possibly consider setting a baby budget in your mind, anyway, of what you think might be reasonable.  100$ a month, perhaps.  More if you end up needing formula for some reason.  Diapers should be 30-50 a month, giving you leftover for clothes, toys, etc. 

My advice would be to stock your freezer with easy meals now so you aren't eating out and getting takeout after baby comes.

Mayday, thank you for your input.  I'm trying to figure out if we want to re-finance or find a place closer to work for me and without the $1K per year HOA dues.  I looked at our security system and it looks like the cancellation is a ridiculous amount ~$985, but we would actually be saving ~$400 as there is about 2 years and 5 months left of the 47.75 payments.  I think our first move will be to cancel our cable and just go with internet/netflix as I'm sure the new bundle of joy is going to be consuming a lot of our time.  We already made all of our freezer meals... should last us for over a month.  All we need to do is just thaw and re-heat.

My advice mostly echoes MayDay.

Why are you doing a Roth? At your income level, a trad IRA is better unless you're planing  to retire with a very large stache and would be making very large withdrawals each year. At least do the math and see what your effective federal tax rate is.

Edit: Your food is high for just two adults. Try to get that below $400 at minimum.

This is where I am looking for advice.  I have always been told to open and max a Roth IRA.  Does it make sense to open a traditional?  Am I able to open a traditional since I already have a 401K?  Should I just max out my 401K and not do any other type of retirement account and just invest with a taxable account?  I'm almost positive we are in the 15% tax bracket filing jointly.

Get rid of cable altogether. So many cheap/free options exist online (hulu, Nextflix, even Youtube, which I use for John Oliver clips) that there's really no reason to have it.

Security system should go too. Think about what you really want out of it. Noises were keeping my husband awake, so he got a small motion sensor from Home Depot and set it to detect movement on the stairs/in the entryway, so if it didn't go off he knew no one was coming upstairs. Cost maybe $15 and let him sleep.

Jewelry insurance? Self-insure. Consider a safety deposit box for anything super valuable.

Overall, looks like you're doing well. You should definitely max your 401K. Congrats on the baby!

Thank you.  As stated above it is like 985 to cancel the security, so we might just stick this one out.  The insurance is only on her ring, just incase it is stolen/falls out of the setting it would be ~$20K to replace by itself.  As asked above, should I just max my 401K and invest our after tax in indexes?

With 19 miles to work and a HOA of 250, what would it take for you to move closer? Are you in an area where you could cut down to one car and live closer? Or are houses twice the price near work?Even if so, MMM makes a compelling case for living closer

They are not more expensive, I'm just not sure the SO will want to move as she has already "nested" in our current house.  We might stick it out for a while and I'll bring it up to her how much it is costing us yearly/over the next 10-15 years.  She's understanding of wanting to save for retirement and me being home with her.