I've been a persistent "lurker" on this site for at least a year and have decided to finally join and post a "Case Study." My wife and I are in our early thirties. We live in a high cost of living area. We are both professionals that came out of law/grad school with a combined close to $200,000 in student loan debt about six years ago. Since then we've reduced the student loans to about $70,000 through increasing incomes and trying to avoid lifestyle inflation. We have a toddler and another child on the way. Our incomes have really increased a lot over the past year plus, a couple of years ago our combined income was about 1/2 what it is now.
The Basics
My income: $105,00
Wife's income: $93,000
Combined: $198,000 (plus a small bonus potential for me of around $3,000-$8,000 per year)
Assets:
House $255,000 (purchased for around $280,000 in 2011 but on the market and not selling listed in that area) House is 1100 square feet, we'd like to move closer to work. Mortgage amount and rate listed below.
Emergency Fund: $8,300
Combined Retirement Funds: $65,000
529 for child: $7,000
Paid off 2005 Honda SUV and 2013 Hyundai Sedan. (do not count towards net worth)
*My wife recently started maxing out 457 and 403(b) at her public employment job. I have no retirement offered, no health insurance etc.,
Total Assets: $335,300
Liabilities
Mortgage: $197,000 at 4.25% interest (15 year loan)
Wife's Federal Loans: $14,000 at 6.55% interest
My Federal Loans: $56,000 at 6.55% interest
Total Liabilities: $267,000
Approximate Net Worth: $68,300
Monthly Expenses
Mortgage/Property Tax/Escrow: $2,615
Daycare: $1,100 (about to be $2,300 when newborn comes - we do not live near family and are transplants to our area)
Dog Walker $350 (probably our biggest "face punch" but we both work long hours and its our only way to fairly have a dog. We're homebodies and dog lovers so we went for it despite knowing how wasteful it is from a financial perspective)
Groceries/Diapers/Toiletries: $650 (shop at Walmart)
Restaurants : $275 (mostly me eating lunch out with colleagues, "networking")
Student Loans : $1,206 (aggressive repayment)
Retirement: $3,000 (maxing out 457 and 403b)
Insurance: $100.00 (life and auto)
Water: $40.00
Electric: $60
Heat: $300 (oil, average as obviously used only in summer)
my phone $12 (republican wireless)
Wife's phone: $40 (smart phone)
Internet: $40 (no house phone or cable)
Gas: $280 (2 cars, 15 mile commute each way for each of us in same direction but different hours and cannot carpool)
Medical: $50 (co-pays etc. average)
Dog Misc. $80 (average - vet bills, flea and heartworm preventatives, food, etc)
Our Misc: $250 (haircuts, cash out of atm, clothing, dry cleaning, etc)
Total: $10,448
Questions, Comments
The above monthly average comes to a yearly expense of $125,376 (assuming daycare for 2). Thus despite good salaries, there is not as much "wiggle room" left over as I would like once our second child is born. Obviously daycare and other expenses would decrease if one of us were to lose a job, but it makes me feel vulnerable. I grew up in a very working class household where my parents were constantly fighting over money. That and the large "hair on fire" debt we have remaining for student loans leaves me feeling somewhat precarious.
To make matters worse, I feel like a lot of my larger expenses are very fixed and hard to modify. For instance, our house is modest but we still have a decent sized mortgage with around 10 years left on it (assuming we cannot sell). We would like to sell to buy a similarly sized home closer to work. This could perhaps allow us to carpool on occasion or allow one of us to walk to work. Also, there is a certain long-range opportunity that becomes more likely for my career if I actually reside in the county where I work. That said, this opportunity is no sure-fire shot regardless of where I reside.
Our home, student loans, daycare bills take up most of the budget. I'm not sure how to trim these in a high cost of living area. We could probably pay less for daycare if we had someone come to our house every day but we are not from this area, are short on contacts, and would not feel comfortable with that arrangement given our situation.
I sometimes wonder if we should cut off retirement savings (or decrease them) to just go after the student loans and be done with them once and for all. The only problem is we only started saving for retirement with any type of momentum recently as we spent years going after the loans. Also, we are now in a decently high tax bracket and I like the retirement savings as a way to get some relief (paying off our loans at our incomes provides little or not tax benefit).
I may be underpaid as a sixth year attorney in a high cost of living area but I like my boss and my long-term potential here. Sometimes I consider trying to get a job at a higher paying "medium sized" firm (don't believe big law would have me) but I've only been here for less than 2 years and have already moved around a decent amount for my relatively small time in practice.
Questions: What areas of our budget can be better optimized? Is there anything we can do to further reduce our tax bill? Should we focus more on the debt than the retirement savings? Is there anything we can do with our large expenditures that I'm missing to improve monthly cash flow? How hard of a face punch do we deserve? I consider myself frugal but then I look at this and I think I'm messing up somewhere and bad!
I'm glad to be part of the community and thank everyone in advance for their time and thoughts.