Author Topic: Case Study: Lots of life changes recently, need to reassess finances  (Read 1924 times)

cincystache

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Hi MMM forum,

My wife and I are expecting our first child in the next couple of weeks. We recently made some big changes and I'd like some input on what to focus on in the next year or two. My wife will stay at home with baby so we don't have to worry about daycare. We recently purchased a condo FSBO in a nice area 2.5miles from my office (I now bike or walk every day). We also leased a car (honda accord) which was probably not the best idea but it was 0 down and 208 per month so I don't consider it insane and it will give us 3 years to reassess what we'll need ongoing based on whether we have more kids. My employer is also offering an HSA option for health ins this year so I'd like peoples' thoughts on that with having a newborn.

Assets:
140,000 in retirement accounts 90% stock index 10% cash (Keep some cash in Roth for job loss scenario)
4,500 in cash savings
2,000 in cash checking
116,000 condo (conservative estimate based on purchase price less a 6% commission if we were to sell)
2,000 paid off car

TOTAL ASSETS: 264,000

Debts:
18,500 @4.875% fixed (student loan)
23,000 @4.5% fixed (401k loan): I know I probably deserve a facepunch here but I did it to avoid PMI and my 401k does NOT require immediate payback in the event of leaving the company.
98,500 @3.75% fixed (Condo Mortgage)

TOTAL DEBT: 140,000

Income:
Take home pay (after 401k loan payment of 543 per month): 3,840/month

Monthly Expenses:
Mortgage: 457
HOA:240
Prop Taxes:200
Utilities: 100
Cellphone:38
Car Lease: 208
Car insurance: 93 (65 for new car, 28 for paid off beater)
Life Insurance: 40
Internet: 15
Student Loan Payment: 200
Gasoline: 40
Food:550 (on average)
Restaurants/Entertainment/Misc:250

TOTAL EXPENSES: 2431


Questions:

Wide open to suggestions on any of the above but specifically:

Should I sell our beater car and just drive the leased car/ride my bike? I think this is a yes since we rarely drive now that we live so close to everything but is there any value in hanging on to a paid off car particularly when you can't get much in resale value?

I have about 1400/month cash flow to work with and I am wondering what everyone thinks we should do:
I'm debating between one of the following options realizing that they are all good in their own way.

1. Get our emergency fund up to 15,000 so I can fully invest all the cash in our Roth accounts
2. pay off the 401k loan earlier
3. pay off student loans earlier
4. max out HSA and IRA and make minimum payments on 401k loan and student loan

I know mathematically I'm probably better off making minimum payments on debt and trying to max out all tax advantaged retirement accounts but is there something I'm missing? I don't hate debt but I certainly don't enjoy it either, particularly consumer debt.

I'd love to hear input from the community on idea to improve and/or things to consider as we have a baby and are still trying to pursue FI
Thanks!

nereo

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #1 on: October 18, 2016, 09:43:34 AM »

Questions:

Should I sell our beater car and just drive the leased car/ride my bike? I think this is a yes since we rarely drive now that we live so close to everything but is there any value in hanging on to a paid off car particularly when you can't get much in resale value?

I have about 1400/month cash flow to work with and I am wondering what everyone thinks we should do:
I'm debating between one of the following options realizing that they are all good in their own way.

1. Get our emergency fund up to 15,000 so I can fully invest all the cash in our Roth accounts
2. pay off the 401k loan earlier
3. pay off student loans earlier
4. max out HSA and IRA and make minimum payments on 401k loan and student loan

I know mathematically I'm probably better off making minimum payments on debt and trying to max out all tax advantaged retirement accounts but is there something I'm missing? I don't hate debt but I certainly don't enjoy it either, particularly consumer debt.

I'd love to hear input from the community on idea to improve and/or things to consider as we have a baby and are still trying to pursue FI
Thanks!

Should you sell off one car? In your situation, yes.  There appears to be no need for a second car.  You get a small face-punch for leasing an accord for $208/mo when you already have a functioning car and don't appear to need two cars. You're paying almost $10k in lease and extra insurance over 3 years for an item which will have no value to you later.  Would have been much smarter to just sell the beater and buy a nice but used accord for $7k instead.  Oh well.

I would choose option 4: max out your HSA and IRAs, then pay down the debt with whatever is left over.  In the end your rates are low and cash (or investments) will be much more important than paying down that debt for the next few years.  At your income level (Married, filing jointly) a tIRA is probably the smarter choice.

Mother Fussbudget

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #2 on: October 18, 2016, 10:59:31 AM »
+1 to nereo.  Option 4.

* Drop the car lease, AND sell the 'beater' car and buy a used Accord instead. 
* Don't pay off the 401K debt early unless it keeps you up at night - that interest goes TO YOU.
* After option 4, split the difference with remaining cash between paying the student loan, and investing.

And as always, all the best!

Catbert

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #3 on: October 18, 2016, 11:13:16 AM »
Since you'll have a baby at home soon, I have a somewhat different perspective.  (Plus I'm likely more fiscally conservative than many here).

I would go with option 1 (beef up e-fund and fully invest IRAs) followed up with option 4.  Having children ups the chances that something will happen medical or otherwise requiring use of an e-fund. 

 I wouldn't be too quick to sell the second car.  I'd wait at least 6 months after the baby is born to make the decision.  Maybe when winter hits you'll find yourself driving more.  Or taking a baby on public transportation is a bigger pain than you both think.  Or whatever.  Your old car won't depreciate much in  the meantime. 

Nick_Miller

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #4 on: October 18, 2016, 12:00:59 PM »
+1

I agree with all of this. Bigger cash cushion is a good thing with a baby in the house. And selling the car won't move the needle much. See how your winter goes,

ShoulderThingThatGoesUp

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #5 on: October 18, 2016, 12:55:57 PM »
I have not found my HDHP with an HSA to be a problem with a family.

Zikzin

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Re: Case Study: Lots of life changes recently, need to reassess finances
« Reply #6 on: October 18, 2016, 01:04:33 PM »
Yes on #1 but not $15K, just max the Roth and the rest goes to #4

Interest on the loans are not scary high,
On cars, I would keep the lease instead of the beater for the safety and peace of mind for baby's sake. revisit in a year.

There's so much going on right now, just focus on your reserves and enjoy the nesting