Author Topic: Case Study: Preparing to be a stay at home mom  (Read 8735 times)

Crystal1588

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Case Study: Preparing to be a stay at home mom
« on: April 20, 2016, 08:15:32 AM »
Hi all-
Sorry in advance for this being so long!!

My husband and I are due with our third child in November.  After I take my maternity leave, I will become a stay at home mom.  I donít plan on putting in my notice until about 3 weeks before my leave is over.  All said and done I will be taking about 15 weeks of maternity leave.  3 weeks paid vacation, 6 weeks short term disability (60% pay) and 6 weeks unpaid.
Hoping to get some feedback on our financial plan and any other feedback you feel pertains to this situation. Thanks in advance! 

I am 28, hubby is 29.  We have a 4 year old and 2 year old.

I currently make $40,000/year, of which I take home about $4,000/year.  I max out my 401k ($18,000) and my company matches $4,500.  I also pay for health insurance, flex and daycare which totals about $15,000/year. 

Husbandís Income:
$86,000/year from full time job
Take home: $5,400/month. Paid 1st of the month.  He does not contribute to 401k as it is not a good plan, has high fees and no matching. Once I stay home, he would be paying medical and flex which would amount to about $200/month. Future medical deduction is reflected in his take home above. His job does automatically contribute 5% of his annual salary to a pension.
Rental Property: $450 net profit each month. This goes directly into savings for either maintenance on current rental or additional rentals in the future.
Ebay/consignment business: $500 or so a month profit (obviously varies). All profits go into our savings account to eventually buy more rentals.

Expenses:
Mortgage: $1,775 including taxes/insurance
Tithe: $700/month
Utilities (gas/electric): $150/month
Cell Phones: $150/month
Life Insurance for both of us: $75/month
Groceries: $450/month
Internet: $40/month
Gas: $200/month
Car/umbrella Insurance: $100
Miscellaneous (includes eating out/entertainment): $100/month
4 year old preschool 2 days/week: $160/month

Savings:
IRAs: $920/month
Kids 529 Savings: $250/month
Misc Expenses : $150/month
Investment savings: $150/month

Current Savings Balances:
My 401k: $50,000
Husbandís IRA: $48,000
My IRA: $6,800
Emergency Fund: $6,000
Rental Savings Account (liquid) $13,000
Kids Savings: $4,000 total

No debt except mortgage on our home and our rental.

Our current strategy is to save like crazy until the baby comes.  We plan on buying a van this summer (in the $15,000 range) which would require about $7,000 after our trade in. Other than saving for that, we are just saving in general as much as we can.
We've always been pretty frugal but outside opinions are very welcome!

ShoulderThingThatGoesUp

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Re: Case Study: Preparing to be a stay at home mom
« Reply #1 on: April 20, 2016, 08:35:58 AM »
Are you maxing your IRAs if he's not contributing to his 401k?

Make sure you get new quotes for car insurance from lots of companies after you stop driving to work. You're paying a lot currently.

People will give you crap about the tithe but you get to decide your values and live by them.

little_brown_dog

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Re: Case Study: Preparing to be a stay at home mom
« Reply #2 on: April 20, 2016, 08:37:37 AM »
I would anticipate an increase in your utility bills. As a SAHM, the increase in utilities surprised me. Now that I'm home all day, we use a bit more electricity than before because I'm always home. Same thing for heat if you usually turn the thermostat really low during the work day.

I would make sure you continue to set aside money to contribute to your IRA (he can contribute money to an account in your name) so you don't stop saving for retirement once you lose access to your company's 401k. He can contribute up to 5500 a year to your IRA. It is important that you don't stop saving in your account just because you stay home. You should also account for an increase in 529 contributions, assuming you are allocating a specific amount per child.


« Last Edit: April 20, 2016, 08:41:38 AM by little_brown_dog »

Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #3 on: April 20, 2016, 08:42:26 AM »
Are you maxing your IRAs if he's not contributing to his 401k?

Make sure you get new quotes for car insurance from lots of companies after you stop driving to work. You're paying a lot currently.

People will give you crap about the tithe but you get to decide your values and live by them.

We are currently maxing his IRA, not mine.
Good call on the insurance, I'll make a note of it.
Regarding the tithe, it's very important to us.  It is near the top of the priority list.

I would anticipate an increase in your utility bills. As a SAHM, the increase in utilities surprised me. Now that I'm home all day, we use a bit more electricity than before because I'm always home. Same thing for heat if you usually turn the thermostat really low during the work day.

I would make sure you continue to set aside money to contribute to your IRA (he can contribute money to an account in your name) so you don't stop saving for retirement once you lose access to your company's 401k. He can contribute up to 5500 a year to your IRA. It is important that you don't stop saving in your account just because you stay home.




In our new budget I had noted $920/month going into IRAs, which is maxing both of our IRAs. 
Noted on the utility bills. We live in the upper midwest, so winters can be brutal :-(

c-kat

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Re: Case Study: Preparing to be a stay at home mom
« Reply #4 on: April 20, 2016, 08:42:42 AM »
I don't see anything budgeted for house maintenance. I would suggest putting aside 1% of the value of your home every year for this as you may need to replace a roof or appliance etc. 

I'd also add something for car maintenance.

Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #5 on: April 20, 2016, 08:45:08 AM »
I don't see anything budgeted for house maintenance. I would suggest putting aside 1% of the value of your home every year for this as you may need to replace a roof or appliance etc. 

I'd also add something for car maintenance.

We have a line of $150/month for miscellaneous expenses which is largely for home/car expenses. We live in a brand new house, so very little maintenance.  The $150/month has been sufficient so far and has a surplus of about $3,000 since we started doing this 4 years ago.  We figure anything over that would come out of the emergency fund since it would have to be a fairly large repair.

meandmyfamily

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Re: Case Study: Preparing to be a stay at home mom
« Reply #6 on: April 20, 2016, 09:12:12 AM »
It looks great to me.  The only suggestion I have is to skip preschool.  $160 a month is huge for 2 days.  You can do all that at home.  I know some people will disagree but preschool isn't necessary with a SAHM mom who is involved will her kids everyday.  In 10 years it won't matter that they went or not but $160 a month adds up especially if you send all the kids. 

Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #7 on: April 20, 2016, 09:16:41 AM »
It looks great to me.  The only suggestion I have is to skip preschool.  $160 a month is huge for 2 days.  You can do all that at home.  I know some people will disagree but preschool isn't necessary with a SAHM mom who is involved will her kids everyday.  In 10 years it won't matter that they went or not but $160 a month adds up especially if you send all the kids. 

Ugh I totally hear you.  This is the one line item in the budget that we have gone back and forth on.  He starts school (K) in September 2017. So it's about 10 months of the expense.  He is extremely attached to his school, friends and teachers and I feel bad about pulling him out when it's such a short timeline.  I know it's definitely an extravagance but he is thriving and it's only 10 months. But yeah, I know it's unnecessary.

Platypuses

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Re: Case Study: Preparing to be a stay at home mom
« Reply #8 on: April 20, 2016, 12:38:26 PM »
Looks like a pretty solid plan.
A couple of comments:
- Consider putting your entire paycheck or as much as you can towards your 401k in 2017. With the baby due in November and the remaining 15 weeks of employment you should be able to contribute  3 or 4 paychecks in 2017.
- Life insurance is a little high. My wife and I were paying $46/mo for $500,000 term life and we are a little older. Not sure what your coverage is but something to evaluate.
- Cell phone bill is high as it seems that many mustachians pay around $20-30/mo (I should note that I am being a hypocrite about this as I spend around the same amount you do for the fancy phone data package).

Best of luck.

slappy

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Re: Case Study: Preparing to be a stay at home mom
« Reply #9 on: April 20, 2016, 01:16:51 PM »
I agree with the cell phone piece.  Especially if you plan to plan to spend most of your time at home with the kiddos. My husband is a SAHD and uses far less data now that he is home all the time and can use the wi fi. Previously, he would stream Pandora at work on his phone, so he was using more data. I downgraded his plan, which only saved about $10 a month, but we are still work on the mustachianism.

justajane

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Re: Case Study: Preparing to be a stay at home mom
« Reply #10 on: April 20, 2016, 01:21:42 PM »
How many hours is the preschool? From my vantage point, $160 for two days is a steal. I wouldn't cut it. I'm in the preschool isn't necessary but still important camp.

Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #11 on: April 20, 2016, 02:11:29 PM »
How many hours is the preschool? From my vantage point, $160 for two days is a steal. I wouldn't cut it. I'm in the preschool isn't necessary but still important camp.

8-12:30 so 4 1/2 hours twice a week.  If I wanted to make it full days (8-5), I would have to pay $280/month. The problem I have with the full time days are that 2 hours of it are quiet/nap time. He can do that at home for free :).

MDM

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Re: Case Study: Preparing to be a stay at home mom
« Reply #12 on: April 20, 2016, 02:14:01 PM »
He does not contribute to 401k as it is not a good plan, has high fees and no matching.

How high?  See http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/ for some thoughts on "how high is too high?"   

It's probably worthwhile for you to do some rough projections to see how things look.  E.g., you can use the case study spreadsheet for starters and/or tools mentioned in https://www.bogleheads.org/forum/viewtopic.php?t=115839#p1686175 and links therein.

mm1970

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Re: Case Study: Preparing to be a stay at home mom
« Reply #13 on: April 20, 2016, 02:33:31 PM »
It looks great to me.  The only suggestion I have is to skip preschool.  $160 a month is huge for 2 days.  You can do all that at home.  I know some people will disagree but preschool isn't necessary with a SAHM mom who is involved will her kids everyday.  In 10 years it won't matter that they went or not but $160 a month adds up especially if you send all the kids. 

Ugh I totally hear you.  This is the one line item in the budget that we have gone back and forth on.  He starts school (K) in September 2017. So it's about 10 months of the expense.  He is extremely attached to his school, friends and teachers and I feel bad about pulling him out when it's such a short timeline.  I know it's definitely an extravagance but he is thriving and it's only 10 months. But yeah, I know it's unnecessary.
$160 a month huge for 2 days?  My son is starting preschool soon, and his preschool (which is "middle of the road" on cost) would be $380 a month for 2 half-days a week.
(He will also start kinder fall 2017)

I would keep him in there.  I'd probably cut the tithe by $160 before I'd cut this out.  Are you adjusting the tithe with your decrease in income?

lbonga1

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Re: Case Study: Preparing to be a stay at home mom
« Reply #14 on: April 20, 2016, 02:41:50 PM »
Since you are the one paying the health insurance, be careful about not returning to work after your leave. I have heard of companies billing the employee for the insurance costs. From what I understand, you can generally avoid it by returning to work and immediately giving 2-3 weeks notice.

justajane

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Re: Case Study: Preparing to be a stay at home mom
« Reply #15 on: April 20, 2016, 02:44:22 PM »
How many hours is the preschool? From my vantage point, $160 for two days is a steal. I wouldn't cut it. I'm in the preschool isn't necessary but still important camp.

8-12:30 so 4 1/2 hours twice a week.  If I wanted to make it full days (8-5), I would have to pay $280/month. The problem I have with the full time days are that 2 hours of it are quiet/nap time. He can do that at home for free :).

Oh, I hear ya on the nap. Ours had a long nap and I found it annoying, especially when my middle son was four and didn't need a nap. We've always put our kids to bed earlier. I finally told them to stop. It turned out that they had a "play group" in another room for those kids who didn't want to nap. But my son was tentative and hasn't asked to be with that group. He would just lay there on the cot bored out of his gourd.

$280 for 8-5 twice a week is also a steal, IMO. But this varies per region. I pay $300 a month for MWF 9-2. But I have always been upfront about the fact that preschool/Parent's Day Out for my three kids is for my benefit and not theirs. :)

Gin1984

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Re: Case Study: Preparing to be a stay at home mom
« Reply #16 on: April 20, 2016, 02:44:51 PM »
With less income coming in you NEED a repair fund started before things break for the house.

merula

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Re: Case Study: Preparing to be a stay at home mom
« Reply #17 on: April 20, 2016, 02:47:57 PM »
I don't think the preschool is too high, and I do disagree that it's the exact same thing as working with your kid at home. My son's 2 half-days/week preschool is $300/month. Also in the midwest but a larger city so higher COL than many other parts. One of the biggest things I wanted him to learn was how to listen to other adults and interact with his peers. That might not be everyone's goal, granted, but IMHO it has value.

I second the life insurance being too high. It sounds like it's either a ridiculous amount or whole/universal. Think about what you might need if one or both of you died and use that to make a decision on this. For example, I found out that my husband/children would get Social Security survivor's benefits that would comfortably cover all of our current monthly expenses except the mortgage. So my life insurance is mortgage payoff + top off kids' college fund = $150,000. If my SAHD husband died, I'd want a live-in nanny for awhile, so that's what I considered for his life insurance.

Also, do you really need an umbrella? It's hardly ever worth it. Insurance companies make twice the profit on umbrella policies as they do on auto policies. I'd check into what your state law says in terms of protecting assets and go from there. (My state protects IRAs and primary residences from judgement, federal government protects 401ks. My assets outside of those three things are negligible.) I'd also look into raising your deductibles since you have a cash cushion to cover them.


Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #18 on: April 20, 2016, 02:48:29 PM »
It looks great to me.  The only suggestion I have is to skip preschool.  $160 a month is huge for 2 days.  You can do all that at home.  I know some people will disagree but preschool isn't necessary with a SAHM mom who is involved will her kids everyday.  In 10 years it won't matter that they went or not but $160 a month adds up especially if you send all the kids. 

Ugh I totally hear you.  This is the one line item in the budget that we have gone back and forth on.  He starts school (K) in September 2017. So it's about 10 months of the expense.  He is extremely attached to his school, friends and teachers and I feel bad about pulling him out when it's such a short timeline.  I know it's definitely an extravagance but he is thriving and it's only 10 months. But yeah, I know it's unnecessary.
$160 a month huge for 2 days?  My son is starting preschool soon, and his preschool (which is "middle of the road" on cost) would be $380 a month for 2 half-days a week.
(He will also start kinder fall 2017)

I would keep him in there.  I'd probably cut the tithe by $160 before I'd cut this out.  Are you adjusting the tithe with your decrease in income?

I know that $160 is reasonable, it's more so just the fact that it could be cut.  But the decision came down to him thriving in it and thinking it was a reasonable cost for what he was getting from it. 


Since you are the one paying the health insurance, be careful about not returning to work after your leave. I have heard of companies billing the employee for the insurance costs. From what I understand, you can generally avoid it by returning to work and immediately giving 2-3 weeks notice.

Very good point. I happen to know our company does not do this (good friend is the HR manager and I've asked her the policy) but I have also heard horror stories of other companies doing this.

Crystal1588

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Re: Case Study: Preparing to be a stay at home mom
« Reply #19 on: April 20, 2016, 02:51:42 PM »
I don't think the preschool is too high, and I do disagree that it's the exact same thing as working with your kid at home. My son's 2 half-days/week preschool is $300/month. Also in the midwest but a larger city so higher COL than many other parts. One of the biggest things I wanted him to learn was how to listen to other adults and interact with his peers. That might not be everyone's goal, granted, but IMHO it has value.

I second the life insurance being too high. It sounds like it's either a ridiculous amount or whole/universal. Think about what you might need if one or both of you died and use that to make a decision on this. For example, I found out that my husband/children would get Social Security survivor's benefits that would comfortably cover all of our current monthly expenses except the mortgage. So my life insurance is mortgage payoff + top off kids' college fund = $150,000. If my SAHD husband died, I'd want a live-in nanny for awhile, so that's what I considered for his life insurance.

Also, do you really need an umbrella? It's hardly ever worth it. Insurance companies make twice the profit on umbrella policies as they do on auto policies. I'd check into what your state law says in terms of protecting assets and go from there. (My state protects IRAs and primary residences from judgement, federal government protects 401ks. My assets outside of those three things are negligible.) I'd also look into raising your deductibles since you have a cash cushion to cover them.

We do have a lot of life insurance, this is likely something we should cut down. I'll talk to hubby about it tonight. 
In regards to the umbrella policy, we got it when we got the rental property. We wanted to protect our personal assets since the rental is not in an LLC. 

merula

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Re: Case Study: Preparing to be a stay at home mom
« Reply #20 on: April 20, 2016, 03:01:15 PM »
We do have a lot of life insurance, this is likely something we should cut down. I'll talk to hubby about it tonight. 
In regards to the umbrella policy, we got it when we got the rental property. We wanted to protect our personal assets since the rental is not in an LLC.

If you're primarily worried about the liabilities from the rental, it'd be better (and in all likelihood cheaper) to put that in an LLC and buy the LLC insurance, which would also cover you for your liability as an owner of the LLC.