Author Topic: Case study: Reassessing after baby  (Read 4033 times)

meerkat

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Case study: Reassessing after baby
« on: February 20, 2016, 10:21:37 AM »
Specific question: Now that we have a baby in the house we knew our expeses would go up, but it seems like they've gone up more than just the baby would account for so it's time to crack down on  our laissez-faire spending - but where? I've been staring at these numbers for so long I can't see the trees for the forest so I'd welcome outside input. Also, around the end of the year we'd like to buy another car to replace my POS two door (not car seat friendly!) and have a general budget of $15k-$20k. Is that at all realistic? Unfortunately becoming a one car household is not doable at this time.

I tried using the spreadsheet from the tutorial post on how to make a case study but I'm not sure I filled it out 100% right. To be clear, our monthly mortgage due (with taxes and insurance) is $930.75 but we pay $1180.75. Same with our auto loan - we only owe $288ish per month but pay $500. We could have skipped the loan entirely but felt the interest we'd pay was worth keeping a bit more of our money liquid.

Alrighty, here we go:
CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$3,524$42,293
Salary/Wages for earner #2$3,600$43,202
Pretax Vision/Dental Ins.$5$65
Daycare FSA$208$2,500
Employer-sponsored HSA$30Room to increase?$360
FICA base salary/wages$6,881$82,570
Employer Match$124$1,494
Income subject to IRS tax$6,881$82,570
ESPP/After-tax 401k$160$1,917
Paycheck income before tax$6,721$80,654
Federal Total Income$6,881$82,570
Federal tax$7482015 rates, MFJ, stand. ded., 1 exempt.$8,973
State/City tax$0Guess, using 0.00% * Fed. Taxable$0
Soc. Sec.$427Assumes 2 earners paying$5,119
Medicare$100$1,197
Total income taxes$1,274$15,290
Add Health + Daycare reimb.$208$2,500
Income before other expenses  $5,655$67,864
Monthly Average Expenses:
Mortgage$643$7,721
Property Tax$287$3,447
Car Insurance$130$1,560
Car Maintenance, Registration, etc.$181$2,172
Charitable contributions$35$420
Child Misc (non childcare)$170$2,044
Childcare$696$8,352
Christmas/Holidays$20$240
Clothing/Shoes$40$480
Dining (Lunch/Dinner/Etc.)$202$2,428
Electricity/water/natural gas$194$2,328
Entertainment$57$680
Groceries$356$4,274
Household; Maintenance$159$1,904
Internet$67$804
Life Insurance$46$552
Medical (Doctor, Hospital, etc.)$87$1,042
Medicine (OTC + Prescription)$20$240
Miscellaneous$792$9,504
Pets$22$265
Phone (cell)$120$1,440
Phone (landline)$37$444
Shopping$55$655
Travel/Vacation$49$588
Non-mortgage total$3,822$45,863
Loans:
Auto$288$3,457
Total Expense$4,754$57,042
Total to invest$902$10,822
Additional Mortgage Principal$234$2,808
Additional Loan payments$212$2,543
Available for taxable investment:$456$5,471
Summary:
"Gross" income$7,125$85,495
Income taxes$1,274$15,290
After-tax income$5,850$70,205
HSA$30$360
ESPP+529/other$160$1,917
Living expenses$4,471$53,650
Non-mortgage loans$288$3,457
After-tax investable$902$10,822
Time to FIRE?:
Time to FIRE18years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments5.00%percent
Real, after tax, return on taxable investments4.25%percent
Current Savings
Tax-deferred (e.g. trad. IRA/401k)$42,338
Roth + HSA$101,000
Projected Savings at Retirement
Taxable$341,916
Tax-deferred (e.g. trad. IRA/401k)$143,918
Roth + HSA$253,196
Total projected stash$739,031
Projected Expenses in Retirement
Non-loan, non-work expenses$45,863

#REF!

Total$45,863
Stash needed for retirement @4.0% SWR$1,146,585
Need $407,554 more.


Filing Status21=S, 2=MFJ, 3=HOH
# Exempt.1
Earner #1Earner #2
Ages3040
# of earners2
Total Income$82,570
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$4,000
AGI$82,570
MAGI$82,570
Taxable$65,970
1040 Tax$8,973
Saver's credit$0
Tax after n-r credit$8,973
Child Tax Cred.$0
EIC$0
Net Tax$8,973
Monthly$748
Mtg. Int. (approx.)$4,642
Prop tax$3,447
Charity$420
Item. Deduct.$8,510
VersionV7.09

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Mortgage$120,00030$93,971124.990%
Auto$5,0005$3,4564.51.750%


The formatting looks terrible, even with the comments and annual columns removed. I used the Posting tab, but I am using Open Office instead of actual Excel so make that's breaking it? I'll be happy to fix it if someone can tell me how to do so easily, otherwise I'm going to hit post and come back to edit when I have more time. My apologies to your eyeballs in the meantime. Column G was the answer! Thank you MDM!!

Edits in responses to comments:
  • The holiday/gift budget has been corrected to twenty (not two hundred, whoops)
  • I'm going to try to dig down more into Misc, that was partly me being lazy/out of time and seeing that Quicken had average monthly expenses over the last twelve months of xyz but the handy dandy spreadsheet had expenses of abc. I've already found a cluster of uncategorized transaction in Quicken (how?? Grr.) and miscategorized (the dog's vet appointment is not medical, there's a specific pet category). Plus some other stuff that I just need to be more diligent about sorting through and attributing correctly on the spreadsheet. I'll do another edit with Misc broken out sometime in the next few days. Second edit: I won't have to time to really dig into this for a couple weeks, but I will report back! You guys have been very helpful already!
  • The food budget is definitely a weakness and has become a very bad habit. We're also trying to get back into the habit of going to the (free!) gym at lunchtime so hopefully that will help reinforce good food habits as well.
  • I am proud to say aside from one purchase, all of kid's clothes have come from Goodwill, gifts, or free from coworkers. I've also tried to avoid buying "temporary" toys (the stuff they only use for a month or two or three) if it's something daycare already has.
« Last Edit: February 23, 2016, 06:23:04 PM by meerkat »

PharmaStache

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Re: Case study: Reassessing after baby
« Reply #1 on: February 20, 2016, 12:17:25 PM »
$792 Misc expenses?  You need to figure out where that's going. 

Sibley

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Re: Case study: Reassessing after baby
« Reply #2 on: February 20, 2016, 12:30:49 PM »
Well, here's what I'm seeing.

You've got kid expenses. Makes sense. Don't buy clothing new - only gifts, used or hand-me-downs.

It seems like you're spending a lot on holidays.

$200 a month on dining - cut that down. Especially since you've got $350 a month in groceries.

But the Misc category is the real killer here. Figure out what that actually is.

Basically, you're zombies from lack of sleep and taking care of a baby and your habits have gone more towards what's easy.

obstinate

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Re: Case study: Reassessing after baby
« Reply #3 on: February 20, 2016, 01:20:17 PM »
Phone is high, misc is very high (~1/4 of non-mortgage expenses?). You shouldn't do additional auto and additional mortgage payments. Pay only into whichever has the higher interest rate.

Knitwit

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Re: Case study: Reassessing after baby
« Reply #4 on: February 20, 2016, 01:47:50 PM »
I noticed your Christmas/Holiday budget line is $200 a month, that's $2400 a year. What exactly does that get spent on? Gifts? Food? Travel? Anything there you can cut back?

MDM

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Re: Case study: Reassessing after baby
« Reply #5 on: February 20, 2016, 03:34:40 PM »
The formatting looks terrible, even with the comments and annual columns removed. I used the Posting tab, but I am using Open Office instead of actual Excel so make that's breaking it? I'll be happy to fix it if someone can tell me how to do so easily, otherwise I'm going to hit post and come back to edit when I have more time. My apologies to your eyeballs in the meantime.
Column G on the Posting tab is what you want.  At least, that's how it works in Excel: column G takes the other columns and wraps table commands around them to line things up in this forum's software.

dinkhelpneeded

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Re: Case study: Reassessing after baby
« Reply #6 on: February 22, 2016, 04:28:22 AM »
I am currently pregnant, and this is how I plan to keep things organized:
  • Keep separate checking accounts for monthly expenses and another one for baby expenses, and no co-mingle the two.
  • This way I know exactly how much I am spending on baby, and my other checking account has budgets and targets similar to pre-baby numbers (fixed costs).
I recommend you do this for starters, even at stores, check out twice if you need to - just to keep baby expenses separate. 6 months in you can always chose to co-mingle accounts and such.

This also helps recognize expenses as they happen and put in checks and balances as needed, instead of just overspending, and finding out later.

MDM

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Re: Case study: Reassessing after baby
« Reply #7 on: February 22, 2016, 11:16:48 AM »
Specific question: Now that we have a baby in the house we knew our expeses would go up....

I tried using the spreadsheet from the tutorial post on how to make a case study but I'm not sure I filled it out 100% right. To be clear, our monthly mortgage due (with taxes and insurance) is $930.75 but we pay $1180.75. Same with our auto loan - we only owe $288ish per month but pay $500.

Filing Status21=S, 2=MFJ, 3=HOH
# Exempt.1

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Mortgage$120,00030$93,971124.990%
Auto$5,0005$3,4564.51.750%

You are in better shape than those inputs indicate.  Increase your exemptions to 3, put 1 for both "# Children <17" and "# Children for EIC" (although you won't get the EIC with current income), and your federal tax bite will drop by $2,200.

See the 'Investment Order' tab in the spreadsheet regarding your loans.  Probably worth paying the mortgage before taxable investing, but paying the mortgage minimum until you maximize tax-advantaged contributions might be worthwhile.  The car loan interest is low enough that just paying the minimum looks best.

Now comes a significant question: are you comfortable enough with the spreadsheet results (both your inputs and its calculations) that you will increase your tax-advantaged (401k, IRA, etc.) contributions so the amount "Available for taxable investment" goes to zero?

csprof

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Re: Case study: Reassessing after baby
« Reply #8 on: February 22, 2016, 08:05:08 PM »
Others have hit the high points:
(a)  Don't pay off your car loan at an accelerated rate.  If you want to continue kicking down debt, pay it into your mortgage instead, the interest rate is much higher.

(b)  But:  I don't see much pre-tax retirement contribution in there.  Free 25% extra money is nothing to sneeze at.

(c)  Your cell phone bills are high.  Cricket or Fi will get you down to ~$70/month or a bit less with no real reduction in anything ( http://da-data.blogspot.com/2015/10/comparing-prepaid-cell-plans-public.html ), though Fi is phone-specific.  It's usually worth switching even if you have to pay some early termination fee, but check carefully.

Do you need your landline?  I haven't found even with a 3.5 y/o that we lose anything by being a cell-only household.  That might change once the munchkin's friends want to call her, but we're a few years off from that (and I'll rig up some hacketyhack VoIP thing when that happens).

Your itemized expenses mostly seem low - kudos.

CanuckExpat

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Re: Case study: Reassessing after baby
« Reply #9 on: February 22, 2016, 09:32:03 PM »
Unfortunately becoming a one car household is not doable at this time.
Relevant, if at least for future aspirations: How To Be a One Car Family

Your mortgage interest rate seems really high for the current environment. Have you considered refinancing? As an aside, I'm very jealous of the size of your mortgage and property tax payment.. alas..

Combining the two points above: you are paying almost as much for your car habit as you do in mortgage payments. Food for thought..

Other bits that caught my attention:
Quote
Child Misc (non childcare)   $170      $2,044
What does the miscellaneous represent that other child spending doesn't?

Quote
Clothing/Shoes   $40      $480
Is this for just the child or all three of you? Might be kind of high either way.

Quote
Dining (Lunch/Dinner/Etc.)   $202      $2,428
Groceries   $356      $4,274[/i]
Is one of these eating out? Combined total seems high.

Quote
Life Insurance   $46      $552
What kind of insurance is this, are you getting your $500 worth for something you will hopefully never need? Can't you get cheap/free term insurance through your workplaces?

Quote
Miscellaneous   $792      $9,504
Big black hole. This is your second miscellaneous category.

Quote
Phone (cell)   $120      $1,440
Phone (landline)   $37      $444[/i]
Why do you have cell phone(s) and a landline? The total is really high.

Quote
Shopping   $55      $655
This is your third miscellaneous black hole!


Anyways, it's easy to nitpick other people's spending (and kind of fun), but what are your goals? How much do you want to spend? What do you want to achieve? What was your spending like before you had a child? What categories do you think you can cut back on.

meerkat

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Re: Case study: Reassessing after baby
« Reply #10 on: February 23, 2016, 06:21:23 PM »
Quote
ChildMisc (non childcare)   $170      $2,044
What does the miscellaneous represent that other child spending doesn't?

Mostly gear (high chair, bouncer, etc.). I'm hanging on to it till either we have a second kid or decide to be a one child family, then I'm going to resell it. Some items I'm spending a bit more on with the idea of buying a better quality thing once instead of multiples over time. I keep hearing about people buying multiple strollers and it boggles my mind.

Quote
Clothing/Shoes   $40      $480
Is this for just the child or all three of you? Might be kind of high either way.

Everyone. I think my maternity clothes purchases might be inflating that number, I'm not sure when exactly those purchases fell but it did skew my usual clothing purchase pattern.

Quote
Dining (Lunch/Dinner/Etc.)   $202      $2,428
Groceries   $356      $4,274[/i]
Is one of these eating out? Combined total seems high.
It totally is high. We've already smacked ourselves in the head and will be brown bagging it more in the future.

Quote
Life Insurance   $46      $552
What kind of insurance is this, are you getting your $500 worth for something you will hopefully never need? Can't you get cheap/free term insurance through your workplaces?
Term, it's in addition to what we get through work. When we originally got it neither of our works offered life insurance. I do feel like we're getting our $500 worth.

Quote
Miscellaneous   $792      $9,504
Big black hole. This is your second miscellaneous category.
Yup. Unfortunately at this point I'm not going to have the time to really dig into this for a couple weeks but I really do want (need) to find out what this is.

Quote
Phone (cell)   $120      $1,440
Phone (landline)   $37      $444[/i]
Why do you have cell phone(s) and a landline? The total is really high.
Cancelled the landline yesterday!

Quote
Shopping   $55      $655
This is your third miscellaneous black hole!
Mostly random household stuff, but I'll add it to the list with "Misc" for further investigation. Thanks for pointing it out.


Anyways, it's easy to nitpick other people's spending (and kind of fun), but what are your goals? How much do you want to spend? What do you want to achieve? What was your spending like before you had a child? What categories do you think you can cut back on.

Goals: Replace my POS car by the end of 2016, possibly have a second child, still save for retirement and not push retirement too much further in the future. Our overall spending was good before we had a child but I mainly know that because of the amount we were able to transfer to savings, not because of the more granular level of being able to say our spending in a given category was good or not.

Categories to cut back on - as I already said, we cut out the landline (after saying "we should do that" for way, way too long). We will revert to our old lunch habits - predominantly brown bagging it and eating out maybe twice a week, and the eat out days will be at cheaper places rather than $15pp sit down restaurants like we've gotten into the habit of doing.

(b)  But:  I don't see much pre-tax retirement contribution in there.  Free 25% extra money is nothing to sneeze at.
Good point. Definitely on the list to consider once I get the expenses sorted out better.

(c)  Your cell phone bills are high.  Cricket or Fi will get you down to ~$70/month or a bit less with no real reduction in anything ( http://da-data.blogspot.com/2015/10/comparing-prepaid-cell-plans-public.html ), though Fi is phone-specific.  It's usually worth switching even if you have to pay some early termination fee, but check carefully.

Last time I looked into this the network used by the cheaper carriers recommended on here has a gap in coverage near my house, so we are basically in the middle of a dead zone. Very annoying.