Author Topic: Case Study: Teaching, family, and home-buying  (Read 2820 times)

Littlekind

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Case Study: Teaching, family, and home-buying
« on: October 15, 2016, 08:27:54 AM »
Life Situation: I am a 30 year old mom, working full time as a teacher. My husband works part time in the evenings, and we have two kids (6 and 2). We live in the Denver metro area, which has exploding home prices right now and is getting so crowded.

Gross Salary/Wages: 3855

Pre-tax deductions: 385 for dental, medical for just me, PERA contributions (like social security for employees of the state)

Other Ordinary Income: My husband's part time job provides us with about $300 a month take home pay, and medical coverage for him and the kids. (He used to be full time there and reduced his hours to be with our kids. So they let him keep the medical benefits, which makes it worth it for him to continue working about 18 hours per week there.)

Adjusted Gross Income: 3770

Taxes: 520 a month is taken from my check for this, but we always get a refund of about 4k.

Current expenses:
bills 1825
 *my phone/republic $15
 * husbands/tmobile $70 (we take lots of road trips and my data/service with republic is not great on the road, so we use his a lot.)
 *auto insurance $40
 *rent $700 (way  below market renting from my mom)
 *student loan min. payments $300 (details below)
 *hospital bill - no interest $120
 *teachers union $60
 *taxes withheld from check $520 (we eventually get a tax refund of 4k, which we have never managed to save or use wisely in the past).

our ynab categories  $1575
gas $60
groceries $800 (this is way better than we used to do but it still seems high. My daughter does have food allergies and I rely on convenience/freezer meals a bit too often when the pull of restaurant dining is so appealing).
gifts and celebrations $50 (we have a balance of $350 now for Christmas and my son's birthday party this month).
giving $50
cars and bikes fund $150 (just drained the balance paying for dental work)
medical/emergency fund $100 (drained the balance paying for dental work)
dates fund $15
vacation fund $40 (drained the balance going to a family wedding)
school supplies fund $15 (has like $30 now. I use this for my kids school supplies and things I need for teaching [professional classes or books, desk supplies] or for kids in my class [high poverty] so I consider this category to be part of "giving" too).
family purchases $160 (this is diapers [she can't use cloth because she has a skin condition which is irritated by any dampness. I sold our cloth diapers], kids clothing, toiletries, anything we use as a family that is not food, and pet supplies for our dog.)
dining out $60 (honestly overspend this category often. This is our main goal right now for trimming down spending).
Spending $120 (60 each) This might seem like a lot but it is for ANYTHING we buy that is not for family use. Our own clothes, shoes, beers with friends, music, books, lunch with coworkers, etc.
Son's allowance $10 (its actually $5 a month and he earns a dollar for each full ten he has in savings. And he is a good saver.)
 
Gross - bills - categories = $370 month for long term goals. We haven't begun to make a dent in these. Please advise:
Refill our categories for cars/bikes and medical, so we have some cushion.
Keep funding future months: we have a one month buffer in ynab right now.
Pay off husband's loan. It's at 3.5% interest and will be paid off by January. Probably going to let that one ride.
Pay off my loans: 46k at 4.8% I am right now on income adjusted repayment so I can get forgiveness in 9(!) years. The minimum payments above are not even covering the interest. This is a huge concern for me.
Buy a house: we want to move to a lower cost of living area and be near the great outdoors in a small town. Thinking Vermont, Utah, Michigan. Of course the teacher salaries are lower in these areas, so we probably want to have a big stockpile before we do this. We might be partially retired by the time we take this step.
Newer car: we share an 06 Honda now and I ride my bike to work most days. We try to put a little aside each month for the small repairs it often needs and for maintaining our bikes, plus eventually buying a different car for 8k or so when the need finally arises.
Retirement and long term savings: we are not contributing anything to retirement now and have no employer matching. We both used to contribute and have about only 4k total sitting in those accounts. I honestly don't even know what is going on with these as far as performance.

I also would like to hear if you see obvious ways to get our spending down or changes you would make so we can get closer to some of these long term goals.
The only suggestions I am not open to would be:
 - any working more or side hustling. We only get to be together as a family on two week nights and one full day a week.
 - cutting the vacation spending. Our little quick road trips on school breaks are a main way we recharge and reconnect together, and we are very frugal about these trips by camping out, packing our food, and driving our efficient little car.

Thanks in advance.

Waterbug

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Re: Case Study: Teaching, family, and home-buying
« Reply #1 on: October 15, 2016, 09:40:20 AM »

Taxes: 520 a month is taken from my check for this, but we always get a refund of about 4k.
...
 *taxes withheld from check $520 (we eventually get a tax refund of 4k, which we have never managed to save or use wisely in the past).
...
Retirement and long term savings: we are not contributing anything to retirement now and have no employer matching. We both used to contribute and have about only 4k total sitting in those accounts. I honestly don't even know what is going on with these as far as performance.

These are two areas that stood out to me. You can look into tax planning so that you have less taxes taken out each pay period and get a smaller refund at the end of the year. This will allow you to have a little extra money throughout the year to work toward one of your goals, especially since you mention the refund is usually not spent so wisely. There are tools you can use to calculate what you should be claiming on your W4 to get this right.

Once you get that part figured out you can see how much extra money you would get each check. You can figure out what area that money would best be suited for then. However, what I would recommend is to run some different scenarios of "if I put x into my pre taxed retirement account and adjust my withholding based on the above how does that affect my take home pay". You may find a sweet spot where you can both 1) be contributing to retirement and 2) pay less in taxes and minimize a refund (which means you overpaid throughout the year) all while keeping your take home pay about the same.

La Bibliotecaria Feroz

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Re: Case Study: Teaching, family, and home-buying
« Reply #2 on: October 15, 2016, 09:52:25 AM »
Agree that instead of having way too much tax withheld, have some money directed into retirement or even just have it coming into your paycheck for building up your savings. You DO have money going into retirement! PERA is no joke!

I live in Denver, too, and you are super-lucky on the rent! I am a single mom and I pay almost a thousand (with pet rent and fees and whatnot) for my one-bedroom. (Kids are with their dad half the time, so occasionally I get some privacy.)

Your budget is tight--but I see signs that it will loosen a little in the coming months. Diapers, those should be done within the next year, no? (OK, my four-and-a-half-year-old sleeps in pull-ups, but that's much less than daily diapers :-).) The hospital bill will eventually be paid off and your husband's loan is almost gone, right? That's money that can be redirected toward saving as it becomes available.

The only nit-picky thing I have to suggest is consider switching your husband's phone to Ting. $70 for one phone seems like a crazy lot unless he is a very heavy user. (Basically, I would say whichever one of you is the less-heavy user should have Ting and the other can have Republic.)

Welcome and good luck!

swick

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Re: Case Study: Teaching, family, and home-buying
« Reply #3 on: October 15, 2016, 10:02:30 AM »
Welcome to the forums!

Other than what has been mentioned, your food spending seems really out of wack. It is your single biggest expense by quite a bit.   you could easily save 2-300 a month and that would make a huge difference to your savings goals!

It would be worth it to see what is costing so much. Is it the types of food you are buying? Not having a plan? Food being wasted?  Are there habits and behaviours that lead to increased food spending? How are tasks being divvied up between you and your husband? If he is at home during the day, can he take on more cooking? Or maybe you need to be doing the grocery shopping on the way home so he doesn't have to juggle the kids? Are you hiding other spending in your grocery budget you are not aware of?

I'm just throwing some ideas out there to get you thinking since it seems like it is the biggest area you could free up some cash. There are tons of threads on the forums for getting a handle on grocery spending. Good luck!

MayDay

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Re: Case Study: Teaching, family, and home-buying
« Reply #4 on: October 15, 2016, 11:49:52 AM »
Food:  Your kids are old enough, and your older child is gone all day at school (I assume) that I would say dinner (or whatever meal it is that you are relying on convenience food/eating out) should be your husband's job to prepare ahead of time, either in a crock pot, or literally cook the whole meal and put it in the fridge to microwave later.  This is sometimes easier said than done, but it makes a HUGE difference. 

You definitely need to change your tax withholding.

RE. retirement savings, I assume the PERA is a teacher's pension?  In Ohio teachers automatically get ~10% taken out plus a similar district match, so its actually quite a chunk.  I could elect either the pension or a 401-K type account.  (I am not a full time teacher, but I subbed, so I know the system). So you may be contributing.  Which isn't to say you shouldn't contribute more if you can.

The T mobile phone does seem expensive.  I would look at lowering that while sticking with a regular cell network (either Ting, or Republic, for example.)  We are on Republic with family and pay ~30 a month per line and get the ATT network which is fine for most trips, except serious camping in rural areas.  Verizon is the best/only for really rural camping, but also the most expensive, and honestly, how much do you need phone service while camping?  It'll still work in an emergency, and you can still use the gps/maps it just won't have the directions. 

Littlekind

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Re: Case Study: Teaching, family, and home-buying
« Reply #5 on: October 15, 2016, 12:07:11 PM »
@waterbug that is a great first step. I am kind of intimidated to try to change my withholding and contributions, and I am not sure why. We are not on track for "early" retirement at this point at all with the debts we have. If I stop getting so much tax withheld, it makes sense to apply that toward my large student loan, right? I do have PERA for retirement, which is actually pretty great.

@frugalparagon - I know! We are really super lucky with our rent. It is 2 bedrooms and my mom lives in other part of the duplex. I used to feel like this made me less of an adult, I actually posted about it previously on these forums, but now I am choosing to just be grateful and work on getting ahead thanks to  her generosity. She was a single mom too for my teenage years and wished she could have done more for my college expenses, so she is trying to help us out a lot with that low rent. Your comment was encouraging. We should have a little wiggle room after diapers are done and some of our smaller debts are paid off. Also I agree with you on the phone, but my husband wants to keep that plan. I have used a few bargain phone services and they really are inferior to what he gets with t-mobile in terms of coverage, signal, data, especially with the trips we take into the wild outdoors...and since we don't have a land line he feels like it is worth it to pay a little more for one really good plan.

Is it the types of food you are buying? yes, too much frozen and prepared foods, and little snack size portions for packing my son's lunch. Basically choosing convenience too often
Not having a plan? Food being wasted?  Yes to both. The version of me that goes shopping on Saturday buys veggies that need chopped, ingredients for fresh bread, frozen bulk portions of meat, and plans super intensive meals. And then the version of me that has to cook dinner on Wednesday is like, "forget it. Making a box of mac." I hate how much I throw out produce.
Are there habits and behaviours that lead to increased food spending? Yes. In some ways we've made big strides. I make oatmeal almost every morning so I can feel like we're the Frugalwoods. And I make a bulk batch of dried beans each weekend because they're cheaper than canned, and we love beans. But I'm nickle and diming on these things and letting lots of waste also occur 
How are tasks being divvied up between you and your husband? If he is at home during the day, can he take on more cooking? Or maybe you need to be doing the grocery shopping on the way home so he doesn't have to juggle the kids? I bike to work with my son riding on the back because he attends the school where I teach. So my husband buys the groceries. In my opinion, he does too much impulse buying things that are on sale but we don't need...like bottles of juice, kids crackers, candy, baby food squeeze pouches and special organic puffs, whatever, but I am ignoring it because those splurges are helping us break the dining out habit. Eventually we have to face that, though.
 Are you hiding other spending in your grocery budget you are not aware of? Actually YES! My husband gets anxious talking about the money and just totally wants me to handle it and update him along the way. So he didn't know I was categorizing grocery spending. He was taking out cash when he went to the store and mentally considering that his spending money, but I was marking it as grocery. So our ynab average is inflated because of that, but I don't know how much difference that will make in the long run.

So, yea I have not dealt with the grocery spending because I figured that would be our safe space for food splurging rather than dining out. But it is definitely an area to work on. @mayday yea having my husband cook dinner would be really helpful. He does this sometimes but the day often gets away from him because he is playing with our daughter so much, which is also good.

Follow up question for all: Even though we only have like $300 a month for long term goals right now, what do you think we should prioritize? That 46K debt makes me sick, but eventually will be forgiven if I teach many more years...there's a lot of unknown with that option, though.

swick

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Re: Case Study: Teaching, family, and home-buying
« Reply #6 on: October 15, 2016, 01:14:09 PM »

So, yea I have not dealt with the grocery spending because I figured that would be our safe space for food splurging rather than dining out. But it is definitely an area to work on. @mayday yea having my husband cook dinner would be really helpful. He does this sometimes but the day often gets away from him because he is playing with our daughter so much, which is also good.


It sounds like you have some idea of where your money is going, now it all depends on getting you and your husband on the same page. There is no problem with splurging a little in the food category, but is it worth it to buy instant squeezy things when you could be using that money for something else?

 It's not fun when all your extra money goes to debt, but it might be as simple of sitting down with your husband, figuring out priorities and developing some goals that matter to the both of you.  Is it retiring earlier so you can spend more time with your family? Is it being able to sleep at night because you have a clear idea of where your money is going?

FWIW - I was basically raised in the kitchen sink...literally. My mom had a towel down and plopped me in the sink as soon as I could hold my head up. That way she could prep and cook, engage me, tell stories, teach me how to cook as I got older.

Playing with your daughter and food prep/cooking doesn't have to be an either/or just have to be creative. Other side benefits - no picky eaters in our house because we were exposed to food and learned taste and texture and familiarity through play. We are totally comfortable in the kitchen and know how to cook. This has saved us tons of money/time/stress over the years. Better lines of communication in the older child/teenage years. It's usually easier to talk about the hard stuff when you are doing something else. The kitchen became the central part of the house and family and the "safe place"

MDM

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Re: Case Study: Teaching, family, and home-buying
« Reply #7 on: October 15, 2016, 01:31:05 PM »
...changes you would make so we can get closer to some of these long term goals.
How about $800/month to your 403b?  And paying off your student loan (all of it) over 10 years?

Before dismissing this as impractical, see the table below.  Might be errors and omissions, etc., but the intent was to use your OP numbers.  The saver's and earned income credits could give you significant tax savings - what do you think?

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$3,855$46,260
Salary/Wages for earner #2$333$4,000
Pretax Health Ins.$385$4,620
FICA base salary/wages$3,803$45,640
401(k) / 403(b) / TSP / etc.$800Room to increase?$9,600
Income subject to IRS tax$3,003$36,040
Federal Total Income$3,003$36,040
Federal tax-$4152016 rates, MFJ, stand. ded., 4 exempt.-$4,982
State/City tax$20Guess, using 4.63% * Federal taxable$238
Soc. Sec.$236Assumes 2 earners paying$2,830
Medicare$55$662
Total income taxes-$104-$1,252
Income before other expenses  $3,108$37,292
Monthly Average Expenses:
Rent$700$8,400
Car Insurance$40$480
Car Maintenance, Registration, etc.$150$1,800
Child activities $10$120
Dining (Lunch/Dinner/Etc.)$60$720
Gifts (not charitable contributions)$50$600
Emergency Fund$100$1,200
Entertainment$15$180
Fuel/Public Transport$60$720
Groceries$800$9,600
Household; Maintenance$160$1,920
Medical (Doctor, Hospital, etc.)$120$1,440
Miscellaneous$120$1,440
Phone (cell)$85$1,020
School Tutition/Books/Etc.$15$180
Travel/Vacation$40$480
Work/Professional fees$60$720
Non-mortgage total$2,585$31,020
Loans:
Student Loan$483$5,801
Total Expense$3,068$36,821
Total to invest$39$471
Summary:
"Gross" income$4,188$50,260
Income taxes-$104-$1,252
After-tax income$4,293$51,512
IRA+401k/403b/TSP/457 (Savers' credit)$800$9,600
Living expenses$2,970$35,640
Non-mortgage loans$483$5,801
After-tax investable$39$471


Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions4
# Children <172
# Children for EIC2
Adult #1Adult #2
Age3030
# of earners2
Total Income$36,040
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$16,200
SL int. (approx.)$2,098
AGI$33,942
MAGI$36,040
Taxable$5,142
1040 Tax$514
AMT adder$0
Saver's credit$2,000
Tax after n-r credit$0
NIIT$0
EIC$2,982
Child Tax Cred.$2,000
Net Tax-$4,982
Monthly-$415
State tax$2384.63%
Item. Deduct.$238
VersionV8.10

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Student Loan$46,00010$46,000104.800%
« Last Edit: October 15, 2016, 02:02:02 PM by MDM »