Author Topic: Cash flow for daycare and house reno  (Read 1942 times)

Chrissy

  • Pencil Stache
  • ****
  • Posts: 946
  • Age: 42
  • Location: Chicago
Cash flow for daycare and house reno
« on: October 29, 2017, 02:43:51 PM »
High income, early-40s couple with one toddler and another on the way.  We're doing everything we can each year:

401k w/ 5% match:  $24k
403b no match:  $17k
ROTHS:  $11k
HSA:  $6,750

529:  $20k... front loading 2 years with each kid, then calling it quits
Coverdell:  $2k... only for Toddler, to potentially be used for private kindergarten

We also take advantage of the Dependent Care FSA ($5k) and Transit Benefit ($1,700).

On top of all that, my employer gives us a health care slush fund of $10k/yr to spend on anything husband's insurance doesn't cover (with the exception of the premiums).  It rolls over year to year and never expires, even if I quit!  As long as we have employer-sponsored health insurance, we have access to that money.  Because it's cash-only, and cannot be invested, we claim everything we can asap:  our deductible, dental, vision, our IVF treatments, acupuncture, massages, etc.

Here's the situation...  Baby #2 is due in the Spring, so we will double our daycare costs to $40k/yr.  We cannot currently cash-flow the additional daycare expense. 

I'm thinking we stop contributing to the HSA ($7k) and bring my 403b down ($13k) to pay the additional daycare costs for a couple years--just until we stop front-loading the 529s--but, everyone is so hot-to-trot for HSAs as the ultimate retirement fund that I'm doubting myself.  Doesn't my health slush fund pretty much negate the benefits of this account for the moment?  We can't double-claim the receipts, so, until I quit and we completely drain the slush fund, we won't have any receipts for our future, tax-free HSA withdrawals.  Have I thought this through properly?  If not, where should we cut?

Also, we're about to renovate a property to the tune of $50k.  We have this money set aside in cash in accessible bonds and a money market.  For our emergency fund, we have $23k in chequing.  After the reno, we would need an additional $23k to have 6mo of expenses.  We have $0 debt and are worth >$800k including the paid-off house.  Do we really NEED ~$50k as our emergency fund, or is $23k okay?  I'm leaning toward $23k.  What say you?

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4753
Re: Cash flow for daycare and house reno
« Reply #1 on: October 29, 2017, 02:49:21 PM »
I would cut out the 529s before the HSA/403b.  You will have medical costs at some point (even if it is when you are using Medicare) and even if for some reason you don't, the 7.65% FICA savings still makes it worth investing in first. 

cchrissyy

  • Pencil Stache
  • ****
  • Posts: 743
  • Location: SF Bay Area
Re: Cash flow for daycare and house reno
« Reply #2 on: October 29, 2017, 09:10:44 PM »
I'd pause the 529 for a couple years.  is that enough to fix your cash flow?

as far as the emergency fund, no I wouldn't keep 6 months of expenses in checking. I like 1-2 months in checking and everything else invested.

SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 910
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #3 on: October 30, 2017, 06:59:27 AM »
I'd definitely stop front loading the 529s and restart when the toddler is in school and care costs go down.  You get substantially better tax savings on the HSA and 403b than you do on the 529, which makes a big difference at what I am supposing your income level is.  Are you planning on public school?  We're expecting our care costs to do down substantially when we move from daycare to public school.

As a side note, we are in Chicago too and are looking into Ready to Learn/public preschool for our older one.  The eligibility requirements and how children get placed is a total mystery, but it looks like a pretty underutilized program that has full day options.  There is also tuition based Pre-K, which is about $1550/month.  Both only run during the school year, but it might be worth looking into if you have any interest.

Also, we have very similar presumed income/savings/expenses and have about $25k in cash and the rest invested.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: Cash flow for daycare and house reno
« Reply #4 on: October 30, 2017, 07:05:40 AM »
i'll echo the rest of the comments. stop the front loaded 529's and then reload those when you have a chance down the road due to more income or decreased doctor costs.

historienne

  • Bristles
  • ***
  • Posts: 355
Re: Cash flow for daycare and house reno
« Reply #5 on: October 30, 2017, 07:39:51 AM »
We are in a very similar situation (although without, alas, the paid off house).  We have chosen to prioritize fully funding 401ks and IRAs over 529s.  We do have about $20k in each kid's 529,  contributed before kid 2 was born and we simultaneously moved to a city with much greater daycare expenses.  We hope to be able to fully cover college for both kids, but if we can't, our retirement is much much more important.  Kids can get scholarships, take out loans, go to cheaper institutions.  The tax advantages are also much more significant, even if you are in a state that lets you deduct 529 contributions (which we no longer are).

We are currently drawing down our emergency fund to near zero in order to pay for a house renovation.  We are comfortable with this because of the following reasons:
1 - I am an academic; I'm not tenured yet, but I do have a multiyear contract (at a very financially solvent institution).  I'm not going to lose my job overnight.
2 - My husband is in a field that currently has a very tight job market.  He could get another job with a few phone calls - and would probably double his salary (he has earned twice his current income in the past, but took a big cut to work for a nonprofit; if he went back to the private sector, his salary would go back up).
3 - My parents routinely offer to loan/give us large sums of money (and they can genuinely afford to do so, they are frugal by nature and as a result have more money than they know what to do with now that they are retired).  We turn them down because we don't need it, but if we had an actual emergency, we would take them up on it.  And we all communicate well about money, so it wouldn't be awkward or come with weird strings.

Which is to say, I think a $23k emergency fund could be reasonable, but it depends on lots of specifics.  For you, in particular - how willing would you be to pull your kids from daycare if one of you lost your job, since it seems like that's probably your biggest monthly expense?  We would not be willing to do so, because daycare waitlists around here are long, so if we pulled the kids and then needed to put them back in care on short notice, we'd be screwed.  But you may have a different situation.

Chrissy

  • Pencil Stache
  • ****
  • Posts: 946
  • Age: 42
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #6 on: October 30, 2017, 08:39:46 AM »
Are you planning on public school?  We're expecting our care costs to do down substantially when we move from daycare to public school.

As a side note, we are in Chicago too and are looking into Ready to Learn/public preschool for our older one.  The eligibility requirements and how children get placed is a total mystery, but it looks like a pretty underutilized program that has full day options.  There is also tuition based Pre-K, which is about $1550/month.  Both only run during the school year, but it might be worth looking into if you have any interest.

Wow, I was not expecting to hear I should pause the 529s, but it does make sense.  I'll bring it up with DH tonight.  We could still pay in a good amount for Baby #2, anyway, before she starts daycare at 5mo.

Public school in Chicago... well...  our local elementary is currently poorly rated.  I can't see us doing the selective enrollment/lottery dance, so I'm planning for private for kindergarten.  DD is 1.5 yrs right now, and, for simplicity and peace-of-mind, we're looking for a place she can stay until age 5.  There's a chance we will move to our rural property, out-of-state, around the time she goes to kindy or first grade, where the local elementary has a top rating, is 1/4 mi from the house, and the high school has an average ACT score of 26.

Chrissy

  • Pencil Stache
  • ****
  • Posts: 946
  • Age: 42
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #7 on: October 30, 2017, 08:40:41 AM »
I'd pause the 529 for a couple years.  is that enough to fix your cash flow?

Yep.

SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 910
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #8 on: October 30, 2017, 08:44:31 AM »
Are you planning on public school?  We're expecting our care costs to do down substantially when we move from daycare to public school.

As a side note, we are in Chicago too and are looking into Ready to Learn/public preschool for our older one.  The eligibility requirements and how children get placed is a total mystery, but it looks like a pretty underutilized program that has full day options.  There is also tuition based Pre-K, which is about $1550/month.  Both only run during the school year, but it might be worth looking into if you have any interest.

Wow, I was not expecting to hear I should pause the 529s, but it does make sense.  I'll bring it up with DH tonight.  We could still pay in a good amount for Baby #2, anyway, before she starts daycare at 5mo.

Public school in Chicago... well...  our local elementary is currently poorly rated.  I can't see us doing the selective enrollment/lottery dance, so I'm planning for private for kindergarten.  DD is 1.5 yrs right now, and, for simplicity and peace-of-mind, we're looking for a place she can stay until age 5.  There's a chance we will move to our rural property, out-of-state, around the time she goes to kindy or first grade, where the local elementary has a top rating, is 1/4 mi from the house, and the high school has an average ACT score of 26.

That makes a ton of sense.  I just bring it up because CPS is super hard to navigate and even NPN didn't give me accurate information about preschool options.

Chrissy

  • Pencil Stache
  • ****
  • Posts: 946
  • Age: 42
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #9 on: October 30, 2017, 08:57:07 AM »
We are currently drawing down our emergency fund to near zero in order to pay for a house renovation.  We are comfortable with this because of the following reasons [...]

Which is to say, I think a $23k emergency fund could be reasonable, but it depends on lots of specifics.  For you, in particular - how willing would you be to pull your kids from daycare if one of you lost your job, since it seems like that's probably your biggest monthly expense?  We would not be willing to do so, because daycare waitlists around here are long, so if we pulled the kids and then needed to put them back in care on short notice, we'd be screwed.  But you may have a different situation.

Our reasons are very similar! 

We would not pull the kids from daycare.  Yes, wait-lists are a year long here.  Also, I tried a summer as a SAHM, and was totally miserable.  DH wants to try SAH sometime, and he could try it if we were FIRE at our rural property out-of-state and had a 5-yr-old and a 7-yr-old in free public school.  He doesn't have the temperament for days on end with younger children.

Chrissy

  • Pencil Stache
  • ****
  • Posts: 946
  • Age: 42
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #10 on: October 30, 2017, 09:08:40 AM »
That makes a ton of sense.  I just bring it up because CPS is super hard to navigate and even NPN didn't give me accurate information about preschool options.

I did know about the public preschool options, somehow.  What's NPN?  I found a lot of info on CPSObsessed.  About the time I found out that some families here hire a private company to help them with their public school options, and also that CPS monkeys around with the formula for max # of children in the classroom, I was kinda DONE.

(Max no. of kids in the classroom.  They'll tell you it's 25 or some such reasonable number, but the reality is it's 25 + 20%, so really.... 30.  And, if you have less than 30, then they mark that classroom as underutilized, and it gets penalized somehow.  Totally, totally F-d up.  If you take a tour, make sure you actually count the heads, 'cause they're not going to tell you the real number.)

SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 910
  • Location: Chicago
Re: Cash flow for daycare and house reno
« Reply #11 on: October 30, 2017, 09:19:22 AM »
That makes a ton of sense.  I just bring it up because CPS is super hard to navigate and even NPN didn't give me accurate information about preschool options.

I did know about the public preschool options, somehow.  What's NPN?  I found a lot of info on CPSObsessed.  About the time I found out that some families here hire a private company to help them with their public school options, and also that CPS monkeys around with the formula for max # of children in the classroom, I was kinda DONE.

(Max no. of kids in the classroom.  They'll tell you it's 25 or some such reasonable number, but the reality is it's 25 + 20%, so really.... 30.  And, if you have less than 30, then they mark that classroom as underutilized, and it gets penalized somehow.  Totally, totally F-d up.  If you take a tour, make sure you actually count the heads, 'cause they're not going to tell you the real number.)

NPN is Neighborhood Parents Network - a parent org that does preschool and school fairs among other things.