The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: RunHappy on January 15, 2015, 11:50:29 AM
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My SO and I recently found out we are expecting a child together. This is very happy news for us, however it sent me into a frenzy about money and the amount of time to take off after the baby arrives.
I am planning to take a little more time off than is granted by my company allows which means UNPAID time off. To prepare I am pretty much not buying anything and I'm increasing my savings. The thing is I don't know know what to do with my 401k allocation. My company does not do a matching but I was still putting money in (good fund choices).
My questions are:
1) Do I stop contributing to my 401k? If yes then do I just put that money into a normal savings account so I have more liquid money while I'm out on maternity leave? or another option?
2) Do I continue contributing to my 401k but plan to max it out before I go on maternity leave?
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First - congratulations!
To answer your question - it depends. Do you have adequate savings / SO income to get through, including some reserves? How long do you have to save up if not? If you are comfortable with the situation, maxing out the 401K before maternity leave is not a bad way to go. If you desperately need to build your reserves, then doing so may require eschewing the 401K for the time being (may not - if you're making enough you can probably do both).
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Thank you.
My So and I haven't talked in-depth on how it is going to work financially while I am on maternity leave. He makes good money, but also has some debts (student loans, car, and a house with no renters and is underwater). Financially he could support us with what he makes, but he isn't as budget minded as I am. We have had vague conversations about being a one-salary household while I'm on maternity leave, but I honestly didn't think I would get pregnant so quickly.
My current situation is pretty good, I make a decent salary. My only debt is one car note that I am using to help my credit score. I get a VA disability payment every month that will more than cover the car note.
By my calculations if I keep my savings contributions every month until maternity leave I will have approximately 65% of my annual salary in a savings account. If I stop contributing to my 401k then I could have 75% of my annual salary in savings. This is just savings account and not mutual funds and 401k retirement accounts.
Since we have been living together my projected annual living expenses would be 20% of my annual (take home) salary. His are obviously more because of the amount of debt.
Quick note about the house. He bought it during the boom. He was renting it until 2 months ago but the amount in rent was less than the mortgage payment. The renters broke the lease and vacated the house. I forget the exact numbers but I think he about $20k underwater and we just don't know what to do about the house. We now live in another state so we cannot occupy the house. He looked into refinance but they want 20% down because it is not our primary home. If it were mine I would sell it for a loss and consider it a learning experience, but it is not mine.
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So you're debating between having a little over 3 years and almost 4 years of expenses available in cash? Review your insurance so you know what you'd need just in case anything goes awry but that's a heck of a cushion - unless you're potentially on the hook for a lot of medical expenses, I'd keep up the 401K contributions.
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I didn't really think about it terms of years of living expenses. I was looking at more from loss of salary standpoint (hence the frenzy). It makes me feel much better about my cushion.
I'm not anticipating crazy medical expenses but my health insurance is pretty good and then I should be able to get on his when his open enrollment comes up.