Author Topic: Help to Plan Young Couple's Budget  (Read 6964 times)

fin123

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Help to Plan Young Couple's Budget
« on: May 28, 2013, 01:38:39 PM »
Hi Everyone!

I've been reading various PF sites recently and have been glued to the forums the past few days.  As my wife and I are both finally employed we're trying to organize our budget in the most effective manner, so I thought I would ask everyone's advice and would appreciate any tips that the forum members may have.

A bit of background - I'm 26, my wife is 24.  We jointly make ~132K and live in a highly-taxed, high COL area.  I would like to go back for my MBA in a few years (2-3?), hence a strong goal of mine is to "minimize" as much as possible income that would be available on a FAFSA.  I haven't researched this too much, but it's to my understanding that retirement funds aren't considered on the FAFSA form though would be available for use to pay educational expenses...so it's to my benefit to max those out - the question is just in what capacity and which investment vehicles.

Our monthly budget:
1) Rent - $1,100
2) Car payment - $515 - my wife needs a car to get to work and we just purchased a certified used car.  Our only debt (we have no student loan or CC debt) is this car loan for $17K for 36 months at @2.04%.  Both of our families keep cars 10+ years until they're no longer usable, and we plan to do the same.  Again, due to wanting to go back to school in the near future, I took out the loan for only 36 months with it being such a low rate to accelerate payments now and didn't want to throw down the ~20K in cash as it would highly deplete our savings.
3) Parking - $250
4) Tolls to/from work - $200
5) Gas - $200
A word about Parking, Tolls, and Gas - $650: We don't live in the safest area, and with parking being tight and having a car broken into already, we decided to have peace of mind and splurge for keeping the car in a garage.  We're thinking about moving to an area closer to where my wife works, which would get rid of the parking, tolls, and half the gas, but for the 2BD we'd want it would be an increase in rent of about $600, so the savings in the end would be a wash.
6) Subway (to work) - $100
7) Car insurance - $109
8) Health care - $0 - wife works for large healthcare system, as long as you visit their hospitals you only pay co-pays, no premium.
9) Food - $250
10) Utilities - $80
11) Other - $100
12) TV/Internet - $0 - we live near a University with free wifi and just watch TV over the internet
Total - $2904

We've both been putting away 10% into our 401k (Vanguard)/403b (MetLife) plans (comes out to ~1K a month all together), with work matching .25 per dollar up to 6% and my wife's company only matching after she's been there a year.  Our total take-home pay after those contributions is ~$6500.  Additionally, we put aside 10% of our net pay (after 401k) for charity, which is $650 a month.  That leaves us with take home of $5850 - $2904 (total monthly expenses above) for a monthly surplus of = $2946 (having already put aside 10% of each paycheck into 401k/403b).

Additional funds:

Savings: $35K
Investments: $26K
- a) ~$4,600 in Roth I opened up in my name over a year ago, b)~$1,700 in newly opened 401k/403b, c)$8K in DIS (held since I was born), d) rest in taxable investment accounts
Debt: ~$17K - auto loan (explained above)

Questions I have are:

1) Emergency fund - As we have $35K sitting in savings earning about nothing, I feel that I should cut that to 18K (3K monthly expenses x 6) and invest the other 17K.  Does this make sense?

2) Investments - Where should we invest the 3K surplus a month plus the 17K from savings? We are already contributing 10% to 401k/403b - how much should we bump that up? My one BIG mistake was missing out on 2012 Roth contributions for my wife and myself....I know, big mistake, but let it only be made once.  We still have the same money, just the $11,000 will be taxed a bit differently.  I need to open a Roth for my wife as well.  How should we divvy up the funds between Roths, 401k/403b, and other IRAs? Majority is now in different Fidelity and Vanguard mutual funds, but I would like to get my act together and plan out a more focused investment strategy across all the different accounts/investment options.

3) Future expenses:
a) Child - we're trying to have a child and we would be more than thankful to have all expenses associated with a child in the near future.  My wife is a nurse so thankfully she works 3-4 nights a week which would minimize daycare expenses.  She plans to go back to work after giving birth.  Best way to save for this?
b) MBA - I plan to go back to school for my MBA in 2-3 years and would like to minimize the amount of stated income available on the FAFSA.  What is the best way to go about this?


I very much appreciate anyone's advice and thank you in advance for any help/tips offered!

madage

  • Bristles
  • ***
  • Posts: 405
  • Location: TX
Re: Help to Plan Young Couple's Budget
« Reply #1 on: May 28, 2013, 02:31:28 PM »
Welcome! You're off to a very good start, both in terms of excellent salaries and (mostly) low expenses. Two questions regarding the car, which is sucking up more than 1/3 of your current spending:

1. Explain to me again why you're paying interest on the depreciating asset? You said you didn't want to delete your emergency savings, then later say you have too much cash on-hand and want to take $17,000 of that and invest. Seems to me you could easily earn 2.04% on your extra $17K and free up $515 per month in cash flow that you can then pump into investments.

2. What about the value of your time? Someone (maybe two someones) must be spending a lot of time in a vehicle to rack up $400 in tolls and gas per month. Because the tolls drop with a move, I assume the new place would be closer to work. I also assume it's safer there, since wouldn't pay to garage that budget-eater. Have you placed a value on your personal safety? It sounds to me like there is undisclosed inertia resisting a move.

Regarding your question about divvying up the investments between multiple accounts, I find it best to simply keep a spreadsheet with all of my accounts and deal with the overall asset allocation of the whole. The way things have worked out for us, my wife's IRA ended up with a large share of the government securities while mine ended up with most of the real estate (Vanguard REIT index + ETF).

fin123

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Help to Plan Young Couple's Budget
« Reply #2 on: May 28, 2013, 02:56:49 PM »
Thanks for the help!

To answer a few questions:

1. Explain to me again why you're paying interest on the depreciating asset? You said you didn't want to delete your emergency savings, then later say you have too much cash on-hand and want to take $17,000 of that and invest. Seems to me you could easily earn 2.04% on your extra $17K and free up $515 per month in cash flow that you can then pump into investments.

I feel like the cash would be better spent invested over the next 3 years and would gain more than the 2% interest we're paying on the auto loan - hence originally taking out the loan as opposed to paying entirely in cash.  The question now is just how to invest that 17K.

Quote
2. What about the value of your time? Someone (maybe two someones) must be spending a lot of time in a vehicle to rack up $400 in tolls and gas per month. Because the tolls drop with a move, I assume the new place would be closer to work. I also assume it's safer there, since wouldn't pay to garage that budget-eater. Have you placed a value on your personal safety? It sounds to me like there is undisclosed inertia resisting a move.

We were living in this area before with no car and were waiting to see where my wife would get a job.  Once she was hired, we bought the car and now pay for tolls and gas.  Her income easily makes up for the car/transportation expense.  We are actually planning to move closer to her job without an effect on my commute, which would as I mentioned should save us the around $550 per month (-$250 parking, $200 tolls, $100 gas).  We would be moving into a larger apartment though (which we would like), so these savings would be a wash.  As you mentioned, it would save us a good deal of time and cut down her commute by 40 minutes each way.

Any idea about minimizing income for grad school (MBA)? Plus, I assume we should move the emergency fund into a high-yield savings account (Amex pays .85%) from the .00000001% it's getting now from our bank.

Thanks!

CU Tiger

  • Bristles
  • ***
  • Posts: 463
  • Location: Mid-Atlantic USA
Re: Help to Plan Young Couple's Budget
« Reply #3 on: May 28, 2013, 03:37:58 PM »

Our monthly budget:
2) Car payment - $515 - my wife needs a car to get to work and we just purchased a certified used car.  Our only debt (we have no student loan or CC debt) is this car loan for $17K for 36 months at @2.04%.  Both of our families keep cars 10+ years until they're no longer usable, and we plan to do the same.  Again, due to wanting to go back to school in the near future, I took out the loan for only 36 months with it being such a low rate to accelerate payments now and didn't want to throw down the ~20K in cash as it would highly deplete our savings.
3) Parking - $250
4) Tolls to/from work - $200
5) Gas - $200
A word about Parking, Tolls, and Gas - $650: We don't live in the safest area, and with parking being tight and having a car broken into already, we decided to have peace of mind and splurge for keeping the car in a garage.  We're thinking about moving to an area closer to where my wife works, which would get rid of the parking, tolls, and half the gas, but for the 2BD we'd want it would be an increase in rent of about $600, so the savings in the end would be a wash.
7) Car insurance - $109


Wow. You are spending $1274 a month on auto related expenses. That is A LOT.

If you could move closer to your wife's work, ditch the expensive car (buy a used one for cash) and stop paying for parking, tolls, and all that gas, it would be CHEAP for you to pay a little more in rent.

These are the kinds of decisions that will make a big deal of difference in the long run. You are young. If you could save an extra $500 a month now and invest that, by the time you are my age (late 40s) you would have a much bigger stash of cash and investments.

Or, you can cut out all other expenses and sit in your  $1200 a month car for fun! Sorry for the face punch,  but that car is costing you.

« Last Edit: May 28, 2013, 03:40:19 PM by CU Tiger »

madage

  • Bristles
  • ***
  • Posts: 405
  • Location: TX
Re: Help to Plan Young Couple's Budget
« Reply #4 on: May 28, 2013, 03:38:42 PM »
Any idea about minimizing income for grad school (MBA)?


No, sorry. My kids are small and I haven't begun to attempt to understand how to make your FAFSA look like you have need. My experience (from 6-7 years ago, when my wife was taking some additional classes) was that FAFSA said I could contribute about half my annual salary to pay for her classes, which was hilarious and meant she was very far from qualifying for anything resembling need-based aid. At the time, I did not have your salary or your assets, so I'm going to say you have an uphill battle there. I'm sure someone else will stop by with some more recent experience to share.

Quote
I assume we should move the emergency fund into a high-yield savings account (Amex pays .85%) from the .00000001% it's getting now from our bank.

Definitely maximize your interest rate on FDIC-insured savings. If you have a BBVA Compass bank nearby, you can sign-up for their Build My Savings account. I'll let you play around with the calculator to figure out how high you can work the interest rate. 5% is not that difficult to attain using this account.

Another option is to use one of the high-yield savings accounts linked to prepaid debit cards. This option takes a little more work, and you won't get away with zero fees, but you can earn 4.8% on $5,000 with mango. There's a bit of a walkthrough on bogleheads.org. Union Plus is another prepaid debit option with high-yield savings. I'll admit I feel a little silly jumping through these hoops, but the rate is high enough to make it worth it to me.


Lans Holman

  • Bristles
  • ***
  • Posts: 276
  • Location: North by Northwest
Re: Help to Plan Young Couple's Budget
« Reply #5 on: May 28, 2013, 03:49:28 PM »
As the parent of a small child, the one thing that stood out to me in all your planning is the idea of your wife working nights after you have a kid.  You guys are a lot younger than we were so maybe you have the energy but that sounds literally painful to me. 

StarryC

  • Bristles
  • ***
  • Posts: 283
Re: Help to Plan Young Couple's Budget
« Reply #6 on: May 28, 2013, 04:20:11 PM »
I have several friends who are nurses who have returned to work post-baby.  I wouldn't advise "nights", but if she can get a "swing" shift from 3-11 that would mean only a few hours of day care a day assuming you work 8-5.  The kid could be in care from 2 to 6, and she would still get a pay "differential" I think.  The other alternative is to work 2 x 12s on the weekend, which means very little family time.

Why do you want to go back to school for an MBA?  It looks like you have a good salary.  What does getting a business degree do for you?  I'd either try to find a way to have your work subsidize it, or take night/weekend/web classes on a longer schedule and pay cash.  I would call up the fin-aid dept of the school you want to go to and ask about available aid.  My guess is they don't give a lot based on the FAFSA and it is all either merit aid (Grades & test scores) or loans (like law school).   

I would reconsider parking.  I think a replacement window is like $250, right?  Your car could be broken into EVERY MONTH and your parking cost would be equal to the price of windows.  Buy a "Club", don't leave anything in the car, stop washing it, and stop paying for parking. Every month your car isn't broken in to, you save $250.  Maybe your area is so dangerous that your car will be broken in to more than 12 times a year, but that would surprise me. 


ScubaAZ

  • 5 O'Clock Shadow
  • *
  • Posts: 62
  • Location: Phoenix, AZ
  • New Mustachian looking for FI by 40
Re: Help to Plan Young Couple's Budget
« Reply #7 on: May 28, 2013, 05:13:22 PM »
As the parent of a small child, the one thing that stood out to me in all your planning is the idea of your wife working nights after you have a kid.  You guys are a lot younger than we were so maybe you have the energy but that sounds literally painful to me. 

This is what I was thinking too.  If the theory is that she can work all night, and then watch a baby/toddler during the day because she's "staying home", that is crazy talk.  When will she sleep?  And if she's working all night, and you're up all night with the baby, school/work are really going to suck for you too.  Not saying that people don't do this, but its probably not as ideal as you think it may be.

As for the FAFSA thing, I went to law school with about $50k in retirement accounts, $20k in a taxable investment account, and $12k in savings.  It didn't affect my financial aid at all (obviously I didn't qualify for need-based aid, but for loans it was fine).  I wasn't trying to go about the federal loan maximums (thank god), I'm not sure if that would change the analysis for you.  It shouldn't affect merit-based awards.   

fin123

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Help to Plan Young Couple's Budget
« Reply #8 on: May 28, 2013, 10:02:13 PM »
Thanks everyone for your help! To answer a few of the questions:

Wow. You are spending $1274 a month on auto related expenses. That is A LOT.

If you could move closer to your wife's work, ditch the expensive car (buy a used one for cash) and stop paying for parking, tolls, and all that gas, it would be CHEAP for you to pay a little more in rent.

Yes, she's only been employed for a month, but we plan to look for apartments closer to her work which would knock out about half of that expense.

I would reconsider parking.  I think a replacement window is like $250, right?  Your car could be broken into EVERY MONTH and your parking cost would be equal to the price of windows.  Buy a "Club", don't leave anything in the car, stop washing it, and stop paying for parking. Every month your car isn't broken in to, you save $250.  Maybe your area is so dangerous that your car will be broken in to more than 12 times a year, but that would surprise me. 

A huge part of the parking is that it's a guaranteed spot without ever needing to move the car for street cleaning.  That honestly is more important to us than the worry of the car being broken into - parking is very tough to find in this area and this allows us to go about our errands without worry of finding a spot upon our return.  Again, we will probably be paying for parking for only a few more months.

As the parent of a small child, the one thing that stood out to me in all your planning is the idea of your wife working nights after you have a kid.  You guys are a lot younger than we were so maybe you have the energy but that sounds literally painful to me. 

I have several friends who are nurses who have returned to work post-baby.  I wouldn't advise "nights", but if she can get a "swing" shift from 3-11 that would mean only a few hours of day care a day assuming you work 8-5.  The kid could be in care from 2 to 6, and she would still get a pay "differential" I think.  The other alternative is to work 2 x 12s on the weekend, which means very little family time.

If the theory is that she can work all night, and then watch a baby/toddler during the day because she's "staying home", that is crazy talk.  When will she sleep?  And if she's working all night, and you're up all night with the baby, school/work are really going to suck for you too.  Not saying that people don't do this, but its probably not as ideal as you think it may be.

Yes, she really loves the work at the hospital and as a new nurse on the floor, would have the night shift which is 8 pm to 8 am.  However, the plus is that it is only for 3-4 days a week and we would only need a babysitter from 8-3ish to give her time to sleep (we have friends who do this).  So instead of babysitting 9am-5pm for 5 days a week, it'd only be 8am-3pm for 3-4 days a week - which makes a big difference.

Ideal? No.  Doable? Yes.

As for the FAFSA thing, I went to law school with about $50k in retirement accounts, $20k in a taxable investment account, and $12k in savings.  It didn't affect my financial aid at all (obviously I didn't qualify for need-based aid, but for loans it was fine).  I wasn't trying to go about the federal loan maximums (thank god), I'm not sure if that would change the analysis for you.  It shouldn't affect merit-based awards.   

Thanks! This info definitely helps.  Would probably be good to speak with someone more knowledgeable about FAFSA forms and the like in any event.

Why do you want to go back to school for an MBA?  It looks like you have a good salary.  What does getting a business degree do for you?  I'd either try to find a way to have your work subsidize it, or take night/weekend/web classes on a longer schedule and pay cash.  I would call up the fin-aid dept of the school you want to go to and ask about available aid.  My guess is they don't give a lot based on the FAFSA and it is all either merit aid (Grades & test scores) or loans (like law school).   

My salary is $60K and would only slowly move up.  The actual hourly wage though is much lower than you would expect.  I would want to get an MBA at a T10 school, possibly going into management consulting afterwards.  A highly-respected MBA should be able to pull in 120K-150K after graduation.  However, this is for full-time programs without working during the day.  Night programs don't really give you the same access to on-campus recruiting of these larger firms.

Sweet Betsy

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: Help to Plan Young Couple's Budget
« Reply #9 on: May 30, 2013, 12:08:21 PM »
Start saving up now and pay for your MBA with cash.  With your current income there is no way that you are going to qualify for need based grants, etc.  The only thing the FAFSA is going to tell you is how much you can take out in loans.  You make plenty of money right now...you have no need for loans. 

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1133
Re: Help to Plan Young Couple's Budget
« Reply #10 on: May 31, 2013, 08:52:09 AM »
Thanks everyone for your help! To answer a few of the questions:

I would reconsider parking.  I think a replacement window is like $250, right?  Your car could be broken into EVERY MONTH and your parking cost would be equal to the price of windows.  Buy a "Club", don't leave anything in the car, stop washing it, and stop paying for parking. Every month your car isn't broken in to, you save $250.  Maybe your area is so dangerous that your car will be broken in to more than 12 times a year, but that would surprise me. 

A huge part of the parking is that it's a guaranteed spot without ever needing to move the car for street cleaning.  That honestly is more important to us than the worry of the car being broken into - parking is very tough to find in this area and this allows us to go about our errands without worry of finding a spot upon our return.  Again, we will probably be paying for parking for only a few more months.


Oh give me a break. You're paying $250 a month so you don't have to move your car for street cleaning? That's INSANE.

fin123

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Help to Plan Young Couple's Budget
« Reply #11 on: May 31, 2013, 11:54:19 AM »
Start saving up now and pay for your MBA with cash.  With your current income there is no way that you are going to qualify for need based grants, etc.  The only thing the FAFSA is going to tell you is how much you can take out in loans.  You make plenty of money right now...you have no need for loans. 

Is it possible to do without taking out any loans? Tuition at top schools is ~50K/yr x2 = 100K...I would like to protect SOME assets without being wiped out by a grad degree (even though future earnings make the degree worthwhile).

Thanks everyone for your help! To answer a few of the questions:

I would reconsider parking.  I think a replacement window is like $250, right?  Your car could be broken into EVERY MONTH and your parking cost would be equal to the price of windows.  Buy a "Club", don't leave anything in the car, stop washing it, and stop paying for parking. Every month your car isn't broken in to, you save $250.  Maybe your area is so dangerous that your car will be broken in to more than 12 times a year, but that would surprise me. 

A huge part of the parking is that it's a guaranteed spot without ever needing to move the car for street cleaning.  That honestly is more important to us than the worry of the car being broken into - parking is very tough to find in this area and this allows us to go about our errands without worry of finding a spot upon our return.  Again, we will probably be paying for parking for only a few more months.


Oh give me a break. You're paying $250 a month so you don't have to move your car for street cleaning? That's INSANE.

A few reasons:
1) It is legit VERY hard to find parking in the area - it's normal to have to circle around for 30-45 minutes should you coming back home past 9PM.  Additionally, the one time I tried to save $15 by not putting the car in a lot brings me to:
2) Safety - didn't leave it in a lot, was broken into. Not the safest neighborhood for a car.  And our jobs don't allow for coming in late in the morning because you had to run to an auto repair shop for 2 hours
3) Maybe most importantly, my wife is a nurse on the overnight shift.  It's not easy working the 8 pm to 8am shift, driving an hour home in traffic, then having to interrupt your sleep at 10:30am to move the car for street cleaning twice a week.  NYC living kinda sucks lol - need to head back to the west coast.