How to get to ER with a limited budget and a bunch of kids

[skinnyindy]

I would like to know how you all usually save your money.  We have a limited budget but we could save up a little money.  Where do you put  your money if you need money to retire but also have kids that might need money for their college education?  Also, how do you decide if you can put some of your extra money toward your mortgage?  These are basic questions but I'm having a hard time scrolling through the tons of posts on this forum.  I can post our budget later but we have a hard time because we homeschool and live in expensive paradise (we aren't moving).

I have started Roth IRAs for both of us and plan to put most of our savings there.  I also put aside a little more then what we need for our mortgage payment so that I can pay down our principal but it has been slow going due to the ebb and flow of our income.  I haven't created a college savings account but read somewhere that a ROTH IRA would be good for that because I can take out the original amount and it won't count when it comes to college grants/aid applications.  Is that still true?  Keep in mind we have 4 kids and we are in our late 40s so we don't have much time left to save for retirement.

[Pooperman]

Personally I would save for retirement over paying for 4 college educations. That way, your kids don't have to finance your golden years. Maybe you'll be better equipped to help with weddings down the line. As well, your kids might learn some fiscal responsibility by having to fund their own way.

[Setters-r-Better]

Most financial advice will tell you that you need to get a handle on retirement savings before kids college tuition. For example,  after you are able to consistently contribute a certain percentage toward retirement (you will figure this based on your goals of how many years you will continue working and how much income you need in retirement), then you can start figuring how much you can save toward tuition. .

Also,  you should have an emergency fund and all other debt paid off before paying extra on mortgage.  Plus,  if you have a low interest rate on the mortgage,  it might not be worth prepaying at all.

[skinnyindy]

How big of an emergency fund would you recommend?  Suze Orman says to put your emergency fund in a Roth IRA but I don't necessarily follow her advice so where would you put your fund?  Also, after some research I discovered that my kids can take some community college classes when they turn 16 so that should help them accumulate credits at a budget price (half the price of the state university) while they are still in high school.  At least one kid has started saving his money for college and only buys Lego when he wins a prize from the store.  His goal is to not spend any more money so he can save it for college.

[VirginiaBob]

Here is my order of priority.  The only thing that is somewhat controversial is the preference for a taxable account over the 529:

Emergency fund
Short term savings
401k up to match
HSA up to match
IRA up to max
401k up to max
HSA up to max
Taxable accounts needed to supplement the above
Then finally 529

[skinnyindy]

We can't do a 401K, not sure what an HSA is.  As a percentage of your income or by monthly spending, how much would you recommend for an emergency fund?  Three to six months of spending or more?

[Pooperman]

How big of an emergency fund would you recommend?  Suze Orman says to put your emergency fund in a Roth IRA but I don't necessarily follow her advice so where would you put your fund?  Also, after some research I discovered that my kids can take some community college classes when they turn 16 so that should help them accumulate credits at a budget price (half the price of the state university) while they are still in high school.  At least one kid has started saving his money for college and only buys Lego when he wins a prize from the store.  His goal is to not spend any more money so he can save it for college.

I took CC courses in HS. I graduated in 3.5 years (despite failing 2 courses and retaking a semester's worth). If I had my shit together, I certainly could have done it in 3. That means 1 year of CC and 2 years of a 4-year school. Some schools have a program with the local CC to take courses there at a reduced price instead of taking certain courses at the high school. You can help in ways beyond paying for tuition (like letting them live at home or paying for books).

As per emergency fund amount, anywhere from 3-6 month's expenses (less or more depending on job stability). So if your job is stable, 3 month's expenses. Putting it in a Roth IRA is a good move because you can withdraw your contribution any time and be able to put it back later (but leave it in cash/short-term/constant value stuff... it's an e-fund, not an investment).

What VirginiaBob says is pretty right.

[Thegoblinchief]

Why can't you do a 401(k)?

ROTH accounts are really powerful at lower income bracket. Once some of my worst debt is retired, that's going to be my #1 priority since you can only put 11,000 per year for a married couple.

I fall under the funding retirement before college savings for kids. My oldest is only 8, but depending on their interests, I will even push trades or the military before college.

If your mortgage is less than 5%, don't prepay. If it's higher than that, consider prepaying some, but keep in mind that money prepaid to the mortgage is not liquid in the way cash or investments are. That said, if you have a lot of home equity, a HELOC with a low rate can be an effective emergency fund that doesn't tie up cash in inflation losing savings accounts.

Consider posting a full case study. That will get you better advice.

[thedayisbrave]

I'm coming from the "kid" side of this, but I still say fund retirement before your kid's education.  My mom helped me with my first 2 years of school, then after that I had to dip into my own money.  I went home on weekends and worked, and had multiple internships (some paid, some unpaid).  What I'm saying is, having to work to pay for school jump started my work ethic - it had always been good - but now there was more discipline behind it. 

[teen persuasion]

Save for retirement first.  How limited is your income?  With a bunch of kids and low income, it makes lots of sense to save in a 401k to lower your AGI, lower your taxes, and possibly qualify you for (more) EITC.  Saving in a ROTH won't save on taxes, and saving in a traditional IRA won't qualify you for more EITC.  We do save in ROTHs for both of us, but only because maxing DH's 401k has already gotten us to the point of 0 fed tax and the max EITC we are eligible for.

How old are your kids, that is, how close to college?  Here are the FAFSA calculation formulas, so you can see what your Expected Family Contribution (EFC) will be: http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf
Notice how your income and assets play into the formulas, remembering that retirement assets and primary home value are NOT included.

We chose to pay down our mortgage aggressively before aggressively saving in DH's 401k and opening ROTHs, but our mortgage was 9.75%.  If our rate was lower, I would have saved in retirement more aggressively.  That was also before this site and forum existed, so if I had learned about FIRE earlier, I might have done things differently.

[skinnyindy]

We can't do a 401k because they don't offer that, but there are 403b.  My concern is we can't get money from a 403b for a long time and I don't know a company I trust.  I have a TDA but I don't know the difference and can't contribute unless I work again.  I will work in the spring so I think we will try to save all of that. I think it will be very hard to work though.

[zolotiyeruki]

First quick answer: don't pay for your kids' education.  And make that point clear to your kids.  My parents didn't pay for mine, and as a result, I was well-motivated to work hard in High School so that I could get scholarships.  The same will be true for my children.  There are tons of grans, scholarships, and low-interest student loans available.  It also reduces the risk that your kids will waste that money (sad, but often happens).

Basically, if you're saving that money, it will go to one of three places:  A) your kids' college expenses, B) your retirement (keep in mind the possibility of nursing home expenses and the like!), or C) your kids' inheritance.  If you opt for A, then you lose your control of that money as soon as your kids use it for college.  If you save it for B/C, your kids may still get the money, but you'll be making sure that your own needs will be taken care of first.  I don't know about you, but as much as I love my kids, I don't want to be a financial burden on them when I'm older, nor do I want to take the risk of making myself dependent on them.

[teen persuasion]

We can't do a 401k because they don't offer that, but there are 403b.  My concern is we can't get money from a 403b for a long time and I don't know a company I trust.  I have a TDA but I don't know the difference and can't contribute unless I work again.  I will work in the spring so I think we will try to save all of that. I think it will be very hard to work though.

What's a TDA?

[snshijuptr]

Building on VirginiaBob:

Emergency fund - 6 months of expenses in a online Savings Account until you are feeling incredibly secure
Short term savings - in a Savings Account
401k up to match
HSA up to match
IRA up to max -------|
401k up to max          | --- Somewhere in this range you will hit (your personal definition of) a comfortable retirement if you contribute that level until retirement
HSA up to max-------|
Then 529
Then early retirement savings into IRA, 401K, HSA, taxable accounts

[skinnyindy]

A TDA is a tax deferred annuity, I got one because my parents recommended that when I first started working.  But since then I have heard bad things about it so I didn't contribute much.  Also our state offers a state sponsored tax deferred investment vehicle which I also participated in but stopped when I stopped working for the state.  When my dad died I found it very difficult to get the money out so I don't think I will continue to contribute when I start working again.  Thank you for the straight forward advice about which things to do first.  I'll try to get my budget set up to post here as well.

[Gin1984]

A 403b had laws regarding its use and yes it should be your first stop when saving for retirement.

[APowers]

Re: OP

We have two kids, and we only have about $3,200/mo to work with. Our living expenses are $1k/mo, our mortgage is $800/mo. We are planning on FIREing via real estate-- renting out this house once it's paid off, rolling that income into paying off the next; Assuming $1.5k/mo living costs, we should be FI by the third rental.