Case Study - I want a vacation

[FC5]

Where can we save/cut and can I ever go on a vacation again? We are a family of three - I am 31, husband is 44, baby is 18 mos.

Income:
98K - me
118k - husband

Husband carries all our medical/dental benefits due to possibility of me taking LWOP to care for child/future maternity leave if we have another, etc. We both contribute $18k to our 401k plans, plus 5% employer match. After taxes, contributions, health/dental, life insurance, etc, our take-home is $1900 and $2089 every 2 weeks ($103K/year).

Debt:
$485K mortgage at 3.875%
$7100 on a pension buy-back (husband) - he pays 100 every 2 weeks automatically deducted from his check. In march this begins accruing 3% interest. It's a good deal to buy back his military service.

Monthly after-tax expenses (out of the $103K):
$2827 - mortgage
$300 - extra mortgage principal
$1062 - daycare for 18 mo baby
$916 - Roth IRAs
$450 - 529 for baby
$150 - phones & internet
$100 - avg utilities (this varies a little depending on season and water is quarterly). We use a wood burning fireplace insert and blower to provide the majority of our winter heat.
$150 - gas, entertainment, eat out on occasion
$450 - groceries and household expenses
$1000 - home improvement (we bought a lemon that some people call a fixer upper. We in-source most of the work. So far we have removed 30 enormous trees from the 1/2 acre property (OMG), landscaped a bit, installed hardwood floors on the first floor (ourselves!), painted kitchen cabinets (ugly golden oak eyesore originally), replaced first floor trim, painted, installing new windows now). We are going to have to renovate a bathroom soon because it is leaking into the living room.
$1000 - leftover. This often goes to a taxable account (index fund) but I was dreaming of a vacation one day. Also, we need to save if we hope to have another kid one day. Double daycare plus double 529 would bankrupt us now.

Assets:
Home equity - I don't count this, even though we bought last year for $495K and I'm told it's close to $520K now. Whatever. We would have nothing if we sold.
Savings - $8000
Husband IRAs - $25K
Husband 401ks - $90K
My 401K - $160K
My IRAs - $40K
Random stocks & DRIPS I started as a single person: ~$12K
Index fund I started as a single person - $45K

I own a 2013 Nissan Altima outright (paid cash). My husband totaled his 10 year old pick up last week. He is going to get about $11k for it from insurance, only because we had receipts for $5K of maintenance from the last 12 months (including 1100 in new tires from the day before he was T-boned). Even though we live ONE MILE from work (daycare is a half mile, on our one mile commute!!) and I want to poke my eyes out at the idea of consumer debt, he has made it clear he will not live with just one car for our family and is taking a loan tomorrow for the balance to buy a used 2010 pick up for $18K. He says it will be at 1.7%. He will not wait until we can save the cash for the purchase. He says he really uses a truck (which was true last year with the 30 trees we took down, but now they are gone and we won't be taking down more trees for a few decades...) but I can see now it is just part of how he thinks of himself - as a "truck guy."

Our savings of only $8K is money I don't feel safe touching for the purchase. I would like to have $10K in savings/emergency money. We had about $70K a year ago but had to move for work, and it took forever to sell our previous home. In the meantime, it needed repairs, and that mortgage was about the same as the current one. We had put about $120K into it, and after painfully lowering the price, and realtor fees, we got back $6K which I used to max our IRAs and drop into the 529. It was awful, and I wanted 2016 to be a rebuilding year with maybe a small vacation, but I don't see how that's possible with my husband's determination to buy a truck and my fear of debt that will drive us to pay it off as soon as possible. He did not save much for retirement until we married 2 years ago and I forced him to save the max, and because of his age (44) I don't feel like we can cut back on the savings there. We are really fortunate to live close to work and daycare. The house still needs a lot of work which we are mostly doing ourselves. I just don't see where the extra funds to save, increase index fund contributions, have a second child (circa 2017), and take a much-needed vacation can all come from. I spent half of last year as a single mom with a full-time job while he was working overseas, and I am just freaking tired. I feel like I've done a lot to cut expenses already - I cook all our meals and shop sales/bulk purchases, hang dry laundry, use cloth diapers, we insulated the attic to save on utilities ($700 of insulation vs monthly heating bills of $250 last winter...), clean my own house, etc.

Is the best option just to look for ways to make more $? I wanted to go p/t this year to spend time with my kid, but I think we need all the $ we can get now. I was hoping we could retire when he is 62 (retire together, so I'd be in my 40s) but I'm realizing I may be working much much longer. Suggestions?

[MonkeyJenga]

Where can we save/cut

First answer: your housing.

Second answer: you seem very stressed and panicky for someone making a joint 200k+, maxing 401k's, saving almost 2k monthly on top of it, and holding assets of a few hundred k. Is it possible a new baby plus a huge home responsibility are causing that?

Eta: missed the part about being a part-time single mom last year. That sounds very tough. I'm wondering why you guys added this house and its never ending work on top of everything else.

[Neustache]

We make much less than you (but our housing is much lower) and we go on vacation.

Sure, you can go on vacation.  A nice vacation for us is like 3K a year.  Surely you can slow down the house rehab to a still ungodly $700 a month and use $300 a month to vacation.

And you don't need to redo a whole bathroom because something is leaking.  What in the world?  LOL.  You need to fix the leak and any minor cosmetic repairs (drywall on ceiling beneath leak) that result.  Total cost...not a lot. 

[FC5]

Yeah, my anxiety is pretty out of control, for sure.

1) I feel like we lost a lot on the move, and I was very secure before that with lots of savings and a high savings rate. We moved back to the DC metro area, but found jobs in a suburb and found an inexpensive-for-the-area house very close to work. For $100K less we could have had a 40 min commute, but we felt like that was time away from our kid. Previously, we lived 100 miles away and I could not find a job locally so I had to commute the 100 miles and it was hell with a new baby. So, the close-to-work location outweighed many other options.

2) We could probably slow down the renovations. We would not have done the hardwood floors had we known about the bathroom. Previous owner DIY'd the shower himself and the home warranty would not cover it because it was so shitty it they couldn't say that it was "normal wear and tear." So the 5x2 shower will have to be completely demo'd and replaced. I've talked to a few contractors about it, and the homeowners ins, and they can't fix it without destroying the whole thing to see how many leaks there are. The sub was very wet for a year, and they want to examine its structural integrity. In addition to that problem, previous owner just slapped some paint on the walls without sanding or really patching where previous fixtures were... it needs to be renovated, and we are going to do most of the work ourselves, but it is still going to cost $.

3) We do have a few hundred thousand in the various accounts, but still have a negative net worth with the mortgage etc. I think that is a sad point to be at this far into savings and raising a family. I know I can't go back in time, just wish I could get us out of this place faster.

[Midcenturymater]

I have to agree. Your anxiety is a little misplaced. Your income is much higher than average. You choose to put the max in your 401. .
Go
F course you can have a vacation.
Just to put it in perspective. We earn less than half what you do currently on only one income....our mortgage is 520. We don't save. It makes me anxious. It should do. I will take action and get a job soon.

You are in a great position. We get by on 5000 k take home with a bigger house payment and only putting 6 PC in the 401 k.
Cut back a little there and there is your vacation.

Here is how we do economical vacations.

We do house swaps. See homeexchange.com

Or we camp 25$ a night.
This year it will be even more frugal.

We will do a staycation. We buy more special easy to cook dinners. We go out fir picnics, the beach, the odd day trip that costs. We camp a couple of nights in the yard. That comes in at $100 for 10 days)))

But if you need the vacation....don't fly, try and reduce accommodation costs. Self cater meals or some meals.

I think you just are worrying too much. We can't change our ages. We can't change the cost of living in the city we live in when it comes  to roof cost. But some of your choices are leaving you with less than you need...ie you need a vacation.
We used to do vacation. We budgeted 1200 for 9 days each year. We had great vacations on that.

[MonkeyJenga]

Yeah, my anxiety is pretty out of control, for sure.

1) I feel like we lost a lot on the move, and I was very secure before that with lots of savings and a high savings rate. We moved back to the DC metro area, but found jobs in a suburb and found an inexpensive-for-the-area house very close to work. For $100K less we could have had a 40 min commute, but we felt like that was time away from our kid. Previously, we lived 100 miles away and I could not find a job locally so I had to commute the 100 miles and it was hell with a new baby. So, the close-to-work location outweighed many other options.

A half-acre property in D.C.? Can you move somewhere smaller? An apartment will take away all the stress and reno work.

Also, you're saving a lot in that 529. Kids do have the option of going to cheaper schools, taking out loans, getting jobs in high school, etc. I didn't mention this in my first post because it's a relatively small amount compared to housing, but if that's another source of stress...

Your other expenses look really good for a family of three. It seems to be the house that's causing the most stress.

[StetsTerhune]

I'm going to second what others are saying: you are doing great and the biggest thing you need to cutback on is the worrying.

Lines like "Double daycare plus double 529 would bankrupt us now" are just pointless worrying. Those expenses annually would be ~ 18K. Let's compare that to what you're currently saving:  $36K in 401K plus $12K match + $5400 in 529 +11k Roth + 12k Leftover + $3600 mortgage extra principal. Total Annual Savings ~ $80K.

I don't know where you live, and how "normal" a 500k house is there, but I think you need to seriously think about moving. You're spending 45K a year on this house. That is insane. If you were happy and comfortable and loved the house, you could justify it at your income level. You don't sound happy and comfortable though. You sound stressed out about money, and you sound like all the big house and .5 acres are bringing you is stress and expense.

My guess is you can get a great week long vacation for 2k. That's 2 months worth of your "extra" savings. If you post a separate thread saying what you want in a vacation, we can probably help you figure out how to do a wonderful vacation for that amount of money.

[StetsTerhune]

Additional note, you do not have a "negative networth." Counting your mortgage as a negative and not counting your house as a positive on your net worth is insane. If you sold your house, you'd come out probably slightly positive. If you want to say they cancel out because of the uncertainty in that transaction, fine, but you can't just count the -$485K of the mortgage and say you have negative net worth.

[Neustache]

Again, on the bathroom - you said 'a bathroom'.  I'm assuming you have another way of bathing - like maybe another bathroom? 

Slow down.  I can't imagine that all 30 trees need to be removed the first year you moved in to the house. Sure, maybe some that were too close to the house, but 30 on 1/2 an acre? 

I have a friend who bought a historic home and has lived with 1 bathroom for years while her husband does their 2nd bathroom (and it's taking him years as he also has worked on other things on the house).  Oh...did I mention?  FOUR kids and she cloth diapers.

Seriously, slow down, take a breath, and yes, go on vacation.

[mm1970]

Monthly after-tax expenses (out of the $103K):
$2827 - mortgage
$300 - extra mortgage principal
$1062 - daycare for 18 mo baby
$916 - Roth IRAs
$450 - 529 for baby
$150 - phones & internet
$100 - avg utilities (this varies a little depending on season and water is quarterly). We use a wood burning fireplace insert and blower to provide the majority of our winter heat.
$150 - gas, entertainment, eat out on occasion
$450 - groceries and household expenses
$1000 - home improvement (we bought a lemon that some people call a fixer upper. We in-source most of the work. So far we have removed 30 enormous trees from the 1/2 acre property (OMG), landscaped a bit, installed hardwood floors on the first floor (ourselves!), painted kitchen cabinets (ugly golden oak eyesore originally), replaced first floor trim, painted, installing new windows now). We are going to have to renovate a bathroom soon because it is leaking into the living room.

I left out the "leftover $1k",

But when I do the math ($103,000/12 minus all that)

I get $2544 leftover per month

[MDM]

I left out the "leftover $1k",
But when I do the math ($103,000/12 minus all that)
I get $2544 leftover per month

103000/12 = ~$8600
Sum of $2827+300+...+450+1000= ~$7400.
Difference of ~$1200, which seems close enough to ~$1K.

Now, on the income side...

We are a family of three - I am 31, husband is 44, baby is 18 mos.
Income:
98K - me
118k - husband
Husband carries all our medical/dental benefits due to possibility of me taking LWOP to care for child/future maternity leave if we have another, etc. We both contribute $18k to our 401k plans, plus 5% employer match. After taxes, contributions, health/dental, life insurance, etc, our take-home is $1900 and $2089 every 2 weeks ($103K/year).

Made some guesses on insurance costs, state/local tax rates, etc.  You should check those, but if the guesses are anywhere near correct then your take-home is at least $10K higher than $103K/yr - or did I miss something completely?

Category	Monthly	Comments	Annual
Salary/Wages for earner #1	$8,167		$98,000
Salary/Wages for earner #2	$9,833		$118,000
Pretax Health Ins.	$500		$6,000
Pretax Vision/Dental Ins.	$50		$600
FICA base salary/wages	$17,450		$209,400
401(k) / 403(b) / TSP / etc.	$3,000	At maximum	$36,000
Employer Match	$900		$10,800
Income subject to IRS tax	$14,450		$173,400
Pension	$217		$2,600
Life/LTD Insurance	$200		$2,400
Paycheck income before tax	$14,033		$168,400
Federal Total Income	$14,450		$173,400
Federal tax	$2,057	2015 rates, MFJ, item. ded., 3 exempt.	$24,682
State/City tax	$868	Guess, using 7.00% * Fed. Taxable	$10,416
Soc. Sec.	$1,082	Assumes 2 earners paying	$12,983
Medicare	$253		$3,036
Total income taxes	$4,260		$51,117
Income before other expenses	$9,774		$117,283

Filing Status	2	1=S, 2=MFJ, 3=HOH
# Exempt.	3
# Children <17	1
# Children for EIC	1
	Earner #1	Earner #2
Ages	31	44
# of earners	2
Total Income	$173,400
Std. Deduct.	$12,600
Act. Deduct.	$29,022
Exemption	$12,000
AGI	$173,400
Taxable	$132,378
1040 Tax	$24,682
Mtg. Int. (approx.)	$18,606
State tax	$10,416	7.00%
Item. Deduct.	$29,022
Version	V7.05

[icemodeled]

We took 4 vacations last year, more then normal, usually 2. We make 60k and live well. Surely on 200k a year you can manage a vacation. We have taken a week vacation in off seasons for under $1000. Recently went to the grand canyon/sedona/Phoenix and stayed under $2000. Your income is good, spending is high. Though its good your maxing 401ks and saving extra. Housing is the worst, cut back on renovations and save some towards a vacation. Also the phone/internet sounds a tad high. The mortgage is so high, but maybe your in a HCOL area.

first decide where you would want to go for vacation. Come up with what it will cost. If you can cut back on those areas and save the difference it wouldnt take long.

[pbkmaine]

Take a deep breath and slow down. You are fine, but you could do much better. Except for the bathroom, which sounds like an emergency, take your time on the home renovations. Think about what you really need to do and how best to do it. Look for alternatives to big box stores - things like Habitat for Humanity ReStores. Keep track of expenses so you see where the money leaks are going. Most importantly, sit down with your husband WHEN BOTH OF YOU ARE CALM, and get on the same page financially.

And ask yourself: are you looking for a vacation to escape the chaos at home? If so, the best approach is to find ways to calm the chaos.

[Easye418]

Heh.  Surely you can go on a vacation with a $200k income....

I love the hidden face punch within your post.  You are going to be paying a hefty PMI as you pretty much bought a $500k house with almost none down. 

But just trim down some fat while putting away $2k for a vacation.  It really shouldn't be too difficult.  Plus the 18 month old won't remember a vacation, leave em with a parent.

[CanuckExpat]

First stop, breath, relax. Enjoy your child and the fact that you are saving and doing well.

Your mortgage payment looked high at a first glance for the amount you owe, and the interest rate looks a tad high. What are the details on your mortgage: 30 year, 20, 15 year amortization, fixed or ARM, etc? Is that number you quoted only principal and interest or also taxes and insurance? Your home equity looks low, are you paying PMI?

What's your credit like and what are your future plans? You might be able to refinance to a lower rate. Perhaps it will require changing to a 5, 7, or 10 year ARM, but unless you know for sure that you are going to stay there forever, it might not be a bad idea. It would lower your interest rate and your monthly payment.

Do you get a state tax credit in DC for 529 contributions? I'm not going to suggest you take a vacation instead of funding your child's education (well maybe I would), but unless you get a state tax deduction there could be arguments made that saving in a taxable account is favorable compared to a 529.

On the car front, sounds like decisions might be made already. If you want a good read though, I like this one: How to be a one car family

[ReadySetMillionaire]

Aside from what others have said, your situation strikes me as simply trying to accomplish too many goals at once. You can cut back on the mortgage overpayment, on the kid's education savings ($450/month for 18 years means you'll have $130k by the time he/she goes to college...that's more than enough), on the retirement contributions, all of it.

Your goals won't seriously be derailed by taking $3,000 of your $80,000 in savings per year and going on a vacation.

[FC5]

Heh.  Surely you can go on a vacation with a $200k income....

I love the hidden face punch within your post.  You are going to be paying a hefty PMI as you pretty much bought a $500k house with almost none down. 

But just trim down some fat while putting away $2k for a vacation.  It really shouldn't be too difficult.  Plus the 18 month old won't remember a vacation, leave em with a parent.

No PMI. It's a 30 year fixed at 3.875%. We bought the house for $495K in a neighborhood where renovated homes are $550-700K. Buying in an even newer neighborhood would mean $700-900K on a 1/5 acre lot. Yes, the house payment is high, but for our area it's moderate to low. And yes, we could move - I'd make about $50K and he'd make maybe $65K in our dream location, with a $300-400K house... seems like we are getting a decent price for our higher salaries right now.

In 2015 we spent about $30K on renovations/work on the house, but had we not DIYd a lot of it (like the 30 trees - it was a dark wet yard, now we can garden and spend time outside) it would have cost over $100K. So maybe it's worth more than my estimate - since we aren't selling right now, I really don't know.

We have found some cost saving strategies in the last few weeks, like for the bathroom renovation. We are doing the demo, hiring the plumber and electrician, and doing some of the renovation ourselves. We have decided to move a little more slowly on the renovations, since the big stuff is almost done (once we have a bathroom that all works ... right now we have two bathrooms that each work about halfway). We did pull together about $4K for a trip, sans baby, to Iceland this spring- so that's something to really look forward to. I'm excited. I've decided that worrying is useless, yes. I have felt like we are playing catch up for a long time since my husband saved nothing until we were married, but oh well. We are able to save now, and that's all we can do.

I just did our taxes and I'm embarrassed to say we are getting a $12K refund. Anyone know what our withholding should look like at these salaries with 1 dependent? I'd like to change that asap.

Thanks for the help from the community.

[I'm a red panda]

Turn the water off to the bathroom that is leaking, take the vacation and deal with reno later.  You do have more than one bathroom in that house right?
We've been taking vacations yearly since our combined salary was $40k. I'm sure you can manage on $200k salary.


Your cash savings might seem low, but if you are making a 401k and have other investments, you do actually have money available to you in an emergency, it would just be better to not use them.

[MrsDinero]

you said
"My husband totaled his 10 year old pick up last week. He is going to get about $11k for it from insurance, only because we had receipts for $5K of maintenance from the last 12 months (including 1100 in new tires from the day before he was T-boned). Even though we live ONE MILE from work (daycare is a half mile, on our one mile commute!!) and I want to poke my eyes out at the idea of consumer debt, he has made it clear he will not live with just one car for our family and is taking a loan tomorrow for the balance to buy a used 2010 pick up for $18K. He says it will be at 1.7%. He will not wait until we can save the cash for the purchase. He says he really uses a truck (which was true last year with the 30 trees we took down, but now they are gone and we won't be taking down more trees for a few decades...) but I can see now it is just part of how he thinks of himself - as a "truck guy.""


Why does your husband have to get a truck that costs $18k?  Why can he not find a truck for the $11k the insurance company is giving him?  he would still keep his manly truck without adding to the household debt?

[Megma]

I have to agree with everyone, you seem really stressed. You can cut a few of your savings lines back and go on a nice vacation. If you are in DC you get a small beach condo in VA beach or NC for the off season for a week for very little. Relax! Walk on the sand! Or go to the mountains if that is your thing. Based on what you are making you can probably afford a week in the Caribbean for the 3 of you without to much trouble too :-) but I wanted to give a cheap option too!

Also, I really don't think you need to be putting so much in the 529 - I get it, put it in early so it can grow but wow, this kid will be able to fund medical school with that cash by the time it comes around. Unless you plan to stop contributing later?

[MDM]

I just did our taxes and I'm embarrassed to say we are getting a $12K refund. Anyone know what our withholding should look like at these salaries with 1 dependent? I'd like to change that asap.

Various ways to do that.  E.g., see
http://forum.mrmoneymustache.com/taxes/best-way-to-calculate-w-4-exemptions-for-2016/ and
https://www.bogleheads.org/forum/viewtopic.php?t=158000.

[CanuckExpat]

No PMI. It's a 30 year fixed at 3.875%. We bought the house for $495K in a neighborhood where renovated homes are $550-700K. Buying in an even newer neighborhood would mean $700-900K on a 1/5 acre lot. Yes, the house payment is high, but for our area it's moderate to low. And yes, we could move - I'd make about $50K and he'd make maybe $65K in our dream location, with a $300-400K house... seems like we are getting a decent price for our higher salaries right now.

Is your plan to stay where you are, or move at some point in the near future to your dream location?
If you have fairly strong plans to sell your current home in the next ~5 years, it might be worth investigating refinancing to an ARM. You could drop your rate down as low as perhaps 3%, improve your cash-flow situation by a couple hundred dollars a month, and pay less in interest. An ARM can go either way, but if you know (think) you'd be moving, it might make more sense. (I don't know if it would be worth it in your situation, but worth getting quotes and running the numbers).

BTW, What is your dream location, and what makes it so, out of curiosity?

[FC5]

Somewhere with mountains. We are both outdoors people - love hiking, camping, fishing, hunting. We could both find jobs in CO but it will probably take us a couple years to make it happen for us as a family.

We got a call from our lender this week that we can refi to 3.625% with the lender covering closing costs. I'm ok with that.

We have made a list of the renovations we want to do, and will take a more relaxed approach to this. I love gardening so I am putting my energy into that this year. We have to do the bathroom reno, and discovered our homeowners will cover a bit of it. After that, only finishing touches on the trim on the 1st floor. I am dropping 529 contributions to 4k/year, and discovered that we were NOT eligible for the max contribution to our Roths, so we will have to shuffle some things around a bit. Whoops. Can I just take the extra 1600 out and move to a traditional IRA before I file our taxes, or is there a penalty?

Relaxing a bit more now. We really do save a lot and small kids are expensive, so I guess that is just the nature of this stage in life.

[robartsd]

I lived in the DC Metro area for a couple of years and I'm from the West coast, so I understand your desire to go to real mountains (and the abundance of trees on your property). This year, I might try keeping the vacation budget low and explore destinations in the tree covered hills that have to pass for mountains on the East Coast. Best case - you learn about places nearby that work for short outdoor getaways; worst case - you took some time off and didn't spend a lot of money, so you won't beat yourself up when you fly to more rugged destinations next year. (If you already have given the local outdoors opportunities a good try, then go ahead and plan a vacation somewhere more rugged.)

[lpb0306]

I think you're doing well! Just spending too much on the house, as everyone else has mentioned. I do think you can take a vacation- just use some of the savings you have extra for a few months. In 2015, we did a 2.5 week honeymoon to Europe, a 4 day trip to Dosneyland, and a 5 day trip to the Midwest for a wedding. And we make 50k combined, don't get paid when we don't work, and live in the Bay Area which is notoriously expensive. We do a combination  of saving  extra beforehand by working more and using part of our savings for a trip. I think you can definitely do this!

Definitely relax a bit! The stress isn't worth it!

[frooglepoodle]

I'm in the DC metro area as well, and that sounds like a fantastic price for a home so close to work (I'm assuming inside the Beltway). I live way out in the suburbs and used to commute using the slug lines and commuter rail, which beats driving but can still be miserable.

I hope you're able to relax and enjoy your trip to Iceland! If you find yourself wanting shorter, less getaways in the future, we've really enjoyed weekend trips to Richmond and B&B's down in southeast Virginia.