Reader Case Study - Can I Quit?

[citymama]

I have recently become a "Mustachian" and would love some input from more experienced savers. I am 31 and my husband is 32. We are both attorneys and live and work in Washington, DC. We have two children, almost 4 and almost 2. We will probably have one more kid in year or two. Although DC is a really expensive city, my husband has a job that he loves that only exists here. So, we're staying put for a while. We currently live in a small 2 bed/1 bath condo in the city. My husband walks 10 minutes to work and I take public transportion 15 minutes to work. My oldest is in free public preschool, and my little one is in daycare near my office. If/when we have the 3rd kid, we'll probably need to move b/c we're pretty much hitting the limit on space in the kids' bedroom. I've tried to convince my husband that bunk beds + a crib could work, but I think he's probably right that we'd be more comfortable if we at least have another 1/2 bath and one more bedroom at some point in the future.  We will try to get something close-in though.

Now, to the question: is it a Mustachian decision to quit my job and stay at home with the kids? Is there something I need to do before doing so (e.g. save "x" dollars)? And the ever-present question: do I need to be face punched for even considering this?

Basically, I'm burnt out, bored, and not sure that this is what I want to be doing with my life. However, I have a very good salary and only work 35 hours a week (I've been part-time since my first was born) so I could probably sustain this for a little while longer if it makes a lot of sense to do so. At the very latest, I want to be able to quit once I have the third kid, though. My husband doesn't want to retire "early" but I'm hoping he will be in a position (both financially and psychologically) to retire at 57. If he works until then, he will also get a gov't pension of about 30% of his salary. So...oh wise Mustachians...what do you think? Can I quit? Or should I suck it up for a while longer and stop being such a complainypants about having to go to work? Here are the financials...I have been tracking this stuff on Mint for years, so it should be pretty accurate:

Current Yearly Income:

Husband: $115,731 (Monthly take-home: $5325) - with normal government raises, this should be at about $130,000 in 5 years and unless he changes jobs, will stop there

Me: $126,000 (Monthly take-home: $5915)

[Note that health insurance, health FSA ($1,000), childcare FSA ($5,000), and max 401k are withdrawn from husband's salary pre-tax, and max 401k and metro fare are withdrawn from my salary pre-tax].

Current Monthly Fixed expenses: 

Mortgage/Taxes/Insurance: $1647
Condo fees: $300
Student Loans: $253
Car Insurance: $82
Life Insurance: $62 (2 term policies...husband for $1.1 million;it  me for $600k.  I have $300k provided by employer; I know we need to reduce husband's...I'm not sure how we came up with these random numbers but we got the insurance right after child #1 was born so I blame exhaustion)
Gym: $57 (husband)
Verizon Internet: $47 (no cable)
Netflix: $17
Sprint Cell Phone: $58 (husband's unlimited plan; mine is paid for by my employer)
Daycare: $2600 (for one kid! I know...it's crazy, but we haven't been able to get in anywhere else)
Charity: $300

Total: $5406

Current Monthly Variable expenses (average over past 12 months):

Food & Toiletries & Personal Products: avg $1400 (crazy amounts of eating out; this deserves a face punch, I know. We're working on getting better. Last month was $1,100 and this month is probably going to be about $1,000...we are both still buying lunch 4-5 days a week and that needs to stop)
Electric : avg $114 (water/trash/sewer included in condo fee; electricity use ranges between 600 and 1450 kwh per month...our HVAC Is old and in the winter our bills are much higher)
Gasoline: average $50 a month (this is just from driving vacations and occasional weekend errands)
Gifts: avg $250 per month in the past year for birthdays, weddings, and holidays
Cleaning Service: avg $250 (we already dropped this so no face punch needed)
Home Improvement/Maintenance: avg $30
Shopping : avg $275 (includes Target, Amazon, and clothing...this is another face punch b/c I have no idea where all this stuff is in our tiny apartment! What the hell are we buying? )
Travel: about $6300 total in the past year (3 trips to visit parents; 1 trip to visit my sibling; 1 trip for husband to see his brother graduate; we spent $4800 on airfare alone...I know...another face punch)
Baby Supplies/Kid Activities: avg $105 / month (includes diapers, wipes, kid activities, and a few trips to non-free museums)
Add'l Charitable donations: avg $50
Entertainment: avg $26 (occasional movie, baseball game, play, etc.)

Total: avg. $3075

Estimated Budget After Quitting:

Mortgage/Taxes/Insurance: $2000 (est. on future home)
Utilities: $250 (est. on future home)
Student Loans: $253
Car Insurance: $82
Life Insurance: $62
Gym: $57 
Verizon Internet: $47
Netflix: $17
Cell Phones: $83 (husband just re-upped w/ Sprint, but I will get a basic Republic plan)
Charity: $300
Food & Toiletries & Personal Care Products: $850 (goal is for me to cook most of our meals, and husband can come home or pack lunch)
Gasoline: $50
Gifts: $150
Home Improvement/Maintenance: $150 (est. on future home)
Shopping/Clothing: $100
Baby Supplies/Kid Activities: $100 (includes diapers, wipes)
Entertainment: $25
Travel: $2500 a year (2 long driving trips back home; flight to somewhere else every other year)
Misc: $100
Emergency Fund: $500

Total: $5281/month 

Without my salary, we will have an AGI low enough to qualify for a Roth IRA, so we'll each put $5,500 in those and enough in husband's 401k to get the 5% match plus a little bit more to get to 15% total in retirement savings (about what he's contributing now maxing out the 401k).

Liabilities: Amount - rate - description

Condo Mortgage: $290,350 - 3.75% interest - $1647 monthly payment w/ taxes & ins
 
Student Loans (consolidated federal loans, which we didn't pay off along with the others we paid off soon after we got our jobs b/c the interest rates are so low):
$15,330 - 3.5% interest - monthly payment $123 - pay off date June 2028
$12,710 - 1.625% interest - monthly payment $130 - pay off date June 2023

Assets:

Condo: Probably have $125,000 in equity ($20k more than we originally put down. We'd like to rent it when we move. It should rent for about $2400 a month, or $450 a month more than mortgage/condo fees, plus we'll get a few thousand in mortgage paid off each year, and probably some appreciation in value. In an ideal world, we'll sell the family house after the kids leave for college, move back into the condo for 2 years, and then sell it when my husband retires at 57 w/o having to pay taxes on the gain and then move somewhere cheap :)   
My 401k: about $120,000 (no company match)
Husband's 401k: about $130,000 (5% match)
Online Savings Account: $120,000 (Intended for emergency fund + down payment & closing costs on next home; want to save an additional $18k before I quit, which will require me to work 6 more months)
Checking Account: $7,000
Vanguard Account (VTSMX): $11,000
529 Plan #1: about 18,500
529 Plan #2: about 8,600
Car: 2009 Toyota Camry Hybrid : perhaps $15,000 (probably not the best choice , but we bought it for cash at least. If we only have 3 kids, we'll drive it into the ground)
 
What do you think? Can I quit? If so, when?

[huadpe]

Before answering the main question, a few budget points:

$3000 a year is a lot of gifts.  You're well off professionals so I can see there being some pressure to buy nice gifts for weddings and such, but this still seems very high.  I see you're cutting that to $1800, so that seems a bit more reasonable, but is still high.  Who are these gifts going to?

With renting out the condo, be careful to keep a MUCH larger emergency fund than you otherwise would.  You need to be able to cover 2 mortgage payments for 6+ months if you get a really bad tenant.

Re: cell phones, you're probably better off eating the ETF and moving both of you to Ting unless he's a super-heavy phone user.

Given all of that, with maxing his 401(k) you should be around $2200/mo positive cashflow per month.  You can afford to stay at home at that rate.

Do you plan to quit law completely?  I know corporate/DC law firms are a very grinding thing, but there are lots of other things you can do with a law license that aren't as stressful as that.  You might want to think about what sort of work you might want to do once the kids are in school, even if on a volunteer basis.

[Catbert]

What does your DH think about you being a SAHM?  That puts a lot of pressure on him.  His opinion means a lot more than random people's on the internet.

If your going down to one income I wouldn't reduce his life insurance.  $1million would generate about 40K a year which is less than you need for your reduced budget.  Maybe that would be time to increase it.

I was going to tell you not to even think about staying at home until your SL are paid off, however, then I saw the low interest rates are so I understand.

I don't know you so take this with a grain of salt... do you really want a 3rd child and to be a SAHM or are you just burned out at your job?  Could you take a leave of absence to see how you really like being at home?       

[Mrs.FamilyFinances]

The glaring thing that jumps out at me is the student loans. I know the interest rate is low, but when you are SAHM, it might feel like additional family pressure (speaking from experience) so it might be worth it psychologically to have those loans paid off while you are working. 

I'm curious about your $25 entertainment budget.  One thing about staying home is that there are way more opportunities to go out and do things during the day to fill time. This might not cover museums, field trips, play groups etc..

Staying home can be deeply satisfying, and is 100% doable on your husbands salary. As a SAHM, I find the biggest impact on our finances is to intentional with our spending. I don't produce a wage, so every dollar must work as hard as possible for us, and each expense has to deliberate.  I'm still learning how to be the most effective household manager possible!

Good luck working on your exit plan!!! It really is a joy to be home with the kids!

[the fixer]

First of all, no face punch deserved for someone trying to find happiness in their life! I hope you can make it work.

I think you need to lower your expenses further. At the very least, start from the end and work backwards: when you're retired, what will your expenses look like? (in today's dollars) Subtract any retirement income sources (pension), multiply by 25, and that's the minimum amount of income-generating assets you'll need to have. With the budget you've drawn out, will you be able to accumulate enough savings for this, in addition to all your other savings goals? (mainly the 529 plans, and a future car or two) I haven't done that math, but my gut feeling is it's too close for comfort. I also don't see your Roth IRA contribution line-itemed in your budget, so I don't know how you'll afford it.

Some ideas for lowering those expenses:
- $100/month on babies and kids seems like a lot. I don't have kids but I hear they can build forts out of couch cushions and play with sticks and mud for entertainment. You also live in an amazing part of the country where there are soooo many museums, a zoo with baby giant and red pandas, and other things open for free to the public! If a large portion of that expense is diapers, you could try cloth diapers especially if you're going to be at home all the time to be able to deal with the maintenance. Maybe you should try this for motivation: any money left over in this budget item at the end of the month goes straight to the 529s.
- if you're halving your income, does it really make sense to keep your charitable contributions the same? I think dropping to $200/month is reasonable. I assume you've thought through this and I won't try to push you lower.
- car insurance seems high. I'm about your age and mine is $50/month, it was about the same when I lived in MD. Are you carrying collision/comprehensive coverage? If losing your car wouldn't be a financial disaster for your family, which it shouldn't be living in downtown Washington DC, I'd drop that coverage.

Lastly, a caution about renting out your condo: typical advice among landlords is to budget between 30% and 50% of the rental income to expenses: property taxes, insurance, in your case condo fees, vacancy, and maintenance. The "50% rule" applies mostly to people who are not doing the management and maintenance of the property themselves. If you don't hire a management company and elect to DIY for most landlord tasks common advice on the Internet is about 30%. What remains is called your "net operating income." Make sure your NOI covers your mortgage payment (interest and principal). If it does, and especially if there's money left over, great! The left over money is your cash flow and you can count it toward your monthly income for budgeting purposes. If you break even or your NOI is not enough, you are basically relying on other factors to make this a wise investment (leveraged appreciation, your plan to move back in after the kids leave the nest). Make sure you treat the condo as a continuing expense in that case.

I've heard that it's hard to make condos cash flow because of the association fees and lower demand. Your situation sounds like a textbook story of people getting into real estate investment/landlording for the wrong reasons. Run the numbers to make sure this plan makes financial sense. Make SURE you understand the rental market in your area like the back of your hand, and you're not being overly optimistic about how much rental income your condo will generate. All of your careful analysis will depend on getting that right.

[StarryC]

I think you can do it, but I agree you need to cut your budget further. 

What I'd suggest is trying, for the next 6 months you plan to work, to live on your husband's salary alone. Or as close to it as possible with the exception of child care expenses.  If you can do it, then you'll have saved an additional $20,000 or so.  If you fail, analyze why.  Was it really related to you working or was it because your budget was too low, or because you need to try harder, etc.  If you succeed, then you've saved about $38,000 to add to the emergency fund/ down payment or. . .

I would pay off the student loans, even though they are low interest rates because on your new budget you are very cash-flow tight, there is only $44 extra dollars in your budget (plus the emergency fund).  If you paid off the loans you'd have an additional $253 a month. I think you might feel less stress if you had the $500 emergency fund budget and a $300 a month uh-oh/ unexpected expense/ babysitting budget.

Looking long term: Are you planning on public school?  Pre-school?  Do you think your kids will play sports/ take piano lessons/ get tutoring?  I think those aspects of kid expenses will go up over the next few years.  Also, with "staying home" I bet your gas expenses will go up, and I thing $125 a month for entertainment/ kid activities and expenses might be too low. 

Also, if you are a lawyer, might you look in to contract work?  Lawyers doing this tend to make 1/2 the rate the client is billed.  That's probably less than you bill at now.  But, my guess is you could get $50 an hour and work maybe 20 hours a month and bring in enough to pay for a few hours of babysitting and net $850 a month.  That's $10,000 a year which could really solidify the retirement date, while preserving your experience and license.

[the fixer]

From lawyers I know, contract work can be really hard to get (plus it can be super boring like doc review)... I agree that part-time work is an excellent goal but if I were you I would do financial projections using the worst-case estimate of $0 for part-time income.

It is still worth planning on doing some pro bono casework, and generally trying to build up your legal skills in areas your peers might find useful and worth hiring you for (tax, estate, family). Unless you know this is easy to do (from what I've heard it's not but that could just be complainypants-ness), don't assume success.

[chasesfish]

You're in a really interesting predicament.  I know a little about DC, so here are some questions and comments:

You can clearly live on one income now, but you don't have a lot of savings for real financial independence.   Is your husband okay with the risk/stress of being the only employee?

What do you plan on doing when the kids get old enough to go to elementary/middle school.  From what I remember, DC schools are issues. 

I second the idea of contract work at home, if you could pull of $20k/year, this works a lot better.

[citymama]

NOOOOO! I had a massive reply drafted and apparently I got logged out and now it's all gone. So…this is a somewhat abbreviated version b/c I need to head to bed. Here goes:

Life: Whether I want to SAH or whether I'm just burned out is a good question. I've been wrestling with it for about a year. I got a little "trial period" when I was on my last maternity leave. I loved it, and I’ve basically been hemming and hawing over whether I should quit ever since. It’s hard to give up a job with a good paycheck. When I think about still being there at 35 or 40 or 45, though, I realize that I’m being an idiot and that I need to find out what I really want to do with my life before I get too old. If I end up hating being home in the long term, I can try to be an attorney again (maybe at my firm, but probably not…more likely for the feds), but I really think I want to be a teacher. I found a few (free) certificate programs in the area, so I think that’s probably my next step. Ideally I’ll do that after the youngest is in (free, public) preschool, but if I hate being home, I could move that timeline up. On the kids' school note, we are pro-public school all the way. Unlike most well-educated DC residents, we’re not crazily picky about schools. (We both went to public schools in a state that has relatively shitty education and we think we turned out fine). There are a ton of good charters here and a lot of good neighborhood schools, so hopefully we’ll find something we’re happy with in the city. If we have to move to the burbs for better schools or b/c one of our kids has a special need that can be better met there, we will, but we’re going to try to stick it out if we can. DC has 2 years of really good free preschool (3 year olds and 4 year olds) so we want to at least stay here long enough to take advantage of that for all the kids. As for 3 kids…that part was always part of our “plan” and although we reconsider when both of our current children are being lunatics, I think it will still happen. 

Contract work: My plan is to ask my firm if I can do some contract work after I quit, which I think they might let me do. I can’t really ask about contract work without quitting, though, or I am putting myself at risk of being fired.  Since I don’t know if they’ll let me and at best the hours would be sporadic, it’s not part of my budget. If that works out, it would be perfect, though.

DH: He wants me to stay at home. He wouldn't tell me what he thought for a long time b/c he wanted me to decide what I thought I wanted to do. Once I told him I wanted to stay home, he said that was what he wanted, as long I don’t think it will make me crazy. His mom stayed at home, and he has really happy memories of that from his childhood. I need your opinions b/c I do most of the financial management, so I want to make sure other financially conservative people don't think I'm crazy. He looked at my budget and just said "OK." He's never going to be as interested in finance as I am (or as I'm sure the people on this forum are). Luckily, he's not a crazy spender, though.

Retirement: TheFixer’s comment about starting from the end and working backwards is brilliant. I’m glad I posted here just for that thought. I need to think about retirement b/c that is probably the biggest risk to quitting. I think we can live off my husband’s salary, but without significantly cutting back, the question is whether we can comfortably retire. Theoretically, pretty much my entire paycheck can go to retirement once I go back to work, no matter what job I eventually get, but if I leave the work force I’m not sure I should count on getting a good job in the future. I’ll crunch the numbers on this and update my original post. Re: the Roth funding, right now my husband puts 17,500 a year (the max) into his 401k. I figured we’d put $11k of that into Roths and put the other 6500 in the 401k to get the match, but I know that the pre-tax and post-tax difference may impact his take-home pay somewhat. Hopefully since our taxes will be lower w/o my salary, those will be a wash, but I will see if there is some way for me to figure that out.

Renting the Condo: I know it's risky. We might change our minds and just sell it and invest the money (or use some of it to pay off the student loans?)  I think it would be a good long-term investment, but I'm not sure if I'm going to be more stressed taking care of it or watching the market go up and down. We'll see. That decision is at least a year or two away. We might rent it for a year or two, and if it's a disaster, sell. We still wouldn't have to pay taxes on the gain. If the 30% figure is correct, though, we shouldn’t rent. The $2400 figure is based on what an identical unit across the hall from us goes for, so I’m pretty sure it’s accurate, but if we have to spend 30% of that on maintenance, it won’t cover the $1950 mortgage/condo fee.

Student Loans: I know. I really want to pay them off b/c they're just one more bill to pay, but the low rates have stopped me so far. If we sell the condo, we'll either pay them off or at least know we could if we wanted to. This is one of the big questions I have about quitting (do I need to pay these off before I quit?) so thanks for weighing in!!

Budget details:

Presents: presents are mostly to family, but you're right about buying big wedding gifts. My husband's family decided to start just doing presents for the kids (not the adults) at Christmas, which will help with the craziness of presents. I'm going to try to get my family to do that too.

Kid Activities: $50 is diapers. I’d like to do cloth, but husband said no because he doesn’t want poop in the washing machine (ha!) Since there are so many free things in DC, this is probably an overestimate of what we’d spend, so I like the idea of putting anything we don’t spend into a 529.

Charity: we’ll probably keep it at $300, but if we ever got into a true crisis we’d eliminate it.
Car Insurance: I’ll make some calls…this is probably too high.

Thank you again! You all are amazing!!!

[lentilman]

Try to live on DH salary strictly for 6 mo.  Toss yours at the student loans.

At the end of this you will know if it "feels right".  And the loans will be gone & fixed expenses will be less.

[Guizmo]

Dang, so 35 hours is part time for a lawyer. I guess you gotta pay the cost to be the boss!

[willn]

Quick quick impressions:

--Absolutely knock out the student loans asap whether you stay at home or not.  At your income levels that should take about 5 minutes to replenish from your savings accounts. That's a no brainer as it reduces risk and claws back a bit of monthly cash flow.   You'll find some critics of this advice as there is some possibilty to make an extra percent or two by investing the money you'd otherwise pay off.  I say reduce the hassle, risk, increase the monthly cash flow.

--The massive child care bill will disappear once you quit, right?

--You'll find further savings by being a 'home economist' and probably find hundreds of dollars in savings each month because you'll be cooking more etc.

--I get the feeling from your writing that selling the condo is best for you. Real estate investing is stressful if you have mortgages to worry about.  Take the gains and invest them at Vanguard - much more 'fire and forget' than a rental.

--A few years from now you'll be in the workforce again, because your kids will be gone a lot, so yes, you'll be able to retire early, if you desire.

[citymama]

First, a few answers:

@willn: Yes, the daycare craziness will stop when I quit work. I don't plan to be one of those stay at home moms who sends their babies to daycare or has a nanny (you laugh, but I actually know a few!)
 
@Guizmo: Seriously. You know what's sad? My salary and hours are reduced to 60% of the norm. Most of my coworkers work 60 hours a week pretty much every week. Some of the partners have done almost nothing but work for decades, make $1million+ a year, and just keep going with no retirement goal in sight. I wonder if I should send my favorite people a link to MMM on my way out to see if it helps any of them get a new perspective;)

Regarding the fixer's suggestion about calculating retirement, I can't imagine we would need more than $6000 a month in current dollars. Really, if we're smart we should be able to live on half that once we don't have a mortgage or kids to support. Even with the $6k figure, though, subtracting the estimated value of my husband's annuity benefit in current dollars ($33k or so a year...it's an amazing benefit), we need less than $1million in assets. We should be able to do that if we save 20% a year (15% plus 5% match) of just my husband's salary. I went ahead and ran numbers in a few different "retirement calculators" too, and they seem to work out. Hopefully while I'm not working, I will get better at being a "home economist" (love that term...I think I'll use that instead of "stay at home mom" when people ask me what I do!) so that when I go back to work, I will use that knowledge to keep our spending low so we can save even more!

All of these responses have made me focus in on a plan: I get to quit once we've lived on my husband's salary alone (except for daycare...that part will have to come from my paycheck) for six months. Hopefully we won't find it to be too difficult so I can quit in the Spring. At the end, we can decide if we should use the extra savings to pay off the student loans, use it as additional down payment for the future home, invest it, etc. I'm leaning toward paying off at least one of the student loans for the reasons mentioned by willn, StarryC and Mrs.FamilyFinances. It's hard to pay off that 1.625% one, though, b/c it just wasn't that long ago that even CDs were paying more than that. We'll see.

In the meantime, I asked my boss to start giving me some different kinds of work, so hopefully I won't be so bored and can expand my skill set in case the contract work that is available is a little different from what I've been doing lately. Since I know that I'm not just stuck in this job for the rest of my life, I can focus on figuring out what other things I might want to do.

Thank you so much for all your help! I will post an update once I have one!!

[higgins2013]

I'm a mother, live with my family in an expensive urban neighborhood (our profession opportunitiess only occur in major cities), a white-collar professional in a male-dominated field and "still working".  "Personal Fulfillment as SAHM" is often an unattainable goal for an upper-middle class mother who wants to maintain her family's lifestyle expectations, which I'm assuming includes for your children: high-quality elementary/HS education, college, orthodontics, "enrichment" (sleep-away camp, music lessons, and two-week family vacations) etc.  I'm assuming there are no rich grandparents lurking about to provide niceities/necessities. 

I'm in a profession with comparitively few women in senior-management.  When I was pregnant with our oldest, "maternity leave" was a novel concept.  I returned to my 60-hour workweek after six weeks.  Soon realized that I was "mommy tracked", and plateaued.  We were frugal before it was fashionable, and not happy with babycare options.  I resigned to be SAHM, to discover my seemingly undervalued services were suddenly viewed quite desirable, and was immediately offered a "twice the pay/half the hours" work-from-home hourly-fee arrangement.   It worked well for four years.  I then was recruited for a "60% full-time" position at another firm, with health insurance and benefits.   After four more years, I converted position into a work-from-home situation.  And fourteen years later, I'm reasonably fulfilled and well-compensated, if not on the big-promotion career track.  It's good enough for me, and excellent for my family.

I think that "one child" allows both white-collar professional parents to pursue their careers reasonably well.  "Two children" complicates and restricts a mother's choices to a greater degree, because two kids require nearly twice the attention.  But "three children" often conclude a mother's out-of-home full-time career, unless "mothering" can be mostly outsourced altogether.  The implicit financial burden of more kids often serves as a de facto "birth count limit" for many upper-middle-class couples.  Children in upper-middle income households are very expensive.  Most professional women of my generation couldn't swing three kids plus a full-time career, and many became stay-at-home moms. 

I note that some children require significant more parental involvement, and unexpectedly much more devotion of time and financial resources.  I've a special-needs child, spent significant time (and money) at doctors, consultants, and teacher consults during his school years.  That commitment would have severely conflicted with my original firm's facetime requirements.

I also noted you're an attorney, and realize that "big-office" legal profession has changed dramatically, and downscaled employee-counts too.  Perhaps it would be appropriate to find an inhouse counsel position now, before considering a third child, to configure yourself a "good enough" professional situation that would allow you to work, whether full-time or part-time, and spend adequate time with your children too.  Our change your career direction more drastically.  Your savings plan was silent on college tuition savings for your two children.  Plan now.  Better yet, seek an alternate career-path at a university or college that provides subsidized college tuition to employees' children.  Best wishes.