Author Topic: Reader Case Study - Help me improve my budget!  (Read 10502 times)

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Reader Case Study - Help me improve my budget!
« on: February 10, 2015, 02:59:58 PM »
Hi everyone. I hope you are able to shed some light on some areas I may be able to improve on. Here's my details:

Income: $90K a year, $5581 average per month after taxes. We are a single income family--my husband is a senior software developer, and I stay home with our three kids (ages 3, 2, and 9 months).

Current monthly expenses:
$200 donation to our church
$600 Food (We eat at home 99% of the time and husband packs a lunch everyday)
$150 Gas
$100 Shopping (used kids items, gifts, clothing)
Subtotal: $1050

"Fixed" expenses
$1956 Mortgage (10-year mortgage on a $250K house, 3.25% interest rate)
$220 Property tax
$115 Homeowners Insurance ($1000 deductible, never had a claim)
$70 Natural Gas
$9 Netflix (My husband insists that we keep this)
$54 Car insurance (Liability-only insurance for our two paid-for older vehicles)
$22 Cell Phones (Two Moto G with Republic Wireless, both on the $10 a month plan)
$30 Internet
$89 Electricity
$38 Garbage/Water/Sewer (one bill through the city)
$107 Husband's Life Insurance ($1M, 30 year policy--he is the breadwinner and unfortunately has some bad health history in his family including his father passing away young)
$40 My Life insurance policy ($500,000 20-year policy)
$525 Student Loans (We are paying these as fast as possible, have paid off $50K in the last two years)
Subtotal of this section: $3275

Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Total of all listed expenses=$4625

Monthly income $5581-Expenses=$956 remaining--which goes towards student loan principal.

My husband is currently contributing 6% of his salary and employer matches 3%, so 9% of salary amount ($8100 annually) going into a 401k right now.

On the side I sell anything we aren't using, sign up to get credit card bonuses, and what not. Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.

Not planning on retiring in the near future. Just focused on getting out of student loan debt.

Assets:  $170K in IRAs (Vanguard, Index Funds: REIT, Total Stock, Total International)
60K equity in House
Liabilities: 50K in student loans 4-4.7% interest rates

Specific Question(s): Where could I cut more on my budget? I have cut tons of stuff out the last three years, so to me, it seems "bare bones"--but what I am missing? Any bills that seem too high? I'm interested in any ideas or reactions you have to my numbers.

Thanks!
« Last Edit: February 10, 2015, 09:45:22 PM by busymom »

MDM

  • Senior Mustachian
  • ********
  • Posts: 11477
Re: Reader Case Study - Help me improve my budget!
« Reply #1 on: February 10, 2015, 03:27:37 PM »
Not exactly what you asked, but...there doesn't seem to be any 401k contribution?  Not available, or not being used?

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #2 on: February 10, 2015, 03:37:05 PM »
Ah, good point!

My husband is currently contributing 6% of his salary and employer matches 3%, so 9% of salary amount ($8100 annually) going into a 401k right now. That is not included in the numbers since it comes out of his paycheck before we get it. We are doing 6% since that is the minimum amount to be able to get the full employer match. Once our student loans are paid off (in about 2 years), we plan to increase that.

We used to contribute much more to our 401k and had started a Roth IRA for him last year (with automatic withdrawal everypaycheck to max his Roth)--but then realized that by putting that money into retirement accounts we were postponing paying off our loans longer

I just added the contribution info in the original post. Thanks for pointing that out!
« Last Edit: February 10, 2015, 09:46:11 PM by busymom »

fields

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Reader Case Study - Help me improve my budget!
« Reply #3 on: February 10, 2015, 03:44:35 PM »
This probably isn't helpful right now, but ten years from now, you are going to be in great shape!  Your house will be paid for, your student loans will be gone, and you'll be able to pour money into investments! 

TrMama

  • Guest
Re: Reader Case Study - Help me improve my budget!
« Reply #4 on: February 10, 2015, 03:45:45 PM »
The only things that stick out to me are the church donation and the gas. $150 buys a lot of gas, can you drive less?

I also noticed you have a 10yr mortgage. Normally, I'd think that was a great idea, but if paying off the loans is a really big priority, could you refi the house to a longer term and then divert the extra cash to paying off the loan? Once the loan is paid off, you can go back to a higher mortgage payment.

savedough

  • Stubble
  • **
  • Posts: 130
Re: Reader Case Study - Help me improve my budget!
« Reply #5 on: February 10, 2015, 03:47:02 PM »
I think your budget looks pretty good.  We spend less on groceries for a family of four, but more in other areas.   I don't know what area you are in so I can't tell if your house is average or if you have a fancy pants place.

Do you drive a lot?   I know it's hard with three little kids to walk/bike, but maybe you could try to cut out some gas.   

Just keep swimming and get out of debt!

southern granny

  • Pencil Stache
  • ****
  • Posts: 531
Re: Reader Case Study - Help me improve my budget!
« Reply #6 on: February 10, 2015, 03:48:41 PM »
I think you are doing great.  As soon as that mortgage is paid off, you will be sitting pretty.

Leanthree

  • 5 O'Clock Shadow
  • *
  • Posts: 63
Re: Reader Case Study - Help me improve my budget!
« Reply #7 on: February 10, 2015, 03:51:32 PM »
Does your husband have disability insurance through work? That would be my one suggestion considering your young kids and little savings.

Looking good otherwise.

Megatron

  • Stubble
  • **
  • Posts: 130
Re: Reader Case Study - Help me improve my budget!
« Reply #8 on: February 10, 2015, 04:00:35 PM »
Looks like you guys are doing alright. I would cut down on the donation to church until your student loans are paid off. but that's just me. I prefer to donate my time and sweat. Did not see a line item for 401k / IRA, that $5581 seems a bit high for after taxes and deductions. I make 6 figure and I try to stash away as much money as I can before it gets to me. each month I only let myself have direct access to about $3000. I max 401k, HSA every year and I funnel any extra to an online only savings account and Vanguard money market and wait for a dip in prices, that way it's harder for me to get my grubby hands on it. It's almost like training yourself. If you limit yourself to only x amount of money, you can make due, just like everything in life.

Hotstreak

  • Pencil Stache
  • ****
  • Posts: 838
Re: Reader Case Study - Help me improve my budget!
« Reply #9 on: February 10, 2015, 04:08:35 PM »
Considering the size of your family the budget looks good.  The things that stand out to me are car repairs and fuel, and I don't see a line for eventual car replacement or any entertainment expense other than internet/netflix.  Also your home insurance seems quite high at $1,380/year.  I suggest shopping around and/or increasing your deductible.  Regarding the church donations, it looks like they've already been cut back (at 2.7% of gross or 3.8% of net) relative to the 10% many folks give.  Considering 5 people attending weekly services that's not a bad price to pay for any benefits you may receive there.

If you want to get your SL's paid off faster you need to refinance your mortgage to a longer term or increase income.  Otherwise you're on pretty good track.
 

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #10 on: February 10, 2015, 04:25:10 PM »
Thank you to all of you for the responses thus far.

This summer I got a bike trailer used on Craigslist for $50---unfortunately, it only seats two, and I can only take the older two in it (the 2 year old and 3 year old) because the youngest (9 months) is too young for it (needs to be at least 12 months).

We have two vehicles, a mini van and a chevy cobalt. When all five of us go somewhere together, we have to take the minivan, since we can't fit three carseats in the backseat of the cobalt. When the weather was warmer (I'm in Minnesota), we actually walked some places with our triple stroller--but I'ver never heard of a triple bike stroller, so our distance is limited.

We live in the suburbs of Minneapolis and unfortunately, some frequent trips we make are quite a distance. We are Orthodox Christians (which is only like 1% of the population) so we have to travel a ways to church (30 minute drive each way). My husband works about a 20 minute drive away. To the posters who said that the giving to the church seems high--I understand that. In some ways I wish we could give a full tithe (10%), but we feel that that would be unreasonable right now with the amount of debt we have. So it is scaled back from the "ideal" giving situation.

We did just refinance our mortgage to the 10 year mortgage. We had a 30-year mortgage, but because we took it out before we had a 20% downpayment, we were paying a whopping $197 per month in PMI. I found out that I could do a $0 cost refinance to a home equity loan through our credit union, but we had to do a 10 year mortgage. I crunched the numbers and found that by not wasting the $197 a month on PMI (Since we now had equity, but couldn't drop the PMI because of FHA rules requiring that you pay it for a 5 year minimum) we would come out significantly ahead, even though we couldn't pay quite as fast on our higher interest student loans.

Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1809
  • Mustachian-ish in Live Music Capital of the World
Re: Reader Case Study - Help me improve my budget!
« Reply #11 on: February 10, 2015, 06:15:39 PM »
1) Great job! 

Subtracting the mortgage, student loan payment and the church amount, your spending is about $1950/month or $23,400 per year.   That's less than the MMM family, and you have three kids to their one.  So your costs excluding debt are in a high efficiency zone.

Since you asked for cost comments, here's another for perspective.  Per person, once you finish your debt emergency, you'll be at less than $4800 per person per year plus church; MMM family spends over $8K.  (Of course, they're luxuriating in FI, while you are still working towards it.  But if you were secretly looking for compliments, you surely deserve them.)

2)  Food cost - at first, I wondered if $600 was high.  But it's not, unless you want to hit every possible target exactly.   At 5 people x 90 meals per month = 450 meals, you are at $1.33 per meal.  That is close to $1 per meal target that I think Mr. MM himself suggested; roughly the same as MMM family in 2013; and I think a bit less than MMM family in 2014.  You can verify in his "Kill Your Grocery Bill" and 2014 family spending articles.

3) For bikes - I did read about a woman in Portland who has 6 kids and moves the family around town entirely by bike.  Check this out; there are more recent articles, but this one starts with a photo that shows how she does it:

http://bikeportland.org/2012/06/28/with-six-kids-and-no-car-this-mom-does-it-all-by-bike-73731

data.Damnation

  • 5 O'Clock Shadow
  • *
  • Posts: 50
  • Location: Madison
Re: Reader Case Study - Help me improve my budget!
« Reply #12 on: February 10, 2015, 06:40:01 PM »
You're doing really good. The only thing I would suggest is to only pay the minimum on your student loans and max out your 401(k) instead, assuming your student loan interest is 3% or less. Student loan interest is deductible and (usually) low interest, so there's no rush to pay it off early.

KD

  • Stubble
  • **
  • Posts: 239
  • "Waste is a resource out of place."-Coors Mfg.
Re: Reader Case Study - Help me improve my budget!
« Reply #13 on: February 10, 2015, 06:50:40 PM »
I'm with RobbyJ - where is the line item for replacing the vehicle/s later?

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #14 on: February 10, 2015, 08:00:00 PM »
@KD and @RobbyJ- I totally agree that it is generally a good idea to have a vehicle replacement fund, especially when someone drives two older vehicles. Thanks for pointing that out! We have thought about doing that, but haven't at this time for a few reasons:
1) We would be okay without one vehicle for a while if we were forced into that situation
2) We use YNAB for budgeting and live on the income from the previous month (so not living paycheck to paycheck and basically we have one month of income as an emergency buffer). We also have sink funds for our life insurance policies and property tax which is a buffer
3) We would just buy a cheaper car/van off Craigslist

The two vehicles we have now are a 2006 Chevy Cobalt and a 2005 Dodge Caravan. Both have about 120,000 miles on them--so lots of life remaining in them, unless we were in an accident.

And yes, Netflix and internet is our only entertainment $ right now. We use the library, take the kids to the Children's museum once a month on the free days, and go to free church/community events.

I will look into the homeowners insurance. I haven't called around on that one for a while, so I will do that--thanks for the suggestion! @RobbyJ

@BarrettSun -Wow! When you put it that way, I guess we are doing pretty good. Thanks for pointing that out. I was thinking we were going to get torn apart for our luxurious spending. I checked out that link to the lady biking her six kids---W-O-W! I am going to look into getting something like that. Or I was thinking that this summer my youngest will be old enough that I can use the bike trailer for two kids and put one on an attached over the wheel seat.


For those pointing out our food costs are high--I fogot to mention that the $600 per month also includes household items like toilet paper, soap, shampoo, etc. It's just easier for me to keep it all in the same budget line item since I am buying those things at the same general places.

@Leanthree Yes, my husband does have disability insurance provided by his work. Thanks for asking about that! It is definitely an important thing to have in our situation (small kids, one income family)

And thank you for all the feedback everyone! It's really helpful to have some other eyes look at this.

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #15 on: February 10, 2015, 08:10:47 PM »
You're doing really good. The only thing I would suggest is to only pay the minimum on your student loans and max out your 401(k) instead, assuming your student loan interest is 3% or less. Student loan interest is deductible and (usually) low interest, so there's no rush to pay it off early.

The lowest interest rate I have on a student loan is 4%, so we are just planning to pay off the loans and then invest more two years from now when they are gone. Right now, with the amount of loans we have, the interest hasn't even been all tax deductible, as the limit is $2500 of deductible student loan interest for married couples filing jointly. In 2014 we had just over $4000 in student loan interest payments (an improvement over 2013 when it was over $6000).

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2178
  • Age: 29
Re: Reader Case Study - Help me improve my budget!
« Reply #16 on: February 10, 2015, 08:13:55 PM »
First of all, the budget looks great to me.

Quote
Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Are you sure the cars cost $150/month in repairs alone? I'd imagine oil changes are only $30 every three months or so.

Quote
Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
Where are you getting the extra $1000/month? If you are able to come up with that extra $12k/yr would your husband be able to max out the 401(k)? ($18,000 every year)

Also do you plan to work in the distant future?

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #17 on: February 10, 2015, 08:30:28 PM »
First of all, the budget looks great to me.

Quote
Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Are you sure the cars cost $150/month in repairs alone? I'd imagine oil changes are only $30 every three months or so.

Quote
Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
Where are you getting the extra $1000/month? If you are able to come up with that extra $12k/yr would your husband be able to max out the 401(k)? ($18,000 every year)

Also do you plan to work in the distant future?


Thanks! Oil changes aren't much, and my husband can do those himself, but with two older cars, we seem to get hit with something big a couple of times a year, new tires or other repairs. So my $150 is an estimate of about $1800 per year in repairs (about $900 per vehicle). It still beats having a car payment!

Yes, I plan to work once the kids are in school again. Minnesota is the second most expensive state for child care expenses, so it won't make sense for me to work until I have at least the older two in school and I only have to pay for care for the youngest. I was making $43K at my job a state university when I quit, since I wouldn't have been making much after paying for childcare costs for two kids, paying taxes, and commuting costs.

I have been able to find an average of $1000 per month selling stuff on Craigslist (kids items, furniture, etc), tax return, husband's 5% annual bonus, credit card sign up bonuses, etc.  Do you think it would be better to max out my husband's 401K instead of putting that money towards our debt?

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2178
  • Age: 29
Re: Reader Case Study - Help me improve my budget!
« Reply #18 on: February 10, 2015, 08:35:51 PM »
First of all, the budget looks great to me.

Quote
Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Are you sure the cars cost $150/month in repairs alone? I'd imagine oil changes are only $30 every three months or so.

Quote
Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
Where are you getting the extra $1000/month? If you are able to come up with that extra $12k/yr would your husband be able to max out the 401(k)? ($18,000 every year)

Also do you plan to work in the distant future?


Thanks! Oil changes aren't much, and my husband can do those himself, but with two older cars, we seem to get hit with something big a couple of times a year, new tires or other repairs. So my $150 is an estimate of about $1800 per year in repairs (about $900 per vehicle). It still beats having a car payment!

Yes, I plan to work once the kids are in school again. Minnesota is the second most expensive state for child care expenses, so it won't make sense for me to work until I have at least the older two in school and I only have to pay for care for the youngest. I was making $43K at my job a state university when I quit, since I wouldn't have been making much after paying for childcare costs for two kids, paying taxes, and commuting costs.

I have been able to find an average of $1000 per month selling stuff on Craigslist (kids items, furniture, etc), tax return, husband's 5% annual bonus, credit card sign up bonuses, etc.  Do you think it would be better to max out my husband's 401K instead of putting that money towards our debt?

Okay, that is a safe estimate for the cars. Related to the university job, are you able to teach at all to pick up some cash?

The age old question - invest or pay off debt? I don't know how well I can answer this. You would be able to pay the minimums and still be able to deduct all the interest. What's cool about the 401(k) is it lowers your taxable income, which can save you quite a bit. For example, if you contribute $8,100 to your 401(k) during the year and that amount would be taxed in the 33 percent bracket if included in taxable income, then your tax savings is $2,673. Thus if you contribute $18,000 then your tax saving is $5940. The "savings" by contributing the extra $10k might outweigh the student loans by far.  It may even be able to help you drop to a lower tax bracket.

I would expect your family to have a nice tax bill between the max 401(k), three kids, married filing jointly, just your husband working, and deducting all SL interest.
« Last Edit: February 10, 2015, 08:44:37 PM by Cwadda »

starterstache

  • 5 O'Clock Shadow
  • *
  • Posts: 42
Re: Reader Case Study - Help me improve my budget!
« Reply #19 on: February 10, 2015, 09:19:13 PM »
I haven't completely read all the responses, but I don't think anyone mentioned your homeowners insurance.  Is $100/mo accurate?  Seems very high to be paying nearly $1200/yr for a 250-300k house.  I would definitely shop around and try to cut that in half, which should be feasible.

Otherwise, as others have said you seem to be doing great.  How far away are you from retirement?  I didn't see any mention of age.

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #20 on: February 10, 2015, 09:20:06 PM »
First of all, the budget looks great to me.

Quote
Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Are you sure the cars cost $150/month in repairs alone? I'd imagine oil changes are only $30 every three months or so.

Quote
Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
Where are you getting the extra $1000/month? If you are able to come up with that extra $12k/yr would your husband be able to max out the 401(k)? ($18,000 every year)

Also do you plan to work in the distant future?


Thanks! Oil changes aren't much, and my husband can do those himself, but with two older cars, we seem to get hit with something big a couple of times a year, new tires or other repairs. So my $150 is an estimate of about $1800 per year in repairs (about $900 per vehicle). It still beats having a car payment!

Yes, I plan to work once the kids are in school again. Minnesota is the second most expensive state for child care expenses, so it won't make sense for me to work until I have at least the older two in school and I only have to pay for care for the youngest. I was making $43K at my job a state university when I quit, since I wouldn't have been making much after paying for childcare costs for two kids, paying taxes, and commuting costs.

I have been able to find an average of $1000 per month selling stuff on Craigslist (kids items, furniture, etc), tax return, husband's 5% annual bonus, credit card sign up bonuses, etc.  Do you think it would be better to max out my husband's 401K instead of putting that money towards our debt?

Okay, that is a safe estimate for the cars. Related to the university job, are you able to teach at all to pick up some cash?

The age old question - invest or pay off debt? I don't know how well I can answer this. You would be able to pay the minimums and still be able to deduct all the interest. What's cool about the 401(k) is it lowers your taxable income, which can save you quite a bit. For example, if you contribute $8,100 to your 401(k) during the year and that amount would be taxed in the 33 percent bracket if included in taxable income, then your tax savings is $2,673. Thus if you contribute $18,000 then your tax saving is $5940. The "savings" by contributing the extra $10k might outweigh the student loans by far.  It may even be able to help you drop to a lower tax bracket.

I would expect your family to have a nice tax bill between the max 401(k), three kids, married filing jointly, just your husband working, and deducting all SL interest.

Thanks for your reply. I wasn't a teacher at the university, I worked in student affairs. In 2013 I did an independent contract from home to help them with a student conduct/discipline project, but I don't have anything going currently.

Okay--a couple really basic questions about the $18,000 maximum (I should probably know the answers to these, but we have never maxed out our retirement savings before).
-Does that maximum amount include the matching amount from the employer, or is that amount separate? In this case, the employer pays a 3% match into the IRA ($2700). Does that mean the maximum for us would be $15,300? Or would we put in $18,000 and the employer $2700?
-How does one logistically max out their IRA for the year? Do you just go to HR and ask them to have the max deducted for the year? It seems that it is always where you select a percentage of your income. $18,000 would be exactly 20% of his regular income, but they also generally receive a 5% bonus in December as well, so I don't know if that would mess that up...

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #21 on: February 10, 2015, 09:23:26 PM »
I haven't completely read all the responses, but I don't think anyone mentioned your homeowners insurance.  Is $100/mo accurate?  Seems very high to be paying nearly $1200/yr for a 250-300k house.  I would definitely shop around and try to cut that in half, which should be feasible.

Otherwise, as others have said you seem to be doing great.  How far away are you from retirement?  I didn't see any mention of age.

Yes, someone else mentioned that. I am going to call around and get some more estimates. It is the accurate amount. I am 29 and my husband is 32. We don't have any specific retirement plan at this point. Right now our goal is to pay off all of our student loans. Then max out retirement savings while paying off the house. We want to work towards FI, but want to take things one step at a time.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11477
Re: Reader Case Study - Help me improve my budget!
« Reply #22 on: February 10, 2015, 09:38:15 PM »
Okay--a couple really basic questions about the $18,000 maximum (I should probably know the answers to these, but we have never maxed out our retirement savings before).
-Does that maximum amount include the matching amount from the employer, or is that amount separate? In this case, the employer pays a 3% match into the IRA ($2700). Does that mean the maximum for us would be $15,300? Or would we put in $18,000 and the employer $2700?

-How does one logistically max out their IRA for the year? Do you just go to HR and ask them to have the max deducted for the year? It seems that it is always where you select a percentage of your income. $18,000 would be exactly 20% of his regular income, but they also generally receive a 5% bonus in December as well, so I don't know if that would mess that up...
Following answers assumes you meant to say 401k instead of IRA...correct?

The $18K is the limit for your contribution.  The employer contribution is separate, so a total of $20,700 would go into the 401k.

Ask HR about the payroll system.  Where I worked the program was smart enough to stop contributing to the 401k as soon as the maximum was reached.  Also check the fine print on the employer match - some companies give you the same amount no matter how you structure your contributions, but with others you have to spread your contribution over all the pay periods to get the maximum company match.

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2178
  • Age: 29
Re: Reader Case Study - Help me improve my budget!
« Reply #23 on: February 10, 2015, 09:44:03 PM »
First of all, the budget looks great to me.

Quote
Variable expenses
$150 Car Repairs
$150 Home Repairs
Subtotal of this section: $300

Are you sure the cars cost $150/month in repairs alone? I'd imagine oil changes are only $30 every three months or so.

Quote
Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
Where are you getting the extra $1000/month? If you are able to come up with that extra $12k/yr would your husband be able to max out the 401(k)? ($18,000 every year)

Also do you plan to work in the distant future?


Thanks! Oil changes aren't much, and my husband can do those himself, but with two older cars, we seem to get hit with something big a couple of times a year, new tires or other repairs. So my $150 is an estimate of about $1800 per year in repairs (about $900 per vehicle). It still beats having a car payment!

Yes, I plan to work once the kids are in school again. Minnesota is the second most expensive state for child care expenses, so it won't make sense for me to work until I have at least the older two in school and I only have to pay for care for the youngest. I was making $43K at my job a state university when I quit, since I wouldn't have been making much after paying for childcare costs for two kids, paying taxes, and commuting costs.

I have been able to find an average of $1000 per month selling stuff on Craigslist (kids items, furniture, etc), tax return, husband's 5% annual bonus, credit card sign up bonuses, etc.  Do you think it would be better to max out my husband's 401K instead of putting that money towards our debt?

Okay, that is a safe estimate for the cars. Related to the university job, are you able to teach at all to pick up some cash?

The age old question - invest or pay off debt? I don't know how well I can answer this. You would be able to pay the minimums and still be able to deduct all the interest. What's cool about the 401(k) is it lowers your taxable income, which can save you quite a bit. For example, if you contribute $8,100 to your 401(k) during the year and that amount would be taxed in the 33 percent bracket if included in taxable income, then your tax savings is $2,673. Thus if you contribute $18,000 then your tax saving is $5940. The "savings" by contributing the extra $10k might outweigh the student loans by far.  It may even be able to help you drop to a lower tax bracket.

I would expect your family to have a nice tax bill between the max 401(k), three kids, married filing jointly, just your husband working, and deducting all SL interest.

Thanks for your reply. I wasn't a teacher at the university, I worked in student affairs. In 2013 I did an independent contract from home to help them with a student conduct/discipline project, but I don't have anything going currently.

Okay--a couple really basic questions about the $18,000 maximum (I should probably know the answers to these, but we have never maxed out our retirement savings before).
-Does that maximum amount include the matching amount from the employer, or is that amount separate? In this case, the employer pays a 3% match into the IRA ($2700). Does that mean the maximum for us would be $15,300? Or would we put in $18,000 and the employer $2700?
-How does one logistically max out their IRA for the year? Do you just go to HR and ask them to have the max deducted for the year? It seems that it is always where you select a percentage of your income. $18,000 would be exactly 20% of his regular income, but they also generally receive a 5% bonus in December as well, so I don't know if that would mess that up...

According to this site, http://www.bankrate.com/finance/retirement/employer-match-counts-toward-401k-limit.aspx
Employer matches do not count toward the $18,000 :) (note in 2015 it got bumped up to $18,000). There is a combined limit of $52k though (which probably wouldn't apply to you).


For the logistics, first find out who your 401(k) custodian is, call them up, and get online access to everything (also a good way to look at the investment details, fees, if it's more worthwhile to invest over paying down loans, etc). There are ways to have them automatically calculate the correct percentage no matter what your salary is or how it changes. They should be able to handle your exact needs without having to worry about them. Hopefully the custodian is Vanguard or Fidelity, I've had great customer service experiences with them one hundred percent of the time.
« Last Edit: February 10, 2015, 09:45:56 PM by Cwadda »

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #24 on: February 10, 2015, 09:46:07 PM »
Okay--a couple really basic questions about the $18,000 maximum (I should probably know the answers to these, but we have never maxed out our retirement savings before).
-Does that maximum amount include the matching amount from the employer, or is that amount separate? In this case, the employer pays a 3% match into the IRA ($2700). Does that mean the maximum for us would be $15,300? Or would we put in $18,000 and the employer $2700?

-How does one logistically max out their IRA for the year? Do you just go to HR and ask them to have the max deducted for the year? It seems that it is always where you select a percentage of your income. $18,000 would be exactly 20% of his regular income, but they also generally receive a 5% bonus in December as well, so I don't know if that would mess that up...
Following answers assumes you meant to say 401k instead of IRA...correct?

The $18K is the limit for your contribution.  The employer contribution is separate, so a total of $20,700 would go into the 401k.

Ask HR about the payroll system.  Where I worked the program was smart enough to stop contributing to the 401k as soon as the maximum was reached.  Also check the fine print on the employer match - some companies give you the same amount no matter how you structure your contributions, but with others you have to spread your contribution over all the pay periods to get the maximum company match.

Yes, I meant 401k, sorry! This makes sense, thanks for the response :-)

starterstache

  • 5 O'Clock Shadow
  • *
  • Posts: 42
Re: Reader Case Study - Help me improve my budget!
« Reply #25 on: February 10, 2015, 09:50:49 PM »
I haven't completely read all the responses, but I don't think anyone mentioned your homeowners insurance.  Is $100/mo accurate?  Seems very high to be paying nearly $1200/yr for a 250-300k house.  I would definitely shop around and try to cut that in half, which should be feasible.

Otherwise, as others have said you seem to be doing great.  How far away are you from retirement?  I didn't see any mention of age.

Yes, someone else mentioned that. I am going to call around and get some more estimates. It is the accurate amount. I am 29 and my husband is 32. We don't have any specific retirement plan at this point. Right now our goal is to pay off all of our student loans. Then max out retirement savings while paying off the house. We want to work towards FI, but want to take things one step at a time.

Awesome!  Looks like you are definitely ahead of the game based on your age.  Good luck and post an update once you've made further changes :)

BCBiker

  • Stubble
  • **
  • Posts: 187
  • Location: Colorado
    • Business Casual Biker - Health, Wealth, and Mental Stealth BTYB Bicycle Commuting
Re: Reader Case Study - Help me improve my budget!
« Reply #26 on: February 10, 2015, 10:24:29 PM »
The term life insurance for your husband at 32 is outrageous! A 30 year policy is probably not necessary if you are thinking FI and 10-20 would definitely be less by a long shot for now. I'm about the same age and could get a $1M for around $30-40 per month, 10 year term.

I would definitely shop that one.

mxt0133

  • Handlebar Stache
  • *****
  • Posts: 1547
  • Location: San Francisco
Re: Reader Case Study - Help me improve my budget!
« Reply #27 on: February 11, 2015, 12:09:57 AM »
If you haven't already done so I would start thinking about your end of life documents, especially with three little ones.  Not the most pleasant task but one that to me is necessary.

http://getyourshittogether.org/checklist/#.VNr_debF85s

NICE!

  • Pencil Stache
  • ****
  • Posts: 682
  • Location: Africa
Re: Reader Case Study - Help me improve my budget!
« Reply #28 on: February 11, 2015, 01:01:57 AM »
The church donation actually seems pretty low to me based upon income. I'd recommend cutting elsewhere to increase that before you increase savings or debt payoff.

I know I just invited a bunch of vitriol, but $200/month seems nowhere near what if you have the means (which you do).

johnny847

  • Magnum Stache
  • ******
  • Posts: 3188
    • My Blog
Re: Reader Case Study - Help me improve my budget!
« Reply #29 on: February 11, 2015, 01:39:57 AM »
Considering the size of your family, and some of the constraints with respect to your driving, nothing pops out at me as really expensive. I mean, maybe you could do a little bit better here and there, but I don't think the money savings are going to be worth the effort required considering you and your husband have three kids to raise.

One question for you though - have you used a kill a watt to measure electricity usage in your home? http://www.mrmoneymustache.com/2011/05/10/ill-show-you-my-electricity-bill-if-you-show-me-yours/

On the side I sell anything we aren't using, sign up to get credit card bonuses, and what not. Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
You do chase credit card bonuses, so you may be receptive to this next suggestion - would you consider chasing bank account bonuses? I've been chasing ones that yield $200 or so for a direct deposit, and holding about $2000 to avoid monthly fees. You usually need to hold the account open for 3-6 months. More often than not, a ACH transfer can fulfill a direct deposit requirement. If you do need actual direct deposits though, your husband may not want to keep changing where he gets his paychecks deposited.
« Last Edit: February 11, 2015, 01:42:09 AM by johnny847 »

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3053
  • Location: Emmaus, PA
Re: Reader Case Study - Help me improve my budget!
« Reply #30 on: February 11, 2015, 04:58:35 AM »
You're a badass. What's the student loan payoff date if you pay just the $525/month? 4% isn't that bad and the net worth increase from saving pre-tax dollars the way you do in a 401k is difficult to beat.

MetalCap

  • Stubble
  • **
  • Posts: 132
  • Location: Washington DC
Re: Reader Case Study - Help me improve my budget!
« Reply #31 on: February 11, 2015, 05:44:10 AM »
I agree with Shoulder, you're a badass doing everything you can!  My only question is how your taxes look?  With 3 kids and 1 income, make sure you're allowances withheld is accurate so you can get as much money over the year as possible to pay everything down.  Other than that it seems as though you are where I am; where you've gotta let time take its course and get the loans paid off.  It sucks waiting but you're doing great and it seems like we're looking for spare nickels because you've got the dimes, quarters and dollars LOCKED DOWN!  Keep up the good work!

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #32 on: February 11, 2015, 09:17:39 AM »
If you haven't already done so I would start thinking about your end of life documents, especially with three little ones.  Not the most pleasant task but one that to me is necessary.

http://getyourshittogether.org/checklist/#.VNr_debF85s

Very good point. It is on our radar to do this, but we haven't done it. We met with an estate lawyer over a year ago, and he seemed overpriced and we wanted to get some more quotes for comparison. He was trying to talk us into doing a living trust instead of living wills. Any thought on that for our situation??  We are unsure about that part as well.

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #33 on: February 11, 2015, 09:22:44 AM »
Considering the size of your family, and some of the constraints with respect to your driving, nothing pops out at me as really expensive. I mean, maybe you could do a little bit better here and there, but I don't think the money savings are going to be worth the effort required considering you and your husband have three kids to raise.

One question for you though - have you used a kill a watt to measure electricity usage in your home? http://www.mrmoneymustache.com/2011/05/10/ill-show-you-my-electricity-bill-if-you-show-me-yours/

On the side I sell anything we aren't using, sign up to get credit card bonuses, and what not. Even though this budget shows only about $1000 available towards extra student loan principle per month, I've been averaging about $2000 extra per month.
You do chase credit card bonuses, so you may be receptive to this next suggestion - would you consider chasing bank account bonuses? I've been chasing ones that yield $200 or so for a direct deposit, and holding about $2000 to avoid monthly fees. You usually need to hold the account open for 3-6 months. More often than not, a ACH transfer can fulfill a direct deposit requirement. If you do need actual direct deposits though, your husband may not want to keep changing where he gets his paychecks deposited.

I haven't checked out the kill a watt thing, so I will do that.

I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #34 on: February 11, 2015, 09:26:05 AM »
The term life insurance for your husband at 32 is outrageous! A 30 year policy is probably not necessary if you are thinking FI and 10-20 would definitely be less by a long shot for now. I'm about the same age and could get a $1M for around $30-40 per month, 10 year term.

I would definitely shop that one.

We locked in that policy about 8 months ago after getting 4 quotes. One company even denied my husband because of his family history (his mom-cancer, diabetes, high blood pressure; his dad-heart issues, crohn's disease, died in his 50's from health issues). Good point about maybe having too long of a term, though. This rate is a lot, but still an improvement over the idiotic whole life policy we had before that ($200 a month).

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8927
  • Location: Oregon
Re: Reader Case Study - Help me improve my budget!
« Reply #35 on: February 11, 2015, 09:46:09 AM »
You're who I want to be when I "grow up", by the way. Very badass =)

johnny847

  • Magnum Stache
  • ******
  • Posts: 3188
    • My Blog
Re: Reader Case Study - Help me improve my budget!
« Reply #36 on: February 11, 2015, 09:53:18 AM »
I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!
Here's a link to some good current ones to start: http://www.doctorofcredit.com/best-bank-account-bonuses/

Yea it's a bit of a bummer that the income is taxed. But it's still worth it to me too!

mxt0133

  • Handlebar Stache
  • *****
  • Posts: 1547
  • Location: San Francisco
Re: Reader Case Study - Help me improve my budget!
« Reply #37 on: February 11, 2015, 10:01:52 AM »
Very good point. It is on our radar to do this, but we haven't done it. We met with an estate lawyer over a year ago, and he seemed overpriced and we wanted to get some more quotes for comparison. He was trying to talk us into doing a living trust instead of living wills. Any thought on that for our situation??  We are unsure about that part as well.

The two are not mutually exclusive but I think he wanted you do to a living trust as well as a living will.  Living wills normally relate to health and medical decisions that describe your wishes in the event that you become incapacitated, they include things like a health care power of attorney or healthcare directive.

A living trust is a way to transfer your assets to your minor beneficiaries that will not go through probate.  You can specify a trustee to manage the distribution and use of those funds until your children reach a certain age and not just when they become 18 and blow it on coke and hookers. 

I would recommend you do some research, list down a bunch of what if scenarios that and talk to an estate lawyer on how best to execute them.  If they are good they will go trough the cases where one of the parents pass, both of you pass, your whole family passes, ect.

They don't have to be perfect the first time around.  This is an instance where the saying "done is better than perfect" would apply.

busymom

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #38 on: February 11, 2015, 10:06:52 AM »
I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!
Here's a link to some good current ones to start: http://www.doctorofcredit.com/best-bank-account-bonuses/

Yea it's a bit of a bummer that the income is taxed. But it's still worth it to me too!

Wow! This is awesome. Thanks for the link! I just bookmarked it and I'm going to pick one out to start on. Thanks for the tip! This is easy money for me because I am super organized with all my financial stuff.

johnny847

  • Magnum Stache
  • ******
  • Posts: 3188
    • My Blog
Re: Reader Case Study - Help me improve my budget!
« Reply #39 on: February 11, 2015, 10:16:11 AM »
I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!
Here's a link to some good current ones to start: http://www.doctorofcredit.com/best-bank-account-bonuses/

Yea it's a bit of a bummer that the income is taxed. But it's still worth it to me too!

Wow! This is awesome. Thanks for the link! I just bookmarked it and I'm going to pick one out to start on. Thanks for the tip! This is easy money for me because I am super organized with all my financial stuff.
Haha glad to see you enjoy this sort of thing. Most of my friends don't share my enthusiasm

bdc

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Reader Case Study - Help me improve my budget!
« Reply #40 on: February 11, 2015, 09:36:38 PM »
If the student loan has a variable interest rate, you might consider getting a home equity line of credit (HELOC) or a 401k loan. You might be able to get a point or so off the student loans. Not much, but it's something.

JLee

  • Walrus Stache
  • *******
  • Posts: 7512
Re: Reader Case Study - Help me improve my budget!
« Reply #41 on: February 11, 2015, 10:08:42 PM »
I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!
Here's a link to some good current ones to start: http://www.doctorofcredit.com/best-bank-account-bonuses/

Yea it's a bit of a bummer that the income is taxed. But it's still worth it to me too!
Oh wow, that's very cool. I wonder where those $600 Chase coupons come from....I got an email for $250 for a checking account but haven't done it yet.

johnny847

  • Magnum Stache
  • ******
  • Posts: 3188
    • My Blog
Re: Reader Case Study - Help me improve my budget!
« Reply #42 on: February 11, 2015, 10:16:59 PM »
I have done a couple bank account bonuses. I did the Capital One 360 in 2013 and we both opened accounts for a $100 bonus each in the Fall at a local bank. The bummer with those is that (unlike the credit card bonuses) the income is taxed. But still worth the effort for me at this point. I'm running out of credit card churning options that make the big $. Thanks for the suggestions!
Here's a link to some good current ones to start: http://www.doctorofcredit.com/best-bank-account-bonuses/

Yea it's a bit of a bummer that the income is taxed. But it's still worth it to me too!
Oh wow, that's very cool. I wonder where those $600 Chase coupons come from....I got an email for $250 for a checking account but haven't done it yet.
They're from targeted mailings, but the coupon code can be used by anybody. I've done it before - I got $300 for a checking account bonus. I'm also fufilling a $150 savings account bonus from the same coupon. I normally wouldn't have done it, because it requires holding a $10k balance for 90 days. But, I was tax loss harvesting $13k of VTIAX anyway, so I thought sure, why not, it's only an extra 60 days.