1 YEAR UPDATE:
Life Situation
We're 34 and 37 now, with a 2 year-old and a second baby due in July. I'm still a stay at home parent and have found it to be a good fit for this season of life. My current plan is to re-enter the workforce when my youngest enters Kindergarten.
My husband has 1 year of his Network Administration degree under his belt. He's done really well, no small feat for an ESL student. He had a bit of a health crisis last summer that resulted in a number of ER/specialist visits. It was a scary 6 months, but he's in good health again and we finished paying off the last of the medical bills a few months ago.
His company furloughed 284,000 of its 286,000 employees due to the pandemic. Most of the 2,000 still employed went on paid leave these last 2 months. He was one of the 2,000, so we've been in the very fortunate position of him staying home and being paid for not working. We're holding everything loosely this next year or so, since he's in retail. My side hustle (bookkeeper for a small business) took a pause, but I expect to resume my very part time hours in a month or two. I found a good balance with upping my hours to 7 per week, mostly by regulating my evening internet use.
Our landlord offered to extend the lease for our 1 bedroom apartment for a year. We decided to stay for 6 months longer and will save quite a bit of money with keeping our rent and other expenses very low ($1,300-1,500/month) through the end of the year. I'm toying with the idea of sticking the new baby's bassinet in the (dry) bathtub for nights and naps so everyone sleeps better. Don't know if that's ill-advised.
Citizenship plans are a bit up in the air due to Coronavirus, but thankfully my husband has a 10-year green card.
I'm encouraged by this year. We've upped our income minus expense margin to $8,000.00 (as compared to last year's $6,000.00) despite adding another baby. Our net worth has also gone up by $10,000.00. This community's knowledge has helped a ton!
Income $43,700.00
Gross Salary/Wages: $32,700.00
Overtime: $2,400.00
Other Ordinary Income: $4,000.00 (my side hustle)
Tax Return: $4,000.00 (projected 5 year average: EIC/Child Tax/Additional/American Opportunity Credits)
HSA Employer Contribution: $600.00
Deductions $7,930.00
Medical/Dental/Vision $2,500.00 (1,400 ind/2,800 family deductible/$6,000 max OOP)
HSA $520.00
Taxes $3,275.00
401k 5% match $1,635.00
Total Take Home: $35,770.00
Yearly Expenses $27,600.00
(by month*:)
Rent $830
Water/Sewer/Trash $50
Electric $50
Renter’s Insurance $7
Laundry $40
Food $650
Household Products $65
Gas $108
Geico $44
Internet $67 (still have not found anything lower, despite searching quite a bit)
Phones $38
Remittance to Parents $88 (half rather than all of their expenses, in order to live on one income)
School $165
Periodic Expenses $98
Fun/Clothes/Gear- Christmas/Birthday Gifts
*This expense level is for when we move to a 2-bedroom apt at the end of the year. We're saving $6,000.00 this year by living on much less due to the pandemic. But will spend the $6,000.00 saved on dental procedures, a new computer for my husband, infant and toddler gear, and the rest of the year's university tuition.
Take Home minus Monthly Expenses: $8,170.00
Assets: $37,100.00
-401K: $6,330.00
-ROTH IRA: $1,000 (I just opened this and will transfer over more cash to build the EF)
-HSA: $920.00
-Cash $8,850.00
-Mx retirement account: $3,000.00
-Mx House $17,000.00
Liabilities: $0
Total Assets minus Liabilities: $37,100.00
Short and Long Term Goals
Baby #2 $4,650
-I'm hiring a doula rather than giving birth alone since my husband will be with our toddler
Citizenship $800
-hoping for the fee waiver, but not counting on it
Baby #3 $3,650
ER Fund $10,000
-The pandemic has made crystal clear what ER funds are for! Just opened a Roth IRA
Year(s) Abroad $4,000
-The (somewhat crazy) plan now is for me to move to Mexico with the kids for a year or two after my husband graduates from his program and while he's getting a few year's experience in his field. Aside from the travel expenses of him coming to visit us on vacation days/some weekends, we'd pay for it by him living simply ($1,650 per month) and the kids and I renting a room from a local family ($750 per month). Close to our regular monthly expenses. We want to do it before our oldest is 7.
Moving Expenses $8,000
-We plan to relocate after my husband gets his work experience and the kids and I return from Mexico. We've decided on a city to call home (hooray!). We had a few priorities in mind (moderate weather, somewhat walkable, decent job opportunities/schools (including universities), left-leaning (we're an interracial couple that speaks Spanish at home: liberal cities are much more tolerant of us) and economic/racial diversity. It feels good to think about putting down roots in a place of our choosing.
House DP $40,000
-It'll be years of renting apartments/houses before taking this step, but we're thinking 1,200 sqft in the $200,000 range. Hopefully we can get a low interest rate via first time homebuyer’s programs
Nursing Degree
-I'm going back to school when my kids are school-age and plan to pay the education loan with the salary I make that first year of work.
Retirement
-We contribute up to the 401K match every year and will keep doing so. Reaching our short term goals will likely take awhile. I expect to really ramp up retirement savings when I go back to work (which will be part time while I still have kids at home). The idea is to always live on 1 income and put the rest towards our goals. I hope to contribute $20,000 to retirement every year by the time I'm 45 ($2,500 for 401K match, $12,000 for 2 Roth IRA accounts, $5,500 for additional 401K towards max). According to different calculators, if we continue with our match the next 10 years, then invest $20,000 over the subsequent 20 years, we'd end up with $1,090,000 for retirement. We'd have about $60,000 left on our mortgage by then, so we'd use ~$90,000 of our retirement to pay off the house plus do some renovations.
I would love to leave a million dollar endowment when I die, so I'm toying with the idea of taking a 3% withdrawal rate (seems a rate that would pretty much guarantee that the principal wouldn't be touched). We'll see.
For unexpected money that comes in during our working years after our short term goals are met, we'll put half towards fun, 25% towards reaching the 401K max, and 25% towards paying off the house early (I know the math, but I'm debt-averse. I think balancing paying it off early with putting an equal amount towards investments will help us avoid tying up too much of our net worth in one place).
Education:
-My idea is to go from part to full time once I have an empty nest and use that extra ~$20,000 per year (in combination with having a somewhat reduced cost of living being kid-free) to help fund the kid's and my educations. I'd like to get a Master of Public Health degree in retirement and give each kid $55,000 to help with their expenses.
Questions:
Are there income levels at which investing in an HSA account doesn't make sense? I know that health costs account for a big chunk of retirement expenses. And that HSA withdrawals for medical bills are tax-free. It's just that the HSA calculators I've used show a 3% rate of return (versus 6% for 401K/ROTH accounts). And we'll likely not get above $85,000 per year income until our kids are on their own. Our retirement income will also likely be no more than $60,000 including social security. Anyone care to explain how investing with a 3% rate of return is gained back via tax advantage during retirement for our income level?
I still have so much to learn about investing. Any advice on how to allocate funds in our 401K and ROTH IRA accounts?
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ORIGINAL POSTt:
Life Situation: My husband (36) and I (33) live with our 1 year-old (with hopeful plans for 2 more kids in the next 3 years) in a LCOL city in Arizona (though that may change). Husband immigrated to the US 4 years ago with a college degree but little English, and was unable to work during the immigration process that first year. Couldn't find work for a time after that and when he did, he started at minimum wage. His wages have slowly increased and he's going back to school this fall while working full time. He used to put in lots of OT but his company added a 3rd shift and OT is rarely offered now. The goal with school is to increase his earning power enough to cover expenses for our growing family. My eventual income will go towards long term goals. I have a grad school degree but stay home currently. When I re-enter the workforce, I plan to go back to school and then work part-time (conservatively estimated at $30,000) until I have an empty nest (for about 10 years). I may increase to full time after that for another 10 years... or just stay PT, depending on how much I like the lifestyle.
Gross Salary/Wages: $30,430.40 husband.
Other Ordinary Income: I have a side hustle (bookkeeping) that brings in $45 per week (3 hours at $15/hr), so $2,250.00 (I give myself 2 weeks off per year for maternity leave or holidays). I used to work 7 hours, but it was too much while also caring for an infant. I hope the 3 hours/week will survive an infant and toddler.
TOTAL: $32,680.40
Assets: $4000 in our 401K (75% match on first 5%) $50 in health savings (we had $6000 in there prior to the baby's birth, but she and I had a few health complications) $600 is contributed to HSA by employer each year. Husband has a paid-for house in Mexico possibly worth $20,000. We have $1,500 in cash.
Liabilities: $0 (I paid for my grad school with a $30,000 inheritance)
TOTAL ASSETS minus LIABILITIES: $25,550.00 (though I'm skeptical about the return on the Mexico house). It's in a low-resource neighborhood and the bureaucracy there is unintelligible to me.
Monthly Expenses:
HOUSING (420 sq ft apartment)
Rent $605 (1 bedroom, will need a 2-bedroom apartment with additional child due to max capacity laws)
Utilities $35 (water, sewer, trash)
Renter's Insurance $8 (required by landlord)
Electric $70 (fluctuates depending on season- we keep AC at 79 in summer and 69 in winter)
TOTAL: $718.00
FOOD + HOUSEHOLD
Groceries + Household/Personal Care Items (TP, Dish Soap, Deodorant Etc) $585 I like to buy as high quality food as possible, household items are a killer
Laundry $30 (3 loads at laundromat every week)
TOTAL: $615.00
TRANSPORTATION (2003 Toyota Echo- paid for in cash)
Gas $108.00
Car Insurance $53.00 (geico)
TOTAL: $161.00
COMMUNICATION
Internet $67.00 (basic plan- husband attends school/I work online)
Cell Phones $38.00 (2 phones, no data on Republic Wireless)
TOTAL: $105.00
MISC
Remittance to Husband's Family: $175 (including $8 Western Union fee) - we support his elderly parents and also pay their medical bills as possible
Tuition + Books for Husband's school: $188 (2 Year community college: Network Administration degree spread over 4 years Part Time: $9000 total)
Medical/Dental/Vision Insurance: $208 (with $2800 family/$1400 individual deductible)
Taxes: Roughly $25 ($253.5 for my husband. $20 for me -I get a 1099 and it's about 15% on a portion of the gross. We get around $3000 in tax refunds (earned income, child tax credit, etc) per year and this will likely be more with more children. I subtracted this amount from what we owe)
TOTAL: $596.00
FUN
We spend $20-30 per month on treats like going to the movies or paying extra in gas to drive to the mountains.
TOTAL: $30.00
TOTAL MONTHLY EXPENSES: $2,225.00
Periodic Expenses
(these are items that vary month to month and we pay for as they come up- I don't like to budget for them but instead put all income minus expenses towards long term goals and then move money to this category when absolutely needed)
For example:
-Medical- $1,100 for husband's recent health issue involving ER, specialist visits, medicine, and labs
-Auto- $600 to deal with a few motor and suspension issues on our car
-Household- $200 to replace my cell phone that I dropped in water/$20 to thrift next size up clothes, shoes, and gear for baby, etc
Short and Long Term Goals
Emergency Fund: $1,000.00
Baby #2 Birth: $3,650
Husband's Citizenship: $1,500 (including cost of consultant, but I feel the consultant and continuing on from green card to citizenship are worth it because you never know)
Baby #3 Birth: $3,650
3 month's Living Expenses (combine with ER Fund): $5,000
Year Abroad: $10,000- $15,000
Return to School for my RN: $35,000 (* if I do this, my wages will also increase, especially over time)
Down Payment/Closing Costs on Small (but not tiny) house: $60,000
Pay off House: $150,000 + interest (early to minimize interest- 7 years would be great)
Help Kids with University: $150,000 (I also expect to help out my parents at this point, or at least work PT to help care for them)
Get a Master's of Public Health the first years of retirement: $35,000 set aside before then (though who knows what education costs will be in 30 years)
Fund Retirement: $600,000 (I don't plan to retire early, but would like as much financial independence as possible in the meantime).
Questions:
With roughly $6,000/year left after paying our expenses during the most important years in terms of compounding:
How much should we put in the 401K/ROTH (We don't yet have a ROTH but I've read that it's best to get your 401K match and then max the ROTH).
How should we use the HSA?
How much should we leave accessible for periodic expenses/emergencies?
Are any of my long and short term goals misguided? (ie: is it wise to help kids with college or buy a house?)
Would you approach taxes differently than we currently do?
Finally, if you weren't planning to retire early, would you allocate more money towards meaningful experiences (road trips, concerts, eating out) to enjoy throughout your life? How do you balance saving for your financially-free future and living as fully as possible in the present?
Thanks for reading this! I'm looking forward to hearing your feedback!