Just Had 1st Kid...Start Kids Savings? Payoff Car? Save for Future House??

[pbear16]

Hi Everyone,

I am new to the MMM community, but my brother is a big fan so I figured it would be good for me to join. Currently I am at a time where I am trying to figure out what the next move is for my young family’s finances.

Life Situation – Married filing jointly. My wife and I are both 26. We welcomed our 1st child back in January, so our child is now 2 months old. I am a civil engineer working for an engineering consulting firm and my wife is a teacher. We live in an apartment in Northeastern Kentucky.

Goals:
- Figure out what the best financial move is for our family moving forward.
- Find ways to be more cost effective as a family.
- Make financial decisions that will help us prepare for the future.

Gross Salaries:
Wife - $37K – 2nd year of teaching, but salary will increase to $42K next year because of some completed Masters courses.
Me - $76K – 4th year working for engineering consulting firm.

Monthly Expenses:
Rent - $945 (some utilities included)
Electric - $120
Cable & Wifi - $154
Cellphone - $160
Car Payment - $260 (2017 Honda CR-V; $14,097 financed; total of $15,500 will be paid over 60 payments)
Car Insurance - $75 (currently pay in two amounts every 6 months)
Gas for Cars - $100
Food - $500
Entertainment/Miscellaneous - $200
Dog - $70
Daycare - $400 (currently not using, but will start in mid-April)
Total – approximately $3,000

Assets:
HSA - $70 (just finished paying for child birth expenses; approximately $70 taken from bi-weekly paycheck)
Checking - $2,774.77 (used for paying bills)
Savings - $2,169.67 (small emergency fund for easy access)
Ally Online Savings - $13,339.11
401K - $28,566.38 (6% of bi-weekly paycheck to Traditional IRA, 6% of bi-weekly paycheck to Roth IRA)
Cars – approximately $26,000 (2008 Honda Accord-paid-off; 2017 Honda CR-V paying monthly)
Total (excluding cars) - $46,909.93

Liabilities:
2017 Honda CR-V – currently on a 60-month payment plan; $14,097 financed with a total payment of $15,597 over 60-months

Future Plans/Thoughts:
- We just had our 1st child but definitely would like more children in the future if we are lucky. My wife and I would like to have between 3-5 children.

- We would like to move closer to family in Central/Northwest Ohio in the next year or so. During this move we would like to buy our first (starter) home if possible. Would like to have 15% to 20% down payment, if possible.

- Within the next 3-5 years we would like to replace the 2008 Honda Accord. Currently at 167,000 miles and would like to reach over 200,000 miles before getting a new (used) car.

- Would like to start college/general savings for kid(s) as soon as possible.

Specific Questions:
1) Should we just continue to try to save as much as we can to build a good down payment for future house?

2) Would now be a good time to buy into the stock market (mutual funds) to help start a college/general savings for our kid(s)? We know that the stock market is currently suffering from the Coronavirus, so I thought it may be a good time to buy low in order to maximize our future potential profit. We would go with the “buy and hold” technique of mutual funds to provide a savings for kids. Looking into VTSAX ($3,000 minimum buy-in), but open to any suggestions.

3) Should we use a big chunk of our Ally Savings to finish paying off our 2017 Honda CR-V car payment? I know this would be a big hit to our current savings, but it would take away our debt and let us put all of our money (excluding monthly expenses) towards saving or mutual funds.

Ultimately we are trying to figure out what the best move is for our young family. Part of me wants to try to take advantage of the low-value of the stock market, but I also know that it would be good to pay-off the car to help us maximize our saving. It seems like we have some good options for our next move financially as a family, so I am open to any and all suggestions. We just want to do what is best for us, and maximize our finances. Thanks for taking the time to read this post and I look forward to hearing your responses. Feel free to ask any questions and I will answer them to the best of my abilities.

[The_Pretender]

Welcome and congrats on your first!  Seems like your goals are more centered around financial independence/stability and not so much RE.  few things which stood out to me:

1.) Why only 70 into HSA?  I would want this maxed out to get as much of a headstart on saving in this investment vehicle!  especially if you plan to have a basketball team.  Set a goal to have the balance of HSA >Max OOP.  One great feeling was knowning we had our Max OOP covered and knowing that any major medical event would not impact our monthly cashflow.

2.)  Why 6% to Roth IRA?  based on your household income, I feel you would want to maximize tax advantaged accounts.  Review the investment order.

3.)  Does your wife have access to a 457 or 403B?  I have not done much research on the 457 but they seem to have many great benefits.  I thnk some of the bigger setbacks of 457s may be their investment options and corresponding expenses?

4.) drop your cable TV and stream.

I refer my friends to the crashing airplane analogy when I hear of them putting into 529 knowing they barely feed their 401K... make sure your financial future (oxygen mask) is secure before you secure your childs college fund (oxygen mask).

[Laura33]

First, there is an Investment Order sticky that you should consult to answer your basic questions.  The general idea is to maximize your tax-sheltered savings accounts.  That means starting with your HSA -- this is the best account for your retirement, believe it or not, if you can avoid using it for current medical expenses, because after 65, you can use it for any expenses (medical expenses are tax-free, but if you don't need it for medical, you can take the money out to use for living expenses and just pay tax on it, like you would in a 401(k)).  Then move to your 401(k)/IRA/457(b)/etc.  Max those puppies out.  Seriously.  The single-best thing you can do for your family's future is to sock away as much as you can right now in tax-sheltered vehicles, because that money will have the longest time to grow.  At your age, the money you invest will double four times by the time you hit normal retirement age -- so every $10K you can put in now will be worth around $160K at 65.  If you can max out those accounts, by the time you are in your 40s and 50s, you will have a lot of flexibility to decide what you want to do.  This is even more important if you think one of you may want to stay home by the time the 3rd or 4th kid comes around -- if you're not working, you are limited to the smaller spousal IRA.  So you want that spouse's retirement kitty to be pretty flush before you get to that point, a/k/a make hay while the sun shines.

Once you do that, then you can save for a house, knowing that you've got the future well-covered.  Keep in mind:  a house is a consumption choice, not an "investment."  Yes, I do understand that you do (usually) make money when you sell and all that.  But when you think of it as an investment, it's easy to rationalize yourself into spending more than you need to, because you'll "make it back in the end."  Focus on what you actually need in a house -- good schools, sufficient space, good layout, neighborhood you want -- and don't get swayed into by ShinyPretty.  Bigger houses = much bigger carrying costs; more expensive neighborhoods = natural lifestyle creep as what you see around you begins to look "normal."

Beyond that, track your expenses, religiously.  The biggest threat to your future is lifestyle creep -- and if you're not watching the money closely, that stuff will sneak in before you even realize it. 

[Dicey]

My advice is to do what @Laura33 said.

[OvertheRainbow]

Welcome and congrats on your first!  Seems like your goals are more centered around financial independence/stability and not so much RE.  few things which stood out to me:

1.) Why only 70 into HSA?  I would want this maxed out to get as much of a headstart on saving in this investment vehicle!  especially if you plan to have a basketball team.  Set a goal to have the balance of HSA >Max OOP.  One great feeling was knowning we had our Max OOP covered and knowing that any major medical event would not impact our monthly cashflow.

2.)  Why 6% to Roth IRA?  based on your household income, I feel you would want to maximize tax advantaged accounts.  Review the investment order.

3.)  Does your wife have access to a 457 or 403B?  I have not done much research on the 457 but they seem to have many great benefits.  I thnk some of the bigger setbacks of 457s may be their investment options and corresponding expenses?

4.) drop your cable TV and stream.

I refer my friends to the crashing airplane analogy when I hear of them putting into 529 knowing they barely feed their 401K... make sure your financial future (oxygen mask) is secure before you secure your childs college fund (oxygen mask).

457bs can actually have GREAT investment options (I have vanguard index funds in mine) and the expense ratios are very low. Also, for those wanting to retire early,  you can take money out without a 10% penalty before 59.5.

OP, at your income level, I would be maxing out the HSA and then putting a minimum of 15% into a 401k. Any child tax credits could be used to fund a 529 or Roth IRA.

[JGS1980]

1) Should we just continue to try to save as much as we can to build a good down payment for future house?

--> Until you know exactly where you want to live in Ohio, I'd probably rent for a year when you arrive there and play it by ear at that time. What if one of you can't get a job? What if the job is 60 minutes away by care? Quality of schools matter, etc...

2) Would now be a good time to buy into the stock market (mutual funds) to help start a college/general savings for our kid(s)? We know that the stock market is currently suffering from the Coronavirus, so I thought it may be a good time to buy low in order to maximize our future potential profit. We would go with the “buy and hold” technique of mutual funds to provide a savings for kids. Looking into VTSAX ($3,000 minimum buy-in), but open to any suggestions.

--> it is generally recommend to contribute to a college fund ONLY AFTER you have already maxed out your own tax advantaged retirement funds. Why? Because there is no penalty for withdrawal of retirement funds if you use it for education.

--> if you prefer a "bucket" approach, you could always contribute $250/month to a college fund for your baby. This would add up to $>100K after 18 years at a 7% yearly gain rate.

3) Should we use a big chunk of our Ally Savings to finish paying off our 2017 Honda CR-V car payment? I know this would be a big hit to our current savings, but it would take away our debt and let us put all of our money (excluding monthly expenses) towards saving or mutual funds

--> You have 47K in assets and own a 20K car. That doesn't make much sense. I think you should sell this car, buy a 10K car instead and drive it until it is dead. Use that 10 K difference to pad your tax advantaged retirement account [agree with no ROTH as above] or eventually for a down payment for your 1st home.

Hope this helps, and it's great that you are on this site so early in your life. It didn't exist when I was in my mid 20's!!!

[Flyingstache]

I agree with what everyone has said! Great job starting young thinking about these things!

Do you currently track your expenses?