Budget - thoughts?

[housesavingvhcol]

DH and I live in a vhcol area (Northern CA) and are only just beginning to get our finances on track and save for a home. We have an 8 month old daughter. MIL is our childcare.

This budget is reflecting a significant raise I'm getting in two weeks (yay). Both our jobs are government and have insurance, retirement, etc already taken out. We're both contributing 5% to retirement, matched by our employers.

Me: 3600
DH: 3600
Total income: 7200

Rent: 1500
Electricity: 120
Cloth Diaper Service: 97
Cable/Internet: 200
Trash/Water: 135
Gas: 500
Car Ins: 100
Car Loan: 385 (24000 balance at 2.99 with 5 1/2 years left)
Cells: 170
Food: 500 - this is an approximation and includes eating out

Misc: 500. Includes baby items, gifts, personal care, occasional movie.

Mattress: 35 (Balance 600. 0% financing)
SL1: 677. (Balance of approx 150,000) I'm on income-based repayment, so this will change when I'm up for reassessment this September. This reflects all of my consolidated federal loans through law school. The entire balance will be forgiven within 10 years if I continue working for the government, which I intend to do

SL2 : 99 ($10,000 balance at 9%)would like to pay this off asap

CC1: 75 (35 minimum. 1800 balance at 18%)
CC2: 0 (0 balance, 0% interest through Oct.)
CC3: 100. (25 minimum. 1200 balance at 0% -this is a low limit card I got in college that we use for any emergencies or big purchases)
CC4: 0 (Macy's card we use for the discounts and pay off same month)

Leftover: $2007

Savings: $3000

Goals:
Develop efund
Save for home down payment (50K with my mother contributing another 50K to help us).

Variations:
DH is a teacher, working 80 minutes away (thus the high gas cost). We spend 350 less in gas during the summer.
I'm getting a promotion with a 13K raise in 1 year (essentially a done deal)


Questions:
I just realized our CC2 has 0% as an introductory rate through October. I'm going to transfer CC1's balance over and pay off before then. Given that situation. We have 3000 on cc with 0% rate and another 600 to pay off on the mattress, also at 0%. Does it make more sense to pay off all at once, or over time?

Given this budget, plus the 13K raise next year. Can we afford a home for 530K-ish in two/three years (taxes approx 4000 in area)? My parents have committed to helping us by matching whatever we save for a down payment. We'd like to get at least 20% down, meaning we have to save 53500 at least



Going to bathe the baby, and will come back. Please critique our budget

[minzy]

Just a couple of thoughts:
What type of change are you anticipating in September with the monthly amount on the first student loan?

Does your husband plan to do that commute for his entire career?

Are you state employees (isn't California going broke?)?

I haven't done the math but I think two-three years may be a bit ambitious for buying a $530k house, even with the help on the down payment. It sounds like you plan to get rid of the debt and will want/need a sizable emergency fund on top of your part of a down payment. At some point you will want to increase your retirement savings above 5%. Do you plan on more kids? What happens if your MIL is unable to watch your kid(s)?

[kaylie]

How much are you planning to keep in your e-fund after you buy? To qualify for the mortgage they'll probably want at least 2.5 mortgage payments left in savings after your DP.

Your budget is close to ours (except we don't have kids yet) and I think a $530K house would have been too big a stretch for us. Ours was in the low 400s (6K taxes) and with all of the maintenance that has to be done, we're definitely having to be careful with spending. It's a big difference when you can't call the landlord to fix stuff.

We also probably spent about $10K in start up stuff (moving, furniture for a few rooms, washer and dryer).

[housesavingvhcol]

Jan 6, 2013 22:35:53 GMT -5 minzy said:

Just a couple of thoughts:
What type of change are you anticipating in September with the monthly amount on the first student loan?

Does your husband plan to do that commute for his entire career?

Are you state employees (isn't California going broke?)?

I haven't done the math but I think two-three years may be a bit ambitious for buying a $530k house, even with the help on the down payment. It sounds like you plan to get rid of the debt and will want/need a sizable emergency fund on top of your part of a down payment. At some point you will want to increase your retirement savings above 5%. Do you plan on more kids? What happens if your MIL is unable to watch your kid(s)?

I think it will go up by about $80. I'm not sure of the formula used to calculate for a 3 person household.

DH is a high school teacher and had a very hard time finding a job when we moved here. He's applying to closer positions whenever one comes up, but they don't post until summer, generally. We would move closer to his job, but I work in the exact opposite direction and we're very close to family.

I'm a federal employee with a very secure job. DH is tenure where he is and is in a good district. The school districts he would apply to are very well off and generally have not done layoffs, even at the worst of the budget cuts. But the state and county budgets for schools are a concern in the future.

530k around this area will get a decent house, 1800 sf and great schools. I am willing to move to an area slightly further away with lower prices.

Child care is very dependable. DH's family is quite wealthy and his mother has been a SAHM for 30 years. If we were to have a problem with it, my mother would be willing to fill in for a period of time too. We do want more children, our fist was very difficult to get because of IF. you're right that we need to plan for that, including cost of treatments

You're right on the retirement contribution. There's a seminar for my agency coming up soon to explain more about retirement benefits that I want to attend.

[housesavingvhcol]

Jan 6, 2013 22:37:14 GMT -5 kaylie said:

How much are you planning to keep in your e-fund after you buy? To qualify for the mortgage they'll probably want at least 2.5 mortgage payments left in savings after your DP.

Ack....I don't even know. I'd like to have at least 6 months of fixed costs in there.

Your budget is close to ours (except we don't have kids yet) and I think a $530K house would have been too big a stretch for us. Ours was in the low 400s (6K taxes) and with all of the maintenance that has to be done, we're definitely having to be careful with spending. It's a big difference when you can't call the landlord to fix stuff.

You're right, home ownership is going to be a different ballgame. There is an area close by with lower home prices, though less convenient to live in. Perhaps we need to reevaluate what we need for living space.

We also probably spent about $10K in start up stuff (moving, furniture for a few rooms, washer and dryer).

[dexteroni]

You won't be ready in two years, but if this budget is accurate, and you save every penny of the $2000 every month, then I would say you'll be ready to buy in three years. You'll have more than $53,500 by then, but you need way more than $3000 left in savings after buying. If you save $2000 for 36 months, on top of your current $3k, you'll end up with $75k in savings. After your DP you'll be left with around $22k in savings.

Your budget as it stands isn't too bad. You did buy more car than you should have; if you have to finance for 6 years, you can't afford it. That's not really going to make or break you, but it's something to prevent in the future by having more money available to put down.

And have you run the numbers on what your budget will be with a house payment and utilities? Your mortgage payment, after taxes and insurance, will probably be somewhere around double your rent, and your utility bills and repair costs will increase. You may be able to buy the house, but don't forget to make sure you can also afford to live in it!

[housesavingvhcol]

Jan 6, 2013 22:47:37 GMT -5 mrsmayhem said:

If you haven't already, I would track every penny for a few months to make sure that the expenses you've listed are accurate. If so, I'm impressed - you're spending is pretty low for your income!

Will do! I take public transit to work, covered by my employer and we don't go out much at all.

Your retirement savings could be increased.
Agree, I want to revisit that before making any home decisions

I think you could definitely save the down payment needed to buy the house, but are you sure you can afford the payments on your income? I know you live in a VHCOL area, but that seems like a lot of house for your income. I might consider saving a larger than 20% down payment (especially with such a generous match offer!) to bring the monthly payments down.

Unfortunately, that's a relatively inexpensive house in the area we're currently in. We're renting a 3 br townhome from my in-laws that is worth around that right now. I'll play with the numbers and see what we can do. I'm worried, though, because the market is picking up here so we may be priced out before we can save up.

Also, are you confident in your childcare situations? What if your MIL can no longer care for your child? Do you want more children?

Answered above, but this is a secure set up. Definitely want more kids if we're able to in about 4 years. If MIL can no longer care for them we'd be pretty screwed after a while. I would be able to bring her to work with me for 3 days of the week, but would hate my life. Need to research child care in the area

[housesavingvhcol]

Jan 6, 2013 23:00:05 GMT -5 Stan said:

I grew up in Northern Cal (on the water in Marin) with a father a d SM who made about 8k a monthish. They never bought. It never even occurred to them, and my father retired very generously on a state pension. Our income is similar to yours, we live in a HCOL (not V, in coastal San Diego county), and could buy here. What part of NorCal you actually live in affects my answer here. 1500 rent is my rent here, so I'm hoping it's not VHCOL. Is the 1500 an apt?

I'm in the East Bay - the Tri Valley area. We'd be willing to go as far north as parts of Pleasant Hill, as far west as S.an Ra.mon, as far south as Pleasanton. Livermore is in the mix too now. That seems like where we'll end up.

Our current home is a townhome in Sa.n Ram.on owned by my ILs. It would probably rent for around 2700, but they're giving us a break. They bought it outright - no mortgage. I recognize that we're very fortunate in this and other respects.

[limey]

Honestly, if you are renting a 3 bedroom townhome for 1500$/month, I'd just stay there.

Or do your ILs want you to buy and move out so they can rent it for more?

[housesavingvhcol]

Jan 6, 2013 23:24:48 GMT -5 dexteroni said:

You won't be ready in two years, but if this budget is accurate, and you save every penny of the $2000 every month, then I would say you'll be ready to buy in three years. You'll have more than $53,500 by then, but you need way more than $3000 left in savings after buying. If you save $2000 for 36 months, on top of your current $3k, you'll end up with $75k in savings. After your DP you'll be left with around $22k in savings.

Your budget as it stands isn't too bad. You did buy more car than you should have; if you have to finance for 6 years, you can't afford it. That's not really going to make or break you, but it's something to prevent in the future by having more money available to put down.

And have you run the numbers on what your budget will be with a house payment and utilities? Your mortgage payment, after taxes and insurance, will probably be somewhere around double your rent, and your utility bills and repair costs will increase. You may be able to buy the house, but don't forget to make sure you can also afford to live in it!

Thanks for that! You're right on the car - sigh. Our first time ever buying one. We saw the lower monthly and just went with it. Rookie mistake, not to be repeated.

Haven't crunched utilities numbers yet, but that's food for thought. In a few minutes DH and I are going to compile the info we need and seriously map this out. Looks like we may need to rethink or compromise on several issues

[housesavingvhcol]

Jan 6, 2013 23:32:46 GMT -5 limey said:

Honestly, if you are renting a 3 bedroom townhome for 1500$/month, I'd just stay there.

Or do your ILs want you to buy and move out so they can rent it for more?

It's an awesome deal and we're fortunate for it. There are no plans to sell it, though they've asked us if we're interested in buying in the past. There are things about it I do dislike (stairs + crawling child; lack of storage; layout), but it would not be difficult to live here for a few more years. We could not manage to have more than one child in the home.

ETA: ILs bought it specifically to rent to us 6 years ago. The plan is to rent it or sell it after we move out, but no pressure for us to do so on their side

[hlke]

Jan 6, 2013 22:07:05 GMT -5 housesavingvhcol said:

I just realized our CC2 has 0% as an introductory rate through October. I'm going to transfer CC1's balance over and pay off before then. Given that situation. We have 3000 on cc with 0% rate and another 600 to pay off on the mattress, also at 0%. Does it make more sense to pay off all at once, or over time?

You should have money to pay off CC1 in one month without doing the balance transfer. I'd pay it off as soon as you get your raise and not incur the balance transfer fees.

For the small debts at 100%, it doesn't matter much how you do it. You could keep paying them on schedule while you put your extra money toward the student loan at 9%, or you could pay them off all at once just to have them settled and have one less thing to think about.

[lys]

Your car - financed for 6 years?? Sell it and buy something slightly used, less costly, fuel efficient and affordable when financed no longer than 3 years.

[lys]

Keep your housing expenses to no more than 30-35% of your TAKEHOME pay for a HCOL area. (That means adding mortgage+PMI+insurance+taxes+utilities+HOA = 30-35%)
Make sure you have a good emergency fund in place as well as closing costs, moving costs, start up deposits, repair/renovactions, decorating/furniture/appliances and yard & tools as well as assorted miscellaneous.

[Deleted]

My thoughts-

1) just pay off CC1. 18% interest rate is ridiculous. You have more than you owe left over every month. Pay it off. Asap. Don't transfer to another card. Pay. it. off.

2) why do you use a cloth diaper service? its cheaper (and IMO less smelly) to just CD and wash them yourself.

3) I hate agreeing with lys, but you shouldnt have to finance a car at 2.99 for 6 years to get the car payment to be affordable. I dont know if you are upside down or not, but this wasn't a MM plan. Especially when so many cars have 0% financing right now.

4) I dont think you can afford a $550K home in 2-3 years, even with the 13K raise. I also live in a state with high income taxes, and that 13K isn't going to be a lot to take home. Given the fact you have CCs at all shows me that you may not be disciplined enough to actually save for your DP.

5) You aren't saving enough for retirement. I'd add a line item for IRAs to the tune of $917 a month. This is more important than a house.

6) Also, I wouldn't rely on MIL being your daycare forever. Hopefully she can and will be, but daycare is very expensive and if you buy this house, and then suddenly need to shell out $1500 a month for daycare- you will be in rut.