Critique my budget/plans! (Long)

[HouseOfYikes]

Hi All,
Can I do a “critique my budget” post?! I would love to get some fresh eyes/perspectives/thoughts. I’ll remove details later, PDQ!

Background – we have no debt other than our mortgage, no kids yet but hope to TTC this year. We have a 6 month bare bones e-fund. We both contribute 12% to 401k, with a 6% employer match. We fully funded Roths the last few years but are now ineligible.

We are also buying a new car, like today. We’re getting a killer deal through our employer, coupled with substantial tax rebates (it’s an electric vehicle). I don’t anticipate any material changes to our budget with this purchase. We will put a substantial amount down (already saved) and finance the rest to take advantage of a dealer incentive. Then I’ll throw all budget extra at the balance until it’s paid off.

Net income (after taxes, 401k contributions, insurance/benefits, donations) - $9600

Housing (mortgage, HOA, property taxes, utilities) - $3125 (VHCOL)

Insurance (homeowners, liability, auto) - $300 (Includes an estimate with the new car - I am going to price shop this)

Transportation (gas, tolls, DMV registrations) - $500 (about $250 of this is work travel and is reimbursed – I’ll put that reimbursement towards the new car payment and gas will go down)

Groceries/household supplies - $800 (this is high, mainly because of wine and pricey organic meat/poultry. And cheese.)

Cell Phones - $130

Cable/Phone/Internet bundle, Netflix - $200 (2 year contract)

Gym - $200 (very fancy, non-negotiable for my husband)

Fun $$ (going out, clothes, wine, gifts, haircuts) - $800 (some of this usually crosses over with the grocery overages)

Savings (split into buckets for travel, new car, house upgrades, new house down payment) - $3000

So we have about $600 left over each month. As I stated above, this extra will go towards paying off the new car ASAP. I’m working on cutting down the grocery and fun categories by meal planning (we are doing Whole30 this month), eliminating our wine clubs, and taking cash out for fun $ - when it’s gone, it’s gone.

We are really serious about buying a SFH next year, and will need a substantial down payment. Currently we have about $20k in there and adding $2k per month minimum. We’ll be getting about $5k back in taxes which will go in, and yearly bonus of about $16k that will go in when we receive later this month. We owe $323k on our condo and comps have been going for around $400k. We’ll do some cosmetic work for around $10k and hope to get closer to $420k in price, but will consult with a few realtors before doing anything. Hopefully that will be enough to get us into a decent home – there is really not much inventory that we would consider for less than $750k. I know how ridiculous that sounds, but I swear we’re not looking for a mansion. That’s what it takes to get a 3 bed/2 bath in a decent neighborhood with a good school district here.

I’m not sure what else to include – let me know if you have questions!!!

[thefield]

You're doing great! You spend a lot in some categories, but nothing too outrageous, in my opinion.

It sounds like you're in good shape for the house down payment. Life will not end if you only put 10 or 15% down.

Will you have $600/mo left with the new car payment? Assuming you're going to get a very low interest rate on the car loan, I would not put extra money towards it.

I would increase your pre-tax retirement contributions to make up for your inability to contribute to Roths. You're probably pretty close anyway so you might as well do the $18k/year.

[HouseOfYikes]

Mar 4, 2015 15:58:11 GMT -5 thefield said:

You're doing great! You spend a lot in some categories, but nothing too outrageous, in my opinion.

It sounds like you're in good shape for the house down payment. Life will not end if you only put 10 or 15% down.

Will you have $600/mo left with the new car payment? Assuming you're going to get a very low interest rate on the car loan, I would not put extra money towards it.

I would increase your pre-tax retirement contributions to make up for your inability to contribute to Roths. You're probably pretty close anyway so you might as well do the $18k/year.

Thank you for reading my novel, lol!! Regarding a 10% or 15% down payment, I definitely need to look into it more, I'm not completely opposed to it. I guess I'm just not sure if banks will even offer those for larger amounts, like $600k? We do have great credit.

We should still have around $600 left over with the new car payment. We've been averaging around $250/month in mileage reimbursements and I've been saving those for the DP on the car, now they'll just go to the payment.

Definitely need to up those 401k contributions to max out; I do think we're pretty close. Dumb question - is the $18k contribution max inclusive of company match? Or is it only your own contributions?

[thefield]

The $18k per person is just your money. The company match doesn't count.

I'm not sure about the intricacies of jumbo loans. I do know that conventional loans with as little as 5% down are being approved for people with good credit. You have to pay PMI, of course, but it's a means to an end. If interest rates start to rise, it's a good idea to lock in sooner rather than later.

You should have a good chunk from the sale of your condo too, right?

So 20+5+16 = 41. Then $2k/mo for 10 more months of 2015 is another $20k (I counted March). So 61. If you could get close to $75 out of your condo, then you're doing all right towards getting to 20%, especially if you get another tax refund or bonus to help along the way. I know this amount might be reduced by 10k for the upgrades, but that sounds worth it to me.

It couldn't hurt to talk to a lender now about what your loan options might be so that you know what your hard target is for down payment savings.

[thefield]

Mar 4, 2015 16:15:10 GMT -5 cc111 said:

I believe 18k contribution includes company match.

It does not.

www.investopedia.com/ask/answers/100314/does-my-employers-matching-contribution-count-towards-maximum-i-can-contribute-my-401k-plan.asp

"Contributions to 401(k) plans
come from employee salary deferral and employer match dollars.
According to the IRS, employees may defer up to $17,500 of their salary
for 2014 and the employer may make match contributions
based on that amount, plus additional contributions for bonuses or
other purposes. The amount the employer contributes is separate and
above the employee's maximum, therefore it does not reduce the amount an
employee may defer from his salary. The total amount the employer can
contribute for 2014 is the lesser of the participant's total annual
compensation or $52,000."

[HouseOfYikes]

Mar 4, 2015 16:17:10 GMT -5 thefield said:

Mar 4, 2015 16:15:10 GMT -5 cc111 said:

I believe 18k contribution includes company match.

It does not.

www.investopedia.com/ask/answers/100314/does-my-employers-matching-contribution-count-towards-maximum-i-can-contribute-my-401k-plan.asp

"Contributions to 401(k) plans
come from employee salary deferral and employer match dollars.
According to the IRS, employees may defer up to $17,500 of their salary
for 2014 and the employer may make match contributions
based on that amount, plus additional contributions for bonuses or
other purposes. The amount the employer contributes is separate and
above the employee's maximum, therefore it does not reduce the amount an
employee may defer from his salary. The total amount the employer can
contribute for 2014 is the lesser of the participant's total annual
compensation or $52,000."

[br

Thank you!

[asoctoberfalls]

How much will the mortgage be on the new place you plan to buy? And what are your plans for childcare if and when you have kids? it seems to me like things could get tight in a hurry if you have child care expenses.

[thefield]

Oh, those are good questions. I was focusing on the now budget, not what the future might bring.

[HouseOfYikes]

Mar 4, 2015 16:45:19 GMT -5 asoctoberfalls said:

How much will the mortgage be on the new place you plan to buy? And what are your plans for childcare if and when you have kids? it seems to me like things could get tight in a hurry if you have child care expenses.

Definitely good questions! I think our total housing category spend with a new mortgage would be around 4k (we pay a hefty HOA fee now) and that's definitely high compared to our total income (which I do think will increase more as well). I'm not completely comfortable with such a high %, but it's truly not possible to get a decent house for less without having to move out of the area AND sacrifice schools.

My parents have said they would keep our kids during the week, they live 15 minutes away and we have a great relationship. Ideally we'd find daycare 1-2 days per week to give them a break and socialize the kids.

That being said, I'm anticipating a few lean years where would not be able to save much outside of retirement. I'm semi ok with it as long as we keep our e-fund intact. Both our jobs are stable and have good continued growth potential.

[thefield]

Oh, and once you're not saving for a down payment anymore, that will be an extra $2k per month.

[Deleted]

It sounds crazy, but start looking into daycare costs now. We live in HCOL and 5 days a week for an infant is around $22,000/year. Other than that I have no advice! But I am glad when we bought our home we factored in daycare costs otherwise we'd be in real trouble.

[HouseOfYikes]

Mar 4, 2015 17:34:30 GMT -5 thefield said:

Oh, and once you're not saving for a down payment anymore, that will be an extra $2k per month.

This is true! I think this would pretty much go towards a higher mortgage/property tax/utilities and kid stuff for a while.

[HouseOfYikes]

Mar 4, 2015 17:42:14 GMT -5 @lorelaireadsagain said:

It sounds crazy, but start looking into daycare costs now. We live in HCOL and 5 days a week for an infant is around $22,000/year. Other than that I have no advice! But I am glad when we bought our home we factored in daycare costs otherwise we'd be in real trouble.

Trust me, nothing about that sounds crazy! My friend pays $2k/month for infant care. Child care is one of the main reasons we are so limited to houses within good school districts. We will most likely need after school care and that is also terribly expensive where we are. The good school districts tend to have safer and lower cost options.

[FishChicks]

I think your budget looks great given your current expenses.

I would be rather hesitant to go up to 4,000 in housing costs if child expenses will also be substantial. You could do it, but many of your save to spend categories would have to be cut, which is an issue when the time comes that you need another car or have to do a major home repair. Also, how secure are your jobs? If your expenses may be going up, do you have the efund to ride out any emergencies at the new levels?

Some immediate changes I'd suggest: Fully fund your 401k. If you already have a Roth but are now ineligible, look into doing a back door conversion. Beef up you emergency fund to six months full expenses by "living" on a budget with the higher home expenses and see how it goes.

[asoctoberfalls]

Mar 4, 2015 17:09:15 GMT -5 HouseOfYikes said:

Mar 4, 2015 16:45:19 GMT -5 asoctoberfalls said:

How much will the mortgage be on the new place you plan to buy? And what are your plans for childcare if and when you have kids? it seems to me like things could get tight in a hurry if you have child care expenses.

Definitely good questions! I think our total housing category spend with a new mortgage would be around 4k (we pay a hefty HOA fee now) and that's definitely high compared to our total income (which I do think will increase more as well). I'm not completely comfortable with such a high %, but it's truly not possible to get a decent house for less without having to move out of the area AND sacrifice schools.

My parents have said they would keep our kids during the week, they live 15 minutes away and we have a great relationship. Ideally we'd find daycare 1-2 days per week to give them a break and socialize the kids.

That being said, I'm anticipating a few lean years where would not be able to save much outside of retirement. I'm semi ok with it as long as we keep our e-fund intact. Both our jobs are stable and have good continued growth potential.

Relying on parents for child care seems risky to me. What if one of them develops Alzheimer's and the other needs to care for them? What if they decide full time child care isn't their cup of tea? I personally wouldn't want to count on that in my budget. With a 4k mortgage and 2k in daycare costs, you'd be cutting things close. Just a thought.

Overall I do think you guys are doing really well, but I would hate to see it ruined by unexpected childcare costs and a huge mortgage.

[crashgizmo]

Mar 4, 2015 17:09:15 GMT -5 HouseOfYikes said:

Mar 4, 2015 16:45:19 GMT -5 asoctoberfalls said:

How much will the mortgage be on the new place you plan to buy? And what are your plans for childcare if and when you have kids? it seems to me like things could get tight in a hurry if you have child care expenses.

Definitely good questions! I think our total housing category spend with a new mortgage would be around 4k (we pay a hefty HOA fee now) and that's definitely high compared to our total income (which I do think will increase more as well). I'm not completely comfortable with such a high %, but it's truly not possible to get a decent house for less without having to move out of the area AND sacrifice schools.

My parents have said they would keep our kids during the week, they live 15 minutes away and we have a great relationship. Ideally we'd find daycare 1-2 days per week to give them a break and socialize the kids.

That being said, I'm anticipating a few lean years where would not be able to save much outside of retirement. I'm semi ok with it as long as we keep our e-fund intact. Both our jobs are stable and have good continued growth potential.

I wonder if we live in the same place! Our take home is just a bit higher than yours and we just took on a ~4K mortgage. It is hard to swallow every month, but in such a HCOL it was what we needed to do. We can afford it just fine, however, we have no plans for children so those costs are not an issue. 

I think overall you are doing fine, and even though you could cut back on entertainment/fun money, it's in line with your income. I'd look at your insurance- it seems a tad high but not crazy. 

I would also definitely consider doing a conventional loan with 10 or 15% down. It's not the end of the world, like PP's said. 

[HouseOfYikes]

Mar 4, 2015 18:24:50 GMT -5 FishChicks said:

I think your budget looks great given your current expenses.

I would be rather hesitant to go up to 4,000 in housing costs if child expenses will also be substantial. You could do it, but many of your save to spend categories would have to be cut, which is an issue when the time comes that you need another car or have to do a major home repair. Also, how secure are your jobs? If your expenses may be going up, do you have the efund to ride out any emergencies at the new levels?

Some immediate changes I'd suggest: Fully fund your 401k. If you already have a Roth but are now ineligible, look into doing a back door conversion. Beef up you emergency fund to six months full expenses by "living" on a budget with the higher home expenses and see how it goes.

I really like the suggestion to live at the "house" budget for a while to save and try it on for size, I think I'll propose that to H.

Our jobs are pretty secure. I will be pursuing a promotion on October that could bump my income up 5-7%, which would be a great help.

[HouseOfYikes]

Mar 4, 2015 18:49:24 GMT -5 asoctoberfalls said:

Mar 4, 2015 17:09:15 GMT -5 HouseOfYikes said:

Definitely good questions! I think our total housing category spend with a new mortgage would be around 4k (we pay a hefty HOA fee now) and that's definitely high compared to our total income (which I do think will increase more as well). I'm not completely comfortable with such a high %, but it's truly not possible to get a decent house for less without having to move out of the area AND sacrifice schools.

My parents have said they would keep our kids during the week, they live 15 minutes away and we have a great relationship. Ideally we'd find daycare 1-2 days per week to give them a break and socialize the kids.

That being said, I'm anticipating a few lean years where would not be able to save much outside of retirement. I'm semi ok with it as long as we keep our e-fund intact. Both our jobs are stable and have good continued growth potential.

Relying on parents for child care seems risky to me. What if one of them develops Alzheimer's and the other needs to care for them? What if they decide full time child care isn't their cup of tea? I personally wouldn't want to count on that in my budget. With a 4k mortgage and 2k in daycare costs, you'd be cutting things close. Just a thought.

Overall I do think you guys are doing really well, but I would hate to see it ruined by unexpected childcare costs and a huge mortgage.

I totally get what you mean about not relying on my parents for child care. If the worst happened and they couldn't do it (or didn't want to!) I think we could swing child care, but you're right it would be really tight. It's definitely something to consider. Maybe I'll make funding a separate child care fund a priority once we start trying.

[HouseOfYikes]

Mar 4, 2015 19:21:33 GMT -5 crashgizmo said:

Mar 4, 2015 17:09:15 GMT -5 HouseOfYikes said:

Definitely good questions! I think our total housing category spend with a new mortgage would be around 4k (we pay a hefty HOA fee now) and that's definitely high compared to our total income (which I do think will increase more as well). I'm not completely comfortable with such a high %, but it's truly not possible to get a decent house for less without having to move out of the area AND sacrifice schools.

My parents have said they would keep our kids during the week, they live 15 minutes away and we have a great relationship. Ideally we'd find daycare 1-2 days per week to give them a break and socialize the kids.

That being said, I'm anticipating a few lean years where would not be able to save much outside of retirement. I'm semi ok with it as long as we keep our e-fund intact. Both our jobs are stable and have good continued growth potential.

I wonder if we live in the same place! Our take home is just a bit higher than yours and we just took on a ~4K mortgage. It is hard to swallow every month, but in such a HCOL it was what we needed to do. We can afford it just fine, however, we have no plans for children so those costs are not an issue. 

I think overall you are doing fine, and even though you could cut back on entertainment/fun money, it's in line with your income. I'd look at your insurance- it seems a tad high but not crazy. 

I would also definitely consider doing a conventional loan with 10 or 15% down. It's not the end of the world, like PP's said. 

Gotta love HCOL! I will look into a loan with a smaller DP, it'd be nice to have that cushion, thanks!

[konapoppy]

I think you guys are doing really well. We are also VHCOL and bought a home a little bit above the range you mentioned (anything below 750k with good schools is a serious fixer upper). On a related note, if you are in Northern California we can do a GTG

[HouseOfYikes]

Mar 4, 2015 20:52:54 GMT -5 konapoppy said:

I think you guys are doing really well. We are also VHCOL and bought a home a little bit above the range you mentioned (anything below 750k with good schools is a serious fixer upper). On a related note, if you are in Northern California we can do a GTG

I am indeed in Northern California!! Id love to join a GTG!

[SJ]

The things that initially jumped out at me:

-Try to max out the 401K accounts while you can- you are probably close now?

-Why the urgency to pay off the car? What will the interest rate be? I'd rather see you invest the money instead, but if the funds won't be invested I suppose paying the car off is better than cash earning 0%

-Before you buy a new home, I would strongly urge putting together a "worst case" scenario including FT childcare. Parents saying "oh we'd love to watch future dream grand babies" before you TTC is very different than them accepting a long-term full-time job caring for your kid

-How big is your current home? Must you move before baby?

[konapoppy]

Mar 4, 2015 21:46:56 GMT -5 HouseOfYikes said:

Mar 4, 2015 20:52:54 GMT -5 konapoppy said:

I think you guys are doing really well. We are also VHCOL and bought a home a little bit above the range you mentioned (anything below 750k with good schools is a serious fixer upper). On a related note, if you are in Northern California we can do a GTG

I am indeed in Northern California!! Id love to join a GTG!

Awesome! We should do one this spring.

[HouseOfYikes]

Mar 4, 2015 21:55:51 GMT -5 SJ said:

The things that initially jumped out at me:

-Try to max out the 401K accounts while you can- you are probably close now?

-Why the urgency to pay off the car? What will the interest rate be? I'd rather see you invest the money instead, but if the funds won't be invested I suppose paying the car off is better than cash earning 0%

-Before you buy a new home, I would strongly urge putting together a "worst case" scenario including FT childcare. Parents saying "oh we'd love to watch future dream grand babies" before you TTC is very different than them accepting a long-term full-time job caring for your kid

-How big is your current home? Must you move before baby?

Yes, will definitely get the 401k's maxed!

The car will be a 0% interest rate (not sure how long it's for) so I guess no rush to pay it off. I just hate having debt! But we may be better off saving that money towards a DP or future child care costs.

We could have a kid here in our current condo, for sure. But we don't wanna ;-) Seriously though, we are just ready for a house and our own space. Plus, housing is really starting to turn around in our area and we don't want to be completely priced out again. But overall, a SFH is definitely a want, not a need.

[lolo]

Since you're in norcal, I spoke with a wells Fargo agent last week about mortgages. They have several with 10% down including one with no PMI, though the interest rate is higher (4.25% vs 3.785% with PMI). That was on a $625k mortgage so pretty similar to what you're looking at. Some have more stringent debt to income requirements (all debt has to be under 45% gross for one of their options, for example).

I'm also curious where you are looking that you can get a sfh for that rate with good schools--we are trying to narrow down possibilities.