Budget critique, please

[soysauz123]

Hi! I’m new here and was wondering if you all could critique my budget and debt paydown plan. Sorry if this is long…I have been lurking and notice that you usually have the same follow up questions, so I hope I covered everything.

I am looking to increase my savings and pay down debt in the next few years. I have a plan to have car and student loans paid down in about 2 years (cars in one year, student loans in the next year) and get savings up to 8 months expenses. Right now we have about 4-5 months. After that I would like to get out mortgage down to 78% of the purchase price. I made some not so smart decisions in the past as far as spending, but we have decent credit (just kind of a short history but no missed payments). We have no CC debt, total limits of about $5K and we don’t really use them.

Income:
$7350 monthly average (includes insurance and subway pass deductions, along with 10% contribution to 401K) . We each have a 5% match.

We claim 0 on taxes so we don’t have to pay in, so that, along with mortgage interest deduction and childcare deduction leads to a tax return of $6-7K. I know I am giving the government an interest free loan but I hate the thought of paying in and I like the forced savings.

We also get a quarterly bonus that averages $900 and an annual that averages $10-$13K. These aren’t guaranteed so we don’t count on them for anything, but are fairly likely.

Expenses $6400
PITI 2100
Car Insurance 250
Student Loan 235
Car 1 465
Car 2 305
Cell 140
Cable 120
Heat 150 (avg)
Electricity 75 (avg)
Water 50
Car maintenance 66 (avg)
Daycare 750
Gas/Parking 520
Food 325
Supplies 200
Diapers 50-75
Entertainment (includes coffees, going out, books, etc) 200
Gym 20
Pet supplies 50
Hair cuts/eyebrow wax (average) 60
Copays/prescriptions 40
Gifts 50
Clothing 100

Savings 950, plus any of the quarterly/annual bonuses will go toward debt or savings.

Plan is to pay off Car 1 ($12K) when I get my annual payment, then apply those payments to car 2 (will be around $13K). With the extra payments, plus applying my quarterly payments, that will be paid off around Aug 2013, at which point we will have around 6 months expenses in savings. Then I will hit the student loans ($25K) the same way, applying the two car payments to those, along with quarterly and annual payments, which will take about a year. At that point we will have about 8 months expenses.

After that I plan on allocating about $800 a month to the mortgage, along with most of our bonuses., until we can stop paying PMI. The rest of the money will go into savings. Then after that, my plan is to start a 529 for our child and increase our retirement contribution to 15%. We also hope to have another baby at that point so daycare will go up.

[AAM2012]

I think your budget and plan looks pretty good. Auto insurance seems high, have you shopped around? Your food budget seems really low, if you only spend $325 on groceries then I am super jealous. Congrats on no CC debt!

[ijack]

What are the rates on your cars and SLs?

[gt7301b]

I'd take some of that extra cash you have laying around and fund Roth IRAs (if you are eligible, I think you are). In the case of a true emergency you can remove your contributions at any time without penalty.

[SJ]

Overall you seem to be in a solid position.

Depending on the interest rates on the car loan and SL's, I might prefer to fully fund Roth IRA's for each of you.

In the current environment, interest rates are so low that it is often wiser to put your money to work in other ways before focusing on low-interest debt.

What are your long-term goals? How stable are your jobs? Is there anything you feel isn't working for you now?

[aspentosh]

Aug 22, 2012 20:59:57 GMT -5 SJ said:

Overall you seem to be in a solid position.

Depending on the interest rates on the car loan and SL's, I might prefer to fully fund Roth IRA's for each of you.

In the current environment, interest rates are so low that it is often wiser to put your money to work in other ways before focusing on low-interest debt.

What are your long-term goals? How stable are your jobs? Is there anything you feel isn't working for you now?

I love you because we are always on the same page when it comes to budget critiques.

So what sarajoy said

[soysauz123]

Thank you for the feedback! I really appreciate it.
Rates:
Car1:3.75%
Car2: 3.25%
SL1 (10K):5.56%
SL2(15K): 3.55%
Mortgage: 3.875%

As far as goals, I would like to be debt free besides the mortgage so we have a little more flexibility to have another baby, put an extra 5% into our retirement funds, save for things like renovating our kitchen in the long term (it's very old) and potentially have a bit more fun money.

My husband's job his very secure (his profession is in relatively high demand). My job is fairly secure but it would likely take awhile for me to find another one if I had to. We make roughly the same salary and the bonuses are mine. I have a lot of anxiety around money since the baby, so I am trying to get us to be debt free so that if one of us lost an income, there would be less bills to cover, if that makes sense. I kind of wish we had spent less on the house so that we had more flexibility.

[mrssavy42112]

Aug 22, 2012 20:27:58 GMT -5 jjwritergirl said:

Car insurance seems about $100 too high, but if you have really new cars or incidents on your record, this might be unavoidable.

Plus, this is for two cars & we don't know their ages or location. I pay 2/3 of that, but I'm 26 & live in NJ. I'm sure it would be much less somewhere else.

[soysauz123]

I also should add...when we bought the house I thought we were being fairly conservative, but now with the cost of childcare, I am not so sure.

[ijack]

We make about the same as you, though our childcare costs are roughly 3x yours. We don't have car payments and a very low student loan and you're putting way more into saving than we are, so good job!

[cindilu1]

I think this is a very good plan. Have you thought about college savings (529 plan)?

[soysauz123]

Yup. Not sure what to do about that. I had read somewhere that you shouldn't save for college before you fully fund retirement since you can finance college but not retirement. However, I would really like to start her off in adulthood debt free. I also had thought about putting any monetary gifts she gets (for christening, birthdays, etc) in there since it is her money.

[ijack]

Aug 23, 2012 10:08:33 GMT -5 soysauz123 said:

Yup. Not sure what to do about that. I had read somewhere that you shouldn't save for college before you fully fund retirement since you can finance college but not retirement. However, I would really like to start her off in adulthood debt free. I also had thought about putting any monetary gifts she gets (for christening, birthdays, etc) in there since it is her money.

That's what we do right now. At some point we'll probably switch it to a savings account that she can have more control over (the future monetary gifts), but for now we figure it can't hurt.

[SJ]

OK it sounds like it is really important to you to be completely debt-free, in which case I think you are on the right track. Is your H on board?

Personally, I would still put money in the Roth's and focus on retirement before worrying about the low interest debt, but I know my ways are not for everyone.

PS- Just saying, the S&P was up 13% for the year through last Friday.....

[soysauz123]

Yeah I hear you on the Roths with the way the market has done. I think given my personality, it's worth giving up a little income to get in a secure place first. I def think I will max them out once I get a higher level of savings and am only paying the mortgage.

[soysauz123]

Oh last question...what do you think of our mortgage payment in relation to our income? Too much? I had tried to go for the 25% of net pay guideline from David Ramsey but sometimes I wonder if we spend too much on that. We are able to comfortably pay it but we couldn't on one income.

[soysauz123]

And thanks again for all the feedback. Much appreciated

[Deleted]

I'm team Sarajoy. We aren't focusing on our SLs at all and I have much more than you. But I max retirement because that's way more important to me than paying off relatively low interest debt.

[rosiedozie]

If I were you, I would pay a little extra on the 5.5% student loan, but put the rest of your money in a ROTH IRA instead of paying down the rest of the low interest debt.

There are certainly things you could cut if you wanted (cable, entertainment, etc.) but I don't feel like it's necessary.