Budgeting for Home and Life Changes

[rcpratt]

Update - Post #35

Well I know this isn't fatwallet or whatever but you guys always give good advice. So here goes.

My wife and I are 28. We own a townhome/condo that we bought 3 years ago. Things have gone well in our area and we probably have about $60k in equity in that home right now (not exactly sure on the taxes/realtor fees).

We're somewhat considering upgrading. The townhome is fine, but it's probably a bit too small to expand the family. The "plan" would probably include having our first kid somewhere around 30. We have some flexibility in our budget right since the wife's student loans are just a few months from being paid off (was doing $1,600/mo). But what I'm really having a hard time with is figuring out our expenses 3-10 years in the future when things are quite different.

It's just hard to get a sense of where things will go out and where things will go down and how it will all settle out. Yes, I'm sure there will be a ton of money spent on kids and kid things. But we're also rather wasteful right now as dual-income 20-somethings. There are plenty of weekend trips, sports events, restaurants/bars, etc. that probably won't be quite as much of our life in the future.

The wife would probably go half-time at some point when we have a family. But because she's a teacher and the stupid way their pay scales work, 5 years from now, she'll be making just about the same half-time as she is right now full-time. On the other hand, I'm perfectly confident in my career growth.

I mean, is it safe to go up to ~25-30% of our monthly income with our mortgage/taxes? We'd be fine with that right now, but I just worry about growing expenses. Halp.

 

[purbeast0]

what you call "wasting money" i call living life. you're using your money to enjoy life with experiences instead of putting it in the bank hoping when you are 65 you will be alive and able to enjoy it when you're a cripple.

my wife and i were (are) the same way. we stopped really going out to bars/clubs by the time we were 30. we did still go out to eat often, both nice restaurants and just grabbing lunches on the weekend. but as we got into our thirties we just started going out less and less, but that also had to do with our first home purchase. we have done a lot to our home too including putting in a home theater and a nice backyard patio, but with those we stay home on the weekends more now and enjoy them. i haven't wanted to go to a theater since i finished my HT years back, i think i've seen 2 movies in the theater since.

but now that we have a kid we go out even less than we used to. but we also have more expenses now with a kid who is now 16 months old. it definitely chews up money for sure, but since we're not going out as much it kind of evens out.

we always made traveling a priority before our son was born and we still make it a priority. we've gone on 2 trips with him (as well as multiple ones we've driven), but we're also lucky that we have family around so we've gone on some where my mother in law has watched him for a week+.

when our son was first born my wife took off 6 months. at that time we definitely were a little tighter money wise, but we knew it was temporary. but we also could have made some changes if we HAD to do so, such as getting rid of the current cars we have which is like $850/month in payments.

all in all, we really haven't made much of a lifestyle change once we had a kid and kind of naturally made the "normal" lifestyle changes as far as what most do when going from their 20's to their 30's, and we are still doing okay with a kid now and pretty much living life how we did prior to him, financially wise.

 

[Exterous]

Do you have a budget? If not I would say track your spending and figure out where your money is going so you have an idea on the 'wasteful' areas you could cut down on if you needed to. Hopefully you are also saving an appropriate amount for retirement as well.

When deciding how much to spend on a house you may want to consider what happens if you go down to a one income household especially if you are thinking of having kids.

Another thing you may want to look at is where your payments are now compared to where they will be. We went from 12% to 20% and it was a bit of an adjustment. Nothing that couldn't be budgeted or planned for but we needed to be more aware of our discretionary spending.

Personally I enjoy the financial freedom associated with a <20% of monthly income mortgage more than I would like a bigger\fancier house but that isn't always possible with neighborhoods.

 

[rcpratt]

We don't really stick to strict budget very well right now, mostly because we don't need to that much. I probably should go through recent history and get a sense of exactly how much we've been spending on certain things. We're more than fine on retirement.

It's certainly tough to match budget with needs and wife's needs (i.e., wants).

 

[edro]

It always works its way out.
You get a bigger mortgage payment and you make it work.
Your checking account gets a high balance and you start spending more.
You checking gets low and you tighten up for a few months.

We have a two year old and so far, he is pretty cheap. (haven't gotten into sports yet though)
Even childcare (the biggest cost) isn't terrible.
Generally, our shopping/dining/alcohol budget now goes to childcare and kids stuff, so it all evens out.

 

[rh71]

You don't need to consider a new place until after you're starting to grow out of it. Why pay a mortgage for a mostly-empty house? Our twins were 2 before we moved out of our starter home (lack of storage and their toys were taking over the living room). At that point, you will know your budget/costs because you will have also stopped going out as much and you know how much you're spending on kids stuff. Things like toys aren't the big costs - those are often gifted and you'll have too much by the time you realize. It's the diapers and daycare (more expensive than college in some states) that will get you. Also there's home maintenance which is a big question mark, for anyone. You can decide on how much house you can afford then - school district being the driving factor for many (again, don't pay for that now).

Just make sure you have the 20% set aside for the down payment of any potential size home or work towards it for the next handful of years. What are the home costs in your area?

Obviously as your kids grow, you will need to spend more a month... sports, groceries, summer camp, etc. But it sounds like you're doing fine in the salary dept that it won't be a huge concern. You could always drop your retirement contributions a bit if needed. But yes, it's not a bad idea to get a good grasp of your monthly spending in the meantime. You could even use Mint to make it easier.

 

[dullard]

When I was in your position, I made a spreadsheet with every penny that was spent. I did nothing at all to change the spending, but I just wanted to know where the money was going. I put it into general categories: food, housing, transportation, gifts, taxes, utilities, entertainment, travel, etc. Even a dime put into a parking meter went on the spreadsheet.

That was probably the most helpful thing that I have done for my budget. Actually knowing where the money goes opens your mind up to many different possibilities. For example, I thought that I was fairly generous with gifts, since I spent about the same if not more than my friends and family. But then after looking at the budget, I could triple the amount that I spent on gifts and it would have no significant impact. On the flip side, even a small drop in eating out costs would save a major amount.

Until you honestly know your personal numbers, none of us can truly help you.

Some general advice though:
1) The fewer times you move the better for building wealth. Wanting to move 3 years after buying a townhouse is going to wipe out much of the equity that you put in it and you'll have to start over again. Try to aim next time for a house that you can live in for 10+ years.

2) A child doesn't need much space until they are at least 1 years old. They are really just a sack of potatoes until then. You'll be fine in your townhouse a lot longer than you think. (Similarly, you won't need to rush out to get a minivan like almost everyone I know the instant that they are pregnant with the second child.)

3) A child doesn't actually need to cost that much. The child is exactly the same in $1 generic outfits as they are in $50+ designer outfits that they wear one time. The spending level is up to you.

4) As a teacher, she probably won't be harmed by going to half-time. And if it can save you on daycare, all the better. But, far too many families make that choice without realizing that they may be losing out on career growth and significant benefits for the parent who works less. Half-time workers usually aren't the ones getting the promotions and big raises. But, as I said, the teachers union probably has her covered, just check to be certain.

 

[Kaido]

It always works its way out.
You get a bigger mortgage payment and you make it work.
Your checking account gets a high balance and you start spending more.
You checking gets low and you tighten up for a few months.

We have a two year old and so far, he is pretty cheap. (haven't gotten into sports yet though)
Even childcare (the biggest cost) isn't terrible.
Generally, our shopping/dining/alcohol budget now goes to childcare and kids stuff, so it all evens out.

Exactly this. As long as you keep working at it, it will work out. Everything does eventually, unless you just straight-up quit, haha. I've tried to make rational sense of how & why this works but I dunno, it just does. You just keep swinging & things work out.

 

[zinfamous]

As others have said, the best way to start is to start tracking your spending each month and see where everything is going. Set goals for where you want to start putting extra money--say if you want to invest it in taxed brokerage accounts or tax -sheltered accounts or whatever--and start redirecting that extra cash that you can trim away from the expenses that you can sacrifice.

Most importantly--pay off that student loan and any of those related debts asap. Consider the fact that this alone is a major hole of money that is disappearing and that you have already managed to live for several straight months not needing that $1,600/month. That's actually really awesome when you stop to think about it. Do you have a car loan? Would be best to pay that off before anything, then the student loan (you at least get interest payment tax deductions with student loans)

Consider this: You currently are looking at where you want to be 3 or 4 years from now? Why not open up a Roth IRA and toss that $1600/month that you already don't need in there until you max our your $5500/year contributions? Starting five years after you open it, you can begin withdrawing those contributions from 5 years previous without penalty, all the while they have been earning you money in interest. After 6 or 7 years, you have 11000-17000 saved up that can go towards another down-payment if you feel that you need to upgrade your living situation. To me, a Roth IRA is a phenomenal tool for those with a 5+ year plan of wanting to have a pile of cash within that time period, and the means to put it away to meet that goal. Many will advise you that a tIRA or 401k is better because you aren't taxed on contributions (so you basically have more money to put in each year because it reduces your yearly tax burden, therefore more income each year), and they are right, but for those with a specific 5-10 year plan with a targeted purchase--Where you need to access that money long before retirement--a Roth IRA is a superior tool. (also consider that most 401ks allow you to "borrow" from your contributions for downpayments as well, but I am unfamiliar with the details on that)

That's just one idea. The best part is that you have already conditioned yourself to not need a significant chunk of income without compromising your life-enjoyment habits and if you can further save on top of that with some compromises, all the batter.

Yes, you will get a bit older and interest in such things may fall off, kids will replace many of those habits so the costs will likely even out.

You also can't predict the future, but it seems to me you are already on a pretty solid path with setting yourself up.

 

[rcpratt]

Thanks for all the great input.

Most importantly--pay off that student loan and any of those related debts asap. Consider the fact that this alone is a major hole of money that is disappearing and that you have already managed to live for several straight months not needing that $1,600/month. That's actually really awesome when you stop to think about it. Do you have a car loan? Would be best to pay that off before anything, then the student loan (you at least get interest payment tax deductions with student loans)

Yeah, we've paid off about $90k in about four years, so we've definitely been aggressive with it and trying to get that gone as soon as possible. Just a few more months to go. We lease our cars right now, which I know is expensive but they're actually Ford company leases, so they're pretty cheap. We'll see how much longer I can make that last.

Consider this: You currently are looking at where you want to be 3 or 4 years from now? Why not open up a Roth IRA and toss that $1600/month that you already don't need in there until you max our your $5500/year contributions? Starting five years after you open it, you can begin withdrawing those contributions from 5 years previous without penalty, all the while they have been earning you money in interest. After 6 or 7 years, you have 11000-17000 saved up that can go towards another down-payment if you feel that you need to upgrade your living situation. To me, a Roth IRA is a phenomenal tool for those with a 5+ year plan of wanting to have a pile of cash within that time period, and the means to put it away to meet that goal. Many will advise you that a tIRA or 401k is better because you aren't taxed on contributions (so you basically have more money to put in each year because it reduces your yearly tax burden, therefore more income each year), and they are right, but for those with a specific 5-10 year plan with a targeted purchase--Where you need to access that money long before retirement--a Roth IRA is a superior tool. (also consider that most 401ks allow you to "borrow" from your contributions for downpayments as well, but I am unfamiliar with the details on that)

Yeah, that's another option, but I really feel pretty decent about where we sit retirement wise right now. Like I said, we're 28. We have about $100k in 401(k)/403(b) accounts, I have another $40k in my cash pension plan, and she has a pretty decent teacher pension setup. I'm all for saving adequately, but I feel like we're pretty much at that point where we'd saving beyond what we likely think we'd need right now.

When I was in your position, I made a spreadsheet with every penny that was spent. I did nothing at all to change the spending, but I just wanted to know where the money was going. I put it into general categories: food, housing, transportation, gifts, taxes, utilities, entertainment, travel, etc. Even a dime put into a parking meter went on the spreadsheet.

That was probably the most helpful thing that I have done for my budget. Actually knowing where the money goes opens your mind up to many different possibilities. For example, I thought that I was fairly generous with gifts, since I spent about the same if not more than my friends and family. But then after looking at the budget, I could triple the amount that I spent on gifts and it would have no significant impact. On the flip side, even a small drop in eating out costs would save a major amount.

Until you honestly know your personal numbers, none of us can truly help you.

Yeah. I use Mint and look at it frequently, but just don't give a lot of thought to our spending trends. I'm sure I can parse the data out of there easily enough and get a better idea of it. But I guess more so I was just looking for thoughts on how spending changes from this time in your life until later family times. Going out to eat is definitely our Achilles heel...

1) The fewer times you move the better for building wealth. Wanting to move 3 years after buying a townhouse is going to wipe out much of the equity that you put in it and you'll have to start over again. Try to aim next time for a house that you can live in for 10+ years.

Isn't the only thing we really "lose" the realtor fees (and just re-setting the interest clock, I guess)? It wasn't exactly in the plan to be here only 3 years, but at the same time I'm not too torn up about it because we should be walking away with $60k or so even with that considered. Part of the question that we are thinking about though is whether this would be the house for the next 10-15 years or if we're better of waiting another year or two and getting the 10-15 year house.

2) A child doesn't need much space until they are at least 1 years old. They are really just a sack of potatoes until then. You'll be fine in your townhouse a lot longer than you think. (Similarly, you won't need to rush out to get a minivan like almost everyone I know the instant that they are pregnant with the second child.)

Agreed. Convince my wife.

3) A child doesn't actually need to cost that much. The child is exactly the same in $1 generic outfits as they are in $50+ designer outfits that they wear one time. The spending level is up to you.

Also agreed, but I'm a little worried about this one. The wife likes to shop and she likes the nice stuff. Maybe it's better off we just get an expensive house and then I can tell her there's no room left for nice baby clothes :whiste:

4) As a teacher, she probably won't be harmed by going to half-time. And if it can save you on daycare, all the better. But, far too many families make that choice without realizing that they may be losing out on career growth and significant benefits for the parent who works less. Half-time workers usually aren't the ones getting the promotions and big raises. But, as I said, the teachers union probably has her covered, just check to be certain.

Yeah, like you said, not really a concern with her career. She has no risk of losing her job, her raises are pre-specified in her contract, and she wouldn't really be "moving up" to anywhere else anyways.

You don't need to consider a new place until after you're starting to grow out of it. Why pay a mortgage for a mostly-empty house? Our twins were 2 before we moved out of our starter home (lack of storage and their toys were taking over the living room). At that point, you will know your budget/costs because you will have also stopped going out as much and you know how much you're spending on kids stuff. Things like toys aren't the big costs - those are often gifted and you'll have too much by the time you realize. It's the diapers and daycare (more expensive than college in some states) that will get you. Also there's home maintenance which is a big question mark, for anyone. You can decide on how much house you can afford then - school district being the driving factor for many (again, don't pay for that now).

Just make sure you have the 20% set aside for the down payment of any potential size home or work towards it for the next handful of years. What are the home costs in your area?

Obviously as your kids grow, you will need to spend more a month... sports, groceries, summer camp, etc. But it sounds like you're doing fine in the salary dept that it won't be a huge concern. You could always drop your retirement contributions a bit if needed. But yes, it's not a bad idea to get a good grasp of your monthly spending in the meantime. You could even use Mint to make it easier.

Low interest rates right now has at least something to with it, although I'm sure we have a couple more years of relatively low rates at least. The school district thing is interesting...it does feel like we don't need to pay for that now, but at the same time, I don't really want to plan to move again in 5-6 years either.

On our side of town, we're talking like $400k-$500k for a 3,000 sqft home.

 

[dullard]

Isn't the only thing we really "lose" the realtor fees? It wasn't exactly in the plan to be here only 3 years, but at the same time I'm not too torn up about it because we should be walking away with $60k or so even with that considered. Part of the question that we are thinking about though is whether this would be the house for the next 10-15 years or if we're better of waiting another year or two and getting the 10-15 year house.

We don't have enough information, and you don't need to share that personal information. I'll just use rough approximations.

Here is an example (It sounds like you are in an expensive area, so these details are a bit more than the national average). Suppose your mortgage was $200k and your loan was 30 years with 3.5% interest. If so, then you'd have $12k of actual principal that is paid down at 3 years into it. Realtor fees alone will run 4% to 7%. I'll just pick 6% as an example. Thus, assuming the townhouse didn't change in price, you will have to pay $200k * 6% = $12k to the realtor. Your entire $12k in principal that you gained is wiped out by the realtor. Then add in moving costs, closing costs, etc and moving after 3 years is actually a loss.

You claim to have $60k in equity which sounds to me like either (A) you've paid more than the minimum to get that much equity or (B) you are including the townhouse changing in value.

If it is option (A), then I think you are set. You are already paying a lot on the student loan and you are already paying a lot extra on the townhouse. Meaning you actually have your finances under control. So, you probably don't have that many financial problems.

If it is option (B), then you might want to reconsider your line of thought. If your townhouse went up in value $50k to get you to $60k equity, then the next house you want probably went up $80k. In effect, by buying the wrong house 3 years ago you lost $30k. The current house value going up/down is not usually a good thing to consider because you tend to lose all that since your NEXT house likely also went up/down. In this case, your best lesson is to choose a house this time that matches your long-term needs.

Agreed. Convince my wife.

Sounds like job #1 is to come to an agreement with your wife regarding spending levels now vs. lifestyle later. Then come back for financial advice.

 

[z1ggy]

I generally do my financial planning/budget based on 3 things: What do I NEED, what do I WANT, and what things do I want that would really really really make me happy.

Then it's just basic budgeting from there, based on your best estimate of costs. I really don't plan out a real budget more than 6 months in advance because things can change pretty quick. Something like a kid and whatnot, maybe plan for a year out, but you honestly don't know how much you're going to spend on the little guy/gal until you're actually receiving your bank statements and such.

I generally form a monthly cashflow estimate based on what I expect to spend, then I list my actual expenses next to it and track that net difference over time. I've gotten to the point now where unless something very unexpected comes up (emergency medical visit for ex.) I'm very close each month on the cashflow.

 

[Exterous]

and she has a pretty decent teacher pension setup.

Somewhat off topic but if memory serves you are in Michigan so if she is a public school teacher her pension is underfunded by ~$26.7Bn currently. Despite relatively good economic times recently its actually gone from 65% funded to 61% funded over the last several years. Not a good trend.

Also agreed, but I'm a little worried about this one. The wife likes to shop and she likes the nice stuff. Maybe it's better off we just get an expensive house and then I can tell her there's no room left for nice baby clothes :whiste:

This is where having the actual yearly expenditures on things can help. $10-25 here and there might not seem like a lot but if those add up to big dollar amounts it can help people to realize the actual impact of their spending habits

Low interest rates right now has at least something to with it, although I'm sure we have a couple more years of relatively low rates at least. The school district thing is interesting...it does feel like we don't need to pay for that now, but at the same time, I don't really want to plan to move again in 5-6 years either.

On our side of town, we're talking like $400k-$500k for a 3,000 sqft home.

Kids can survive fine in less than 3,000 sq ft

School districts are kinda messy in MI right now. Seems like the good and bad districts are polarizing with school funding via property tax fueling the vicious cycle. While not the over riding decision we did look for houses in a better school district even though we don't plan on having kids. There does seem to be some significant divergences showing in property market values. For example there is a subdivision with the same house styles but is split down the middle for school districts. The same size\style\etc house on one side of the street is going for 15% more just because of the schools.

I don't see this trend changing any time soon and a market downturn would probably make it worse as the struggling districts will have less property tax money to work with than before.

There are edge cases that can be found though where home prices and taxes fall in a middle ground. For example some parts of Ypsilanti or Superior Township are actually Ann Arbor schools. Same for Canton and Plymouth and other areas. It can go the otherway as well like in the case of Novi residents going to Northville schools (Not that Northville is bad but you get the idea)

 

[rcpratt]

If it is option (B), then you might want to reconsider your line of thought. If your townhouse went up in value $50k to get you to $60k equity, then the next house you want probably went up $80k. In effect, by buying the wrong house 3 years ago you lost $30k. The current house value going up/down is not usually a good thing to consider because you tend to lose all that since your NEXT house likely also went up/down. In this case, your best lesson is to choose a house this time that matches your long-term needs.

Yes, it's option B. I get where you're coming from, but we also couldn't have afforded a bigger house three years ago. If the choices were 1) keep paying rent at about the same amount as the mortgage and end up with nothing after 3 years or 2) pay the mortgage on the townhouse and end up with $60, I'll take #2. But whatever, that bridge is crossed. I understand the point going forward, but at this point, the townhouse decision is sunk.

Sounds like job #1 is to come to an agreement with your wife regarding spending levels now vs. lifestyle later. Then come back for financial advice.

Sorry for posting on the internet too early. We've talked. Now I wanted to talk more with others. My bad.

 

[rcpratt]

Kids can survive fine in less than 3,000 sq ft

School districts are kinda messy in MI right now. Seems like the good and bad districts are polarizing with school funding via property tax fueling the vicious cycle. While not the over riding decision we did look for houses in a better school district even though we don't plan on having kids. There does seem to be some significant divergences showing in property market values. For example there is a subdivision with the same house styles but is split down the middle for school districts. The same size\style\etc house on one side of the street is going for 15% more just because of the schools.

I don't see this trend changing any time soon and a market downturn would probably make it worse as the struggling districts will have less property tax money to work with than before.

There are edge cases that can be found though where home prices and taxes fall in a middle ground. For example some parts of Ypsilanti or Superior Township are actually Ann Arbor schools. Same for Canton and Plymouth and other areas. It can go the otherway as well like in the case of Novi residents going to Northville schools (Not that Northville is bad but you get the idea)

Yeah, agreed, but if we're upgrading from 1,500 sqft, might as well go all the way up to whatever the long term situation/needs are.

And yeah, I'm actually a product of living in Novi but going to Northville schools. Definitely something that we're considering. We'd like to stick to Novi/Northville. There's some places in Novi that I like but are Walled Lake schools, which I don't think is going to fly.

Somewhat off topic but if memory serves you are in Michigan so if she is a public school teacher her pension is underfunded by ~$26.7Bn currently. Despite relatively good economic times recently its actually gone from 65% funded to 61% funded over the last several years. Not a good trend.

Good point, but even excluding that one I think I still feel pretty good about where we're at.

 

[zinfamous]

Yeah, that's another option, but I really feel pretty decent about where we sit retirement wise right now. Like I said, we're 28. We have about $100k in 401(k)/403(b) accounts, I have another $40k in my cash pension plan, and she has a pretty decent teacher pension setup. I'm all for saving adequately, but I feel like we're pretty much at that point where we'd saving beyond what we likely think we'd need right now.

dude, you've already got this figured out.

But I mention the Roth not for retirement reasons, but as a way to start putting aside your money for short-term future reasons. And I'm only saying Roth because you can start taking your contributions back out 5 years after each contribution year (so 10 years later, you now have unpenalized access to a full 5 years worth of contributions). This is specifically good for people that have extra cash beyond retirement savings and have a set purchase goal somewhere down the line.

Too often people see Roth IRA and think retirement, but it is more useful than that.

 

[edro]

I used a Roth for 3-4 years to save for my first house (in my early twenties).
In hindsight, I should have left the money there and never bought the damn house.
But... as usual... it all worked out.

 

[rcpratt]

That's what I get for not fully reading that big paragraph

 

[s0me0nesmind1]

Well I know this isn't fatwallet or whatever but you guys always give good advice. So here goes.

My wife and I are 28. We own a townhome/condo that we bought 3 years ago. Things have gone well in our area and we probably have about $60k in equity in that home right now (not exactly sure on the taxes/realtor fees).

We're somewhat considering upgrading. The townhome is fine, but it's probably a bit too small to expand the family. The "plan" would probably include having our first kid somewhere around 30.

First off - As someone with experience I will pass this on to you... Don't assume you can target pregnancy. It's not always that easy - especially when you get older. That's something we had to learn the hard way.

We have some flexibility in our budget right since the wife's student loans are just a few months from being paid off (was doing $1,600/mo). But what I'm really having a hard time with is figuring out our expenses 3-10 years in the future when things are quite different.

It's just hard to get a sense of where things will go out and where things will go down and how it will all settle out. Yes, I'm sure there will be a ton of money spent on kids and kid things. But we're also rather wasteful right now as dual-income 20-somethings. There are plenty of weekend trips, sports events, restaurants/bars, etc. that probably won't be quite as much of our life in the future.

Trying to target your future expenses isn't really what you should be looking at. If anything, you should be budgeting by category (Going out to eat, Groceries, Shopping, Fun-money, Housing/Utilities and Car Related).

The wife would probably go half-time at some point when we have a family. But because she's a teacher and the stupid way their pay scales work, 5 years from now, she'll be making just about the same half-time as she is right now full-time. On the other hand, I'm perfectly confident in my career growth.

I mean, is it safe to go up to ~25-30% of our monthly income with our mortgage/taxes? We'd be fine with that right now, but I just worry about growing expenses. Halp.

These days you're lucky if a place of work offers part time. I would definitely utilize that if you guys can someone correlate not having to use day-care services while still bringing in some. Those things will cost you an arm and a leg.

However, if you're looking for general advice the first thing I have to ask is this: What are you contributing towards retirement? In all honesty that should be your first priority.

Also what are your interest rates on your Condo and Student Loans? What tax bracket are you and your spouse's combined income in?

 

[s0me0nesmind1]

I used a Roth for 3-4 years to save for my first house (in my early twenties).
In hindsight, I should have left the money there and never bought the damn house.
But... as usual... it all worked out.

An excellent alternative I hear is doing 401k loans. You are essentially taking out a loan on your employer 401k program and paying yourself back... Always sounded like the best option to me if I actually ever needed a loan.

 

[Jumpem]

My advice would be to keep all of your expenses, mortgage included, as close as possible to the lower earner's net income. That way there is less panic in the event of unexpected job loss.

 

[Jumpem]

I also wouldn't worry about moving at all right now. If you have another bedroom for the kid, that is all you need. I would make the choice when they are approaching kindergarten age and school district becomes important.

 

[zinfamous]

I used a Roth for 3-4 years to save for my first house (in my early twenties).
In hindsight, I should have left the money there and never bought the damn house.
But... as usual... it all worked out.

 

[rcpratt]

First off - As someone with experience I will pass this on to you... Don't assume you can target pregnancy. It's not always that easy - especially when you get older. That's something we had to learn the hard way.

Oh, for sure. Hopefully we're not quite at that part where we're "older" yet.

Trying to target your future expenses isn't really what you should be looking at. If anything, you should be budgeting by category (Going out to eat, Groceries, Shopping, Fun-money, Housing/Utilities and Car Related).

Not really following this. I know I can afford it now. I don't know if I can afford it later.

However, if you're looking for general advice the first thing I have to ask is this: What are you contributing towards retirement? In all honesty that should be your first priority.

Also what are your interest rates on your Condo and Student Loans? What tax bracket are you and your spouse's combined income in?

There's some details above, but I contribute 14% to my 401k incl. employer match, I get another 7% per year of my salary into my cash pension plan, and the wife contributes about 5% and has her teacher pension (in theory).

Condo's at 3.25%, the remaining student loans are around 6%. I think we'll probably be in the 25% bracket for now...but it could go up to 28%. Haven't filed jointly yet.

My advice would be to keep all of your expenses, mortgage included, as close as possible to the lower earner's net income. That way there is less panic in the event of unexpected job loss.

Yeah, we're not going to be that conservative. We couldn't really even afford the place we're in under that theory.

 

[zinfamous]

Oh, for sure. Hopefully we're not quite at that part where we're "older" yet.


Not really following this. I know I can afford it now. I don't know if I can afford it later.


There's some details above, but I contribute 14% to my 401k incl. employer match, I get another 7% per year of my salary into my cash pension plan, and the wife contributes about 5% and has her teacher pension (in theory).

Condo's at 3.25%, the remaining student loans are around 6%. I think we'll probably be in the 25% bracket for now...but it could go up to 28%. Haven't filed jointly yet.


Yeah, we're not going to be that conservative. We couldn't really even afford the place we're in under that theory.

Best thing to do would be to look into maxing your 401k or at least contributing enough into it per year to get your taxable income down into 15% territory if you can. The Roth route wouldn't help you there, but if it's more valuable to you to lower your tax burden now and you can afford additional contributions (maxing the 401k doesn't get you to the target bracket) consider opening an additional tr-IRA, which will allow an additional 5500 deduction per yer.

OR--even better (sound like a broken record), but if you have shitty health plan (high deductible that is, I think, ~$1700 minimum), consider opening an HSA. This will allow $3200 per year in deductions, and the money you spend out of it (medical related, but also has no time limit, so that account can grow and grow for as long as you want and you can claim reimbursements for any expense whenever you choose) is also not taxed. It's basically a tr-IRA & Roth IRA in one.

Trick is to pay all of your medical expenses out of pocket: visits, co-pays, drugs, ergonomic improvements, etc, and hold on to those receipts. You can then claim a lump repayment to yourself through that account whenever you choose (can be same year or 20 years later--so seriously hold those receipts) using un-taxed monies. You control that fund and can invest the contributions however you choose, like an IRA.

Honestly, though, you sound like you are already set on a good path of living/long-term stability. Why complicate things too much? I still like the idea of saving money into a Roth for many years (I think everyone is right and that selling and moving in the next 3-6 years, even with kid, isn't all that wise), and then just open your own taxable brokerage account and save a decent chunk into that, which you can build and build and build, and access whenever you need it. This is your "GFY" money and is a very important tool for overall life happiness. You can't predict what will happen with your job or your wife's job, life in general including family and the economy, your own growing needs.

There is no more powerful tool for the employed adult than a solid pile of GFY money that allows you to control how and where you want to work or live over the next several years. You manage to stash away enough money in there that can hold you for 1-2 years at least (your retirement still untouched), then the world of possibility opens up to you.

What if you decide that you guys really need a change and for some reason, traveling for a year or so with the family is the best option available--and this kind of living can actually be much cheaper than staying rooted.