- August 6, 2023
- Posted by: legaleseblogger
- Category: Related News
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Hello All–
I am seeking assistance with a general financial assessment for my family, as I believe we are in a stable position but often find ourselves unable to fully enjoy the rewards of our hard work. While we consciously avoid the pressure to keep up with others, I can’t help but feel that we should be in a better financial situation. Below are the current balances as of 8/3/2023:
**Background:**
– I am 37 years old and married to a 33-year-old. We have a 2-year-old child and another one on the way.
– We reside in a moderately cost of living area.
– I come from a background where neither of my parents graduated high school, and I have managed to build my life from scratch without any financial safety net. Consequently, I tend to be frugal and maintain a larger emergency fund due to my fear of homelessness. If things don’t work out, my family has no one to rely on.
**Income:**
– My base salary amounts to approximately $162,000, and with a 35-40% bonus, the total comes to around $225,000. I max out my 401k contribution at $22,500 and also contribute the maximum to dependent care and health FSAs.
– My wife earns roughly $63,000 per year and enjoys summers off.
– Both of us make maximum backdoor Roth IRA contributions, totaling $13,000 per calendar year.
– My wife contributes $550 per month to her 401k.
– **Total Monthly Income, after taxes and deductions: $11,763 (excluding bonuses)**
**Expenses:**
For budgeting purposes, I use YNAB to plan our expenses. The monthly breakdown is as follows:
– Mortgage: Our mortgage payment is $1,188, and we pay an additional $534 every month for taxes and insurance. Furthermore, I allocate an extra $200 towards mortgage payments, making it a total of approximately $1,922 per month.
– Pest Control: $67
– Car Insurance: $186
– Daycare: $1,332
– Internet: $80
– Netflix: $10
– Spotify: $13
– iPhone backup: $3
– Kid Haircut: $30
– Kid Misc. Stuff: $50
– Mowing: $160
– My Haircut: $37
– My Misc. Stuff: $50
– Dry cleaning: $15
– Doctor Visits: $100
– Restaurants: $600
– Groceries: $600
– Cellphone: $100
– Water: $30
– Electricity: $175
– Natural Gas: $15
– Gasoline: $165
– **Total Monthly Expenses: $5,740**
**Sinking Funds:**
I also utilize YNAB to plan for future expenses through sinking funds. These accounts help us allocate monthly amounts for specific expenses. Here is the breakdown:
– AMEX membership: $21
– Kid’s birthday party: $70
– Gym: $105
– A/C Service: $15
– Geek Squad: $18
– Annual Tax Preparation: $17
– Hot tub Cleaning: $17
– Carpet Cleaning: $38
– Annual Vehicle Emissions Test: $4
– Annual Vehicle Registration: $4
– Ring Subscription: $9
– Lawncare treatment: $15
– Costco membership: $9
– Scotts Cheap Flights: $4
– Amazon Prime: $12
– Bitwarden: $1
– Task Manager: $11
– Dropbox: $10
– YNAB: $9
– Christmas Shopping: $88
– General Home Maintenance: $200
– General Car Maintenance: $100
– **Total Monthly Sinking Fund Expenses: $777**
**Assets:**
– 2011 VW Jetta: ???
– 2013: Toyota RAV4: ???
– Traditional IRA: $172,683
– My Roth IRA: $55,971
– My 401(k): $60,241
– Brokerage Account: $18,294
– Wife Roth IRA: $56,792
– Wife 401(k): $9,947
– Bank Account: $11,490
– Emergency Fund: $59,553
– 529 Plan: $2,826
– Home Value (Zillow): $431,300
– **Total Assets: $879,097**
**Liabilities:**
– Mortgage: 2.75% interest rate, 30-year fixed. Outstanding balance of $265,436.
– Credit Card (pay off monthly for points): $3,135
– **Total Liabilities: $268,571**
**Other:**
– I have an automatic monthly contribution of $1,500 to my Schwab brokerage account.
– I have an automatic monthly contribution of $500 to the 529 plan (recently started).
– I acknowledge that my emergency fund is excessively large, but I anticipate being offered equity at my current or future company in the near future. Consequently, I would require that money for investments, which would necessitate taking on additional debt for financing.
– With the upcoming new child, we are unsure if my wife will continue working due to potential daycare costs amounting to $3,000 per month.
**Questions:**
1. Objectively speaking, how would you assess our financial standing? I am seeking an unbiased opinion without self-congratulation. Despite feeling confident, our house is located in a neighborhood below our desired standards, and we drive cars that are more than a decade old, which sometimes undermines our perception of our financial stability.
2. An opportunity has arisen that may lower my salary to $145,000 with a bonus of approximately 25%. However, equity will also be offered, resulting in a relatively equal compensation level. Nevertheless, considering the arrival of a new child and the potential loss of my wife’s income, there are concerns about reduced liquidity.
3. Can we afford for my wife to stop working?
4. Given our current circumstances, how much house can we afford with and without my wife’s income?
5. Can I afford to purchase a new car? If so, what would be the budget with and without my wife working?
6. How can we avoid succumbing to lifestyle inflation? Although my salary is considered strong based on online research, there appears to be a disparity between our income and outward appearances. I am struggling to reconcile this discrepancy.
Any additional advice or guidance would be greatly appreciated.
I hope to receive valuable feedback and suggestions.
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IÔÇÖd stop paying extra on the mortgage. Makes no sense at 2.75% APR.
Unless your cars are unsafe or will cost more to maintain than theyÔÇÖre worth I donÔÇÖt see why you need a new one. You can afford it but itÔÇÖs not a financially sound decision. IÔÇÖm still driving a 2009 Camry with 200K miles and we only recently upgraded my wife because her 2003 Corolla started having major issues.
Back of the napkin, looks good at least youÔÇÖre in the black and saving something. Also congrats on the high salaries and being able to take care of yourselves so well!
A few things that stand out are that it looks like your wife could invest more in her 401k if youÔÇÖre able to cash flow monthly expenses from your salary a bit more. YouÔÇÖre pretty much in the boring middle where you just need to stay the course. A few rules of thumb are to try to aim for at least 2x combined salary by 30 and 3x by 40 so you could prorate those targets however youÔÇÖd like.
That said I love how you mention lifestyle inflation and the upcoming potential changes. Lifestyle inflation is your life getting more expensive when you start earning more money which then eats up any additional earnings. Are your cars safe? Do you really need new ones or would you like new ones? Also looking at only your current base salary (say 40% goes to taxes and youÔÇÖre paid biweekly) including sinking funds and monthly expenses it looks like you have about 1k/month left over on the average month for savings/investments. Also your emergency fund looks like it would sustain ~9 months of expenses and sinking funds. Whether your wife quits and daycare expenses decrease or you change jobs or some combination of the above with the extra money every month you still have the choices to invest more, save more, put the money into cars or whatever else as decided between you and your wife for your young family. Nice work so far!
You shouldnÔÇÖt be doing backdoor Roth contributions if youÔÇÖre carrying a balance in a pre-tax IRA since youÔÇÖll trigger the pro rata rule and end up essentially being taxed twice on that contribution. Still fine for your wife to do it, assuming youÔÇÖre the one with a traditional IRA.
Dubious whether you should be funding the brokerage account while your wife isnÔÇÖt maxing out her 401(k) but itÔÇÖs defensible if youÔÇÖre looking for flexibility.
Your wife can afford to stop working and definitely should. YouÔÇÖre making nearly 300k combined a year, how much would it take to let your children avoid daycare?
Your wife can afford to stop working and definitely should. YouÔÇÖre making nearly 300k combined a year, how much would it take to let your children avoid daycare?
You are very organized and are crushing it. I would make sure your emergency fund is at least in a HYSA paying 4-5%.
Dont need to pay $200 extra on the mortgage in the current environment  Just make the minimum payment for the next couple years.
Yea your wife can stay home it makes sense numbers wise  Make sure you support her mentally as being a full time caretaker is one of the toughest jobs in the world .
Reevaluate your investments at least twice a year. Make sure they are in high growing low fee funds