Looking for advice on my 2012 budget

[elessar78]

Gross household income: 88,000/year
Net household income: 63,622/year (5301/month)

Monthly Expenditures: Two adults and one two year old, debts listed in red
Rent: 950
Day care: 540
Groceries: 430
Utilities: 220
Church offering: 150
Cell phone: 145
Gas: 100 (both our commutes are about 7 miles one-way)
Cable/Internet: 10 (yes, I work for a cable/ISP)
Credit Card: 60 (minimum payment, @0% for the next 22 months. Balance: $3,750)
Car payment: 170 (@7%, balance is still a couple of thousand)
Student loans: 330 (15,400@3% and $25,000@5%, respectively)
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3105

That leaves a surplus of $2196/month to be partitioned between savings and discretionary spending.

I'm looking for advice, step by step if necessary, of how to most effectively utilize the rest of our money.

If you've read other threads, my emergency fund has taken a hit in the past few years. At this moment that amount stands at $3,000 (ugh). Also, neither my wife nor I are currently contributing to our retirement accounts. We paused it about two months ago, because of a medical emergency, but prior to that we were contributing 13% pre-tax.

Things on the horizon: planning on having baby #2 in 2012 and most likely needing a new car.

I have an idea of what I need to do, but looking for fresh eyes on the matter.

[kork13]

Biggest question: What are your goals, and what timelines do you have for them? You've listed 4... debt reduction, retirement savings, emergency fund, and car replacement (with plans for new child in 2012... big factor for EF & car).

Without knowing your priorities or if there's something else you need, here's my quick recommendation as a baseline to expand upon.

- $200/mo fun money. enjoy life, and enforce this line in your budget (for your sanity), I normally go with a minimum (if affordable) of 3-5% of your budget toward that end.
- extra $120/mo toward 0% credit card... will pay it off in ~22 months, just before interest would start being charged.
- extra $330/mo (at least) toward car payment... car payment MUST be gone before getting a replacement car. Once It's paid off, roll the entire $500/mo to start saving for the replacement car. delay the purchase as long as possible so you can either buy it cash, or buy it with the biggest DP possible.
- are the student loan interest rates fixed? If so, just pay those according to schedule for now. You can choose to accelerate them later if desired. If they're variable, consider paying them down sooner, since rates will eventually go back up.
- $750/mo to emergency fund... It won't get it up to the $20k you need before the new child, but I'd recommend any spare cash you get should be sent to the EF. Kids are expensive, and having a solid financial buffer will reduce at least slightly the stress of a new child.
- $750/mo (or more) to retirement accounts! this is important! this is less that what you were previously doing, but something is better than nothing when you have other pressing needs for your cash. Never totally STOP contributing to retirement, just turn it down when required. So your plan: Get the minimum required to get the full company matches in the 401k. If you've got extra to use, open and try to max your Roth IRA's

[jpg7n16]

I would personally do the following in order:

1) If there's an empl. match, take that immediately (no more, no less)
2) Build up EF to $10k
3) Pay off car debt
4) Build up EF to $15k
5) Save up an additional amount to pay off CC in full (earn interest in the meantime, then pay off in full)
6) Up retirement to 15-20% + match, across 401ks and Roth IRAs
7) Save up additional for new car

[MonkeyMama]

With a child on the way, I think your emphasis should be on cash savings. You are just increasing the odds of several emergencies (bed rest, medical bills, job loss, etc., etc.)

I would not pay extra on any loans. (Maybe get the car loan paid off well before baby is due? IT just seems that one will be gone soon enough, regardless?)

You can buy a perfectly fine used car in the $5k range or so (borrow or not) until you have the means to buy the car you want. Of course, put this off as long as possible.

I would never scrimp on retirement, but I would stop contributing January - November while I figured out what is best. (Can always put money in December). Employer match is important to get, if you have to contribute regularly to do so. That would probably be the bare minimum. I'd need to know your age and retirement balance to see how much wiggle room you have with this. You could be well saved up and could do with the minimum (just match) while working with a difficult situation. If you are behind on retirement, I would put in 10% no matter what. Heck, maybe 15%, if you were behind. (I'd be working a second job if I needed to, to fund retirement. That's how much I do think it should come first. I just understand putting it on hold on a VERY temporary basis when it comes to having babies. With a commitment to make it up by end of year, even if it did mean another job - more my angle).

If you hoard cash, have baby, and all goes well, then you have some decent cash to make further plans. I just think you are in a bit of an emergency mode at the moment. Cash buys you flexibility. If you don't need it and all is going well after baby #2 arrives, then you can keep some in emergency fund, save for a car, pay off 0% credit card, and focus on retirement. You already have one child, so you know what a financial drain pregnancy and new baby can be. (I am just talking daycare, potential for bed rest of mother, medical bills, unexpected time off work - I am not talking "stuff.")

[riverwed070707]

Originally Posted by elessar78

Gross household income: 88,000/year
Net household income: 63,622/year (5301/month)

Monthly Expenditures: Two adults and one two year old, debts listed in red
Rent: 950
Day care: 540
Groceries: 430
Utilities: 220
Church offering: 150
Cell phone: 145
Gas: 100 (both our commutes are about 7 miles one-way)
Cable/Internet: 10 (yes, I work for a cable/ISP)
Credit Card: 60 (minimum payment, @0% for the next 22 months. Balance: $3,750)
Car payment: 170 (@7%, balance is still a couple of thousand)
Student loans: 330 (15,400@3% and $25,000@5%, respectively)
---------------------
3105

That leaves a surplus of $2196/month to be partitioned between savings and discretionary spending.

I'm looking for advice, step by step if necessary, of how to most effectively utilize the rest of our money.

If you've read other threads, my emergency fund has taken a hit in the past few years. At this moment that amount stands at $3,000 (ugh). Also, neither my wife nor I are currently contributing to our retirement accounts. We paused it about two months ago, because of a medical emergency, but prior to that we were contributing 13% pre-tax.

Things on the horizon: planning on having baby #2 in 2012 and most likely needing a new car.

I have an idea of what I need to do, but looking for fresh eyes on the matter.

Can you define *need* new car? Most people who are just paying off a car don't *need* a new car unless they got a really bad financing deal. I would really consider putting that off with everything else you've got going on. You have a great income and the potential to really make it work for you if you can get rid of your car payment and not immediately replace it with a new payment. The others have given great advice for what order to get started.

[MonkeyMama]

I just had to add that from a tax standpoint you probably want to put money into your 401ks. Since you stopped, you are probably getting pretty heavily taxed, in exchange. Keep in mind that every dollar you put into retirement might save you $0.25 in taxes. (It depends on your tax situation, but is best I can guess from what you have shared). Just something else you need to balance when going through all of this. This would be one reason to make retirement a priority in the long run.

[danielfal]

Elessar,

I would start by making sure your emergency fund is replenished. The emergency fund is key to making sure you do not end up in a hole too deep to get out of should a financial setback occur. (It appears you've already benefited from having one in place, so keep the emergency fund at full capacity. I like to keep a minimum of 6 months even though most "financial experts" would recommend 3 months...)

Next, make sure you set as much money aside for retirement as possible. Everyday I talk to individuals who are in really bad shape for retirement. Most people don't take retirement serious until it's too late. Time is your greatest ally for a solid retirement plan.

And last but not least, have fun too. Set a portion aside for you and your wife to do something at least once a month. Reward yourselves for being good stewards of your financial blessings.

Hope this helps!

[elessar78]

Originally Posted by riverwed070707

Can you define *need* new car? Most people who are just paying off a car don't *need* a new car unless they got a really bad financing deal. I would really consider putting that off with everything else you've got going on. You have a great income and the potential to really make it work for you if you can get rid of your car payment and not immediately replace it with a new payment. The others have given great advice for what order to get started.

Good point! No, not "need"... we have a 2 door accord. 150K but running strong, it's reallly just the 2-door aspect that bugs us, but that's a cheap inconvenience relative to a new car payment.

So yes, it'll probably be wise to put that off. This is our 2nd car by the way.

See, fresh eyes on the problem helping out already.

[elessar78]

Everyone, thanks for the advice so far—it's really been useful. Keep 'em coming if you got it!

A few more details, we are 33 and 30 years old respectively. Both our jobs, in addition to retirement accounts offer pensions. Her's matches 401k contributions up to six percent.

[MonkeyMama]

So why not just trade in the 2-door for a similarly priced 4-door vehicle???

I think these are the kinds of options people miss when they feel kind of stuck. For reference, when I had my first child I had a sports car that was not baby appropriate at all (no room for any carseat). I sold it and bought something cheaper that was more practical. It was a newer vehicle, actually, but since it was not a sports car, and it had a lot more miles, I pocketed $2000 on the deal. A sedan with 4 doors, and more money in the checkbook? win-win. (The only reason I pocketed any money on this deal was I sold and bought private party - just as a tip. At dealership, would have been an even trade, or maybe even costed me a few dollars).

[LivingAlmostLarge]

I'd stash cash for the upcoming baby. Are you pregnant or planning? That may affect my answer since you do have 10 months until birth so if you are already pregnant then definitely save cash. But if you are still trying, you are running out of time to have a kid in 2012 and maybe cash savings isn't such a priority.