Debt Advice Before Starting a Family

[LivingAlmostLarge]

What happens if you decide to move? Or how much more expensive a house are we talking about?

[Future101]

... at the same employer - extremely stable company with pension. s?
what are terms and conditions of pension? Do you mean 401K?

Yes, I meant exactly "Pension". The 401k is separate. After 5 years of employment I'm vested, and will receive pension when I retire, and the amount increases the longer I stay with the company. I'm currently at about 3.5 years and intend to stay until 5 at least.

I sincerely hope you'll carefully check a mortgage amotorization table to understand exactly how much of your monthly payment goes to reduce principal, sums to [front loaded] interest, taxes and insurances. It's likely in your interest to explore financial institutions offering the lowest interest rate and the possibility of negotiating away most of costs and fees all to eliminate the punishing PMI for 5 years!

Interest Rate:
3.375%

MIP (or PMI):
Payment amount $105.11
Premium amount $1,233.00

Homeowners / Property Insurance
Premium amount $1,202.34

City Tax
$1,963.61

Escrow balance $2,579.32 (needs to be revised because I'm paying 400-500 less on home insurance)

Payment received on 04/01/16 $1,033.47
Principal $193.83
Interest $283.66
Escrow $555.98

Year-to-date summary
Total received: $4,133.88
Principal: $772.06
Interest: $1,137.90
Escrow: $2,223.92

[Nutria]

Now, the plan is that she'll work after pregnancy. If she doesn't work then we'll have to use the savings to pay for some of our monthly expenses because babies cost a lot.

That's why people think babies are expensive.

For the breast-feeding mother who buy "pre-worn" clothes and stays home until the last child goes to pre-school (not day care), the only expense is diapers. IOW, babies are pretty cheap. Even toddlers and pre-schoolers are pretty cheap if you buy the pre-worn fancy expensive clothes that fools buy for their kids, who then promptly outgrow them.

Yes, I'm speaking from experience.

[Jluke]

After reading some of the additional information... 2 things kind of stand out.

First, regarding the pension. I believe those are heavily backloaded so you almost need to work close to 30 years to realize a substantial monthly payment. Plus, pension rules at the company can and will change by the time you retire. Seems like you are putting a lot of faith in this retirement vehicle.

Second, 401k contributions are way too low. do you realize that you can each contribute up to 18k/year plus $5500 each in a Roth? If you increase your 401k to 2.5%, that is probably just $1400/year for each of you. One rule of thumb is to save 15% of your salary each year for retirement purposes. For you, 6-10% would be a good start. then you'll see how your debt is really working against you.


The debt isn't going to magically disappear. It is lingering and for the most part the sooner you pay it off, the less it will cost you.

Do you know that daycare for 1 child, full time, 5 days a week is probably minimum $1200/month? depending on where you live of course.

I think there is still work to be done to get you in a better position.

[Future101]

Oh I was just providing all information that I could. I'm not banking on the pension. Currently if I leave at 5 years I get $200/m after retiring. Nothing crazy. If I work till 2030 I get $1000/m. $3500/m if I work until I'm 60. Assumes only a 3% raise annually.

Obviously I'm not really saving for retirement yet and I do want to start, so thank you for the suggestions on how I should proceed.

However, I'm not sure that both of us contributing 6-10% to our 401ks will work while we start a family?

Edit: I think a good start is paying off the $2,928.28 student loans @ 6.55%. I'll think more on paying all 15k off. I think starting to add 6% into each of our 401ks is what I'll do next. I'll see where we're at after the first month of paying into those.

I could pay either car off in cash, but the interest is low. Example: is it worth dishing out 25k cash just to save 1500 of interest over 5 years?

[LivingAlmostLarge]

IF you can't save for retirement while starting a family then something is wrong with the budget. You need to change your priorities and make it work. Family and expenses always grow and happen.

But what you are saying is what I ALWAYS hear from people. Oh I can't start saving for retirement. Putting it off. You can't afford to put it off.

[Future101]

IF you can't save for retirement while starting a family then something is wrong with the budget. You need to change your priorities and make it work. Family and expenses always grow and happen.

But what you are saying is what I ALWAYS hear from people. Oh I can't start saving for retirement. Putting it off. You can't afford to put it off.

I never said that I can't at all. I'm ready right now and will. I'm open to investing part of my cash too. I'm just not sure how much to put away yet.

[tripods68]

I could pay either car off in cash, but the interest is low. Example: is it worth dishing out 25k cash just to save 1500 of interest over 5 years?

Why would spent on car that is depreciating faster that you can invest in retirements? You situation is unattainable; you have overspent on two cars worth $53K with 100K combined income. I would sell 1 car, keep the other car, buy 2nd vehicle $2-3K commuter car (in cash) yourself to save that extra payment on retirement that would have gone to 2nd car payment. You can always upgrade towards a better car in the future.

It's way too easy to say, "I'll keep two cars while still trying to save for retirement with the baby coming". Something has to give to get out of debt faster, give your family a more stable environment.

[Nutria]

Why would spent on car that is depreciating faster that you can invest in retirements?

I've seen this "cars depreciate faster than their payments" meme for decades, but when I actually look at the FMV of our boring minivan, it shows a positive net worth compared to the loan balance (and we only had a small dp). PLUS, it's a 60 month loan (taken out way before we got our fiscal house in order).

And NO, we're not going to pay off that 2.99% loan early. The money is too cheap, and there are only 8 payment left anyway.

[Future101]

Why would spent on car that is depreciating faster that you can invest in retirements? You situation is unattainable; you have overspent on two cars worth $53K with 100K combined income. I would sell 1 car, keep the other car, buy 2nd vehicle $2-3K commuter car (in cash) yourself to save that extra payment on retirement that would have gone to 2nd car payment. You can always upgrade towards a better car in the future.

It's way too easy to say, "I'll keep two cars while still trying to save for retirement with the baby coming". Something has to give to get out of debt faster, give your family a more stable environment.

I appreciate the feedback. I understand that would be the best scenario (depending on the depreciation hit), and I would be better off, but selling isn't going to work out. If someone feels passionately about selling a car please PM me about it. I would like to keep this discussion more towards what to do with my debt and income if assets remain as they are. If my situation turns out so bad then it'll be clear that I have to sell a car.

[Jluke]

Edit: I think a good start is paying off the $2,928.28 student loans @ 6.55%. I'll think more on paying all 15k off. I think starting to add 6% into each of our 401ks is what I'll do next. I'll see where we're at after the first month of paying into those.

Agree with this. payoff those 2 student loans tomorrow - don't even hesitate. Update your 401k contributions to 6% asap. Your childrens' future actually depends on this more b/c if you can't take care of yourselves in retirement the burden could fall on them.

You need to reset your mindset on what you earn. If you started with 6% to the 401k from the start, then you would never know what it is like to be "missing" that money.

Again, chip away at the debt. It can get addicting to get the balances to zero.

Small rewards along the way are nice, but you do have to dig yourself out first so always ask yourself if this "$100" would be better off going to debt.

[tripods68]

I've seen this "cars depreciate faster than their payments" meme for decades, but when I actually look at the FMV of our boring minivan, it shows a positive net worth compared to the loan balance (and we only had a small dp). PLUS, it's a 60 month loan (taken out way before we got our fiscal house in order).

And NO, we're not going to pay off that 2.99% loan early. The money is too cheap, and there are only 8 payment left anyway.

I completely disagree with this view.

The reality is most hold this view, therefore most people are in-debt for life living paycheck-to-paycheck, have no budget; main reason retirement balances are so low that most can't retire at all. Its a sad ending to what could have been a glorious life--if only they could have avoided being trap into debt early! Debt is not the answer, debt is a problem and why most can't built wealth, let alone fund their retirements.


There are those who live frugally (not many) use credit cards responsibly like most people here in SA forum. However, most people don't pay it off. I read somewhere that two-thirds don't pay off their balances. And if you factor other "Unexpected" things to people; job losses, death, major car repairs, the truth is most can't afford these expenses. Because they have been taught that their credit card is their number 1 go-to emergency back up. when they ought to have 3-6 months of EF set aside.

[Nutria]

I completely disagree with this view.

Mortgage  $15,044   5%  (Sept 2017)
CC         $1,218   0%  (Oct 2017)
Minivan    $3,479   3%  (Novem 2016)
Camry      $2,500   5%  (Aug 2016)
TOTAL:    $22,241

You're ignoring cash flow and liabilities beyond debt. I could pay off the CC, the minivan, the Camry and 2/3 of the mortgage with cash immediately on hand!

But where would we get the semi-annual car insurance payment from? And our kids' ($10K each) parochial school tuitions, and property taxes? And what if I lost my job or we had a big medical bill?

Sometimes you've just got to carry the debt even though you could pay it off.

EDIT: Sometimes you've just got to carry cheap debt so that you don't get into expensive debt.

[LivingAlmostLarge]

Obviously I'm not really saving for retirement yet and I do want to start, so thank you for the suggestions on how I should proceed.

However, I'm not sure that both of us contributing 6-10% to our 401ks will work while we start a family?

Here is you saying you aren't saving for retirement will work while you start a family.

You need to rethink your priorities. Getting out of debt and deciding on a budget which includes retirement is necessary. You can't justify not saving while spending everything.

[disneysteve]

But where would we get the semi-annual car insurance payment from? And our kids' ($10K each) parochial school tuitions, and property taxes?

Obviously, you can't use money that is earmarked for necessities like car insurance and property taxes to pay off debt, but you could use other savings to do so. Or you could work to lower expenses and be able to direct more of your current income toward the debts if becoming debt-free was a priority for you (which may or may not be the case).

So often, we see people posting here who are struggling and when they list their budget, it isn't hard to see why. They have built a lifestyle that can't be supported on their income - car payments, mortgage, credit card bills, student loans, cable, cell phone, gym, pets, etc.