Forbidden Fruit

[CoolHandLuke]

Thanks to all!

I am brand new to this forum and I appreciate everyone's rapid responses and participation...

Wife: homemaker (2 yr old, 4 yr old at home)

Income: 110,000 gross, just scaled back on the 401k from 6%pre (100%_4.5%match) + 10%post(this is what I dropped)
Currently 6% pre only.

Truck: 450/mo, 21000 remaining @ 47 months (worth about 21000, yay!) Car(wife): 200/mo, 8000 remaining @ 38 months (worth about 6500) Insurance: 2000yr for both full cover (Texas). Gas: I'm compensated mileage, wife: 200/mo. Maintenance: 500/yr
Mortgage: 1270/mo. 113000 remaining @ 13 years Electricity: 160, Water: 50, Gas: 90, HOA dues: 905/yr, Internet: 40, Cell (both): 160, Grocery: 550/mo Dr. 200/mo Entertainment/Dineout: 400/mo (No Cable)

4 years contributions at 16% - 83,000.00 in 401k, 10,000 to my name.

I'm 27 yrs old so I was looking at the situation as "I've got plenty of time to make it up, and I've been contributing so much..." Although I know that's not smart, I just keep thinking how easy it would all be with an "extra" 7500/yr.

[jpg7n16]

I'm 27 yrs old so I was looking at the situation as "I've got plenty of time to make it up, and I've been contributing so much..." Although I know that's not smart, I just keep thinking how easy it would all be with an "extra" 7500/yr.

So one of your reasons for cashing out your retirement savings, is that you can catch up on retirement savings?? If you just stay where you are, you're already caught up.

Are you still employed at that company? Does the plan allow in-service withdrawals? You may be debating over something you couldn't do anyways.

Though you still shouldn't touch the 401k at all, even if you could.

4 years contributions at 16% - 83,000.00 in 401k, 10,000 to my name.

You have too little in cash. Based on your expenses listed, your expenses in a given month account for around $3800/month. You should have somewhere $12-22k in cash as an EF. Prob $15-20k.

I would reduce your 401k contributions to 10%, build up some extra cash while paying down the car notes.

Grocery: 550/mo ..... Entertainment/Dineout: 400/mo (No Cable)

Yeah, that's just too much.

For someone who is considering cashing out the retirement account (that he saved so hard to build up) over saving $7k/year -- it's very odd to me that you haven't considered trimming some of the entertainment/food expenses back.

[CoolHandLuke]

That's about as skimmed back as it gets, "grocery" includes prescriptions for daughters that are constantly needing some sort of medication (ear infections, sinus infections, rash...) Diapers n wipes, and healthy food, mac n cheese and mcdonalds isn't gonna cut it. All that crap is expensive my wife cooks almost every night and tries like heck to keep meals under $15 for the family. Hypothetical: $10 a night just for dinner $300.00/month we haven't even talked about the Rx's and baby needs yet, not to mention there is two more meals per day somewhere in there. So. I think we're golden on "Grocery", Also Entertainment includes my 4yr old going to mothers day out its included in entertainment because that what it is, sure it gets her ready for pre k and helps social skills but for the most part its a play day and believe me mommy would be happy to have her home but I believe it is important, $189.00/mo important. Leaving $211.00/mo guess I could Nazi out of the fun funds, that would actually get the car paid off rather quickly, I just have to find it... LOL. P.S. I have already shaved the 401k contributions back 10% leaving only 6% pre-tax intact for the company match. It just hasn't taken effect yet " your investment elections may take 2-3 pay periods". I'm trying dangit, its just so frustrating to have to do that you know. Anyways thanks.

[Nika]

It does not get easier to save for retirement -- as kids grow up, they will need activities, lessons, trips, TUITION...
And you need to save enough for you and your wife since she is not saving anything for herself. That is double responsibility.

And if this car is not worth the sacrifice in lifestyle now, do you think that it is worth the bigger sacrifices you will have to make 40 years from now?

The rest of your budget does seem reasonable to me, with the exception of the car. But everyone has different priorities and value things differently. If this car is "more than just a car" for you, than you forego other things to keep it. I just don't think it is your and your wife's future security is what you should be foregoing to make it easy for you to keep a car that is "fun" as opposed to just functional transportation.

When you have 2 kids and a spouse, what is best for the family comes before what is easy.

[kv968]

I am brand new to this forum and I appreciate everyone's rapid responses and participation...

Wife: homemaker (2 yr old, 4 yr old at home)

Income: 110,000 gross, just scaled back on the 401k from 6%pre (100%_4.5%match) + 10%post(this is what I dropped)
Currently 6% pre only.

Truck: 450/mo, 21000 remaining @ 47 months (worth about 21000, yay!) Car(wife): 200/mo, 8000 remaining @ 38 months (worth about 6500) Insurance: 2000yr for both full cover (Texas). Gas: I'm compensated mileage, wife: 200/mo. Maintenance: 500/yr
Mortgage: 1270/mo. 113000 remaining @ 13 years Electricity: 160, Water: 50, Gas: 90, HOA dues: 905/yr, Internet: 40, Cell (both): 160, Grocery: 550/mo Dr. 200/mo Entertainment/Dineout: 400/mo (No Cable)

4 years contributions at 16% - 83,000.00 in 401k, 10,000 to my name.

I'm 27 yrs old so I was looking at the situation as "I've got plenty of time to make it up, and I've been contributing so much..." Although I know that's not smart, I just keep thinking how easy it would all be with an "extra" 7500/yr.

Ok, here's some rough numbers for you if I'm reading this correctly:

Your 401k is currently worth $83k.

Over 4 years you put in:
6% pre = $26,400
4.5% match = $19,800
10% post (assuming 25% tax bracket)= $33,000
For a total of $79,200
That would give you a total return of 4.8% or about 1.2% year.
Honestly, that's not that great. You can do better (and probably will in the long run) but we'll run with that low number.

If you took out $29k to pay off the vehicles that would save you about $2200 (probably less) total in interest payments.

If you leave the $29k in the 401k to grow at even the low rate of 1.2%/year, by the time you reach retirement in 40 years it would be worth $46,732. So is it worth it to you?

Of course there are many other factors that go into it (paying off mortgage instead, upping emergency fund, inflation, etc...) But just by those numbers, do you think it's worth taking the money out to pay off a truck (no matter how beloved) that you won't even probably remember in 10 years?

[riverwed070707]

I am brand new to this forum and I appreciate everyone's rapid responses and participation...

Wife: homemaker (2 yr old, 4 yr old at home)

Income: 110,000 gross, just scaled back on the 401k from 6%pre (100%_4.5%match) + 10%post(this is what I dropped)
Currently 6% pre only.

Truck: 450/mo, 21000 remaining @ 47 months (worth about 21000, yay!) Car(wife): 200/mo, 8000 remaining @ 38 months (worth about 6500) Insurance: 2000yr for both full cover (Texas). Gas: I'm compensated mileage, wife: 200/mo. Maintenance: 500/yr
Mortgage: 1270/mo. 113000 remaining @ 13 years Electricity: 160, Water: 50, Gas: 90, HOA dues: 905/yr, Internet: 40, Cell (both): 160, Grocery: 550/mo Dr. 200/mo Entertainment/Dineout: 400/mo (No Cable)

4 years contributions at 16% - 83,000.00 in 401k, 10,000 to my name.

I'm 27 yrs old so I was looking at the situation as "I've got plenty of time to make it up, and I've been contributing so much..." Although I know that's not smart, I just keep thinking how easy it would all be with an "extra" 7500/yr.

So with a gross of $110k, you bring in, what? $5,500/mo net? $5,000 maybe after healthcare, retirement, etc? Your expenses add up to $4000/mo. Wheres the other $1000-1,500 going? From your posts I suspect you run a pretty loose budget and you are spending more than you think. If you could put an extra $1k toward your truck every month, it would be paid off pretty darn quick without your retirement taking a hit. Also, Texas is not a HCOL area and groceries are not *that* expensive. We have a family of 3 and eat on half what you do. We cook every night, we eat healthy (no McDs or mac and cheese) and I meal plan with an aim of $5/dinner. If you're spending $15/dinner thats a splurge plain and simple. I don't think your food spending is unreasonable for your income but coupled with the fact that you have $400 in entertainment and dining out you really shouldn't be arguing that theres no room to trim. What about the fact that you both have data plans on your phones? Luxury, not a necessity. Also, your insurance seems high. When was the last time you shopped rates?

Biggest issue here is the gap between income and budget. Watch your spending closely the next month and find out where the rest of those dollars are going. That step alone may save your budget... and your retirement.

[JoeP]

I think your list of potential "emergencies" is questionable. Doctor bill is fine. Flat tire - maybe, but that's really something you should be prepared for as a car owner. But vacation? How is that something unforeseen? That's one that you would be planning for and saving for in advance. They don't just suddenly creep up on you (might be nice if they did but they don't ).

So it sounds like you depleted your savings to buy a truck that you probably shouldn't have bought. Again, I'd suggest posting your numbers to get some real advice. Without any more info, the only advice I can give is not to raid your retirement savings to pay for your poor spending decisions today.

This was my thought as well. The OP should not be thinking of raiding any retirement until the root cause of the crisis is identified.

OP: I'd start out by admitting that buying that much truck using a loan was a mistake. Don't beat yourself up, but at least come to terms with this. After you take a look at how much you overpaid for it (the amount you paid is the final sale price PLUS the loan interest), look at how much you're paying for those cars: $650/mo! I'd also suggest you assess your cell phone bill; prepaid is MUCH cheaper and you avoid contracts. Divert a portion of your pay into a Car Fund...automatic deposit from your employer to your bank/CU is an easy way to force discipline on this...then you can possibly buy your next vehicle using cash.

I'm not judging, but it really sounds like you are content with your situation, or at least content enough to not change, and are looking for some sort of approval. I sincerely hope I am wrong, and that you came here genuinely looking for advice that you will apply in order to change your course. It may feel like you're making a lot of money and can afford (literally) to be fast and loose with finances. But the truth is that those making 6 figures find new and creative ways to get into more trouble than those earning considerably less. Take a read at "The Millionaire Next Door" for great illustrations of this phenomenon. You actually have a "blessing" that most would love to have.

[jpg7n16]

If you leave the $29k in the 401k to grow at even the low rate of 1.2%/year, by the time you reach retirement in 40 years it would be worth $46,732. So is it worth it to you?

2 things, 1) the salary may not have been $110k the whole time, and 2) you should not use returns over the past 4 years to predict the next 40.


Although the rate of return discussion does prompt the question for the OP:

-How are you invested in that 401k money?

Hypothetical: $10 a night just for dinner $300.00/month we haven't even talked about the Rx's and baby needs yet, not to mention there is two more meals per day somewhere in there. So. I think we're golden on "Grocery." Also Entertainment includes my 4yr old going to mothers day out its included in entertainment because that what it is, sure it gets her ready for pre k and helps social skills but for the most part its a play day and believe me mommy would be happy to have her home but I believe it is important, $189.00/mo important.

I would have thought that you would lump together prescriptions in with "doctor" rather than "groceries." When I have groceries in my budget, it means "food bought at a grocery store." I would also not include "child daycare" in "entertainment" expenses.

So I guess that's just a misunderstanding on my part

P.S. I have already shaved the 401k contributions back 10% leaving only 6% pre-tax intact for the company match. It just hasn't taken effect yet " your investment elections may take 2-3 pay periods". I'm trying dangit, its just so frustrating to have to do that you know. Anyways thanks.

I saw that you reduced it BY 10%, however I would only reduce it TO 10%. I pretty much feel that that's the bare minimum people should save for retirement, unless they have some debt out there charging 8%+ (typically just CC debt).

With all the concern out there about social security, the lack of pensions, and the rising life expectancy, I believe it is extremely important to focus on ensuring that you will have enough money to last the rest of your life. In my view, saving enough for retirement is MUCH more important than paying extra on a 5% loan that will be gone in a couple years anyways. (If it were instead 30k of CC debt, that'd be a different story)

[Like2Plan]

Truck: 450/mo, 21000 remaining @ 47 months (worth about 21000, yay!) Car(wife): 200/mo, 8000 remaining @ 38 months (worth about 6500) Insurance: 2000yr for both full cover (Texas). Gas: I'm compensated mileage, wife: 200/mo. Maintenance: 500/yr

What were the terms of your vehicle loans? 48 months or longer? Is your wife a SAHM? I am surprised by the $200/month for gas for your DW (seems kind of high unless she works). How old are your vehicles? 500/yr seems kind of low unless they are fairly new and you do your own work.

[kv968]

2 things, 1) the salary may not have been $110k the whole time, and 2) you should not use returns over the past 4 years to predict the next 40.


Although the rate of return discussion does prompt the question for the OP:

-How are you invested in that 401k money?

I was just trying to give him a back of the envelope look at the possiblities. I'm sure the salary wasn't that amount for 4 years but I'm not his financial advisor so I'm not going to ask him for his W2's.

And I know past performance doesn't predict future returns, but again, just using what he gave us. Besides, I think a 1.2% annual return isn't exactly exaggerating a possible 40 year annual return.

[CoolHandLuke]

Constructive

Thanks to all for the different viewpoints and constructive conversation you-all dont know how much this has helped me see how moronic a decision that WOULD have been. i alwayse knew that it was not the best decision but i guess what i really needed was to hear i rationalized, in short i just needed to hear it from someone else, although a part of me may have been wishing someone might have said, "eh, its not THAT bad".... thanks for not doing so! there has also been some light shed on my "spending plan" or lack there of... it does seem like there is "extra money" somewhere in my check to check life. I guess i need to crack down and reassess my entire cash flow situation, it seems at one point i finnaly got comfortable, and with comfort comes complacentcy.... THEN DANGER!

[snafu]

Good on your for backing away from your original idea of cashing out Retirement Account. You have broad shoulders to carry the responsibility for making a mistake about a truck. Your food, entertainment, wife's auto operation categories could be reduced short term while you work out cash flow barriers. This would be a good time to defer spending on 'wants.' Is there any possibility of your SAHM earning cash by taking care of another child even part time or after school care?

The newest report from Stanford University released today, insists Organic Foods are indistinguishable from 'regular' food. Avoiding 'convenience' foods and using local real foods is both nutritionally and financially smart. Baby wipes, diapers, ear drops, tissue, and none food stuff can be bought with coupons, on sale, in discount stores. I'm confident you can tighten spending by planning for expenses.

I suggest creating a $ 1,000. Emergency Fund so you don't feel slapped down over and over. You get to use the fund but need to keep it replenished.

[kv968]

Thanks to all for the different viewpoints and constructive conversation you-all dont know how much this has helped me see how moronic a decision that WOULD have been. i alwayse knew that it was not the best decision but i guess what i really needed was to hear i rationalized, in short i just needed to hear it from someone else, although a part of me may have been wishing someone might have said, "eh, its not THAT bad".... thanks for not doing so! there has also been some light shed on my "spending plan" or lack there of... it does seem like there is "extra money" somewhere in my check to check life. I guess i need to crack down and reassess my entire cash flow situation, it seems at one point i finnaly got comfortable, and with comfort comes complacentcy.... THEN DANGER!

Well I will say it...overall it isn't THAT bad. Certainly not bad enough to raid your retirement savings.

IMO, you're paying too much for your vehicle and don't have a good enough handle on where some of your money is going. However those are problems that can be dealt with without jeopardizing your future by raiding your retirement accounts. Again, it isn't THAT bad.

Just deal with the loans (temporary), pay closer attention to your spending and possibly cut some of it (i.e. budget/cash flow), up those savings rates (retirement and EF) and you should be fine. Good luck.

[Gailete]

For a stay at home mom, your wife seems to be running through an awful lot of gas each month as well. Is all that running around worth it? As to mommy play dates or whatever they were, that is a totally unnessecary expense. If your wife really needs to get out for awhile without kids, hiring a babysitter for a couple of hours once a week would be a whole lot cheaper. I'm always amazed at people having such a tough time getting by on incomes that are 2-3 times the average for a family of four. You make a great salary, but with some frugal living tips put into practice, you would be able to not only save but get rid of those car loans. Even things that everyone seems to think is a normal expense didn't even exsist 50-60 years ago like diapers and wipes not to mention cell phones which some of us survive nicely without. Sounds like your kids are almost (or should be) potty trained otherwise I would recommend cloth diapers that you wash and dry--huge savings over the life of a couple kids and then you have a great supply of rags. Buying wipes is also an unnecessary expense--buy a dozen cheap wash clothes and use them with warm water and liquid soap as needed to wash off bottoms and dirty faces then wash and reuse. Shop yard sales and thrift stores for clothes for those munchkins and the wife can take up sewing too. And yes it is entirely possible for a woman to sew and have kids in the house at the same time (I've seen too many woman say they can't sew until their kids grow up). The idea about taking in another kid or so to babysit for extra money is a good one. Much easier to handle 3-4 kids as they entertain each other than just a couple.