Need help budgeting & prioritizing

[Eastvillgrl]

My husband and I are both finally working at the same time! Current combined income is $220k/year. We live in NYC. Fixed costs such as rent, student loans, childcare, insurance, phones, cable, Internet = $4700/month. We have only 5k in the bank. ( husbands job just started last week). We each have about $150k in 401k plans. We have not started college savings plans yet (kids are 2 and 5). We also want to save up money for a down deposit on a small country house. Where do we even start? How much goes in college funds, retirement funds, emergency savings and country house savings? Thanks in advance!!

[Eagle]

My husband and I are both finally working at the same time! Current combined income is $220k/year. We live in NYC. Fixed costs such as rent, student loans, childcare, insurance, phones, cable, Internet = $4700/month. We have only 5k in the bank. ( husbands job just started last week). We each have about $150k in 401k plans. We have not started college savings plans yet (kids are 2 and 5). We also want to save up money for a down deposit on a small country house. Where do we even start? How much goes in college funds, retirement funds, emergency savings and country house savings? Thanks in advance!!

Welcome! Looks like 2015 is going to be a good year.

You didn't list any debts. Do you have a mortgage? Car payments? Student Loans? Credit card or personal loans?

Also what other investments do you have besides the 401k? Roth IRA? Traditional IRA? Mutual Funds?

Once we get a clearer picture I'm sure you'll get varying advice.

[autoxer]

Where do we even start? How much goes in college funds, retirement funds, emergency savings and country house savings? Thanks in advance!!

You have many competing goals and there is no right or wrong amount to apply to each of them. You need to refine your goals to figure out what to do. (i.e. $100k in 15 years for college fund, $50k in emergency fund, $200k in 20 years for country house, $1M in 20 years for retirement)

You can work backwards from each goal to see how much you need to invest in order to meet it. So if you want $100k in 15 years for college, then you may need to invest ~$400/ month there. I'm assuming a 5% return, but that really depends on how you invest it. Looking at where you want to be in 5 years makes it easier to design a path to get there.

Here's what I would do:

• Take care of the emergency fund first.
• Max out any tax advantaged retirement accounts, because you are going to be in a higher tax bracket.
• Pay off your own student loans before funding your childrens college accounts.
• Make everything automatic, so that as soon as the paycheck hits the bank, the money allocated for all of these goals is moved out of your checking account.
• Learn to live on what's left in the checking account.
• Resist the temptation to inflate your lifestyle with this newfound income.

And cable doesn't have to be a fixed cost.

[snafu]

autoexer put it so well. Right now you have a lot of wishes, to turn them into goals you need a timeline and details. A popular acronym is SMART. Specific, Measurable, Attainable, Relevant, with a Timeline. I too suggest you start with an emergency fund and capture any employer retirement contributions. I'd add paying extra on SLs to go directly to principal to save some cost and get it gone faster.

Pick an average cost from a home you would choose and start a home savings account aiming for 20%. [I'll get flamed... but after Mar 2015, I'd put house $$ into a no fee, low cost Index Mutual Fund if you've 5 or more year to that goal] The children's college fund needs careful study as some have major restrictions. Since it's so long out it can tolerate higher risk investment.

[snafu]

autoexer put it so well. Right now you have a lot of wishes, to turn them into goals you need a timeline and details. A popular acronym is SMART. Specific, Measurable, Attainable, Relevant, Timeline. I too suggest you start with an emergency fund and capture any employer retirement contributions. I'd add paying extra on SLs to go directly to principal to save some cost and get it gone faster.

EF is dependent on stability of employment. Typically, 3-6 months of stripped down, basic costs like rent, utilities, food, transportation, insurance,SLs, CC minimum etc.

Pick an average cost from a home you would choose and start a home savings account aiming for 20%. [I'll get flamed... but after Mar 2015, I'd put house $$ into a no fee, low cost Index Mutual Fund if you've 5 or more year to that goal] The children's college fund needs careful study as some have major restrictions. Since it's so long out it can tolerate higher risk investment.

[Eastvillgrl]

Welcome! Looks like 2015 is going to be a good year.

You didn't list any debts. Do you have a mortgage? Car payments? Student Loans? Credit card or personal loans?

Also what other investments do you have besides the 401k? Roth IRA? Traditional IRA? Mutual Funds?

Once we get a clearer picture I'm sure you'll get varying advice.

Thanks for responding! Here are answers to you questions: as for debts, there is no mortgage (we rent), no car (live in manhattan and don't need one), but husband and i do have 80k combined in student loans. I included those payments in fixed costs about. All of our loans are locked in at 2.5% interest so we don't think it makes sense to make more than minimum payments right now.
As for investments, we don't have other than the 401ks (husband has 100k in 401k and I have 160k). I will also likely be eligible for a state pension if i stay w current job. Husband is 42 and I am 39. We have two kids - 2 and 5 and we haven't started college savings yet. We would also LOVE to be able to get a cheap (250k ?) small country house while the kids are still young (if we did this we'd prob also have to get a car).

Hope that helps & thanks again!!

[Eastvillgrl]

You have many competing goals and there is no right or wrong amount to apply to each of them. You need to refine your goals to figure out what to do. (i.e. $100k in 15 years for college fund, $50k in emergency fund, $200k in 20 years for country house, $1M in 20 years for retirement)

You can work backwards from each goal to see how much you need to invest in order to meet it. So if you want $100k in 15 years for college, then you may need to invest ~$400/ month there. I'm assuming a 5% return, but that really depends on how you invest it. Looking at where you want to be in 5 years makes it easier to design a path to get there.

Here's what I would do:

• Take care of the emergency fund first.
• Max out any tax advantaged retirement accounts, because you are going to be in a higher tax bracket.
• Pay off your own student loans before funding your childrens college accounts.
• Make everything automatic, so that as soon as the paycheck hits the bank, the money allocated for all of these goals is moved out of your checking account.
• Learn to live on what's left in the checking account.
• Resist the temptation to inflate your lifestyle with this newfound income.

And cable doesn't have to be a fixed cost.

Thanks! And I totally agree about cable - but my husband would give up food first!

[Eastvillgrl]

autoexer put it so well. Right now you have a lot of wishes, to turn them into goals you need a timeline and details. A popular acronym is SMART. Specific, Measurable, Attainable, Relevant, Timeline. I too suggest you start with an emergency fund and capture any employer retirement contributions. I'd add paying extra on SLs to go directly to principal to save some cost and get it gone faster.

EF is dependent on stability of employment. Typically, 3-6 months of stripped down, basic costs like rent, utilities, food, transportation, insurance,SLs, CC minimum etc.

Pick an average cost from a home you would choose and start a home savings account aiming for 20%. [I'll get flamed... but after Mar 2015, I'd put house $$ into a no fee, low cost Index Mutual Fund if you've 5 or more year to that goal] The children's college fund needs careful study as some have major restrictions. Since it's so long out it can tolerate higher risk investment.

Thanks. What you say makes sense to me with the exception of paying more on student loans..they are all locked in at 2.5% - so wouldn't it make financial sense to just make minimum payments and any extra money I would have put towards them can be invested elsewhere w a higher return?