Help evaluate our financial health

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finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Help evaluate our financial health

Post by finoob » Mon Aug 13, 2018 2:06 pm

I have been a lurker in this community for some time, and really appreciate the valuable advice and support that is freely provided. Hoping to get some feedback on our personal financial situation as it is giving me some anxiety recently.

Details:

Age: 35M, 35F, 1y child
Income: 250K

His:
401K: 170K invested in target date funds
ROTH IRA: 70K invested in FSTVX, FFNOX

Hers:
401k: 185K invested in target date funds
ROTH IRA: 120K in FSTVX, FFNOX

Taxable: 550k in various index funds
529: 8K

Cash: 30K in savings account

Mortage: 4K per month on a 800K house (600K remaining on mortgage)

Expenses:

Now, this is where I am getting the anxiety from. We live in a very HCOL area and daycare is terribly expensive at 3K per month. Looking at our expenses over the past year, we are averaging 12k per month spend.

Question:
1) Can we afford to cut back on retirement savings as we build up an emergency fund?
2) Daycare will continue to cost us for the next 3 years, but should free up some money after that. Is it okay to pause savings (401k/roth) and aggressive investments until then? I am planning to let the dividends automatically reinvest.

Please provide your honest opinion on how healthy/or not our finances are.

magicrat
Posts: 463
Joined: Sat Nov 29, 2014 7:04 pm

Re: Help evaluate our financial health

Post by magicrat » Mon Aug 13, 2018 3:03 pm

1. Is the $30k cash your emergency fund? If yes, I wouldn't cut back on retirement savings. If no, what is it for?
2. Looks like you are spending $60k/yr not including daycare and the mortgage. What are you spending this on? Seems like a lot and I would sharpen the pencil there before I reduce savings.

finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Re: Help evaluate our financial health

Post by finoob » Mon Aug 13, 2018 3:06 pm

magicrat wrote:
Mon Aug 13, 2018 3:03 pm
1. Is the $30k cash your emergency fund? If yes, I wouldn't cut back on retirement savings. If no, what is it for?
Yes, I do feel it is quite less considering our average monthly expenses. So I am planning to build it up to at least 80-100K or so in the next year.
magicrat wrote:
Mon Aug 13, 2018 3:03 pm
2. Looks like you are spending $60k/yr not including daycare and the mortgage. What are you spending this on? Seems like a lot and I would sharpen the pencil there before I reduce savings.
We have had to spend quite a bit this year on home maintenance. Plus, due to the baby, we have been eating out a lot more, and have home cleaning services, lawn maintenance etc. which all have added up.

magicrat
Posts: 463
Joined: Sat Nov 29, 2014 7:04 pm

Re: Help evaluate our financial health

Post by magicrat » Mon Aug 13, 2018 3:11 pm

finoob wrote:
Mon Aug 13, 2018 3:06 pm
magicrat wrote:
Mon Aug 13, 2018 3:03 pm
1. Is the $30k cash your emergency fund? If yes, I wouldn't cut back on retirement savings. If no, what is it for?
Yes, I do feel it is quite less considering our average monthly expenses. So I am planning to build it up to at least 80-100K or so in the next year.
magicrat wrote:
Mon Aug 13, 2018 3:03 pm
2. Looks like you are spending $60k/yr not including daycare and the mortgage. What are you spending this on? Seems like a lot and I would sharpen the pencil there before I reduce savings.
We have had to spend quite a bit this year on home maintenance. Plus, due to the baby, we have been eating out a lot more, and have home cleaning services, lawn maintenance etc. which all have added up.
I personally think an $80-100k emergency fund is way too much for you. You are both working. The odds of both of you losing your job at the same time are likely low. If one of you loses your job, you can immediately recoup the $3k in daycare, and also cut other expenses to the bone temporarily. Beyond that you can sell some of your taxable account if you absolutely need to. That's a lot of cash sitting around earning you negative real returns.

Will there be more home maintenance? If not, what does that bring your expenses down to? You may want to edit your post with more details on how much you are saving and where, and how much you are spending and on what. We can give more detailed feedback. However, I think it is a mistake to not save for retirement while also eating out and outsourcing.

finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Re: Help evaluate our financial health

Post by finoob » Mon Aug 13, 2018 3:16 pm

Here is a detailed breakdown of our expenses this year:

Mortgages -$28,777
Child/Dependent -$14,624
General Merchandise -$6,312
Gifts -$4,183
Groceries -$3,846
Restaurants -$2,996
Insurance -$2,749
Home Maintenance -$2,650
Utilities -$2,576
Taxes -$1,882
Cable/Satellite -$1,868
Clothing/Shoes -$1,738
ATM/Cash -$1,380
Automotive -$1,258
Gasoline/Fuel -$1,091
Other Expenses -$1,067
Travel -$1,035

User avatar
Peter Foley
Posts: 4582
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Help evaluate our financial health

Post by Peter Foley » Mon Aug 13, 2018 3:24 pm

In terms of savings you are off to a really, really good start. Kudos for funding both a tax deferred and a Roth for each of you.

At your income level, if you want to back off on retirement savings a bit, I might forego Roth contributions for a couple of years.

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Help evaluate our financial health

Post by mega317 » Mon Aug 13, 2018 3:32 pm

Welcome to the forum. I have a couple of thoughts.

You have a large taxable account. I would definitely continue to max retirement contributions and spend down the taxable account if you need to. How did you save up that much anyway?

I wouldn't bank on 3k magically appearing in your budget after daycare. There will be plenty of other expenses that come with older children. I have lived in several HCOL places and daycare for 1 child never topped 2k. And toddlers are cheaper than infants. Maybe there are other options for you?

Sorry but unless your work schedules are off the charts bonkers, having one child does not necessitate paying for home cleaning, lawn maintenance, and food preparation. You can pretty well do all of those things about 1-2 hours a week each. Worst-case scenario you don't have 30 minutes after baby goes to bed to cook a large batch of food or scrub the bathroom? But how much could all of that be costing you a month, 1k total?

Ok looking at your new post I have a couple of questions on your expenses.
1. Daycare isn't listed?
2. What goes into "child/dependent"?
3. How does "general merchandise" differ from "other expenses" and "ATM/cash"?
4. How does utilities come out to 200 bucks a month without cable?
5. What is "taxes"? It's certainly not income.

finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Re: Help evaluate our financial health

Post by finoob » Mon Aug 13, 2018 4:55 pm

mega317 wrote:
Mon Aug 13, 2018 3:32 pm
Ok looking at your new post I have a couple of questions on your expenses.
1. Daycare isn't listed?
It goes under child/dependent. He has only been in daycare for a few months this year as we had help prior to that.
mega317 wrote:
Mon Aug 13, 2018 3:32 pm
3. How does "general merchandise" differ from "other expenses" and "ATM/cash"?
These are mainly Amazon/Costco purchases.
mega317 wrote:
Mon Aug 13, 2018 3:32 pm
4. How does utilities come out to 200 bucks a month without cable?
Water/trash, gas, electricity is quite expensive for this older home. Phone is also classified under Cable/Satellite.
mega317 wrote:
Mon Aug 13, 2018 3:32 pm
5. What is "taxes"? It's certainly not income.
This is extra tax that we had to pay during filing on top of what was deducted from salary.

N10sive
Posts: 593
Joined: Thu May 05, 2016 6:22 pm

Re: Help evaluate our financial health

Post by N10sive » Mon Aug 13, 2018 5:41 pm

I think your doing great on savings. But I think to fix your anxiety you could reduce your spending. And not sure if you need to build up that much more EF.

Does your general merchandise category include all home items like soap, detergent etc as I see you mention its mostly costco/amazon purchases? If your groceries/restaurants are mostly food your spending roughly 1400 a month(im counting august). That is quite a bit for a family of 3. I also don't understand you mentioning eating out more since you have a kid. Do you mean take out? Or expensive caviar delivery? I wouldn't go out to eat with a 1 year old that often. Seems like it would be a big pain.

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Help evaluate our financial health

Post by mega317 » Mon Aug 13, 2018 6:19 pm

I'd like to see your Amazon/Costco lines broken out into their components.

I do the same thing, I have a "Target" line in my expense tracker because I don't feel like saving receipts and certainly am not going to ask my wife to save receipts to enter them in a spreadsheet later. If I'm guessing it would probably be about 50% what I usually put under grocery, 25% what I call small house things like soap, plastic storage bins, those little pads that go on the feet of your chairs to protect the floor, and 25% bullcrap we don't need--throw pillows, a second frying pan the same size as one we have that works fine, a cupholder that attaches to the stroller, some cool-weather baby clothes (it's 90 degrees in August in SoCal but just in case she stops growing for 6 months). I do break out my amazon purchases, because it's easy to do, and there's lots of bullcrap there too.

Something to think about if you're stressed about money.

finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Re: Help evaluate our financial health

Post by finoob » Tue Aug 14, 2018 12:12 pm

Thanks all who responded. Yes, I am aware that we need to cut back on spending. I would like to get some thoughts on whether our finances look in okay shape to pause retirement contributions for a while as we sort out the monthly expenditure problem. Do we otherwise look healthy?

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Help evaluate our financial health

Post by mega317 » Tue Aug 14, 2018 12:45 pm

As I said upthread, I would NOT pause your retirement contributions but rather spend down the taxable account.

finoob
Posts: 6
Joined: Mon Aug 13, 2018 1:34 pm

Re: Help evaluate our financial health

Post by finoob » Tue Aug 14, 2018 12:52 pm

mega317 wrote:
Tue Aug 14, 2018 12:45 pm
As I said upthread, I would NOT pause your retirement contributions but rather spend down the taxable account.
The taxable account is 90% in stock index funds. Is it a good idea/time to sell that? We have maxed out 401k for the year, and plan to contribute the max next year as well. The after-tax ROTH IRA contribution is what I am referring to.

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Help evaluate our financial health

Post by mega317 » Tue Aug 14, 2018 2:07 pm

Well the idea is that you would sell in taxable and buy the same thing right back in the Roth so your portfolio doesn't change. Taxes are a consideration but I wouldn't be so averse to capital gains taxes that you eschew tax-advantaged space. What's the other 10%, you could use that?

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