Thank you everyone for your thoughtful replies! I've answered the questions below along with my action plan.
$460 is at high end of possible now due to not wanting to cut expense, saving, and giving goals.
We can try to negotiate the sale price down to $440 to put the ratio more into the comfort zone.
Our expenses appear higher than actual outflows due to counting funds to replace depreciating assets as expenses. But net/gross outflows (inc.tax,etc.) are around $100k with $40-60k going to various savings each year (efund,retirement,goals,etc.).
Also, we don’t include bonus in monthly budget. Typically put the bonus balance in savings after % reductions for tax, 401k for matching, and giving.
I can continue to max 401k by simply “paying” into my depreciating asset maintenance fund from the bonus instead of monthly. Seems ‘riskier’ as I try not to rely on the bonus for budgeting… but I’ve never not gotten it or had the value change much, so….
If we can’t get the house for $440k, we can work on both sides of the housing expense ratio. E.g. dedicate more savings to down payment & efund and increase income.
Is there something in between the current house SQ FT / Price and the new one you are looking at?
- Checked sold in last 1 yr in desired are. Few in sweet spot of commute and best school
~350k would be a better place if it keeps you from reducing 401k/Roth.
- have not seen any $350 that meet size, layout, and location needs
lowest seen was $400k for much older and a bit smaller
That won't be $55k after selling
Have you determined taxes on a larger house?
- Yes, factored into calculations already.
tell your wife you can’t afford it and keep living in the small house.
Wife should return to work and help save for larger home.
If wife plans to return to work you could rework your budget and (most likely) easily afford this change. Until then I'd consider waiting to make the move. Currently, it will take some serious budgeting to meet all your financial goals with this change.
What is the chance that you move now and it turns out that the location is not the best after your wife gets a job?
- very low due to location only a few miles from current and dense job opportunities for wife’s specialty
if you have any more kids that could change your finances and delay your wife from being able to go back to work.
Why are so many wives not working when they could be contributing to income for betterment of the family situation down the road.
- When choosing between continued full time work, completing a terminal degree, and precious experience early years with kids before school - chose latter two
the plan you have to lower PITI there is only a $400/month difference. That doesn't even max out one Roth, let alone return to your usual tax advantaged maxing
Paying down the PITI when your interest rate is so low doesn't make sense to me. That money would be better off growing in a tax-deferred account,
- Understood. In order to improve the housing expense ratio, recommendation is to increase income before lowering cutting retirement to reduce PITI expenses further.
Or is the whole cut in savings just a result of some arbitrary plan to lower the principal on the loan?
- Absolutely. Wasn’t comfortable with the change in living expenses as a percent of gross cash flows (see chart)
what you will have to give up to make it work.
- College savings targets, Retirement savings targets and misc. savings.
"You can do anything you want, but not everything you want."
I think you can afford the house if you are willing to cut back on some other spending and not the 401k
In your likely tax bracket giving up the 401k contributions would be one of the last things I would give up. You can likely do Roth conversions later on so giving up the Roth contributions would not be something I would be concerned about.
- Good Point. We could accept risk of moving maintenance fund cash flows to be funded from bonus only, which frees up monthly cash to max 401k
If you want to buy the house, keep saving the 33K per year and cut your expense elsewhere. Your annual expense level is incredible even with the cheaper house. You could afford the house if you cut 18K of expense elsewhere
- Yes can keep most retirement savings if bonus funds maintenance fund, $2k/12k IRA, and $2k savings
How much is your annual expense now? It is probably 80K to 100K per year.
- yes, 100k+ of gross (e.g. inc. all tax etc)
Is your goal is to buy/feed the house and send the kids to college on a student loan? That happened to many of my peers.
But if IL comes, will they need assistance?
- Now no. Potentially in 5-10 yrs?