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Old 01-03-2014, 10:26 AM
 
151 posts, read 214,395 times
Reputation: 188

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My wife and I are blessed and have stable jobs pulling in $175k annually, while i know this put us in the top 20% bracket we can't seem to create a rainy day fund two years after buying our house. We also live in Southern CA, a very expensive place. We have a 2 year old daughter.

After not contributing much to 401k early in our careers, we now max out on 401k contributions to catch up. Both of us are 39 year old and have a combined 401k balance of $250k. We will each have a small pension if we keep working at our current companies where we have been for over 10 years but that is not something I can count on.

Here are our monthly expenses:
Mortgage Payment: $2350 [I decided to go with a 15 year loan] We put 20% down and borrowed $340k.
Property Tax: $500
Home Insurance and Maintenance: $350
Car Payment: $450 [just a Prius]
Gasoline: $350
Car Insurance and Maintenance: $300
Phones: $100
Internet: $40
Foods/Eating out/Occasional Party: $500
Childcare: $800
Baby foods/clothes/toys/diapers/stuffs/swimming lessons: $300
Water: $100
Electricity/Gas: $80
Clothes/Shoes/Household miscs: $300
Healthcare copay/soaps shampoo/tooth brush/vitamins....miscs: $100
Entertainment/Electronics/Netflix/TV/Bluray/Movies: $150
Gifts for friends/family, wedding, birthday....: $200

Total cost is about $7000 month. Our take home after taxes/401k/insurace cost is around $8000. We can only save $1000/month cash. It is so hard to save because most of it are fixed costs. We don't even have cable TV nor do we take fancy vacations. What can you recommend? Sometimes we wonder how do people make it with minimum wages.

Many Thanks,
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Old 01-03-2014, 11:53 AM
 
6,013 posts, read 2,699,091 times
Reputation: 5215
Stuff and Miscellaneous.......ha ha.........start there. Track to the penny everything spent for a few weeks then start cutting it.

Perhaps if you changed your goal to emergency fund which turns into childs education fund after emergency cushion is met you might be more motivated. I know its fun to buy toys for kids, but a two year old hardly knows the difference better to buy them a $5 toy and put $15 in their college fund than a $20 toy. Same with clothes.

Make sure every raise, bonus or windfall of any kind goes into savings.

Unless the $200 gift money a month is going to support a family member you have some commitment to, I would shave the gift money way back.

Can you raise the deductibles on your insurance? Sometimes calling around will get you a better price.

Tackle the food/entertainment costs. these are not fixed costs. They will require sacrifice. Its easier to make that sacrifice if you know your goal and how long it will take. So if its 6 months, 9 months, 1 yr, whatever of saying we can only cook at home or only eat out once a week....much easier to do. In the long run easier than stressing forever about not having a cushion.
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Old 01-03-2014, 12:28 PM
 
Location: Boise, ID
8,011 posts, read 22,511,601 times
Reputation: 9213
Quote:
Originally Posted by MattNguyen View Post
Here are our monthly expenses:
Mortgage Payment: $2350 [I decided to go with a 15 year loan] We put 20% down and borrowed $340k. Nothing you can do about this, you are an expensive area, and you were smart to do a 15 year if you could afford it. But incidentally, you wondered about how other people do it...this is more than my total monthly expenses across all categories
Property Tax: $500 Also is what it is, this is more than 5x what mine is each month
Home Insurance and Maintenance: $350 Again, is what it is, that is almost an entire year for me
Car Payment: $450 [just a Prius] Hopefully you will have this paid off soon, I've never had a car payment over $250, but I've always wanted a hybrid/electric car, so can't fault you for that
Gasoline: $350 Still? Even with the Prius? Hubby and I combined spend $100/month on fuel and our cars only get around 30mpg. Any room for improvement there?
Car Insurance and Maintenance: $300 This is a lot too, hubby and I, for 2 cars, pay $75 a month for insurance (one full coverage, one liability), maintenance is minimal even though neither car is new
Phones: $100 For 2, this is not horrible
Internet: $40 Not bad
Foods/Eating out/Occasional Party: $500 Assuming this includes groceries for 3 people, this isn't awful. Not great, but not bad
Childcare: $800 Holy cow, but I know child care is expensive. This is probably reasonable if you both work and don't have a family member to babysit. (This is more than my mortgage.)
Baby foods/clothes/toys/diapers/stuffs/swimming lessons: $300 I don't have kids, so someone else will have to say if this is normal. I'm guessing you could do better here
Water: $100 Is that normal for your area? I pay $20ish in the winter and $40ish in the summer
Electricity/Gas: $80 That's pretty good if that is your average year-round
Clothes/Shoes/Household miscs: $300 This seems like there should be room for improvement considering you included baby clothes above. I spend less than $100 a month on this category.
Healthcare copay/soaps shampoo/tooth brush/vitamins....miscs: $100 Also room for improvement. I assumed most of this was included in the groceries category above to reach $500, or in Household Misc above to reach $300.
Entertainment/Electronics/Netflix/TV/Bluray/Movies: $150 Lots of room for improvement. Netflix is what? $10ish a month. A movie out each month for 2 is $25ish.
Gifts for friends/family, wedding, birthday....: $200 That's more than I spend on gifts in a year. Lots of room for improvement here.

Total cost is about $7000 month. Our take home after taxes/401k/insurace cost is around $8000. We can only save $1000/month cash. It is so hard to save because most of it are fixed costs. We don't even have cable TV nor do we take fancy vacations. What can you recommend? Sometimes we wonder how do people make it with minimum wages.

Many Thanks,
In the end, it is hard to say you aren't doing well, since you are maxing two 401ks and still saving another $1000 each month, but I do see your concern. If your expenses are $7000 a month, you need to save up at least $42k to start with (6 months' worth), and at $1000 a month, that will take more than 3 years.

If you are going to cut, it is mostly going to be in your last 4 categories, and groceries. Even if you can cut by just another $500 overall, that means you will reach $42k in 28 months instead of 42.

You are in a high cost of living area, so you are right that most of these you can't do anything about. If you were really concerned and wanted to build the safety net fast, the only thing I can see to do is to cut the 401k contribution. You are saving what, $35k a year in there. If you cut that to $25k a year and put the other $10k in your emergency fund, you'd reach $42k pretty dang quick. I wouldn't recommend that though, since then you have missed that opportunity to save.

I'd focus on trying to cut $500 out of your entertainment/misc budget and go for $1500 a month. 28 months to build a 6 month efund isn't terrible.

Question, if you bought your house 2 years ago, and you've been saving $1000 a month, do you have $24k saved up now? If so, you are only looking at another 18 months to get to $42k, even at $1000 a month. That's not terrible. If you don't have $24k saved up now, you need to take a long hard look at why.
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Old 01-03-2014, 12:52 PM
 
Location: southwestern PA
20,426 posts, read 35,718,901 times
Reputation: 38829
Quote:
Originally Posted by MattNguyen View Post
Car Payment: $450 [just a Prius]
Gasoline: $350
Car Insurance and Maintenance: $300
These numbers have got to be wrong!
$1100 a month for one Prius? That's over 13 grand every year!

Quote:
Originally Posted by MattNguyen View Post
Foods/Eating out/Occasional Party: $500
Does this include all your groceries?
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Old 01-03-2014, 01:52 PM
 
3,205 posts, read 2,813,690 times
Reputation: 9265
IMO, a 2 yo does not need swimming lessons or other paid lessons like sports or gymnastics outside of daycare if that is needed. Lessons can be picked up when the kids are older.

I would have been tempted to go with a 30 year mortgage and save the difference if I felt it made it made monthly living expenses too tight. I don't have your costs of living either. I also understand wanting to get that paid off ASAP.

I would significantly reduce your entertainment costs and find free things to do to replace them. You could pack picnic lunches and visit the nearby parks and playgrounds with your child and do more outdoor type stuff. You can find all kinds of recipes on the internet, if you'd like to try some at home gourmet cooking. There is quite a bit out there to do depending upon your interests.

$200 a month for gifts seems like a lot. If these gifts are for family members and you know specific dates of when needed, maybe you could watch for deals and buy stuff ahead so you don't spend as much or just buy smaller gifts. If, you are buying everyone $50 gifts, then cut that to $20-$30 each. When my kids were little, I asked for useful items like clothes instead of toys for my kids. It cut down on my clothing needs for them. My kids had way more toys at their 1st birthday than I ever did as a child.
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Old 01-03-2014, 05:11 PM
 
Location: Eastern Washington
13,391 posts, read 42,724,996 times
Reputation: 11475
Quote:
Originally Posted by MattNguyen View Post
My wife and I are blessed and have stable jobs pulling in $175k annually, while i know this put us in the top 20% bracket we can't seem to create a rainy day fund two years after buying our house. We also live in Southern CA, a very expensive place. We have a 2 year old daughter.

After not contributing much to 401k early in our careers, we now max out on 401k contributions to catch up. Both of us are 39 year old and have a combined 401k balance of $250k. We will each have a small pension if we keep working at our current companies where we have been for over 10 years but that is not something I can count on.

Here are our monthly expenses:
Mortgage Payment: $2350 [I decided to go with a 15 year loan] We put 20% down and borrowed $340k.
Property Tax: $500
Home Insurance and Maintenance: $350
Car Payment: $450 [just a Prius]
Gasoline: $350
Car Insurance and Maintenance: $300
Phones: $100
Internet: $40
Foods/Eating out/Occasional Party: $500
Childcare: $800
Baby foods/clothes/toys/diapers/stuffs/swimming lessons: $300
Water: $100
Electricity/Gas: $80
Clothes/Shoes/Household miscs: $300
Healthcare copay/soaps shampoo/tooth brush/vitamins....miscs: $100
Entertainment/Electronics/Netflix/TV/Bluray/Movies: $150
Gifts for friends/family, wedding, birthday....: $200

Total cost is about $7000 month. Our take home after taxes/401k/insurace cost is around $8000. We can only save $1000/month cash. It is so hard to save because most of it are fixed costs. We don't even have cable TV nor do we take fancy vacations. What can you recommend? Sometimes we wonder how do people make it with minimum wages.

Many Thanks,
You are burning $350 worth of gas in a Prius per month? Are you using it for a taxi?

Seriously, you are house poor, and the kids are eating you out of house and home on top of that.

$500 worth of eating out and $300 worth of clothes per month seem high too.

If either of you lose a job, you are both toast.
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Old 01-03-2014, 05:29 PM
 
Location: SoCal desert
8,095 posts, read 12,743,355 times
Reputation: 14832
You have to decide what is important. Rainy day fund, or keep spending? There's nothing you can do about your house payment or taxes ... but think how nice it's going to feel in 13 years
My thoughts below in red.

Quote:
Originally Posted by MattNguyen View Post
My wife and I are blessed and have stable jobs pulling in $175k annually, while i know this put us in the top 20% bracket we can't seem to create a rainy day fund two years after buying our house. We also live in Southern CA, a very expensive place. We have a 2 year old daughter.

After not contributing much to 401k early in our careers, we now max out on 401k contributions to catch up. Both of us are 39 year old and have a combined 401k balance of $250k. We will each have a small pension if we keep working at our current companies where we have been for over 10 years but that is not something I can count on.

Here are our monthly expenses:
Mortgage Payment: $2350 [I decided to go with a 15 year loan] We put 20% down and borrowed $340k.
Property Tax: $500
Home Insurance and Maintenance: $350
Time to shop around and get other bids on insurance.
Car Payment: $450 [just a Prius]
Gasoline: $350
I'm guessing you have 2 cars. But $350 is way too high.
Car Insurance and Maintenance: $300
Phones: $100
Internet: $40
Foods/Eating out/Occasional Party: $500
Cut the eating out. Cut the parties.
Childcare: $800
If this is 5 days a week, this is actually low for licensed toddler childcare in California. As soon as she turns 3, you should get the lower preschool rate.
Baby foods/clothes/toys/diapers/stuffs/swimming lessons: $300
A 2 year old still on baby food? Cut the toys, 'stuff', and swimming lessons.
Water: $100
Electricity/Gas: $80
Clothes/Shoes/Household miscs: $300
Healthcare copay/soaps shampoo/tooth brush/vitamins....miscs: $100
Entertainment/Electronics/Netflix/TV/Bluray/Movies: $150
Cut this to the bone.
Gifts for friends/family, wedding, birthday....: $200
That's about what I spend in a year. Cut it.
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Old 01-03-2014, 05:39 PM
 
151 posts, read 214,395 times
Reputation: 188
I wasn't clear but my wife drives a CR-V and $300 gas is for both of us. I do have a long commute, hence the need for the Prius. $500 is $400 grocery + $100 eating out.

My wife likes to shop for clothes and sometimes handbags so $300/month is high but I am unable to convince her to reduce it because my sisters and aunts all like to shop and it has a really bad influence on the wife.

Yes, I will try to reduce the entertainment budget, gift giving budget, clothing budget, toy budget and home maintenance budget. Actually after buying the house, I painted the house myself and tiled about 800 sq ft [back breaking] and saved a bunch of money.

Yes, either of us losing a job is bad that is why I need to build up a rainy day fund. Currently we have about $25K. I would like to have a one year rainy day fund at $80k and if I can get there in two years I would be very happy. One scenario is that we both lose our jobs. The other is one of us lose our job. I may need to reduce my wife's 401K contribution to half. Currently my plan is at the worst case, we sell house and rent. We have about $200k in home equity now.

My worst fear is losing my job when I am in the 50s and still have a mortgage. So if everything goes according to plan, we will pay off the house when we are 52 and hopefully have $1 mil in 401k by then.
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Old 01-03-2014, 05:56 PM
 
Location: Aiken, South Carolina, US of A
1,752 posts, read 3,622,157 times
Reputation: 3521
Matt,
Sell your house, take that 200K aproximately that you will end up with and move alot closer to your work.
If you can't buy a house cash with the 200K, rent a nice cheaper apartment and stash the money away til you can buy a home all cash near your job.
Sounds crazy, but I think the sooner you downsize your home, have no mortgage now, you can really put money away for your future and start to live a little bit.
I can't understand how you feed your family every month on only 500 a month.
I don't get it. You deserve an award.
You are doing everything right, but the mortgage is killing you.
You are becoming impatient and want to stash more cash away, so get rid of
the house, downsize somehow.
See what it feels like to not worry about money at all.
Good luck to you.
P.S. Homes aren't the investment that they use to be, and will never be
again. So don't put too much into them, it's just the place you live, not
an income producing property.
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Old 01-03-2014, 06:48 PM
 
Location: SoCal desert
8,095 posts, read 12,743,355 times
Reputation: 14832
Quote:
Originally Posted by MattNguyen View Post

My wife likes to shop for clothes and sometimes handbags so $300/month is high but I am unable to convince her to reduce it because my sisters and aunts all like to shop and it has a really bad influence on the wife.


Your efforts will be worth nothing if you and she don't see eye to eye on what needs to be done. Does she consider the rainy day fund important?
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