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I'm a long-time reader of your posts and they've been helpful. I went from not having a budget at all to saving 20% of our take home pay (after retirement and health insurance).
I know I should continue the path forward, but I'm not sure what it is. I'm also curious about the mistakes I've made a long the way. Here's our profile:
We're an early 30's/late 20's couple with a 4 month old and recently purchased our home. We put 15% down (could have stretched for 20% down and remove the pmi, but that would have left us without much of a cushion during the first few months for repairs/newborn). PITI is 2.2k a month and our take home is 7k (again after retirement and health insurance). We fortunately don't need to pay for daycare right now (grandparents) and save 2k a month. Our contributions to our retirement accounts is at 6% each (max match).
Currently, our 401k's add up to 40k (I was a late starter on this while she was more diligent), emergency cash is 4k. Stocks 5k. 5.5k baby college fund
Where should I continue to allocate money moving forward? Should I allocate more towards emergency cash? If so is there a limit when I should move the emergency allocation to stocks or 401k? If so, what percentage of each should I use?
After that i would say to increase your 401k contribution to try and reach the maximum. Based on your income your 6% match is not going to get you to the IRS limit. Upping your contributions will reduce your taxable income (and therefore your taxes) and will be a smart way to save.
1. 6 months of expenses in the emergency fund
2. Pay down mortgage to the point of eliminating the PMI
3. Contribute up to the level in the 401k that maximizes the match
4. Max out Roths
5. Max out the rest of 401k
Based on your comment that you could have stretched to have 20% down, I am guessing that it would take much to get to that level on step 2 described above.
We personally prefer a years worth of expenses saved up - but 6 months should be the minimum. So, first suggestion is to save enough in your emergency fund to cover that. Once it's fully funded then I would transition to dumping all you can in 401k and any IRAs, maxing out all you can. You can still allocate a portion of course to your baby's college fund account also. I would not be as concerned about the mortgage, you can put some extra towards the payment but, unless you have a high interest rate, the money would work more for you in your 401k/IRA accounts. Do you have any other debts?
Only other debt we have is my car. Hers is paid off. My car has 4 years left at 0% financing. Comes to 300 per month and I intend to keep it another 5 years on top of that.
While it's not debt, we do have some things we'd like to do in the house (over time of course). We'd like to get a new front door, new windows downstairs, and maybe remove a tree or two.
I've explained the budgeting plans to my wife and she has a few different viewpoints that may be worth considering. We agree on 10k in emergency cash by the end of the year and making an extra mortgage payment However, she's a bit hesitant on maxing the 401ks (beyond match) which I kind of agree with. We'd like to enjoy our home and want to attend a wedding in Barbados in April.
Maybe I'm just ignorant to this, but is there that much value in reducing our taxable income? I don't think we'd reach a lower bracket. Again, I'm leaning more towards my ignorance on the subject as to why I'm not seeing the true value.
How long are you going to get free childcare? I ask because it might be smart to go ahead and pay yourself into a separate savings account monthly whatever that cost is. This will allow you to 1. Build up your cash savings 2. Budget appropriately as though you weren't getting services for free. Once you do this you can work a true budget for the family. I'd also suggest you figure out what you and your wife will need in terms of retirement resources. From there you can work backwards to figure what you need to set aside every month. Until you can hit that monthly number without problem do not fund a specific college fund, consider a Roth in you and or your wife's name.
Only other debt we have is my car. Hers is paid off. My car has 4 years left at 0% financing. Comes to 300 per month and I intend to keep it another 5 years on top of that.
While it's not debt, we do have some things we'd like to do in the house (over time of course). We'd like to get a new front door, new windows downstairs, and maybe remove a tree or two.
I've explained the budgeting plans to my wife and she has a few different viewpoints that may be worth considering. We agree on 10k in emergency cash by the end of the year and making an extra mortgage payment However, she's a bit hesitant on maxing the 401ks (beyond match) which I kind of agree with. We'd like to enjoy our home and want to attend a wedding in Barbados in April.
My wife and I got married in Cancun at an all inclusive resort. We stayed a week and it cost us about 3k for our stay, the ceremony, cake, photog and everything. We had about 15 people attend and they all paid their own way. Don't go crazy on this expense, I know it's a once in a lifetime event(for a lot of people it's really not though) as a 20-100k wedding will set you back big time over the course of your life
Quote:
Maybe I'm just ignorant to this, but is there that much value in reducing our taxable income? I don't think we'd reach a lower bracket. Again, I'm leaning more towards my ignorance on the subject as to why I'm not seeing the true value.
Depends on what your income is and other factors that impact your tax liability. You could always fund the 401k up to the match, then Roth and then back to the 401k and check to see if either of you have a Roth 401k option
Maybe I'm just ignorant to this, but is there that much value in reducing our taxable income? I don't think we'd reach a lower bracket. Again, I'm leaning more towards my ignorance on the subject as to why I'm not seeing the true value.
All depends on when you want to retire. If you want to retire at 65+ with a reduced lifestyle then 6% is the way to do go. But at your age and income you could aim to retire significantly younger.
My wife and I got married in Cancun at an all inclusive resort. We stayed a week and it cost us about 3k for our stay, the ceremony, cake, photog and everything. We had about 15 people attend and they all paid their own way. Don't go crazy on this expense, I know it's a once in a lifetime event(for a lot of people it's really not though) as a 20-100k wedding will set you back big time over the course of your life
Oh, we're not the ones getting married. We just think its a pretty good excuse to take a vacation. Most of 2016 was saving, house renovations, preparing for the baby, having the baby, losing sleep . We know we SHOULD take a vacation and it would be nice to go.
Depends on what your income is and other factors that impact your tax liability. You could always fund the 401k up to the match, then Roth and then back to the 401k and check to see if either of you have a Roth 401k option
We'll definitely look into that. We plan on making much more money in our 40s so I believe the Roth does make more sense.
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) as a 20-100k wedding will set you back big time over the course of your life 
. We know we SHOULD take a vacation and it would be nice to go. 
