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April 02, 2013

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While I commend you for avoiding debt, I am greatly concerned by your low income. If your husband will be making the same as you, your family income still puts you at the poverty level. When the baby comes, your expenses will go up. Further, you are missing things in your budget, such as medical expenses, life insurance, clothes (you said you shop thrift stores, but it is not in your numbers). I hope your husband can find ways of making more at his job, or you will need to consider delivering pizza when your husband can watch the baby, or some other part time job for either of you.

As for a home, I don't think you will be able to afford it. Property taxes, utilities, and maintenance will push your numbers way beyond your current level.

Like I said, it is great that you have avoided debt, but you both Ned to put your heads together on greatly increasing your income now that the baby is on the way.

I have to agree with JimL above. You don't mention a lot of expenses, such as your tuition, what you were until recently paying for his school, as well as your healthcare expenses (congrats on your new addition!).

But yes, while I believe it's a great thing that you're debt free, you are not financially prepared to own a home. Foreclosed homes are hit and miss... and it will take a lot longer to secure one than a regular house, so even if you start looking this time next year, you won't be moving in for at least another 6 months, most likely. I think your best course of action is to stay in your parents' home with your grandmother (built in childcare!!!) for AS LONG AS POSSIBLE. Maybe until your baby girl is in school all day. That's a long time, I know, but you won't have had to pay for childcare while both you and your husband work full time, potentially doubling your current income or by that time, getting it up around 3K per month. That would leave you a good chunk more than $400 (I'd limit it to maybe $750) for your mortgage payment+taxes+insurance. Wherever you live, your housing payment shouldn't be more than 25% of your income... you're already dangerously high!

Also remember that at this point in your life, it's probably more important to be saving for your retirement (interest and time, baby!) instead of owning a home. Especially when you're getting such a deal in the place you're in.

First of all, congrats on the new addition!

I'm afraid you're underestimating the cost of a new baby. Perhaps you don't recall since it's been 5 years, but I would not expect that you'll be able to contribute much to savings, as the baby will require food/medical/diapers. That may put buying a house of reach for quite some time.

It will be great when you have 2 incomes, but your incomes are so low. It doesn't sound like you're close to finishing school yet, as you haven't picked a major, so it will be some time before you're earning substantially. Your husband needs to follow FMF's advice and do something he likes (not necessarily loves). At $1100/mo, that's... approx $10/hr? Some job is better than no job, but I wonder if he can do better.

Good job on the retirement savings. Don't stop that for house downpayment.

Congrats on the growing family! I agree about increasing income being the most pressing need. The most careful money management is not much use when there's not enough money to manage. Since you mentioned perhaps starting a business someday you sound like you've got some entrepreneurial spirit - why not start now? Find something you can make and sell at a profit, or a skill you can market (tutoring, lawnmowing, babysitting, handyman jobs, special occasion photograpy, etc, the list is only limited by your imaginations) while at the same time doing whatever your husband or you can do to acquire skills that will allow you to move up in employment opportunities. There IS nothing demeaning about delivering pizzas or working security or any other honest work, but unfortunately they don't allow for much upward movement toward higher paying jobs in the same company. Make sure the the classes you are each taking include some that gain in marketable skills.
You have a great attitude and a good understanding of finances for your age, it just seems to me that all you are lacking is adequate income. The good news is you sound smart and motivated, you'll do fine!

I think you're doing a good job to manage your money on such a low income.

But theres a lot of financial details missing there. What about health insurance? (thats a *must*, youre pregnant...) Who pays for your utilities? Maybe there are missing details here that explain some of those things. Maybe you do have health insurance at work and your income is after tax/deductions?

I do not think you should be thinking of buying a house until you can actually afford one. Your income level is not enough to afford a house. When you have a 2nd child you'll have more expenses. There should be no rush to buy a house especially given your low income. A $50k foreclosure is cheap but what about all the other bills? I see nothing about electric, gas, water, sewer, garbage, repairs, property tax, house insurance, etc. That all adds up considerably. Even very cheap bills for a house are going to total a few hundred and thats on top of your mortgage payment. Its not unusual to have heat bills of $200-300 or AC bills of $100-200 a month in the coldest/hottest months. I see no utilites on your budget, are mom & dad or grandma paying those?

Do either of your 401k's have a match? If not then I absolutely would not be saving in a 401k. Your income is low enough that you're paying $0 taxes (in fact the fed government would be giving you a check for earned income tax credit and refundable child tax credit). As you're in the 0% tax bracket you should absolutely be using the Roth IRA as your primary savings vehicle for any/all savings. THe only exception there is if your 401ks have a match. A 401k with a match is a #1 priority generally because thats free money.

You're attending school online? How is that being paid for?
If by chance you are going to a for profit online school like Phoenix or Kaplan or similar then I would strongly recommend you reconsider and stop. Those schools are far too expensive for the quality of education. If you are in one of those schools then I'd encourage you to look instead at local community college or a public university. Many public schools have online options now. Hopefully youre taking online classes at a cheap public school, but the for profit schools are far too common and basically predatory so I want to discourage people going to them and wasting money.

Again I think your'e doing a great job with a low income. But I just don't want you to get in over your head with a house that you can't afford. You do not need to own a house yet. THat can wait.


Side topic : Does your personal car insurance cover delivering pizza? Or does the pizza company insure your car for their deliveries? The car insurance coverage is one potential gap or 'gotcha' with pizza delivery. As far as I have seen its the pizza delivery persons responsibility to cover the insurance and your own car insurance may not want to cover it. So I suspect that its probably fairly common for delivery people to be effectively going without insurance coverage for their commercial delivery.

Suggest part-time job for side income

I wish I could come up with some encouraging comments but other than suggesting that you apply for food stamps I don't have anything to add to what jim and JimL have already stated. Without the generosity of your parents you would be in big trouble. I also don't see health insurance listed in your budget and a temporary part time job certainly doesn't provide it as a benefit. I just wonder what the total cost of having a baby delivered is these days.

You are doing a fantastic job for a young couple. What a lot of the people commenting here don't understand is that you have done exactly what young people should do, avoid debt and control your expenses. Clearly, increasing your income should be a goal, but I can tell from the fact that you were both in school that it is. Stay out of debt, keep your expenses low, and work on your income as you can and you will be very successful. You have solved half of the financial equation of wealth building, keep up the good work.

Re the health insurance and food stamps: I wonder if perhaps they qualify for Medicaid and that is what is covering their medical expenses? If so, that explains why insurance and worries about birth costs are not mentioned. However, I did wonder about the food stamps until I considered that for that perhaps total household income might disqualify them, if grandmother has income (and I assume she must have at least Social Security). Just guessing, though.

What an encouraging post! You have figured out so much and are in better shape than many of my friends with 10X your income. My grandparents never made more than an hourly wage (though their wages did get fairly high) but retired with $1MM in savings - and they only held their savings in CDs. They were very thrifty and avoided debt their whole lives (they bought a modest home with cash). They retired in their early 60s and lived over 20 more years on their earnings. When they passed they left a lot of cash to their kids. They are some of my financial heroes. You remind me of them. Keep it up and good luck!

For me, one thing that stood out is your post sounded lot happier than some of the typical posts we find here.

I double checked your income and went WOW!. You are an inspiration of how to be happy with what you have while seriously trying to get better!

Jane, you're right that that may have Medicaid. Medicaid would cover the child and pregnant mother based on their income level. Not sure on Dad, but I think he would be eligible in about half of the 50 states. And, if I figured it right, I believe they'd qualify for up to $480 in food stamps per month. However I'm not sure if they'd pass an asset test for food stamps, thats a detail on eligibility that I've always been confused on. (i.e. money in the bank may disqualify them)
Thats both in addition to the ~$4000 or so could may be getting via earned income & child tax credits.


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