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January 27, 2014

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Congrats on having your daughter, a steady safe job and been on the same page financially. I will say keep it up but there is definitely room for improvement. In fact, I can find you extra 400$-500$ from your budget and possibly more if you are serious about having a second child. Have you started a college savings for the first child? Wouldn’t you be glad you gave your daughter and possibly the second one a head start in life by helping them pay for college rather students loans or worst giving their college away as birthday gift every month? It’s the little success that leads to huge success. Am sure you know how it feels to not have a student loan.
Why do you need a home phone when you both have 2 cells phones? Do you have a nanny at home or grandparents? Do without the home phone and you can save at least $50. Yes your cell phone is high and you are locked into a contract. But go back and look at the plans you have, I am sure you can downgrade to a lower monthly bill by choosing a different plan after you go through your past months bills to see what you are averaging in minutes, messages and data. We too were in this situation and slowly reduced our plan until we got out of the contract. Now we pay less than $100 for even more and better services than we did 2 years ago. Savings of about 20-40$. Why do you need life insurance on your daughter? Do you currently rely on her income? What type of life insurance do you have, term or whole life or annuities? You should just get term life policies for 20-30 years. Even if you decide to get a $1,000,000 policy for each of you, you won’t pay more than $40 per person with your age. But what you really need is 20-25x your yearly expenses. Savings of about $250-280. What type of gifts are you buying? You mean there is a birthday every month? Look at it this way, will you still be able to afford $80 when you lose your job or don’t have a house to live in? Take care of your emergency fund first, then you can start buying gifts or better still, if you direct $50 to your daughters college savings, do you know how much she would have 18years down the road ?Savings of $50. You really need more money in emergency fund especially when you move 2-3 years down the road and for some reason can’t sell the house. Total savings without digging deeper of about $400.

I will also state that the life insurance payments seems out of whack for two young adults and can be modified if all you are looking for is salary replacement if one of you passes. As mentioned for both of you a total of about $80 a month should get you each covered with a 20-30 year term policy for a $1M or more. You self insure for the kids via having a large emergency fund (e.g. 6 months expenses).

With respect to the cell phones, you gave yourself the answer in that you will save more money breaking the plan in the long run. Take that first credit line payoff and use $600 of the thousand to make the switch and then add the savings difference in the phone to monthly savings to recoupe.

Groceries for two people at $550 a month, that's a lot IMHO for two adults and a baby where you've included the baby food in with the childcare expenses. That's $140 a week in groceries and sundries. The two of you may want to examine that bill.

With respect to the dog insurance, $68 a month is $800 a year. I expect to pay $300-400 a year for my dog and if it's more serious than that it should only be once or twice in the critters life. For that I'm covered with emergency funds and hopefully that's a once or twice in the dogs life over ten plus years. Unless you really expect to pay $800 a year (assuming whatever procedures are necessary are fully covered) it may not be the protection you think it is. Something to consider.

Maybe I read through too quick or am not aware of differences in the Canandian system, but I'm not seeing your savings for retirement or kid's college in the mix. May want to consider that as you set up what to do with the $1000/mo savings. $200 a month is $2400 a year times 22 years (you don't have to stop once they're in school) and that's about $53K sans interest. That may not pay for all of it, but it can be a start for whatever they choose to do post high school.

Finally, you've got the house, a car, one kid and another on the way. I didn't really see a large emergency fund to buffer you, so that should likely be a chunk of priority for the $1000/mo planned in the near future. Keep in mind it's not investment, it's self insurance so you're not necessarily looking for it to earn better than a certian percent in interest.

I agree with other posters, the life insurance costs are a big red flag. At your ages, you should be able to get sufficient term life policies for ~$60/month for both of you. Also, your daughter does not need a life insurance policy.

I have heard ads about cell phone companies offering to buy you out of your contract if you get a no contract phone with them. That may be something to look into.

All good advice listed above. I would also eliminate the housekeeping and have the babysitter do ti for a little extra. A 6 mth old sleeps a lot and the sitter could do some laundry and cleaning then. If you're going to move again in 3 yrs i wouldn't focus on paying down the mortgage, in fact i probably wouldn't have bought the house with the amount of moving you expect to do. Now you have to pay to move more stuff/ tools around with you or sell them with the house. I would build up the EF first and then pay off the car. That suv is probably a gas guzzler but theres always a lot of stuff that kids need.
Congrats on the baby. I wouldnt start saving for college until you have saved in tax advantaged accounts first. This way you will have some flexibility after baby 2 if you dont want to work. Would it save money if you and your husband took leave at different times? For example, you take first 6 mths and then he takes 6 mths? That would keep childcare costs down. Your leave is much more generous than the 12 weeks i got. Best of luck.

Hi to all here at FMF, thank you for all the great insight. By the way, since this post, we have cleared our credit line and are now debt free (apart from our mortgage and car loan). I will try to answer all questions as they come.

@ BJ - As far as a savings fund for university, we are setting that up during our next meeting with our financial planner and have asked relatives to contribute to this instead of giving gifts while our daughter is too young to really understand what gifts are. We are planning to contribute one year of university only. We will obviously be there for our kids financially if they need a hand but from experience within our friends, people tend to take school more seriously when they're the ones paying for it. We find that paying the first year will give them a good head start and force them to be mindful of budgeting. We initially got a home phone because our families are out of the province we live in and there were no reasonable long distance plans for cellphones. Now though the plans have finally come out with nationwide minutes so I will get on that ASAP. My provider will only let me upgrade in plans and not downgrade so I am looking into the tips you gave to break my contract and get a better deal in the long run. As for life insurance on our daughter, we bought it to guaranty a minimum coverage amount in the future if she were to be diagnosed with a disease such as diabetes (which would render her uninsurable). This happened to a family friend and he wasn't able to get any coverage for any sort of life/health insurance. Although the risk is slim and I know some will argue that it is a waste of money based on this, I have peace of mind knowing my daughter will have a minimal amount of life insurance in case the unthinkable happens. The life policies are two whole life of 100K each and then terms for both of us of 500K each. We went some amount in whole life (instead of term) as our health situation can quickly change depending on what happens in the military and didn't want to be stuck with huge premiums at the end of our term if ever something happened. We went through the numbers many times and I am comfortable with the degree of coverage our current plans give us. Premiums are high because of our employment, the possibility of being deployed overseas and some health stuff from our careers in the military. For the gifts category, we took the total amount of immediate family members and gave a 50$ birthday gift as well as a 50$ Christmas gift. We have about 1000$ set aside for us, split whichever way we choose between Christmas and our birthdays but we usually only use 400$ total and put the rest toward savings. I agree we could cut back this amount pretty substantially.

@getagrip I typoed when I wrote the post, the childcare is actually 750$ not including any baby food. The 550$ a month includes diapers, formula, our food, paper towel, shampoo, really anything that is a consumable for the household. I still agree that its high though and I've been trying to cut it down. I find that the meat and veggies are totally killing the total cost even by shopping sales and buying in bulk. I welcome any tips about this problem, not sure how to cut the cost without cutting the quality of the food. For the dog insurance, I go back and forth on this. When we run the numbers its always on the fence of being worth it, and I will go revisit again after your comments. I think it may be more about peace of mind then financial logic so I will have to look at it more objectively. In Canada, 57K will most definitely cover the whole 4 years, average of 7K per year. I've got contributions coming right out of my pay for retirement but I am saving the room in my RRSPs for when my salary increases, in order to maximize the tax benefits. We have a promotion coming up and our pay level on the pay scale will be much higher in a few years. Right now we are dumping all extra money in the emergency fund. There is no employer match on RRSPs which I am assuming are the Canadian equivalent of ROTH IRA or ROTH. Now that our debt is paid off the entire 1000$ a month is going into funding our emergency fund.

@ Renee S - Definitely will look into that, thanks for the tip!

@ Belle - I totally hear what you are saying about the housekeeping and if I had a sitter at home I would definitely get her to contribute. My daughter goes to daycare though so that is not the case. Although it is an extra 120$ a month, so far its allowed us to spend quality time with our daughter and our emergency fund is still growing quickly. I have cut the extra 120$ spent on this from other areas of the budget (groceries, dog, gifts) and if I find that it isn't working I will readjust. Agreed though that this can be cut at anytime and is a splurge, not a necessity. As far as the house goes, the military pays for all moving expenses including packing (and moving), realtor fees, inspection fees etc which means any money we make on the sell goes directly in our pockets, no deductions, no fees. The initial purchase of all the house necessities was a cost upfront (unexpected which is where I think we made a mistake) but I feel like paying rent when all the other costs associated to home-buying are covered is a waste of money. Any insight? The military pays us our full salary minus 2% for the entirety of our leave and although we could save a bit by taking leave separately we loved the experience of being there together in the early months of our child's life and I think we will sacrifice the 5000$ difference for that. Good point though and duly noted. Thank you for all your insight, and please let me know if my reasoning is off base somewhere.

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