The following is an update from reader CM. He shared his reader profile with us last year.
Since this post, quite a bit has changed. Most notable difference has been that I have a daughter now that will turn 1 at the end of this month (crazy how quickly that happened). Having a child has definitely been awesome, but it has certainly affected the finances and our priorities going forward.
The most difficult (significant) obstacle to-date has been daycare. Due to the fact that we have been on the waiting list at several daycare facilities for almost a year and a half now, we are still paying for a private nanny who watches our daughter at her home along with 2 other children. Cost for this is $1,730/ month. Ouch. Sounds absurd but it actually works out to around $8.50/ hr for the nanny which isnt much. We have friends that pay $2,400 so I guess it can always be worse. Once she gets into normal daycare this should decrease to around $1000/ month. We are thinking this will finally happen in August based on the last update we received.
To help combat the quickly escalating child cost situation, I have tried to get child "running costs" as low as possible. Thanks to Amazon.com and their "subscribe and save program", we are saving quite a bit on diapers, formula, baby food, and other household items (typically more than 20% off of retail prices). Best part about it is that it keeps the wife out of Target (which is guaranteed to be $100/ visit)!
We also moved to a bigger place this past February which was one of the future goals in noted in original post. With this move, rent has increased from $1,225 to $1,750. The extra space was sorely needed however, and now we are in a place where we can stay at least a couple years if needed. The extra bedroom for the in-laws when they visit (crucial for having occasional nights off!) has been huge. I will admit we also splurged on some furniture (and a Weber grill now that we're allowed to have one - manhood restored!) after moving in which set us back quite a bit more than I wanted, but hopefully this will severely soften the move-in expenses blow when we finally buy a house.
I won't go through the entire monthly budget, but post child expenses have clearly risen. With additional rent, baby food/ supplies, and daycare, expenses have increased around $2500/ month (very painful to go through the numbers and see just how much we spend monthly).
Fortunately, income has risen a little bit as well and has helped offside our rising costs. I was able to max out my bonus last year, but came up just short of hitting my profit share goal (hoping to hit both of those this year). Gross income last year was right at $200K.
With the increase income, I was finally able to pay off my car, and get the wife out of her leased compact sedan and into a small SUV that offers ALOT more room for baby stuff. I also put quite a bit more into the emergency fund and now have it fully funded. In addition, we have started a house fund, but it will certainly take some time to get that where it needs to be.
I was also able to finally make some progress with retirement planning. I had a rep come in to present their SIMPLE IRA plan to my boss and I earlier this year and am basically waiting to hear if/when it will be implemented (has taken much longer than expected). If this never happens, I suppose I will keep increasing wife's contributions until she is maxing out her 401K yearly. In the meantime though, I went ahead and set up a Roth IRA for myself and contributed the full $5500 (our AGI was under the $178K threshold). I also created a 529 account for my daughter and will make yearly contributions to that. I bumped the wife's contributions to 8% and plan to max my Roth for as long as my income allows (hopefully not much longer!). All holdings are now Vanguard index or bond funds with a few international funds mixed in. The expense ratios on wife's 401K holdings were obscene (same as high at 1.5) so I'm glad I took the time to learn about it and make the switch.
Somewhat recently I set up long-term disability insurance for myself also. Now, if I inadvertently lose a leg while working at my desk, I will get $5K/ month tax free. As for life insurance, my wife was a $1.5 mm 30 yr term life insurance policy on me, and I have a $500K 30 yr term policy on her so we should be all set there.
Last big item that we changed was my wife's health insurance. We moved her from a higher premium, lower deductible plan to their lower premium, higher deductible with HSA plan. I cancelled my plan through my work and now my daughter and I are on her plan as well. Due to the great incentives they offer (sign up bonus, bonus for healthy living, and 1:1 match on contributions up to $750) and the fact that we are all pretty healthy people this has worked out really well. We are paying about the same as we were before in monthly premium, but have the benefit of the HSA. Pretty funny though as many of my wife's coworkers (and even some of the doctors in her group) told her she was insane to go this route.
Assets/ liabilities as we stand now:
- Emergency Fund: $30,000 ($14,000 increase)
- House fund: $15,000 ($15,000 increase)
- General savings: $1,000 ($0 increase)
- Wife 401K: $38,500 ($8,500 increase)
- Condo: $120,000 ($5,000 increase estimated... market finally starting to recover)
- My Roth IRA: $5,700 ($5,700 increase)
- Daughter 529: $1,100 ($1,100 increase)
- HSA: $1,750 ($1,750 increase)
- My car: $18,000 ($14,000 increase)
- Total increase: $65,050
- Wife Car: $16,000 at 1.99% ($6,500 increase over total of payments owed on previous leased vehicle)
- Mortgage on condo: $136,000 at 4.25% ($2,000 decrease... I pay a little extra on it each month)
- Credit Cards: $0
- No other debt
- Total decrease: $9,450
So all-in-all it was a pretty good year as we increased our net worth by around $75K. If I count vehicle equity and the cash value of my wife's pension (prob reaching here!) we are finally on the verge of cracking the $100K net worth mark. Looking at net worth is definitely something that I focus on way more than before. This is probably partly due to time spent on the Boglehead forum where I have learned quite a bit - the general consensus there is that the first $100K is always the hardest - amen to that! Luckily, Mint has finally added this feature so it is very easy to track now. After we clear the first $100K hurdle, the next goal will be $250K (then $500, then $1 mm). Good to have goals!
Although I still feel that we are WAY BEHIND where we should be, it is good to see progress. Writing this all down I am actually pretty surprised to see just how well we did over the past year, especially in light of daycare just killing our bottom line (this has been a big source of stress for me over last year but my wife LOVES our nanny so it is tough to change anything).
We have definitely gotten a little bit looser on our budget recently (need to reign that in again) but we still take the time to actually do a budget each month which I still think has been huge for us. Biggest benefit is that there are no surprise purchases by either of us which definitely helps keep stress/ resentment out of our relationship.
My biggest challenges now is trying to decide where I want to go with career (I am kind of maxed out where I am now with nowhere to go since I am essentially the GM of our 6-person office) and when we want to purchase a home. To be honest, I am seriously considering putting home purchase on hold for a while and snapping up a rental property here in Charlotte in the $30-40K range by end of year. Wife isn't quite sure what to think about that idea yet.
In short, real estate is still how I want to make my retirement (and hopefully one day a full-time job) and I feel a strong sense of urgency to get started ASAP. My condo in Savannah is doing fine and has required minimal maintenance. The current tenant just renewed and I was able to raise rent a little bit again. Property values there are also starting to come back, so hopefully within the next 2 years I will be able to get out of that property.
Just for reference, I currently owe $136,000 on a 30 year fixed at 4.25% and net $1080/ month in rent after mortgage, POA fees, and management fees. As I have learned more about real estate investing, I have come to realize that the numbers here don't really work as an investment so most likely I will be looking to sell it if/ when I can. For those interested, I have spent a fair amount of time on Biggerpockets.com reading and learning from others - pretty good resource for real estate investing.
Once we are ready to purchase a home in Charlotte, I plan to put at least 20% down on a 20 year fixed rate mortgage. Will take some time to save enough to get there though. I have absolutely no interest in stretching to get in a house quicker by only putting 5-10% down on a 30 year. So time is definitely on our side here.
So that is pretty much about it. For anyone willing, I would love to hear input as to how you think I'm doing and what I can possibly improve upon.