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January 31, 2012


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Wow six children. Definitely take advantage of Costco and look at other ways to reduce the monthly food expenses without reducing the food of course. Make sure you have the right amount of life insurance taken on yourself if forbid anything happens to you.

You are absolutely correct having a spouse not contributing to pf is a big problem. Try bringing it up as conversation piece around bedtime when you have some privacy from the kids. Bring up the issue of whether or not you should start contributing money towards college savings plan? Since she is a mom maybe that will peak some interest for her. On that topic, I really think you should start a 529 plan. You make enough money to afford it with your cash flow.

I don't think you should prepay your mortgage a home this large you will inevitably sell once kids start moving out. You've got larger more pressing issues on the forefront.

Sounds like you are doing a great job. I have only one child so I can't imagine what six are like.

You mention that you are debt free except for the house. I don't think that is right. Even though you took a 401k loan to avoid PMI on your house, it is still a debt outside of your home. Imagine if you took a credit card cash advance to use as part of your down payment. Would you still consider yourself debt free? I draw this distinction for an important reason. If you lose your job or decide to change jobs, that 401k money comes due within 60 days. Whereas, house debts stay with the house and don't suddenly come due.

For this reason, now that you have an emergency fund, I'd work as hard as I can to pay off the 401k loan.

Your wife should also have some amount of life insurance. Not so much to replace her income, but with 6 kids at home, she is working hard as a SAHM. Could you do that and keep pace at work?

Great Reader story. I think you are on the right path and I could only imagine how hard it is with 6 kids. I agree with the last comment to attempt to pay off the 401k loan as your savings are probably earning less than your 401k loan is charging you. After that is paid down then you can work on the mortgage paydown. Another cool way to get time to work in your favor would be to use the extra 2K of surplus income and start a 529 plan on each of your kids birthday months. So in one year you will have successfully paid down 12 thousand of extra principle payments and 12K of 529 plans for all your kids.

You absolutely must have "Disability Insurance" that will provide you with a high percentage of your income should you have a lengthy disability. It is reckless and uncaring to your wife and offspring if you don't already have it.

One suggestion on your "biggest financial issue," your wife's lack of interest in personal finance: There are thousands of blogs operating in the arena of money and personal finance. And there are probably hundreds run by women in circumstances similar to your wife's with whom she may identify. The idea is to make personal finance fun and interesting for your wife by getting her engaged through a blog or two. Do a little Googling, and find a few blogs she may like. Get her permission to subscribe on her behalf to a few so she gets an email alerting her to new posts.

Good luck!

Beyond Kurt's suggestion I might also add that your wife can contribute to the house finances in ways that compliment you rather than match you exactly. For instance, she might be focused on how she can bring the monthly food bill down or buy cost effective cars or something. It's not sitting down and looking at the budget with you, but it is helpful. I would guess FMF's wife is not as engaged with finances as he is but he has mentioned that she helps by being frugal around the house.

I know my spouse isn't as interested in personal finance as I am but we try to set goals together and then I can be the one to execute tactics along the way.

RE: RichUncleEL - I don't know if TT's 401k works the same as mine, but the interest I pay on my 401k loan goes to me (in my 401k). It just as if I loaned my 401k funds to a third party who was paying me interest, except that its me paying me interest. The real cost is 1) Annual $25 fee from my 401k provider and 2) loss of potential gains. Depending on the situation, having liquidity of savings might outweigh both of these.

Thanks for everyone's comments on my profile.

I appreciate the comments about engaging my wife in pf. I think it would help our relationship as well as provide better direction to meet our finance goals.

Jim - good point on life insurance. I have a 200K policy on the wife. My youngest has about 3 more years before she would start kindergarden, I think that the insurance pay out would help get us through that period.

Old Limey - I do have a short and long disability plan that is provided as an employer paid benefit. I believe the LT disability is 2/3 of pay which kicks in after the ST plan expires at 12 weeks.

Des, Yes my 401K works the same as your plan, in that the interest paid goes strait into the account. My annual cost is a $75 admin fee, but that seems very reasonable to me.

Erik -good point on the 401K loan being paid in full if there was a change in my employment. I have not priortized that yet as I have not been concerned about being forced out of my job and I think that I could negotiate a starting bonus that could cover the loan if I were to look else where. I am thinking that I will priortize paying the 2nd loan before paying the 401K, as the interest on the 401K loan is going to myself.

The 401k loan may or may not need to be paid back immediately if you change employers. My 401k plan does NOT require loans to be paid back when you leave the company. From what people say it seems common that 401k loans are usually due immediately if you're terminated. But I don't know for sure how common that really is or if I'm just the one person in the country with a 401k with loan rules that don't work that way.

Check your 401k loan rules to find out how yours works. Don't assume they're all due when you leave.

You can only take out 50% of your 401k balance in a loan. So worst case if you are fired and have to pay back the 401k immediately then you might owe 35% taxes and 10% penalty. You could cash out the 401k entirely and then repay the loan and not owe anything out of pocket. That would wipe out your 401k but not leave you destitute or with a big out of pocket bill or anything. You certainly want to avoid paying a large tax bill and that 10% penalty if you can help it of course.

TT - If the LT disability is employer paid, then the benefit will be taxable when paid to you. The 2/3 won't really be 2/3. It sounds like you've got the extra wiggle room to handle the fact that the 2/3 will be more like 1/2 after taxes, but you might want to double check for your own comfort.

It sounds like you have only about 2 months expenses in Savings. Dave Ramsey would say to build that fund up to 6 months at least, before paying down any mortgage. With six kids, a big mortgage, and a mostly SAHM, in this economy, even feeling fairly secure in your job, I would have to agree. I would also agree with after you have at least 6 months, then paying off the 401k loan, then second mortgage.

As for getting the wife involved, maybe you can get her involved with setting priorities, rather than the actual mechanics. Like, "what make you more secure, having six months expenses in the bank, or paying down $30k on the mortgage".

@jim: Are you sure about yor 401-k loans not requiring repayment on termination? I believe that is an IRS requirement.

My wife has also never had any desire to participate in managing our investments and I prefer it that way. I am a retired engineer, love mathematics and dealing with numbers, and everything pertaining to the technical analysis of market trends. My wife on the other hand is almost the opposite of me and it has turned out to be a good combination over the 55 years that we have been married. I like to think of us as a team and not as two people vying for the same responsibilities. My wife has also never used a computer whereas I started using a computer in 1956 at my first job, used them every day until retiring in 1992, and have used one an awful lot ever since. The end result is that we both get to do what we like best and neither of us have any complaints at all. On all major expenditures such as homes, cars, vacations etc. we discuss everything thoroughly before taking action. It has also helped a lot that we came from identical backgrounds in England and are like two peas in a pod when it comes to saving and spending money. However I realize that "women's lib" took place several decades ago and that today's women are very different than those in the 50's and 60's.

MikeS- I think it's a good clarification, and to be candid I haven't really given the LT disability much thought. I believe I used to have the option of deciding whether ST premiums were paid with pre-tax or post tax, with the understanding that the benefit if needed would match (pre vs post tax), but for some reason I don't think I was able to elect treatment on the LT. My employer treats both of those elections as pre tax elections now.

CoolMouseLuke - It's my understanding that Ramsey recomends savings equivelant to 3-6 month expenses, and is dependent upon some variables like self employment, variable pay, etc. My calculation appears closer to 2 months than 3, but I have variable expenses that would decrease if my income were to decrease (i.e. tithing). I was also not too worried right now about having more liquid savings, as I have an accrued vacation balance that I can carry that fluctuates between 15K to 22K. Although the money would only be paid out upon termination or me leaving, I view this an additional insurance policy that would help if I were to have an employment change. As an FMF post a few weeks ago discussed, I also view this as an asset to assist short term savings.

I think you're on the right track! In terms of involving your partner in your finances, I think it's crucial. I'm the primary income earner in our household and I manage all of the finances. But each month, I ask my husband to sit down with me and we go through the finances.

If anything happens to me, I need to know that he is aware of all of our accounts, how to access them, and how to take over the financial responsibilities. I also carry a lot of term life insurance and short- and long-term disability. Definitely make sure that you have all of that organized - with a large family, it's something that is essential.

I know little of Dave Ramsey's recommendations.

However, having been thru a lay-off in this recent recession, my personal recommendation for any and everyone is to have 12 months expenses available.


"Are you sure about yor 401-k loans not requiring repayment on termination? I believe that is an IRS requirement."

Yes. I'm sure.

The 401k summary plan description says:
"If you leave [company], go on leave, or are transferred to a non-U.S. site, you may continue to make loan payments directly to [company] via coupon book."

Thats pretty explicit. If you leave the company then you can keep making payments.

I don't see anything from the IRS saying you have to replay a 401k loan instantly when you're terminated. I don't see why the IRS would have such a rule anyway.

People say its how it works and some people state it as a generalization as if it always works that way. I was surprised to read our 401k rules and find out it doesn't work that way for us. It may be common or normal for most 401k plans to require loan repayment if you leave the company, I don't know how many plans do and don't require loan repayment. I don't know how most 401k plans work. I only have my plan to refer to.

One big issue with a 401k loan that I haven't seen mentioned (in addition to missing out on any potential growth) is that you will now be taxed twice on the money you use to re-pay the 401k loan is re-paid with after tax dollars. You will be taxed again on that money when you take your retirement distributions.

Also, it all depends on your specific plan on when you have to pay the 401k loan back in the event of job loss or leaving the company...some plans make you pay the total amount in a short window and some plans allow you to continue on your existing payment plan. Each 401k is different.

I think you really need to build up emergency savings before paying down your mortgage. With as many kids as you have, and as high an income (and expenses) that you have, you need six months at a bare minimum, probably more. If you were to lose your job, you need enough cash to tide you over so you can not only find a new job, but a new job at your current relatively high income. I know your expenses would go down, but you'd also need to spend money on COBRA or other medical insurance, which would be a good chunk of change, and a non-negotiable with your family situation. 12K is pretty low, even considering your healthy vacation pay out -- it would be a disaster if say, you lost your job and had some other catastrophe (car repair, medical issue, expensive house expense) in the same six month period. Unlikely, yes, but you have seven people depending on your one income! If it were me, I'd be much, much more conservative in my cash holdings because of that.

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