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« FMF March Money Madness, Round 1, Posts 29-32 | Main | How Are Your Taxes Prepared? »

February 26, 2013


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My main piece of advice is pay off the consumer debt immediately. If it's credit card debt, that something like a -28% annual return. Stop saving for the down payment for a couple of months and get rid of the consumer debt.

If you are maxing out your 401k and IRA contributions, that means that you're saving over 20% of your gross income plus the additional savings, which isn't bad.

I'm not a financial planner, but it appears that at the rate youre going it will take a really long time before you will have the money to buy a house. In your area, a house is likely a good investment will likely increase in value from its current lower cost, and you also have to pay a lot on rent.. so I think you need to supercharge that house fund for a few years. Think of it as a temporary adjustment for a couple of years to meet your goal. If I was you: halt both your 401k/ira contributions. you already have a lot in your retirement funds for your age. Pay off your credit card immediately and stop carrying a balance, if you are. Consider cutting your food budget by $200 or even $400...just choose cheaper things to eat and buy at groceries instead of farmers markets, cut back on the fancy cooking hobby for now--- it is just a hobby after all, you really wont starve or die if you have to eat basic and non organic for a couple years. You might also consider one of you taking a 2 nd job doing work from home in the could probably do computer help or something. Put everything into the house fund and you will be there in 2 years instead of 8 ior 10! Then, enjoy! Also, remember that your daycare bill will ease up once the kids are in school and then disapper altogether. So you wont always feel so pinched....

Are you continuing to add to the emergency fund? I would expect that you would need 9 months of future expenses saved. By future expenses I would consider how much your life will cost when you own your own home.

Is there anyway you could live on one of your incomes and completely bank the rest? It would mean a few years of austerity but it would get you in your own home much faster and, hopefully, while the interest rates are still low.

One thing that jumped out to me: my husband and I are also in the Boston area, in a nice suburb, and we were able to get our 4 bed, 2 bath house for just under $300k a bit less than a year and a half ago. I am confident you can find a better deal than $400k if you look for it, though it might be more difficult if you want your children to stay in the same exact schools. I would definitely not plunge in right away and try to find a house that's a good deal! If you wait, I'm sure you'll find something.

Have you considered moving to an area with a lower cost of living? There are many areas of the country where $21K puts you well on your way to a downpayment on a house. I think there's this myth that if you work in tech you have to live somewhere crazy expensive, but that's really not the case. My husband and I both work in tech and made about the same as you guys last year. But we live where our house was ~$130K, we pay no state income taxes, property taxes aren't terribly high, and can we walk to the beach.

The best plan for you is to pay off the credit card debt immediatlely with the emergency fund savings you have, then reduce the 401K contributions to 6% each, allocate the previous debt payment and new additional paycheck money towards the smarty pig fund goals to the tune of 2200-2400 a month and you will reach your goals much faster. If you really want a home within 2 years cut out half of the kid stuff and entertainment budget to add to the 2200-2400 smarty pig funds as well. 15 K Emergency fund should be suffice to cover anything in the mean time while you save for the 80K. 2400 x 24 months gives you 57,600 added to the 21K = 78,600. House Fund completed.

Thanks folks - I am really appreciating your feedback!

As for where we live and where we hope to buy a house - the situation is a little more complicated there as there are emotions involved. We moved here originally to be closer to my parents who were healthy and active grandparents and then my mother died suddenly and unexpectedly which put our whole family in turmoil and made me realize that my kids don't have any cousins, their aunts and uncles live far away and are not good with kids (and don't have any themselves), and now we have to be here for my dad. This ties us to the area until he dies. In addition, since my kids have a)older parents and b) practically no other relatives, we are trying to give them as much stability as possible by not uprooting them.

@JM - I am very curious at to what suburb you live in! I do know there are some more affordable suburbs but commute is a major factor for us. We have friends with wonderful affordable homes in Natick/Worcester/Maynard who have to commute 1-2 hours each way to work. We did this for a decade in CA and it was a major reason we moved from there. We are mostly trying to stay in the same town we live in (think Water) for reason I gave above and commute issues but would also consider 2 neighboring towns too which sadly, are in the same price range.

I wanted to add that I had assumed that we were way behind where we should be in regards to retirement savings. I had read a few articles that seemed to suggest that 401k/IRA wise by 45 years old, we should have about $450k each.

Investing is a big black hole for me too. Aside from the 401k/IRA and Fidelity fund, all of our other assets are making about 1%. If anyone has some advice on a good resource for "investing 101" I would appreciate it.

Have you run the numbers on owning vs. renting for Boston? It may be cheaper to rent indefinitely.

I would agree with those who say to pay off that credit card debt immediately. I also would stop putting money in 529 plans. At $100/month you will not have enough to actually pay for college. I heard once that it is more important to make sure your children will not have to support you in your retirement than for you to help pay for their college expenses. So put that money into retirement funds. Since your companies do not match your 401 contributions I would fully fund Roth IRA's first and then 401 contributions. By the by, if you have a windfall you can always use the money in your Roth's to pay for college for the kids. No penalty or tax for withdrawal of your contributions, leave the interest earned in until you retire- no tax on that either. I would not be in a hurry to buy a house. You already dealt with job loss and a big move. That is much easier to handle without having to deal with a house (as I know from experience).

Wow, I'm sorry you both laid off at the same time. I was under the impression that a pregnant woman couldn't be fired/laid off, but I guess I was mistaken. That really sucks.

I would suggest playing around with the "IRS Withholding Calculator". (google that) It should help you set your W-4 allowances correctly so that you don't owe more taxes come the following year.

As for "investing 101", I would try Mike Piper's book "Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less". It's even free to get the Kindle version on Amazon right now and you don't need a Kindle to read it - you can just read it in your web browser.

Is there any way to close out one of your SmartyPig goals and eliminate the credit card debt? They're only earning 2% and you're probably paying way more than that.

While I have nothing against home ownership, you may want to evaluate why are you making this a primary goal. You're in an industry that has laid you both off twice in recent memory and a home is as much an anchor as it is a shelter. Do you really want to be tied to where you're at for the near future? You also have ailing in-laws that may require financial or emotional (e.g. being there) support in the near term. Financially $1300 in taxes compared to $7000 in interest with a $2450 deduction still amounts to an additional $3250 out of your pocket. You're hoping you'll see that at the back end that only comes when you sell, and you could assuming you plan on staying in the area for decades. On the flip side, after 12 years of a fixed rate mortgage I pay less in mortgage and escrow than a lot of mid-level two bedroom apartments in the area go for. Just something to consider while running the numbers. You don't have to own a home to be part of a community and raise a family well. In the end do it because you want to, not because you think that's what you're supposed to do because you have kids now and that's the script you're supposed to follow.

If you decide you are going for the home, you should really accelerate the downpayment savings otherwise you're looking at five more years and who knows what rates will look like then. Finally, PMI isn't the end of the world, it's just a bill until you hit 20% equity and then you can have it removed. With a 15 year mortgage and 10% down you can hit that in a couple of years. Run the numbers and see if it's really an issue compared to your goals.

You may, for budgeting purposes, go for some type of budget billing to even out the heating costs if it's possible in your situation. It's a small change I've found that makes things easier for us.

Are you expecting childcare to decrease soon as the 4 year old goes to school? If so that can help free up more for savings/investing.

I agree with others that you could pay off the credit card bill. That's a six hundred dollar monthly bill gone. You could put that towards refilling the emergency fund and not be paying interest and recoup by the end of the year to minimize risk to the EF. Then you put it towards the house fund.

The only other place I see potential without making more serious cuts may be in food. $800 seems very high for a family of four.

In the end it seems you two are actually doing pretty good and have a number of options. Best of luck.

I agree PMI's a terrible scourge, that you should avoid at all costs. But sometimes you can bite your nose to spite your face. I think you should bite the bullet and buy a house. Prices have finally started to bottom out in the Northeast and are expected to rise 4% this year. You'd be eligible for itemized deductions which may negate PMI.

1 or 2% from smartypig is costing you money every month when you carry a credit card balance! Absolutely stop saving there until your credit card is paid off. The kid's 529 should probably wait as well.

You're not in as bad of shape as you think. I got from your profile that you're not feeling very good about things. I like this retirement chart here, which was featured on FMF recently: At 42.5 years old, you should 2.5x salary in retirement savings. You're a bit behind, but only "only" by $75k. Too bad you don't get matching.

Food's a bit extravagant, but then you can't put a price on health. Everything else seems fairly reasonable.

Thanks so much everyone! I can't tell you how much I appreciate all of your feedback!

We have 1.5 years before our daughter no longer needs the pricy daycare and can start public school. Then the cost for Sept-June will go from $2k/month for care to $700 (the cost of extended day programs that take care of the children in the public schools from 2:30-6pm). We plan to throw all of that money into the house fund as well.

@getagrip - you hit it on the nose, I do feel like owning a house is something we should do because it is a script. Become house! Also, basically everyone we know around here owns a home too so yes, sort of a "Jonses" type of thing. I really liked your comment about "You don't have to own a home to be part of a community and raise a family well."

You are all giving me a lot of things to ponder and trust me, I will be using all the suggestions/tools you link to in order to evaluate.

The food - I don't buy as much organic as I used to but I still spend $100/week on produce alone and we eat it all with very little waste. I mostly buy at Stop and Shop or BJs with occasional forays into Trader Joes. I do see some ways we can cut the food budget down that I am going to try.

Can you be more specific about the industry you both are in? I am also in the "tech industry" (software) and even though I was laid off in 2008, I was able to find employment rather quickly. 7 months seems like a very long time to be unemployed in such a growing industry.

I think you make too much out of being "older parents"

My wife and I are exactly the same age as you and your husband. Our kids are 10 and 7 so only a year or two older than yours. This is becoming relatively common. Yes it's probably on the slightly older end but there are many parents with kids your age who are only 3-5 years younger than you. Try not to worry about the age thing, its really not much of anything to be concerned about.

Besides, Scientists just told us yesterday that 72 is the new 30 so by that math you are still a teenager. :)

@ Noah - Software QA and Software PM. At the time we could only find contract work, not full time when we did indeed find work.

I'm 40 and my kid is 2. Waiting to have a kid was great for us because we saved a ton of money in our 20s and 30s. I think your 401k is a bit low for your level of income, but just keep at it. You are in an expensive location so I don't know if you can cut down on the expense much. The children are costing you a ton of money every month.
I would rethink the home too. It seems like you want to move so maybe ask your dad if he'd like to move too. ??

You're not doing bad. Your net worth is over $400k. With all the layoffs thats not bad considering. Lots of people out there with underwater houses so I wouldn't be too concerned about owning a house. Lots of homeowners wish they didn't.

Why do you have credit card debt? I can't see why you'd be carrying credit card debt with that money money in savings unless its some 0% deal or something.

MB said "I know our income seems high but .."
It seems high because it IS high. You're in the top 5% of the nation and probably better off than 99.9% of the world.
Its good you're living fairly frugally given the income but don't take it for granted or pretend you're middle class. Sorry but I just get tired of seeing high income people acting like they don't make much. NOt saying thats your point here but that bit I quoted sounded like it.

@ Jim - I am not sure their income levels are considered "high income" considering the part of the country they live in. Is someone making $100K in NYC considered high income with a standard of living so high that a dozen bagels costs them $30? Sure they are more comfortable than many many people, but at their income level, raising two kids, and living in the northeast I would place them comfortable in the middle class. To me your comment was unnecessary and does not really answer the questions that MB has.

I'm with PD.

@Jim - I do see your point and yes, I agree, that compared to many other incomes from other people living in other parts of the country/world, we are high income but for the area I am living I really do consider us more "middle class."

Take childcare for instance. My friends who live elsewhere in the country tell me that they pay $700-1k for full time daycare/preschool. For my daughter alone, we pay $1600/mo and that is actually an average cost in our area. We visited over 10 places when deciding which one to go with and the prices were $1400-2k/mo for her age range. We went with the one our gut was telling us to go with (and that got the best references).

For what it is worth, we didn't always make this income. Prior to 2010, we were both making 25-30% less as contract employees.


(1) I think your debt and your relatively small emergency fund are a bigger deal than your house fund, especially given your employment history. I agree with those who say focus on these first.

(2) I also agree with those who say getting rid of PMI is probably a bigger deal for you financially than the tax savings of your 401ks. Given that you're not receiving a match with either employer, I'd stop my 401k contributions until I had the debt, the emergency fund, and the down payment saved. (In that order.)

(3) You are probably ABLE to contribute to Roths - IRA and/or 401k - based on your AGI, but that doesn't make it a good choice for you. Roths only make sense if you expect your tax bracket to be higher in retirement than it is today. If you think it will be lower, then traditional accounts make more sense. Try to project what your retirement budget will be. That should help you make that decision. It should also help you...

(4) ... figure out if you can retire early. Don't just assume that you can't. Here's a retirement planner from SmartMoney that may help you answer that question. It has all kinds of customization options you can play with:

(5) On the cost cutting side: your monthly child care bill is INSANE. Children the age of yours should not cost that much money to oversee. My husband and I pay $750/month for our 2-year-old's care, and she's kept by a woman we met through church, in her home. She is the only child being kept, so she gets lots of personal attention. Our caregiver is also our babysitter of choice. She's very flexible on hours, and has even dropped our daughter off to us on occasion when we had evening appointments. I would seriously explore other options. There are stay-at-home moms all over the place who would love to keep your kids and augment their family income.

(6) Can you get less expensive disability insurance for your husband through his work? I'm guessing no. If not, don't drop the disability. You need some on both of you... do you have any on yourself?

(7) You're otherwise doing well. You could save a few hundred dollars a month more by dropping cable (Roku + Netflix + Internet is all you need) and by buying your groceries more mindfully. A Sam's Club or Costco membership may be worthwhile for you if you have one or the other nearby, and shopping at Aldi will help as well. Your cell phone bill is on the high side. Check out Page Plus, Net10, Straight Talk, and Republic Wireless for less expensive options. Depending on what your current carrier is, one or more of those should work for you.

I think you're doing a great job. You have the potential to squeeze another $1,000 or more per month out of your budget by making a handful of small changes. The more frugally you live, the more possible early retirement will become. Good luck!

Don't be so hard on yourself! You are doing well. I agree about not worrying about buying a house. Think about if you had that money as savings how secure you would feel! Pay off the credit card debt ASAP. Then if you stop worrying about buying a house you can focus fully on retirement and college savings. Maybe when you retire you buy a house somewhere less expensive. Something to consider. Or you think about it when the day care costs go down.

I also think you're doing pretty well given the circumstances. I would definitely knock out the credit card debt right away.

I also echo the sentiment that you should make sure you want to buy a house out of true desire, not just because you think you're supposed to. I understand that $1600 a month rent on a house is a great deal. Here in Silicon Valley, a lot of 1BR apartments go for more than that.

I also think the child care costs are crazy, but I don't have kids so I don't know. But I definitely think the summer camp sounds extravagent. It's up to you, but this sounds more like a want than a need. All your other spending doesn't sound too far out of line.

As far as 180K being a lot of money or not...I think it's a lot. Yes, I know 180K doesn't go far in high cost Boston, but it is still well above the median income for that area. Heck, it's above the median for the SF Bay Area. Bottom line is you basically have to be well off to raise kids decently in high cost areas. Sad, but true. But I also understand that when it takes 2 incomes to bring in that 180K, life is hectic, and you still have many of the same stresses as people who earn less than you when it comes to getting laid off, etc...albeit you may not feel the effects as acutely.

Overall, I think you have a pretty realistic outlook on things, which is refreshing! Try not to be too hard on yourself, though.


About the 401ks...You should give us your investment options in your 401K plans and we can give you our feedback. Personally, I think the best route is a good balanced fund that invests in a mix of stocks and bonds (usually 60-70% stocks 30-40% bonds).

This is partly a values thing...but I disagree with the other posters who think you should skimp on the 401Ks I would continue to max out the 401ks, even if it meant you couldn't buy a house. Even with some rent increases, you could actually come out ahead financially by renting vs. owning. (I don't absolutely know that...but it's definitely possible when you consider the taxes & maintenance costs on homes).

Also, another idea was to take the summer camp money and put it in the 529 plans.

Compared to your high income neighbors your income may not seem as high. You're still high income. You live in a high rent area. You're still high income. Yes you live in an expensive area surrounded by high income people but that doesn't mean you're middle class.

Not to beat horse too much... I don't mean to criticize. This is more of a pet peeve of mine how 99% of Americans seem to think they're middle class. However while its fair to say you live in an expensive area and great to point out your frugality and savings rate... You should not be saying you aren't high income or claiming your' 'middle' when you're in the top 5%. BTW, you're in the top 5% in Boston too.

ref :

I doubt the median household income in Beacon Hill according to city-data is $100k.

John Kerry himself alone is worth over $200 million.

My bad... you'd be top 11% in Boston.

Luis, One rich guy doesn't impact median income much. Bill Gates and Warren Buffet could move into Beacon HIll and median won't change much.

I was just illustrating the type of people who live there.

@jim & Luis,

One rich guy or 100 for that matter doesn't affect median at all. Median is entirely unaffected by rich people or poor people for that matter. This is median not mean. If there is a group of 10, 6 of which make 1 dollar, I can already tell you the median is $1. It doesn't matter if the other 4 make $0 or $10 million, the median is the middle and is unaffected by how much the top 40% or the bottom 40% make.

John Kerry's recent windfall from the Buffet buyout of Heinz might be sweet for the Secretary of State but it won't affect the median.


We are actually hiring for both of those positions now at my current company, although we are looking for people in the CA, MN, or FL regions to be close to our physical offices.


It makes more sense now since PMs are usually one of the first positions to be cut when a software company has money issues, especially if there are a lot of them. QA also doesn't get as much emphasis as development unfortunately.

MB, I am in Melrose. The average price of a home here is $400k, but like I said, we got ours at a bit under $300k. :) We're about 10 miles to Boston (and only about 7 to Cambridge, thought I'd mention since you said you work for tech companies :)) and the commute is not bad at all. Plus we have commuter rail or the Orange Line if you want to use the T instead (might be a better option if you have to commute during rush hour). There are other various towns around here that are less than $400k for a house. Definitely take a look around north of Boston and in the North Shore.

BTW, a median income of $100,000 is actually very high. THis idea that 'everyone' in rich areas or expensive cities makes 6 figures is totally wrong. There are a lot of people in those expensive cities who 'only' make $50k or make $25k, etc.

The median home value in Beacon Hill is $500k. Even if the median person in question put down 100k, his or her mortgage alone would be over 40% of takehome. There are some rents in Beacon hill but not that much to make this a realistic median for such a small neighborhood.

I had a post with a link and I think it got eaten by the spam filter maybe. I'll try again..

Also see :

@MB This is very specific, but I would recommend buying produce at Russo's in Watertown. I find their prices much lower than Stop & Shop and TJ's; I can get twice as much there as I do at S&S on my budget. That might help you lower your food budget. Plus, it's a very enjoyable shopping experience if you like food/cooking! :)

Apex is right also. The 'median' alone doesn't tell us a whole lot. However for incomes its usually a fairly good view of the middle. Its not typical to have 49% poor people and 49% rich people but more even income distributions are more common. Of course theres exceptions. In a smaller rich area its more possible that it is more a 50/50 split between poor & rich. And the bigger the sample the more likely to have a even distribution.

Luis, Do you have anything other than your speculation to discreedit the income numbers? Yes housing is expensive and a high % of incomes in expensive areas. $500k housing costs were the average in CA a few years back but it didn't mean CA incomes were >$100k.

@jim & Luis,

I know this is NY and not Boston but the same concept applies. And it's funny.

As the day ends, I really want to thank everyone who took time to provide feedback for me. It meant a lot to get it and I have printed out all of the comments and will be going through each and every suggestion in the days to come to create an action plan. Thanks to you too FMF for offering this reader profile series!

Believe it or not, I never considered myself high income but now I know I am (thanks Jim!) I do have to say, looking at the map Jim provided, when I right click on the suburb I live in, the median house hold income is pretty high ($161k from 2009).

But this is all the more reason to make sure that as long as we can maintain these high incomes (no guarantee that the next job after another recession/layoff will pay so well) that we make the most of what we are making now by following your suggestions.

@RLK - I will check out Russos again. I had been there a number of times before but found it so crowded and designed so poorly that I couldn't appreciate the cost savings when I felt like I just wanted to get out of there (I am normally a pacifist but the place was so jam packed with rude people when I was there I felt like throwing a coconut at some of them :-)). I have heard that when the doors first open (7am on a weekday) it is deserted so I will try that on my next work at home day.

@JM - I will check out Melrose - I have never been there but you paint a really nice picture so thank you! :-)

Thanks again everyone - you gave me a lot to think about and I intend to investigate every option thanks to you and your suggestions and links. I am so very happy I recently discovered this blog and that FMF decided to post my reader profile so quickly.

I'm late to the comments and a lot of good advice has already been given. However, I wanted to comment on the childcare. While we don't live on a coast, we live somewhere that has a very high cost of childcare. We do not have our two kids in the most expensive option, what we pay is not too different from you, slightly less but same ballpark.

Anyway, I would cut our budget in so many places before I moved our kids to a cheaper option. Obviously, if I found a place I was just as excited about that was less, it would be a no brainer, but feeling good about where your kids spend their day is so important. A lot of people commented on your high childcare costs so I wanted to add that.

I also would not be so hard on yourself about the 'old parent' thing. You don't seem that old to me, and I would think in Boston having kids when you did is fairly normal.

Finally, I think the idea of homeownership is totally overrated. If you are in a great house that is priced well, why not stay? No property tax or repairs to worry about!

Continue maxing out your 401ks and pay off that house the year you'd like to retire and you'll be great (those childcare costs are pretty bad but will go away). The moment at which you can't max out that 401k you should know you're heading in the wrong direction.

If I were in your situation I would slightly reduce retirement savings while paying off your consumer debt and saving for a down payment.

I've enjoyed this profile. A few comments, hopefully helpful:
* I second the reviewing your witholding and adjusting. You said you don't have deductions, but that is for the tax return itself. You can adjust witholding to take out more from your check, it is your choice. Obvisously this would be less in monthly cash flow, but you wouldn't have the big hit at tax time to pay.
* Disability sounds very high, unless it is a huge amount of coverage. I too took out a disability policy right after being unemployed, and right after my children were born, I am about the same in age and children, but a few years later in the process. You can't get disability while unemployed, so I wanted something as a "gap" coverage in case of a disability during unemployment, and I was the sole income. I have kept that policy of $35k benefit at $75/month for 10 years, despite having LTD coverage from employeers since then. You have to check the fine print on your IT companies LTD policy, to see if they will still pay LTD if you claim your outside policy. I have found most do, but a few won't, and it is a real pain tracking it down. So I would check that, and then shop around somewhat.
* You may want to check out Dave Ramsey's Financial Peace book. He covers a lot of the topics you seem concerned about, and he has referrals to vendors(like Zander for LTD). Real good for working closely with your spouse also.
* Be careful on qualifying for a big mortgage, and relying on two incomes to qualify and pay it. Especially with the risk of layoffs, and your spouses incomes being close to equal.
* A longshot, but wanted to throw it out there: Any chance of buying a multifamily, and living in one of the units? I know there are a lot of them in the Boston area, but not sure if they are in the neighborhoods you want to live in. It would help cut the risk, buy having income from the other units to cover part of the mortgage.
* To reduce risk during layoffs, have both spouses invest in LinkedIn and other networks, see the recent post on this in FMF. LinkedIn is great for IT folks.

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