Areas for improvement/weaknesses?

[dlyssesuouglas]

I thought I’d post our current situation and get some feedback on areas of weakness or places we should improve.

Profile:
30M, married. 1 child (9mos) planning 1-2 more within next 5 years.

Income: $96k, 100% work from home. Wife stays home with children.

Assets:
Home: $250k value, $175k mortgage ($1200/mo PITI) at 3.25%, matures in 2049. Built 1998, New roof, floors, and paint. Home will be sufficient for 3 children as mentioned. $500/mo sinking fund for repairs, maintenance and furnishings.

Cash: $60k in HYSA/t-bills

401(k): $60k (40k Roth/20k pretax match), contributing $6k, $3k match

IRA: $35k (401k roll over)

Roth IRA: $37k, contributing $6500 (max out every year)

HSA: $35k, contributing $7850 (max out every year)

Vehicles: $500/mo sinking fund for repairs and replacement.

20 year old sedan. Runs fine, well maintained. 235k miles

7 year old SUV, no issues. 150k miles

Insurance: 1.5 million term policies maturing between 2041-2046.

Liabilities:

$29k student loans. Rates range from 3.4% -4.65%

What are some areas of financial weakness we need to consider?

Thanks in advance!

Edit: also have $35k in a brokerage in various funds.

 

[sowhatwithit]

@dlyssesuouglas Not exactly sure why you’re carrying the extra debt. It would seem like a great idea for the wife to get even a part time job and y’all pay down that debt. You can have it gone in 2 years at $1000 a month which is more than easy to earn from a few hours a week part time job.

Other than that, what about your kids future? You can start a 529 at any time. If you have a family business, you can also register $6500 earned income each from it and put it toward their own Roth IRA. Both the 529 and Roth will be very helpful for them in 20 years.

The last part is personal growth. I am not seeing much opportunity in your budget for fun and growth activities. This can be vacations, hobbies, classes, entertainment, experiences etc. It is important to spend on this also.

 

[dlyssesuouglas]

@sowhatwithit Thanks for the response! We’re only holding onto the student loans because our cash (mostly t-bills) is paying more than the interest in those loans,m. If/when the Feds decide to drop rates we’ll take the cash and pay them off. It might only be a couple hundred bucks a year, but to me it’s worth it.

We’ve talked about her working once the first baby is a little more independent. I’ve thought about starting our own business (couple different ideas), but we’ve been on the fence about it. We really need to sit down and come up with a plan.

I’ve debated the 529, mainly because there are no incentives in my state besides the tax deferred growth. With the recent legislation regarding the ability to roll over a 529 to a Roth IRA I probably need to revisit that.

We don’t have a ton in the budget for growth. We’ve both recently completed graduate school (company paid for it), so we were Both little burnt out there. We do need to sit down and talk about vacation budgeting now that the baby is more active and we can actually do something.

 

[sowhatwithit]

@dlyssesuouglas Vacation and hobbies I consider personal growth. Get new experiences and build those key memories for your kids.

 

[metanoiabum]

@dlyssesuouglas You can roll over only a total of 35k.

 

[resjudicata]

@dlyssesuouglas It looks like your immediate needs are covered, so I would focus on your long-term buckets. It looks like you are on track for retirement (1.38x salary at age 30). Do you plan on staying in your home forever? If so, then the housing bucket should be good too. Health expenditures should be fine with that large HSA balance.

I would focus on your kids college education. How do you plan on paying for three kids to attend college? That could easily be $400-$500K. That would be my priority now, since you are on track for retirement, and that first college check will need to be written in 18 years.

 

[dlyssesuouglas]

@resjudicata We have not plans of leaving the home we’re in, at least not until retirement (obviously if I got some insane job offer that could change).

As far as the children we’re going to be highly encouraging them to consider college vs trades and if they want to do college we will impress upon them community college as a cost effective way to get a large chunk of their education done. Someone else had mentioned a 529, and I’ve looked at it before but never pulled the trigger.

 

[seabird9]

@dlyssesuouglas Thanks for posting, honestly, this looks pretty good to me with your income and is somewhat aspirational for me.

I'm 32M, and make 89k. Wife makes around the same rn, but we want to go to one income when we start a family, so we'll be very much like OP's situation soon.

110k in various retirement accounts, 20k emergency, 7k HSA, and about 42k in t-bills set aside for a house purchase. Recently paid off 85k in student loans (5.75%).

You have 16% going to retirement (inclusive of match) AND maxing HSA. That looks very solid to me. Our housing costs will probably be around 2300/mon which likely precludes contributing that much, but will keep 15% going to retirement myself.

You effectively have the loans paid, great net worth for your age, and an income (and wise housing decision) that can allow for a SAHP. I say just keep churning and divert funds to lifestyle/529 as able with raises.

 

[dlyssesuouglas]

@seabird9 Thanks and it has been tough. The wife and I both used to make the same as well and then she became a SAHM earlier this year with our first. It’s definitely taken a bit of sacrifices to make it happen. I just turned down a job I was over the moon about because we simply couldn’t make it work AND be able to maintain our overall savings and her be a SAHM. It was a 30% raise, but the COL and higher interest rates made it so we would have broke even or made slightly less.

 

[seabird9]

@dlyssesuouglas It honestly sounds tough! You're contributing ~20k (21%) towards retirement/HSA on a 96k salary while supporting a family. That's commendable. I just plugged in your contributions and initial amounts in your accounts/HSA and with a 7% return, you'll have ~680k by the time you're 40 (if you don't touch anything).

I walked away from a dream job this year to take a slightly higher paycheck, 100% WFH, and be closer to family. Sucks giving up a job like that, but it makes me more available for the future family and puts us in a better financial position and I've come to terms with that being more valuable to me.

For me, middle class is being in a position to get what you want, but having to make sacrifices for it. Ymmv, but I think could retire early (

 

[leslie1984]

@dlyssesuouglas This all looks great, great job setting yourselves up for the future!

I have four suggestions, but I think you're on the path to success whether you take them or not:

First, for the years kids are going to be born, make sure to assess if HDHP/HSA is actually worth it vs getting onto a PPO or more traditional plan. As I'm sure you know, births can be pretty expensive, so it's always worth assessing upcoming medical costs year over year to see what plan makes sense.

Second, know your retirement numbers. Have a good idea of what timeline you are on for retirement. How much do you need? When do you think you'll get there? Check out the four percent rule for retirement if you haven't. Knowing how much you need and how you're doing on track will help you assess when it makes sense to save for 529s, pay off lower interest debt early, etc. It will also let you really understand what saving 1-5% more or less will do to your retirement timeline. "Financial independence" is the term I'd google to get started here, though you may already be familiar.

Third, take a look at disability insurance. Term life is the most important insurance, but having disability insurance on yourself might also be a good idea if you can get it affordably.

Fourth, since you're clearly already taking a disciplined approach to finances, make sure you budget to enjoy life. Make sure to have some amount of budget per month for fun. Vacations don't have to be expensive to be memorable and worthwhile. No amount of money can buy back yesterday, so enjoy this while you've got it!

 

[dlyssesuouglas]

@leslie1984 Thanks for the advice!

On number 1, I have done the analysis every year for the last 6 years and the HDHP comes out ahead since we’ve gone to the doctor maybe 3 times in those 6 year (pre pregnancy). The wife actually wanted to do a home birth so we hired a midwife to facilitate. Total cost was around $3000 all in all. She and her mother have done roughly 1000 births since 1982. Very experienced. (Fun anecdote, they were actually late and my wife labored fast, so I had to deliver the baby. WILD TIME MAN). still came out much cheaper than the plan with more coverage. Obviously we may need the hospital some day, hence maxing the HSA.

2) I’ve bounced all around on a retirement number for some time. It’s been $3M throughout my 20s. I’ve been concerned about expected returns and inflation (which apparently was justified looking back the last couple years). I’ve been reconsidering more recently and think $2.5M might be more reasonable for the type of retirement we want. Obviously as we get older that number goes down due to a shorter draw down. I’ll keep reviewing periodically.

3) disability insurance is definitely an area I’ve neglected. Mainly out ignoring it’s a possibility (obviously it is possible). My father recently got injured at work and has been off for the better part of a year. I need to review options. Thanks for the reminder.

4) probably the most neglected area is our fun budget. Most of our disposable income has been going to stuff for the baby but that’s been slowing down. We’ll plan a vacation for next fall. We went to Clearwater, FL for our honeymoon and both want to go back but keep making excuses. We’ll figure something out.

Thanks for the help!

 

[gowdy]

@dlyssesuouglas Health is wealth. You and your wife should at minimum each have a yearly comprehensive physical. And don’t neglect your teeth either. Also, with kids you will be visiting the doctor more. So either put more in the HSA or revisit your HDHP vs PPO analysis. And really scrutinize the 2 vs 3 kids decision. 3 kids puts you in a different size car, requiring 2 hotel rooms or a surcharge for an extra person and a rollaway bed. And on and on and on.

 

[gowdy]

@dlyssesuouglas Health is wealth. You and your wife should at minimum each have a yearly comprehensive physical. And don’t neglect your teeth either. Also, with kids you will be visiting the doctor more. So either put more in the HSA or revisit your HDHP vs PPO analysis. And really scrutinize the 2 vs 3 kids decision. 3 kids puts you in a different size car, requiring 2 hotel rooms or a surcharge for an extra person and a rollaway bed. And on and on and on. And fyi 529 accounts can be used for any educational purpose, including community college and trade school so foregoing the tax sheltered growth of them doesn’t make sense.