New babies means a new budget. Wife and I are working through it over next few weeks.

Because they are preemies, we have decided to avoid daycare for first 9 months. Our boys are at high risk of infection and sickness, so we need to protect them from diseases like RSV and other illnesses.

Issue 1- tax return is expected to be 4k (refund in 07 without kids was 3k+). The plan is to change wife's withholdings and bring home about $400 more per month.

Issue 2- wife's student loans were paid off with 2007 tax return. Monthly savings of $220.

$620/month should pay for diapers and formula.

That should allow the Roth's to stay in the budget at $875/month for 2008 and maybe 2009.

Issue 3- I am losing 10k cash income per year from soccer because my work schedule is moving from 8-5 to 2-10. The benefit to this is we will not need to pay for daycare.

Issue 4: My wife's car lease is up in Aug of 09. That is $350/month we need to keep in budget to get her another car. She puts around 50k miles on car every 3 years for work (travels quite a bit locally). More than likely another lease. We will owe close to 4k when we turn this lease in as well.

Issue 5: My truck payment of $700 will be done in Aug of 2010. This money comes into budget for something.

Suggestion 6: Take the $700 truck payment and apply it to 2nd mortgage (7.5% interest rate). 2nd mortgage is 55k or so right now. My math had the $700 paying this off in 5-7 years at around 2015.

Suggestion 7: take the $700 car payment and $400 mortgage payment and start a multiprong weath building strategy:
$300 for college fund twin A
$300 for college fund- twin B
$500 into new car fund for me
All $1100 is actually the same account because all needs are medium term. PRPFX is fund I use for this account (this is also the mortgage paydown account/ secondary emergency fund).

Overall plan up to this point is to retire at age 53 (kids will be 18 then). We have 160k already set aside, and set aside close to 17k per year for retirement.

Thoughts?

2007 tax year summary:

Married filing jointly

Gross Income 103k
Adjusted Gross Income 65k
effective tax rate 8%

That was my lowest effective tax rate since working full time. I am curious what others effective tax rate is?

My wife and I had an irritable discussion. We need to free up 13k per year to pay for day care (twins are due in June- babies 1 and 2 for us).

We found most of it:
$625 (cancel my Roth IRA payment each month)
$250 (cancel wife's Roth IRA payment each month)
$220 (pay of wife's student loans early.

I remember a budget conversation 2 years ago and I had mapped out a plan to pay off wife's student loans by April or May. Then a few months after the conversation she changed her mind. Now that we need the money the discussion was not pleasent.

It will take $3000 to pay off the loans (to free up the $220/month needed). Loans are small ($600, $700, $400, $700, $550 type ammounts) with low interest (7%).

It's tough when one spouse plans (me) and one does what she feels like (wife).

Irritable discussion- that's our PC term for we did not agree.

Got a letter from the IRS yesterday. 2005 tax returns were incorrect. I sold $6500 worth of stock and never received the 1099. We moved twice between the sale and the tax return (the sale was part of our house down payment).

JP Morgan did not have our updated address.

In addition to that my wife had some stock which was liquidated from toysrus. My wife is 32. She worked at kidsRus when she was 17-18. 1099 was not received either. This was a $31 tax hit.

Came home a few days ago and there were 2 credit card bills waiting.

One was from a business trip my wife took. Bill was $1200 and needless to say her expense check was slightly more than half the bill.

One was from a soccer purchase I did last October and I gave my wife the cash to pay the bill off.

Because she does the checking account month to month I did not see these bills until this week. OUCH.

Add to that our bank was charging us $5 for each of my 7 mutual fund purchases in my IRA, plus a $15 excessive transaction fee which I just caught.

I went ballistic on Tuesday. The wife was not happy at how upset I got over what she called "little" things.

Since then, called the bank and they waived all the fees.

Tapping into emergency funds to pay off the credit cards. I am more relaxed now, but I didn't sleep too well until this was taken care of.

There are 2-3 threads going with pay down mortgage or investing... and when it "makes sense" to pay down mortgage.

All calculations were done with a spreadsheet downloaded from microsoft. I modified sheet, some, but all this could be done with standard sheet and somewhere to write down if then answers.

Issue #1, being debt free has a psychological value, and this post is not meant to demean, replace, or suggest what that value is.

Issue #2, paying down a mortgage is "risk free" rate of return. Whatever loan rate is (5%, 5.75%, 6%) is the lowest risk investment you have, assuming savings accounts, T Bills and other fixed income securities yield less than the interest rate on mortgage.

The numbers

100k mortgage, 6% interest rate. Payment is $599.55. First month is $99.55 principal and $500 interest. Total 30 yr interest payment is $115,838.19. Loan repyament period is 360 months (30 yr fixed).

Situation 1. pay extra $50 each month. Overall interest reduced to $91,268 (saved about 14k), repayment period shrunk to 295 months (saved 65 months*599.55=38970.75 of loan payments.

Total extra payment was 295*50=$14750.

situation cost $14750 over 295 months to save $63,540 over 65 months.

situation 2. Pay $100 extra per month for first 10 years. Overall interest reduced to $82,974.02 (saved $32864). Repayment period shrunk to 286 months (9 months shorter than above). Saved 74 months*599.55=$44,366.70 in payments.

Total extra payment was 120*100=$12,000 (2750 less than situation above).

situation cost $12000 over 120 months to save $77230 over 74 months.

Meaning the extra payments were fewer, cost you less out of pocket, and saved you more money. This is because these payments were applied eariler in loan period. Early repayments count more than later repayments.

situation 3. Person pays $200/month starting in year 20. overall interest paid is $109,846 (27k more than previous situation, 6k less than standard 30 yr fixed). repayment period shrunk to 323 months. This is nearly 40 months more than previous situation.

The extra payment in situation 3 was $16,800 (the highest of the 3 situations). Because the extra was paid at the end of the loan, it did not "compound" in reverse as much as lower payments applied earlier.

Does anyone out there have an HSA with a high deductable health plan?

Second question- does it work well?

Third question- do you have kids and how old?

Curious how many sources of income people out there have?

I work my day job, which pays the bills. I train soccer teams at night which nets ~9k a year. This goes to vacations, savings and other frivoulous spending. My wife also works a day job.

How do others supplement their income?

You can measure financial success many different ways.

1) No debt
2) Amount of discretionary Income
3) Savings/ Retirement goal
4) Pay off Mortgage
5) Net worth
6) The number of people which ask you for money.

My personal measure of financial success is to pay for a new car in cash.

My intermediate steps to accomplish this is simple. Each time we buy a new car, we finance it for one year less than we did before.

In 1995 I bought a new Saturn SC2 for 66 months of financing.
In 2000 we bought a new Ford Focus. 4 years of financing.

In 2006 we bought two new cars on the same day (Honda Ridgeline and Honda Accord). We cheated- one car was financed for 4 years and one financed for 3 years. When the cars are paid off the money budgeted for the payment is going to accumulate in the savings account until we need our next car (6 years later).


The next car is a two year payment plan. Bank the payment years 3-10.

The car after that is a one year financing. Bank payment years 2-10.

The next car will be paid in CASH!

The plan is simple.

Create a budget and use the various accounts to set up automatic payments.

4 payments come out of one account (2 IRAs and 2 mortgage payments)

~5 monthly utilities come out of another (all paid electronically or automatically).

~4 bills which will eventually "go away" are paid from another account. When the bills go away, this account starts to accumulate money.

any weekly expense must be paid in cash. If we don't have the money, we do without. We don't need to track every penny we spend, we just need to know how to make $100 in gas money last two weeks.

I drive a full size pickup everywhere we go... so $50 gas/week is not always easy.

We set aside money for retirement prior to doing anything. Right now it's 20% (or close) of gross income. As salary increases, this % goes down (IRA limits favor lower-middle income earners).

Cash accumulates in accounts slowly. Our monthly emergency is the IRA payments. We could stop an IRA payment and save $900 that month. There is always one mortgage payment in bank as well.

My emphasis in our house (between my wife and me) is to keep spending on budget.

There are 2 or 3 things which influence the budget and how I do things.

First is multiple bank accounts are a good thing. We have 4 bank accounts (at two different banks). Checking and Savings Accounts used for various reasons (more on this later).

Second is debit cards are BAD things. Cash rules.

Third, over budget and under pay to create a minimal cash buffer.

We look at out bills and organize them-
long term debt (mortgages), permanent monthly expenses (like IRA's), permanent monthly bills (like electric, gas, cell phones, insurance, home phone, satellite dish), mid term monthly expenses (car payments) and permanent monthly CASH expenses (gas for cars, grocery, hair appointments).

Long term debt and permanent monthly expenses come out of one SAVINGS account. In our case this budget is $1660 for 1st mortgage, $430 for second mortgage, $480 for escrow (prop taxes and insurance), $625/month for my Roth IRA and $350 for my wife's Roth IRA. The $625 maxes out IRA for me in June, the remaining months this is accumulating a cash buffer in this account.

Permanent monthly bills come out of a checking account. We overbudget as much as possible (gas/electric bill budget is $300/mo, we don't come close to this 6 months a year in Ohio). There is no debit card for this account, so this money accumulates "slowly".

We have a second SAVINGS account for mid term monthly bills (our two car payments). We also have our cell phone coming out of this account... When a car gets paid off, this account accumulates money.

We have a second checking account which is for cash expenses. Groceries, Gas and hair salon are cash expenses. This account zeros out the day we withdraw the cash.

We have two incomes.

I get paid twice a month. $1700 from each of my paychecks get put into account for the mortgage and IRAs. The rest is in the checking account we pay monthly bills out of.

My wife gets paid biweekly. This complicates calculations... if you look at our spread sheet for a given month we may run one account at a deficit (until we hit that month where she gets 3 pay checks). But trash bill comes once every 3 months, as does sewer/water... so it evens out over course of year- not to mention electric bill is not as high as we budget. But it's important to look at this at both weekly/monthly/yearly expenses relative to paydays.

We calculate how much cash we need for groceries ($75/week), hair ($20/week) and gas ($100/week), then make sure $390 from each of my wife's paychecks is put into the checking account. We withdraw it all in CASH. It must last two weeks. My wife gets her hair done 6-8X per year, so that $20 adds up to the real $90 hair appointment for her and $10 hair cut for me.

Conventional wisdom suggests you want 2-4 months "cash" for expenses in event of emergency (loss of job, other emergency).

This is good advice... my advice suggests that the "cash" portion of this can be better utilized within a budget.

Goal #1 is create a budget
Goal #1a is save 10% as part of that budget.
Goal #2 is remove debt. There is no "good debt". There is bad debt, worse debt and "I can't believe I financed that" debt.
Goal

everything else depends on the budget.