Advice

My problem is that I need more disposable cash now so that I can prepare our home for our future family (addition). The only way I can see to do this is to back out money on our investments. (I know...I know....I can already hear your response: Don't do it!!) I am 28 years old and my wife is 27. We have a combined sallary of 90k. I am a teacher and will have a state pension. I also contribute 200 a month to a roth IRA. It currently has 3k in it. My wife contributes 50 a month to her roth IRA. It currently has 8k in it. She also contributes 150 a month to her 401 K which gets a 50% match. We both have school loans. I have about 4 years left on mine. I pay 200 a month (50 bucks over the minimum amount due) I have about 10k left on that loan. My wife also pays 200 a month on hers (40 bucks over the minimum amount due). She has about 20k left on hers. Both of our school loans have about a 3 percent interest rate.........so it relatively low.
Remember my problem: I need more disposable cash. We have no car loan right now but are saving 215 dollars a month for when one of our vehicles does go. We have a strong emergency fund as well. I also have a vacation fund set up that we contribute about 100 a month to. We use this to ease the pang of vacations.....which are not that often. we also set aside 300 dollars a month in a fund we call the 'house' fund. This is the fund that we need to build more cash in for the addition. The only way I can see us accelerating its growth is to pull out our investment money for a year or so so that it can grow faster. Remember I don't have the luxury of saving for years and years for this addition. Are investment companies tell us that the minimum contribution rate to our Roth IRA is 50 bucks a peice. If we were to only contribute the minimum for a year or so and if we stopped contributing to her 401 K we could start socking away an additional 300 dollars a month for this 'house' fund. Does this sound reasonable. I know its bad to reduce investments but I dont see anyother way. Thanks for any suggestions.

I'm so totally confused.

By "addition", do you mean (1) that you want to have kids sometime in the future, (2) that you and your wife are expecting at this very moment, (3) that you need to add a room onto the house in case you ever have children, or (4) that you need to add a room on pretty soon because your wife is pregnant right now?

In short, what, exactly, is the timeline, and how much do you need?

In the case of:

(1) -- kids are a choice, meaning you don't have to have them now, or don't have to have them at all, especially if you feel you can't afford them. If you mean to save for this kind of "addition", what are you saving for? For the health care costs associated with pregnancy? -- for a spiffy new crib? -- for a Diaper Genie? Because I can't imagine that there are people who can actually save up for ALL the things a baby costs them. (According to a calculator at babycentral.com, even in my rural neck of the woods, raising a child to 18, without paying for college, will cost $280,000.)

(2) -- Well, if she's pregnant as we speak, the "choice" has been made. This means you have no more than a nine-month timeframe, which severely limits how much you can save. But the question remains, what are you saving for? -- see above on the limitations of saving for all baby-related expenses.

(3) -- Do you really need to add a room onto the house? Can an existing room be converted? Can you move to a larger home instead of making an addition to this one?

(4) -- Again, in this case, you're getting into a timeframe issue.

The reason why most of us say that you should NOT curtail saving is two-fold -- first, because you lose all that time and compound interest, but more importantly, because once you get out of the habit of saving, and living on that "extra" income, it's very difficult to get back into that state of mind. Especially if you're curtailing income for a baby -- babies are financial black holes, and if you choose to stop saving, there probably won't come a time when the baby doesn't need SOMETHING, and you feel safe in saving once again. My strongly emphasized advice would be that if you want a baby, you have to learn to pay for Baby with the income you have.

But, in any case, I think it would be wiser to take money from the car fund, or the vacation fund, rather than the retirement fund. Between car and vacation, you've got the $300 you're looking for.

Another way to finance home improvement is to tap your home equity.

And the final way -- one of the best ways, actually -- would be to increase your income. Can you and your wife each go to your respective employers, and negotiate a mere $2k a year raise each? That would provide the needed $300/mo. Another way would be to get another job. Some of my teacher-friends make money tutoring online (tutor.com is the one where they are employed). One friend works a few hours an evening, and makes $160/mo extra. I teach as an adjunct at a local two-year college over the summertime, and augment my salary to the tune of $800/mo over the three summer months!

Puck,
Should have been more careful with my words. We want to make the house bigger and more livable for two reasons........we want two children someday.....three to four years away......and we want the house to be more custom to our needs. Negotiating more money from my 'boss' is out of the question.....I'm a teacher. I could get another job....but don't want to. Moving is pretty much out of the question becasue I think this would cause cost more money in the long run........we just moved and closed on this place six month ago............and I can do most of the construction to this new addition myself.......as I do this during the summer months I have off and have all of the tools and expereience at my finger tips. Thanks for the adivce.......Im condidering our options very carefuly and respect your knowledge and opinion. Thanks
Chris

Ah, good, then! You have some years as a timeframe!

Do you have a vo-tech school/college in your area? A lot of vo-techs in Georgia are moving to be two-year colleges, and as such, they have a lot of students needing remediation in basic skills. If you teach math or english, you could get an evening or weekend gig at a vo-tech, teaching remedial classes. I mention vo-techs specifically, because here in Georgia, you don't need a Masters to teach at a vo-tech -- all you need is a Bachelors (don't know your degrees), and experience in the field. Teaching adjunct can net $1100-1800 per class per semester, for just an evening or two per week.

Another option you can consider is a company one of my clients works with. He is a distributor with EcoQuest International retailing air purification units. It's a legit multi-level-marketing company (though my client doesn't network, he just sells the machines) Each machine will net profit around $250 and they are fairly easy to sell from what I hear. I considered actually selling them on the side myself but decided not to at the moment.
It may sound like something not up your alley, but I would highly recommend you at least look at the site and maybe contact someone for some information. http://www.ecoquestintl.com

-Joe

I agree with the summer work/tutoring ideas. Could you also finance part of the addition with a home equity loan? Ordinarily, I deplore all the home equity loan financing that's going towards cruises, paying off credit cards (especially when the borrower does nothing to change spending habits), and "stuff", but to me the one legitimate reason for re-financing is to improve the house. You'd want to make sure you're close to paying it off by the time you have kids, though- even if your wife goes back to work you're going to end up with less money due to day care expenses.

Another thought- see the discussion on living like it's the 1970s. You do NOT owe each child his/her own bedroom. I come from a family of 5 children and we lived in 3-bedroom houses till I was 13. Was it fun? No. I shared a bedroom with my sister till I went away to college- even when we moved to the 4 BR one of my brothers got his own room since there were 3 boys. But we lived through it. A colleague of mine lived in a 2 BR with his wife and a son and daughter when the kids were little. The children were pre-school age and they shared a bedroom. Not a great solution as they get older (and they did buy a bigger house then), but OK in the very early years.

But do look into ways to earn more money now. You have more spare time now than you will when you have children!

Chris,

How much is the cost for the addition?

I tried to piece together a rough sketch with your first post. Obviously, you know your budget better than I do, especially large-dollar expenses such as mortgage, etc.

I am assuming you already own the home you want to add to. You can always get a HELOC or other home loan if necessary for this addition and get a nice tax break on the interest, plus this is a “good” loan (adding home value versus taking a cruise, etc.)

After all of your other bills, is the $215/month (car savings), $300/month (home savings) and $100/month (vacation savings) all of your extra “play” money, or is there more? Also, how much have you accumulated and is it gaining you some interest?

What are the rates of your and your wife’s student loans? If they are low enough, maybe consider paying the minimum due and putting the rest elsewhere.

How much is your wife contributing to her 401(k) and does it have a company match? She should at least take advantage of any “free” money her employer provides, but that is all in this case, for now.

Are the two of you maxing your Roth IRA? It sounds like you could, but I do not see if you do or not ($200/month for you = $2400 a year and $50/month for your wife = $600 a year). You need to still consider what is best for your retirement and max it out ($4000/year for each of you, considering your income and ages).

It sounds like you have enough income flow to make a few adjustments and make all of these goals work. Puck’s and Joe’s advice on additional sources of income are very good as well. Have a yard sale (or EBay sale) to raise some extra funds. You'd be suprised how much you could raise in just one weekend.

Remember, make sure you guys still have some fun while saving for this addition.

Athena,
See my post about living in the 70s...........I agree with everything you said.
josephdegroff,
Stop advertising.
Dingo,
Our emergency fund and other 'funds' car, vacation, house.......sit in a ING MM savings account and earn roughly 4.5 percent. Like you and Puck said ...we could free up that extra money if we wanted to redirect the vacation and car fund.....but then no fun (vacation) and not putting away for the car seems foolish as it will be inevetable that we will need this amount if not more when one of our two vehicles goes. Student loans have a very low interest rate (3%) so I could see backing off and contributing the minimum. Oh......also we do not own the home.....far from it. We will own in 22 years. We just bought it 6 months ago. I think also I have to keep in mind.....that every year I will make more money. There is no way that we could max our IRAs right now.......I'm writing this post in hopes for advice of freeing up disposable cash.....so it would be wise and nice if we could max out but its just not possible right now. Its funny you get inot a house and you just start to see things you could do to make it better.......I wish these visions also came with funding!! Thanks all.
Chris

Chris,

Everything you said makes some sense to me, except two things.

You can still attempt to max out your Roths. You can always borrow against the capital without penalty.

Do you really need a "car fund?" If one or both cars suddenly "go", you can still finance a new car at 5% or do a quick repair in some cases. At your ages, a Roth is more important than emergency car fundage (at least at $200/month) while still saving for a vacation.

Again, this is just my opinion. Have you shopped around for a HELOC? I would not sacrifice retirement funds (present or future) for the home addition while you still have alternative methods available to you.

Its funny you get inot a house and you just start to see things you could do to make it better.......I wish these visions also came with funding!!

You ain't woofin'! I started watching HGTV, and got a huge case of the "I wants". I saw each and every room through a new filter, and I didn't like what I saw. I was lucky -- icemaker line broke and flooded my kitchen, and insurance ended up paying for everything I detested about that room, from the flooring to the countertops (the workmen shattered them trying to move them for mold remediation) to the wallpaper -- and new carpet in over 2/3s of the house. I did the bathroom repairs (wallpaper removal, painting, new flooring) on my own, one summer at a time, for under $400. Now I just nickle and dime other repairs and improvements. Next stop -- new lighting in the kitchen.

But I guess the real solution is to stop watching home improvement shows! If all it does is give you the "I wants", when what you have is just fine, then turn away from temptation! (Is that not an apropos lesson for this Easter Sunday!) :D

I also agree that the car fund seems an extravagance at this time, especially when there are other options available. You'll dip into the emergency fund for a repair, while your insurance will help out SOME in the case of a complete loss. Then there are the amazing financing deals you can get -- one place near me is offering zero percent for 72 months to EVERYONE regardless of credit history. These are desperate times for the auto industry, my friend, and that's good for YOU.

As to vacations, I had to laugh. Welcome to the wonderful world of parenting! -- there are no more vacations! I think my parents took us on a grand total of ONE vacation in my entire 18 years with them (Busch Gardens, Tampa)! Dh and I aren't even parents, and we haven't had a vacation ( a "go away and pay for things like sleeping arrangements and transportation" vacation) in our entire 10 years together. When you can't afford it, you can't afford it, and you find other ways to take a relaxing break. DH and I will drive to a state park (there are 14 within 2 hours' drive from me), visit a nearby big city for the day, or simply rent movies and turn off the phone. I think once you have kids, you'll find that getting to drop them off at Granny's for a weekend constitutes a relaxing vacation. In short, you'll have options that don't demand a separate fund! :D

Essentially, it's a matter of priorities, for good or for bad. If you want kids, you may have to sacrifice things like new cars and vacations. If you want new cars and vacations, you might have to sacrifice things like kids. Many of us simply don't make enough money to afford all the things this life has to offer. But above all else, saving for retirement should absolutely be a priority!

Puck-

one point I wanted to mention on the crazy financing deals is that those typically apply to new cars only- the expensive ones. Everyone has different priorities, but to me car purchases are a gold mine for conserving your disposable income. All you have to do is buy something 2-3 years old. The last car I bought new was in 1991 and I will probably never buy another one new- just isn't worth it.

Chris, whether you save for your next car is up to you- just keep in mind that you can either get bargain financing on a new one or market financiang on a used one- but probably not the best of both worlds.

Athena,
josephdegroff,
Stop advertising.
Chris

Sorry to burst your bubble; I am not a distributor and I wasn't advertising; I was merely offering a solution that one of my clients has found helpful. You are welcome to take it or leave it.

-Joe

Advertising? I am an actuary for a reinsurance company. Sorry, Chris, but I'm not in the business, as I made clear from my sig line disclaimer.

Athena,
See my post about living in the 70s...........I agree with everything you said.


Athena,

I think you misread Chris' post. He complimented you.

Dingo

Dingo,
Thanks.......Josephdegroff was responsible for the mix-up......he/she did not quote what I had said to Athena.....instead he/she made it look like I was accusing both Athena and Josephdegroff of advertising....when the truth was that I was only accusing Josephdegroff of that.
Chris

You ain't woofin'! I started watching HGTV, and got a huge case of the "I wants". I saw each and every room through a new filter, and I didn't like what I saw.

We watch that channel as well and have similar pangs. I was watching "What You Get For the Money" on the Fine Living channel (dare to dream) yesterday (I think HGTV has a similar show called "My House is Worth What?"). They had the "$900k house" episode on and they had some very nice things.

I think we will simply replace appliances with stainless steel and MAYBE build a permanent covering (veranda?) over our porch before we sell (2 years from now). We already have one of only about a dozen or so 2-story houses in our neighborhood, and I know if you upgrade too much, you drive away more potentail buyers than you attract.

Dingo,
Thanks.......Josephdegroff was responsible for the mix-up......he/she did not quote what I had said to Athena.....instead he/she made it look like I was accusing both Athena and Josephdegroff of advertising....when the truth was that I was only accusing Josephdegroff of that.
Chris

My bad, I purposely did that after my advertisement. ;) It was an accident, I wasn't paying attention; I thought I deleted the top portion and must have missed deleting Athena's name.

It still wasn't an advertisement but merely an honest suggestion.

-Joe