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12-16-2012 at 4:52 PM
ChristyD6
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ChristyD6 is not online. Last active: 05-25-2013, 6:09 PMSilver

Budget help needed

Sorry this is long, I couldn't figure I good way to write this as a bulleted list.

 

We are trying to figure out where in our budget we are going to get money for daycare when our baby comes in June. We are looking at cell phone plans, we don't have cable, trying to cut grocery bills, etc but that may not be enough. Here's my question: If small cuts aren't enough, which of these should we cut first.

I have $25,000 in student loans at 6.5%. In three years I have paid them down from $70,000 because it really stresses me out to have debt, even "good debt". The minimum is around $400/mo but I usually pay at least $900 to $1,200 a month. At $900/mo they will be paid off in 2.5yrs. Meaning, 2yrs to go after baby arrives unless I go back to making the minimum payment which would then take 5yr to pay off. 

The other huge item that could be flexible is my retirement contribution. I do 20% into a 401k with a 3% company match and I put 5% into an IRA. I currently have $78,000  in those accounts. For this year I've been getting 12% returns. I am 28 and DH is 30. At this point we rely solely on my retirement accounts because he isn't offered any from work. He pays all the household bills including our mortgage.

 Even though I know that making 12% is better than paying 6%, psychologically I hate having loans. I'm leaning towards cutting back on retirement, still getting the company match but not 20%, for the <2 yrs it takes to finish paying off my loans because after they are paid off we will have a lot more available cash each month. What would you do?
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12-16-2012 at 8:18 PM
LS45
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How much are you estimating spending on daycare for your baby?  Personally, I think the compounding interest that you get from retirement investments would be more beneficial than paying off your student loans in 2 years versus 5.  However, I understand wanting to get them paid off.  Can you compromise and reduce your loan payment by a couple hundred of dollars to $700/mo and reduce retirement savings by 3% or so to make up the difference between your budget and the estimated childcare expenses?
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12-16-2012 at 9:00 PM
Wulfgar
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In this case I agree with you on reducing your retirement amount while paying for child care. What you might want to do is reduce it now so that you can put that money towards your student loans until the child is born that way you can pay off your student loans quicker.
 
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12-17-2012 at 12:49 AM
WishIcould...
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Dude, you know you're getting better gains than you are suffering in interest. You admit this is psychological. I hate having debt too, but I hated missing gains in 2010 more. That's when I learned my expensive lesson. 

Do whatever you have to do to let math win and psyche lose.  
 
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12-17-2012 at 8:06 AM
polooo26
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I would reduce my 401k down to meet the company match until the student loan is paid off. My reasoning is by transfering the 401k money to pay off a loan that is 6.5% you get a guaranteed 6.5% return. That kind of return is very hard to find right now. You've already done good to get that much into retirement. Now that you have a baby on the way you might have to cut back for a while.

I used to contribute 25% and max out my roth IRA before I had a family and I'm now down to just getting the company match in my 401k. It sucks, but you have to take care of your current needs first before your retirement needs.

Once the student loan is paid off and daycare payments kick in I would revisit how much I could put into my 401k and roth IRA.
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12-17-2012 at 2:32 PM
pamperedgi...
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Wulfgar:
In this case I agree with you on reducing your retirement amount while paying for child care. What you might want to do is reduce it now so that you can put that money towards your student loans until the child is born that way you can pay off your student loans quicker.

this sounds like the best idea to me. cut back your retirement funding now. when your student loans are paid off then use that money to increase your retirement fund.

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12-17-2012 at 6:53 PM
ChristyD6
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Thanks for the feedback. We aren't sure how much daycare costs will be exactly, but probably around $1,000 or so a month and some of that money is coming from other areas of our budget so hopefully I won't have to cut too much from either 401k or student loans.... good thing I have 6 more months to figure it out!
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12-17-2012 at 6:55 PM
ChristyD6
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WishIcouldbeinthe'stan:

Dude, you know you're getting better gains than you are suffering in interest. You admit this is psychological. I hate having debt too, but I hated missing gains in 2010 more. That's when I learned my expensive lesson. 

Do whatever you have to do to let math win and psyche lose.  

I know you are right... but errr I hate loans!  We are going to schedule an appointment with our financial guy and he is very logical, so I'm sure he will agree with you.

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12-18-2012 at 8:42 AM
polooo26
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ChristyD6:
WishIcouldbeinthe'stan:

Dude, you know you're getting better gains than you are suffering in interest. You admit this is psychological. I hate having debt too, but I hated missing gains in 2010 more. That's when I learned my expensive lesson. 

Do whatever you have to do to let math win and psyche lose.  

I know you are right... but errr I hate loans!  We are going to schedule an appointment with our financial guy and he is very logical, so I'm sure he will agree with you.

You may not always good those good gains though. Those gains come at a risk. 2010 was a good year. 2011 was down 3%. 2012 is going to be a good year. 2009 was a great year. People lost half their money in 2008. It all goes back and forth and in the end you'll have an average return. People used to say that was 10%, then 8%, and now a moderate return is considered to be 5%. Paying back your loans is like investing risk free at 6.5%. I would personally take that in a heart beat.
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12-30-2012 at 6:57 PM
ChristyD6
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ChristyD6 is not online. Last active: 05-25-2013, 6:09 PMSilver
polooo26:
ChristyD6:
WishIcouldbeinthe'stan:

Dude, you know you're getting better gains than you are suffering in interest. You admit this is psychological. I hate having debt too, but I hated missing gains in 2010 more. That's when I learned my expensive lesson. 

Do whatever you have to do to let math win and psyche lose.  

I know you are right... but errr I hate loans!  We are going to schedule an appointment with our financial guy and he is very logical, so I'm sure he will agree with you.

You may not always good those good gains though. Those gains come at a risk. 2010 was a good year. 2011 was down 3%. 2012 is going to be a good year. 2009 was a great year. People lost half their money in 2008. It all goes back and forth and in the end you'll have an average return. People used to say that was 10%, then 8%, and now a moderate return is considered to be 5%. Paying back your loans is like investing risk free at 6.5%. I would personally take that in a heart beat.

Thank you for your input as well!

Baby has some long legs! BabyFruit Ticker 
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