Save our future children from being David Copperfield.

May 5, 2008 10:12 AM

Help us figure out if we can afford to have a family! Can two people on $200k a year have some babies?

The wife and I are planning to buy a house and have two kids. I'm trying to work out a budget, and failing. I have a hard time believing that it's not working out, and that perhaps I've made errors, or that my lifestyle is outrageous in some way I don't perceive. I need help to come up with a reasonable budget!

One problem is estimating the cost of raising a child in Silicon Valley. My guess is about $10k per kid per year, plus part-time day care (which is another $10k per kid per year through my work [more for infants, less for toddlers, but this is the average]). Is this accurate?

This budget includes a $500k mortgage on a $1M house, which is pretty low by local standards. I can't live with renting--that's just a non-starter for me. This is a psychological issue I cannot overcome.

It also includes large 401k contributions, which our financial planner recommended--and is apparently necessary if we're to retire. It would also be insane to turn down the $7500 employer match.

Here's our monthly budget (which seems austere to me):

auto insurance      $100

auto registration   $12

car maintenance     $116

clothes             $100

food                $1100

entertainment       $70

fuel                $200

gifts               $145

hobbies             $145

medical             $160

misc                $500

phone               $88

school loans        $804

dry cleaning        $12

travel              $458

401k                $2583

home maintenance    $550

house cleaning       $170

netflix             $15

gas & electric      $108

income tax          $2470

water & trash       $72

house payment	    $4784

children            $3400

Some items are amortized--for example, gifts and travel. The travel plans are for visiting family on the holidays plus a 1-week family vacation. We were told to set aside 0.5% of the house's value for maintenance (which, given the termites around here, is probably necessary).

The balance is that we're losing almost $1900 a month. How do people do this? I've tried coming up with budgets assuming we lived in other places, and the end result is remarkably similar--so I have a feeling it's not just Silicon Valley doing us in.

posted by Sockpuppet The First to work & money (95 comments total)

The balance is that we're losing almost $1900 a month. How do people do this? I've tried coming up with budgets assuming we lived in other places, and the end result is remarkably similar--so I have a feeling it's not just Silicon Valley doing us in.

...

Ok, well, in other places you wouldn't be spending nearly 5k a month on a mortgage.
posted by sondrialiac at 10:22 AM on May 5 [1 favorite]

How do people do this?

By cutting out, or cutting back on, the following:

home maintenance $550
house cleaning $170
misc $500
gifts $145
hobbies $145
car maintenance $116
clothes $100
netflix $15
travel $458

Either that, or buying a smaller house. And refinancing the school loans somehow.

Moreover, I think you need to do more work on determining your tax burden with the kids and the mortgage -- both of which will have positive effects.

Unfortunately, you're in the Silicon Valley. Just about anywhere else in the country will be significantly less expensive, on just about every metric.
posted by Cool Papa Bell at 10:22 AM on May 5

The one thing that jumps out at me is that "food" seems really expensive. Could you cut down on dinners and/or lunches out? Could you cut down your grocery bill at all? Eat vegetarian more often, or cook big batches of things like chili that will last several meals? I wouldn't expect that you would need to spend more than $100-$200 a week, but maybe I'm hopelessly out of touch...
posted by cider at 10:22 AM on May 5 [1 favorite]

What in the hell are you spending $1100 on FOOD for? And an almost 5k house payment? Jebus. At 6.5%, that's a 750k house.

I think people do it by 1) not spending $1100 on food (!) and 2) getting a house that reflects their needs, versus their wants. "Living within your means," I think the kids are calling it.
posted by squorch at 10:23 AM on May 5 [2 favorites]

You might need to make some decisions, but you can probably do it without even cutting down your 401K. Luckily, "hobbies" will go out the window (you'll have a new one). "Travel" will probably take a big hit too. "Dry cleaning" will go up.

Most importantly, children are cheep (assuming you don't have to dress them like move stars' kids) except for childcare, which you've already covered. They don't eat much and they live in your house.
posted by originalname37 at 10:23 AM on May 5

Also, the "food" seems reasonable (realistic) to me. I live in Boston and have two kids. I'm very busy, even though we rarely eat out, fast + healthy = expensive (like I said, even when you make it at home).
posted by originalname37 at 10:27 AM on May 5

This doesn't specifically address your budget concerns, but my mother always tells me (as she's reminding me she has fewer grandchildren than most of her friends) that if you wait until you can afford it to have kids, you never will. Go for it, and make adjustments accordingly.
posted by ferociouskitty at 10:28 AM on May 5

I dunno, maybe it's just Silicon Valley, but $1100 for food seems high to me, even for a family of four. This household (family of four; parents and us two "kids") spends approx. $720/month on food. We don't eat out regularly or anything.

I'm wondering what's included under "miscellaneous" as well--$500 a month for it? That's a lot. Can you whittle that down or get rid of it all together?

House cleaning--can you clean your house yourself?

There's no way you'd spend $5k/month on mortgage anywhere else. In the Buffalo, NY area, my friends who are homeowners have about a $1k/month payment.

If you're losing almost $1900/month, maybe you should aim for one child instead of two, as heartbreaking as that may be.
posted by Verdandi at 10:28 AM on May 5

I have a feeling it's not just Silicon Valley doing us in.

You are in the top 5% of income earners in the United States and most of us living in other places and in the lower 95% of income managed to have kids so it may well be Silicon Valley.
posted by octothorpe at 10:29 AM on May 5 [1 favorite]

One thing that stands out is your food budget. $1100 per month? That strikes me as a lot. I haven't lived in SiValley for a decade, but I'm paying about $512/mo for a family of 4, which works out to about $4.25 per meal per person.
posted by plinth at 10:29 AM on May 5

How is house cleaning $170 a month? A bucket and some soapy water and a sponge is like five bucks. And you only need to buy the bucket once.

Also, what's up with $2580 in the 401(k) each month? If you cut that down to $600 instead, you're golden.
posted by Greg Nog at 10:30 AM on May 5

I don't think most families raising 2 kids on $200K in Silly Valley max out both of their 401ks, which you seem to be doing in this budget. You might consider dialing it back to just the amount necessary to get the employer match, which is a more reasonable $625 a month. That takes care of your $1900 shortfall right there, more or less. I agree that turning down any part of the match is insane.

You also might benefit if you could figure a way to buy less house. This is a huge issue, because cheaper house can mean less space, more commute time, more gas expenditure, less tax write-off, and worse school district. But if you look at it, house is the single biggest line-item on your budget. Can you really afford the $1M house, even if it is the "average?" Even if you could find an $850K starter house instead and carry a $350K loan instead of a $500K one, you'd do a lot better. In fact, at the moment if you can get your loan in under the old $417K conforming cap, you'll pay about a percent less than you will for a FNMA-eligible loan under the new cap. That'll shave hundreds off your payment. It's also worth thinking about the fact that that giant house payment is an absolute non-negotiable; if disaster hits and you can't pay it, you stand to lose a lot, and houses are notoriously illiquid these days.

I also don't think your clothes, entertainment, hobbies, dry cleaning and phone budget are very realistic, unless the kids part of that stuff is lumped into "children."

You seem to be as smart and as aware of the issues as anyone, so I don't suppose I'm telling you anything new, just confirming what you already realize from my outside, mostly disinterested perspective.
posted by ikkyu2 at 10:30 AM on May 5 [2 favorites]

home maintenance $550
house cleaning $170

That's $720 a month that seems misappropriated. $550 for home maintenance? That's a lot of storm window caulk and gutter cleaning. What are you, remolding your mud room every month?

As for the cleaning... Granted, some people literally don't have time to clean their house and have to pay someone to do it, but if your time is stretched so thin that you can't even vacuum and dust occasionally, how's it going to be with kids? If you don't make adjustment such "time saving" expenditures will multiply...

Over all it sounds like you've fallen for classical American largesses of the type particular for the Valley.

Children are a significant lifestyle change. You shouldn't expect to have them without other parts of your life changing as well.

Seriously? You live in a million dollar home and you *can't* afford to have children? Something needs to change and fast...

You should plan to relocate to a part of the country where sustainable living is easier, preferably an area that isn't going to resemble a war zone in 20 years as $15 a gallon gas evens out the playing field between the haves and the have-nots.
posted by wfrgms at 10:31 AM on May 5 [1 favorite]

It's probably not realistic for you to both be maxing your 401(k) at this point. Your student loan payments also seem remarkably high - are they close to being payed off?

Where does the $3400/mo figure for the children come from? This seems very high (there are certainly people making 40k a year who have kids and pay the rent). You're also spending $20/person/day on food - this will go down since you can't continue eat out for every single meal.

Have you already included the effects of the mortgage interest payments in to your income tax figure?
posted by 0xFCAF at 10:31 AM on May 5

Does this budget include saving for college? Is that under the "children" category?
posted by amtho at 10:31 AM on May 5

Yes. You can do it. Many people around you with less are doing it every day.

DH and I had our first child when, combined, we made about $55K. Granted, we owned a house that cost us about $100K. Since then, we moved to a DC suburb and are making enough to not qualify for those checks the government is issuing now. We don't make as much as you though. Two things strike me as odd about your list of items.

First. Do you really spend $1,100 on food for you and your spouse currently? If so, you may need to start cooking more and eating out less. Take lunch to the office with you most days. I feed a family of 3 for about $100 a week. I assure you I can add in another person with little impact to my food budget. Eating out is what causes that to significantly jump.

Second, your mortgage payment seems really high for a $500K mortgage. Check with your lender about various options to lower your payment. I have a $400+K morgtage and pay under $3K a month on it.

Also, if your student loans are not consolidated, look into it. It can reduce your payment and extend your repayment time. Granted, you'll ultimately pay more against the loan. However, you can mitigate that by making an extra payment annually or some such. Also, you should consider a spousal consolidation. The lender will try to warn you against it because it can be an issue if there is ever a divorce.

Just some thoughts.
posted by onhazier at 10:31 AM on May 5

Also, your income tax will go down a lot. You'll see that you can easily afford it.
posted by originalname37 at 10:32 AM on May 5

Honestly children seems either very high or very low for me. If you're trying to include private school tuition it's far too low, if the only educational cost is part time child care I think you could slash it by $1000 immediately and probably by $1500. That would leave you $700 - $1200 per month (which I still think is very high). I think you underestimate the overlap between your childcare line item and food, entertainment, clothes, misc, and hobbies, since much of what you spend your time on will now involve your children and fall into one of these categories.

Other line items I would personally change: Food. Is this a lot of dining out? Lunches out at work? You won't be doing nearly as much with a baby at home. I don't think you can slash it a huge amount, but if you shop around a bit I think you could knock $300 off the top. Does it count both of you buying lunch out at work?

On preview: what everyone else said about taxes.
posted by true at 10:33 AM on May 5

I think your estimates for child costs are high. Then again, they may not be. The elephant in the middle of the room is the house. We do just fine with 2 kids and 100K a year, but we incur no day care costs since at the moment, my wife is home with the kids. We also do not buy them much (as compared to some others, as compared to other people, of course, the kids are spoiled). We also have a 235K house with a 1500 dollar payment. Your mortgage seems high, as others have pointed out. And your income tax payment seems high.

And $500 "Misc"? Misc. what? Lap dances? (I'm really sorry, but I had to get one jibe in with the other haters in the thread).

Anyway, if you want kids, you'll afford them the way people have afforded them since time immemorial - you won't spend the money on other stuff. We moved from the Bay Area to Atlanta to avoid that $5000 house payment.
posted by rhys at 10:33 AM on May 5

wfrgms, I wouldn't discount the maintenance figure. A $10k new roof or $15k new siding on a house will get you a lot of $550 months.
posted by 0xFCAF at 10:35 AM on May 5

Something that occurs to me is that there's a missing piece in this budget: where is the college fund for the kids?

Also, you don't mention it, but make sure that your medical expenses are adjusted to be out of pre-tax dollars. If you're really having $3300 of medical expenses a year your family will benefit from a health savings account.
posted by ikkyu2 at 10:36 AM on May 5

I have successfully raised two children by myself and I have never, ever made more than $35,000 a year. I started 25 years ago. My kids are fine. My daughter went to college. We've had a lot of fun over the years. Relax. Nobody can actually afford kids but my god, y'all make a ton of money. Of course you can have kids if you want to.
posted by mygothlaundry at 10:36 AM on May 5 [15 favorites]

First, notice that four items dominate your budget: house, children, food, 401(k). If you want to make any significant savings, you'll want to start with these.

401(k): You're putting $31K/year away for retirement. That's admirable, but if you've been doing this for a while, you probably have a nice nest egg built up, and you can cut back a bit. Talk to a financial planner or plug some numbers into a retirement calculator to see how much you really need to retire on.

Entertainment, hobbies, netflix: After we had our baby, our entertainment budget went to zero. The baby is the entertainment now. :)

Misc: Find out what you're spending $500/month on, and how much of it you can cut.

School loans: When will they be paid off?

Food: Living in Seattle, we spend under $350 per month on groceries (and $125 a month in restaurants) to feed two adults and a toddler - and that includes plenty of organic and specialty foods. To spend $1100 you must be dining out and/or buying prepared foods a lot. Stop. Buy fresh ingredients, cook your own meals a few times a week, and eat leftovers for many of your lunches and dinners.

Travel: After the kids come, you'll want to minimize air travel and other long trips for a while. You can take vacations closer to home for much less money (and stress!).

Gifts: Consider simpler and/or homemade gifts.

Income tax: You'll get a $1000/year tax credit for each child, plus some other possible tax benefits.

House payment: I know it's hard in California, but try to buy the smallest/cheapest house you can be happy with.

Children: What exactly are you going to spend 10K/year on? Break this down into actual expenses (insurance, childcare, education, food, toys) to get a more accurate number. We haven't need nearly that much, but here are some of the ways we've raised our baby on the cheap:

• Childcare: Mom works part-time; grandparents watch the baby most of mom's work days.
  
• Clothes, toys: We get most of these at garage and rummage sales for almost nothing.
  
• Diapers: Cloth diapers (washed at home) are cheaper for us than disposables.

Don't think you need designer clothes, hundreds of toys, or exclusive pre-schools for your tots. They can be just as happy with cheap, simple things - especially if it makes you less worried.
posted by mbrubeck at 10:39 AM on May 5 [1 favorite]

Not to be snarky, but when a family brings in 200K and then has to ask whether they can afford children, something is wrong.

I know people who bring in 30k and live decently and raise their children well. Granted, the scales of economy are different in the midwest then in Silicon Valley, but jeez ... 200K?

I could raise 20 kids for that and pay off my school loans, my mortgage and my car payments and still have enough money for a boat, a jet and trained llama who did nothing but dance the macarena on the front lawn.

Anyway, kids are that bad of expense except as was said by originame, the daycare. Other than that, buy diapers in bulk, clothes are nearly always gifts from the family and most kids nowdays have far more clothes than they can use. When my daughter was born, we gave away 4 bags full of lovely Laura Ashely stuff that was given to us but she'd never use because others gave us duplicates of almost the same exact stuff.

Other than the necessities like a seat, stroller, bottles, diapers, toys and such there isn't that much involved. Unless you become like one of those crazy parents that buy every stupid thing at the store and insist that your child MUST have the toddler's kitchen play set from HammacherSchlemmer for 3400$. You know... the same one that comes at Toys R Us for about 98$. If you're a status parent, you can't afford a child. If you're a parent who loves their kid and simply wants to take care of it and raise it well, you have more money than you need by far.
posted by damiano99 at 10:40 AM on May 5

I live over the hill from you and make about 1/4 of you.

1. although we would love to buy, we can't make the payments you do. So yes, we rent, for slightly more than you pay for food. And we rent small. There are 5 of us, in a two bedroom. No, I don't want to live like this forever, and as soon as we can we will be elsewhere.
2. I don't work. I stay home with the kids. It is better for them in the long run because I would not be happy being away from them. No extra childcare costs.
3. I spend about $300/month on food. That is lots of vegetables, beans, and cheap meat. I cook everything, including bread from scratch. Mexican food is tasty, and uses cheap meats, as well as Chinese.
4. We get all the clothes, or as much as we can, second hand. Kids outgrow stuff quickly and usually before it is worn out. People will give you clothes if you let them. Drawers and closets are full of outgrown stuff and people are happy to give it away.
5. Gifts are usually second hand. Face it, most kid toys are junk. Buy stuff at yard sales and you know it can last.
6. Baby items such as highchairs and cribs can be hand me downs from friends and family. (Check to see if they have been recalled first.) Babies don't care if something is new.
7. Babies and children don't need to go to every class available. They need to be with family and have lots of time for free play.

Children are wonderful. They bring so much to a relationship. However, it sounds like if you aren't willing to make some changes that maybe you won't be able to swing having kids at your present income and bill level. Consider if one of you can work, at least part time, from home so that you can cook more meals from home and save on childcare. Like others said, you may have to rethink the house and think smaller (less to maintain, heat, cool and clean.) My youngest wants to play, need to go.

wife of 445supermag
posted by 445supermag at 10:41 AM on May 5 [2 favorites]

I agree with Cool Papa Bell--you're probably not figuring your tax liability right. I'm assuming that you're already accounting for the reduction in taxes from your 401(k) contributions, but mortgage payments and adding dependents should take off a pretty good chunk of your taxable income. Plus, a portion of the ~$1,000 / month in child care expenses could be tax free (up to $5,000 per year) if your employer offers a Section 125 account. (This is often rolled in with a flexible spending medical care account--you elect to have a certain amount withdrawn from each paycheck pre-tax, then are reimbursed once the expenses are incurred, avoiding taxes altogether on that spending. These accounts are pretty common among white-collar employers.)

You can run the numbers for free by signing up for an account on one of the online tax-paying software companies (TurboTax, for instance) and putting in all the numbers based on your income and deductions last year, plus what you would have spent on child care, mortgage payment, etc. They don't make you pay until you file, which you're obviously not going to do if you're just figuring out your hypothetical tax burden.
posted by iminurmefi at 10:43 AM on May 5

so if you are budgeting a 500K mortgage on a 1m house, does that mean you have 500K to put down on it? Or am i dense here? If so, pay off your student loans and buy a slightly cheaper home. That nets you 800 a month.

Also, does your employer offer a Sect 125 plan that will allow you to deduct child care costs pre tax? I don't think you can deduct 10K a year but probably a significant portion of it and it will make the burden slightly less by lowering your withholding.

Food seems high to me also, atleast until your kids are teenager. House cleaning seems low if you are hireing a professional - high if you are doing it yourself. Are you including property tax and insurance in your house payment?

All the details aside, having kids is not just a pencil to the paper kind of deal. Or it shouldn't be anyway. If you really really want to have them, you will find a way.
posted by domino at 10:43 AM on May 5

What everyone else is saying: you're saving too much for retirement, spending too much on travel, and food, and house cleaning and maintenance. Oh, and you can't afford to live in a house that expensive. On the other hand, your taxes seem low to me. :-)
posted by thomas144 at 10:44 AM on May 5

My wife and I are currently contemplating the same thing. We've reduced down to one car, never eat out (though we still shop at Whole Foods). We manage, for the two of us, to get by on $400-$500 / month on food.

The housing issue is the real significant one, however. Many people in the thread don't realize that a small two bedroom house in the Valley is $1M. A $500k mortgage is really good for the area. Our one bedroom apt is $2700/Month.

It's basically NYC prices. Except you also have to have a car.

I have no idea how we'll do it. I suspect we may just move back to Seattle if we get preggers.

Though your house payment seems really high. I have a 30-year fixed on my $500k house in Seattle and the payment is $2800 (that was with 20% down). I would look into refi if you really only owe $500k.
posted by jeffamaphone at 10:45 AM on May 5

Warning: I've never lived outside of Florida, so perhaps some of my suggestions are a bit off base.


$1100 for food seems awfully high. My family (two adults, one child) spends about $600. (We do eat out, but not often. ) If you are budgeting for lunch and dinner in restaurants or fast food, you can reduce the cost a lot simply by making more of your own meals.

You will not spend $550 a month on home maintenance. No way. Now, perhaps you are putting some money away for emergencies (e.g. termites), but this number still seems fairly high to me.

You listed $3400 a month for children, but this government study suggests that the total cost for two kids (including health care, food, transportation, etc.) for a family with your income is about $2700 a month ($16k per year per child). (Don't forget to reduce items like the health care budget if you were including the kids' cost in that.)

Further, you will only start with one child, $20k per year, and by the time the second child comes around you will likely have received several raises.
posted by oddman at 10:46 AM on May 5

Ha! You're funny. I'm going to be raising two kids in the Valley on just over half of what you make.

First, cut back on your 401K contributions. Good that you've made them, now you cut back. IMO if you put $500 a month in you'd be doing great. You will make up most of your contributions after your kids have left the house. And your existing contributions will grow. But you are contributing a lot, IMO.

As Cool Papa Bell pointed out...

home maintenance $550
house cleaning $170
misc $500
gifts $145
hobbies $145
car maintenance $116
clothes $100
netflix $15
travel $458


Many of these expenses can easily be trimmed back.

You make a ton of money. Your budget is nowhere near austere. You have lots of room in your budget. I would suggest that you prioritize your spending - don't allocate fixed amounts per category. Prioritize expenses. Have the baby then spend the most important stuff first - mortgage, bills, savings, food, bare requirement purchases (strollers, etc). When you run out of money, stop. Repeat next month. I expect you will manage to get everything you need.

Also, I assume this is a two-income household. Depending on the breakdown between spouses it may be cheaper for the lower income spouse to simply stop working for a few years, especially in the daycare years. Daycare is sufficiently expensive that for a lot of families the lower income spouse is barely breaking even on covering those costs. But it has more to do with your desires rather than money - not everyone likes being with their kids 24/7, some people cannot leave their career for 2-5 years, etc.

It is not Silicon Valley doing you in - housing is expensive here but other than that it's pretty much the same as anywhere.
posted by GuyZero at 10:52 AM on May 5

Childcare for one baby 8 years ago in Silicon Valley was $1300 a month. And I'm sure it's gone up by now. However, it gets cheaper as they get older - potty training takes it down a notch. Since you're in Silicon Valley, you'll do public school and then after school care (depending on where you are).

You're not going to magically get the house and two kids in the same month or something, so it will balance out over time, right?

I went to child birthing classes at Stanford. It was the most sad, frustrating experience when one of the fathers said, "If her water breaks on the Oriental silk rug, do we have time to clean it up or do we have to leave it and call someone to clean it up along the way." He wasn't kidding. I say that as an illustration of the things we think that are really important before we have kids, well, often they seem like BS after.

If you're driven to have kids and care enough to think about how to afford them, etc., you'll make the right sacrifices - a little less 401k, cheaper travel, fewer meals out.

If the thought of giving up things makes you seriously reconsider having a kid, don't have kids. Get dogs. You will sacrifice so much raising your kids, and money isn't nearly the biggest part of it. It's just the part you can wrap your head around right now.
posted by Gucky at 10:55 AM on May 5

I'll Nth looking closer at taxes. In addition to avoiding taxes by maxxing out your 401Ks, you'll get a child deduction, a childcare deduction, and a mortgage interest deduction. I ran a hypothetical budget like this for a four-person family once and was amazed at how much lower my taxes would be.
posted by salvia at 10:55 AM on May 5

To address some of the questions so far:
1) $1100 for food is maybe too high. We could probably get that down by not going out.
2) A $1M house is pretty marginal, actually. If you don't live here, you wouldn't understand.
3) I don't know what "misc" is. That's basically cash that's spent but not accounted for in our receipts. I'm sure it could be decreased, but I don't know how much.
4) House cleaning is a luxury, but we're so messy that we'd probably kill each other without it. If push comes to shove, it could go, but our marriage would be at risk.
5) We could cut the 401k in half without losing employer match, but of course taxes would go up.
6) I also don't think your clothes, entertainment, hobbies, dry cleaning and phone budget are very realistic, unless the kids part of that stuff is lumped into "children."
The kids part of it is--I hope--but I don't know how the $10k/year/kid number breaks down.
7) $550 for home maintenance? That's a lot of storm window caulk and gutter cleaning. What are you, remolding your mud room every month?
Saving up for a new roof, tenting the house, putting the walls back up after an earthquake, etc.
8) You should plan to relocate to a part of the country where sustainable living is easier
Sadly, one or both of us would be unemployed. We have weird constraints on where we can live. Trust me on this one.
9) Your student loan payments also seem remarkably high - are they close to being payed off?
No. But we're very well educated.
10) Where does the $3400/mo figure for the children come from?
$20k/kid/year for the basics plus part time day care.
11) You're also spending $20/person/day on food
I honestly didn't know it could be done for less. What's a reasonable amount here?
12) Have you already included the effects of the mortgage interest payments in to your income tax figure?
All tax numbers came from plugging in the expected values in TurboTax: so, yes.
13) Does this budget include saving for college? Is that under the "children" category?
They're lucky to get regular meals, much less college. CA has great state universities, so they can either pay their own way or I can make more money than expected.
posted by Sockpuppet The First at 10:58 AM on May 5

A few thoughts:

- $1,100/month for food seems very steep. Do you eat out a lot? It's not ludicrously high, but it could probably come down a bit.

- I don't know the deal with student loans, but can you pay them off at an accelerated pace so you'll have them paid off to have kids?

- Your 401(k) payment seems insane to me. $2,583/month is $30,996/year, and that's before whatever matching your employer does. I'm not a retirement planner, and socking away money is always good, but it seems like you're putting away a crazy amount of money.

- You talk about local standards, but in terms of national standards, you have a million dollar house. My family lives in a large house in the Northeast that's sitting around $400,000. My uncle used to live in Kansas and had what was essentially a mansion around the same price. Do you need to live in Silicon Valley? You also seem to imply that you have $500k capital in the house. Sell the house in Silicon Valley, move to Kansas, and pay for the house in cash, and your mortgage payment goes away.

I'm half-joking about moving to Kansas. But the reason you're starved for cash is that you have a million-dollar home and are socking away $30k/year for retirement. Don't rent a home: you're right in that it's a bad move financially. But get out of an area where you need a million-dollar home.
posted by fogster at 11:02 AM on May 5

I don't know what "misc" is. That's basically cash that's spent but not accounted for in our receipts. I'm sure it could be decreased, but I don't know how much.


Hmmm. You may want to take a look at that -- and the food portion -- by taking a week or a month and, every time you spend money, writing it down, and then at the end of the month you tally up what you spent on what. This budget sounds like you've done a lot towards that, but the fact that there is a "misc" category that you can't account for may be a sign that there's a little estimating going on.

I've done this "write down everything" exercise a few times when there seemed to be money-vanishing going on on my part, and it's always been an amazingly eye-opening exercise -- it's how I see things like, "damn, I'm putting a third of my monthly income towards BOOKS? I may want to do something about that." Before I took the time to write all that down, all those books would have been classified as "misc", and I wouldn't have had the opportunity to change.

but yeah, you can afford kids, you just need to make some changes. What those changes are, I can't help you with -- but it is possible to move into a less expensive house elsewhere, contribute less to your IRA, spend less on food, etc.
posted by EmpressCallipygos at 11:10 AM on May 5

I don't think your housing costs are ridiculous (I live in New York). And yet, I question your plan to have kids and buy a new house of that size at the same time. It seems like a house represents security to you, but I don't think that, at this price point, it really adds to your security or the security of your family.

If something happens and your wife has to go on bed rest, or either one of you has to stay with a very, very sick child (god forbid) for a number of months, or either one of you lose your job and have a difficult time reentering the market at the same salary, owning a home with that much mortgage will ruin your ability to be flexible. You won't be able to cut some corners, wait it out, and hope for the best; you won't be able to spend less on food and start cleaning your own place. You will be hemorrhaging cash, and you will have no easy way to stop the bleeding.

Better to live in a tiny place and be able to weather a storm or two. Keep in mind, though, that a neighborhood with plenty of amenities and a good commute will be invaluable once you're trying to balance work and family time.

Babies are smelly and loud, but they're pretty small and they won't complain if they live in the living room.

Good luck.
posted by sondrialiac at 11:10 AM on May 5

The number that is screwing you up here the $3400 for "children".

The biggest cost you have for the kids that shouldn't be covered in the rest of your budget is day care and nursery school. A good rule of thumb for a month's worth of day care per child is $1000. Now assuming you're having the children a couple of years apart there's still only a couple of years where you have them in day care and nursery school at the same time, which then still only comes to $2000.

Remember that you are only dented with this cost while both of them are pre-K at the same time. This is at most something like 3 years. So get in the mindset first that the first five years are going to put that dent in your budget. But that's where I think you miscalculated by between $1400 and $2400.

The rest of your children costs like bottles, clothes, toys, and so on: These come out of YOUR budget. Hobbies? There are no more hobbies for you; it's toys for your kids. Same goes for food, entertainment, gifts and so on.

I applaud you for putting the time and thought into this that you have.
posted by poppo at 11:16 AM on May 5

First off, people who don't live in Silicon Valley or understand that it has a high cost of living should get out of this thread. There's way too much "Wah you make soooooooo much!" going on here from people who obviously have no clue what the cost of living in SV is like.

11) You're also spending $20/person/day on food
I honestly didn't know it could be done for less. What's a reasonable amount here?

You can get this number as low as you want. A 25 pound bag of rice costs less than $50 and will provide enough calories to feed a person for a month. Combine this with $10 of chicken breast and you can make two or three meals. Obviously you're not going to eat rice every single meal, but just shopping around at CostCo can give you some good ideas.
posted by 0xFCAF at 11:23 AM on May 5 [1 favorite]

You're making a mistake here. The mistake is that you're budgeting all your money and seeing if there is anything left for kids. That's not how it works. If you really want kids, you pay for the kids. And then you dole out whatever is left for things like travel, savings, entertainment, etc.

To me, this looks like you are extremely lukewarm about the idea of children.

Think about it: You are making more money than 95% of people and you don't know how you can afford kids? How do you think other people do it? I'll tell you: kids are their priority. You seem to wanting to work the money for kids in to your $30,000+/year 401k payments, your student loans, your $1100+ month for food, your travel expenses, and so on.

No. If you want kids, you have kids, and if there isn't any money left for eating out every night and taking that vacation to Europe, well that's what you do. Because these are your KIDS.

Anyway, what sticks out to me are the house payment, the massive 401k payments, the student loans, and the food.

Have you thought about living in an apartment? You could sell the house, put some of that money away for your kids college funds, use some to pay down your student loans, and live in a nice apartment for a bunch less than your mortgage payments. And $30k/year in the 401ks is probably higher than you need.

If you're saying "But I'd rather live in a million dollar house than have kids!", well, you don't really want kids that much then do you?
posted by Justinian at 11:32 AM on May 5 [11 favorites]

people who don't live in Silicon Valley or understand that it has a high cost of living should get out of this thread

I understand the cost of living in Silicon Valley. I also understand that you don't have to live in Silicon Valley even if you work there. Commuting is possible.

Would rather avoid a commute than have kids? Well, shouldn't be having kids then!
posted by Justinian at 11:33 AM on May 5

There's no point in abusing the poster or respondents to the thread. It's worthwhile to try to think about the budget for something before you do it, and it sounds like the poster is trying to get a reality check on things he doesn't have any experience with.

Silicon Valley houses aren't always $1M. You may have to buy a commute, but you can get into some perfectly nice homes for a good deal less. The neighborhoods may be less chic, there won't be much marble and granite and gold-plated fixtures inside, and your co-workers may not be impressed. I know a [large cap silicon valley company] employee who owns one of the homes on that page; they're perfectly happy there. His wife just lost her job, too, and that did not put them in imminent danger of being foreclosed.

There are ways of reducing the food costs, but they involve careful shopping and cooking, which means opportunity costs in terms of time spent. There are only so many hours in the day. A 25 lb bag of rice shouldn't cost more than $12 - that's pushing it.
posted by ikkyu2 at 11:35 AM on May 5

11) You're also spending $20/person/day on food
I honestly didn't know it could be done for less. What's a reasonable amount here?

A bowl of cereal and a banana for breakfast costs about a dollar.
Lunchmeat or PBJ sandwich, an apple, and a glass of water for lunch costs about a dollar.
You can make lots and lots of fantastic dinners for under 5 dollars.

My hunch is that you're eating out a LOT, if you're spending that much on food.
posted by chrisamiller at 11:36 AM on May 5

4) House cleaning is a luxury, but we're so messy that we'd probably kill each other without it. If push comes to shove, it could go, but our marriage would be at risk.

And you want to have kids?
Will you kill your kids when they're messy?

Honestly:
decide what's really important to you. Spend your money on that. You might have to ...gasp!... make time to clean the house and cook for yourselves.


(P.S.
$1M house is pretty marginal, actually. If you don't live here, you wouldn't understand.

Yes, believe it or not, my Tiny Midwestern Brain is actually capable of undserstanding that location is a determining factor in the price of a home. But thanks for assuming we're all ignorant.)
posted by Green Eyed Monster at 11:38 AM on May 5 [4 favorites]

There are a lot of personal finance blogs out there that will help you readjust your budget. I raised a child on my own on far less, and paid a mortgage. If you really want kids, it works out.

auto insurance $100 - cheaper cars cost less to insure and maintain.
car maintenance $116 - see above
auto registration $12
clothes $100
food $1100 learn to be a lot more frugal; eat less meat, fewer imported/luxury foods, more homemade food
entertainment $70
fuel $200
gifts $145 - room for reduction
hobbies $145 - room for reduction
medical $160
misc $500 - that's a lot of miscellaneous; analyze what it is, then reduce to 50
phone $88
school loans $804 - pay them down as fast as possible
dry cleaning $12 - limit purchases of clothes that need to be dry-cleaned; it's very bad for air quality, and babies puke on your shoulder a lot.
travel $458 - you'll likely travel less with babies and young children
401k $2583 31,000 is a lot per year, @ 15% of your income. Start putting some of it in savings for college
home maintenance $550 too high; do your own lawn care, painting, cleaning
house cleaning $170 - see above
netflix $15 - belongs under entertainmant
gas & electric $108
income tax $2470
water & trash $72
house payment $4784 - that's 800,000 in mortgage debt, and doesn't include down payment. That's a lot of house.
children $3400 daycare of 200/week = 860/mo. and fulltime daycare is for the 1st 5 years. There are some tax credits.

Kids need food, clothes, books, music, medical care, etc. But they don't need the vast quantities of plastic toys and stuffed animals heaped upon them. They need, more than anything, your time. Not having kids is a perfectly reasonable choice. But if you have kids, giving up luxuries is not such a big deal.

Also, consider that you could have a child with special needs, autism, Cerebral Palsy, deafness. All needing expensive help.
posted by theora55 at 11:41 AM on May 5

They're lucky to get regular meals, much less college.

Damn right. You got by with student loans, and your kids will too. I really don't understand the assumption in the modern upper-middle-class U.S. that children are entitled to free college paid for by their parents. Student loans are plentiful and cheap. Take advantage of them.
posted by Dec One at 11:41 AM on May 5

I hope I'm not coming across as "picking on" the OP: I don't mean to be.

It's just that if you're going to have kids, they are your priority. Not one of the priorities. Not a priority as long as we can keep living in a million dollar house and not commuting. Not a priority as long as we can keep eating out a lot. THE priority.

To me it sounds like the OP is trying to work out a budget that includes kids but doesn't include actually sacrificing a single thing out of a kidless life. That's just a non-starter. Kids require sacrifice.

OP: You need to stop looking at it like "Where can I find money on top of these things in order to pay for kids" and more like "How can I best spend the money that's left over after I budget for the kids.".
posted by Justinian at 11:45 AM on May 5 [1 favorite]

I really don't understand the assumption in the modern upper-middle-class U.S. that children are entitled to free college paid for by their parents.

You want to understand: Start here. The government gives a sizable tax break for people willing to support their kid's college bills.
posted by ikkyu2 at 11:50 AM on May 5

auto insurance $100 - cheaper cars cost less to insure and maintain.

This, I think, falls under the rubric of "cost of living" in Silicon Valley. I live in a relatively expensive part of Los Angeles (more or less equivalent in costs) and I pay about $100 a month for a 7 year old Corolla.
posted by Justinian at 11:52 AM on May 5

I wish people in this thread would drop the attitude. It's unpleasant to read, and unnecessary. You can say whatever needs to be said without the attitude, as plenty of commenters have done.

Three things about the suggestions for cutting that $1 mil home cost. 1) I'm not sure now is the time for anyone to move who doesn't have to. 2) If the commute goes up, so do related expenses (not to mention lost time with the kids). 3) School costs might also go up. I'm hoping that this house is expensive in part because it's in a good school district (like Mountain View). If not, then private school starts around $12,000 a year (? semester ?). It's true that many people send their kids to public school, and I personally went to public school in Ohio. But people do advise being careful about school districts in California, and other publicly schooled friends of mine are tentatively eying the costs of private school as they plan for families. My cousins went from public school in Illinois to private schools in California and back to public school in Illinois.
posted by salvia at 12:01 PM on May 5

I live in SF and work in Menlo Park, and the housing part sounds, sadly, normal.

This, though:

11) You're also spending $20/person/day on food
I honestly didn't know it could be done for less. What's a reasonable amount here?

In the weeks when we're being good, we cook at home and an outside meal means a $5 burrito, and I bring leftovers from home from lunch, or sandwich/salad makings, I'd estimate that my per-day food costs are under $10. I'm making a concerted effort to not buy lunch more than twice a month. We shop mostly at Whole Foods and Trader Joe's, and get a weekly organic veggie delivery, so we don't sacrifice there, but there's no way we spend $1100/mo on food (there are two of us, no kids). If you're buying a $4 latte every morning, stop it. Stop eating out. If you eat out, do not order alcohol, or limit yourself to one drink. And only do this a couple of times a month. It's not that hard.

They're lucky to get regular meals, much less college. CA has great state universities, so they can either pay their own way or I can make more money than expected.

No, please no. I had friends in high school who were made miserable by their parents saying "You're going to State, and if you don't like it you can pay for it yourself." What if their major talent or desire is best offered at a private or out-of-state state university? What if they just want to be 3K miles from mom and dad for college?

Many private universities offer need-blind admission. Increasing numbers of private universities are eliminating tuition for familes that make less than $X per year - but you'd still have to come up with room and board. For god's sake, put a college fund in your budget. I got through college (at an Ivy) on minimal contributions from my poor parents, work-study jobs, summer jobs, and a lot of grants, scholarships, and yes, loans.
posted by rtha at 12:01 PM on May 5 [1 favorite]

You've gotten a lot of good advice here - especially about your absolutely astronomical food budget - but I think your major problem is in your approach to budgeting. You say that you don't know where "misc" goes, and you seem to be picking numbers out of the air for different categories because they sound right, without really analyzing your spending.

Budgeting begins with looking at your spending. If you don't track your expenses, you won't have any idea where your money goes. You have some time. Spend the next few months - ideally, 12 months, so you can see a year's real annual expenses - recording every single transaction you both engage in. It's not as onerous as it sounds: I do it by getting a reciept for everything, even small cash expenses. At the end of every day or couple days, I drop all the receipts on my desk, and at the end of every week or so, I sit down and reconcile them with my bank account (if they were debit transactions or checks) and also - and this is important - enter them into my own spending record spreadsheet. At the end of each month I go through the spreadsheet and add up the expenses in each category. That way you will know, beyond a doubt, what your "miscellaneous" is.

This process is vital. You will probably be shocked at how much more you're spending in certain areas than you've guessed. You'll notice that though you thought you needed to budget, whatever, $75 for 'entertainment', you may not be spending up to that amount - so you can re-allocate. And you will be able to create realistic escrow amounts per month for planned expenses like a new roof.

But if you're making the kind of money you're making (which is a hell of a lot) and you have so little information about where it's going, then your money is not working for you at all, but trickling out of your hands. Don't start with what you assume your expenses are - start with some real information about what they actually are. That will help you set a more realistic budget.

The idea that you can't afford to have kids, though, is nuts. You certainly can; you're sitting pretty compared to just about every family I know. It will involve lifestyle change and sacrifice. Definitely stop eating out so much; or save that for a once-a-week date. Pack your lunch or bring frozen entrees and snacks that you can heat and eat at work. If you "honestly don't know" how people could eat for less than $20 pp per day, then I'd be very interested to see a list of what a typical day's meals looks like for you, and where you get them. Eating out, takeout, and convenience food is insanely expensive because you're paying for convenience and eating what you want on demand. Eating mostly from home will immediately drop you to less than $800/month for food, and that's without even trying. By doing more strategic cooking, you can go to under $600, no problem.
posted by Miko at 12:09 PM on May 5 [3 favorites]

I'm 100% with Justinian in that you are doing this backwards. Have the kids, take care of their needs, and budget for travel and other luxuries out of what is left.

The house maintenance budget is probably pretty close, over the long term, if you are planning for new roof, new furnace, etc from time to time. Even so, there are cheaper ways and more expensive ways to take care of these things, and the biggest is the "keeping up with the Joneses" thing of granite counters and lawn services and so on. A lot of those expenses can be deferred (as in, the house should be repainted this year, but no one will die of scurvy if you decide to repaint the house in one or two years, for example), which allows you a much better cushion for when the kids are at their most expensive. So just because those are long-term averages doesn't mean that you will need to eat that cost each and every month of the year.

The gift, travel, hobby, food, and miscellaneous categories all need some serious scrutiny -- they are certainly very high by my standards, but maybe my lifestyle is so different that we aren't sharing a point of reference on this.

Your medical budget looks kind of low to me, for two adults and two kids. Does your insurance cover dental, glasses, orthodontia, etc? What is your copay on weekend ER trips for ear infections on a vacation?

Your budget is missing some of the larger costs of transportation -- depreciation, buying a new car once in a while, etc. Cars cost more than just gas/insurance/maintenance.
posted by Forktine at 12:13 PM on May 5

I don't know what "misc" is. That's basically cash that's spent but not accounted for in our receipts. I'm sure it could be decreased, but I don't know how much.

The luxury of letting $500 a month just vanish into thin air is something else you can certainly sacrifice. That is a shitload of money, and yes, I am familiar with Bay Area expenses.
posted by granted at 12:18 PM on May 5

I actually missed the $3400 line item for "children" - I assumed 2 kids were in your budget. That seems like way too much. Looking back at it, 22 years ago my "numbers" were probably pretty similar to yours (adjusted for inflation). I actually did similar excel spread sheets in Windows 2.0 in which things like the price of Hewlett Packard (wife's employer) and Apollo Computer (mine) stocks were inputs.

One thing: I would worry about having two children after you have one. We wanted more than one child very much but had only the one, yet I often wonder how we would have managed to pay private school tuition for more than one child, to say nothing of college (which we are still doing, without loans, without contributions from the boy, because we like our baby boy that much).

I don't think your budget betrays any extravagances, except possibly that you are saving so much for retirement (I would just do enough to get the match, although honestly I did more at your age too).

One significant problem you are probably facing that I didn't have to contend with is the AMT.

One thing that helped us a lot was that I changed jobs a lot in startups while my wife stayed in the steady job with good benefits. You can't bet on these things but working for a startup that gets bought-out is hardly unusual in the hi-tech industry, and a little bit of equity can pay off a lot of credit card debt.
posted by thomas144 at 12:19 PM on May 5

What about savings? Not for college, but just in case one of you loses his/her job?

If you can factor in a significant amount to that and cut expenses to include children, then you would be better off.
posted by PinkButterfly at 12:30 PM on May 5

A few more responses:

1) 'm hoping that this house is expensive in part because it's in a good school district (like Mountain View). If not, then private school starts around $12,000 a year
We'd buy in Sunnyvale or Santa Clara (but with Cupertino schools). You get a discount for living in a lousy neighborhood but still get good schools.

2) What if their major talent or desire is best offered at a private or out-of-state state university?
Plan A: They get student loans
Plan B: I get rich in an IPO
Plan C: We get an unexpected inheritance (but I'd rather my parents live a few more decades)

3) ...record every single expense
This list came from analyzing every single item in a year of debit card statements. The only item that can't be broken down is ATM withdrawls, but "misc" is a smallish fraction of total spending.

4) Your medical budget looks kind of low to me, for two adults and two kids. Does your insurance cover dental, glasses, orthodontia, etc? What is your copay on weekend ER trips for ear infections on a vacation?

We'll have an HMO from my work and the costs will be fairly low. I don't know many six year olds with orthodontia, so that's not in the scope of this budget. I assume the emergency room trips are included in the $10k/kid/year figure (which is totally opaque to me).

5) Your budget is missing some of the larger costs of transportation -- depreciation, buying a new car once in a while, etc. Cars cost more than just gas/insurance/maintenance.
We won't need a new car during the scope of this budget. That'll have to come out of savings, bonuses, raises, etc.


Thanks for the helpful comments. We'll definitely take a closer look at food, misc, and some of the other ideas people have suggested.
posted by Sockpuppet The First at 12:31 PM on May 5

@Dec One

Theoretically you're under no obligation to hire tutors when your kid flunks math, or provide them with more than one outfit, or set them up to learn to play a musical instrument or any of the other things that parents who wish to give their children a boost in life do.
posted by Phalene at 12:33 PM on May 5

we like our baby boy that much

Just to be clear, people who don't have as much money also like their children.

The hand-wringing is puzzling. My parents raised us on very little. We went to public schools. I had a top-notch education and went to a selective liberal arts college and am now getting a graduate degree. I worked all through school and got scholarships and work-study at college. I'm glad I'm alive; my life has been rewarding; I've contributed to society; and my parents did a wonderful job. I do not feel deprived, nor am I at any sort of disadvantage personally or professionally. I know many people with similar stories. I also know people raised with every luxury, well insulated from problems and well provided for, who are nevertheless failing to achieve anything notable and would not call themselves happy or functional.

At some point it's good to recognize that private schools, certain forms of child care and elective education, places to live, types of clothing to wear are choices, dictated by your values - not necessities for happiness or success. If having all the markers of an affluent upbringing is very important to your values, then definitely budget for your children not to have jobs or contribute to school, to wear all newly purchased up-to-date name-brand clothing, to eat out frequently, to have new cars every few years, and so on. But be very clear that there is no need for that.

The resources needed to be a responsible, loving parent and to create a fulfilling life for a child are minimal in comparison with the groundwork you are laying here. There are embedded values-based assumptions here about what you need to provide. Many of those aren't needs, just wants. Determining what you most value as part of your child-rearing and family life will be a great help in deciding which expenses are really necessary and worthwhile, and which are non-essential.
posted by Miko at 12:33 PM on May 5 [1 favorite]

You do realize that if one of you quit working you'd save thousands on child care, food, maintenance, transportation, and cleaning and after-taxes probably more than make up for the lost income.

Just a thought.
posted by blue_beetle at 12:34 PM on May 5

Ikkyu2's link is exactly the kind of data you need to be looking at now. If you can sell your home for $1M in this market, from what you have said about your mortgage, it looks as if you might even be able to buy one of those houses for cash. That leaves you with $4800 a month in your budget--more than enough to pay for the kid, contribute to your 401K at the rate you are, spend more than $1000 a month on food and to spend/waste more than $2000 a year to have someone clean your house.

Easy solution, if you're looking for one.
posted by yellowcandy at 12:36 PM on May 5

but "misc" is a smallish fraction of total spending.

Doesn't matter - $500 a month is real money, especially when it comes to raising children. That's six grand a year. Would go a long way toward that college fund. Or summer camp. Or...
posted by Miko at 12:36 PM on May 5

Six grand a year, eighteen years: $108000 even without any interest income.
posted by Miko at 12:38 PM on May 5

Your kids will be at a serious disadvantage in college if they're having to work and their classmates aren't. They'll also be at a disadvantage if they have to start paying huge loans off after graduation and the career they really want has lower-paying entry level positions or internships.

It's not a great circumstance, but there it is. I paid my way through an inexpensive state school -- not a bad place in a way -- but I know I could have done much better in a different situation.

If you do stick to this plan, be very open with your kids so that it's not a surprise when they graduate.

Look, you guys are making really a lot of money compared to the "target market" for financial aid (and compared to my own parents, even adjusted for the decade, and I got no need-based aid at all). It's my tax money that would be subsidizing your financial aid. I'm not sure how I feel about that.

Sorry if this seems like a derail, but I guess it's marginally relevant.
posted by amtho at 12:40 PM on May 5

Get a new financial planner, and start keeping a budget month-to-month.

There's no reason to be putting those crazy amounts of money away for retirement when you haven't even paid off your student loans yet. You're on track to have $7 million+ set aside for retirement, but you don't think you have enough wiggle room to set money aside for college? And nothing allocated for non-retirement savings? Yeesh.
posted by designbot at 12:40 PM on May 5

I suggest taking this one step at a time. Start by buying the house and living in it for a year or two. This will give you a very good idea of your expenses, so you can tell with some certainty whether you can afford adding kids to the mix. The more confident you are in your finances and budget, the better the whole kid thing will go. Also, this would allow you to ignore all of the advice to reduce your 401k savings. As I am sure you know, you can never "make up" retirement savings, and you should reduce your 401k only if absolutely necessary.

I suspect that, provided you send your kids to public schools, you will be confident after a year that you can afford to start your family.
posted by A Long and Troublesome Lameness at 12:41 PM on May 5

Help us figure out if we can afford to have a family! Can two people on $200k a year have some babies?

People have babies on $60,000 a year, so yes, you can have babies. It seems that your real question isn't "can we afford kids," but "if we have kids will we be able to maintain the lavish lifestyle we currently maintain?" And honestly, if that's your concern, your priorities are a little skewed.

People raise children on far less money than you and your spouse make. If you have kids, you'll find a way to give them the best life possible. If that means moving to a less expensive locale, do it. Hey, you'll still be with your family, and that's what matters.
posted by mudpuppie at 12:41 PM on May 5

Wow, people here are *rude* today ...

Good for you, Sockpuppet The First, for planning and thinking carefully about the big project you're about to jump into!

There are a lot of people here urging you to reduce your 401k contribution, but don't forget that your kid(s) can always borrow for college and you can't borrow for retirement.
posted by mccxxiii at 12:47 PM on May 5

Why are you using pwnd for a tag?

Perhaps you could adopt an older child who doesn't require day care?
posted by sondrialiac at 1:06 PM on May 5

your kid(s) can always borrow for college and you can't borrow for retirement

Sure you can. It's called a house. By the time the OP retires his $1M house could well be worth $2M and it will be paid for. Cash out, move into a condo and voila, $1M cash in hand. Or take out a reverse mortgage. Which isn't to say he shouldn't save for retirement, but most people don't need as much house come retirement.

Also, you should think about paying a professional to draw up a retirement plan for you that factors in taxes, social security, etc. They come up with very clear and wonderful numbers on retirement planning.
posted by GuyZero at 1:07 PM on May 5

Your kids will be at a serious disadvantage in college if they're having to work and their classmates aren't. They'll also be at a disadvantage if they have to start paying huge loans off after graduation and the career they really want has lower-paying entry level positions or internships.

Well, no, they won't, necessarily. I probably missed out on some stuff in high school and college because I worked, and it's not like things were easy after graduation, when I had loans to repay (or default on - YMMV!), but I worked low-paying jobs and worked things out with the lender. I did a ton of stuff in college, despite a...15-hour a week work-study (I think it was - might've been 20). I didn't zoom off to Aspen to ski on winter break, but I didn't count that as a disadvantage.

Working while I was in school gave me a huge boost over wealthier classmates whose parents paid for everything (including an allowance). I did my share of being financially irresponsible when I graduated, but it was nothing compared to some of my classmates, many of whom had absolutely no idea of the value of a dollar. I had about $12K in loan debt, but they'd already racked up $30K in credit card debt - for stuff like shoes or "toys", because they really had no idea what stuff cost, or what it meant to pay for it themselves.
posted by rtha at 1:10 PM on May 5 [1 favorite]

Take your budget as given (i.e. if we were to imagine you had an extra $1900 a month), and fast forward a bit. What I see is that (based on the size of your mortgage payments against 500k debt and other very rough estimates)
-you'll have your house paid off in 17 years
-you'll have about 1 million in the bank (401k) in 17 years
-presumably your student debt will be finished in that time range as well.

In addition, at around that same point (17-18 years) your kids will be nearing self-sufficiency (or at least college). If you're 28-32 years old now that would mean you would be in a position to retire (frugally, work a few more years to maintain the same lifestyle) before turning 50. All this while living in one of the most expensive parts of the country and raising two kids. That would be quite an achievement.

If you take the other parts of the budget as minimally required lifestyle, you could consider what parts of the above scenario you would be willing to sacrifice in exchange for kids.

(if I've made some horrible mistake with the math, sorry)
posted by aquafiend at 1:16 PM on May 5

Your kids will be at a serious disadvantage in college if they're having to work and their classmates aren't.

It goes both ways. My parents are well-to-do and didn't pay for college, and I've worked at least part time since I was 15 and am thankful they had me do so. I think students who don't have jobs are missing out on a part of life and are disadvantaged and I wouldn't exchange the real-world experiences of having various job experiences for all the A's in the world.
posted by jmd82 at 1:17 PM on May 5

What's the term on that mortgage/what rate are you giving yourself? Same thing with the loans. Over the next 35 years with 3.5% over inflation you'll have put away 2.65 mil constant dollars, have your 1 mil house paid for, and however much comes after the loans and the house are paid off.

Retirement planning includes knowing when to stop.
posted by a robot made out of meat at 1:53 PM on May 5

A couple things. We have an 18 month-old daughter that was conceived within 3 months of us closing on our first home, a typical $500k Seattle property. I've often wondered if we should have bought a smaller house so that we'd have the flexibility to work less during these first amazing years of our daughter's life. I think it is a good idea to borrow less than you qualify for -- if you can get your head around the fact that you probably need less than you think. Believe me, if you have that baby you will care less about material things than you ever have.

Then.....do yourself a favor and take the leap. Have some babies. You will never regret it. You will not believe it possible that your life can be so enriched by another human being. Everyone I know is shocked at the power of this event when they actually experience it. My husband and I are totally besotted with our daughter. She is everything.

Okay, so we are financially poorer. Welcome to humanity - everyone struggles. There is nothing more worth taking a financial hit for than your beautiful children. They are valuable beyond measure.

One more thing about college savings. I worked my way through college and I don't think that kids should be spoiled. However, with the rate of inflation on college educations and the dubious future reality of student loan funding, you may be opting your child out of a future if you aren't careful here. It's worth looking into. My perspective now that I have a child is that I would rather delay retirement than fail to support her future.
posted by smart75 at 2:16 PM on May 5 [3 favorites]

Have you seen the movie Idiocracy? The opening sequences?

Just have the kids if you want them. There's a lot more to worry about than the financials. Besides, the Mexicans have a saying - "a baby arrives with a loaf of bread under the arm". I know, armpit bread, eww gross, but the point is, we make do with what we've got. Besides, at 200K a year, the problem isn't money, it's the fact that you spend all your time earning it. That will be the real challenge.

Good luck!
posted by Xoebe at 2:29 PM on May 5 [3 favorites]

11) You're also spending $20/person/day on food
I honestly didn't know it could be done for less. What's a reasonable amount here?

I could eat out for every meal, every day, and still come in at less than $20. Silicon Valley is only barely more expensive than where I live.

Hell, I partied all weekend and spent somewhere around $30 per person per day. $20 per day as a minimum is not realistic.
posted by oaf at 2:39 PM on May 5

[A few comments culled so far today. Please stick to answering the question; meta-arguments can go to metatalk (there's a subthread of such here).]
posted by cortex at 3:17 PM on May 5

One thing I didn't see in your original budget is property taxes. Have you accounted for those?

I see you ran through TurboTax with your mortgage interest deduction included. Have you also included all the tax reductions associated with children? The exemptions, the childcare expense credit (note: not a deduction, an actual credit)?

Speaking as a parent living in an expensive area on a not-that-special salary: You can afford kids, if you want them. All of your discretionary expenses can be reduced without *any* lasting effect on your happiness. At $200K, you're probably not used to prioritizing and thinking clearly about which of your expenses add to your happiness and which come purely from habit. $500 a month in "misc" is a big red flag for this. $1100/mo on food for two adults looks like a lot of mindless spending on lunches and fancy dinners out - or on expensive convenience foods. If you have or can develop an interest in cooking, you can cut that in half. Buy non-perishables in bulk, of course, and perishables in quantities that you can use before they go bad.

Some more specific ideas: It's a cliche, but experiences and friends make people happier than material things do. And there are plenty of free and low-cost experiences around the bay area. Museums have free days once a month. Local parks, community festivals, and street fairs: also free. The library or PaperbackSwap as a source for new books. Pandora or the like for music. If your brain starts to go to mush, you can watch college course webcasts online.

For the kid supplies: For as long as you can, never buy any clothes new. Babies and toddlers outgrow all these much faster than they can destroy them. And you'll be getting some as gifts as well. This is less true for toys, but it still holds.

Also, can you telecommute for all or part of the time? You'll need a quiet workspace at home, a willing employer, and a lot of discipline, but it makes a big difference.
posted by expialidocious at 3:32 PM on May 5

You need to check your mortgage out a bit better. If you have a $500,000 mortgage and you pay it off over 30 years at 7% interest, that should only be $3,326 per month in payments.

If you want to free up some cash, making a change in this section alone(ie lower interest rate, longer term, interest only payments) could easily save you more than $2,000 per month.
posted by dantodd at 3:39 PM on May 5

Okay, I don't live in CA, and I know housing is outrageous there, so I'm going to address the universals:

Retirement: Scale back the 401K to equal the highest your employer will match. It's okay to do this! You are still saving a good deal each month.

Travel: Once you have children, you are within your rights to say, "Please come visit us. It's too hard to travel with the baby, and we want to start our own family traditions in our own home." This is a perfectly reasonable request. Before we had kids, we spent our vacation time visiting his parents and mine. Once you have children, they come to see the grandkids.

Food: I eat out too much myself, but you can easily pare down this amount by making simple choices: eat out less, don't go to expensive restaurants to eat out, don't order mixed drinks or appetizers or desserts, or a combination of all of the above. Eating healthy at home also costs more than eating junk food, but go for a bulk warehouse deal, like Costco or Sam's or BJ's for your staples. Buy your non-perishable items in large quantities.

Home costs: Saving up in case you need a new roof, etc. is great, but I think you could sock away less on your house maintenance. That's why you have home insurance, after all. Try scaling that back.

Gifts: decide who (immediate family, closest friends) you really want and need to buy gifts for. You don't have to be the first one to chip in for every office gift or buy presents for your third-cousin-twice-removed. Don't buy retail. I love shopping for and buying and even making gifts for people, but I can find good deals that allow me to do so on my budget. If you budget $100 for someone, and then find something that is worth that much but priced lower, you don't have to make up the difference with more gifts (a tendency I have I am trying to get past!).

Children: Everyone parents differently. I strongly believe that you can be a great parent without falling for designer brands for clothes, strollers, baby stuff, etc. As Justinian said, if you really want kids, you will naturally put their interests ahead of some of the things (like entertainment and eating out) that you regularly do now without thinking about. You do NOT need to think about college yet, and your kids can go to public schools rather than private. Don't panic! Babies are expensive, college students are expensive, but kids are cheap. It evens out in the end.

Consolidate your debts: the student loans, the mortgage, the car payments, if you can consolidate, do it!

House cleaning: if you can have the house cleaner come less often, I would go for it. Believe me, the house won't be perfect once you have kids, anyway.
posted by misha at 3:55 PM on May 5

Max out the payment on your student loans before you put anything into your 401k. You're losing money by doing it this way.
posted by pwally at 4:14 PM on May 5

pwally, you sure about that? Some people have interest rates on their student loans below 3%. And you can deduct student loan interest from your taxes. And anything that goes into the 401K isn't taxed.
posted by salvia at 4:27 PM on May 5

Apparently the word "austere" was not a good choice. This budget is going to be a big change for us, and it's shocking (to me: my wife is probably saner). Replace the A-word with "more frugal than what I'm used to" :). It feels like we're already sacrificing a lot, but I guess we're just getting started--that came through loud and clear.

To respond to some comments:

Yes, we included property tax in the house payment. Assuming a 30-year fixed mortgage at 7%.

Lots of people are mentioning tax deductions, credits, etc. that don't apply to us because our income is too high. The only deductions we get are for 401ks and mortgage interest.

Max out the payment on your student loans before you put anything into your 401k. You're losing money by doing it this way.
Student loans are at 6.5%. Investments ought to return in the neighborhood of 10%.

I think the commenters who said we're saving too much for retirement are probably right. That should help a lot (although this causes bad feelings for my wife, who doesn't feel like she's contributed enough to our retirement).

Also, I'd like to say that the financials don't come first. Our future babies are cute, and we love them even more than money. Of course we're not going to deprive them of life to save a few bucks--I just want to figure out how we're going to make it work and adjust my expectations early.
posted by Sockpuppet The First at 4:54 PM on May 5

my wife, who doesn't feel like she's contributed enough to our retirement

If it makes you feel any better you will never feel like you earn enough (someone always earns more for doing less) and you will never feel like you have saved enough for retirement.

Later on you will also feel like you never have enough time to finish your work while at the same time never having enough time to spend with your kids. And you will feel very, very bad about how little time you spend with your wife.

But both time and money are finite and always will be so you have to find some way to feel good about that inescapable fact.
posted by GuyZero at 5:33 PM on May 5 [1 favorite]

1. Use a site like Mint.com to track your expenses. You do set it up by giving account info, but its security has been vouched for by legitimate orgs.

2. One of you should consider just working part-time if possible when the kids are not in grade school to save child-care expenses and to give your kids individual attention. It will be worth it. My mom ran a day care in our home when I was a kid and the kids she watched would bawl when they had to go home with their real parents and leave my mom. It was really sad. I wondered how much waking time they actually spent with their parents.

3. Reconsider your unwillingness to help your possible future kids with college. I paid my way through school and while I'm never a fan of handing your kids everything in life, at least a little bit of support would have been helpful. Do you really want your kids to have to work all the time, and stress over making rent, and then over paying back their loans when they get out. You don't have to pay for the whole shebang, but some help will make a huge difference.
posted by fructose at 7:05 PM on May 5

Of course you can do it. Just change your expectations.
posted by gjc at 7:14 PM on May 5

They're lucky to get regular meals, much less college. CA has great state universities, so they can either pay their own way or I can make more money than expected.

Just to add to the chorus on this one: student aid calculations are made based on parents' income, whether or not the parent is willing to pay. If you and your spouse are making 18 years' from now's equivalent to 200K-300K (assuming raises), your kid is going to be SOL when it comes to federal aid. This means the only loans they will be able to get will be non-subsidized private loans, many of which have adjustable rates. That's a huge albatross for your kids entering adulthood. Not to mention, most of my friends who have experienced that are sort of bitter at their parents for refusing to help at all.

I think this is, again, a matter of priorities. If you and your wife were just scraping by, then it would be different, but if you have the opportunity to help get your kids the best education possible, why wouldn't you?
posted by lunasol at 7:25 AM on May 6

You didn't say your ages, but I would continue to contribute to your 401ks to the maximum extent possible. It's just my personal opinion, but I think that the advice to lower your contributions is poor. First, unless they are Roth 401ks, you are contributing before-tax dollars, so you get a significant tax advantage right there. Second, you can always lower your contributions later when you really need to use that income for something else. If you have to spend less money on something now, it should be food, not retirement savings. Making those higher contributions now when you can means that you have more money in there growing for a longer time on a compound basis. If you plan to have kids around 35, you would be able to draw from your 401ks when your kids are around 25, and you can help them out with paying off student loans, spending money for a wedding, whatever. But the ability save money on a pre-tax basis and have it grow without tax consequences is a significant benefit, and you should take advantage of it to the maximum extent possible.

You should consider getting some tax advice. In a high-tax state like California, with large mortgage interest deductions, maximum 401k contributions and multiple kids, you might be getting close to AMT.

You make far more than enough money to have kids, even with your lifestyle. The question of whether you are willing to make the relatively minimal changes to your financial lifestyle (when compares to the significant changes you'll have to make the rest of your lifestyle) is a good way to determine whether not you are ready to have kids.
posted by iknowizbirfmark at 7:29 AM on May 6

1. House payment
We have a $500k mortgage and we're paying $3,500 per month which includes property taxes and mortgage insurance. I think you might need to adjust here.

2. $3,400 children
Fulltime infant childcare is about $1,200 a month -- in our nannyshare (one nanny watches 2 children at the same time) our family is spending $1,800 for an experienced nanny for 45 hours a week, plus her medical insurance. The cost goes down for daycare after the age of one. Childcare costs only last for a few years, but I'm thinking that $3,400 for two children may be high even for the daycare years.....

After that cost, figure in diapers. Besides that, our baby doesn't cost much. We occasionally buy some gear, like a stroller, but deals can be found.
posted by smart75 at 8:48 AM on May 6

I'm the budget nazi in this DINK house in a really nice neighborhood within the original borders of DC, and I've got a gnarly pivot table filled with 17 months of expense data that I crunch every which way. Many of our financial circumstances were similar to yours before we paid off about two thirds of our mortgage. Here's my take on some of your expenses:

auto insurance $100
That's dead on with our insurance costs for two modest cars. If that's for two cars, then it looks good.

car maintenance $116
We spend just a bit more maintaining our two modest cars.

food $1100
Way high. Like I said, we are inside the original boundaries of DC, and we pay 475/month on all the food we eat at home. That basically covers everything except work lunches, which push the total to 775/month if we both go out for lunch every work day. Dates with each other or any other restaurant eating comes out of our individual allowances because it's discretionary.

hobbies $145
This is all discretionary. Cut here.

medical $160
This is not discretionary.

misc $500
Quit using the ATM. Seriously. Assuming you pay the entire balance every month, do every bit of spending of spending that you can on your credit card to make this significant (yes, it is significant) sinkhole come out into the light. Then squash it.

school loans $804
Don't pay them back early if the interest rate is lower than your mortgage's.

travel $458
Discretionary. Kill it. You don't need to travel with a tiny baby. Kill this category, just like you killed the replacement car funding (though I think that one's a bad idea.)

401k $2583
Good, keep it up.

home maintenance $550
Almost exactly dead on with out experience. It's very lumpy, but that's where it averages out to.

house cleaning $170
You should have killed this a long time ago, and you know it.

netflix $15
If this is in place of cable, I think this is smart. If it's not, it ought to be.

gas & electric $108
Seems a touch optimistic. Good for you if that holds up.


No internet? No cable? (We don't get cable, but not mentioning internet makes me wonder.)
posted by NortonDC at 5:09 PM on May 6 [3 favorites]

Dates with each other or any other restaurant eating comes out of our individual allowances because it's discretionary.

Just wanted to say that this is the smartest way to handle this expenditure I've even seen. In the past I lumped it in with food (bad idea, unfair comparison), then entertainment (but it's not completely), and finally its own category, Dining Out, which tended to flex. I very much like the idea of establishing a discretionary personal allowance for luxury expenditures. Good idea.
posted by Miko at 6:02 PM on May 6

NortonDC, what are your figures for other categories? Any major categories left out? Eg, discretionary?

Also, someone mentioned this article to me today. In 1996, the average family of four spent $8500 on food. Add 6% inflation per year (probably low) and a 5%(?) Silicon Valley surcharge, and you get $835 / month. Modify the assumptions as you see fit. (Little babies eat less than eleven year olds. Etc.) And that's the average amount, so people clearly eat for less.
posted by salvia at 6:10 PM on May 6

As the budget-challenged other half of NortonDC's household (if you are the budget nazi, can I be the fun nazi?), I just came in to favorite his comment but also note that I don't think it's a good idea to cut out the travel budget. Kid or no kid, you still need to be able to get out and do things, and, for example, visit relatives and friends. Possibly it will decrease because once you have kids you can sort of make other people visit you, but maybe not. But imo $500/month is high. Ours is $350/month, for example, and we managed a big trip to Hawaii this year.
posted by onlyconnect at 6:51 PM on May 6 [1 favorite]

Here's the two-level breakout I use with our expenses:

Car
....Car Insurance
....Car repair
....Gasoline
....Smart Tag / EZPass

Communications
....INTERNET
....Cell

Entertainment
....Netflix

Food and drink
....Alcohol
....Grocery
....Takeout

home repair/maint
....home repair/maint

House payment
....House payment

Household goods
....Household goods

Household services
....Consumer Reports
....Dry cleaning
....pre-setaside gift
....Shipping

Medical / dental
....Medical / dental
....Pharmacy

other Transport
....cab fare
....Metro fare

Setasides
....Setasides: electronics
....Setasides: Furnishing / Décor
....Setasides: Gifts
....Setasides: travel

Student loan
....Student loan

Taxes / prep
....Taxes / prep

Utilities
....County water, sewer & trash
....electric
....Gas


Some notes on that breakout: "Household goods" basically means anything from Costco, Target or the local hardware store that doesn't fall into another category. "Household Services" doesn't account for much; it averages $10 per month, with many gaps. The various setasides cover expenditures from virtual pots of money which we add to every month.

Miko, as the "takeout" category indicates, we do cover some takeout food with house money, because it gets eaten at home, and that's our rule. The average is under $60 month (less recently), and that's included in the food total I gave before.

salvia, as you can see there's nothing called "Discretionary", but many things could be considered discretionary. Different people will see it different ways.
posted by NortonDC at 7:46 PM on May 6 [2 favorites]