Reader Case Study: MD and SMC Living in the PNW
Sara is a doctor and mother living with her best friend, Jodie, in the Pacific Northwest. Sara is a single mother by choice and her son Sam is now seven months old. She loves her work as a doctor and her new role as a mom, but wants to make sure her finances are as healthy as they can be.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send in requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight and feedback in the comments section.
For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.
The Goal Of Reader Case Studies
Reader Case Studies intend to highlight a diverse range of financial situations, ages, ethnicities, locations, goals, careers, incomes, family compositions and more!
The Case Study series began in 2016 and, to date, there’ve been 76 Case Studies. I’ve featured folks with annual incomes ranging from $17k to $200k+ and net worths ranging from -$300k to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight, queer, bisexual and polyamorous people. I’ve featured women, non-binary folks and men. I’ve featured transgender and cisgender people. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, Spain, Finland, Germany and France. I’ve featured people with PhDs and people with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.
The goal is diversity and only YOU can help me achieve that by emailing me your story! If you haven’t seen your circumstances reflected in a Case Study, I encourage you to apply to be a Case Study participant by emailing email@example.com.
Reader Case Study Guidelines
I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn.
There’s no room for rudeness here. The goal is to create a supportive environment where we all acknowledge we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises.
I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Sara, today’s Case Study subject, take it from here!
Hi Frugalwoods! I’m Sara, a 44-year-old new mom (!) and doctor. I live in the Pacific Northwest with my awesome 7-month-old baby Sam, my senior cat Sasha, and my best friend Jodie.
I grew up mostly on the East coast, where my parents still live, and went to college and medical school close to home. I moved out to the West Coast for residency, and I met Jodie when I was looking for a roommate. We clicked right away. We saw each other through some very difficult times and I loved living with her in California.
I moved back to my hometown after residency in my early 30s. My first job out of residency was challenging but incredibly rewarding and also–really luckily–paid me very well and qualified for public service student loan forgiveness. My parents were able to pay for college and part of medical school for me, so I was really lucky to be student loan debt-free before I was 35! I was able to buy a condo on my own and lived there for about 5 years before deciding to make a big life change.
The Move West
After several years in my job and some big life changes, I felt pretty burnt out. Work was taking up a huge amount of my time and energy, and I felt like my personal relationships were not getting enough attention. After a vacation to visit Jodie, who had moved back to her hometown in the Pacific NW, I realized it was time for a big change. I loved the mountains plus ocean, the city was great, and I could really see myself building a life in this new area. I decided to take a step back from my super intense career path, landed a part-time job and moved myself and my cat across the country.
It was a little bumpy at first, especially moving away from family, but it has been a really great move overall. It helped me separate my core identity from “doctor” and expand my life in meaningful ways. I bought a house in 2017, have a great community here, and Jodie moved in with me a few months after I moved. She is living with me rent free for now. This has changed a few times over the years of us living together and it’s what works for right now. It won’t be forever, but it’s definitely part of what’s making the budget tighter these days.
In another awesome development, (though not so much for my parents) my sister moved here about a year after I did. She lives less than a mile away with her family and it is super fun to see them regularly.
Deciding to Become A Single Mom By Choice
After dating a bit after my last serious relationship ended, I decided that my biggest life goal was to become a parent, and that dating in that frame of mind was putting a ridiculous amount of pressure on myself and any potential partner. I decided to prioritize having a baby and, after some pretty intense ups and downs over the last 5 years (fertility treatments, foster parenting, an interrupted adoption), I had a baby this summer!
My life is not at all traditional, but it is pretty darn awesome. Baby Sam is an absolute joy, and living with Jodie during this time has made this experience so much more fun. My sister has also been super supportive, especially as I had some pretty serious postpartum complications and needed a lot of extra help.
My family came to visit and we were all very grateful to have had the Covid vaccines, and I was super grateful that baby Sam was born during a relative lull in the pandemic. I was able to take an extended maternity leave, including some unpaid time, because of my savings cushion. I loved being home with Sam and I was really grateful to be able to afford extra help, which made being a solo parent feel a lot less daunting. I also got a new job that allows me a lot more flexibility (more on that below).
Jodie the Amazing Live-In Nanny!
Jodie is going through her own career transition and, after much discussion, we decided she would take some time to work as Sam’s nanny for at least the first year and a half of his life. I’ve been especially grateful for this with the pandemic. Plus, being the sole breadwinner, daycare would be really rough with all the coughs and colds that go along with that coupled with various pandemic closures. Jodie and I did have to address how working for me would impact our relationship, but after 15 years of friendship we were able to keep the lines of communication open and it’s been working incredibly well so far. I think Sam will start going to part-time daycare at around age two.
As I mentioned above, I just started a new job that I’m really happy with. It’s right down the street from my house (like an 8 minute walk), with lovely people, and I’ve been able to arrange a 4 day/week schedule that works really well for me while still bringing in a solid amount of money. I love being a doctor, despite the big challenges of the last few years, and I plan to keep working for a good chunk of time. I would like to go down to 3 days a week at some point but right now, 4 days a week is very doable. I am grateful to have found a practice that reflects how I want to take care of patients while also working with people who respect my desire to spend time with my little one. Additionally, after I’ve been at this job for more than a year, my salary should go up by about $20k, which is awesome! That will really help me feel more stable.
Knowing that my path to becoming a parent was a little more complicated, I saved a lot of cash to make sure I could cover whatever expenses came up. I am so so grateful that my child has arrived, and now that I am out of the haze of the first few months of parenting, I’m looking at life and realizing whoa, ok, now I have the baby – I don’t need to save up for possible unpaid leave or other unexpected expenses! I am ready to start thinking about life in its new configuration as a solo parent, and to think through how I want to set things up financially to help support our little family.
I needed a lot of help over the last year or so with a challenging pregnancy and postpartum period, so I have been paying for services that I don’t usually have like a house cleaner and grocery delivery. These are some obvious things to tweak, but I’m also really enjoying those luxuries as a new parent.
Since I’m now working right down the street, I think staying put in my current house is likely. Also, housing prices have gone crazy here (everywhere?) in the last few years, which is great if I want to leave this area and move somewhere cheaper, but not so great if I want to trade up. I’m currently in a 3-bedroom, which I purchased in 2017, so everyone has a bedroom. Jodie lives downstairs where there’s also a small TV room, laundry room and garage. That leaves me and Sam on the main floor sharing one bathroom and no space for guests or much else – my office is currently out of a hope chest that also serves as a coffee table, and with a crawling baby the house feels very full. Especially with having a lot of friends and family still on the East Coast and in California, one long term consideration is how to make more space to welcome visitors while also making life a little more spacious as Sam grows up.
What feels most pressing right now? What brings you to submit a Case Study?
I was really struck during Frugalwoods’ Uber Frugal Month Challenge by the questions about goals, because for so long, my goal was to have a good financial cushion to enable me to have a baby. And now – baby! He’s here, he’s great, and I’m looking forward to whatever’s next. However, with less clarity around a specific goal, I can definitely feel some lifestyle creep. I want to make sure I’m being thoughtful about our future.
I’m in a really great spot in many ways, so it’s less of a ‘what to do now’ and more of a ‘how do I optimize and set myself up to have a great life going forward’ question. I do want to say this exercise has made me so grateful as I take stock of where things are – I know I’m in an incredibly privileged position to have a lot saved, but I also realize I’ve crept into a place where, despite making a lot of money, I’m spending more than I’m taking home (OMG was not expecting that…. THIS EXERCISE IS SO USEFUL).
I know that some of my big expenses are temporary (but like ‘a couple years’ temporary not ‘a couple weeks’ temporary). For example, I know I’m spending a lot on child care right now and that will change at some point, and I have the cash on hand to spend extra while still maximizing my tax-advantaged savings, but wow do I need to come to terms with the fact that I won’t be able to do that forever if I don’t get things in a net positive direction.
What’s the best part of your current lifestyle/routine?
Things are pretty great right now. This whole being a mom thing is pretty amazing. I love working close to home – I have been able to come home and see Sam at lunch, which is just unbelievable and I’m so grateful. I also love having Jodie take care of Sam – I trust her absolutely and she is basically my platonic life partner and live-in auntie to Sam. I also love that my sister is close by and that I have a great group of friends in town.
I also really love my neighborhood and my home, though it has its challenges as noted above.
What’s the worst part of your current lifestyle/routine?
Being far away from the rest of my family. This has been really tough especially as my parents are in their 70s. Although they are currently doing great, I know they will need help as they get older, which will be much harder to coordinate from across the country.
Another major stressor is that I’m still dealing with some mobility challenges and, as I get back to work and am busier, I’ve had less time for self care. I have had some postpartum anxiety as well as physical complications, so there’s been a lot of balancing self care and baby care and now patient care. Some of my expenses reflect that higher level of need for help right now, and I’m so grateful to have the resources to get it.
Where Sara Wants to be in Ten Years:
- Totally financially independent, with my mortgage paid-off (or with enough saved that it could easily be paid off if I wanted to)
- Working for the fulfillment of my job
- Pretty similar to what I’ve got now, with lots of time with Sam, probably still living with Jodie, and the ability to travel to the east coast for long stretches of time to be with family.
- I also recently became an Irish citizen though my grandmother and have a fantasy of spending some time in Ireland at some point.
- More flexibility but similar work – either direct patient care or some sort of health-related coaching.
- Likely still at this practice since, so far, it feels like a great fit.
|Sara’s net income||$8,650||Sara’s net salary, minus the following deductions: health and dental insurance, 401k and 457b contributions, HSA and Dependent Care Reimbursement Account (DCRA) contributions, LTD, life insurance and taxes.|
|Item||Outstanding Loan Balance||Interest Rate||Loan Period and Terms||Equity||Purchase price and year|
|Mortgage||$487,020||2.5% (refi last year)||30-year fixed-rate mortgage||$297,980||$785K in 2017|
|Item||Amount||Notes||Interest/type of securities held||Name of bank/brokerage||Expense Ratio|
|Retirement account from job 1||$553,423||401K from an old job||2040 target retirement fund||Vanguard|
|Brokerage account||$129,718||Taxable investments with Vanguard||Vanguard Admiral Index fund||Vanguard||0.015%|
|Checking account #2||$70,787||The account I mostly use for everyday expenses||BECU|
|IRA traditional||$63,968||Traditional IRA||2040 target retirement fund||Vanguard|
|Retirement account from job 2 – A||$62,250||403B from an old job||2040 target retirement fund||Fidelity|
|Savings account||$48,128||Emergency fund||Very low interest savings account, circa 0.02%||BECU|
|Retirement account from job 2 – B||$44,423||457b from an old job||2040 target retirement fund||Fidelity|
|Checking account #1||$15,580||I’m slowly getting rid of this account in order to transfer it to a credit union, but I had a bunch of autopay stuff set up that I never got around to transferring, so I left a bunch of money in here to cover those automated payments.||Chase|
|WA state deferred comp count||$10,036||Job #2 additional retirement savings||2040 target retirement fund with Vanguard||Vanguard|
|HSA account||$1,997||New job HSA, $1,000 threshold to hold in account, the rest will be invested||70% Vanguard social index, 20% Vanguard real estate index, 10% emerging markets index||Health Equity|
|Retirement account from job 3- A (current job)||$1,977||401K from current job||2040 target retirement fund||Fidelity|
|Retirement account from job 3 – B (current job I just started)||$1,661||457b from current job||2040 target retirement fund||Fidelity|
|Retirement account from job 2 – C||$1,595||Pension plan from an old job – not vested so probably only have 25% of this once I roll it over||2040 target retirement fund||Fidelity|
|DCRA||$455||new job dependent care account||Health Equity|
Note: I am maxing out both my 401k and 457b ($20,500 / year into each). The 401k has a 3% match. This has been part of my strategy this year to spend down some of my cash savings while getting as many tax advantaged savings as possible. Part of my question today is if this a good strategy.
|Vehicle make, model, year||Valued at||Mileage||Paid off?|
|2016 Honda CRV||$26,000 (this seems crazy high to me but it’s what Kelly Blue Book says)||50,000||Yes|
|Nanny (aka Jodie)||$3,260||Nanny payments including state and federal taxes and admin fee for payroll service. The plan is to continue with Jodie until Sam is at least a year old (and probably more like 18 months), then transition to daycare which should be a lot cheaper.|
|Mortgage||$2,743||Includes escrow for taxes and home insurance|
|Groceries||$650||I have been having groceries delivered while pregnant and now with a baby. I’m not wanting to take him into the store because of Covid.|
|Cleaning service||$560||This is something I started while very pregnant and have continued. It’s on the chopping block already but it’s hard to let it go.|
|Utilities (water, garbage, sewer)||$300||This has been CRAZY HIGH the last couple months and I am not sure why, other than having people at home a lot because now Jodie and the baby are home all day.|
|Gifts||$200||Spread over the year and including holidays|
|Travel||$200||??? Hard to estimate since I haven’t travelled anywhere since before Covid but I am planning some trips back to the East Coast this summer|
|Term life insurance||$188||I got this policy at the beginning of Covid. I’m trying to decide if I want to keep it or switch to my employer offered plan, which I’d need to make sure is portable.|
|Car insurance||$166||Progressive for my car and Jodie’s|
|Baby gear||$100||Varies but it’s about this for diapers, Aquaphor, some occasional baby foods like teething biscuits (though we mostly make our own and I breastfeed), child proofing stuff, occasional ridiculous St Patrick’s day PJs… 90% of baby clothes are hand-me-downs as is most of our baby furniture/gear.|
|Home maintenance||$100||Lawn care once a month ($35), gutter cleaning service once a year, exterminator as needed, chimney cleaning, carpet deep clean (thanks to many cats…)|
|Haircuts||$100||I just started going again after a 2-year hiatus and man I like my hair better when it’s well cut and colored|
|Breast pump rental||$100||I plan to have until July|
|Cat care||$80||Litter, food, vet visits|
|Toiletries||$80||Sundries like face cream, toothpaste, etc|
|Entertainment||$79||This is a clear target for reduction: spotify, HBO, disney plus, WAPO, Kindle unlimited, Amazon prime, and netflix… I am now very embarrassed. Plus some purchased ebooks and movies thrown in, though I’ve gotten much better at using the library!|
|Meds/doctor visits||$75||Averaged out over the year for me and baby|
|Cell phone||$68||Sprint (and yes, I know about MVNOs)|
|Heat||$60||gas heat, average over the year|
|Gas for car||$40||minimal commute!|
|Car tax||$40||paid once per year|
|Therapy||$30||Was covered by my old health plan with minimal co pays, not sure how much it will be on my new health plan|
|House stuff||$25||Paper towels, toilet paper, laundry detergent|
|Physical therapy||$20||Was covered by my old health plan with minimal co pays, not sure how much it will be with my new health plan|
|Monthly subtotal:||$9,691||EEK! This is more than I am taking home!|
Credit Card Strategy
|Card Name||Rewards Type?||Bank/card company|
|Alaska Airlines||Travel||Bank of America|
|Nordstrom card||Nordstrom bucks||Visa|
Sara’s Questions For You:
Is it reasonable to be saving so much into retirement when my expenses are pretty high right now?
- Is this a wake-up call to trim back the many fluffy pieces of my life? (goodbye Spotify – cancelled!).
- I am maxing out both my 401k and 457b ($20,500 / year for each). The 401k has a 3% match. This has been part of my strategy this year to spend down some of my cash savings while getting as many tax advantaged savings as possible. Is this the right strategy?
- Thoughts on having retirement money in an IRA vs. employer-sponsored 401K?
- I have the opportunity to roll over my 401K and 403B from previous jobs and I’m not sure where to put it.
- I like the idea of being able to take it out of an IRA at 59 ½ instead of later for a 401K.
- Are there other financial planning suggestions for a solo parent or does it look like I’ve got things in an ok spot?
- I just found out about DCRA, and as someone who spent several years holding all my retirement accounts in cash because I missed the memo on selecting an investment account, I have a fear that I am missing something about my financial state.
- Since I like my job and I foresee wanting to be working for a while, my goal is not to retire early but to have more flexibility in the long run.
- Should I pay off my mortgage?
- The part of me that’s very anti-debt is tempted to do this, but I have a pretty great interest rate (2.5%) and my monthly payments are not terrible, so I think my money can do more for me elsewhere?
- Should I remodel my garage to make my house more comfortable long term?
- This is what I’m leaning towards, but I am NOT HANDY and so I’m a little nervous about doing a big project like this and would need to make sure I’m really in a positive cash flow place before tackling it.
- How do I make sure I’m saving enough while also keeping a good positive cash flow on a monthly basis, and making sure to optimize what cash I do have on hand without it just sitting in my checking account, which is what I have a tendency to feel most comfortable with?
- I like to know I can handle whatever is likely to arise, but I feel like I’m missing out on some opportunities by holding onto too much cash.
- I also think having so many accounts all over the place has made it really hard to keep track of how much I’m actually saving or spending each month, so I was truly shocked to realize I’m spending more than I’m making.
- Having to write down each of my accounts was ridiculous, and I know I missed one (a small pension from the state after working at a public hospital…). So, consolidation and simplification seem like key next steps!
Liz Frugalwoods’ Recommendations
Sara’s in excellent financial shape, but I’m still glad she came to us today for help! I get the sense that she’s been (understandably!) very focused on having her baby and starting her new job and now that the dust has settled, she wants to turn her attention to her financial life. A great idea!
We all go through phases of life where we’re more (or less) in tune with our finances, which is totally fine. The key is to ensure we check-in periodically to test our assumptions and re-evaluate the things we’ve previously put on autopilot, such as:
- Savings that are automatically deducted from our paychecks
- Subscription services that automatically deduct each month (hello, Amazon Prime!)
- Investment asset allocation decisions
- Automated retirement savings
- Bills we’ve enrolled in auto-pay (insurance, utilities, etc)
- Services, such as house cleaning or childcare, which are likely to change with time and our phase of life
I’m an ENORMOUS fan of automating all of these things–that’s what I do! But the caveat to all of that automation is that you need to review it every once in awhile (once a year? every six months?) to make sure you’re aware of everything you’re signed up for and everything you’re investing in. This is exactly the exercise Sara embarked on to assemble her Case Study and I’m excited to dig in with her today!
Sara’s Question #1: Is it reasonable to be saving so much into retirement when my expenses are pretty high right now?
I think it probably does make sense for Sara to continue her aggressive retirement investment strategy for several reasons:
- At her high income level, the tax savings on her pre-tax contributions to her 401k and 457b are likely pretty substantial. In general, the higher your income, the more important it is for you to take advantage of pre-tax investment opportunities.
- Sara doesn’t want to retire early, so there’s no need to optimize non-traditional retirement vehicles. She’s setting herself up for a very well-funded, very nice, traditional retirement.
- Her biggest expense–childcare–will only decrease with time. Assuming her son attends public school, it is highly likely his care/schooling will never cost as much as it does now. Hence, her “high expenses” are much lower when you take into consideration the transitory nature of the childcare expense.
Reduce Expenses to Break Even
That being said, I agree with Sara that she should get her expenses to align with her income. It would be fine for her to just break even at this point, in light of the fact that she’s putting $41k/year into retirement and already has a substantial emergency fund. Given those two factors, there’s not a real imperative for her to save above and beyond that. Breaking even would put things on a positive trajectory.
Sara’s monthly income: $8,650
Sara’s top expenses (mortgage $2,743 + nanny $3,260) = $6,003
This leaves $2,647 for the remainder of Sara’s expenses. Currently, she’s spending $3,688 (aside from mortgage and nanny), which means she needs to eliminate $1,041 from her monthly spending in order to break even.
Sara: no one can tell you what to reduce/eliminate from your budget expect for you. You know which items are your priorities and which things you could eliminate without too much disruption. The purpose of this exercise is to get you thinking about the things in your budget that are discretionary, but only you can determine their order of importance in your life.
|Item||Amount||Sara’s Notes||Liz’s Notes||Proposed New Amount|
|Groceries||$650||I have been having groceries delivered while pregnant and now with baby. I’m not wanting to take him into the store because of Covid.||This is reasonable, but if it’s an area Sara feels she could reduce, go for it! Is this just for Sara or does it include Jodie as well?||$550|
|Cleaning service||$560||This is something I started while very pregnant and have continued. It’s on the chopping block already but it’s hard to let it go.||This is the obvious thing to axe, but I also understand what a lifesaver it is for working parents. I’m going to eliminate it for the purposes of this exercise.
It’s a good time to ask: which is more valuable to you?
Do you want to reduce a little bit in every category? Or a lot in just a few categories? Lots of options for how to get there!
|Utilities (water, garbage, sewer)||$300||This has been CRAZY HIGH the last couple months and I am not sure why, other than having people at home a lot because now Jodie and the baby are home all day||I’d dig into this if it were me. What’s the breakdown for each utility? Where are you seeing the increase? Seems like A LOT for just water, sewer and garbage, so I’d want to ensure there’s not like a water leak or something going on.||$300|
|Restaurants||$200||This is an easy one to eliminate, if Sara wants to.||$0|
|Gifts||$200||Spread over the year and including holidays||At $2,400 per year, this seems a tad high? But, I’m not sure how many people/family members this includes. Something to take a look at.||$100|
|Travel||$200||??? Hard to estimate since I haven’t travelled anywhere since before Covid but I am planning some trips back to the East Coast this summer||I’ll leave this since Sara noted she already has trips planned for this summer.||$200|
|Term life insurance||$188||I got this policy at the beginning of Covid, trying to decide if I want to keep it or switch to my employer offered plan, which I’d need to make sure is portable||Would be interesting to see what your employer offers and what the cost would be. I agree that, as a single parent, it makes total sense to have term life insurance.||$188|
|Car insurance||$166||Progressive for my car and Jodie’s||Fixed cost.||$166|
|Electricity||$153||Fixed cost, although, have you done an energy audit? Many states offer them for free! They’ll come to your house and offer advice on how you can save $ on utilities. Totally worth it if you haven’t done it yet. This could also help get to the bottom of the high water/sewer bill.
Another great DIY approach is to buy (or borrow, sometimes libraries have them available) an energy use monitor to see if any of your appliances are secret energy hogs (affiliate link).
|Baby gear||$100||Varies but about this for diapers, Aquaphor, some occasional baby foods like teething biscuits tho we mostly make our own and I breastfeed, child proofing stuff, occas ridiculous St Patrick’s day Pjs. 90% of baby clothes are hand me downs as is most of our baby furniture/gear||Sara, are you down with the cheap diapers? I have a post ALL ABOUT the cheapest of the cheap diapers and wipes, which might help save a bit in this category:||$75|
|Home maintenance||$100||lawn care once a month ($35), gutter cleaning service once a year, exterminator as needed, chimney cleaning, carpet deep clean (many cats)||Seems like a necessary fixed expense, so I’ll leave it.||$100|
|Haircuts||$100||I just started going again after a 2 year hiatus and man I like my hair better when it’s well cut and colored||Any chance to go any cheaper on this? If not, no worries! Just something to consider as you weigh reducing other items above.||$100|
|Breast pump rental||$100||plan to have until July||Fixed cost, but only for a few more months, so that’s positive.||$100|
|Cat care||$80||litter, food, vet visits||Fixed cost.||$80|
|Toiletries||$80||Sundries like face cream, tooth paste, etc||Any opportunities for reduction here? Are you already buying generic/store brands?||$60|
|Entertainment||$79||This is a clear target for reduction: spotify, HBO, disney plus, WAPO, Kindle unlimited, Amazon prime, and netflix I am now very embarrassed. Plus some purchased ebooks and movies thrown in, though I’ve gotten much better at using the library!||Don’t be embarrassed! This is why we’re doing this exercise together:)! Ok, what can you eliminate here but still retain what you need? Could you get by with just Amazon Prime since it offers music, TV and free shipping? Prime is $139/year ($11.58 per month), so I’ll put that down for now.||$12|
|Meds/doctor visits||$75||Averaged out over the year for me and baby||Fixed cost.||$75|
|Cell phone||$68||Sprint (and yes I know about MVNOs)||Ok lady, time to get an MVNO! This is probably the least painful, easiest change you can make.
Check out this post and pick an MVNO: How to Save Money on Your Cell Phone Bill with an MVNO: I Pay $12 a Month
|internet connection||$66||Fixed cost.||$66|
|Heat||$60||gas heat, average over the year||Fixed cost.||$60|
|Gas for car||$40||minimal commute!||Fixed cost.||$40|
|Car tax||$40||paid once per year||Fixed cost.||$40|
|Therapy||$30||Was covered by my old health plan with minimal co pays, not sure how much it will be with new health plan||Fixed cost.||$30|
|House stuff||$25||Paper towels, toilet paper, laundry detergent||Fixed cost.||$25|
|Physical therapy||$20||Was covered by my old health plan with minimal co pays, not sure how much it will be with new health plan||Fixed cost.||$20|
|Headspace||$8||Yearly subscription||How important is this? It’s not expensive, but it is one more thing that’s $96/year.||$8|
|Monthly subtotal (without mortgage and nanny)||$3,688||New monthly subtotal (without mortgage and nanny)||$2,563|
These suggestions would put Sara in the comfortable position of being able to:
- Continue maxing out her pre-tax retirement investments
- Pay for high quality childcare
- Cover her expenses and not dip into her savings each month
But as I said, this is a matter of personal choice and Sara will have to make the determination herself of which items she values and wants to keep. I’ll email her this spreadsheet so she can play around with the “proposed new amount” column.
Sara’s Question #2: Thoughts on having retirement money in an IRA vs. employer-sponsored 401K?
Roll it over. Roll it all over.
Sara rightly identified that one of her issues is her, ahem, impressive number of different accounts and indeed, she might go down in Case Study history as “Most Likely to Open Another Account” :). Consolidation and organization will be a great outcome of this exercise!
Sara, you will likely need to spend some time on the phone with Fidelity and Vanguard to roll all of these babies over, but their customer service is typically excellent. Plus, once it’s done? You won’t have to worry about it again!
I also want to make a clarification here: Sara noted she likes the idea of being able to withdraw from an “IRA at age 59 ½ instead of later for a 401K” but that’s not accurate. You can also withdraw from a 401k at age 59 ½ without any penalties. It’s possible Sara is thinking of RMDs (required minimum distributions), which take effect at age 72. But rest assured, it’s age 59.5 for penalty-free withdrawal from both IRAs and 401ks.
Let’s take a closer look at where Sara’s money is:
All together, Sara has $739,332 in retirement investments. According to Fidelity’s (oversimplified, but useful) retirement rule of thumb, you should:
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
Since Sara is 44, let’s go with 4.5x her salary, which would be [$103,800 x 4.5] = $467,100. Given that, Sara’s in excellent shape! Since Sara mentioned she might want to scale back to part-time work in the future, she should be in a great position to do so.
I also noted that all of her retirement accounts are with either Vanguard or Fidelity, which is fantastic as both of those brokerages have a solid reputation for offering low-fee total market index funds. For more on the importance of selecting funds with low fees (aka expense ratios), check out this Case Study.
Sara’s correct that she has an epic amount of money in cash right now: $134,495! A robust emergency fund for Sara–which is three to six months worth of expenses–would be [$9,691 x 3] = $29,073 to [$9,691 x 6] = $58,146. This leaves Sara with $76,349 “extra” in cash.
The downside of having a lot of cash:
- It’s an opportunity cost:
- Cash offers the least opportunity for financial growth.
- Cash just sits there earning low (or no) interest and doesn’t keep up with inflation.
The upside of having a lot of cash:
- It’s a buffer against debt.
- It’s the most stable form of money, except for the fact that it doesn’t keep up with inflation and so it essentially loses value every day.
- But, it’s still the most conservative way to hold assets.
The challenge for Sara right now is that she’s in a state of flux:
- She’s a new parent, which always causes a reshuffling of priorities, spending and saving
- She has a new job and is still acclimating to that schedule and salary
- She’s spending more than her take-home pay every month
This is an interesting situation because Sara’s in excellent financial shape, except for the discrepancy between her spending and take-home pay. There are three ways to bring that into alignment:
- Reduce her pre-tax retirement contributions
- Reduce her spending
- Spend down her cash buffer on her expenses until she gets a raise in a few years
These are all valid options, but the most fiscally smart (and the best for the long term) is option #2: reduce spending.
So, what to do with the extra ca$h?
Typically, the hierarchy of financial options for extra cash are:
- Pay off all high-interest debt: DONE
- Save up a fully-funded emergency fund: DONE
- Max out retirement accounts: DONE
- Open a taxable investment account: DONE
- Potentially open a 529 college savings account: Sara should research this now.
- Potentially open a Donor Advised Fund (DAF): this is the tax-advantaged, most efficient way to donate to charity. I have a DAF and I highly recommend them for folks who want to create a lasting philanthropic legacy (in a tax-advantaged manner!). It’s easy to do, your money is invested so it grows over time, and it’s the simplest way to make and keep track of your donations. I find that DAFs are the most overlooked form of tax-advantaged account, despite being a great deal! More here:
- Add to your taxable investments: this is something Sara could do. Once items 1-6 are complete, folks can continue to invest extra cash in the market in perpetuity.
- Optional: explore other investment options, such as real estate.
All that being said, until Sara’s expenses are at least breaking even with her take-home pay, she’ll need to keep this money in cash so she can continue to cover her expense overages each month.
Jodie’s Role = Superstar
It is so difficult to find high-quality childcare that works with your schedule and that you trust and…. forget about affordable (that does not exist in our country, at least not for infants!). Given that, I think Sara has an incredible deal/arrangement with her BFF Jodie. It’s basically a parent’s dream come true!
I know readers will point out the full freight of Jodie’s compensation package, so I’ll do the math for us here:
|Item||Monthly Amount||Divided by Two|
|Nanny salary||$3,260||$3,260 (N/A)|
|Utilities (water, garbage, sewer)||$300||$150|
|Jodie’s total compensation package:||$5,221|
At $5,221 per month, I still think Sara’s getting a good deal! It’s hard to put a price on having what amounts to a stay-at-home parent who can work around your schedule, who you trust implicitly and who is raising your child with love and care. All that being said, Sara noted this isn’t the forever situation and that she anticipates they’ll send Sam to daycare in another year or so.
My main question here is how Jodie will survive financially after that point? I’m sure she and Sara have discussed this timeline, but I bring it up because Sara wouldn’t be able to afford to pay for daycare AND continue paying Jodie a salary.
Sara’s Question #3: Are there other financial planning suggestions for a solo parent or does it look like I’ve got things in an ok spot?
The tenets I think about for parents–and doubly so for solo parents–are:
- Term Life insurance: Sara’s all set with this
- Healthy retirement savings: you can’t take a loan out for your retirement and you don’t want to saddle your children with the cost of your old age.
- Create a will and estate plan: hire a lawyer to create this for you and update it over the years as circumstances change.
That’s the baseline! It’s most important for parents to have themselves in a solid financial place before they turn their attention to kid-specific investment vehicles. Since Sara’s all set with these AND given her high salary, it may make sense for her to open a 529 college savings account for Sam because it’s tax-advantaged. Sara should research what her state offers in terms of tax breaks and consider if opening a 529 makes sense right now. I assume it probably will, but she’ll need to read up on what her state offers. Here’s more information on how 529s operate: How We Use 529 Plans To Save For College
Sara’s Question #4: Should I pay off my mortgage?
NOPE. Sara locked in a historically low interest rate on her mortgage–2.5%–which should make you just about weep with joy. Sara, you hit the jackpot with that interest rate and there’s no financial or mathematical reason to pay off a mortgage with an interest rate that low. If you did, you’d be locking in a 2.5% rate of return on your money while the stock market (historically and on average) returns 7% annually.
Sara’s Question #5: Should I remodel my garage to make my house more comfortable long term?
In general, you want to cash flow renovations. In other words, you want to have enough cash on hand to pay for the full renovation without the danger of going into debt. Sara could potentially pay for the renovation with the “extra” $76k she has in cash, but, that assumes she’s able to always keep her monthly expenses below her take-home pay. Since Sara is still settling into the finances of her new job, her new role as a parent, and relatively new home ownership, I encourage her to wait. Wait and see what the housing market does in the next few years. Wait and see what the cost of materials and contractors do in the next few years.
In addition to the expense of renovating, due to global supply chain issues, a lot of building materials aren’t even available right now–for any price. If it were me, I’d wait a few years then reassess. Another advantage of waiting a few years is that Sara will no longer have the exorbitant nanny/daycare costs for Sam, which’ll give her much more room to pay for a renovation.
Before embarking on an expensive renovation, I’d want to know the following:
- Does Sara want to stay in this city and this neighborhood for the longterm?
- Would it be cheaper/easier to sell this home and buy a larger one in the same area?
- Will Jodie be living with Sara and Sam for the longterm?
- If Jodie moves out, will the house feel big enough for Sara and Sam?
Sara’s Question #6: How do I make sure I’m saving enough while also keeping a good positive cash flow on a monthly basis, and making sure to optimize what cash I do have on hand without it just sitting in my checking account, which is what I have a tendency to feel most comfortable with?
In many ways, I think this question reflects the fact that Sara is still in a state of transition with her job, home and bebe. And there’s nothing wrong with having extra cash on hand during a transition–in fact, it’s what I recommend!
If and when Sara is able to get her monthly expenses to align with her take-home pay, she can consider deploying her cash as follows:
- Sequester $29,073 to $58,146 as an emergency fund.
- Research opening a 529 for baby Sam.
- Research opening a Donor Advised Fund (DAF).
- Consider the garage remodel AFTER several years and AFTER determining she’s staying in the area for the longterm and AFTER determining that moving to a larger house isn’t a better option than renovating.
- Consider adding more to her taxable investment account.
And yes, Sara I agree, for the love of all things good, please consolidate your accounts :)!:
- Roll over all of the old retirement vehicles
- Combine the cash accounts into one
- Consider moving everything to the same bank/brokerage for ease of transparency. I personally have everything with Fidelity, which enables me to see alllllllll of my accounts on one screen–very, very helpful.
- Continue maxing out the 401k and 457b contributions for the tax advantages.
- Hire a lawyer to create a will and estate plan (if you haven’t already).
- Explore ways to bring your spending into alignment with your post-tax income.
- Once that happens, explore the options for your “extra” cash:
- 529 (tax-advantaged)
- DAF (tax-advantaged)
- Garage remodel
- Adding to taxable investments
- Roll over all old retirement accounts.
- Consolidate all cash into one account.
- Potentially move everything to the same bank/brokerage for ease of tracking all accounts.
- Research 529s in your state.
- Don’t pay off the mortgage because the interest rate is historically low.
- Ensure that Jodie has a financial/career plan for when she is no longer Sam’s nanny.
- Table the garage renovation for now and reconsider in a few years.
Ok Frugalwoods nation, what advice do you have for Sara? We’ll both reply to comments, so please feel free to ask questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk.
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As a MD she should consider keeping her retirement savings in 401k/403b accounts instead of IRAs. They provide more protection in the event that she is sued. In many states those assets are protected in different ways than an IRA. An IRA may provide more investment options, but if she already has good or similar options in her 401k/403b it would be better to keep her investments in a 401k/403b account.
Oh that’s an interesting point I never would have thought of. In that case, Sara could still consolidate–often you can roll over old 403bs to your current one, and I assume it’s the same with 457s. Sara, you are doing great! Congrats on the baby and setting up such a good life for yourself! I loved this case study
With regard to 457 plans, you probably want to keep it in the old 457 for another benefit – the ability to withdraw at any time after separation from service, penalty-free (just pay ordinary income taxes). And since one of those 457 accounts is with an old employer, Sara can already do this from that Job 2 457 account. As soon as it gets rolled into any other account, the funds lose their special 457 status, and are locked up until 59.5 (as I learned the hard way).
Thank you!!! I just realized this right before I submitted a roll over request – I’m checking to see if I can roll them over into my new 457 plan just for ease of tracking but this was a nuance that I almost missed!
Good tip thank you!!!
Still making my way through the comments but thank you all for such thoughtful responses! This is so
With that in mind, umbrella insurance might be a good idea too!
https://www.aboveboardfinancial.com/ I cannot recommend this company enough to help compare life insurance policies! They helped me find a fabulous plan for my husband, and determined that my employer offerings were best for me (so didn’t try to sell me a product that didn’t work for me). I’m sure you’ll find substantial savings with them!
You didn’t note the face value of your term life policy but regardless, your monthly premium seems high unless you’re rated for a health issue. One note re: portability of employer life insurance – you will likely see a HUGE rate jump. And the “portability” might be a conversion to whole life (or <spit? universal life). Term life via employer used to be very inexpensive but that changed in the early 2000s in my area (Midwest). Rate typically increases every year because the employee has the "audacity" to turn a year older.
Of more concern than life insurance, how much disability coverage do you have? Even if qualifying for disability via social security, it isn't going to provide a lot of income.
Do you have a will/trust, POAs, guardian for Sam, and most important to me – a qualified person you trust to manage your estate for Sam until he becomes of age?
Yes to disability coverage and I have a solid amount of life insurance set up – with my other assets he should be all set for quite a while. I also did all the power of attorney / estate planning / trust planning before I even got pregnant, and it is all updated now that he’s arrived officially.
I do unfortunately have some pre-existing health stuff so that’s part of why the premium is high.
My first thought is that a single mom, Sara really needs to be sure she has enough life insurance to cover Sam until he is an adult should the policy be needed. Employer policies typically only cover 2x salary at the most, which is not enough to fund a child’s care over many years. I would increase the term life insurance if it is not adequate, and especially now while Sara is younger. The cost increases with age. There are formulas to determine how much life insurance is needed to replace her income.
Sara is in good shape retirement savings wise, but it all seems to be pre-tax. I would suggest building some assets that will be tax free income in retirement. Convert some IRA money into Roth. Check to see if the 401k offers a Roth option.
I don’t think this is a great option. At her income level, it is likely better for her to not convert as she’ll be paying high taxes. The expectation is she’ll withdraw at a MUCH lower income level down the line. I get it.. the tax-free growing is ideal, but she’d need to weigh that heavily against the tax hit now. Given her high expenses compared to salary, this isn’t a good option until she dials that in, but what I do since I can’t contribute *normally* to a Roth either is the backdoor method. Yep, it’s after-tax dollars, but they grow tax-free and you can put in a substantial amount this way. Much better option, in my opinion, than paying the taxes on a conversion now.
How are you able to max out both a 457b and 401k? I thought it was one or the other? Are you splitting the annual max of $20,500 between accounts. Congrats on nursing for 7 months. I’m 3+ years strong and never set out to nurse this long. Am also thankful for the extra immune boosting benefits during COVID. I stopped pumping at 2.
I’m not sure if Sara’s situation is the same, but I am an academic doctor at a med school. A lot of doctors at our institution are called “Dual Docs” and paid a portion from the clinical system and a portion from the (state) med school for the teaching they do, and those doctors can max out both a 403b and state 457b plan.
I work at a hospital (not a doctor) and we have access to both 457b and 403b so I can (and do!) contribute 2x the usual limit by utilizing both plans. This is the case for many people employed at private nonprofits/government jobs.
While I recognize that DIY is a big part of the FIRE movement, I wonder if Sara may wish to consider cutting other “luxuries” before she lets go of her cleaning service. My reasoning on this isn’t entirely financial, but more pragmatic. Sara works in an intense job and she has a child. My take, speaking as a woman in her late 50s, is that Sara is better off outsourcing her cleaning than trying to add a third “job” back in. Feeling that we must do everything ourselves becomes a less viable strategy as we age. Some pre-emptive avoidance of burnout will help Sara maintain and increase her current earning potential, and the cleaning service will also free up time that Sara can spend with her child, and she can potentially add another income stream down the road (writing a book, being a columnist, etc.). She has an engaging writing style, and there are many other female doctors who’ve done something similar.
And perhaps the cleaning service could be cut down to every other week or 1x monthly (not sure where it currently stands)!
I think that’s a really valuable point. Frugal living has a bit of a culture; insourcing/DIY is big and can be assigned something of a moral value, but paying someone to clean your house isn’t inherently less frugal than, I don’t know, paying more for organic groceries. Money is money.
I agree! That’s why I carefully noted the below for Sara with regard to house cleaning. I absolutely do not think it’s a “moral value” to clean your own home! With these expense-reduction exercises in Case Studies, I intentionally create the spreadsheet so that it is manipulatable by the Case Study participant. Only Sara knows what’ll be best for her to reduce/eliminate. I go through the exercise to kick it off for the person, not to tell them what they MUST do. I hope this helps clarify my intention 🙂
“This is the obvious thing to axe, but I also understand what a lifesaver it is for working parents. I’m going to eliminate it for the purposes of this exercise.
It’s a good time to ask: which is more valuable to you?
1) Grocery delivery
2) House cleaning
3) Restaurant dining
Do you want to reduce a little bit in every category? Or a lot in just a few categories? Lots of options for how to get there!”
This is a great exercise, what is most important? It’s good to consider having someone clean the house when you have a baby and a demanding job.
Coud this be something Jodie does? Helps clean during the day? I don’t know, just a thought. When I was a SAHM I was easily able to fit in cleaning and grocery shopping during the daily routine. Something to consider, perhaps.
Thanks, sorry, I didn’t mean to imply that I think it’s an attitude that you push–just that it’s kind of a cultural thing!
RMD age increased to 72
Thank you for that correction! Per the IRS, “If your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72.”
Congress is considering changing the RMD age to 75.
What a great position you’ve worked to put yourself in, and congratulations on the little one.
A couple of suggestions to add to Liz’ comments:
– could you reduce the frequency of the cleaner, and keep on top of it yourselves during visits? And/or reduce the scope of work done? We’ve started using a cleaner, because we weren’t coping with a toddler, full time jobs and my studying on top, but she just does the kitchen, 2 bathrooms, toilet and hall floor fortnightly, costs £30 each visit. That way the major stuff is clean and we can keep on top of everything in between cleans.
– check if you need to start looking into day care shortly? Not sure what the situation there is but the good nurseries around me have 1 year + waitlists.
– you could offer to pay for hotel/Airbnb for family/friends that couldn’t afford to visit unless you put them up. Not a money saving option, but it may take away any urgency you feel around garage conversion or moving
– restaurant visits might naturally decline shortly when a toddler makes it more hassle than it’s worth! It’s quite easy to take a baby out, they’ll often settle, toddlers less so!
I’ve gotten a breast pump for free or very cheap from my insurance for both of my children at two different jobs, so that might be worth looking into rather than renting. Maybe not an option, but just wanted to suggest in case it’s helpful.
True, but the rental ones are usually hospital-grade aka much better than the personal ones. I was so disappointed in how much the quality of even name brands has gone down in the last decade, between my first kid and my last.
Yes, I have a hospital grade rental – but my insurance pays for it as I was approved by a lactation consultant at my provider.
I think its probably a bit late in the game to go through insurance for Sara if it’s only a few more months, but I just wish people would know to try through their insurance first!
I’m going to have to say great job Sara!! My mom was a physician/single mom and did things a little differently, but it’s a wonderful profession! So what I’d recommend: I’d consolidate all the leftover retirement accounts. Reduce the cleaning service to just once a month(I’m assuming the amount your spending is for weekly cleaning). I would seriously consider using your own breast pump instead of renting (I’m assuming a medical grade pump). I had excellent ones free with insurance and there’s a lot of breast pumps offered for free on buy nothing groups. Once your milk supply is established I think just using your own pump should be fine. And living so close to home should allow you to nurse at lunchtime and breaks.
While I agree you shouldn’t pay off your home, you can recast your mortgage which is a bit different than refinancing. You don’t lose your mortgage rate, and wouldn’t need to pay for an appraisal or points. Check with your mortgage company and make sure you can do this first. Recasting a mortgage just means you put a larger amount of money towards your principal. It allows the bank to reconfigure your payment and has been useful for us to lower our monthly mortgage payment. You could easily throw $30-$50k of your cash towards your home and it can significantly lower your monthly bill. I highly recommend considering this!
I think there’s room to trim your budget here and there otherwise, and I’d also be ok with lowering your retirement contributions to ensure cash flow. We are also “retirement rich”, hence why we did a significant recast of our mortgage so we wouldn’t be so house poor! Good luck and congrats on new motherhood!!
Yes I was coming here to suggest a recast as well! We are in the midst of one currently- paid the lump sum and now waiting for them to recalculate. Our current mortgage servicer does not charge a fee for this, we keep the same interest rate and timeline, but it reamortizes the payments for a lower monthly payment.
If you find a diaper that works for you, keep it and stock up when on sale. As my kid got bigger and heavier, the cheap diapers were awful. I was doing more laundry and using more diapers . Not worth the headache and extra work!
Also, I’d probably keep the cleaner but maybe reduce the frequency if that’s possible. Save your sanity!
Hi Sara, another SMC here a few kid years ahead of you! I wouldn’t worry about NEEDING to have your income line up with expenses right now. You are in the most expensive 5 years (and likely the most expensive single year) of your sine’s life. You are not overspending by $12k because your monthly expenses are a little more than your take home inform, you are saving $28k while reallocating cash to tax advantages accounts. I am planning that there will be some years when I also spend down cash or brokerage investments to reallocate to retirement funds.
In your situation I don’t think there is any real benefit to opening a 529, and potentially real downside. By the time Sam is going to college you will be 62 and be able to access your retirement funds. Retirement funds (and value of a primary residence) do not count at all against financial aid, and 529s can be counted by some colleges more than a brokerage account. By the time Sam is through high school you might be semi-retired and he would be in a great position for financial aid if your financial allocations are similar to how they are now.
I know you are having mobility issues, so it may be hard for you to do your own house cleaning. Is this something Jodie might be willing to help with? The small house may also feel a little easier if you can differentiate the space a bit. Maybe your desk can go either in your bedroom or in the downstairs sitting room, and Sam’s toys mostly in his bedroom. For me having part of the living room toy-free and my workspace in my bedroom has made it a little more manageable.
Good luck with your amazing journey!
Forgot to add: look into disability insurance, especially if you can get it through your employer. And make sure you have a will and estate documents. As a single mother it is much more important to get these right since there is not an obvious guardian, so worth going to a lawyer instead of trying to DIY.
Fantastic job! As a lawyer single mom of two working f/t and also post partum problems I did everything I could to ask the nanny to do the housecleaning, meal prep etc. in exchange for free room and board. My theory was if anyone was going to ignore my kids it should be her-so when I got home I could devote 100% of my energy to my kids who I hadn’t seen all day. Or ask her to pay for the weekly cleaning lady. She’ll feel great she helped. It’s not such a big expense that it’s a big ask. And both of you will be so happy to come home to a clean house. Or go through the expenses presented and ask which other specific ones she feels comfortable picking up.
I agree. It’s a little strange to me that housekeeping isn’t part of the nanny position (especially since it’s a live in position). Man, stay at home moms are underpaid ;). I stay home with four kids and do a lot of the housekeeping. My husband pitches in when he’s home. I think it’s also good for baby to not have one on one attention/entertainment all the time. My oldest was an only child until he was 3 1/2. By 9-12 months (maybe earlier) he started learning to play by himself (in a safe location) for brief periods of time so I could cook, clean, etc. And we don’t use screen time. I think it really helped his self confidence, imagination, and attention span. My other kids are also expected to be able to entertain themselves but they get it a little easier because there’s usually a sibling to play with. All that to say, especially now that you’re getting past the newborn stage I think it’s reasonable to ask for more help with housekeeping. What does she do during nap time? And I’m not trying to harp on your nanny situation. It’s awesome.
This was my thought too. When baby is brand new you are too overwhelmed to do cleaning, but baby is old enough now that the nanny should me well able to do some cleaning, cooking, laundry etc. She’s certainly being paid enough!
I also agree if someone is going to be giving baby less focused attention while concentrating on housework, that person should be the nanny not the mom. You don’t want to overload her, but baby will still be napping quite a bit for quite a while, and is old enough to play solo while nanny makes dinner / cleans up etc. As baby’s needs get less intense the nanny will be able to take on more and more housework.
She is not being “paid enough” lol. It is incredible how undervalued such essential services are – by women – who should know better. Also she is a personal friend of Sara’s so it would be awkward to add cleaning for essentially minimum wage. Cleaners get $30p/hr where I live in the PNW. And nannying is vastly underpaid in general.
Keep in mind it is highly unlikely Jodie has health care or any safety net on what she’s being paid.
I 100% agree with this! There is no need to reduce spending in one of the most busy and sleep-deprived years you will have (perhaps the most!), when you have such gigantic cash cushion that you want to reallocate elsewhere. I like your current plan of maxing out retirement accounts and using cash to make up the difference in spending. That is certainly the easiest and most tax-advantaged way to get some of your extra cash into investment accounts.
If I’m reading this correctly: You are spending $12500 more this year than you are taking home (after 401k contributions, etc), so you are reallocating $12500 of your $134500 cash into your tax-advantaged accounts. That’s a great start, because even after doing that, you will still have $122,000 in cash, which is still much more than you need. Additionally, in a year, you expect to start making $20K more per year, so your take-home salary will most likely cover the additional $12500. So there is only one year of needing to use cash to make up the difference, and honestly after this you will still end up with more cash than you want for an emergency fund.
As an additional suggestion of what to do with all that extra cash: look into doing a yearly backdoor roth IRA contribution to have even more tax-advantaged investment contributions. This will allow you to contribute $6000 to a Roth IRA each year, despite the income limit that would otherwise prevent you from doing that. Since it’s a Roth account, you will pay taxes on the money you contribute, but you won’t pay taxes on your earnings later on.
Also, I would second another person’s comment that you should consider what you want to do about planning for college expenses, but that it’s much better to continue maximizing your 401k/403b contributions than to contribute to a 529. Putting more of your net worth into your retirement accounts will make that money not be considered in financial aid calculations, so your son’s out-of-pocket college costs would be cheaper.
Finally, I did the math on your situation. Starting with your current retirement account balances, if you continue to max out your 2 retirement accounts annually, you will be financially independent at age 57 – as in, you would be able to cover your expenses with only your retirement account investment returns (this assumes your current spending, inflation-adjusted, excluding the nanny. It also assumes a conservative 5% inflation-adjusted annual investment return and a withdrawal rate of 3.5% to cover your spending).
Super helpful tip about the 529s – I have read enough case studies that I can hear Mrs. Frugalwoods saying you can’t borrow for retirement but your kid(s) can borrow for college if they need to!
The toy creep into every space is real… and I have been slowly making my bedroom into more of an oasis as he’s graduated to his crib in his own room instead of the bassinet in mine.
Parents also need to make sure to have a will. Just a quick suggestion!
Ahh yes, thank you! I’ve added that into the post :)!
so interesting! If it were me, I’d reduce the cleaning service by about 25% (in whichever permutation works best: maybe shorter visits, maybe more time between visits?) and make a modest reduction in costs there. Then I’d reduce the eating out significantly. I’m not saying ”no restaurants for you ever again”, but just 50% less. I’d move cell phone plan immediately and make a decent saving there, and obviously cut entertainment by at least 70%. Again, I wouldn’t cut it down to nothing: clearly there’s value in enjoying relaxing at home. This is well-deserved and Sara deserves this in her life, but it will be totally doable to greatly reduce her outlay, and still have a solid array of options. Libraries for the win!
The thing I’d keep would be grocery deliveries. I’d definitely try and optimise these, look at who offers the best rates overall, whether you’re missing out on any good deals or bargains generally, but as a working parent, trying to carve out time, energy and then use petrol to go somewhere, nope. This is a valuable service to you. If you passed a huge costco to or from work, fine, bite the bullet and deal with it yourself, but that’s not the case here, so the groceries delivery stays, though you could look at ways to reduce costs / maximise benefit from this.
Ditto for the hair: this is part of self-care. Sure, see if you can reduce the costs a bit, but keep it as a line item. It’s a small thing that makes you look good, feel good and your happiness and wellbeing is paramount. I know no one dies without a hair appointment, but you’re still a girl, dammit!
I’m not in the US, so it’s hard to be specific, but doing all those relatively modest things, should net a saving of a couple of hundred each month, minimum.
That suddenly-high utlities bill: check that out immediately, first in fact. That’s a red flag that something is amiss, and it needs fixing pronto. That would be the route to a decent extra sum left in your account..
I’d leave the reno stuff for now. You have a lot going on already. I realise Jodie will be there for quite a while yet, but as and when she naturally moves on, your space will expand. If family comes, maybe you and your sister could split the cost of an Air B n B if necessary, which might actually be far lower stress for all concerned. It’s nice for people to have somewhere to retreat to during family visits, even if it’s somewhere really small and basic and they spend most of their time with you or your sister.
Keep that mortgage! Keep it till they drag it out of your cold, dead hands!
Best of luck, you’re doing really well 🙂
How about sister Sundays—instead of going out to a restaurant that weekend, maybe once a month you each host the other for dinner. You could reduce your eating out expense by half if you plan things well on nights you host.
I agree with not paying off the house. Your interest rate may never be seen again in your lifetime. My kids, age 50 just refinanced to a 15 year at your rate even though they have plenty saved to pay it off. Your money will hopefully over a couple decades grow far more than the the mortgage payoff would benefit you. Once we were down to about 35000 we paid ours off. A great feeling I must admit but I never regretted not doing it earlier because the money saved grew so much in the market. And don’t worry about the market ups and downs, just keep shoveling m9ney in at firesale prices. Couldn’t you pay Jodie a nominal amount like 10 an hour to clean a few hours a month, perhaps throw laundry in and fold it and put away. The baby sleeps for long hours the first couple of years, especially the first year. My daughter watches my great grandchild for free 3 days a week and cleans their kitchen, straightens the toys up and the baby’s room, living room and the main bathroom. The only room she doesn’t touch is the master bedroom and bathroom. She leaves that to my daughter and son in law. She does not charge my granddaughter. She is sitting there with nothing to do while the baby sleeps and is happy to help them out. She lives there, she could easily do these minor chores say 2.5 hours a week and keep things really clean. That would be approx 100 a month saving you 460 a month. I agree with getting rid of all of the extra subscriptions for tv. We have been in that situation and you just cannot watch all that you pay for. One like Netflix would be plenty to watch. I also have a kindle and I simply take the free offerings from book bub. I don’t read classroom stuff just fun stuff like western and Victorian romances and amateur sleuth books. We have never done the Amazon subscription. We find that we can always spend 35 that gets us free ship. Takes a little longer to get your items delivered but worth not paying a monthly subscription. Darrow Kirkpatrick always said be careful of your monthly expenses they will eat you up financially. Do you have a grocery close to you where you could shop for your own food perhaps saving more by purchasing things on sale rather than a delivery service. Even during the pandemic I would not let anyone pick out my meats, veges and eggs but me. I agree with not remodeling. Parents could visit if you put a bed in the baby’s room to accommodate them. Even a Murphy bed that is folded away when not in use, far cheaper than remodeling at this time. Wait until your worth is over 2 million in your accounts before spending to remodel. You will feel much more comfortable at that time. Good luck to you. You have done an amazing job with your finances.
I would recommend keeping the garage the way it is especially in PNW, it’s much easier than putting the vehicle elsewhere and for safety purposes as well. I would also recommend cutting down on the extras, (services – we usually keep one entertainment service at a time and pause the others) there is a bunch of library options both digital and physical. Cutting down on the grocery bill (we’re a family of 3 eat mostly organic and only spend that much in a month if I’m canning large amounts of food) and eliminating the cleaning service (maybe simply tidy checklists to help with getting certain tasks completed) I would recommend walking to work (and yes I’ve lived in PNW for 7 years) in order to help your physical and emotional being. I would also recommend a 529 or other savings account for the child. After the time for the child to be in daycare the prices might not be cheaper but I’m out of the loop on that one, also would Jodie be contributing to the mortgage at that point with a different job? I would lessen expenses out to eat with maybe once a week or every 2 weeks just to see if that helps as well. If you have a want to learn to cook maybe recipes you like from restaurants you could make at home. Great job on the retirement setup and keep it where it’s at.
I don’t think you’re valuing the time of a single doctor mom with a baby highly enough. “Simple checklists” are not going to create time out of nowhere! That’s going to come from time with her son.
She should have gotten a free breast pump and therefore not need the loan. Contact your insurance and get the free one and return this ASAP.
I assume she is renting a hospital-grade pump, which isn’t typically (ever?) covered by insurance. Some breast-feeding parents find they need the hospital-grade pump over the free pump offered by insurance.
Yep! This is the hospital grade one which is super helpful – I have the one from my insurance at work as well, but find it really helpful to have both!
Maybe it depends on the state, but my insurance covered both the free breast pump, plus renting a hospital grade one for a year. So it might be looking into if they’d cover the rental. I even accidentally damaged mine and the place I was renting from just swapped it out, no questions asked.
Yes, my insurance covered both my free breast pump and a hospital grade rental for a year as well. Both free. So, I think its more common then people think.
Even though she’s spending more than her income, that will change dramatically once her son is in daycare in 18 months or so which is not long at all. Her child care expenses will drop a lot, expensive baby items (diapers, wipes, etc) will be gone after potty training, and Jody should start paying rent if she stays in the house. The first couple of years as a mom (ESPECIALLY a single mom) are very hard. I would just take some money from one her many accounts to float her by for a year or so until her child is in daycare and Jody is paying rent.
Congrats on becoming a Mom! Sounds like you are doing really well. I think in the first few years of your child’s life it is about adjusting expectations to adjust to the change and most importantly find joy and ensure everyone is well and happy. You financially planned for that and are doing that which is awesome! I wouldn’t give up your cleaning……..I have a 9 year old and a busy job and knowing that one huge task is off my priority list makes my home much happier and less stressful. It is the last thing in my budget that is going!!! Keep the mortgage………with such a low interest rate and a secure job there is no advantage to paying it off. Childcare and pre-school is a tax deductible expense………are you taking that deduction? It may have to be from an official provider but I wonder if there is some way to accomplish that with your friend? I wouldn’t start renovations now. That would be expensive and stressful. I would wait until your son is at pre-school and not in the house all day and give you time to save up some money to pay for that in cash. I know having space for family living far away is important and wonder if there is an Airbnb close by they could stay in until you have created more space? Your medical insurance is supposed to pay for a breast pump……..can you get that from them? If you are needing a hospital grade pump may not be possible but wanted to mention it as a consideration. Consider joining online moms groups, baby banks to get free, cheap baby gear. I have loved these exchanges. You are close to where you want to be at this moment in time and you have financially planned for this higher cost period of time. Give yourself a little credit for that planning 😀
You don’t even have to call Fidelity to kick off the rollover process! Sit down with a cup of coffee and open a chat window on Fidelity’s site. They make it easy.
This comment may sound harsh but I’m going to say it anyway. It may not be intentional but the numbers make it look like Jodie is getting too good of a deal out of this. It sounds like she does 4 days of work for over $3k salary, car insurance paid, zero rent, and zero household bills. I also suspect you are doing most of the grocery shopping, looking at your costs. When you first said she was living with you rent free, I thought it would be because she is a full-time student or out of work for some other reason. But you are heavily subsidising her lifestyle and also paying her a decent salary for 4 days/week. It’s great you have someone you trust looking after your son but this is effectively meaning that you are spending more than you earn. Meanwhile Jodie has over $3k disposable each month. You may be very comfortable with this, but I think the balance needs to be tipped a little more in your favour. Even if she paid a nominal amount for rent and bills, this would help to balance your books. It just feels wrong that you are looking at cutting your lifestyle and reducing your spending all the while your best friend is living with you rent free.
Also think it is slightly crazy that you are paying $560/month for a cleaner when Jodie is home with Sam full time. If this were a traditional partnership, and one parent were home with a baby/small child full-time, they would normally be the one to do the cleaning, fit around baby’s naps etc.
If I were in this situation and Jodie didn’t do a great job cleaning, then I would seriously start to resent her, which would be bad for the nanny relationship.
I was thinking this too. I like how Mrs Frugalwoods addressed this topic in the post very sympathetically. It’s a sensitive issue, but I agree that Jodie does have an amazing deal with the equivalent of $62,652 annual income for being a nanny to one baby that doesn’t include cleaning. It’s a tough one since they are good friends and they both love the baby…. I’m surprised that despite already living rent free that they came to an agreement on such a high salary… It’s for a short time though.
I thought the same thing. When I read the study I assumed Jodie was the nanny because she lived their rent free, I thought she wouldn’t get a salary at all! But it’s probably not worth the quality of life impact it would have to strain their relationship over this at this point. As someone mentioned above, daycare waitlists can be around a year so that might get tricky with timing because Jodie would have to commit in advance to when she will stop nannying and getting her salary. It’s definitely a great setup I would just keep an eye for the future so that Sara doesn’t have a gap or overlap in childcare. Also I would think that renovating the garage would be hard to get a good roi on because buyers typically pay more for a garage so not having one would offset any price increase for an additional room. I also think that houses with little ones almost always feel full. It’s good for Sara to keep in mind that she would like a guest room for family visitors, but that might be solved if Jodie moves out.
I had the same thought. I’m sorry, but a total benefits package of over $5,000 a month is a lot for one baby. Yes childcare is expensive but it shouldn’t be that expensive.
I had the same thoughts as all of you regarding Jodie’s involvement. I’m also concerned about the future once Sam is in daycare, Jodie is being paid a significant amount of money, and she will be losing that income unless Sara wants to continue employing Jodie in some way. I feel like Sara has committed to a situation that could potentially end poorly.
Hi guys – I wanted to clarify some of the nanny questions. First off I want everyone to know that yes, this situation IS working really well for me. My schedule is not predictable as a doctor and I work some weekends as well, all of which Jodie flexes into her regular schedule. She also covers me for various appointments every week. We have also talked about it as changing over time – the first couple months I was literally not allowed to carry the baby around and could only hold him while sitting down, so Jodie was taking care of both of us and working sometimes a huge number of hours. Now we’re in a way better spot and adjusting as needed.
Jodie also does the baby laundry and keeps his room as well as all of the downstairs clean – the cleaners don’t do downstairs at all. The cleaners do the scrubbing the tub level stuff for our shared kitchen and my bathroom/ bedroom. We are in the process of weaning off that luxury!
And oh I really wish my baby slept for big chunks of the day. We are lucky if we get a 40 minute nap haha which is just enough time to pee, clean up the kitchen and throw in or fold some laundry before he’s up and at it again. It’s certainly possible to clean around that but it’s not been a priority. I too had the dream of a 3 hour afternoon nap…
Last but not least, the amount I pay is not what she takes home – I pay the employer taxes federal and state so it’s definitely looking like way more that her take home pay which is about $2500 cash / month, plus the rent etc. I do think this is worth it and it’s also about average for a nanny salary in my area, where most nannies make between $25-30 an hour especially with the pandemic shift of many families out of daycare.
So yes, it is a lot of cash outflow right now, and also it is amazing and wonderful to have my best friend, who is pretty much family, taking care of my little dude. I appreciate everyone’s thoughts, and definitely it will continue to shift as Sam gets older and we need different levels of help.
I agree that Jodie sounds like a great asset. People also need to consider that Jodie is likely giving up the opportunity to work at another job where she would be developing increased earnings over time. Just like a stay at home mom who re-enters the work force, those few years of lost career development and earning potential could be substantial. A 5% salary increase at a traditional career that she would potentially build upon for the next 20 years is a sacrifice.
I agree that Jodie is a fantastic asset. Additionally full time live in Nannies charge well more than that in my area.
Sara–I think you have a fantastic set up! Of all the things to spend your money on when you have a little one–childcare, childcare, childcare. The cost alone for the peace of mind to be able to go to work is worth it!
I think that maybe the commenters here don’t understand that in many states it is illegal not to pay live-in household employees AT least minimum wage and their are very low caps on what an employer can deduct for housing (think ~$40/wk). This is to protect workers in what could become exploitative situations. Most nannies wouldn’t want to live-in, and people often pay the going hourly rate in addition to room/board for someone willing to take a live-in position. I think its great that you and Jodie have found a mutually-agreeable solution.
It sounds like Jodie is a major asset to your and Sam’s lives, and if it works for all of you, then keep doing it! I have to wonder if some of the flak you’re getting is because you’re doing something unconventional that not everyone understands. Female friendships are the greatest joy and strength of most single women’s lives, and they’re versatile in a way that romantic partnerships often aren’t. Jodie doesn’t need to do what a stay-at-home parent would do, as some commenters suggested – that’s not what she is! I think it’s really cool that you and your bestie have made a life together. Ignore the people who question it because they don’t get it.
With two little kiddos of my own I agree that the peace of mind and flexibility to have Jodie on call would be priceless. Or whatever you have decided to pay her. It won’t be forever and the fact that you are contributing to highly to retirement funds is why your cash flow is negative. I was not able to contribute so highly to my retirement while I had daycare costs in the budget.
A note on groceries – your little guy is going to ramp that amount up soon! Be prepared to go through about a container of raspberries a day (I wish I kidding!!) Babies get HUNGRY from 15m-well….I’ll let you know when mine stop eating through the entire fridge haha.
A small note, I TOTALLY get the cleaning lady fee and as I type this mine is cleaning the kids room. Worth every penny. I found mine locally, she works for herself and charges 25$ an hour (cash). I can set a limit for her (say $125/$150) or let her go to town and pay for her time however long it takes. She comes every 2 weeks and its amazing. If you currently use a company I would suggest posting in a local FB group asking for recommendations. You might be surprised you could keep the same level of frequency but reduce your prices with an independent cleaner.
Respectfully, I disagree. Practically speaking I’m not sure exactly where Sara is, but in Seattle infant care (if you can even find a spot) can easily cost 2500-3000/month in a center that will not give her any flexibility in hours, weekends etc. Even if she found a cheaper center, her infant would not get 1:1 attention, and Sara would have to deal with packing up the baby and all its supplies in the morning, rushing for pick up time, emergency care if the baby gets sick etc. Also, philosophically our children are our most precious resource. I’m all for frugality when it comes to shampoo, cell phones etc. But childcare is NOT a place to scrimp. It doesn’t benefit the kid to be warehoused instead of raised with loving, secure relationships with parents and caregivers they can trust. It doesn’t even benefit the parent if they are stressed and worried about their kid all day, dealing with a stressed and upset child every evening.
I agree and well said. In the reality of life, it lasts a very short time. Keep the nanny well fed, meaning, in all aspects of her life.
Hi! I wanted to add I believe insurance typically covers pump rentals OR buying a pump. At $100/month, it would be worth calling insurance and confirming their benefit. I believe this is required to be covered at 100% due to ACA. Cheers!
My old insurance wouldn’t cover the hospital grade pump rental but I’ve got new insurance now so I’ll check again! Luckily it’s only a few more months anyway
Glad others mentioned breast pump insurance coverage. Another suggestion is getting your hair done at beauty schools. I ask for year two students. It is a fraction of the cost and they are wonderfully attentive.
On the high water bill, check if you have a toilet that runs. You’d be surprised how that can drastically increase your water bill! If no, I’d consider having someone check things out as a small-ish leak now can turn into major issues later. This is assuming most things stayed equal and your gut says the high increase doesn’t really make sense. Be sure to check that the rate you pay didn’t drastically change either. I’ve heard electricity rates, for example, shot up in some areas of the country recently. Not sure about water, but an easy thing to check.
Well done on your savings rate, Sara! Very impressive and keep that up. I agree that some of those retirement accounts need to be rolled over and consolidated just to simplify it all. I’ll echo other people’s comments on the cleaning service that it should be reduced, not eliminated. Also, Jodie is in the house all day with the little tyke. I know this might not be a popular opinion, but…can she do some of the cleaning around the house? Jodie’s compensation package, as Liz pointed out, is outstanding and it is hard to put a price on such excellent care. We’ve got 4 kiddos and no cleaning service and still manage to keep our house fairly clean. But I completely understand the service is for sanity reasons.
Also, stores like Walmart and Aldi often have curbside pick up of your groceries that don’t cost anything or very little. Instead of having groceries delivered to your doorstep can you order online and pick up at the store? We do this weekly and it is perfect for our busy family! And again – restaurants, utilities and streaming services can all be reduced.
I am also in the corner of shelving the garage remodel for 2 years. I definitely want you to do that if it’s something you really want! I also agree that if Jodie does move out in a few years her space will open things up. In the meantime, I would suggest saving up a little money every month towards that project and in a few years you can cash flow it! Even $50/month for 2 years is 1200 to use towards that renovation.
I am with you Sara. I have a huge desire to pay off my mortgage and not have that payment anymore. So, I am totally with you on wanting to pay that off. Your 2.5% rate is great. I would suggest after a few years of getting your other financial house in order and saving for you child’s higher education that you make extra principal payments on your mortgage. Even though you have a good interest rate, not having a mortgage is a huge financial blessing – especially going into actual retirement.
Liz’s recommendations are spot on and other comments are super helpful. Thank you for sharing your financial situation with us. It is a good learning exercise for everyone. God bless you and your family!
That water bill could mean you have a leak in your system somewhere. I’d check that out ASAP.
Definitely agree on checking for leaks! Often an increased water bill is our only sign (though we’ve also found one when we had an unusually lush spot on our lawn).
Also consider the standards of cleanliness that you need. From what I read, cleanliness standards have gone up from where they were even fifty-seventy years ago. Floors have to be cleaner with a baby and there is a certain amount of cleaning needed to keep food from attracting pests, but cleanliness standards have gotten ridiculous. This is especially true in upper income households with the burden usually falling on women.. I know very few people in the middle-upper/upper class where I live who do not have a housekeeper, And then it’s a vicious cycle because of course a house is spotless when there is a person paid to clean it every week or two. Maybe you just need it every few months to do the big jobs? I don’t judge because some people are really bothered by messes but it may also have an influence on our kids who get the idea that we/they don’t have to do the cleaning. Rant over.
One small thought re the utility bills: if Sara lives in Seattle, her amounts are about average. I pay nearly that much as a one person household. About 40-42% of the bills are taxes that can’t be avoided. That said, of course it’s a good idea to make sure no water is leaking and to investigate whether anything in the home is an energy vampire. Other than that, congrats on the new son! And congrats on doing such a good job of establishing stability for yourself and your family!
Just a note on question #3 – has Sara started her estate plan yet? Important with kiddos!
Yes! I have all that established with a will and guardianship plans and trust for little man if necessary. So important and so glad everyone has mentioned it!
Congratulations on your progress so far. I see there are lots of good suggestions already. I just want to address the retirement savings. I’m a mostly retired attorney in my later mid 60s. I saved for retirement regularly over 30+ years, maxing out my 401k the last few years. All my savings was pre-tax as I really wanted the tax savings at the time. In hindsight, I wish I had saved part of my retirement savings in Roth or taxable brokerage account. While the decade of the 2000s gave fairly low returns, my accounts grew rapidly during the decade of the 2010s, ending up with balances I never would have predicted. Between a reasonable withdrawal of my retirement account, expected social security for my wife and I, and rent and a pension, our income in retirement will be more than I ever expected and probably more than we ever made working. It’s a great problem to have but with all pre-tax funds, the tax hit will be higher than I had expected as well. Having a mix of pre-tax, Roth and taxable would certainly be advantageous today. So consider whether some of your retirement savings should be switched over to Roth or taxable investment.
I concur about having a mix of pretax, Roth and a taxable accounts. The best age to do an IRA to Roth conversion is when you are in a low tax bracket, theoretically between the age you retire and when RMDs begin. It’s looking like Congress may change the RMD age to 75. This will give you more years to convert an IRA to Roth when you are retired.
Right now consider starting a Roth IRA, or Roth 401k. You can access the money you contribute to a Roth IRA after the account has been open for 5 years. The entire amount of the Roth is accessible at age 59.5. Of course Congress could at a future date make changes to Social Security or the special tax-free status of the Roth.
I say keep the cleaning service! Sara has a huge balance in her checking account #2. For a single working mom, save the cleaning energy for baby and herself! Her huge childcare expenses won’t be for too much longer. She’ll never look back at this time and think, “I wish I’d cleaned more.”
So well said!!
If Sara is in the greater Seattle area (could tell where in PNW), I recommend she google Casa Latina which is a non profit organization that connects people to individuals providing services (ie :house cleaners). Provides workers with direct income and you save because you provided the cleaning products etc.
Also, we lived in Ireland with our kids for a few years and it was amazing. Your son should be able to get Irish citizenship through you as well now (and is expedited if you both are in Ireland when applying for him via foreign birth registration).
I’d love to hear more about your Ireland experience – that sounds amazing! It was a big scramble to get my citizenship set up before he was born but I made it under the wire, so he is all set whenever I get my paperwork act together again.
My understanding is that it’s a bad idea to get life insurance through your employer, because you would lose coverage if you changed jobs, and there’s a possibility of becoming uninsurable in the meantime (chronic illness, etc.) Buying independently means that you would be guaranteed to continue the insurance during your term so long as you continue to pay premiums. (Someone please correct me if I’m wrong.)
I still think it could be worth using a good broker to search around for term insurance rates. Best of luck!
Echoing one of the comment regarding restaurants. Is this takeout? Batch cooking means you can have lots of meals prepared to heat and eat. It can be done once a month, so doesn’t take up a heap of time, and I always prepare a few different dishes to have variety. Also in terms of the movement issue, you can sit at a table for a lot of the prep work.
My one question would be about how much life insurance Sara actually has. As a single mother, she needs a lot if she wants Sam to be able to continue his lifestyle and to go to college (and perhaps medical school!) relatively debt free. There needs to be enough money there so that if Sara’s sister had to take him in, she could expand her house (if necessary) and pay for all his expenses and extra-curriculars throughout his life. I would think that Sara probably needs several million dollars worth of life insurance. And she also needs disability insurance, and she needs to have a will so that she can name a guardian for Sam.
I’ve done the math on this exact scenario for my own situation. Kids will get social security survivorship benefits and usually life insurance and other inheritance will be placed in a trust that is invested and paid out over time. Sara already has $1million in assets and her high income will mean a higher SS payment to Sam (you can look up details on your annual SS statement). Life insurance of $1m is probably more than enough, and is something she might be able to decrease or eliminate in the future if her assets keep rising (depending on her risk tolerance). I would be much more concerned about disability insurance given she is in a specialised field and has health issues. But it may be too difficult for her to get coverage with pre-existing conditions.
I may have missed it in the article or comments but one thing I like about having money in a 401k/403b with my current employer is, if I leave at age 55, I can access those funds without penalty (rule of 55.) If I move jobs I would move the 401k/403b to my new employer. Despite Sara having no plans to retire early, it’s still nice to have funds available penalty free as life can have unexpected changes.
That’s my only note to add. Looks like lots of great advice from Frugalwoods and others already.
Doing a curbside pickup of groceries might be an easy way to cut out the delivery fee. I do a curbside pickup from Target about once a month and it’s a lifesaver! Can easily schedule it even for same day and it’s ready in 2 hours. Lots of even local grocery chains offer it now, or free delivery over a certain dollar amount (our local chain is free if it’s over $100 order). Might be an easy way to reduce that expense but not have to take baby into the store!
We do this at Walmart and sams club about once a month. Walmart is a 35 minimum, sams has no minimum. No other charges for it. Again, I do not let anyone else pick out my meats, veges or eggs unless it is something like prepackaged sausage. Steaks, I pick out myself. We tried having the young people at Walmart get our eggs but had broken ones. Also I pick out the largest heaviest head of lettuce and same with English cucumbers, cauliflower, green peppers, etc. A real timesaver even if you have to wait 10 min for them to bring it to your car. I sincerely hope the grocers keep this available to shoppers
Chiming in from the PNW!
1.) Energy audit as fast as possible. It’s possible that those prices are in line with costs for your specific area, but I think you’d prefer to know that nothing is leaking or wearing out. The last thing you want do is renovate because something broke and you ended up with a cascading problem in your home!
2.) Renovations in general – let them be for now. Unless you think Jodie is going to be living with you long term, then when she finds her own space, you’ll have an additional bedroom you could use as a guest room, if you like. Aside from supply chain issues and labor shortages, you’re in a state of change right now and that’s not the greatest time in the world to make decisions. (Take it from someone who both bought her first house and had her first child in December 2020 and is staring at some godawful carpet in her living room because it’s softer when her son decides that he REALLY wants to go headfirst into the floor!)
3.) Cleaning service. I’m honestly torn. On one hand, I fully understand the need for help, especially with your busy career and I would just like to clap my hands along with Mrs. Frugalwoods when she says that cleaning. is. not. a. virtue. With that said, I thought that nannying usually came with some type of cleaning component – not scrubbing the toilet or making sure you can eat off the baseboards, but some basic housecleaning and cooking tasks. This is further complicated by the fact that Jodie is your friend and I think that the last thing you want to do is upset her by even suggesting that she’s not doing her share, when she’s the one who’s doing the day-in-day-out work of caring for your son. This might be a good chance to sit down with Jodie and see how both of you might feel about scaling the cleaning service back, while you work out a new balance?
4.) Consolidate the retirement accounts. If you’re worried about tax consequences for rolling some of them over (although I think some of the well-meant advice I’ve seen on that score is a bit too generalized for your situation), then hiring a tax accountant for a couple of hours will both give you the most tax-efficient plan as well as peace of mind.
5.) Set your emergency fund and then do SOMETHING with the rest of the cash. Anything. Put it in an investment account of some type, use it to float expenses until your personal situation settles out, split the difference. But do something with it, especially as F.I.R.E is one of your stated goals. You can’t afford the opportunity cost of the cash just sitting there with inflation nibbling at it.
6.) Re: your entertainment budget – $948/year or $79/month is high…but it’s a drop in the bucket compared to other places you’re spending. I am a huge fan of libraries and if you think you will get more joy out of supporting your library system than you spend on some of your entertainment items, then of course go ahead and make cuts. But if you’re already making a bunch of cuts that involve changes, I would argue that it’s okay to leave at least some of this while making the transition and figure out if it begins to add more value to your life as you make other cuts (such as eating out, as a quick example).
All in all, remember that you’re doing just fine. Enjoy your time with your friend and your son – they get so big, so fast!
Nannying does not include cleaning. They might pick up toys and make kids’ meals, but it is not a job that means cleaning or cooking. I’m in a childcare group run by Nannies and they make this absolutely clear that they are not housekeepers.
But this particular nanny LIVES in the house, so feels like she should be responsible for some cleaning, at least of the spaces she uses….
I agree with Mrs. FW’s advice, and I also agree, to some extent with those questioning how much Jodie is making. She’s making more than I make just in salary, and has almost no living expenses. I might be wrong, but I feel like perhaps Jodie had helped Sara out financially in the past? Perhaps that’s part of the reason Jodie is paid so well now?
I understand that it could be very awkward to sit down and go over this with Jodie, and perhaps it isn’t even necessary. But since Sara is spending more than she earns right now, could she perhaps tell Jodie she is spending X dollars too much each month, and ask for ways to help curb the extra expenses? It seemed as though Sara is even paying car insurance for Jodie, unless I misunderstood that line item. Surely Jodie could pitch in on the cleaner, pay her own car insurance and pay for some of the entertainment, since I’m certain she is using it as well. I assume Jodie is cooking for the three of them – could she not shop for them as well and do curbside pickup? Curbside pickup is the way a family member of mine does the shopping and she has an 8 year old, 6 year old, 3.5 year old and a 2 year old, a full-time job and no nanny, so it can surely be done with one child if there are no extenuating circumstances.
Of course, I think following the Mrs. FW suggestions will also do what Sara needs. It just seems the most obvious way, to me, is to lower that nanny compensation a bit, and treat Jodie a little more like a roommate, financially, instead of an employee with an exceedingly generous compensation package.
Sara, I am impressed with all that you have done. My only comment is that it’s murky to me how committed Jodie is. Is she saving money for her future? It may be none of your business, but I would simply ponder what might happen if Jodie needs to leave or if Jodie herself has got a retirement plan. Does she have a plan for the future? I hope that she is also saving. I am old and my biggest regret — both financially and emotionally — was that I did not always have the resources to do what might have been optimal for my two children. Clearly Sam will think of her as a parent figure. You have to negotiate the overlapping sets of dependencies and how much they matter psychologically as well as financially.
I love it that you have such a walkable life too. I also encourage you to value the space you have. My single largest financial error was giving in when my husband decided that we needed a biggish house. I had to get a second job because we had somehow ended up with 3 living rooms and 4 bedrooms. One room was a “fling room” which was not about romance but rather about flinging anything one did not know what to do with into. Maintaining that kind of expensive house with soul-crushing.
If you like your therapist, I encourage you to stay in touch with regular or semi-regular visits. I know my contributions are vague here: but sometimes sharing regrets might spur others to remember that prudence is important. I am really impressed with all you have done!
A couple things jumped out at me — I’m also became a new mom during COVID and am finding it difficult to think how much expenses have been affected by COVID, affected by parenthood, etc.
First, on the “house seems very full” front — Depending on how large your garage is, you might be able to add some storage in the garage (eg wall mounted shelves, gear loft) while maintaining space to park cars. we’ve found it very helpful to try to organize our storage and also to purposefully remove items that the baby no longer uses from the main living areas (right now, we have a pile of baby gear in our basement that we need to give away). Also, this is probably more relevant as your son gets a little bit older, but rotating toys and books (keep the extras out of sight) both helps with the clutter aspects of baby things and actually can increase the kid’s interest in the toys. More generally, I’ve been trying to remove items that we don’t use often from prime locations so that they don’t get in the way of accessing items we do use often. Shelves in your garage might provide the extra storage that would allow decluttering the main parts of your house.
Second, you didn’t mention an umbrella policy / liability insurance. As you have significant assets, this would protect you from any lawsuit that wasn’t directly covered by malpractice insurance/auto insurance/home owner’s insurance or exceeded the limited of these.
Finally, given your timeline with looking for daycare for your son, you might consider skipping straight to preschools. In my area, many of the smaller, home based preschools accept students at 18 months, and many of the larger, center-based preschools accept students starting at age 2. This is the approach we are taking, and our daughter will start preschool in August (she turns 2 in June). We are hopeful this will allow us to avoid another childcare search / transition prior to kindergarten. I’m guessing Sam turns 1 in July (based on the breast pump expense), in which case he’d be 2 for the start of the 2023 school year. In our area, this would mean you should start contacting school this fall! (Crazy!)
Best of Luck!
You’re doing great, Sara. While I understand others’ feedback on Jodie’s salary, this clearly works for you. I think many (most?) folks commenting here haven’t actually employed someone directly in this capacity. Good childcare is hard to find. When I employed a nanny, I paid above market rate and gave excess benefits out of a desire to be a good employer. You also have a significant friendship involved! Per the usual, Ms. FW’s advice on cutting expenses is spot on and totally nonjudgmental. As others have noted, this is an expensive blip. If you can get your expenses close to in line with your spending, I think that’s great. It sounds like you’ve been through A LOT physically and emotionally—good luck on what’s ahead!
Definitely keep the cleaning lady! Definitely consider charging room and board equivalent to a minimum of the cleaning bill. An unusual arrangement, lucky Jodie.
First, your baby is absolutely precious (which you already know, but it must be said anyway!) Second, kudos on paying Jodie a fair wage and making sure she’s set with health insurance, etc. This is such an ideal situation in so many ways and it’s worth every penny! Childcare workers are underpaid more often than not so it’s refreshing to see how you’ve handled this. Yay Jodie! Yay you!
You’re doing so great financially and it sounds like you’ve just come out of a challenging pregnancy and postpartum period. Although it’s always worth assessing your spending to make sure you’re not shelling out cash for things you don’t value, my personal opinion is that this is one time in life when it’s a fantastic idea to treat yourself. Parenting is awesome but it is also mentally, physically, and emotionally draining. Relying on your cash buffer to help make this phase in your life a little easier is perfectly reasonable considering that you have secure housing, childcare, work, and savings.
I too live in the PNW and can tell you there is no water leak. We pay more than that for utilities living in a much smaller house. I don’t think it is worth your time to try to get utilities much lower. I echo what others have said about dropping your extra life insurance—the free basic one through work (most places do about 1.5 of your yearly salary for free) is plenty based on what you have already in retirement that baby would get. Just get a good umbrella policy via your car insurance company. I too work in healthcare and I carry additional malpractice insurance so the money you currently spend on the extra life would be better directed to umbrella and malpractice IMO. I wouldn’t cut anything other than entertainment and do curbside pickup for groceries which is a free service. You have plenty of cash to ride this out until the breast pump rental comes off. You are going to have so much in retirement you won’t even be able to spend it all! Nice job being student loan free—puts you so so so far ahead.
Don’t overestimate how much cheaper things will be as the baby gets older. Yes, you will save on child care once he is day care and then public schools, but he’ll also start making a significant dent in the grocery budget. It will become harder to get all your clothes and toys second hand. He’ll start having activities and lessons and sports…
Soooooo true! WHAT you spend your money on as your children get older will change, but I don’t know if it gets any less expensive. Once they’re out of daycare, it seems like you turn around and they’re needing braces, cell phones, and before you know it they’re driving and starting college. And of course there is no appetite on the planet like that of a growing teenaged boy!
I just wanted to chime in to say great job Sara! You are expecting a potential raise of $20,000 and are expecting your biggest expense, childcare to decrease in the next year or so. You also have an extremely robust emergency fund and are maxing out retirement contributions. I think that it makes sense to take a look at your expenses, but in my opinion you don’t need to be too drastic or worried about spending more than you make right now as long as your expenses aren’t trending up. Especially with the mobility issues you are experiencing, why not give yourself some grace for the next year or two, make some intentional choices to bring your spending in alignment with your takehome pay, and re-evaluate every 3-6 months? Given your past ability to save, I would fully expect you to be able to bring everything into alignment soon.
Also, I have to say that I was appalled by some of the comments above about Jodie’s compensation package being overly generous, and I want to applaud you for being an ethical employer. It seems that you have approached this situation with care and respect for Jodie, your friendship and her role in your son’s life. Care work is incredibly undervalued by many in our economy, and everyone deserves to earn a living wage and have dignified working conditions. Thank you for sharing your experience!
Sara’s commitment to being ethical comes through loud and clear. It would have been the easiest thing in the world to pay her friend “off the books” but she isn’t – she is paying the employer taxes required so Jodie is earning her social security credits and is probably covered by her state unemployment insurance and all that. It sounds like a great arrangement for all involved!
I completely agree!! Carework is extremely demanding and exhausting and deserves fair and even generous compensation. This is essential work that is so undervalued and diminished in our society. Plus, we are still in a pandemic! I have a phd and have worked various demanding professional jobs, but they are nothing compared to the demands of caring for an infant especially in the first year. I was lucky to be able to care for both of my kids full-time during their first year-plus and I feel it was a priceless situation for all of us, but it was tough in many ways that professional jobs are not. The fact that Jodie is paid fairly and legally within the tax/social security system is excellent. I would honestly wonder if she should also have some small employer retirement contribution from Sara. Just a thought! I think Sara could afford it and I was wondering what Jodie’s retirement savings look like. In the grand scheme this is a short-term situation and seems epically ideal for a SMC.
In fact, i think Jodie should do a case study for how to transition out of the nanny situation when the time comes!! Haha
Your groceries seem really cheap to me!
This may not be relevant but I wonder if it’s possible to have Jodie as a “domestic partner” for the purposes of health insurance- which it doesn’t look like you’re paying for her, but it might allow her to have cheaper or better health insurance. (Since she’s your platonic life partner!)
As far as converting the garage to guest quarters, I vote no. You would probably miss having a garage in PNW weather, and it might be possible to accommodate guests by adding a bed to the baby’s room, and you and the baby bunk together when you have houseguests. Presumably Jodie might be moving out in a few years and you’ll have that room and bathroom for guests/ your own use.
Having a baby in the house is magic! Congratulations on your cutie pie. Since you can afford it, I would back burner house projects and other big endeavors. As long as you’ve got your administrivia taken care of — will, power of attorney, health directive, life insurance — enjoy Sam’s babyhood. If you overspend by $1K a month for the next 10 months, that’s just $10K. As long as you do this intentionally for the short term, you’re fine.
As a college professor with a 6-month old baby (and 4-year-old twins), I too hired a cleaning service when I was pregnant and unwell. Now that I’m feeling better again, I have been seriously considering cutting the cleaning service — thank heavens this got me to reconsider. I appreciate the way Liz put it and the other commenters thoughts re: the intangible value of a cleaning service for moms working demanding jobs. I was feeling guilty that I was spending that money so I didn’t have to do the cleaning myself rather than putting it into our savings or investments, but I’d be so overwhelmed without it. I guess the lesson for me here is that some things are probably worth spending the money on when you have a young family that really needs your time…
Great job all round, kids are for many of us the best part of life so worth every sacrifice- my first thought is that why can’t Jodie clean and tidy when at home when your little one naps? Maybe you have not asked her and maybe she would be happy to alleviate some of the pressures on you as a friend and as an employee?
I say this as I managed this as a stay home mom and whilst a deep clean may be an unreasonable expectation, surely she can do an hour a day around the little one? Then cut the cleaner. I don;t buy into this- you can’t do anything but look after a child narrative. Yes have a playpen and let your son have some toys whilst Jodie does some basic housekeeping as millions of caretakers of children the world over do every day.
Sara, congratulations on your little boy! And you’re doing very well with your finances and great on seeking advice at this point in life.
My first inclination was to tell you to proceed with the garage reno to accommodate family and other guests who are big priorities in your life. . However, after rethinking it, it would depend on how large your garage is. If you have a double, then converting half to living space would make good sense. But if it’s a single, then probably not. As your son grows up you are going to need that space to park a bike, soccer gear, hiking equipment etc and to allow for some semi-outdoor play with friends on rainy days. I also live in PNW and have raised sons and grandsons and they really value their outdoor time at all ages and sizes, so definitely suggest retaining some garage space.
Best wishes as you make your decisions, and have so much fun being a mom!
Congrats! It actually seems like you are doing fine financially – given that you already have at least $1M in retirement and savings and you have a very high salary, so you are really financially set at your young age, but as others hav noted can cut spending if you feel the need. I am an SMC with two kids, now 19 and 22. It has been quite a ride – the oldest is about to graduate from college and I just don’t understand where the time went!!!!. I did not have enough space to have a live in nanny, though looking back I sometimes wish I had figured it out. Both my kids went to full time daycare, which was very , very costly, but it did give them the experience of being with different adults and lots of kids from when they were babies, which had its advantages.
It does see to me that Jodi has a very good deal, given that she is only working 4 days a week and no costs for her housing. It seems like you have the funds for this while saving more that adequately, so I suppose there is no harm, but it you are looking for a way to save it seems like she could do a bit more for her free rent – as others said housework and kid care kind of go hand in hand, especially if this is her only job. Also, will Jodie pay rent when Sam starts daycare which will be very soon? Agree that $560 a month for cleaning is hard to understand. How dirty can a place get? I have a 1200 sq ftl place and have vacuumed almost daily for all the time I had kids. It takes 5-10 min. Cleaning the bathroom takes a few min, the kitchen gets cleaned daily as we go. A few times a year I do a deeper cleaning of windows, baseboards etc. Just not sure how a house this size needs this much cleaning! Seems like you could have the cleaners come less and have Jodie be responsible bee for downstairs on her own – it is after all her living space and she should be able to keep it clean.
One of my biggest regrets is not living close enough to my mom for day-to-day interactions when my kids were young (we were 3 hours away). She did end up moving to be near me, when my brothers family ended up in my area as well, when my kids were in late elementary school and it was a great time in our lives (she died a few years ago). I know that you sister is nearby, but I would think long term about whether you want to be closer to more family prior to renovating. Also, a garage will be important for storage as time goes on (see above).
I’m on board with the intangible value of house cleaning and many things in the budget for Sara’s first years. We speak about self-care and the importance of mental health… and IMO this can fit in that category. Homes with two working parents and a nanny (not unusual) essentially have three people to share responsibilities and two salaries. An emergency fund is for unexpected expenses – and this is in that category! High five – you have many present & future SMBC in your corner.
Hi! Jodie the Nanny here.
I wanted to clarify a few things about the nanny situation with Sara and I. I’ve seen a few comments about “only working four days” a week and on paper that looks pretty chill! But those four days do equal over 40 hours of work and I work on my day “off” to cover care when Sara has her weekly scheduled appointments.
There’s also been a lot about the housekeeping! This one kind of took me by surprise. To me, a lot of the comments seem like people are viewing this situation as me being a lodger who cares for Sam and that I don’t do anything else. That’s not the case at all. I live here. This is my home. I buy my groceries and prepare shared meals, I empty the dishwasher, take out the garbage, sweep up, wipe down counters and tables, clear out the fridge, garden, clean and organize the garage, change lightbulbs, stock up on toilet paper, buy more batteries for the remote, etc, etc, etc. because this is my home. Sara told me to mention that I’m actually tidier than she is! She also mentioned this in a reply above, the weekly housekeeping is just for the upstairs. I do clean the downstairs and my room and bathroom. And do baby room/ laundry and diaper pail duty. But both of us agreed that “nanny” doesn’t equal “housekeeper”.
I know people will have their own ideas about what to prioritize and how to get the most bang for their buck, and that’s great! But for me and Sara we think it’s incredible that Sam is here and as friends we get to share in raising him.
When we sat down to hash out this situation, I lowballed my compensation. Sara, as my fiend and a woman, told me I need to be paid what the work was worth. I’m extremely grateful that Sara values the care that I provide and wants to compensate me fairly for that work.
I think that your and Sara’s relationship sounds very balanced and fair. Women do a lot of unpaid labor in the name of being a stay at home parent and really suffer because of it. Glad you are getting a fair shake!
Here to second this comment. I’m a new mom balancing the childcare situation with a demanding job. You are 100% worth it!
I am extremely jealous of this set up as I think it would be so ideal to live with a good female friend. In fact, my bestie and I have an unofficial agreement that if both our spouses should pass before us, we will grow old together (absolutely platonic) and think it would be a blast (maybe not…but we hardly see each other so for now it sounds nice😆).
On the nanny/housekeeping duties: I recall when I was a nanny straight out of college after answering an ad the parents put in the music school I attended. That was strategic on their part as they had hoped i would give their sons free music lessons. That was not part of the job description, and neither was cooking nor cleaning. But after I was hired, the mother wanted me to do it all. I actually tried to do it all…and it didn’t work out. We eventually ended on good terms, but we all realized it was not a sustainable situation for either of us. My days were fully occupied that summer with entertaining the boys constantly, taking them places, playing with them etc.
And now as a SAHM, I do it…for free😆 My job is never done. I’m amazed when people think nannies should also be housekeepers. They can certainly try, but something will give eventually. I see it as a mom now: if I’m spending quality time with my kids, then the laundry sits, or the dirty dishes sit in the sink; if I’m tending to household chores, unfortunately if they’re not playing well together, the TV is on…or they’re getting into shenanigans that I’ll just have to deal with when the tasks are done. It’s a circus!
All of this to say– I think you have a wonderful set up here. Fair AND ideal.
I commented above before I saw your post! I think the compensation and living situation is more than fair! In fact, I actually think you & Sara should negotiate a modest employer contribution to a retirement account. I’m guessing that you do not have the level of retirement savings that Sara has, but maybe I’m wrong… Anyway, I totally think that you should do a case study soon-ish too. This full-time nanny situation is not long term, so your finances will really change in the next couple years. The first year caring for an infant is so intense, but after a year or so, things really change. You start to see that the now-toddler needs more social interaction, often more than a single caretaker can provide on her/his own. That’s when part-time daycare will really start to seem attractive. By 18 months it’s almost necessary, unless you are really getting out and about a lot. I think the full-time nannying would be useful during the beginning of daycare because Sam will literally be sick and home every other week as he gets exposed to the petri dish of daycare and build his all-important immune system. Lots of changes ahead, but all so exciting. You all have an amazing situation. I hope your personal financial situation is as stable as Sara’s. Good luck!
The blog “Bitches Get Riches’ had a recent post about rolling over old 401ks into an IRA using a free service called Capitalize. They help guide you through the process (which I understand is a real pain in the neck). There is no charge to you – they make their money from financial institutions who pay a commission for every account that gets opened – but if you already have an IRA account, you can use that. Link to the article: https://www.bitchesgetriches.com/401k-rollover-how-to/
It sounds like a lot of work to be you currently and you are doing pretty good. I don’t think you should kill yourself cutting expenses right now. Also it sounds like you have a great friend in Jodie and are treating her very fairly. I think that important because you will want to keep the long term friendship intact. I say keep on keeping on until your life stage changes in a year or so.
I think Mrs. FW has done a public service by featuring several case studies lately of families with young children. Nothing like concrete numbers to make you go whoa, having kids in America is tough! I’m writing my comments as a working mom of two boys, ages 3 and 6, so take my thoughts and recommendations for Sara FWIW.
1) In the name of all that is holy, do not change the nanny arrangement with your BFF. Comprehensive childcare that you can trust is priceless. Not to mention, daycare seems great because it’ll be cheaper, but when you’ve run through all your sick days and are trying to furiously type on your laptop while your toddler smears shaving cream on your face because he’s home sick but isn’t sick enough to be docile… it’s not such a great deal. Keep Jodie and keep paying her what she’s worth!!
2) Keep the cleaners as well. You may want to check out the Best of Both Worlds podcast/blog. Laura (who I think is a sometime FW reader) and Sarah (who is a doctor) have a very interesting take that I don’t see many other places, and it is this: In order to keep your high-paying job that you love, pay whatever you need to for childcare and cleaning and don’t look back. This enables you to keep doing a job that you love, keep putting a lot of money into retirement, and, perhaps most importantly, hang onto that job for the future, when you don’t have an infant. The goal is to emerge from the “working parent of young children” phase with your health and sanity intact. Laura and Sarah, with their spouses, clearly make very high salaries, so some of their content isn’t 100% relatable. However, I think their POV will really resonate with you. It has made me rethink a lot of our spending lately, in a positive way!
3) You have many options for consolidating accounts, as already discussed, but if it were me I would put like with like. Put the old 457s into your current 457, the old 401ks into your current 403b, etc. If you need further motivation to do this, look at it this way: It’s part of your estate planning to ensure that your executor knows where everything is!
4) I’ve researched the question of “do kids get cheaper as they get older?” a lot, and the general consensus seems to be that the elementary school years are the leanest. So far I have found this to be true. There are camps and activities, but they are a drop in the bucket compared to daycare.
5) Anyway, here are my recs in terms of your money. I should note that Mrs. FW did a fantastic job, and I’m just adding some color!
–Keep doing what you’re doing, and use your cash to cover the overage.
–Consider putting $10k of your cash into i-bonds. The Treasury Direct website is truly awful, but it’s worth it for the interest rate right now.
–Consider starting a 529 plan with a modest lump sum, like $10-15k. In my research about 529s, they offer the most tax advantages when the money has the longest time to grow, so front-loading them if you’re able to is great. If you get a state tax deduction then use your state’s plan, but if not you can use any plan (which means you can research the highly rated ones with low-cost index funds).
–Once you get that raise and/or childcare costs go down, contribute to your taxable account and 529 plan. This is assuming you’re phased out from a Roth IRA; if you aren’t, contribute to that as well.
–I noticed you’re in target date 2040 funds, which would be when you’re 62. I wonder if some of your accounts should go slightly later, like 2045, if you aren’t planning to retire early? That is super nitpicky, though.
You are doing an amazing job, and I thank you and Mrs. FW for sharing this reader case study!
Michele, you nailed it! And, “…he’s home sick but isn’t sick enough to be docile…” is the most relatable thing I’ve read all week. HAH! So so very true.
I will email you a picture of the incident, Mrs. FW! 😁
“The goal is to emerge from the “working parent of young children” phase with your health and sanity intact”
This is now my new goal! which was part of why I submitted a case study in the first place and this really sums it up – I want to enjoy this time in my life, when things have really come together in a beautiful way, not feel resentful of my job or the baby or my home when I’m tired and can’t do the “one more thing” that seems to pile on at the end oft the day.
I will definitely check out the podcast and thank you for offering such a long sighted and helpful perspective! And yes – I see evidence every day at work of the many many sick days that kids in daycare end up taking. Definitely part of the reason for this arrangement. I now need to go look up i-bonds…
I think the focus on expense cutting is really misguided. This is your LIFE. You get one or two or three precious years with a tiny baby that are expensive as hell (because of childcare! Don’t get it twisted! Diapers and onesies are cheap!) and then you most likely move on from the full time nanny thing. Preschool will be cheaper than this, public school will be free + a few hundred bucks for after school care, Jodie might be paying Sara some rent again someday, and all will be rainbows and butterflies and a speeding train towards FIRE! The person who said “You are not overspending by $12k because your monthly expenses are a little more than your take home, you are saving $28k while reallocating cash to tax advantages accounts.” completely nailed it. Please, please, please, don’t worry about a $10 grocery delivery fee or listen to ads on Spotify, or not buy delicious pizzas occasionally because of some hand wringing about cash-flow. You have saved for this. Your cash flow situation is temporary and will be back to fabulous in no time, they grow up quick!! If you change nothing about your spending for two years, in two years you will still end up much richer than you were now, thanks to your tax advantaged savings, raises, and home equity appreciation. I fail to see any problem whatsoever. And the arrangement with Jodie sounds like the loveliest blessing for everyone.
love, a financial planner in San Francisco with two kids in childcare
thanks for the encouragement. I think saving up to support a negative cash flow for a few years is just as valid as saving for a vacation or a car or any other thing in your life that is important for you. In ten years looking at her income and net worth I feel very strongly she won’t be concerned about her Spotify habit when she had an infant.
This is awesome to hear 🙂
My one recommendation to Sara is not to rely on a childcare center as her only option to cover her work hours! Even if Covid restrictions are significantly reduced, kids get sick (as I’m sure she knows as a doctor!) and they are frequently out of childcare, and as a parent you are frequently scrambling to rearrange our schedule to cover sick days for our kids. Even for a small fever, your child will likely need to be home for 48 hours. We are a two parent household, with lots of family help nearby, and we find it very stressful scrambling last minute to cover work and childcare when the inevitable colds and random viruses come up (and we have flexible jobs with lots of PTO! so we really have an ideal situation and this is still hard). A part-time nanny/part-time preschool option might be a less expensive but more flexible option than your current arrangement (if the nanny can cover full days when sick days come up)! We are considering pivoting to this model (maybe pursuing an au pair? not sure) because we are so burnt out with the inconsistency of our schedules.
I think it’s important in the FI dialogue to return to values, to acknowledge that some people are ok spending a little more for something they value greater, and that it isn’t always about cutting every dollar and shopping around for the cheapest service. Always a balance between rigidity and chaos. There is great pride in paying a fellow friend, house cleaner, childcare provider, farmer/food provider or business owner what they are worth or more. You are bettering their life and honoring their expertise, education, and the actual life effort they are investing in you. Sure, cut costs to Amazon and Verizon and big corporations, and do your research, but some people prioritize paying their neighbors, friends and fellow citizens well. The people you are paying are also striving for retirements and making sure their children are provided for, just like you. Congrats Sara on your beautiful baby, for honoring your friend, and for having such a wonderful situation for Sam in a loving, close-knit family. As a fellow mom, you have a comfortable cushion, do whatever you need to give YOU the best energy and presence for your family, yourself, and your work. The dividends from that are enormous.
Liz handled the very expensive “nanny” issue with kid gloves. Her explanation was completely empathetic and sympathetic to Sarah. Liz’s readers feel comfortable sending these situations because of the “judgement-free zone”. For example, Suze Orman probably wouldn’t have gotten Sarah’s question, because Suze would be way more direct than Liz in her response. So I’ll go ahead and say the obvious – ditch the nanny.
Jodi is highly unlikely to start paying her fair share of rent and household expenses again at some point in the future. Once someone gets something for “free”, they’re typically loathe to start paying for it. It’s human nature. You can make the argument that Jodi’s working for it now by taking care of the baby, but I highly doubt she’ll feel like paying to stay in the same domestic situation she had before while working an external job. Jodi will feel like she’s paying for the baby’s daycare, which she used to get paid to provide.
I enjoy the case studies, and of course it’s your blog and you can do what you want, but I feel that increasingly the case studies are about higher earners who are doing very well. Maybe this reflects your readership. I would enjoy seeing more diversity in case study situations.
I appreciate this note. I can only feature Case Studies that are sent to me and so if you–or someone you know–has a lower income and would like to be a Case Study participant, please email me (email@example.com). If you comb back through the years of Case Studies, you’ll see quite a range of annual incomes (the lowest being $17k/year). But again, I can only feature what I receive, so please do send in your stories :)!
I think it’s super valuable to start taking cost cutting actions sooner than later. Although paying Jodie’s salary is more expensive than daycare, daycare will probably cost just $1200 per month less (most likely), and I am guessing that Sara would love a “backup “ childcare option and will be more than willing to allow Jodie to live rent free in exchange for some drop off or pickup duties or some occasional coverage during a day off of school.
As a higher earner, it can feel like every small luxury is a reasonable expense, which it is. However when added to the very high cost of childcare, some things have to fall out of the budget. Personally, I don’t pay for a cleaner and we don’t have a particularly clean house. Once my childcare costs drop below $20k per year, I hope to pick it up. I also have adopted a relatively simple hair style that only requires cutting twice per year. Obviously, those are my choices but it helps to keep us saving and investing at rates that are in line with our salary.
There’s certainly no need to go bare bones, but the tradeoffs are still real even on a high income. If I were in Sara’s shoes, I would aim to be cash flow neutral or positive by Sam’s first birthday. Then when childcare expenses start to drop, that money can go into conveniences, home remodeling or more travel or additional investments.
The one thing I didn’t see was own occupation disability insurance. It’s pricey but for high income, single provider families, I think it’s worth it for the piece of mind. (source: am a high income breadwinner)
Congratulations on your cute baby and balanced lifestyle! We share some similarities in situation, as I am a 45 y/o primary care MD with a now 9 month old baby. I also had a long road to parenthood involving 2 rounds of IVF. I highly recommend Montessori daycare if available in your region. We started our daughter at 6 mos age and have had a great experience so far. Will most likely keep her enrolled until kindergarten.
Also agree with maxing out pre-tax retirement accounts, I’m strongly considering using the Rule of 55 to retire slightly early and access those.