Late in 2013 my wife announced that we’d be expecting our first child in 2014. Early on we’d decided that when Mira was born, she’d quit her job and be a full time mom.
The next spring it finally dawned on me that we’d be cutting our income by about 35%, and with our current budget that would be… Problematic. The nice thing was that I had very good job security and our savings were relatively healthy, but our cash flow would be too crimped
Triage
When looking at our budget, I pinpointed a few low hanging fruits:
- Tax Inefficiency
- Credit Card Debt
- Incorrect escrow on our mortgage
- Student Loans
- Cellphone bills
- Cable Bill
To me, it was important to take out the big chunks first if I could, to get our monthly cash flow up enough to really make a difference for our budget.
Tax Inefficiency
I did a bunch of research and found that when you have a child, you can get the child tax credit for the entire year. This, can be a massive savings on your per-paycheck tax amount. I worked with my HR representative at work to figure out the correct deductions, it all worked out to about $500 a month in extra cash in our pockets. The caveat to this is that you’re going to forego a bigger tax return next tax season, but personally, I don’t see a point in giving Uncle Sam a tax free lone every paycheck.
Credit Card Debt
This was a big struggle for me. We had some debt on an interest free credit card (American Express), but when it’s interest free, what’s the harm in carrying the debt? Well, the harm is that if you get into a cash flow crunch and you reduce your payments on your interest free debt, it can catch up with you pretty quickly. You don’t want to be on the receiving end of a years accrued interest. I bit the bullet and paid this off out of our savings, which reduced our monthly expenses by another $360 a month. It was painful, but rewarding in the end.
Incorrect escrow on our mortgage
This was an odd one that took some research. We’d purchased our house the previous year and when they estimated our taxes and insurance they actually estimated our monthly escrow far too high. Most things I read online said that you had to wait for the next year for the escrow to re-balance automatically, but I ended up making a slew of phone calls and was able to get the mortgage company to correct our escrow amount, the overage was refunded at the end of the year. The overage would have been refunded at the end of the year anyways, but money now is always better than money later. This saved us about $ 145 a month, and at the end of the year we got a check for $800.
Student Loans
Between my undergraduate and graduate degrees I ended up with quite a lot of student debt. We were shelling out over $1000 a month towards my student loans, and this was far and away the most painful thing. At the same time though I was very concerned about reducing my payments, which would result in a halt on any progress we’d been making on them. Unfortunately, this would shave another $220 a month off of our monthly bills, so I bit the bullet and put my federal loans onto the Pay as you Earn plan. We’re doing a bit better financially these days, so I’ve upped our payment significantly to try to get back lost time.
Cellphone bills
At this time we were shelling out $180 a month to Verizon between my phone and my wife’s. She had a pay-as-you-go phone, and I had a smartphone with a data plan, which was required for work. I got a little bit of reimbursement from my job, but it barely made a dent. I knew there were better options out there, so I started researching. For a long time, I was torn between TING and Republic Wireless. Ting is nice because if you already have an AT&T device, you can use it on their network and save a bit of up-front cost. The monthly carrying cost for Ting (In our situation) was a bit higher than Republic Wireless, and even though we had to purchase two phones to move to Republic Wireless, we still came out ahead after only a few months. Since my wife would primarily be at home with our daughter, we got her the cheaper MotoG with the 3G data plan. Since I need internet for work and travel, I got the more expensive MotoX. All in we had to spend about $400, but it saved us $120 per month, so the payback period was very short.
Cable bill
This one was a lot easier. We’d been paying $90 a month for cable, but we also have Netflix and Amazon Prime. We decided to drop our cable down to internet only, and shaved only $40 per month off of our expenses.
In the end, most of these cuts were easy to accomplish, and weren’t very painful. We also cut down on our eating out, shopping expenses, and other items. I’ll blog more about those at a later date.