Check my mortgage payment budgeting please!

[penumbra]

Going to be buying a house in a HCOL area in the next 6 months, and I'm trying to project out how much mortgage I can afford with anticipated changes in expenses with owning and potentially having kid #2. I am in year 1 of a 4-year partnership track, at which point my income will substantially increase. I love the practice, and everyone makes partner if you stay 4 years. Parents are nearby so no chance of us wanting to move out. Therefore, I'm probably going to stretch my house budget, with the anticipation of being able to easily afford the mortgage after I make partner.

Could you check my work on my budget categories and make sure there aren't any big monthly expenses I'm forgetting that would eat up cash flow?

Combined gross monthly W2 income (excluding annual $50-70k bonuses): $38,452
401k max (combined): 3416
Backdoor Roth: 1000
Taxable investments (to get to 20% of gross income towards retirement): $3273
Estimated total monthly income after taxes, retirement investing, and other pre-tax deductions: $22,600

Non-retirement expenses:
Household maintenance (worst case: old home with many needs): $3,000
Furniture (will furnish house over time): $416
Childcare (current nanny cost + projected increase with kid#2): $3830
Kid clothing, toys, random: $269

Life insurance (both of us): $215.98
Combined auto/umbrella liability: $130
Physician long-term disability: $283.85
Nanny worker's comp: $150

Groceries $700
Car maintenance: $133
Gas $190 (1 of us works from home and the other drives a hybrid)
New car fund: $630

Vacation fund: $300
Dining out: $524
Random fun money: $300


Other miscellaneous expenses:
Magazine subscriptions: $44.30
Holiday cards: $25
Credit card annual fee: $8.33
Haircuts: $80
Dry cleaning: $10
Dog yearly checkup: $56
Holiday/birthday gifts: $200
Dog food, meds, grooming, etc: $78
Electric (projected based on likely square footage): $200
Software subscriptions: $25
Cell phones: $116
Internet: $45
Fitness: $41.83
Cash from ATM (catchall): $50

Cash available for mortgage payment (including homeowner's insurance and property tax): $4,503

To free up monthly cash flow, I think I will fully invest our annual bonuses as our taxable retirement contribution and contribute some smaller monthly amount to get up to 20% of gross income in retirement contributions.

Thanks for your help!

[VentAlarm]

Your budget seems very low on a lot of stuff. You could do it, but that would have to be your number one priority - at the expense of everything else.

Are you comfortable locking yourself into a $30k car every 8 years? Nothing nicer, nothing more frequent. Food budget seems very low. Heck, I think we spend that much just on my three kids’ snacks. Also, kids clothes/etc seems low. Furnishing seems low. Want a $5k couch, takes you a year to get there. Never going on an international trip for $300/mo. Never going to afford Disney on that. $10 doesn’t get a pair of pants dry cleaned. Nothing for kids college.

Lastly, you’re making $500k/y and don’t have a penny allocated to charitable giving. Is that the person you want to be? No charitable donations over the next 30 years. I don’t mean to sound judgey - personal finance is personal; just most people have at least some charitable inclination.

Id consider something more $3500/mo.

[FN9]

Agree with Ventalarm, though would add while low on some things, others are very high such as worker comp for nanny at 150.00 unless they are doing extra construction work , you can probably trim alot of the pork spending from that budget if need be.

to be safe, 3500 would be comfortable, at 4500 you can probably wing it though in my opinion you will end up lowering your taxable investment as Murphy will be visiting when you are the owner ( roof, AC, leaks and many other things you didnt know existed), though once you make partner, things should be easy, make sure to have a decent emergency fund till you make partner.

[White.Beard.Doc]

What would happen if they sell to private equity before you make partner? Do you have a non-compete?

I’m sorry to be negative, to point out this risk with your plan, but it happened to a colleague. When this happens, a sale to private equity means you will never make partner, and the non-compete could mean you have to sell your house and move away if you want to change jobs. It’s a pretty awful situation to get stuck in.

This particular scenario may be very low risk for you, but I always like to look at both the downsides and the upsides before making financial decisions.

[penumbra]

Your budget seems very low on a lot of stuff. You could do it, but that would have to be your number one priority - at the expense of everything else.

Are you comfortable locking yourself into a $30k car every 8 years? Nothing nicer, nothing more frequent. Food budget seems very low. Heck, I think we spend that much just on my three kids’ snacks. Also, kids clothes/etc seems low. Furnishing seems low. Want a $5k couch, takes you a year to get there. Never going on an international trip for $300/mo. Never going to afford Disney on that. $10 doesn’t get a pair of pants dry cleaned. Nothing for kids college.

Lastly, you’re making $500k/y and don’t have a penny allocated to charitable giving. Is that the person you want to be? No charitable donations over the next 30 years. I don’t mean to sound judgey - personal finance is personal; just most people have at least some charitable inclination.

Id consider something more $3500/mo.

We would definitely be living lean for years 2-4 (although my salary goes up $25k per year until I make partner, so these numbers are worst case scenario in year 2). The idea is when I make partner, we'd already be in a 10-yr house that's well within budget (at partner income), rather than a house we're already outgrowing or in an area we hate.

Definitely with you on charitable spending, but again the goal is this would be a lean period for about 3 years. We would of course change that as income rises.

[Hatton]

Are you budgeting $56 for an annual dog check up or 56/month. 672 would cover check up plus heartworm and flea meds maybe.

[Hatton]

I digress. I would make partner prior to buying an expensive house. Like WBD says there is no guarantee.

[Tim]

I digress. I would make partner prior to buying an expensive house. Like WBD says there is no guarantee.

This.
If, then, else. Just like the Excel formula. Run for own debt to income budget and then follow your results.

• You are from a behavioral finance standpoint rationalizing a "want" vs a "need".
• Even you admit that your current income would not support the purchase on a long term basis.
• This implies significant financial risk, do not ignore your instincts. If everything falls your way, you would be fine. Don't bet on that.

[IlliniGopher]

Perhaps vacation/travel isn't a priority, but $300 a month seems low. It will be even more expensive with two little ones.

I think it is commonly peoples' biggest expense on this forum. The majority seems frugal in most areas, with the exception of hobbies too (audiophiles, biking, fishing, etc).

However, when it comes to travel I would bet a lot of people here spend $20-50K a year.

[penumbra]

This.
If, then, else. Just like the Excel formula. Run for own debt to income budget and then follow your results.

• You are from a behavioral finance standpoint rationalizing a "want" vs a "need".
• Even you admit that your current income would not support the purchase on a long term basis.
• This implies significant financial risk, do not ignore your instincts. If everything falls your way, you would be fine. Don't bet on that.

Actually explicitly running the numbers surprised me, because the WCI guideline for home debt is <2x income and expenses (mortgage, utilities) <20% of monthly income. A $1mill mortgage would be 2x our annual income, and the $5,200 (including insurance and property tax) mortgage payment would be 14% of monthly income. However, with the numbers in my original post, we would still be short or just making it. The only "luxury" expense I have in there is a nanny. As others have noted, vacation budget is super low, modest car budget, etc.

This is why I posted, because it seemed like the WCI home affordability guidelines were not making sense with my calculations. TBH I was really hoping someone would be like "oh that expense estimate is way too high," and that would explain it all!

[CordMcNally]

Always budget for your current income.

[FN9]

Actually explicitly running the numbers surprised me, because the WCI guideline for home debt is <2x income and expenses (mortgage, utilities) <20% of monthly income. A $1mill mortgage would be 2x our annual income, and the $5,200 (including insurance and property tax) mortgage payment would be 14% of monthly income. However, with the numbers in my original post, we would still be short or just making it. The only "luxury" expense I have in there is a nanny. As others have noted, vacation budget is super low, modest car budget, etc.

This is why I posted, because it seemed like the WCI home affordability guidelines were not making sense with my calculations. TBH I was really hoping someone would be like "oh that expense estimate is way too high," and that would explain it all!

Well you do have a lot of room in your budget to cut things out temporarily if need be, and that's without the annual increase in your salary, you can always add the trimmed items as your salary increases.

[Tim]

Actually explicitly running the numbers surprised me, because the WCI guideline for home debt is <2x income and expenses (mortgage, utilities) <20% of monthly income. A $1mill mortgage would be 2x our annual income, and the $5,200 (including insurance and property tax) mortgage payment would be 14% of monthly income. However, with the numbers in my original post, we would still be short or just making it. The only "luxury" expense I have in there is a nanny. As others have noted, vacation budget is super low, modest car budget, etc.

This is why I posted, because it seemed like the WCI home affordability guidelines were not making sense with my calculations. TBH I was really hoping someone would be like "oh that expense estimate is way too high," and that would explain it all!

I know how you feel. My daughter has similar numbers. I ran them again yesterday. She and my wife looked at 3 yesterday.
My emotions kick in:
Current budget vs budget with a big mortgage. Big different is a big mortgage really cuts into the "free cash flow". I just hate to see it locked in for 30 years.
The accumulation and flexibility just seems so much better. Once you lock into the mortgage, it's tough generating significant amounts for other things.
Want to do a $30k landscaping project? New AC or roof? It's just building up the Efund after the purchase will take time. The funny thing is this is "the starter house". Think about it. First world problems.

The point is the life inflation reduces options for discretionary cash tremendously. Like for a long time for a want.

[penumbra]

I know how you feel. My daughter has similar numbers. I ran them again yesterday. She and my wife looked at 3 yesterday.
My emotions kick in:
Current budget vs budget with a big mortgage. Big different is a big mortgage really cuts into the "free cash flow". I just hate to see it locked in for 30 years.
The accumulation and flexibility just seems so much better. Once you lock into the mortgage, it's tough generating significant amounts for other things.
Want to do a $30k landscaping project? New AC or roof? It's just building up the Efund after the purchase will take time. The funny thing is this is "the starter house". Think about it. First world problems.

The point is the life inflation reduces options for discretionary cash tremendously. Like for a long time for a want.

yep. Don’t know what market you’re in, but the market here is so hot (and has been since well before the pandemic), that if we rent for a few more years until I make partner, we could potentially be priced out of our preferred neighborhood altogether. So I feel like I need to buy something now to ride the wave and set us up for the partner home down the line.

[penumbra]

Well you do have a lot of room in your budget to cut things out temporarily if need be, and that's without the annual increase in your salary, you can always add the trimmed items as your salary increases.

Thanks. I see the wisdom in the posters urging caution, but in my market a lot would have to go wrong for me to lose money on a house that might stretch my budget a bit. Practice would need to be bought out, which is highly uncommon in my field, and housing prices would need to downturn/stagnate despite transplants flocking to this city for years, even before the pandemic.Rising interest rates might complicate things, but the fundamentals of high demand and low housing supply wouldn’t change.

This discussion has definitely brought me down from my initial budget though. Super helpful to hear others’ thoughts.