I'm rarely one to follow the pack. So when everyone publishes a review of 2012 in the first week or January, I say, "Let's make em wait until February." Also, rather than just give an update of what I did financially in 2012, I'm going to dig a little deeper and get a little Fat Alberty on you delivering a lesson or two.
1. Having a Baby
One of the biggest events of a person's life is when they give life another. This past year I got to experience that. And while it is fun to joke that Little Man is a nice little tax deduction, he's a whole lot more than that. Having looked at the the cost to raise a child in the United States it looks like this USDA calculator estimates our costs to raise Little Man will be $28,500 a year.
We are only a little more than four months into Little Man's life. I feel safe in saying that we are going to come in far under that... at least for the first year. Here's a breakdown:
- Housing - The USDA estimate is that it will cost us another $10,600 in housing. I don't think our housing costs have gone up that much, but it's hard to say since that's related to the #2 event (our move).
- Food - The USDA estimate is $2,450. I think we are under that, but it is hard to calculate because right now he's on breastmilk. That indirectly leads to his mom eating more food.
- Transportation - There's an estimated $3,125 in transportation costs. We bought a new car due to our move to Boston, and part of that was because I felt I needed a safer car for Little Man. On the other hand, my 12 year old car probably need replacing soon anyway.
- Clothing - Due to the generousity of friends and family, especially my own mother's gift of amazing bargain hunting, we shouldn't have to buy clothes for the next five years. The USDA budgets $1438 and I think we'll avoid much of this expense.
- Health Care - One of the best benefits the military has going is its health care. I think we'll save a vast majority of the $1113 that the USDA has allocated. The exception is out of pocket things like baby Tylenol and the like.
- Child Care and Education - The USDA estimates $7,538 and this is where my blogging career really pays off. I can be that child care provider. I had estimated day care for Little Man to be around $15,000 a year. Since that's after-tax money, it's almost like adding $20,000 in salary. However, as it turns out we might be able to get almost full-time coverage for $6,000 at a military base. We'll see if that comes to pass.
I think the lesson here is that raising a child can be done on a budget. It certainly helps to plan ahead (be a blogger), have a great support system (thanks Mom!), and get a good breaks (military benefits rock). Oh and if you are going to be a new parent soon, here's some of my favorite baby gear.
2. Moving Across the Country
This year we moved back to Boston, which has always been where my heart is.
One thing I can say about Silicon Valley. Having lived there, I understand how a foreigner would come to United States thinking that the "streets are paved in gold." Silicon Valley is a lot like that too. There's a ton of money due to all the successful technology companies such as Google and Apple. I don't know if it is the money or great schools like Stanford, but there are a ton of very smart people there.
Not only is it a land of opportunity, but the three feet of snow that we are getting right now in Boston reminds me how wonderful the weather is in San Francisco.
As wonderful as that is there were two major downsides for us: 1) Our friends and family are in Boston 2) The price of housing is 3 times more than what we can get in the Boston area. That's literally a million dollar difference.
It's not like Boston is a horrible place either. With Harvard and MIT, there are some smart people here too. I'll probably always wonder what life would have been have been like, not just for me, but for Little Man, if we stayed in San Francisco.
What's the lesson here? It's probably nothing new, but geography does play a huge role in personal finance.
3. Refinancing Two Mortgages
Lost in the birth of baby and the move back to Boston is the financial move that flew under the radar. I was able to use the government's HARP program to refinance two mortgages. With the drop in value of real estate over the last 8 years, these properties no longer had 20% equity and we were paying on average 6% interest on them. We were able to keep the payments close to the same and change 22 year mortgages to a 15 year one. The reason we were able to do that? The interest rate of 3.5% on a 15 year lowers the payments to what we were paying on the 30-year at 6%.
It was extremely difficult, especially because I'm a self-employed blogger. I might as well be a third-class citizen to mortgage underwriters. The hours on the phone and email really paid off...
The result of eliminating 7 years of mortgage payments on two properties is tremendous. Some rough math tells me it will save us $225,000 in mortgage payments.
The lesson here is to take advantage of these low interest rates if you can.
4. Buying a New Car
In any other year, buying a car would trump the money moves. After buying a house, it is usually the biggest purchase someone makes. One month in, I still have no regrets on buying my Subaru Forrester.
Wait, maybe I do.
The last lesson is that before you buy a new car, look at what is coming down the pike in the near future. It's something that I think about whenever buying technology, but I somehow forgot about it with buying a car. I think it was because I was going in with the intention of buying a slightly used car and saving on depreciation. However, they made the new car a lot better deal because they had dealer incentives and 0% financing for 63 months.
It wasn't until a few days later, I found out that they are coming out with a 2014 Forester in a couple of months that is going to get 5 miles more per gallon. As it turns out waiting wasn't a good fit for us because we need to snow-worthy cars in New England, but doing some rough math, the money that I saved with the 0% financing is about what I was likely to save on gas through the life of the car.
I might still come out ahead if Subaru bumps up the price of the 2014 Forester as many expect they will.
Putting it All Together
Most years, I don't make too many big financial moves. Obviously some of them like taking a new job or having a baby are common life milestones. Other things such as taking advantage of historically low interest rates (particularly for mortgages and cars) fits in the category of making the most of opportunity presented.
Now it's time to take a year to settle down.
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