Huge raises (for us)- no idea what we can afford for remodel
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Anonymous
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DH and I have always lived very frugally. We both just got major raises in the last couple months and now I feel like I can't even fathom actually spending some money.
We bought a large 1964 home in 2016 for $335k. It has the original kitchen and I am DYING to tear it out. That thing is the bane of my existence. It will be a significant project including removing a load bearing wall and likely redoing the full bath next to the kitchen (we are going to have to move plumbing anyway so it just makes sense to do it all together). Here's our general finances and FWIW, DH and I are 30yo with two small kids. -HHI $250k + bonus (likely 20k). Still shocked. We have had a HHI of $120-140k for the last 5 years. -Mortgage, taxes, insurance, etc $2200/mo -We have $8k in student loans left and no other debt -Childcare: $1400/mo (in 2024 will go down to ~$800/mo and both kids will be in public school by 2025) -We are behind on retirement but hope the catch up quickly with the raises (currently have $80k) -529s have $5k and $3k in them currently but kids are only 3yo and 1yo- will up this with raises Can we afford to do ~$100k renovation? Should we take out a HELOC? We bought at $335k, current appraisal is $460k (obviously not in DC- we're in Chicago). |
Anonymous
Given the balance in your retirement and 529 accounts, absolutely not. You've lived with the kitchen for 6 years, you can continue to do so. |
Anonymous
Couple of thoughts. Congrats! But I would not tie up 20% of the house's value in a renovation that doesn't add square footage. I also wouldn't put two years worth of your raise toward a home project when you're behind on both retirement and 529s. You plan to catch up with the raises but you're also spending the (post-tax) raises for the next 18 months - 2 years on one desired but not necessary project. If I were you I'd pay off the student loans and put money into 529s first. Set both of your retirement accounts to max, and see what your take home looks like after that. Then bank the raises - either in savings or investing during this downturn until both kids are in public school. At that point you can look around and decide whether it makes sense to do a big renovation or to move to a house that works better for you. |
Anonymous
| Raises aren't huge as the government takes away more of your money from taxes, so it's not really that much. It's quite sad we tax people more it should be less to reward success. |
Anonymous
| Don't make any decisions now. Use the money to pay off your loans and max out your retirement. Start saving the rest for at least 6 months. See how fast your savings go up; that will give you a sense of how much you can spend. |
Anonymous
THIS! You should pay off all debts but not change your standard of living at all. See how much money you have leftover after 8-10 months. If you have enough for most of the reno - then do it. If you have only saved a small portion of it, then you know the new raise is a great place to be at your age, but not enough for the reno yet. |
Anonymous
| Remodel has nothing to do with income, it’s about savings. Start putting money away and hopefully by the time you have saved enough prices will have fallen/this inflationary bubble will have popped. |
Anonymous
This. Also, be aware that remodel costs are always more than you expect. Better to have a higher comfort level before jumping in to this. Our $70k kitchen remodel cost $110k because we found structural issues that had to be addressed. Plus we were out of pocket to stay in a hotel during some of the renovation. |
Anonymous
| Maybe. But before you do anything else, please start by set both of your paychecks up to contribute the maximum amount to your 401ks, and I also encourage you to set up monthly autodeposits into 529 plans at a much higher rate (I've been doing $1250/month for my 3 yo since birth). What does your cash flow look like after you do this? We financed a necessary remodel project once a few years back and it worked out fine and we paid it off quickly with cash flow and bonuses, but we didn't do it at the cost of retirement or college savings. |
Anonymous
| No you need to bolster retirement |
Anonymous
| You are in the high spending years with kids that young. I noticed in your post that you seem to be spending the same money multiple ways. You said you would use the raises to increase college savings, retirement savings, and do a major house renovation. Be careful you are not double or triple counting your money. I recommend setting your retirement savings rate at 20% of gross and figure out your target for college savings. Aim to set another 10% aside for a longer-term savings like this house project. Then see what you have left over. It would be a shame to go another decade with a kitchen that does not meet your needs. Life is for a living and money is for spending. But you need to make sure you are on track for your long-term goals before spending on wants. Obviously get rid of that debt quickly. |
Anonymous
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Honestly I'd think about saving fora year or two and then I'd really think about moving, depending on interest rates, what's available, etc.
I agree with the other poster that a renovation that's 25% of home value without increasing square footage seems like not the best idea. Plus living through a renovation like that with young kids -yikes. I do believe life is for living and money is for spending; I just think you need to stretch out time frame a bit. |
Anonymous
| You can’t afford to renovate your kitchen yet. Sorry. |
Anonymous
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Timing isn’t good to be taking out loans.
You always think life will be cheaper when kids get out of daycare but it isn’t that big of a difference. So don’t get excited about that money. Get rid of the student loan. Renovations always cost more than you expect. You are young and have tons of time to save for retirement. If the new kitchen will improve your family’s quality of life and will not adversely impact spending on vacations and experiences, I think you can do it. But I’d go in with a plan to continue your current lifestyle and pay it off in two years. And I’d try to downsize the plan - your current plan is to spend 1/3 of the value of your house on a kitchen. I am not a financial person but I’m old enough to understand that the life you build with your kids is a worthy investment and so if it’s going to improve that life, it might be worth it. But you can’t go on and start adding private school and high level gymnastics and horseback riding to the mix. |
Anonymous
Pay off the student loans. Raise up your retirement and college savings. And, save cash to pay for the remodel. No loans. |