Why is my DH risk adverse? I guess it's because it's all he knows. We have investments, we have cash. But he is always worried about what could happen if he loses his job, if the dollar crashes, etc.

I agree that I need a better idea of our finances. I bet with a clearer picture I could show him how our renos can be done without too much stress.

Anonymous wrote:You definitely need to understand the financial picture better OP.

From your assorted posts I get the impression that your DH determined how to spend the inheritance, and that the whatever you paid for your house - I'm unclear if it was 900K when you bought or current value - was a significant chunk of that money (or else the 100K Reno would be less of an issue.)

Together this suggests to me that your DH is extremely risk averse. Why? Because an alternative spending plan would have been to put down 20% to secure the best rate and invest the rest of the money in the market - a higher risk plan since you would have been more leveraged, but one which would have yielded a higher net worth over that time, since you would still keep any house appreciation that occurred in that time frame, but would also have garnered the market increase on the invested dollars. Since he didn't make that choice, it suggests he is really uncomfortable with being in debt if he can avoid it.

So as PPs have suggested, I think you need to understand your family financial picture better, as well as your DH's psychological comfort with risk, and from there you both need to communicate in order to reach a joint decision for moving your family forward.

Yes, they could get a loan for 3.5% and then bought Treasuries at 3.7% and earned easy risk free money.

Anonymous wrote:OP here. Thanks for all of your comments. I agree that I don't have the full idea of our financial picture. I'm the SAHM so I'm given a fixed amount to spend each month for food, random expenses for the kids, etc. Whatever is left after paying bills goes into our emergency fund. College is funded separately by inheritance.

I don't know how much is in this emergency fund. DH is very cautious about spending so it could be significant. I'm hoping there's a happy medium for us and that we can save a little and borrow the rest to make our renos.

Sorry OP, I think you should return to work b/c you have shut off the analytic parts of your brain.

And basically your husband gives you an allowance, like one of the kids???

So if DH was busy spending money on wine and women, you would have no idea... and in case of divorce or death, you don't know how much or where things are?

You definitely need to understand the financial picture better OP.

From your assorted posts I get the impression that your DH determined how to spend the inheritance, and that the whatever you paid for your house - I'm unclear if it was 900K when you bought or current value - was a significant chunk of that money (or else the 100K Reno would be less of an issue.)

Together this suggests to me that your DH is extremely risk averse. Why? Because an alternative spending plan would have been to put down 20% to secure the best rate and invest the rest of the money in the market - a higher risk plan since you would have been more leveraged, but one which would have yielded a higher net worth over that time, since you would still keep any house appreciation that occurred in that time frame, but would also have garnered the market increase on the invested dollars. Since he didn't make that choice, it suggests he is really uncomfortable with being in debt if he can avoid it.

So as PPs have suggested, I think you need to understand your family financial picture better, as well as your DH's psychological comfort with risk, and from there you both need to communicate in order to reach a joint decision for moving your family forward.

Anonymous wrote:OP here. Thanks for all of your comments. I agree that I don't have the full idea of our financial picture. I'm the SAHM so I'm given a fixed amount to spend each month for food, random expenses for the kids, etc. Whatever is left after paying bills goes into our emergency fund. College is funded separately by inheritance.

I don't know how much is in this emergency fund. DH is very cautious about spending so it could be significant. I'm hoping there's a happy medium for us and that we can save a little and borrow the rest to make our renos.

OP, do you have access to the bank account? Does your DH do all the bills? First, you need to go over your household budget with him (if he had one).

If your marriage is very traditional, then maybe the best way to do it is to simply keep asking him until he gives in. Then you won't ever have to worry about the financial aspect.

OP here. Thanks for all of your comments. I agree that I don't have the full idea of our financial picture. I'm the SAHM so I'm given a fixed amount to spend each month for food, random expenses for the kids, etc. Whatever is left after paying bills goes into our emergency fund. College is funded separately by inheritance.

I don't know how much is in this emergency fund. DH is very cautious about spending so it could be significant. I'm hoping there's a happy medium for us and that we can save a little and borrow the rest to make our renos.

Anonymous wrote:OP, the fact is that you don't have enough information to make the decision that you want. I don't know if your husband has that information or not, but you don't.

First, you need to have a better understanding of your household finances. If your husband was incapacitated or unavailable to help with finances, how would you handle the month-to-month transactions? You know that your HHI is about $130K, you know that there is some amount of savings and investments that you didn't count towards the HHI but you don't know your family's budget. You don't have the financial information that you should have to make the decision for a large financial investment.

So, since you are looking for upgrades and renovations and not necessary maintenance and repair (e.g. you have a flexible schedule), here is some homework that you need to do before you revisit this with your husband:
- you need to understand your husband's paycheck. First, how much he makes gross, how much is being deducted for taxes (and if you will owe or get a refund when you do your taxes), how much is being deducted for personal costs (retirement, any FSA's, insurance, etc)
- you need to have a loose idea of your budget, how much is spent for groceries, how much for gas/auto maintenance, how much for family clothing, etc.
- where is the remainder going? Just into savings? Is any of it redirected for fixed plans?

Then you need to factor in a budget of $1000-1500 per month. Determine where it will come from, what changes to the rest of the monthly budget will be made to accomomdate this. If you are living paycheck to paycheck and spending most of your current salary income, where is the money for the HEL/HELOC monthly line item going to come from?

With $130K of income, that's close to $1100 monthly income. Deduct about 25% for taxes and deductibles and your family has around $800 per month for living expenses. How in the world do you expect to pay $1000 in HELOC payments and still buy food, gas, clothing, and family necessities? Essentially you want to burn off your family savings and investments, because the money to pay that $1000/month will come from there. And by eating up your principal, your monthly income from the interest and other investment income will decrease as well, so your net worth will be slowly bleeding to death.

If you did it all at once in cash from savings and investments, then you would just be out $80K. However, by getting a HEL/HELOC to do it, you will be adding a lot of interest to what it will cost you net. Currently HEL/HELOC's are just below 5%. Let's go with the lower end of 4.75%. For a monthly payment of $950, and a loan of $80K, you will pay the loan off in 10 years. In that time you will have paid about $21K in interest payments. Over the life of the loan, you will have paid about 25% interest. It averages out to around 2.6% annually that you pay out (obviously much heavier in the first few years and much less in the later years). You need to make sure that wherever you take this money from, it earns more than 2.6% APR or you will be losing more than just the amount of the loan per month just for borrowing the money.

I think your idea is unreasonable. I agree with the suggestions that maybe you need to break this down into several smaller projects and spend maybe $10-15K at a time. To get yourself used to the sacrifices, you should carve out what you think is a reasonable monthly payment, and start making that payment to yourself. Open a separate bank account that is your "kitchen fund" and make the monthly payment into that account. Wait until you build up at least 50% of the payment that you'll need for each smaller project and then do that project, and borrow for that. Then see how long it takes you to pay that off before you make another such investment for the next project. Then you'll see the real effect in sacrifices that everyone has to make to get that updated kitchen that you want.

Sorry...clearly trying to multitask wasn't smart here.

let's try again:

With an annual income of $130K, your monthly takehome is $11000, less 25% for taxes and dedecutibles, is about $8000. Find out where that goes and how you will carve out $1000 per month. Make that payment into a savings account set aside for the kitchen project. That will give you an idea of the sacrifices that your family will need to make for this project. If you save for 2 years, you'll have about $25K in the kitchen account that can go towards the project and your payments will go down.

OP, the fact is that you don't have enough information to make the decision that you want. I don't know if your husband has that information or not, but you don't.

First, you need to have a better understanding of your household finances. If your husband was incapacitated or unavailable to help with finances, how would you handle the month-to-month transactions? You know that your HHI is about $130K, you know that there is some amount of savings and investments that you didn't count towards the HHI but you don't know your family's budget. You don't have the financial information that you should have to make the decision for a large financial investment.

So, since you are looking for upgrades and renovations and not necessary maintenance and repair (e.g. you have a flexible schedule), here is some homework that you need to do before you revisit this with your husband:
- you need to understand your husband's paycheck. First, how much he makes gross, how much is being deducted for taxes (and if you will owe or get a refund when you do your taxes), how much is being deducted for personal costs (retirement, any FSA's, insurance, etc)
- you need to have a loose idea of your budget, how much is spent for groceries, how much for gas/auto maintenance, how much for family clothing, etc.
- where is the remainder going? Just into savings? Is any of it redirected for fixed plans?

Then you need to factor in a budget of $1000-1500 per month. Determine where it will come from, what changes to the rest of the monthly budget will be made to accomomdate this. If you are living paycheck to paycheck and spending most of your current salary income, where is the money for the HEL/HELOC monthly line item going to come from?

With $130K of income, that's close to $1100 monthly income. Deduct about 25% for taxes and deductibles and your family has around $800 per month for living expenses. How in the world do you expect to pay $1000 in HELOC payments and still buy food, gas, clothing, and family necessities? Essentially you want to burn off your family savings and investments, because the money to pay that $1000/month will come from there. And by eating up your principal, your monthly income from the interest and other investment income will decrease as well, so your net worth will be slowly bleeding to death.

If you did it all at once in cash from savings and investments, then you would just be out $80K. However, by getting a HEL/HELOC to do it, you will be adding a lot of interest to what it will cost you net. Currently HEL/HELOC's are just below 5%. Let's go with the lower end of 4.75%. For a monthly payment of $950, and a loan of $80K, you will pay the loan off in 10 years. In that time you will have paid about $21K in interest payments. Over the life of the loan, you will have paid about 25% interest. It averages out to around 2.6% annually that you pay out (obviously much heavier in the first few years and much less in the later years). You need to make sure that wherever you take this money from, it earns more than 2.6% APR or you will be losing more than just the amount of the loan per month just for borrowing the money.

I think your idea is unreasonable. I agree with the suggestions that maybe you need to break this down into several smaller projects and spend maybe $10-15K at a time. To get yourself used to the sacrifices, you should carve out what you think is a reasonable monthly payment, and start making that payment to yourself. Open a separate bank account that is your "kitchen fund" and make the monthly payment into that account. Wait until you build up at least 50% of the payment that you'll need for each smaller project and then do that project, and borrow for that. Then see how long it takes you to pay that off before you make another such investment for the next project. Then you'll see the real effect in sacrifices that everyone has to make to get that updated kitchen that you want.

OP I don't understand how you can't save more money. Why would it take 10 years to save 100k? Because you don't have a mortgage I would think you could save 2k a month easily (less than what most people pay for rent/mortgage with your same HHI).

Anonymous wrote:

Anonymous wrote:

It'll take us 10 years to save up $100k and life is too short.

Here's your problem. If you are making $130k/year, have no mortgage and no daycare expenses, you should be able to save up the 100k within a year or two. I'm on team husband. Your finances need some close examination and overhaul.

That is absurd. I mean you could save that much that fast, but you would surly be sacrificing your lifestyle.

And heaven knows, none of us should ever have to sacrifice our lifestyle for financial security.

Anonymous wrote:If you don't know your own budget how can you possibly even think of entertaining thoughts of the scheme you're asking for advice about?

That's nuts. You are way ahead of yourself and must go back to square one and start figuring out your financial picture in detail.

It sounds like you may have spent too much of your liquid resources on the house and now are cash poor when it comes to associated/ other expenses.

It's also clear that you're not fully financially literate regarding your own situation and that should be your first step.

I agree.

And a 1980 kitchen doesn't sound bad to me AT ALL.

Anonymous wrote:

Anonymous wrote:Hi- I'm the OP. Here are more details-
We bought it in 2008 knowing that over the years we could grow into it and make it ours.

Did you budget for upkeep and renovations when you bought?

It's the smallest and least updated home on our street.

This isn't really relevant to whether or not you can afford a 100k update. In fact, this makes me think you just want to "keep up with the Joneses."

The contractor we met with said that most people take loans for this type of work.

Of course he said that. He's selling his services.

You have no mortgage, no daycare expenses and have a 130HHI, but you can't pay for home renovations without a loan? What are you spending your money on?

Same reaction here.

I would save $1500+/month for four years and do the renovation then. It will be easier then than it would be now, anyway - renovating with a 4yo and a newborn in the picture sounds like a nightmare.

Anonymous wrote:Hi- I'm the OP. Here are more details-
Our kids are very young (newborn and early preschool and I was not a high earner before we got married). I would likely be working to pay daycare costs.

We are in a $900k fixer uper. We bought it in 2008 knowing that over the years we could grow into it and make it ours. It's the smallest and least updated home on our street.

Renos would include bumping out our kitchen, moving the laundry room upstairs and carving out a spot, reworking the mudroom. I picked $100k as an amount but it could prob be done for $80k. I'm not looking for high end finishes. Just trying to make the space functional for our family.

The contractor we met with said that most people take loans for this type of work. DH seemed ok with that at first but then got cold feet.

I'm confident that we could afford $1500 a month for a loan payment. However, to save up $100k would take quite awhile. I want to enjoy the space now, when my kids are young and we truly need it.

This is the norm in our neighborhood. (100K for reno) but it could be that you need to take it piece by piece. Most of the neighbors have done this bit by bit. First thing is the kitchen. Remember you are home and see the faults of the house -- he is not. Start with a smaller and specific reno and then see what develops. Kitchen and bath are always a plus in value.

HELOCs are not mortgages.

1) The interest rate is generally not fixed, so if Fed ever starts selling balance sheet, whoa nellie

2) I think generally they are 10 year terms, not 30 -- hence the monthly nut being bandied around here is much higher than a mortgage of equivalent balance.

3) Any one know if HELOCs are callable? Like if the snizel hits the fan, can the bank ask for a lump sum tomorrow? I'd imagine there are a lot more protections now after 2008 and all.

Seriously OP, you inherited almost $1m and you poured it into a house you can't afford to live in?? Why didn't you buy something smaller or not in McLean? I mean, FFX is huge. Places like Burke have VRE access downown and great schools and nice homes for like $750k, or fixer uppers for $600k.

It would take longer than 2 years to save $1000,000 because they don't "take home" $120,000 due to taxes, ss, health care, retirement, etc. I wouldn't be surprised if close to 1/3 of their salary makes it home. Regardless, the OP needs to start understanding their financial picture better. OP- please sit down with your husband and develop a budget if he doesn't have one already.