Two Additional Options for Our Mortgage Free Cash Flow

by Kevin on August 9, 2010

In my last post I told you we were looking for our next financial target after paying off our second mortgage. We’ve got free cash flow sitting around, and we need to point it toward a goal.

I wrote that we were considering bumping our “new to us” car timeline, and two other options. We’ll review those two other options. Maybe you’re going through a similar financial discussion in your household?

Option Two: Develop a “Wife Gets to Stay Home Once We Have Kids” Fund

We currently live a debt free life. We’re actually saving about 40% of our after-tax income every month. We have been very blessed to do this.

That having been said we would love for my wife to be able to stay home if and when we have kids. Even with living well under our means it would be a stretch. We would probably have to stop saving for all of our extra categories to make work.

Categories like retirement, kids’ future education, and our new car funds. Not exactly things you want to just cut out of the budget entirely.

This is proof that even though we live under our means we’ve still made choices that put us into a tough spot if we want to become a one-income family. Major expenses like our mortgage make that difficult, although one could argue that our mortgage is comparable to apartment rents in our area…

Nonetheless our goal is to one day let her stay home for at least 12 months with any children we bring into the world. Part of that would be covered by maternity leave from her work, and the rest would be on us. We could start banking that extra cash flow we have now for those (potentially) future dates.

Option Three: Develop a “Cover the Cost of Selling Our Home When We Decide to Move” Fund

You might be sitting there thinking, wait a minute, he just told us he aggressively paid down his second mortgage… why worry about the cost of selling the house?

The easy answer is I’m a nerd. At the end of the day it is six in one and half a dozen in the other. The money is being saved. That’s the important part.

We are considering moving in the relatively near future. Yes, we bought this house 3 years ago. Yes, it could be seen as a mistake. (More on that in a future post.)

I had a discussion with a close friend the other day. He used to run a business in the title and closing part of real estate during the boom. I picked his brain a bit on the costs of selling a house. I was a bit shocked. Even not counting the realtor commissions you are still looking at several thousand dollars in title insurance fees, a real estate attorney, etc.

Instantly my financial brain started turning. We would need to save up for these costs.

Sure, we could pay for the fees out of the proceeds of selling our home. But this is how it made sense to me. If we could save up for the home selling costs then the proceeds for selling were all ours. (You might also look at this way — we would pay the fees out of the proceeds and these additional savings would be additional down payment funds for our next home.)

How to Decide Our Next Financial Move

Again at the end of the day it amounts to putting a name tag on our savings money. Whether we call it car money, wife staying at home money, or covering the cost of selling our home money it’s still money. It’s still sitting in one of our accounts earning interest. And we’re still using it for our purposes.

The issue I want to stress here is that we are actively thinking and planning where our money is going to go. If you don’t tell it where to go, if you don’t give it a name… it will spend itself. Our society makes it far too easy to spend money to just go about it without thinking. So we think. We plan. We budget.

We’ll end up doing a lot of praying, but for now the money will probably just be lumped together. I’m not a big fan of moving up our “new to us” car purchase unless one of our other vehicles dies. The other two options are more contingency funds for those specific issues. We’ll cross those bridges as we get closer to those situations.

{ 4 comments }

Tracy August 10, 2010 at 1:59 pm

Developing a plan is good for peoples’ financials the only real problem is how often do things go accordingly to plan. It’s always good to have a lay-out and ideas but plans lead to no flexibility.

Golfing Girl August 10, 2010 at 2:23 pm

Remind me, how is your retirement funding factoring in? We were saving 25% in retirement funds (between 401K and Roths) before kid #2 came along. We figured we could always scale back when I stayed home when #2 came along because we had done such a good job in the early years (you know, the old “it’s better to put in less earlier than trying to put in more later” argument). Once I decided to stay at home, we scaled back to the matching 401K for my husband and are hoping to max out the Roths if we don’t tap into the emergency fund.

Kevin August 11, 2010 at 9:56 am

We’re maxing out a Roth IRA for each of us, I do enough to get my pitiful match at work, and my wife’s job has an automatic deduction from her check each month.

We’re doing everything we can to hold on to keeping those investment contribution levels where they are. I’ve run our retirement numbers assuming a 7% return (hopefully very conservative) and we need to be at our current levels to retire comfortably.

Of course forecasting 30 years into the future is quite difficult.

Budgeting in the Fun Stuff August 12, 2010 at 11:41 am

I like both goals and think that saving in a fund for either is a win. I also love the fact you are geeky enough to think of selling costs for your home – I do that too and we aren’t planning to move for 8-10 years at least…

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