Bigger Family, Bigger House

Nick and his wife are completely debt-free. They rent and have a combined $130,000 income. They will need more space. What should their next step be?

QUESTION: Nick in Denver just found out his wife is pregnant. They are completely debt-free, and they’ve been maxing out their retirement accounts. They also have $25,000 in their emergency fund. His wife is considering not returning to work after the baby comes. They rent and have a combined $130,000 income. They will need more space. What should their next step be?

ANSWER: Just stop retirement as a temporary thing. Not for eight years or something, but for just a couple of years while you pour on the coals and meet a certain goal like a down payment on a house. That’s fine to do. There’s nothing wrong with that.

As far as her quitting, you guys have to make sure you can live on your income, so practice with that. The way to do that is to bank her whole income. You need to be very specific about it. Act like she doesn’t have an income and put her whole check in savings and then just live on yours. Practice that, and if you make a home purchase, you still have to do that with the house payment.

But as far as saving up her entire income for nine months toward the down payment and/or stop investing as a temporary thing, I’m all right with that. It won’t throw you off that badly. Lots of people do that. We call that Baby Step 3b.

Baby Step 3 is you being debt-free, except the house, with a fully funded emergency fund. Baby Step 4 is 15% of your income into retirement. Before you get to Baby Step 4, after you’ve done the emergency fund, if you want to pause and save for a down payment on a house, with or without a baby on the way, that would be the time to do it. It is normal to not be saving for retirement for a short period of time while you do that.

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