[USER]

Spouse and I are 31 & 27- making about $120k a year combined, with 3 young kiddos.

We purchased a car this year on which we owe $15k, a home last year, still owe $210k, $4k in credit card debt, $3k in student loans, $4k in a mandatory appliance loan we didn’t have the money for at the time (it was our cheapest option).

We planned to use our 2023 tax return on that appliance before it started accruing interest this fall but instead found out we owe $4k on taxes so that was a big failure.

I am embarrassed to admit we don’t have a savings anymore. It was all wiped out when we moved into our first home.

In theory/on paper, we make enough to be able to save and pay this stuff off slowly, but it seems like there’s just always something coming up we need to spend money on unexpectedly.

We don’t go on vacations, we don’t have a fancy car (only upgraded to get a third row), our house is modest for what it cost, we never buy new clothes unless it’s for the kids but even still try to put that stuff on their Christmas/birthday wish lists, myself and the kids usually share food out, we don’t buy ourselves anything fun, spouse works from home and watches kids because childcare is too much, all we do is pay bills and last minute things that come up.

I.e. this month it’s a funeral we have to drive 3hrs to get to and stay away from home, so there’s more eating out plus gas plus paying someone to watch our dogs. We’re so overwhelmed by our debt we want to just sell everything and move into an RV instead.

I thought about taking out my 401k to pay off the taxes, appliance (non-returnable), the credit card, put a little in savings- all the high interest items.

I’ve only had a 401k for 3 years due to job status.

I feel like this idea will be majorly frowned about in this group, so I want to explain my thought process.

The debt is so much stress on me right now (I’ve not ever had debt until the last 2 years- rented, paid cash for cars with tax return money, etc.)

I wonder why should I continue to live in a state of financial stress when I can leav a lot of the debt behind and play catch up on savings.

I can use the fresh start to then begin investing in something that will make us more money to make up for the 3 years of contributing.

I only contribute to a 401k now at 3% because that’s what my employer matches.

I know there are fees for withdrawing but I don’t know what that looks like at all.

Also, considering the state of the world right now, I have a lot of anxiety over potentially never seeing that money a day in my life anyway.

Is this another dumb thought/decision?

I am just overwhelmed. I’d love to reach FIRE but yikes, are we so far from it.

Thank you in advance for your kindness and direction.

[Suzanne]

you’re in the thick of things with small kids. FIRE will happen with financial discipline, it just takes a bit longer when you’re raising a family.

I see a lot of people using uncertainty about the future as a reason not to save – it gives them an excuse to avoid doing something that’s difficult now.

Change your mindset…

uncertainty about the future is more motivation to save, so you will be prepared.

A few things I notice in your post are suggested below …

these are small things that will move you in the right direction, cumulatively they could make a big impact:

1. You said you “never buy new clothes unless it’s for the kids”.

Start shopping consignment stores for kids clothes. There is fantastic stuff out there, and that could easily save you $1k+ a year.

I’m always surprised by how much kids clothing still has the original tags on it in a consignment store!

2. $4k appliance loan sounds like you bought new.

I don’t know what appliance it was, but used appliances (FB marketplace or Craigslist) are a great option. Washer, dryer, fridge, stove …

you can find functional appliances under 5 years old under $300 all the time.

Reframe your thinking, it’s not “what’s the best brand of washer?”, it’s “Where can I get an affordable appliance that will clean my clothes adequately?”

3. You and kids “share food” when eating out. You intended to share that you are being frugal, but *Don’t eat out* until your credit card and appliance loans are paid off.

Even just one meal a week at $75 per meal would pay off your credit card within the year ($75×52=$3900). You can still make fun evenings out of going

“out” as a family – pack a picnic and take it to the park, do a potluck with friends, etc.

4. It sounds like you’re sad about not taking vacations. Plan a staycation with your family.

Look up free and low cost things to do in your area.

Plan a scavenger hunt hike for the kids, find a nearby state park and spend the day “camping” (pitch a tent to play in even if you don’t spend the night).

Enjoy free outdoor concerts. Walk around at the local farmers market (bring your dogs if they are allowed).

Take a field trip with the kids to the Asian grocery store and let them pick out a type of fruit they’ve never seen before to sample.

Set aside 2 to 3 weekends a year to plan staycation activities, you’ll find that your vacation itch may be satisfied.

Lastly, DO NOT raid your 401k. Not only will you pay taxes on everything you withdraw, you will also pay a 10% penalty.

You are also robbing your self of money you will need in retirement.
The credit card debt and appliance loan are the two things you need to deal with.

That’s $8k… really not much in the grand scheme of things.

Make some sacrifices now, and you will have so much more breathing room once one or both of those is paid off.

The next time you need to make a purchase like a new appliance, consider going used instead.

If you must go new, really consider what is the minimum product that will meet your needs.

[Chauncey]

Instead of withdrawing from your 401K, can you temporarily discontinue contributions and use that money to start paying down your debts and creating an emergency fund?

It may be better to miss out on the 3% match for a while than to pay taxes and penalties on a withdrawal.

Not sure what your spouse’s work from home situation is, but if they are already taking care of your 3 kiddos can they take on another kid or two and earn some extra money providing day care services as a sort of side hustle?

Hang in there… you can pull through this. We are all rooting for you.

[JoNell]

The fees are a 10% penalty plus taxes at whatever bracket you’re in.

I know it’s not popular here but Dave Ramsey financial peace course for the getting out of debt saved me.

After that I’m more of a simple road to wealth girl.

[Dawn]

Don’t rob future you to make current you feel better. This is a phase of life where everything is going to be expensive.

You’re young, you have three little kids, and just bought a house.

Things are bound to be tight for a little while, but the debt will get paid off, your income will increase, etc.

Leave your 401(k) alone and just scrimp and save as much as you can until the debt is paid for

[Wendi]

There is a reason why you often hear the advice about not withdrawing your 401k money.

Once you factor in federal and state taxes and the 10% penalty, you are left with much less and it may actually end up being more than your interest rates once you add them all up.

Do you track your expenses currently? Can you shop any insurance (car, home) to see if you can get better rates.

Can either of you do a side hustle for a little while to help pay off some of the debt?

Can your spouse watch one additional child?

Can you rent out any part of your home (garage for storage, RV parking, sniff spot for your yard etc.)

Double check your w-4 to be sure you don’t end up in the same tax situation in 2024.

[Moore]

1. Make a list of all your expenses. Figure out where your money is going.

2. Make a budget. Add line items for expenses like clothes, activities, etc. even if it’s only $20.

3. Pay of debt (snowball, avalanche, carrier pigeon, etc. ).

4. Find ways to deal with emergencies in different ways (did everyone NEED to go to the funeral or could 1 person represent the whole family?)

5. Take a look back at your spending every month and make adjustments.

[Author]

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