Hi all,

I've been reading posts in this forum for quite some time now, and I feel that my understanding towards financial responsibility is growing I have a 'situation' that I really need your opinion on. But before I get on to that, here's my current profile: 27 yo, married, has about $5K in 401k, about $600 in savings, 1 secured CC from CU (for $500 --current balance $50), 1 unsecured visa from another CU for $2500 (current balance $1500), a personal loan with $800 balance (pay automatically from checking acct at $274/mo). My DW is currently 7 mo pregnant with our first baby (she doesn't work). So my situation is, I just got a tax return for $2445, how do you think I should go about in distributing it?

My thoughts are: pay $500 towards my $1500 CC, $1000 to open a ROTH IRA account with vanguard (been wanting to do this for a long time), and that leaves me with about $945 as a backup for baby's delivery. After I open the ROTH acct, I'm planning to contribute $50-$100 a month into it. My current dillema is regarding opening a roth account (kinda now or never thing), paying CC balance and baby's delivery fund. Any ideas??

I applaud you for wanting to put money towards a Roth IRA, it's definitely a good idea. I opened mine last week with Vanguard, worked out fine. The contribution limit for '05 is $4K, so you're always free to put more per month in if you can.

My thoughts on your situation:
Rather than putting the tax money into a Roth IRA, I would do as much as you can to pay off your CC. Here's my reasoning: I'm assuming that the interest rate on your CC is higher than 11%, maybe a lot higher. If you pay off your CC and open an IRA a few months down the road, I believe you'll end up with more money in your pocket than if you continue to pay interest on your CC but fund an IRA right now. Save up the $1000 to open that IRA a little later this year. You could potentially even it out if your fund in your IRA actually appreciates more than your CC's interest rate, but with the market in a bit of a slump right now, that's doubtful.

Hang on to ALL of it for a few months until the baby arrives. Once the baby is here and OK then use the money to pay off debt. Contribute enough to your 401K to get all of the match and use any extra monthly income to pay off debt.
Once the baby is here and OK I would distribute funds as follows:
1: Have $1,000 in savings
2: Pay off the secured CC and the personal loan.
3: Use the rest to pay down the unsecured card.

Is there any possibility DW could do some work from home once everything settles down with the baby? What kind of work did she do before becoming pregnant?

BTW adjust your W4 for the new baby, stop giving the government an interest free loan !!!

I agree with 54 about holding on to it until the baby arrives. You never know what that will bring! I would hold off on the IRA b/c you don't have that much saved.
I don't know why 54 said that your wife should work, it doesn't sound like your debt is bad enough to have her work for it. I don't know if you are struggling or not. I think it is very important for at least one parent to be with the baby. Unfortunately we both have to work, but luckily our schedules are opposite and dh gets to stay home with dd T-F. She gets to be with grandparents on M and me Sa & Su. That is the best situation - although granted she is quite spoiled!
It is important to have IRA's, but you already have the 401K to start, but you need to have better savings for now before you do more.
I may be wrong there, but I know with us we only have dh's 401K and nothing else. This year I'm hoping to save more and then start a 401k or IRA for me (current co doesn't match - so probably IRA).

Notice I said work from home. I do belive one parent should be home with the baby if at all possible. If DW could do some eBay or crafts that could supplement income to help offset costs of the baby.

I wouldn't contribute to a 401K beyond the match until you have 3-6 months of expenses sitting in the bank. When life happens and there is no emergency fund in place guess what happens to the 401K?
Of course not gettign the employer match is just silly IMHO unless you can't pay minimums on bills.

Sorry 54 - I missed that part. It would be good to do that if she could. I haven't quite figured out how to be any good at anything from home and make good money! I keep hoping I'll come up with a bright idea though.

Thank you very much for all your opinions, I'm really taking each and every one into considerations As far as the personal loan or 401k I'm not that all worried because I've set up automatic payment/deposit for them each month (in 401k case, I make sure I make employee match by end of year). So, my conclusion so far in the order of importance is:

1. baby's (& DW's) need (hold off ALL until baby's born)
2. pay off secured & unsecured CC
3. savings (emergency funds upto 3-6 mo living expenses)
4. IRA (later after 3 is done)

54, I will definitely change my w4 asap, thanks for the reminder! DW was an architect before she was pregnant, but I think after the baby's born she's going to apply for the mom's job (24 hr-baby and I sitting ).

You might want to conside putting that cash into a short-term CD at your bank. That way it is still there for when the baby comes but it gets interest too.

Any way you could obtain a credit card with a 0% intro rate, for like 12 mo.? If so I would do that and BT all your cc debt there so you can save the money.
If that's not an option, I would consider paying off all cc debt first, then banking the rest.
I have another suggestion that no one has recommended, check into a good term-life insurance policy on both you and your wife. I believe you said you were in your 20's? It should be very cheap, get a 20-year level premium policy. Get the most coverage you can afford. If something were to happen to you, you need to be sure you leave enough for your wife to care for your child until at least age 18. If something were to happen to her, you will obviously need to hire full time help to care for the child and other responsibilities that go along with the "mom" job. It's a very important to make sure your family is protected. You want to make sure the child's financial future is secure from day one, and that if an unexpected loss of a parent were to happen, that it wouldn't result in financial hardship. Just something to think about.

Excellent point about the life insurance
If you are healthy, term insurance is the cost of a pizza once per month.