I think you are doing great, just suffering a temporary cash flow issue. This is what the €35K is for, no point having that in the bank and only €20 in your pocket.
Pay off the car and credit card with you savings.
Track your income and outgoings for a couple of months to see where your money is going, really consider each outgoing, what works best for your family, what your savings and spending goals are for the year.
What is 2023 going to be like
Is the wife going back to work full time
How much will childcare increase/decrease
What months will be expensive - like Aug/Sept back to school.
How much do you want to spend on each birthday/baptism/anniversary/Christmas etc., and then plan for it. You might decide to spend €500 for each event or €20, but usually if it is planned the kids will love it, whether it is sandwiches on the beach or a day out to Fota.
What are you deducting from your salary before take home and can you afford that and running a family of 6.
I would stick with the €900K house, it probably suits your family size and you sound like it is in a wonderful spot.
It is very hard at your stage of life to save because you have a lot of outgoings and responsibilities.
What would look good is
1) Rainy day fund
2) Planned spendings and savings
3) A full understanding of your income and outgoings. This gives you control.
4) Then you can plan for mortgage reduction/pension/ additional income streams etc.
If you and your wife decide that holidays are important then plan and save for them, including spending money
If you prefer to spend on sport and kids activities then go for that.
You just need to decide what works for your family and then don’t spend money in areas that you don’t prioritise.