Budget Advice/Newbie

[disneysteve]

I do. I get a pension PLUS I am in a 403B where I contribute 5% and employer contributes 15%. The 403B is in addition to my pension.

So are you only contributing 5% of your income to your retirement?

I believe that the recommendation to save 15% for retirement is for two reasons. The most obvious reason is that it takes that much to save enough to retire comfortably. The other reason, which isn't often stated, is that it forces you to live below your means since it means you live on 85% of income. In your case, you're living on 95% of income. The more of your income you are accustomed to living on, the more you'll need in retirement to maintain your lifestyle.

Personally, we save at least 23% of my income so we've built a lifestyle that we can afford on 77%. When retirement rolls around, we won't need to replace as much in order to be comfortable, which means our nest egg can be that much smaller and we'll still be okay.

Just something to think about.

[phantom]

So one year of variable expenses then as we spend then replenish.

How does one manage replenishing?

You should be setting aside money for your variable expenses every month, constantly, no matter what you spend. This is how I might do it using some of the categories you gave:

1. Pick a bank account to use for holding money for variable expenses.
2. Start a spread sheet that lists all of your categories.
3. Once per month, move enough money into this account for all of your variable expenses.
4. Update your savings account to indicate that you have allocated some money for each category. Something like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Total:       174     167       200      167

5. As you spend money during the month, pull it out of the bank account and update your spread sheet. If you spend $100 on something fun for the kids, $30 on new shoes, and $10 on new socks, it should look like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Total:        74     127       200      167

6. At the start of the next month, add more money to your savings account and update your spreadsheet, like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Additions:   174     167       200      167
Total:       248     294       400      334

7. Deduct your money as you spend it again. Note that this time your are equipped to handle bigger expenses. So, if you need a $300 car repair, your spreadsheet can look like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Additions:   174     167       200      167
Deductions:    0       0       300        0
Total:       248     294       100      334

Personally, I think this is a good way to manage pocket money, clothing, gifts, and hair, because while those categories do vary a bit, they're fairly predictable and controllable, and they don't really vary much. So, it's easy to keep the money that you have set aside for them low and consistent. If you ever find yourself running out of money in those categories, you can either cut back on your spending in them or you can find ways to allocate more money. If you ever find yourself building up too much money in them, you can feel free to spend more or cut back how much you allocate for them. If you're setting aside the right amount of money, the balances in those categories should stay around $0.

I do not think this is such a good way to manage car maintenance, house maintenance, and medical expenses. Those expenses tend to be unpredictable and uncontrollable, and they can vary a great deal. I think it's better to handle those sorts of expenses out of an emergency fund. Exactly how much money you want to have in your emergency fund will depend on a lot of factors. Typical suggestions range from 3 months to 1 year worth of expenses (variable and fixed combined). But, it comes down to how much money you need to have in the bank to feel comfortable. First, figure out the minimum you need in your emergency fund to feel comfortable. Then, figure out the max you can have in your emergency fund before it feels excessive. Plan on always having room in your budget to contribute to your emergency fund. If you build up enough money that your emergency fund feels excessive, consider putting the money towards other uses. If your emergency fund drops bellow the point where you feel comfortable, look for places you can cut back and contribute more towards your emergency fund.

[macher]

You should be setting aside money for your variable expenses every month, constantly, no matter what you spend. This is how I might do it using some of the categories you gave:

1. Pick a bank account to use for holding money for variable expenses.
2. Start a spread sheet that lists all of your categories.
3. Once per month, move enough money into this account for all of your variable expenses.
4. Update your savings account to indicate that you have allocated some money for each category. Something like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Total:       174     167       200      167

5. As you spend money during the month, pull it out of the bank account and update your spread sheet. If you spend $100 on something fun for the kids, $30 on new shoes, and $10 on new socks, it should look like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Total:        74     127       200      167

6. At the start of the next month, add more money to your savings account and update your spreadsheet, like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Additions:   174     167       200      167
Total:       248     294       400      334

7. Deduct your money as you spend it again. Note that this time your are equipped to handle bigger expenses. So, if you need a $300 car repair, your spreadsheet can look like this:

Category:    Pocket  Clothing  Car Ma.  House Ma.
Additions:   174     167       200      167
Deductions:  100      40         0        0
Additions:   174     167       200      167
Deductions:    0       0       300        0
Total:       248     294       100      334

Personally, I think this is a good way to manage pocket money, clothing, gifts, and hair, because while those categories do vary a bit, they're fairly predictable and controllable, and they don't really vary much. So, it's easy to keep the money that you have set aside for them low and consistent. If you ever find yourself running out of money in those categories, you can either cut back on your spending in them or you can find ways to allocate more money. If you ever find yourself building up too much money in them, you can feel free to spend more or cut back how much you allocate for them. If you're setting aside the right amount of money, the balances in those categories should stay around $0.

I do not think this is such a good way to manage car maintenance, house maintenance, and medical expenses. Those expenses tend to be unpredictable and uncontrollable, and they can vary a great deal. I think it's better to handle those sorts of expenses out of an emergency fund. Exactly how much money you want to have in your emergency fund will depend on a lot of factors. Typical suggestions range from 3 months to 1 year worth of expenses (variable and fixed combined). But, it comes down to how much money you need to have in the bank to feel comfortable. First, figure out the minimum you need in your emergency fund to feel comfortable. Then, figure out the max you can have in your emergency fund before it feels excessive. Plan on always having room in your budget to contribute to your emergency fund. If you build up enough money that your emergency fund feels excessive, consider putting the money towards other uses. If your emergency fund drops bellow the point where you feel comfortable, look for places you can cut back and contribute more towards your emergency fund.

Wow thanks for this extensive post!

So what you're saying is if my variable expenses are. $1046/ month, keep adding $1046/month.

[goodman2]

create weekly budgets

Seeking help is the wisest thing to do. I am sure you have had a wealth of advice from this forum. You are paid weekly and there are 52 weeks in a year so I think you should budget for the 52 weeks that is weekly. You should also try to save some money each week. The first thing to do is to sit down with your wife and create a budget. Doing this on paper may be tedious so I think you should try to use software. Boachsoft Finance 2012 or the like is an option you should try. Once you have a budget in place try to stick to it.

Every few weeks sit down with your wife and evaluate how your expenses have gone. Assess whether you are sticking to your budget or not and try to make the necessary changes.

Each week the money you save should be invested. There are many people out there looking for loans which they would pay back with interest so you shouldn't let your savings sit idle. Talk to your banker or investment advisor and invest your savings so that your savings would grow.

There is an article on keeping track of personal finances at blog dot boachsoft dot com and I think you should read it.

I think this would be helpful

[phantom]

Wow thanks for this extensive post!

So what you're saying is if my variable expenses are. $1046/ month, keep adding $1046/month.

I wanted to be clear, so I hope it made sense.

Yes, I would keep setting aside enough to cover your variable expenses, so $1046. As long as your spending stays inline with your budget, that should ensure you always have enough to cover everything.

[macher]

I wanted to be clear, so I hope it made sense.

Yes, I would keep setting aside enough to cover your variable expenses, so $1046. As long as your spending stays inline with your budget, that should ensure you always have enough to cover everything.

Thank you for more clarity. I included 5% of income towards savings each month. My net income ready reflects 15% towards retirement and also have an employee paid pension.

Now adding to the 'expense fund' I got. Im my case $1046/month.

As I said in another post we have $7000 total in a savings account. I was thinking about taking $1046 of that and put that in a separate account for expense fund then keep adding $1046 to that account. This gives us about $6000 left over.

Maybe this $6,000 plus adding 5% income per month is a emergency fund?

What other funds should we have? Or are we good?