Budget Advice

[NuggetBrain]

It's been a while since I've been on here, but the last year and a half has been a little crazy and now that things are settling down I'm re-evaluating our budget. Basically, we bought a house that we are still sinking some money into, I lost my job in May and was just hired for a new position starting July 17th (I've been working at a temp job for the last five weeks and that will go until the week before I start my new job). We are both 32, no kids and no plans to have any. Budget details are below:

TOTAL INCOME: $5,040 per month
H contributes 3% to 401k with match from employer, plus employer has 12% profit sharing deposited each year. My new job will be union, so I will have a required 5% deduction into the state pension/retirement system each month.

SAVINGS: $100 in car fund, $225 in e-fund, $2,200 in general savings.

MONTHLY DEBTS:
First mortgage: $1,288 (30 yr, $208,000 @ 3.785%)
Second mortgage: $300 ($26,000 @ 5%)
Car insurance: $175
Life insurance: $43 ($200k each)
Water: $40 (paid quarterly)
Garbage: $30 (paid quarterly)
Electric: $175
Student Loan: $87 (about $4k at 2.2%, not in a rush to pay this off)
Motorcycle Loan: $114 (not sure on balance and interest, I think it's at $4,200 and 6%)
Furniture loan: $108 ($2,465.06 @ 0%, expires 1/1/2015)
Netflix: $17
Internet: $65
Cell Phones: $161
My hair: $45
Gas: $200
Groceries: $350
Dining Out: $350
Fun Money: $300
Misc: $80 (gifts, H's haircuts)
Car Repair Fund: $60
E-Fund: $100
TOTAL EXPENSES: $4,088 per month

Left over: $952 per month

For the next few months we are funneling that $952 into house projects and furniture but we will be done with all the must-dos by this fall. Also, H gets an annual bonus of around $5,500 each December after taxes and we are going to use the one this December to pay off the motorcycle loan. Then going to roll that money towards paying off the 0% loan so that will be paid off by the end of next year. Also, we're looking into getting new phones since our contract is up and hope to drop it down to about $100 for the both of us with data.

After December, we're planning on putting the full $950 away into funding our e-fund, and letting the three paycheck months and his annual bonus fund vacations/house stuff/etc. I know we can probably trim the fat in some places like fun money and food, and we will re-evaluate at the end of the year in regards to that. Anything else I'm missing/overlooking/suggestions?

[scfr]

Congratulations on your home purchase. Homes require upkeep. You will probably want to start a budget category for home repairs, appliance replacement, etc.

Other items that may be missing from your budget:
Medical/Dental/Vision
Annual Fees such as vehicle tags & inspections

Please think very seriously about increasing your retirement savings, whether through increased 401K contributions or funding IRAs. Without knowing the details of your pension, it looks like you may not be saving enough.

Regarding the plans to purchase more furniture and home projects, personally I would hold off on new purchases and any home projects that are cosmetic in nature until the furniture and motorcycle loans were paid off, and until the other items mentioned above were taken care of. Even if it meant sitting on folding lawn chairs and sleeping on a mattress on the floor, that's what I'd do.

[NuggetBrain]

Congratulations on your home purchase. Homes require upkeep. You will probably want to start a budget category for home repairs, appliance replacement, etc.

Other items that may be missing from your budget:
Medical/Dental/Vision
Annual Fees such as vehicle tags & inspections

Please think very seriously about increasing your retirement savings, whether through increased 401K contributions or funding IRAs. Without knowing the details of your pension, it looks like you may not be saving enough.

Regarding the plans to purchase more furniture and home projects, personally I would hold off on new purchases and any home projects that are cosmetic in nature until the furniture and motorcycle loans were paid off, and until the other items mentioned above were taken care of. Even if it meant sitting on folding lawn chairs and sleeping on a mattress on the floor, that's what I'd do.

The "misc" category is rolled into a slush fund each month if it doesn't get used (or the remainder of what's left over). So that would be the annual fee bucket (which is just vehicle tags, we usually come out even at tax time). Medical/dental/vision is paid through employers from gross pay and copays would come out of the "misc" category too (no medical issues or monthly medications besides my birth control which is now free). Also, this was a complete gut job so the interior of the house and all appliances are completely new, and electrical/plumbing/water heater/furnace/roof was reviewed and given the OK. Might want to replace the air conditioner in a few years but that's strictly a want (would get a newer one).

As far as retirement, I am planning on increasing my contributions but don't want to do more into the pension as I don't really trust it will be there, so I'm looking at setting up an IRA. H is set up to automatically increase by 1% each year until he hits the full match of 6%.

Since the furniture loan is 0% and has another full year and a half on it we are not in a rush to pay that off real early. We have the money set aside right now in savings to do so, but I just don't see the point in paying off a "smaller" amount at 0% interest a year and a half ahead of schedule. Rolling the motorcycle loan payment over to that card will still have it paid off 4 months early.

[bjl584]

Shop around for auto insurance. It seems high (but I don't know where you live. Rates vary greatly by location.) But, mine in half what you pay.

You may want to increases Husbands 401K contributions. The goal should be to get up to 10% eventually.

Other than that you seem to be doing just fine. Good job.

[disneysteve]

Congrats on the new house.

To be honest, I think your priorities are out of whack. You have a lot of luxuries and fat in your budget at the same time you have only $225 in your EF and are contributing only 3% to retirement. You can "afford" $650 for dining out and fun but can only scrape up $100 to beef up your EF. I'd suggest flipping those categories - $650 to the EF and $100 for fun. Plus you have Netflix which is really part of that fun budget too.

As for furniture, you already took that loan but I certainly wouldn't be spending anything else at this point. If there is something you truly need, yard sales and craigslist should be your best friends.

I also think you may be underinsured. Do each of you have 8-10 times income? It doesn't sound that way.

[NuggetBrain]

Brian - we did some shopping around for auto insurance earlier this year and most of the rates we got back were a little higher. H has some speeding tickets that will be dropping off this year so hopefully that will bring it down.

Steve - Our savings were pretty wiped out with the house and updating it. I fully realize that the $225 looks pathetic, however in a few months we will be putting over $1,000 a month towards the EF so that $100 per month is only to get us in the mindset of starting one. We will absolutely not be keeping the contribution to that as low as it is. Once we've got a fully funded e-fund of 6 months we'll transition that amount into some mutual funds or another form of long-term savings.

H's retirement is 3%, with a 3% match and 12% contribution from his employer. Which means he's got 18% going into retirement, and is on track to have 24% within 3 years by upping 1% a year to the 6% match max. I'm not sure what more you want him to be contributing as I thought 24% was pretty good. Obviously, yes, his employer could take that away and if they did we would re-evaluate the budget to fix the lacking retirement.

I didn't know the standard for life insurance was 8-10 times annual salary. We aren't anywhere near that. That would be $525k minimum for him and $300k minimum for me. We will look into raising the amounts.

[LivingAlmostLarge]

I would up his 401k immediatelyy to 6%. Then I would divert from the $2200 savings where is that going by the way? To the EF. Then head that off immediately to your retirement savings till you save 15% of your salary, so 10% to an IRA.

Why aren't you maxing out the 401k to the match if you are savings $2200/month?

[NuggetBrain]

I would up his 401k immediatelyy to 6%. Then I would divert from the $2200 savings where is that going by the way? To the EF. Then head that off immediately to your retirement savings till you save 15% of your salary, so 10% to an IRA.

Why aren't you maxing out the 401k to the match if you are savings $2200/month?

We aren't saving $2,200 a month. That's what is in our savings account right now total. If we go with the budget above we'd be saving $952 a month and after finishing the house projects we are in the middle of (new gutters and some minor landscaping that is needed after pulling out trees that were growing into the foundation) that $952 will be going into the EF. We can wait on the furniture purchases we'd like, but they ARE things that need to be purchased so we will have to look at them for next year.

I will discuss upping his retirement with him tonight to the full 6%. We are looking for ways to reduce our taxable income anyways as we are right on the border of the lower tax bracket.

[ESMonitor]

My first post

I read over your budget. With budgets there comes a point to where you have decide "cost/benefit" with the term "live a little". I would -

cut out some of eating out, fun $ and apply that money to the motorcycle and student loans.

I saw money budgeted for gifts, but I didnt see one dollar allocated to charity. You can be a Partner in Hope for St Jude or sponsor a kid in 3rd world country through UNICEF each for just $20 per month, money can be drafted. It's important to give back.

Lastly, I would say put your budget in an excel spreadsheet and update daily, do most of your purchases with plastic, with cash purchases you have to keep track of receipts.

Capital One card I use as a sweep account for the rewards. I bought $178 pair of fitted shoes with inserts and socks from Fleet Feet Sports, but used $100 card reward to make purchase fit my budget. Also didnt see any $ budgeted for clothes/shoes in your budget. I pay card balance with debit once a week. It's like giving yourself a $300 annual bonus.

[disneysteve]

Steve - Our savings were pretty wiped out with the house and updating it.

Your EF shouldn't have been wiped out by the home purchase, but that's even more reason why what I said earlier applies. You need to rein in the spending. Over $650/month for fun when you have no EF and several debts just seems backwards to me.

When my wife and I bought our house, we lived really lean for quite a while. We had a bunch of hand-me-down furniture, yard sale finds, and even some items rescued from the curb. We were here for a few years before we got a bedroom set, and that was a gift from my mother.

Call me crazy but I'd put rebuilding the EF and getting out of debt ahead of eating out and fun. Not to say you should never eat out or have any fun but $650/month on your budget is a lot.

[MonkeyMama]

Life insurance: $43 ($200k each)

Two thoughts on the life insurance:

1 - IT seems expensive - I would shop around on that too.

2 - Looking at your budget, I can see why you have the life insurance. But, if it's just about enough to pay off your mortgage, I think it's pretty reasonable. ($250k might serve you better with your debts). Sure, "10 times income" is the rule of thumb, but is way overkill for many people. IF you are both working and have no plans to have children, you may have little need for life insurance in the long run. {The only reason we even have life insurance is for our children. This is coming from a place of not relying on each other financially and not needing two incomes to pay our mortgage. Your experience may fall somewhere in the middle}.

[NuggetBrain]

Your EF shouldn't have been wiped out by the home purchase, but that's even more reason why what I said earlier applies. You need to rein in the spending. Over $650/month for fun when you have no EF and several debts just seems backwards to me.

When my wife and I bought our house, we lived really lean for quite a while. We had a bunch of hand-me-down furniture, yard sale finds, and even some items rescued from the curb. We were here for a few years before we got a bedroom set, and that was a gift from my mother.

Call me crazy but I'd put rebuilding the EF and getting out of debt ahead of eating out and fun. Not to say you should never eat out or have any fun but $650/month on your budget is a lot.

Our savings, not our E-fund. We didn't have an E-fund, which is why we started auto-saving the $100 a month to get us into the habit. Then I lost my job and we put it on hold for a few weeks. I know that folks on here are pretty conservative but I'm comfortable right now with saving 18% of our income to build an e-fund and having it upped to 20% by the end of the year. Like I said, I will re-evaluate our fun money/dining out once I see were we are at after a few months because we may not be where I want to be at with debt repayment/retirement and will have to trim the fat.

[NuggetBrain]

Two thoughts on the life insurance:

1 - IT seems expensive - I would shop around on that too.

2 - Looking at your budget, I can see why you have the life insurance. But, if it's just about enough to pay off your mortgage, I think it's pretty reasonable. ($250k might serve you better with your debts). Sure, "10 times income" is the rule of thumb, but is way overkill for many people. IF you are both working and have no plans to have children, you may have little need for life insurance in the long run. {The only reason we even have life insurance is for our children. This is coming from a place of not relying on each other financially and not needing two incomes to pay our mortgage. Your experience may fall somewhere in the middle}.

Thanks, H and I were just talking about LI last night. We're going to look around, this policy is term until we're 80 but we would like another $100k each just to fully cover the house and any unexpected issues that could arise if one of us passes away.

[MonkeyMama]

Thanks, H and I were just talking about LI last night. We're going to look around, this policy is term until we're 80 but we would like another $100k each just to fully cover the house and any unexpected issues that could arise if one of us passes away.

Oh maybe that is why the cost. 20 year or 30 year term policies are generally much cheaper, and are more common. Maybe you would want to get a 30-year term policy just to cover the mortgage and debts. WE all hope to build savings, assets, net worth, and to pay off our debt and to not need an insurance policy by the time we are 80. (Heck, I am hoping not to need life insurance past age 45. My kids will be grown by then).

This may be obvious, but if you replace insurance, don't cancel the old insurance until you get the new insurance.