Thirtysomething Finance

Personal Finance (and More) for People Like Us

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Archive for the ‘budget’ Category


Posted by Thirtysomething Finance on November 30, 2009

Hi, everybody! I hope you all had a great Thanksgiving! Mine was very relaxing, and I got to spend some great QT with my family, including my brother, who lives on the west coast and isn’t in town all that often. It was great!

So last Wednesday was my favorite day of the month: PAYDAY! I get paid once a month and have a payday ritual that involves Quicken and 30-60 minutes. In a nutshell, this is the day my budget goes into action. So my paycheck goes in, and here’s what comes out (after Roth 401(k), cell phone (which is ~$60), FSA (flex spending account) ($125 per month), and a small charitable contribution to United Way (though I’m planning to make my larger contributions next year to United Way because I can direct these contributions right to my desired nonprofits, but I do right by my firm because United Way is our pet charity — FTW — sorry for that tangent):

1st – $1,746.84 (30-year fixed mortgage)
1st – ~$185 (HELOC — changes slightly each month)
1st – $244.53 (condo fees)
1st – $139.47 (college loan)
1st – $119 (electric bill)
9th – ~$250 (0% credit card balance — I’ll explain that one in a later post — must pay 2% of balance each month in order to keep my interest rate at 0%, so the actual amount decreases by about $6 each month)
15th – $804 (law school loans – federal consolidated and private)
Before the end of the month: $9.53 (Netflix) + cable and internet (~$93) + water bill (~$28) + $100 (housekeeper)

Total “fixed” costs (sidestepping whether I can or should reduce or eliminate certain aspects of this (i.e., Netflix, housekeeper, cable and internet, electric bill, water bill): $3,719.37

Since I finished paying Social Security tax for the year (as I’ve discussed before), my paycheck each month usually comes to about $7,800 (again, after Roth 401(k), cell phone, FSA, and United Way). I normally aim to leave myself about $1,000 for the month to spend on food, entertainment, cabs, etc., which should leave me with $3,080.63 that I can use to put towards outstanding debt, savings, etc.

For purposes of background (and I swear I’m going to do a post on this in more detail in the future, I already have an emergency fund in the amount of $15,000, along with student loans (some that I’m in a rush to pay off, and some that I’m not), my HELOC, and my 30 year fixed mortgage. So at this rate, I should be able to put about $3,000 towards reducing debt each month, right?

Wow, this is depressing. This month, I’ll be lucky to put $1,500 towards debt reduction!

But why?

Any guesses?

Overspending on my credit card! One month it’s a gym membership. Another month, it’s certain medical stuff (long story — will tell you another day). This month it’s holiday bonuses to my assistant and doormen, a variety of charitable contributions, and my girlfriend’s birthday, which is dangerously close to the holidays!

While I can “afford” to make these payments each month (and I pay off my balance each month), I often find myself paying a good $1,000-$1,500 a month in credit card expenses. The other issue is timing — I make purchases from, say, the 28th of one month but then don’t pay the bill until the 26th of the next month. But when it comes to payday of the next month, I find myself skimping on my payments to debt reduction, which is a high priority of mine (how else am I going to get to sleep at night?) — so this is a big problem!

I think there are a few ways I can approach this problem:

1. Do I need to cut some discretionary spending?
2. Am I just not budgeting properly?

This is a topic I plan to address more in the future, but for now, I’m interested in knowing what you all think about these two questions. To answer my own questions, I think my problem is that (a) I’m not budgeting in enough detail and (b) I’m <b?not being realistic about some things. But another part of me thinks it’s good to set ambitious savings goals, even if they’re unrealistic, so that even if I don’t get all the way there, I’ll be pushing myself further than I might have otherwise.

Another question is how much you all spend each month on, say, food, entertainment, taxis (if you live in a city and don’t own a car…like me!), and miscellaneous other things that come up (like charitable contributions, holiday gifts, and other random things). And how do you budget for these sorts of things?

I’m really just interested in opinions here!

Posted in bills, budget, debt reduction | Tagged: , | 7 Comments »

The Optimal Budget

Posted by Thirtysomething Finance on November 19, 2009

I’d like to start by directing you to a post by J. Money, one of my favorite PF bloggers, at Budgets are Sexy. In this post, J. refers to a recent article by money guru Jean Chatzky regarding the optimal budget. Here is Ms. Chatzky’s optimal budget, with commentary by J.:

Housing: 35% This includes not just your rent or mortgage, but utilities, maintenance, taxes and insurance.

Transportation: 15% Again, not just your car loan, but the money to pay for gas, parking and upkeep, as well as any taxis or public transportation.

Other Debt Repayment: 15% Not your mortgage or car loan, but student loans, credit cards or other debts.

Savings: 10% Non-negotiable (includes retirement contributions)

Life: 25% This is everything else. Your clothing, travel, health care, fun.

As you can see from the comments to J. Money’s post, people fall on both sides of this optimal budget, and by varying degrees. Here is where your hero falls; as a preliminary matter, please note that the number to the left of the slash (not Slash) represents my percentage at this time of year, when I’ve earned more than the limit of earnings on which Social Security may be taxed (for more information, click here, but in a nutshell, you only pay federal Social Security tax on wages up to $106,800 in 2009):

Housing: 25.4%/27.9%

Transportation: 0% (I don’t own a car and don’t have a good record for what I spend on cabs — I guess that would fall under Life)

Other Debt Repayment: 32.8%/36%

Savings: 14.6%/16%

Life: 27.2%/20.1%

So how do we feel about this? Well, according to Ms. Chatzky, I’m doing pretty well. I’m paying less than her optimal budget would suggest for Housing (mortgage payment, HELOC payment, condo fees, and utilities, including internet and cable TV — I’ll debate whether cable TV is a Housing cost or a luxury or Life cost) and Transportation (again, we can sidestep the debate as to whether I should be factoring cab costs in as Life or Transportation), am putting more into Savings than she suggests, am putting a ton more to Other Debt Repayment, and am spending more or less what I should be on Life.

So why do I feel like I could be doing better?

Well, to start with, I’ll note that this is a major approximation, partially because I’ve run these numbers on an approximate monthly basis. The problem is, no two months are the same! And yes, that is a problem! At the end of 2009, I’m going to have to re-run these numbers to see how I did on an annual basis. Obviously, my percentages change in the months after I stop paying Social Security tax, but regardless, my monthly budget is never exactly the same, which some (including yours truly) might say is a problem in and of itself. Plus, I refinanced this year, which I suppose represents an additional Housing cost; however, that has freed up more money that should probably be going to Other Debt Repayment. And I put my tax refund towards Other Debt Repayment, for the most part, which would change the numbers on an annual basis. And I fund a Flex Spending Account and am not sure exactly where to factor in those dollars…and what about copays and prescriptions?

But I digress, and, for that matter, I’ve gone cross-eyed — thinking about this stuff makes me crazy sometimes and keeps me up at night! OK, deep breath. The blogosphere wasn’t built in a day, and there’s plenty of time to tackle these thoughts in future blog posts. And I’m back.

Next, if you examine my figures closely, you’ll notice that my percentages have changed, perhaps in an unfavorable or unexpected way, now that I’m not paying Social Security tax. In a perfect world, I’d put all of this “found money” (that I get once I stop paying Social Security tax) towards Other Debt Repayment — but in reality, my monthly percentage is lower than when I’m paying that money as taxes! My Savings rate drops a bit, but my Life percentage goes waaaaay up! This means I’m spending this “found money,” and this is a problem. I’m really going to need to tighten the belt!

One issue is that costs just come up sometimes, and it’s tough to always budget for everything. For example, I had a large doctor’s bill pop up recently, and I also re-joined my gym, which I hadn’t necessarily been expecting to do. Fortunately, I’m able to “afford” (i.e., not go into additional debt to pay for) these items, but the money has to come from somewhere — and based on my current budget, that somewhere is always Other Debt Repayment. But the less I put towards my debt, the further I am from financial freedom and being able to sleep at night!

One big problem that I must address is that after I budget for my necessary costs (i.e., Housing, Savings, regular bills, etc.), I’m left with a pile that I don’t really refine any further. For example, I don’t say to myself, “TSF, you are only going to spend $X on food this month, $Y on entertainment, and $Z on the unexpected things that come up.” Sometimes I run out of toiletries and need to pick some stuff up. Other times, a friend from out of town arrives unexpectedly, and we go out for dinner. I also like to take my girlfriend out on the town every once in a while! While I recognize that this is my problem (i.e., I need to set a limit and not reach into the cookie jar when I want to spend more money), I see this as a problem with Ms. Chatzky’s Life pile: it’s easy to have a catch-all category, but if you’re not setting specific limits on what constitutes that category and how much you spend on each subcategory, you can find yourself in trouble. Plus, when these “unforeseen” expenses come up, where does the money come from?

I’ve read a lot about Dave Ramsey’s envelope system, and it’s something I’m potentially interested in exploring. I’ve also read a lot about ING Savings Accounts that can be customized easily into various sub-accounts for various purposes (i.e., travel in March, wedding coming up in May, and maybe a general “unforeseen expenses” category separate and above an emergency fund).

And I’ve digressed again! If it were up to me (wait a tick, it is up to me!), here’s about how my budget would look on an annual basis:

Housing: 25%

Transportation: 0% (again, factoring cabs in under Life)

Other Debt Repayment: 40%

Savings: 15% (I max my 401(k), so whatever percentage that is of my annual net income…let’s call it about 15%)

Life: 20%

Of course the figures will be different at the end of this year because I refinanced my mortgage — so my monthly payment shrank, but I came out of pocket to shrink it. I’m sure there’s an accounting mechanism that would help me flesh this out, but I’m not an accountant!

Anyway, I will revisit this post later in the year to see how I did, and I hope to have some detailed posts in the future about where my money goes each month. I still have a lot of work to do in refining my own budget and yardstick, and I think the end of 2009 will provide a good time to sit down with a pencil and paper and crunch some numbers. But in the meantime, I’m interested in hearing what is your optimal budget, rather than how you measure up to someone else’s yardstick.

Posted in budget | Tagged: , , , | 1 Comment »