Author Topic: Looking for advice on my budget and progress so far  (Read 3184 times)

cardshark

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Looking for advice on my budget and progress so far
« on: July 08, 2013, 08:30:39 AM »
Looking for advice on my budget and progress so far. Background: I started to take better control of my finances about 6 months ago. I had about $40,000 in consumer debt (student loans, credit cards, etc.) that I paid off completely. I could go into more details about how I had accumulated that much debt (student loans, bad money management, etc etc) but it seems kind of pointless as I have moved on and am not the same person, financially speaking.

I'm looking for any advice you might have. I am open to any suggestions!

Income after taxes and retirement savings: $4,700/month

Recurring monthly expenses. This list is complete, nothing has been left out.
  • Rent: $1,495
  • Electricity: $87
  • Tenant Insurance: $28 (required by my lease)
  • Life Insurance: $121 ($85 of which is for whole life, the rest term)
  • Critical Illness Insurance: $33
  • Car Insurance: $8
  • Student loan payment: $96 (Outstanding balance $584 in student loans at 3.50%. I have tried repeatedly over the past 6 months to pay off this small balance in full but the bank does not return my calls. Not the end of the world as the interest I pay on this student loan is tax deductible. Will disappear around the end of this year.)
  • XM Radio: $19
  • Internet: $50
  • Cell phone: $40
  • Netflix and Hulu: $13
  • Spending allowance: $1,000 (any other expenses, such as food, clothes, gas, haircuts, etc. comes out of a this allowance that I give myself. Any surplus left at the end of month goes to savings rather than carrying forward to next month)
Total: $2,990/month

Savings
  • Retirement savings: 18.3% of gross pay (works out to about $1,250/month, this amount is netted out of the income presented above)
  • Emergency savings: $1,500/month (Goal: 6 months in living expenses. Once goal reached, the $1,500/month will be allocated to retirement savings, tax sheltered, allowing me to reinvest the ~$500/month tax savings )
  • Other savings (planned upcoming expenses such as wedding gifts, Christmas, etc.): $200/month

Lifestyle choices
30 years old, in a relationship, no kids (none in the planning). I walk to work. Car is used only for weekend runs to the grocery store or to visit friends and family who aren't within walking or transit distance. Car is fully paid off. Health and dental is provided through our employers. I have a 2% cashback credit card that I use for most of my spending.

Assets All investments are in 100% equities, except for the emergency savings which earns 1.1% in a savings account
  • Retirement savings 1: $20,600 (cannot touch until age 55)
  • Retirement savings 2: $1,600 (taxable if cashed in)
  • Retirement savings 3: $12,500 (cannot touch until age 55)
  • Emergency savings: $3,300

Debts
  • $584 in an outstanding student loan (see above), no other debt.

mlipps

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Re: Looking for advice on my budget and progress so far
« Reply #1 on: July 08, 2013, 08:49:56 AM »
Why do you have life insurance at all if you're not married & have no dependents? Let alone the rip off that is whole life. I'd cut that immediately. I'd also start being more specific about the $1,000 spending "allowance". I get that you're covering a lot with that, but it's so nebulous it's impossible to know what you could cut there.

cardshark

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Re: Looking for advice on my budget and progress so far
« Reply #2 on: July 08, 2013, 09:05:35 AM »
Re: life insurance. That's a good question. I previously owned a condo with a mortgage, so I looked to purchased 20 year term life insurance rather than use the bank's mortgage insurance. I was 23 years old at the time and in excellent health. After the required medical exam, I was told I qualified for a nice discount on the premium rates. I decided to lock in the discounted premium rate for life by buying whole life insurance. While I may not have a need for the whole life insurance now, when I am older this insurance policy will help with my estate planning. I live in Canada, where there are big tax advantages associated with life insurance with respect to estate planning.

I no longer need the term insurance as I sold the condo and am mortgage free.  However, the premiums are relatively cheap so not sure it's worth cancelling?

Can you elaborate as to why whole life insurance is a rip off? I would agree that universal life is a rip off, but whole life I would think is the best insurance one could buy, especially if you buy it when you are young and in good health.

mpbaker22

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Re: Looking for advice on my budget and progress so far
« Reply #3 on: July 08, 2013, 09:14:17 AM »
My apologies if I missed any of this in the post. 
Where do you live?  The rent seems extraordinarily high unless you're in NYC or the like.

Do you only use XM in the car?  I personally would cut it either way.  If you only use it in the car, I'll tell you to cut it.  There are too many worthwhile podcasts to pay for XM.

The life insurance seems pointless.  Idk a lot about life insurance plans, but they're obviously a net loss, so only useful if you don't have enough to support your family if you die.  Not applicable to your situation.

Critical Care insurance - does your insurance not cover something you need covered here?
car insurance - holy shit, well done.
You're not going to get very far until you split out the $1,000 miscellaneous fund.

The big ticket items get you the most bang for the buck, but you've already cut most of them pretty far, except rent.

mlipps

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Re: Looking for advice on my budget and progress so far
« Reply #4 on: July 08, 2013, 09:15:23 AM »
Here's a good explanation, although I don't know enough anything about Canadian estate tax law to know how it changes the answer. I suspect it's not much of a difference. Basically, for the fees you pay up front, it's not worth while. Insurance should not be an investment.

http://whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it/

And here's a good post on Bogleheads (great investing forum) recently, debating the merits of term life at a young age to lock in low rates:

www.bogleheads.org/forum/viewtopic.php?f=2&t=119104

However, if you don't plan on having kids, I can't see why you would ever need insurance, unless your significant other doesn't work at all. If you pass away & have a mortgage on your house where you significant other lives alone, he or she could just sell the house. If you don't have a mortgage, I see even less of an argument for it, unless, again, your SO doesn't work & you're his/her sole source of income.

MsSindy

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Re: Looking for advice on my budget and progress so far
« Reply #5 on: July 08, 2013, 09:25:29 AM »
You'll need to be a little bit more specific about your goals - what is it you're trying to achieve?  How aggressive do you want to be?  It makes a difference if you tell us you're happy with life and you'll get to FI within 20 years and be satisfied, or you really hate your job and can't wait to get out, and therefore what's the quickest, most badass approach.

The big bucket of $1000 per month seems like the place to inspect.  Assuming you're buying groceries for 2, you could easily spend around $500 with no hardships - that means you have another $500 PER MONTH going for eating out, clothes, and other personal expenses - that seems like a likely place to cut.  If that's only for 1 person (plus dating expenses), then, YIKES!

I'd also consider why you need 6 months of an emergency fund?  How real is the possibility that you'll be laid off?  That seems to be the only situation where you would need to get your hands on some cash - with your income/savings rate all other "emergencies" could be handled within a month or two of savings.

The $200 per month on gifts seems like a lot, but that's a matter of personal preference.  Again, depends on how aggressive you want to be and what your goals are.

cardshark

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Re: Looking for advice on my budget and progress so far
« Reply #6 on: July 08, 2013, 09:53:30 AM »
Thanks for the suggestions everyone. I really appreciate the time you took to respond.

My apologies if I missed any of this in the post. 
Where do you live?  The rent seems extraordinarily high unless you're in NYC or the like.

Do you only use XM in the car?  I personally would cut it either way.  If you only use it in the car, I'll tell you to cut it.  There are too many worthwhile podcasts to pay for XM.

The life insurance seems pointless.  Idk a lot about life insurance plans, but they're obviously a net loss, so only useful if you don't have enough to support your family if you die.  Not applicable to your situation.

Critical Care insurance - does your insurance not cover something you need covered here?
car insurance - holy shit, well done.
You're not going to get very far until you split out the $1,000 miscellaneous fund.

The big ticket items get you the most bang for the buck, but you've already cut most of them pretty far, except rent.

Re: rent, I work downtown and did not want to commute nor pay the costs associated with commuting, so I rented a condo about a block away from my work. Average rent prices in my city are $1,100 for a 2-bedroom apartment. I don't have stats on downtown specifically, but its probably an additional $200 - $300 per month.

XM is only in the car. I got it to help make road trips a bit more bearable. I had to make a few out-of-town trips this year (weddings, visiting family, etc.) that were pretty long 4 to 6 hour car trips. I hardly drive otherwise, so admittedly when I am not on a road trip, this is not money well spent.

I understand your point on the insurance. You are right, I do not have a need for this insurance. I don't even have a foreseeable need for this insurance in the future. Mlipps, thanks for your links. I understand where you are coming from now. I am leaning towards terminating the term life policy. I want to crunch some numbers to see if it makes sense to also terminate the whole life policy (I am 7 years into now, at some point time, as pointed out in Mlipps first link, you've paid so much into it that it makes financial sense to keep it.) For the critical insurance, it would cover a year of my pay if I got sick. I think I will cancel this too when my savings grows enough to the point where I can self-insure a year off from work.

mushroom

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Re: Looking for advice on my budget and progress so far
« Reply #7 on: July 08, 2013, 10:14:04 AM »
XM is only in the car. I got it to help make road trips a bit more bearable. I had to make a few out-of-town trips this year (weddings, visiting family, etc.) that were pretty long 4 to 6 hour car trips. I hardly drive otherwise, so admittedly when I am not on a road trip, this is not money well spent.

Just plan ahead for your trips and borrow free audiobooks from the library, download free podcasts you like, etc.