Author Topic: Case Study: Recommendations for cutting down expenses for new mustachian  (Read 6232 times)

juniormonkey

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Hello!

I am relatively new to the MMM bandwagon (came across this 4-5 months ago). Prior to that I was stupid with money, to put midly. Since then I have stopped the bleeding and followed the implemented the standard advice - max out 401k, HSA, backdoor ROTH etc. I now want to tackle my monthly expenses and am looking for advice on what areas to cut down on. I am sure a lot of the stuff I have laid out below looks ridiculous to folks out here.

Life Situation:
I am 27y old. Wife is 26. We file tax jointly.  All the information listed below is our combined data. We are residing in Seattle, Washington. No other members of household.

Loans
Principle Remaining
Years Left
Rate
Student Loans:$30,000204%
Car:$13,00042.2%
Total:$43,000

Assets
Car:
$25,000
(2015 Mercedes CLA250. Value according to KBB)
401k:
$65,000
HSA:
$7,000
Taxable:
$15,000
Cash:
$25,000
Total:$137,000

Category
Monthly
Annual
Comments
Combined Gross Salary
$22,500
$270,000
Contribution to 401(k)
$3,000
$36,000
Employer matches 50%
Contribution to HSA
$500
$6,000
Employer contributes $2k
Total Pre-Tax Deductions
$3,500
$42,000
Taxable Earnings
$19,000
$228,000
Federal Income Tax
$3,464
$41,568
Social Security Tax
$1,328
$15,936
Medicare Tax
$320
$3,840
Total Income Taxes
$5,112
$61,344
Take Home Pay
$13,888
$166,656
Monthly Expenses
Rent
$1807
$21,684
2 bd room apt, about 20m drive from work.
Family Support
$1000
$12,000
Helping parents.
Car Loan Payment
$320
$3,840
Car Insurance
$130
$1,564
Gas
$120
$1,440
Drive about 20miles a day commutting to work.
Internet Provider
$40
$480
TV/Cable
$40
$480
Going to cancel this.
Mobile
$70
$840
Utility bills
$120
$1,440
Groceries
$350
$4,200
Online Subscriptions
$40
$480
Dropbox, Treehouse
Lunch at Office Cafe
$300
$3,600
Restaurants
$400
$4,800
We eat out too much now. Ashamed.
Coffee Shops
$100
$1,200
Same here.
Books
$50
$600
Travel
$500
$6000
Uber
$50
$600
Hobbies
$150
$1,600
Photography equipment, classes..
Clothes
$300
$3,600
Entertainment
$300
$3,600
Home supplies
$100
$3,200
Personal Care
$100
$1,200
Misc
$100
$1,200
Charity
$100
$1,200
Total
$6,587
$79,044
Savings (Take Home Pay - Expenses)
$7,301
$87,612


Specific Question(s):
  • Any things that pop out as just plain crazy?
  • Any suggestions for cutting down expenses?
  • What should I do with the car? Last year I financed a shiny Mercedes CLA 250 that cost $40k :(. I have about $13k left to pay. The car gives me about 24mpg in city roads and 30mpg in highways. I am scared that the car will end up costing me a lot in the next decade because servicing is expensive. Should I just sell it and buy something more sensible?

Any advice is greatly appreciated. Thank you!
« Last Edit: April 17, 2017, 06:31:49 PM by juniormonkey »

dhc

  • Stubble
  • **
  • Posts: 169
Specific Question(s):
  • Any things that pop out as just plain crazy?
    Car payment. Car insurance. Rent (but Seattle is expensive, so not sure by how much). Food (that grocery number is reasonable only if you cut office cafe and restaurant and coffee shop significantly). Clothes. Entertainment AND Hobbies
  • Any suggestions for cutting down expenses?
    Stop breaking your spending into such tiny slices so you realize more quickly how ridiculously much you spend in some areas. You spend more than $6000 a year on your fancy car. You spend more than $10,000 a year on vaguely entertainment-related things (that, plus books, cable,
     fancy-pants phones AND internet AND subscriptions AND hobbies AND misc. And almost $14,000 on food? That could easily be $10,000 less for just that one chunk.

    Once you've got things in major categories (housing, food, transportation, fun, and giving away are what i'd use), work from largest to smallest. Set an aggressive budget number for the overall category and hold yourself to it. Want to spend more at a restaurant? Make it up by brining your lunch all week. Want a fancy-pants coffee? Skip eating dinner out that week.

  • What should I do with the car? Last year I financed a shiny Mercedes CLA 250 that cost $40k :(. I have about $13k left to pay. The car gives me about 24mpg in city roads and 30mpg in highways. I am scared that the car will end up costing me a lot in the next decade because servicing is expensive. Should I just sell it and buy something more sensible?
    Yes. Better yet, does she also drive a car? You live in a city with transit options; why can't you share one?

Any advice is greatly appreciated. Thank you!

Edited to add: looks like some categories are also mysteriously absent, and most of the categories that aren't bills are suspiciously-round numbers. Are these budgeted numbers or actual expenses? What about car repairs? I'm guessing that makes the car even more expensive. Health care of any sort? Insurance for anything other than the car? State or local taxes?

If you're truly saving more than you're spending, that's fantastic even with some of the ridiculous spending. Take a close look at what you actually saved last year, though. I'd wouldn't be surprised if it's lower than that $7300/month number. Where's the rest going?
« Last Edit: April 17, 2017, 06:41:26 PM by dhc »

Hotstreak

  • Pencil Stache
  • ****
  • Posts: 838
$700/mo on eating out is a lot (lunch + restaurant + coffee).  Try to limit yourself to 1-2 nice meals &  1-2 cheap convenience meals or coffees per month, and start packing lunches to work.  Obviously your grocery expenses will go up a bit but if you're economical there will be large savings regardless.



ETA: Realized how new you are here, welcome. 


Get set up to track expenses accurately, whether YNAB, Mint, or your own spreadsheet.  Once you have 12+ months of history you'll have a better idea of outflow, and be able to cut more effectively.


Watch out for setbacks.  New folks can yo-yo back to high spending if they don't have a solid budget and plan to stick to it.


What are your long term goals?  Do you want to retire in XX years?  Have kids in XX years and be able to stay home with them?  Full retirement or part time work?  Live in Seattle or move to a lower COL area?  Will you support your parents forever?  If/when you're certain about your spending, and know your long term goals, put the two together in a long term plan to reach them. 
« Last Edit: April 17, 2017, 08:28:47 PM by Hotstreak »

Laura33

  • Magnum Stache
  • ******
  • Posts: 3479
  • Location: Mid-Atlantic
So first, welcome -- you are in a great situation to set yourselves up for total FI.  Young + high income = awesome start. 

Second, ITA that the first step is really to track your expenses.  If you were actually saving the $7K/mo+ you have left from your paycheck, you'd have more than $40K in after-tax savings.  Figure out where that is going first, so you know what you're really working with.

Third, I am going to go a little against the grain here and not recommend that you ratchet back on everything.  But juniormonkey DHC is right on point that you are spending thousands of dollars here and there on a vast collection of things that can collectively be referred to as "entertainment."  Which of those things actually make you happy -- which make your life noticeably better?  And which are just unthinking, remote-control kind of "spend because it's there"?  Right now, you are throwing money at a lot of different things in pursuit of happiness; I'd suggest reversing that and figure out which of those things actually make you happy, and then throwing the necessary amount of money on that.  [And by "necessary," I mean "look for cheap/free options first" -- e.g., start with a library card]

Just as an example, DH and I love really good restaurant meals; I know many people here are very anti-restaurant, but that's not us.  OTOH, I hate dropping $50 on mediocre takeout or on a quick "fast casual" dinner just because I got home and didn't feel like cooking or had failed to plan.  So my choice was to keep a healthy restaurant budget for date nights, but to cut back dramatically on weekly grocery/takeout spend.  Same thing with hobbies:  DH enjoys woodworking.  When he is in that mode, he can drop hundreds or even thousands of dollars on supplies without batting an eye.  But he is also a much, much happier person when he can putter in the shop for hours and hours.  So it is worth it to me to maintain a healthy hobby budget for him.

The point is not to cut back everything and spend as little money as possible -- that's ERE.  The point is to stop spending on crap that doesn't matter and build your own skills and resourcefulness.

And, yeah, sell the car.  Congrats on not being upside-down.  But that thing is going to cost you an arm and a leg over time.  [This goes back to the above: if you were a real car guy and just doted on your baby, I'd tell you to keep it if you thought it was worth it.  But it sounds like you just bought a "nice" car because you could "afford" it and everyone else has one.  That's not the kind of spending that adds value to your life.]

ETA: changed reference -- sorry DHC, misread the internal quote attribution.
« Last Edit: April 18, 2017, 07:30:31 AM by Laura33 »

dhc

  • Stubble
  • **
  • Posts: 169
Just as an example, DH and I love really good restaurant meals; I know many people here are very anti-restaurant, but that's not us.  OTOH, I hate dropping $50 on mediocre takeout or on a quick "fast casual" dinner just because I got home and didn't feel like cooking or had failed to plan.  So my choice was to keep a healthy restaurant budget for date nights, but to cut back dramatically on weekly grocery/takeout spend.  Same thing with hobbies:  DH enjoys woodworking.  When he is in that mode, he can drop hundreds or even thousands of dollars on supplies without batting an eye.  But he is also a much, much happier person when he can putter in the shop for hours and hours.  So it is worth it to me to maintain a healthy hobby budget for him.

This is exactly the point I was trying to make, only you said it a lot better.

Villanelle

  • Walrus Stache
  • *******
  • Posts: 6657
Yes, you have a *lot* of categories with a *lot* of fat in them.  You don't need to trim them all, but look at each one and decide which really add significant value to your life, and which are just sort of habitual.   If you are foodies, continue to allow yourself a couple spendy-pants dinners out, especially at first.  But cut mediocre lunches during the work day.  Do some freezer cooking on a Sunday every 4-6 weeks, so you have meals you can just pop out of the freezer in the morning and then in to the oven when you get home. 

Clothes.  Maybe you buy fewer items but keep them at the same rough price level.  Or you decrease your average item cost by 10%, so it's still fairly fancy and not Walmart quality, if that makes you happy, but is still a savings.  Why are you ubering $50/mo?  Can you travel closer to home for a thousand dollars less?  Look at each category carefully, take a hard look at what value they truly add to your life, and what cuts you can make to keep roughly the same value but cut the expense, even if just by 5-10% initially.   Because I am quite certain all that extravagance is not making your life actually better, especially not after a few months of getting used to different choices. 

researcher1

  • Bristles
  • ***
  • Posts: 466
    What should I do with the car? Last year I financed a shiny Mercedes CLA 250 that cost $40k :(. I have about $13k left to pay. The car gives me about 24mpg in city roads and 30mpg in highways. I am scared that the car will end up costing me a lot in the next decade because servicing is expensive. Should I just sell it and buy something more sensible?[/li][/list]

    I'm curious about the car.  Given the info you provided, you either had a down payment, or trade-in value, of more than $20K.  Is this correct?
    Since you have $12,000 in equity in the car, I would sell it TODAY.  Use the $12K + few grand in cash to buy a new(er) Honda/Toyota.
    This will also helpfully lower your insurance.  My premiums are less than 1/3 of what you pay, for full coverage on TWO cars.

    It goes without saying that the $800 spent on lunch/restaurants/coffee is completely outrageous.  This should be cut dramatically.

    The only other thing that jumps out are all of the other random expenses at the bottom half of your budget.
    - How can you spend $100/mo in "home supplies" when you rent?  What does this include?
    - You need to decide what is important in your life, and cut back in other areas.  The $300 "entertainment" expense isn't horrible on its own, but you also blow $1850 in other entertainment-related categories (eating out, books, travel, hobbies, ect).

    afuera

    • Pencil Stache
    • ****
    • Posts: 565
    • Age: 32
    • Location: Charm City
    I wanted to share our car story to give you a little bit of anecdata.
    A little over a year ago now, DH and I sold our 2013 C250 (which we bought 1 year used for 30K) to one of my coworkers for 23K and bought a nice 2007 Toyota Highlander for 10K off craigslist and pocketed the difference.   It was one of the best financial decisions we have ever made due to lower insurance payments, less maintenance, cheaper maintenance, less worry about the car in general (door dings, paint chips, waxing monthly, etc.), and more cheap camping trips since the Highlander is off-road and doggie friendly while the Merc definitely was not.  Selling a car that expensive can be difficult on craigslist, especially if you don't have the title, but there are definitely creative options out there that will allow you to ditch the fancyass car, pick up a nice Toyota/Honda, and really jumpstart your savings/investments.
    Good luck!

    nouveauRiche

    • Bristles
    • ***
    • Posts: 383
    • Location: HCOL - USA
    In your assets, you have more than enough to pay off the car now.  After you do that, you'll have the title and can sell it more quickly

    mamagoose

    • Bristles
    • ***
    • Posts: 354
    • Location: FL
    Your budget has a zillion sub-categories, it's like death by a thousand paper cuts. I recently consolidated my categories in Mint and now only have 11, it makes analyzing numbers a LOT easier.

    I think you might get a lot of good information by watching Mike and Lauren's channel on YouTube - they are a young couple with a great attitude about spending on what brings value & happiness, and nothing else (intentional spending) with early retirement in mind, and they are transparent with their spending & income for comparison.

    dhc

    • Stubble
    • **
    • Posts: 169
    Your budget has a zillion sub-categories, it's like death by a thousand paper cuts. I recently consolidated my categories in Mint and now only have 11, it makes analyzing numbers a LOT easier.

    I don't think there's harm in having sub-categories for tracking ("hmm, this month i spent significantly more on coffee, but less on dinners out"); however, unless it's a fixed expense like rent, any budgets should be for the whole category, not for the sub-categories. That's both because it's easier to focus, and because when you have a zillion sub-categories, it's really easy to round everything up to $50 or $100, and suddenly you've got all sorts of wiggle room you don't really need (3 different vaguely "buy stuff for myself" categories at $100 a piece means you never have to make yourself choose between that fancy piece of clothing or the new rug or whatever this month, which is the whole point of a budget in the first place)

    It's all about "or". You can spend on whatever you want. Just not every single thing you want.

    juniormonkey

    • 5 O'Clock Shadow
    • *
    • Posts: 5
    DW and I are very thankful for the responses here. We have been in auto-pilot mode, simply buying random stuff just because we can afford to. We have resolved to stop this and adhere to a strict budget. We want to cut down all wasteful spending and spend money only on things that help us grow our skills or enrich our life experience.

    Edited to add: looks like some categories are also mysteriously absent, and most of the categories that aren't bills are suspiciously-round numbers. Are these budgeted numbers or actual expenses? What about car repairs? I'm guessing that makes the car even more expensive. Health care of any sort? Insurance for anything other than the car? State or local taxes?

    If you're truly saving more than you're spending, that's fantastic even with some of the ridiculous spending. Take a close look at what you actually saved last year, though. I'd wouldn't be surprised if it's lower than that $7300/month number. Where's the rest going?

    @DHC - Thank you for the input. I have only been tracking expenses for 3 months now. I rounded the data I posted here to make it more readable, but no these are not budgets, they are actual average expenses over the last 3 months. Health plan is provided by my employer free of cost. No state taxes.
    We only own 1 car and share it.

    @Laura33 - Thank you! Still learning the ropes here :) I just signed up for YNAB to manage budget and automated everything with Mint to track expenses accurately.

    The point is not to cut back everything and spend as little money as possible -- that's ERE.  The point is to stop spending on crap that doesn't matter and build your own skills and resourcefulness.
    Reading this made me feel much better. I agree that a lot of the spending I currently do does not bring value or happiness to me. But the $100 on photography classes and $50 in books are the things that I look forward to the most every month. I think I will keep these and cut down everything else.

    Yes, you have a *lot* of categories with a *lot* of fat in them.  You don't need to trim them all, but look at each one and decide which really add significant value to your life, and which are just sort of habitual.   If you are foodies, continue to allow yourself a couple spendy-pants dinners out, especially at first.  But cut mediocre lunches during the work day.  Do some freezer cooking on a Sunday every 4-6 weeks, so you have meals you can just pop out of the freezer in the morning and then in to the oven when you get home. 

    Clothes.  Maybe you buy fewer items but keep them at the same rough price level.  Or you decrease your average item cost by 10%, so it's still fairly fancy and not Walmart quality, if that makes you happy, but is still a savings.  Why are you ubering $50/mo?  Can you travel closer to home for a thousand dollars less?  Look at each category carefully, take a hard look at what value they truly add to your life, and what cuts you can make to keep roughly the same value but cut the expense, even if just by 5-10% initially.   Because I am quite certain all that extravagance is not making your life actually better, especially not after a few months of getting used to different choices. 

    All fair points. We are not foodies. Eating out happens because of laziness to cook after work.
    Same with Uber. Occasionally one of us takes an uber to work/someplace because the other is using the car.

    I'm curious about the car.  Given the info you provided, you either had a down payment, or trade-in value, of more than $20K.  Is this correct?
    Since you have $12,000 in equity in the car, I would sell it TODAY.  Use the $12K + few grand in cash to buy a new(er) Honda/Toyota.
    This will also helpfully lower your insurance.  My premiums are less than 1/3 of what you pay, for full coverage on TWO cars.

    We paid a downpayment of $5k and made extra payments of about $15k or so in the last year.

    Your budget has a zillion sub-categories, it's like death by a thousand paper cuts. I recently consolidated my categories in Mint and now only have 11, it makes analyzing numbers a LOT easier.
    Yep, I will budget across a much smaller number of categories going forward. My intention to track expenses at a fine grained level was so that I could clearly see where the money was going. But I understand yours and @DHC's point that budgeting should be done at a higher level.

    About the car - It seems the overwhelming sentiment here is that I should sell the car.
    I saw this MMM thread today - http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/ , but notice that it is quite old. Is there an updated version of this article?

    juniormonkey

    • 5 O'Clock Shadow
    • *
    • Posts: 5
    $700/mo on eating out is a lot (lunch + restaurant + coffee).  Try to limit yourself to 1-2 nice meals &  1-2 cheap convenience meals or coffees per month, and start packing lunches to work.  Obviously your grocery expenses will go up a bit but if you're economical there will be large savings regardless.


    ETA: Realized how new you are here, welcome. 

    Get set up to track expenses accurately, whether YNAB, Mint, or your own spreadsheet.  Once you have 12+ months of history you'll have a better idea of outflow, and be able to cut more effectively.

    Watch out for setbacks.  New folks can yo-yo back to high spending if they don't have a solid budget and plan to stick to it.

    What are your long term goals?  Do you want to retire in XX years?  Have kids in XX years and be able to stay home with them?  Full retirement or part time work?  Live in Seattle or move to a lower COL area?  Will you support your parents forever?  If/when you're certain about your spending, and know your long term goals, put the two together in a long term plan to reach them.

    Thanks for responding. Yes, I just setup YNAB. I have been using Mint for a few months now.

    Regarding long term goals - Both of us have never thought about retirement or anything beyond 2-3 year timeframe before coming across MMM. Wife is career focused /ambitious type and says that she will continue working even if we become financially independent. I, on the other hand, want to stop working ASAP. I am a software developer like her but I don't enjoy my job all that much. My dream is to someday set up a small game studio and make PC/console games. This is what I would do post FI for fun.

    We plan to have kids in 3-4 years. When that happens, one of us to stay home with kids until they start school. In all likelihood, we will each take off 2 years from work during that time.
    We don't have much clarity about the future beyond this. We don't necessarily want to stay in Seattle. I guess moving to another city with lower COL makes sense after retirement.

    respond2u

    • Stubble
    • **
    • Posts: 119
    This is a bit against the grain, but here goes...

    You're in good shape.

    Still, here are some things you could try:

    Unless you enjoy your commute or there's something special about your current residence, I counsel moving closer to work, even if that sounds absurd to Mustachians living in LA. Even if it costs a bit more money. If you can get close enough to walk or bike to work each day, you'll find your life much different.

    If your goal is to retire early, or at least get to financial independence, then the biggest obstacle is your spending, not your saving.

    If you're up for it, make a "retired" budget and try it out for 2 months (long enough to make sure you aren't postponing spending until after the experiment) and see what you learn.

    One thing that's been mentioned: you eat out a lot, but don't spend a lot at the grocery store. Once you retire, you'll reverse that. Maybe take a vacation just for cooking at home for a week? Maybe preceded by a cooking class?

    mountainfamily

    • 5 O'Clock Shadow
    • *
    • Posts: 73
    • Location: Seattle
    Killing the debt would be a good idea. Approaching your lifestyle change in a fun, playful way might be better than trying to make a drastic change. Don't give up the things you love!

    A ingredient-delivery kit such as Blue Apron or Hello Fresh could be a fun way to bridge the gap to cooking after work. It will motivate you to use the ingredients, give you a clear plan, and get you in the habit of cooking. Also, there are some great CSAs in Seattle - nothing like getting a box of beautiful vegetables that you need to eat! We do a lot of freezer meals and prepping ahead of time, which is great, but it took time to build up to that. Get your home coffee set up nicely so you make your own. Go on a coffee date or two, but make it a special time to connect.

    $1800 rent is pretty dang cheap for Seattle. Moving closer to work could be more expensive and perhaps put you in a less peaceful environment (you're probably working downtown?) but might be worth considering. Biking around downtown Seattle sounds like a total pain, but walking to and from work might be refreshing, and give you a "buffer" time to re-set, get some fresh air, and work up the motivation to cook dinner when you get home :) Or you could live near the light-rail line and take that into town. Parking can't be cheap and our traffic is really stressful and sitting in the car is bad for your health.

    You could probably afford to stay in Seattle long-term if you wanted to, but even you guys would have to be strategic about buying into our insane housing market. :(

    BrettB6

    • 5 O'Clock Shadow
    • *
    • Posts: 7
    DHC suggests fewer categories, and while those big numbers might be what you need, you might also consider breaking it down even further. I use lots more categories, and I include pennies. So I have a category called DOG EXPENSES, but dog food, toys, vet visits, boarding, treats are all visible. And most importantly, I bring home my receipts and enter them in my spreadsheet (mostly) the same day. I have a cross-check column to my credit card bill and bank balance to make sure I get everything, but I find documenting each purchase makes me consider whether it was a "you lazy bum, you ate dinner out again," or a "that was fun and worthwhile outing" kind of expense.

    For the record, my small but fierce dog cost $692.35 for all of 2016, and that included emergency eye surgery in December.

    Viking Thor

    • Stubble
    • **
    • Posts: 186
    There are definitely areas you could cut back as people mentioned, but it looks like you are saving at a $130k/year pace now which is very good - more than 60% savings rate (based on after tax income).

    If you could boost the savings a little more you will start making very fast progress towards FI.

    Now that you've found MMM and started making changes, as long as you keep it up you'll be in great shape soon.

    myrrh

    • 5 O'Clock Shadow
    • *
    • Posts: 79
    Your utilities seem amazingly low to me but I guess some of them are covered under rent. Good.

    I didn't see any category for medical expenses. I'm assuming insurance is in there somewhere since you have an HSA, do you use the HSA to fund all medical stuff or is it a stealth retirement account? Even though you are young and presumably healthy, it still costs money for copays for doctor appointments, eye doc appointments, glasses/contacts, dentist, and prescriptions.

    I also didn't see any category for car service. Oil changes can easily be cash flowed but some repairs can get pricey. It would be a good idea to start tracking it.

    $1150 per month for food for two people is a lot (groceries, restaurant, lunch, coffee), especially if sundries and household items aren't included. It's ok to be foodies, but see if you can cut down on this. Maybe cut out alcohol at restaurants except special occasions, or do one more meal at home each week, or commit to bringing lunch from home once or twice a week, and it will start to add up.