Author Topic: Newbie Case Study – Help w/ budget cleanup  (Read 1999 times)

TexasForever

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Newbie Case Study – Help w/ budget cleanup
« on: June 25, 2017, 06:35:33 PM »
Alright.. Let's hear the honest truth. Didn't bother with gross income numbers since I'm mostly concerned with ideas for trimming down the budget, but for additional context: I contribute 6% to 401k, plus medical insurance (PPO, non- HSA), and taxes. Wife pays taxes but otherwise has no pre-tax deductions.

Life Situation: Married, 26 and DW is 24, baby at home (6 months), live in TX.

Assets
Home: 211
401ks: 47
Cars: 15
Cash: 5
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Total Assets = 278k

Liabilities
Mortgage: 198
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Total Liabilities = 198k

Net Worth = 80k

Monthly Take Home
Me: 5,500
DW: 1,500 (Stays with baby 6/7 days – I watch baby the 1 day /week)
Total Monthly Take Home = 7,000

Monthly Budget
Tithe: 700
Mortgage: 1,750 (Principal + Interest + Escrow)
Electricity: 125
Internet: 62
MUD: 31
Natural Gas: 29
Car Fuel: 125
Car Insurance: 185
Car Wash: 15
Groceries and Household Items: 600
Haircuts: 135
Phone: 108
Spending: 200
Date Nights: 100
Gym: 142 (including child care)
Life Insurance: 50
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Total (Planned) Monthly Expenses = 4,357
Total Monthly Savings = 2,643


« Last Edit: June 25, 2017, 07:33:10 PM by TexasForever »

wordnerd

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #1 on: June 25, 2017, 06:43:25 PM »
Welcome! Looks like you're off to a good start. A few thoughts...

Your planned expenses look like they're missing some categories--restaurants/fast food/coffee (anything outside of date nights?), gifts, etc--unless that's all captured in "spending." I'm also unclear on the difference between gas and car fuel...

Gym, haircuts, and phone seem high. Comparison shop on gyms if you can; see if you can go longer or find a cheaper haircut; for phones, check out the I.P. phone guide (https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-discussion-thread-1/). You can wash your own car pretty easily to save that expense. Groceries can definitely be trimmed for a family of two (plus a barely eater); comparatively my family of two adults and an 18 month old spends about $250 mo. There's a grocery thread under Share Your Badassity that is good for ideas/inspiration.

kpd905

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #2 on: June 25, 2017, 06:55:49 PM »
+1 to haircuts and phone being really high.

An easy way to save a few grand per year would be to max out your 401k.  Does your wife have access to a 401k?  If so, I assume no match?

Maxing your 401k and possibly two traditional IRAs would drop your taxable income by $20k+ I am guessing, not sure exactly what your 6% ends up being per year.
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TexasForever

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #3 on: June 25, 2017, 06:59:10 PM »
Going to look into your suggestions (thanks!) but to quickly clarify / answer your questions:

Your planned expenses look like they're missing some categories--restaurants/fast food/coffee (anything outside of date nights?), gifts, etc--unless that's all captured in "spending." I'm also unclear on the difference between gas and car fuel...

Yes - all you mentioned falls under either spending (fast food/coffee) or date nights (restaurants). Gas = natural gas for heating the shower and such. Updated original post to "natural gas" to avoid confusion. Thanks!


doublethinkmoney

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #4 on: June 25, 2017, 07:56:44 PM »
$700 a month on tithing? That's your second biggest "bill" beside your mortgage! That seems like a lot for your income and debt/expenses. Remember you have to make sure you are in good financial standing to help others otherwise you will be the one in need and no help to anyone else. With only $5k in the bank, you are less than one months income from starting down a financial pitfall.

$135 a MONTH for hair cuts? That doesn't make sense. Hair doesn't grow that fast and if it's that high maintenance to dye trying going with an "ambre" look. It's totally in. Trust me with a 6 month old baby low maintenance is best.


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Guide2003

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #5 on: June 25, 2017, 08:54:20 PM »
+1 on the haircuts!

I haven't washed my cars in 3 years, and they're still there. One is parked outside and the rain cleans it. Also, have you checked rates on car insurance recently? I assume you have comprehensive as well at that rate, but maybe with relatively older cars it isn't worth maintaining that much coverage or raising some deductibles? Especially if one of you is home most of the week with the baby, you wouldn't be too put out if you went down a car for whatever reason while you saved up a little extra to make the deductible, repairs, etc.

Edit: Charitable giving is a personal choice and it seems like the ER community is predisposed to not favor it as evidenced by a quick search around these forums. I think there are pretty valid reasons to do it throughout your life regardless of your progress towards FIRE, and while others may not prioritize it as highly as you do, it is important to make an intentional decision about if/how much you should give.
« Last Edit: June 25, 2017, 08:58:31 PM by Guide2003 »
“We think sometimes that poverty is only being hungry, naked and homeless. The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty.” Mother Teresa

Platypuses

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #6 on: June 26, 2017, 07:18:35 AM »
One of the easier items to lower in the monthly budget could be car insurance. especially if you have the same insurer you did when you were 24-25 (males get quite a large discount once they turn 25). You should be able to find something much less then 185/mo unless you've recently had multiple claims.

KungfuRabbit

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #7 on: June 26, 2017, 08:04:11 AM »
My Subaru baths naturally. Never washed it in the 9 years I've owned it. At your car wash rate, adding investment returns, thats like $3,000 in my pocket.

TexasForever

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #8 on: June 26, 2017, 08:21:13 PM »
Thanks for all the responses, guys! I'm going to be looking into all the great feedback and seeing what changes we can make!

Groceries - Told my wife that a few were challenging her grocery budget and she said she'd take a look at the ideas shared on this forum regarding groceries. We'll see what savings she can find.

Gym - fancy gym w/ all the amenities to manipulate myself into going consistently. The childcare is also nice as it allows my wife to go during the day. Completely agree that this is a luxury and NOT* a requirement to stay in shape. If nothing else, I will call this week and see if they can get us a better rate.

Haircut - Wife has fancy hair and I get mine cut biweekly. I will move to every third week without noticing too much of a difference and save ~ $15/ month.

Phone - Will be looking into the resources available on this site and exploring the various options. I don't really use my phone as a smart phone, so I'm sure there is opportunity here. This should go down.

Car wash - Is washing it in my driveway really cheaper than driving down the street and dropping in a handful of quarters to wash it myself? Probably so. I'll wash my own car and cut this expense minus the cost of materials.

401k / traditional IRA? - Not maxing this out yet as we want to build our emergency fund / savings through the rest of this year. As another poster correctly noted, we don't have much cash in the bank and need to build ourselves a safety net in case of medical emergency, job loss, etc.. After this is complete we will ramp up 401k's. May try to fund IRA's before tax season wraps up this year but focused more on saving cash right now.

Car Insurance - We have Progressive. Customer service is great but I'm sure there are cheaper options. Want to make sure I'm not shooting myself in the foot as I've also bundled home insurance w/them, but I'm sure their competitions will also bundle services. I will compare apples to apples and see what savings we can find.

Tithe: Yes, $700 a month is a lot of money - especially for some broke millennials. That said, we have other luxuries that we could cut out to come up with that $700 (spending, date nights, gym membership, etc..) if we REALLY needed the money, so I won't use that as an excuse to skip out on what I personally believe to be a mandate.

To me, it'd be akin to giving my kid $100 and then him telling me that he couldn't afford to give me $10 in return. Again - this is what we personally believe to be true. Totally understand how that number jumps off the page.

Thanks for all the great feedback - please keep it coming and I'll update with progress we are able to make!
« Last Edit: June 27, 2017, 05:49:13 PM by TexasForever »

A440

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #9 on: June 26, 2017, 09:52:03 PM »
I would consider using a Roth IRA as part of your emergency fund at first.  You can withdraw contributions without penalty. 

Also, is this planned budget what is actually happening?  With $2500 surplus per month, it would seem like you would have more cash in the bank.  Just trying to be realistic, my family has a ton of random unplanned expenses--family weddings across the country, etc.


TexasForever

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #10 on: June 27, 2017, 03:30:07 AM »
I would consider using a Roth IRA as part of your emergency fund at first.  You can withdraw contributions without penalty. 

Also, is this planned budget what is actually happening?  With $2500 surplus per month, it would seem like you would have more cash in the bank.  Just trying to be realistic, my family has a ton of random unplanned expenses--family weddings across the country, etc.

The part about using a Roth IRA for emergency fund makes a lot of sense - doesn't hurt you if you end up needing it in an emergency, but you get the benefit if you're able to leave it alone. Thanks for the tip!

Fair question regarding our income/budget/current savings. I called our budget "planned expenses" since it doesn't account for medical emergencies or unplanned vacation expenses. (e.g. - Colorado wedding for the brother in law this summer, accident during yard work which required hand surgery a few weeks back, biopsies which required removal of pre-cancerous moles, etc. all things that happened this summer and have dipped into our savings.) That said - I feel as though the "planned budget" is still meaningful in that we don't allow ourselves things like "unplanned" shopping sprees.. We do a decent job with the expenses that we can reasonably control (Colorado wedding = bleh).

Other factors at work which would otherwise make you expect a higher savings, given our monthly numbers, are a recent promotion for me (~600/month) dropping health insurance for my wife (she was doubled up during her pregnancy due to better benefits) and settling into a new home which carried the perceived* costs in the first year.. Going forward I fully expect our savings rate to increase rapidly.  Thanks for the questions!

ShoulderThingThatGoesUp

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #11 on: June 27, 2017, 04:18:06 AM »
You spend a lot on gas. Your cars aren't very expensive, but of course your insurance would be lower if there were only one. Whoever's home with the baby needs a car -can the other take the bus to work?

I hope you're enjoying your 6 month old. We have twins just at that age and they're starting to get really fun.

doublethinkmoney

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #12 on: June 27, 2017, 05:46:23 AM »
Thanks for all the responses, guys! I'm going to be looking into all the great feedback and seeing what changes we can make!

Groceries - Told my wife that a few were challenging her grocery budget and she said she'd take a look at the ideas shared on this forum regarding groceries. We'll see what savings she can find.

Gym - fancy gym w/ all the amenities to manipulate myself into going consistently. The childcare is also nice as it allows my wife to go during the day. Completely agree that this is a luxury and a requirement to stay in shape. If nothing else, I will call this week and see if they can get us a better rate.

Haircut - Wife has fancy hair and I get mine cut biweekly. I will move to every third week without noticing too much of a difference and save ~ $15/ month.

Phone - Will be looking into the resources available on this site and exploring the various options. I don't really use my phone as a smart phone, so I'm sure there is opportunity here. This should go down.

Car wash - Is washing it in my driveway really cheaper than driving down the street and dropping in a handful of quarters to wash it myself? Probably so. I'll wash my own car and cut this expense minus the cost of materials.

401k / traditional IRA? - Not maxing this out yet as we want to build our emergency fund / savings through the rest of this year. As another poster correctly noted, we don't have much cash in the bank and need to build ourselves a safety net in case of medical emergency, job loss, etc.. After this is complete we will ramp up 401k's. May try to fund IRA's before tax season wraps up this year but focused more on saving cash right now.

Car Insurance - We have Progressive. Customer service is great but I'm sure there are cheaper options. Want to make sure I'm not shooting myself in the foot as I've also bundled home insurance w/them, but I'm sure their competitions will also bundle services. I will compare apples to apples and see what savings we can find.

Tithe: Yes, $700 a month is a lot of money - especially for some broke millennials. That said, we have other luxuries that we could cut out to come up with that $700 (spending, date nights, gym membership, etc..) if we REALLY needed the money, so I won't use that as an excuse to skip out on what I personally believe to be a mandate.

To me, it'd be akin to giving my kid $100 and then him telling me that he couldn't afford to give me $10 in return. Again - this is what we personally believe to be true. Totally understand how that number jumps off the page.

Thanks for all the great feedback - please keep it coming and I'll update with progress we are able to make!
Amica car insurance is one of the best rated for service if not the top one. They always aren't the cheapest but I would check them out as they are constantly known for their service. Maybe they will be cheaper and it will be a win/win


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Luckyvik

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #13 on: June 27, 2017, 06:08:19 AM »
Fancy hair - I have long coloured fancy hair I used to spend a lot of money on, now I look for apprentice free/discounted hair cuts/hair colour, many cities have signs in hairdresser windows or if there is a hairdresser training centre, Im from outside the US but when I visited the US last year I googled free haircut-city name or hair model-City name wherever I was and I found many options, try it, I can't believe how much I used to spend on my hair.


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2Birds1Stone

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #14 on: June 27, 2017, 06:39:49 AM »
You are off to a great start!

Best of luck.
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JustGettingStarted1980

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #15 on: June 27, 2017, 06:45:43 AM »
Why not tithe 10% of your NET monthly profit as opposed to 10% of your GROSS. That's what businesses do. IMO, household budget should be no different.

2Birds1Stone

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #16 on: June 27, 2017, 10:58:16 AM »
Why not tithe 10% of your NET monthly profit as opposed to 10% of your GROSS. That's what businesses do. IMO, household budget should be no different.

$700 is 10% of his $7000/month net income.
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Feivel2000

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #17 on: June 27, 2017, 11:02:34 AM »
Your wife makes $1,500 from one day per week?
Maybe you should stay with the child?

:-)


JustGettingStarted1980

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Re: Newbie Case Study – Help w/ budget cleanup
« Reply #18 on: June 27, 2017, 01:46:46 PM »
Why not tithe 10% of your NET monthly profit as opposed to 10% of your GROSS. That's what businesses do. IMO, household budget should be no different.

$700 is 10% of his $7000/month net income.


Net Profit, not Net Take Home