Author Topic: Budgeting - Take home pay only, or everything?  (Read 1905 times)

Michael in ABQ

  • Pencil Stache
  • ****
  • Posts: 546
    • Military Saints
Budgeting - Take home pay only, or everything?
« on: June 17, 2018, 11:58:16 AM »
For the past few years my wife and I have used a budget that I slowly built from scratch in a big spreadsheet. We have about 30 categories which range from specific (electrical bill, life insurance) to broad (groceries). We've used the envelope system with cash for most of them with the rest being on automatic payment (utility bills, rent, etc.).

Throughout all of this time I've only looked at take home pay. Things like dental insurance, taxes, etc. that came out as a deduction from my paycheck were just invisible. Health insurance was after-tax as I purchased it outside my employer for a better deal (Tricare Reserve Select through the National Guard). I recently started a new federal job and am forced to use a federal health insurance that will be more expensive but will be pre-tax - same with dental. In addition, I'm now going to have 4.4% of each paycheck withheld for a pension in addition to the 10% I'm withholding for my TSP (401k).

I'm debating whether or not it makes sense to try and track all of these other deductions or just keep things simple and only budget for those items that I can control out of my take home pay. I'm leaning towards the latter though when we get to the end of our budget and see that there may only be a few hundred dollars at most left for savings it feels a little discouraging. Obviously between the TSP and pension withholdings we are still saving and making progress towards FIRE but it's a bit less transparent. Plus, since we have a large family we always get a sizeable tax refund, which will be even larger this year with 6 child tax credits at $2,000 each. That makes for a big difference around February/March of each year though all/most of that will probably go towards savings for a down payment on a house.

So, do most of you only create a budget based on take home pay or do you try to incorporate all of those other pre-tax and tax deductions to get a more complete picture?

Sailor Sam

  • Magnum Stache
  • ******
  • Posts: 4195
  • Age: 39
  • Location: Steel Beach
  • Semper...something
Re: Budgeting - Take home pay only, or everything?
« Reply #1 on: June 17, 2018, 12:22:30 PM »
I track everything. Like this:




Taxes, SGLI, and TSP are tracked as % of gross. After tax savings, charity, and all the listed categories are tracked as % of net.

It keeps me happy, occupied, and off the streets.

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: Budgeting - Take home pay only, or everything?
« Reply #2 on: June 17, 2018, 04:10:43 PM »
I count 401k contributions in my take home.  Due to union rules there's also another small hourly payroll deduction that goes into a separate checking account set up by the union.  It is small and I do not count that in my take home because I use it for miscellaneous (non dues) union related expenses.  I basically treat it as a wash: I don't count that money as income or those expenses as spending in my spreadsheet.

Without derailing the thread: I am interested if people count emergency expenses payed for from FU money as an expense?  The way I look at it I already "spent" that money when I put that money incrementally in the FU fund.

NorCal

  • Pencil Stache
  • ****
  • Posts: 745
Re: Budgeting - Take home pay only, or everything?
« Reply #3 on: June 17, 2018, 04:16:36 PM »
I look at expenses based on take home, although I add in health insurance, etc. for my FIRE calculations.

I once tried to include taxes in my calculations, and it made everything more complicated and difficult to track.  Taxes were out to 60%+ of my annual expenses (high income, low spending), so my spend pie graphs were dominated by tax.

Gremlin

  • Stubble
  • **
  • Posts: 146
Re: Budgeting - Take home pay only, or everything?
« Reply #4 on: June 17, 2018, 04:34:31 PM »
I do everything.

Some of our spending categories (incl taxes) are different in FIRE to full time work.  I needed to make sure my budgeting was sustainable, not just while I was earning a wage, but also ongoing.

DreamFIRE

  • Handlebar Stache
  • *****
  • Posts: 1596
Re: Budgeting - Take home pay only, or everything?
« Reply #5 on: June 17, 2018, 07:15:41 PM »

I account for health insurance and taxes in FIRE because they are real expenses that will need to be paid from the stash SWR.

Dragonswan

  • Bristles
  • ***
  • Posts: 350
  • Location: Between realms
Re: Budgeting - Take home pay only, or everything?
« Reply #6 on: June 18, 2018, 08:23:17 AM »
Take home pay.  But only once I was maxing my TSP.  Otherwise I kept trying to reduce the expenses to give me more money to put in the Roth TSP.  Usually that meant not increasing expenses and putting all raises into the TSP. 

As an aside, since you have so many credits and usually get a big tax refund, may I suggest doing your TSP as Roth as well.  Once your children are no longer a tax credit you can go back to traditional.  But right now looks like you'll be in the lowest tax bracket of your career and probably retirement (if they don't change the rules again) since many of the tax provisions will expire, your step and possibly grade increases will keep pushing your salary up, and your children will eventually not be on your tax return.  Just something to consider. 

And don't knock the health insurance, you get to keep it in retirement and change it yearly if need/want to based on which plan is best for your health situation at the time.  Federal benefits ROCK.

Michael in ABQ

  • Pencil Stache
  • ****
  • Posts: 546
    • Military Saints
Re: Budgeting - Take home pay only, or everything?
« Reply #7 on: June 18, 2018, 08:57:06 AM »
Take home pay.  But only once I was maxing my TSP.  Otherwise I kept trying to reduce the expenses to give me more money to put in the Roth TSP.  Usually that meant not increasing expenses and putting all raises into the TSP. 

As an aside, since you have so many credits and usually get a big tax refund, may I suggest doing your TSP as Roth as well.  Once your children are no longer a tax credit you can go back to traditional.  But right now looks like you'll be in the lowest tax bracket of your career and probably retirement (if they don't change the rules again) since many of the tax provisions will expire, your step and possibly grade increases will keep pushing your salary up, and your children will eventually not be on your tax return.  Just something to consider. 

And don't knock the health insurance, you get to keep it in retirement and change it yearly if need/want to based on which plan is best for your health situation at the time.  Federal benefits ROCK.

*sigh* couple of paragraphs typed up but then I accidentally hit backspace and it took me back to the previous page and deleted it all.

Right now I contribute 5% traditional towards my military and civilian TSP to get the full 5% match from each. I contribute another 5% to each as Roth and hope to increase that going forward once we rebuild our emergency fund and save up a down payment. I've also been converting my old 401k into Roth after the last few years as $1,500 up front ($1,200 this year) is a small price to pay to let $10,000 grow tax free for decades. Just in the last three years the growth in those Roth funds has more than offset what I had to pay upfront in taxes to make the conversion.



FIRE is still probably 15-20 years off. With soon to be six kids and a single income we're going to struggle to ever save more than about 20-25%. I'm not too worried about what our future health insurance will be right now. The landscape will probably change dramatically again by then.


Bottom line I think I will remain with only budgeting based on take home pay since there's little to be gained in the short term by messing with trying to track all of those other things. We need health insurance, we need dental (orthodontic costs are going to be very fun in a few years :( ), and taxes are going to get taken out. Those costs will only change slightly year to year and will hopefully be offset by raises.

Sibley

  • Magnum Stache
  • ******
  • Posts: 3651
  • Location: Chicago, IL
Re: Budgeting - Take home pay only, or everything?
« Reply #8 on: June 18, 2018, 09:43:02 AM »
I do take home pay.

If you're satisfied with how you're doing it, great. Just make sure that you periodically review the items that are being taken out of gross. Still want to optimize.

Dragonswan

  • Bristles
  • ***
  • Posts: 350
  • Location: Between realms
Re: Budgeting - Take home pay only, or everything?
« Reply #9 on: June 18, 2018, 10:17:38 AM »
Take home pay.  But only once I was maxing my TSP.  Otherwise I kept trying to reduce the expenses to give me more money to put in the Roth TSP.  Usually that meant not increasing expenses and putting all raises into the TSP. 

As an aside, since you have so many credits and usually get a big tax refund, may I suggest doing your TSP as Roth as well.  Once your children are no longer a tax credit you can go back to traditional.  But right now looks like you'll be in the lowest tax bracket of your career and probably retirement (if they don't change the rules again) since many of the tax provisions will expire, your step and possibly grade increases will keep pushing your salary up, and your children will eventually not be on your tax return.  Just something to consider. 

And don't knock the health insurance, you get to keep it in retirement and change it yearly if need/want to based on which plan is best for your health situation at the time.  Federal benefits ROCK.

*sigh* couple of paragraphs typed up but then I accidentally hit backspace and it took me back to the previous page and deleted it all.

Right now I contribute 5% traditional towards my military and civilian TSP to get the full 5% match from each. I contribute another 5% to each as Roth and hope to increase that going forward once we rebuild our emergency fund and save up a down payment. I've also been converting my old 401k into Roth after the last few years as $1,500 up front ($1,200 this year) is a small price to pay to let $10,000 grow tax free for decades. Just in the last three years the growth in those Roth funds has more than offset what I had to pay upfront in taxes to make the conversion.



FIRE is still probably 15-20 years off. With soon to be six kids and a single income we're going to struggle to ever save more than about 20-25%. I'm not too worried about what our future health insurance will be right now. The landscape will probably change dramatically again by then.


Bottom line I think I will remain with only budgeting based on take home pay since there's little to be gained in the short term by messing with trying to track all of those other things. We need health insurance, we need dental (orthodontic costs are going to be very fun in a few years :( ), and taxes are going to get taken out. Those costs will only change slightly year to year and will hopefully be offset by raises.

OK.  I hear you and your plan is solid and tracking take home pay even without max TSP is the way to go here.  Mostly though keep it in the back of your mind to keep increasing the TSP.  Every time you get a raise over 1%, increase your contribution by 1%.  It's the least painless way to up your savings.  Best wishes for #6.

catccc

  • Handlebar Stache
  • *****
  • Posts: 1684
  • Location: SE PA
Re: Budgeting - Take home pay only, or everything?
« Reply #10 on: June 19, 2018, 09:18:22 AM »
I use YNAB and do take home pay.  The way I see it, the other expenses don't need management.  I know I'm maxing out my 401K, I can't control the cost of health insurance.  I do handle tax planning, but that is outside of my budget, which is mostly for daily planning, short term savings goals, etc.

The only downside I can see is that when I look at my annual spend, I'm missing things that I would eventually (in FIRE) have to manage, like health insurance.  Also, this is small, but I put spend on health FSA items in a holding account, and then when I get reimbursed, the reimbursement wipes out the expense.  But these are not huge amounts.  I would just have to adjust for them when I look at FIRE numbers.

CalBal

  • Handlebar Stache
  • *****
  • Posts: 1197
  • Location: US
  • Dont Panic
    • Journal
Re: Budgeting - Take home pay only, or everything?
« Reply #11 on: June 19, 2018, 09:56:07 AM »
I know this specifically wasn't your question, but if you are getting a large tax return every year I would change the withholding so that less is being taken out for taxes. Your paycheck will be larger, and you can invest or do whatever with that extra money. Otherwise you are just giving the government a free loan.

Michael in ABQ

  • Pencil Stache
  • ****
  • Posts: 546
    • Military Saints
Re: Budgeting - Take home pay only, or everything?
« Reply #12 on: June 19, 2018, 09:19:38 PM »
I know this specifically wasn't your question, but if you are getting a large tax return every year I would change the withholding so that less is being taken out for taxes. Your paycheck will be larger, and you can invest or do whatever with that extra money. Otherwise you are just giving the government a free loan.

My withholding is already 8. I could go to 10 but it wouldn't make much of a difference.  The issue is that they really shouldn't be taking anything out since I get so much back from child tax credits. However, I got hit with a penalty from New Mexico this year for not withholding enough, because my National Guard pay was not having any state taxes withheld because in 10 years they still haven't managed to switch my state from Washington to New Mexico.

CalBal

  • Handlebar Stache
  • *****
  • Posts: 1197
  • Location: US
  • Dont Panic
    • Journal
Re: Budgeting - Take home pay only, or everything?
« Reply #13 on: June 19, 2018, 09:47:52 PM »
I know this specifically wasn't your question, but if you are getting a large tax return every year I would change the withholding so that less is being taken out for taxes. Your paycheck will be larger, and you can invest or do whatever with that extra money. Otherwise you are just giving the government a free loan.

My withholding is already 8. I could go to 10 but it wouldn't make much of a difference.  The issue is that they really shouldn't be taking anything out since I get so much back from child tax credits. However, I got hit with a penalty from New Mexico this year for not withholding enough, because my National Guard pay was not having any state taxes withheld because in 10 years they still haven't managed to switch my state from Washington to New Mexico.

Man well that sucks! You would there was some system in place to accommodate situations like that. :(

letired

  • Pencil Stache
  • ****
  • Posts: 823
  • Location: Texas
    • Needs More Glitter
Re: Budgeting - Take home pay only, or everything?
« Reply #14 on: June 19, 2018, 10:08:37 PM »
I track everything in YNAB because I am a completist, but also I like watching that tax number go down when I increase my 401k number. It also lets me (more?) easily calculate my savings rate which is where I base most of my financial goals.