Evaluate My Budget

[Joel]

Here goes nothing, I'm curious what you guys think of my budget.

I currently live with my girlfriend, have no debt, and will likely be getting married to the girlfriend within the next 2 years. We are 24 and 25, and both have jobs paying in the mid 40k range in the Sacramento, CA region. Income will only continue to grow in the future. But we currently have seperate finances. We split rent, groceries, and any entertainment. Currently, I pay the phone bill and the annual aaa membership. She is currently paying the electricity and cable bill.

Minimum Income: $2960 (*1)

Eating Out: Budget = $125 12m Average = $100 (*2)
Fuel: Budget = $100 12m Average = $97 (*2)
Groceries: Budget = $250 12m Average = $170 (*2)
Stuff: Budget = $25 12m Average = $40 (*2)
Exercise & Golf: Budget = $50 12m Average = $27 (*2)
Fun & Entertainment: Budget = $50 12m Average = $105 (*2)
Gifts: Budget = $50 12m Average = $51
Phone: $105 (*3)
Rent: $575 (*4)
Hot Rod: $25 (*5)
Honda: $150 (*6)
Insurance & Registration: $160 (*7)
Vacation: $150
Retirement: $850 (*8)
Future Savings: $295

Notes:
(*1) = This minimum income does not include months where bonuses are awarded or I am able to pocket reimbursements, both of which happen frequently. Those amounts go to my Future Savings Category. Annual raises of at least 8% are expected for the next 5 years as well.
(*2) = Note: these categories are reset to $0 each month, and often times come in well under budget. These amounts provide for any month where there is a splurge. I can always cover overspending with excess from one of the others.
(*3) = covers smartphones for myself and girlfriend.
(*4) = covers half the rent of a 1400 sq ft condo that is in excellent shape right in the middle of both of our jobs where we just signed a 2-year lease. Plan to stay here until we buy a house, and do not plan on buying a house and tying myself to an area until I leave my job in public accounting for a private company.
(*5) = I have a Dodge pickup that I have completely restored, and it is one of the main reasons I am where I am today. It has too much meaning to me and between me and my dad. I will never be getting rid of this truck, and eventually would like to get a muscle car to build for the drag strip as well (barracuda or duster equivalent)
(*6) = Includes maintenance and saving for new car replacement of a brand new honda civic in about 7 years, of course, at that point, I may shop around for a used honda civic depending on whats available on the market.
(*7) = Includes insurance and registration for both vehicles, and includes aaa membership for me and my girlfriend.
(*8) = Includes maxing out my Roth IRA annually, and 10% of each paycheck to my 401k.
(*9) = Includes money for engagement ring, wedding, house downpayment, etc.

Additionally, I have rainy day funds that include $500 in my exercise & golf, $500 in fun & entertainment, $1000 in gifts, $1000 in medical, $500 in phone replacement, $1200 for rent (equivalent to one month's full rent), and about $50k in the bank related to my honda, hot rod, and future savings categories.

[smalllife]

*2   Do you have average spending for these, not just the high estimate? (Rather, I know you do and think that is a more useful number)  Eating Out seems high to me, especially as you have a Fun & Entertainment budget as well, but it's hard to say without knowing where you categorize bars/social get togethers and what the actual spending is.

Phone: No excuses, go prepaid on any of the various options detailed here or on the blog.  You can get this down to under $60 for a completely unlimited plan or even lower for general American usage.

I don't know the car market where you are, but insurance seems really high to me (ever including registration and AAA). 

$1800 a year on vacations?  Everyone values different things, but for me this would be extremely high.  Staycations, cheap destinations, etc., even more so because this is a split cost.

Personally I would trim the rainy day funds as follows:

Additionally, I have rainy day funds that include $500 in my exercise & golf, $500 in fun & entertainment, $1000 in gifts, $1000 in medical, $500 in phone replacement, $1200 for rent (equivalent to one month's full rent), and about $50k in the bank related to my honda, hot rod, and future savings categories.

Gifts = $0  (Do you express love in gifts?  Putting a little effort into homemade - see recent thread - can cut your costs dramatically with the same result)
Phone = $0 You can get refurbished smart phones from Ebay for less than $100, easily cash flowed with your savings rate.  No need to lose that money to inflation in the meantime only to spend it on the latest and greatest. 

I would also cut the exercise and fun to $250 each, with the ability to whack-a-mole or add to cash needed from the extra savings if necessary. 

Just my two cents :-)

[Joel]

I should add that I keep about 15k in my checking account, and any extra within these categories is in my brokerage account invested in the the total stock market index fund with the intention of it staying there for the long-term.

I went ahead and updated the budget amount and 12m average for the various categories.

For the Phone - it includes my bill and my girlfriends bill, meaning unlimited everything for approximately $50 each.

Insurance is as low as I have ever been able to get it, being a 24 yo male with no previous accidents. My car is worth approximately $14k and I can't justify not having full coverage considering the amount of miles I drive related to work in a year.

Regarding vacations, I would actually prefer to increase the amount budgeted to vacations. $1800 per year on vacations is very minimal, there are many places I would love to travel in the future, especially before I end up having kids.

Regarding gifts, these include special occasions for the girlfriend, and holiday gifts for family. Most kids get $25 college fund contributions. It also includes gifts for all the friends getting married and having kids since we are in our 20s.

[aj_yooper]

I think you are doing very well! 

You have a solid emergency fund, keep a close tab on your expenses, use your 401k, and have a brokerage account in the total stock market index.  You have savings allocated towards a house purchase and to your hobby.  You are a great saver and are thick in cash.

I would look to use the tax advantaged funds more to help get more money working for you there.  If you could put yourself solidly in the 15% marginal rate, then you would pay not capital gains too.  With the 0% rate, you may be able to safely increase your earnings on your taxable monies used for a house or your hobby.  Just a consideration.

Are you eligible for a HSA?  When you get raises, could you add them to your 401k contributions?  Right now, it looks like your savings rate is:  ($850+$295)/$2960 or 39%, but you are probably higher than that.  If you are contemplating FI, this rate puts you at about 20-25 years out, which is still good. 

I am curious as to why your Rainy Day fund is in your exercise and golf, entertainment,etc. funds rather than in a separate category. We use YNAB too, but just set up a separate category for Rainy Day, etc.  If an excess in a category carried forward to the next month, then we would not add to it and put the $ somewhere else.

If your SO is like you, you have it going great.  Best wishes!

[Joel]

I think you are doing very well! 

You have a solid emergency fund, keep a close tab on your expenses, use your 401k, and have a brokerage account in the total stock market index.  You have savings allocated towards a house purchase and to your hobby.  You are a great saver and are thick in cash.

Thank you.

I would look to use the tax advantaged funds more to help get more money working for you there.  If you could put yourself solidly in the 15% marginal rate, then you would pay not capital gains too.  With the 0% rate, you may be able to safely increase your earnings on your taxable monies used for a house or your hobby.  Just a consideration.

I've made some asset allocation changes during the last year and have about 5k in qualified income because of LTCGs and dividends. So currently, my marginal tax rate is at 30% for the feds. I'm currently in the process of contributing enough extra into my 401k to get that marginal rate back down to 15%. (My marginal rate is 30% because for each additional dollar of income, it is taxed at 15% and it pushes a dollar of qualified income to be taxed at 15% as well). I'm aware of the tax advantaged funds, and am taking full advantage of that! Thanks for the advice :)

Are you eligible for a HSA?  When you get raises, could you add them to your 401k contributions?

Not currently. However, when I am able to update my medical coverage this year, I am considering switching to a high deductible healthcare plan with an HSA. I will be contributing the same amount that my current insurance coverage costs into the HSA & high deductible plan.

Right now, it looks like your savings rate is:  ($850+$295)/$2960 or 39%, but you are probably higher than that.  If you are contemplating FI, this rate puts you at about 20-25 years out, which is still good.

My goal is to be able to retire at 50. I plan on having a nice house, plenty of stuff, and I plan to live pretty excessive in mustachian terms probably. I don't want to retire before that. In the position I am currently in, I have the flexibility to not be a slave to any company already! 

I am curious as to why your Rainy Day fund is in your exercise and golf, entertainment,etc. funds rather than in a separate category. We use YNAB too, but just set up a separate category for Rainy Day, etc.  If an excess in a category carried forward to the next month, then we would not add to it and put the $ somewhere else.

I keep $500 in my exercise and golf, and fun and entertainment categories at a maximum. Since I don't do these types of things evenly throughout the year, I want to have $500 ready for me in case the Giants are in the World Series, or the 49ers are playing a playoff game in San Francisco. Naturally, I budget $50 per month to these categories, and if I have any leftover at the end of the month, I pull the money out and put it into my priority. But I keep $500 at a minimum in these categories so that whenever I get a day off, I can go golf that day. I don't have to worry about planning for it earlier in the month, as I can golf whenever I get a chance. I really like having a small cushion in most of my categories so that I have that flexibility. I don't have a rainy day category per say, I have all my cushions in each of my respective categories.

If your SO is like you, you have it going great.  Best wishes!

She's amazing. She does have a bit of student loan debt, and a car loan. But unfortunately both of those were required in order to be able to get to where she is at today.

[smalllife]

I went ahead and updated the budget amount and 12m average for the various categories.

  Thanks!  The updated amounts look really good actually, I can't think of anything that is screaming to be cut.  You are well on track to meet your goals, which is the important thing.

For the Phone - it includes my bill and my girlfriends bill, meaning unlimited everything for approximately $50 each.

  I retract my statement then, I had thought it was your bill alone. 

Insurance is as low as I have ever been able to get it, being a 24 yo male with no previous accidents. My car is worth approximately $14k and I can't justify not having full coverage considering the amount of miles I drive related to work in a year.

Understood - different markets. 

Regarding vacations, I would actually prefer to increase the amount budgeted to vacations. $1800 per year on vacations is very minimal, there are many places I would love to travel in the future.

   As long as you spend cash and it's something you want to do, by all means ;-)

[Joel]

I guess I must have been mustachian before I knew that was a thing!

[Joel]

Only two responses?