Author Topic: living paycheck to paycheck (kinda) while saving nearly 50%  (Read 4509 times)

catccc

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living paycheck to paycheck (kinda) while saving nearly 50%
« on: November 25, 2013, 02:22:00 PM »
We save a good portion of our after tax paycheck.  47% for the last 12 months, to be exact.  I would love for it to be more, but 47% isn't too shabby.  After tax income is about $79K.  My gross income is $94K/yr and my spouse is home with our 2 little kids.  We have ~450K in non-property NW, zero debt (but we are renters), and we are aiming for FIRE in 12 years (or less, hopefully).

Read about YNAB here and a couple things were notable to me:

One, my current budgeting method (yodlee) doesn't change our spending habits.  I just look at my expenses as the month plays out, or at the end of the month and either pat myself on the back or tell myself "tsk tsk."  We don't use it as actionable info.  I go over budget quite routinely and I don't do anything about it.  (maybe it's more of a goal than a budget?!)  Because we are saving a good bit, it seems like not a big deal.  Really, the only reason it is a "budget is because I plugged some estimated numbers into the software.

And two, YNAB rule 4 is to live on last month's income; I like this idea, but we don't do it.  And here I thought I was respectable mustachian.  Even though we save a bunch of our income, we still use the current paycheck to pay current expenses.  Theoretically, we don't need the next paycheck since we have lots of cash savings to cover upcoming expenses, and have a portion of each check going into savings, even after the 401K contribution is taken out.  But if we didn't get that paycheck, it would mean dipping into savings to cover cash outflow.  In fact, it may be slightly worse that current paycheck for current expenses, since we use a CC and pay the balance in full when it is due nearly a month or more after we actually spent the money.  So when we get paid on 11/30, I will use that $ to pay in full the CC bill that is due on 12/5 that includes transactions from 10/8 to 11/7.  Essentially, I spent money on 10/8 that I didn't have (money that wasn't already earmarked for savings) until 11/30.  Wow, that's sounds really pathetic.  I would love to be more current with our expenses.

I don't know why, but this last issue bothers me.  It is very confusing to me in whether it is a real problem, or how to resolve it.  If I just transfer a paycheck's amount of cash from savings to checking, is the problem solved?  Is that cheating?  Do I need to cut back on spending and gradually work on making more frequent payments to the CC?

Will YNAB be of value to me, given my circumstances?  At least a $54 value?


krenwren

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #1 on: November 25, 2013, 03:17:21 PM »
I think YNAB would not be of any use to you.  It is designed for folks living paycheck to paycheck that don't have the funds you describe.  It's a tool for folks to hone in on their expenses and begin living on a budget. You appear to have full control over your money so don't need the lessons YNAB teaches.  Keep on kicking butt as you are!!!!

abhe8

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #2 on: November 25, 2013, 03:22:12 PM »
YNAB will allow you to easily creat a detailed budget and use it throughout the month (if you want to). I like the idea of spending next months income and that is how we do it. we dont' use a cc, so i'm not sure how to account for that "float," if you will. but essentially the "buffer" just a 1 month emergency fund. if you have access to emergency funds elsewhere and have steady employment, with no fears/concerns for sudden job loss, then i wouldn't bother, really. the whole phrase "paycheck to paycheck" means you have no savings. so that is clearly not you.

there is certainly nothing shabby about a 47percent savings rate. but, if you want to improve it, tracking and planning the budget for even small items can really turn up a big pile of cash. I also like ynab because you can easily see many savings goals (i think we have upwards of 10) for things you pay q6 months or annually (like car and life insurance and property taxes), christmas/gifts, vacations, furniture, house repairs, car replacement, etc.

for us, its worth the money we initially paid for the software, but i'm sure you could do the same thing with excel or similar for free. and fwiw, we didnt' have any debt other then student loans and mortgage when we started using YNAB. but its a great tool that saves us time and does help us to track and plan all our expenses.

i'm also not clear why you want to "be more current with our expenses."?? you must get some benefits from the CC, at the very least its a free loan for the 4-6 weeks or so, so you can earn more interest on the investment accounts by not keeping all that cash in the checking acct. is there another reason you want to get rid of the cc? moving to a simple debit card will fix the problem, if you see it as such.
« Last Edit: November 25, 2013, 03:25:49 PM by abhe8 »

Freedom2016

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #3 on: November 25, 2013, 03:43:12 PM »
I don't use YNAB personally but isn't the basic idea to have a 1-mo buffer of cash available?

Maybe I'm missing something but I would think you could set aside 1 months of expenses in a 100% liquid savings account - or put it in your checking account - and achieve the same thing that YNAB is talking about.

No?

Eric

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #4 on: November 25, 2013, 04:11:33 PM »
I don't really understand the problem.  You're saying that if a paycheck didn't show up, then you'd have to dip into your savings account to pay for your outlays that you were expecting to pay for with the paycheck?  Who wouldn't?  It's not really optimal to keep 2+ months of expenses in your checking account.

If you want to save more, then spend less.  The timing of the spending is irrelevant.   

sunshine

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #5 on: November 25, 2013, 04:24:51 PM »
We use  and love YNAB. I do it a bit differently. Our checking pays 2.85 percent up to $18k then it pay .65 on any extra. I have a $14k in there as buffer.  I  usually run around $22k in checkng since we budget for taxes etc. There is technically no budget float with a cc in YNAB. If it's not budgeted and you don't have cash in that category you don't spend it. Say I charge a $600 set of tires. You go by what is available in your YNAB budget category for auto repair not your checking account. I would go into my cc account on YNAB and enter $600 in car repairs. That subtracts it from that sinking funds budget area.  YNAB offers free online classes on how it works. It is very beneficial. Also if you try it but are unsure email them. They will send you a new key to get a longer free trial.

YNAB lumps all your account the way you want them. It doesn't matter if it  from savings, checking etc. You also have the choice of tracking accounts but not leaving them available for the budget.
« Last Edit: November 25, 2013, 04:28:35 PM by sunshine »

catccc

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #6 on: November 25, 2013, 07:05:55 PM »
Thanks for the replies... I think maybe I was over thinking this.  As others pointed out, we are taking advantage of the cc with a free loan.  Since the money sitting in savings is actually earning a teensy bit, we are better off doing things the way we are currently doing them, essentially we end up with more money in our pocket this way.  It was just getting in my head that it seemed messed up that the timing of cash flow to pay the cc was so delayed.  I mentioned this "problem" to my spouse, and he said that it seems wrong, and it would be wrong if we truly needed that next paycheck, but the reality is we are just working the system to our advantage, much like others have echoed here.

I do think that I will approach budgeting a bit differently, though, being more flexible and paying more attention during the month to try to modify behavior.  The intermittent expense budgeting I handle with monthly transfers to a saving vehicle that allows me to split and earmark within one account.  So I guess I'll pass on human and save my $60.

aj_yooper

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #7 on: November 25, 2013, 07:25:15 PM »
I think YNAB would not be of any use to you.  It is designed for folks living paycheck to paycheck that don't have the funds you describe.  It's a tool for folks to hone in on their expenses and begin living on a budget. You appear to have full control over your money so don't need the lessons YNAB teaches.  Keep on kicking butt as you are!!!!

This statement describes some users of YNAB, but not all.  My wife and I are well situated, but we gained by using YNAB.  We have a better picture of future  expenses and a joint plan to manage them.  For us, closely tracking expenses was a game that led to higher asset balances and a greater feeling of financial control.  If you have that with your current method, then all good. 

Congratulations on that 47% savings rate!

ArcticaMT6

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Re: living paycheck to paycheck (kinda) while saving nearly 50%
« Reply #8 on: November 26, 2013, 12:27:43 PM »
It's not really a problem. More of a bookkeeping thing. If you would have an extra month's expenses in those accounts, you would still have the same savings money, just in different accounts.

We do the whole pay bills with last month's money thing. First of the month has 1.5x the monthly requirement in there (I'm paid bi-monthly, and wife is paid every 2 weeks), and right before we get paid again, we are down to 1 month buffer.

It's the same thing where our vacation savings account is different from our normal savings account, but they are still part of our total savings. If something were to come up and I needed more money than we had in our regular savings account, it's not like I wouldn't be allowed to take money out of vacation. Just bookkeeping stuff.