Author Topic: Reader Case Study - SO laid off/downturn, budget review appreciated  (Read 5931 times)

duellingbanjos

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Topic Title: Reader Case Study Spouse laid off/downturn, budget review appreciated

Life Situation:
More details are below, but in short, we earn a decent living and live quite comfortably. However with SO unemployed (and not likely to find reemployment at the same salary range) we need to trim our budget. We are in a Non-US location: HCOL, housing/vehicles/gas are especially crazy. Readers will have to take some figures at face value.

SO and I are 40 and 32 respectively. Two kids 4 and 6. Formerly US based but relocated.
We are fortunate to have the option to live rent free at my inlaws. Our location has excellent public transport, so we might sell our one vehicle if SO is not reemployed soon. We own an apartment but plan to rent the unit and have the rental income cover the mortgage/incidental expenses.
All figures in USD, but may be rounded up/down due to conversion rate.

Gross Salary/Wages: Our gross annual income for 2015 is 155000, or 12,916/m. This includes SOs severance payment. Once we roll over into 2016, we expect my monthly gross to be USD5700 for each month that SO is unemployed.

Pre-tax deductions: Mandatory 20% contribution from my salary to govt retirement account. Mandatory Employer contribution of 16%.

Other Ordinary Income: NA

Qualified Dividends & Long Term Capital Gains: NA

Rental Income, Actual Expenses, and Depreciation:
We purchased a soon to be completed apartment and intended to live in it. However we think that it may be more prudent to use the unit as a source of rental income.
Anticipated rental income in 2016: 3100/month

Adjusted Gross Income
2015: 124,000 for 2015 or 10,333/month
2016: 7660/month until SO is reemployed.

Taxes:
Income tax is not deducted. We set aside ballpark figure of $400/month to account for this.

Current expenses:

Mortgage: 1,400 (as explained below)
HOA: ?? tbd
Home insurance: ?? tbd
New apartment utilities: ??tbd
Phone bills: 57  we own basic smartphones. Im locked into a 2 year contract and this figure includes SOs post-paid plan of $21/m.
Monetary contribution to inlaws: 360  this includes all our meals, and incidental childcare from inlaws.
Groceries: 145
Lunch money (mine): 30
Public transport to work (mine): 215
Fun money (mine): 145
Fun money (SOs): 100
Eating out: 100
Medical: 15
Clothing: 35
Household items: 35
Kid clothing/toys/books: 100
Kid activities: 330 (gym, ballet and art classes for both. Soon to be reduced to 200)
Monthly subscriptions  50 (NYT, SOs game subscription. Im fine with this as its SOs main entertainment expense)
Misc purchases: 35
Dental: 250
Eyeglasses: 15
Tolls/Parking: 35
Fuel: 145
Road tax: 70
Car Repairs: 145
Auto insurance: 165
Term insurance: 155
Income tax: 400
Kids school fees: 140
Home maintenance/Furniture: 70
Birthdays: 10
Christmas: 50
Computer/phone replacement: 180 (SOs desktop is 9 years old, due for replacement soon)
Vacation: 145
Savings: 0 (we used to have a line item for this, but will be 0 or negative for near future)

Total: 5147/month

Expected ER expenses: Not considered atm

Assets:
 
Rental apartment: 930,000
Vehicle: 7 year old Jetta. Fully paid off. Depreciates at about 530/month. Could sell this for 35,000
Savings: 144,000  I deserve a facepunch for not having yet set up a local Vanguard-esque account. This is on my todo list. We plan to fund the account with USD100k, and keep the remaining 44K as liquid funds.
Roth IRAs: 12,000
529: 6,000
SOs US-based retirement account: 15,000
My retirement account: 17,000 (as below part of this will fund mortgage)

Liabilities:
Rental apartment: 2,400/month (1,000 of which is funded from retirement account, so our outlay is 1,400/month)

Specific Question(s):

Note: we use our budget as a guide for spending limits and dont track our spending very closely. Our historical average spending per month over the last two years is $3500-4000. I have the tendency to inflate the budget with line items because I dislike surprise expenses such as computer replacement or a car repair.

My specific questions are: What could we cut from our budget in terms of amount? Could we eliminate some categories altogether? When should we sell the car (we were thinking of holding onto it until SO has completed minor fixit work to the new apartment)? Comments and facepunches very welcome.

PFHC

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #1 on: October 14, 2015, 12:13:31 AM »
If you are asking for budget advice after your SO became unemployed, I'm assuming this is an emergency. In that light, my advice will treat it as such. Also, you need to read more MMM and get more from it as much of the improvements I'm going to suggest are direct from him. That said, here goes:

Mortgage: 1,400 (as explained below)
Phone bills: 57  we own basic smartphones. Im locked into a 2 year contract and this figure includes SOs post-paid plan of $21/m.
Monetary contribution to inlaws: 360 - This should be $0. Your SO is HOME. That should be their job.
Groceries: 145 - Is this monthly? It seems very low.
Lunch money (mine): 30 - Pack your lunch.
Public transport to work (mine): 215 - Can you ride a bike or walk?
Fun money (mine): 145 - Reduce or get rid of this until you're back on your feet.
Fun money (SOs): 100 - Get rid of this until he has a job.
Eating out: 100 - If money is tight, this should be gone.
Medical: 15
Clothing: 35 - Not needed.
Household items: 35
Kid clothing/toys/books: 100 Get rid of this. I have two kids ages 3 and 5 and we spend less than $100 on all of us together. You do not need it.
Kid activities: 330 (gym, ballet and art classes for both. Soon to be reduced to 200) - Reduce it to $0. Your SO is not working and thus, should have oodles of time to spend with your lovely children.
Monthly subscriptions  50 (NYT, SOs game subscription. Im fine with this as its SOs main entertainment expense) - If money's tight, toughen up and scrap this wasteful expense.
Misc purchases: 35
Dental: 250 - A month!!!! What do you have a grill? Where does this go?
Eyeglasses: 15
Tolls/Parking: 35
Fuel: 145 - Reduce your driving. ASAP.
Road tax: 70
Car Repairs: 145 - What are you doing that you're spending $145/mo on car repairs?!
Auto insurance: 165
Term insurance: 155
Income tax: 400
Kids school fees: 140
Home maintenance/Furniture: 70
Birthdays: 10
Christmas: 50
Computer/phone replacement: 180 (SOs desktop is 9 years old, due for replacement soon) - It will have to work because... your SO DOESN'T HAVE A JOB and you can't afford your life right now.
Vacation: 145
- Not until your SO has a job.
Savings: 0 (we used to have a line item for this, but will be 0 or negative for near future)

Total: 5147/month
 
Rental apartment: 930,000
Vehicle: 7 year old Jetta. Fully paid off. Depreciates at about 530/month. Could sell this for 35,000 - I would sell this yesterday if you can actually get 35,000 for it.
Savings: 144,000  I deserve a facepunch for not having yet set up a local Vanguard-esque account. This is on my todo list. We plan to fund the account with USD100k, and keep the remaining 44K as liquid funds. - Get that under control.
Roth IRAs: 12,000 -
529: 6,000
SOs US-based retirement account: 15,000
My retirement account: 17,000 (as below part of this will fund mortgage)
-  If you are spending $5200/mo, this is embarrassing. Get your spending under control.

Liabilities:
Rental apartment: 2,400/month (1,000 of which is funded from retirement account, so our outlay is 1,400/month) - How does this work?

Specific Question(s):

Note: we use our budget as a guide for spending limits and dont track our spending very closely. Our historical average spending per month over the last two years is $3500-4000. I have the tendency to inflate the budget with line items because I dislike surprise expenses such as computer replacement or a car repair.

My specific questions are: What could we cut from our budget in terms of amount? Could we eliminate some categories altogether? When should we sell the car (we were thinking of holding onto it until SO has completed minor fixit work to the new apartment)? Comments and facepunches very welcome.

OK, get your crap under control. I took five minutes to look through this and found $2220 of bullshit spending (see bold above). That is bullshit spending whether you SO was working or not. It is just wasteful, especially so since SO is not working. To me, your SO doesn't need to work and you could still put $2200/month into your retirement accounts. It is madness to do anything else. If your SO must work, then you can still cut $1900 and put even more in retirement.

Time to tighten up and get serious.

Kaminoge

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #2 on: October 14, 2015, 09:40:41 AM »
Ummmm the money to inlaws includes nearly all their meals (hence the low grocery costs). Unless she's about to start eating her SO that's not something that can be trimmed.

Mother Fussbudget

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #3 on: October 14, 2015, 10:23:44 AM »
To your questions:
1) Yes, cut the budget.  PFHC gives good guidance.  But keep the $360+145 'inlaws/food' budget.  Research FREE things in your area. 
2) Yes, eliminate some categories altogether (see PFHC's feedback)
3) Sell the car immediately.  Increase your net worth and eliminate the fuel + repair outlay.
4) (unasked) Move that $144K out of 'savings' and into an investment that either earns investment income (ex: Vanguard account), or passive income (i.e. buying mortgage notes).

Question: 
Where do you plan to spend your FI years?  USA, Europe, abroad? 
The answer to this question could influence WHERE you put your primary investment account.  You *could* have that account local to the country where you plan to live out your FI years.  But keeping it in the US might be wise for monetary stability.  If you go the US route, open a Vanguard Account, or self-directed IRA account (where you can hold stocks or bonds or ETF's or real estate or precious metals or... etc).   Give those 'savings' dollars "jobs" right away.
Your dollars are worker bees and can be bringing more honey back to the hive, but NOT while sitting in a bank savings account.  Put them to WORK.

charis

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #4 on: October 14, 2015, 11:01:23 AM »
You can get $35K for your seven-year-old Jetta?  What the what?

Sibley

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #5 on: October 14, 2015, 02:59:13 PM »
+1 on PFHC's post.

Also, you state that you don't track spending. Guess what - you do now! Every single penny (or whatever the smallest possible denomination of the local currency is).

duellingbanjos

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #6 on: October 14, 2015, 06:14:56 PM »
Thanks everyone.

I'm going to respond here, and edit the original post later. A lot of these line items were pre-layoff and we used them as maximum limits, meaning we frequently spend less. We tracked for a few months in 2014, saw that we weren't exceeding the amounts, then stopped tracking as we are pretty much creatures of habit. I will track expenses for a month and report back.

Monetary contribution: This is actually our share of the groceries and utilities, and covers all meals as a family of 4. Sorry if there was confusion about this.
Groceries: This category used to be for grocery purchases that MIL didn't already get, or SO's lunch supplies. We can delete this entirely.
Lunch money: I already pack my lunch from the veggie drawer, so no hardship there. I used to purchase fruit occasionally, but I can do without.
Public Transport to work: This is the unavoidable cost of getting to my workplace. Biking would be unsafe here, as well as take me approx. 4 hours a day.. I am looking for another position with a shorter commute, but will have to proceed carefully.
Fun money: I think it would be reasonable to cut this to $30 each. This would cover things like haircuts or a bag of chips etc.
Eating out: Agreed, this has to go. We should be fine. I think we ate out once in the last couple months..
Clothing: Agreed and deleted
Kids clothing/toys/books: I'm not sure why we allocated 100 to this, since they have plenty of all these. Deleted.
Kids Activities: I respectfully disagree here as we feel that there's value in having kids in these activities. We've found gym to be a great cheap(er) substitute for physiotherapy for one of our kids. Ballet lessons are $5.50 each, and I think it's a good value for that price. I suppose I will cut this last.
Monthly subs: SO is a lot less mustachian than me and I have to pick my battles. It's a lot easier to cut other categories if I leave this alone.
Dental: We don't have dental coverage/insurance (not offered in this market). We've shopped around and this is pretty much what it costs for 4x cleanings, fillings and allowance for 1 crown a year. SO also needed an implant this year, which jacked up the monthly average.
Car stuff: This car is expensive! Checked with SO, who confirmed that gas will indeed cost about $145 despite minimal usage. We'll put it on the market.
Computer: We won't be buying one in the near future, but we might the next year, or year after that. I would feel better having it as a line item so that I know its coming. How does everyone else account for this?
Vacation: agreed, not in the books now.

Mother Fussbudget: We haven't decided where we will spend our retirement years. The US is a possible choice. We do have US Vanguard accounts, but will not contribute to them from here, because we would be taxed at 30% on any dividends. Hence the need to open a brokerage account here, that will allow us to buy VT ETFs.

Jezebel: yes, isn't that insane? However, good for us because that means that we can get a chunk of change back!

JDadinPA

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #7 on: October 14, 2015, 07:39:37 PM »
First time posting but have followed the boards for some time.  I also have to chime in on the Jetta, are you saying you can get 35k usd?  If so, where on earth can you get 35k for a 2007 jetta when you could go buy a fully loaded 2016 for 31-32k?


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charis

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #8 on: October 15, 2015, 07:49:47 AM »
First time posting but have followed the boards for some time.  I also have to chime in on the Jetta, are you saying you can get 35k usd?  If so, where on earth can you get 35k for a 2007 jetta when you could go buy a fully loaded 2016 for 31-32k?

Yeah.  We have a 2007 Jetta that is worth maybe $7K in the US.  Where did you get that number?

nereo

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #9 on: October 15, 2015, 08:03:35 AM »
where are you located?  That could be useful information for offering tailored suggestions...

snuggler

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #10 on: October 15, 2015, 10:02:01 AM »
Congrats on being open to so many changes and suggestions! That attitude will serve you well during this downturn, and help keep you on track for your financial goals.

One thing I wanted to push back slightly on is the kid's activities. I understand that some of these might be very important, but is there a way you could reduce this expense, since you won't eliminate it?

For example, the kids could get art and ballet lessons, but only one at a time. That way you only have ballet lesson costs one month, art lesson costs the next, etc.

Or you could keep both, but have Dad do the art lessons for now, since there are so many great art lesson ideas on the internet (e.g., on Pinterest and Mommy blogs). Heck, you can probably even find both ballet lessons and art lessons online for free on YouTube.

And how expensive is that gym membership? Are there lower cost gyms nearby? Could you cut that membership when the weather is nice?

nereo

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #11 on: October 15, 2015, 10:08:39 AM »

One thing I wanted to push back slightly on is the kid's activities. I understand that some of these might be very important, but is there a way you could reduce this expense, since you won't eliminate it?
I agree with this.  Spending on kids is sometimes seen as a 'sacred cow' - we never want to deprive our offspring.  But, done correctly, showing your kids that resources aren't unlimited can be very good for them.  I wouldn't zero-out the kids budget, but scaling it back can be a good thing for all involved.

Also - glad to see you are so receptive to many of the suggestions already offered.  Most financial catastrophies I see aren't because of an emergency or job loss per-se, but because they fail to adapt after the job loss or emergency.  You seem very willing to do exactly what you need to keep this from becoming a much bigger deal than it is.

Mother Fussbudget

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #12 on: October 15, 2015, 12:19:25 PM »
Quote from: duellingbanjos
Mother Fussbudget: We haven't decided where we will spend our retirement years. The US is a possible choice. We do have US Vanguard accounts, but will not contribute to them from here, because we would be taxed at 30% on any dividends. Hence the need to open a brokerage account here, that will allow us to buy VT ETFs.

YIKES!!  Dividends Taxed @30%?!?!   Wow.... agreed.  Open a local low-commission self-managed brokerage account.   

duellingbanjos

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #13 on: October 29, 2015, 05:34:46 PM »
End of Oct (almost there anyways) UPDATE on spending:

Monetary contribution to inlaws: on review of the costs, we decided to increase this from 360 to 400 to cover the food we are eating.
Groceries: 145 budgeted: 0; spent: 10 (milk/eggs)
Lunch money (mine): 30 budgeted: 0; spent: 0! I've packed a lunch everyday and will continue to do so.
Public transport to work (mine): 215; spent: 20 I lied.. there is a lower cost form of transport that entails getting up earlier, which I now do.. Seemed like a hardship before, but it's really not too bad.
Fun money (mine): 145 budgeted: 30; spent: 0
Fun money (SO’s): 100 budgeted: 30; spent: 30 - snacks/icecream
Eating out: 100 budgeted: 0; spent: 0
Medical: 15; spent: 10
Kid activities: 330 (gym, ballet and art classes for both. Soon to be reduced to 200) -- yes, as mentioned by others, this is the sacred cow. We've decided to stop the art classes at the end of the term, which will take the costs to $200.
Monthly subscriptions: 50 (NYT, SO’s game subscription. I’m fine with this as it’s SO’s main entertainment expense) -- did the math, this is actually $40/m
Dental: 250 - I've looked into getting some of my dental care done at a lower cost clinic. Unfortunately fees for more complicated work such as root canals/crowns are similar, so there won't be a lot of savings here.

EDIT to add: also opened two brokerage accounts. Going through administrative stuff before funding.
« Last Edit: October 29, 2015, 05:44:43 PM by duellingbanjos »

karaishere

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #14 on: October 29, 2015, 06:33:01 PM »
Fun money (mine): 145 budgeted: 30; spent: 0
Fun money (SOs): 100 budgeted: 30; spent: 30 - snacks/icecream

Monthly subscriptions: 50 (NYT, SOs game subscription. Im fine with this as its SOs main entertainment expense) -- did the math, this is actually $40/m

Why does your spouse get an extra $40/month for fun over you?

rpr

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #15 on: October 29, 2015, 06:47:37 PM »

Gross Salary/Wages: Our gross annual income for 2015 is 155000, or 12,916/m. This includes SOs severance payment. Once we roll over into 2016, we expect my monthly gross to be USD5700 for each month that SO is unemployed.


Adjusted Gross Income
2015: 124,000 for 2015 or 10,333/month
2016: 7660/month until SO is reemployed.


Can you explain how you get the $7660/per month figure?

Quote

Assets:
 
Rental apartment: 930,000


Liabilities:
Rental apartment: 2,400/month (1,000 of which is funded from retirement account, so our outlay is 1,400/month)
What is the remaining mortgage value of  the rental apartment? That is the liability.

duellingbanjos

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #16 on: October 29, 2015, 07:17:15 PM »
Karaishere - I make my own fun :) To be serious, I have better fiscal control than SO and he is the kind of person that will bust out and do something stupid if he doesn't have his small pleasures. Hoping to lead by example.

rpr -

4560 (adjusted income) + 3100 (approx rental income in 2016) = 7660. These are all variable figures anyway because my income has a variable component and we haven't actually rented the place out yet.

remaining amount on the mortgage = 715,000. Interest rate is variable but in the low 1.5% range. I know many will see this as a huge risk/liability, but we may sell in the foreseeable future.

Am also exploring better paying job options.

karaishere

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #17 on: October 30, 2015, 01:16:42 PM »
Hoping to lead by example.

Well, I do understand that. That's what I did (and still do) for my husband and it works. Just the other week he was using retirement calculators online. ;)

mm1970

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #18 on: October 30, 2015, 01:37:04 PM »
You can get $35K for your seven-year-old Jetta?  What the what?
I'm guessing Denmark (because I have friends/ inlaws there) or perhaps London, or other expensive European cities.

rpr

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Re: Reader Case Study - SO laid off/downturn, budget review appreciated
« Reply #19 on: October 30, 2015, 06:38:22 PM »


rpr -

4560 (adjusted income) + 3100 (approx rental income in 2016) = 7660. These are all variable figures anyway because my income has a variable component and we haven't actually rented the place out yet.

remaining amount on the mortgage = 715,000. Interest rate is variable but in the low 1.5% range. I know many will see this as a huge risk/liability, but we may sell in the foreseeable future.


Thanks for the explanation. I know this is your post and thread and I'm most certainly not an accountant. You are correct in including the value of the house as an asset but at the same time you MUST include the balance of the mortgage as a liability. At least this is my understanding of accounting. But this is besides the point.

You claim that on average you spend under $4000/month. Does this include all expenses including those that are irregular and those that occur annually such as taxes, insurance, repairs etc.

One of the issues I have is the way some of the items are listed in your budget. Here is how I would do it.

1. Income: List the income from all sources such as salary and rental income.  I would exclude withdrawals from retirement accounts since you are still working. For example:
Salary = $4560
Rental income = $3100
Total income = $7660

2. Expenses: List all expenses. Include in this your rental mortgage payments as well. 
All Household expenses = $4000
Rental mortgage payment = $2400
Total expenses = $6400

However,  the current situation is that you have no rental income as the property is not ready yet. Thus you are in a financial hole at this point and need to withdraw from saving accounts to meet your expenses.

According to above calculations, once the apartment rents out, you will be spending less than you are earning. That is great. You would then not need to take out $1000 from the retirement to pay part of the mortgage.

I hope that 1) your SO will find a new job and 2) that your apartment will be rented out real soon.

Good luck and Best wishes!