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 SO’s 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. I’m locked into a 2 year contract and this figure includes SO’s 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 (SO’s): 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, SO’s game subscription. I’m fine with this as it’s SO’s 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 (SO’s 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
SO’s 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 don’t 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.