Author Topic: Savings or Cost of Living?  (Read 9819 times)

The Dutchman

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Savings or Cost of Living?
« on: April 25, 2013, 05:50:39 AM »
So I have a question about "saving."  Right now I have 10 bank accounts.  I know; crazy but it really works well for saving.  Everything goes into the main account and gets distributed to the different accounts for spending and saving via automatic transfer.  I am saving for healthcare expenses, car repair, home repair, car replacement, and future down payment.  This money adds up quite quick. 

So what I am curious about is how you would categorize the "savings" accounts I have listed above (healthcare expenses, car repair, home repair, car replacement, and future down payment)?  These are not true "savings" because they are intended to be spent.  Some of these (car repair and health care) may not be spent 100% in a year and as such are rolled over to the next year.  If I find that I have a ton of money in my car repair over the next couple of years it might get rolled over to car replacement or retirement plan. 

Here are the facts:
52% - Living Expenses (mortgage, gas, insurance, cell, fuel, utilities, food, etc)
8% - Student Loans
17% - "Savings" for Future Expenses
10% - Tithing (this will always be part of my budget)
8% - 401k
3% - Retirement matched Plan
2% - Rounding Error/Misc

I make 82k and have 2 kids and a stay at home wife.  God bless my wife she is all about saving money and living what I call "Basic and Beautiful." 

Anyway, I have found that I am "saving" 8.5k yearly or 17% of my post tax/benefit income for Future Expenses.  To me I would not consider that savings; however, if I don't I am only saving 11% of my income toward retirement!  Is this the wrong way to look at it?  How do you guys manage your "future expenses" like car repair and replacement?

Lastly if you consider future expenses and living expenses as all part of my cost of living then my cost of living is 69%!  This seems high.  Do you agree?

Let me know what you guys think.  Thanks in advance.

-The Dutchman

mlipps

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Re: Savings or Cost of Living?
« Reply #1 on: April 25, 2013, 06:55:31 AM »
I agree that you can't count the money you're putting towards future expenses towards savings. I too have about 7 different "accounts", but I keep track of them in my budget spreadsheet and using the wish list in PNC's virtual wallet. BUT I would count the 8% per month towards loans as savings, as well as any part of a mortgage payment that is going towards principle.

superheropunk

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Re: Savings or Cost of Living?
« Reply #2 on: April 25, 2013, 09:26:41 AM »
Not sure how you can count loan payments as savings...?

Anyways, I think it you could count the "future expenses" 17% as savings because eventually if that savings rate is maintained and not spent you are going to have a nice pile of cash...

Not sure how old you are but the 401k % is really low if truly the 17% future expenses is going to be blown.

Catbert

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Re: Savings or Cost of Living?
« Reply #3 on: April 25, 2013, 09:31:15 AM »
I wouldn't count "saving" for future expenses as real savings.  It certainly isn't saving for retirement.

The Dutchman

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Re: Savings or Cost of Living?
« Reply #4 on: April 25, 2013, 09:40:39 AM »
So how do you guys who are saving 50% account for "Future Use" items like car repair/replacement?  Is that something that is delt with as it comes up?  Or do you save for it?

-The Dutchamn

AJ

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Re: Savings or Cost of Living?
« Reply #5 on: April 25, 2013, 10:00:06 AM »
I call those "future use" accounts Sinking Funds, and I make deposits to them monthly and include that monthly amount in my budget as an expense. When the time comes to use the money, I pay with my debit card and make a transfer of the exact amount from savings to checking, so it shows up as a wash. If an account builds up too high, I reduce the monthly contribution. If the cost exceeds what I have saved, I empty the account, call the difference an additional expense, and increase the monthly contribution. But there are probably as many way to handle it as people on the forums...

mlipps

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Re: Savings or Cost of Living?
« Reply #6 on: April 25, 2013, 10:05:33 AM »
Not sure how you can count loan payments as savings...?


Because they're increasing your net worth and after the debt is gone you can use that money for additional savings in a more traditional sense.

matchewed

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Re: Savings or Cost of Living?
« Reply #7 on: April 25, 2013, 10:56:57 AM »
The intentional saving for future expenses is called budgeting. For some people they have it all planned out like you do. Others just have a single bucket separate from their e-fund and draw down as necessary, and some people only have one bucket for everything and draw down as necessary as well.

If your savings are intended for retirement then it counts towards retirement. If the savings is intended for a more short term goal then it is not for retirement.

From your numbers you are saving 11% for retirement although your total savings rate is much higher.

As for whether your cost of living is high, that depends on your "frugality muscle" and your values. Are you spending in your values? Have you optimized your spending in a manner which allows you to do the things you enjoy and are valuable to you while minimizing or eliminating the rest? If you can say yes to those questions then 69% is fine. But I'm not sure if there is anyone who can say 100% yes. There is always room for improvement and looking up opportunities to manage your expenses better.

KulshanGirl

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Re: Savings or Cost of Living?
« Reply #8 on: April 25, 2013, 11:40:08 AM »
I have two percentages - Savings and Invested.  The money i save up for future expenses is in savings, and it counts in my net worth.  I haven't spent it yet, and if there were ever a need to do something different with it, I could.  It's still liquid until I spend it.  However, I do differentiate it from real retirement savings by calculating actual savings that are invested and at work.  My total savings rate right now is 37%.  My investment savings rate is 25%.

Villanelle

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Re: Savings or Cost of Living?
« Reply #9 on: April 25, 2013, 11:41:42 AM »
I don't really plan it out at all.  Since we have enough money for pretty much anything that comes along, I don't see a need.  If we are coming up on a major purchase, I might cut back a little here and there to beef up the accounts a bit in the few months prior to the purchase, but that's about it.

To me, that's one of the beautiful things about having enough money.  You don't have to allocate every penny and make sure you know where it is going to you can ensure you have enough. 

I don't really feel a need to calculate my savings % or anything like that, either.  I know, based on what is in my accounts, that I am saving enough to get me where I want to be when I want to be there.  It doesn't matter to me if it is 24% or 36%; what matters to me is the results. 

To me, at 82k (if that is take home), $9k in savings wouldn't be enough, but that is a call only you and your wife can make, based on your circumstances and values.  It seems like your sinking fund allowance is huge. Almost $14k/yr?  What kind of home maintenance or car repair are you doing?  What kind of car are you saving for?  If a large part of that is the house down payment, it makes sense, I guess. 

The Dutchman

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Re: Savings or Cost of Living?
« Reply #10 on: April 25, 2013, 11:53:40 AM »
To Clarify that is 82 pre tax / benefits

My "Future Costs" break down like this in my budget. 


                                           YEAR
Gift Savings                        1,304
Health Care                        1,044
Car Repair                          2,348
Home Repair                       1,320
Car Replacement                2,087
Down payment                   1,620

TOTAL                                 9,723

The Dutchman

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Re: Savings or Cost of Living?
« Reply #11 on: April 25, 2013, 11:55:25 AM »
$9k in savings wouldn't be enough

Not that far off it sounds like.

Cecil

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Re: Savings or Cost of Living?
« Reply #12 on: April 25, 2013, 11:56:45 AM »
We take home about $7000/month and spend roughly $2000 on "regular" expenses.

Things like yearly car insurance, home repairs, yearly trips, one-off furniture expenses, we just pay for as they come up. I don't bother saving up for them, they just decrease the amount we happen to save for retirement in that month.

Over the course of a year, we wind up saving about 50% of our take-home for retirement - that's what I call our "savings" rate.

The Dutchman

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Re: Savings or Cost of Living?
« Reply #13 on: April 25, 2013, 11:59:53 AM »
Things like yearly car insurance, home repairs, yearly trips, one-off furniture expenses, we just pay for as they come up. I don't bother saving up for them, they just decrease the amount we happen to save for retirement in that month.

So it sounds like you have one pot of Money?  I think I am a little less trusting of myself and want to make sure I am not spending too much in one category or another. 

But we are all different that is why I wanted to see how others did it. 

mlipps

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Re: Savings or Cost of Living?
« Reply #14 on: April 25, 2013, 12:02:27 PM »
I'd count the down payment towards your savings percentage personally.

Cecil

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Re: Savings or Cost of Living?
« Reply #15 on: April 25, 2013, 12:19:03 PM »
Things like yearly car insurance, home repairs, yearly trips, one-off furniture expenses, we just pay for as they come up. I don't bother saving up for them, they just decrease the amount we happen to save for retirement in that month.

So it sounds like you have one pot of Money?  I think I am a little less trusting of myself and want to make sure I am not spending too much in one category or another. 

But we are all different that is why I wanted to see how others did it.

Yeah, we just have one big pot. Paycheques come into chequing, bills go on the credit card, I pay off the card once a month and the remainder gets swept into the online brokerage account for investing.

It works for us because we're both frugal and I never have the feeling of money burning a hole in my pocket. Frankly I couldn't tell you how much money is in the chequing account at any given time - it's irrelevant to our spending habits.

Villanelle

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Re: Savings or Cost of Living?
« Reply #16 on: April 25, 2013, 01:45:17 PM »
So you are spending $2300 a year on car repairs?  Sell that car immediately.  You can buy a low mileage, perfectly sufficient car for $6k or less, of which you can pay some with the proceeds from your sale of your current car. 

At that point, you can put the $2000+ you currently save for a new car toward the house down payment, plus whatever you currently have in the new car fund (since you are only going to spend $2k or less on the new-to-you car), and you can take all but maybe $500 of the car maintenance  fund and put it in savings.  That $500 month can be used toward the minimal maintenance on the new car, and toward saving a few bucks a month toward the next car you will need to buy in 10 years.

Seriously, $4400 a year on cars is way, way, way too much. 

.22guy

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Re: Savings or Cost of Living?
« Reply #17 on: April 25, 2013, 01:53:12 PM »
I can't imagine juggling 10 bank accounts.  I have money squirreled away in 3 different places and even that gets annoying sometimes.

AJ

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Re: Savings or Cost of Living?
« Reply #18 on: April 25, 2013, 01:54:20 PM »
To me, that's one of the beautiful things about having enough money.  You don't have to allocate every penny and make sure you know where it is going to you can ensure you have enough. 

Whhhaaattttt?!? But, but, but...it's just so much FUN! :P

The Dutchman

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Re: Savings or Cost of Living?
« Reply #19 on: April 25, 2013, 01:56:51 PM »
So you are spending $2300 a year on car repairs?  Sell that car immediately.

Split two ways.  1 for me 1 for my wife.  These are both high milage older cars.  2001 Nissan Ultima and 2003

Seriously, $4400 a year on cars is way, way, way too much.

The replacement is again for two cars.  Basically my wife needs an upgrade (2001 Nissan) since we just had our second child and 2 years from now we will be on our 3rd.  The replacement is set up so that a couple months before our third I will have 5k to purchase a different car for her.  Likely some sort of station wagon.  Trying to stay away from the SUVs. 

The Dutchman

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Re: Savings or Cost of Living?
« Reply #20 on: April 25, 2013, 02:01:37 PM »
I can't imagine juggling 10 bank accounts.  I have money squirreled away in 3 different places and even that gets annoying sometimes.

If you have savings goals or want to track spending it is great.  If I do a car repair I transfer the money ahead of time or just after and it is a cost zero in my main account.  Same with my Gift fund; that covers my whole year.  I just bought a birthday present for my wife and I will transfer money from the "Gift Fund" to the main account. 

It is a great system for understanding where your money goes.  If you go with the big pot of money and you don't have good self control it could go poorly.  Also, I really only mess with 2 accounts: my daily spending and my main account.  The remainder are really savings for future items. 

PS - The gift one is great if you run a tight budget.  By the time Christmas comes around if you have planned correctly it is not to much of a heart ache.  If you are frugal it shouldn't be anyway. 

.22guy

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Re: Savings or Cost of Living?
« Reply #21 on: April 25, 2013, 02:16:33 PM »
I'm glad it works well for you.  Mostly, I just imagine getting 10 sets of bank statements, emails regarding the accounts, watching them all for fraud or those infamous fees that banks love to charge.


The Dutchman

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Re: Savings or Cost of Living?
« Reply #22 on: April 25, 2013, 02:20:59 PM »
I'm glad it works well for you.  Mostly, I just imagine getting 10 sets of bank statements, emails regarding the accounts, watching them all for fraud or those infamous fees that banks love to charge.

Ha, go with a local Credit Union and tell the banks to shove it.  All my statements come in one online and there are no fees.  I made the move from Chase to a local credit union and love it to death.  No minimums, no fees, no BS, and GREAT customer service. 
« Last Edit: April 25, 2013, 02:52:20 PM by The Dutchman »

jexy103

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Re: Savings or Cost of Living?
« Reply #23 on: April 25, 2013, 02:48:48 PM »
I can't imagine juggling 10 bank accounts.  I have money squirreled away in 3 different places and even that gets annoying sometimes.

I use a budget software called YNAB (You Need A Budget). My husband and I had about 14 accounts between the two of us when we first got married (each of our personal accounts plus our new joint accounts). Because YNAB tracks our budget and our accounts, we no longer need an account designated for only one savings goal- we have our primary checking for all the in and out money, and one savings account for all of our savings goals- emergency fund, car repair, travel to my father's wedding in September, etc. YNAB tracks how much of that total savings amount is designated for each individual goal, so I don't need a bunch of accounts anymore. We have four right now, and I'll be closing two in the next few months. We really only use one checking and one savings account now. It's glorious.

I would agree that the amount you're saving for specific expenses shouldn't be considered toward your retirement goals. I like KulshanGirl's idea of two percentages- retirement savings and total savings. When you look at MMM's Shockingly Simple Math charts, you'll use your retirement savings goal as your percentage to see how many years it will take you to retire. However, if you're setting money aside to be used in several months or years later, that is a form of savings and shouldn't be ignored. I would also run the numbers to include your student loan payments. Even though it isn't truly saving, it's money that is increasing your net worth and you aren't using for expenses, so it would be accurate to include that percentage when looking at the Shockingly Simple Math charts.

AJ

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Re: Savings or Cost of Living?
« Reply #24 on: April 25, 2013, 03:33:01 PM »
I'm glad it works well for you.  Mostly, I just imagine getting 10 sets of bank statements, emails regarding the accounts, watching them all for fraud or those infamous fees that banks love to charge.

Ha, go with a local Credit Union and tell the banks to shove it.  All my statements come in one online and there are no fees.  I made the move from Chase to a local credit union and love it to death.  No minimums, no fees, no BS, and GREAT customer service.

There is also the ever-popular "ING sub-accounts", which is what we use. No fees, no emails, no statements unless I want to look at them (and since they are savings accounts, I don't ever need to look). Easy to open, easy to close, easy to nickname, decent rate. I've also kept a single account and tracked the amounts in Excel, but the separate accounts lets me have direct deposits sent to each from my paycheck and I don't have to think about it or ever see the money in checking. But I will admit, the increase in convenience is slight. If it is too much mental clutter, don't bother.

Edit to add: The other very slight benefit to multiple savings accounts of this type is that savings accounts are limited by law to 6 outgoing transactions a month. So, if you have a car repair, life insurance premium, property taxes, three birthdays (gifts), and a medical co-pay in one month you'll have to be careful about how you structure the transfers our of your single savings account. In ten years of budgeting I have run into that scenario only once, but it is something to be aware of...
« Last Edit: April 25, 2013, 03:37:51 PM by AJ »

Zee

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Re: Savings or Cost of Living?
« Reply #25 on: April 25, 2013, 03:48:08 PM »
I don't really plan it out at all.  Since we have enough money for pretty much anything that comes along, I don't see a need.  If we are coming up on a major purchase, I might cut back a little here and there to beef up the accounts a bit in the few months prior to the purchase, but that's about it.

This is how I operate.  I'll try to keep a minimal amount in checking, perhaps a $2K or so, and then funnel the balance to either a savings account (working towards approx 12-months of living expenses) or a taxable brokerage account.  Roth IRAs are fully funded at begining of year and 401k maxed.  I have the flexibility to cut back if a larger expense pops up.  Don't have any planned future purchases at this time. 


Dutchman - I might suggest simplifying your accounts (i.e. with uncertain car repairs and healthcare costs).  Perhaps consolidating these within another account or put a hold on future contributions until an expense comes up.  You can then direct additional funds to your retirement savings. 

Joel

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Re: Savings or Cost of Living?
« Reply #26 on: April 25, 2013, 04:02:51 PM »
I would consider using YNAB for budgeting and simplifying your bank account system. The seperate single-purpose accounts can become categories within your budget. That way you can have one account that holds all the 10 different categories, as opposed to having 10 different accounts and worrying about transfering back and forth and all that nonsense.

Needless to say. Who cares what the percentage is. Everyone uses numbers differently. You can only do the best you can within your individual circumstances. Comparing your percentages to "ideal" percentages only adds so much value.

So I have a question about "saving."  Right now I have 10 bank accounts.  I know; crazy but it really works well for saving.  Everything goes into the main account and gets distributed to the different accounts for spending and saving via automatic transfer.  I am saving for healthcare expenses, car repair, home repair, car replacement, and future down payment.  This money adds up quite quick. 

So what I am curious about is how you would categorize the "savings" accounts I have listed above (healthcare expenses, car repair, home repair, car replacement, and future down payment)?  These are not true "savings" because they are intended to be spent.  Some of these (car repair and health care) may not be spent 100% in a year and as such are rolled over to the next year.  If I find that I have a ton of money in my car repair over the next couple of years it might get rolled over to car replacement or retirement plan. 

Here are the facts:
52% - Living Expenses (mortgage, gas, insurance, cell, fuel, utilities, food, etc)
8% - Student Loans
17% - "Savings" for Future Expenses
10% - Tithing (this will always be part of my budget)
8% - 401k
3% - Retirement matched Plan
2% - Rounding Error/Misc

I make 82k and have 2 kids and a stay at home wife.  God bless my wife she is all about saving money and living what I call "Basic and Beautiful." 

Anyway, I have found that I am "saving" 8.5k yearly or 17% of my post tax/benefit income for Future Expenses.  To me I would not consider that savings; however, if I don't I am only saving 11% of my income toward retirement!  Is this the wrong way to look at it?  How do you guys manage your "future expenses" like car repair and replacement?

Lastly if you consider future expenses and living expenses as all part of my cost of living then my cost of living is 69%!  This seems high.  Do you agree?

Let me know what you guys think.  Thanks in advance.

-The Dutchman

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Re: Savings or Cost of Living?
« Reply #27 on: April 26, 2013, 07:53:17 AM »
I will third YNAB. It makes things so much much simpler, because you can setup as many budget categories as you want, and it doesn't matter which account the money is sitting in. For example, we only have one joint chequing and one joint savings account, but we have multiple savings categories setup (i.e. categories include home improvements, new car, electronics, vacations, etc). It doesn't matter where the money in those savings categories is sitting, so I just keep a buffer in our chequing account of around $2k, and the remaining money that we have categorized I just move to the savings account because it gets marginally better interest. I love YNAB!

superheropunk

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Re: Savings or Cost of Living?
« Reply #28 on: April 26, 2013, 08:54:19 AM »
LOL.

I will have to fourth YNAB... Plus there is a YNAB phone app that works well with the PC software....

The Dutchman

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Re: Savings or Cost of Living?
« Reply #29 on: May 02, 2013, 11:12:40 AM »
Thanks all.  YNAB looks to be the "kitten's mittens" I will likely check it out in the near future.  I am fairly far down the rabbit hole with my multiple accounts so I will probably let that marinate for a while before I make the change.  Thanks for the help guys.