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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:21 PM   #21
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Re: Got some free time? Help me build a budget for

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Originally Posted by brewer12345
Even with a six figure income, it is a challenge to support a middle class lifestyle.* Is it a big surprise that many young couples forgo children?
No.* With that income, that family should live a comfortable life, and able to save for retirement.

The mistake made by this hypothetical family was that they listen to their bank, and let the lender decides on how much they should/could spend on the house.* *Had they bought a 260K house (2x gross income, 20% down payment), they would be doing fine, with about 7K saving per year.

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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:25 PM   #22
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Re: Got some free time? Help me build a budget for

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Originally Posted by Sam
No.* With that income, that family should live comfortable, and able to save for retirement.

The mistake made by this hypothetical family was that they listen to their bank, and let the lender decides on how much they should/could spend on the house.* *Had they bought a 260K house (2x gross income, 20% down payment), they would be doing fine, with about 7K saving per year.
Hmmm, well, difference of opinions makes a market. The reasons I got away with it was that I bought my current home for 300k (not the inflated current price), DW stays home with the kids so no daycare, and I had a downpayment of 20%. But you know what $260K buys you in my area these days? A modest condo or a serious fixer-upper in a marginal neighborhood. Not places I would be real eager to be raising my kids.

I don't think it is preferable to take the 390k chance, but its probably a gamble I would take if I were not as well off as I am today.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:29 PM   #23
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Re: Got some free time? Help me build a budget for

Sam,

I just went and compared what you wrote here to what I spent in 2005.

I believe your numbers are realistic. Sure, I had some expenses that were lower, and some higher, but those were not the budget busters.

My wife and I only brought home $100k that year, but we still saved $15k of that. No student loans and less car payments for us, but we also spent 9K on entertainment and travel. We spent less in tax (less income, less tax) clothes and daycare.

You've got $50,000 per year in housing related costs listed. That's what's killing the budget. The "3x salary" advice does not allow for meaningful retirement savings. Early retirement would be impossible. Someone trying to live this lifestyle would essentially be trading a lifetime of work (until age 67+) to live in that kind of house.

When I look at my budget from 2005, the big difference is housing costs. Mine were only $27k for 2005, including utilities, property tax, home improvements and so on. House was bought for $175k four years ago. Our neighborhood is just like what brewer described. I definitely feel that low-cost housing is what allows me to contemplate FIRE.

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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:37 PM   #24
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Re: Got some free time? Help me build a budget for

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Originally Posted by slepyhed
The "3x salary" advice does not allow for meaningful retirement savings. Early retirement would be impossible. Someone trying to live this lifestyle would essentially be trading a lifetime of work (until age 67+) to live in that kind of house.
Can't say it any better.* I use 3x myself as the ABSOLUTE maximum, in case I end up in some high speculate demand area.* *I have owned 3 houses in the past 20 years, none of them costs more then 2x gross income.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:38 PM   #25
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Re: Got some free time? Help me build a budget for

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Originally Posted by Sam
My intention is see if it's possible for a young family buying the first house at 3x the gross income. I chose 130K income to represent a young professional couple. It does not matter where in the US this couple lives.
It is possible but just barely. All our budgets end up with either a small amount of savings or a small deficit.

When I look at my coworkers, I think 3x the salary is the max that anyone spends on housing around me. And that is usually for those folks who have a stay at home wife who will probably go back to their professional jobs after the kid(s) are in school. The young professional families around me making $100-150k aren't spending $300,000-$450,000 on a house.

I see your point though. It is hard to afford a house that is 3x salary AND save for a rainy day/retirement or ER.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:40 PM   #26
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Re: Got some free time? Help me build a budget for

Yes, $350,000 can get you a 3500+ monster in a neighborhood with quality schools. You just have to live in a suburb of Houston.

MLS ID#: 6363159 at realtor.com

And isn't this family violating the 36% debt ratio with their student loans and car note?
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 05:48 PM   #27
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Re: Got some free time? Help me build a budget for

Perhaps that 3x rule dates back to the days when a white-collar worker could count on a good employer-funded pension and didn't have to save for retirement. We once borrowed 2.5x--man, it was tight (we were contributing to 401ks and saving for college) until we got a couple rounds of raises/bonuses. We borrowed 1x on the next place--and 0 on this one...whew!
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 05:58 PM   #28
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Re: Got some free time? Help me build a budget for

I had two kids in daycare for awhile..............cost about $1600 a month.......................

That's a mortgage payment!!

Thank god those days are past..............screwed up the savings percentage for a little while..........
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 06:02 PM   #29
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Re: Got some free time? Help me build a budget for

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Originally Posted by justin
I see your point though.* It is hard to afford a house that is 3x salary AND save for a rainy day/retirement or ER.
It depends on your lifestyle. Back in the early 1990s I paid $134k for my house, which was almost *exactly 3x my income ($46k/y) at the time. Once the dust settled, I was about $1,000 in the black at the end of each month, perhaps a bit more.

Of course, I didn't have cable or car payments (I was driving a 16 year old car at the time). I wasn't spending almost anything on clothing or eating out, etc. To me it was not a big deal, but I can see how someone used to different spending patterns wouldn't even consider it a "middleclass lifestyle".
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 09:39 PM   #30
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Re: Got some free time? Help me build a budget for

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Perhaps that 3x rule dates back to the days when a white-collar worker could count on a good employer-funded pension and didn't have to save for retirement.
I agree. Same with people in the military with the intention to serve for 20 years.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 09:47 PM   #31
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Re: Got some free time? Help me build a budget for

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Originally Posted by Scrooge
It depends on your lifestyle. Back in the early 1990s I paid $134k for my house, which was almost *exactly 3x my income ($46k/y) at the time. Once the dust settled, I was about $1,000 in the black at the end of each month, perhaps a bit more.
Thanks for sharing,

You were 24 years old then, right?* How much did you put down?* Did you have young children?

Regardless, $1,000 saving a month in that situation puts you at the top of my crowd.* I would love to hear more about it.* Perhaps you can start a new thread showing me how it was done.* I always want to learn how to be more frugal.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 10:47 PM   #32
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Re: Got some free time? Help me build a budget for

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Thanks sgeeeee.* I have'nt read it yet.* One quick question: "Income before taxes" in Table A:* What is that?* Average family income?* Or per capita (per person).* *If that is the average family income, then I guess it's safe to assume that the family will rent forever.
It's been awhile since I read this article. I'm traveling for the next several days and am stuck using slow, unreliable hotel phone connections, so it's difficult for me download and review it. The article provides a lot of detail but can get tedious. As I recall, the expenses do not include income taxes. It is ironic that the federal government neglects taxes when they keep track of what we spend but they don't let us do that. I think I recall that it is family income and some of the first rows in the tables tell you details of the families -- number of families, average age, number of family members, etc. I believe the article discusses the housing situation at some point. The budget line for housing is an average of some percentage of families that rent while the remainder purchase.

You can download an excel spreadsheet that includes the USBLS data from 2002 at:

http://www.golio.net/My_Homepage_Files/Page11.html

Look under Section 3.3 and select "download all excel spreadsheets".

Then you can play with the individual line items and come up with your own budget. Table 3.1 is the budget spreadsheet. The other sheets are for non-recurring items, cash flow and net worth. The sheets compute sums and pass values to each other, so be careful which values you enter.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 11:03 PM   #33
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Re: Got some free time? Help me build a budget for

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Originally Posted by Sam
Thanks for sharing,

You were 24 years old then, right?* How much did you put down?* Did you have young children?
I was 27 in 1993. My downpayment was 10%. I was single and had no kids.

Quote:
Regardless, $1,000 saving a month in that situation puts you at the top of my crowd.* I would love to hear more about it.* Perhaps you can start a new thread showing me how it was done.* I always want to learn how to be more frugal.
I don't think I was doing anything unusual or extreme, just not spending much money that I didn't have to spend. The only exception was foregoing air conditioning for one summer and sleeping in the basement -- that proved to be too much even for me

I'll see if I can find my checkbook from that time period tomorrow night since some things are getting a little hazy. For example, I was prepaying the mortgage to the tune of $300/mo and fully funding my 401k, but was that before or after $1K/mo in after tax savings?

On the spending side, I was working on decluttering last weekend and ran into a bunch of credit card statements from 1993. They all looked pretty much the same: $15 on gas, $25 on food, $15 on gas, $35 on food, $20 on books, $30 on books, $30 on food, $15 on gas, etc. Of course, gas was cheaper then 8)
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 10:35 AM   #34
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Re: Got some free time? Help me build a budget for

Scrooge,

Being single and no kids definitely helps.

Still, you must be doing something "unusual" in order to save 12K on a 46K income while carrying a mortgage 3 times your income.* I cannot even imagine what your budget looks like, let alone come up with one.

Can't wait to learn.
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 11:30 AM   #35
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Re: Got some free time? Help me build a budget for

Hi Sam,

DW and I make slightly less than you, but we're more or less in the same boat.* Daycare is killing us [2 kids], though we're not paying the roughly $250/week per kid you are.* Might want to shop around, and check out using the dependent care spending account [5K per year]. One thing I did w/ our very rudimentary budget was to break out the expenses into "must pay" and "optional". For example, mortgage, daycar expenses must be paid each month, but we don't really need to buy new clotes, new toys for the kids, or eat out. Not too mention that our cars are almost paid off. That really highlighted for my wife she we can't afford to spend a little here and a little there, and she we need to space the major expenses out more.

I've noticed that our young kids play just as much with the cheap-o toys as with the expensive toys.* Plus, they're not old enough to know what they want.* I'm planning on doing what my parents did to me, start my toy/spending expectations out really really low.

- Alec
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 11:48 AM   #36
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Re: Got some free time? Help me build a budget for

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Originally Posted by Sam
Scrooge,

Being single and no kids definitely helps.
Oh yes, tremendously! Whenever I face a tough spending decision, I can always come to terms with myself and not have to worry about divorce

Quote:
Still, you must be doing something "unusual" in order to save 12K on a 46K income while carrying a mortgage 3 times your income.* I cannot even imagine what your budget looks like, let alone come up with one.
Well, I am that guy making $100k/y and living on $15-20K/y (after paying off my mortgage some years ago), which, I suppose, makes me at least somewhat "unusual" *

Quote:
Can't wait to learn.
I don't think I have been doing anything really unique, just practicing LBYM. Same old, same old. First, identify and eliminate all unnecessary spending. Second, identify all of your interests, prioritize them and put them on a budget. Keep doing it until you squeeze the last wasteful dollar out of your budget, then kick back and forget about it *8)

I'll post my budget for 2005-2006 when I get home tonight.
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 03:03 PM   #37
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Re: Got some free time? Help me build a budget for

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... and check out using the dependent care spending account [5K per year]. One thing I did w/ our very rudimentary budget was to break out the expenses into "must pay" and "optional". - Alec
Thank you Alec.* I did miss the tax saving afforded by the dependent care spending account.* *That's a 2K/year saving.

BTW, this is not my family.* My kids are 18 and 17 now.* This is a informal study to gauge the feasibility of a young family buying their first house costing 3 times the annual income.

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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 03:06 PM   #38
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Re: Got some free time? Help me build a budget for

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Originally Posted by Scrooge
Oh yes, tremendously! Whenever I face a tough spending decision, I can always come to terms with myself and not have to worry about divorce

Well, I am that guy making $100k/y and living on $15-20K/y (after paying off my mortgage some years ago), which, I suppose, makes me at least somewhat "unusual" *
Very funny, also very true.

Quote:
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I'll post my budget for 2005-2006 when I get home tonight.
Appreciate your willingness to share.* Can't wait to see it.* No rush, though.
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 09:19 PM   #39
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Re: Got some free time? Help me build a budget for

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Originally Posted by Sam
Appreciate your willingness to share.* Can't wait to see it.* No rush, though.
Sure thing! Here it is (July 2005-June 2006):

House (no mortgage):
Real estate taxes: 2,450 (only 2,050 this coming year, something to do with changing homestead rules -- no complaints )
House repairs and maintenance: 4,974 (a new AC system, thus much higher than usual)
Homeowners association: 612
Home insurance: 501
Natural Gas: 1,322
Water: 119 (very low rates in my part of the mid-Atlantic region)
Electric: 564 (no AC in parts of July and August due to the AC problem above)

Transportation:
Car insurance: 1,104
Car: 65 (oil changes only since my client is paying for my gas, otherwise it would be another $900-1,000)
MVA: 30

Medical:
Dental: 1,902 (first time I have ever had something major done and I had poor dental insurance)
Doctor's visits and tests: 150 (I have a very generous employer provided insurance this year, much better than the previous one)
Eye doctor: 15 (employer provided insurance again)

Food and toiletry: 2,500 (based on credit card data)

Entertainment:
General entertainment: 782 (splurged on a few things)
Cable+internet: 901 (cable is atypical, definitely won't have it in retirement)
Vacation in Florida: 454 (stayed at a friend's house)

Other:
Umbrella insurance ($2M): 157
Cash: 644 (snacks, some drugs)
Misc: 580

The total comes to $19,826 unless my math is worse than usual. A new AC, major dental work, and higher natural gas prices pushed it closer to $20K than to $15K, which would be more in line with my typical expenses.

One caveat is that I don't count new cars in my calculations. I have a separate fund for one car to be bought at age 55 and one at age 70. All accounted for in my ER calculator, of course 8)
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Re: Got some free time? Help me build a budget for
Old 08-25-2006, 09:23 PM   #40
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Re: Got some free time? Help me build a budget for

I don't understand your classification of drugs. Shouldn't that be either Medical or Entertainment? 8)
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