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Got some free time? Help me build a budget for
Old 08-24-2006, 11:05 AM   #1
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Got some free time? Help me build a budget for

a young family of three. H, W, and 3 years old kid.
H & W about 30 years old, both working.
Gross annual income: 130K
Saving:* 50K
401K:* 50K
Debt:* 30K student loan.
Cars loan:* 2 cars, current monthly payment:* $550 for another 4 years.
Would like to buy a house for 390K.* Current interest rate, 30 years fixed: 6.5%

Can you come up with a workable budget for this family?* Real number please!* *Assume this family will be your new neighbor, so same tax rate for income, property...

Housing:* P&I, Insurance, Tax, Utilities, Maintenance...
Transportation:* Car payment, insurance, gas, maint....
Heath:
Food & clothing:
Child care:
Entertainment:
401K saving:
Misc:

Why?* I have tried so many times, and I failed each and every time.


Edit: Added car payments.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 11:19 AM   #2
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Re: Got some free time? Help me build a budget for

Sam

With that little information, I can't make any recommendations for you.

I would suggest you start tracking your spending for at least 1 month. That should give you an idea where your money is going. Once you know where your money is going, you can focus on areas where you want to make a change. You could go back through your checkbook perhaps and see if you can get some info from there as well.

I split my budget into monthly and non monthly spending, so I really have 2 budgets. I keep the monthly money in my checking account and the other in a MM acct separated from my Emergency Fund.

THat might make it easier on you to separate the types of spending you do.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 11:22 AM   #3
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Re: Got some free time? Help me build a budget for

Let me know what additional info you need.* This is a hypothetical scenario, I can make them up.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 11:39 AM   #4
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Re: Got some free time? Help me build a budget for

Sam,
I have been working on my budget for the past two years, learning as I go. It's a process.
One thing I noticed was that your list of expenditures didn't break down long and short term savings items, apart from retirement savings. I think that's important.* For example, short term savings for insurance, health care deductibles.* Long term savings:* car depreciation, travel, etc.* These are the sort of things that can break a budget if you don't allocate for them.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 11:45 AM   #5
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Re: Got some free time? Help me build a budget for

I don't have a problem with my family budget.* I know to the penny (ok to the dollar) where my money comes from, and where it goes.

The reason I post this question asking for a budget for this young, relatively affluent family, is to see if my 3x rule is wrong, as so many people have told me before.

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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 12:06 PM   #6
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Re: Got some free time? Help me build a budget for

With 10% down,

$2218 PI
$845 property Taxes
$175 Insurance
$550 Car note
= $3788/month

?? PMI
?? Student loan

= $4100+


$250/mth Utilities
$125/mth Car insurance
$180/mth gasoline
$600/mth Food
$1000??/mth Child care

= $6255/mth not including taxes, entertainment, clothing, health care, house and car maintenance, and savings.

It'd be tight.

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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 12:15 PM   #7
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by Sam
a young family of three. H, W, and 3 years old kid.
H & W about 30 years old, both working.
Gross annual income: 130K
Saving:* 50K
401K:* 50K
Debt:* 30K student loan.
Cars loan:* 2 cars, current monthly payment:* $550 for another 4 years.
Would like to buy a house for 390K.* Current interest rate, 30 years fixed: 6.5%

Can you come up with a workable budget for this family?* Real number please!* *Assume this family will be your new neighbor, so same tax rate for income, property...

Housing:* P&I, Insurance, Tax, Utilities, Maintenance...
Transportation:* Car payment, insurance, gas, maint....
Heath:
Food & clothing:
Child care:
Entertainment:
401K saving:
Misc:

Why?* I have tried so many times, and I failed each and every time.


Edit:* Added car payments.
OK. *130k less 7% off the top for SS and medicare leaves 120.9k. *We'll assume all-in income taxes (state, local, etc.) come in at 15% of gross, which is probably too low. *That leaves us with 101.4k.

Debt Service:

550 X 12 = 6600
maybe 250 X 12 = 3000 for the student loan
They don't have much in savings, so they will be putting 5% down on that house and paying and extra $100 a month in PMI. *So mortgage and PMI are 2442 X 12 = 29.3k.

101.4 - 6.6 - 3 - 29.3 = 62.5 left

Housing expenses:

250 a month in utilities
$3k a year in maintenence
$6k a year in real estate taxes

total $12k in housing expenses

62.5 - 12 = 50.5

Childcare:

No clue, so we will call it $1k a month, so 12k a year.

50.5 - 12 = 38.5

Transport:

Maintenance 1k a year
fuel 2.5k a year
insurance 1k a year

38.5 - 1 - 2.5 - 1 = 34k

Health:

employer covers most. *Lets assume 2k in co-pays, etc.

34 - 2 = 32k.

Food & Clothing:

Easily $800 a month, or 12 X 800 = 9.6k

32 - 9.6 = 22.4

Entertainment:

$500 a month, which is probably skinny. *Another $3k annually for vacations.

500 X 12 = 6

22.4 -3 - 6 = 13.4k

So at the bottom of all of this we have about 13 grand left to save for retirement, college tuition, rebuild our savings (depleted by the downpayment) and cover emergencies, extras, etc. *Doesn't look to great to me, but welcome to my life. *Good thing I managed to do a lot of saving before we had kids.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 12:49 PM   #8
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Re: Got some free time? Help me build a budget for

Try looking here:

http://www.bls.gov/cex/csxann04.pdf

It's a 2004 report from the US Bureau of Labor Statistics on consumer expenditures.* It presents National averages by spending category.* Because it's an average, it considers a family size of 2.5.*

You can use other US Bureau of Labor Statistics data on cost of living by family size to justify multiplying the figures from the above report by a factor of 1.14 in order adjust for moving from 1/2 kid to 1 kid.* *
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 12:53 PM   #9
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by Sam
a young family of three. H, W, and 3 years old kid.
H & W about 30 years old, both working.
Gross annual income: 130K
Saving: 50K
401K: 50K
Debt: 30K student loan.
not trying to split hairs, here....but how are 2 working people stashing 50k into 401(k)s? It is possible if they have SEP IRAs...but their gross annual incomes would only allow a max of (I believe) 25% of their gross income...or roughly $32.5k total.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 01:14 PM   #10
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by Peter76
not trying to split hairs, here....but how are 2 working people stashing 50k into 401(k)s? It is possible if they have SEP IRAs...but their gross annual incomes would only allow a max of (I believe) 25% of their gross income...or roughly $32.5k total.
I think he meant that they have savings of $50k in non-retirement accounts.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 02:05 PM   #11
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Re: Got some free time? Help me build a budget for

Thanks Eridanus and Brewer for the budget.

I think your utilities bill is a little low.* Electricity, gas, water, sewer, line phone & internet, 2 cell phones, and digital satelite or cable could easily be $400/month.

Food and clothing is also low, considering a middle class family with a toddler.

Peter76,

What Eridanus said.* 50K is not the annual contribution, it's what they have accumulated so far.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 02:22 PM   #12
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by Sam
Thanks Eridanus and Brewer for the budget.

I think your utilities bill is a little low.* Electricity, gas, water, sewer, line phone & internet, 2 cell phones, and digital satelite or cable could easily be $400/month.

Food and clothing is also low, considering a middle class family with a toddler.

Peter76,

What Eridanu said.* 50K is not the annual contribution, it's what they have accumulated so far.
OK, so take 3 grand a year away from them. Looks like they still have ~$10k to play with, which is tight considering that that has to cover all forms of savings plus contigencies. Doable, but not easy. DW and I did this for about 2 years except: we had a much smaller (240k) mortgage; we had less auto and student loan debt; we had a much larger wad of savings to fall back on.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 02:49 PM   #13
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by sgeeeee
Try looking here:

http://www.bls.gov/cex/csxann04.pdf

It's a 2004 report from the US Bureau of Labor Statistics on consumer expenditures.* It presents National averages by spending category.* Because it's an average, it considers a family size of 2.5.*

You can use other US Bureau of Labor Statistics data on cost of living by family size to justify multiplying the figures from the above report by a factor of 1.14 in order adjust for moving from 1/2 kid to 1 kid.* *
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.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 02:58 PM   #14
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Re: Got some free time? Help me build a budget for

Here's my take. I'm sort of basing this on my area of the country which is a moderate cost-of-living area.

I'm also close to the hypothetical family in terms of income level, dual income earners, 2 kids, college debt, age 26.

A $390,000 house around here gets you really close to McMansion territory (in other words, I don't personally know anyone who has a house that costs that much).

This budget includes a lot of fat that I could eliminate if it were necessary.

Approximately $19k/yr remain to invest in 401k, IRA, or whatever.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 03:17 PM   #15
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Re: Got some free time? Help me build a budget for

Thanks Justin.

10,590 for House Ins, tax, all utils, maint sounds extremely low to me.* Is that a ballpark for a 390K house in NC?

2K health is also very low.* My employer (HP) is pretty generous, but my contribution to health ins is 3.5K a year.* Add the copayments and I am at 6K for medical/dental/vision for a family of 4.

This family also needs to pay PMI since they don't have 20% down.

In Houston, decent daycare for a toddler will be at least $1,000/month.

$800/month for food + clothes + houshold goods for a couple of professionals and a 3 years old?* I'm frugal, I live in Houston (low cost too), but I will have a very hard time sticking to that budget.

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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 03:59 PM   #16
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by Sam
10,590 for House Ins, tax, all utils, maint sounds extremely low to me. Is that a ballpark for a 390K house in NC?
$1500/yr for insurance
$4290/yr for taxes (assumed $1.10 per $100 value, 5% higher than what I pay in Raleigh - but we have a state income tax unlike you)
$400/month *12 for elec, gas, water, trash, cable, phone, maintenance - this probably is low for a massive $390000 house in texas - I assumed it was a tiny house in NY or CA or elsewhere. Mow your own lawn!

Quote:
Originally Posted by Sam
2K health is also very low. My employer (HP) is pretty generous, but my contribution to health ins is 3.5K a year. Add the copayments and I am at 6K for medical/dental/vision for a family of 4.
I figure H+W both have health ins. almost completely paid by their employers. Whoever has cheaper ins. for the dependent will pay that - or go private mkt. Assumed minimal copays for a healthy family. You don't have very cheap insurance. Dental ins. is $180/yr for DW, I pay out of pocket for me - $106/yr for exam/cleaning.

Quote:
Originally Posted by Sam
This family also needs to pay PMI since they don't have 20% down.
True. They should have put down 20% or bought a cheaper house. Take a little from entertainment and misc. and put it towards PMI, then when you get below 80% LTV, get rid of PMI and spend more on entertainment and misc.

Quote:
Originally Posted by Sam
In Houston, decent daycare for a toddler will be at least $1,000/month.
Wow. I pay a family member much less. However, I based my estimate of child-care on private non-chain daycare around here - $500+/mo, so I said $600/mo. Don't know how "good" they are, but my middle class coworkers put their kids in these kinds of places.

Quote:
Originally Posted by Sam
$800/month for food + clothes + houshold goods for a couple of professionals and a 3 years old? I'm frugal, I live in Houston (low cost too), but I will have a very hard time sticking to that budget.
Just based on personal experience plus an added margin for those less frugal than I. I guess the clothes budget really depends on your requirements.

Cut the house expense in half (rent?) and cut the car payment in half, and you've got a lot more for savings. What is a $390,000 house around where you live? 3500 s.f.?

If you think it's hard to hypothesize a workable budget for a family earning $130000/yr, imagine a family making half that with an extra kid. They manage to get by just fine. Just maybe not live in a McMansion w/ two new German cars.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:03 PM   #17
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by justin
Cut the house expense in half (rent?) and cut the car payment in half, and you've got a lot more for savings.* What is a $390,000 house around where you live?* 3500 s.f.?*
Heheh, that's the problem with this exercise. Things are so location-specific that a generic budget is iffy. $390k is roughly what I imagine my house to be worth. Its a ca. 1950 3 bed 2 bath colonial that is maybe 2000 sq. ft. and no garage. But $390k is a whole neighborhood where thefed lives.
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:07 PM   #18
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Re: Got some free time? Help me build a budget for

Here's the best I can come up with.* As you see, there's a deficit.* Forget about saving.

9,750 SS (6%), Medical (1.5)
20,800 Federal (16%)

26,623 P&I on house, 390K, 10% down
1,200 PMI
9,750 Property tax, 3%
1,500 HOA
1,400 House Ins
3,840 Elec, gas, water, garbage
1,800 Line phone & internet, 2 cell phones, cable
3,900 Home repair & maintance (1%)

6,600 Car payments
1,500 Car insurance
2,400 gasoline
1,200 repair & maintenance
240 registrations, inspection

4,000 Student loan
12,000 Child care

3,500 Health insurance
2,500 Health copayments
600 Life insurance (term)

9,600 Food
3,000 Clothes
1,800 Household items

3,600 Travel & entertainment
3,600 Emergency

0 401K contributions, saving

136,703 Total Expense
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:11 PM   #19
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Re: Got some free time? Help me build a budget for

Sam, the line items are a little off for me during my two leaner years as a homeowner and parent (I had slightly lower income, slightly lower expenses), but that looks about right. We managed to keep up contributions to the 401k, but I also had to supplement my earnings with portfolio cash flow at times.

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?
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Re: Got some free time? Help me build a budget for
Old 08-24-2006, 04:13 PM   #20
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Re: Got some free time? Help me build a budget for

Quote:
Originally Posted by justin
If you think it's hard to hypothesize a workable budget for a family earning $130000/yr.
Justin,

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.
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