My $18K/Yr Basic Expense Budget

[tuixiu]

I think I recall Alex posted in another thread about the home warranty....something I had been considering and procrastinating about.

We got a home warranty when we bought our first house, and a single incident put it in the "never again" category for us.

Air conditioner went out in the summer (we live in Phoenix, think 110 degrees) and we ended up trapped at the mercy of the slow response time of the home warranty company's AC contractors. If it had been on our dime we could have a repair guy either same day or if unlucky on timing maybe the next day. With home warranty people we had to bake for several days, heck even the initial call to the home warranty people it took until the next morning for their AC people to call us to schedule an appointment for a couple days later.

 

[Mulligan]

Kat and Tiu, I agree with both of you. I won't try to speak for Alex and his situation, because he obviously knows what's best for himself, but I agree with you, those warranties don't mean squat after a period of time. Or at least way less than what you would think unless you read the fine print. That's why I loved the honesty from the company that delivered my metal roof. He said the paint company has a 40 year warranty for its paint product in case of fading. Then he turned around and said the warranty isn't worth the piece of paper it is written on, though he said he has been no problems that he has been aware of with premature fading.
This is just me, but I will not have a home warranty. I'm not putting my trust into anyone helping me that involves insurance. They aren't making money by fixing my problems, so I would assume they aren't going to act in my self interest. I have had a crappy year in replacing things, but I went 10 years without replacing anything, so it all evens out over time.

 

[Mr. Paul]

Interesting. Reworking my budget to move many things over to the "discretionary" side I have found I have much more discretionary income than I thought

 

[tuixiu]

I certainly do have a different take on vehicle replacement... if a repair on a 1996 vehicle is called "replace the engine" then to me it isn't a repair, it means the car has died and needs to be replaced.

I guess one could say a car will never need to be replaced, just keep replacing parts even if eventually almost nothing is original kinda like those 80s hair metal bands that tour indian casinos.

 

[NW-Bound]

Interesting. Reworking my budget to move many things over to the "discretionary" side I have found I have much more discretionary income than I thought

It's a state of mind, but it helps. I do not care to know how the richer people live. It's too easy to imagine that.

I enjoy reading blogs of people who live with much less than I do, not out of Schadenfreude because I am not that mean, but to see that one can live on a lot less than I do.

So, I have convinced myself not to worry too much about potential economic downturns that might curtail my living standards. Whatever happens, I can manage, given that I would be starting from a much higher basis than these people have.

 

[Alex in Virginia]

Hi there, Katsmeow and ERD 50...

Thanks again for continuing to keep the discussion moving forward.

In Post #29 in this thread, I answered questions posed about a bunch of expenses that seemed not to be included in the budget I presented in my original post. Since that post of mine, the two of you have asked about some other expenses, so here go my answers.

Dental Expenses -- So far, these have been covered by my dental insurance. I've only needed the checkups, cleanings and a cavity filling here and there.

Prescription Costs -- I don't actually have any. Vitamins, the occasional bottle of aspirin and a cough syrup if needed all get bought on the same receipt as my groceries and I don't break them out as a separate cost.

Personal Care Items -- Same situation as the aspirin et al above.

Septic Tank Pumping -- I treat my tank monthly with an inexpensive packet of sewage-munching bacteria, so it's going to be one hell of a long time before the question of tank pumping comes up. Again, the minimal cost of these treatments ends up on the same receipt as the groceries.

Internet Service -- LiveandLearn didn't actually ask about this cost; he/she commented that it is a discretionary item. But not to me. I need the internet to do my investments management.

Vet Visits, Meds and Vaccinations -- Ah, you got me there! I've made the admittedly questionable decision to throw all of that in the discretionary budget on the basis that having pets is a luxury.

PC and Peripherals Repairs -- That comes out of the home repair fund budget line item.

AND NOW A NOTE!!
I can see that I really need a little more "waffle room" in my basic living budget. So I will no longer be capping the budget's home repair line item at $3000. I will be letting it continue to accrue at the rate of $150 per month and periodically move the surplus over $3000 over to the error allowance line item -- which I will now repurpose as a miscellaneous expense FUND line item and use it to catch some of the other expenses that my budget may otherwise have let fall through the cracks.

Cheers!

Alex in Virginia

 

[Katsmeow]

Vet Visits, Meds and Vaccinations -- Ah, you got me there! I've made the admittedly questionable decision to throw all of that in the discretionary budget on the basis that having pets is a luxury.

You are right, of course. Having pets is a luxury and is discretionary. On the other hand, once you actually have the pet, then taking care of the pet is not as discretionary. This is not to say that veterinary costs for a pet could exceed what one is able to afford, however, for most people there is some level of such costs that they would be willing to spend and I would argue this belongs in the basic budget.

The reason is because of a concept that I read about in a budgeting article once.

That is the concept of "committed" expenses. One could have chosen to have never incurred the committed expenses (don't have a pet). And, one may well be able to get rid of those committed expenses (if you were in dire straits and could barely feed yourself then might rehome the pet). However, until one of those things happen you have committed to those expenses. You can't just decide not to feed the cats this month because money is tight with the plan of adding it back in next month.

So, for me, I would include in basic expenses those expenses that I have committed to at this time that can't just be skipped when committed to.

The article I referred to which talks about committed expenses:

Simpler saving: The 60% Solution - 1 - income & budgeting - MSN Money

 

[ERD50]

...
Septic Tank Pumping -- I treat my tank monthly with an inexpensive packet of sewage-munching bacteria, so it's going to be one hell of a long time before the question of tank pumping comes up. ....

Cheers!

Alex in Virginia

I was going to say 'That is questionable', but I googled it, and the first dozen or so hits on " septic tank additives effective " came up with .gov and .edu sites that said not only do biological additives NOT help, but they can harm the septic system.

Here are a couple typical comments:

Septic tank additives are unnecessary and may do more harm than good

The Environmental Health Department has received a number of calls lately from people asking why they need to pump their septic tanks. Many of these folks regularly flush septic tank additives down their toilet believing they are prolonging the life of their septic system.

Based on a number of independent studies on septic tank additives, our recommendation is clear: The use of any type of septic tank additives – either biological or chemical – is unnecessary, is a waste of money, and may actually harm your septic system.

Furthermore, there is no substitute for regular septic tank pumping.

However, research conducted by Winneberg-er, et al., suggests that some biological additives may increase the biological activity to the point where excess solids can be carried into the soil absorption system. This occurs when anaerobic decomposition of solids causes the formation of methane gas. As they rise, bubbles push solids up from the settled portion of the septic tank. Ultimately, this may lead to solids “carryover” to the soil absorption system where clogging can ensue.

Contrary to the ability of enzymatic products to reduce scum, the effects of degradation in the scum layer are believed to be detrimental to a soil absorption system. The scum layer “holds” fats, grease, and floatables, preventing their escape to the soil absorption system. Enzymatic products can “break up” this scum layer and increase its mobility, allowing it to enter the soil absorption system.

To be clear, the septic system is supposed to allow stuff to settle in the tank, keeping it out of the drain-field (the soil absorption system), so it can be pumped from the tank. Letting it get to the drain-field leads to very costly repair work.

-ERD50

 

[calmloki]

We had a 1000 gallon tank pumped in late 2012 - cost was $504, with a recommendation that tanks be pumped every six years. Works out to $7/month.

 

[Alex in Virginia]

We got a home warranty when we bought our first house, and a single incident put it in the "never again" category for us.

Air conditioner went out in the summer (we live in Phoenix, think 110 degrees) and we ended up trapped at the mercy of the slow response time of the home warranty company's AC contractors. If it had been on our dime we could have a repair guy either same day or if unlucky on timing maybe the next day. With home warranty people we had to bake for several days, heck even the initial call to the home warranty people it took until the next morning for their AC people to call us to schedule an appointment for a couple days later.

Hey, tuixiu -- and Mulligan (post #77) and Katsmeow (post #73)...

All I can say is that you've had really bad luck in your choice of home warranty companies.

I've used the same company for 13 years covering 4 houses. My experience is 100% across the board positive.

When I call in for a repair claim, this company gives me control of the process. I get a claim number and the name & phone number of a repair company to call. Calling and making arrangements is left in my control.

(However, if this warranty company hasn't heard back from the service company in 48 hours, they start hounding me wanting to know what the status of the situation is. It's superb follow-up.)

Also, if I don't like the response speed of the service company, all I have to do is phone the warranty folks and they will switch me to another repair guy. In fact, they've switched repair guys at my request on my initial call-in when I've told them that IMHO their proposed repair company was too far away -- or even if I had a preferred company I would rather use!

If the repair company messes up, my warranty company guarantees an (eventual) satisfactory outcome.

I've raked my warranty contract with a fine-tooth comb and I find NO limit on the number of claims I can make or the amount of money the repairs can cost. And there is NEVER a fee for replacing an unrepairable item (and I have first hand experience several times over to confirm that). So, these problems you folks have had are specific to the (bummer) company you got stuck with.

I stand by my original position: my home warranty contract is a reasonable substitute for an appliance-and-home-systems repair fund.

(How the warranty company ever makes money is beyond me -- but that's not MY problem!)

Cheers...

Alex in Virginia

 

[Mulligan]

Hey, tuixiu -- and Mulligan (post #77) and Katsmeow (post #73)... All I can say is that you've had really bad luck in your choice of home warranty companies. I've used the same company for 13 years covering 4 houses. My experience is 100% across the board positive. When I call in for a repair claim, this company gives me control of the process. I get a claim number and the name & phone number of a repair company to call. Calling and making arrangements is left in my control. (However, if this warranty company hasn't heard back from the service company in 48 hours, they start hounding me wanting to know what the status of the situation is. It's superb follow-up.) Also, if I don't like the response speed of the service company, all I have to do is phone the warranty folks and they will switch me to another repair guy. In fact, they've switched repair guys at my request on my initial call-in when I've told them that IMHO their proposed repair company was too far away -- or even if I had a preferred company I would rather use! If the repair company messes up, my warranty company guarantees an (eventual) satisfactory outcome. I've raked my warranty contract with a fine-tooth comb and I find NO limit on the number of claims I can make or the amount of money the repairs can cost. And there is NEVER a fee for replacing an unrepairable item (and I have first hand experience several times over to confirm that). So, these problems you folks have had are specific to the (bummer) company you got stuck with. I stand by my original position: my home warranty contract is a reasonable substitute for an appliance-and-home-systems repair fund. (How the warranty company ever makes money is beyond me -- but that's not MY problem!) Cheers... Alex in Virginia

I definitely believe you know what is best for yourself and I wouldn't question that, Alex. I have not had a home warranty, but have a general distrust for any type of insurance. As to me, they are not in business for my benefit, but to generate a profit. I only buy the absolute minimum in insurance which is only consists of liability auto., HD health insurance, and homeowners. That is just my philosophy, and it has worked great for me, but that doesn't mean it is the right way, though!

 

[jazz4cash]

Hey, tuixiu -- and Mulligan (post #77) and Katsmeow (post #73)...

All I can say is that you've had really bad luck in your choice of home warranty companies.

I've used the same company for 13 years covering 4 houses. My experience is 100% across the board positive.

When I call in for a repair claim, this company gives me control of the process. I get a claim number and the name & phone number of a repair company to call. Calling and making arrangements is left in my control.

(However, if this warranty company hasn't heard back from the service company in 48 hours, they start hounding me wanting to know what the status of the situation is. It's superb follow-up.)

Also, if I don't like the response speed of the service company, all I have to do is phone the warranty folks and they will switch me to another repair guy. In fact, they've switched repair guys at my request on my initial call-in when I've told them that IMHO their proposed repair company was too far away -- or even if I had a preferred company I would rather use!

If the repair company messes up, my warranty company guarantees an (eventual) satisfactory outcome.

I've raked my warranty contract with a fine-tooth comb and I find NO limit on the number of claims I can make or the amount of money the repairs can cost. And there is NEVER a fee for replacing an unrepairable item (and I have first hand experience several times over to confirm that). So, these problems you folks have had are specific to the (bummer) company you got stuck with.

I stand by my original position: my home warranty contract is a reasonable substitute for an appliance-and-home-systems repair fund.

(How the warranty company ever makes money is beyond me -- but that's not MY problem!)

Cheers...

Alex in Virginia

I wasn't going to post again about our home warranty because I did not want to de-rail the thread, but my experience is very similar to what Alex posted. We've only had the policy for 10 months. We used it 4 times (1 free inspection, 3 claims). We have a fair amount of control over the process. All of the service providers were satisfactory. We had one AC contractor that did not return calls. Even though they have 48 hrs to respond, we were re-assigned to another provider who responded immediately and the warranty company called to follow up throughout the process to verify that our issue was being handled. In our area, 48 hrs is not as bad as it sounds during extreme weather conditions. We have to pay $60 per claim plus $75 if an item requires replacement. $10k annual claim limit. I am still evaluating if this is a long term solution for us, but I would always expect to have a significant line item for home repair accrual.

 

[Live And Learn]

That is the concept of "committed" expenses. One could have chosen to have never incurred the committed expenses (don't have a pet). And, one may well be able to get rid of those committed expenses (if you were in dire straits and could barely feed yourself then might rehome the pet). However, until one of those things happen you have committed to those expenses. You can't just decide not to feed the cats this month because money is tight with the plan of adding it back in next month.

So, for me, I would include in basic expenses those expenses that I have committed to at this time that can't just be skipped when committed to.

This "committed expense" view is exactly how I've viewed my expenses. Bit it is sort of freeing to think "discretionary" if I eliminated some of the committed expenses. After all, I could reduce my $1535 / month home costs to $800 if I rented a 900 sq ft apt if I wanted to. I could then spend $9k / year on travel instead. OR get my WR to 2.5% ! It may take a year or two , but it is possible to reprioritize and reduce the committed spend so that it equals the non-discretionary spend.

 

[Katsmeow]

Going to respond to 2 things in this. First talking about committed expenses and then about home warranties.

This "committed expense" view is exactly how I've viewed my expenses. Bit it is sort of freeing to think "discretionary" if I eliminated some of the committed expenses. After all, I could reduce my $1535 / month home costs to $800 if I rented a 900 sq ft apt if I wanted to. I could then spend $9k / year on travel instead. OR get my WR to 2.5% ! It may take a year or two , but it is possible to reprioritize and reduce the committed spend so that it equals the non-discretionary spend.

I agree that something that is a committed expense may not be one someday in the future (I just registered my kids for spring college classes yesterday so this is uppermost on my mind at the moment - college is one of those committed expenses I look forward to going away in the future).

To me, though, the key thing is that while you've committed to that expense you have it. It isn't discretionary at that moment without major upheaval (think of pets) but it something that over time you can make a different commitment.

A point to me on this is to realize that some expenses like that are part of what makes life worth living. It might technically be "discretionary" to have pets. But, I am absolutely sure that if I was in dire straits I would cut virtually any other expense (including moving to somewhere cheaper) before I would give up having a cat. So for me - cats just aren't very discretionary...

Home Warranties - I started on a post last night but didn't want to beat a dead horse, but jazz4cash's post caused me to decide to post again on it briefly.

FWIW, our home warranties haven't been horrible purchases. With a couple of exceptions (that plumbing nightmare I mentioned) we had decent results with the home warranty and I think over the several years we had them at 3 different houses we broke even. The virtue of home warranties is that you get a very predictable number to budget for the types of appliances and home systems covered by the home warranty. (plans vary on what appliances and systems are covered). You have to estimate your service fee as that varies with numbers of claims but overall this is a more predictable way of budgeting for those expenses. It is not necessarily a cheaper result, though. You may save money on the deal one year, while other years you lose money. I think it basically averaged out even for us.

We didn't renew the most recent home warranty because we didn't fine that predictability valuable enough to put up with the negatives of a home warranty. Others may indeed value that predictability more than we do. In which case, I could see sticking with the home warranty.

However, the main point I want to make (this is general and is not directed specifically to Alex) is that there are lots of home maintenance and repair costs that are not covered by a home warranty. The home warranty is limited in the types of things that it covers (as I discussed in my earlier post). So, even with a home warranty there is a need to budget for regular home maintenance, repair of things that are not covered by the home warranty, and reserves for things that might go beyond the max limit of the home warranty or for major things that will need to be done to most houses (roof replacement, repainting, recarpeting, etc.)

 

[Alex in Virginia]

Just curious, Alex--how do you accrue enough Amex points to buy clothes if your budget is so low? You don't seem to be buying much of anything.

I would have to buy a ton more stuff on my Visa than I do right now in order to get even $25 in reward points.

Thanks for the question, gardenfun. Alan wondered the same thing in his comments on post #62 of this thread.

If you take another look at my basic living budget, you'll see that it includes thousands of dollars earmarked for groceries, gasoline, auto maintenance, home maintenance and so on. In a nutshell, I use credit cards to pay for anything and everything I can in order to harvest cash rewards such as are offered by American Express*. I also leverage that activity by, for example, buying gasoline with a card offering a bonus 5% cash back on gas, groceries on a card offering a 3% bonus on that type of purchase, and so on. So, believe me, the cash rewards add up pretty quick.

In addition, all my discretionary budget travel goes on my American Express. It all adds up.

On the other hand, my clothing wants (and needs) are so minimal that the last time I went to a Lands End department (with $171 on Lands End gift cards obtained with American Express points) I walked away empty-handed because I saw nothing I was willing to "buy." Same thing happened just a few days ago when I looked through one of their catalogs.

A clothes horse I'm not. Not even a clothes pony.

Cheers!

Alex in Virginia

*Of course, I pay off all my credit card balances as the bills come in.

 

[Major Tom]

On the other hand, my clothing wants (and needs) are so minimal that the last time I went to a Lands End department (with $171 on Lands End gift cards obtained with American Express points) I walked away empty-handed because I saw nothing I was willing to "buy." Same thing happened just a few days ago when I looked through one of their catalogs.

I have a similar problem - most of the rewards that Amex offers, I don't want. I usually solve the problem by getting a Home Depot gift card, then selling it to Cardpool. Of the gift cards which Amex offers that Cardpool buys, it is usually the one that offers the greatest return. They give me about $85 for a $100 gift card, and at least it saves me from getting a reward that I wouldn't otherwise buy.