Got some free time? Help me build a budget for

[Scrooge]

I have been considering myself frugal for the last 15 years.  I wonder how many people have quietly laughed at me for being so naive 

Well, this is an ER forum, which is clearly a minority pursuit/interest/hobby in America in 2006. So that makes the selection unrepresentative of the general population right there. And then you look at responses from (what looks like) the extreme LBYM fringe of the forum, so naturally you get a distorted picture.

Just because there are people who are even more frugal than you are doesn't mean that you are not vastly more frugal than John Q. Public. It's just that in a country of $300 million, there will almost always be someone better at X than you. Remember Ted Kaczynski, who lived on $300/year?

 

[dmpi]

I admire a guy who manages to stay married while living on $26K/y! 

I use to be even more cheap, but I've loosen the wallet the past couple of years.
Actually I'm lucky because my DW dosn't like want to live simple and not have a lot of stuff.
Be she does like to eat out.... might have something to do with not cooking & cleaning.

Anyway... If you look at the average household median income which is about 45K. Subtract 6K income tax. Subtract 3.6K SSI tax. You can see the average household only takes home 35.4K. We paid off our house so we don't have a mortage. That's about 9K/year we don't pay. The average houselond has 2 kids, while we have none. What I'm getting is 26K/year may seem low, but we live at the standard of living most of America lives at.

 

[greg]

Yes. We live a state that has no sales tax on food. We also shop at the asian markets & the gas station turned vegi-market. So our food cost is real low. Also we don't eat a lot of meats. Most of the time we eat out at a Red Robin or Applebyees or something like that. Yumm...

Yes, I bow down to the Master too. May the FIRE force be with you.

 

[Sam]

Anyway... If you look at the average household median income which is about 45K. Subtract 6K income tax. Subtract 3.6K SSI tax. You can see the average household only takes home 35.4K. We paid off our house so we don't have a mortage. That's about 9K/year we don't pay.

Very true, but you guys are at least 3 times median!

What I'm getting is 26K/year may seem low, but we live at the standard of living most of America lives at.

How much do you spend on transportation?

 

[astromeria]

We paid off our house so we don't have a mortage. That's about 9K/year we don't pay.

While this isn't essential, it does help many of us FIRE. Our last mortgage (for a nice condo in a three-plex Victorian in San Francisco) was ~$24k/year, plus ~$8k property taxes and ~$2k HOA = ~$34k. But now we have no mortgage, ~$2k/yr prop taxes, and $350/yr HOA. Ditching the huge housing expense was the single biggest factor in our being able to FIRE. Other major factors include lower taxes (less taxable income), lower savings rate as we reached our "number," lower cost of transportation (no more long commutes), kids grew up and became financially independent, living in a lower COL area closer to family. The only bigger expense so far has been travel--but it's still only a third of the old housing expense. (OK, health care costs more, too.)

 

[perinova]

But now we have no mortgage, ~$2k/yr prop taxes, and $350/yr HOA.

astromeria
that's low prop tax what state are you in now? I see low country in your profile where is that?

 

[dmpi]

How much do you spend on transportation?

We have two cars( one 3 years old & one 8 years old), we buy a new about every 12 years. So that's about 44K/12 years which works out to be $3.6K/year for new cars. I didn't count this cost in my 26K/year.
For gas, my wife & I carpool about 12 miles to work. We drive about 12K miles/year. that's about $1500/year for gas. Car licence is about $200/year. We have libility only insurance about $350 year for the two of us. Car maintance is about $375/year.
So, not counting the cost of the car, we spend around $2425/year.
When we FIRE ( around 10 years from now) might get rid of a car.

 

[Sam]

We have libility only insurance about $350 year for the two of us. Car maintance is about $375/year.

Thanks for the info.  $350 for 2 cars insurance is very low.  Which company do you use?  You did not mention repair, so I assume 375 is for both maintenance and repair, right?  Sounds like you work on your cars as well (I do too, whenever I can.)

 

[astromeria]

astromeria
that's low prop tax what state are you in now? I see low country in your profile where is that?

The Lowcountry is the South Carolina coastal area--I live just about in the middle of the SC coast in Charleston County (mclesters also lives here, on the far side of Charleston from me). To be more precise, our most recent property tax bill was $2100-something for a 2500 sq ft house on a small lot about 2 miles from the beach (as the crow flies) and 7 miles from downtown Charleston.

 

[jclarksnakes]

,,,,After reading all the posts on this thread I have a couple of opinons to voice.
1. The 3X rule of thumb the bankers are touting is evil. A little house with a stay at home mom or dad is likely to provide a much happier childhood than childcare and a Mcmansion.
2. 30 year mortgages are just dumb. 15 year mortgages are okay.
3. Car loans are dumb. Car loans longer than 36 months are insanely stupid. Most car leases are somewhere between these two but leaning more towards insanely stupid.
4. Buying any car other than a Toyota or Honda is a financial mistake.
BTW, I drive an 8 year old SS Camaro because I am a horsepower crazed maniac.
5. Mrsjclarksnakes and I are frugal but still spend more than we need to.
6. SCROOGE IS MY HERO!
jc

 

[Nords]

,,,,After reading all the posts on this thread I have a couple of opinons to voice.
1. The 3X rule of thumb the bankers are touting is evil. A little house with a stay at home mom or dad is likely to provide a much happier childhood than childcare and a Mcmansion.

Probably. I bet the childhood quality has more to do with the stay-at-home parent.

2. 30 year mortgages are just dumb. 15 year mortgages are okay.

I'd hold my opinion until I did the math, and then I'd decide if I could sleep at night. In our case a 30-year mortgage at 5.375%, which won't be paid off until 2034 when I'm 74, is working out quite well. FIRECalc says there's nearly a 70% chance of making money on it in the stock market (heck, we can practically do that with CDs now) and our ER portfolio is more survivable with the added padding from investing the mortgage money. But you have to be able to sleep at night.

15-year loans might not last longer than a sidways stock market. 20 years would be a safer bet.

3. Car loans are dumb. Car loans longer than 36 months are insanely stupid. Most car leases are somewhere between these two but leaning more towards insanely stupid.

I think car loans & leases make sense for businesses but not for individuals.

However getting a cheap car loan and investing the cash can save some money off the purchase price of a new car. It's probably still more expensive than buying a used car, but some buyers feel more comfortable with a new vehicle.

4. Buying any car other than a Toyota or Honda is a financial mistake.

If those companies made a fuel-efficient station wagon that could haul a 4'x8' sheet of building material, or a dishwasher or a washing machine, then I'd be more interested. When I rent a U-Haul for larger loads I'm usually paying $75-$100 for the experience. Maybe next time around we'll look at a Civic or Camry station wagon, but people seem to hang on to them forever.

 

[dmpi]

Thanks for the info.  $350 for 2 cars insurance is very low.  Which company do you use?  You did not mention repair, so I assume 375 is for both maintenance and repair, right?  Sounds like you work on your cars as well (I do too, whenever I can.)

We are insured by PEMCO. We also have our homeowners and a 1M umbrella policy with them. Insurance costs really adds up fast. I think most people over insure. We try to keep it simple & are willing to take some of the risk. For our cars try to buy only Honda, Toyota or Subaru, so they won't break down so much. I take our cars to the dealer while the warranty is in place, and after that I take over the general maintenance. I must confess… I am getting tired of crawling under the car.

 

[Sam]

When we FIRE ( around 10 years from now) might get rid of a car.

Geez!  From a financial point of view, I'm sure you don't have to wait that long.  From the same point of view, I don't think you need to get rid of the second car either.

 

[Sam]

A Camry if I estimate that I have a good chance of getting in an accident (depends on the area), a Corolla otherwise.

I suggest the biggest car Toyota has at that time.  The last thing you want to do is hurt yourself in an accident.  Who's going be spending all that saving 


18 years ago, when I decided that living paycheck by paycheck is wrong, I came up with a set of rules to live by:

Never buy a house that costs more than 3 times annual income.
Never buy a car that cost more than one third (33%) of annual income.
Save at least 15% of annual income.

I have stuck to those rules, and exceeded them.  My most expensive home is 1.7x.  My most expensive car is 30%.  On the average, I save close to 20%.  Man, I was so proud of myself, until... now. 

Just kidding.  I admire you and dmpi, but honestly, I know I cannot do it even if I'm giving the chance again.

 

[Helena]

As someone who was raised to be thrifty and frugal
and a current Dave Ramsey groupie 8) [ see link below ]
I would be very careful to make sure I have paid off any
credit card and auto debt... and have at least 6 months
of living expenses in reserve... before even considering
buying a home.


http://www.daveramsey.com/



*

 

[Scrooge]

I suggest the biggest car Toyota has at that time.  The last thing you want to do is hurt yourself in an accident.  Who's going be spending all that saving 

I am afraid one million dollars, even after taxes, is not that much money any more. I'll have enough to live on, but nothing extravagant. Granted, safety is a priority, but so are reliability and the total cost of ownership. It's always a compromise.

Just kidding.  I admire you and dmpi, but honestly, I know I cannot do it even if I'm giving the chance again.

Well, again, you have to compromise. Your priorities will determine where exactly you draw that line, but as long as it is rational and you are willing to live with the consequences, it's all good.

I am not worried about people who sit down, do the math and then decide to save 5%, 10%, 20% or 50% of their income. Whatever floats their boat, as it were. I am worried about my coworkers, who are spending all of their money and don't even know where it is going.

As I mentioned earlier, the IT area that I work in is slowly going the way of the dinosaurs and my coworkers are even more vulnerably than me since their skill set is of very limited applicability. When the current slew of contracts is gone and they are no longer needed -- and the writing on the wall is visible even from here -- they will find themsleves in a very unpleasant situation. They are mostly in their 40s and 50s with various financial obligations (mortgages, kids, etc) and they are unlikely to find a new niche for themselves readily, at least not without taking a major pay cut.

Some of them are very materialistic and insist on living it up to the max. Others might be more frugal if it weren't for their spouses who are hell bent on keeping all of their credit cards maxed. Yet another type, which I find particularly frustrating, have 0 willpower and always choose the path of least resistance. They simply can't say 'no' to their families (even exes!), impulses or whatever else may have claims on their wallets.

It's quite sad, really. I have known them for years and many of them are decent folks. They have been vaguely aware of the gravy train coming to an end for some time now, but for the most part they refuse to do anything about it. Some of them occasionally make plans to come up with a budget or "have a talk with my wife" or re-evaluate their priorities, but somehow it never comes to anything. Others are actively fighting with their spouses over money, but I am yet to see a single unambiguous win. Not counting divorces, that is...

 

[Helena]

A little house with a stay at home mom or dad
is likely to provide a much happier childhood
than childcare and a Mcmansion.

For a healthy happy 3 year old, Mommie at home is essential !


Unfortunately, children are routinely sacrificed on the altar of
American consumerism.

 

[bpp]

Just for yucks, thought I would try this for my area.

a young family of three. H, W, and 3 years old kid.
H & W about 30 years old, both working.
Gross annual income: 130K

Call that 100k after income (national, local), social security, and national health insurance taxes.

Net: 8333/mo.

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%

30 year fixed is 3.25%. If they finance 100%, this comes to 1700/month.

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.

Say property taxes are 125/month, disaster/earthquake insurance 50/month.

Utilities: 400/mo

Car insurance: 100/mo
Gas: 200/mo
Car registration & inspection fees: 1200/year, 100/month
Road taxes: 850/year, 70/month
Car maintenance: 50/mo

Child care: 500/mo (all-day nursery school)

Total monthly expenses so far:

550 Car loans
520 Car other
1700 House loan
125 Property taxes
50 Property insurance
400 Utils
------
3345 Sub-total

From 8333/mo net income, this leaves ~5000/month for food, clothing, entertainment, house maintenance, retirement savings, car savings so that the next vehicles can be bought without a loan...

Hmm, looks pretty doable. Even if mortgage rates went up to the 6.5% posited, that would only add 765/month in expenses.

 

[bpp]

I forgot the student loan. 300/month?
Also forgot to put the child care (500/mo) in the summation. Oops.

Try again, with more details:

Net: 8333/mo.

Monthly expenses:

550 Car loans
520 Car other
1700 House loan
125 Property taxes
50 Property insurance
400 Utils
300 Student loans
500 Child care (nursery school)
1000 Food, clothing & entertainment
2000 Retirement/college savings
300 New car fund
400 House maintenance
------
7845

Which leaves 500/month for emergency fund, extra retirement savings, the occasional trip, etc. If the mortgage rate is 6.5%, they might instead have to cut back on their retirement savings a bit. But note that the car loans will be retired in 4 years, and presumably they won't ever need one again after that. Also, once the kid turns 4, the nursery school fee drops by a couple hundred per month.

Looks pretty good to me. My only question is, why is this couple looking to buy a house without having any downpayment ready? (I wouldn't touch the 50k cash they have now, keeping it as emergency fund instead.) But if they want to do it, it looks pretty doable to me.

 

[slepyhed]

...If those companies made a fuel-efficient station wagon that could haul a 4'x8' sheet of building material, or a dishwasher or a washing machine, then I'd be more interested.  When I rent a U-Haul for larger loads I'm usually paying $75-$100 for the experience.  Maybe next time around we'll look at a Civic or Camry station wagon, but people seem to hang on to them forever.

Buy a 4x8 trailer and a hitch for the Camry. This kind folds up for when you need to store it:

http://www.harborfreight.com/cpi/ctaf/Displayitem.taf?itemnumber=90154

1100 lbs payload. Easier to load than a pickup.

 

[Sam]

My only question is, why is this couple looking to buy a house without having any downpayment ready?  (I wouldn't touch the 50k cash they have now, keeping it as emergency fund instead.) 

This is a young couple. 50K saving and 50K in 401K at age 30 is quite an accomplisment in my view.

 

[Sam]

Thank you all for participating.  I think I've seen all the different views on this 3x rules.