Got some free time? Help me build a budget for

[eridanus]

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?

 

[astromeria]

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!

 

[FinanceDude]

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..........

 

[Scrooge]

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".

 

[Sam]

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.

 

[Sam]

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.

 

[sgeeeee]

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.

 

[Scrooge]

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.

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)

 

[Sam]

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.

 

[ats5g]

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

 

[Scrooge]

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

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"  

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.

 

[Sam]

... 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.

 

[Sam]

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.

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.

 

[Scrooge]

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)

 

[astromeria]

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

 

[Scrooge]

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

Good point 

For better or for worse, I stopped keeping track of cash expenses years ago when I decided that it was more trouble than it was worth. So many places take credit cards these days that I just grab $200 whenever I run out, once a quarter or so, and then make a note of the ATM withdrawals at the end of the year. Hence there is no way of telling how much of it was spent on drugs (a $10-15 deductible depending on the insurance), snacks and other minor expenses.

Oh, and if you factor in my car costs, it would add about $1,250/year based on their lifecycle. A basic $15-17k Japanese sedan is an amazingly reliable and undemanding workhorse  8)

 

[Sam]

Sure thing! Here it is (July 2005-June 2006):

AMAZING!

Did you miss your phone bill, or is it paid for by your client/employer?

How about clothes, shoes, socks...

$2,500 for food.  I venture to say that most of your lunches are also paid by your clients, correct?

Your tax bill (fed, ss, med, and state) is problably 150% of your expense.

You must enjoy your job a lot, because making money appears to have no relevance for your situation.

I have a friend who stays single until 49 (6 months) ago.  He makes very decent money, but is also very frugal.  He was my hero, but no more.  You just took his place 

 

[Sam]

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.

A Ferrari at 55 and a Rolls Royce at 70?  Not sure if you like those, but I have a feeling that you can afford them 

 

[dmpi]

Sure thing! Here it is (July 2005-June 2006):

First off, I admire a guy that's cheaper than me.
Your numbers are very similar to ours. By the way, I didn't see phone cost on your list.

We spend about $26K/year total & I thought we were cheap....
We spend about $45/week = $2340 on food. Plus DW make sure we eat out at least once a week, that about $1500/year.
Plus we also give our parents (& in-laws) some money ($2K) to help them out.
We also give to United Way at work ($2K)  

 

[73ss454]

DMPI,

You guys spend $45. for food a week and still go out to eat?

What's the name of the restaurant? I think I might want to stay out of there.

 

[Sam]

dmpi,

WOW!

 

[Scrooge]

AMAZING!

Did you miss your phone bill, or is it paid for by your client/employer?

I don't have a land line any more. I carry a cell phone around -- paid for by my employer, as you correctly guessed -- but I hardly ever use it. If I need to make a phone call at home, Skype.com is free until the end of the year and then it will be just $0.02/minute.

How about clothes, shoes, socks...

I buy new socks (4 for $5 or so), pants ($10-15 per), white shirts ($10-15 per), shoes ($20ish), etc every couple of years, but it's pretty insignificant and gets counted as part of "toiletry". State of the art razors are significantly more expensive, which I am not crazy about, but my skin insists.

$2,500 for food.  I venture to say that most of your lunches are also paid by your clients, correct?

Oh no, I just bring a $1-2 lunch with me. Supermarkets frequently have frozen meals on sale and it's easy to grab 20-30 at a time. Subprime luncheon meat (ends, random pieces, etc) is $2.99-3.99 and works well too.

Your tax bill (fed, ss, med, and state) is problably 150% of your expense.

That's a pretty good estimate, especially if you consider that interest is taxable as well.

You must enjoy your job a lot, because making money appears to have no relevance for your situation.

I used to enjoy my job, but things have changed in the last couple of years My NW is about $750K+ right now, so I could theoretically retire tomorrow, move to a smaller place in a less expensive part of the country and live on $13-14K/y plus health insurance. However, it would leave me somewhat exposed and who knows what will happen with the health care system in the next 24.5 years (when I become eligible for Medicare)? And who knows how Medicare will evolve in the intervening years? Besides, my once dazzling IT skills are slowly becoming obsolete and if I have to go back to work 10 years from now (I have seen 2 people forced to go back), it could be nasty.

I figure it is better to be safe than sorry, so Plan A is to continue working for another 3 years or so and feather the nest some more while trying to figure out what I want to do with the rest of my life.

I have a friend who stays single until 49 (6 months) ago.  He makes very decent money, but is also very frugal.  He was my hero, but no more.  You just took his place 

No need to dynamite his pedestal just because he got married -- it happens to the best of us  

A Ferrari at 55 and a Rolls Royce at 70?  Not sure if you like those, but I have a feeling that you can afford them  

For shame!   Of course they will be sensible reliable low-maintenance mid-size Japanese sedans, most likely a Corolla or a Camry. A Camry if I estimate that I have a good chance of getting in an accident (depends on the area), a Corolla otherwise.

What helps make my lifestyle not only bearable, but actually enjoyable, is that most of the things that I go without, from fancier cars to eating out, are of no value to me. The only expensive habit that I found hard to get under control was my book habit. Oh, and it also helps that I did a ton of traveling earlier in life, so for now I am OD'd on traveling and am quite happy to stay at home enjoying my books, movies and the internet  8)

 

[dmpi]

DMPI,

You guys spend $45. for food a week and still go out to eat? 

What's the name of the restaurant?  I think I might want to stay out of there.

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...

 

[Scrooge]

First off, I admire a guy that's cheaper than me.

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

 

[Sam]

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

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