Critique my Budget(please)

uncreatedsnow · October 2013

I've been on here for a long time and have learned a lot from everyone but have never posted a budget. It's pretty bad(high car payment, student loans, etc.) but I have ZERO credit cards and very low living expenses(live-in position, no rent or utilities). I appreciate your feedback!

Income(take-home after taxes, parking, and retirement): $2150 Total

$100 - Savings(Emergency Fund)

Envelopes:
$100 - Eating Out
$100 - Groceries
$100 - Gas
$100 - Miscellaneous(gifts, spending money)
$100 - SCA(A hobby that involves many expenses and travel)
$50 - Car Incidentals(Car Washes, Minor Repair, Deductibles)
$50 - Personal Hygiene

Bills:
$90 - ATT
$357 - Car Payment
$175 - Car Insurance
$40 - Storage
$125 - Personal Loans
$200 - Student Loans

Medical Expenses come out of anything that is left over, and then any excess gets moved to the e-fund at the end of the month.

ETA: This is just for one person.

hoffse · October 2013

Well by my calculations you have $638 left over each month - how much of that typically gets eaten up by medical expenses?

I don't know what you drive, but it sounds to me like your car insurance might be ripping you off. H and I pay $124/month for two cars - a 2007 Honda CRV and a 2005 Nissan Altima. And I just found out that we're being ripped off because I can get about half that through esurance for the same coverage. I'm switching as soon as the penalty period expires. Granted, they are both older cars but still... with a $357/month car payment I'm betting you drive a $15K-$25K car, depending on how long your loan term is. Correct? If so, you might want to shop around for car insurance because that could save you a lot each month.

Your cell phone plan is also kind of high. I pay $55/month for unlimited talk, text, and I think 2 gigs of data through pageplus cellular. They use the verizon network. It's pay as you go which is really nice because I'm not tied to a contract. I think Wal-mart has a similar option.

Your car incidentals... do you typically spend all $50 each month or is this just budgeted? I'm wondering simply because I've never paid for a car wash in my life... and I only get the oil changed every 6 months or so. Other than that, my car has no routine expenses other than gas. So I'm wondering if this is money actually spent or money just budgeted for you?

A few other questions:

1) What are you storing and how long will you be storing it?

2) What are the interest rates on your loans and what are their current balances?

3) Because I'm nosy, what is SCA? I googled it and came up with all sorts of things - the most interesting of which was "the Society for Creative Anachronism"

MommyLiberty5013 · October 2013

Helpful info. But can you also provide the rates, remaining balances and the remaining terms on the loans? What make, model, and year is the car?

What are your goals?

savvyduofp · October 2013

I think it's awesome that you are saving for retirement and trying to build an emergency fund. Those actions put you way ahead of most Americans.

I work as a financial advisor, and I typically recommend that clients use the 50/20/30 method of budgeting. This means that 50% of your income goes towards fixed expenses (rent, car payments, insurance, loan payments etc...), 30% goes towards lifestyle expenses (groceries, gas, entertainment, shopping, etc...), and 20% goes towards savings and extra debt payments.

I also recommend that you commit to saving first and spending what is left. Set up an automatic transfer to your savings account and pretend the money went to pay another bill.

Also, it's important to have an emergency fund, but if the interest rate on your debt is high, you may want to make extra payments towards your debt. I would have to know a little more about your situation to make an appropriate recommendation about how much to save vs paying off debt.

It's sounds like you're on the right track. Keep up the good work

Ducktale · October 2013

Are you actually able to follow this budget? (Spend only $100 on groceries?). I agree car insurance is twice what outs is and we have 2 cars. While $100 on eating out is not that high, it is an area you could cut down to putmoremoney toward debt.

Ducktale · October 2013

@savvyduofp it looks like you have a link to your personal business in your siggy, which violates the community rules. You may want to remove it. http://ideas.thenest.com/information/about-the-nest/articles/community-rules.aspx

savvyduofp · October 2013

Thanks ducktale. I'll delete the link.

uncreatedsnow · October 2013

Here is a little more info:

Bills:
$90 - ATT
$357 - Car Payment(3.9% with ~14,000 left... 2011 Hyundai Tuscon)
$175 - Car Insurance(This is HIGH, but it's every 4 out of 6 months so averages out to about $116 a month, in a college town, with on street parking and a very low, $50 deductible. This is because I live on Frat Row(second job) and there is constantly damage being done to my car)
$40 - Storage
$125 - Personal Loans(4%, basically use these instead of credit cards since the interest is so much lower than I can get with a credit card. I pay more on these than minimum and am snowballing them right now)
$200 - Student Loans(6.8% with ~21,000 left)

I do only spend $100 on groceries because it's just for Breakfasts/Lunches...dinners are provided by my second job or I eat out.

uncreatedsnow · October 2013

hoffse said:

Well by my calculations you have $638 left over each month - how much of that typically gets eaten up by medical expenses?

Usually not too much, but recently I've been catching up on a lot of dental and dermatological work, so it's been eating about half of it a month.

I don't know what you drive, but it sounds to me like your car insurance might be ripping you off. H and I pay $124/month for two cars - a 2007 Honda CRV and a 2005 Nissan Altima. And I just found out that we're being ripped off because I can get about half that through esurance for the same coverage. I'm switching as soon as the penalty period expires. Granted, they are both older cars but still... with a $357/month car payment I'm betting you drive a $15K-$25K car, depending on how long your loan term is. Correct? If so, you might want to shop around for car insurance because that could save you a lot each month.

I shop around whenever my policy is up and Geico usually does end up being the cheapest by half. It TRIPLED when I moved here because of the zip code and number claims that are reported here. It is four pays on a six month policy so averages out to $116 a month instead of $175. I also pay for a lower deductible because of the vandalism that's in my area. I had 6 claims last semester that were all covered under comprehensive. I haven't had an actual claim for years.

Your cell phone plan is also kind of high. I pay $55/month for unlimited talk, text, and I think 2 gigs of data through pageplus cellular. They use the verizon network. It's pay as you go which is really nice because I'm not tied to a contract. I think Wal-mart has a similar option.

It is high. I worry about service coverage with other plans. I justify it because I don't have to pay for utilities like cable or internet. But I could save some money here. Does anyone have any experience with the Wal-Mart option?

Your car incidentals... do you typically spend all $50 each month or is this just budgeted? I'm wondering simply because I've never paid for a car wash in my life... and I only get the oil changed every 6 months or so. Other than that, my car has no routine expenses other than gas. So I'm wondering if this is money actually spent or money just budgeted for you?

No, it's budgeted. I currently have a few hundred in that "envelope" I pay for car washes because it's a black car and drives me CRAZY when it's dirty, also, in the winter to get the salt off. We don't have a hose at the Frat House I live in so washing at home isn't the best option right now, plus I love their free vacuums! Right now I'm saving this money for Tires for when they are needed. I also pull deductibles from here when needed instead of having to pull that from somewhere else. After tires I hope to bump my deductible back up(which will lower my insurance) and use this "envelope" for that.

A few other questions:

1) What are you storing and how long will you be storing it?

Housing items. I had a full apartment worth of furniture when I got my live-in job and it came furnished so most of my stuff went into storage. I have a yearly contract that so far has been renewed 3 times. So I'll be storing it until I move on from my second job.

2) What are the interest rates on your loans and what are their current balances?

Answered in another post...

3) Because I'm nosy, what is SCA? I googled it and came up with all sorts of things - the most interesting of which was "the Society for Creative Anachronism"

Yes, it's the Society for Creative Anachronism. This takes up a lot of my time and I truly love it. I go to an average of 2 events a month, more in the summer. One of them being a two week event that I use as my vacation. That's what the money goes towards.

uncreatedsnow · October 2013

I guess what I'm looking to figure out is an order in which I should pay things down, and also how much my e-fund should be ideally. I worry that because my second job covers so much(rent, utilities, and a paycheck) that if it doesn't get renewed what I should do. It's been renewed 3 times already but it's never a guarantee. So I'm caught between hoarding my money so I have it in case, and aggressively paying down everything so that if it doesn't get renewed I have less debt. Which usually results in more hoarding and less paying down.

The order I have my "snowball" in now is:
Personal Loans
Car
Student Loans

So is that the best order or WWMMD? And should I put my extra each month towards the snowball or savings or split it somehow and in what way? 50/50, 75/25, etc.?

Thank you all for all of your help and advice. I've come a long way since lurking on this board, including sticking to the envelope system for a full year now, which has really worked for me. I'm just reaching out to make sure I'm on the right track and if so, to fine tune it here and there.

hoffse · October 2013

Thanks, OP - that was helpful. Here are my thoughts. This is long, so I apologize for that in advance. I just want to be clear:

1) E-fund: Dave Ramsey says $1,000 to start and then 6 months after your debt is paid down. I think $3K-$5K is safer to start. That will cover most "emergencies" that pop up now and then - your car breaks down, the A/C goes out, you have an unexpected (not super major) medical expense.

As for 6 months, this is probably a good benchmark for most people, especially if your job is one that has high turnover. I will tell you that H and I are not following this "rule" because we need to our money to work for us instead of just sitting there (we are high-income earners so having 6 months liquid is overkill) - so we keep about $10K in cash and the rest in investments that we will liquidate if necessary.

2) Your snowball - Dave Ramsey says to snowball starting with your lowest balance and moving to your highest. I strongly disagree with this for two reasons. First, in many instances it would have you pay more $$ in interest than necessary, and second, it reinforces having an emotional attachment to money. Let me explain the second point first: a lot of people overspend because it makes them feel good. Dave Ramsey tells you to snowball starting with the lowest balance because you will feel good when it's paid off, and since it's the lowest balance, you'll get that good feeling fast. And then you'll be addicted to these good feelings and you'll keep paying down your larger balances. Granted, that's a model that might be necessary for very desperate people who are totally overwhelmed - but really, the ultimate goal should be to approach money with a mathematical bottom line instead of with feelings.

I really don't feel proud when I fund my retirement or save money because it's something I should be doing. I don't deserve a pat on the back for that. I also don't deserve a pat on the back for paying down debt. I accrued that debt, now I have to pay it. It doesn't particularly bother me to have have debt because our debt is entirely wrapped up in our law school loans; and it doesn't make me feel particularly proud to pay it down. I really only get a "high" with money when I buy something that's more than 80% off. That's why I love Black Friday.

There are some other benefits to being less emotional and more objective with money: for instance, I don't feel alarmed when the stock market dips. So I can ride out lows - even 2008-level lows - without feeling the need to get out of the market. Psychologically, it's very hard to get back in the market after you've sold in a panic. A lot of people sold in 2008 and STILL haven't gotten back in the market. Those people have lost out on some major gains the last couple of years. So my approach is to just not panic.

In other words, Feelings =/=Wealth.

So instead of following Dave Ramsey on this one, I would suggest you snowball from the highest interest rate to the lowest. So that means student loans, personal loans, then car. Your car and personal loans are close enough that you could choose to swap those - but you should be snowballing student loans first and foremost. It might take you longer to pay down the student loans than the car, but the order you're doing them right now has you paying a lot more in interest on your student loans than necessary.

3) You didn't ask this, but you need to fund retirement. This is huge. Did you know that (for most people, on average) if you start funding your retirement when you are 25 you can put away 15% of your gross income (invested) and never need to save more than 15% for the rest of your working life to comfortably retire at 65? But if you wait until you are 30 (just 5 years) you then need to put away 20% of your gross income for the rest of your working life to make up that difference. That's huge. Beyond huge.

Investing is how you retire a millionaire. And I hate to say it, but a million dollars isn't enough for most people to retire on these days - you will probably want to be a million several times over by then. There are a lot of retirement calculators out there. I ran one today on me and H - it said I needed $4.5M and H needed $5.5M to maintain our current income-levels when accounting for inflation and cost of living increases. And I hope we get a raise sometime between now and when we turn 65.

I only bring this up because you mentioned frat row - so I assume you're probably in your 20's. Do yourself a huge huge favor and start now. Even if your employer doesn't have a 401(k), open a Roth IRA. You can contribute up to $5,500/year. You have time on your side right now, so take advantage of it.

4) As for balancing debt, e-fund, and retirement this is what H and I do:

-Small e-fund first (done)

-Then 15% into retirement (always doing this)

-Then 25% of whatever is left to larger savings/investments and 75% extra to our (massive) student loan debt. Goal is to pay that off in 7-10 years.

Your debt has about the same interest rate that ours has. Our retirement funds have done really really well this year. We've had about 20% growth so far. We had 23% growth last year. And we've had about 12% average growth since we bought the funds, pre-2008. So I can tell you that fully funding our retirement is more important to us than paying down our 6.8% stafford loans, even when the market takes a hit.

hoffse · October 2013

Ahhh OP I just realized I gave you a big long lecture about retirement - and you already contribute. Good on you!

Just make sure you're contributing enough, and hopefully my lecture will help out somebody else who's learning.

Ducktale · October 2013

hoffse said:

I really don't feel proud when I fund my retirement or save money because it's something I should be doing. I don't deserve a pat on the back for that. I also don't deserve a pat on the back for paying down debt. I accrued that debt, now I have to pay it. It doesn't particularly bother me to have have debt because our debt is entirely wrapped up in our law school loans; and it doesn't make me feel particularly proud to pay it down. I really only get a "high" with money when I buy something that's more than 80% off. That's why I love Black Friday.

I think this is highly personal opinion. I absolutely feel proud when I save money or pay down debt. We have worked our asses off paying down our student loans and have made some very tough financial decisions in order to cut back to be able to do this, and in a few weeks we plan to make our last payment. I am so so excited about this, as I think most people would be when they have a major financial accomplishment. And those feelings of pride and accomplishment are what help me continue to make smart but tough and unpopular financial choices on a day to day basis, or to know it's worth it when we pick up extra shifts when we're tired and would rather go home. I agree that some people have unhealthy emotional connections to money or fear related to money that hold them back from accomplishing their financial goals, but I think the pride and the feeling that all the hard work is worth it can be very productive.

uncreatedsnow · October 2013

hoffse said:

Thanks! Yeah, I have 2 jobs, a real one and the live in one. I contribute 6% of my real job to retirement which is matched by my employer making it 12%. This has been the case since I was 23. It comes straight out of my check so I never miss it. At my age I think that's pretty good, and once everything else settles down I can't wait to start bankrolling retirement more so.

As far as being emotional about money, I have been way too emotionally attached to money and my outlook on it, but I have been working on that for the past year and am getting to a point where it is just numbers. It takes time and baby steps, but your approach does make more sense when looking at the numbers.

I don't think I'll get to a point where I'm not proud to have paid something off though.

hoffse · October 2013

I admit the lack of pride thing is probably unusual - but I just don't feel attached to it at all, really. Like I said, my financial highs come with getting a crazy-good deal. That's about it. And really, I enjoy the hunt for a deal far more than the actual purchase. So I rarely buy anything that's not food or gas or gifts for other people.

I understand that most people are proud of themselves for making those steps, and I don't think that's a bad thing - but I do think being overly attached one way or the other can eventually become a bad thing. I've had so many friends go through cycles where they are in and out of credit card debt because they love the feeling of buying new things - and then they feel horrible about their debt so they get rid of it and then love the feeling of getting to be debt-free. And then they feel like they need to reward themselves and they start the spending cycle all over again. It's an emotional rollercoaster. I think I've posted about my friend who got out of credit card debt a few months ago. Well, she figures that now she has all this "extra money" each month. Yes, she does. And she worked so hard to get to where she's at. Yes, she did. So what does she buy with all this "extra money?" A Lexus SUV. That's what I'm talking about when I say being too proud or emotionally attached can come back and bite you in the butt. She's now all stressed out about her car payment, and frankly I've stopped feeling sorry for her.

The people I know who eventually get to where it's just a numbers game ultimately seem to be happier because the ebbs and flows in money that occur for various reasons stop encouraging emotional decision-making. I think it's fine to be proud of paying things off, as long as that doesn't lead to emotional spending down the road. That's all I'm saying.

Critique my Budget(please)

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