Budget Review (long)

melissa&mark · April 2015

I posted a few days ago about getting back in the swing of things regarding creating a budget. My husband was out of work for most of last year, but now that he has a stable job again I feel like I want to get more organized and have a better financial plan. My biggest problem is not saving on a regular basis, and not having specific saving accounts. That's where I'd like the most input. Here is the monthly budget.

DH income- $4900 (frequently a little more if he does any side jobs, he's an electrician)

my income- 3015

total income 7915.00

Expenses

mortgage/prop tax- 2115

utilities- 285

cell phones 162

internet/cable/landline 160

preschool 555

after school care 196

ins home/car 187

union dues 36

kids sports/activities 125

alarm 55

gas 400

food 825

misc 1400ish

total $6500

Should have around $1400 left to save. The misc category above is everything that doesn't fall into a category listed. Gifts, eating out, toiletries, clothing, fun money, etc. I don't budget our annual expenses like car registration, life insurance, etc. but I just adjust the budget that month and save less so it usually seems like we don't quite have the full $1400 left to save.

We currently have 35k in our efund which I know isn't 6 months worth, but I'm comfortable with that amount. I feel like it may even be a little too high because with my DH being off of work for almost 8 months we didn't really even touch it, we just adjusted our lifestyle, I was able to work more, and we received a little income from unemployment.

we also have 8k in a usable savings account which doesn't have a specific purpose at this point.

retirement- my DH contributes over 20% of his income, but I'm self employed and haven't been contributing to my roth on a regular basis.

We have 2 kids (4 & 7) who both have 529's that have a decent amount in them already, but that we don't contribute to on a regular basis. I don't stress about this too much because I know their grandparents want to help with college. I do want to send them both to a private high school though so I feel like that may be something I need to start saving for.

We also own a rental property that we have a positive cash flow on each month. We put that income straight into a account for any maintenance or repairs that may come up which is why you don't see a line item for any type of savings for that property. We currently have 5k in that account and contribute $265 to it each month.

I have my real estate license but only use it to help friends and family occasionally which means I sometimes have large commissions that seem to get blown or disappear because we don't have clear savings goals. This month I'll earn an 8k commission and so far have no plans of what to do with it or where to put it.

I know that was long, but I just wanted to paint the whole picture. Most of our friends are in lots of debt and have lots of fancy material things so I don't have like-minded people to bounce ideas off of, and I know sometimes my DH feels jealous of all our friends "stuff". We have no debt besides our mortgage and I know my DH really wants a boat (a used one) which I'm beginning to consider. So where would you put your savings if you were me?

als1982 · April 2015

In regard to the $1,600, I'd take the first $917 every month and put that directly into a ROTH for each of you. Then, if you're serious about private high school, I'd put the rest in your kids' 529 plans.

Also your miscellaneous amount of $1,400 seems crazy high. Where is all that money going?

AprilZ81 · April 2015

Everyone budgets a little differently, but since you should have $1,400/month to save I would first max out a ROTH IRA for yourself and possibly put more money into another retirement account that you are eligible for (I'm not sure what a freelancer/contractor can do).

I would then start saving for the private school tuition and/or contributing more to the 529 accounts.

If you are comfortable with your e-fund level I would leave that alone but I would consider starting a savings account for home repairs (maybe use your 8k savings account for this and add to it a little bit). Eventually you will need new appliances, a new roof and while you can use your e-fund if you want I like to have a a fund for home repairs and leave the e-fund for a "catastrophic" need like both of us being out of work or a long term illness.

I would also recommend adding up your known annual expenses (Amazon Prime, car registration, Christmas, etc) and contributing to that account all year.

Do you currently save for vacations/travel or a down payment on a new(er) car for when you need to replace it? Those might be some good goals to work towards.

You seem to have a good grasp on your budget and there are areas you can cut if you want to, but I don't think you "need" to. If you don't already I would start tracking your spending closely just to make sure you aren't spending more than you think you are spending. That might be where you are "losing" money you should have available for savings.

For me it helps to have a line item budget that includes monthly savings goals and then set up monthly auto-transfers with the bank so I don't have to remember to transfer the money each month.

melissa&mark · April 2015

I agree the misc. account seems high but it just seems to add up fast! Looking at last month we spent over $1400 on eating out (more than usual since we took a road trip to LA), some new clothes for the kids, school pictures and professional pictures for the kids, bday gifts (every weekend at this age), bridge toll when my dh was working in the city, $100 for dh's re-certification for his electrical license, landscaping supplies, cleaning lady (I need to make this a reg. line item), softball registration fees for dh, new baseball cleats,pants, etc. for my son, $50 in copays and prescriptions, $135 to get my hair done (once every 6 months or so).

I always think to myself that next month won't be as high, but it always is because something always seems to come up.

melissa&mark · April 2015

Can you refresh my memory on what the maximum annual ROTH contribution is? Maybe I'll max mine out with the commission I'll be getting this month. I agree I need to be better about contributing to that regularly.

We just took a vacation and took the money from the usable savings account.

simplyelise · April 2015

FIRST, I don't see any life insurance listed up there... maybe your husband gets that through the union, but you should have a policy on yourself and make sure you don't need more on him.

We all come from a variety of perspectives with a ton of different priorities. But I think anyone working on being MM according to their own philosophy should start from the end and work back to now.

When do you want to be able to retire and how much will you need by then (if you want to travel or buy a vacation home in retirement, plan accordingly)?

Are you in your forever home, or is that something you'll need to purchase in the future?

Figure out about how much private school will cost and determine how much you need to contribute (maybe into a mutual fund) to get there.

Once you determine your savings goals, you can decide if you're contributing enough to get there or if you need to adjust your lifestyle (that's a LOT of eating out) to get there. I find sitting down at the end of the month to try and list out all the expected random expenses for the next month (softball registration, hair styling, kid's expenses) then plan that out and limit yourself with a small padding.

AprilZ81 · April 2015

melissa&mark said:
Can you refresh my memory on what the maximum annual ROTH contribution is? Maybe I'll max mine out with the commission I'll be getting this month. I agree I need to be better about contributing to that regularly.

We just took a vacation and took the money from the usable savings account.

I believe the current max is $5,500 per person if you are eligible to contribute (subject to some limitations based on income).

AprilZ81 · April 2015

melissa&mark said:
I agree the misc. account seems high but it just seems to add up fast! Looking at last month we spent over $1400 on eating out (more than usual since we took a road trip to LA), some new clothes for the kids, school pictures and professional pictures for the kids, bday gifts (every weekend at this age), bridge toll when my dh was working in the city, $100 for dh's re-certification for his electrical license, landscaping supplies, cleaning lady (I need to make this a reg. line item), softball registration fees for dh, new baseball cleats,pants, etc. for my son, $50 in copays and prescriptions, $135 to get my hair done (once every 6 months or so).

I always think to myself that next month won't be as high, but it always is because something always seems to come up.

A family will almost always have some unexpected expenses which is why a buffer/slush fund is good, but some of those things you know will come up. If both kids play sports then you should have a budget line items for registration fees, uniforms, game travel, etc. You know you pay a housekeeper so that should be a budget item since until you cancel the service it is a fixed cost.

I would suggest adding line items for the following:

-Housekeeper

-Personal Care/Medical Expenses (prescriptions, hair cuts, doctor copays, etc.)

-Entertainment (eating out, movies, family bowling night, etc.)

-Gifts (birthday, Christmas, Mother's Day, Father's Day, etc.)

-Kids Expenses (new clothes, school pictures, sports fees, etc.)

You may not need to have a line item for ever single type of expense, but it seems like you are struggling with a large "slush fund" type budget and you aren't really sure where it all goes. Maybe breaking out a few categories into their own will help with that. You don't need to make a separate bank account if you don't want to, but just tracking the spending will be a big help.

ETA: I see you already have a line item for Kids Sports. Just make sure the amount is realistic to what you spend.

csuave · April 2015

melissa&mark said:
Can you refresh my memory on what the maximum annual ROTH contribution is? Maybe I'll max mine out with the commission I'll be getting this month. I agree I need to be better about contributing to that regularly.

We just took a vacation and took the money from the usable savings account.

This is the perfect time to consider the Roth. You should be able to make a 2014 contribution if you get it done before tax day.

Stephanie2167 · April 2015

We are both in pretty much the same boat (income wise) except that I have three in daycare ($2100 a month). Following.

cbee817 · April 2015

I would open a Roth for yourself - max your 2014 now $5,500 (you have until April 15th do that) from your emergency fund. Websites like Fidelity, Vanguard, etc are great for these individual accounts. When you get the commission, repay your e-fund and put the rest in your Roth for 2015. We have a 4.5 and almost 3 year old (both in day care) so I get that misc number at $1,400 with 2 kids- some months are a lot less, some months are more depending on what's going on with them. For example, we have a high month for April because we had to buy DD#2 a big girl bed, had 3 birthday parties, DD#1 needs spring/summer clothes/new sneakers, we signed DD#1 up for soccer, etc.

I would also set up an automatic transfer to your savings account the day after your paycheck goes in. Currently, $500 is transferred from my checking to our savings and $250 is transferred from DH's checking to our savings every paycheck. I make about 2x what DH does, so those numbers make sense for us. No matter what, we're saving $1,500/month and we don't have to think about it. We also started a vacation fund last year- we hope to take the girls on a bunch of vacations as they get older and we figured it was easier to have that money set aside when it came to buying plane tickets, hotel rooms, etc. This account is funded with fed/state tax returns, mini bonus from work, we get a $1,000 health incentive from my work, and DH gets a $700 health insurance waiver from his work because he's on my policy... basically any extra $ we weren't expecting goes into this account. We already have $7,500 which is great because we're planning on going to Disney world with the girls in 2017.

Sisugal · April 2015

Max out your ROTH IRA before you fund 529 plans

Perhaps you could save for future vehicle purchases (in cash) as a goal?
Vacations?
Home renovations?
Charity contributions?

Budget Review (long)

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