Budget thoughts needed

brij2006 · October 2015

I'm having issues posting a new thread, so I'm going to try and post this then go in and edit to see if that works.

***Woop! Woop! It worked.***

Okay, so H and I have put together our January 2015 budget and we are feeling very strapped. With having no debt and no payments, we know that things shouldn't look this bad. But we are feeling very strapped in our monthly budget, and I want an outside look at it to see if we're just messing something up. I'm going to try and give as much details as possible so you know where we're coming from with numbers and how we're planning for things.

This will also be our first month fully funding Roth IRA's, as we did a lump sum contribution this year. But I'm feeling very retirement poor with this new budget, or so it feels like.

Here is goes....

Base Income: $4,646 (this is after 10% into 401k for H and after heath insurance for both of us. His gross income this year will be about $50k)

Average Overtime: $600 (can range from $0 up to $1,000, a typical month is $600)

Commissions: $0-$400 (usually redeem them every other month and is about $200 when I do, but I do not count them into our basic budget)

So average monthly income = $5,246

Expenses

Church Tithe: 524.60

Roth IRA's: 916.67

Housing

Water/Sewer: 82 (is a set minimum amount. Only goes above this when filling the pool)

Heat: 200 (we live in an old large Victorian, so this will likely get to about $450 in the height of winter)

Electricity: 100

Cell Phones: 177

Netflix: 9

Internet: 59.40

Transportation

Gas: 450 (H commutes 100 miles/day and I commute 54)

Car Maintenance: 150 (if this is not used we float it to the next month for any upcoming repairs. Driving as far as we do, we have maintenance very often)

Food

Groceries, toiletries, animal food/liter: 500 (I am going to try and focus to get this back down again. Since having our baby 8 months ago I haven't had time to meal plan and prep as well)

Restaurants: 100

Lifestyle

Clothing: 100

Childcare: 500

Entertainment: 75

House Updates: 100 (another category that we carry over if not used)

Extra: 75 (things like a blanket for our bed for the winter, a dry erase board for meal planning, all the random stuff that doesn't have a category)

Insurance

DD's Health Insurance: 200 (my employer does not offer this to be taken out of my check pre-tax, but she is on my health insurance plan)

Life Insurance: 65

Auto, Home, Farm Land, and Umbrella: 325 (we do own farm land and our net worth is over $1mil, so we need the umbrella.)

Total Expenses: $4,758.67

Here are some annual expenses that I do not have sinking funds for and am thinking that maybe I should.

Travel (annual family trip): $3,000 annually / 250 monthly

Vehicle Registrations and new tires: 1,440 annually / 120 monthly

1/4 Beef (we buy our beef in bulk 1 time/year from my grandpa who raises cows): 720 annually / 60 monthly

Christmas: 600 annually / 50 monthly

Total Extras: 5,760 annually / 480 monthly.

Things you may want to know:

- We do have 4 vehicles. 2 of them are our daily drivers, 1 is an SUV for H to drive too and from work when it snows and for us to pull the trailer with, and the other is H's toy car he has owned for 10 years. All of our vehicles are paid for.

- I receive $2,000 from my employer annually for retirement.

- I also receive a bonus in the amount of about $1,200 annually from my employer, and my Christmas gift from them is $450. However, I am 1099'd on all of this plus $3,000 of my income since it's mileage reimbursement.

- All of our vehicles and our home is paid for. We purchased a foreclosure 7 years ago and have been slowly remodeling it. We still have about $15k worth of work that needs to be done to it. We will also need a new roof within 5-7 years, which will cost $10k.

- We have $15,000 in our emergency fund

- DD's college fund has $20,000 in it that we will let build and grow for 18 years.
- We have $100,000 in liquid money that will be invested into mutual fund for retirement or if we choose to purchase a different home in the future. We would prefer to not touch this money at all.

So here's where we're feeling defeated. We have worked very very hard to pay everything off and have no debt. We were looking forward to living and giving like nobody else, but we feel like this budget is really restricting us. Our eating out and entertainment categories have only been increased $25 from what we were spending when in strict debt payoff mode.

I personally feel like what we're putting into retirement is steep for what our incomes are. But we are afraid to not take full advantage of the Roth IRA's, since it's tax free growth.

The thing that is getting me, we do not have any payments. However, we do need to be able to save to replace vehicles at some point, put a new roof on the house, siding whenever it needs replaced, furnace, water heater, etc etc.

We have also neglected a lot of things over the past 2 years while we were in debt payoff mode. So just in our, "things we put off till debt was gone," category, we have about $4,000 worth of things we would like to purchase over the next 4 months. Not including the kitchen remodel that needs done at some point (hoping to come in at $10,000).

My H is feeling like we just don't have a set goal right now and that's the problem, but I feel like we're still needing to live our strict lifestyle. No extra vacations (we booked Hawaii but that is coming out of the life insurance money), no getting the dining room table and chairs set I couldn't wait to finally be able to afford, etc.

So where are we messing up?

CuriousKiddosMama · October 2015

What percent of your income are you actually putting into retirement between the 2 of you?
One thing I would suggest is to maybe not fully fund your Roth this year, but to start out smaller and increase it every year until you get to fully fund it. That may sound like a step backwards, but it may help you feel like you are adjusting frailer. And make you able to give and live like no one else.
If you are over 15% into retirement, I would cut back to 15% for right now, and slowly increase each year as your income goes up.
Looking at your budget, the only thing I would maybe double check are your insurances (honestly I check these yearly to still make sure we are getting a good deal) and maybe your cell phones. We switched frim Verizon to net10 and haven't noticed a change in service. Unlimited minutes, text and 5gb data each now only costs us $95 or so.

CuriousKiddosMama · October 2015

Do you get rental income from the farmland? Is that included in this?

hoffse · October 2015

Well it feels tight because it looks like you guys are doing way more than 15% into retirement. What is your gross income combined (estimated)?

Does your H get a match on the entire 10% he contributes to his 401(k)? If not, I would do the 401(k) up to the match (if any), then do Roths, then back to the 401(k) up to 15%.

Since you guys have no debt and you have the $100K seed money for external investments, I think 15% is probably plenty.

If you want to retire early, you may need to do a little more, but I would then be diverting anything over 15% to non-taxable accounts. Your ages play into this of course, but IIRC you guys are fairly young, right?

brij2006 · October 2015

@curiouskiddosmama

Last year we grossed $102k. So we were doing 10% of H's income toward retirement (about $5,500) and the Roth's of $11k. This puts us at about 17% of our gross toward retirement. However, this year we will probably end at $90k gross in income (I took 1 month unpaid maternity leave and did not receive commissions then) . Then I'm 1099'd on about $7,000 of that amount, if that makes a difference.

So if we use the $90k amount, then we're at about 19%.

I just shopped and moved our insurance in July when we took over the ownership of the farm land. We also pay it in full every year, so we already take advantage of that discount as well.

Unfortunately we don't really have an option for cell phones. It's the only provider that works in the small town we live in. :-( Oh how I wish we could even get Verizon or something.

brij2006 · October 2015

For the farm land, we do not earn any income off of it. My parents have lifetime use of it, so we will not receive income from it until they pass. We just have the asset.

brij2006 · October 2015

@hoffse We are 27 and 29. My H's employer matches .10 to every dollar, up to 10% (which is why we're doing 10%).

hoffse · October 2015

@Brij, a few more thoughts:

You can count your employer's contribution toward retirement in that 15% if you are fully vested. If you aren't fully vested, count just the vested portion.

You might also think about doing a traditional IRA to get the tax-break until your cash flow frees up a little. Childcare is about 10% of your take-home, and presumably that will start to go down as your incomes also go up.

Even though I'm always harping on retirement, somebody in your financial situation should also be able to live a little.

Have you considered how the baby is going to affect your taxes? She was born in 2015, right? You might see a bigger refund this year than you are used to getting. At this point I probably wouldn't make any adjustments for the rest of the year, but I would absolutely be doing my taxes as early as possible to see if I could lower withholdings for 2016.

I know you guys aren't interested in financing anything ever again. But this is a classic case where debt leveraging would play heavily in your favor, at least for things like replacement vehicles.

hoffse · October 2015

brij2006 said:

@hoffse We are 27 and 29. My H's employer matches .10 to every dollar, up to 10% (which is why we're doing 10%).

SITB

OK so your H's 401(k) is effectively at 11% then? 10% from his own contributions and 1% from his employer?

It sounds like you guys have about 3% of employer matches/contributions between the two of you. If it's vested, then the new target number is more like 12% for your own contributions.

brij2006 · October 2015

hoffse said:

brij2006 said:

@hoffse We are 27 and 29. My H's employer matches .10 to every dollar, up to 10% (which is why we're doing 10%).

SITB

OK so your H's 401(k) is effectively at 11% then? 10% from his own contributions and 1% from his employer?

It sounds like you guys have about 3% of employer matches/contributions between the two of you. If it's vested, then the new target number is more like 12% for your own contributions.

Correct. We were trying not to take our employers contributions into consideration. We want to make sure we're putting plenty aside to live very comfortably in retirement, but now I feel like it's the one area that's strapping us.

hoffse said:

@Brij, a few more thoughts:

You can count your employer's contribution toward retirement in that 15% if you are fully vested. If you aren't fully vested, count just the vested portion.

You might also think about doing a traditional IRA to get the tax-break until your cash flow frees up a little. Childcare is about 10% of your take-home, and presumably that will start to go down as your incomes also go up.

Even though I'm always harping on retirement, somebody in your financial situation should also be able to live a little.

Have you considered how the baby is going to affect your taxes? She was born in 2015, right? You might see a bigger refund this year than you are used to getting. At this point I probably wouldn't make any adjustments for the rest of the year, but I would absolutely be doing my taxes as early as possible to see if I could lower withholdings for 2016.

I know you guys aren't interested in financing anything ever again. But this is a classic case where debt leveraging would play heavily in your favor, at least for things like replacement vehicles.

I have considered how baby will affect our taxes. Currently we receive about a $2,500 return each year. We turn around and use $1,800 of that to pay for the property taxes on our house. Our accountant said that we will likely receive an additional $1,000 this year for our child.
The thing that will screw things up is the estate will be closed out next month. So we will have to pay taxes on the income portion of that, but can also expense out what we spent within it as well (we're choosing to pay the taxes after the payout rather than paying them within the estate before closing since the tax bracket is higher in the estate). So long story short, we really won't know exactly how much DD affects our taxes this year. We may end up owing in.
I would prefer we change H's witholdings to have more in his check so that we can just save monthly for property taxes, but he's afraid of owing in since I am 1099'd on a bunch of stuff.

CuriousKiddosMama · October 2015

brij2006 said:
For the farm land, we do not earn any income off of it. My parents have lifetime use of it, so we will not receive income from it until they pass. We just have the asset.

That's unfortunate- especially since you have expenses related to the land. (Umbrella policy and insurance on the land itself) is that something that your parents would take over. I know not wanting to lose the family farm can lead to some interesting situations with inheritance (like yours with getting it early) but it shouldn't be a burden on you in the mean time
For me the numbers aren't adding up, so I'm obviously missing something with the math. Or maybe your insurance through work is insanely expensive because it seems like with a 90-110k income you should have more to play with every month. But my son isn't sleeping well this vacation so that means I'm not either

hopefully somebody else here can help! I was trying to do the math in my head, and off the 50k income, I was thinking you were putting like 30% into retirement (10% at work and 11k of Roth = about 20%).

brij2006 · October 2015

CuriousKiddosMama said:

For the farm land, we do not earn any income off of it. My parents have lifetime use of it, so we will not receive income from it until they pass. We just have the asset.
That's unfortunate- especially since you have expenses related to the land. (Umbrella policy and insurance on the land itself) is that something that your parents would take over. I know not wanting to lose the family farm can lead to some interesting situations with inheritance (like yours with getting it early) but it shouldn't be a burden on you in the mean time For me the numbers aren't adding up, so I'm obviously missing something with the math. Or maybe your insurance through work is insanely expensive because it seems like with a 90-110k income you should have more to play with every month. But my son isn't sleeping well this vacation so that means I'm not either hopefully somebody else here can help! I was trying to do the math in my head, and off the 50k income, I was thinking you were putting like 30% into retirement (10% at work and 11k of Roth = about 20%).

My parents cover the property tax portion and all of the expenses/upkeep of the land. So really, our umbrella is $200/year and the farm liability is $150. So we figured that $350/year is something we could easily cover in order to protect my asset.

H gets paid weekly, so there are months where he receives 5 paychecks. That may be where things get a bit wonky. This budget is for a 4 paycheck month.

hoffse · October 2015

brij2006 said:

CuriousKiddosMama said:

For the farm land, we do not earn any income off of it. My parents have lifetime use of it, so we will not receive income from it until they pass. We just have the asset.
That's unfortunate- especially since you have expenses related to the land. (Umbrella policy and insurance on the land itself) is that something that your parents would take over. I know not wanting to lose the family farm can lead to some interesting situations with inheritance (like yours with getting it early) but it shouldn't be a burden on you in the mean time For me the numbers aren't adding up, so I'm obviously missing something with the math. Or maybe your insurance through work is insanely expensive because it seems like with a 90-110k income you should have more to play with every month. But my son isn't sleeping well this vacation so that means I'm not either hopefully somebody else here can help! I was trying to do the math in my head, and off the 50k income, I was thinking you were putting like 30% into retirement (10% at work and 11k of Roth = about 20%).

My parents cover the property tax portion and all of the expenses/upkeep of the land. So really, our umbrella is $200/year and the farm liability is $150. So we figured that $350/year is something we could easily cover in order to protect my asset.

H gets paid weekly, so there are months where he receives 5 paychecks. That may be where things get a bit wonky. This budget is for a 4 paycheck month.

I am paid biweekly so twice a year I get a third paycheck. I use those extra paychecks to cover one of our Roths. That means we put away around $450/month for Roths, vs. $980. It helps a lot, and those extra paychecks are already earmarked, so we don't feel tempted to spend them frivolously.

What kind of breathing room would that give you? If he's paid weekly, he should get extra paychecks 4x per year.

brij2006 · October 2015

hoffse said:

brij2006 said:

CuriousKiddosMama said:

For the farm land, we do not earn any income off of it. My parents have lifetime use of it, so we will not receive income from it until they pass. We just have the asset.
That's unfortunate- especially since you have expenses related to the land. (Umbrella policy and insurance on the land itself) is that something that your parents would take over. I know not wanting to lose the family farm can lead to some interesting situations with inheritance (like yours with getting it early) but it shouldn't be a burden on you in the mean time For me the numbers aren't adding up, so I'm obviously missing something with the math. Or maybe your insurance through work is insanely expensive because it seems like with a 90-110k income you should have more to play with every month. But my son isn't sleeping well this vacation so that means I'm not either hopefully somebody else here can help! I was trying to do the math in my head, and off the 50k income, I was thinking you were putting like 30% into retirement (10% at work and 11k of Roth = about 20%).

My parents cover the property tax portion and all of the expenses/upkeep of the land. So really, our umbrella is $200/year and the farm liability is $150. So we figured that $350/year is something we could easily cover in order to protect my asset.

H gets paid weekly, so there are months where he receives 5 paychecks. That may be where things get a bit wonky. This budget is for a 4 paycheck month.

I am paid biweekly so twice a year I get a third paycheck. I use those extra paychecks to cover one of our Roths. That means we put away around $450/month for Roths, vs. $980. It helps a lot, and those extra paychecks are already earmarked, so we don't feel tempted to spend them frivolously.

What kind of breathing room would that give you? If he's paid weekly, he should get extra paychecks 4x per year.

That's a really good idea. My only thoughts were that maybe we take those extra paychecks to put into savings for vehicle replacement. It would give us about $2,600/year, but really that isn't enough. We replace H's vehicle every 18-24 months. He puts 30k miles on it per year.

Thank God he's very actively searching for something closer to home. That will make a huge difference, but will probably include a pay cut. :-(

Another thought we had was to fully fund my Roth, which will be $460/month rather than $916 for both (since he's doing 10% into his 401k). Then when I receive my $2k retirement check from work and any bonuses or commissions I receive, throw them into H's Roth.

That way if we have a lean year in income, then we aren't strapping our month to month too much. But if he earns more overtime, then his 401k contribution coincides with that.

This year alone, even with me taking 3 months off for maternity leave, it would put us at $4,100 we would have thrown in there. So we could get pretty close to full funding it.

julieanne912 · October 2015

I don't know much about the retirement side of things so I can't chime in on that, but I agree that maybe adjusting your withholdings might be a good option to free up some cash monthly. I'm of the mindset that any refund you get means your withholdings are wrong. That money is an interest free loan you're giving to the IRS/government... and why would you want to do that? I always prefer to owe at least a little bit, and keep the most I can in my pocket throughout the year. Since you have plenty of cash, owing $1000 or so isn't the end of the world... you could even set aside a monthly amount just to be safe.

Also, this is a bit nitpicky, but what price per pound are you paying for that beef? Spending $60/month for just beef, on top of $500/mo for groceries seems a little high to me, especially for just 2 adults and a baby.

smerka · October 2015

It feels like you have an income problem but to hear you make $100,000 a year makes no sense. Is 40-50% of your income really coming out pretax? That's a lot. How much of your income is 1099? Do you have more than one job because I do not understand how you can get insurance through your employer and be an independent contractor. And you are getting screwed by paying your daughter's health insurance premiums post tax. Any way to fix that?

brij2006 · October 2015

@julieanne912 The beef equates to about 2.75/pound. That includes anywhere from steaks to ground beef. I really need to be better about utilizing our beef more again. We have about 30 pounds of ground beef left, and usually this time of the year we have maybe 5, if we're lucky. So I haven't been as good about meal planning with the meat this year. We also buy all of our chicken, fish, and pork out of our monthly food budget.

@smerka Trust me, I know I'm getting screwed paying DD's health insurance post tax. I sat down with my employer and we had a not so friendly discussion about this issue. I work for a company of only 13 employees, so they don't offer as much in regards to pre-tax items (really don't think they know how to). I have brought it up to them twice about taking this expense out of my paycheck.

I also receive a $250 gas reimbursement because they transferred me to our 2nd office, so they pay me for my gas but then I'm 1099'd on that as income. I do write off the mileage on my personal taxes though.

Maybe I'll try to break down the income differently. Having variable incomes makes this difficult to plan out:

H's weekly income: $500-$800 after taxes, his insurance (includes health, dental, LTD) and 10% 401k contribution. Most weeks are $665. He claims 0 for witholdings. Last year his gross was about $55k, this year he will be about $53k. His employer also pays for $0 of his health insurance. Since they are under 50 employees they are not required to cover any of it.

H's city income (he's a city commissioner): $67

My base income: $1,198, 2 times/month. My employer pays for my health insurance as part of my benefits package. I claim 0 for witholdings. My base salary is set at $38,000/year.

My gas reimbursement check monthly: $250 (am 1099'd and write off the mileage personally)

My average monthly commission check: $100 (some months are $0, others are $200-300)

My retirement stipend (I am 1099'd on it): $2,000 annually

My bonuses: Last year was $2,000, this year will be 1,200 since I took 3 months off for maternity leave)

Last years' income from my side business: $1,500 (before expenses and taxes), this year is horrible and will only be about $800-$1,000.

brij2006 · October 2015

I am planning to discuss with my employer at my annual review to add the $2,000 retirement check and the $250/month gas reimbursement, into my regular pay. So that will add a total of $5,000/year to my salary that I no longer have to be 1099'd on or worry about trying to write off my mileage.

smerka · October 2015

I think you should try doing a dummy tax return to see how having a child will affect your return. You should get the $1,000 child tax credit, daycare credit ($600) and an additional exemption. Don't put in the estate stuff because that is going to throw things off and is a one time thing. I suspect your withholding is going to wind up being too high. I really don't understand how you are 1099'd for gas reimbursement and retirement, but get a w-2 for everything else. That seems really weird. Like not correct weird. You are getting slammed with an extra 15.2% SE tax on that money when your employer should be paying half of that.

brij2006 · October 2015

@smerka I agree wholeheartedly. I have not been very nice to them about how F'd I get every year when they add on yet another 1099 item. Just give it to me in extra pay, none of this crap of writing me a check then I have to pay taxes on all of it. And I have to write them a check every month for DD's health insurance, yet I am not able to write off that expense unless it is 10% of our income, which it is not.

We have to wait until open enrollment, but we will be adding her to H's health insurance once that comes around. It's $160/month but at least that is pre-tax.

Can I file for the day care credit if we use a SAHM and just write her a check for it each week? We won't 1099 her on what we pay her or anything.

smerka · October 2015

You will need her SSN to do it. She should be paying tax on that money. You can claim it without her SSN, but know that the IRS will turn around and send her a nasty gram. So work it out with her. But I hate it when people don't pay their taxes

Xstatic3333 · October 2015

Ugh, that's awful that they 1099 your retirement check. I get retirement checks too (mine is 5% of salary, distributed monthly) but they have the taxes withheld. Since it goes to a Roth, it works out perfectly. I actually think your job may be risking the wrath of the IRS by doing it that way, though I'm no expert.

I don't have major advice; you guys are way ahead of us in your financial journey and PP have covered the bases really well. Maybe putting your retirement in a traditional IRA would offset the tax hit? Just wishing you luck in getting a better deal from your job.

maple2 · October 2015

Here's the IRS info on the dependent care credit: https://www.irs.gov/taxtopics/tc602.html

Basically you can claim it if you pay anyone other than your spouse or another dependent as long as you report their name, address and SSN or EIN to the IRS. Like pp said, that means the person you are paying will need to report the income and pay taxes on it, so you should make sure you and she are on the same page about that.

In terms of your budget, it looks similar to ours in many ways. We pay quite a bit less on transportation and insurance, but we have a mortgage and pay twice as much in child care. We are also saving a comparable amount for retirement. I don't know if that makes you feel any better, but you are definitely not the only ones who are making sacrifices now to save for retirement.

One thing we do that might be a possibility for you depending on your willingness to dip into other assets, is to think of your $100,000 as your own personal bank. Instead of saving in advance for a new car, for example, you could borrow money from yourself for those expenses and pay yourself back over time at a rate that feels comfortable for your monthly budget. Or save now at a level that feels comfortable and make up the difference from the $100,000 and still pay it back over time. At least for us, knowing we can do that takes some of the stress out of trying to budget for known but unpredictable expenses like new cars. I tend to want to make sure I have enough saved for things in the future, so I would probably over save to a new car fund to just make sure I had enough when I needed it if I didn't know that we have safety net that can be replenished. That's makes it easier for me to save less now and give us more wiggle room in our monthly budget.

orangehills · October 2015

I think maybe not fully fund both IRAs... We met with our financial planner, and she did a long term plan for us and we're in our mid 30s, and even just fully funding one IRA for the next 2 years will still set us up to hit our goals by our early to mid 60s (but we aren't planning to retire super early). So, taking a break for a year or two to hit some of those other goals like the kitchen and roof or whatnot, and then fully fund the IRA, may help you out... Do you have a financial planner? If you find a good, trustworthy one, they are awesome. Besides, you guys are young, and are doing amazing compared to anyone I know!! Live a little too

Erikan73 · October 2015

Here is my advice

-See if you can get gas put onto budget also so that way you are paying the same thing year round to help offset the higher usage in the winter

-If you haven't already, look around your home to see what you can do to make it warmer from putting chaulk around the windows, plastic up on the windows, putting foam insulation sheets in the electric outlets (you would be surprised how much air outlets let through). We had around our Chimney stack that goes along the side of our house re-chaulked and it made a huge difference last winter. If the house isn't insulated, I would look into the cost of that, it could make a big difference

-In regards to the insurance, shop around every policy renewal on all your policies. There is a lot to be said about comparing prices. It's work, but its worth it when you save money. Just make sure when it comes to prices, they are quoting you for the same exact coverage so you can do an apples to apples comparison

-Car insurance, your husbands toy car, I'm guessing he parks that for the winter, when he does that, change the insurance on that to comprehensive only (fire, theft & vandalism), it will save you money. For the SUV hubbie uses in winter, if you don't use it the rest of the year to haul the trail on a fairly regular basis, consider putting that down to comprehensive only for the summer. Again, you will be protected for fire, theft and vandalism and the cost will be minimal. If you need to haul the trailer, you can call your insurance company & with a quick phone call have Liability coverage put back on the cars to go out on the road. I know some people would say drop all coverages, but in some states if you have valid plates on the car, you are required to carry Liability coverage and if you drop all coverages, you can get into trouble if the state does an audit. But if you show them comprehensive only coverage and tell them it was in storage because it's your winter car or the summer fun car, they will leave you alone, unless it's New York (yes I work in the insurance industry). The other plus to comp only is your insurance company will have the vehicle information on file making it easy to change the coverage on your vehicles seasonally.

short+sassy · October 2015

brij2006 said:

I am planning to discuss with my employer at my annual review to add the $2,000 retirement check and the $250/month gas reimbursement, into my regular pay. So that will add a total of $5,000/year to my salary that I no longer have to be 1099'd on or worry about trying to write off my mileage.

That is super weird, super annoying, and is definitely costing you money. I've been a 1099 worker with mileage expenses and I've been a W-2 worker with mileage expenses. I've never gotten any kind of bonus, expense, or any other monies categorized as 1099 income from a company I was a W-2 employee. While I can't say for sure, that doesn't sound legal.

In addition, the amount per mile that won't be taxed on when it is paid as an expense to a W-2 employee is about twice the amount as what it is for a 1099 expense. I don't know why that is and it irritates me, but I digress. And, while I realize they are technically reimbursing you for gas, not mileage. I wouldn't be surprised if you end up paying some income tax each year for that gas reimbursement, even after you deduct your mileage.

brij2006 · October 2015

@Erikan73 I'm an independent insurance agent, so I shop everything once a year. ;-)

We also have comp only on the toy car right now. We receive premium back for removing it, so I tossed it into the sinking fund to pay back to them when we re-add it in the spring. When our policy renews, we have full coverage on it at that time, so we are saving for that full premium we pay for the year. Then we get a reimbursement when we take it back off.

We also have liability plus comp on the SUV. It gets driven about once a week, year round. That actually only costs us $182/year. It's a 1998.

Our homeowners and the farm land are bundled together, and that's almost $2,000/year itself. Big negative to a Victorian that's almost 4,000 total square feet. The replacement cost on it is close to $400k, which is not normal for our area.

lbonga1 · October 2015

Even with driving the car 30k miles a year, I would think you should be able to keep it longer than 18-24 months, unless you're buying cars that already have over 100k miles. My FI has a 2003 Honda Pilot with 200k miles, and it hasn't needed any major repairs (other than an airbag issue that was covered by a recall). So that seems like an expense that could be stretched, depending on the types of cars you're getting. $1200/year on clothes also seems kind of high to me.

Maybe you could go through your budget and list things in order of: necessary expenses that can't be changed, non-necessary expenses that can't be reduced at this time (your cell bill, for example), necessary expenses that could possibly be lowered (groceries, etc.), and other non-necessary expenses. That may help give a perspective of priority in order to cut in areas you don't need as much to fund areas that you really want (the house repairs, remodels, etc.).

As for how much to be putting toward retirement, you can take your yearly expenses, and multiply that by 25. That's how much you should have saved total for retirement, assuming a withdrawal rate of 4%. Obviously, take that as an estimate, but it should give you an idea of how much you should be saving, based on when you want to retire, etc.

ETA: This link has a chart that shows you how many years it would take to retire based on various savings rates, assuming that same 4% withdrawal rate.

hoffse · October 2015

I don't know that $1200/year on clothes is high if you have to work in an office. I'll be totally honest and tell you that H and I are planning to budget 3x that for next year, and 90% of it will go toward office attire.

Looking into having the house/attic insulated is a good suggestion if it's not been done recently. We spent right around $1,000 to have 1900 sq ft blown into our attic last May (our house is a large ranch), and it has made a huge difference. I think it will pay for itself within a couple years on the savings on our utility bill. The crazy thing is it was cheaper to hire somebody to do it than to buy the supplies to do it ourselves.

I will echo the others and say that the 1099 thing sounds way off to me. I don't know enough about employment taxes to tell you what is wrong with it, but it kind of gives me tax heartburn. Sending you a 1099 on retirement contributions sounds like all sorts of wrong to me. Again, not my area, but my gut reaction would be to research the daylights out of it if a client told me they were doing that to an employee. I do know that the penalties for messing up employment taxes can be huge, and we are trained to call our benefits people ASAP if we get wind of something that sounds off to us in an employment tax situation.

As for the SAHM, she needs to pay her flipping taxes. $50 to a babysitter here and there is one thing, but you are paying her $6K per year. You are entitled to that credit, and that is legit income she needs to report.

I also think you need to do a dummy return for next year and see how all of this shakes out. It sounds like you routinely get more than $2K back, and that's around $200/month out of your cash flow. H and I intentionally over withheld this year because we weren't sure how my LLM reimbursements would be treated by my employer - and it amounts to potentially another $15K in income at the 28% rate - but odds are they will not treat it as income and we are going to get a huge refund. It will kind of piss me off, TBH, because PP is correct that it's an interest-free loan. There's also so much tax return fraud these days that there's a very real risk your refund could be stolen before it ever comes to you. That's an awful mess to straighten out. It's better to owe a little bit each year.

smerka · October 2015

I had another thought. You should talk to a financial planner/tax guy about this, but it might be more beneficial to fully fund the Roths and scale back on the 401k contributions even though your husband is getting a bit of a match. For every $1,000 he puts in, he is getting an extra $100, right? In retirement, it might be better for your overall tax situation to have your money in a Roth and not pay taxes on that money than to be getting that extra $100 now. I am sure there is a way to predict it.

jtmh2012 · October 2015

lbonga1 said:

Even with driving the car 30k miles a year, I would think you should be able to keep it longer than 18-24 months, unless you're buying cars that already have over 100k miles.

I'll be honest, I don't get this either. I have a 2008 Impala with just over 130,000 miles on it. I keep up with the routine maintenance and it has essentially been problem free, but I bought it new. Even if I had to toss $1-2k or so toward repairs now and then, it is still cheaper than replacing a vehicle every 1.5-2 yrs.

Budget thoughts needed

Re: Budget thoughts needed

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