The personal budget and finance thread

[Phillyterp85]

Hey all. Saw the discussion in the political pictures thread on personal budget stuff, and wanted to start a thread for it, as it's a topic I'm very interested in.  Feel free to use this thread to share budget/finance tips, strategies, and/or just talk about your own experiences.   Share as little or as much info as you feel comfortable with. I'll start:

I recently got into watching the Dave Ramsey show (and bought his book the Total Money Makeover, which I hope to read soon).  And we recently bought a new house.  I've been budgeting and tracking my spending for years, but always feel like I should be doing better with having money leftover at the end of the month (because typically, I don't).  And with watching the Ramsey show, I've been turned onto the idea of living completely debt free, i.e paying off the house early. I even made a poster that has the dates of all of our monthly payments on it for the totality of our mortgage.  We cross off a month as we go, and whenever we're able to make additional principal payments that knock off extra months, we cross a month off the back end (nerd alert, I know).

I'll start off with some strategies I use and then I'll follow up with going through our budget.  

Tip 1: Put money aside on a regular basis for things that you KNOW come up through the year.   

So this all started when 2 years in a row, I wasn't able to pay off all my Christmas spending on the credit card and had to carry a balance for a few months to get it paid down.  But it also goes beyond Christmas, as I started to think of all the birthdays, holidays, etc.. that you end up spending money for gifts on.  So one day I wrote down all the various birthdays and holidays, how much I typically spend for each to get an annual total. (You'd be surprised how much it can add up to, especially if you have a decent size family)  And then just divided by 26 to get a bi-weekly amount.   I opened up one of those "Orange" online saving accounts (which is now Capital One), and every 2 weeks I put the bi-weekly amount in.  And then when I have to buy a gift for someone's birthday, I just take the money out of there.  And then by Christmas time, I have a little nest egg saved up and never have to worry about not having the money again.   I've found this also helps me with monthly budgeting because I take that money out of my budget, so it gives me a more realistic picture of what I actually have left to spend.  

I then extrapolated this to other things.  Like the life insurance policy premium, or car stuff (oil changes, tire changes, inspection, etc...).  Put the money away on a bi-weekly basis and then when the item comes up to be paid, the money is there waiting. 

Tip 2: Create a spreadsheet to track and project out your running bank account

A friend of mine gave me this idea and I've found it very helpful. In essence it's just the digital way of doing what many of our parents used to do at the dining room table by hand (and may still do) of balancing out the checkbook.  But this also allows you to project forward.  I have columns for various items that I know come in and out of my account every month (i.e paychecks, daycare payment, electric bill, water bill, comcast, etc...)  I project out the full year ahead, and fill in the knowns (paychecks, daycare, TV/phone, 529 plan, etc...) and then insert other deposits and withdrawals as they come throughout the year.  This allows me to keep a running tab of my account while also being able to project a few weeks out.  I'd be happy to share the template excel file with anyone who wants it

Tip 3: Track and categorize your spending/budget

Within the same spreadsheet mentioned above, I also have a separate tab where I track my monthly budget/spending. I lay out the months for the year, put in the all the known deposits and expenses for the year.  Then as each month is progressing, I insert any spending I've do and assign it a category.  That way, as we head through the month, I'm able to see something like,  oh we're halfway through the month but we've already spent 75% of what we'd want to cap our meals/entertainment spending at, maybe we order pizza saturday night or just cook ourselves (following through and getting the wife to also buy in on that, that's the other part of the battle lol).    Tracking spending like this also allows me to then see if we have a bad month where we've overspent, to identify the culprit.

Tip 4: If you get paid bi-weekly, set your budget to the 2-paycheck months

If you get paid bi-weekly, then you have 26 paychecks in the year.  Instead of converting your 26 paychecks to a monthly budget amount, set your budget to the 2 paycheck months.   That way, when you have those 2 months where you get 3 paychecks, it's like you're getting a bonus that month.  

Looking forward to hearing other people's tips and strategies.  I'll make another post going through our monthly budget. 

[Paul852]

I'll definitely be interested in this thread but can we change the title to "Poor People Making Poor Decisions"

[we_gotta_believe]

The best and only tip you'll ever need: Just try to be less poor.

[Phillyterp85]

2 minutes ago, we_gotta_believe said:

The best and only tip you'll ever need: Just try to be less poor.

Every day I wake up and think to myself, "today, I'm going to try to be less poor".   And then I go onto amazon.com and go, "Today I failed. tomorrow, I'm going to try to be less poor"

[we_gotta_believe]

8 hours ago, Phillyterp85 said:

Then as each month is progressing, I insert any spending I've do and assign it a category.  That way, as we head through the month, I'm able to see something like,  oh we're halfway through the month but we've already spent 75% of what we'd want to cap our meals/entertainment spending at,

On a more serious note, it's reassuring that I finally found someone that's more anal than I am when it comes to personal finance. But one actual suggestion I can provide after dealing with this for a couple years before I decided to wise up: Automate this task of categorization as much as possible. I used to categorize things by hand but it become so tedious and time consuming that I'd go months between tracking it, until I decided to get smart about it, use exports from my cc account transactions, and write a quick excel macro to do most of the heavy lifting for me.

I can provide more technical detail if you'd like but basically, I came up with 15 or so categories, assigned them a color and a number, and then created a large dictionary of common terms identifying any transactions and automatically filling in the category number and shading the line item. Things like "Five Guys" = restaurants, "Nordstrom" = clothes, "Home Depot" = home improvement, etc. Since our shopping is mostly predictable from month to month, this worked for about 3/4ths of our purchases, so I only had to manually categorize the rest. The only hiccup is when you come across something like Amazon that you might use for multiple categories. In the end, it didn't really matter too much because we only use it as a rough guideline but food for thought if you're finding it as time consuming as I did.

[Phillyterp85]

Ok so here's how my monthly budget breaks down by %. Just looking at actual take home pay.  (I do put 6% of my pre-tax salary into my company's 401K).  And I'll say right now, one place I know I need to improve upon is to dedicate myself to putting money into my Roth.   Also note, as we just bought a new house, our "house stuff" spending has been relatively high, so I know we need to slow down there and get back to a new normal.   Also, we just replaced our entire HVAC system and converted from oil to gas.  So the electric/gas utility spending listed here is a bit of an estimate as we now have the new system, and we haven't lived here a full year.   We also currently don't have a car payment, but that will soon change as with moving from the city to the suburbs, we're going to have to purchase a second car. 

I'm interested to hear feedback, and also compare if anyone else is willing to share their breakdown.   In order of highest to lowest spending:

Mortgage (including property taxes, insurance, etc...): 27%

Groceries: 11.5%

Meals & entertainment: 11.5%

Daycare: 10.5%

House Stuff: 9.5%

Gifts: 5.5%

529 plan: 4%

TV/Phone/Internet: 4%

Vacation: 3%

Electric/Gas utility: 3%

Transportation (i.e train, parking): 2%

Life insurance premium: 1.5%

Medical (i.e copays): 1.5% (this is a little high this year as I recently had an ER visit)

Roth IRA: 1%

Car Insurance: 1%

Gas for car: 1%

Water Bill: 0.5%

Car stuff (oil changes, inspection, etc..): 0.5%

That adds up to 98.5%  leaving only an additional 1.5% for additional saving.  

I have a goal of paying off the house early, plus there's improvements I want to make to the house.  So areas I want to improve on are to lower meals & entertainment, lower the house stuff spending, and lower the grocery bill.   We recently got a costco membership now that we are in the suburbs, and am doing more grocery shopping at shoprite and wegmans as well.  Earlier in the year we were doing a lot more online ordering for delivery from whole foods, which is more expensive.  So hopefully doing that less will help us lower the grocery spending.

It's funny, this is actually the first time I've laid out my full budget by percentage like this.  I think it's helpful and a bit eye opening.  

 

 

[Dave Moss]

Tip number one:  be super rich

Tip number two: don’t have kids

[Kz!]

Congratulations on the new house. We moved into our forever home in February. Currently paying a couple hundred bucks extra a month to try to cut the 30 year mortgage down by a decade or so. 

[Boogyman]

Just now, Dave Moss said:

Tip number one:  be super rich 

Tip number two: don’t have kids

1. Damn

2. F"ed that up too

[we_gotta_believe]

4 minutes ago, Phillyterp85 said:

529 plan: 4%

Just my 2 cents but stop funding this and instead put all that money into your Roth IRA. There are many reasons for this but the most notable is while you can take out loans to send your kids to college, you can't do the same if you've underfunded your retirement savings. 

Also, your life insurance premiums seem high at first glance. Is that something that's offered through your employer or supplemental? Without knowing specifics, you might want to shop around there to see if there are some better options.

[Phillyterp85]

Just now, Kz! said:

Congratulations on the new house. We moved into our forever home in February. Currently paying a couple hundred bucks extra a month to try to cut the 30 year mortgage down by a decade or so. 

Thanks you too!  Yup that's a great idea.  

When we bought our new home, we were selling our old home at the same time (bought new home first and then closed on selling old home 2 months later).   We were extremely fortunate to be in a position where my dad was able to temporarily front us the 20% downpayment so that we didn't have a contingency when buying, and then we paid him back when our house sold.  We always knew going in that we'd have more than 20% for the new house when our house sold.  And our original plan was to re-amortize the mortgage to lower our monthly payment. But then we decided to change course and keep the same mortgage payment, and make a lump sum additional principal payment and knocked off about 5.5 years off the payment.  And our goal is to continue to make additional payments when we can to knock it down even more.  Unfortunately, haven't made an additional payment in the last 5 months, but we want to get back on track to do that. 

[Paul852]

4 minutes ago, we_gotta_believe said:

Just my 2 cents but stop funding this and instead put all that money into your Roth IRA. There are many reasons for this but the most notable is while you can take out loans to send your kids to college, you can't do the same if you've underfunded your retirement savings. 

Also, your life insurance premiums seem high at first glance. Is that something that's offered through your employer or supplemental? Without knowing specifics, you might want to shop around there to see if there are some better options.

Wouldn't taking out 100s of thousands of dollars in loans just extend his retirement age anyway?

[Phillyterp85]

25 minutes ago, we_gotta_believe said:

On a more serious note, it's reassuring that I finally found someone that's more anal than I am when it comes to personal finance. But one actual suggestion I can provide after dealing with this for a couple years before I decided to wise up: Automate this task of categorization as much as possible. I used to categorize things by hand but it become so tedious and time consuming that I'd go months between tracking it, until I decided to get smart about it, use exports from my checking account transactions, and write a quick excel macro to do most of the heavy lifting for me.

I can provide more technical detail if you'd like but basically, I came up with 15 or so categories, assigned them a color and a number, and then created a large dictionary of common terms identifying any transactions and automatically filling in the category number and shading the line item. Things like "Five Guys" = restaurants, "Nordstrom" = clothes, "Home Depot" = home improvement, etc. Since our shopping is mostly predictable from month to month, this worked for about 3/4ths of our purchases, so I only had to manually categorize the rest. The only hiccup is when you come across something like Amazon that you might use for multiple categories. In the end, it didn't really matter too much because we only use it as a rough guideline but food for thought if you're finding it as time consuming as I did.

That's a great idea.  I'm decent with excel, novice with macros.  so that's probably above me a bit.  It's time consuming but I've found it's not bad so long as I'm actively doing it.  Where I get into trouble is if I go 2 weeks or so without doing it, then it's a pain to go back and do it all.  Plus kinda defeats the whole purpose of being able to flag overspending as it's happening in order to adjust for the rest of the month. 

[Paul852]

15 minutes ago, Kz! said:

Congratulations on the new house. We moved into our forever home in February. Currently paying a couple hundred bucks extra a month to try to cut the 30 year mortgage down by a decade or so. 

Congrats. We actually refinanced to a 15 year to take advantage of the insane rates.

[Dave Moss]

1 minute ago, Paul852 said:

Congrats. We actually refinanced to a 15 year to take advantage of the insane rates.

You don’t sound as poor as vikas says you are

[Paul852]

Just now, Dave Moss said:

You don’t sound as poor as vikas says you are

I'm Joe Biden to vikas' Jeff Bezos.

[Dave Moss]

1 minute ago, Paul852 said:

I'm Joe Biden to vikas' Jeff Bezos.

[we_gotta_believe]

5 minutes ago, Paul852 said:

Wouldn't taking out 100s of thousands of dollars in loans just extend his retirement age anyway?

Depends on a lot of things, obviously, but forget the total amount of the loans as that's likely irrelevant and instead focus of the differences between the investment vehicles as alternatives to each other.

We could go into all the details on this and some of the reasoning veers into philosophical arguments but even if you're 100% determined to pay every dime of your kid's college education, I'd still think it's more financially prudent to leave the 529 funding to family if you haven't been maxing out your Roth.

 

[20dawk4life]

Be cheap. Don't buy dumb sheet. Watch your money accumulate. 

[Phillyterp85]

7 minutes ago, we_gotta_believe said:

Just my 2 cents but stop funding this and instead put all that money into your Roth IRA. There are many reasons for this but the most notable is while you can take out loans to send your kids to college, you can't do the same if you've underfunded your retirement savings. 

Also, your life insurance premiums seem high at first glance. Is that something that's offered through your employer or supplemental? Without knowing specifics, you might want to shop around there to see if there are some better options.

Funny you should mention the first part.  Our company brought in a personal financial advisor for a lunch and learn, and that was one of his main points of advice.  You can take out college loans for your kids, but you can't take out retirement loans. 

My brother is my insurance agent, so got the life insurance policy through him.  It's a term life policy that provides for 10x my current salary.  Probably could have just went for a policy that pays out 7x and still been ok, just felt like for the additional increase in premium, it was worth the larger payout should anything ever happen.

[Paul852]

1 minute ago, we_gotta_believe said:

Depends on a lot of things, obviously, but forget the total amount of the loans as that's likely irrelevant and instead focus of the differences between the investment vehicles as alternatives to each other.

We could go into all the details on this and some of the reasoning veers into philosophical arguments but even if you're 100% determined to pay every dime of your kid's college education, I'd still think it's more financially prudent to leave the 529 funding to family if you haven't been maxing out your Roth.

 

What are your thoughts on maxing the 401k vs the Roth?

[we_gotta_believe]

7 minutes ago, Phillyterp85 said:

That's a great idea.  I'm decent with excel, novice with macros.  so that's probably above me a bit.  It's time consuming but I've found it's not bad so long as I'm actively doing it.  Where I get into trouble is if I go 2 weeks or so without doing it, then it's a pain to go back and do it all.  Plus kinda defeats the whole purpose of being able to flag overspending as it's happening in order to adjust for the rest of the month. 

In our case, we do this a bit more retrospectively rather than in real time. But as for the macros, they are fairly straightforward and easy to maintain once you have them up and running. I actually just checked and realized I dropped the macros couple years back in favor of simpler conditional formatting that played nicer with Google sheets in case I wanted to access them from my phone.

I can even write the conditional formatting formulas for you in a template file if you'd like. One thing you'd need to confirm is that your credit card transactions are exportable to a .csv file. Then from there you just paste your transactions into the template file every month and it should automate the rest.

[Kz!]

6 minutes ago, Phillyterp85 said:

Thanks you too!  Yup that's a great idea.  

When we bought our new home, we were selling our old home at the same time (bought new home first and then closed on selling old home 2 months later).   We were extremely fortunate to be in a position where my dad was able to temporarily front us the 20% downpayment so that we didn't have a contingency when buying, and then we paid him back when our house sold.  We always knew going in that we'd have more than 20% for the new house when our house sold.  And our original plan was to re-amortize the mortgage to lower our monthly payment. But then we decided to change course and keep the same mortgage payment, and make a lump sum additional principal payment and knocked off about 5.5 years off the payment.  And our goal is to continue to make additional payments when we can to knock it down even more.  Unfortunately, haven't made an additional payment in the last 5 months, but we want to get back on track to do that. 

That's awesome. We ended up paying above asking price because of our contingency (we offered full-price with the contingency and they countered for more because of it). We still feel super-fortunate to have landed the house. We viewed it the first day it hit the market and made an offer a few hours later. The house had like 10 more showings that day. Honestly wasn't sure if we'd ever be able to land something we both truly loved because I'm not really the type of person that likes to make huge, life-changing decisions like buying a house I plan to spend a good chunk of the rest of my life in over the course of an afternoon, which, given how competitive the house-buying market is, was pretty much a requirement. 

[Paul852]

4 minutes ago, Kz! said:

That's awesome. We ended up paying above asking price because of our contingency (we offered full-price with the contingency and they countered for more because of it). We still feel super-fortunate to have landed the house. We viewed it the first day it hit the market and made an offer a few hours later. The house had like 10 more showings that day. Honestly wasn't sure if we'd ever be able to land something we both truly loved because I'm not really the type of person that likes to make huge, life-changing decisions like buying a house I plan to spend a good chunk of the rest of my life in over the course of an afternoon, which, given how competitive the house-buying market is, was pretty much a requirement. 

You and everyone else buying a house this year.

[we_gotta_believe]

2 minutes ago, Paul852 said:

What are your thoughts on maxing the 401k vs the Roth?

It mostly depends on your personal situation, and also on your outlook for tax policy. Not to oversimplify a complex question but basically you need to speculate if your current tax burden is likely to be higher now than it will be in retirement.

If you think it's a lot higher now (either due to high income now vs projected income at retirement, or favorable tax policy now vs higher tax policy in the decades to come), then max out your 401k first, and use leftover money to max out the Roth next.

If you think your tax burden is lower now (either due to lower income now vs projected income at retirement, or more favorable tax policy in the coming decades) then max out your Roth IRA now and then used leftovers to max out your 401k.

If you think it's close or too difficult to protect, then I personally like to err on the side of a Roth for the ancillary benefits of having access to any contributions penalty free. This money can serve as a dual purpose emergency fund / investment capital.