A budget is very important but it is also important to enjoy life as well. My approach to budgeting is not as strict as most but it’s what works for me. First a bit of what went into this mentality.
When I was in my early 20’s I was trying to save up to buy my house and I knew when I did buy a house in a safe neighborhood I would barely have enough to pay all the bills and all my savings goals (Roth and 401k). This meant I had to make every dollar stretch. During this 1-2 year stretch I brown bagged lunch and never ate out or did anything for fun that cost money. I rarely ate out and cooked all my meals. When I did go out or when we went out to buy anything, we used coupons. One of our favorite activities was eating the free samples at Costco. This kind of living was extreme and not recommended over the long term but it did allow me to meet all my goals.
What I learned from this part of my life was to minimize all my expenses as best I could. Living like this showed me what the minimum expenses that I have are and as time passed I introduced eating out and doing things for fun and saw my expenses rise within an acceptable range.
Eventually, I settled on a target for my expenses and started monitoring them quarterly instead of monthly. Time is money and I don’t want to waste my time monitoring my finances monthly. My mentality is that I have trained myself to make disciplined decisions so small vending variances can be absorbed (eating out a extra time or maybe not going out at all a month). Looking over my finances quarterly also helps smooth out one-time expenses such as a birthday party or vacation. I am able to see if I have any trends or examine if my expenses are increasing year over year by comparing my expenses to the previous quarter or to the same quarter a year ago.
Next page contains my current budget for a couple in a major city.
Budget for Two
Below are my expenses for a couple:
|Mortgage||1750||Principal, interest, and tax|
|Insurance (2 – cars)||150|
|Water, Gas and Trash||60|
|Internet||50||Could be lower if I call them and haggle|
|Entertainment (Hulu, Netlfix, Amazon, movies, etc.)||75|
|Eating Out||300||I like eating out|
|Products (soap, shampoo)||80|
|Home and car maintenance||30|
|Car Payment||0||Both cars paid for|
|Cell Phone||80||Two lines|
|Total||~3295||~1750 home and ~1545 expenses|
I can tell you that some months I am over and others I am under but as long as my average is in line with what I budgeted I don’t worry too much and only check expenses quarterly. As a quick sanity check that means our expenses are about 40K a year. At a 25% tax rate that means a couple needs to make at least 55K a year to cover these expenses, which hopefully seems reasonable for most couples.
When it comes to larger expenses (1K) like vacations I budget for those separately to pay for them. I save monthly for my yearly vacation in my brokerage account and cash out after 12 months in order to get the earnings taxed at the capital gains rate and not the income rate. If an expense is unplanned that is what the emergency fund is for and then I plan to replenish those funds in the emergency account over 6 months.
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