How I came up with this year's budget:
In November, I read this article by Liz Weston (MSN Money) about how you should split up your income in the following categories when it comes to spending and saving.
- Savings: 20% (this includes any retirement savings)
- Needs: 50% (housing, utilities, food, transportation--anything you MUST have to live)
- Wants: 30% (vacations, clothing, dining out--you don't have to have these but are nice)
I loved this because I was one of those people who never knew how much was a good amount for saving, were we spending too much on groceries, and so forth.
Our expenses--the needs and the wants
When I looked at our expenses, I was shocked. While we were at or near the 20% for savings, our needs and wants were all over the place. I took a hard look at what were really needs and what were really wants and made the following categories:Needs:
- health insurance
- mortgage (our taxes and home owner's insurance are escrowed into our payment)
- home repairs/services/oil (necessary things, for safety, such as having the furnace cleaned or the septic pumped, not cosmetics!)
- phone & internet (some might say that internet is a want, but since ours are packaged together, I'm leaving it)
- auto insurance
- auto taxes & registration
- auto repairs & maintenance
- medical--doctor copays and prescriptions
- durable house goods (tools, furniture, anything that we'll use a long time)
- consumable house goods (cleaning supplies, paper products)
- cell phone
- boat insurance
- boat maintenance and repairs
- boat taxes and registration
- cash withdrawals
- personal needs (all those random CVS trips for shampoo, contact solution, etc.)
- entertainment (dining out, movies, parties)
- vacation fund (ha, maybe someday?)
Reality kicks in
Even after I did that, I was shocked and saddened to see that our needs were still well over 50%. There are a few reasons that were out of my control then, and hopefully will be better in 2012. C's commute was 50 miles one way for a few weeks. This was when he first went back to work and then another position opened up in a facility closer to our house (and even closer than his last job, pre-layoff). Our gas bills should be much cheaper, unless the prices go up again. We have some of the highest prices in the nation (yes, sometimes more than Hawaii) because of the state's tax on the gas. Also, groceries tend to be pricey where we live. And if you're trying to eat healthier, you can be out of money quickly.
I decided to tweak the numbers just a bit, due to our circumstances. This was my goal for December (green) and the results (red).
- Savings: 20% 4%
- Needs: 63% 69%
- Wants: 17% 27%
What happened? Well, at first, things were fine, and I put the 20% into savings. But we had to pull some money from the savings later on in the month to pay for things. I was a little bummed to have to do this, but on the other hand, we didn't go into debt because of speeding tickets or deciding to be social and have a party.
I also started plotting out 2012's expenses in November. It helped that I have kept good records of our bills and expenses for each month since we've lived in this house, especially when considering the annual or semi-annual bills that often take people (including me!) by surprise. I realized that in some months our needs would be different. For example, at the end of January and July, our car taxes are due.
For most of the year, I've plotted out our expenses and figured that I could keep the same goals for December 2011 for most of 2012.
- Savings: 20%
- Needs: 63%
- Wants: 17%
For January and July, the budget will look like this:
- Savings: 20%
- Needs: 68/69%
- Wants: 11/12%
I'm not sure how much the taxes will be in July, but I'm figuring higher, just in case.
These numbers still make me sad. I know we don't work in the most highly paying fields and we try to keep our expenses low, but it really hits home when you see how much your everyday needs cost. I wish there was a way of getting them closer to 50%, but we both have to travel to our jobs (no working from home) and health insurance for the two of us is 10% of our take home. I'm supposed to be getting $25 more towards my health insurance from my company for joining a wellness plan, so we'll see if that helps. (Probably gas will start going up again!)
I think this budget is a work in progress. I would love to put more money into our retirement funds and when we put money into our savings, we LEAVE it there. But then the unexpected happens and you have to pay for it... I also don't know where we'd find the money to pay for day care, and no, one of us can't stay home. And people wonder why the birth rate is falling?
I have a lot to be thankful for, so I shouldn't make this post entirely all doom and gloom. We have no debt besides our mortgage, we pay our bills off every month. I think we'll just have to keep a closer eye on things and do our best to lower the needs so we have more money for the wants (and savings too!). We have a significant amount in savings; perhaps I shouldn't beat myself up for transferring a few hundred into checking to pay for things for the party and Christmas?
Right now, I only put about 6.5% of my pre-tax salary into my 401k. I'd love to be able to put away 10% and have C do the same with his 403b. (First, we need to get him re-enrolled) I just did some math, if my salary stays the same, but I get another $25 towards my health insurance costs and put 10% of my salary into my 401k, my take home would only go down by $20 a month. That doesn't seem TOO hard to do.
(I should note that I've always been a worrier when it comes to money. I am sure people would look at our financial records and laugh at me, telling me I have nothing to worry about. The reason I worry is for another time, but partly because of the fact that costs keep rising and we don't work in great paying fields.)
My hope is to report back each month and review the previous month. We'll see if I can keep this up.