Does my budget sound feasible?

[candiedcarolyne]

My husband just started a new job and his annual income has now jumped from 18,000 to 41,000. I've always been good at creating a budget (because if I didn't we would have starved to death), but I've-or we-ve- never been able to keep with the plan. I'm going to post the budget as I've created it, and I'd love some feedback about it.

Some Info: His employer does not take taxes out, and instead files a 1099-misc for non-employee compensation. His old employer did the same thing, so it's nothing new to us.
I've completed a mock tax return to estimate what our end of year taxes would be, and because I am a full time student, we have children, and a few other criteria we should actually receive a small federal refund next year. I am aware, however, that it's only an estimate and we should still be careful and expectant.

I also receive approximately $7400 ($3000 each for Fall and Spring semesters and $1400 for the Summer session) in tuition refunds per year to cover living expenses. (A good portion of this comes from the work-study program, while the rest is the effect of attending a very low-cost school and qualifying for scholarships)

His employer pays a monthly amount of $3,416.

Our household bills total $2100 per month.

We will be placing $400 in our savings each month.

I chose that amount because it equates approximately 12% of his monthly income, which is on the high end of what would be taken out in withholdings)

I also will be placing $125 in our minor emergency fund each month. This fund covers vehicle repair that isn't covered under warranty, unexpected bills or charges, etc.

$700 will go our monthly grocery fund

This leaves $691 for all other expenses. I like to divide this up weekly, which equates to about $170 per week.

Simplified:
$48,400/year
$4,033/month
-2100 bills
-400 savings
-125 emergency fund
-700 groceries
=$691(or $170/week) to cover misc. others


How does my budget sound? Is there anything I'm overlooking? Am I being overly optimistic? Am I overstretching? Am I under saving? Will it work?

Thanks for your help

[kork13]

That seems to be absolutely reasonable. The housing expenses are rather high (~50% of your income), but depending on your city/state, $2100/mo might be the best you can do... How much of that is rent vs. utility bills?

The only two things that I don't see enumerated that I might expect are insurance (car, life, health/dental, home/property, etc) and auto expenses (any car loan payments, gas, maintenance/repais). Also, you need to budget for paying your taxes. A good technique for at least estimating that expense (barring any major legislative or income changes) is to take your previous year's total tax bill and divide by 12. It won't be exact, but should get you in the ballpark.

The trick after spelling out your budget is to know and control the expenses in the "miscellaneous" category. Right now, that accounts for over 15% of your budget. If you or your husband have any trouble controlling your spending, be careful with having that much of your budget sitting unallocated -- it can be very easy to over-spend when the money isn't more specifically designated for particular needs. Of course, if you have good control over your spending, then that's probably not really so bad of a thing... it allows you to not get too focused on every last detail of how you spend, which can reduce financial stress.

ETA: Does your husband have any sort of retirement plan available? How are you allocating your savings? Does all of it go to cash (savings account), or is some sent to taxable investments, retirement accounts, etc.?

[candiedcarolyne]

The housing expenses are broken down as:
1000 rent
380 car loan payments
165 car insurance
300 utilities/cable/internet
200 cell phone services
55 health insurance

I didn't break down the miscellaneous category because the remainder of items change drastically depending on circumstance. For instance, some months, he will work mostly from home and use very little gas, while others he will have to commute frequently from distant job sites and use quite a bit of it. Also, this will increase the amount of money he spends eating out rather than at home. It also covers household necessities like dish soap, toilet paper, etc. We're not over-spenders at all, and shouldn't have a problem with it.

Because he is technically self-employed, his employer doesn't offer anything but heath insurance, so there is no 401k or retirement plan. I just put all of the savings into a high yield savings account. It brings 4.91% quarterly and 5% annually. I don't know much about investing, but I'm absolutely not a risk taker and will shy away from anything that provides a chance of failing.

As for taxes, we've never owed taxes before. We rent an apartment, so no property tax, and have always received a refund at tax time. Even though he's always been technically self-employed, the standard deduction brings our taxable income to 0, which refunds us the Earned Income Credit, Child Tax Credit, and the American Opportunity Credit. I estimated our taxes with his new income amount and we still came out a bit above.

[BMEPhDinCO]

Good for you for making a budget.

Here are some quick thoughts:
While you didn't owe taxes making $18k, you might making $41k - I would really recommend budgeting at least 15% into a "taxes" account. If you don't need it, then use the money to pay off more of the car loan.

$200 a month is high for phones - can you drop that down with less minutes/messenging, etc?

You should make sure also that you are saving for whatever happens when you finish school (ie new job, moving expenses, etc)

Finally, you REALLY need to put money for retirement into accounts for that. If your husband is classified as SE, you can open a SEP-IRA and put in money there (it's pre-taxed so will help lower any potential bill/give a bigger refund). For yourself, you should put money into a RothIRA. Even putting $100 a month ($50 each) would be better than nothing. Savings accounts get taxed, plus they can have wild swings in interest and aren't as good benefit wise as the mentioned above retirement accounts. I am also very risk adverse, but we do have Roths for both of us, and I'm thinking of opening a SEP-IRA (tricky, since we are both students and money is tight).

Finally, $1000 a month is high for rent unless you are living in a HCL area...can you move to a cheaper place? As a comparison, we're paying $750 for our mortgage, insurance, and taxes on our house in Colorado...

Good luck and remember, a budget is flexible, adapt as needed.