does my budget look OK to you?

[jaine]

I would like to get some feedback on my budget. Mostly on the part in red - I'm helping my brother and sister.

I feel like it's important to care of myself first before I start trying to help my family members ... in your honest opinion, am I taking care of myself enough? Sometimes it's hard to see myself clearly.

Helping my family
-----------------

• 4.5% of my income is helping my younger brother and sister.
• Helping my sister save for college.
• Helping my brother pay down his debt. I was originally offering to help him save for college, but he has the GI Bill for that so I changed my mind.

Saving for me
-----------------

• 30.5% of income is saving for me.
• 401K, SEP-IRA, emergency.

Paying off my own debt
-----------------

• 3% of income - Finished paying off my car loan in January. Done.
• 4% of income - Paying off the laptop that I bought 2 months ago for my contractor job. I'm making the final payment this week.

My expenses
-----------------

• 33% of my income for expenses - rent, utilities, cell phone, car insurance, food, gas, tolls, car repairs, trips, fun, gifts, clothing, other. Whatever comes up. Fun budget for the month becomes smaller if something comes up.

Taxes
-----------------

• 25% - Taxes. Low because of 401K, and because the laptop was a business expense.

Other random factors...

• Emergency fund: I currently have $1000 in cash, which will be $5000 by the end of the year. I know that's small...
  
• Last year I had a larger emergency fund but it morphed into a car fund. I replaced my 14-year-old car with the intention of using a loan since I got a nice low rate. Then, in a decisive and passionate fit of "Debt can kiss my a**" I unleashed the Snowball Method fury upon my car loan. 2 paychecks later the car loan was fully paid off, my emergency fund and checking account balance were both $0, and I was grinning ear to ear and feeling badass.
  
• I'm 28.
  
• I could fall back on my Roth IRA in an emergency, but only for something truly catastophic.
  
• Retirement savings: $80,000 if you count the Roth IRA, and $60,000 if you don't.

What do you think ... am I crazy trying to help my family? Could I safely do more without jeopardizing my own future? I wish I could open a thousand doors for both of them with a wave of my hand. Unfortunately my guns are not that big.

4.5% is a good amount that feels big to my family but feels small to me. I'm paying for it with painless tradeoffs that make me feel good - cooking more at home, shopping at farmer's markets instead of Whole Foods, shopping at consignment stores instead of Banana Republic, shopping at thrift stores and yard sales instead of Ikea and Etsy. I like the thought of living simply and helping my family.

Sorry for the long post!

[jaine]

duplicate post, sorry

[bjl584]

There's nothing wrong with helping others. Especially since you are saving over 30% of your income. One suggestion would be to shift some of the retirement contributions into your Emergency Fund until it represents 6 months worth of expenses.

[disneysteve]

I would like to get some feedback on my budget. Mostly on the part in red - I'm helping my brother and sister.

[COLOR="DarkRed"][*]Helping my brother pay down his debt.

I would want to know more about this item. What type of debt is this and why does he need your help to repay it? Did something major happen like a medical expense or is this debt from overspending? That would make a big difference to me as to whether or not I think what you are doing makes sense.

Overall, it sounds like you are doing great, though I agree that you need to beef up the EF. If you are able to save 30% of your income, you should be able fully fund a 6-month EF. And I would make that a higher priority than paying off your brother's debt or your sister's college, as generous as those things are. You need to take care of your own needs first before thinking about helping others.

[jpg7n16]

Jaine,

From reading your posts, I think you still have a misunderstanding of the basic purpose for an emergency fund. In one post you are trying to make your EF double as retirement savings, and in this one, make it double as a car savings/debt elimination account. Which it's not supposed to do.

For you, I would suggest the low end 3-month EF. (Range is s/b 3-6 months) You have too strong of a desire to use the money for non-emergency things that get better rates of return that you would just hate having 6 months in a Money Market account.

Once you get the EF idea straightened out, I think you're in fantastic shape to do well financially. You only have to fund an EF once, then keep it safe and easily accessible for emergencies only. Once it's there, put all the money you want towards savings, ROTHs, brokerage, debt, whatever you want. And you're putting enough away for yourself.

But if life insurance is really insurance against death, an EF is like insurance against the things that happen in life.

And as long as your family isn't becoming dependent on your support, I think what you're doing for them is great and well within financial reason.

[jIM_Ohio]

You only have to fund an EF once, then keep it safe and easily accessible for emergencies only. Once it's there, put all the money you want towards savings, ROTHs, brokerage, debt, whatever you want. And you're putting enough away for yourself.

I will reiterate this point, and this might be a point of contention or discussion. You need a way of funding cash reserves if you have to tap them. Best way is free cash flow, but not everyone (including me) has the ability to access free cash flow easily (if its in checking account, it gets spent). This means tightening other aspects of budget to generate the cash flow to refund the EF.


Examples of emergencies which have came across our house in last 24 months
1) $5000 of medical bills in 3 months. We have an HSA, but its funded per paycheck and does not allow for borrowing. The 3 months happened to be Jan-Feb-Mar before the HSA was funded.
2) $2600 tax bill because stimulus withheld too little from my paycheck.
3) Exterminator because we might have termites

those are not items we had in budget, and savings or cash flow get tapped. You need a way to deal with these (I believe all could be considered emergencies to one degree or another).

How one generates the cash flow is a good discussion. Our Roth contributions are $500/mo for each spouse... quick math shows there is $2000 built into this as we cannot contribute $6000 to either spouse IRA, so I know we can absorb a $2000 hit to budget each year without much trouble.

I recently found some extra money in budget and bumped IRAs up to $562.50 per month... so there is $125/mo extra once 2011 roles around. As you gain experience you can use techniques like this to build up savings or pay down debt or replenish EF if you need to.

[jpg7n16]

You only have to fund an EF once, then keep it safe and easily accessible for emergencies only.

... As you gain experience you can use techniques like this to build up savings or pay down debt or replenish EF if you need to.

Yeah sorry. I sometimes type like I talk, so -- yeah the EF isn't a one-and-done thing. ("Well I had an emergency, so the EF is gone - good thing I had it! Hope I don't have another emergency!")

If used, you refill it, then don't worry about it again. But as long as you can go without emergencies () you'll be just fine! hah

Sorry if my statement was confusing/misleading I meant more like, it's not something you usually have to contribute towards every year, like retirement or something. Once it's full, it doesn't need more cash.

[jIM_Ohio]

Yeah sorry. I sometimes type like I talk, so -- yeah the EF isn't a one-and-done thing. ("Well I had an emergency, so the EF is gone - good thing I had it! Hope I don't have another emergency!")

If used, you refill it, then don't worry about it again. But as long as you can go without emergencies () you'll be just fine! hah

Sorry if my statement was confusing/misleading I meant more like, it's not something you usually have to contribute towards every year, like retirement or something. Once it's full, it doesn't need more cash.

Your point was made, and even if it was a mistake, the attitude should be EF is one and done, then just improve cash flow and budgeting techniques and you will never touch the core EF.

My suggestion is when budget includes items like
a) vacations
b) a car you will buy in future
c) house repairs which will occur in future
d) similar less frequent expenses are in month to month budget

you have the cash flow where the EF probably never gets touched even when emergency happens
the goal is to reach that budget standpoint as early as possible

The example I like to use would be something like a family of 4 has a monthly budget of 5k. In that budget, they have $100 for vacations, $200 for their next car, $75 for house repairs and $125 for college savings.

To me that is $500/mo free cash flow. If an emergency comes up, the first $500 which should be spent is this money, then refill the line items later (for example delay going on vacation because of the emergency or delay buying car for 2 months). If the car purchase was 12-24 months away I know two things to be true

1) you cannot predict with certaintly which month the new car will actually be purchased in 24 months out anyway
2) had you been saving for a car regularly already, you have well more than 3-6 months expenses in bank which you can tap into which is not part of the EF.

[jaine]

Thank you for the tips!!!

Do you have any mind tricks (or any kind of tricks really) to help me not spend the emergency fund? I think my problem is that it felt so good to spend it. I felt like I was doing something smart (paying down debt). But if I didn't have any cash on hand then I probably would have bought a an $8,000 used car instead of an $18,000 new one. I think my head swells when I have cash on hand.
ING Direct doesn't make it any easier for me to leave it alone ... transfer from savings to checking is pretty much instantaneous and it can be gone within mere seconds of getting the urge :P

[jIM_Ohio]

Thank you for the tips!!!

Do you have any mind tricks (or any kind of tricks really) to help me not spend the emergency fund? I think my problem is that it felt so good to spend it. I felt like I was doing something smart (paying down debt). But if I didn't have any cash on hand then I probably would have bought a an $8,000 used car instead of an $18,000 new one. I think my head swells when I have cash on hand.
ING Direct doesn't make it any easier for me to leave it alone ... transfer from savings to checking is pretty much instantaneous and it can be gone within mere seconds of getting the urge :P

Understand liquidity, understand return of principal, then make choices based on the risks to your situation.

LOL

Meaning for example
1) put money in an account without an ATM card (allow deposits by atm, but no withdraws by atm)
2) put money in CDs so its outside of savings account
3) curb the urges to spend- might mean you need to add some free cash flow to budget


For example I am an electronics junky to some degree and I love music. So its possible I might want to buy some electronics or CDs which are not in the budget. But I also know every month there is between $200-$700 of discretionary spending we do not account for. As long as I am not going to spend $5000 on new surround sound, we are probably OK.

[skydivingchic]

I would recommend you open another account at a different institution for your emergency fund. Make it more difficult to get to. Open another high yield online account (look at the thread in the Investing and Banking forum to find one) and then automate the deposits to it, either through splitting your direct deposit or having a set amount withdrawn from your main checking account immediately after your paycheck goes in. This will slow down transfer times from instantaneous to 2-3 days. Forget this account exists.

Beyond that it simply becomes a change in mindset. Keep telling yourself that money is not to be touched unless you are facing a serious emergency. What is an emergency? That is something you need to define for yourself. For me, it would be extended job loss, a serious medical condition not covered by my medical fund, one of my cats needs vet care beyond that covered by my cat care envelope, or my vehicle breaks down and repairs can't be covered by my vehicle maintenance envelope.

Recently I had to have my wisdom teeth removed. The out of pocket expenses were more than could be covered by my medical envelope. However, as a few others have mentioned, my emergency fund has become so untouchable to me that instead of using it, I chose to take the money out of other savings (i.e. that intended for vacations and a new to me car).

This change in attitude was a gradual process. When I first got serious about personal finances about 4 years ago, I had been in the habit of running up a few thousand of CC debt, paying it off with my EF, and then running up another few thousand worth of CC debt. That cycle would repeat itself every year or so. I finally realized that I knew better than that and got serious. It took ~5 months to pay off my CC debt, another ~4 months to build a month's worth of buffer in my checking account, and ~2.5 years to build my EF to where I wanted it (I was saving for other stuff at the same time). During that time my attitude has gone from "use the EF to pay off CC debt" to the "EF is untouchable except in the most extreme circumstances after cash flow and other savings has been exhausted." In fact, my EF is now partially held in my checking account and the rest in a savings account linked to my checking because that is where I earn the most interest while not risking capital. That change has taken time, but it is well worth it.

[skydivingchic]

One other thing. Establish sinking funds for things like car maintenance, gifts, insurance, vehicle registration, and vet care if you have pets. Set money aside every month for those expenses that may be irregular but inevitable (like car maintenance). If you do this consistently and you budget a reasonable amount for it, you won't need to use the emergency fund next time your car needs a major repair.