Are we spending too much?

[MKKShah]

Hello Folks,
I am long time lurker in these forums. Let me start with saying a big thanks to you all for the good stuff on this forum.

General background:
- I am 31, and wife is 25. No Kids yet.
- I graduated from school 7 years back, with a graduate degree, and no debt(scholarship + grad assist).
- Started a job at 60K and have worked my way upto 110K/year now. Wife is in school and will start working in a couple of years. No debt for her education either.
- Our finances are
- 100K in 401(k)
- 90K in cash/cash equivalents
- A Fully paid off Luxury sedan.
- We have approximately 120K outstanding on our condo, that is probably worth just as much (i.e we will break even after commissions if we sell it right now).

What motivated me to post here is that, although I have been lurking in forums like these for a long time, I never had an exact handle on my monthly expenses. I had a vague idea, but was never exact.

This weekend, I sat down and did the math on all our accounts (using mint.com, which automatically and correctly categorized 80% of my transactions). The "vague" idea that I had was at least 30% off from the actual expenses.

The following is the breakdown of our monthly expenses:
- Mortgage, HOA, Property taxes : $1184
- Household purchases / home improvement: $56
- Groceries (Food, Supplies) : $530
- Dining out (fine dining, fast food) : $146
- Coffee (Starbucks etc) : $25
- Alcohol and bars : $51
- Cell Phone : $131
- Utilities (Gas and Electric) : $111
- Cable TV : $75
- Internet : $60
- Home Phone : $42
- Gas : $160
- Auto Maintanence : $146
- Insurance (Auto + Umbrella upto $1M ) : $85
- Tolls : $9
- Movies @ the theater : $26 (using discounted Costco AMC tickets)
- Hobbies : $ 158
- Club membership : $110
- Shopping (Clothing, Electronics, perfumes): $60
- ATM and bank Fees : $10
- Credit card finance charges : $23
- Personal care (hair cuts) : $10
- Credit protection : $13

Total monthly base expenses: $3221.

Monthly savings:
- $1521 in 401(k)
- $1326 in cash.

Also spent $9500 on 6 vacations last year (total of 25 nights spent away from home / 8 states- all great destinations, excluding the ones we just drove through). Both me and my wife are immigrants to the USA. So we are likely to continue spending similar amounts on vacation going forward as well. America is a truly great country that needs to be seen by road travel!

At no point did I think twice about spending on anything. We felt that we had an extremely fulfilling, bordering on excessive year in 2011.

I did think long and hard about what I could cut down, without taking away from the experience of life in general. If I absolutely have to, we can cut a lot of stuff, but very little in the above list can be taken away without losing out on something or the other.

What do you think? Are we overspending, given that we are a one income family? Are we saving too little? What's your personal opinion?

[disneysteve]

Welcome.

You earn 110K/year gross. Standard advice is 20% to savings which would be $22,000/year or $1,833/month. You are currently saving $2,847/month so I think you are doing great there.

Are you spending too much? Since you are saving plenty, it's hard to say that you are spending too much but still, I think there is a lot of room for improvement in your budget.

You are spending $752/month on food and drink for 2 people. That's quite high. I'd work on getting that down. Maybe set $500 or $550 as your goal which is still a lot more than many spend but I think you could do that without feeling deprived.

How old is your car? $1,752/year for maintenance sounds pretty high unless the car is up there in age and miles.

ATM, bank fees, credit card charges, and credit protection should all be $0. You shouldn't have any of those expenses. Stick to using your own bank's ATMs, don't do anything that results in bank fees, don't carry a balance on your credit cards and drop credit protection. You don't need it.

Is club membership a gym? If you both go regularly and enjoy it, that's fine. If not, consider dropping it or switching to a less costly place.

Internet at $60 sounds high but I know prices vary by region so check on that.

As for your savings (which I realize you didn't ask about), keeping 6 months of expenses in cash is what is usually recommended, so about 20K for you. I'd start working on investing the other 70K for better returns on that money.

[BuckyBadger]

Hi! In general, I'd say nice job

I come from a non-budgeting school -- sort of. I put away all my savings first. Retirement, long term, short term... It's the very first thing that gets removed from my bank account the day after every pay day. Once we take out a number that makes us feel comfortable about our future, we simply spend the rest. (I believe that Steve does a similar thing.)

Now, this doesn't work for everyone, but if you have a pretty good handle on your expenses and aren't prone to large impulse buys that will throw your plans out the window, this method works very well for some people.

I do have a few comments, though.

You're holding onto $90k in cash? Pay off whatever credit card is charging you interest. Keeping a lot of cash and paying fees on a credit card is not a good idea. Ditto Steve on ATM, bank, and credit protection fees.

I would immediately put $10k in a Roth IRA for yourself, and for your wife if possible. ($10k = $5k for 2011, which you can add until April 15th, and $5k for 2012. DO this for each of you if you can.) You're sitting on a lot of cash, and getting $10k-$20k of that into tax advantaged space would be a good idea. I'd seriously consider doing this every year, in addition to maxing out your 401k. (Your $1521 a month comes out to $18252 every year, which is more than the max. Are you contributing to a 401k/403b for your wife, as well, or are you including employer match? Usually it's a good idea to NOT include employer match in your "savings" number, because it isn't money that is directly coming from your budget.)

So I don't personally think that you are spending too much, but I would suggest that you rethink your savings locations. 99% of the time it makes sense to utilize ALL of your tax advantaged space before saving anything in taxable accounts. You have plenty of cash, so I'd set aside your efund and anything you need for short term savings, and then I'd invest as much into Roth IRAs as you can for both you and your wife.

[disneysteve]

Hi! In general, I'd say nice job

I come from a non-budgeting school -- sort of. I put away all my savings first. Retirement, long term, short term... It's the very first thing that gets removed from my bank account the day after every pay day. Once we take out a number that makes us feel comfortable about our future, we simply spend the rest. (I believe that Steve does a similar thing.)

Yep. We do the same thing. Save first and then spend what's left however we feel like spending it. That's why I said it was kind of hard to say you were overspending when you are saving so much of your income. All of my subsequent comments were just areas where you probably could cut back without feeling that you are skimping or not enjoying life.

[J. Spence Financial]

I would agree with the other posts in that you have too much in cash. Now that's certainly not a bad thing for sure. It seems you have a good hold on your budget, you have plenty of money coming in, and you are not spending a lot each month. However the 90K in cash is what bothers me. I will echo the sentiments of the previous individuals and say an IRA should be opened up immediately. Also why don't you look into getting a small stock portfolio going. You can fill it with high-yielders and make some interest on all that cash. Good luck!

Hello Folks,
I am long time lurker in these forums. Let me start with saying a big thanks to you all for the good stuff on this forum.

General background:
- I am 31, and wife is 25. No Kids yet.
- I graduated from school 7 years back, with a graduate degree, and no debt(scholarship + grad assist).
- Started a job at 60K and have worked my way upto 110K/year now. Wife is in school and will start working in a couple of years. No debt for her education either.
- Our finances are
- 100K in 401(k)
- 90K in cash/cash equivalents
- A Fully paid off Luxury sedan.
- We have approximately 120K outstanding on our condo, that is probably worth just as much (i.e we will break even after commissions if we sell it right now).

What motivated me to post here is that, although I have been lurking in forums like these for a long time, I never had an exact handle on my monthly expenses. I had a vague idea, but was never exact.

This weekend, I sat down and did the math on all our accounts (using mint.com, which automatically and correctly categorized 80% of my transactions). The "vague" idea that I had was at least 30% off from the actual expenses.

The following is the breakdown of our monthly expenses:
- Mortgage, HOA, Property taxes : $1184
- Household purchases / home improvement: $56
- Groceries (Food, Supplies) : $530
- Dining out (fine dining, fast food) : $146
- Coffee (Starbucks etc) : $25
- Alcohol and bars : $51
- Cell Phone : $131
- Utilities (Gas and Electric) : $111
- Cable TV : $75
- Internet : $60
- Home Phone : $42
- Gas : $160
- Auto Maintanence : $146
- Insurance (Auto + Umbrella upto $1M ) : $85
- Tolls : $9
- Movies @ the theater : $26 (using discounted Costco AMC tickets)
- Hobbies : $ 158
- Club membership : $110
- Shopping (Clothing, Electronics, perfumes): $60
- ATM and bank Fees : $10
- Credit card finance charges : $23
- Personal care (hair cuts) : $10
- Credit protection : $13

Total monthly base expenses: $3221.

Monthly savings:
- $1521 in 401(k)
- $1326 in cash.

Also spent $9500 on 6 vacations last year (total of 25 nights spent away from home / 8 states- all great destinations, excluding the ones we just drove through). Both me and my wife are immigrants to the USA. So we are likely to continue spending similar amounts on vacation going forward as well. America is a truly great country that needs to be seen by road travel!

At no point did I think twice about spending on anything. We felt that we had an extremely fulfilling, bordering on excessive year in 2011.

I did think long and hard about what I could cut down, without taking away from the experience of life in general. If I absolutely have to, we can cut a lot of stuff, but very little in the above list can be taken away without losing out on something or the other.

What do you think? Are we overspending, given that we are a one income family? Are we saving too little? What's your personal opinion?

[disneysteve]

Also why don't you look into getting a small stock portfolio going. You can fill it with high-yielders and make some interest on all that cash.

At 31 years old, I think OP should be more focused on growth than on income.

[MKKShah]

Are we spending too much?

Welcome.

You earn 110K/year gross. Standard advice is 20% to savings which would be $22,000/year or $1,833/month. You are

currently saving $2,847/month so I think you are doing great there.

Are you spending too much? Since you are saving plenty, it's hard to say that you are spending too much but still,

I think there is a lot of room for improvement in your budget.

You are spending $752/month on food and drink for 2 people. That's quite high. I'd work on getting that down. Maybe

set $500 or $550 as your goal which is still a lot more than many spend but I think you could do that without

feeling deprived.

How old is your car? $1,752/year for maintenance sounds pretty high unless the car is up there in age and miles.

ATM, bank fees, credit card charges, and credit protection should all be $0. You shouldn't have any of those

expenses. Stick to using your own bank's ATMs, don't do anything that results in bank fees, don't carry a balance

on your credit cards and drop credit protection. You don't need it.

Is club membership a gym? If you both go regularly and enjoy it, that's fine. If not, consider dropping it or

switching to a less costly place.

Internet at $60 sounds high but I know prices vary by region so check on that.

As for your savings (which I realize you didn't ask about), keeping 6 months of expenses in cash is what is usually

recommended, so about 20K for you. I'd start working on investing the other 70K for better returns on that money.

DisneySteve,

- Regarding savings in the food and dining budget, I just figured that I could reduce my monthly spending to about
$18. This will be an annual savings of $400.
- We can cut about $85 per month in dining out, which will save about $1000 per anum.
- We can try and eliminate bank fees, finance charges, late fees, and credit protection and save aboue 600
- Can't cut internet (or get a better deal for my needs).
- Will be cutting about $100 from hobbies. These are actually wasteful expenditure masked as hobbies. This will save about $1200.

So based on what you are suggesting, without pinching pennies, we could be saving $3200 annually. This will be our
target for this year, i.e., bring down monthly expense to $2960.

If we were to go on a slightly extreme budgeting spree, then we could also cut the following:
- Cable TV: This should save us about $900/year.
- Gym membership: Savings of $1200/year
- Cut down on meat by upto 50%: $50 per month in savings. (we eat a LOT of meat).

This could be an extra $225 per month in savings. But we will for the moment choose not to do it.

[MKKShah]

Hi! In general, I'd say nice job

I come from a non-budgeting school -- sort of. I put away all my savings first. Retirement, long term, short term... It's the very first thing that gets removed from my bank account the day after every pay day. Once we take out a number that makes us feel comfortable about our future, we simply spend the rest. (I believe that Steve does a similar thing.)

Now, this doesn't work for everyone, but if you have a pretty good handle on your expenses and aren't prone to large impulse buys that will throw your plans out the window, this method works very well for some people.

I do have a few comments, though.

You're holding onto $90k in cash? Pay off whatever credit card is charging you interest. Keeping a lot of cash and paying fees on a credit card is not a good idea. Ditto Steve on ATM, bank, and credit protection fees.

I would immediately put $10k in a Roth IRA for yourself, and for your wife if possible. ($10k = $5k for 2011, which you can add until April 15th, and $5k for 2012. DO this for each of you if you can.) You're sitting on a lot of cash, and getting $10k-$20k of that into tax advantaged space would be a good idea. I'd seriously consider doing this every year, in addition to maxing out your 401k. (Your $1521 a month comes out to $18252 every year, which is more than the max. Are you contributing to a 401k/403b for your wife, as well, or are you including employer match? Usually it's a good idea to NOT include employer match in your "savings" number, because it isn't money that is directly coming from your budget.)

So I don't personally think that you are spending too much, but I would suggest that you rethink your savings locations. 99% of the time it makes sense to utilize ALL of your tax advantaged space before saving anything in taxable accounts. You have plenty of cash, so I'd set aside your efund and anything you need for short term savings, and then I'd invest as much into Roth IRAs as you can for both you and your wife.

That's right Bucky, I have included about $200 per month in employer contributions to the 401(k).

So the gist of the comments seems to be:
- Too much cash in hand. Beyond an EF, I should be looking putting the cash to use. Ideas offered:
- Refi home to a lower rate.
- Open a Roth IRA
- Look into high yielding stocks or growth stocks or both.
- I definitely need to start a seperate discussion regarding my Car. It's now 10 years old with 150K miles on it.

One thing about the stock market is that I got out in 2007, and have stayed on the sidelines. I am rattled by the events of the last 4 years in the markets, and am generally not sure of the future outlook. But I will start looking on each of these fronts and try to report back.

A question about forum etiquette. Should I open new threads, when I have significant new info about the each of the above areas? It seems to me that each of the above bullet points might make good conversation starters and might be useful for others if available at the top level instead of being buried deep inside a thread named "Are we spending too much?". What do you folks say?

[disneysteve]

One thing about the stock market is that I got out in 2007, and have stayed on the sidelines

I hope you now realize what a big mistake that was. Get back in and stay there for the long term. What happens in one month or even one year doesn't matter when you are investing for a goal that is 30+ years away.

A question about forum etiquette. Should I open new threads, when I have significant new info about the each of the above areas? It seems to me that each of the above bullet points might make good conversation starters and might be useful for others if available at the top level instead of being buried deep inside a thread named "Are we spending too much?". What do you folks say?

I think it varies. If it is really a separate discussion point, start a new thread. If it is just adding some details to what you've already posted to help answer questions, continuing the same thread probably works fine. Use your own judgement and see what happens. If you aren't getting much response, start a new thread.

[disneysteve]

I have included about $200 per month in employer contributions to the 401(k).

I definitely need to start a seperate discussion regarding my Car. It's now 10 years old with 150K miles on it.

When you state what you are saving for retirement, that should not include what your employer is putting away on your behalf. When we say 15% of gross to retirement savings, we mean 15% of your income, not 15% including the employer contribution.

As for the car, you should be setting aside cash to buy the next one. You have 90K in cash now so 20K for your EF, 20K for your next car and take 50K for investing.

[bjl584]

I think that you are doing pretty well. I'd give your situation a solid B because you are saving a good bit of your income. Your finances may just need a little housecleaning. Maybe just look for a few ways to trim expenses here and there.

[LivingAlmostLarge]

What's the cash for? Buying a new home DP?

[MKKShah]

When you state what you are saving for retirement, that should not include what your employer is putting away on your behalf. When we say 15% of gross to retirement savings, we mean 15% of your income, not 15% including the employer contribution.

As for the car, you should be setting aside cash to buy the next one. You have 90K in cash now so 20K for your EF, 20K for your next car and take 50K for investing.

Good points regarding the retirement savings percentage.

I am thinking if I even need an EF? People generally keep it for a job loss, or medical emergency.
I have what is generally considered a Cadillac insurance plan from employer. So medical emergencies are covered.

Plus in the event of a job loss, severance + back vacation pay + paycheck withholding for stock purchase + UI will come to 38K, which will be close to one year in expenses.

For non job loss emergencies, I also have 50K in credit line, spread over 10 credit lines, with current utilization at < 1%.

Regarding my car, I am counting on it lasting another 50K to 100K miles. It's well maintained, and mostly highway miles and is on top shape at the moment. All expenses were preventive maintanence. Much of the maintanence for the next 60K miles are done (including timing belts, tensioners, radiator hoses, water pump, gaskets, struts, tires and brakes). I am planning on allocating 100 per month in maintenance going forward.

[disneysteve]

I am thinking if I even need an EF? People generally keep it for a job loss, or medical emergency.
I have what is generally considered a Cadillac insurance plan from employer. So medical emergencies are covered.

except for deductibles and copays and prescriptions and medical supplies and such. Plus since your coverage is through your job, if you lose your job, you lose your coverage.

Plus in the event of a job loss, severance + back vacation pay + paycheck withholding for stock purchase + UI will come to 38K, which will be close to one year in expenses.

Employer-provided benefits don't constitute an emergency fund. If you lose your job, can you be sure you'll get all of those things? What if the company goes out of business or gets sold? Will the new owner maintain the same benefits? I wouldn't want to count on that.

For non job loss emergencies, I also have 50K in credit line, spread over 10 credit lines, with current utilization at < 1%.

Debt is not an emergency fund. The purpose of having an emergency fund is to prevent you from sinking into debt.

Regarding my car, I am counting on it lasting another 50K to 100K miles.

As a fellow owner of old cars (1998 and 2000) both with about 150K miles, I know just what you mean but I also know that realistically either one could give out at any time and not be worth fixing. Be prepared. Better to have the money set aside and not need it than to need it and not have it.

[phantom]

In addition to what DisneySteve had to say about reasons you might still need an emergency fund, I would add that an emergency fund is really nice to have in place even if you don't actually have to touch it. It can give you a lot of peace of mind when things start to get shaky.

For example, my husband was laid off about 2 years ago, and until he took his most recent job a couple of months ago, all he could find was contract work. Between his severance pay, unemployment, the contract work, my pay, and our ability to cut expenses, we never had to touch our emergency fund. But, it was still really nice to have it there. It allowed him to be a little bit more picky about what jobs he took, and it saved me a ton of worry to know that we had a nice safety net in place.