How does my budget look?

**BudgetSurgeon** · 03-25-2012, 10:13 AM

Originally posted by kaleida View Post

I'm just looking for feedback on my budget and savings goals.

I am 30, single with no dependents. My 2 savings goals are retirement and a house. So far I have $126,000 saved for retirement (in a 401K account) and $45,000 saved for a house (in an ING Direct savings account earning 0.80%).

My budget looks like this:

Annual income from my job = $103,000
Monthly income after taxes = $6375
401K retirement savings = $1416.66
House savings = $2000
Rent = $975
Cell phone = $88
Car insurance = $36
Gifts/donations = $125 (A 529 savings account for my sister)
"Everything else" = $1630

My "everything else" category includes pretty much everything that isn't listed above... groceries, tolls, fuel, car maintenance, pet supplies, personal care, clothing, entertainment, and discretionary spending. Last year I averaged $1905 per month in this category and I'm attempting to cut back 15% in 2012 ... so far so good, but it's kind of difficult.

I want to save at least $70,000 for the house (that would be a 20% down payment on a $300,000 house, plus $10,000 for closing costs.) Sadly, I think $300,000 is the minimum price in my area - for a crappy house on a major road. I might want to save for a few more years to get a house in good condition on a quiet street.

What do you think? I feel frustrated that saving for a house takes so long even though I'm spending less than half of my income!

Personally speaking, I think you are doing great for a 30-year old. Keep up the great works in that regard! One thing to add is that I would aim to reduce your overall budget by 10% each an every year. Itemize your budget with a little more granularity, and look for ways to save, save, save, which will enhance your ability to save for that house. As a crude example, with food expenses, you can achieve this by eating breakfast at home, bring lunch to work, eating out less often, avoiding those over-priced $5 lattes every morning, and using food coupons at the supermarket for items that you already purchase. If you can complete this similar exercise for your most of your other budget categories, you can achieve a 10% additional savings on expenses, and you can accelerate your home purchase.

IMO, housing prices overall are not going to increase all that much over the next couple of years (although there may be some locales that defy this statement), and interest rates will remain artificially low for the next couple of years as well (this based on statement from Bernanke recently). Hence, be patient with your purchase, and try to accelerate savings over these next couple of years. Additionally, it pays to be patient with this purchase (you have your whole life ahead of you still), and you are taking the right approach by exercising prudent financial restraint with your purchase. You want to be financially ready before you jump into this, and I commend you for that type of thinking.

As I used to be in real estate, let me advise you on something you probably already know -- it's always best to buy the crappiest house on the block, rather than the most expensive house on a block. The chances for appreciation are much greater in the former situation, and will help act as a hedge to a further real estate downturn. Also, although lending institutions may tell you otherwise, I would always aim for your mortgage, taxes, and homeowner's insurance TOTAL to never exceed 40% of your total disposable income. I believe that a # of 50% is too high a risk. That is my personal opinion.

Keep up the good works!

**disneysteve** · 03-25-2012, 10:23 AM

Do you have an emergency fund? If so, how much?

Overall, things look good. You are saving 40% of your gross which is terrific. There might be room for improvement in your "everything else" category if you break that down but really, with a 40% savings rate, it probably doesn't matter much. Keep it up and you'll be fine.

**kaleida** · 03-25-2012, 11:55 AM

Thank you for the feedback!

Emergency fund - hmm. If a minor emergency comes up, less than $1000, like a vet bill or a car repair or something like that, then I find a way to wedge it into my "everything else" category. I have gone into "gas and groceries only" mode for a few weeks to catch up from a big expense... it seems to work for small emergencies.
If a bigger emergency were to come up, I would delay my house purchase and use part of my house savings (or cancel the house idea completely if it's that bad).

I probably need to figure out how to handle large emergencies after the house purchase though. I think I can leave at least $1000/month in my budget for emergency savings after the house purchase.

I also sense there's some room for improvement in the "everything else" category. It's about half necessities and half fun money. With fun money, I seem to treat myself to a $30ish something or other a few times per week ... plus about one $400-$500ish purchase per month. So far this year my big purchases were a plane ticket, a musical instrument, and a pair of professional haircutting shears so I could cut my own hair. I think there might be some room for improvement in the frequency of these big purchases.

How does my budget look?