My Budget, lower-middle class, How am I doing?

[cascade11]

Currently a 33 yr old single male living in Michigan.

Take-home pay per month: $1,600-After tax withholding, payroll, health, dental and 4% 401k contribution (for employer match). 4% may seem low, but the 401k plan is expensive with high expense-ratio funds and no index fund choices. I invest the rest into a low-cost Vanguard IRA outlined below in monthly expenses.

Savings: $19,000-Including emergency funds, and other short-mid term goals (new car, trips, etc)
Debts: $1,800-0% APR CC until March, but will be paid off with savings next month

Monthly expenses---------------------------------------------------------------------------------
Rent: $390
Rent Insurance: $15
Internet + water/sewer: $0 (included in rent)
Electric + Heat: $60 (average-higher in winter, lower in summer)
Cable TV: $73
Food/household items/dine out: $250
Gym membership: $38
Car Insurance: $40 (liability only, 2002 Mazda Protege)
Car payment: $0 (paid off)
Car repair fund: $70 (savings for unexpected car repairs and to maintain)
Gas: $30 (work is only 2 miles away, I tend to walk and bike a lot around town)
Phone: $10 (Tracfone prepaid)
IRA Contribution: $460 (to max out $5,500 limit)
Laundry: $10
Haircuts: $7 ($14 every 2 months)

Income ($1,600) - Expenses ($1,453) = $147 left over per month as discretionary spending. (family, movies, add to savings, etc...)

Just looking for comments/advice on areas where you think I could improve? I think I've done a good job managing my expenses overall. Thanks!

[MonkeyMama]

Overall, good job!!

I am not sure what your gross income, but get the sense you are saving a good percentage. Though it also depends how much you have already saved.

For reference, my employer gave me a 10% match for about a decade - but I had no control over funds - my contribution was $0. I've barely missed the thing since it was terminated a few years ago, because it was so eaten up by fees and conservative investments - too conservative for my age. I think only contributing to the match is probably wise. You'd be surprised how well you can do in comparison, with low-cost, age appropriate mutual funds. Especially if you are in a low tax bracket anyway.

Anyway, my thoughts:

--What is your gross income? Are you contributing to a regular or ROTH IRA? ROTH might be better?

--Cable - any reason why you are paying for cable? Roku/netflix/hulu combo will get you all the same stuff (streamed to your TV) for pennies in comparison. I think you can afford it, but why pay for something you don't have to? Maybe you keep it for sports?

--Your savings is good and I understand why you are probably not adding to it for now. BUT, you don't want to be scrambling to find that in the budget when you do replace your car (& want to replenish), etc. I think it is fine for now, but as you get raises, etc., I would start investing in taxable accounts to supplement your cash savings and retirement. Then you can always redirect some of that monthly amount to cash savings in the future when you need to replenish it.

[MonkeyMama]

P.S. You may also want to look into disability insurance.

Do you have any long-term financial goals? Like, save for a home?

[cascade11]

P.S. You may also want to look into disability insurance.

Do you have any long-term financial goals? Like, save for a home?

Work provides short-term disability insurance. As for a home, I have been thinking on-off about that one, perhaps in 3-5 years when I have enough for a 20% downpayment for a home (to avoid PMI insurance) or if I ever get married someday. My yearly tax refunds (about $2,000-$2,500) have been getting added to my savings above. I expect $3k this year.

[MonkeyMama]

Have you looked at long-term disability policies? They are not always the most cost effective. But, what would you do if you became permanently disabled? Just one thing to consider.

[cascade11]

Overall, good job!!

I am not sure what your gross income, but get the sense you are saving a good percentage. Though it also depends how much you have already saved.

For reference, my employer gave me a 10% match for about a decade - but I had no control over funds - my contribution was $0. I've barely missed the thing since it was terminated a few years ago, because it was so eaten up by fees and conservative investments - too conservative for my age. I think only contributing to the match is probably wise. You'd be surprised how well you can do in comparison, with low-cost, age appropriate mutual funds. Especially if you are in a low tax bracket anyway.

Anyway, my thoughts:

--What is your gross income? Are you contributing to a regular or ROTH IRA? ROTH might be better?

--Cable - any reason why you are paying for cable? Roku/netflix/hulu combo will get you all the same stuff (streamed to your TV) for pennies in comparison. I think you can afford it, but why pay for something you don't have to? Maybe you keep it for sports?

--Your savings is good and I understand why you are probably not adding to it for now. BUT, you don't want to be scrambling to find that in the budget when you do replace your car (& want to replenish), etc. I think it is fine for now, but as you get raises, etc., I would start investing in taxable accounts to supplement your cash savings and retirement. Then you can always redirect some of that monthly amount to cash savings in the future when you need to replenish it.

---Traditional IRA. I realize tax benefits of a Roth, but I'd rather take the savings now and reduce my AGI substantially to allow myself to qualify for certain tax credits I otherwise would not get with a Roth, thus my high income tax returns per year. Expecting $3k this year. I can decide later to convert to a Roth and re-pay the subsequent taxes in a future year if I choose.

---Cable. Yes, for mainly sports programming. But now that football season is about to be over, thinking of cutting it until next fall.

---Yearly tax refunds are going to the savings, which comprises of a mixture of savings, CD's and Government I and EE Bonds.

[cascade11]

Have you looked at long-term disability policies? They are not always the most cost effective. But, what would you do if you became permanently disabled? Just one thing to consider.

No, I haven't seriously thought of that. Do you know of any good companies to look at?

[disneysteve]

It looks like you are doing a great job.

One thing I'd suggest at least considering, and this is kind of a rare suggestion around here, is to reduce your retirement savings. Currently, you have 4% of gross going to your 401k and about 29% of net going to your IRA. That's fantastic, but I wonder if it wouldn't be more prudent to trim retirement back to 15% of gross overall and put more in your shorter term savings.

You've got a fully funded EF (6 months x $1,453= $8,718) plus another $10,000 on top of that which is great, but you are driving an 11-year-old car and are thinking about saving for a house purchase within the next few years. Plus you're going to use $1,800 of that 10K to pay off the credit card. It might be good to ease up on retirement and beef up the liquid savings.

Overall, though, great job!

[bjl584]

Overall, great job. I'd suggest thinking of ways to raise income in the future. Especially if you plan to buy a home. Your expenses will go up. What field of work are you in? What are your prospects for advancement?

[MonkeyMama]

No, I haven't seriously thought of that. Do you know of any good companies to look at?

Sorry, no. I'd start with whoever has your short-term policy and look at any professional associations. You can probably find quotes online. This might be a good question to ask on the boglehead forums - I have seen it discussed - those people are very knowledgeable on knowing what to look for.

[MonkeyMama]

---Traditional IRA. I realize tax benefits of a Roth, but I'd rather take the savings now and reduce my AGI substantially to allow myself to qualify for certain tax credits I otherwise would not get with a Roth, thus my high income tax returns per year. Expecting $3k this year. I can decide later to convert to a Roth and re-pay the subsequent taxes in a future year if I choose.

---Cable. Yes, for mainly sports programming. But now that football season is about to be over, thinking of cutting it until next fall.

---Yearly tax refunds are going to the savings, which comprises of a mixture of savings, CD's and Government I and EE Bonds.

IRA - got it.

Cable - I figured. That is a good idea to turn it off during the off season.

[MonkeyMama]

One thing I'd suggest at least considering, and this is kind of a rare suggestion around here, is to reduce your retirement savings. Currently, you have 4% of gross going to your 401k and about 29% of net going to your IRA. That's fantastic, but I wonder if it wouldn't be more prudent to trim retirement back to 15% of gross overall and put more in your shorter term savings.

Overall, though, great job!

I just wanted to clarify that is why I mentioned the ROTH. It can be used for non-retirement savings, but whatever is unused can be tax-sheltered "forever." So it's pretty win-win as a savings vehicle, especially for anyone with any financial discipline.

OP never said was his gross income is. I think it is hard to figure, but is a safe assumption that he is probably putting 15%+ to his retirement.

Anyway OP - I just wanted to say I'd still focus on maxing out a ROTH. (Or maxing out the IRA for the tax savings, as is your current strategy).

[Gailete]

Seeing what you are doing reminds me a bit of what one of my sons is doing financially. Great to see young guys with heads on their shoulders saving and taking care of their financial responsibilities. I remember when my son talked to us about getting a dish as he really likes watching sports on TV. As I told him, you don't own anyone any money except his school loans which he is paying off, he works two jobs, and being able to watch those shows are important to him--he doesn't drink or smoke, so let him have his treat as he works hard for it. Then he got a Christmas bonus at work that basically covered the cost of the dish for a year. But he has a goal list of things he wants to buy when he can afford them and what are their priorities. Anyhow, I think you are doing great, and whatever you decide, just try to do things without going into debt to do them.

[cascade11]

Seeing what you are doing reminds me a bit of what one of my sons is doing financially. Great to see young guys with heads on their shoulders saving and taking care of their financial responsibilities. I remember when my son talked to us about getting a dish as he really likes watching sports on TV. As I told him, you don't own anyone any money except his school loans which he is paying off, he works two jobs, and being able to watch those shows are important to him--he doesn't drink or smoke, so let him have his treat as he works hard for it. Then he got a Christmas bonus at work that basically covered the cost of the dish for a year. But he has a goal list of things he wants to buy when he can afford them and what are their priorities. Anyhow, I think you are doing great, and whatever you decide, just try to do things without going into debt to do them.

Sounds totally like me. I show a lot of financial savvy and responsibility by living well within my means I think, and it goes to prove that you don't need to make tons of money to feel "secure".

I just got notice that my cable bill was increasing $5 per month. Football season is just about over, so I've called to cancel. By going with Netflix and Hulu over cable will save me another $60 per month that I can add to my $19,000 in savings at least until fall, when I'll reconsider. I hardly ever watch much TV, esp. during the summer months. I've got another ~$3k coming back in tax refunds as well, so I should be able to beef up my savings to about $20,200 after paying off the $1,800 CC next month. The savings from cable will bring that up to near $21,000.

Next year, if all things go according to plan (no emergencies) I'll probably get another large tax refund. I'll be using that to plan my 3rd trip to Europe next spring, I hope!

[Gailete]

if all things go according to plan (no emergencies) I'll probably get another large tax refund.

I think you would probably be much better served, especially with your saving discipline, to adjust your W2 so that they aren't taking so much out in taxes and you take that extra amount and put into into savings yourself every paycheck, possibly a separate account for that trip to Europe. Thus you will get some interest on the money instead of loaning it to the government free and clear, and you have control over it. If you find a great sale on airfair or whatever before you would have gotten your taxes back you can take advantage of it. It is your money after all, why give it to the government for a year when you are much better at handling money than they are?

My son likes both football and baseball so he keeps his cable year round, but he does tape shows that he gets (and we don't since we don't have cable) and brings them over to watch with us. He doesn't even like watching movies alone so he gets the cheapest package that gives him his sports to watch. It is his only 'frivolous' thing that he spends money on. Oh, he also saved for years to be able to afford an X radio (not sure what it is called) in his car so he can listen to what he likes when driving. This son is also autistic so when he finds something that gives him true pleasure I try to encourage it if he can afford it.