Critique my budget, please
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Anonymous
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We're thinking about buying a new house, and I'm a little freaked out by the size of the potential new mortgage. We've never really lived on a budget before, but it might be a good time for us to start paying more attention to our expenses, so please let me know how our budget stacks up and also any categories where we should consider cutting back if we need to. We are a family of 4. Kids are 1 and 5. Here is the projected budget giving effect to the new home purchase:
Monthly net income: $13,500 Mortgage: $4,000 Childcare: $1,200 Grocery: $600 Restaurants: $300 Car payment: $300 Car insurance: $100 Utilities: $400? How much does it cost to heat/cool a 3,000 sq ft house? Cable/Internet: $75 (internet is reimbursed by my employer) Cell phones: none (reimbursed by employer) Kids activities: $150 Gas: $250 Miscellaneous expenses: $1000 That gets me to $5,200 left over each month, although that doesn't include things like vacations and several weeks of summer camp for our older child. We also have annual bonuses totaling about $50K after taxes, so that gives us an additional cushion, but of course, that isn't guaranteed and only happens once a year so I don't like to count on it. My biggest concern when I look at our budget is that we'll likely be cash flow negative if either one of us loses our jobs. We make about the same amount. Financially savvy folks, how did you approach that issue when determining the price range for a home purchase? Am I being overly risk averse? |
Anonymous
| How much do you have in your emergency fund, retirement fund, college fund? |
Anonymous
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It all depends on if you are comfortable surviving on 1 pay check. We bought so we can survive on just DHs pay check. He is a Fed in a very safe job.
I basically did 3 budgets. 1 as if both of us worked, 1 as if only DH worked with us cutting back some, and 1 as if only DH worked with us cutting back heavily. Maybe you should try that and see how it feels. If one of you loses a job, you can save the $1200 on child care. You could stop eating out, which means groceries go up some (as a side, I think your groceries are very low, is this accurate?). And again, consider how much you have in emergency savings and retirement. |
Anonymous
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Your budget is looking pretty good, but you do need to include savings for college and retirement. There's room in your budget to that, especially with the bonus that comes in.
I understand you are worried about job loss. Honestly, I'm not sure how people get by on one salary. We'd have to put the house up for sale immediately and hope it sells quickly because we could only cover the mortgage for a few months. A lot of people take that risk and build up an emergency cushion. Besides, if one of you did lose your job, the childcare expense would go away, gas would decrease, restaurants decrease, and you could look into reducing the grocery and miscellaneous. |
Anonymous
| Don't count on groccery and miscellaneous decreasing if one of you looses a job. That can be a stressful situation and you don't want to feel the extra sres of nickle and diming yourself. Try instead to save up an emergency fund that covers 6-12 months. Others may say 12 months is too much, but I'm risk averse so that is waht I'm comfortable with. We also chose a mortgage that we can handle on one income for the same reason. Good luck! |
Anonymous
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The other piece is that if one of you loses your job, your tax situation changes significantly and so your decrease in take home pay would not be quite as dramatic as the loss of the entire income. Are you saving for retirement before the net income? If so, that's another place you could "find" money in the event of a job loss.
I'm pretty risk averse and I think that your budget looks fine, especially if you have a $50k bonus that's not shown in your numbers. Sock that away in college or emergency savings. |
Anonymous
| Your budget is fine. Mortgage is high and utilities are high though. I have a 3500 sq ft house and only pay about $100-150 to heat and cool it. |
Anonymous
I agree with this - your budget looks like ours - almost down to the penny. And we are comfortable and we weathered a significant decrease in income when one of our jobs changed. Make sure you have 6-12 months emergency fund in case something catastrophic happens so that you have time to either look for another job, or sell the house. Make sure you have cushion - which you do, and you'll be fine. As childcare goes down, your groceries will go up - those kids will start eating more. But your salaries should go up a bit at a time as well. Also, make sure that you are both in jobs that are stable - not up and out, or dying. If that's the case, then plan for one salary or a significant reduction in salary later. |
Anonymous
I think OP is adding water, trash, and possibly some home maintenance into the $400 number. Cleaning or lawn care. |
Anonymous
| You don't have anything for home maintenance. Also what about travel/vacations/holidays/ extended family emergencies. |
Anonymous
Where or how do you get child care at $1200? The estimates I have are more like 1,800
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Anonymous
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You don't have a category for charitable giving.
What about your summer childcare for the older child? |
Anonymous
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We suffered a job loss that cut out income in half. It took 5 months to find a job. Thr market is horrible. Plus having to move our health insurance as a result doubled our health care expenses. Our net income went to 10k/mo and we could have never afforded your mortgage. Our kids are older and it is a FACT that your food bill will be going up.
After an absolutly terrifying job loss we have gone very conservative with finances. We NEVER thought we would suffer a loss and would have to survive on one income. It was a real wake up call. |
Anonymous
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OP here. Thanks for the input, especially for pointing out things like charitable giving, which I hadn't specifically considered, but I think I look at that almost as coming out of the $50K bonus. Mostly, we tend to support charities by donating stuff and donating our time. It's really only the church that we directly give money to.
I've worked through an alternate budget, which cuts down on gas, childcare, restaurants, activities, and miscellaneous purchases and I feel better about the situation. We'll have $90K liquid in an emergency fund to help get us through a job loss situation, and I think we'll only be drawing on that for $1-$2k/month if we can cut down on some of the "fun money" in our budget currently. As far as other savings, we're behind on college funds (only $10K total), but we are OK on retirement, which comes out before the net income line. We're 30 and have about $200K saved there, mostly in ROTH form. I'm hoping to keep contributing the same amount, but I guess we could cut that temporarily if needed. Thanks to the PP who suggested that kid costs will increase as they get older. Is it appropriate to assume that the increased food, activities, and clothing costs will offset the elimination of daycare? And home maintenance... that could be a lot, for a SFH. Is it appropriate to budget $500/month knowing that it will be lumpy? For a lot of it, my DH and FIL are very handy, but it will be things like new HVAC or roof (both new in this house) that will be expensive when they hit. |
Anonymous
| Yes - the increased child maintenance will offset somewhat monthly childcare, but its not regular and can be put "on hold" or reduced in ways that childcare can't - i.e. buying cheaper clothes, watching food budget, cutting out 1-2 extracurriculars if the need arises. |