topic Re: What are your budgeting rules? in Personal Finance

What are your budgeting rules?

sxa001 — Tue, 11 May 2021 19:32:59 GMT

I know this is a topic that has been discussed in various forms, and I apologize for maybe repeating or beating a dead horse. The tl;dr version is my wife and I finally realized our dream of home ownership, obviously buying a home put a massive dent in our savings and I am trying to balanace rebuilding that savings with being able to spend on stuff I want and some upcoming trips.

I am very curious to hear from the group here how you handle savings. Do you follow the 50/20/30 rule? Do you consider 401k funds to be part of that 20% savings? Do you save more than 20%?

Right now, I have more than 20% of my take-home pay going to savings each month, and almost 50% of my wife's take home pay goes into savings. We have no credit card debt (cards are PIF each month). We don't have a car payment currently, the only debt is the house and a remaining ~35k in student loans from my wife and a silly ~600 amount of old student loans that I just need to PIF instead of drafting the small amount each month to pay. Income is roughly ~175k a year. We spent pretty heavy on travel our first couple of years of marriage, but buckled down enough to put the downpayment on the house.

Now that we are looking to travel again, I want to make sure we don't start going crazy. We know that there will be things that require us to dip into savings, and a major house item like the A/C going out could be another huge hit, so I want to come up with a savings plan that still makes us feel good and not too restricted.

We both contribute to 401k, my wife's company does matching so she does the full 4%, I am currently doing 3% and don't have a match but I wasn't contributing while saving for the house so I am way behind there. I am in my early 30's but pretty far behind where I probably should be on 401k, so maybe will have to make some adjustments there if I ever want to retire.

Maybe I just need some MF'ers to beat into me the need to stop being a whatever and spend less money

Re: What are your budgeting rules?

iced — Wed, 12 May 2021 13:10:38 GMT

The advice you get is going to depend on what person you ask. There's people on this forum who subscribe to a YOLO and would rather have $1 million in credit limits with no savings than no credit cards and $1 million in savings. I've had people tell me I'm saving an obscene amount each month and others tell me I'm wasting money I should be saving.

As for me, I realized about a year ago my rules have stopped being rules and are really just habits at this point. Perhaps the one dominating rule left is that I still treat all savings as monthly obligations so they come out before any money ever hits the checking account. The reality is we're putting so much in savings that my take-home paycheck covers the mortgage with a little bit left over for food. Pretty much everything else comes out of savings/investments. That might sound dangerous, but it's really not, though I think the nuances of what all is happening behind the scenes financially there is a topic for a different thread.

I still have an account labeled 'emergency savings' that we almost never touch, but it's just a label as I'm at the point in my life financially where there isn't a concept of an emergency that comes from there. If I'm paying medical bills, car and home repairs, and other types of expenses out of checking or other savings the same as I am vacations or new furniture, is it really emergency savings anymore?

For your plans, if the savings is liquid, it's not a big deal to tap it for things like travel. I think the answer you're really looking when do you stop tapping it, and that is going to depend on your long-term plans and goals.

As for some of your other questions:

1. Do I consider contributions to HSA/401k/IRA part of my larger savings 'budget'? Yes, but I also make it a clear point that it's not anywhere near all of my savings contributions, because in the case of most of it, I'm either not going to touch it for another 25+ years (and for some accounts, I have no plans to touch it in my lifetime at all) For the purposes of ratios, I'd guess around 20% from my paycheck and 25% from my SO's check goes to these tax advantaged accounts, but an exact number is hard to put because they all cap before the end of the year so my contribution in January is different than my contribution in December. On top of that, I'm also maxing my ESPP (which is a form of savings) and contributing nearly 100% of bonuses into after-tax brokerages.

2. How do we budget travel? Well, that bonus income going into brokerages adds up, those ESPP contributions add up, and over the years we've established a value stock portfolio in those brokerages that's paying us 5 figures in dividends annually that either goes back into new growth/value investments or is used as supplemental income for things like vacations.

Re: What are your budgeting rules?

sxa001 — Wed, 12 May 2021 17:01:08 GMT

@iced wrote:
The advice you get is going to depend on what person you ask. There's people on this forum who subscribe to a YOLO and would rather have $1 million in credit limits with no savings than no credit cards and $1 million in savings. I've had people tell me I'm saving an obscene amount each month and others tell me I'm wasting money I should be saving.

I still have an account labeled 'emergency savings' that we almost never touch, but it's just a label as I'm at the point in my life financially where there isn't a concept of an emergency that comes from there. If I'm paying medical bills, car and home repairs, and other types of expenses out of checking or other savings the same as I am vacations or new furniture, is it really emergency savings anymore?

For your plans, if the savings is liquid, it's not a big deal to tap it for things like travel. I think the answer you're really looking when do you stop tapping it, and that is going to depend on your long-term plans and goals.

As for some of your other questions:

1. Do I consider contributions to HSA/401k/IRA part of my larger savings 'budget'? Yes, but I also make it a clear point that it's not anywhere near all of my savings contributions, because in the case of most of it, I'm either not going to touch it for another 25+ years (and for some accounts, I have no plans to touch it in my lifetime at all) For the purposes of ratios, I'd guess around 20% from my paycheck and 25% from my SO's check goes to these tax advantaged accounts, but an exact number is hard to put because they all cap before the end of the year so my contribution in January is different than my contribution in December. On top of that, I'm also maxing my ESPP (which is a form of savings) and contributing nearly 100% of bonuses into after-tax brokerages.

2. How do we budget travel? Well, that bonus income going into brokerages adds up, those ESPP contributions add up, and over the years we've established a value stock portfolio in those brokerages that's paying us 5 figures in dividends annually that either goes back into new growth/value investments or is used as supplemental income for things like vacations.

I appreciate the feedback, this is an area that I tend to overthink a bit. You are right about hearing different things from different people, years of hearing from a friend of mine who subscribes to the very strict Dave Ramsey type of living but also digging myself out of the living pay check to paycheck situation (as described in a rebuilding thread I posted here last year), I have constantly been working to find a common ground.

It's all about priorities for sure and goals. We tend to not think too much about retirement when it feels so long away and let's face reality, I may not be making the same salary I make now forever. I am good about finding ways to spend money, I have always liked shopping. I made some pretty major changes last year as we were heavily focused on buying a house, the pandemic helped curb some of the spending as well.

Probably am re-hashings things I have said in other threads. My wife and I chatted about things last night and I think we came up with a solid plan with the goal being able to continue padding the savings account to get back to where it was before we bought the house and beyond.

I do like the idea of a separate emergency bank account. I started going down the path of having different accounts, but haven't fully done that. My wife and I have two joint accounts, basically our pre-marriage accounts and I was added to her primary and she was added to my primary. We have a pretty good system of what comes out of what account. We have talked about combining into a single checking to simplify things. I am using one Credit Union account for what I am calling "Car Savings", basically taking what we had been paying as a car payment, I suppose I could use this money towards car repairs, but the intent is that when we do need a "new" car we will be able to put a fairly significant downpayment down or pay in cash.

I have another account I have been depositing cash back and various checks into (things like refunds, etc). I haven't decided if I want to treat this as fun money or not.

That is great that your investments are working so well for you, I guess that is one area I haven't really dived into. I have the 401k and a tiny tiny bit of crypto and a play account with Robinhood. I have thought about getting an investment advisor but I don't think I have enough that I would want to put into the market right now to really make it worth it.

I agree budgeting/saving is a very personal thing, I guess I was mostly wondering if the 50/20/30 rule worked in real life, at the same time, and my wife and I talked about this, if we aren't feeling a tiny bit of pain than we aren't saving enough.

Re: What are your budgeting rules?

Anonymous — Wed, 12 May 2021 17:41:15 GMT

My budgeting rules are pretty simple. $300 a month into the ABLE account (this works out to roughly 20% of my income) which gets paid before anything else. Once I pay everything else off for the month, I transfer whatever is left into my ABLE account as well. Most months I end up putting about $500 away. Since I opened the account last July, I have $3900 in there and I have additionally put $1500 in my savings accounts. I don't let myself touch the money in the ABLE account and savings accounts can be dipped into but have to reimbursed the next month. My goal is to have $7500 between ABLE and my savings accounts at the end of the year and I'm on track to hit that.

Re: What are your budgeting rules?

babygirl1256 — Wed, 12 May 2021 18:07:52 GMT

@Anonymous great budgeting . . . keep up the good work!

Re: What are your budgeting rules?

Sandman771 — Wed, 12 May 2021 18:16:01 GMT

I net about $3500/mo from my teaching job. So out of each paycheck I put $50 in brokerage account, $50 of stock in DRP account (first check is Coke the second is Exxon both pay a nice dividend). and I once per month in my non-rent paycheck cycle open a 6 month CD at Navy. Trying to get a 6-month ladder going there up to $1000 coming due each month (6 months of $1000/month emergency income is ok. And my Uber money goes straight to debt management reduction.

Re: What are your budgeting rules?

iced — Wed, 12 May 2021 18:27:10 GMT

@sxa001 wrote:
I appreciate the feedback, this is an area that I tend to overthink a bit. You are right about hearing different things from different people, years of hearing from a friend of mine who subscribes to the very strict Dave Ramsey type of living but also digging myself out of the living pay check to paycheck situation (as described in a rebuilding thread I posted here last year), I have constantly been working to find a common ground.

It's all about priorities for sure and goals. We tend to not think too much about retirement when it feels so long away and let's face reality, I may not be making the same salary I make now forever. I am good about finding ways to spend money, I have always liked shopping. I made some pretty major changes last year as we were heavily focused on buying a house, the pandemic helped curb some of the spending as well.

Probably am re-hashings things I have said in other threads. My wife and I chatted about things last night and I think we came up with a solid plan with the goal being able to continue padding the savings account to get back to where it was before we bought the house and beyond.

I do like the idea of a separate emergency bank account. I started going down the path of having different accounts, but haven't fully done that. My wife and I have two joint accounts, basically our pre-marriage accounts and I was added to her primary and she was added to my primary. We have a pretty good system of what comes out of what account. We have talked about combining into a single checking to simplify things. I am using one Credit Union account for what I am calling "Car Savings", basically taking what we had been paying as a car payment, I suppose I could use this money towards car repairs, but the intent is that when we do need a "new" car we will be able to put a fairly significant downpayment down or pay in cash.

I have another account I have been depositing cash back and various checks into (things like refunds, etc). I haven't decided if I want to treat this as fun money or not.

That is great that your investments are working so well for you, I guess that is one area I haven't really dived into. I have the 401k and a tiny tiny bit of crypto and a play account with Robinhood. I have thought about getting an investment advisor but I don't think I have enough that I would want to put into the market right now to really make it worth it.

I agree budgeting/saving is a very personal thing, I guess I was mostly wondering if the 50/20/30 rule worked in real life, at the same time, and my wife and I talked about this, if we aren't feeling a tiny bit of pain than we aren't saving enough.

Separate vs. Joint is another topic altogether. We're mostly separate, though convenience and necessity have created a few joint accounts after 5 years of marriage:

- Checking: 1 joint (that we opened because it was free with the mortgage) and 3 separate

- Savings: 1 joint (the 'emergency' that's also used as a money mover between separate savings) and 4 separate

- Brokerages: 4 separate

The brokerages are the workhorses. They contain more than all of our retirement accounts combined, and also why at this point budgeting has gone different for us.

A different/better way to look at my situation is that checking accounts are short term money stores (immediate, under 30 days), savings accounts are medium term money stores plus emergency (2-12 months + emergency), and brokerages are long term money stores. Something like buying a house will trigger liquidation of stocks in brokerages with the money moved to savings, then to checking when it comes time to send the bank wire. Something like a car or vacation would trigger liquidation in savings accounts (if checking can't cover it) with slow replenishment from checking and brokerages as money comes in, and things like the electric bill or mortgage payment come from checking as they're always on the horizon.

Re: What are your budgeting rules?

sxa001 — Wed, 12 May 2021 20:13:23 GMT

@iced wrote:
A different/better way to look at my situation is that checking accounts are short term money stores (immediate, under 30 days), savings accounts are medium term money stores plus emergency (2-12 months + emergency), and brokerages are long term money stores. Something like buying a house will trigger liquidation of stocks in brokerages with the money moved to savings, then to checking when it comes time to send the bank wire. Something like a car or vacation would trigger liquidation in savings accounts (if checking can't cover it) with slow replenishment from checking and brokerages as money comes in, and things like the electric bill or mortgage payment come from checking as they're always on the horizon.

I think that is the thing that we need to work out, because right now we have a decent chunk of change in checking that isn't doing us any good. I have been working to move more money into savings so we don't have so much sitting in checking not earning any interest. It is a pain to constantly be looking for best savings rates but I need to do better with that as well.

Re: What are your budgeting rules?

babygirl1256 — Wed, 12 May 2021 20:49:21 GMT

@Sandman771 Great budgeting . . .

Re: What are your budgeting rules?

Revelate — Fri, 14 May 2021 00:04:15 GMT

Honestly see if you can max out the 401Ks. You are wasting money in taxes in your combined bracket. If you can save 38K per year and have an emergency cash fund I wouldn't be so hardcore about budgeting if were you.

Admittedly I am bleeding cash all over America literally right now but I will sort that before my checking account hits zero so I'll get through it. Now if it weren't for the paper losses in the market where iced was once again correct, taxes on it would have been cheaper and boy would I like to get in again now but live and learn... well still not actually feeling financial pain but I am not sure I could just walk away from my income anymore.

Re: What are your budgeting rules?

tacpoly — Sun, 16 May 2021 18:03:36 GMT

I keep it simple: I decide how much I want to save for the year outside of retirement contributions which are always maxed out (saves a lot in taxes). I calculate how much I need to save per paycheck to reach my goal, then live off the remaining. I usually find that I have funds left over so those go into savings (all savings get invested except for the emergency fund that I keep liquid). Savings rate outside retirement is around 30% of gross.

Re: What are your budgeting rules?

KLEXH25 — Sun, 16 May 2021 03:22:57 GMT

If I were to describe my budgeting rules, it would be to pay bills first, then pay myself (savings), and whatever is left over is for spend. My 401k is automatically deducted from my paycheck pre-taxes, so I don't count that as savings. I'm currently puting away 6%, plus a 3% match from my employer. I plan on increasing this, but I still haven't gotten the raise I was promised this year, so I guess we'll see when that happens.

For every paycheck, I've calculated how much needs to be deducted for that month's bills (about 42.5%), then I save about 25% toward various things (emergency, wedding, Christmas/birthdays), and the balance goes towards food, entertainment, etc. My car payment currently counts as a bill, but once I pay that off, I plan to put that money towards savings (for car repairs or next car) since it's money I won't "miss." I would really like to purchase a home in the next year or two, but we still need to figure out what we are doing wedding wise. All of that got put on hold during the pandemic. Hopefully we can keep it small so we can prioritize home buying. The next step I'd also like to take is saving more for retirement, such as increasing 401k contributions and perhaps maxing out a Roth IRA every year (which I have yet to do). There's only so much money to go around though.

Re: What are your budgeting rules?

Slabenstein — Sun, 16 May 2021 15:51:54 GMT

Our financial situation unfortunately doesn't have room for anything like investing extra income or maxing 401k's, but I use a method that has worked well for us and has helped us make good progress this year towards our main financial goal of paying down the principal on my spouse's student loans. Our budget is on a per-pay-period cycle, which for my spouse is every two weeks, and 401k contrib ofc comes out automatically. I did 10% + match in the past, though for the last year I've been a homemaker, and I believe my spouse does their contrib + match = 10%. (One of our goals is to be able to increase this to contrib + match = 20%.) We also immediately transfer 10% of take-home to savings each payday. For the rest, I do it mostly on scratch paper (physical & electronic), and the first component is just a paper ledger for our main checking account that I keep in parallel to the bank's website so that I have our effective balance, including transactions that haven't yet posted. The second is an open Microsoft Sticky Note with five lines:

1) Current checking ledger effective balance

2) Minus checking ledger effective balance at the end of the day before the most recent payday

3) Minus bills to be paid with this pay period's money

4) Minus current balances across all credit cards

5) Equals current available balance for all other remaining spending this pay period

The sticky note is updated any day there's spend, the paper ledger whenever there's a new transaction on the checking account. If line 2 gets large most of it is transferred to savings, but it can also be used for unplanned expenses like car repair or medical bills. Most incoming money outside of the regular paycheck is also transferred to savings. This method has really helped us stay on top of things this year, I think in part b/c it limits our spending to the amount of the current paycheck and takes savings and necessary bills off the top immediately. I've actually been surprised at how well it's worked, especially since we didn't do any kind of dialed down analysis of our spending by category, or anything like that. The goal when we started it was just to keep spending within the bounds of our covid single income, but we've actually saved about $20k over the last year, not counting another $20k+ of SL payoffs. In prior years w/ both of us working we haven't done much better than having a few grand in emergency savings while making all monthly SL payments on time.

I've looked at the 50/30/20 method and hopefully our proportions will look more like that in the future, but with our current situation and goals it wouldn't make sense. If student loan payments are part of the "needs" portion, then for us it has to be higher than 50% if we want to rent somewhere safe & livable. Similarly, if extra payments to debts count as part of the "savings" slice, then we have to set that higher than 20% to reduce our monthly SL obligations in the way that we want to. We're both capable of living pretty simply, and most months since last March we've only spent a few hundred on "wants" (depending on how you define it, I guess), so it has balanced out in the end. Our plan now is for me to go back to work and apply that income exclusively to SLs through the end of the year, which, combined with refi'ing my spouse's last and largest private loan, should put us in a position to re-evaluate and maybe come up with updated budgeting rules that help us enjoy what these have let us accomplish.

Re: What are your budgeting rules?

SOGGIE — Fri, 18 Jun 2021 14:42:07 GMT

@sxa001 wrote:

Maybe I just need some MF'ers to beat into me the need to stop being a whatever and spend less money

My Sensible Spending Habits to Save Money:

-Set a monthly budget

-Monitor all monthly spending.

-Pay debts when billing statements cut, not close to due dates.
-No unnecessary spending.
-No lending of money or cash equivalents.
-Utilize promo offers and coupons for online and offline purchases, travel, and dining out.
-Bargain shop (grocery outlets, thrift stores, variety stores, dollar stores, and other bargain stores).
-Periodically comparison shop for affordable debts (insurance, utilities, etc.).
-Pay debts during discounted periods (Property insurance, etc.).
-Shop in advance to get the best deals (free shipping, lower costs).
-Bulk order household necessities.
-Perform tasks on my own to avoid paying others (lawn care, snow removal, minor home and vehicle repairs and maintenance, etc.).