topic Re: How do you rate? like my monthly budget? in General Credit Topics

How do you rate? like my monthly budget?

Anonymous — Thu, 30 Dec 2010 21:38:45 GMT

Hi all,

Let me start by saying I got some really good advise about an auto financing decision from these forums last night. I agreed with some of the points and disagreed with some as well, but some of the knowledge shared really opened my eyes.

I did notice that the community on these forums is from a diverse financial background and history some good some bad, and geographical locations vary as well so we might have some conflicting understandings of certain figures such as how much is acceptable rent based on where you are located or age. I also think we have a much more mature croud here so alot of the thinking tends to be toward the long term goal of retirement, for some thats sooner than others.

So I came up with a potential budget for 2011. Keep in mind my goal is not an 850 FICO yet even though that would be nice :-) I would still be happy with maintaining a FICO 700 and some modest savings and a comfortable living situation for myself too. I work very hard so I believe in rewarding myself.

I have included my budget below. I am 26 and single. No credit card payments. Not saving for a mortgage yet. Located in Canada.

I also recieve annual bonuses and sometimes some freelance work, but that amount is always variable each year and has been excluded from my budget.

This is not a budget I would follow at an older stage in my life, so do consider that, this is relative to my current living situation and financial obligations.

Some people felt maybe 1000 a month was too much for a car, I like to think that depends, some people might enjoy dinning out or yearly vacations, so it makes sense to have such items as priorities in their budget. I on the other hand am a car enthusiast so I rather spend towards that particular interest instead.

Budget Monthly

Rent	1300
Car (60 months)	1000
Gas	100
Parking	100
Insurance	275
TFSA & Savings (10% of net)	450
Cell	75
Cable	75
OSAP Student Loan	125
Food & Groceries	200
	3700

Salary	55100
Taxes	10666
Net	44434

I would like to invite you all to give your take on it or maybe rate from 1 - 10. Conservatives or Liberals all welcome ...

thnx.

Re: How do you rate? like my monthly budget?

MarineVietVet — Thu, 30 Dec 2010 21:01:12 GMT

I did notice one thing. Your projected monthly expenses of $3,700 X 12= $44,400. Your projected net income is $44,434.

Don't you think that's cutting it a little too close? There are always unexpected expenses in life.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: How do you rate? like my monthly budget?

Anonymous — Thu, 30 Dec 2010 21:12:14 GMT

Liz Pulliam Weston has a great article on the 50/30/20 budget (as outlined in "All Your Worth: The Ultimate Lifetime Money Plan," written by Harvard bankruptcy professor Elizabeth Warren). She includes a calculator where you can plug in your numbers to see how you line up with the 50/30/20 budget.

The 50/30/20 plan recommends no more than 50% of your take home for musts; your wants can take up to 30%; and savings and debt repayment take up the last 20%. I may not have your numbers exactly right - you'll want to do it yourself; but the budget you outlined comes up with 86% for musts; wants at 2%; and savings and debt repayment at 12%. So it's 36% high on musts; and 8% low on savings and debt repayment. And a lot of wants i.e. clothing, gifts, eating out are missing altogether.

There's a lot of good resources online on setting up a budget. Hope this is a little helpful!

Re: How do you rate? like my monthly budget?

llecs — Fri, 31 Dec 2010 00:46:08 GMT

I agree, there's a lot of missing stuff. You mentioned Canada, so I don't know if you are comparing Canadian dollars here or American, but note the following:

Car - $1000 is toooo high. I understand your love for cars and am planning on collecting myself one day, but you should pay cash first or you should have thrown a larger down payment first. You'll stuck with a ball and chain for 5 years at over 25% of your take home pay. That's too much. I suggest paying it off an be done with it. If you are an enthusiast as you say you are, then you know you'll have to fork out much more than that to keep up with the hobby.

Gas - I have to assume that it's not an economy car at $1000/mo. Assuming you aren't driving all the time to work, I think your $100 is way too low. I also see $4/gallon USD gas in the near future. Oil is approaching record highs once again and if you are really only spending $100, you should at least bump it by 25% to cover that added cost.

Savings - too low! You need to save a minimum of 25% of your gross pay. In the US, social security (6.2% of gross) can be factored into that, but less than 10% of your gross now is too low. If investing and retirement one day is important, you should start saving now. And start with 6 months worth of expenses in savings before investing.

Food - Way too low! That's less than $7/day for food. You can't prepare a health meal for $7/day.

Missing items - you should probably include the following (beamMEup got me thinking):

Car maintenance - If you are serious about your hobby, then know that it'll cost money to maintain it. You should at least include money for repairs, new tires, new brakes, oil changes, new parts, and so on. If this is a luxury car or more of a car than just driving from point A to point B, then you already know that it costs extra to maintain it.

Clothes - mentioned already. You should probably include that. I like nice threads, but also remember being single at one point and not caring as much. A 3y.o pair of sneakers on a new date probably won't win anyone over. Also, if you ever have to dress up for a date, biz appointment, God forbid a funeral, or whatever, you should probably throw in extra for dry cleaning.

Utilities not covered - any?

Dating - costs money!

Maintenance of other stuff - things break down like electronics, computers, etc.

Internet subscriptions - Free now? If anything budget for your FICO reports.

Gifts - someone who cares about you may not be too happy come gift time if you aren't spending any on gifts.

Miscellaneous - We all have it....furnishings, coffee out, surprise expenses, broken this or that, administrative fees (e.g. license, property taxes, vehicle registration), hair cuts, hobbies, work-related expenses, medical costs not covered by insurance, travel costs, and so on. You should factor in extra for these. In fact, I bet if you go through your statements or checkbook, you'll see stuff in there not listed above. A $34 per year window isn't enough, IMO.

ETA....and I'll also throw in that there's nothing wrong with a $1000 car payment so as long as you have the savings and income to back it up. I think you should reconsider and factor in the above and figure out a way to increase your income to accomodate everything. Just out-earn your expense problem and it'll be ok.

Re: How do you rate? like my monthly budget?

Anonymous — Fri, 31 Dec 2010 02:13:36 GMT

thanks for the feedback guys, @ llecs i really did forget some stuff like the haircuts lol, so yeah i guess im so excited about getting this new car that im starting to forget the basics and essentials. not that it matters but by single i meant (not married) i do have a girlfriend but she is not as demanding, well for now atleast lol.

*the budget is in canadian dollars.

i will be doing major revisions to the budget once again. thnx all

Re: How do you rate? like my monthly budget?

sleephla541 — Sun, 02 Jan 2011 15:16:40 GMT

Thank you soooo much, beamMEup for opening my eyes to this article about 50/30/20 by Pulliam-Weston. Because of these amazing myfico boards, my credit score is almost exactly where I want it to be. Now I'm going to be able to actually balance my money as I've always wanted to as well.

I really appreciate it - and the content on these boards. It's nothing short of amazing.

Re: How do you rate? like my monthly budget?

Anonymous — Sun, 02 Jan 2011 20:32:57 GMT

Libery, What knd of car do you own? Also, what was the price you paid for it as well as the interest rate you received. This may help to determine if the $1000 / month is worth it (even though it's too late at this point though).

Re: How do you rate? like my monthly budget?

Anonymous — Tue, 04 Jan 2011 21:46:35 GMT

@Anonymous wrote:
Libery, What knd of car do you own? Also, what was the price you paid for it as well as the interest rate you received. This may help to determine if the $1000 / month is worth it (even though it's too late at this point though).

Well I have not made the purchase yet, I am still shopping around for the next 2 - 3 months. More interestingly this is my first purchase, I have been renting only when I needed upto now ... [hides behind the couch and waits for a dont buy expensive for your first car lecture :-P ... i kid]

Re: How do you rate? like my monthly budget?

Anonymous — Tue, 04 Jan 2011 22:16:39 GMT

@Anonymous wrote:

@Anonymous wrote:
Libery, What knd of car do you own? Also, what was the price you paid for it as well as the interest rate you received. This may help to determine if the $1000 / month is worth it (even though it's too late at this point though).
Well I have not made the purchase yet, I am still shopping around for the next 2 - 3 months. More interestingly this is my first purchase, I have been renting only when I needed upto now ... [hides behind the couch and waits for a dont buy expensive for your first car lecture :-P ... i kid]

No lecture needed as you already know!

What I see to be a factor is listing $100 a month for gas. Any type of car I can think of at the cost of $1000 a month is more then likely not some economic car that saves gas.

Considering you are still young and want something that is nice and cool and impressive I can relate to that. I can not relate to having a car note for $1000 and it just sitting parked. So at minimum I would change your gas expense to $217 a month which is considered $50 a week.

Then I have to look at food and groceries and say $200 a month to live on? Average day at minimal cost would be $10 and thats eating sparingly. So using $10 a day on a minimal average would average $304 a month.

That is an additional $221 a month to your budget. which will bring will cut into your savings.

The worst part of all this is you are trying to live on your entire salary and are not going to be able to enjoy anything. No money to have fun, no money for dates, no money for that TV that broke and needs to be replaced, the tires that need to be replaced on the car, the oil changes needed (any and all maintenance on vehicle) etc etc...

Then the worst thing that could possibly happen is you lose your job and or have cut backs and have to take a reduction in pay. You will have nothing to carry you over until you find another job and or additional work.

You really need to think this through and I believe you realize it is stretching it a little to much or you wouldn't be looking for opinions.

Whatever you decide I wish you the best.

Re: How do you rate? like my monthly budget?

Anonymous — Wed, 05 Jan 2011 01:58:08 GMT

thanks for the advise @JM-AM and as much as I hate to admit it, you are right, it really is a stretch of my budget and I am just going to have to settle for something a little cheaper or wait longer till i can save for a bigger diposit. Kudo's to you for beeing the first to aknowledge that as a yonger person, a cool car is more desirable, not financially sound, but still desireable none the less. thnx

Re: How do you rate? like my monthly budget?

Anonymous — Wed, 05 Jan 2011 04:51:47 GMT

liberty603 wrote: as a yonger person, a cool car is more desirable, not financially sound, but still desireable none the less. thnx

Meh. I've got six kids who drive. They define their coolness in means other than their cars. Not one of them would consider a pricey ride a "cool" purchase. Oh, wait - I take that back. I almost forgot - Our oldest is a bit stuck on this and he and his beautiful young wife both have cool cars. They are both working professionals, She recently emailed us asking us for an enormous loan because they cannot make ends meet. Sad but true. Our advice to them? Sell your cars and get more reasonable rides. His siblings haven't fallen into the same trap.

I have to hand it to you, liberty603, because you brought your "stuff" to the table and looked for insights and input. Very desirable traits, indeed. And cool. Nicely done.

Re: How do you rate? like my monthly budget?

MarineVietVet — Wed, 05 Jan 2011 05:38:38 GMT

@Anonymous wrote:
Meh. I've got six kids who drive. They define their coolness in means other than their cars. Not one of them would consider a pricey ride a "cool" purchase. Oh, wait - I take that back. I almost forgot - Our oldest is a bit stuck on this and he and his beautiful young wife both have cool cars. They are both working professionals, She recently emailed us asking us for an enormous loan because they cannot make ends meet. Sad but true. Our advice to them? Sell your cars and get more reasonable rides. His siblings haven't fallen into the same trap.

I have to hand it to you, liberty603, because you brought your "stuff" to the table and looked for insights and input. Very desirable traits, indeed. And cool. Nicely done.

A perfect response.

Re: How do you rate? like my monthly budget?

Anonymous — Wed, 05 Jan 2011 05:43:39 GMT

My goal is to buy a BMW M3 in early summer.... at the same time I would much rather have a house to park it at.

So every day I need to tell myself to just keep money in the bank and make a good decision later on down the road when I'm ready. I would however never have a $1000 monthly car payment, the only reason you would have that is if you were to put little to no money down. If you really want to buy a car, I would at least cover a 40% down payment. If it takes you more than a year to save up for a 40% down payment, then you probably should pick a more reasonable car for now or keep saving.

Most people I know finance everything and put themselves into a terrible position when they had to choice to bank some money instead of rushing into things. They live paycheck to paycheck and if anything were to happen to their job, they'd file bankruptcy. With the 40% down on a car (or so), you can at least protect that and get what you owe back out of it.

Re: How do you rate? like my monthly budget?

MattH — Thu, 06 Jan 2011 05:10:16 GMT

@Anonymous wrote:
Liz Pulliam Weston has a great article on the 50/30/20 budget (as outlined in "All Your Worth: The Ultimate Lifetime Money Plan," written by Harvard bankruptcy professor Elizabeth Warren). She includes a calculator where you can plug in your numbers to see how you line up with the 50/30/20 budget.

The 50/30/20 plan recommends no more than 50% of your take home for musts; your wants can take up to 30%; and savings and debt repayment take up the last 20%. I may not have your numbers exactly right - you'll want to do it yourself; but the budget you outlined comes up with 86% for musts; wants at 2%; and savings and debt repayment at 12%. So it's 36% high on musts; and 8% low on savings and debt repayment. And a lot of wants i.e. clothing, gifts, eating out are missing altogether.

There's a lot of good resources online on setting up a budget. Hope this is a little helpful!

+1 Liz has long struck me as one of the better personal-finance writers out there and that article is an excellent one.

Do you remember Rumsfeld's line about "known unknowns" versus "unknown unknowns" a few years ago? I don't much like the guy, but on this he had a point. In the world of budgeting, I think in terms of "expected unexpected" expenses versus "unexpected unexpected" expenses. For example, my car is 10 years old so about once every couple of years it requires me to spend over a thousand dollars at the garage. Most recently this happened in late November 2010. I cannot predict the next time this will happen, and it's a little annoying when it does, but so long as I have the cash keeping this car is a lot cheaper than getting a newer car would be (I wonder how many people find themselves forced to get a newer car not because a car purchase makes long-term sense but just because it's a lot easier to get financing to purchase a car than it is to get financing to fix the car you have!). Similarly, from time to time something at home needs fixing (A/C, furnace, dishwasher, stove, plumbing, etc). Again I cannot predict when the next such event will happen, but I would be astonished if 2011 does not have at least one sudden need for a home repair of some description. All of which means, in any month without such surprises there had better be a few hundred bucks of surplus, not part of the "savings" budget line but just to build up reserves towards the next surprise. Because expenses do fluctuate, I look at my numbers over longer periods of time: how does what my wife and I have in the bank and other investments right now compare to what we had five years ago? Divide that difference by five, and I get our true net saving over that span of time.

Also, the key principle behind that LPW article is: some expenses are a lot easier to cut on short notice if need arises. For instance, my wife and I like to eat out and we sometimes go to fairly expensive places. But should our finances suddenly get tighter, we could instantly stop eating out or at least switch to cheaper places. However, if I buy an expensive new car and then get into difficulty, that car payment would be much harder to reduce!

Re: How do you rate? like my monthly budget?

MattH — Thu, 06 Jan 2011 05:13:19 GMT

Cyan007 wrote:
My goal is to buy a BMW M3 in early summer.... at the same time I would much rather have a house to park it at.

So every day I need to tell myself to just keep money in the bank and make a good decision later on down the road when I'm ready. I would however never have a $1000 monthly car payment, the only reason you would have that is if you were to put little to no money down. If you really want to buy a car, I would at least cover a 40% down payment. If it takes you more than a year to save up for a 40% down payment, then you probably should pick a more reasonable car for now or keep saving.

Most people I know finance everything and put themselves into a terrible position when they had to choice to bank some money instead of rushing into things. They live paycheck to paycheck and if anything were to happen to their job, they'd file bankruptcy. With the 40% down on a car (or so), you can at least protect that and get what you owe back out of it.

Did you ever notice, the smaller the car in the TV ad, the bigger the house behind it?

Re: How do you rate? like my monthly budget?

Anonymous — Thu, 06 Jan 2011 20:25:31 GMT

@MattH wrote:

@Anonymous wrote:
My goal is to buy a BMW M3 in early summer.... at the same time I would much rather have a house to park it at.

So every day I need to tell myself to just keep money in the bank and make a good decision later on down the road when I'm ready. I would however never have a $1000 monthly car payment, the only reason you would have that is if you were to put little to no money down. If you really want to buy a car, I would at least cover a 40% down payment. If it takes you more than a year to save up for a 40% down payment, then you probably should pick a more reasonable car for now or keep saving.

Most people I know finance everything and put themselves into a terrible position when they had to choice to bank some money instead of rushing into things. They live paycheck to paycheck and if anything were to happen to their job, they'd file bankruptcy. With the 40% down on a car (or so), you can at least protect that and get what you owe back out of it.

Did you ever notice, the smaller the car in the TV ad, the bigger the house behind it?

Haha... I did notice that these commercials which show a million dollar+ house and the guy jumps up and down getting his hands on a KIA.... I chuckle at that.