Budget Help please

[sue]

Hello... hoping someone can give me some advice on budgeting and what to do with the small raise I've recently received. Here are the monthly numbers:

average net income (after taxes, health insurance, etc.): $1,842

expenses:
mortgage $312.68
natural gas/electric $175
cable/tv/internet/land line $$116.80
school lunch $50
car insurance (full coverage currently) $70.50
cell $82.38
SBA loan $72
water/garbage $55
food/gas/misc. $500
savings $375
TOTAL: $1809.36

assets/liabilities/interest:
home $48,000/$25,664/5.95%
car ~$6,500/0/0
SBA loan 0/$8,195/2.875%
Student loans 0/$19,500/5.6-6.8%
retirement (state retirement system) $28,687 (automatic 6% deduction from paycheck)
supplemental retirement (457) $1,578 ($100/month contribution)
EF#1 $1,000
EF#2 $5,557
other savings (birthdays/xmas) $150

I've recently received a small raise that amounts to right around $100/month. I'm considering upping my 457, but not quite sure considering the student loans. They are currently still in deferment since I will not graduate until May this year with a BS in Business Management. I will stay with my current employer but am transitioning to different job duties which will eventually mean a reclassification and more money, not sure how much though. I also have 2 children, a dd17 (currently living with dad) and ds10 (living with me). I am 38. I think that covers everything??

So... where am I headed in the right direction, where am I off? Thanks for your help!

[The J]

The 6.8% student loans would be my next target. I'd also look into possibly refinancing the mortgage, since rates are lower.

[The Walk of the Penguin Mich]

Are the student loans in deferment? I don't see any SL payments in your list. That's one of your higher interest rate, you probably want to throw the extra money at that.

[phil5185]

Maybe you can refi the house at <5% and also take out about $12,000 - use the $12,000 of <5% money to lower the $19,000 of 6.8% money. The extra $12k at 5% adds $64/m to the mortgage. A $38k mortgage at 5% is $204/m.

Your 457 contribution is about 4% - is there a 'match' in your employer's plan? If so, you would want increase your % enough to capture all of the free money.

[sue]

@ mich1, yes they are currently still in deferment, from what I understand until the end of 2011.

@ phil... hadn't thought of that, I like it and will talk to my bank tomorrow to see what's all involved in a refi, thanks for your thoughts. No, my employer does not match anything on the 457. They do match 100% of the 6% that's automatically deducted for the state retirement system, I just started the 457 a little over a year ago because I feel way behind on retirement savings.

Thanks... if anyone has any more thoughts, keep 'em coming, I appreciate the input.

[yhw]

Ditto what Phil said.
Also, because your budget is so tight, I would re-evaluate your cable/phone/internet. Can you shave off a little somewhere, even $20?

The $500 on food/gas/misc is suspiciously vague. (It seems like it might not be a 'real' number) Can you track this closer to get a better idea of what exactly you're spending and where. I bet you could find a little more to shave.. In your tight budget, even $50 goes a long ways.

$80 for a cell might be a little high. Unless that also covers your DD or DS plans.

[sue]

I did just shave off $13 off the cable/phone/internet lol. The $500... yeah, it's vague, I am working on that. Gas is ~$80, groceries/house hold stuff/pet ~$300 and the rest is entertainment/eating out/school fundraisers etc. The $500 is cash, so I'm not going over, but I do need to nail it down better as to where exactly it goes. The cell is for mine only, cheapest plan that included unlimited texting... long story, but it's the only means of communication I have with dd17 right now so not negotiable in my eyes despite the cost. My plan will run out in 7 months and I will shop around for a cheaper plan/provider then. But, good point on the $500, thanks.

[Nazgul Girl]

The interest on your student loans is tax deductible, so that might make a difference in what you would do next. I would push the $ 100 extra into your emergency funds first, until you had at least $10,000 saved up, and then I would proceed to put it in the retirement savings after that. I would try to pay down student loans, etc. with any extra money I could save each month from the miscellaneous $500. In fact, I would give myself $100 per week, and put the other $100 in an envelope. At the end of the month, I would apply it to either my student loan or save it to use toward the refinancing costs of the mortgage. I think Phil has an excellent idea there.

[haapai]

Your budget looks pretty wholesome until you consider the student loans and the fact that your car is paid off. Once the loans enter repayment, your ability to save will be severely curtailed. Having your car paid off is great, but repairing or replacing it five years from now may be quite difficult on the budget that you have described.

There's no reason for your student loan payments to be a mystery, especially with a business degree. You have the ability to figure out your payments within the dollar and the exact date at which repayment will begin. (Using back-of-the envelope methods, I'd estimate payments of about $220 a month for 10-year repayment starting in January 2012 but you can get more exact.) Finaid.org is an excellent site for details. FWIW, I'd recommend paying the interest on your unsubsidized loans when you get quarterly statements. It grabs you an immediate student loan interest deduction (assuming that you're not filing married filing separately) and makes planning for the student loan payments much simpler. (That is, since you're paying the interest, you don't have to build a spreadsheet calculating what the balance will be when you enter repayment.)

In short, one year from now, your ability to save will be cut in half and one half of that disappears when you consider depreciation on the car.

[sue]

I'm not sure how you got the impression my student loan payments were a mystery, my apologies if I came across that way. Was it the part about upping my 457 but not being sure because of the loans? If so, I should clarify... I'm not sure if I should up it or put more away into savings now. Like you said, my ability to save will be greatly affected when the loans come due in a year and while I expect to be earning more by then, I'm hesitant to count on money I am not guaranteed to earn. Does that make more sense?


All of my loans are subsidized, so no, I haven't been making any interest payments.

[haapai]

Jan 3, 2011 23:06:14 GMT -5 @sue said:

I'm not sure how you got the impression my student loan payments were a mystery

I was probably projecting my own foolishness onto you. If they're all subsidized, that really simplifies things.

Are property taxes and insurance in that mortgage figure?

When you spoke of an average monthly take home, was that two, normal, biweekly paychecks, without any mileage or other oddities, or a twelfth of your annual net?

[Clifford]

I know you said you would stay with your current employer, but looking at the income side of the equation - would you consider a new job? Getting the degree must impact the income, or it is taking on debt for nothing (unless you just really wanted to learn more about business and spent 30K to do so). When I graduated once, the current employer just said "good job". I did not realize any benefit until I used the degree to get a better job. Looks like your loan balance will be just short of your current annual salary. Is a local job upgrade possible?

[sue]

"Are property taxes and insurance in that mortgage figure?"
They are.

"When you spoke of an average monthly take home, was that two, normal, biweekly paychecks, without any mileage or other oddities, or a twelfth of your annual net?"
1/12. Some months I make more, some less, so some months I put more into savings, some months less. I get paid once a month, no oddities.

[sue]

"I know you said you would stay with your current employer, but looking at the income side of the equation - would you consider a new job?"
I would... BUT (you knew that was coming lol)... I live small town Midwest, not a lot of jobs in the area. I've considered relocating, but for now, it's a great place to raise my son, he has family and friends here.

"Getting the degree must impact the income, or it is taking on debt for nothing (unless you just really wanted to learn more about business and spent 30K to do so)."
Only $19.5k ... no, I get your point, the impact may just be delayed for a few more years.

"Looks like your loan balance will be just short of your current annual salary. Is a local job upgrade possible?"
That's actually what I'm hoping for... I'm being cross trained for HR/Payroll now, hence the small bump in pay. As I take on more responsibilities, I will get more increases. Our current HR will retire in 3 to 4 years... ideally, I will be appointed to her position at that time and there's a very good chance that this will happen. It would allow me to continue staying in this community and make decent money. If it doesn't... I will definitely reconsider relocating.

[haapai]

Blast! I was really hoping that the income figure that you were using was a sum of paychecks figure that underestimated your net income by about eight or nine percent. Those "extra" paychecks cover a whole lot of irregular expenses and without them, you're going to have to do some extra saving and planning.

I don't think the $100-$200 a month that you'll have left over after the student loans enter repayment is going to be enough and I agree with what you said about not wanting to count on income that has not materialized yet.

Has Phil been here yet to explain Pareto analysis? It's basically a process where you list every single expense/outgo and then rank them by size. Then you start considering changes at the top of the list, where changes will make a big difference, instead of at the bottom, where the changes are easier and less painful, but don't add up to much.

You might benefit by conducting such an analysis.

[sue]

"Blast! I was really hoping that the income figure that you were using was a sum of paychecks figure that underestimated your net income by about eight or nine percent."
Afraid not, my income really does suck that badly lol.

"Has Phil been here yet to explain Pareto analysis?"
Nope... honestly... never heard of it... will do some research on it though, thanks.

[quotequeen]

Jan 5, 2011 17:27:04 GMT -5 @sue said:

"Has Phil been here yet to explain Pareto analysis?"
Nope... honestly... never heard of it... will do some research on it though, thanks.

That will bring up a lot of irrelevant stuff and probably just confuse you. When people post this here they just mean that you should look at the big items on which you can make the most difference, such as transportation, and not spend all your time worrying about buying a cup of coffee here or there.

[sue]

Whoo hooo... cliff notes... thanks, quota queen.

[The Captain]

Sue,

First off, congratulations on not overextending yourself and working to keep finances under control. Phil's advice to convet debt to the lowest interest rate possible is a good one.

Given how well you've managed everything else I'd try to break down the food/gas/misc a bit more and see if you can shave a few hundred there. It seems it's just you and your son at home and depending on how much gas costs there may be room there.

Also, is there any child support you're not considering? Finally with the new degree have you priced what you're truly worth on the market?

[quotequeen]

Jan 5, 2011 17:37:00 GMT -5 @sue said:

Whoo hooo... cliff notes... thanks, quota queen.

Phil also recommends that you do the yearly budget based on gross income and include the amount you are paying in taxes, because that is something that you can control to a degree though 401k contributions (in particular).

[sue]

"Also, is there any child support you're not considering?"
Nope... he's got one, I've got one...ex does owe arrears, but... well, if he was paying, there wouldn't be arrears lol.

"Finally with the new degree have you priced what you're truly worth on the market?"
In my area, about $32-35k, entry level.

[sue]

"Phil also recommends that you do the yearly budget based on gross income and include the amount you are paying in taxes, because that is something that you can control to a degree though 401k contributions (in particular)."

I'm assuming by increasing contributions to lower taxes? I'm afraid there isn't enough to throw at retirement to make a significant difference... will keep that in mind though, thanks

[haapai]

Here's a clip of Phil talking about Pareto analysis.

Agreed. Pareto had some ideas on this in the late 1800's. To do a Pareto Analysis you list your annual gross expenses (include income taxes, SS tax, etc) and verify that the list sums to your annual gross pay. Then do a 'sort' in descending order. The 'significant few' will be at the top and the 'insignificant many' will be below. Usually Pareto's 80/20 Rule works - ie, 20% of the items is 80% of your costs. If you are making $50,000 and your daily latte is $750, cutting out the latte is almost no help.

Conversely, transportation costs for 2 cars is about $16,000 (depreciation, gas, insurance, license). That is an easy one - buy cars that have already depreciated, ie, cut the $16,000 to $10,000. Or if your rent is $14,000, even a 20% reduction may be life changing. And you can have all the lattes you want.

I've ripped it from moneycentral.msn.com/community/message/thread.asp?threadid=1585226&post=1585226&boardname=Hide&header=SearchOnly&footer=Show&linktarget=_parent&pagestyle=money1&boardsparam=Page%3d1&board=YourMoney

You may find some of the numbers alienating and dislike the scorn heaped on money-saving practices that you might actually be practicing. But I honestly think that shaking up your basic numbers and looking at them in a different way may be helpful.

[haapai]

Thank Phil.

[phil5185]

Do people get into debt $5 coffee at a time, or by overpaying for monthly, fixed bills such as rent/mortgage/car loans?

Cutting a $1000/yr coffee habit can't fix a $20,000 credit card loan. But halving both a $500 car payment ($6000/yr) and a $2500 house payment ($30,000/yr) can knock it down before next xmas.