Budget Fridays: Submission 1

budget

Budget Friday (Photo credit: 401K 2012)

It’s finally here. My first Budget Friday submission. For anyone wondering what this is all about, you can check out my original post and call to action here. Well, let’s get right to it!

 

Budget Background and Goals

They have been going through the Budgeting Basics Series here on iHB, and tracked their income and expenses for the month of June. I asked a few questions about their financial situation and what their goals were, and here’s what I know:

 

Credit Card Debt (Balances):

  1. Chase – $287.00
  2. BOA – $1,566.00
  3. JC Penney – $468.00
  4. Paypal – $747.00
  5. Other – $100.00

Other Debt (Balances)

  1. School – $2,500.00
  2. Truck Loan – $1,100.00
  3. Car Loan – $16,000.00
  4. Past Due Bill – $129.00 (gone after July)

Goals:

  1. Build $1,000.00 Emergency Fund
  2. Pay off truck by 4 months ($1,100.00)
  3. Vacation Savings in 3 months ($800.00)
  4. Pay off credit cards in 12 months ($3,168.00)

Here’s their budget submission, with my recommendations on the right, with comments on why I made the changes I did:

OLD NEW Comments
Starting Balance  $     429.00  $               –
Total Income  $  5,780.00  $  5,280.00
Total Expenses  $  5,386.00  $  5,280.00
Projected Ending Balance  $     823.00  $               –   A zero-based budget gives every dollar a name
Income
Check #1  $     590.00  $     590.00
Check #2  $     640.00  $     640.00
Check #3  $     600.00  $     600.00
Check #4  $  1,300.00  $  1,300.00
Check # 5  $     500.00  $     500.00
Check # 6  $     500.00  $               –   June had 7 checks, but a normal month will only have 6.
Check # 7  $  1,100.00  $  1,100.00
Other (Rent)  $     550.00  $     550.00
Total Income  $  5,780.00  $  5,280.00
Donations
Church Tithe $      429.00 They have expressed wanting to start tithing to their church. The word “tithe” literally means a tenth, so I recommend getting there if possible. Giving is never about the amount, though, it’s all about your heart and why you are giving. I put them at 8%, but they can make a choice as to what amount is laid on their heart by God.
Total Donations  $               –  $     429.00
Bills
Mortgage  $  1,400.00  $  1,400.00
Taxes
Home Insurance
Electric (PUD)  $        60.00 This is paid every 2 months. It’s typically around $120, so I suggest put $60 in a savings bucket each month so the money is there when the bill arrives.
Natural Gas (PSE)  $        34.00  $        34.00
Water/Sewer  $     170.00  $     170.00
Trash  $        30.00 This is paid every 3 months. It’s typically around $90, so I suggest put $30 in a savings bucket each month so the money is there when the bill arrives.
Cell Phone  $     200.00  $     180.00 They went over minutes last month, but typical bill is around $180. Both phones have data.
Cable  $        90.00  $        20.00 Cable is worthless! I wrote about this in “5 Ways to Stop Wasting Money Today“. I know it may be hard, but going to Limited Basic cable will save a TON of cash, and you’ll still have cable. Trust me, Netflix/Hulu has enough programming to keep you entertained.
Internet  $        45.00 Currently bundled with cable, but if they split it up and lower it, should be on $45 a   month for 3MB internet. That’s what I have, and it works great.
Student Loan 1  $     200.00  $     200.00
Credit Card 1 (Chase)  $        25.00  $          25.00
Credit Card 2 (BOA)  $        35.00  $        35.00
Car Payment 1  $     389.00  $     389.00
Car Payment 2  $     269.00  $     300.00 The balance on this truck is $1,100. They stated their goal of paying it off in 4   months, so $300 a month for 4 months should do the trick :). Then they have an extra $300 a month to put towards their CC payoff goal! WOOHOO!
Car Insurance  $     165.00  $     165.00
Medical  $        35.00  $        35.00
Netflix  $          9.00  $          9.00
Total Bills  $  3,021.00  $  3,052.00
Necessities
Food  $     240.00  $     300.00 I saw some notes about food money being grouped in the MISC category, so I would up this to $300. For 2 people, this should work well. If you’re having trouble staying on budget in the food category, give eMeals (<- affiliate link) a shot. They have saved us hundreds a   month already!
Gas  $     345.00  $     345.00
Date  $     100.00 This was grouped into the MISC category. I recommend a date a week. Two at-home (or ‘near-free’) dates, and two “going out” dates.
Spending Cash  $     100.00  $     100.00
Pets  $        50.00 This person has pets, but I did not see a line item in the spending for them. I would recommend having a line in the budget for them, because they cost money
Total Necessities  $     685.00  $     895.00
Other
Entertainment  $        50.00 I broke this out of the MISC category. I find it best to give your money an identity. $50 is a few movies, a carnival, or museum or two.
Restaurants  $        50.00 I would recommend doing away with this altogether and looping it into the Date or Food categories, but for the next few months, keep this here so you don’t get discouraged if you overspend on Date or Food.
Home Repair (Savings Bucket)  $        50.00 I recommend putting some money away for house repair/maintenance. Things come up, don’t be un-prepared.
Car Maintenance (Savings Bucket)  $     108.00  $        50.00 Same as above. Save up for tabs/emissions and regular oil changes. Regular car maintenance will save you thousands in car repair.
Gifts (Savings Bucket)  $        30.00 The MISC category had some gifts in it, so I recommend savings in a Savings Bucket
Misc  $  1,073.00  $     100.00 We’ve broken out this category, so hopefully naming your dollars will cut down on excess spending. I left $100 in here as a catch-all while getting used to the new budget.
EF Savings  $     320.00  $     100.00 Their goal is to save up an emergency fund within a year or so. I put this at the top of the goals list because having an emergency fund keeps you from blowing your budget due to unexpected circumstances. Normally I recommend having this in place before tackling any debt.
Vacation  $     300.00 Their goal is to go on a vacation in 3 months or so at a cost of about $800. I   aired on the side of caution and set this up to save $900 in 3 months. This was planned in advance, but normally I recommend to not drop more than $500 on any vacations while still in debt with no savings.
Golf  $        50.00  $               –   This was called “golf” but was actually “spending cash”, so I put the money elsewhere.
Other debt  $     129.00  $     129.00 This debt will be gone after July, so that extra money can go towards the Emergency Fund.
Total Other  $  1,680.00  $  1,333.00
Total Expenses  $  5,386.00  $  5,280.00
All of the categories and spending was based on their June 2012 budget tracking.

That Was Fun!

As you can see, I didn’t just slash their budget to pieces and cut out everything. I actually even added some money to certain categories so they are more realistic. One thing I find is that people will get aggressive on a budget and slash everything, only to find that changing spending habits takes some diligence and practice.  Blowing a budget category can be extremely de-motivating and I believe is the reason most people find it frustrating to try and budget. They then stop budgeting all together and are back at square one. By putting in more ‘realistic’ numbers, you can give it a few months to get used to your budget and start adjusting your spending.

There are certain things that are just a waste of money and can be corrected right away. I think cable is a waste and can be compensated for in much cheaper ways, so I slashed that. Also, I have slashed the large MISC category, because it gives you an excuse for blowing money, and then wondering why you don’t have enough for the rest of your budget.

Once they get settled with this budget, I think they have a very promising financial future. They have great income, including some passive income (rent). Once they knock out the truck payment, save up their $1,000 Emergency fund, and go on vacation, they can re-direct all that cash towards their credit cards. THAT’S $829 A MONTH TOWARDS KILLING THEIR CC DEBT! WOOOHOOOO! They want it gone in a year, but if they stick to my proposed budget, they will have no CC debt in JUST 4 MONTHS!

Here’s what order they should pay off their Credit Cards:

  1. Other – $100.00 (paid off in month 1)
  2. Chase – $287.00 (paid off in month 1)
  3. JC Penney – $468.00 (paid off in month 1)
  4. Paypal – $747.00 (paid off in month 2)
  5. BOA – $1,566.00 (paid off in month 4)

Once those are gone, on to the larger debts. At this point, they’ll have $969 a month towards killing this debt:

  1. School – $2,500.00 (paid off in month 3)
  2. Car Loan – $16,000.00 (paid off in month 19)

That’s right, they could be completely debt free except the mortgage in under 2 years. I bet they didn’t even know that was possible. I think this will be absolutely freeing to them, and they will then have over $1,300 a month to put towards savings, investing and a sweet vacation. (note: I left some money in there for entertainment and restuarants. If they just stick to having “Date” and “Spending Cash”, and drop the other two, they’ll have another $100 a month. This would shave another 3 months or so off their debt free date!)

I hope to be able to follow up with those who submit their budget to Budget Fridays. I would love to hear how the process is going, how close they are to reaching their goals, and even some things that I might have gotten wrong and could improve on. I really appreciate this first submission, and hope everyone else enjoys it as well!

Comments: So, what do you think? Do you think this couple is in a solid place to get ahead? Is there anything you would have changed about my proposed budget? I’d love to get some reader feedback on what you would do. Also, if this has helped or inspired you at all to get on a budget, please send me an email using the contact form on the site. I would love for you to be the next Budget Fridays submission.

 

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Comments

  1. It’s interesting/fun to see another Dave Ramsey counselor at work.

    I got a little confused on the CC debt. It’s will take longer than 4 months to pay off…right? It’ll take a few months to pay off the truck and save for vacation, then another month or two to build the E-fund, then 3-4 months to knock out the CC debt. So maybe around 8-9 months?

    I’d give them the choice on the cable. If they want to keep it they can lower groceries, entertainment, or eating out.

    The rest looks pretty good though. From experience I’d want more in that car repair fund but that ultimately depends on how old/new their cars are. We budget $150 a month in that category.

    • Thanks Jason. Though, I’m no official counselor, I would LOVE to make this my full time job! I love helping people get on a budget, pay off debt and free themselves from the chains of financial slavery!

      As for the CC’s , I stated “Once they knock out the truck payment, save up their $1,000 Emergency fund, and go on vacation”, then they will get started on the payoff.

      I agree, I’d love to just axe the cable, but it’s their choice. I want to show them that their choices do have consequences to their goals, though.

      I think one car still has a warranty, so that’s why it’s only at $50. But if they drove a few beaters, I’d definitely up it.

  2. Looks great! Aren’t budgets fun? I like the way you have this formatted and were able to show us easily. It was fun reading through what you did. Thanks for sharing!

  3. Pretty cool exercise, thanks! I’d be a bit tougher on them and advise no vacation fund savings until the credit card debt is paid off, a sizable emergency fund established, and a cash saved to pay for a vacation. Because of the diversity of their income, I think they don’t need a huge emergency fund, but they need enough to avoid borrowing at high interest rates should an unexpected expense come up.

    Other misc. stuff: $200 or $180/month for cell phones strikes me as a lot. If they have no landline, that helps a bit, but still, phew! $6-$7 per day just to carry around an iPhone (I’m guessing)? I know their so cool, and to each his own, but I wouldn’t do it. I get the psychological benefit snowball method of paying off the CCs; still, I’d target the highest-interest rate account first.

    One all the debts are paid off except the big car loan, I’d pad the mortgage payment a bit, max out retirement account contributions, and set up planned savings for other goals (like vacations).

    • I agree, no vacation while in debt, but they had a pre-planned vacation. From my experience, telling people to cancel thier vacation will make them reject the whole budget. Instead, I am making a compromise for the pre-planned vacation (they will pay cash), and then attacking the debt. Also, since I encourage them to be goal-oriented, and their truck payoff was very important to them, I had them funding their EF and paying this off at the same time.

      I would have suggested cutting data on the cell phones if they had a smaller income, but I think it’s ok for now.

      As for the CC’s, they’ll have it paid off in a few months, so I chose the snowball over the interest rate because it will have a very minimal financial impact. For someone with 5 credit cards, to be able to kill 3 of those in a month will be exhilirating!

      I do agree on the retirement. I’d suggest (if they aren’t already, I actually failed to get this info) investing to the match on the 401k while paying off the car. And yes, I do think having a vacation savings bucket with a small amount would be good for their mental health while tackling that large car debt.

      Thanks Kurt, great suggestions.

  4. Adam Hathaway says:

    I dont agree with no vacation while in debt. While hard core budgeters will be able to live with that, some people wont. I know that this couple has already planned their vacation, therefore not much else can be done there, but when it comes to vacations you can limit the spending and still do them. I think $800 is a bit much for someone in debt but I also dont think eliminating is a good idea either.

    I agree with cable. I have been off of cable for over 2 years and I dont miss it. People just need to be aware of their options and be willing to give it a shot. If they decide they want to keep it I would have them go to their cable company and tell them you are leaving anyway. The company will probably lower the monthly payment for a few months or the couple will have to walk away from cable for a bit.

    The interest rates were not noted on here but I might have gone with either putting the extra to the smallest debt first and paying it off that way or putting the extra to the debt with the highest interest rate. That might be what you proposed I just have no way of knowing without seeing the rates. If you were to go with the debt with the highest interest rate first the time-frame and total towards interest would be less.

    • Thanks for the suggestions Adam. I think that going on vacation while in debt is the same as borrowing money while on vacation. So, as long as they are comfortable with that, I don’t mind too much. I think the “no vacation while in debt” rule is for those who has dug themselves in major debt and need to get VERY serious about changing their spending habits.

      I did put the debts in order from smallest to largest, and used the debt snowball method for them. Again, as far as the credit cards go, since they can get aggressive and pay them off in as little as 3 months, I don’t think they’d save too much by paying the highest interest card first.

  5. i am amazed that some people get their food costs as low as they do.. $2-300 month?
    there is no way that they have kids, right?

    • Adam Hathaway says:

      I am with you. My food budget is $300 and that is usually too little. We dont buy high end products either, mostly store brand. I have 3 kids so when someone says $300 a month I always wonder if they have kids.

      • Adam Hathaway says:

        Sorry what I meant to say is my food budget is 300 bi-weekly. Therefore it is about $600 a month.

        • Yes, $300 a month with 3 kids is a little insane! I think closer to $600 is pretty good. Meal planning makes all the difference in the world when trying to stick to a set food budget.

    • No kids, sorry I didn’t mention that. And my wife and I have been at $300 a month for a few years, including toiletries. Some months we go over, depending on how well we managing eating out, but it’s definitely a realistic goal for two people. We use emeals, and we’ve had weeks where we spend under $50 for food, because we had a lot of the ingredients on hands for the meals.

  6. Looks good–are you going to do a follow up in a few months? That would be nifty seeing where they were. Hmm, I’m doing a vacation next year while still in debt but I won’t be going in debt to have it, so as long as they are saving for it that shouldn’t be a problem. I would also slash cable–I pay $25 a month for netflix and hulu. My internet is only $13 and is actually really quite fast–which helps out savings and debt pay offs! I’d also slowly wean off of going out down to the date nights. It works wonders!

    • I agree, cable is worthless. I hope seeing the money savings will help them realize that it’s not worth it. One thing I am a stickler on, though, is having a date night out. I think a healthy marriage needs some time away from home, because being at home carries the burden of your “to do” list. That’s why I suggest at least 2 nights out a month. With coupns and some thrifty choices, this can still be cheap. But I will cut most other places in the budget before cutting date night.

  7. Dude, that was budget surgery. Not bad! I had to re-read it a few times because I kept losing my place. But I was able to follow. Not bad!

    • Hah! Thanks. 🙂 I think it’s important to go line-by-line and really be intentional about each budget item. Even for the bills, I believe that you should ask “why am I paying this?” to make sure you really need that expense.

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  1. […] Fridays: I posted my first Budget Friday Review last week! It was awesome to be able to help this couple with their budget, and had some great […]

  2. […] Budget Fridays: Submission 1 – iHeartBudgets […]

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