I’ve kicked of 2013 by getting back to the basics of personal finance: reestablishing a monthly budget for my family. Over the past few weeks, I’ve explained how our old family budget got lost in the shuffle and how we recently started using Mint.com to track our finances. Now, I’m finally ready to unveil my family’s new monthly budget.
It Starts With Income
I’ve always believe that in order to create a feasible monthly budget, you have to first evaluate how much money is coming in. I think this is why we lost sight of our old budget in the first place; my job as a freelancer means that while my work is stable, the amount I earn month to month can vary wildly. In 2012, for example, I earned as little as $1178 one month and as much as $5581 another – a difference of more than $4400! With such dramatic swings in our monthly income, it was easy to let budgeting slide.
Now, though, I’m starting to see some trends develop with my monthly income (it’s typically lower the first month of each fiscal quarter, and gradually increases over the next two months), which allows me to come up with a monthly average. On top of that, my husband’s income is and always has been stable – save for some overtime now and then, which we don’t depend on in the first place – which made things pretty easy:
- DH (as in darling husband) income: $806 every two weeks, totaling 26 paychecks a year. For the sake of consistency, we based our budget on 24 pay days instead of 26; the two extra paychecks will go straight into his retirement account. Taxes, health insurance for our family of four, and 401(k) contributions are already subtracted from his gross income, giving us this final – and substantially smaller – number.
- My income: Since accepting a new job in late September 2012, my income’s been more consistent, averaging around $4900 a month. It’s never been lower than $4400, which is what my husband and I decided we would use for my income baseline. It does not, however, include taxes, so I plan to automatically siphon 25% of that – $1100 – into a separate savings account, from which I’ll pay my estimated quarterly income taxes, giving me $3300.
That gives us a total income of $4912 a month.
We have a 30-year fixed rate mortgage. We also pay our home insurance and property taxes through an escrow account. This makes our housing expenses – and hence, our housing budget – the same every month: $955.
My family includes my husband, myself, and our two kids, both under the age of five. As my kids have grown, so have their appetites – and so has our food budget. This budget has grown exponentially over the past 18 months, but is finally starting to stabilize. I actually break our food budget down into two categories:
- Grocery budget: $100 a week, with any surplus carried over to the next week (this allows me the ability to bulk shop when appropriate)
- Eating out budget: $30 a week, which basically gives us one modestly-priced meal away from home each week. Again, anything not used one week can be carried over to the next
Averaged out over 52 weeks, that gives us a monthly food budget of $563.
Thankfully, we paid off the last of our car loans last year, so we don’t have any vehicle debt. However, we still have a budget for our vehicles, which includes:
- $300 a month on gas (my husband drives a patrol car for work, and his sedan sits unused in our garage the vast majority of the time)
- $100 a month goes into a savings account, which is used to pay our annual vehicle taxes (about $150/vehicle), annual registration costs ($25/car), and our biannual car insurance premiums ($428 every six months)
Overall, this comes out to $400 a month.
Utilities & Telecommunications Budget
This is perhaps the most unpredictable part of our monthly budget. It includes everything from fixed expenses like our cable/Internet bill to things that vary from month to month, like our natural gas bill:
- Cable/Internet: We bundle this service and have a pretty ridiculous deal when you look at everything we get. We pay $72.27 a month, with all taxes included.
- Cell phone: We pay $78.82 for our two cell phones – and note, I did say “cell” phones; we don’t have smartphones, nor do we have a data plan, which is why this bill is markedly lower than many households may see.
- Natural gas: This is how we heat our home, and thankfully, natural gas rates have been ridiculously low the past few winters. Over the past year, we’ve paid as little as $12 a month in the summer (basically the transmission fee and nothing more), and as much as $75 in the dead of winter.
- Power bill: Our electric bill is more or less the inverse of our natural gas bill – high in the summer, low in the winter. Combined, we budget $125 for both, knowing that at different times of the year, most of that money will go to one bill or the other.
- Utilities: Our city charges us next to nothing for water, sewer, and trash pick up. We pay about $32 a month for all three services combined, but are only billed every other month.
All told, we’ve budgeted $309 a month for these five bills combined.
A few years ago, this category was a whopping goose egg. Now, it’s a major expense, encompassing:
- $150 to a sitter, who watches my kids an afternoon or two a week for a few hours
- $205 in monthly tuition to my daughter’s preschool
- $50 a month for ballet classes
- $40 a month for swim lessons
We’ll set aside $445 for this part of the budget. My daughter enters public kindergarten next fall, so we won’t be paying her tuition any longer, but my son will be old enough where I may consider preschool for him (jury’s still out on that one).
My husband pays into his employer-sponsored 401(k) account before we ever see his paycheck, so that’s covered; to be honest, we don’t even think about that money. That leaves my IRA and our kids’ college funds to consider:
- My Roth IRA: I want to max out my Roth again this year, which means I have to put $458 a month into my IRA to reach the $5,500 for the 2013 tax year.
- My kids’ 529s: I put $50 a month into each child’s 529 account, for a total of $100 a month. It’s not a huge expense, mostly because I’m still deciding whether or not I think these accounts make sense (my parents didn’t have any savings for me for college, and the amount of grants I received in my FAFSA package was ridiculous – as in, ridiculously high – while my parents’ out-of-pocket payments were ridiculously low).
In all, that’s $558 monthly.
You could call this the “miscellaneous” or “everything else” part of my budget, but I’m going to consider it my entertainment budget, because most of the things that fall into this category will be fun. They include:
- $50/month in “fun money” for myself and my husband (a total of $100/month)
- $50 in clothing expenses for the whole family. I do a lot of my shopping at consignment stores, so this is more doable than it may seem. Oh yeah, and my kids have very generous grandparents 🙂
- $85/month for our gym membership. Our gym includes childcare and fitness classes while we workout, and is also the de facto “social center” of our small town. Our gym also has two indoor and two outdoor pools, so we can swim year-round.
- $50 in contributions to our church. We don’t tithe, but at least we contribute something.
- $150/month toward vacation savings.
This adds up to $435 a month.
The Big Picture
If you add up our housing budget, food budget, and all the other budget categories listed above, you get our monthly budget grand total: $3665. I have to say, just seeing that number in print kind of gives me a heart attack – just two years ago, our monthly budget was only $2200, so such a big increase is kind of terrifying. At the same time, though, our new family budget only uses 75% of our monthly income (12% of it going to investments), giving us a nearly $1250 surplus. So we aren’t getting quick cash online, and if you spread that $1250 out over 12 months, and it’s an extra $15,000 annually that isn’t going to something in out monthly budget – and that’s on the low end; remember, I based my monthly salary on my lowest-grossing month since starting my new freelance job. I could easily net an additional $5000 after taxes on top of that.
And naturally, that brings me to my final budgeting question: what should we do with the extra money? I’ll be addressing that question next week!
(Note: These are the actual numbers from my family’s budget. If you did the math, you’ve seen that our take-home pay is less than $60,000 annually; even with taxes, we barely crack the 25% tax bracket. In other words, we are not rich, not even close. The lesson? A well-thought out budget and responsible choices can give you financial freedom without a massive salary.)