Thursday, February 24, 2011

The Budget

You heard it here first, folks: you can't buy a house with out money.  A LOT of money.  For most of us, especially those of us in our mid-twenties still in grad school and just barely starting out careers, coming up with that much money means lots and lots of saving.  And for us, at least, this kind of saving calls for a strict budget.  

We've had some sort of a budget plan pretty much since we started saving every penny we had for our month-long cross-country move to Portland.  But since then our budget has often acted as more of a guideline then an actual restriction on our spending habits.  Now that we've decided to seriously pursue homeownership however, we're going to have to take our budget a bit more seriously.  We've been working for months at figuring out exactly how little we can realistically live off of.  We've cut expenses, frivolous habits and sharpened our smart shopping skills.  As of now the budget breaks down like this, and if we can stick to it we'll be in pretty good shape:

The Housing category covers our current rent as well as utilities paid to our apartment building and our electric bill.

About half of the Debt Payoff category is accounted for by monthly student loan payments.  The other half is money that we put into a separate savings account each month to be used only for school-related expenses.  Having this money set aside allows us to minimize how much we need to take in student loans each term without feeling like we are depleting our house savings.

Most of the Savings category is automatically deposited directly into an online savings account, so we never even know we had it.  This makes it very easy to save in such large quantities.  The remainder is money that we have to work to save each month.  We try to treat savings like any other bill: it is something that must be paid or deposited in the proper account each month and it is a priority before other spending.

Expenses covers everything else.  One thing that we are very proud of is that we have always tracked every single dollar we have spent.  We know exactly how much we spend on food, on household supplies, on fast food and on whatever else we buy each week.  The system is simple, we just keep a notebook on the desk in the living room and every time we go shopping, get gas, pick up a little snack or download an mp3 off Amazon we write it down.  On Sunday we sit down and split up what we spent by category and keep track of where we are in our budget.  If we go over one week, we know we have to be careful the next.  Our personal expenses are split up like this:

Expected expenses are things like cable, internet and cellphone bills that we pay the same amount for each month and can plan for in advance.

Food and Household covers everything from groceries to toothpaste, toilet paper and shampoo to laundry detergent and dish soap.

Personal Spending covers going out to eat, tickets to a show, snacks at work, those mp3 downloads or a new pair of shoes.

Unexpected and Other covers pretty much everything else.  A small portion is set aside to cover gifts for birthdays, weddings, and savings for Christmas.  The rest covers expenses that are unpredictable but also uncontrollable such as gas, medicine and cat food.  Whatever's leftover is set aside for big expenses like vet bills and car insurance every six months and unexpected expenses like a root canal.

The moral of the story is, if we can learn to live comfortably while saving so much, there is wiggle room for an increase in our housing budget come time for mortgage payment, higher utilities, taxes and the dreaded mortgage insurance.  The general recommendation for housing costs seems to be about 35%, but taking into consideration our current spending, a potential for growth in our family and change in our income we feel comfortable with this breakdown for at least the near future:

This is just an estimate, of course, but come on, if your budget is a peace sign, it has to pretty good. :)

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