Thursday, August 18, 2011

A Little Budget Update

We've had money on the mind for the last week or so.  Dawn and Jeremy of Bungalowcious recently disclosed their whopping $257,000 renovation bill for their 1914 bungalow here in Portland (see what they spent it on here).  Their house is in a great neighborhood very close to where we looked at some houses in our hunt and if we're not careful we could easily end up in the same position:  owners of an incredibly beautiful old house that isn't worth the money we put into it.

We'll get into our thoughts on a reasonable overall budget for our fixer-upper soon, but for now we wanted to share an update to our original budget post since our finances have shifted around a bit since we bought the house.

Remember our original goal for how our finances would look after buying the house?

So how did we do?  We've adjusted some of our categories and taken a different approach to tracking our general spending, but as a whole we are actually fairly close to our goal budget.  Here's the budget breakdown we've been working with for the last two months:

The important thing, of course, is that our housing expenses are right on track.  This category actually includes our mortgage and all the things bundled in with it (hazard insurance, mortgage insurance, taxes) as well as all of our utilities (electric, gas, water and trash).  The standard expectation for housing expenses is usually something like 35%, but considering we are at the bottom of our income potential we feel pretty comfortable with 42% for now.  We took out the "debt payoff" category because obviously a very large percentage of our income is going to debt payoff on our house alone.  We have no credit card debt, so our student loans have the highest interest rate of all that we owe.  For now we are putting about 5% of our income toward paying off our student loans, and as we reach a more comfortable level of savings we plan to increase those payments.  When we bought the house, almost our entire savings went to the down-payment and initial costs of the house (mostly the sewer replacement and our new washer and dryer).  Ever since, we have been putting as much as possible into our accounts to try to get back up to a reasonable emergency fund (we're shooting for a year's worth of mortgage and bills).  As we get closer to that goal we'll probably cut back to saving about 10% of our income.  The other bills category covers monthly expenses outside of our housing.  It includes cable, internet, netflix, our cellphones and our car payment.

In the interest of full disclosure, 14% has not been fully covering all of our spending.  What we insist that it covers is our day to day expenses (food, entertainment, gas, etc).  We also try to make it cover smaller home improvement needs like paint and screws.  Large purchases have to come, at least in part, out of our savings because 14% of our income simply won't cover them.  For example, you may (or may not) have noticed that car insurance was not covered in any of the categories above.  This is because, to save money, we pay our premium in full every six months.  While the total is less than it would be if we were paying it monthly, it is a bit of money to come up with all at once when you're on such a tight budget.  Recently we've also taken money for plane tickets back east for Christmas and reservations for our upcoming anniversary weekend out of savings.  These types of expenses are only occasional and amount to far less than what we've been putting into savings on a regular basis.

We also have a separate savings account to pay for home improvements.  For now we are not contributing to it regularly, but if we have any extra money lying around (for example the nice check we got back from our deposit to our apartment building) it goes into that account to pay for any large purchases for the house.

So here's the thing.  It has been pretty much exactly two months since we bought our house and the above was our budget during that time.  The way that we have been saving so much has been that my (Caroline here) entire paycheck and a portion of Matt's has been deposited directly into our savings account so that we would never have the opportunity to spend it.  Yesterday, however, was my last day at work.  So goodbye to my paycheck.  Additionally, our health insurance was through my job.  So now that it will have to be through Matt's his paycheck is going to be considerably smaller.  So goodbye to the portion of his check that was going into savings.  So what does that leave going into our savings account?  Nada.  Zilch.  Zero big ones.  Especially if we hope to ever get anything done on the house (and probably even if we don't) there is really no way that we can see to spend less than what we have been spending (we're also losing our free coffee and occasionally free food from Starbucks so add that to our expenses).  I'll be starting a new (modestly paying) job at the end of September, but in the meantime, with our severely reduced income, this is about what our budget is going to look like:

No savings there.  Since we can't do anything about our housing bills (other than doing our best to reduce our use of resources, which we will) our housing will be a whopping 58% of our income!  Ouch.  We figure since we can't spend much less day to day than we already are we'll just have to do our best for now to keep our savings as low as possible and try not to take much out of savings over the next few weeks.

Beginning in October I'll be receiving a stipend for a Graduate Assistantship from Portland State University.  It won't be as much as I was making at Starbucks, but it's something.  Of course, once again it will all be going straight into savings.  Considering Matt's income will still be reduced due to health insurance, here's what we estimate our budget will look like at that point: 

Not bad for two full time students.  Speaking of which, since we will both be in school in the fall, all of our student loans will be deferred.  It is tempting to put some extra money into the house or to hurry up and pay off the rest of our car just to have one less bill coming in, but we have to remember that our student loans are our highest interest debt.  For as long as we have them we'll keep paying the minimum payments on our mortgage and car and put as much money into the student loans as possible.  Our graduate loans are the first priority since they are more than a full percentage point higher than my undergraduate loans.

In December Matt will finish his Master's Program and (finger's crossed) should get some sort of a raise at work.  At that point everything will change once again.  Once we get that savings account up to a good emergency cushion we'll be able to readjust and consider putting more into the house or saving for other things we want to do (vacations!).  But for now it's just lots of creative ways to save around here.  Maybe there will have to be a post on that soon!

By the way, did you catch that I'm going to be unemployed for the next six weeks!?  I'll be spending that time doing lots of work around here so there will be lots of posts to come!!   - Caroline

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