I created my first budget about ten years ago from a template I found in Dave Ramsey‘s book The Total Money Makeover, and after years of practice, it’s become habit for me to make a new budget every month. I get asked on a regular basis to help people set up their budgets. I’ve been able to sit with a few friends, but time and distance prohibit me from helping individually every person who asks. Every household is different, so every budget needs to be different, too. Also, it’s important for me to say here that I am not a financial planner or adviser, and that everyone needs to be accountable for making informed choices about their own money. That said, since it can sometimes be helpful to get an idea of what other people are spending on and saving for, we have decided to share our budget. I’m showing where our money goes as a percentage of our take-home pay, both to maintain some privacy and also because it’s more practical: Regardless of the dollar amounts, it’s a good idea to try and save some money each month, meet your basic needs, have a little fun if you can afford to, and return something, however small, to the communities and organizations you care about.
Here’s how it breaks down this month for us:
- Giving 3%. This category is on the small side this month. Not being religious, we don’t tithe, and we only have one gift-giving occasion in January. The balance of this category will go into donation boxes of non-profit institutions we visit this month. We also make an effort to contribute to charitable organizations and relief efforts throughout the year, and volunteer some time to causes we support.
- Emergency Fund 10%. Our Emergency Fund is currently big enough for us to survive for about four months with no other income. While that felt comfortable for us when we had one spouse with a full-time job, and one with several part-time and freelance income streams, now that we are down (for the time being) to one partner with one full-time job and a very little bit of part-time work, we are working toward having a year’s worth of expenses set aside for emergencies. By my calculations, at the rate we are able to save, it would take us about six years to reach that number! Because we anticipate returning to our 2+ income status in a couple of years (thereby returning to a smaller Emergency Fund), we’ll probably never hit our temporary goal, but we’re aiming to set aside 10% of everything we bring home in the meantime.
- Tax & Insurance Fund 10%. We maintain a separate account where we amortize our annual term life and auto insurance premiums, and set aside money to pay taxes on any 1099 income.
- Mortgage 25%. Our only debt is this 30-year fixed-rate loan, and we made a 20% down payment to avoid PMI. If we don’t pay anything extra, the payment (including principle and interest as well as escrow for property tax and insurance) is a quarter of our current take-home pay. We REALLY wanted a 15-year mortgage, but if we had done that, our currently reduced income would be more of a crisis than an inconvenience, so I guess we made the choice that was better for us. Still, we’re planning to get it paid off just as soon as we can.
- Utilities 3%. This includes electric, water, natural gas, sewer and trash pickup. We are constantly looking for ways to reduce our usage, and hope to continue to see this number go down.
- Mobile phones 3%. Our mobile phones are recent-release smart phones with high-usage packages. Admittedly an indulgence, we switched providers last year to save about $250/year over what we used to pay, and this expense would be the second cut we made in a financial crisis (the first is coming up below).
- Home Improvement 2%. The Home Improvement Fund is one of the last budget categories we pay into right now. We are making continuous minor improvements at the Little Hippie House, and hoping to save enough to replace the aging roof, remodel the bathroom & kitchen, tear down a load-bearing wall, and install new floors. That all could take quite a while, but we’ll keep chipping away at it, as our finances allow.
- Cable/Internet 2%. Cable would be the first thing to go in the event of a financial crisis, and I suppose our internet would have to slow down a lot if things got tight (or maybe not: Google Fiber is slowly making its way into our neighborhood). But it’s another indulgence we’re comfortable with for now.
- Transportation 1%. Our transportation expenses will be ridiculously low this month, in part to one of us being a stay-at-home spouse, and the other one working just a few miles from home. Having paid-for cars that won’t need servicing, inspections, or registration in January helps a lot, too! (Remember, though, that our car insurance falls into another category… this number would double if we included it here)
- Food 11%. Food is the big budgetary challenge for us this month, but we’re determined to make it work. When our income is bigger, we normally spend about double what we’ve allotted for January! This month, we’re planning to minimize meals out, work our way through the frozen holiday leftovers, and take advantage of our upcoming small winter garden harvest. In addition to feeding ourselves this month, it’s my hope to use 5-10% of our weekly food budget to build our home food store… I really love going to our little chest freezer for a gallon of milk or to our garage for a jar of peanut butter instead of having to run to the market when things run out!
- Pet Care 1%. This category this month consists entirely of canned food for our two cats. We have more than enough kitty litter and dry food to get through the month, and their annual veterinary visits aren’t until March.
- Clothing 2%. We aren’t planning any clothing purchases this month, but we’re setting a little aside so we can do a Big Shop in the Spring.
- Entertainment 3%. Entertainment is the one area where we consistently underspend! Every month, it’s a challenge to get ourselves out to the movies, a play, or to hear some live music. We’re still working on that, for the sake of balance.
- Personal Care 9%. Our Personal Care budget should really be called “MY Personal Care budget,” as Mr.Vega gets an inexpensive haircut every other month or so, and is in the process of growing an Epic Beard, so we no longer buy him razors or shaving cream. Because I’m in the process of Changing Looks, hairwise, this month, this category is more than double what it usually is.
- Education 6%. Even community college costs something, at least for now: there are a lot of political promises being made on the campaign trail to change that. That will be lovely if it happens, but in the meantime about 6% of January’s pay will go for tuition.
- Vacation 7%. Last summer, we went to a five-day music & arts festival that we just loved. It’s time to buy tickets for the next one, and because it’s an out-of-town camping trip, we count the tickets as a travel expense, rather than “entertainment” (and this part is a little weird, but because the event is limited-capacity, tickets are sold lottery-style, with each person allowed to request a maximum of two tickets. We each put in for two, and if we get all four, we’ll sell the extra pair at face value and recoup half of our expense. But we’re sending payment for four tickets in January, so that is what we have to budget for).
- Professional Development 2%. My new job will reimburse me for this training after I complete it this Spring, but registration is first-come-first serve, which is why I’ll be paying for it this month.
So there you have it: our January budget, with every dollar accounted for. There’s plenty of room for improvement, but we’re not unhappy with it. Feel free to share in the comments how different it is from (or similar to) yours… I’m always curious to learn how other people are doing it.