Budget from a Lurker/AE

[aebudget]

Hi all - I've been looking at everyone's posted budgets, and I thought you all may be able to help us. We'd like to buy a house within the next year or so in the SNJ/Philadelphia suburbs, and TTC shortly after. I know South Jersey is extremely expensive so I have no idea what we will need to pay for a house or pay in taxes. This is the budget we are on now, but obviously some of it will need to change. DH is 32, I am 31.

My Income: $6703
DH Income: $3600
Total: $10,303

This is after retirement and health insurance. I max out our 401K and get a 4% match. He puts in 10% and gets a 2% match. We don't qualify for Roths, although I am looking into doing a backdoor Roth for next year.

DH also gets quarterly bonuses, but he just puts those right in savings. They vary between $2000 and $5000 per quarter.

Assets:

Combined savings: $170K. Only $3500 of that is in investments. I know that's horrible, but I'm scare of losing our down payment.
My 401K: $118K
His 401K: $46K
2005 Acura TSX (completely paid off, may want to replace in future)
Condo: Paid $340K when the market was crashing and pre-DH. Now it's worth maybe $280K-$300K. I have $280K left on the mortgage, because I bought with a small percent down. To move to an actual house, I realize that I may need to put some money in to pay closing costs. Interest is 5.375%, and can't refi (trust me I've asked).

Expenses:
PITI: $1871
Condo Fees: $563 (includes most utilities)
Electric: $100
Cable/Internet/Landline: $200
Cell phones: $100
Car Insurance: $107
Pharmacy/Medical: $75
Gas: $100
EZ Pass: $35
Groceries/Personal Care: $350
Eating out: $200
Gifts/Charity: $300
Clothing: $200
DH Fun Money: $200
Me Fun Money: $200
Haircuts: $60
Cash/ATM: $200

Savings:
Savings to Joint Account: $2000
Savings to My Account: $1000
Savings to DH Account: $1000
Transfer to Investments: $75
Wedding Fund: $200 (My brother is getting married in Ohio, we want to cover travel expenses, gifts, etc. in advance)

That leaves us with about $1167 left over per month. I was previously using $1000 to pay off my law school student loans, but I finished last month. (Yay!) Now, we are planning to put $750 per month to pay down the mortgage so we won't have to put in a huge chunk when we sell.

The other $350 or so will either be put in savings, or used when we need something like home or car repair, or maybe for a big vacation pre-TTC. This month we are getting a new toilet because the old one is causing problems, so that's where I see the $350 going for January.

Any advice MM? We are trying hard to put a lot away in savings for house/baby, but I do feel like we do a lot of frivolous spending.

[ijack]

I don't think it looks too out of control - what is the gifts/charity line going to? (seems high for gifts, but okay for charity)

[makingithappen]

What happens with the money in your individual savings accounts and the money pulled from the ATM? Shouldn't the ATM money fall in another category (groceries, fun, etc)?

ETA: also, have you priced cable/internet lately? It seems kind of high. Do you actually use all the premium channels?

[y4m]

I think I'd rather see you save that entire $750/month rather than applying it to the mortgage. You can always use it to pay down the mortgage later if you want/need to, but that gives you more flexibility.

[aebudget]

A good chunk of the gifts/charity line goes to church, and a few select charities. We don't necessarily spend that much each month on gifts. We roll it over for when we need it (i.e., for Christmas).

We don't touch our individual savings accounts. That will hopefully go to a house or car or baby fund. We always had individual savings before we got married, and we decided to keep having an individual savings (as well as joint) once we got married. They're essentially sub-accounts.

The ATM money ends up going to things like cabs (we live in the city), tips for take out, etc. So it goes to a few different categories, I guess. We take out lots of small bills (ones and fives). We don't usually spend the whole thing in a month though, although we always pull it out and stick it in an envelope in the house so that we have readily available cash.

I would LOVE for DH to put more into retirement. When we got married, he was only putting in enough for the match (doh!) So I got him to jump up to 2%. However, he is convinced that we should be stock piling cash because house/baby are in the near future. I'll work on getting him to contribute more this year, he is just stubborn.

[aebudget]

So you think we are better off putting that $750 into savings, rather than the mortgage? I am anticipating that if we sell at $300k, we will pay $20k in closing costs (netting me zero). If we sell at $280K, I would need to put in $20K. I figure that if I put in $750 extra a month, that gets us down to $265K left on the mortgage by the end of the year. I just hate paying 5.375% interest.

[rubytue]

Jan 7, 2013 15:44:04 GMT -5 y4m said:

I think I'd rather see you save that entire $750/month rather than applying it to the mortgage. You can always use it to pay down the mortgage later if you want/need to, but that gives you more flexibility.

My thoughts exactly. There isn't a difference financially between bringing cash to the table at closing and paying down principle now.

[aebudget]

We have Comcast. Since we're in a condo, it's the only way we can get cable/internet. We lost our promotion, and threatened to cancel, so they said fine, cancel. They refused to give us a promotion (we called a few times, but no luck). They know in our building it's Comcast or nothing. We have DVR and some premium channels. We watch a lot of HBO, but I'm sure we could get rid of some of the other premium channels. I should look into that, thanks!

[aebudget]

I am paying 5.375% interest on that principal, and I don't know that I could get a return saving that is higher than 5.375%, so I was thinking that I would be saving on interest payments that way. I guess that is wrong?

[makingithappen]

Jan 7, 2013 15:53:23 GMT -5 rubytue said:

Jan 7, 2013 15:44:04 GMT -5 y4m said:

I think I'd rather see you save that entire $750/month rather than applying it to the mortgage. You can always use it to pay down the mortgage later if you want/need to, but that gives you more flexibility.

My thoughts exactly. There isn't a difference financially between bringing cash to the table at closing and paying down principle now.

The only difference is if OP KNOWS it will eventually go to the house, she is making over 5% by paying on the house instead of less than 1% with it being in savings since OP is somewhat adverse to investing it.

[flygirl22]

I think you are doing really well, and am impressed with how much you save. I agree with PP, since you don't need the cash flow now, your DH should think about increasing his retirement contributions to 15%.

I think you have plenty of flexibility in your budget to continue to pay the $750 to your mortgage (you are saving half of your income!). If you are going to hoard all of the money you would saved in cash anyway, you should get the garaunteed 5.375% by putting it your mortgage, if you were planning to invest I might have a different opinion.

[y4m]

Your math on interest rates isn't wrong, it's just that you're committing that money to the mortgage up front, rather than waiting until you have to. You get a slightly higher return that way in terms of interest, but you're locked in to that decision.

Like say you go to sell the house and you find out you're more underwater than you thought and decide you need to walk away. If you've poured that money into your mortgage, you lose it. Not saying that's a very likely scenario here, but you are likely talking a few hundred dollars difference--I'd rather be more liquid personally.

[aebudget]

Am I better off having DH fully fund his 401K (he puts in about $10K/year with his match), or should we look into a backdoor Roth so that we have some post-tax retirement savings? All $46K of DH's savings is 401K (pre-tax).

If it helps, $93K of mine is a 401K, the other $25K is in a Roth, so most is pre-tax. I plan to continue contributing the max, so I upped the contribution to $17,500 this year plus the $6K I get in match. Since we are phased out of Roths, I don't do any post-tax retirement savings, minus the investment we have in mutual funds for $3500, and to which we contribute $75/month.

[Roc A Bee]

The rule of thumb I always read about is to invest up to your match then max out IRA then back to 401k.

[kaylie]

Just wanted to say that if you can live in PA, the taxes here are much lower. H and I both still work in Jersey but when it came time to buy we (and most of our friends who are buying) went over the bridge. We got a larger house in a way better school district than we could have in Jersey and our taxes are 1/3 of what they would have been. Also, state income tax here is lower.

[bunnysmom]

Maybe it's just me, but I'd try to be careful with the cash category. At least for us, when we have cahs in our hands the money is quickly spent without even knowing where it went. But if this is not the case for you and you have that spending under control, it's ok.

[Roc A Bee]

I would probably take at least half of DH's bonuses and put them towards retirement.