Budget review/home buying question

[notaregular]

Hi all...very old poster from the old residence who pops by here once in a while. We're thinking about buying a new home sometime in the next year and just crunched some numbers on an updated/projected budget. Am I missing anything? Other considerations? My biggest question would be does this size of a mortgage look comfortable? We live in a HCOL area. I included net monthly income, gross-we're around $215K per year, not accounting for bonuses. I'm taking a zero based budget approach here. I think I've also way overestimated on the discretionary spending. The preschool/aftercare cost will go down, probably by half, in a couple years. We have about 7 months in emergency fund now, and would try to up that over the next several months to account for increased mortgage. Our plan is for this to be our forever home (or at least until we're empty nesters) and wouldn't plan to touch savings for the purchase. Sale proceeds from our current home would cover DP and closing costs. 

expenses
mortgage (PITI) 4000
preschool/aftercare 1152
utilities 300
cable 215
water/sewer 100
cell 115
student loan (almost paid off) 138
car insurance 100
groceries 500
car payment 350
gas 120
co-pays 100
discretionary spending/household supplies/personal care 1000
eating out 200
lunch/coffee 200
activities 200

total expenses 8790
monthly take home pay 10517
remaining 1727

savings 800
house funds 400
college savings 300
vacation savings 200
unaccounted for 27



 

[dr.girlfriend]

It's interesting to see your budget. We have a slightly bigger gross and take-home, and our PITI is $2k (although we are cash-financing a big addition to our house just now) and we still seem to spend more than you do although I'm not sure where it all goes (and to be fair the increase in income was recent and right around the time we started the addition, so it's hard to figure out how it might all iron out in the end). The main area I can see not covered is travel -- we usually have some wedding, etc., that costs a few thousand at least every few months between travel and hotels, but maybe that's unusual (we have a lot of West Coast friends/family), and it's certainly discretionary. Are medical expenses covered? Those can add up, even if it's just copays and prescription meds. Do you guys have life insurance? I'm trying to think of big intermittent bills. Any big work expenses that aren't covered (conferences not paid by work, licensing fees, etc.)

[notaregular]

Jul 30, 2019 12:26:53 GMT -5 dr.girlfriend said:

It's interesting to see your budget. We have a slightly bigger gross and take-home, and our PITI is $2k (although we are cash-financing a big addition to our house just now) and we still seem to spend more than you do although I'm not sure where it all goes (and to be fair the increase in income was recent and right around the time we started the addition, so it's hard to figure out how it might all iron out in the end). The main area I can see not covered is travel -- we usually have some wedding, etc., that costs a few thousand at least every few months between travel and hotels, but maybe that's unusual (we have a lot of West Coast friends/family), and it's certainly discretionary. Are medical expenses covered? Those can add up, even if it's just copays and prescription meds. Do you guys have life insurance? I'm trying to think of big intermittent bills. Any big work expenses that aren't covered (conferences not paid by work, licensing fees, etc.)

We're coming from a current mortgage of $2250, so frankly we haven't been great about tracking things for the last few years - same thing, where does it all go?! We are definitely tightening that up now so we know we can do this.

We really don't travel much at all (small kids and mostly all local family) and we have a family home that we can use for our summer vacation, so those expenses are limited. Accounted for monthly co-pays, historically our health care costs have been relatively low aside from the small bill from lab work, dental work...that type of thing. I typically save some of my annual bonus separately for these types of one off/not monthly things.

We have employer provided life insurance, but we really should have more.

[noodleoo]

I kind of agree with dr.girlfriend . We don't make as much as you and your budget seems low in certain categories to me. Particularly groceries and eating out. We spend way more than $500 a month for our family of 4 (kids <1 and 4) and I anticipate it getting higher as kids get older. We try to cook a good deal, but still spend more than $200 a month on takeout 1-2x per week and lunches out on the weekends. (ETA: Just noticed you have a separate category for Lunch/coffeee.)  But I guess some of that may be absorbed by your discretionary funding. We also have a few other expenses that don't seem to be budgeted: term life insurance, gifts (bdays, xmas), lawn care. But it looks like you have a pretty healthy buffer!

[wildrice]

I guess my biggest concern would be about lifestyle and how many kids you have, and their expected expenses. Personally, I have about $1800 listed each month as "discretionary" that covers groceries, gas, copays, eating out, activities, etc - and most months I spend all of it, or even go over budget. It's VERY rare that I spend less. So personally, I would be a little concerned that you're budgeting about as much as I am, but have kids to pay for who will need stuff for activities, clothing, school supplies, babysitters, IDK what else but kids are expensive (lol). I would feel very strapped trying to pay for a whole family on our current discretionary budget, but if you do stuff like going to restaurants, buying tickets to things, travel, etc infrequently (and think you want to continue doing those things infrequently for the next 30 years) then maybe you'll be fine. How long until the childcare expenses go away?

[notaregular]

Jul 30, 2019 13:10:47 GMT -5 noodleoo said:

I kind of agree with dr.girlfriend . We don't make as much as you and your budget seems low in certain categories to me. Particularly groceries and eating out. We spend way more than $500 a month for our family of 4 (kids <1 and 4) and I anticipate it getting higher as kids get older. We try to cook a good deal, but still spend more than $200 a month on takeout 1-2x per week and lunches out on the weekends. (ETA: Just noticed you have a separate category for Lunch/coffeee.)  But I guess some of that may be absorbed by your discretionary funding. We also have a few other expenses that don't seem to be budgeted: term life insurance, gifts (bdays, xmas), lawn care. But it looks like you have a pretty healthy buffer!

Good points, and I think we'd be trying to cut back on eating out with the much higher mortgage And I did kind of cushion the discretionary spend for that reason. I really need to do a deep dive into our spending for a few months to get a more accurate picture. This is the first step! I think term life is the biggest one I haven't captured. I have the full $5K deducted from my pre-tax pay for dependent care and I don't pull that out until the end of the year, so that covers Christmas, among other things. My H does all the lawn care and the bulk of the home maintenance (except for big ticket items).

[notaregular]

Jul 30, 2019 13:14:27 GMT -5 wildrice said:

I guess my biggest concern would be about lifestyle and how many kids you have, and their expected expenses. Personally, I have about $1800 listed each month as "discretionary" that covers groceries, gas, copays, eating out, activities, etc - and most months I spend all of it, or even go over budget. It's VERY rare that I spend less. So personally, I would be a little concerned that you're budgeting about as much as I am, but have kids to pay for who will need stuff for activities, clothing, school supplies, babysitters, IDK what else but kids are expensive (lol). I would feel very strapped trying to pay for a whole family on our current discretionary budget, but if you do stuff like going to restaurants, buying tickets to things, travel, etc infrequently (and think you want to continue doing those things infrequently for the next 30 years) then maybe you'll be fine. How long until the childcare expenses go away?

Agree, those categories I need to take a closer look at to make sure it's accurate. If I add up what you listed, it's a little over $2300 in what I budgeted. 2 kids, won't have any more I would say the preschool/aftercare expenses will be roughly half that in 2 years. It's never really going away since activities get more expensive the older they get, so I'd leave it there. We don't live lavishly, but we spend fairly freely now since our expenses are lower. The random trips to Target will have to decrease! 

I'm also not accounting for a lot of "one off" type expenses in the monthly budget like tickets to things, travel, etc since I typically put away a chunk of my annual bonus separately for that kind of stuff.

[notaregular]

If it matters, we are fairly equal earners right now and would expect income to go up. Probably more for my H than me, but you never know!

[goldengirlz]

I think you have to be careful about predicting that your childcare expenses will go down once your child(ren?) start school. Especially in HCOL, camp is very $$$. And even if you’re a SAHM, your kids may WANT to do camp. DD wants to go to a sleep-away camp that costs $1600 per week.

Not to mention other activities. Again, it’s not that you have to do these things but it’s nice to have the budget to do so.

I personally think that spending 40% of your take-home on a mortgage is steep. That would feel really tight to me. I would also caution against spending against anticipated future earnings. I saw that strategy turn out really, really badly for my parents when life threw a curveball.

[formerlyak]

Jul 30, 2019 13:40:38 GMT -5 goldengirlz said:

I think you have to be careful about predicting that your childcare expenses will go down once your child(ren?) start school. Especially in HCOL, camp is very $$$. And even if you’re a SAHM, your kids may WANT to do camp. DD wants to go to a sleep-away camp that costs $1600 per week.

Not to mention other activities. Again, it’s not that you have to do these things but it’s nice to have the budget to do so.

I was just going to say this exact thing. I have a 13 year old and a 5 year old and laugh when parents of my 5 year old's friends get excited that their kid expenses will go down this year when they start kinder. My 13 year old is more expensive than my 5 year old because of college savings, music lessons, golf, theater. The expenses don't go down. They just get reallocated.

[k3am]

One of the easiest ways to tell? Pay the new amount of the mortgage for a few months. Either into a segregated savings account, or just prepay your mortgage, and see how things shake out.

[dr.girlfriend]

I guess that's the last thing I would mention...hopefully, fingers crossed, your income goes up and things loosen up. But, you don't have a lot of leeway for your income to go DOWN -- if one of you suffers job loss, if someone is miserable at their job and wants to leave for a lower-paying job. Our low mortgage gave DH the flexibility to do that -- leave a job he hated for one he really likes, and even did the new job at 4 days a week at first. I'm not trying to be a downer, I just err on the side of security and I think getting locked into a bigger payment makes it hard to deal with stuff that comes up. Your emergency fund is pretty healthy, but like...we spent $14k unexpectedly on a new heating / a.c. system. It can go quick. I still think it's doable, just trying to point out everything you might want to have thought about in advance.

[WOUNDTIGHT]

Jul 30, 2019 12:16:20 GMT -5 notaregular said:

Hi all...very old poster from the old residence who pops by here once in a while. We're thinking about buying a new home sometime in the next year and just crunched some numbers on an updated/projected budget. Am I missing anything? Other considerations? My biggest question would be does this size of a mortgage look comfortable? We live in a HCOL area. I included net monthly income, gross-we're around $215K per year, not accounting for bonuses. I'm taking a zero based budget approach here. I think I've also way overestimated on the discretionary spending. The preschool/aftercare cost will go down, probably by half, in a couple years. We have about 7 months in emergency fund now, and would try to up that over the next several months to account for increased mortgage. Our plan is for this to be our forever home (or at least until we're empty nesters) and wouldn't plan to touch savings for the purchase. Sale proceeds from our current home would cover DP and closing costs. 

expenses
mortgage (PITI) 4000
preschool/aftercare 1152
utilities 300
cable 215
water/sewer 100
cell 115
student loan (almost paid off) 138
car insurance 100
groceries 500
car payment 350
gas 120
co-pays 100
discretionary spending/household supplies/personal care 1000
eating out 200
lunch/coffee 200
activities 200

total expenses 8790
monthly take home pay 10517
remaining 1727

savings 800
house funds 400
college savings 300
vacation savings 200
unaccounted for 27

I feel like there are some things missing from this list. 

For starters, life insurance, and disability insurance. 

What about heating costs? Our house is oil and we spend about $400/month, 6-7 months of the year because we live in the Northeast. 

Also home maintenance- for a house of that caliber, I'd venture to guess that $400/month actually won't cut it. (Or maybe it's just me in my 1962 money pit). Also moving into a new home means lots of small projects, to fix stuff you don't like or personalize the space. 

Groceries of $500 seems reallllly tight, unless you've actually tracked for months and know that's what you actually spend.

I guess it could come out of discretionary spending, but after a year of YNAB I was SHOCKED at what we spend on gifts between birthdays, anniversaries, the kid being invited to like 20 birthday parties, and so on. 

What about gifts? Charitable giving? A holiday fund (Christmas costs us . . . too much, every year), 

How much are you contributing to retirement? 

Do you have any pets?

[badgergrl]

Where are you at retirement wise? I ask because my husband makes without bonus about your take home and his monthly take home is about 2k less. Are our both maxing your 401ks and setting aside max IRA annually? I wouldn’t move until you are doing that.

[ESF]

Jul 30, 2019 17:14:14 GMT -5 k3am said:

One of the easiest ways to tell? Pay the new amount of the mortgage for a few months. Either into a segregated savings account, or just prepay your mortgage, and see how things shake out.

This right here.

I'm in a similar boat as you. Low rent compared to our income, and are planning to eventually buy something with much more expensive mortgage. Figuring out affordability in this context is challenging because something could look reasonable until you are dealing with the day to day challenges if decision making on that budget. 

So practice it to see what your threshold really is.  We've been forced to do this as my H is temporarily working 60% time for reasons too complicated to explain and it's been a helpful exercise. At least in your case, your forced reduction of living expenses can go into a savings account!

[wildrice]

What do you pay for a mortgage now? That might influence my opinion. What is lacking now and what will you gain by moving? If you are in a bad situation now, maybe the trade off of being in a new home would be worth being a little house poor.

I know it can be hard to find something affordable in HCOL. My rent is around 40% of our take home pay, and I am not thrilled about it but there is not much I can do, either. There are cheaper options but we would have to buy a second car if we moved to them, which would more or less offset any savings. But, I am more comfortable with this as a renter because we will never have a huge house expense come up. And we can always move if this ends up not being sustainable. I would hesitate to take on the responsibility for a home that was 40% of my take home pay long term with the risk that i would have high expenses related to owning a home .

On the other hand, your income is high enough that you will be fine no matter what you do. So, I think some of it is figuring out priorities. I like to spend money on entertainment so I don't want to tie up so much on living expenses. If your priority is having a particular kind of home and not other things, that's perfectly reasonable too. Just be sure you are aware of what you are trading off and make sure it matches your priority.

[notaregular]

Thanks everyone, you've given us some good things to consider. This is the top end of our budget, so I wanted to look at the "worst case scenario", but we would like to come in a little lower. We're just in a really tough market in our town.

[notaregular]

Jul 31, 2019 10:42:08 GMT -5 wildrice said:

What do you pay for a mortgage now? That might influence my opinion. What is lacking now and what will you gain by moving? If you are in a bad situation now, maybe the trade off of being in a new home would be worth being a little house poor.

I know it can be hard to find something affordable in HCOL. My rent is around 40% of our take home pay, and I am not thrilled about it but there is not much I can do, either. There are cheaper options but we would have to buy a second car if we moved to them, which would more or less offset any savings. But, I am more comfortable with this as a renter because we will never have a huge house expense come up. And we can always move if this ends up not being sustainable. I would hesitate to take on the responsibility for a home that was 40% of my take home pay long term with the risk that i would have high expenses related to owning a home .

On the other hand, your income is high enough that you will be fine no matter what you do. So, I think some of it is figuring out priorities. I like to spend money on entertainment so I don't want to tie up so much on living expenses. If your priority is having a particular kind of home and not other things, that's perfectly reasonable too. Just be sure you are aware of what you are trading off and make sure it matches your priority.

Our mortgage now is 2280. Our home just doesn't fit our needs as a family (bought before kids and in our 20s) and the location isn't ideal. So we will be gaining a lot by moving. It's also showing its age and we would have to put in some major dollars relatively soon (likely in the next couple years) and we're not interested in doing in that in a home that we can't renovate to fit our needs. 

Figuring out priorities is a good point, that's what we really need to look at. We're in an odd spot where you get more for your money in our little town than the immediate surrounding towns...but to go to a town where we would find more value, it really wouldn't be an ideal location for us and we'd sacrifice on commute/quality of life type stuff.

[ny96]

We were in a similar position to you where we increased our housing costs recently to about 40% of our income from about 28%. If I were to have written a post at the time asking for advice I probably would have gotten quite a few replies telling me not to do it. It made sense for us because we live in a VHCOL city and to meet our growing family’s needs we needed something larger, but most importantly we have a significant amount in savings if we need it. It turns out we do need our savings. I budget about $1000 over every month, but in the last 2-3 months we have spent about $5000 over. Some of these were expected costs and some were not, but life is always more expensive than I anticipate.

[gt7301b]

Like a lot of the others I would be apprehensive about taking on a mortgage that is 40% of your take home. I know if we aren't careful we can easily spend more than $1,000 on misc expenses.

I also didn't see where you guys are retirement wise, but I would make sure I was putting away a sizable amount towards retirement. I'd also make sure you have adequate life insurance and an possibly an umbrella policy.

I think you could do it as long as both incomes are secure, that being said it would make me nervous.

[madringal]

I ditto what some of the other said about kids expenses. What I used to spend in diapers, daycare, and formula I now spend in braces, orchestra camp, swim team, and misc activities x about 3! I used to be able to buy my kids cute, functional clothes from target, tennis shoes were MAYBE $25. Now to get her a pair of gym shoes to last her the school year I am spending at least $60. And that doesn't count buying her a pair for cross country!

And I would definitely dig into that grocery budget. I can't see how a family of (3? 4?) can east on $500/month in HCOL when your eating out budget is so low.

[simpsongal]

I just wanted to say thanks for posting! This board lives for these and it’s been a while.

(I’ll echo the above advice)

[lacey]

I mean this is purely a priority and security question. You are going to have $6500 of post tax, post mortgage money left over each month after paying your mortgage. Of course you can live on that and be quite comfortable. You will obviously have less free cash than someone with a similar net income who has a smaller budget, but you can prioritize the house while others are prioritizing vacations or eating out or savings. The higher fixed housing expense will definitely put you at more risk if one of you were to lose your job. We have no idea what you do, how secure your jobs are, or how easy it would be for you to find a replacement job if needed. You should definitely think about that.

I would only buy a house with this size mortgage if you are maxing retirement. I also echo previous poster's about putting the difference between the hypothetical mortgage and your current mortgage in a separate bank account from now until you buy to see how it feels. I also wouldn't count too much on future earnings here. If you are comfortable with the budget as is then go for it. If you think your going to want to take trips/do more kids activities/go out more as the kids get older I would try to take that into account now.

[notaregular]

Aug 1, 2019 16:30:56 GMT -5 simpsongal said:

I just wanted to say thanks for posting! This board lives for these and it’s been a while.

(I’ll echo the above advice)

Ha! Glad I could be of service And glad I didn't get totally torn apart, lol!