Saturday, April 7, 2012

My budget is a non-budget

I'm having the perfect lazy morning -- after a night out with friends to celebrate a friend's birthday (we actual made it to DC this time instead of staying in Arlington - yay!), I have spent the past few hours reading celebrity gossip, reading one of Suze Orman's personal finance books, reading some awesome gender/life/politics articles on, all while drinking red roobis tea and eating proscuitto. I do so enjoy the perks of living alone.

I recently made an introductory appointment with a fee-only financial advisor (more on that later), and set up time to meet in May for half an hour. To prep for that, I filled out some forms about my income/savings/investment/expenses. That got me thinking about some bigger questions, like how much I should be saving for grad school, buying an apt/condo in the future, or other relatively short-term expenses -- and not only how much, but in what vehicles.

Thinking about these short-term goals involved taking a look at my current spending & savings rate. I'll admit that I could definitely be smarter about things. I get paid on a monthly basis, with my 500/month contribution for my 401K and 150/month contribution for the metro taken out automatically. On top of that, I get reimbursed for my work-related travel expenses from that month as well, which is anywhere from nothing to 2K. So this is probably a bad thing that I'm not really sure how much I get paid every month. Looking at my bank account, my paycheck has been: $5,155, $6,229, $4,520, $6,192, $6,177, and $5,537. I'm going to estimate $4,500 as my true monthly salary (the rest is just reimbursement for my work-travel purchases).

I have very few fixed expenses -- my rent is $1590, which probably sounds awful, and did to me coming from 4 years of college in Pittsburgh, but I promise it is worth every penny to me. My cozy studio in a prime (and convenient for work/shopping/biking/restaurants/airport) location is worth more than that. No utilities (water/heat/cable/shitty internet) as those are included. Now that my parents' Netflix gift expired, I'm paying $8/month for their 1 movie at a time plan. I do spend a couple of bucks a month on magazines (have subscriptions to Money, Smart Money, Kiplingers, Glamour, and Cosmo.) I joined a gym with a $50/month membership, but my company started reimbursing up to that amount for health/exercise, so that's covered. Love me my iphone but not the huge bill, but again work covers the bill almost in entirety. I do go to Pittsburgh once a month to see my boyfriend, but I've been lucky enough to combine it partly with work-travel, so I hope that continues. Still, I suppose the buses and flights on the other occasions add up.

I've maxed out my IRA for 2011 & 2012, to that's 10K right there, but I invested that in a lump sum. I contribute to organizations that are important to me (MS Society, American Cancer Society, Planned Parenthood) but those are also 1-off donations. Basically my money goes to eating out way too often, going out and paying too much for alchohol, shopping. And of course random purchases on Amazon, and who knows where else. I basically just spend and then whatever's left at the end of the month is my savings. My non-budget is working out OK for now, but I see some clear opportunities to save money. The big one is bringing lunch to the office. I usually don't, so that's $8/day or $40/week or $173/month or $2,064 a year I'm spending on eating lunch out. I'm sure I'd spend much less if I brought food. So that's my next goal: save money by bringing food with me for lunch most days.

Still, it's remarkable how your spending often basically expands to whatever your income is. I don't think I spend excessively, but when I look at the numbers (income and fixed expenses) it definitely feels like I should have more saved. I've heard the suggestion of writing out every single expense for a month to get a really good understanding of where your money goes. I, however, disagree with how useful that is. Sure, it'll help. Maybe you'll save a couple bucks a day when you switch to making coffee in the office instead of going to Starbucks. Maybe you'll realize you should subscribe to a magazine instead of buying it off the stands multiple times a year. That'll add up to a sizable sum. (Clearly I think my lunches add up and that it's worthwhile to work on cutting those expenses)

But I think that what matters most is your mentality, your attitude towards money. What matters is the big picture -- are you spending money in ways that allow you to live out your values? If you're not, than saving $100 dollars more a month won't leave you feeling any happier or secure. But I suppose it's a start.


  1. Agree with the last part -- attitude towards money is important, and if you have the right attitude, you don't need a budget. A budget can actually hurt if you end up *inflating* your spending to meet it. But it can be a good start for people who don't yet have the right attitude. It can also be useful if you set it a little below your average spending as a challenge to yourself, as long as thinking about this doesn't cause you any stress. I'm trying out this strategy for some categories.

    Good luck with the home lunch goal. I'm lucky to have the company provide food :)
    And I hope you tackle the Starbucks habit next.

    Also, why not max out the 401(k) as well as the IRA?

  2. Thanks for the comment! And of course for the link -- I'm probably going to spend the next hour reading that blog, the coffee machine article was awesome. Though I don't actually have a Starbucks habit to kick -- I don't drink coffee, and I only average a trip or two a month to Starbucks. Although we did recently get a fancy coffee/latte/whatever machine for the office, because a)apparently our old coffee machine sucked and b)so many people would take multiple trips to Starbucks per day (there's one on the 1st floor of our building) and waste time ;)

    Yura -- do you max out your 401K? I have to admit I'm not sure what the right balance is for long/short-term savings. It feels like I'm ahead of the curve and saving enough to be on the right track for retirement, whereas on the other hand I see a lot of expenses in the short-term like going to grad school or potentially buying an apartment or car, so it feels like I need to have more liquid savings.

    Also we need to do another hike -- I miss hiking.

  3. That blog is fantastic, I've been reading it all the way through over the last couple of months.

    I had assumed "Maybe you'll save a couple bucks a day when you switch to making coffee in the office instead of going to Starbucks." was about yourself. Even better!

    I thought maybe you had some financial reason to go for the IRA first. For example, the fund selection for my 401(k) is limited and The Hartford takes an almost 1% cut in fees.
    I did recently start to max out the 401(k) and a Roth IRA, but I don't have any big short-term goals and rent is much lower around here (hint, hint). A car shouldn't be a major expense on this scale.

  4. There are several reasons why one would not want max out 401k:
    - Not everyone has extra 16.5K leftover. But if you do, you still may want to have liquid savings for the car, house, emergency. So even though Savings accounts at banks to give you high yields, it's good to have savings to last you at least 6mo to a year, just in case - this is how much you would actually need - not how much you MAKE in this time. (think of it as insurance)
    - For traditional 401k, you will be effectively losing money if you are in a higher tax bracket when you retire. This is both a function of your income when you retire and the tax brackets in the long run (this is really an unknown, though many people think taxes *have to* go up). My investment strategy is similar to Dina's, based on what I've read. Finally, Roth IRA allows me to invest in specific stocks and not just ETFs (which is the case for 401k, at least for me).

    As for spending...I personally don't have a budget, because if I did, I would probably spend more than I should, even if I can afford it. My approach has always been, spend as much as you need to stay happy, but not a dime more. The beauty of this approach (for me) is that I don't have to think about whether I can afford something or not, unless it's something outrageous (I can't afford a Ferrari.) But if I want to travel, I just go for it (it's not in my budget, but I know I can afford it), if I want to get a new camera, computer, etc, and I believe I need it - I will get it, even if it's not in "the budget".

    - Starbucks is a waste of money if it's habit. Frankly, so are cafeteria lunches.

    These are just my 2 cents.

  5. I'm with you on the first point -- and I'm definitely not at the point of having 6 months of savings, so I should definitely work on that. Though I will note I'm lucky enough to have both a Roth 401K and a Traditional 401K -- my company contributes to the traditional one, and I contribute to the Roth. I'm glad of that :)