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Be the expert: How should this guy manage his monthly expenses?

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Here’s a recent email from IWT reader Richard A.

How would you answer his question?

“I have no idea why I’m writing this but you seem like the only person that would even care and/or be eligible to say I told you so.

I live a pretty normal life. House, car, girlfriend, occasionally going out. I max out my 401k at work and put enough away each month to hit my Roth IRA yearly limits. I put away money for an emergency fund, vacation and gifts (bday, xmas, etc). Other than that I don’t wear fancy clothes or drive a fancy car or do/own anything I’d consider “rich people” things. I make a good wage so I’m not the kind of person to sit down and look at numbers very often, set it and forget it right?

And yet I spend $140 over my monthly income each month on just basic expenses, savings and retirement! WTF?! I MAKE $90 fucking thousand a year (pretax of course). How am I spending more than that a month? I just don’t understand. My lifestyle hasn’t changed from when I was making $50k/year.

It’s really just shocking and eye opening and I’m sitting here dumbfounded. Thought you might enjoy. And for shits and giggles here is my list of monthly expenses.

car payment – 300
mortgage – 1400
car ins – 260
water/elec/gas – 230
misc expenses (netflix, gf cell etc) – 70
gf bills – 600 (car, ins, medical, etc)

roth ira – 400
emergency fund – 500

vacation – 240
gifts – 80
spending cash – 400

mind blowing. mind blowing.”

Be the expert: What would you tell Richard? BE SPECIFIC and consider not just the numbers, but the psychology of spending.

Leave a comment below.

 

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485 Comments

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  1. While the car insurance looks a little high – and I would consider shopping for a better deal and/or negotiating a lower rate immediately – the big red flag is $600 a month for the girlfriend’s bills.

    Why are you paying any of anyone else’s bills if you aren’t able to stay within your budget?

    • Caroline F. Lee Link to this comment

      I agree. You are not married – this is what married people do b/c there is a contract in place. With a girlfriend there is no contract and no obligation. She should pay her own way or tie the knot.

    • The red flag for me was also the girlfriends bills. Until they get married I would not consider that a shared expense. Why isn’t she working? How much of her bills does she pay herself?

      As an unmarried female, I wouldn’t expect my boyfriend to pay my bills. I make $50,000/year right now with my part-time security and I take care of myself. That $600 would be better used so that he can build up his emergency fund, add to his travel account, pay his mortgage off early, or have extra spending money.

      If he doesn’t want to make his girlfriend take care of herself then he can cut back on his discretionary spending fund ($400) and be more miserable.

    • Samantha hit the target!!

      Lose the bloodsucking girlfriend, Richard.

    • I actually know a couple that have been together for over 30 years and do not plan to get married, ever. They are very committed to one another. Some people don’t care about official things like that.
      Also, I don’t see why it’s suddenly completely okay for Richard A to pay his girlfriends bills if she was his wife.
      Maybe she’s between jobs, maybe she’s ill, maybe they’re focusing on having children, and maybe she’s lazy. No way to tell from this story.

  2. Yes, why are you paying your gf’s bills? That makes me wonder what else you spend on her (gifts, eating out, going out) that you aren’t aware of.

    Missing expenses: car gas, food, clothing, annual expenses (car registration), your cell.

  3. Samantha covered the big one: why the girlfriend bills?

    Aside from that, I would suggest figuring out what’s most important to him, then going down line by line and working out what can be reduced or cut out.

  4. Does this girlfriend live with you? Have to agree with Samantha. You help her get through school and she leaves you for a better model.

  5. what i don’t get is that the expenses don’t line up with his income. It only totals $53k per year in expenses. If he’s making $90k in income pre tax, thats what, $60-$65k after tax? Probably more than that since he owns a house. He should easily have an extra $1000 per month. I would say he needs to figure out where than $1000 is going rather than arguing over $50 for insurance or paying his GF’s bills (which, while expensive, could easily give him more than $600 elsewhere could ever buy).

    • Other than all the GF notes here, I’d add to just knock down your emergency fund contribution. It’s an illusion that you have $500 available for this. This should be pretty obvious. No reason to stop saving or go on weak vacations as others have mentioned. This seems pretty easy to me.

    • Totally agree Brian. There’s a big hole in his pockets. I once learned if you don’t give money a place to go, it will find a place to go.

    • Bri: I’m with you. The numbers didn’t add up to me.

      Minimally, he’s not including his tax refund as part of his income. I could imagine putting the whole thing towards next year’s Roth and decreasing the monthly Roth withholding, for example.

    • I wouldn’t assume he’s taking home more than that. My income is in the same range as his and after taxes, 401k, and group benefits such as health insurance, life insurance, disability insurance and the FSA account, I bring home just over 56% of my gross income. If he is making $90K, using the same ratio of 56%, that’s take home pay of $50,400. The cost of his benefits, etc. will vary but I think it’s likely that his net income is significantly less than $60-$65K after tax. If the number he gave of overspending $140/month is accurate, based on $53,000 of expenses, then he’s taking home $51,320 or 57% of his income. Seems right about in line based on my experience with my own paycheck.

    • He said he is maxing out his 401k, which is $15,000 a year. That puts him a lot closer to your extra $1000 a month.

    • The extra money comes from the 401(k). If he’s make 90 pretax, let’s say 30 after tax…plus contributing $17K/YR to 401(k), that takes it down to $53.

  6. As a follow up, if he’s contributing that $1000 to his 401K (which isn’t accounted for in his expenses) then he just needs to recognize that he is putting a significant amount towards savings/retirement (almost 30%). Depending on when he wants to retire, maybe he could back that down a little bit and have the extra money there.

    • Right. It’s the missing information that’s most important here. If only I’d read these previous couple comments my superfluous comment down at number, what 453?, wouldn’t have been needed.

  7. First of all, why are you saving so much if you can’t afford it? You should probably try to not accumulate a debt by saving.

    If you’re paying for your girlfriend’s expenses, does that mean you’re paying all of the mortgage and energy bills too? How can you afford another person beyond your own expenses?

    Also, rather than socking away money for a $3000 vacation, maybe you could go on a cheaper vacation for $1200 instead? The vacation budget alone could fix your problem.

    If none of those work, I would suggest to try to cut down constant cost. Is there a cheaper energy provider or insurance policy you could get? If you can shave expenses off things that will be the same from wherever you get it, you won’t notice any change beyond the savings.

  8. Three things I see:

    1. Assuming you don’t drop your car after your lease is up, your $300 a month car payment will disappear and you’ll no longer be spending more than you’re making.

    2. Your lifestyle might be the same, but you’re also spending money on your girlfriend’s too, which can add up fast. She’s the most expensive thing after your mortgage and savings.

    3. I think your main problem is that the more money you make, the more you think you can diversify your priorities. Little increases add up fast. So, for example, if your priorities are long term, then you can choose to take care of a mortgage and savings. But, now, you’ve added on other priorities like travel and a girlfriend’s expenses. Having two major priorities (and the resulting expenses) can break up a large paycheck really fast. Now your expenses have reached nearly $50K a year.

    • Whitney, you make a fantastic point about priorities. It seems so basic when you say it, but I find myself doing that, too. In the past three years I’ve had two large jumps in salary (from pretty low to now reasonable) and each time I got stuck in the same thinking. I wanted to throw it all at retirement + student loans + vacations + liquid savings…you get the idea.

      Sometimes you have to pick one or two priorities and be patient about the rest. As long as you’re building toward a goal or two, you’re making progress, not staying stagnant.

  9. Richard,

    The most glaring problems that can be highlighted from your email are the Girlfriend tax, Emergency fund and 401K.

    If you don’t have a handle on your own finances don’t take on other peoples. When you say you are paying other peoples bills you basically tell me that you are fine with people living above their means and there is always a solution.

    I’m guessing that you are from 25 to 40 and I will also assume you are healthy. There for you should be focusing on paying off your debt rather than “saving” in an emergency fund and 401k. Eliminating your mortgage debt should be the highest priority, it is the only expense you listed that will/could make you money in the future so don’t let your profit be eaten by interest.

    Here are some hidden costs you have not listed:
    Car Fuel, Car Maintenance, Food

    Jeff

    • Disagree with this one. Compounded savings is the single biggest advantage a young investor has. Mortgage rates now are very low. Keep your 401k.

    • Disagree as well. Assuming his mortgage is less than 5%, it’s hardly a priority – that’s cheap money!

    • William Lipira Link to this comment

      While I agree that he has not listed a few things, having an emergency fund is vital. Of course, once you reach your goal number, then stop paying into it (unless you are replenishing it).
      Not contribute to your 401k? Really? You are wrong in this, very wrong.
      Your idea about the mortgage is also wrong. Whether one rents or pays a mortgage, there will always be this expenditure (for the most part), so this isn’t a “debt” one should worry about paying off, post haste. Also, you get to use your mortgage for tax purposes (I don’t know the details, but having a ,mortgage is very good taxwise – other please fill me in, and/or correct me on this) Other debt is bad, like credit cards (any plastic), etc. that you can’t pay off completely on a monthly basis.

    • My opinions are based on Australia mortgages and tax.

      I should have read up on Mortgage rates what the difference between a 401k and Superannuation (Australian) but I was lazy.

  10. The two major things that stand out to me “occasionally going out” and “My lifestyle hasn’t changed from when…” The first one, I used to think I didn’t go out that much but once I started tracking my expenses using a tool like mint, I was shocked at how much I was spending eating out or having drinks, etc. I think if you really tracked all your transactions for one month you’d be surprised on how much you really spent. The second one is obviously not true, it must have changed, to be blunt your in denial of where your money is actually going and your not tracking it properly. Before you can even being to analyze your “budget” you need to raise your awareness of your spending habits. Utilize something like mint to automatically track your bank account and credit card spending, this should really open your eyes.

    • I completely agree. Take a couple months to track your spending- this in itself reduces consumption. You can’t cut costs and optimize spending when you don’t know how much you’re spending where.

    • I think you hit the nail on the head for this one, Chris. While we have lots people mentioning the girlfriend as a budget-buster, I would also be more inclined to say that perhaps he isn’t as cognizant of his spending habits as he thinks he is. I don’t think the point here was to point out that this guy spends $600/month helping his girlfriend out, that is much to obvious. I think this is more about the fact that this guy’s mind is blown as to where all of his money is going without ever really analyzing or admitting to himself how much he actually spends.”Set it and forget it” was the term used. WRONG! I respect that he is on auto-pilot with many of his expenses, however, when you’re going over your budget every month by an average of $140, it’s time to evaluate and really admit where your money is going.

    • William Lipira Link to this comment

      He is living it up. Making a boatload of money, and treating his girlfriend lavishly. Notice that they are not married, so hot-shot spending goes up. Trust me, if they were married, it would be a whole other ball game.

    • Yep, I immediately wonder about anything called “miscellaneous” or “spending cash”. And I wonder how much he (and she) spend each month eating out.

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