Budgeting

Our Budgeting Strategy

The word ‘budget’ scared us for years. We associated it with restriction, penny-pinching, and frankly, it seemed too hard. Now, we see our budget as a tool to gather information and help us plan. We won’t feel guilty if we go over budget one month – that’s life! Focusing on the bigger picture is more important to us.

We’ve been loosely monitoring for about a year now but started strictly looking at our income vs. expenses as of January 2021, when we officially combined our accounts and credit cards (after our wedding!). Our combined, base household income (pre-tax) kicking off the year was $190,000. Ryan works in sales, so overall we expected to hit about $200,000 pre-tax each year with his sales commission, but since they’re impossible to predict, we ignore his bonuses in our budget.

We’re also fortunate that we don’t have any student or bank loans. We paid those off before we got married by working extra jobs (that’s a story for another time). The only outstanding debt we have is our car lease that has about $12,000 remaining on it over the next 3 years. It works out to approximately $331 per month.

So how did we come up with our budget? The first thing we did, was Google “how to budget”. Now if you’ve done this, you’ve probably come across the 50-30-20 rule, which recommends the following allocation of your after-tax income:

• 50% on needs – things you need for survival (mortgage, groceries, insurance, etc.)
• 30% on wants – things you could live without, but you enjoy (dining out, vacations, etc.)
• 20% on savings – this includes saving, investing and paying off debt

With this information in mind, we used an online calculator and figured out that saving 20% of our income would allow us to retire at 67 years old. The calculator assumes:

• Retirement spending will be 70% of pre-retirement income
• A 3% inflation rate
• Salary increases of 2% per year
• A 6% rate of return before retirement
• A 5% rate of return in retirement

While retiring at 67 years old isn’t terrible, what would happen if, in 20 years, we found ourselves in an emergency situation where we had to decrease our payments for a few months? Would we have to postpone our retirement? Also, acknowledging that we want kids down the line, we wanted to make sure we left ourselves enough of a buffer room. We’re comfortable saving as much as we can now, while we have minimal responsibilities – no mortgage or kids.

So here’s what we did instead:

First, we analyzed our monthly spending from January 2021 and figured out the costs that we could cut out moving forward. Check out our January spending here. From there, we decided on a monthly savings goal of $5,500 per month. Then, we worked backwards to fill in budgets for our remaining categories starting with our fixed/static payments such as rent, insurance and car payments, followed by semi-fixed expenses such as groceries and gas, and then allocated the rest to fun spending.

Here’s what it looks like:

We’re moving from our small downtown apartment to a house, so we left quite a bit of our budget as miscellaneous to account for moving expenses and buying some new furniture to fill our new space. We also plan to revisit this allocation each month and make changes based on any large spending events we expect such as birthdays, anniversaries, etc.

We’re starting this budget as of February 2021 – wish us luck! Here’s how much we’ve saved each month:

2021

• January – $3974.01
• February –
• March –
• April –
• May –
• June –
• July –
• August –
• September –
• October –
• November –
• December –