Paradigm Shifted

This is part of a week-long look at my budget.

Finally, we get to the point of budgeting – enjoyment!

After all the expenses are taken out, there is still some money left over to play with.

The first thing I look at is charitable contributions. There isn’t a specific place I like to donate to, but every month I go through my emails and see if there is something I want to contribute towards. i get tons of requests all the time, so there is always something small and localized I can help out.

Then there’s gift-giving. I love to give gifts. I don’t find that this a monthly expense, so any excess will go into savings – and some months, there are more gifts than others, so this often comes out of savings too (I track this, so I “break even”).

And speaking of shopping, I like to buy clothes, shoes, and other accessories. I tend to keep this category very, very small, mostly because I’ve got more clothes and shoes than I’ll ever need. When I do need to buy something (usually something outdoorsy), I get a good deal from my brother.

Dining out and drinking with friends is also a minor splurge in the budget. I try very hard to keep this minimal, but I also don’t want to feel deprived. DC in the summertime means lots of free or inexpensive activities, so this hasn’t been too bad. And happy hour is always a great deal.

Then there’s my vanity to consider – completely nonessential but yet essential expenses include pedicures, eyebrow threading, and an occasional facial. These are irregular, and I usually cut down on other expenses to cover these.

And finally, my raison d’etre – travel. I will confess that I should have a travel budget – probably a specific account to which I contribute. I don’t. Right now, travel is budgeted monthly, so I save a bit towards (which is in my savings account), and I adjust monthly expenses to account for travel expenses. Potentially my miscellaneous savings account could become my travel account.

So that’s it! You’ll notice that there are some things I haven’t mentioned. I’ll discuss some of that in a future post on what I don’t spend money on.

This is part of a week-long look at my budget.

Now that we’ve covered the future, let’s take a look at the present. I have spent the past couple of years paring down my expenses. It is very important to me to simplify matters so that I can have less stress in my life.

So with 50-60% of my income going into savings, that leaves me with the rest to spend.

First the basics – rent and utilities. While I could go without cable/internet, I live in a group house, and these expenses are shared. They are not very expensive for me. It is important to me to live in the city and close to work, but I also do not want to pay exorbitant rent. So for now, group housing works – I have two awesome roommates. I am under the 30% rule (closer to 20%).

Then the first layer of addons – I have a cell phone, a membership to my climbing gym, and a Netflix account. No car (sold in March), so no expenses there. The cell phone is the cheapest plan with my provider and I’m on a contract. The membership to my climbing gym provides entertainment and exercise. And I love documentaries and foreign films, which Netflix has in abundance.

The next largest category – food and groceries. I buy everything at the farmer’s market or Whole Foods, paying attention to keeping things fresh and local. Outside of that, I buy lunch at work because it is subsidized and relatively cheap. As I mentioned before, I budget about $100 for groceries for the month, and another $100 for lunch (way more than I need).

And then finally transportation – I use the metro or walk everywhere. I get a certain amount towards metro fare per month from work, which offsets my commute into work. I am also considering joining a bike-sharing program. And I have a membership to Zipcar, for which I paid an annual fee (and got a credit). The total average monthly amount for transportation is very minimal.

Other miscellaneous and irregular expenses include household items, toiletries, etc. Except for things like paper towels and garbage bags, I don’t spend a lot here. There was a time when I went on a spending spree, and now I have personal care products to last me a lifetime.

This is part of a week-long look at my budget.

Again, following the money flow, this is the next thing that comes out of my salary.

I had originally thought I would put about 15% of my take-home pay into savings (19% of gross income goes towards retirement). This 15% going towards non-retirement savings would be a cushion (aka, emergency fund ~ 6 months living expenses). It would also contain additional amounts for buying non-budgeted items and travel.

But after a long, hard look at my expenditures (needs vs wants), I realized I could contribute a lot more. So effective immediately, I am contributing about 60% of each paycheck towards savings. I have an automatic payment set up to pull the money from my direct deposit the day it hits (so I won’t miss it, haha). Assuming a promotion (with salary increase) in mid-October or so, this drops down to about 50% of each paycheck. In no time at all, my cushion will be fully funded. And then some.

Additionally, I have another savings account to which I snowflake savings. This is money made working my side jobs, extra cash I pick up, etc. This one is growing at a much slower rate, but it’s nice to have this additional backup.

This is part of a week-long look at my budget.

Following the money flow, retirement comes second (pay yourself first!).

So I’ve given up on trying to figure out how much I need in retirement and am currently contributing a “reasonable” amount. What’s reasonable? That varies. But here is what works for me currently (keeping in mind that next March, everything changes):

1. Employer contribution to 403b (employer-sponsored pre-tax retirement account) – 5%. This is at TIAA-CREF and is diversified in a number of funds (with some bonds). I’m heavily into the social choice funds. (ETA: I just learned that my employer contributes 6.3%)

2. My contribution to my 403b – 5%. This is at Vanguard. It’s split evenly into a number of Vanguard funds.

3. My contribution to Roth IRA (post-tax retirement account) – $5000/year (max). This is at E*Trade, and is mixed in some small-cap and large-cap funds. There is a decent amount in international index funds.

Total: approximately 19% of my yearly income goes toward retirement. (ETA: closer to 20% with the new percentage info from my employer)

In addition, I maintain another ROTH IRA and a traditional IRA to which I am not contributing. I am keeping them as is, because they are at other institutions. The traditional IRA will likely be converted.

I also have an old 401K that has yet to be rolled over. Right now, I’m fine where it is – it has a good asset mix. When the economy improves, I’ll see how it is doing compared to everything else and consider rolling it over.