See Our Budget: We Take Home $5,600/Month

With two young children at home, Debbie was feeling stressed and depressed about her long work weeks. So she made the happiness-increasing choice to cut back to part-time work and has loved the extra time with the kids.

Unfortunately, she and Ed are feeling the effects of the lost income. Although they’re budgeting diligently, high student loan payments and expensive car repairs have left them a short on cash. Debbie reached out to ask the community how she and Ed can get ahead in spite of the reduced income.

Debbie works part time earning $1,960 per month take-home. She’s paid bi-weekly, which means two months with an extra paycheck. Ed brings home $3,647 per month after withholding for 401k contributions (5%), taxes, and health insurance premiums.

Ed’s an up-and-comer at his job, and they hope to see a 35% increase in his income in the next five years.

To the budget:

First things first, I’ll congratulate Ed and Debbie for keeping things pretty well managed, even with a $763 per month student loan anchor around their neck.

Next, let’s do the normal quick scan looking for low-hanging fruit* in the budget:

I would take the $1,100 buffer and pay off the last credit card immediately.

You still have your $1,000 emergency fund in place, and we need that $124 elsewhere in the budget today.

Cable TV and expensive smart phone plans.

I have a deep loathing for both, so I can’t comment impartially on these categories. All I can ask is that you do the math on a) the cost of removing yourself from these contracts, and b) the amount of interest and time you’d save on the student loan debt if you added an extra $100 or so to your payments.

Groceries.

You mentioned how participation in the local CSA added about $190 to your bill over the four months used in these average outflows. I’d put that $190 to work elsewhere in your budget.

Clothing.

Maybe we caught you in an unusually costly four-month period for clothing purchases. If not, I’d say there’s an easy $50 to $75 to be saved here.*

By low-hanging fruit, I mean “easy to say, maybe not as easy to do.” Ed and Debbie have to figure out where and how they want to cut back, if at all. These are the categories where I’d start looking.

Potential savings:

Maybe $400 to $450 per month.

Vulnerabilities in the Budget

The cars.

I love that they drive two 10 year-old paid-for Toyotas. Problem is they’re high mileage, and they take a beating in the daily slow-speed commute. There’s risk of more expensive repairs, and my real concern is one (or both) of the cars will just flat out die and they’ll have to finance the replacement.

The house.

74 years old with a 15 year-old roof. It just makes me nervous to see no balance in ‘Home Maintenance’ and very little money flowing into the category. I don’t want the credit cards to be back in play when the home needs this or that and there’s no rainy day money available.

If it were me, I’d take the $400 or so per month in low-hanging fruit and build up a one-month buffer/emergency fund. That would allow them to live on last month’s income and have a little more peace of mind while they attack the debt.

But, even with the one-month buffer in place, I’d still feel like the cars, the commutes, and the house put Ed and Debbie at high risk of new debt. Which is why I gave them some pretty extreme advice.

My Crazy Plan for Reducing Risk and Getting Ahead Faster

Here’s my wild-eyed, hair on fire plan for how Ed and Debbie can remove a lot of their risk, lower their expenses, and speed up their debt elimination:

‍Sell the house and move to a rental within biking distance of Ed’s job. Debbie finds work within biking distance of the new home (because they feel like Ed’s job has more long-term upside).

‍Now, hear me out. Yes, it’s a drastic move. But check it out:

• The risk of the old house and the old roof go away.
• The reliance on the old, risky cars goes way down, along with fuel and maintenance costs.
• Debbie gets back most of the 400+ hours per year she’s spending in transit to her current part-time job. 400 hours per year!
• Ed gets back most of the 350+ hours (!) per year he’s spending in transit.

Okay, I acknowledge that I’m a little over the top with my anti-commuting attitude, but you have to do the math. Debbie’s effective take-home hourly wage goes from $24.50 to just over $16 when you add in the cost of the drive. That doesn’t even account for the physical/mental/emotional costs of two hours of daily stop-and-go traffic.

I’m not even saying they have to bike commute (although they’d love it). Choosing to live within biking distance is simply the decision to avoid a long commute in the car. Ed works in the suburbs, Debbie tells me, so it’s not like they’re having to move into a dangerous place to make this all work.

Alright, I’m getting long-winded (as usual). Ed, Debbie: think it over. I believe the direct dollar savings of the move would be thousands per year in avoided maintenance on the home and cars. The indirect benefits of not having to commute and spending a lot more time together will blow your mind.