This may sound ridiculous to admit, but we have never had a budget. We got into the habit of making as much as we could and saving as much as we could (within reason); and never looked back.
We recently moved to a new house and then I switched jobs. For the first time, I found myself obsessing about money in a way I hadn’t before. Both of these significant life changes made me re-think what my strategy was for the next several decades, how much money I needed to make and what my risks were. At the ripe old age of nearly 32 and being 10 years into my career, I decided it was time for a plan.
We’re making as much as we ever have, but also don’t have the diversification of income that I once had when I was side hustling and running my own DJ and photo booth business on top of holding down full time jobs. We also have more responsibility on my plate than ever before with a vacation home that is supposed to double as an investment (although the verdict is still out on that) and three young children.
I feel like I have gotten to a good place in life with everything that I need along with a few luxuries that I would like to be able to sustain for the long term. After reading the book Die with Zero, I was able to re-think my priorities and challenge myself to take a calculated look at what my long term goals are. Best case, I have a solid 2,500 to 3,000 weeks life of quality living with my health and many of my loved ones still also being around. My goal is to make the best of the time that I have. In order to do this, I decided it was important to figure out the money equation.
How much money do I need?
It is a simple question. The answer is not as simple, but we can at least get relatively close to the answer. Any calculated estimate is better than the alternative of either wasting away your life squandering for money that you’ll never use or – even scarier – getting to some point in the future when it is too late to fix it and realizing that you grossly underestimated what you would need.
The first question to ask yourself is: how much am I currently spending today? This provides you with a great benchmark. Obviously we would all like the opportunity to splurge on a few things knowing that we could likely cut back in some areas if we truly needed to.
This was honestly a tougher question to answer than I thought it would be. I first did a quick budget spreadsheet of everything that I thought my expenses were. This reflection provided a good baseline and served as a reality check by pulling all of my expenses into an Excel spreadsheet from Mint. I sorted the spreadsheet by vendor name and went through line by line putting my expenses into each category. It took some time, but in about 45 minutes or less you should have a good idea of what your current expenses are.
Here is an example of where our spending came from:
Vehicles
- Insurance
- Gas
- Maintenance
- Tabs
- Saving for Next Vehicle (stay out of the vicious cycle of always having car payments)
Home
- Mortgage
- Taxes
- Insurance
- Maintenance (think general maintenance and ongoing upkeep in this section)
- Utilities
- Association
- Garbage
- Internet
- Phone
- TV
- Security
- House Cleaner
- Yard service for fertilizer treatments, lawn mowing, snow removal, etc…
- Nesting – new furniture, bedding, pillows, artwork, organization, tools, etc…
Living Expenses
- Groceries/household
- Daycare
- Activities
- Babysitting Haircuts
- Medical
Miscellaneous
- Travel
- Restaurants
- Entertainment
- Replacement of current items (everything is going to wear out eventually)
- Gifts
- Family
- Clothes
- Material
- Life Insurance
- Health Insurance
- Dental/vision insurance premiums & expenses
- Supplemental Insurance
- Health Savings Account (HSA) contributions and healthcare deductibles/co-pays
- Subscriptions like Spotify, Peloton, Apple News, Disney Plus, etc.
- Concerts
Rental Properties
- Mortgage
- Taxes
- Maintenance
- Utilities
- Setting aside funds for future improvements
Long Term
- Kid’s College Savings
- Retirement
- Home maintenance (let’s be real, the number that you indicated for home maintenance above is probably not the realistic amount you’ll actually need long term. How much should you be putting aside to put future costs for replacing shingles, windows, appliances, air conditioning, furnace, remodeling, etc…) According to this helpful article, an estimated starting point is saving 1-4% of the value of your home each year.
Total of the Above Expenses: Monthly Post Tax Expenses (how much does it actually cost)
Annual Pre-Tax Income Needed: to generate the post tax dollar figure above you need to take your Monthly Post Tax Expenses, divide by your tax rate and multiply by 12 (e.g, $7,500 Total Monthly Expenses / (1-25% tax rate) = $7,500 /.75 = $10,000/month = $100,000 annual income needed to support current spending level).
- Use the Estimated take-home pay calculator to estimate federal and state income taxes.
Getting your spending planning and a rough budget in check is an important first step. This gives you a baseline of what your current expenses are. You can then intentionally make adjustments by increasing, decreasing or shifting. Maybe there are some things on your spending analysis that are more expensive than you thought and you just don’t get the most value out of, maybe you could shift some of those funds to something like traveling that you would get more enjoyment from.
I also added two more columns to my spreadsheet. The first was my worst case scenario budget and where I could immediately make cuts if something unexpected like an illness or job loss were to occur. This helped me understand the income for my privileged definition of “getting by.” The second was an exercise to dream a little bigger and see where I would like to make enhancements for additional spending. When I find myself ruminating about the complicated and unpredictable future of personal finance, I’ve found this spreadsheet to be a great starting point to jump back in and continue to try and figure out how to win at the money game. It’s all about opportunity cost and you don’t want to end up with too much; or too little.
Now that I have a better grasp of our current spending, I am setting up better automated investing on a monthly basis to leverage the power of dollar cost averaging. I am also starting to think about ways that I generate cashflow so that I never have to worry about money again (if that is even such a thing, lol). The most ideal situation of balancing working, living, saving, giving, spending and guilt free splurging is out there. I’m going to find it!
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