What should Liv do with her extra income?

magnifying glassLiv and her husband have been YNABing since 2010, and they’ve just had the good fortune of a monthly net increase in income of $1,775.50. Liv has a few questions for the YNAB community. Take a look at her budget:

Category 2013 Budgeted Increase from 2012 Notes
Gas, Metro & Tolls $250.00 $30.00 Increase for 2nd car
Groceries $433.33 $32.50 Increased because always overspending in 2012
Toiletries & Cleaning $64.00
Electricity & Gas $200.00
Phone & Internet $122.00 2 cell phones & land line
Water $52.00
Trash $8.93
Restaurants $50.00
Misc $110.00 $15.00 Increased so this category isn’t so tight
Housewares $30.00 $20.00 Used for storage boxes, towels, bedding, small kitchen items, etc and decorating house (bought 2 yrs ago)
Entertainment $5.00
Her – Clothes $25.00
His – Clothes $25.00
Her – Fun Money $0.00 Funded with credit card rewards cash back. ~$125-150 per year, per spouse
His – Fun Money $0.00
Gifts $100.00 All Gifts: Birthday, Anniversary, Christmas, etc
Travel to Home State $41.67 trips to see family (~500 & 700 mi away)
Vacation $83.33
Mortgage $1,576.24
Property Taxes $312.50 $10.42 Increase for 2013
Home Insurance $79.92
Life Insurance $86.00 ~$750k coverage on husband
Car Insurance $144.08 $53.41 Increase for 2nd car
School Loan $123.46
Tithing $975.00 $200.00 10% of gross income (which is up $2,000 per month over 2012)
Doctor, Rx, etc $20.00 This is in addition to what we put aside in Flex Spending – Flex is the conservative estimate. Amounts decreased in 2013 because taking less Rx’s.
Health Items $100.00 Vitamins, supplements, over the counter meds
Home Improvement & Repairs $300.00 $216.67 increased
Furniture & Appliances $75.00 $45.83 increased
Electronics $25.00 $25.00 Started new fund to save, otherwise would have come from Misc
New HVAC $300.00 $300.00 Started new fund to save, otherwise would have come from Home Improvement
Car Repairs & Maintenance $115.00 $31.67 Increase for 2nd car
New Car Fund $0.00 $55.00 Just bought second car.
General Savings $1,000.00 $730.00
Emergency Fund $0.00 Finished saving for it in 2012 – 6 months of expenses, and recently moved it to Betterment.
Betterment – Investing $380.00 $100.00 Shifted $280 from “New Car Fund” (Just bought a new car) and added another $100
TOTAL $7,212.46

Now, Liv’s questions:

  1. “Where can we decrease costs? It seems lean to me, but it’s easy to overlook your own ‘splurge’ categories?”

Notes on this question: they just bought their home two years ago, and plan to be in it for the long term. They also consider tithing an untouchable category. They may be starting a family in the not-too-distant future.

  1. “What’s the community’s take on how we’ve chosen to allocate the increased income (which we don’t expect to last more than a few years)?”

Notes on this question: Because they don’t expect the income to last, they hope to avoid using any of it to increase lifestyle. Here’s the specific breakdown of how they’ve allocated the new income in the budget:

Amount Beefed-up Category
$200.00 Increased Tithing on increased gross income
$115.08 Increased expenses related to 2nd Car
$77.92 Increased other tight categories
$642.50 Increased Save for Unexpected
$740.00 Increased Savings

Mark’s Take

Just a couple thoughts/questions, then I’ll turn it over to commenters:

  1. What are the interest rates and balances on the student loan? What is the net benefit of putting money into Betterment/General Savings rather than paying off the student loan?

  2. You want to avoid using the new income for more lifestyle, but you’ve allocated $115.08 + $77.92 to…more lifestyle? The rest is savings, and the tithing goes away when the income is done – but you’re building $193 per month into your lifestyle. What’s the plan there?

  3. Why does the new income have to go away? You say it’s going to last a few years – could you not create a situation where the income persisted? You do have a few years to work on it, after all. :)

That’s it from me. Anybody else?

18 Responses to “What should Liv do with her extra income?”

  1. Preston

    I agree with Mark. Get rid of your student loans! If your savings are already in a pretty good place, tackle your debt. Even put some extra into your mortgage. Knocking out debt is the best way to use any temporary boost in income. It puts you in a better position for the future without expanding your lifestyle.

  2. Jon

    I think a little more fun money is in order, maybe $50 each per month so you can go hog wild! Also, don’t underestimate the joy of giving. Maybe consider putting a set amount each month towards a charity (smile train is my favorite) or find a student in need and contribute to their education.

  3. Eric Williams

    I am curious like Mark…

    1. Why does the income go away? And How can you work to keep it in the next two years.

    2. I would also suggest paying off the student loan with the extra money instead of saving it.

    3. If you are thinking of starting a family, and depending on the types of things you want for your child (new vs. used/hand-me-down) you might want to set aside some money for those expenses.

  4. Carola

    I don’t have the details about the mortgage but maybe that’s one way to give yourself a salary increase once the extra income is not longer there. I find inspiring people doing that http://nursefrugal.com/

  5. Emlyn

    If the income will go away because Mom or Dad is planning to stay home with a future baby, then take some of that income and crate a “Stork Fund” to save for some baby/kid related expenses, as Eric suggested. Pay down/pay off student loans with the rest, and once that debt is gone tack extra some onto the mortgage principal. Kudos to you for buying your cars with cash!

    Liv did ask about cutting costs… I only have a couple of suggestions: 1) Add Grocery and Toiletry/Cleaning to the same category since those items are likely coming from the same store, and cap it at $500 a month. If you need more TP, you might have to have rice and beans one night. ;) 2) Can phone/internet be cut at all? If you can get rid of the land line and utilize a non-DSL internet service, you might be able to get that to $100. With those suggestions, that’s only an extra $50ish a month, but every little bit helps. Maybe put that $50 into the stork fund and attack the debt with the increased income?

    Good luck to you!

    • Emily

      I agree with you about a “stork fund.” I would suggest they research what common practice is for routine pregnancies in their area and find out how much insurance covers. There is a lot more that happens in prenatal care than most people realize who have not recently experienced it. Blood tests and glucose tests plus paying the lab to analyze, etc. Will they want to hire a doula for the delivery? Gotta get those newborn photos and those aren’t cheap :-) Might as well put a little aside each month now, so that necessities are covered and any luxury pregnancy expenses are a completely stress-free purchase.

  6. Dan McCurry

    Almost $15,000 per year for vacation + family visits (which I consider vacation) seems high to me. I would take 1/2 of that money plus the “extra” money and pay down loans.

    • Chris Hinds

      Do you mean $1,500? $83.33+41.67 = $125 x 12 = $1500. That seems very reasonably.

    • taylormade

      The vacation + Family visits only comes to 1,128$ per year. I think you accidentally looked at the wrong category.

  7. Alessandro Gregori

    I want to contact mark too, because i think i need some help in budgeting, how i can contact him?
    I know it isn’t the right place but…

  8. Ken

    I would put it all toward the student loan. Get that darn thing paid.

  9. Stephanie

    I agree with Mark – I would recommend putting the extra towards the student loan. Once that’s paid off, put the extra towards the house or towards a “Stork Fund” since they are planning on having kids in the near future.

  10. Alex

    Looks pretty good – A couple of questions
    1) where is retirement savings?
    2) how quickly can the student loan be paid off if you through as much money as it as you can
    3) what are your general savings for? I think it needs to be more specific what do you want the money to do.
    4) how risky is the betterment account that you have put your emergency fund into?
    5) can you put more on the mortgage?

  11. Travis

    +1 to a baby category. All of your other household categories will go up once you add another resident to the house so start planning now. If you think this income increase is temporary, use it to attack debt since you may not ever have that chance again. I recommend the student loans.

  12. Rebecca

    I would highly recommend attacking those student loans if your savings are in a good place. If something were to happen and one or both of your incomes were to decrease, you couldn’t get rid of the loans through a bankruptcy, and if they’re not paid they can garnish your taxes and/or wages, making them the riskiest loan to own.

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