The Most Expensive Part of this Budget Isn't the Easiest to See | YNAB

The Most Expensive Part of this Budget Isn't the Easiest to See

magnifying glassWith 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:

Pre-YNAB Debt Avg. Outflows Notes
Ed Chase $124.05 Leftover from our credit card days; we have paid off over $10,000 in CC debt in the last few years; this card is 0% APR for the next 12 months. Remaining balance is $1,072.
Debbie BOA $0.00  
     
Student Loans   Both have graduate degrees. Total outstanding balance of $100,710 at around 6%.
Ed AES $118.00  
Debbie AES $257.88  
Ed SM $175.00  
Debbie SM $212.76  
     
Monthly Bills    
Mortgage $1,289.35 Includes home owners insurance and property taxes. Property taxes are $435 per month.
Utilities $538.35 Includes gas heat, electricity, water, sewage, internet, cable, and cell phone; internet and cable = $100/mo. and cell phone = $156/mo. (2 smartphones)
Childcare $354.80 Debbie works ten months of the year.
College Funds $12.50 They were contributing monthly to a 529 plan, have since stopped those payments to prioritize other saving
     
Everyday Expenses    
Groceries $841.39 We joined a CSA this summer (meat and produce); although eating healthy and local is important to us, we found this was just too expensive for us, adding about $180/mo. For June-Oct.
Fuel & Parking $221.53 Two cars- they both commute. Debbie is in transit about two hours per day, Ed about 1 hr, 15 minutes per day.
Spending Money $33.64  
Restaurants $61.54  
Health $97.45 Rx, Co-pays, etc. Health Insurance is through Ed’s employer. Premium is taken out of his paycheck.
Clothing $145.69  
Household Goods $110.25 Paper goods, cleaning products, diapers. Etc.
Lunches $36.06 My husband and I budget one lunch out per week
Entertainment $54.61 Netflix and family outings
Personal Care $43.66 Haircuts and occasional drycleaning
Miscellaneous $56.80  
Kids $54.93 Kids outings, school lunch money for my daughter to buy lunch about once/2 weeks
     
Rainy Day Funds    
Emergency Fund $0.00  
Car Repairs & Maintenance $424.68 We have two 10 year-old cars- a Toyota Matrix and a Toyota Corolla (paid off :) ). Average outflows are high due to a recent costly repair to one of the cars. They typically budget $50/mo to the category.
Home Maintenance $43.41 I told them this category makes me nervous. They’re in a 74 year-old home with a 15 year-old roof.
Car Insurance $66.00 We save money by paying our car insurance premium once annually – $790
Birthdays $24.23 My daughters’ birthday parties and gifts, and my husband and my shared annual birthday dinner out (our birthdays are 3 days apart)
Christmas $50.00 Just started this fund in July after reading a YNAB post by Jesse about it!
Trips $3.40 Driving trips across the state to visit my family (gas, tolls)
June-August $0.00 To cover Debbie’s two months off of work in the summer
Kids Activities $110.75 Swim lessons, basketball, acting class.
Vacation $118.51  
     
Giving    
Gifts $87.14  
Donations $14.50  
     
Savings Goals    
Car Replacement $0.00 Category balance is $0.
Home Remodel $0.00 Category balance is $0.
Buffer $0.00 Buffer balance is $1,100 and they have a $1,000 emergency fund.
Kids Savings Accounts $0.00 Because this money goes through our account when the kids receive monetary gifts for birthdays, etc.
     
Budget Total $5,782.84  

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:

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.