Haley and Ron are wondering if Ron can quit his job. As you’ll see in their budget, almost half his income is eaten up by job-related expenses (that’s one expensive job). The bottom line is this: if Ron quits his job, it costs them about $1,000 per month in take-home pay, but saves them $460 in gas and child care.
Their health insurance comes directly out of Haley’s paycheck, as does her retirement savings. Between her 401k contribution and employer matching, she’s currently saving around 12.5% of her gross income. Not bad for a person in her mid-twenties, but not a number that’s going to allow for early retirement.
Let’s dig into the numbers and see how they can stay within their means while giving up around 1/3 of their income.
|Hers||$2,216.40||Just got a ~5% raise, but more raises not likely.|
|His||$1,000||Considering quitting to stay home with child.|
|Needs||Needs and Wants are terms Haley used in her emails to me.|
|Rent||$264||Renting from parents, living with two housemates.|
|Utilities||$180||Natural gas, water, electric.|
|Phone and Internet||$159.84||Phone plan shared with her family, subsidizing college-aged siblings.|
|Miscellaneous||$250||This is a black box; she has planned dig in and find out the category specifics.|
|Gas and Tolls||$240||Majority of this cost is due to husband’s job.|
|Childcare||$300||Family member watches child while he and she work.|
|Grad School Tuition & Expenses||$431||Pursuing Master’s Degree that qualifies her for the job she already has.|
|Insurance||$130||Renter’s and auto policies.|
|Needs Total||$1,954.84||$460 stems directly from husband’s $1,000/mo job (child care and transportation expenses).|
|His Spending||$60||Their Goal: $30|
|Her Spending||$88||Their Goal: $30|
|Restaurants||$265||Their Goal: $150|
|Beer||$128||Their Goal: $60|
|Wants Total||$723.30||Their Goal: $452.30 (37% decrease, $271 in monthly savings)|
|Gifts and Giving|
|Gifts||$133||Birthdays and holidays for family and close friends.|
|Sponsor a Child||$35|
|Gifts and Giving Total||$168|
|Budget Total||$2,846.14||If husband quit job and they spent goal amount in Wants, Budget total would be $2,846.14 – $271 – $460 = $2,115.14|
|Emergency Fund||Current balance is ~$400.|
|Car maintenance/replacement||Empty, and not being funded.|
|Life Insurance||None that I’m aware of.|
|Rent||She tells me rent would be roughly 3x as much if they decided to get a similar place without housemates.|
|Student Loan||They’re paying cash for her Master’s program, but Haley has around $190 in deferred student loan payments from her undergrad program. When she finishes the grad degree, they’ll have to start making payments again. $190 is a big percentage of their current budget.|
|Rule 4||Maybe not a vulnerability, but living on last month’s income makes for easier budgeting and increased peace of mind.|
I told Haley in an email that I’m nervous about each of those vulnerabilities. Any medium-sized emergency would have Haley and Ron on credit cards (or more student loans) in no time flat.
Because their earnings are stable, and because so many of their expenses are discretionary, I’d maintain the second income for the next year while attacking discretionary expenses. Fight the “Wants” down to the goal amounts, and also open your minds to saving some money on the cell phone bill, coffee, gifts, and restaurants (taking it even lower than your “goal” amount), and a year from now you could have a $3,000 to $4,000 emergency fund.
At that point Ron could leave his job, improving the family’s quality of life without increasing financial risk. In any case, this is a young family headed in the right direction.