How Jen can add $450,000 to her retirement without taking her dogs out of daycare.

magnifying glass“Jen” is a high school athletic trainer, ten years into her career. She’s loves her two (big) dogs and she’s buying her home. Jen lives on last month’s income, recently paid off a few thousand dollars of credit card balances, has plenty of insurance, and saves about 10% of her take-home income for retirement. She also runs a $200 monthly surplus in her budget.

In other words, Jen is covering her bases. If you were to run Jen’s financial habits out a few decades (knock on wood), you’d likely find a person with a paid-off home and a decent retirement nest egg.

Here’s Jen’s budget:

Category Budgeted Notes
Monthly Bills
Mortgage $1,234 Balance: $133.634.03, Rate: 4.875%
TV/Phone/Internet $246 TV: $107.65, Phone: $89.20, Internet: $42.44. My comments below.
Electric $86
Natural Gas $32
Water $60
Investments $350 Part to Roth IRA, part to other investments.
Disability Insurance $55
Life Insurance $62
Student Loan $130 Balance: $9,614.31, Rate: 3%
Home Security $63 Gives her peace of mind as a single woman, living alone. Long contract, though.
Monthly Bills Total $2,318
Vet $50
Food $32
Daycare $150 Leaves dogs at daycare on her long (7am to midnight) workdays.
Misc $35
Pets Total $267
Transportation Expenses
Truck Payment $300 2010 Chevy Silverado w/ 40,000 miles. Balance: $10,191.17, Rate: 5.89%. Required payment is $222.
Insurance $62
Fuel $230
Maintenance $25 Mark’s comment: this feels low to me.
Tires $0 She just finished paying off a 0% credit card for new tires, freeing up $100/mo.
Registration/Inspection $8
Tolls $3.33
Transportation Expenses Total $628.33
General Expenses
Gardening $0
Home Maintenance $25 Feels a little low to me (as I talked about in yesterday’s post).
Insurance Company $3.50
Costco $4.60
Entertainment $20
Gifts $25
Random $20
Groceries $150
Restaurants $60
Doctor $10 Health insurance through the school district.
Prescriptions $9
General Expenses Total $327.10
Budget Total $3,540.43
Budget Surplus
Take-home Income ~$3,750
Budget Total $3,540.43
Budget Surplus ~$210

I guess we could nit-pick certain aspects of the budget, but I’d rather talk about some basic structures that could really accelerate Jen’s financial progress.

First, let’s talk about the truck.

Jen is a self-described truck person. I can appreciate that; I used to have a 1987 Ford F-150 long-bed named ‘Jolene.’ I miss her dearly.

Being a truck person means dealing with truck-sized costs for maintenance (ie big tires), repairs, insurance, and fuel.

Jen, your total monthly cost on the truck is $628.33. Going to a smaller, cheaper-to-drive vehicle could save you $300 per month (between a lower – or no – payment, reduced gas, and lower insurance costs). $300 per month has a 10-year value of $55,000 (if invested at 8%). Running that $300 per month out 30 years (when I believe you’ll be between 60 and 65), it becomes $450,000. It’s worth considering the power of $300 per month as it applies to your long-term finances. $628 is the cost of the truck, $450,000 is the (possible) benefit of the alternative.

Don’t get me wrong, I’m not saying you have to drive a Geo Metro (do they still make Geo Metros?) for the next thirty years. I’m saying figure out how to keep your vehicle expense below X (you get to choose X), and stuff the rest away into savings.

Next, let’s beat up a little on this cable and phone bill.

Your TV cost is $107 per month. You’re an athletic trainer, so maybe you’re a sports fan and like watching live events. Or maybe you couldn’t care less about live sports, and you love certain shows on premium cable channels. The question you have to ask yourself is: “How can I get roughly the same value for less money?”

Could you drop the full cable package, going to a more basic plan and supplementing with Hulu Plus, Netflix, and maybe $20 per month buying shows from iTunes? I think there’s something in there that could save you another $50 to $80 per month without having to give up much entertainment. It’s worth investigating.

After my experience dumping my expensive smart phone plan, I officially hate seeing people spend money on them. Look at Ting, or T-Mobile, or some other option for getting you phone bill down from $90 to less than $50. Make this decision: I will not spend more than $50 per month on my individual cell phone plan.

(By the way, be on the lookout for a post from Jesse next week on the intriguing approach he’s taken to cutting his cell phone cost.)

Jen, I went after the truck, the cable, and the cell phone because there really wasn’t anything else to nit-pick! You’re doing very well, setting yourself up for a solid financial future. Keep it up!

Oh, and by the way: If you apply your current $200 surplus to the truck loan, then snowball it into the student loan, the Balls of Snow debt elimination calculator tells me you can be debt free in a little under three years. Do that!