Young Professional Couple Enjoys Life After Debt, Asks "What now?"

Tim and Ben are a young couple living in a major metro area. Tim tells me they used to argue here and there about money, but after finding YNAB, they settled into a budgeting habit that eliminated the arguments and helped them become completely debt free.

Tim’s question to me was “Now, what?”

More specifically:

  1. Do you see any weaknesses or vulnerabilities in our budget?
  2. How can we motivate ourselves to save our surplus monthly cash?

Take a look at their budget. I included their historical spending average (over a year of data) along with the amount budgeted for September. You’ll also see some of the current category balances in the ‘Notes’ field.

Category Sept. Budgeted Avg Outflows Notes
Monthly Bills
Rent (1st – $2411) $2411.00 $2421.36 City rent – not cheap.
Internet (6th – $99.95) $99.95 $99.86
Cell Phones (8th – $105) $100.81 $132.94 Couple of big bills a year ago pulled up the average. If one or two big bills per year are normal, may consider bumping the budgeted amount.
Spotify (24th – $9.99) $9.99 $9.08
DropBox (17th – $9.99) $9.99 $9.99
Netflix (30th – $7.99) $7.99 $12.32
Hulu (16th – $7.99) $7.99 $7.99
Insurance Auto/Renters (13th – $160) $55.50 $96.93 Premium dropped after getting rid of their only car.
Investment $1,515.91 $336.36 Paying off debt allowed them to ramp up retirement savings.
Monthly Bills Total $4,219.13 $3,126.83
Everyday Expenses Averages often exceed budgeted amount, but positive category balances cover shortfall in every case.
Groceries $366 $527.61
Restaurants $650 $510.20
Household Goods $150.00 $208.46
Cash Account $100.00 $201.18 Some consider a big ‘Cash’ category a ‘black box’ where awareness of spending is reduced. Something to think about.
Entertainment $0 $263.55
Transportation $250.00 $95.33
Alcohol $59.57 $144.87
Grooming $20.00 $35.89
Everyday Expenses Total $1,595.57 $1,987.09
Occasional Expenses ‘Notes’ column shows current category balances (shown because these are the ‘Rainy Day’ funds in the budget).
Cats $107.21 $25.04 $900.00
Clothing $300.00 $195.04 $312.25
Electronics & Software $270.00 $297.48 $170.00
Medical $200.00 $202.45 $256.47
Stuff I will forget $0.00 $2.82 $300.00
Taxes and Other Fees $277.50 $6.30 $450.00
Ben’s Work Stuff $50.00 $174.63 $265.12
Occasional Expenses Total $1,204.71 $903.76
Savings Goals Again, category balances shown to reflect ‘Rainy Day’ preparedness.
Emergency Fund ($12000) $2000.00 $0.00 $3000.00
Christmas ($2000) $150.00 $0.00 $1350.00
School ($6000) $100.00 $0.00 $3697.81
Presents $100.00 $20.00 $264.34
Long Term Electronics $250.00 $0.00 $250.00
Savings Goals Total $2,600.00 $20.00
Other Categories More category balances.
Misc Vacation ($5000) $0.00 $0.00 $2000.00
Last Month’s Wages $7,740 -$4352.63 $0.00 $4407.83: Living on last months’ income.
Charitable $20.00 $20.00 $0
Work Travel $0.00 $0.00 Reimbursed.
Other Categories Total $20* $20* *Ignoring “Buffer”
Budget Totals $9,619.41 $6037.68 Disparity reflects amounts budgeted to savings goals, amounts budgeted to categories with positive balances, and overall surplus in the budget.

My take on this budget? This is what it looks like when you eliminate debt, fund your retirement, and grow your income. With no debt and retirement savings in place, you can spend on “luxuries” without having to worry about hurting your future.

But Tim asked me about weaknesses in the budget and saving their surplus, so I tried to dig a little deeper about any potential vulnerabilities.

1. You don’t have (or need) a car now, but what about in the future?

Tim’s answer: “Replacing the car has given me some heartburn. We expect to stay in the metro area (and not need a car) for at least three years, but I know in my gut we need to be saving for one. We’ve gotten used to nice (used) cars – with all the bells and whistles – so I expect we’ll want to have $35k to $40k set aside. It’s not very exciting to think about saving that much for some unknown future date – even if I know it’s the smart move.”

2. I don’t see any life insurance.

I realize you’re both earners, and there’s no debt, but it’s something to talk about, if only as a “grieving cushion” in the event something happens to one of you.

Tim’s answer: “We both have life insurance through our jobs, but I’ve started the process of getting us both $500k term policies for around $40 per month, each.”

3. What would be your maximum out of pocket expense in the event of a medical emergency?

Would it drain your emergency fund and other category surpluses?

Tim’s answer: “Our maximum out of pocket expense per year is $4,000, so that’s not a huge worry. We both have short-term disability coverage through our jobs, and I have about four months of sick leave stored up.”

In other words – Tim and Ben don’t have many weak spots in their finances. If the “worst” thing they do in the years to come is borrow for a car, they’re in pretty good shape. (But I really hope you guys choose to save up and pay cash!)

After talking about potential vulnerabilities, we moved on to figuring out how to make saving exciting, so I asked:

1. Any desire to buy in your area, rather than rent?

“Owning our own place is gives us more of a “something we should do” feeling vs. a “throwing money away” feeling. We lost money on our last home and if you looked at how much we had to spend on home maintenance each year I don’t know if we ever truly saved money when compared with renting. Part of our desire is to shelter us from ever increasing rent, which has been about 5% each year, and to give us a place that feels more like ours. We have talked about trying to find a private owner rental vs. an apartment building since the increases tend to be less frequent on average. If we stayed in our current apartment we would probably be paying over $3,000 a month in rent within 4 years.”

2. Have you two thought about early retirement (say, 10 to 15 years from now)?

What about taking extended breaks from work (for travel, living abroad)?

“I don’t think either of us have talked about taking any extended period of times off from work, and I don’t think we have any expectations that we will be able to retire early. I think at this point both of us are planning on working until about 60. Of course we would love to be able to retire early, but unless we get really lucky with some of our investments I don’t imagine that would end up happening.”

Tim and Ben, as I said in our emails – you two are where most of us wish we were (debt free and funding retirement). You have good insurance, growing bank balances, and seem to be happy in your jobs. You’re on the same page with your goals and headed in a good direction.

The only advice I can offer (about getting motivated to bank your surplus) is to echo your own words back to you:

“Maybe instead of trying to make saving sexy, we should just make it invisible.”

Yes, do that. Send a good chunk of money every month to a savings account, and forget about it. In not too many years you’ll have plenty of cash on hand for a car, or a down payment on a house, or whatever you might need. Keep up the great work!