My monthly budget, v2.0

Next month my mortgage payment is going up by $200 thanks to an adjustment in the escrow account for city taxes I mentioned back in August. So I’m re-budgeting for the remainder of the year and thought I’d explain my budgeting system while I’m at it.

Why the mortgage payment increased

Typically on a mortgage payment, some of the money goes to the principal and interest, and some of the money goes towards home insurance and property taxes which are generally paid yearly. There are regulations (of course) about the minimum amount of money that can be kept in the escrow account, and in Michigan at least, it must be greater than 2 monthly payments.

I pay my insurance premium myself so it’s not included in my mortgage payment – I pay it via my credit card to get additional reward points and I earn interest in my bank account whereas the escrow account doesn’t pay any.

To cut a long and unexciting story short; my escrow payment has increased by $110.53 and I’m paying an additional shortfall of $112.91, so my new mortgage payment for the next year is $1,716.71 vs. the $1,500 it used to be.

Budget allocation

I have one bank account solely reserved for all bill payments, and this account is where I keep my budget funds. I aim to keep around 3 months worth in this account, so it’s like an emergency fund in that respect, although I have a separate emergency fund for bigger emergencies such as being laid off.

I treat all expenses as either ‘Mandatory’ or ‘Discretionary’. Mandatory are things needed for living (food, utilities, house, etc) and Discretionary are things that I don’t need to spend money on but choose to.

I further divide all expenses into categories and keep a balance for each category that rolls over from month to month. Because of the 3 month buffer in this account, I’m able to “borrow” money in one category and let it go negative, this typically happens with expenses that are paid annually e.g. home insurance.

My new monthly budget

In the following table, I’ve listed my budget categories and the old / new amounts. I’ve also included the amount of money allocated to each category, as well as the target minimum balance I’m tracking for that category.

Green shaded entries indicate a decrease in the budget amount, red indicates an increase.
For the balance column, red indicates a negative amount and for the Minimum column, red means that the category is below its target.

Category Old New Balance Minimum
Utilities: Electricity 125 125 888 697
Utilities: Water 20 20 440 220
Utilities: Gas 90 85 348 7
Utilities: Phone 136 136 428 408
Utilities: Internet 115 115 508 462
Medical 25 25 1,007 601
House: Repair 75 75 1,020 881
House: Property Tax 0 0 0 0
House: Insurance 186 186 -370 19
House: Mortgage 1,510 1,608 335 309
House: Security 55 52 43 5
Groceries 520 520 879 924
Auto: Gas 10 5 783 703
Auto: Insurance 205 205 -22 253
Auto: License 20 20 185 64
Auto: Repair 20 20 770 599
Tax Withholding 61 61 359 202
Miscellaneous 17 10 3,375 3,384
Discretionary Categories
Entertainment: Books 10 10 36 0
Entertainment: Music 15 15 31 0
Entertainment: Games 10 10 67 0
Entertainment: Movies 10 10 69 0
Clothing 20 20 137 0
Subscriptions 50 50 65 0
Travel 350 350 2,802 0
Home Improvements 36 0 0 0
Computing 142 100 -27 0
Dining 25 25 36 0
Fitness 5 5 82 0
Gifts 40 40 -35 0
Spare 0 0 2 0
Cash 30 30 685 115
Hustle 30 27 -323 0
Total 3,975 3,960  14,603  9,853

Changes in my monthly budget

I decided to decrease the overall budget from $3,975 to $3,960 overall and I’ve compensated for the increased mortgage payment by reducing spend in some categories.

Utilities: Gas

We’ve been in our house for just over a year now so I’m still getting a feel for the average amount. I paid $763 in the last 12 months which included one of the coldest winters in recent times, or about $63 a month. I could reduce my new allocation of $85 further, but I’m letting it ride for now to see how the winter bills go.

House: Mortgage

However, for the time being, I’ve chosen not to budget for the additional escrow portion of the new mortgage payment, so I’ll be over-spending this category by $100 a month. I’m waiting to see if further adjustments are needed based on any under-estimation of the winter taxes and I can cover the additional escrow payment from the spare funds in this account.

House: Security

A $3 saving! The actual home monitoring fee is $49.99 a month and I’m locked in for one more year then I may be shopping around as I’ve developed quite an interest in home automation and security of late.

Auto: Gas

My gasoline spend is reduced from $10 to $5. I’ve driven 5,800 miles in my Chevy Volt and spent a total of $30 in gasoline when I topped up the tank in March so that’s 623 miles per gallon! I think I’m all set for the rest of the year, but just in case I budgeted for an additional refill. I love the feel and quietness of my electric car and will never go back to gasoline only. My charging costs are about $20 a month.

Miscellaneous

I’m reducing allocation to this which is for anything else. I don’t want to get in the habit of using this category since it means the expense isn’t planned.

Home Improvements

I’ve cut this category entirely – I’m using Home: Repair for essential repairs / small improvements and I’m putting some of my Savings towards larger home improvement projects.

Computing

A mixture of electronic purchases and software; I’ve cut this allocation so I won’t be getting a new laptop for a while (not that I need a new one at the moment).

Hustle

My category for side income related expenses. I don’t have regular expenses here so I’ve cut the amount.

Category Debt

My total balance across all categories is $14,603. My minimum target amount is $9,853 so I have about $5K as a buffer and I can afford to loan money to needed categories and let them run a negative balance.

In the Mandatory categories, the total is $10,977 with a minimum balance of $9,738 so here I only have $1,238 spare. But I can always re-allocate money from the discretionary categories if I really needed to.

House: Insurance

This category is currently negative at $-370 as I’m still paying off the annual premium from earlier this summer. I’ll be positive by the end of the year.

Auto: Insurance

Same story for the auto insurance though I’ll be back in the black next month for this category.

Computing

I’m still paying for the Xbox One that I bought last year as well as some other accessories / software for my PC. Will be above water in this category next month.

Gifts

This category is for presents / charity etc. I’m still recovering from last Christmas!

Hustle

Most of this is from 5 year payments on domain names and hosting. I’m paying this back slowly but I don’t have many new expenses in this category to interfere with the repayments.

Summary

Reducing my monthly budget has a number of good implications since a number of my goals and target amounts are based on this number: my yearly dividend goal decreases; the size of my emergency fund decreases. It brings financial independence even earlier and is generally an easier thing to do than to earn more money; however it’s a game of diminishing returns since finding savings becomes more and more difficult. I’m going to wait and what the winter brings; both for taxes and utility costs and will re-evaluate then.

 

Quote of the day

It’s clearly a budget. It’s got a lot of numbers in it.

11 thoughts on “My monthly budget, v2.0”

  1. I don’t have a ‘budget’ per se, but I do track every expense down to the penny. I also try to keep my overall spending withing a small range (about $1700 a month amortized). Heh, looking at your budget, with all those bills and expenses, makes me very happy that I rent! Hope your slightly reduced budget works!

    1. Hi DividendDeveloper,

      Yes it’s definitely expensive owning a house and comparing a rental amount to a mortgage amount is not an equal comparison. So renting is certainly something worth considering, especially if you can’t commit to living in a house for a reasonable period of time.

      There are other house-related costs that I don’t include in my budget such as putting money aside to replace the furnace – I treat those as long term savings which comes out of my paycheck before it even reaches my bill payment account.

      That said, I sold my first house last year when I moved back to Michigan. Despite losing money on the sale price, and a fair amount of expenses in remodeling and replacing the entire air-conditioning system, I estimate that I saved money compared to renting but obviously there are a whole lot of factors involved there. I suppose too that I could have rented it out for additional income but I didn’t want the hassle of owning a house half-way across the country.

      And in the really long term if you have a fixed-rate mortgage, then the mortgage payments can be a way of having inflation work for you since the amount is fixed (unlike rent) and a $1500 mortgage payment in 20 years’ time will be a much smaller portion of your income than the rent would be in 20 years’ time.

      My main reason for keeping a budget amount is to closely track my needed retirement income as well as help identify areas where I can save / cut.

      Best wishes,
      -DL

  2. This reminds me that I need to revise my monthly budget as well! Though I don’t have many expenses, I notice it’s slowly creeping up. Maybe the weather is nicer so I go out more, but it feels like I can do some cost savings in some areas.

    1. Hi Henry,

      Yes I was hoping to only have to re-budget maybe twice a year but it’s always a good exercise and it’s definitely better to be on top of your budget than under it 🙂

      Best wishes,
      -DL

  3. Hey DL,
    1. Love the system (I might borrow it if you don’t mind). It will help with those payments that don’t happen every month and help me build back up my emergency fund.
    2. What temperature do you have your house at in summer and winter?
    3. Houses are expensive. 🙂
    Later,
    DFG

    1. Hi DFG,

      1. Feel free to use and improve! But if you improve it, write a post about it so I can learn from it too 🙂

      I track all my expenses in Excel with one sheet per month so that I can forecast the entire year ahead (one file per year) with the estimations getting more accurate as I go through the year. Credit card charges help with my budget as they don’t get billed until 1-2 months later; so my spend against my October budget is already determined and anything I charge on my card now goes against my November budget.

      I use Quicken to download and view all my transactions too but really just to see if there are any unexpected transactions and to help reconcile my excel file, and I’ve given up with Mint.com entirely.

      2. Currently the temperature is set to cool at 80 degrees in summer (we did have some hot weekends when we had to chill in the basement!) and last year I think I heated the house at 64 degrees. We’ve just added a dehumidifier to the basement so that’ll increase the electricity bill too. Our furnace is gas and the thermostat is fully programmable so we set it to a cheaper setting during the day when we’re at work and have it come back on around 6pm. I may do another post about the utility costs when I’ve a few more data points.

      What levels do you set your house at?

      3. You can say that again! I was about to write that I’m predisposed towards owning over renting because I hate how the rent increases every year (at least it did in the 4 years I rented), but I can say the same about my mortgage payment too 😉

      Best wishes,
      -DL

      1. We have it at 78 in the summer and 70 in the winter. Since my wife stays home she keeps it warmer in the winter (especially with younger ones at home.) We will see if this winter is any warmer to help with costs.

  4. DividendLife,

    You have a really extensive budget, great job! Seems like you’re constantly on top of it too by adjusting everything to the smallest change in non-discretionary expenditures.

    I don’t have budget like you do, but I try to keep my expenses as low as possible. Borrowing money from one category to pay for something in the other like you basically is the same thing, but I think I’d fry my mind if I had to keep track of every ‘borrowed’ expense then.

    Keep it up!
    NMW

    1. Hi NoMoreWaffles,

      Thanks for your comments! As you point out, the most important thing is to track expenses. There’s no one right way to budget since it’s different for everyone, as long as you do it.

      I find it’s fairly easy to categorize since I do take some shortcuts; e.g. everything bought at the local Walmart store counts as groceries since it’s not worth splitting receipts for the most part. And because a credit card or electronic transfer is used for almost all purchases it’s pretty painless. I don’t use or carry cash except in really rare cases nor do I categorize cash transactions. I think this year I’ve spent $30 in cash.

      I do find that categorizing and rolling over the amounts each month helps me visualize the value of things. So now if I want to buy something, I’m immediately thinking “that’s how much money per month and for how long?”

      But yes I’m an engineer and somewhat OCD so I track every single penny!

      Best wishes,
      -DL

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