Budget 3.0 – my initial budget for 2015

It’s time to update my monthly budget for 2015. This should run for the first 6 months of 2015 when I’ll review it again unless there’s some significant need to adjust it earlier. I last revised my budget in September after my mortgage payment changed. So here’s Budget 3.0, a shiny new version of Budget 2.0!

New budget for 2015

Budget V2.0 V3.0
Mandatory Expenses $3,270 $3,335
Discretionary Expenses $690 $565
Monthly Living Expenses $3,960 $3,900

Starting in January, I’m reducing the monthly Living Expenses by $60 a month which is about 1.5% lower than the 2014 value. It’s not as much as I was originally hoping (although assuming 2% inflation it’s nearer to a 3.5% reduction) but I have included the new higher mortgage payment due to increased property taxes which swallowed up most of the reductions I made.

The great thing about a lower budget is that it makes other targets easier to reach as my dividend income goals, Work Freedom Date and Emergency Fund levels are all based on a multiple of the monthly budget value.

Mandatory expenses – those I can’t do without – will increase next year thanks to the mortgage escrow payment, an increase of about 2%.

Discretionary expenses – those I could do without – these will decrease next year to compensate for the higher mandatory spending by about 18%.

Here’s a more detailed look at what’s changed to meet the new lower amount.

Note – Ms. DivLife and I keep separate finances. This budget covers the majority of our expenses, but there are a couple of areas that she still pays directly for – her medical, clothing, auto expenses & gas and gym membership.

Mandatory Expenses

Mandatory Expenses V2.0 V3.0
Utilities: Electricity 125 120
Utilities: Water 40 40
Utilities: Gas 85 80
Utilities: Phone 136 131
Utilities: Internet 115 80
Medical 25 25
House: Repair 57 50
House: Insurance 186 186
House: Mortgage 1,608 1,724
House: Security 50 52
Groceries 520 525
Auto: Gas 5 3
Auto: Insurance 205 205
Auto: License 20 20
Auto: Repair 20 20
Auto: Assistance 0 5
Tax Withholding 61 57
Miscellaneous 12 12
Total 3,270 3,335

Mandatory expenses have increased this year, largely due to the higher mortgage payment.

Utilities: Electricity, Water, Gas, Phone

I’ve been able to budget better as I’ve had a whole year of bills to go through. I’ve not made any real changes here, but assuming usage similar to last year these numbers should hold for next year.

Utilities: Internet

The budgeted amount was $115 but towards the end of the year, this “special rate” expired and the price reverted to $133. I tried to negotiate with the cable company to reduce costs but they only seemed interested in up-selling my existing contract. So this month I switched to another company and got similar tv + internet coverage as before, but for $80 a month.

Medical

My health insurance is high-deductible so I have to pay out of pocket for each doctor’s visit. I almost never go to the doctor but I did go for a checkup this year which resulted in a referral to a skin specialist who’s worried about skin cancer. I’m hoping that $300 will cover the costs of the bi-annual checkups that I’ve won as a result, but I really have no idea.

Next year I must visit the dentist too which will be a major expense, not to mention pain, I’m sure. I have some savings put aside for expensive medical fees as I don’t want to dip into my HSA account if I really don’t have to.

House Repair

I’ve split this category into House Repair and House Improvement which is listed under the Discretionary expenses further below. Repairing my sprinkler system from the cold damage will be the main foreseeable expense here. Anyway, I currently have a surplus in this category so I think $50 should be sufficient for now.

House Insurance

This is paid annually and it’s paid separately than the mortgage since I can charge it on a credit card and earn rewards for doing so.

House Mortgage

Did I mention that my mortgage payment increased last year? It reverts to normal in October and I can’t wait as it should be $100 less!

House Security

So who knew we have to pay $25 a year to the Police department for having a home security alarm system. Apparently it has to be ‘registered’ with them and clearly registering an address is an expensive task that needs to be redone every year. Added an extra $24 a year for this as I have a surplus in this category anyway, and I’ll be looking for an alternative (cheaper) monitoring company when my current contract expires.

Groceries

Ms. DivLife manages the grocery budget and does a great job at saving money. We added $5 to this category to help against inflation and I’m also giving her a $5 amazon gift card monthly from my Bing Rewards as she buys some groceries online with Amazon’s subscription service. I’m sure Microsoft are getting fed up with searches such as “search 1”, “search 2” but hey, it all earns points and only takes a couple minutes!

Auto: Gas

I had to fill my car with gas earlier this year in April and it’s still got a full tank as I’ve not used any since then. So I’ve spent a total of $30 in gas since buying the car over a year ago and driven 6,500 miles which is 216 miles per gallon. I’m wondering if I can go all of 2015 without needing to fill it again but we’ll see. I’ve reserved $36 in case I don’t.

Auto: License, Repair, Assistance

My car’s covered by warranty so no major worries there. I’ve not included any possible expenses for Ms. DivLife’s car in this budget so we’ll have to worry about that if they’re needed – currently she pays for them out of her salary.

I did add a new category for Roadside Assistance as last year we used it twice (I got stuck in snow in our driveway – don’t ask – and Ms. DivLife had a flat tire) but both calls were covered entirely by my Amex Card which includes free roadside assistance. I’m changing cards next year and we will lose that free coverage. I have a free OnStar subscription to cover problems with my car. We decided against a AAA membership for Ms. DivLife and we’ll use the roadside assistance service from her Visa credit card which has a $60 call out fee instead. So we’re self-insuring here as we think it’s unlikely to be needed next year.

Tax Withholding

This is for the tax preparation fees and any excess go towards any tax payments I made need to make. I’m expecting to owe money because of the higher investment income and I will start additional paycheck deductions next year too.

Miscellaneous

Covers none of the above, and conveniently makes the total amount a nice number. What are the odds of that?

Discretionary Expenses

Discretionary V2.0 V3.0
Ent: Books 5 5
Ent: Music 10 10
Ent: Games 10 10
Ent: Movies 10 5
Clothing 10 10
Subscription: Credit Cards 45 23
Travel 325 225
Cash 20 15
Computing 115 120
Dining 30 30
Fitness 2 2
Gifts 78 60
Spare 5 5
Home: Improvements 0 20
Hustle 25 25
Total 690 565

Entertainment: Books, Music, Games & Movies

I have a minimum spend on entertainment – we borrow movies to watch from the library for the most part, and I have enough video games to play. For music I have a monthly subscription which is covered by the $10 a month, although I may consider increasing this amount in the summer if there’s a concert that we want to go to.

Clothing

I spend almost nothing on clothes too as I have enough to wear and they haven’t fallen apart yet.

Subscription: Credit Cards

This category covers paying an annual fee for two credit cards that I have. I’m going to be changing cards next year to save money as I’m no longer flying frequently, so I plan to downgrade from the Amex Delta Reserve card to the Delta Platinum card. I also have a Marriot Rewards card which gives a free night’s stay each year.

Travel

I’ve reduced my travel budget by $100 – I have some money carried over from last year’s budget and I plan to use airmiles to further reduce the cost of travel next year. I plan at least one trip to the UK again and a weekend getaway somewhere in the US for us both.

Cash, Dining, Fitness

No changes here – I spend cash once in a blue moon when I have my hair cut and I think that’s about it. We eat out maybe once a month so spending here is pretty small. Eating out when on vacation comes from the Travel budget. I might buy a book or video on fitness once a year, so I’m leaving this amount unchanged – I exercise at home (Pilates and bodyweight) so I don’t need any expensive equipment.

Computing

This category is towards replacing any computer equipment that might break and saving towards a new laptop. I increased it a little as we’ll be buying Ms. DivLife a new laptop next year.

Gifts

This category covers any spending on presents or charity. I reduced it by $18 to compensate for the Home Improvement category and otherwise make the numbers even.

The balance for this category is currently negative as I bought my mother a new tablet for Christmas.

Spare

This is just a small amount that can be used for any purpose.

Home Improvements

This is a new category and I’ve separated it out from the Home Repair category as we’re planning to do some home improvements next year. Not that we’ll be doing much on $20 a month!

I have some money in my Savings as a general fund towards more expensive home repairs / improvements so I’m going to start with $20 a month ($240 a year) and see how it goes.

Hustle

Expenses from any income-generating activities – currently this is only the domain name and hosting payments but I’m trying to put some extra money aside here for future use.

Summary

The following chart shows each expense category in order of size.

Expense categories for my Budget 3.0 in 2015, listed in decreasing size.
Expense categories for my Budget 3.0 in 2015, listed in decreasing size.

The mortgage payment is by far the largest expense. It’s a little embarrassing to see Fitness as the lowest expense as if that’s my lowest priority, but walking and doing Pilates doesn’t cost any money so that’s a good thing. I’m looking forward to getting the new year started and seeing how accurate my budget projection is!

 

Quote of the day

Never look back unless you are planning to go that way.

0 thoughts on “Budget 3.0 – my initial budget for 2015”

  1. Happy holidays DL. Good luck with the budget. I don’t know how you spend so little on gifts. Wait until I post December. You will probably have a heart attack. Guess when you have a big family (kin & kids) like mine things change.
    DFG

    1. Hi DFG,

      Thanks for the support! I’ll look forward to your report – I can only imagine how much Christmas costs for a family of six!

      Yes, my costs at Christmas don’t really change unless I’m back visiting my family over Christmas when it can get more expensive. Ms. DivLife and I don’t exchange gifts as we pretty much have everything we need – her present this year is going to be some new curtains for the house which we’ll get later next year.

      Wishing you a healthy and wealthy New Year!
      -DL

  2. I really don’t understand American mortgages, they do work quite differently over here in the UK. It seems like such a huge proportion of your budget too, ate you overpaying? Or do you have a short amount of time to pay it off?

    As always, thanks for a very comprehensive post. I always enjoy going through the one with lots of graphs!

    Cheers

    1. M,

      Right there with you. Never understood how they work. Some of them seem to go on forever too, like you never pay off your entire debt. I very much prefer the Belgian system in which you make monthly payments for a set amount of time (25 years tops) and then own the house outright.

      DL,

      Great post! You actually managed to save some compared to 2014 (your mortgage increase is higher than your total expenses increase), so that means more money for future stock purchases. And dividends!

      Best of luck next year,
      NMW

      1. Hi NMW,

        I’m sure they’re not so different really – you can get a 15-year, 25-year or 30-year mortgage here. If the interest rate is fixed for the length of the mortgage, then payments are fixed too and at the end of the period you own the house. The longer the period the higher the interest that you pay. I went for a long period which lowers the monthly amount but I plan to pay it off well before the 30 year limit.

        You might be referring to the case of re-financing where people take out a new mortgage and pay off the old one – when they do this they have the choice of cashing out some of the equity in the home e.g. if your mortgage has a balance of $100,000, you could re-finance and borrow $150,000 leaving you with $50,000 to spend on redecorating, a yacht or a round the world trip (and more mortgage to pay down)…this is certainly one way to end up with a mortgage for life!

        If interest rates drop enough I may re-finance to a shorter term mortgage as it will lower my monthly payments but currently the cost of re-financing does not outweigh the lowered payments so it’s not worth doing.

        You’re right – my money available for investing is Income minus Savings minus Living Expenses, so any reduction in Living Expenses means more investments and more income!

        Wishing you a happy and successful New Year!
        -DL

    2. Hi M,

      I’m overpaying my mortgage to the tune of $6 a month! I’m not trying to pay it down directly, instead I put some Savings money each month into VWELX and I plan to use that to pay off the loan in the future. I’d rather have the money available in an emergency than build equity in the house and I think the investments can beat my mortgage interest over the longer term.

      The mortgage is a fixed-rate 30 year loan at 4.375% interest, and we’re just over 1 year into it. The monthly payment is a fixed $1,190 (principal + interest), but the total payment includes payments for property taxes which are $410 a month, plus we currently have to pay an additional $110 a month because the property tax account is below a required limit.

      Usually mortgage payments here include home insurance payments too but I pay for home insurance myself.

      Even if I paid it off, I would still have $400-$500 property taxes expense per month. In any case it’s still cheaper than renting which would be about $2,000 a month or so for this house.

      Best wishes,
      -DL

  3. DL,

    wow, that is a very sophisticated budget!
    I hope the cut back on the travel category is not due to frugality. Traveling, like reading books, is at least partially an investment rather than an expense.

    Have a great 2015

    1. Hi Grow Independent,

      Yes I’m a little OCD when it comes to numbers! But no, the cutback on travel is only because I plan to use some of my air-miles to purchase some flight tickets next year as I’ve collected a lot.

      Wishing you all the best in 2015!
      -DL

Leave a Reply

Your email address will not be published. Required fields are marked *