Budget 17.5 – updating my budget

Updating my budget 17.5It’s time to look at updating my budget. I like to review and update my budget twice a year. I last updated it for the start of 2017. Let’s see if any changes are needed for the last half of 2017.


My 2017 monthly spending target is $3,970 per my 17.0 budget. I plan on increasing the monthly amount at the start of each year, so this review is more about moving money around between categories. In Intel’s terminology this is more a tock than a tick.

$3,970 a month is $47,640 a year which covers most expenses (needs + wants) for Ms. DL and I. The only major expense not covered here is my monthly car lease payment which is paid out of Savings. I consider the car lease a debt rather than an ongoing expense and I like to have the money in my Savings to back up the debt. So instead of paying the lease upfront at once, I’m stretching it out with a monthly transfer from my Savings account.

Not your standard budget

I call it a budget, but it’s not a strict implementation which controls spending. That’s because the monthly amount is designed with the expected yearly amount in mind. A built in 3-month buffer allows categories to go negative for some time without any impact.

My 17.0 Budget post covers more details about how I track and carry balances forward.

I track the amount in each category each month in that great Personal Finance software called Microsoft Excel. I don’t use Quicken for this as I prefer the flexibility Excel provides. Quicken helps me reconcile the numbers in my Excel sheet however as I tag the expenses with the same category and can easily run a report on where the monthly expenses went.

Additional Expenses

Now come closer and I’ll let you in on a secret…

In any given year, I’ll almost always exceed my budget.

Oh, the Horror! But it happens. For example, this year I’ve had a lot of medical expenses. We repaired our roof. And bought a new vacuum cleaner since apparently I’m allergic to dust.

Any additional expenses come out of my Savings. Each month I save a total of ~$1,100 from my pay check ($100 in cash and $100 in VWELX for paying off the mortgage in the future). Money in my Savings account is likewise categorized for different purposes and I tend to view it as a longer term expense account.

Because the thing about Savings (except money held for emergencies) is that the money is intended to be spent. Once you’ve saved enough for the house / wedding / holiday then you spend the money. Unless you change your mind of course. The point is that there’s usually a purpose for Saving, and it’s usually to eventually spend the money.

My Savings acts as a kind of Rainy Day / Emergency Fund in some respects. It’s one of the reasons that I repurposed my designated Emergency Fund and put it to work in my Income Fund.

But isn’t this all smoke and mirrors … aren’t your real living expenses equal to your monthly budget plus savings?

I get this question all the time! Just kidding, it’s never come up before.

The answer’s “yes”, of course. However I rationalize it the following way.

We currently have a mortgage payment. Eventually we won’t have one. When it’s paid off I’ll keep my Living Expenses the same as before. The $1,200 principal payment then becomes the spare money for Savings / rainy-day expenses. Likewise, we won’t always need two cars, so there will be extra savings there.

So, I figure that it’s best to keep track of expected expenses and allow small cost of living increases based on my personal rate of inflation. It allows me to do all future planning based on a known amount, knowing that some additional money will be freed up in the future.

Time for some numbers! And tables!

Expense Categories

Here’s the change in the categories that I’m applying from July through to the end of the year. I only recently had details to calculate some of the changes, but they’re being retroactively applied for July onwards in my accounting.

Needs

Mandatory V17.0 V17.5
Utilities: Electricity 124 124
Utilities: Water 40 40
Utilities: Gas 50 50
Utilities: Phone 105 105
Utilities: Internet 126 120 (-6)
Medical 55 63 (+8)
House: Repair 55 55
House: Property Tax 454 458 (+4)
House: Insurance 132 100 (-32)
House: Mortgage 1,200 1,198 (-2)
House: Security 42 41 (-1)
House: Improvements 35 35
Groceries 570 580 (+10)
Auto: Gas 2 2
Auto: Insurance 305 320 (+15)
Auto: License 19 19
Auto: Repair 4 4
Auto: Assistance 0 0
Tax Withholding 54 58 (+4)
Total  3,372  3,372

Wants

Discretionary V17.0 V17.5
Ent: Books 3 3
Ent: Music 50 50
Ent: Games 10 10
Ent: Movies 5 5
Clothing 10 10
Subscription: Credit Cards 50 48 (-2)
Travel 245 250 (+5)
Cash 10 5 (-5)
Computing 110 110
Immigration 4 4
Dining 55 57 (+2)
Fitness 2 2
Gifts 40 40
Spare 4 4
Total  598  598

Hopefully the categories are all self-explanatory. They’ve not changed from Budget 4.5 where I described them in more detail.

I broadly categorize everything in one of two groups – Mandatory (aka Needs) and Discretionary (Wants).

Let’s go with the good news first!

I recently wrote about my saving on my insurance policy which went into effect in July. Action was needed because of significantly higher renewal costs. The insurance budget excludes a dividend payment that will be paid out to me for about 20% of the yearly premium.

I also negotiated a lower monthly payment on the cable / internet bill (which was going to increase even more) for the next 12 months.

But I’ve increased some categories too.

I’m putting a little more aside for Medical and Property Taxes. It looks like I’ll be making quarterly hospital visits so I expect to be maxing out my insurance deductible each year. I plan to pay the differences out of my Savings for now but will be increasing the medical expenses again next year.

We increased our Grocery allowance a little too which includes other incidentals for the house and day to day living.

I didn’t make too many increases on the discretionary categories. Travel and Dining out increased a little,

2017 first half results

Here’s a look at the changes in my overall Cash and Savings balances over the first six months of 2017.

Account Dec 2016 Jun 2017 % Change
Cash $12,907 $15,974  +24%
Savings (*) $76,616 $89,566  +17%

Writing this in August, the above numbers are lower currently because some of the larger expenses I’ve had lately aren’t included in the above time period. But overall it’s still looking fairly good for the end of the year.

(*) Savings are partly in cash and partly in Vanguard Wellington (VWLEX) so some of the increase is from capital gains.

Summary

The mid-year review forces me to look at my actual / projected spending and take action. My goals allow me to increase the budget in January to $4,040. If I can continue to keep mandatory spending under control then I’ll have extra discretionary money for travel and dining next year which would be nice.

 

Quote of the day

Everybody wants a box of chocolates, and a long stem rose. Everybody knows

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