How Much Car Can You Afford?

It happens every year.  I see the pristine Christmas scene and the doting husband who takes his unsuspecting wife outside with her hands over her eyes and surprises her with a new car.  You know the one with the big red bow on top.  And I daydream about replacing my wife’s 2007 Corolla and she thinks that I am the most wonderful husband ever.  Until this year…

I saw this commercial where this good-looking guy brings his equally attractive wife down in front of their mini-mansion. He has bought her a red upscale suburban-type vehicle and bought a black truck for himself (Have you seen it?).  And then she runs over by the truck and says, “I love it”.  As she steals his truck, the reality of the situation hits me.  How can she be so selfish? Obviously, the truck is for him!  And by the way- what does this guy do anyway.  Who can afford $120,000 worth of car for Christmas?  I wonder what they were driving before- that both vehicles need to be replaced at the same time.  But I digress in my envy.

Most of us are not in an income bracket where we can afford two new vehicles, but if you look at how much families are spending on vehicles these days, you would assume that many of us think we are living in the lap of luxury.  That is until the bill comes due. Every day I see families who have sabotaged their finances by buying too much car.

In a previous article, we talked about how much of your budget to spend on housing and today we are talking about your transportation category.  Our recommendation is 14% of your net spendable income (Gross minus Taxes minus Giving minus Childcare/child support cost).  This 14% needs to cover

  • Auto Payment
  • Insurance
  • Gasoline
  • Auto Maintenance
  • Tags and Property Tax

I see way too many financial clients who have allowed their transportation budget to get way out of line.  Two high car payments and all the trimmings put them in a category of stealing from the rest of the budget and they become what we call “car poor”.  Meaning they can barely afford the gas to use the vehicle on a trip or worse they have to make drastic cuts in other critical areas of their lives to survive.

Our recommendation: Next time you are thinking about making a car purchase make sure and run the numbers before you make the purchase.  Starry-eyed spouses come with driving cars that your family can actually afford.

About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org

You Can Still Pay for Christmas with Real Money

“It’s the most wonderful time of the year…for the credit card companies.  There is much jingle belling and hearts will be telling of credit galore.  It’s the happiest season for more.”  Ok, so I reworded the old classic Carole.  But someone needs to say it, “don’t spend more than you can afford on Christmas- this year.”  Reign it back in if you didn’t save well.

I know this is late for a Christmas savings article, but wouldn’t it be nice to have saved some money for your Christmas shopping this season?

I am a guy who knows you are supposed to save for Christmas but rarely do… until lately.  Like Ebenezer Scrooge, if I haven’t saved for the holidays, I am in a pretty humbug mood.  If I haven’t saved, I am the guy who rails against the materialism of the season.  For goodness sake, Jesus Himself only got three gifts.  I am the guy who sabotages the Spirit of Generosity in my home.  My wife and my son are much more generous than I am and love to give gifts.  If we haven’t setback money, I wreck it for all of us.  But if I have saved, I am more like Tiny Tim- God bless us everyone.  Saving for Christmas has saved Christmas for us!

A few years ago, our family decided that we were going to buy Christmas with real money.  If fact, in my family of three we distribute cash to each one of us to buy the other family member’s gifts.  The budget is based on how well we saved.  Some years our budget is $300 ($100 given to every person to buy gifts for the others, practically that means I have $50 to spend on my wife and $50 to spend on my son).  Last year our budget was $450 ($150 per person to buy gifts) and this year we just sold a house, so we are bumping up to $600 ($200 per person to buy gifts).

I illustrate this just to say that having a plan that reflects the reality of your financial situation is important.  You may spend more or less than my family.  That doesn’t matter.  The specific numbers don’t matter but having a plan that you can afford does.

Don’t guilt-trip yourself if you are using credit this year but keep track of what you spend on gifts this year and decide now to start saving for Christmas next year.  May the Christmas of 2020 be a credit-free Christmas for you.  God bless us, everyone.

About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org

How Much House Is Too Much House?

I wasn’t sure if he was going to have a nervous breakdown right there at my desk or not.  He kept saying over and over, “but, they said that I could afford it.”  His wife looked at me with pleading eyes to comfort him as she went in the other room to tend to their children.  Finally, I mustered the courage to tell him what the numbers said.  As gently as I could, I told him, “buddy, I don’t care what they told you.  Your housing expenses are 42-percent of your income and the reason you are in my office today is YOU HAVE TOO MUCH HOUSE.”  He left shortly thereafter and I never saw him again.  He had gained the missing piece of the puzzle.

Unfortunately, as budget coaches, we see this more than we care to.  There are a lot of formulas out there to figure out what you can afford.  Most of them focus primarily on the mortgage itself or many banks look at your overall indebtedness.  Our approach is to look at all the house expenses as one overall housing cost and then look at that number as a percentage of your net spendable income.

We recommend that your housing cost is at max– 30-percent of your spendable income.

That includes rent or mortgage, utilities (including phone), insurance, taxes, and maintenance as well as any miscellaneous housing expenses like housekeepers or lawn care.

Net spendable income is just what it sounds like.  Your take-home pay minus any non-negotiable items you may have items like daycare, child support or giving.  Sidenote- many families do subtract generosity contributions before figuring out how much they have to spend on the rest of their lives.

For a simple example, let’s say you make $50,000 a year.  That means you gross $4,166 a month.  After taxes (25-percent for illustration) you bring home $3,125 a month.  So your 30-percent housing allowance would be $937.50 per month.  THE KEY HERE IS THAT THE $937.50 IS FOR ALL HOUSING EXPENSES. That puts you in a decent apartment in some markets.

We will continue to roll out the recommended percentage in the future but the biggest category is housing and if you can hit the 30-percent max it really helps the rest of your budget.  Don’t let the lenders entice you into buying too much house.  We will look at some of the other categories later but here a few key ones that add up to 72-percent of your spending plan.

  • Housing: 30-percent
  • Groceries/Eating Out:15-percent
  • Auto:14-percent
  • Insurances: 13-percent

Run your housing numbers before signing the lease or taking on the mortgage.  Don’t forget to include the other housing cost.  That way you won’t be in my office wondering why you got too much house!

About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org

Winning the Battle of the Grocery Budget at the Grocery Store

My wife and I have been married for over 30 years.  And despite all her great strengths (which are many by the way) she struggles in the area of staying on budget with our household budget– or so it would seem.  A few years ago, she returned from the grocery store and I could tell as she walked in the house that she was overbudget yet again.  For 20 years we have had the same issue: she buys groceries, she overspends, I get frustrated, she feels bad, I look at that pretty girl who serves our family so faithfully and I overlook the overspending and we move on.  Until that fateful Saturday.

For some reason, I had had enough.  So, in typical Howington fashion, I hurt her feelings and made her cry and I didn’t even feel bad about it.  I brazenly told her, “that’s it, I am going to start buying groceries.”  She was surprised and a little hurt.  “Do you think I am doing a bad job?”  I almost caved but regathered myself, “I don’t know if you are doing a bad job or not.  I just can’t figure out why you can’t figure it out so I need to buy groceries to see if I can help us.” So, for the next month, I did all the menu planning and shopping.

In a previous life, I led a catering company so I was confident that I could get to the bottom of it.  And I did!  In fact, it only took me a couple of weeks to figure out the mystery.  She didn’t have enough money.  She never had enough money.  We were grossly underbudgeting in the area of groceries.  My family of three needs about $650 a month on average to take care of our needs and she had been trying to pull it off with $450.

As budget coaches, we see this all the time.  Families don’t do a great job of getting the right target in our household account (this includes food eaten in the house, toiletries and cleaning supplies).  After meeting with hundreds of families we have seen that families average from $150 to $250 per person per month in this area. So, a family of four would need between $600 to $1,000 in the budget.  The easiest math is to start with $200 per person and then see if you need to move up or down.

“After meeting with hundreds of families we have seen that families average from $150 to $250 per person per month in this area.”

So, back to my wife.  I didn’t tell her for a month and just changed the budget.  Her curiosity was peaked as I kept bringing stuff in the house and was still “on a budget.”  So finally, she said, “how are you doing this?”  And I apologetically told her that we had been underbudgeting this area for years and changed the budget to something that works.  My penance for putting her through the stress over the years was to buy groceries for the next 6 months.  She forgave me and we lived happily ever after.

 

About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org

Do You Have a Wonderful-Life Financial Plan?

We all grow up dreaming of a wonderful life (yes, the movie). Family and friends who love us. Good job. Nice house. Plenty of food. Enough money to take care of our needs and even some of our wants. When I got married one of my friends was asked to give us some marriage advice. His advice was classic. “Tim, give Terri everything she wants.” He added, “and Terri, only want what you need.” I can still remember his wife catcalling from the background about his bad advice. But, behind his playful banter was a principle. And the principle is this; for a family to be successful the family has to be on the same page and have a plan. Particularly in the area of money. Nothing will challenge a marriage more than how to manage the family resources.

What does a plan look like you say? We use the word budget, financial plan and spending plans interchangeably. But a good financial plan brings a family onto the same page. You would never run a company or a sports team or a civic organization without a plan and yet we run our family finances without a plan all the time and our families are suffering as a result. A recent Gallup poll said that 1 in 3 have a working budget.  That means that two-thirds of us are just winging it.  Here are some other characteristics of a good financial plan:

  1. A Good Plan identifies where the family is going to spend the money they make. In later articles, we will give you some percentages to guide you into developing a holistic spending plan.
  2. A Good Plan identifies what a family is going to give away. Generosity is a very important way to combat the consumptive lifestyles that many of us live. It truly is better to give than to receive.
  3. A Good Plan identifies what the family is going to save (short term, mid term and long term). The wise man will have resources to draw from when times get tight and attend to the needs of his family tomorrow as well as today.
  4. A Good Plan freezes and eliminates debt from the budget. The borrower is the lender’s slave and debt must be managed in order to get ahead.
  5. A Good Plan makes sure that the family has the right protections in place (insurance, will, etc). The people and things you manage need to be protected. Insurance and estate planning can make sure that your assets are protected in the event that you experience hardship.

We are going to be speaking to each of these topics in subsequent posts. Check back in with us.  The wonderful life you are hoping for financially may be a little closer than you think. But you need a plan!

About The Budget Guys: 
For the last 10 years, The Budget Guys have been helping families and individuals get their financial lives together. Tim has been married to Terri for over 30 years and Chris has been married to Tiffany for over 20. We have both had our share of knock-down-drag-discussion over finances. So, we bring some experience. We would love to sit down with you at your kitchen table (metaphorically speaking, we actually meet in our offices), and lend a fresh set of eyes to your situation. For more info and budget help, check out TheBudgetGuys.org