Personal Finance

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.

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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.

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How To Retire With $3 Million in Savings

Even if you’re not thinking about retiring in the near future, chances are you’re still thinking about retiring. According to CNBC.com, it is possible for you to retire with $3 million ready to go, no matter what age you start thinking about it.

How much you should save a month to retire with $3 million from CNBC.

New Capital One Walmart Rewards Mastercard Offers Big Rewards (Especially at Walmart)

If you’re thinking about getting a new credit card anytime soon and you make a lot of purchases at Walmart, you might consider the new Capital One® Walmart Rewards™ Mastercard®. The card boasts an annual of $0 and some big-time rewards– especially at Walmart.

Details:

Earn unlimited rewards every day, everywhere in and out of Walmart
Earn unlimited 5-percent back online at Walmart, including grocery pickup and delivery
Earn unlimited 2-percent back on restaurants and travel, and 1% back everywhere else Mastercard® is accepted
Introductory offer: 5-percent back in Walmart stores for the first 12 months with Walmart Pay, after approval
Your rewards points don’t expire for the life of your account
Redeem rewards to cover recent purchases, travel, gift cards, statement credits and more
$0 annual fee
No foreign transaction fees

Daniel Eckert, senior vice president, Walmart Services and digital acceleration said the card is all about helping customers save money, “Walmart’s mission has always been to help customers save money so that they can live better, and our new credit card program—which both helps customers earn more when paying for things in and outside of Walmart, and offers many other incredible benefits—is squarely aligned with that mission. As our company has evolved to serve customers shopping in stores, online, and on the Walmart apps, we also recognized the need to fully digitally enable the cardholder experience; that’s why we’ve worked with Capital One to make it possible for cardholders to manage essentially every interaction with the program right from the palm of their hands.”

For more info, check out Walmart.com.

Maybe A Budget Isn’t Right For You

Budgeting. It’s something every parent loves to talk about, but are those people that are always telling you to keep a budget actually budgeting? According to CNBC’s Kathleen Elkins, budgets are a waste of time and don’t lead to a long, happy life.

Her advice?

Don’t bother budgeting.
Keep track of your spending.
Set-up automatic savings.
Spend without guilt.

Is The 50/20/30 Budget Right For You?

If you’re in the market for a new budget, you’ve probably heard of the 50/20/30 method, right? The plan is pretty simple: take your income after taxes and divide it– 50-percent on needs; 30-percent on wants; and 20-percent on savings.

How do you differentiate between wants and needs? Well, that is pretty simple. Needs are the things you must pay for and things necessary for survival like rent/mortgage, car payment, groceries, insurance, and utilities. Unfortunately, Starbucks, Netflix and gym memberships aren’t needs. Wants are the things that you spend money on but don’t have to– like a Bentley when a Honda will do just fine.

5 Common Lifestyle Choices That Are Total Wastes Of Money

These days, personal finance goals and paying down-debt are commonplace conversations but are the plans that work for your friends right for you too? Tasha, with the Financial Diet has broken down five lifestyle choices that are wasting your money.

5 Common Lifestyle Choices That Are Total Wastes Of Money:

1. Not having a 1-year budget plan.
Budgeting for an entire year gives you a holistic view of your financial situation.

2. Paying off low-interest debt before you’ve hit your minimum savings rate.
Understand how much your debt is costing you– you could actually save more money while paying down your debt if you do it correctly.

3. Living in a high cost of living area.
Your job opportunities don’t have to determine the area you live in.

4. Not cooking more meals at home.
Guess what? Eating out is super expensive.

5. Too many status symbol purchases.
Don’t sacrifice your financial goals for high-end purchases over and over again.

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!

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3 Things You Should Never Do With Your Money (According to Suze Orman)

Suze Orman knows a thing or two about cash. In 1987, she founded the Suze Orman Financial Group and she had a show on CNBC from 2002-2013. Orman has also written nine New York Times best-selling books, so honestly, when has some advice on personal finance, we’re willing to listen.

3 Things You Should Never Do With Your Money (According to Suze Orman):

1. Never co-sign a loan. When you co-sign a loan, you are personally responsible for it.
2. Never take a loan from your 401K.
3. Don’t miss a student loan payment.

And bonus: don’t do anything you don’t understand with your money.

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.

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