Where Did All My Money Go?

People make assumptions. Well at least that is my assumption. We tend to assume that because someone has X job or makes Z salary they are flush with cash. Sometimes it just doesn’t work that way. In this post I am going to break down where my money goes each month. Talking about money in our society is pretty taboo, in fact most people are more open about their sex life (or lack there of) than they are talking about their bank balance. As my previous posts on religion and race have shown I find that sometimes the most important things to talk about are the most uncomfortable. This is meant to be an educational piece that explains some of the choices that I make while pointing out to new grads that the number on the offer sheet is nowhere near the money in the bank.

A little background for those of you who don’t know me well. I am a trained professional with a six figure salary, no dependents, and a boat load of student loans. I have very moderate tastes, but tend to splurge on vacations and beer. I buy most everything on credit cards, but pay them off religiously and never carry a balance. Over the past 4 years I have managed to pay down a lot of debt while saving money, but still have a net worth that is negative by almost six figures. 7 months ago I took a job that cut my income significantly while taking away my most steady stream of side income. In an attempt to make up a portion of that income I currently work a full time job where I am salaried at 36 hours per week while picking up per diem shifts at 2 other jobs on the weekend. I acknowledge that I often do not make the best choices, but after doing a lot of research on budgets and personal finance I have found that this works pretty well for me.

So here it is, an explanation of where it all goes. All information was based on a paycheck from my primary job, all other side income is earmarked for other uses. Also when looking at state and federal taxes I do not have them dialed in correctly yet and in fact owed $1,000 to state and federal taxes during 2013. I used percentages in order to have some privacy. If you would like the actual numbers I will gladly provide them if you reach out to me in private.

Total Starting Pre Tax Income: 100%

• 403B contribution: 7% of pre tax income. This is a pre tax retirement contribution, I had previously been putting away 5% but decided to apply my full 2% raise toward my retirement.
• Health/Dental Insurance and Flex Spending: 2.3% of pre tax income. This relatively small amount helps a lot, as we all know healthcare is very expensive. I only contribute a small amount to the flex spending plan because I am relatively healthy, but because it is pre tax I get around a 30% return on this investment
• Federal Income Tax, Social Security, Medicare: 25.2% of pre tax income. My income puts me in the 28% income tax bracket, but because taxation is gradual you are taxed at lower rates as you work your way up. A rough example is that if the $0-$20k bracket is taxed at 8% and the $21k-$40k bracket is taxed at 10% then you would be taxed at 8% until you hit 20k then at 10% until you hit 40k.
• State Income Tax: 4.7% of pre tax income. Another gradual rate thanks to the great liberal state of Vermont.

Total amount removed from my check before it hits my bank account: 39.2%

The remaining 60.8% of my Pre Tax income will be converted to 100% post tax income to calculate monthly expenses.

The Basics: If I lost my job tomorrow (hopefully won’t happen) I would still need to find a way to make these payments

• Rent: 16.8% of post tax income. I have a nice 2 bedroom townhouse apartment that is not very lavish. While it is very nice and suits my needs perfectly the rent is on the cheaper end of average for this area. It is actually several hundred dollars cheaper than my previous apartment in Burlington which was much nicer and subject to much higher property values.
• Utilities: 4.8% of post tax income. This is a rough average of phone, electric, heat, and internet. Obviously I pay more during the winter but it tends ot average out.
• Student Loans: 30.9% of post tax income. This is the big one, what is worse is that this number represents my payments spread over a 25 year period rather than the standard 10 years. I do chip in a small amount more than the minimum with my automatic payment in an attempt to pay them off faster. I had also been making an extra monthly payment that would equal 9.6% of my post tax income, because of the pay cut I took coming to this job I have not made this extra payment in several months and it is not reflected in any cumulative data.
• Car Loan: 9.1% of post tax income. I took out a loan that is being paid back over a 2 year period when I changed cars last summer. I have been paying extra and it should be paid off in another 6-8 months. But instead of just pocketing that 9.1% of my income I am going to instead put it into savings for my next car so that hopefully between savings and trade in value I will not have to take out any type of loan.
• Car Costs: 3.8% of post tax income. This is and approximation, but between gas, maintenance, registration, and misc expenses it adds up. I also work 2.3 miles from home and drive a pretty gas efficient vehicle so it could be a lot worse.
• Misc Expenses: 2.7% of post tax income. This includes car insurance, renters insurance (less than $200 per year, its a must for everybody), professional liability insurance, professional licensing fees, professional organization dues. Some of these are not “necessary” but they are generally one time fees that keep me covered over the course of a year

The Savings: I am a saver. I set lofty goals and am trying to reach them so that I can avoid as much debt as I possibly can.

• Extra Retirement Savings: 4.8% of post tax income. In addition to my pre tax retirement contributions I also put away a portion of my post tax salary. I don’t believe that Social Security is going to last (goodbye 6.1% of my income that I contribute as part of the Federal Tax) so I would rather be prepared by having enough money in the bank. Between the two I put almost 10% of my pre tax income, my goal is to reach 15% within the next few ears.
• House Savings: 14.4% of post tax income. I am saving so that when the time is right I will be able to buy a house. I have a rough estimate of what I want in a house and have a savings goal in mind that will be 25% of the expected cost (20% down payment and enough extra to cover closing costs). By saving at this rate I should hit my savings goal in another 19 months. I doubt that I will be ready to buy a house in 19 months, but having the money in the bank doesn’t hurt.
• Emergency Fund: I don’t actively contribute to this account on a monthly basis, but it is an important one to establish. I currently have 3 months worth of expenses readily available just in case something were to happen. Some people recommend 6 months or even a year, but because of the stability of my job and my earning potential I am comfortable with just 3 months at this time.

All of this adds up to 87.3% of my post tax income. Notice that this does not include food, beer, clothes, entertainment, more beer, charitable donations or any other discretionary purchases that I make. These costs can vary wildly depending on how often I go to restaurants or tear out of my clothes like the hulk so while I have maximum budgets in place I don’t have everything down to exact numbers. The remaining 12.7% of my post tax income is put to good use each month, and if I have anything left over I tend to toss it into savings or towards my student loans. I also use the income from my side work to help fund a lot of these purchases. Those check go into a separate account that I use to buy beer, or fund a dinner out, or to cover any travel expenses. I work those jobs to make extra money so that I can live the lifestyle that I want to live. Without that income I would have to cut back on a lot of expenses and savings that help fund my present fun and my future needs.

Personal finance isn’t some type of wizardry, it is basic math, spend less than you make. It helps to keep your expenses low no matter what your salary is, but you don’t have to live like a monk all the time (side note Trappist monks brew some of the best beers in the world, so maybe living like a monk isn’t so bad after all). There is no right or wrong way to spend your money or your time, but you need to find a balance that works for you. I don’t profess to be a financial professional, and except for a healthcare economics course 10 years ago I have no training in the subject. You might look at my budgets and say that I have everything wrong and that I should be following X or Y advice, but what I do works for me. I wish that I could pay off more of my student loans or save more for retirement, but those things will come in time. Specifically 22.5 more years of student loan payments and 36.2 years to retirement, not that I am counting or anything.

Maybe now people will understand that just having a high salary doesn’t equal living the high life.  I am not preaching that I am a pauper and these expenses are the result of my choices, but despite having a six figure salary I still have a lot of the same issues getting by.  Most of my friends are similarly educated and compensated professionals and I know that a lot of them have the same issues as I do.  I hope that this has helped at least one person, please reach out if you have any questions.