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What Should Your Monthly Housing Costs Be?

housing costsHow much of your salary should you be spending on housing costs? What do you actually spend? We decided to devote a post to this topic after seeing an interesting discussion about readers’ rent/mortgage payments as compared to their incomes.

Before getting to specifics about housing: The general 50/20/30 rule for budgeting is still commonly accepted advice. The guideline was made popular by Senator Elizabeth Warren (who happens to be a bankruptcy law expert) in her book All Your Worth: The Ultimate Lifetime Money Plan. As described in this LearnVest article, you should:

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Tales from the Wallet: How to Make a Budget

how to make a budgetFor today’s money feature, let’s discuss living within your means — how to make a budget and stick to a budget. What does “budget” mean to you? What tips and tricks have you used to set a budget, pay down debt, save money and protect against lifestyle inflation — and what alarm bells have you used to tell you that it’s time to reassess? 

The No-Budget Budget

I’ve mentioned before that I don’t think every person needs to make a budget — there were years in BigLaw where I would automatically move my second paycheck to savings/investments, living entirely off my first paycheck (and auto-contributing to my 401k). That was enough of a “budget” to me, with no further thought. I knew then and know now I was lucky in those years, and I’m still so grateful for them — that simple decision has laid a great groundwork for me and for my family.

Pictured: MICHAEL Michael Kors ‘Jet Set’ Travel Wallet, on sale for 40% off in purple; at full price in several other colors.

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Tales from the Wallet: Setting (and Sticking to) a Budget

sticking to a budget - our best tips!2017 update: we still stand by this advice on sticking to a budget; we’ve also updated links below. You may also want to check out our more recent discussion of how to make a budget

iconReaders got into this discussion a bit in the comments to Monday’s resolution post, but I thought I’d continue the discussion here, because I think it’s a worthwhile one.  So let’s talk about setting and sticking to a budget… (2017 update: the pictured wallet from Comme des Garcons is sold out now, but Nordstrom still has a ton of great wallets from the brand.)

First, I would say that not everyone needs a budget.  Your goal should be to spend less than you earn, and sometimes you can accomplish this — easily — without really keeping track of expenses. For example, if you’re making more money than you know what to do with (lucky you!), setting a general monthly goal (such as moving the second paycheck of every month into savings) should be fine, after maxing out your 401K and taking a close look at your debts.  But maybe you’ve recently switched to a lower-paying job and want to keep a closer eye on your finances — or perhaps you’re setting new goals for yourself this year, such as paying off debts, saving a greater amount, or saving towards a goal like a house or car.  Or maybe that goal of “spend less than you earn” has been eluding you for quite some time.

How to determine your budget? Everyone has slightly different methods of this, as you’ll note from the reader comments on Monday.  Personally, while I use Mint.com to generally keep an eye on our accounts and to track trends, I have always just used plain old Excel to keep track of a budget.  My own tip for budgeting is that I like to get ahead of the ball, so last month’s income goes to pay for this month’s expenses. If the end of the month draws near and the money starts to dwindle, we do our best to stop spending (and, for example, opt to eat in rather than head to a restaurant, or I don’t buy that pair of shoes I see online, or I bring a can of soup for lunch instead of going out for soup).  (Disclosure here:  My husband and I have totally combined our finances, I’m in charge of the money, and I’m also the primary spender — so this may be easier for me.)

More specifics:  On my chart, I first have the total combined income from last month (after taxes and whatever else is taken out).   Then I have different lines for fixed expenses — and for me these are only non-negotiables:  mortgage payment, common charges payment, debt payment, various insurances (amortized over 12 months if it’s something we pay yearly).  Then, I have our goals for the month — usually it’s a set amount of savings for retirement, but it might also be savings to pay off  a particular student loan, or something like that.  And then I subtract — income minus debts minus savings.  And whatever’s left is the budget for the month.  I generally just keep track of cash withdrawals rather than cash expenditures (so if we get $100 out of the ATM I’ll track that rather than whatever we spend the $100 on), and in general I use Mint to keep track of what money is spent when.  (Then I just have to log into Mint and copy the latest expenditures to the chart.)  I don’t include things like credit card payments on the “budget” (as the expenses should have been individually included when they were incurred).  As far as extra income goes, I’ll keep track of some of it — money received after returning a purchase, for example, a Christmas check from my grandmother, or interest from our savings account — but other stuff (e.g., paychecks) don’t get counted. As the month goes on I’ll bold things that are deductible — business dinners, charity contributions, etc. — and copy them into a separate column, which makes taxes a breeze at the end of the year.  When the month ends, I start a new sheet in Excel.

If you adopt a system like mine, I’d suggest giving yourself a few months just to get used to tracking your expenses and seeing where the money goes.  (And Mint can be great to keep track of spending in categories — it’ll even let you set budgets for the category and track them.) After a few months, take a look at things and try to get a better sense of where it’s “too much,” either because you’re spending beyond your means or you’re spending more than you really care to. For example, you may have a souped up internet/phone/cable TV package, but a) never watch 95% of the channels you receive, and b) never use your landline.  You may be able to significantly reduce your monthly bill every month without feeling any pain with the cuts.  You may also realize that you have leftover savings every month that should be allocated elsewhere — instead of leaving it to chance it might be time to put that $200 or $300 towards a student loan, or in a fund for a savings goal.

Personally I prefer to just have a general “bucket” budget rather than a category-by-category budget, but that’s just me.  Readers, do you believe in setting and sticking to a budget? Have you always had one, or were there times in your life that you haven’t kept track of money?

setting and sticking to a budget - our best tips!

Reader mail: My coworker has my same suit!

What To Do When Your Coworker Has the Same Suit || CorporetteToday’s reader mail deals with the inevitable problem: buying the same clothes as your coworkers.

I have just started my career and I am building up my wardrobe essentials one button down at a time so i am kinda slow because i had to start from scratch (my college wardrobe wasn’t ahem ‘ladylike’). I have this amazing pinstripe navy skirt suit. it’s basically my pride! my big-day suit (and for now the only real suit I got….). Today a coworker showed up wearing the same!!! (of course i look better in mine) but i don’t know what to do.. do I have to keep wearing mine and run the risk of bumping into that colleague dressed alike, or do I wear it as separates, or do buy another ‘big day’ suit? For the info: the coworker is two ranks higher than me in hierarchy so it’s flattering we got same suits, I rarely run into her. My problem is how will it be perceived, and what is an appropriate way to make a joke about it… or ignore it.. i am just confused.

We used to work around the corner from an Ann Taylor, and whenever they had a big sale half the girls at the office would show up in the same pieces. It’s an inevitable fact of office life, particularly when there are a finite number of stores catering to professional women. For our $.02: Don’t sweat about it.  [Read more…]

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