Back in the day, I wasn’t a broke professional at all. Rather, I was one member of a two-salary household. And while neither I nor my husband raked in the big bucks – I was a lowly TV news producer, he a rookie law enforcement officer – we brought in enough money to put us in a higher tax bracket than the one in which we currently reside. We always had enough money to pay the bills, to go on vacation, and to eat what, where, and how we wanted. He didn’t bat an eye when I came home with a new pair of $200 jeans, and I likewise kept my cool when he spent his entire stimulus check on construction-grade tools (which he’s still never used, but I digress…).
These days, our lifestyle is far different. I work freelance from home, while taking care of two young (re: expensive) children. We slashed our income virtually in half overnight. But in order to understand where we currently are financially,you have to first understand where we’ve been.
Our Two-Salary Budget
Back in those days, I kept meticulous budget spreadsheets; I could account for every dollar I spent. Of course, we didn’t have kids then, so it was easy. Here’s what our expenses looked like in pre-tax dollars in 2007*:*Note* – I chose to use 2007 for three reasons. First, it’s the last full calendar year before we had children; second, it’s the last full calendar year I worked a full 52 weeks (my remaining years at work included extended periods of FMLA leave); and third, it’s the last full year before the economic crisis really began to hit home for most Americans.
As you can see, we actually had budgets for things that today we’d consider luxuries – eating out, travel, entertainment, home improvement. Yet, while we apparently had the money for all this so-called “fun,” we only managed to save a combined 5% of our pre-tax salaries. If you look at our 401(k) contributions, you’ll see that we (well, I – my husband didn’t get an employer-sponsored 401(k) until 2011, and we were too finance-illiterate to know we could open a Roth IRA on our own) were putting less into our retirement than we were into our travel, eating out, and entertainment budgets.
What I’d Do Differently
Hindsight being 20/20 and all, sometimes I find myself wondering how my husband and I would allocate our income if I still earned a full-time paycheck. What would our budget look like? What things would be our financial priorities? Which elements would be eliminated? I’m not trying to go back in time – I don’t have the time for that – but I’m trying to theorize how I’d budget that same income in my current life.
- My first change would be to completely reevaluate my savings/investment strategy. Today we have a fully-stocked emergency fund; we could likely live off it alone for close to a year if we played our cards right. So saving – even at a 5% rate – isn’t really necessary for us like it was back in the days when we were newlyweds with nothing (but debt) to our name. Today, I’d work merely to maintain the emergency fund (that would usually require me to do absolutely nothing in terms of budgeting) and shift the focus to our investments instead. If we were still earning at that same 2007 level (forget inflation, forget raises – I’m merely talking about going back to a two-income household), I’d like to see us putting 20% or even 25% into our investments. Specifically, my husband and I would each put $5,000 into our Roth IRAs – representing roughly 13% of our 2007 pre-tax income – and then get up to the +20% mark by contributing the company match max to each of our employer-sponsored 401(k) accounts.
- I’d make extra payments to our mortgage principle. We refinanced our mortgage in 2009, bringing our rate down from 6.75% to 4.75%; the adjustment saved us nearly $150 off our monthly mortgage payments. For a while, we put those savings into extra payments, but when I left my full-time job, we needed the cash for other things and, quite frankly, got lazy. I’d strive to make the equivalent of 16 monthly mortgage payments a year instead of the usual 12.
- Today, we no longer have auto loans, as we paid off the principle on both our vehicles ahead of schedule (woo hoo!). That was necessary, however, in order to pay for my daughter’s preschool tuition; our net-savings has been very small. If I was still working full-time, I’d use the extra money to start an education fund for my children, separate from their 529 college savings plans. I’d use this to pay for all the sports fees, dance classes, and maybe even private school tuition (I live in a county with a very poor public school district) I’ll likely be paying for years and years to come.
- If you look at the above pie chart, you’ll see that nearly 20% of our pre-tax dollars went to what I call “luxury” expenses. Vacations, fancy dinners, new clothes, and leather furniture were all routine purchases in our world. I shudder to think that 19% of our money went to things we didn’t truly need. Today, I’d siphon some of that money toward our grocery budget – we spend nearly as much today on groceries as we did back then, despite the fact our family has doubled in size – and work to buy higher-quality foods. I’d also allocate part of it to our gas budget, since prices have risen dramatically since 2007 and that budget would no longer get us where we need to go.
Changes ICan Make Now
As I was writing this post, I realized something – I can make a lot of these changes right now, even without the extra $25,000 my old full-time salary would have allowed us (I made more than $25k, but currently make some of it back through my freelance work). I might not be able to put a full 20% into our investments, but after looking at our current numbers, I should be able to increase our current investment budget to between 12-15% (we’re currently closer to 9-10%). I can also manage to cut down on unnecessary expenses. Even though my days of luxury purchases are long gone, I’ve still managed to finagle a few of them back into our monthly budget – by eliminating (or at least reducing – a girl’s got to have some fun) them, I could likely reapportion those funds into segments of our budget that are currently underfunded.
Reader, how often do you reevaluate your budget? Do you often find yourself Monday morning quarterbacking your decisions?