What to you mean by Living Expenses?

[TotallyBroke]

We have a monthly budget and I sometimes wonder if our allocation is appropriate or not.  So I have some questions about how other people monitor themselves:

1. Do you calculate savings/living/effective tax rate percentages on gross income or after tax/401k contribution income?

2. Do you remove charitable donations from the denominator as well?

3. What do you include in "living expenses?"

 

There are times I feel like I'm drowning in student loan debt (still $400K+ just over 1 year out of training).  At $5K per month I'll be done in 8.5 years.  But, when I look at what we "live" on, I'm not sure of the best way to judge it.

If I just look at utilities, food, clothes, gas, etc we live on 15% of our gross, 20% of take home pay.  It works out to less than $32K per year but doesn't include insurances, mortgage, charitable donations, etc.

Auto, Umbrella, Disability & Life Insurance cost 4% of gross and 6% of take home pay.

Mortgage (incl. escrow) is 14% of gross and 19% of take home pay.

The real kicker for me is that interest on mortgage and student loans works out to 16.6% of gross pay and 22.7% of take home pay.

 

Do these numbers seem normal for a young attending with Net Worth below -$340K?

 

[VagabondMD]

I would break living expenses into mandatory, like rent/mortgage, utilities, food, insurance, etc., and discretionary, like dining out, hobbies, entertainment, etc. Some items, like clothing, could fall into either category. Charity is discretionary, unless you have a duty to tithe or feel that it is otherwise mandatory. At the end of the day, it really does not matter how you calculate it, how you categorize it, what your percent is compared to the next person, etc.

What matters is that you keep your expenses as low as possible until the school loan gets paid off and then keep it low enough to establish a nest egg. Is it normal? I guess this is the new normal. There is an active thread where a recent grad discussed paying $10k per week towards his loans, to get them paid down quickly. I am not sure that this is normal, but it appears that it is possible.

[Hatton]

Vagabond MD wrote:

What matters is that you keep your expenses as low as possible until the school loan gets paid off and then keep it low enough to establish a nest egg. Is it normal? I guess this is the new normal. There is an active thread where a recent grad discussed paying $10k per week towards his loans, to get them paid down quickly. I am not sure that this is normal, but it appears that it is possible.

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The thread Vagabond is referring to is a new Psychiatry attending who working locums 7 days per week and his contract pays for housing.  He is essentially putting his entire check toward loan payoff for 1-2 years.  I fear he will burn out soon.

I guess you are describing the new normal.  These massive debts did not exist when I was in medical school.  I would really track your expenses to see if there is any fat.  You need to be careful not to inflate your lifestyle until you get the debt behind you.  Now you just need to keep shoveling until you get to the other side.

[hightower]

TotallyBroke wrote:

We have a monthly budget and I sometimes wonder if our allocation is appropriate or not.  So I have some questions about how other people monitor themselves:

1. Do you calculate savings/living/effective tax rate percentages on gross income or after tax/401k contribution income?

2. Do you remove charitable donations from the denominator as well?

3. What do you include in “living expenses?”

 

There are times I feel like I’m drowning in student loan debt (still $400K+ just over 1 year out of training).  At $5K per month I’ll be done in 8.5 years.  But, when I look at what we “live” on, I’m not sure of the best way to judge it.

If I just look at utilities, food, clothes, gas, etc we live on 15% of our gross, 20% of take home pay.  It works out to less than $32K per year but doesn’t include insurances, mortgage, charitable donations, etc.

Auto, Umbrella, Disability & Life Insurance cost 4% of gross and 6% of take home pay.

Mortgage (incl. escrow) is 14% of gross and 19% of take home pay.

The real kicker for me is that interest on mortgage and student loans works out to 16.6% of gross pay and 22.7% of take home pay.

 

Do these numbers seem normal for a young attending with Net Worth below -$340K?

 

Click to expand...

Anything that is not being either saved in a savings account (IRA, 401k, etc) is considered spending/expenses.  SO, yes, mortgage, taxes, insurance, vacations, food, transportation, etc, etc is all considered expenses and should be calculated as such.

Yes your numbers seem in line with the level of student loan debt you have.

IMHO, you can include any extra student loan payments as savings because you are paying off debt quicker.  That's how I look at it anyway.  The minimum payments should be thought of as an expense, but any extra payment towards the principle is saving you money so you should look at it as savings.  The same for mortgage if you are making extra payments towards that.  Once your debt is gone, those extra payments will go towards savings, so you might as well get used to thinking of that income as savings and protect it as such.

[ifonlyFI]

IMHO, you can include any extra student loan payments as savings because you are paying off debt quicke

I agree with the above statement. Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

[Zaphod]

Its easiest to categorize things into one of two categories, Fixed vs. Variable/other. Fixed expenses are things you have to pay every month. Mortgage, student loan, car, utilities, insurance, taxes etc...Variable is everything else which you can actually change. Some fixed expenses can even be changed if you really go for it like car, mortgage.

That way you see what your monthly nut to crack is, and whats left over for everything else. I put retirement into fixed myself, but obviously you dont have to do that.

[RogueDadMD]

I classify my expenses the way Zaphod describes. Any recurring monthly expense of a predictable nature I label as "fixed." It doesn't meet the accounting definition of a fixed expense, but for personal budgeting it works. It lets me see what recurring expenses I know I have to account for every month and also I can see which "predictable" expenses I can focus on decreasing or eliminate. I count any recurring activities for the kids in this, even though those are a completely discretionary expense, until I've stopped them, I have to account for it as part of my cost of living. It also makes it easy to see what I could slash/stop if I needed the money.

It's hard to assign a fixed cost to something that has variable duration of use. Groceries and and food are recurring, but it's hard for me to anticipate the total expense in a given month given it fluctuates based on travel and work shifts and kids and holidays etc. If we do prep to get a batch of frozen meals that food can be used over many months, so I instead focus on doing stuff that in the best value possible without focusing on just slashing to a certain number. When I've tried to assign a monthly dollar amount to it, it hasn't worked well for us.

[CM]

TotallyBroke wrote:

Do these numbers seem normal for a young attending with Net Worth below -$340K?

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If I'm reading between the lines correctly, your debt feels like an onerous burden and you're wondering if you're on a reasonable path to get out from under it.

I think you are.

You're spending a little over $40K/year ex-mortgage, and about $72K/yr all in, correct? That doesn't seem extravagant to me.

Vagabond MD wrote:

What matters is that you keep your expenses as low as possible until the school loan gets paid off and then keep it low enough to establish a nest egg.

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Agree with Vagabond. Be aggressive with loan payments.

TotallyBroke wrote:

Do you calculate savings/living/effective tax rate percentages on gross income or after tax/401k contribution income?

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Accounting is just a tool. Use the metrics that help you understand your progress best.

For me, anything that goes into the retirement accounts is savings. Every other cash flow out the door is an expense (but I have no debt). I track savings rate as percentage of gross and of net.

If I was you, I would count all student debt payments and any extra mortgage payments as savings.

[jfoxcpacfp]

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand...

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

[CM]

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand...

.

[jfoxcpacfp]

TotallyBroke wrote:

We have a monthly budget and I sometimes wonder if our allocation is appropriate or not.  So I have some questions about how other people monitor themselves: 1. Do you calculate savings/living/effective tax rate percentages on gross income or after tax/401k contribution income? 2. Do you remove charitable donations from the denominator as well? 3. What do you include in “living expenses?”

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The good news is that you get to create your own definition of living expenses for future benchmarking. Everyone will have a different definition and that's ok. What's most important is that you set your budget and be consistent. For example, if you decide to contribute 10% of net income and save 25% of net income, use that when making your budget and don't change back and forth. Then you'll be able to measure your success or failure and adjust accordingly.

Personally, I use gross income for measurements because tax withholding is not a constant and can be monkeyed with, but how you go about developing a method that works is up to you. What matters is that you find what works for you and stick to it.

If you'd like some good, solid basic advice, I recommend you read or listen to The One Page Financial Plan by Carl Richards. After listening to it, I was so taken with it that I bought several copies to give away.

[q-school]

it's good that you will be done in 8.5 years.  sounds fast to me, but i didn't put it into a calculator.

5k/ mo is 60k/year.  x8.5 is roughly low 500k total payments?  i would have guessed interest would have added more to the totals.

i'm not sure if you are planning on having kids or whatnot.  kids are a huge x factor in the budget.  i think it's hard to know for sure how things will play out that far in the future.  don't get stressed if you have to change your budget a little here and there in the future.

however, all that said, i think you are doing just fine wrt budgeting.  you 'sound' stressed, and i think you should look at the comments as reassuring.  your plan is good enough.

good luck!

 

 

[StarTrekDoc]

Echoing Johanna's advice --  Start with Gross income and calculate from there.  Debt paid isn't increasing Net worth - It's just balancing the ledger columns to smaller variables.

Expenses -- Fixed Have to's  /  Variables Need To's / Lifestyle Want To's :

The way you form the questions is like the long debated Tithing - 10% pre or post tax   --it's an expense and just put it in the appropriate bucket.

 

Your numbers looks right.   Quicken does a pretty good job in tracking all this in a fairly automated way once all the accounts and standard transactions memorized.  If you do a bunch of different charities, it helps track that nicely for year's end reporting too.

[jfoxcpacfp]

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand…

Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

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I'm taking the comment for what it is, using the traditional definition of net worth, which is assets - liabilities = net worth. Human capital doesn't have a definite numerical value. If you're wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

[hightower]

TotallyBroke wrote:

We have a monthly budget and I sometimes wonder if our allocation is appropriate or not.  So I have some questions about how other people monitor themselves:

1. Do you calculate savings/living/effective tax rate percentages on gross income or after tax/401k contribution income?

2. Do you remove charitable donations from the denominator as well?

3. What do you include in “living expenses?”

 

There are times I feel like I’m drowning in student loan debt (still $400K+ just over 1 year out of training).  At $5K per month I’ll be done in 8.5 years.  But, when I look at what we “live” on, I’m not sure of the best way to judge it.

If I just look at utilities, food, clothes, gas, etc we live on 15% of our gross, 20% of take home pay.  It works out to less than $32K per year but doesn’t include insurances, mortgage, charitable donations, etc.

Auto, Umbrella, Disability & Life Insurance cost 4% of gross and 6% of take home pay.

Mortgage (incl. escrow) is 14% of gross and 19% of take home pay.

The real kicker for me is that interest on mortgage and student loans works out to 16.6% of gross pay and 22.7% of take home pay.

 

Do these numbers seem normal for a young attending with Net Worth below -$340K?

 

Click to expand...

I agree with @q-school ... It's important to keep your chin up with all this.  Your username and comments on feeling like you're "drowning in debt" show that you're feeling the effects of debt weighing you down.  Focus on the positives.  Each time you make a payment towards debt, your net worth rises.  Each time you contribute to your 401k, your net worth rises, etc.  Track your net worth each month.  You'll see it going up quicker than expected.  Celebrate each small milestone and feel good about the progress you're making.

You have to enjoy the life you have now, even with the debt, so don't let the debt keep you from being happy right now  I know the feeling because prior to finding WCI and getting my debt under control, I felt the same way and I was letting it effect my job and my home life.

 

You're doing good and are on the right path!  Keep it up!