What percentage of your income to do you live on?

What percentage of your income to do you live on?

In my balance transfer post I mentioned that I currently put a big chunk of money away for retirement. I’m married, have a mortgage, and a kid, and well things are starting to get a little tight when it comes to my finances. No longer are there piles of money sitting around in bank accounts that I don’t know what do to with. In fact our cash flow is pretty much dead even or even going in the wrong direction the last couple months.

Well I figured I’d just do a high level analysis of where our money goes.

I get paid bi-weekly and make $2196 before taxes. That comes out to roughly $57,000

Taxes – $401.82/check $10,447.32/yr or (18.3%)
Health Insurance $197.28/check or $5,129.28/yr or (9.0%)
Roth IRAs $8000/yr or (14.01%)
Roth 401k $10,000/yr or (17.51%)
Mortgage/Heloc ($15,600) or (27.32%)

If you add up all of those percentages you come up with 86.14% or in other words minus our house we live on 13.86% of my salary or $7,913.50. Wow my wife is awesome, there aren’t too many women in this world that would allow a family to living on such a small allowance each year. I guess I’m a cheap bastard. Now granted my wife does do some part time jobs like susbstitute teaching, singing for weddings, tutoring, etc and she does make roughly another $2-$3k a year, but still I’m pretty darn proud of what we’ve been able to accomplish. I’m sure if I added in diapers and food and gas there wouldn’t be a whole lot left, which means that we despite my complaining about the size of our credit card bill that I have to pay off each month we aren’t exactly living frivulously.

  • Unless I missed something…

    $2196 x 2 = $4,392 per month
    $4,392 x 12 = $52,704 per year

    So your percentages will be a few points off. Also, how are you only paying 18% in taxes per year? Do you have a business to write off expenses? Good update! Keep up the good work!

  • My Financial Journey

    I get paid bi-weekly not twice a month. So there are 26 pay periods in a year not the 24 you are calculating.

    52 months in year / 2 = 26 pay periods. (edit: should be 52 weeks)
    As far as taxes I am still in the 15% tax bracket and I do have state taxes of 6% I believe, but I have a house and a wife and a kid, so I believe I claim 3 deductions on my W-2/4 (whatever that form is called) and it ends up working out just about right as far as taxes are concerned.

    I believe my effective tax rate last year was actually much lower than 18%, but last year I was contributing to a regular 401k and this year it is a Roth 401k so more of my income will be subject to taxes…remember I’m married, but technically only have one income so the tax brackets are much higher for me than single people.

  • Woo … this is awesome. If only i can save this much as a % of my income.

  • 52 months in a year? WOW! I’d have a 6-figure income if that was true!

  • err 52 weeks, but anyway the orignal calcs in the post are still correct

  • R

    I’m amazed. That’s probably around $700 per month (or $25 per day) for two adults and one child covering:

    home maintenance & repairs
    electricity bill
    gas/heating bill
    childcare-related expenses (vaccinations, diapers, formula, etc)
    car maintenance & repairs
    regular healthcare expenses
    phone bill (landline/VoIP/cell)
    Internet access (since you are a sys engineer)
    computer-related expenses (software, hardware, etc)
    emergency savings (liquid savings in an MMA)
    miscellaneous entertainment & vacation

    I’m simply amazed. A bad car repair can set someone back $1000 and blow through a month and a half of the $700/month budget. One $500 computer can take away a good chunk of one month’s budget. Birthday gifts and holiday gifts can also eat at the budget.

    How do you do it?!

  • R

    I just read that you went to a Packers game. Wouldn’t that also eat up something like 2 (or maybe 3) days of the monthly budget?

  • My Financial Journey

    Packers game was free. I got ticket as a thank you for helping a friends grandparents with their computer.

  • My Financial Journey


    I’ll try to address some of your expense questions

    food – I pack a lunch every day at work and we very rarely eat out. We also shop pretty frugally with coupons and only buy what we need. Also a young kid (16 months) really doesn’t eat too much and first year of life is free if you breast feed.

    home maint & repairs – have a newer house and have never had to fix anything so far, also haven’t spent any money on landscaping or other luxuries

    electricity/gas/heating – do what we can to minimize bills, but yes one that is hard to do much about

    clothing – i probably haven’t bought new clothes in 5+ years, my wife doesn’t buy too many clothes, and our son being the first grandchild means lots of clothes are given to use as gifts, even then we only buy what he needs.

    child-care expenses – vaccinations covered 100% by my health insurance, diapers yeah they are inevitable, was breast fed so no formula costs.

    car maintence – despite my recent snafu – my car only cost me $900 and so you don’t have too many $1000 bills that way….despite that my car is in good shape and I expect to be driving it for at least 3-5 more years without any major malfunctions. If its major I’ll just buy a new clunker. Wife’s car is less of a junker but have never had issues with it

    Gas – yep innevitable, but I live fairly close to work so only have to fill up every 1.5 weeks and I only got an 8 gallon tank, get about 33mpg.

    Healthcare – covered by insurance pretty much 100%

    We each have cell phones that rings us $40 /month

    Internet access – actually a developer, but yeah I pay $20 /m for DSL

    Computer-related expenses – Bought a PC about 3 years ago haven’t really spent much on it since, software isn’t really an issue for me

    Emergency savings – For this I’m relying on my HELOC

    Misc entertainment & vacation – most of our vacation time is spent at family cottage in Norhtern WI so other than gas it’s not too bad. We don’t travel and don’t really spend much on entertainment – this is one area I hope to actually spend more money on in future.

    Birthday/holiday gifts we don’t blow the bank on either, we have big families, but we take advantage of Walmart (plus we get 5% back on all purchases at walmart with my CC)

    To be honest I was amazed at it when I broke it all out too, but really once you get into the flow it really isn’t that hard. It’s all about you and your partner being on same page and having the same goals and mentality when it comes to money.

  • Paul Ulrich

    I just found your site, and I must say, I wish I could devote time like you have to keep it up to date. But its like reading my own diary. A few differences though, my company doesn’t offer Roth 401k. I have 3 little kids and my wife doesn’t make much money outside of the home (like none). However, there are a few things you can do to save money that you neglected. Use cloth diapers. Deliver the child yourself at home if you can. Use a prepaid cell phone ($120/yr for 1000 minutes). DsL should be at most $15/mo. I pay $10/mo ATT.
    I don’t save quite as much for retirement (15%), but I donate more than that % of my income/yr. You don’t donate anything?

  • MFJ

    @ Paul

    Thanks for your comments. I now have 2 little kids and now my wife makes even less money out of the home (she sings for a few weddings) but even that money goes to her family’s future vacation fund as they want to take a trip to CA.

    I have not tried cloth diapers and have very good insurance so our last child’s birth only cost me $200.

    As far as your comment about charity I did not think to include this, partly because up to this point it has not been that significant of a percentage – probably a little less than 1% which is not something I am proud of. I do quite a bit of volunteer work at my church and through my local Lions club, but as far as hard cash up to this point my efforts have been pretty pathetic considering what I have been given. This is something I am currently in the process of adjusting and hopefully my charitable giving rates start rivaling my savings rate. Again something I’m not proud of I have gone through the school of thought that it was better for me to accumulate a large nestegg that would allow me to donate large amounts to charity when I am older and possibly even retire early and concentrate on charitable giving, but I think I should be balancing future giving with present giving as it’s all too easy to say I’ll give more in the future.

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