My New Budget For 2008

While doing this new budget, I was extremely impressed by the tools provided by the credit card companies. They have made the budgeting process so much easier that you no longer need to spend hours and hours trying to figure out where your money has gone. All of them provide spending by categories and dates, so that you can easily figure out your own spending style. Although the tools will never be perfect in categorizing every bill, at least it’s a very good start.

item	amount	comment
Mortgage	2200	This is not the true value that I pay, but only serves as what I should be paying in terms of interest cost due to carrying a mortgage, or the equivalent rent that I should be paying.
Homeowner due	165	Includes the insurance for the condo.
Electricity & Gas	120
Water	26
Trash	14
Local Phone	16
Cell Phone	9	There has been some increase due to usage, but here is how I get it so low.
Long Distance Phone	20	Mostly it’s international calling cards.
Cable/Satellite	17	Most vanilla plan because I can’t get clear TV signals.
Medical Insurance	137	Covered thru my employer.
Car Insurance	75	Only pay about $900 a year for two old cars, liability only, plus full coverage on 1 new car.
Gasoline	260	My round trip work commute is 24 miles. My car has about 20 miles/gallon.
Car Maintenance	40	Oil changes + prorate for changing brake + 30K/60K miles service.
Travel/Vacation	385	Annual of $4600, mainly for flying (internationally) back home to visit parents.
Food + diapers + baby milk powder	415	Does not include dining out.
Dining out	265	Never realize that it’s quite a lot of money spent here.
Toys/Books for children	50
Preschool/other educational expenses	0	Currently zero, but expect hefty increases starting next year.
Wife’s allowance	350	Wife’s happiness is of the most importance.
Cash Usage	100	God knows where I spent these dollars.
Charity	290	Increase due to a more realistic assessment of my contribution.
Miscellaneous/Clothing/etc.	300	About $100 extra padding, while the other $200 do get spent on all kinds of things.
Federal Tax	500	Tax can increase very fast with additional income or without 401k/IRA contribution.
State tax	250
City tax	24
Social security tax	504
Medicare tax	133
Property tax	250
401k	1292	Annual limit is $15500.
Spousal IRA	0	I’m not allowed to contribute to this due to my high tax bracket.
ESPP	1500	Employee stock purchase plan, maximum amount of $18000.

Here are some reflections on the increase of my expenses from 2 years ago:
My gasoline cost increased from $160 to $260, mostly to due crude oil price increase and longer commute distance.

The other major increase in the total of food+dining is from dining out, even though the most (if not all) of the dining bill is less than $35 per family. This category has gone up by almost 50%. The main reason is that my kid is no longer 0 to 1.5 year old, and I can finally dine out.

My cell phone usage has gone up too from $7 monthly to about $9, due to the increase in my other side activities besides the blog. But the absolute amount is tiny in comparison to any other items. And yes, I’m still using T-mobile prepaid.

And I have also decided to simply budget for my charity spending, instead of deluding myself. It has been pretty consistent for past 5 years, and the amount of money going towards charity purpose will only go up instead of down. I have under-budgeted the charity amount somewhat, just to give myself a little financial breathing room. I think putting it at $290 monthly should be a good compromise.

My “vacation” expenses have gone up a lot because of the cost increase in international travels going back home, and also now I’m forced to take these travels ONLY during school recess.

In case you wonder, I also zero out Spousal IRA item since that is simply a “theoretical” contribution instead of a real one. My tax brackets have disallowed this contribution almost every year.

I also up $200 on miscellaneous category, which appears to be the right amount from my past 12 months of spending.

Looking forward, I expect that I will be spending more and more on children on educational purposes as they grow up.

From above, my total expenses (in white) are $5238, and my total taxes (in red) are $1661, and the savings (in green) are $2792. Assuming a household income of about $110K, or a monthly wage of $9167, my cashflow after deducting all the above items is negative $524, which needs to be deducted from savings. Please note that the above taxes are just the taxes that one might be paying at such income level, but I actually pay A LOT more (3X or more). This is mainly due to a very progressive tax system that extract a lot more taxes from any additional income beyond this level. My marginal bracket is at about 40%, instead of 20% from the above. The only problem is that it just doesn’t take much more income to quickly go to 40% marginal bracket.

The bottomline is that my net saving has dropped to $30400 from the previous $45000, after I account for the 15% discount in share purchases of my company ESPP plan. Some of the drop is due to the differences in what I’m accounting for budget, but nevertheless, the drop is significant enough to be observable from bank account balances. Unfortunately, I expect my saving levels to continue to dwindle, due to the increase in the child expenses going forward.

What’s the lesson here? I’m not becoming much less frugal, but my saving drops. Inflation accounts partially for the drop, but the main reason is as stages in life progress, your saving (if it is still positive) will be dropping to its LOWEST when your children start going to college. I’ve written an entire post (boring, but truth that you don’t want to hear) on this point to advise anyone out there to start SAVING NOW. The best time to accumulate your savings is before having any kids, especially before getting married (and after you just started working). The next best time to accumulate your savings is when your kids finish college, and before you retire. The rest of the time, one should consider oneself lucky to scrap away something left after all expenses are paid. If you have any doubts about my drawn conclusion, simply ask your parents.