5 Main Money Gobblers

The following is a post by staff writer Crystal at Budgeting in the Fun Stuff.  Her blog covers living expenses, saving for your future, and the fun stuff in between.

I thought this article at Yahoo was just perfect for Sweating the Big Stuff. According to it, these are the five things that will consume 50% of your total lifetime earnings:

1. House
2. Car
3. Kids
4. Higher Education
5. Retirement

I’m not terribly surprised at the list, but I thought it would be fun to come up with ways of saving as much as you can in these areas so you don’t have to sweat the small stuff so much.

1. House – I personally think that you should only buy a home you can EASILY afford. I thought of how Mr. BFS and I would need to live if we only had one income and we bought a house with a mortgage to match that hypothetical scenario. It would be tight, but we could even keep the house if we had to live off of my $35k a year.

My rule of thumb for home buying is to save up at least 20% down plus a small emergency fund (at least a month or two of living expenses). Also, I wouldn’t suggest taking on a mortgage payment that would use up more than 25% of your total take home pay for the payment and property taxes. Our house falls in at 19.8% with taxes.

Yes, I understand that homes on the coasts are insanely priced and may take up a much bigger percentage. This is why I called it “my” rule of thumb. I don’t think we’d personally ever break that rule, so I guess we’d need to make more if we lived in a pricier area or rent a tiny place that could fit into our budget. I rather rent than risk a foreclosure.

2. Car – Yes, the big, pretty, shiny car may be calling your name, but your wallet is going to take a beating if you indulge that whim too often.

Our rule of thumb on vehicles is to buy the least expensive new or used car that also matches our criteria. In my case, I needed a commuter vehicle that was 100% ready to go and wouldn’t have any issues right off the bat while we were broke college kids. That’s how I ended up with my Chevy Aveo. I hate this car now, but it did technically fulfill it’s purpose.

Mr. BFS needed a car that could be driven ALOT cheaply since he has a longer commute and is a sports official after work. It also needed storage space for all of his ref gear and teaching stuff. The Prius actually matched all of that perfectly. It was also much more affordable than the small SUV we were looking at to start with. We saved even more by simply buying a Certified Preowned one-year old model – it had the warranty like the new car and a price we could cough up.

In general, I’d say don’t buy a vehicle that you’d have to spend more than 8% of your take home pay on every month. We are aiming to never finance a car again. Every huge outgoing expense like a mortgage payment or car loan sucks up money better than a cat with a bowl of cream.

3. Kids – According to the article, a child could cost $220,000 to raise and that doesn’t include college. They suggest to avoid overindulging your bundles of joy. I’d suggest making them work off their cost, but that’s just me being evil, hehehe.

Honestly, just don’t go crazy on the stuff that doesn’t matter – no baby cares whether its clothes are from a thrift store or garage sale. I promise. Quality time and love are really the best things you will ever give a child. That will be what they remember. That’s what I remember the most from my parents.

4. Higher Education – Yes, college is expensive. Try to rack up as little debt as possible and take your future job opportunities into account. If future jobs are expected to be low paying, like a volunteer doctor in Africa, a person will be better off taking on less debt than if that same doctor was immediately going to be part of his/her family’s practice.

I think the article was right when saying “Rough rule of thumb, don’t take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college or grad school). In plain English, if you think you’ll make $50,000 a year, don’t take out more than $50,000 in loans.”

One year of future salary in loans does sound much more manageable than most scenarios I seem to hear about. To keep your debt lowered, first apply for every grant and scholarship you can possibly get your hands on. Then if there is still a shortfall, I’d suggest looking into part-time work. Lastly, once you are out of college, continue to live like a broke college kid. The more you can hammer away at the loans, the faster you will be debt free.

The 2-3 part-time jobs I held throughout college minimized my costs, so I ended up graduating debt free after my parents forgave $8000 in family loans. Even $8000 would not have been a threat to my financial future.

5. Retirement – The general rule of thumb as the article states it is to save 25 times your current income. That would give you enough that withdrawing 4% a year would be the same as your current annual salary.

Even though I do not think we will need to even use 4% a year since we currently live very nicely off of only 60% of our salaries, we are still shooting for $2,000,000 in our retirement accounts by age 60. This will help supplement my husband’s pension.

In order to reach whatever retirement goals you set, I’d suggest automatically putting away the money. Not only does this keep you from blowing off your goals, but don’t you already have enough on your plate? I know I do. Automation just makes my financial life easier, which is a welcome relief. :-)

Do you think they hit the nail on the head? Are these the 5 things that take up 50% of your money? Do you have any suggestions on saving in these areas?

24 Responses to 5 Main Money Gobblers

  1. I’m surprised they didn’t list utilities. Unless they figured that into the total house amount. My rent is about 28% of my income, but then my utilities are another 10-12% (but that includes phones and DSL).

    Of course, I’m a west coaster – everything is more expensive on the coasts. For example, my husband ordered some drinks (both alcoholic and non-alcoholic) for his sister’s birthday from a grocery store in AZ (where she lives). The prices were about 1/3 less there than where we live, in CA. We’re paying more for even our groceries!

    • @Little House, that seems weird to me. I understand land prices running up the cost of homes, but are they using the expensive real estate to grow your food too? That would be stupid. Sorry you have to pay more in every aspect – you could always move to Houston and live cheaper (and deal with hurricanes and humidity and the bad drivers…). ;-)

  2. Nicole says:

    Produce, especially organic produce, is cheaper in CA than TX. Meat is a lot cheaper in much of the South…Both are a lot cheaper than food on the East Coast. (Yes, I have lived everywhere in the country except the pacific northwest.)

    House and retirement are probably our biggest expenses. We were smart and bought a house before DH had a job (is that smart?) so we’ve got a house based on my salary alone. It’s still too much house, but very lovely. I’d say remember that you can always buy less house than you can afford and may still be happy depending on what part of the country you live in. Maybe think about what you want before you take a look at what’s affordable. And don’t do anything other than a 15-30 year fixed rate mortgage with 20% down. If you can’t afford the down payment you can’t afford the house. I shudder to think what sort of monstrosity we could have afforded on our combined incomes in this small town.

    We’re like you on the car– I have a Hyundai Accent, DH has a Honda Civic Hybrid. Both were bought new when we needed cars and will be replaced when they need too many repairs, hopefully many years from now.

    Our kid’s biggest expense is daycare– the other stuff seems to come in a steady stream of hand-me-downs and presents from the relatives. I’m surprised at how many people feel they have to buy unnecessary items for new babies… if you wait you can figure out if you’ll need it later.

    My parents paid 4 years full tuition at the private school of my choice and we’re saving to do the same for our child. Difference being we probably won’t qualify for aid, so we’re putting $500/month away now. Um savings… if your kid does well in school and on standardized tests, they’re more likely to qualify for money. If they’re really good and you’re low-income or lower-middle-income, they can get free tuition at an ivy.

    We have some catch up to do on the retirement accounts– starting this year.

    • @Nicole, how do you like your Hyundai Accent? It’s on my short list for replacement vehicles when mine finally dies – Hyundai Accent, Toyota Yaris, and Toyota Prius is what I’m leaning towards now…

      I completely agree on buying an AFFORDABLE house. If one job loss or major life event is going to cause someone to lose their house, they couldn’t afford it to start with.

      Good luck with your retirement savings! Hopefully your kid will get a full ride and you can put that savings towards your retirement as well (or like 1/2 as a college grad present and 1/2 to your retirement, etc…you know, whatever you want…I really appreciated that my in-laws gave hubby the rest of his college money – we used it towards the downpayment on our home which let us keep most of our cash in reserve as an emergency fund).

  3. Everyday Tips says:

    My biggest expense is the house and the kids, as we are aggressively saving for their educations. However, that money we save now for their educations will mean we will have more flexibility when they do go to college. I have told each of them how much we are willing to contribute to college and they will have to come up with any surplus via scholarships, loans, whatever.

    We max out on retirement already. For us, I need one car to be a crossover or SUV because of the kids and all their stuff. However, as they go on to college, my car will definitely be shrinking.

    • @Everyday Tips, I never mention kids in my own posts since I feel stupid bringing up something I don’t know anything about. The more I rehash other articles, the more it sinks in that children are a GINORMOUS expense that most of my readers happily take on. I’m in awe that most of my commenters do so well monetarily despite that extra expense that I don’t shoulder yet. All of you get MUCHO respect from me!

  4. Nicole says:

    I love my little Hyundai Accent. This is my second Accent, the first one my parents got for me as a college graduation present but I couldn’t afford the upkeep/insurance so my sister used it to get to high school for a couple of years (and did some bodywork damage to it). The quality of the Hyundai has increased a lot over time… some are saying they’re better than Toyotas now. It used to be one of those cars you replaced every 5 years with no resale value, but ours is 5 years old and still going strong.

    The big problems with accent are that it takes longer to break than most cars (probably because it is so light) and it doesn’t speed up to 65 mph very quickly. Most of these problems are solved by safe driving habits. It is really easy to park and is a nice little car. It also probably does not do well vs. F-150s…

    • @Nicole, as a driver of a light and crappy Aveo, I’m already used to the downsides of tiny cars…it would just be nice to have a non-crappy one. :-)

      My husband had a 2003 Hyundai Sonata but it was wrecked and rebuilt 6 months in and we never had the chance to know if it was a generally good car or not (an 83 year-old man cut across 5 lanes of traffic without checking to see if anyone may actually have been driving at the time…we hit him going 45, flipped him, and totalled a brand new car that was so new that the insurance company paid to have it fixed rather than total it…that sucked since it never drove the same again…). Hubby had me sell it as soon as it was paid off and got his Toyota Prius which he is LOVING. I also want a Prius but cannot justify a $15,000-$20,000 used car for the tiny amount of driving I actually do…I rather buy a brand new or used Accent or Yaris for $13,000 or less…we’ll see.

      • Nicole says:

        @Budgeting in the Fun Stuff,

        My DH is also madly in love with his Honda Civic Hybrid. It took a long time for me to get used to such a luxurious car (hush to anyone who drives a BMW– the civic hybrid is heads more luxurious than any other car I’ve been in). I figure by the time my Accent needs to be replaced (with luck) the entire car market will be different so I have no idea what we’ll replace it with. Maybe something electric! (Or maybe that’s too optimistic for longevity of the Accent.) I’ve had an Aveo as a rental car and I much prefer the Accent.

        • @Nicole, I haven’t even driven an Accent and I prefer the Accent. We’ll see what’s available when my Aveo does give out – I’m assuming I still have 2-3 years at least and I’m hoping for more than 4 since it’s only 5 years old and has less than 50,000 miles.

  5. myfinancialobjectives says:

    Not joking here, but I would say the Food is one of my biggest expenses. I would say my bigeest expenses are:
    1. Student Loans
    2. Rent
    3. Retirement
    4. Food
    5. Fun/short/mid term savings
    I eat a lot, not like just four meals a day + snacks, but those meals happen to be like twice/three times the size of, say, my gf’s typical meal. That quickly adds up!

    I also only drive cars from the auction, so I never have a car payment. That helps a LOT!

    • @myfinancialobjectives, food’s a big one for us too. If you look at my monthly budget, it’s $500 a month for hubby and me…usually more like $600 for 3-4 months of the year. That’s like 10% of our take home pay!

      I worry about auction cars simply because I know nothing about how a car works so I feel like I’d buy a lemon. It would be awesome to be able to get that great of a deal though!

  6. Mark says:

    We try to ensure that our biggest expense each year is VACATION. Sometimes TAX is bigger than VACATION, unfortunately. And our third is GROCERIES.

    • @Mark, I like the way you think! Our monthly food is $500-$600 and our annual vacation fund is a minumum of $250 a month but is usually higher since we pad it a bit with any money I make from blogging and my husband makes from sports officiating.

      • Daniel says:

        @Budgeting in the Fun Stuff, I never put aside money for vacations. When it’s time, I just put less aside for that month and dip into whatever non-emergency savings I have. It’s usually just a one-paycheck thing, but I should definitely start a fund and plan goals.

        • @Daniel, if you only take small vacations, an actual fund may not be necessary yet (we used to fold those costs into our regular spending). We didn’t start the vacation account until we realized we liked a big $1500-$2000 vacation every year as well as a few smaller trips as the need arose. Now that Mr. BFS will be wanting to attend Curling Bonspiels (tournaments) all over the place and I want to go too (believe it or not, Curlers are generally awesome people to hang with), we’re heavily dependent on having the vacation account as an important budget category.

  7. Jenna says:

    This is a great list! I can’t think of anything else I would spend a bunch of money on, maybe a vacation or artwork, but that seems a little extreme.

  8. Jenna says:

    @BFS – OUCH! That is a lot of money. Haven’t hit the $400 art mark just yet.

    • @Jenna, our first three pieces were spray-paint on burlap sack that we created ourselves for $35 (still the center piece of our living room). Then we bought a $400 original by a no-name artist that just makes us smile (it’s a close-up of a rose in bright red that we both love). Four years later, we went on our first cruise and spent $800 on 2 Billets, 4 Kraznyanski prints, and 1 Kinkade and another $800 having them all specially framed. The rest of our art are sidewalk paintings we got for $15-$30 each and a few oil paintings that Mr. BFS did himself. We framed all of those ourselves for $5-$15 depending on the sizes. We’re eclectic to say the least… :-)

      • Jan says:

        @Budgeting in the Fun Stuff, Art work was our soft point while living overseas. Now, twenty years later, we remember our wonderful trips through the work. Well worth the money- and supporting the arts!

  9. Lop at Rebates Money says:

    I’m not sure much you can do, but I guess one can 1) rent forever 2) drive a beat up car 3) have one kid or no kids at all 4) find high paying job with no degree requirement 5) nada

    • @Lop at Rebates Money, I’d suggest 1) buying something affordable 2) driving a used car that will last 3)yeah, this one’s tough – we’re going the no kid route at the moment 4)only spend one year future salary on a degree or less – no spending $250,000 on degrees that will help you make $30,000 a year 5)I think this is a great place to “spend”. :-)

  10. Gobblers….. I think of the game PacMan :)

    Kids gotta be right up there with Housing no? Cars are a money pit…. but kids… $10-50,000/year for tuition for 4-5 years in college? Yikes!

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