You know you and your family and may have hit the nail on the head. I have worked with families like yours. One high income spouse and a stay at home spouse who spends what is in the account managing the home and family.Yes, I agree with and others that have made a similar point. I think we are overspending. When i say we don’t live extravagantly, i mean that we have one car, our house was $1m which I don’t think is crazy on a $450k income, we take a couple of vacations a year, but we’re not buying designer clothes or being flashy. I’ve been looking a bit more into where it goes and we do spend a ridiculous amount on what I think of as impulse purchasing. To be frank, I don’t really spend much, I basically just work and I don’t really want much. Our house is the first house we’ve owned and we moved in 2 years ago so we’re still buying furniture, doing landscaping, and have a pretty big ‘wish list’. It feels like we do a lot of mental accounting….right now our day to day checking account has a pretty low balance, I get paid Friday, but we gave $70k sitting in a money market fund which we use for short term saving, but my wife doesn’t want to touch it because it’s ‘savings’.You itemized about $12k of monthly expenses (counting 529, HSA, and 401k). That's $144k/year. Rough estimate of $90k of taxes off base salary. Where is the other $66k going?We live in a VHCOL area. Our mortgage is $5k a month, car is $600 per month, groceries are $2k a month, our kids are in a private pre-school until next year (there is no public pre-school option) which costs $25k a year. We contribute $300 a month to 529, and we fully fund HSA and 401k. My wife is SAHM.
Obviously we're not 'pay check to pay check', but we're at the point where our actual basic living expense including 401k, 529, HSA etc are probably in the $320k range.
I would drill down into your expenses to see where your money is going.
Seems like you should be able to live on the $300k base and then the bonus/RSU is gravy.
My biggest concern is that we’re in this lifestyle trap of ‘if we just had $x more then we’d be fine’, and that even if my base salary was $400k we’d still be in the same position because my we (or primarily my wife) won’t exercise impulse control. Rather than figuring out what we want/need and buying it with a plan, it’s like we’re just spending as long as there is money in the account and we’re keeping on going until we hit $0 every pay cycle.
In my experience this is a very tough conversation to have but it needs to happen because when your total comp goes up to $600k, you will find yourselves spending all of that as well. Our family has some rules on spending. Anything over (pick a value) dollars, we must wait a couple of days before making the purchase. Very large expenses we must sit on for longer. I find that waiting a couple of days often times makes the desire for that thing go away. If it doesn’t, then we really want it and buy it.
Anotherthing you can do is force a hiatus on spending for 3 months so as to build that buffer. Anyone can live with a little austerity for just 3 months. At the end of 3 months if you meet your goal, get a babysitter and reward yourselves with a great date night. Go out to dinner, see some live music or whatever you are into. Maybe consider a night in a hotel. Sleep in and get breakfast sent up. Who knows maybe the practice and reward will make living within a budget a bit easier. Maybe repeat the 3 month cycle the following year. You have to train those frugality muscles. Once they are big and strong it will be second nature.
I have one very important question which I didn’t notice you mention. Are you saving at a minimum 20% of your income?
To answer your original question, we have variable compensation as well and run our budget/finances quarterly. I put 3 months of expenses in the checking account. At the end of the quarter I replenish that account after all bills are finalized and paid for the prior quarter. It corresponds with quarterly taxes as well. To make it easier, I made all our bills come due on the same day. Any income that comes in during the quarter gets invested in a money market fund in the same bank so as to make moving money quick and easy.
Statistics: Posted by EnjoyIt — Tue Mar 26, 2024 11:57 pm — Replies 14 — Views 648