Nate and Danielle answer a listener question about being able to save while having new expenses and planning on more expenses.
Show Notes
Listener Question
I have a baby that is in daycare. I got a new job and stopped breastfeeding when I went back to work. Currently I spend $800 a month on daycare, $100 a month on formula $373 a month on his health insurance. His deductible is $500 a year. He gets all of his vaccinations and we have had a hospital stay. But I’m still not sure if paying this much for insurance is worth it. I pay a monthly hospital bill for when I gave birth to him of $235. Including food and diapers we spend around 1,600 a month on him. He is 10 months. I feel as if we can’t save any money monthly. Combined my husband and I make around $6,000 a month. Our mortgage is $1,800. Our car payment is around$450. The rest is spent on gas, food, and misc. How could we start to saving something? How could we afford another child if we can hardly make our money work now?
Congrats on the kid! Yes, kids are expensive, but please keep insurance on him and if you don’t already have insurance on yourselves, get it. Without insurance, the hospital would’ve charged us almost $30K to have our boy. While the cost of insurance seems high, and might not seem worth it, that’s kind of the point of insurance. It’s there if you need it.
Let’s have a quick look at the numbers you provided. $6,000 a month income, great. $1,800 mortgage is within a range that we would think is appropriate. Generally, we recommend that you keep your mortgage between one quarter and one-third of your take-home pay. Yours is 30%, so it’s on the upper end, but again, not out of bounds.
The car seems a bit expensive monthly, but depending on terms, interest rate, and years it may not be terrible. From some quick calculations that car costs between $24K-$35K. Nothing out of line with your income level.
After we take all of the given costs into account, we have $2,150 a month of gas, food, and misc. How detailed is your budget? Do you know how much you spend on food or gas each month? Do you know where all of that $2,150 is going?
Our suggestion would be to start writing down any money you spend that isn’t on the mortgage, child, or car. Once you have all of the data, you can categorize it into needed expenditures and wanted expenditures.
We have found that when we do this, we find that we are usually spending money in places that we don’t need to or might not even realize that we were. We always have our goals set out so that we can use them to decide where we want our money to go. If you find that you are spending $500 a month on going out to eat or entertainment, maybe you could slowly dial it back so that you can divert funds to better meet your goals.
Please check back in with us in a month or two of writing everything down and let us know if you found any money that was going to places that you didn’t want or didn’t realize that it was going to. We have always had luck keeping things basic and informed help us make better decisions with our money.