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I love all things budget. And having put together quite a few budgets over the years, and worked with many people on this very site to create a financial plan, I have seen a few trends. I have also been able to find ways to save money in almost ANY budget category for our family, and for the family of those who I have coached.
I have found that most everyone has unique goals and aspirations for their life, but there are a LOT of commonalities for ways to reach those goals. So I have decided to create “Your Ideal Budget“, a place where I put together the IDEAL BUDGET for individuals and families that I have created.
You can grab your copy of the budget template for FREE right here!
Come check it out, and PLEASE leave a comment with your thoughts and suggestions to create the Ideal Budget!
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Today's ideal budget is the Smith family. The Smith family is your typical, American, single-income household, with 2 kids and a golden retriever. Actually, let's make that a labradoodle (this isn't the 90's!). The Smiths have a 4 year old daughter, and a 2 year old son, and both just turned 30 themselves. Like I said, typical. 🙂
Mr. and Mrs. Smith have some big dreams in life, but their income is just below the average American household income. They feel a bit trapped by their income, and don't know if they can ever really hit their goals.
Let's look at the stats:
Assets
- 401k – $25,000
- Emergency Fund – $5,000 (in a Money Market account)
- College Savings – $5,000 (using College Backer)
- Car 1 (Honda Odyssey) – $5,000
- Car 2 (Honda Accord) – $3,000
Debts
The Smiths are debt free, due to their frugal living choices.
Goals
- Buy a house
- Retire by 55
- Pay for kid's college
Priorities
- Family
- Fun
The Smiths goals seem pretty typical, but with a $40,000 salary, let's see if they can get there:
| SMITH FAMILY BUDGET | MONTH | NOTES |
| Total Income | $ 2,250.00 | |
| Total Expenses | $ 2,200.00 | |
| Projected Ending Balance | $ 50.00 | Savings toward buying a house |
| Income | ||
| Paycheck 1 | $ 1,125.00 | After taxes, 5% 401k match and medical |
| Paycheck 2 | $ 1,125.00 | After taxes, 5% 401k match and medical |
| Total Income | $ 2,250.00 | |
| Bills | ||
| Mortgage/Rent | $ 850.00 | This family is currently renting a 2 bedroom apartment. If they get a mortgage, it should NOT exceed this amount. |
| Electric | $ 50.00 | Electric heat and lights keep this bill up. Air drying laundry, using efficient LED lights and keeping it cooler will help bring it down. |
| Water/Sewer | $ 40.00 | The sophisticated budgeter is going to use cloth diapers to save money, but the water will may be a bit higher than normal. Reduce usage by doing less laundry (re-wear clothing), don't shower every single day and only run completely full dishwasher. |
| Garbage | $ 25.00 | |
| Internet | $ 40.00 | Hi-speed internet can be found for cheap. Sometimes less than $40 for the first 6 months. Just make sure you keep an eye on your bill to make sure they don't jack up the rate on you. |
| Car Insurance | $ 80.00 | 2 cars with minimal coverage should run $80 or less. Make sure to shop this around at Geico for great deals. |
| Cell Phone | $ 60.00 | Two Total Wireless Cell Phones only cost $57 a month for unlimited text and talk and 30GB of shared data. Add in some taxes, and you've got smart phones for about $60 per month. |
| Total Bills | $ 1,200.00 | |
| Necessities | ||
| Food | $ 500.00 | Yes, this number looks low. Yes, it can be done. With the help of eMeals meal planning, you can feed your family of four VERY WELL for $500 per month. Just pick a few of the meals per week and make enough for leftovers. |
| Gas/Commuting | $ 100.00 | This family of four has a few options for commuting. As a single income household, the breadwinner can take the bus or drive to work. The ideal family would live close enough to even bike to work (ala Mr. Money Mustache). They budget $100 per month, but try to beat this number each month. |
| Date | $ 75.00 | Parents with multiple kids keep their sanity and kindle their love by budgeting for AT LEAST two date nights per month. This can get expensive, but by splitting entrees, passing on desert, using Groupons and finding free things to enjoy, they get time away |
| Spending Cash | $ 80.00 | Contrary to logic, budgeting in spending cash can actually save you money. |
| Pets | $ 20.00 | Fido needs food, at their income they need to find good/natural dog food for $20 per month. I recommend buying in bulk. |
| Household | $ 20.00 | Odds and ends for basic living needs. |
| Total Necessities | $ 800.00 | |
| Savings Buckets | ||
| Christmas | $ 25.00 | Christmas is a great time to enjoy giving, but set a reasonable budget. This gives them $300 to work with, which is plenty to have fun with |
| Clothing | $ 25.00 | Clothing is a line item we have removed from our budget, but every now and then clothes are needed, especially with growing kids. I recommend keeping this low by STAYING AWAY FROM DEPARTMENT STORES. Go to clothing swaps, enjoy hand-me-downs, and shop the occasional thrift store. |
| Bday/Anniversary | $ 20.00 | Anniversaries and birthdays are IMPORTANT. Remember it’s the thought that counts. |
| Beauty | $ 20.00 | Beauty products and haircuts are needed occasionally, make sure you have the cash ready to go. |
| Vacation | $ 50.00 | This family knows how to stick to their budget well, and has taken advantage of my Favorites Rewards Credit Cards to get travel and hotel stays for free. But food and outings still cost money, so they need to save for their yearly vacation. |
| College Fund | $ 100.00 | Goal #3 is to pay for college. At their income level, I only recommend setting aside $50 per month for each kid in a 529 account. My current favorite is College Backer. This should partially fund community college and an in-state undergrad degree |
| Car Maintenance | $ 20.00 | This ideal family chose wisely, getting two well-loved Hondas with a lot of life left on them. Oil changes and tune-ups happen, need a small amount of cash set aside for basic maintenance. |
| Total Other | $ 260.00 | |
| Total Expenses | $ 2,230.00 |
Whoa, that's a lot to take in. Might want to bookmark this for reference later 😉
Summary
The Smiths are doing great. They don't have any debt, they are funding college and saving toward retirement. But their #1 goal is to buy a house, and saving a $20,000 down payment for a $100,000 home would take them a mighty long time at $50 per month. Even if your re-routed college savings, vacation fund and bday money, that would still take them 7.5 years!
So I recommend the Smiths find a single family home to rent at the $850 mark. They are out there, but may take quite a bit of searching, depending on where they live. They can use this time to enjoy the home, while building their income and working toward the other two goals: retirement and college savings.
Goal Timelines
Let's put the “buy a house” goal on hold, and work with the other two goals.
Goal #1 – Retire at 55
With $150 per month in 401k investments, and a $150 match by the company, the Smiths are putting away $300 per month. Add in another $50 into a Roth IRA, they are saving $350 per month. That amounts to $420,000 by age 55, assuming a 7% return. If they do end up purchasing and paying off a house in that time (assuming some pay increases to save down payment), their expenses should be about $1,500 per month, which means they only need $450,000 to retire on ($1,500 x 12 x 25). So I recommend putting off retirement one more year to get to their 25x annual spending savings goal.
Goal #2 – Pay for kid's college
Saving $100 per month will net about about $45,000 – $50,000 for college (invested in Vanguard Index funds using a College Backer 529 account). This can pay for community college for both kids (or, as I would recommend, Running Start in high school). But to pay for the second two years of an undergrad degree, this may not be enough.
I recommend applying for any grants that they could qualify for, and the kids to apply for scholarships as a part time job their Junior and Senior years of high school.
Final Thoughts
The Smiths are pretty rockin' on their less than average income. They have savings buckets, are investing for the future, and can even pay for a decent chunk of their kid's college. They don't have a lot of margin, but this only forces them to be more creative. And that creativity brings out amazing free and inexpensive ways to have fun.
The Smiths don't have a lot of excess, but with a roof over their heads, good friends, good family and good food, they don't need anything else. Their happiness is not derived by numbers in a bank account or shiny trinkets in their possession, but by the memories made and relationships forged during their fruitful life.
Take Action
If you are a young family looking to get your finances together, take this family as your model. Grab a copy of their budget HERE and bookmark this page for reference. If you are in debt, just take ALL the above savings buckets and extras and throw them at your debt immediately. Then start working toward YOUR family goals.
You really do have to own your situation, and this proves you can live an excellent life without a high salary. They could also find ways to earn more money if they decided to increase their budget at some point as well. I would strongly suggest adding renters insurance for the home and life and disability insurance for the wage earner. You’d hate to see them have to drain their retirement or rack up credit card debt if something bad happened.
I like what you are doing here, but $50 for electricity is highly dependent on them living somewhere San Diego where the weather is pleasant all year. If they lived anywhere form the midwest to the northeast this year, there is pretty much zero chance they hit $50 a month this winter. But then again you did say this was an ideal budget. I would also like to see you change their budget once both kids are in school full time and the stay at home spouse could pick up a part time job (which of course could have their entire salary directed towards savings goals!).
Hey Kim,
Good call. I assumed insurance through employer, but a good, inexpensive Term policy would definitely be ideal here. Thanks for the suggestion, I’ll update when I get a chance!
Fair point. I was going off what I have seen, but I haven’t done a lot of Northeast budgets with electric heat. Ideally, they would do all the things suggested to reduce the bill, and shoot for $50 per month.
And yes, i will be doing follow up budgets for these case studies later in life.
Thanks there are a lot of great ideas here.
I know it varies but I don’t know any family where someone is not on some type of medicine.
I live in Texas. My electric bill last month was $90 which was $100 less than last month. My water/garbage was $60. Car gas was about $80 a week I own a paid for Honda ;-).
Great stuff as usual, Jacob. My one concern is that there doesn’t seem to be any provision for replenishing their emergency fund when, say, a car inevitably breaks down and needs a $500 repair. They could use the money they’re saving for a house or college, but this would set them back. Any chance they could become a one-car family? That would save on insurance, maintenance and repairs, especially if Mr. Smith can take public transportation (of course, there’s a cost to that as well).