The Working Backwards Series: How Much Food Can I Afford In My Budget?

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The Working Backwards Series?

The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case,  we are talking about a family of four living in Austin, Texas, working toward living in financial freedom, and making $74,000 a year (the average household income in Austin).

What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home.

While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.

To see more from the Working Backwards Series, read this previous Working Backward Series post:  Working Backwards SeriesHow Much Auto Can I Afford? 

Topic For This Post: Food

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Let’s get right to it: How much food for our family of four can we afford in our budget? And by food we mean both groceries as well as eating out. While some people want to live “large” and eat out at every opportunity, some others find eating out frivolous and minimize it, only to eat at home. In either case, it is worth the effort for each person or family to think through their food spending or risk the issue of significantly overspending.

Let’s start with a couple assumptions. Let’s assume you have an Emergency Fund already in place and that you are saving 15% of your net spendable budget (NSB, total income minus taxes and charitable donations). Let’s also assume you are living on a balanced budget (spending less than you earn) and earn about $74,000 a year. In this scenario, most families can afford up to about 15% of their NSB to go towards groceries and eating out. 

What Does That Look Like – The Math

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A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 14% of our budget going to groceries and eating out, that’s roughly $639/month for food or, $7,666/year. That is $160 per person per month, not very much when you figure that’s 3 meals a day  and snacks for the entire family!  Let’s take a look at our budget  to see if we can meet our balanced budget objective:

Budget (% of Net Spendable Budget by category)

Housing (All Expenses)           30%

Autos                                              14%

Food                                                 12%

Insurance                                         4%

Medical                                             2%

Debt Service                                     5%

Savings/Investments                   15%

Entertainment                                5%

Clothing/Shoes                               5%

Vacation                                            8%

Total:                                           100% of Net Spendable Budget (NSB)

Wait a minute, we allocated 14% of our NSB for food, yet the math above only shows 12%, what gives? For this budget exercise, we took a portion of the Entertainment budget (2%) to add to the food budget of 12% to total the 14%. We did this to recognize that eating out is a popular form of entertainment. So from a budgeting standpoint, we can make a balanced budget with 14% of Net Spendable Budget going toward food and dining out, without jeopardizing important budget items like housing, autos or savings.

What Does This Mean For Our Budgets?

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What does this look like? Simple math shows us that this budget breaks down to $136/week in groceries and $24/week for eating out. Yikes! You can’t go out to eat with the family of four for $24/week! If you said that you would be right!

The point is that a balanced budget for a family of four on an average household income and with many essential budget categories like housing, auto, children’s needs, etc, does not have much room for groceries and eating out. Plain and simple. While most of American families can make their food budget when they make their own food at home, most of us struggle, or go over budget when they factor in the costs of eating out. In Austin, eating out is so common it is almost considered a right instead of a privilege. And while most of us want to do it regularly , most of us can’t afford it. Ouch. But true. Yet most of us are trying to do just that. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like vacations or special events (think weddings or cars).

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What’s The Solution

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There are really only a handful of acceptable actions to keep us within our food budget: 1) Eat at home, prepare your own food and shop frugally  2) Eat out infrequently or very cheaply: tacos anyone? 3) Save up money and go out to eat at a little nicer place to eat once a month.  4) If your budget still needs stretching, shop groceries at big box stores or discount stores to find a better value. But you must be careful because bulk purchases can get expensive, so you must show discipline in limiting your purchases.

Final Word

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Living in financial freedom does not allow for large food and eating out spending that drains our bank accounts and ruins our budgets. At least not for a family of four. We found here today that a family of four can only handle about $639/month for food each month.

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While many times we go to the credit card to stretch our spending, going into debt for food is not the answer. Fight to be credit card debt free. Use cash or a debit card. Some have the discipline to use their credit card and immediately pay it off, essentially making it like a debit card. Work hard to be patient and only spend money that you have instead of using the credit card company’s money. The temporary enjoyment of buying food or eating out with credit is short lived compared to the lengthy process of paying off the debt. If you must use your credit card and develop a balance in your account. Strive to pay it off quickly so that the exception (credit card debt) does not become the rule. Financial freedom is not easy, but it is worth it. Eat well and live financially free!

Need help with your budget? Here’s a GREAT resource. Click the link and SAVE!

The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

The Working Backwards Series: How Much Clothing & Shoes Can I Afford?

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The Working Backwards Series?

The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case,  we are talking about a family of four living in Austin, Texas, working toward living in financial freedom, and making $74,000 a year (the average household income in Austin).

What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home.

While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.

To see more from the Working Backwards Series, read this previous Working Backward Series post:  Working Backwards SeriesHow Much Auto Can I Afford? 

Topic For This Post: Clothing & Shoes

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Let’s get right to it: How much clothing can we afford in our budget? While some people want to live “large” and enjoy the latest fashions, some others find clothing frivolous and minimize it. In either case, it is worth the effort for each person or family to think through their clothing spending or risk the issue of significantly overspending.

Let’s start with a couple assumptions. Let’s assume you have an Emergency Fund already in place and that you are saving 15% of your net spendable budget (NSB, total income minus taxes and charitable donations). Let’s also assume you are living on a balanced budget (spending less than you earn) and earn about $74,000 a year. In this scenario, most families can afford up to about 5% of their NSB to go towards clothing and shoes. 

What Does That Look Like – The Math

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A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 5% of our budget going to debt payments and elimination, that’s roughly $228/month for clothing or, $2,737/year. That is not very much when you figure that amount must cover the entire family!  Let’s take a look at our budget  to see if we can meet our balanced budget objective:

Budget (% of Net Spendable Budget by category)

Housing (All Expenses)           30%

Autos                                              14%

Food                                                 12%

Insurance                                         4%

Medical                                             2%

Debt Service                                     5%

Savings/Investments                   15%

Entertainment                                5%

Clothing/Shoes                               5%

Vacation                                            8%

Total:                                           100% of Net Spendable Budget (NSB)

So from a budgeting standpoint, we can make a balanced budget with 5% of Net Spendable Budget going toward clothing, without jeopardizing important budget items like housing, autos, food or savings.

What Does This Mean For Our Budgets?

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The point is that a balanced budget for a family of four on an average household income and with many essential budget categories like housing, auto, food, children’s needs, etc, does not have much room for purchasing clothes and shoes. Plain and simple. While most of American families spend far more than $228/month on clothing , most of us can’t afford it. Ouch. But true. We certainly can’t afford overspending on several budget categories in addition to clothing. Yet most of us are trying to do just that. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like vacations or special events (think weddings or cars).

What’s The Solution

There are really only a handful of acceptable actions to keep us within our clothing budget: 1) Take advantage of discounts, coupons, sales and off-season specials to keep your clothing spending down  2) Purchase clothing at discount stores like TJ Maxx or Ross Stores. 3) Buy used clothing at thrift stores or consignment shops  4) If you do need to purchase high fashion clothing, which can be expensive, you’re going to have to show discipline in limiting your purchases.

Final Word

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Living in financial freedom does not allow for large clothing spending that drains our bank accounts and ruin our budgets. At least not for a family of four. We found here today that a family of four can only handle about $228/month for clothing and shoes each month.

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While many times we go to the credit card to stretch our spending, going into debt for clothing is not the answer. Fight to be credit card debt free. Use cash or a debit card. Some have the discipline to use their credit card and immediately pay it off, essentially making it like a debit card. Work hard to be patient and only spend money that you have instead of using the credit card company’s money. The temporary enjoyment of buying clothing with credit is short lived compared to the lengthy process of paying off the debt. If you must use your credit card and develop a balance in your account. Strive to pay it off quickly so that the exception (credit card debt) does not become the rule. Financial freedom is not easy, but it is worth it!

 

Need help with your budget? Here’s a GREAT resource. Click here and SAVE!

The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

Three Financial Lessons For My Soon-To-Be College Graduate

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May 8th Is The Big Day

May 8th is a big day for our family as our son graduates from college with a Bachelors degree in Business. He has been an excellent student and he will be an excellent employee working for a Fortune 500 company in their business planning division, starting in June.

As I thought about preparing him for his step into the “real world” I realized that he has been taught proper budgeting and money management. He knows the value of compound interest and investment over time when it comes to investing and retirement. So he is prepared for the “blocking and tackling” of managing his finances. But I felt there was a couple missing pieces of good personal finance management that I have yet to share with him. So, after some thought,  I came up with three pieces of advice that will help him become a valuable employee and as a result, help him meet his personal finance goals.

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Become A Man Of Value

Teddy Roosevelt once said: “It is not the critic who counts…The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood…who actually strives to do the deeds…” This is just a portion of his famous quote that so accurately focuses on getting into the arena and becoming a man of value. To this end, the first encouragement I want to give my son is to strive to be a man of value. Focus on creating value for your company and your customers. If you are working for a good company with good management, and he is, they will identify that value that you are providing and value you all the more. That value will provide you options, like promotions, and opportunities, like salary raises, which feed into meeting or exceeding his personal finance goals.

The focus on value will also apply to your investing. Find great investment vehicles of value, that can provide a decent return. You’ve got time and compound interest on your side, so you don’t have to take huge risks or gamble with your money. If you focus on value, success will soon follow.

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Choose Wisely

Up until this point, my son has led a fairly charmed and successful life. Good grades, good choices, good experiences with very little trouble or distraction. Now that he is going out into the working world, I want to prepare him for trouble, disappointments and change. Trouble happens, sometimes when you least expect it. Many times due to circumstances completely out of your control. Same is true with disappointments. Probably the most impactful thing he will experience, though,  is change, because up until now, everything has been fairly regimented and predictable: Elementary school to middle school to high school to college. Next he gets his degree and he starts his job. But in the working world he will experience substantially more change: work changes, bosses change, business changes, etc. In all these cases: trouble, disappointment and change, I want him to understand that it is normal and encourage him to grow from it. Learn how to adapt and prosper in the new circumstances. Embrace change and expect trouble and it won’t detract you from your personal or professional goals.

This applies to his finances as well. There will be bad investment years. There will be scandals, new politics and new laws that will cause financial trouble, disappointment and change. Learn from it, adapt and move on toward your goals. Do not let this trouble, distraction or change keep you from taking the right financial actions.

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The Secret: Enthusiasm

Last, there is a key to being successful in your career and your personal finance, and that is to be wildly enthusiastic at what you do. Get after it with energy, focus, passion and effort. Not only will it open doors for you, it will motivate others in the process, making you that much more value. Set huge goals. Give it maximum effort. What’s that Norman Vincent Peale quote: “Shoot for the moon. Even if you miss, you’ll land among the stars.” It will be obvious to him how this applies to his career. But it also applies to his personal finances: Set big financial goals. Want to retire by age 45? Want to afford international travel? How about give away one million dollars to charity? Whatever it is, go after it with all you got, and watch how it effects both the results as well as the people around you. It is contagious.

How else does enthusiasm apply to personal finance? I would say this: Be involved in your finances as much as you enjoy and partner with trained professionals and technology to help in those areas you do not enjoy. Because no one wants you to be successful with your money more than you! Go after it with vigor and enjoy it. Let your friends and family see your enthusiasm for proper money management and watch it rub off on them too!

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The Big Finish

Sheryl Sandberg once said: “Don’t let your fears overwhelm your desire. Let the barriers you face—and there will be barriers—be external, not internal. Fortune does favor the bold, and I promise that you will never know what you’re capable of unless you try.” To paraphrase in other words: Be a man of value, for your company and your customers, facing and expecting trouble from which you can learn from and adapt, and work with all your might and enthusiasm to achieve even more than you imagined possible.

Financially this applies just as well: Do the basics really well: Make a budget, save an emergency fund, save for large purchases and retirement, invest your money early and often in valuable investments that use compound interest and time to build it into a fortune. Expect hiccups and setbacks. Work with enthusiasm and enjoy the process. But most of all, stay the course to build your legacy and your wealth. All of which leads to the ultimate goal of financial freedom!

For more on personal finance, read Dave Ramsey’s best selling book, The Total Money Makeover. Click on the link and SAVE!

The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness