Where It Goes

Kristine Hayes

WHEN I DIVORCED a few years ago, I found myself needing a crash course in financial management. My first task: Understanding where my money went—and figuring out where I could cut back.

Today, I create a budget each month. I don’t use any type of program or app—I prefer paper and pen. At the top of a page, I write down my take-home pay. I use take-home pay, rather than my $5,500 monthly gross income, because all taxes have already been deducted, as well as my $1,500-a-month in pretax retirement contributions.

From my take-home pay, I deduct those expenses I’ve identified as pretty much fixed. They include my rent, car insurance, utilities and groceries, plus cell phone and internet. Once those expenses have been deducted, I’m left with the money I can spend during the month on discretionary expenses—fun stuff like hobbies and eating out. So what are my fixed expenses? Here’s what my budget looks like:

Emergency Fund: This was a priority when I first got divorced. But at this point, because I’ve already set aside emergency savings equal to one year’s salary, I no longer contribute to this account. But if I had to tap my emergency fund for some reason, my monthly fixed costs would include replenishing the account.

Housing: After my divorce, I chose to rent an apartment rather than buy a house. I live in a small—800 square foot—unit in a suburb of Portland, Ore. By living just outside the city limits, my $1,050 monthly rent is less than if I lived downtown, and it’s also well below the standard recommendation, which advises limiting housing costs to 30% of gross income. For me, that would be $1,650.

Health Insurance: I have a choice of two different employer-sponsored health plans. For the less expensive choice, my employer would cover 100% of the monthly premiums. But I’ve chosen to enroll in the costlier plan, where I have to pay $130 per month. I don’t like the extra expense, but it gives me greater flexibility in choosing my health care providers.

Groceries: Food is a budget expense I include as both a necessity (groceries) and an indulgence (dining out). My monthly grocery budget is quite variable since I tend to buy staples in bulk, but fresh meat and produce on a weekly basis.

Utilities: My garbage service, water and electricity expenses average about $130 per month. My apartment was recently retrofitted with energy-saving light bulbs and surge protectors, which will likely reduce my electricity bill slightly in future.

Insurance: I have both car insurance ($78 a month) and renter’s insurance ($10 a month). I drive a 2007 Honda CRV, which I purchased used and paid cash for. I have an excellent driving record. When I got my first speeding ticket, I opted to take an online driver-safety course as part of my court settlement. By doing so, the infraction was not reported to my insurance company, thereby saving me from a potentially sharp increase in my premium.

Cell Phone and Internet Service: Last year, when my cell phone service was due for renewal, I switched to Republic Wireless. By making the change, I’ll save almost $400 over the next year in cell phone service fees.

What I’ve discovered since I began budgeting is that even with my basic “needs,” there are still financial choices to be made. By reducing the cost of certain necessities, I’m left with more money for my many “wants”—and for my eventual retirement.

Kristine Hayes is a departmental manager at a small, liberal arts college. One day, she hopes to retire and become a fulltime writer. Kristine’s previous articles were A Less Taxing Time and From Half to Whole.

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