"SHOW ME THE MONEY" VIEWS on HOW to make MONEY GR

[call_me_ishmael]

How much does it cost to live? Other than for 18 months in my early twenties, I lived at my parents house until I got married, so I have plenty of cash now, but I have no idea how much it actually costs to live and do stuff because I've never really kept track of bills. I ate my parent's food, etc. I've tried to set up budgets in the past but they've never been very accurate.

Both of us max out our 401Ks right now, which is good. The cost of our home + taxes + insurance is 31% of our take home pay (after taxes, health insurance, 401K, etc). It is reasonable to expect that our total obligatory expenses will be 42% of our take home pay I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).

I'm looking for legitimate grown up advice here. Is 58% of your take home pay enough to live on? Are we over extending ourselves?

I worry about our ability to build up an emergency fund, pay off the house, etc. I don't think we will have any big expenses such as cars in the next 5 years. She has a 2006 and I have a 2007 and both are paid off.

I would like to have the money in an account to pay the house off in 5 years. I know my wife wants to work part time at the most when our children at young, so it would be really nice to NOT have a housing payment due each month by then.


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Also, what do you guys make of life insurance? I'm thinking about taking out a 500K policy on my wife and I of term insurance. I've considered taking our 1M, but that just seems overkill as our jobs both pay out 1.5x salary as a benefit in case of death. 500K would be plenty to pay off mortgage and cover significant medical expenses. We need to decide this soon as we want our insurance lined up before we close on our house. I was thinking about locking in the 30 year term now because the premium only gets higher and higher as you get older. Even though you're paying more up front, I wonder if you'd come out ahead if you opted to go for three ten year terms, etc. Does anyone know anything about this?

At some point, I think I will likely convert it to a full life plan in order to take advantage of some of the tax saving features to pass money on. I don't think I need to worry about that, yet, though, so term seems like a more viable option. Whole life is quite a bit more per month.

[Patler]

I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).

We can't tell you if $800 is reasonable, but it should be easy for you to figure out:

Car insurance - you have the bills and know exactly what it is. We don't know your and your wife's driving histories, vehicle types, coverage limits, deductibles, etc. You know the amount exactly.

Phones - cell only, or land line too? What type of phone and calling plan. Again, you know what you are paying exactly, why are you asking us?

Cable/Internet - basic cable, or everything offered? Which internet plan? Look at what your provider offers, pick the plan and know the amount exactly.

Electricity.utilities - call the power company and get the past year or two useage statements for the house you are buying or already bought. Your useage likely will be similar.

Food - can be a lot or a little depending on your eating habits. But, you eat now. so keep track of it for a month.

You are asking us things we are not in a position to answer for YOU, but you should be able to figure out for yourself very easily.

[Bretsky]

How much does it cost to live? Other than for 18 months in my early twenties, I lived at my parents house until I got married, so I have plenty of cash now, but I have no idea how much it actually costs to live and do stuff because I've never really kept track of bills. I ate my parent's food, etc. I've tried to set up budgets in the past but they've never been very accurate.

Both of us max out our 401Ks right now, which is good. The cost of our home + taxes + insurance is 31% of our take home pay (after taxes, health insurance, 401K, etc). It is reasonable to expect that our total obligatory expenses will be 42% of our take home pay I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).

I'm looking for legitimate grown up advice here. Is 58% of your take home pay enough to live on? Are we over extending ourselves?

I worry about our ability to build up an emergency fund, pay off the house, etc. I don't think we will have any big expenses such as cars in the next 5 years. She has a 2006 and I have a 2007 and both are paid off.

I would like to have the money in an account to pay the house off in 5 years. I know my wife wants to work part time at the most when our children at young, so it would be really nice to NOT have a housing payment due each month by then.


---- EDIT -----

Also, what do you guys make of life insurance? I'm thinking about taking out a 500K policy on my wife and I of term insurance. I've considered taking our 1M, but that just seems overkill as our jobs both pay out 1.5x salary as a benefit in case of death. 500K would be plenty to pay off mortgage and cover significant medical expenses. We need to decide this soon as we want our insurance lined up before we close on our house. I was thinking about locking in the 30 year term now because the premium only gets higher and higher as you get older. Even though you're paying more up front, I wonder if you'd come out ahead if you opted to go for three ten year terms, etc. Does anyone know anything about this?

At some point, I think I will likely convert it to a full life plan in order to take advantage of some of the tax saving features to pass money on. I don't think I need to worry about that, yet, though, so term seems like a more viable option. Whole life is quite a bit more per month.

I'll give this one a shot; I've been working for banks or credit unions as a mortgage lender the past 10 years so I work with ratios and the types of things you are pondering on a daily basis

The answers to your questions are yes, and yes.

Back twenty years ago, when underwriting guidelines were more strict ragarding the debt to income ratios you are pondering.........the suggested total housing to income ratio was 28 percent and the total debt to income ratio was 36 percent. But that was BEFORE things were deducted out of your paystub. By using take home pay....as one should.....you are taking a much more conservative approach than most guidelines.

Today, lending guidelines will allow the total debt to income ratios....BEFORE anything is netted off that paystub, to go to 45 percent. With that being said, the people that are at that area struggle...aka....stress out week to week....paycheck to paycheck.

Regarding insurance, I'm a fan of term life . The amount you get it up to you, but if your intention is to have several kids it would be good to get more. I regret not insuring myself for more when I was young and it was cheap. I do have my retirement plans fairly well built up and when I was younger I looked at insurance as a waste of money since I was going to grow old and have a ton of investements. Not having three kids...well...I just hope I grow old so my strategey works. If you are having three kids....my bias....if it's cheap enough...is to go toward the higher end of your debate