This budget came from a combination of tracking my finances in 2009, and my saving goals.
Tracking my expenses in 2009:
As many of you who track your expenses know, this can be painful and shameful. There were months when I didn’t really want input purchases into my budget sheet – even though nobody saw my budget but me.
There were months I spent $350 on clothes alone. Or months I spent $300 on eating out. There were months I spent $2,230 (hello, October 2009!). There were also months I spent $675 (hello, July 2009!) in total expenses.
This is how I spent my money in 2009:
I use FB’s Fabulous Budget Tracking Spreadsheet and I analyzed where my money went in 2009 to determine how I wanted to spend my money in 2010.
My bare bone budget is $750 and includes: rent ($335), groceries ($120), cell phone ($60), gas and car insurance ($220), Misc ($15).
Note: My parents lent me their car, and I pay them insurance at the beginning of the year. I also pay for their cell phone plan ($17/month). I know that my bare bones budget can further be reduced if I took public transit and ask them to take care of their cell phone bill if I really need to. So super bare bone budget is $620.
Of course, living on a bare bones budget is not too much fun, although this would be my plan if I were to be unemployed or really wanted to save super aggressively.
The bare bones budget means none of the following: eating out, clothes, grooming/make-up, entertainment (i.e., volleyball), travel, massages, travel, gifts, etc.
My Savings Goals:
As I mentioned in my $100,000 at 30 post, I wanted to save aggressively in my twenties, when I have a fair bit of disposable income and have the power of compounding interest on my side.
Recap from $100,000 at 30 post: Assuming 8% annual return and 2% inflation, if I had $100,000 in my RRSP by the time I was 30 years old. I would not have to contribute another cent, and by the time I retire at age 65, I would have an annual income of $50,000, assuming I live until age 85.
Since I was 25 years old at the time, I would have to contribute an average of $20,000 a year (until I was 30). Holy moly, that’s a lot of money. But was it do-able?
At the time, I was making a gross annual salary of $48,000. After taxes, that was approximately $33,600 annually*. If I save $20,000, I was left with $13,600 – approximately $1,133 a month. And from my analysis of spending in 2009, this was certainly do-able.
From the average monthly costs I spent in 2009, and I came up with a budget that is sustainable. I get a little fun in – mainly volleyball, eating out, and the occasional movie. I can also go get my haircut at my favourite salon 3-4 times a year. Life is looking good with a budget of approximately $1,000.
My average monthly sustainable $1,000 budget:
So there you have it. By combining my barebones budget, some fun, and my savings goals, I came up with my monthly budget of $1,000^.
How do you come up with your monthly or annual budgets?
Note*: My net income is a little more than $33,600 since the amount I contribute to my RRSP is not taxable income.
Note^: I don’t include car insurance in my monthly budget since I pay that upfront.
General Note: I don’t include my donations to charity or what I call the “Parent Fund” on this blog.