During the month of September (and in this case a little belated into October), our Real Simple Family financial expert, Farnoosh Torabi will be answering a few of your family financial questions. And you can read more of Farnoosh’s advice for Real Simple readers in the article from our 2010 issue of Real Simple Family: What Does It Cost to Raise Your Family?
Here’s the final set of questions for Farnoosh:
I need your advice Farnoosh!
I am a recent college graduate that also just got engaged. My fiancé and I now have “real” jobs in the “real” world. Combined, we’re bringing home around $62,000. After budgeting, we have about $350 each per month for personal spending. Divided into 4 weeks that roughly $85/week. Most of my friends are making and budgeting the same as I am but I see them spend tons more on personal/recreation expenses. Where/How are they getting all that extra cash? Am I missing some vital piece of the equation here?
We never really know what’s going on in people’s personal financial lives but if your friends truly earn and budget the same as you and your fiancé, it’s possible they’re paying for expenses on a credit card and carrying a balance month to month, or perhaps they’re getting some financial help from family? Don’t worry about them. Stay focused on your goals and living below your means. While $85 a week may not seem like a ton of money, know that there are new and better ways to stretch your dollars when you eat out or go for a night on the town. Some of my top tips for having fun on a dime are:
- Sign Up for Daily Deals. Sites like Groupon, LivingSocial, and BuyWithMe offer daily deals on restaurants and entertainment. Also check out MyHappyHour for updated listings of drink and food specials near you.
- Order appetizers at restaurants instead of entrees. In most restaurants, the portions are still plenty and you save 50%. Or ask if the chef can make you an appetizer portion of anything on the menu, which again can lower your dinner bill.
- Eat the bar. There you can eat well at a fraction of the price if you stick to the bar menu—and I’m not just talking fish and chips. Many restaurants are offering fancy food on the cheap while eating at the bar. You can easily save 30 percent off your normal dining bill.
- Get discounted movie tickets. If you’re a Costco or AAA member you can get discounted movie tickets which can save you as much as 40 percent off the cinema price. Tickets are valid for any movie at the theater. More money for popcorn!
I will be needing to purchase a newer used car in the next year and will need to get a loan. How much of a down payment should I have, where should I look first for the best car loan rates, and what percentage of my monthly household income can I set aside for monthly payments? We own our own home.
Good idea going for a used car, since new cars lost 40% of their value as soon as you drive them off the dealer’s lot. Just make sure that whatever you buy, it’s certified and still comes with a warranty. As far as a down payment, you want to have at least 10 to 15% in cash upfront (that’s equal to the first year’s depreciation on a used vehicle). But also know that the more you offer to pay in cash the more you can haggle down the sticker price. If you have 20% or more to offer upfront, you can really negotiate.
To find the best car loan rates comparison shop at your local banks and credit unions. You can also check out rates at bankrate.com. The dealer may offer its own financing, but check out rates elsewhere before signing a deal. You are not obligated to finances the car through the dealership. Make sure whatever loan you get that you can be done paying off the car in 3 years or less.
When budgeting for a car I say no more than 15% of your take-home pay on car payments and insurance. So, for example, if you net $5,000 a month, that’s $750 a month for both the car payment and insurance.
Some additional sites that can help answer your car buying questions include Edmunds.com and ConsumerReports.org.
How do you set up a budget when your income is not a steady rate? My husband is self-employed and his income varies from week to week. How do I budget and save for the future when I don’t know what his income will be from week to week or even month to month? This is something that I have battled with for years. Please consider answering this question. I would be so grateful.
As someone who is also self-employed, I have felt your anguish! The most important piece of your family’s budget when you have inconsistent income is savings. Your income is almost a game of wait and see, so to keep you sleeping well at night, make sure your savings account is being replenished well and often.
Every month take 10% out of your checking account and put it in a savings account. Each time your husband gets paid, also make sure he is also automatically placing 10% (at least) into savings. Do so until you have eight or nine months of your living expenses paid accounted for. As for retirement, take another 5 to 10% of your monthly earnings and put that into a tax-advantaged retirement account like an IRA (individual retirement account) if you’re not already. The limit this year is $5,000 per IRA. Self-employed individuals can also set up a SEP-IRA (simplified employee pension IRA), which allow for bigger annual contributions.
A big thank you to Farnoosh for blogging for us this month!
About Farnoosh Torabi
Farnoosh’s financial advice has been featured in the pages of Real Simple, People, Money Magazine, The Wall Street Journal, The New York Times, Glamour, and The New York Post, as well as on The Today Show, CNN, MSNBC, and Thew View. Her second book Psych Yourself Rich comes out in September 2010. Find out more about Farnoosh on her website Farnoosh.tv.