Happy Budgeting

So, it's official. She liked the people, was excited about the work, and frankly wanted the job. On the other hand, she wasn't convinced whether she could make it on the offer. Now was the time to sit down and put pen to paper on her option and really have an honest conversation about what she was willing (and not willing) to compromise.

To say that it was a short conversation would be misleading. Truth be told, we walked through the numbers together, I did some more crunching over night, sent it to her, and we regrouped the next day. And it wasn't like the answer was obvious. There were lots of "but I need this" moments and "what about that?" moments. And both Sophie and I would be lying to say we've figured it all out and she's going to budget dollar for dollar in every category we outlined. But what we did agree was that the exercise gave her a general idea of whether she could make it work, and more importantly - what tradeoffs she'd need to be comfortable with making. Line by line, we outlined every dollar she'd earn, every dollar she'd spend, and every dollar she'd save. You can view (a fictitious example) here. It's pretty simple, really. The yellow boxes are for you to fill in. There are some things you'll know (gross salary) and other things you'll have to estimate (student loan rate, utilities might be an example). Fill everything in the way you think it will work out (for now), check out the orange box at the bottom and voila! You'll know how far off your offer is from what you think your needs are. Keep in mind, you're probably not done on the first try. With Sophie, when we originally looked at the numbers, we came to a surplus of $17 per month. That's pretty tight and knowing she likes to spend money on clothes, well, we had some work to do. We went back and forth through her budget, increasing numbers we thought were too low and decreasing numbers she'd be willing to compromise on, trying to get an understanding for how much flexibility really existed in her budget. A few things we played with:

• Her phone bill. Sophie is currently on a family plan with our parents. If she can convince them to leave her on that family plan, her voice plan will drop from $30/month to $10, a savings of $20. That may not seem huge - but remember, that's per month. $20/month x 12 months = $240/year, all for being a little bit strategic.
• Her car payment. Sophie had envisioned herself driving a fancy car of a specific model (a relatively new model). What that meant is - even though she was comfortable getting a n-used car - she'd end up paying a premium because the used car was still the current model. With a little negotiation, she realized she could get a new car at a lower price, a used car of a different model that was just as nice but at a lower price, and she could continue driving her existing car for one more year to save up a bigger down payment. 

And one really important thing that I refused to play with (secretly I was controlling the spreadsheet and telling her the outcome, so she didn't know this was really going on)... I wouldn't budge on her 401k contribution (which I had budgeted 10%). If you're not familiar, a 401k plan is your future. Ok, maybe that's a bit over the top, but it is a retirement plan offered by majority of employers. And I know you're young, you have light years ahead of you with much greater earning potential, but I can't stress enough how valuable it is to start saving now. This deserves an article all on its own, so I'll leave you with a few parting words: at a minimum, contribute what you need to get a match. For example, there are a lot of companies that match a certain portion of the first 4% of your individual contributions - therefore at a minimum, you should contribute 4%. (It's free money, even if you don't get access to it till later in life). At a maximum? Contribute the absolute maximum you think you can handle. You can always bring it down later if you've guessed too high, and getting into the discipline of automatic savings now will save you lots of angst later. And lastly, consider the number you decide on as non-negotiable in terms of what you're willing to compromise. More on this later, but you should get into the habit of paying yourself first. In future posts, I'll walk you through the worksheet in more detail, reveal who FICA is (I'm not so sure myself), and dig a bit deeper into why I'm so caught up on retirement savings. But for now? You just want to know if you can make your offer work, so have at it. Remember - you may need to budget for things not currently contemplated in this worksheet (pets, for example). But hopefully it'll provide a good starting point for you.

Happy Calculating.