Habitual Spender

I’ve been a frequent reader of financial blogs for a little over a year now, and have found that having a goal is a common theme and an important tool of planning. So I’m working on coming up with some for myself and my wife.

I don’t know why this should seem like a difficult task, but it is. Due to some fortunate circumstances last year with my job and a real estate transaction last year we’re basically debt free, aside from the mortgage on our house. But we’ve got several large expenses in the works, too, and we haven’t really planned or saved for them as much as we maybe should have.

My wife and I got married last year and due to constraints related to her job (she’s a teacher), we didn’t take a big honeymoon after the wedding… we just went on a short (and inexpensive) trip to a bed and breakfast nearby for 5 days. It was a fantastic getaway, but it didn’t feel quite like a honeymoon — more like a break from the stress leading up to the wedding. Because of this we’ve been planning to take a longer trip this summer around our anniversary as a honeymoon. The plans for this trip have changed overtime, but we’ve finally settled on a nearly 3 week jaunt to Italy, which will be amazing if a bit expensive thanks to the falling value of the dollar. This trip is expense number one. I haven’t really worked out how much we’re looking at spending on this trip yet. Luckily we have been able to save some money up front on the trip — both of our flights were purchased with frequent flier miles, and one week of our stay in Italy will be with friends while another is being paid for by hotel rewards. This leaves us with 5 nights in Venice at a hotel, plus meals, travel in Italy, other shopping and tourism, and a house and dog sitter that we’ll need to pay for out of pocket. It doesn’t sound terrible and we ought to be able to get a handle on the upfront costs of hotels and travel, but how do I budget for meals in Italy? I have no idea how much to expect to pay for a light lunch at a bistro in Naples, or a dinner in Venice. To give me a number to work with for now I’m going to guess $150/day for the 19 days we’ll be there. That’d be $2,850, but I’ll round it up to $3,000 and hope that we’ll have plenty leftover.

The next major expense we have on the horizon is a new garage for our house. I plan to dedicate a more detailed post to this soon, but for the current discussion it is important to know that we’re looking at knocking down our old tiny garage (built in the early 1900s — a Model T garage) and replacing it with something that is larger and more usable. I’ve gone through several bids and it looks like we’re going to spend right around $32,000 on this project altogether. That number makes my head spin a little bit, but with we’ve spent a lot of time planning and looking at what we want to do and while it is large, it should contribute a good portion of the cost directly to the equity in our house.

The final “expense”, which isn’t an expense at all, is my wife’s summer employment. As I mentioned earlier she is a teacher, but she has been on a short term contract for the current school year. This means that we’re going to have roughly two and a half months this summer when she won’t have a regular paycheck. Since I usually work with this in terms of net pay, I know that it means that we’ll have about $5,000 less to use over those months, but it also means we won’t be putting anything into a retirement account for that period as well.

So if we add up those numbers it’s around $40,000 of expenses over the next 3 to 6 months. Now we do have around $50,000 in liquid accounts right now, but if we spend all of that we won’t be left with anything as an emergency fund. To make this more reasonable we can easily treat the garage as a long term expense and push it to the bottom of this list. This makes sense to me not only because it’s something we’ll get use out of for years, but it will also add to the overall value of our home. That still leaves around an $8,000 gap for the next several months. Given that the final “expense” is really lost income, the best solution would be to trim down our expenses for those months. With our current budget we have around $700 of “disposable” income without my wife’s salary during the summer months, so really we’re going to have to pretty tight to cover the gap. I should note that we’ve already been planning for this so we have put some extra money into savings, but currently we don’t have that much set aside.

Ugh. Right now getting this is all written down and thinking about the numbers is making my head spin and feeling a little overwhelming. I’m not sure what my goal should be… right now I feel like I’ll just be happy if we can make it through August without a major hit to our savings. More thought is definitely required and any feedback is appreciated. Thanks.