Previously, I stated how much money I put towards my student loans per month. Some of you might have thought that it was a pretty large amount of money. Maybe some of you even wondered how I am able to do this. Well today I am breaking down our monthly income and expenses, what it means to put money to work, how to put money to work, and, finally, a glimpse of the next post (what is a Kubo Rich life?). Read on!
Monthly Income and Expenses
Our monthly household income is $5,948 after deductions, and our monthly essential expenses come out to $1,947. The breakdown of the expenses is as follows:
- Rent: $950
- Utilities (electric, gas, water, and sewage): $250 – $300
- Internet: $30
- Music Subscription (and I know, not really essential): $15
- Car Insurance: $45
- Renter’s Insurance: $7
- Gas: $100
- Groceries: $500
We do, however, get some things for free. My wife’s parents still pay for her car insurance, which is approximately $45 per month. Her health insurance is paid for by the university; this is one of the benefits of being a PhD student in her department. Both of us are still on our family’s cell phone plans that we do not currently contribute to, which saves us another $45 per month*. Therefore, we have about $4,001 of “disposable” money each month.
So how do we dispose of this money? Well, we dispose of it by making student loan payments and stashing some in an IRA. Specifically, $3,000 a month goes to the student debt and $500 a month goes to my wife’s IRA account (Vanguard). What this means is: we are putting 58.8% of our monthly real (after deductions) household income to work. This is a good start for us as a married couple trying get a handle on our finances early in our careers; and note that my wife hasn’t even entered the workforce yet!
Wait, what do you mean by putting 58.8% to work..?
In my view, there are two things you can do with this thing called “money.” You can either use it to get yourself treats, or you can use it by putting it to work. The former is the easier concept.
For example, a treat might be the financing of a brand new Prius (manufactured, of course, from Earth’s limited resources); or by eating at a hip restaurant that serves organic and gluten-free baby cattles from the southern countryside of Fiji (with a side of kale salad, of course). The latter is the trickier concept, but is the more important of the two to understand.
Putting your money to work means using your money in such a way that it increases your net worth; thus becoming wealthier than you are now. So what is net worth? Your net worth is the cash value of your assets minus the cash value of your liabilities. In other words, for the majority of people, the amount of money you have (and no, the lines of credit you have do not count) minus your debts. Your net worth is a pretty decent heuristic for figuring out how you are doing financially. If, by doing the calculation, your net worth turned out to be a negative value, then you are IN A BAD SHAPE financially. Conversely, if your net worth is a positive value, then you are doing pretty well.
Okay… so how do you actually put money to work??
It’s simple! If you have debts, then fling your money at them. If not, then invest them! Notice that this is exactly what we are doing. We pay for the essential things we must have (e.g., rent, utilities, food, transportation, etc.), and put the money that is left, about 58.8% of real monthly household income, to work — paying student debt and stashing in an IRA account.
Since I am paying pretty aggressively, my student loans will be paid off in less than a year from now. When they are paid off, can you guess where that money will go to instead? No, I am not financing a car. I am also definitely not eating at trendy $100 per plate restaurants. Yes, that’s right, the money will be going to investments!
But, why in the heck are you depriving yourself!?
The truth is… I don’t feel deprived at all… let me tell you why in the next post.
* Google has a phone plan (Project Fi) that costs $45 for two person with calls, texts, and a gigabyte of data. And yes, we haven’t needed more gigabytes of data and it’s hard to see why we’ll ever need more in the future.
Be First to Comment