Rock That Debt – Reader’s Budget Analysis

As the Debt Movement surges along and we look to help give you ways to pay off debt, I gave WSL readers the opportunity to have me review (and analyze) their personal budget and goals. My hope with this is twofold: (1) help the particular individual/family and (2) help YOU find areas you can improve by seeing other peoples’ budgets along with the suggestions I give them.

Rock That Debt

The first reader that responded to the offer emailed me this:

Within the past year, my husband and I both graduated from college, got married, as well as moved to a new city for new jobs. (I discovered they’re both 25 years old). I have been at my job for a month, but the company recently announced that they are moving headquarters to Texas. I will be looking for a new position in the coming year, but am unsure how to budget with such a large unknown – especially since my husband and I are working hard to pay off student loans. We started with $55,000, but paid off the one with the highest interest rate, so now we have $40,000 in loans left to tackle. 🙂

I have a background in accounting, but have never really budgeted prior to getting married a few months ago. My husband and I have goals of paying off student loans, saving for a down payment on a house and saving up for an international trip. (We went on a short honeymoon, with the understanding that we would go to Europe or South America in the coming 1-2 years.) I’m not sure what to do with our budget now that our income will be changing sometime this year, and I never had a good idea about how much should be budgeted in each category.



  1. Paying off student loans
  2. Saving for house down payment (would like to buy within 2 years)
  3. International travel
  4. Retirement savings
  5. Rental property (in the future)


  • 401(k) – $2000
  • Emergency Fund – $7000
  • Cars – two that are paid off

Their Budget

Reader's budget review

Initial Reaction

My initial thought was that these newlyweds are KILLING IT and it’s very encouraging that they’re willing to ask for an opinion – even though they’re doing pretty well on their own! I love the fact that they already had things broken down into this amount of detail. It speaks volumes that they have no consumer debt and have a decent amount already saved for emergencies. Furthermore, the fact that they have a goal of traveling and are saving towards that end shows they’re organized, disciplined, and are willing to sacrifice to meet those goals. Finally, it’s great they each have a “fun money” category as that’s mandatory for married couples. Awhile back I wrote how I got into a little bit of trouble because we didn’t have a blow/fun money category in our budget.

Overall, they don’t have many things that are missing and just need to work on setting goals and clearly work on attacking a few particular things at a time.

Changes to the Budget

  • Tithe – the fact that they believe in giving, and particularly giving to a local church, is a tremendous thing. Considering their disposable income and the flexibility they have, I’d encourage to give a little more sacrificially. I increased their budgeted amount to a total of 5% of their take-home pay. As they continue on in their journey, I’d encourage them to inch that up to 10% over time (if not beyond). Consider increasing 1% every quarter or a few percent each goal they accomplish (e.g. paying off a debt, taking the vacation, etc.).
  • Life Insurance – now that they’re married it’s a great time for them to consider getting life insurance. Look at getting a 20 or 30-year term policy for $450,000 for income earner #1 and $600,000 on income earner #2. While it’s possible that each of them could live off of their own incomes (if something were to happen to the other), reality is that they’ll get used to living off both incomes and they’ll be taking on debt in a few years in the form of a mortgage. Term life is exceptionally cheap and I believe $75/month (total) is about right. I imagine they could do better assuming they’re healthy and neither of them smoke. For more information on shopping term insurance, feel free to email me or check out these posts: how does life insurance work and what does life insurance cover?
  • Groceries – considering that they’re only supporting a family of 2, I personally know they can probably cut down on their grocery bill slightly. This is different for everybody though and ultimately depends on diet, but here at the WSL house we budget $260/month for the two of us (just moved it down from $280) – and we eat fairly healthy although we don’t buy much meat. If they eat a lot of meat, then $350 might not be unreasonable.
  • Restaurants & Dates – for each of these categories I suggested they decrease them by $25/month. As with the groceries, their situation allows them to not be overly tight but $150 between the two categories should be manageable and will free up some cash to accomplish their goals.
  • Clothing – we personally budget $50/month for clothes and I know that’s not nearly enough (so I don’t know how they do it on $20!). 🙂 I’d encourage them to save a little more each month in the cash envelope system; if they don’t happen to spend it all, then just allow it to build up which will allow them to buy new shoes or more expensive clothing items.
  • Auto Repairs – it’s great they’re planning for oil changes, but I’d increase the targeted savings amount for this expense. Having driven beater cars for a LONG time, this particular category should be enough to cover eventual tire replacement, alignments, new brakes, transmission flushes, windshield wipers, and even other problems that WILL eventually go wrong with the car. We personally budgeted $150/month for car repairs for years and now we’ve scaled it back to $130/month. For now, give $75 a try and analyze it again in 6-12 months. If they fall behind on this particular targeted savings account then increase the amount they’re saving. If they’re well ahead of the game, then maybe consider bumping it back to $50/month.
  • Emergency Fund Savings – for now I’ve reflected that they decrease their current savings within the budget to $0. This will make sense below.

Plan of Attack

1. Build up the Emergency Fund

Based on our conversation I believe they’ll find employment, prior to the wife’s company moving, without an issue. However, it’s always nice (and wise) to have the added protection of an emergency fund in case things don’t turn out as planned.

With that in mind, I’d have a goal of saving a total of 6-months worth of living expenses and build up your emergency fund to a total of $22,000. I reached this number by using the $4,012 monthly expense total in the proposed budget and subtracted the $400/month retirement savings. That gives them a total of $3612 that needs to come in each month. $3612 x 6 = $21,672 (so I rounded up).

With $7,000 already in the emergency fund and having 2,730/month in disposable income to save, they should be able to add the extra $15,000 within 6 months (that’s assuming they don’t bring in any extra income and don’t have “extra” paycheck months).

The reason I suggest doing this and delaying paying extra on debt is for two reasons: (1) there is a storm brewing…they’re not sure if it will be a hurricane or just a little thunderstorm, and (2) if they secure employment shortly before (or after) the wife leaves her job, then they’ll have a LARGE stash of cash that they can pay down towards debt.

I’ve learned this lesson the hard way: once you pay the money on debt, you can’t get it back. It’s nice to have the cash cushion because you never know what life will throw your way.

2. Finish off The Vacation Fund

Understanding that this will be 6 months in the future, that means they’ve already saved $1,500 towards their vacation fund (as they’re saving $250/month towards that goal). With that in mind, develop a target goal within the next few months on how much the vacation fund needs to be. I realize the trip will be expensive, but be diligent, plan ahead, and get a good estimate on costs.

Once they’ve determined exactly how much they need for the trip, I’d then take all of the disposable income each month ($2700 in addition to the $250 already being saved) and add it to the vacation fund. At month 7 of this plan, they’ll have $4,450 saved and at the end of month 8 they will have $7,400. I’m not sure how much it’ll cost, but $7.5k should be close to enough.

3. Rock That Debt

With the emergency fund sitting at $22,000 thousand dollars (in 6 months) and the vacation fund completed, they’ve now freed up all of that money they were saving and will have a disposable income of $2,950/month.

Pay off The Debts Completely – now that we’re 8-9 months down the road, the employment situation will be close to being hashed out. If they were able to secure employment and have no lapse in income, then that means they can use a portion of their emergency fund to pay down debts. I’d suggest leaving 3 months worth of expenses in the emergency fund, but they can also take it all the way down to $7,000 (the amount they told me they like to always have in their e-fun). Which they choose doesn’t matter too much and comes down to preference.

By leaving 3 months of living expenses in the emergency fund, that frees up $11,000 that could instantly be paid towards debt (assuming they have transitioned to the new job). That would leave around $26,000 remaining of student loan debt. Currently have $40k, minus $11k from the lump sum pay-down, and $500 worth of minimum payments for 8 months (as we’re 8 months down the road).

With a disposable income of $2950/month (and $500 worth of minimum payments), that means they can be debt free in 8 months!! That would be a total of 16 months into this plan!

4. 6-Month Emergency Fund

With the debt eliminated, emergency fund sitting at 3 months worth of expenses, and a European vacation in the rear view mirror, that will give them a total of $3,450/month in disposable income. Now that they’ve gotten $500/month off of your budget (by eliminating the debt), they only NEED $3,112/month to cover your bills, living expenses, and targeted savings. That means their 6-month emergency fund would need to have $19,000 sitting in it.

With $11,000 sitting in the fund that leaves them $8k left to save. By chucking all of their disposable income ($3450) towards that goal, that means they’ll be able to build their emergency fund to a full 6 months worth of expenses within 2.5 months! A total of 18-19 months into this plan.

5. House Down Payment Fund

Saving a down payment for a house is all that’s left of their goals and will be their primary focus at this point in their journey. With $3,450/month that can go towards that end, they’ll be able to save $13,800 in 4 months (which is right at their 2-year goal).

Considering all that they’ve done to accomplish their goals at this point, I’d encourage them to wait to buy a house until you have 20% down. If the $14k (only a $70,000 house) is enough to meet that goal, then go for it! If not, I’d encourage them to wait another 6 months and continue to build up their down payment fund. At that time they’d have about $35,000 which would be good for a 20% down payment on a $175,000 house! Total of 28 months into the plan.

6. Retirement Savings, Rental Properties, and Other Concerns

Now that all of their goals are accomplished, they’ll simply have to create new ones and focus on taking care of their new responsibilities at age 28. They’ll likely need to start saving for new cars, maybe additions to the family, and most certainly should allocate a significant amount of money towards Roth IRAs, 401(k), and investing in rental properties.

Readers: what did I miss? Do you think I should have told them to pay off debt first and then go on vacation? I don’t think there is a right or wrong, but feel free to give your opinions so this couple can get some extra guidance!

About the Author

By , on Jan 11, 2013
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of

How to Become Rich e-Course

Budgeting 101


  1. Further commentary, because apparently the internet thinks everyone is being too nice and that everyone should absolutely live like paupers to be debt free. *sigh*
    I assume that the retirement fund is to receive an employer match? If not, what rate is it returning? If it’s less than the debt, redirect that to the debt to pay it off (much) more quickly. (Unless there are some tax implications in the US I am unaware of, like losing the contribution room permanently, though I don’t think that is the case.)
    Those are a lot of targeted savings accounts. Consider treating the emergency fund as both the savings fund and emergency fund together. Know that you will have to spend some things from it, but get it up to your comfortable level ASAP and then pile everything against the debt. For example, the car repairs. Emergency cost, presumably. The idea of saving in advance makes sense, but when you’ve got anticipated costs and less debt. Need winter tires? Okay. Believing your transmission’s going to blow out? Wait till it happens, have the efund and in the meantime pay down the debt so that when it does happen, it’s less of a blow to your situation.
    Is there a reason to anticipate spending the $115 on meds/copays? Is there a one-off spend value that this anticipates? Is it $1000? Increase your efund by this amt and draw it from there should it be needed.
    The timeline for the vacation was listed as 1-2 years. If you push it out to even the end of year 1, that would redirect a fair bit of money in the meantime. Divert that $250 and whatever is in the fund already to the debt, then take up saving for it again in 6-8 months.
    The life insurance really isn’t that necessary and is pretty pricey. Yes, they should probably get it at some point, but at $900/year that’s fairly steep. Do they have any through work already?
    Another approach would be to secure a LOC, in case of emergency. Then build up the efund to cover fewer months of living expenses, while working out a new job. Maybe 6 months of reasonable, albeit reduced, spending. Then pay every penny towards the debt, because the LOC has already been extended in fair weather times, not when you’re screwed and trying to survive.
    So, assuming it is possible, taking the meds/copays money, the travel fund, the retirement savings and the life insurance, that gives another $840 per month, without sacrificing a thing in actual spending. That’s $10,800 per year. Those changes yield an ability to save of about $3600 per month (sticking to their current spending). To reach the emergency fund target of 6 months will take 4 months. If they completely ignore the fact they are sitting on 21K, they can pay off the whole debt in 11 more months. This is an interesting number, because it means that if they redirect that $3600 to the debts each month and completely ignore the efund (keeping it at $7K), they will be debt free by her unemployment date. Assuming a full 12 months are left, they can even have a 10K eFund. At that point, if the husband has the lower paying job, they can maintain all of their current spending, AND their current targeted savings rates, on the $2900 income. Though, it would be advisable to drop the spending and contribute again to the eFund and retirement. If the husband has the higher paying job, they’re laughing and can then start saving for a vacation at a rate of about $1000 a month, though it would probably be best to put some of that to retirement savings and some to vacation. Then, when she gets a job again, her entire salary can go to savings – retirement, vacation, house fund.

  2. I agree wholeheartedly that diverting everything to a massive emergency fund is the best course of action, to get through the possible unemployment stretch. It will be hard knowing they are paying interest, but the safety net aspect is great. I would also try to avoid the temptation to pay off the loans as soon as the first pay cheque from a new job comes in, waiting 1-3 months to ensure things go smoothly is likely the safest course of action.
    I’m not all up on US taxation, but I would assume that due to the tithing, they can expect a bit of a tax return in the spring? With these applied to whatever is the current savings target, it could expedite the process a little bit.

  3. Alex says:

    These will be fascinating to read. I love seeing how other people approach budgeting challenges.

    I have a vacation fund in my budget for the first time in a while this year. My wife and I are planning to travel somewhere (no specific plan as of yet), but we know it’s a lot easier to decide on a trip when we have money to pay for the options.

  4. MomofTwoPreciousGirls says:

    Currently being unemployed, I must say I WISH I had an accounting background! The most jobs are in nursing, it and accounting. If she has a degree and some experience my hope for her is that it will not be difficult. My advice though woud not be to wait until the company moves. Start looking NOW. May be frustrating, but knowing its happening gives her a lot more advantage than others that are shocked. Looking now also gives her the ability to be picky and not desperate.

  5. If they stick with the plan they are going to come out in such a good place down the road. I would certainly do the vacation if they are able to pay in full. Having the student loans paid is such a short amount of time is wonderful. I also don’t think charity should always be related directly to income. Once debt is paid off, they have secure jobs, an adequate emergency fund, and they have their house, I’m sure they might feel more comfortable with upping the contribution.

  6. My only minor annoyance/complaint is the use of the word “tithe” in their budget. Tithe literally means 10%. If you’re not giving 10%, you can’t call it a tithe. Call it charitable giving instead.

    As a matter of opinion, I think $200 is absolutely pathetic for charitable giving on a $6,700 income. I agree with your advice to incrementally increase this category.

  7. As far as E-funds go I normally cut down the expenses a lot more in case of a true emergency like job loss. I’d probably cut anything non essential because I wouldn’t feel comfortable spending on luxuries if I lost a job and didn’t have something lined up. I guess it depends on the person.

  8. Unemployment is not fun and equally not finding a job is devastating emotionally to the person, family, relationship and the budget. Until a job is secured I’d build up that emergency savings like you mention. It may take 6 months to a year if not longer in some cases to find suitable employment. You are right once the money is gone, it’s gone. Mr.CBB

  9. They are making great progress to pay off that much debt so quickly. I like the changes you made too, it looks like they’ll be on the right track if they stick to it!

  10. Thad says:

    That is nothing short of an amazing job (on getting the student loans whittled down so quickly).

  11. Something I know well from experience; there is no guarantee that she is going to find a new job before the old one moves away. Having only been at her job for a short time, unemployment isn’t going to pay much. I once got laid off 4 months after starting a job in anew state, and my unemployment benefits came out to about 20% of my gross salary.

  12. Jose Nieto says:

    First off, I’m extremely impressed with what they’ve done financially. If they’re living to that budget them hats off to them! Secondly, Andy, your 100% on track with telling them to not postpone their vacation. I’ll stick to what is rapidly becoming one of my favorite sayings, “Keep the machine well oiled” vacations, fun money and dates should all be a part of that!

  13. I think you nailed it!’And I’m so happy that you told them not to give up vacations. We sometimes cut our budget so much that we don’t leave a little room for fun. Sometimes you need to be rewarded for doing as well as they are.

  14. Pauline says:

    Since they are doing great already there is no reason to give up little luxuries, especially since they aren’t a family yet and can have nice dates and holidays on their own.

  15. Mackenzie says:

    I never thought of a vacation fund! That’s a good idea 🙂

  16. Debt Roundup says:

    Nice suggestions Andy. Looking back, I wish I would have budgeted more money into a vacation fund. I got a little uptight since I never took vacations when I was paying down my debts.

  17. Renee S says:

    There could be a chance to save money with their transportation costs. I don’t know all of the details, of course, but they are paying for gas, parking, bus pass, repairs, insurance. Maybe go down to one car and use the bus? Or get rid of the bus pass? Just a thought!

    • Andy says:

      Great suggestion/catch Renee! I did find out after writing the review that this couple is down to one car which is why they have the bus pass. Very good observation though!

  18. I like your suggestions in that order. First, prepare for the worst by saving into the EF for possible job loss/job transition downtime. And then as long as they take a moderate vacation they won’t be putting off their debt repayment very long. It seems that it will be more than 7 months until they are putting down deposits for the vacation anyway so they will have time to throw their disposable income at the debt.

    They are on just about as tight a budget as we are and we make a whole lot less, so good for them for cutting back to focus on savings/debt repayment!

  19. AverageJoe says:

    I think you’re right on to NOT tell them to give up the vacations. When people are doing this well, I think it’s important to practice balance….you don’t know what’s going to happen tomorrow. Continue to practice good money management, but also enjoy today so you don’t fry on a tight budget. Great analysis, Andy.

  20. Wow, that’s awesome they’ve paid off so much on the loans is such short a time! I think your analysis is dead on Andy. Sure, they COULD pay off the loans entirely before taking the trip. BUT, they’re newly married, took a short honeymoon, and who knows when they’ll be able to do something like this again? It’s obvious they’re on the right path so I would have no problem with taking the trip first. Great point on the money put towards the debt. When it’s paid, the money is gone. I’d much rather have the six month E-Fund saved up as opposed to coming to a time where they need the money.

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