While budgeting only on your base salary can seem intimidating, I offer you the following case study: Me, and my monthly budget plan. I am your average single FSO, I’m an FS-03-04 at the moment, living overseas. I have a mortgage back in the U.S., but I don’t have student loans, so YMMV (Your Mileage May Vary) on that. No children, one spoiled cat. Here is how I budget on my base salary.
What IS My Base Salary?
I’ve done a walkthrough on how to calculate your base salary, so I’ll shorthand here. My base salary, with Overseas Comparability Pay, is $89,609, which translates as $3,446 per pay period, or $7,467 each month, which is how I personally budget, though it does make things a bit odd looking at pay periods. Budgeting monthly makes my life easier as I use Mint.com, and it ‘thinks’ monthly.
Pay Yourself First: I max out my TSP ($1,584/mo), which brings my taxable income, on my base salary alone, to $70,609. On that, I pay $11471 in Federal Taxes ($956/mo). My state does not have state income taxes, though I do pay real estate taxes, which are bundled into my mortgage. I pay for my Social Security, Pension Plan, and Medicare as well from my salary. I also max out my IRA, and while I did that as a lump sum at the beginning of the year to make it something I didn’t need to think about, I do still mentally count it in my monthly budget.
|Starting Monthly Salary||$7,467|
|– Federal Taxes||– $956|
|– Social Security||– $365|
|– Medicare||– $85|
|– Pension Plan||– $80|
|– IRA||– $500|
|MONTHLY REMAINDER||$ 3,897|
Where Does It Go?
As I mentioned, I am, I think, a fairly average FSO. Here’s where my monthly base salary goes, on average.
|Monthly Remaining Base Salary||$ 3,897|
|– Mortgage, Home Insurance, Real Estate Tax||$ 1,200|
|– Utilities (at my house, but also Skype, etc.)||-$300|
|– Shopping||– $500|
|– Food/Dining||– $200|
|– Personal Care||– $200|
|– Health Insurance||– $200|
|– Vacation Fund||– $500|
|– Entertainment||– $125|
A few notes:
- Shopping – this is a catchall. I don’t have quite the Amazon addiction now that I used to, but my house is no stranger to the smiling brown boxes. I also have several subscription boxes that I love, including GlobeIn and InkJournal. All of that goes here.
- “Personal Care” – this is basically my massage fund. Even though this gets reimbursed at least in part by my insurance, I like to track it.
- Health Insurance – I have high option medical, dental and optical. I’m risk averse. I understand that there are FI arguments out there to skip high option and instead go for an HSA, but I’m not comfortable with that.
- Food/Dining – YMMV a lot on this. Where I live now food is very cheap, and this is essentially used to spread out my consumables shipment and cover vacation eating 🙂 I’ve lived in other posts where this was around $500, between the cost of basic goods and the availability of delicious restaurants.
- Vacation – I don’t spend $500 each month on vacations, but instead I set up a separate, online, high-interest savings account specifically for this bucket. Anything that doesn’t get spent during the month under this category gets moved to the bucket, and then spent all at once on my R&R. I love travel, and this is one of the few areas I’ve embraced “lifestyle inflation”
- Entertainment – This is my Netflix, but also my video game addiction, movies, etc. At other posts, this has included sport fees, though you could separate those out.
- This doesn’t include household help – I don’t have any at the moment but in the past this has been around $200.
You’ll notice that, at the end of the day, even all my budget categories don’t fill up my paycheck, and that’s only considering my base salary, not any incentive pay I may get as I move around. That ‘extra’ $672 serves as a buffer, and starts helping me meet my FI long-term goals. Right now, the $672 is helping me grow my emergency fund from 6 months to a year, in part due to the ongoing shutdown. Psychologically I need that more than I need a higher-yielding index fund investment.
I’ve mentioned multiple times throughout the blog that I use Mint.com. I set these individual budgets to reset at the beginning of each month, except for vacation, which rolls over with the prior month’s budget.
Very rarely do I max out any one of my budget categories, except for my mortgage, which is fixed. At the end of each month, I look at what’s ‘left-over’ and sweep it into one of my buckets, along with the additional pay that is coming from my incentive pay. All of my incentive pay goes towards FI goals. This includes paying my house off early (I have a low rate but I’d prefer not to have debt), boosting my emergency fund, and investing in low fee index funds. I don’t consider those bumps as ‘real’ – they mentally bypass my checking account and go straight to their destinations, mostly automated.
I hope this helps, and encourages you to give it a try. It can be done, and without feeling any hardship. I still take amazing vacations when I can, spoil myself with massages, and have far too many expensive hobbies (under shopping). I love my life, and the psychological buffer that being on the path to FI gives me. I hope this helps you get there, too.