Joey’s main concerns, in his words:
I used to be a budgeting boss but now that I am the boss I’m a lifestyle creep – maybe. It felt easier to budget and handle money when our income was modest and followed a straight line. I need help thinking through how much money I should feel okay about spending. Should I save a certain percent or amount and then get a free pass to spend the rest on whatever I want?
My income has grown significantly over the last few years and my wife quit her job in a field she didn’t like about a year ago. She is now pursuing a career in programming/web development but there isn’t a lot of pressure to get her income back in the mix. She had been making around $65-70k. I own an economic consulting business with a partner and my income has grown from $50k per yer a couple years ago to making $250k $250k $450k $300k in the last four years. I take a decent salary through out the year but after extra tax withholding and maxing out my 401k, I net about $2k per 26 pay periods. A big chunk of my money comes through a K-1 distribution that I take in the spring/summer of the following year. My money comes in lumps as Fiddy would say. Prior to the increase in income we were really disciplined and paid off over $80k in college loans (all of our debt except the house). During the first couple years of the higher incomes ($250k years) I was continuing to buy in to the business so between living expenses, income taxes, and payments to buy in, we didn’t feel like we were rolling in it – we were certainly comfortable but we were still really careful with our money and we hadn’t felt the income increase.
Last year, after a lot of research and being patient, we bought a duplex with 25% down as an investment which has worked out well. We hired a property manager who takes care of keeping it leased and tenant issues. This year after my income jumped to $450k , we paid for some home improvements for my parents just cuz ($11k), paid off our house ($142k – house worth about $280k now), made some home improvements at the now paid-for house ($10k), bought a 2016 Mazda CX-5 SUV ($19.5k). We don’t have any debt (except $240k on the duplex investment property) and together we have about $250k in retirement.
With no kids or plans for kids and a pretty stable high income, how should we look at budgeting? We’d like to continue real estate investing and potentially purchase a second home – I work from home so we are thinking of going 50-50 between TX and CA (I’m aware of the tax issue with working/living in CA). We like to travel and spend a good bit of money on travel. Can you show us a way forward Pete?
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Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.