Ep. 121: Joey’s income went up and his margins shrunk

M$D: N/A

Meet Joey

Age: 26

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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