Budget 1: "mandatory" monthly expenses

Initial disclaimer: This information is of interest to me, and basically, to hardly anyone else. So this is mainly a way for me to figure out, "on paper," my financial situation, and explore ways to improve it. It may be of future interest to other people like me who are searching the web for data on the expenses and budgeting methods of others, but just so we're all clear on this: I don't expect most of you (all 7 subscribers) to really care.

Month after month I marvel as my bank account balance goes to zero after a minimal percentage of my income is set aside for paying taxes, saving for retirement, and a little investing, after a set credit card debt payment is made, and after the bills are paid. It doesn't seem like I should be in this situation. So here I am beginning a series of posts on my expenses, to try to figure some things out.

I am starting this series on my personal budget by looking at my mandatory monthly expenses. This is the group of expenses that I like to say, "just cost what they cost." These are the things that I'm billed for monthly, things that I have to pay for to keep living my life the way I do, where I do. There are gray areas, such as with cable TV: I don't need it, but since it's bundled with my internet service, which I do need, I'm keeping cable TV in this "mandatory" category. Plus, cable TV is something I have to pay for to keep living my life the way I do. Cable TV is also an example of one of the items I can work on: I'm thinking of downgrading to a more basic cable package, for instance. But I can't/won't eliminate this expense completely.

Mandatory expenses do not include clothing, personal care such as haircuts, business expenses (which I write off at tax time but still cost me money), dining out (or delivery), home and gardening expenses, pet expenses, doctor visits, prescriptions, or any similar expenses that are not technically mandatory but that most people would agree are reasonable or necessary to ensure quality of life. Quicken would disagree with me on some of that. But all of that, for this exercise, still falls under discretionary income to me, and I'll address that next time.

(Disclaimers: I did include health insurance as "mandatory", because I went without it for a very long time and now that I have it, I consider it indispensable. Yet I didn't include doctor visits or prescriptions ... I guess I'm still healthy enough that the insurance is more important to me, as my doctor visits are more routine and I could actually skip them if I had to. And I included home insurance, because if you don't have your home, all you have left is your health, which is a lot harder to take care of without a home. And, even though having pets is really mandatory for me, I can not compare my "mandatory" expenses to anyone elses' if I include the thousands of dollars I spend on my pets each year. So "mandatory" vs. "discretionary" is a bit subjective. But from my point of view, for this exercise, these are my mandatory expenses.)

My averaging methods: I have saved all of this information in Quicken for several years. This is why I choose to pay for as much as I can with credit cards, because when I receive each bill, I enter each item into my Quicken file. It's much more of a pain to keep track of cash. (I should note that all the credit card debt I wrote about recently accrued before I started paying attention to my budget. Mostly. Regardless, I'm not in debt because I pay for groceries with a credit card.) So, I averaged my monthly bills (such as utilities) over the 12 months of 2007. Auto fuel and groceries, again, were averaged over the 12 months of 2007. These amounts might be different in 2008, but this is what they were last year.

Mandatory monthly expenses:
Auto insurance: $65.
Health insurance: $107.
Home insurance: $27.
Rent: $1200.
Cable TV/modem: $138.
Electricity: $92.
Gas: $132.
Cell phone: $58.
Wastewater treatment: $6.
Water: $17.
Auto fuel: $109.
Groceries*: $476.
Total mandatory monthly expenses: $2427.

*"Groceries" includes all my food and drug items. "Drug items" are the things that I buy at the drug store that is attached to my grocery store, such as toiletries and personal care items, medicine (but not prescriptions), etc. "Groceries" also includes alcohol (of every kind -- here in Illinois it's all available at the grocery store). I used to separate out all the different categories of items I purchased at the grocery store, including pet food, personal care items, liquor, human food, etc, but it was too much work. These days if I see I'm spending more money than I'd like to spend at the grocery store, I simply tone it down across the board.

My mandatory expenses, the stuff I need to pay for in order to live the way I do where I do, cost me $29,124/year. This is for one individual. And it doesn't include a single sandwich at Jimmy John's, or a concert ticket, or a pair of socks, or an oil change, or any other transportation expense other than auto fuel, or one tomato plant, and it certainly doesn't include a single pet.

I got the idea to start talking about budgeting back when I wrote that post that I referenced earlier. At the end I touched on the cost of living where I do, compared to my should-be-decent income. Back then, I wrote:

The thing is, I make a decent living. [...] And day to day, I don't live extravagantly. (I keep my cars for many years, I've never bought a diamond, etc.) [...] But the main thing that kills my budget is the cost of living where I do. So over the next few days I'm going to start talking about budgets, linking to other blogs that are doing the same, and analyzing any and every possible place I might start looking to save money that doesn't involve moving or not enjoying life.

So in the next posts on budgeting I'll continue the discussion by talking about topics such as:

1) Finding places I can save money in my "mandatory" expenses;
2) Adding up my "discretionary" expenses;
3) Finding places I can save money in my "discretionary" expenses;
4) Comparing my expenses to that of others;
5) Whether or not I need to take drastic measures (like moving).

It should be fun and entertaining. And in the end, maybe I'll move to Mexico. Join in the discussion, won't you?