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Why Our Magic Number is $10,000

Sheesh! This is a $10,000 per month budget! It seems excessive, but I do forget about all the things that my employer pays for me. It's so much fun looking under the hood to see what people actually spend in their budgets and where money goes. Take a look!

I received this comment on my February 2012 Blog Statistics and Income Update from Mrs. Money Mustache and thought it would make an excellent post since some of the newer readers probably think I’m nuts:

Wow!  That is truly impressive Crystal!  Thanks for providing this great breakdown.

I do have a question though.  You say that you and hubby “need at least $10,000 a month to cover expenses, basic savings, and taxes”.  That seems like a lot!! (especially after reading about your low housing costs just now)  I’m curious why your living expenses are so high.  Our are less than $2000 per month (no mortgage) and that’s being generous with a lot of traveling.

Anyway, congrats and I look forward to reading more over here!

Good question!

Our $10,000 Breakdown

As I wrote back, our expenses are about $3000 a month including the mortgage (so they should be $2100 a month after May when our mortgage is paid off), plus $2000 a month in savings (cash, stocks, and IRA’s…we are also opening a Self Employment Pension plan this year).  My blogging expenses are between $1000-$2000 a month if I buy sites to expand with, so I went with the average of $1500.  That is included with the normal blogging expenses.  And we need $3500 a month for every $10,000 for taxes since self employment taxes suck.

So $3000+$2000+$1500+$3500 = $10,000.

We really aim for $15,000 since we do like the extra money as padding.  We are using the extra to pay down the mortgage right now and then we’ll start splitting it like we used to between Savings (25%), Investments (35%), Vacations (20%), and personal fun money accounts (10% each).

Things I Forgot to Mention

As I was putting this together, I realized that I had never linked to our budget for Mrs. Money Mustache, so I didn’t let her know that about $350 of our monthly $3000 of expenses is health insurance and life insurance now that we have to pay that ourselves completely.  I also didn’t admit that we spend way more than needed on food, so I hope she reads that post.

Overall, $10,000 is just what we need to hit to live like we do now and still cover blogging expenses and taxes.  We could live on less by cutting our food budget, some splurges, or even our minimum savings targets.  We would just prefer not to.  😉

EDIT May 21, 2016:  Okay, so looking back, I was being all rainbows-and-butterflies positive and happy and peppy…and a little nuts.  Yes, $10,000 a month is my super happy spot since it does mean we are pretty much saving 50% and living on 50%.  But we have proven over the last 3 years since I wrote this that we are still very happy on around $5500 a month.  $5500 is still a LARGE monthly nut, but the general breakdown is $1000 mortgage on our current home, $1000 property taxes on our two homes (current and paid off first home that is our rental), $250 for home insurance on both homes, $1000 for income taxes, $600 on health insurance, $500 on food (restaurants and groceries), $300 on my car payment, and the rest on living expenses like utilities, Ting wireless, blog expenses, pet sitting expenses, and fun money splurges.  Anything we make over $5500 a month goes towards our two Roth IRA’s, our SEP IRA, and savings.

What do you have to bring in to cover your basic living expenses and taxes to live like you do now?

FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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19 thoughts on “Why Our Magic Number is $10,000

  1. Well as I continue to get back on my feet… This year starting out very nicely I have to re establish myself and finances in order to answer that question. However, my step father started mentoring me and getting my finances back to life. So far so good.

  2. It sounds like the confusion with Mrs. MM basically amounts to the difference between income and expenses. You need an income of $10k a month, whereas MMM is saying her expenses are around $2k a month. Big difference in terminology.

    I gotta say, as I’m about to quit my job, it’s kinda scary that $10k a month is what you need to earn! That seems pretty far above what’s attainable for me at any point this year. I know I don’t need that much to live, but what I need to earn long-term in order to make working for myself viable is probably closer to $10k a month than $2k a month.

  3. Because you’re self employed and have to factor taxes into your magic number, I don’t see $10,000 as terribly high for two people. It’s really only $6,500 net. While I realize lots of people live on a lot less, you also have very aggressive savings, and you’re also including money to expand your business.

    I love how honest you are with your numbers!

  4. I think that I would classify some of the items slightly different, more in the ‘nice to have’ option, specifically the savings and the ability to buy additional blogs. I classify things as items of need to satisfy what’s required. Paying the mortgage, putting food on the table, keeping the lights on, having enough to put gas in the car, paying the taxes, etc. Stashing away money for savings and having money to invest with (essentially the same as your blogging re-investments) are the next level down in my mind. That’s just me and we all classify things differently, of course.

  5. Just seeing that you need $10,000 a month made my eyes bug out the first time I read it on Get Rich Slowly.

    Then I thought about it. That includes your taxes. You need to budget for the fact that some months may not bring in the revenue you need. Because you’re self employed it makes sense to have a much larger emergency cushion. Plus you have make BIG savings contributions and mortage-repayments regularly. And that’s without even considering the blogging expenses.

  6. It’s my magic number. We can get by on half of that, but now that we’re moving to a very expensive new city, I really desperately need to get to that number which isn’t an easy feat.

  7. Just to cover food, mortgage, real estate taxes & utilities would be $3000 net would be bare minimum, add in investments, self-employment tax, business expenses and I can see how grossing $10,000 would be necessary

  8. Thanks Crystal! As I mentioned in my e-mail to you, I don’t account for business expenses, savings, or taxes in my budget, hence my initial confusion. But, it all makes sense now. As others mentioned, it’s good to have a goal! 🙂

  9. $10,000 net! I spend more than I could/should on socializing but my philosophy is don’t budget, earn more because I have the capabilities to do so. So does Crystal 😉

  10. Hmmm..varies from month to month. Housing costs are pretty low, but transportation is a lot (700 a month – that’s just the train!). So – I’d say at least 2 grand, but probably more..

  11. $10k is a good number I think. My magic number is actually $12k, but that would include roughly $4k per month to fully fund a SEP 401(k). Otherwise your numbers are right around what I figured for myself.

  12. I consider all of my savings/month to be separate from my living expenses. I don’t see how saving money has much to do with “living how you do now”, but maybe it does. I would need about $1,700-$1,800 per month (after taxes) to cover all of my expenses. This includes all the money I spend in a month, the way I currently live. I could live on less if I needed to, perhaps about $1,500-$1,600, in total. That’s pretty bare bones for me though, without making painful cuts and big changes. As for savings, right now I save over half of my take home pay. Obviously if you’re counting that as living, then I would need all of my current income to keep living like I do now. If not, it could go down to less than half and I’d manage to get by.

  13. Well, you’re two single people that have skills, so I think it’s reasonable to expect $50K/year per person.

    I haven’t calculated how much I need lately and the number varies significantly if you include daycare expenses. I’m pretty sure I can cover my fixed expenses for under $20K/year at this point, but that doesn’t include daycare, health and other insurances, or retirement savings. In an ideal world, I need to do all of these things, but I like the feeling of knowing that if all hell broke loose, I could survive with a low paying job.

  14. I come up with my number like Kraig does: figure out how much mortgage, property tax, groceries, etc costs per month. I keep a spreadsheet that has the amounts listed and next to each one I have the percent by which we could cut if we needed to. E.g. netflix could be cut 100%, income tax can be cut 100% (hey, if you have no income, you pay no tax, right?), but those pesky property taxes and mortgage always have to be paid in full. It’s important to know *this* number because then you can size your emergency fund appropriately (i.e. 1 or 3 or 6 months times your monthly burn rate).

    Also, on the SEP, have you looked at a Solo 401(k)? Don’t fall for the places that have high fees, there are brokerages that will offer it fee-free (eg TD Ameritrade), and the bond you have to post should only cost around $100/year. The 401(k) has more to recommend it than the SEP — you can put more in, you can take loans, etc.

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