Thomas Gilmore started budgeting the day he got out of college and took on a salaried job.
"I basically started to see how long it would take to save for the major life goals, like buying a house, getting married, and having kids," the 26-year-old industrial engineer explains.
Gilmore, who is based in Chattanooga, Tennessee, finds the most effective budgeting strategy is looking ahead, whether that's a few months, or a few years.
"I look at, am I going to be underwater any time in the next year? Are there going to be any negative numbers for net income after savings?" he says. "If so, I have to go ahead and start cutting back on my spending or realigning my savings."
In fact, he looks ahead all the way through 2020, taking into account expected pay raises and fix costs, like his mortgage.
"I know I'm going to get at least a 3% raise every year, so I go ahead and put that out there," he says. "That way it's a more realistic number when I look at 2020. It's hard to predict more than five years out." He projects by five years, he continues, because "you're supposed to have your five-year goals — financial, personal, and professional."
In 2014, Gilmore earned an average of $5,474 per month between his paycheck and $522 of income from renting out a room in his house.
Here are the average numbers for the categories in his 2014 budget. Note that because these numbers are averages calculated from the year as a whole, they will not equal his average pay. Gilmore gets paid weekly and budgets by week, but here he has provided monthly numbers to make his budget easier to read.
Gilmore bought a house in September 2014 and finds that his category for furniture and home necessities — "home goods" — is one of the hardest to manage. His down payment is why the average mortgage cost is so high. His extremely low gym costs come from the fact that he started working out at home.
Right now, he's focusing on building up an emergency fund of six months of living expenses. In fact, saving is so important to him that he has already opened a 529 for any future children (while it has to be in his name for now, it's possible to transfer the funds to another beneficiary when they're born). He keeps his savings in a separate spreadsheet. Most months he contributes $100 to the 529, and between $1,000 and $1,200 to his investments, which he keeps in Vanguard index funds.
After his emergency fund is complete, he might turn his attention to his mortgage and auto loans, both of which have an interest rate of about 3%, as well as a little credit-card debt still in a promotional first year and not accruing interest. He also owes some unofficial debt to a family member who lent him the money to refinish a room in his house, which he is repaying through the "Bonus Room" category. Altogether, his debts add up to about $189,000.
"I think I always feel like money is tight," he muses, "just as tight as I did two years ago when I had $10,000 less of income. Mostly, it's just because of the obligation of having a mortgage. I may not have a roommate in a year, and without that income and saving the way I am today, there's going to be a lot of red in my budget. I haven't thought of a solution for that yet — I constantly think about it."
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