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On a budget
How to manage your finances - whatever your income - in Milwaukee

By GUY FIORITA
Illustration by Cassandra Genc

September 2016

Each phase of life comes with its own set of financial circumstances, goals and necessities. The question is, how should we be spending, or saving, our income as we move through different stages? We looked at three earning levels — $40,000, $80,000 and $120,000 per year — and asked some of the area’s top financial experts for their budgeting tips.

$40,000:

Profile: I’m single, out of college and beginning to establish myself in my career in Milwaukee.

I have my first career job but little financial experience. How do I set a budget?

"Your first goal is to calculate how you will pay your bills so that you can budget for some extra items or wants. Your needs might include student loan debt or a disproportionate share of income going to housing, depending on where you want to live. Take a look at online resources for average percentages of spending by category, but a ballpark might look something like this: housing — 30 percent; food — 15 percent; transportation — 10 percent; savings/debt repayment — 15 percent; taxes — 10 percent; and discretionary — 20 percent." — Alex Kramer, market leader for The Private Client Reserve of U.S. Bank, Milwaukee

Am I ready to buy a home, or should I continue to rent?

"The decision to rent or own a home shouldn’t be based on financials alone. Owning a home/condo can tie you down more than you want to be at this stage in your life, but renting leaves you flexible. The rental market is very strong in Milwaukee, with new buildings popping up all over in popular areas like Walker’s Point, the East Side and Bay View. There are a host of options for all budgets. Having a pre-set rent also helps keep your monthly expenses predictable, as renting eliminates any home maintenance costs and unforeseen repairs like a broken furnace or leaky roof. And you won’t have to pay property taxes or condo fees in a rental unit." — Andrew

Bird, wealth management adviser at Northwestern Mutual

I live on the Lower East Side. Should I buy a car or take an Uber?

"Uber or Lyft and public transportation can be a great way to get around in a city like Milwaukee, but if your commute takes you away from the city every day, you might need to buy a car. At this income level, I suggest you buy used and don’t fall for the enticement of leasing. A good used car will be much less expensive than leasing or buying new. Have the car checked out by a qualified mechanic before buying. In Milwaukee, you can get a good used car for $5,000 to $8,000. Cheaper cars are available, but they might cost more in maintenance. The monthly cost of a used car, including monthly payment, insurance, maintenance and gas, might be $500 to $700." — James Cantrell, founder and president of Financial Strategies Inc.

I am carrying student loan debt. What are my options?

"If you have a large federal student loan, consider an income-based repayment plan. Just beware, if the government forgives a remaining balance of debt someday, you may be liable to pay a tax liability on the amount forgiven. It may pay to consolidate loans with private lenders, but beware they don’t typically offer income-based payments. It’s a fairly broad set of options these days, so it’s important to find professional help." — Andrew Bird

"Interest rates on college loans are extremely attractive at 3.5 to 4.5 percent, so plan on a long-term payment. In Wisconsin, state schools are more reasonable, so hopefully your student loan is smaller. What you do not want to do is default on your loan, which will adversely impact your credit history for the long term." — Jim Marshall, president of Spectrum Investment Advisors

$80,000:

Profile: I’ve been married a few years, my career is on track, and we have one child but are hoping for more.

For a couple earning $80,000 per year, what is the recommended breakdown for major expenses?

"Roughly 45 percent of your gross income should go toward foundational expenses, including housing, transportation, medical and child care. Often, 25 to 30 percent of income is quoted as the rule of thumb for housing. However, sticking closer to 25 to 30 percent of take-home pay, versus gross income, provides more flexibility in covering other needs." — David Scaife, regional wealth planner, The Private Client Reserve of U.S. Bank, Milwaukee

"Budgeting is really all about setting priorities. We will have the client list expenses in order of importance. We put the least important expenses at the bottom of the list. We then subtract each expense from the income as we move down the list. When there is no more money left, we draw a line. This forces the client to make the tough choices." — James Cantrell

We want to expand our family but are worried we can’t afford it. How much does each child cost per year?

"Kids are expensive! In August 2014, the U.S. Department of Agriculture released its annual report, ‘Expenditures on Children by Families’ — the cost of raising a child. The report shows that a middle-income family with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, childcare and education, and other child-rearing expenses up to age 18. Costs associated with pregnancy or expenses that occur after age 18, such as higher education, are not included." — Susan Bisswurm, regional wealth planner, The Private Client Reserve of U.S. Bank, Milwaukee

How much house can I afford?

"Paying less on your house will give you more money for other things. But rather than backing into your monthly budget, one calculation is 2 to 2.5 times your gross income. In this case, that would mean a house between $160,000 to $200,000." — Alex Kramer

"In the investment business, we say it’s not the house payment that causes anxiety — it’s the neighborhood that costs you in trying to keep up with the Joneses. Plan on a house payment, including property taxes, of not more than 35 percent of your gross income." — Jim Marshall

How can I invest locally and in environmentally friendly companies?

"There are many mutual funds you can invest in that would be considered green or socially responsible. Several major mutual fund companies have these types of funds. There are other fund companies that provide only socially responsible investments. A Google search of ‘socially responsible mutual funds’ or ‘green investing’ will provide options. This is not a sound investment strategy, and we do not typically advise it.

"One way to go about investing locally would be to purchase stock in a company whose headquarters is in Wisconsin or the Milwaukee area. This would include companies such as Harley-Davidson, Kohl’s and Rockwell Automation. We would typically recommend a much higher level of diversification than this, but it can be fun to own local companies with a small portion of one’s portfolio." — James Cantrell

$120,000:

Profile: I am at the top of my game in my career, and my kids are either grown and gone or will be soon.

What is the recommended breakdown of major expenses?

"As you age and some of the foundational expenses have been reduced or waning, the mix can shift toward goals and flexibility. It’s the life stage and not the income level which prompts that shift. The breakdown: fixed costs (mortgage, real estate tax, car payment, utilities) — 30 percent; financial goals (family vacations, charities, gifts to children, emergency fund) — 30 percent; flexible spending (everyday spending, including income tax) — 40 percent." — Alex Kramer

How much can I give to charities, both for budget and for tax purposes? How can I choose good local charities?

"The IRS allows deductions of up to 50 percent of your income. We recommend giving 10 percent or more of your income to charity. Donating or gifting large sums of money or property to charity can be advantageous from a tax planning and estate planning perspective. Working with experts in this field is strongly recommended. The best way to choose a good local charity is to think about some causes that are near and dear to your heart and research online to find a charity that supports them. GuideStar.org is a good place to start." — James Cantrell

I am planning to downsize. Financially, what should I be concerned with?

"If you sell your home for much more than you paid for it and have a large gain, ideally you would roll (that gain) into your next home purchase. You may have to pay taxes on the gain if you don’t roll it in to a new primary residence. Generally, downsizing is a great opportunity to lower expenses for retirement. Also, consider a home with wide doors and a one-floor layout or with elevator access. Though not fun to think about, many aging Americans will want to receive care/assistance in their home as they age, and (having those features) makes it easier." — Andrew Bird

The cold winters are getting to me. Should I buy a vacation home or use Airbnb?

"Owning a second home can be expensive. Beyond the initial costs, there are the normal upkeep costs that are often overlooked and not planned for.

"We have clients who considered buying a condo in St. Croix, U.S. Virgin Islands. We calculated the cost to be about $21,000 per year. They decided they could have some pretty good vacations for $21,000, so they didn’t buy the condo. Keep in mind that the cost of the second home itself is likely to be returned someday if it is sold. We do have many clients that own two homes. It boils down to what is important to the individual. Airbnb is nice because there are lots of choices and different parts of the country you can visit." — James Cantrell

I have three kids, and they are all in serious relationships. How much will their weddings cost me?

"You can easily spend $30,000 to $40,000 on a wedding these days. We recommend setting something aside to help, and doing so with a separate budget would make sense. We recommend allocating only an amount that will not impact your own retirement plan." — James Cantrell

"Plan on providing the same budgeted amount for each child. Don’t overdo it on the first wedding, because it sets the pace for the next two. In the Milwaukee area, smaller weddings run approximately $5,000 to $10,000; midsize weddings run $20,000 to $25,000; and larger weddings will run closer to $30,000 to $35,000." — Jim Marshall


This story ran in the September 2016 issue of: