So I started Your Money or Your Life last night.
Woah.
First of all, it’s definitely dated (it’s a 2008 updated version of a 1990s book although I just realized there’s a 2018 one out there! Maybe I should switch). Though I find the dated aspect sort of fun and quaint, like “hey! this was before smartphones took over!”. And there is definitely a radical “off the grid” quality to it. I can see why it sparked a movement.
I don’t think Josh and I will learn to live off the land and then peace out of our jobs in 5 years (nor am I sure, yet, if that’s exactly what the authors are suggesting). But I think the book may contain some food for thought.
I thought perhaps I would, pre-book, look at my thoughts/goals around finances, as they stand now.
TRACKING. I do love tracking every single #$*@ penny that we spend. We did take a little break (from ~Oct – Dec 2019 after tracking since 2015 or so) but are back with a vengeance. The new YNAB seems to be my preferred tool.
SAVINGS. I would like to aim for a 20% savings goal (20% of gross) so that we can reach FI before we are too old (though not planning on FIRE). A 15-20 year time frame seems reasonable.
I am counting employer matches as savings, and so technically we only need to save 16% on our own. Some of that savings is pre-tax (hopefully up to max this year) and some will be post, but the # I am aiming for is 20% of gross. Which, when I actually calculate out the monthly outlay, is rather intimidating. But I believe it should be doable. I am toying with the idea that perhaps 2-3% of that 20% could go into 529 plans. But it would be cheating my original goal to some extent.
Where is the savings going? 403(b), 457(b), backdoor Roths (doing that for the first time this year!), and then I guess some into a taxable IRA that we haven’t contributed to in years.
STRATEGIES. Areas where I think we could (should) spend less are:
- home-related costs, now that we rent (the cost of renting = 7% of our gross income. Not bad.) This is going to be MUCH improved now that we have no house to insure, maintain, pay mortgage on, and pay property tax on. woohoo!
- eating out. I will admit we often go above the $700-800/month mark. I’d like to move towards $600 as a start. I am not willing to give up nice/fancy restaurants entirely, but we are trying to shift towards one per month as the maximum (the rest cheaper family excursions & cooking at home)
- life insurance! We have universal life insurance (because there’s a long-term care rider in there) in addition to term policies and I want to dump it because everything I read says it’s a colossal waste of money. I want to beef up our term plans and ditch the universal.
- kids’ activities. Currently the big kids go to an after school program 3 days/week because I thought it would be easier for them to get to activities that way. Since G won’t be napping in a year or so, I’m going to probably get rid of this. They can still go to activities but it will be cheaper to just have our nanny take them. Plus, our community offers some pretty intense (and low cost) sports if we want to make that time commitment again.
I do NOT want to spend any less on:
- childcare. We need a lot of that right now. It is what it is.
- vacations! As the kids get older, I am more excited about building memories together on fun trips. I see our vacation fund expanding with time, not shrinking.
- fun money. Josh and I each get an allowance to blow on whatever we want each month. I don’t see shrinking this. (We did make one recent change, which was to include lunches out on our own in this fund. I will admit I have eaten out a LOT less since that change! Go figure.)
So there you go.
Not very long go, I had literally no idea what a Roth was. I have learned a lot over the past year of reading FI blogs and listening to podcasts! I guess it’s not a bad interest/hobby to have.
PODCAST ALERT: Laura’s birth story is here! Timely, as it’s my sister’s due date today too 🙂 Babies everywhere!!!
19 Comments
I really enjoyed this post! Finances are such a personal decision, but incredibly helpful to see where people think it’s worth it and not.
It’s funny – I feel like food budgets (specifically eating out) are the universal “we should cut this down” expense category. I feel this way too – you look at your own number and it feels ridiculous for something that is theoretically easy to cut. Yet the mental energy to do it is so high… it never happens for me.
20% of gross seemed like such a high goal but then I realized you are counting your 401k/403b savings as part of that goal. I was thinking 20% of gross in excess of what you contributed to your retirement plans. It’s a good goal to have! I use mint to track our spending which is not as effective as YNAB, but does the trick. My husband is the most frugal person I know. He barely spends any money and I feel like I don’t spend that much but then I look at the annual spending analysis I do and ask myself – what the f did I buy at Target in 2019? Ha. So this year I am going to track my target and amazon spending more closely so I can understand what I’m buying there. Previously I didn’t break things out unless 100% of the target or amazon spending was for a gift or something for our son etc. But a lot of my target and amazon spending is blended among categories so i am going to take the time to break it out and see where our money is going. 2019 was a super expensive year for us as we bought paid off the mortgage on our house (had the money in savings and the rate was increasing since it was an ARM). Then we bought a house/sold our previous house and applied all the money to a new mortgage and then some… (we both work in financial services so want to get our house paid off ASAP so our monthly expenses are low since we have no diversification of income and work in a volatile industry that is prone to layoffs). And we bought furniture for our house and did a few other house projects. So bleh. It was a lot of money. So I’d like 2020 to be a year of way less spending!!!
7%… that is really low. Or your salary is really high, which is probably the answer hahaha. I think we put almost 20% and we are not tight. We don’t even have a budget… we should work on that haha.
Those all sound like really smart areas to cut down on and I bet will really boost your savings rate (7% of income on renting, amazing!). Restaurant spending (also grocery budget) is perennial category for us to try to cut too. And I also have no interest in cutting the vacation budget–now that we have two school-age kids who travel well, I anticipate we’ll actually spend more on travel from here on out. We also have a goal to boost our savings rate to 20% this year because 2020 will be the first year we have both kids full-time in public school and out of daycare (meaning our only childcare costs are summer day camp and afterschool care, both of which are MUCH less than full-time care). I think it will be doable. I went on a personal finance kick a couple years ago and figured out Roths/529s/taxable accounts, etc and just wish I’d done it earlier because I didn’t really understand tax-advantaged accounts before! We have a pretty good plan now to max out my 401(k) (my husband has a defined benefit pension at work that he doesn’t have to contribute to–LUCKY), max out both our Roth IRAs, and contribute to both kids’ 529s enough to get our state income tax deduction (which is small, but still something. Assuming doesn’t apply in FL since there is no state income tax!). Just curious, why do you think it would be cheating from you original goal to put some of your savings into the kids’ 529s? Is it because you account for that as separate than other savings?
Because 529 savings is not retirement savings!!
I really love that you are starting a conversation about personal finance! I follow some frugal living blogs and would definitely call myself relatively frugal myself…but, I also think it’s relative since we are in a higher income bracket and the types of frugal living “hacks” just aren’t going to make sense for us anymore. I’ve had to shift my mindset quite a bit these last few years (like, paying for quality, focusing on long term vs just finding the cheapest option). We are also more FI, not FIRE. I like my job and would probably still do it in some capacity. Maybe just for a non-profit or educational setting instead of a bank 🙂
Our restaurant spending is always high despite efforts to reduce it. We also easily spend $700-$800 a month for a family of four. The casual meals add up a lot. My husband is always so surprised it’s so high because he’ll note we didn’t even go out to a nice restaurant that month. Exactly my point!! I’m trying to just be more mindful of the spending and spend where it counts. My goal is $600/month for eating out and $600/groceries. Good luck!
Ok now I am embarrassed to admit our grocery budget. It is definitely NOT $600/month!!!!
Haha, if it makes you feel better we probably need to increase our budget for groceries (or get better at shopping, but I just can only dedicate so much time to this…) Beer and wine aren’t included in that number either 🙂
If it makes you feel better, we eat out quite rarely, but our groceries are $1200/mo — family of four, bougie groceries from a frou-frou store. Everyone spends differently. You do you 🙂
Yep, ours is there … plus a little bit 😱😱😱
A bit off topic (except that this is about a book), but I just read Scrum by Jeff Sutherland, and I think you might find it really interesting. Scrum (the name comes from a ruby term), is a unique time/project management method that’s pretty popular in the tech/software development fields, but the ideas extend to lots of other areas. I read it because I want to incorporate some of the ideas into how I teach my class in the fall. The book has a fair amount of fluff, but I think the ideas are different enough to make it thought provoking.
Our line item for dining out isn’t too bad because Dan and I only go out a couple times a month and the boys are at an age/stage where going to restaurants (even McDonalds) is so un-relaxing that we only go when the alternative is starvation. That said, our grocery bill is out of this world. I joke that we should just buy a cow now as an investment for when they are teenagers…
This is a fascinating post. I commend you for your savings goals. I am in my late 50s and this coming May my husband is taking an early retirement package from a very stressful engineering job. I am a clinic RN and I will continue to work until Medicare eligible. I credit our frugal living and high savings rate for allowing him to do this. We are currently trying to figure out our new budget based on my 5 figure income. I’m curious what percentage of your take home goes to your personal allowance. Obviously your dollar amounts will be higher but I’m curious what the percentage is. Great topic. Thanks!
Allowance (total fun $) is about 1% each 🙂 (of total gross income)
Have you heard about the Refinery29 Money Diaries blog series (and book)? I think you might like it!
I wish our mortgage or rent was ever close to 7% gross income!! Ah well!
I made sure my library got the newest edition of YMOYL, but I haven’t yet read it (I read the original a couple years ago). You’ve piqued my interest in it!
Just checked out the series and find it fascinating!!
Sorry (not sorry) I have a mini-book about finances to share. I love talking money and we have a system that works really really well for us. We’re not necessarily frugal but we are very intentional about our money so there are major categories where we really spend very little.
We have an annual financial meeting where we review our spending from the previous year, category by category, and we establish our financial priorities for the year. We review our long term savings goals (retirement and college), and establish our short-term savings goals. We have substantial mortgage and student loan debt, so we’re not willing to take on any additional debt so we plan in advance in order to be able to pay for things in cash.
We may make minor tweaks to increase our long-term savings goals, but that’s always been in place since we finished grad school, and has always been 10-20% of our income. Aside from retirement savings, which are non-negotiable, pretty much none of our other saving and spending priorities are fixed, so revisiting annually has been key to helping us focus. Over the years our short-term savings goals have included saving for a down payment for a house, buying furniture and decorating our house, international travel, building a 6-month emergency fund (3 months of which went towards buying a car last year), and building professional wardrobes post grad school. So sometimes the savings goals are fun, sometimes they are utilitarian. Some cycle back around regularly (international travel seems to show up every 3-4 years) while others are largely one and done (such as house down payment and home decorating).
This year the major financial goals are to save for some home repairs, save for a trip to Thailand next year, save to cover our expected tax bill, and save up for estate planning. So saving roughly 35k in order to pay for these big expenses in cash. But this savings heavy year is coming the year after we had our first child, and where we said we had no idea how that would impact our budget so we didn’t have any major savings goals last year (though we spent a lot on account of the car, daycare and baby expenses).
Once we figure out our long and short term savings goals, and we review our fixed expenses (mortgage, student loans, daycare, etc), we have enough info to set upper limits on our credit card spending (because nearly everything goes on our credit cards, and if our monthly credit card bills exceeds the limit we set, we know we’ll have to cut into our savings to pay the bill off at the end of the month). So with that credit card limit in mind, we largely don’t agonize over day to day spending on subcategories like clothing and groceries and eating out.
We do establish monthly targets for all of these categories in our annual meeting based on a gut check as we review our spending in the category from the year before. We essentially ask ourselves whether the amount of money we spent in that category reflects how much we value that category. For example, our dining out budget is $100/month, which we know is super low for upper class working professionals. My husband absolutely abhors eating out (“we already have a house full of food and the food we make at home is faster, tastier, and healthier than a restaurant meal, and I never have to wait for someone to refill my water”), and I only eat out with people. I made that rule for myself when I realized I was spending more money than I was happy with on mediocre weekday lunch meals, which I don’t value nearly as much as good dinners out with friends. $100/month is generally enough to cover those meals for me. Conversely, we budget roughly $500/month on self care type stuff like gyms, massages, acupuncture, skin care, etc., simply because those things are valuable maintenance tools for us.
I’ve been pleasantly surprised to find that, even without monthly micromanagement, our average spending by the end of the year consistently hits the spending levels we set in our annual meeting. Something about that annual checkin helps to gently remind us of our priorities.
But overall, having established and set aside money for our long and short term saving goals, identified what we have to spend, and then identified areas where we’re not spending, we are free to spend everything else on things that bring us joy, and without guilt.
Sigh. Our restaurant budget is $150 per month.
Fascinating; both the post and the comments. We are in pretty decent shape but never really analyzed our savings rate. Much of it is automated into retirement but another decent chunk is automated into an easily accessible account for intentional larger scale purchases (vacations and home improvement mostly). I vote strongly to kick off those 529s while the kids are as young as they are. We started when our girls were born and generous grandparents have contributed. My new undertaking is investing within my HSA. I wish I understood more about the act of investing, and that is a 2020 goal I have identified.
I sought out this post after listening to the most recent BOBW where you mentioned % for housing & vacations. Thank you so much for the transparency here – I feel like there are so few places to get a real feel for how people manage finances! I think we are pretty similar to your percentages, more like 10% for housing (love YNAB!). It sounds like the entire 20% (or amount less 529) will go to retirement type accounts – will you invest in non-retirement vehicles (stock, index funds, rental properties, etc) in addition to that?