I received a comment from “Clear Minded” yesterday on my post about what smart phone I should consider purchasing that is well worth pointing out and discussing further. Here is the comment:
“Your blog is confusing to me. You’re thinking about purchasing an extra home, getting an ATV, you’d rather take your car to the expensive dealership for service, and now you’ve decided to get a suped-up cell phone?
What gives? Are you joking? It may seem like each decision is seperate and distinct with well thought out, lucid, and sensible reasoning but aren’t you really just spending? Consuming without *justifiable* cause? Isn’t that exactly what you started this blog to eradicate as much as possible?
Take a look back and see what you’re blog centers around . . . (hint: it’s spending).
Sheese . . .”
Clear Minded makes a great point that has been in the back of my mind lately. I’ve been spending money and not just pocket change. I’ve tried to make the point when discussing each of these purchases that I recognized them as “wants” and also realized I didn’t “need” any of these things. What I probably haven’t done a good enough job of is pointing out that I’ve considered these purchases only after meeting my financial goals for today and the future. The reality is that we are maxing out both my wife’s and my 401K’s, contributing to ROTH ira’s and also investing monthly in a 529 plan for our daughter, who is in kindergarten this year. We have also amassed a comfortable emergency fund (although we continue to increase it each month because I’m not sure it ever feels like you can max out an emergency fund). The only debt that we carry in our household is our primary home’s mortage. We have no car payments, no credit card debt, no home equity lines of credit etc. What I’m saying here is that we are living well within our means at this point. Another data point worth mentioning is that we keep our total monthly expenditures for recurring bills (food, heat, house payment, gas, etc) at less than 50% of our take home pay. So, even after reducing our take home pay by our large 401K contributions each month, we still only live on less than 50% of our income.
I guess the big question is, could we spend even less and save even more? Yep. Should we? Clear Minded makes the point that: “Consuming without *justifiable* cause? Isn’t that exactly what you started this blog to eradicate as much as possible?” My question is, what does justifiable cause really mean? I would estimate that justifiable cause is different for each person. What I’ve learned over the years is that it’s more about balance for me. While I don’t want to spend all the money we make each month (which we don’t), I also don’t want to save every penny we make either because I want to find that balance.
This whole subject of how much to save and how much to spend is probably the single biggest thing I struggle with in the personal finance arena. There just isn’t a good answer. I think the fundamental principals that my wife and I try to live by are: Spend less than you earn, save for the future, carry no debt other than a home mortgage and pay cash for everything, including vehicles. Overall, this has worked pretty well for us.
Bottom line is that, Clear Minded is right that I’ve been spending more money lately. Each of the purchases I’ve made have been after months of evaluating what I want, looking far and wide for the best value and ultimately paying cash for each item. I would have never made any of these purchases if they derailed us from our short and long term goals, or impacted our ability to follow our fundamental personal finance rules.
I really appreciate the comment that Clear Minded left. It caused me to pause and think hard about what I’ve been spending. I’d be interested to hear more people’s points of views on this. If you have any input, please leave a comment!
It’s all about balance. I’m a huge believer in aggressively cutting costs on all those things that don’t provide your life with significant meaning or value.
I’m also a big believer in trying to build up your income. You don’t want to be so focused on income that your job destroys your life, but if you can find ways to increase your income that aren’t too taxing, take advantage of them.
Now that you’ve done all that cost cutting and income building what do you do?
You take the extra money you saved and earned and direct it towards meaningful and valuable purchases and activities and/or retirement (read: the ability to partake in meaningful purchases and activities after quitting your 9-5).
I think Clear Minded is just jealous! You obviously have all your finances in order and what’s the point of saving if you are never going to spend it. You’ll just turn into an old miserable hag with a big bank account. I think many of your blog readers would love to be able to save as much as you do AND buy what they want, but it’s just not feasible unless you’re raking in a big paycheck like your family is. Kudos to you, and keep spending!
I don’t think it’s a jealousy thing. I think it just highlights how each of us have to find that comfort spot where you feel like you are doing enough for the future while also enjoying today. Like I said in the post, it’s probably the hardest thing you have to do with personal finance. I’ve openly struggled with what the right number is over the years. I think I’m feeling pretty comfortable that we are doing what we need to enjoy today and be secure with our finances tomorrow. I would guess that Clear Minded might have a different threshold for what makes him enjoy today and feel secure in his future. I guess that’s why they call it personal finance. I don’t think anyone is wrong or right unless they are living their life to one extreme or the other (saving everything at the expense of any enjoyment today or spending everything today without regard for the future at all).
I have been reading your blog for over a year now and this is my first comment. I am in the same boat as you, my husband and I (both 35 years old) are maxing out our 401K contributions, funding two kids 529 plans, putting money in a Roth IRA and we have a primary residence as well as a vacation place both of which have 15 year mortgages. Our income is modest but thru diligent savings over the past 15 years we have a nice nest egg despite the recent market beatings.
This year (yes of all years) I felt that I could not contribute more to my emergency fund (it would last 10 months) and I decided to spend the money on things that would bring enjoyment to my family. A mini bathroom renovation with new tile, new paint in three rooms of our primary residence and a 600 sq foot three season room on our vacation place. I consider it our contribution to keeping the economy going (my husband is in construction so this gives some of us unemployed friends some work)and it will provide a space for future memories. Is it risky outlying cash for these things – some may say yes but as Hazzard said each of us have our own comfort level and sometimes you need to do what makes you happy.
I’m in a similar situation to you. With a healthy income, I’ve lived well below my means for the last 10 years, and saved a tremendous amount of money.
Now we have a recession, and costs on things that I’ve not purchased in the past, but have wanted, have come down. So in the past year I’ve purchased a pickup truck, an ATV, a new large screen TV.. Even with these purchases I’m living below my means, but I’m buying things that in the past I’d not have purchased because they cost too much.
If I were to lose my job I’m sure I’d cut back. But right now my job is secure, my savings are in place (and I’m still adding to them), and the things I’ve not bought over the last 10 years are finally priced reasonably!
I think the only arguable point here is the home mortgage. Hardcore says pay that off before spending the way you are.
At the end of the day, though, money is for buying things. (If you think about it, saving money for most of us is just buying things in the future.) If you have bought everything you need for today AND tomorrow, then the rest is /supposed/ to be for buying your wants.