I was doing some analysis the other day about my family’s spending patterns and noticed something. Since 2004, our spending hasn’t increased when I look at our monthly budget. In 2012, we are on track to keep our fixed expenses at 43% of our after tax, after investment income. That means that, after we’ve contributed to our 401K’s, invested for our daughter’s college and paid all of our income taxes, we are only spending 43% of what’s left. We’ve surely spent more money in general but our fixed expenses for things like our mortgage, food, cars, etc has stayed pretty much constant. I’ve anecdotally known this all along but it was nice to look at some old spreadsheets from 2004 and compare them to our current budget. What I found most rewarding about this is that, while our fixed expenses have stayed about the same, our incomes have increased significantly. Over the last 8 years, our income has nearly tripled thanks to good raises from my job and my wife going back to work. It would have been easy to see that extra income coming in the door and adjust our budget to compensate but that doesn’t meet our lifetime financial goals.
So, if we haven’t increased our monthly budget with this extra income, where has it gone? Well, we’ve drastically increased our contributions to our retirement plans (maxed them out). We’ve also started saving for our daughter’s college education. Additionally we’ve been able to build and own a second home with no mortgage (and we’ve offset the additional monthly costs of owning it by reducing other costs in our budget). You may be wondering how we offset the additional costs of a second home in our budget. Since we don’t have a mortgage on that house, the only costs are taxes, power, water and insurance. Those total about $200 per month. We have offset that in our budget by shopping for cheaper insurance, lowering our cable bill, reducing our garbage cost by recycling more (so we pay for a smaller garbage can), and by reducing our mortgage rate which lowered our payment significantly. We’ve justified the second home in a couple of ways. First, you only live once, right? Second, having another asset helps ensure that if inflation comes (and I think it’s quite likely in the coming years, due to our economy), we’ll have a second asset that will appreciate and help us keep pace.
Anyway, it’s been hard to keep our lifestyle inflation in check but I think our “future selves” will definitely thank us.
That is killer man, wow. Good for you guys on keeping the % the same throughout the years! I feel like we’re doing similar ourselves over here, but you’re right in that running the actual numbers will prove one way or the other whether that’s true or not… Back in the day I thought I was saving every month only to realize I was LOSING MONEY every month, haha… oops. Great post.
The allure of living the “high life” is a siren’s song, which you must resist. Once you graduate from University, if you continue to live like a student for 5 more years, you will be in such a great financial position (assuming you find a job, that is), that you can then slowly expand your lifestyle (if you want, maybe you’ll like living a minimalist life, who knows?).
What’s interesting about this is that we haven’t been living like minimalists. We’ve been having all kinds of fun but ONLY after we meet all of our other financial goals. The trick is that we’ve kept our FIXED expenses as low as possible but then allowed for other things in our lives. We have a second home, nice cars, a boat etc but those were only purchased with CASH and only after we’d met all of our other financial goals and kept a nice cash reserve in our credit union. We’ve saved tens of thousands of dollars by not ever carrying debt (other than the mortgage). That’s real money that can go towards things we care about.
Great job on keeping your lifestyle inflation in check! The second home sounds like a good decision. I try not to fall into lifestyle inflation but also treat myself once in a while, after all life is meant to be enjoyed.