Thursday, October 11, 2012

On Saving and Spending

I very much enjoyed reading Mr. Money Moustache's post earlier this week. As I've mentioned before, MMM is a married dad in his thirties who retired early. His post on Monday was all about the average middle class person's spending (which actually seems like upper middle class to me) versus his recommended spending amounts. He even includes a handy table, which contrasts the two types of spending side-by-side.

It was super-helpful to open up Matt's and my budget for a comparison. Matt and I have worked with a budget for the past four years. Our budget is always changing, depending on our job situations. When we were both working full-time, we were able to save a lot of extra money. We put some of it into the mortgage on our first house, saved some for vacations, put some away for house improvements and repairs, added to our retirement accounts, paid off one of our cars, and saved up for a baby. When I went on maternity leave for 14 months, we only went to visit family for vacations, stopped adding to our retirement accounts, and seriously reigned in our spending on things like entertainment, groceries, and eating out. Right now--as we get ready to start building the house we want to raise our children in--we are at the tightest point ever. I'm only working part-time, and we pay for Henry's part-time daycare. 

It's fun to look at MMM's list and think about what our budget will look like when we're both working full-time again. I hope that we can keep our frivolous spending down, instead of wasting money on groceries that we don't really need and eating out multiple times a week. If we're able to keep our spending low, then we'll be able to save for bigger and better things, like solar panels, a rain-water harvesting system, garden, orchard, pet pygmy goats, fun vacations, a swimming pool, and a projector and screen for weekly movie nights...

MMM used all of his extra income to retire early. Neither Matt nor I have any interest in retiring early, so it's fun to think all the ways we'll get to save (and spend) the extra money we have coming in (when it's finally coming in).

P.S. I love this post about spending time--rather than money--to be a good parent.

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Emily said...

That's a really interesting post over at MMM. What blew my mind is that he listed $140,000 as middle-class for a double-income family. Wow! That's a ton of money! If we made that much, I could save a ton and retire early too! Together, my husband and I make about $45,000 a year. It's very difficult to prioritize saving. I do have a defined-benefit pension waiting for me, which is awesome. But I feel awful poor, even after reading the "kick-ass" column (much less the "middle-class" column!).

Ambaa said...

Thanks for posting that link! Very interesting.

Similar to you and the other commenter, my income is far lower than 140K a year. That's three times what I make.

I'm also already doing a lot of what he suggests (I don't have cable, don't have gym membership, etc.)

But it's very inspiring and gives me a few more ideas.

I'll have to see if I can get my boyfriend on board for this. He isn't fond of my stealth attempts to save money on electricity by turning off the air conditioner or heater.

Maureen said...

This is very interesting, thanks for sharing Sara! For another perspective, in Northern California $140k doesn't actually get you that far since most upper-middle class folks around here have a $500k mortgage or more. Everything - from gas to groceries to clothes to tolls - is more expensive here. Then again, we get paid more too. I also noticed there was no entry for full time childcare, which costs us over $1,100 per month at a Montessori daycare/preschool. That's HALF the cost of a nanny SHARE, and about the same amount as an in-home daycare. I guess my point is that I could not survive on his "kick-ass" budget and still be a full time working professional with two kids in Northern California!

Sara E. Cotner said...

What I appreciated the most about his post was simply seeing actual numbers. It's nice to be able to see what other people are spending on a monthly basis.

Maureen, I hear you about California. I'm pretty sure I would live there if it weren't so expensive (I was born there and love it!). Friends of ours bought a house in East Oakland at the same time we bought our house in Houston. Their house was half a million dollars (2 bedroom, 1 bath). They kept trying to get us to move out there, but there was simply no way we would have been able to amass a 20% down payment ($100,000!). Our first house in Houston was already a huge stretch for us.

Linda said...

Whoa! I was floored too that MMM was so non-chalant about the $140K figure. As if anyone could just achieve that level of wealth, no problem. Our family of 3 lives on even less than his "kickass" budget. It would be nice to have an extra $100,000 unspent every year! I get his point, though, about living well below your means. It makes sense. Even better if your means is 6 figures! A couple categories I was surprised to not see listed are health insurance, and savings for the kid(s). Maybe they do without? Thanks for sharing! :)

Tammy C. said...

Seeing others budget numbers gives me more ideas and this is a definite reminder that I am long overdue reviewing our budget!

Emily said...

Oh yeah - I agree with Linda about health insurance! Between that and mortgage, that is fully one-third of our income each month.

CCL said...

I also enjoy thinking about budgets and paying attention to and then prioritizing where our household spending goes. I think the more we are aware of our spending and it is conscious for us, the less overall we will spend. Which is the first step. But then there is also the huge giant question that MMM tackles about how to strategically use your savings. It makes me think creatively -- like, for example, what about if I took out a 15 year home mortgage loan and don't set aside savings for college for my child (which I have yet to have) because I put it all into paying off the house early, then instead of making a house payment when my child goes to college, I can make a college payment? Since my money seems to be getting almost zero return on investment these days, maybe saving with all I am paying in interest is the way to go these days! All just thoughts I am mulling over, trying to get the most bang for what few bucks we have!

Matt said...

Emily, I think he posted the 140K/year numbers not to say that everyone makes that much, but to show how much people who do make that much waste. He's had other points which address lower incomes (like this one ) that you might find useful. He also talks about Health Insurance in this post he's a little aggressive in his language, but it is such a big cost to some people that maybe a little aggression is warranted? The key to his savings is to have a very high deductible and then live a healthy life with good nutrition and exercise to reduce the number of times you have to pay that deductible.

Ambaa, having your significant other on board is definitely important. See

Maureen, I think his post is actually targeted right at your demographic. Even if the housing market in your area is pricy and your pre-school is expensive you could be as low or lower on all the other counts to make up for it. Right now you probably make enough to more than pay for daycare, but the MMM idea is that you could minimize costs, maximize savings and in a few short years retire and spend more time with your kids. For low income people it might be hard to retire so quickly, but if you have a high Cali salary it is definitely possible. You just have to make a tough choice between having luxuries and having your time.

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