The other day Living Almost Large wrote about a friend of hers who was planning to return to work because she didn’t think their family income, at $130,000, was enough. She thought they needed $200,000 to live comfortably. LAL was surprised (quite fairly, IMO) that $130,000 was not enough for a good lifestyle, and wondered if any amount of money would really make this lady happy, or if she’d just keep experiencing lifestyle inflation and wanting more than what she had.
I wrote a comment that basically said that between us Dave and I make more than the magic number (even with me going part time in a few weeks we’ll still have around $200k a year pretax) and that when we did our budget we wondered how people lived on less, since I felt we were fairly frugal. I’ve been thinking about it though, and probably that’s not the case. We are careful with money in many areas and we definitely live within our means, but we still have a fair amount of discretionary spending. I would say we are “living comfortably within our means”, but our means happen to be quite large.
(Before I go on, we have to remember that I’m in Australia. Things cost a lot more in Australia than they do in the US – despite our currencies hovering around parity – plus our interest and tax rates are all different. So it’s not that meaningful to compare direct numbers, but I’m hoping this gives you an idea.)
I’ve always run a tight budget – well, when I wasn’t digging myself into a huge pile of debt. I basically run the envelope system, where every week I put aside money into each “budget bucket”. As well as the ones for necessary expenses for groceries, bills, mortgage, insurance, our investment properties etc etc etc, I also put money aside for things like entertainment, things for the house, and our own personal spending. There’s usually at least a couple of hundred dollars left over each pay (which is fortnightly), and that used to be used to pay extra off our home loan, but at the moment I’m putting it aside to pay for some expensive renovations we’ve got coming up this year. I generally revisit the budget in December and June; some buckets will have underspent, others will be in the red, so I “sweep” the money around to balance it up, and readjust the fortnightly numbers to reflect this.
So the fact that we have several hundred dollars leftover at the end of each pay period makes me feel that we’re doing okay. Sounds fair, right? But it’s that discretionary spending that’s got me thinking. When we bought our current house I was listing out our finances for the bank and I was shocked at the total amount. I’d never totted up all those individual buckets before, or converted them into monthly amounts. It was a seriously big number, and we were happily spending it. I cut all of them back after that, but still, they’re there.
I wish that finances weren’t such a taboo topic because it’s so hard to work out if you’re doing okay compared to your peers. (And the measure against your peers, not people on lots more or lots less money, is what I think is important.) For example, in our group of friends there are two families where the woman hasn’t worked for a few years (one was on maternity leave for 18 months, the other is – now that her maternity leave is finished – at uni studying to be a midwife). They both are pretty spendy, buying designer kids’ clothes from the states, scrapbooking and Tupperware, going on trips up to Sydney or out to dinner. I always felt bad because we couldn’t afford to do that, and wondered why we couldn’t manage as well as them. Sure, they’ve had their houses for over 5 years now so their mortgages are much smaller than ours, but we earn more; shouldn’t we be better off? But then they both separately told me that they’ve been going backwards on their mortgages all this time. (If you’re ahead here or have equity, you can redraw or suspend payments.) The one at uni is actually haemorrhaging at least $20,000 a year. I was shocked. Not because of the going backwards – uni was expensive, and we used savings when I was on maternity leave—but because even while this is happening she’s still buying those damn scrapbooking supplies.
Her husband said something interesting to Dave. He said, “We could just work really hard and pay off the mortgage, but we could be dead tomorrow. I want us to have a life too.” And after thinking about it, I agree…
(IF you are living within your means. They are definitely NOT, so the gym membership and the buying of the fancy kids clothes should stop NOW.)
…We could cut everything way back, not buy wine, not spend money on the house, but why should we? We work hard for this money. Well, okay, we are employed for many hours for this money. We should enjoy it. So, as long as we’re overpaying the mortgages (by about $12,000 a year at current rates), have good investments gaining value, and never carry credit card debt, I’m okay. We’re moving forward I can’t deny that I’d love it if we didn’t need my salary at all and there is room to cut back on some of our non-discretionary costs, but I’m comfortable with where we are.
There’s so much more to say on the subject, so many different directions this discussion goes in, but I’ll leave that for another day. Meanwhile, what are your thoughts? Also, I don’t mind going into more detail because I find other people’s finances interesting but are you interested in knowing more about our situation or do you really truly not care?