Confessions of an under-accumulator of wealth

[laurence]

We are in a 20 year mortgage but plan on having it paid off in ~14 total years, so I'll be 43 when we are mortgage free.

Taxes are our biggest expense, but after that we seem to be leaking money on a thousand little things. We have an excel workbook that goes back 8 years but while it tracks our finances pretty well, the "credit cards" entry is the biggest single expense and what we throw on it is lost. We pay the balance off every month, but because we just glom everything on it we couldn't tell you how much of it is gas, groceries, home depot, etc. and it can be several thousand a month. That's where we need to attack.

EDIT: DW has a separate spreadsheet breaking down the credit card expenses, my bad. They are all over the place though.

 

[Nords]

Well, what would be your savings percentage if you stopped paying your mortgage? Just kidding.

I think you're pitching 92 mph fastballs in the majors instead of in the local community slowpitch league. People may not be very impressed by 22% [-]in Yankee Stadium[/-] on this board but you're way way ahead of the national average because your savings rate has a "+" in front of it, let alone two digits.

You're at the point where you could propose eating out less often (good luck with that!), eliminating all childcare expenses (only if you survived the discussion about dining cutbacks), and no home improvement (do you have a deathwish?). After all, it's not as if spouse is going to believe you if you offer to sell the BBQ. And you're certainly not going to change your vacation plans!

You might have cause to sweat if you were driving leased SUVs or paying two mortgages or dropping $5K on booze & basketball tickets. But you're probably spending more money on commuting to work than on anything else. What would you do, garage your car and hop on your bicycle?

Hey, there's an idea. Would your spending drop (and your savings rise) if you spent 90 hours a week at work? It's not as good as deploying to the Western Pacific, but you could pack your own breakfasts, lunches, and dinners to your cubicle! The home improvement expenses would drop to zero because you'd never be home!!

At $300K you're beginning to approach the point where the annual (reinvested) income will start to equal a minimum-wage salary. A few more years of compounding and it'll be like having a third wage-earner in the house.

With two kids you're probably doing as well as it can be done. You're certainly aware of your spending and you're making savings a priority. The rest will all fall into line on its own.

 

[laurence]

Eating out is a big money pit for us. Samclem pointed out that we were plenty happy with 100k, why is 170k not greatly increasing our savings? No car payments, total debt is 280k all in the house, low interest rate.

Meanwhile we've spent as much as 5 grand on the credit cards in one month! Usually it's about 2 grand, but still. My commute is short so I'm spending about $50/week on gas, DW spends about $100/week running the kids around. It all seems small individually, but seems to really add up.

Ever notice how big salaries sound great as an annual amount then net a dissapointing number on the 'ol bi-weekly paycheck? I make 97K (plus some small bonuses that don't factor into the usual paycheck) which sounds great but the paycheck comes out to $2,400 after taxes, 401k, health insurance, vision, dental, flex spending account, pension deduction, etc. etc.

So I'm taking home 62k/year and have a $3k/month housing cost. It's DW's consulting that lets us "live it up".

 

[FIREd]

We are in a 20 year mortgage but plan on having it paid off in ~14 total years, so I'll be 43 when we are mortgage free.

Taxes are our biggest expense, but after that we seem to be leaking money on a thousand little things. We have an excel workbook that goes back 8 years but while it tracks our finances pretty well, the "credit cards" entry is the biggest single expense and what we throw on it is lost. We pay the balance off every month, but because we just glom everything on it we couldn't tell you how much of it is gas, groceries, home depot, etc. and it can be several thousand a month. That's where we need to attack.

EDIT: DW has a separate spreadsheet breaking down the credit card expenses, my bad. They are all over the place though.

I use Quicken to track my expenses across all accounts including checking, savings and credit card accounts. It takes just a few seconds to download the data from the internet each day, no manual entry required. With one click I get a detailed report of my spending with great details about each spending category. The first time I used Quicken for example I was floored at the amount we spent on phone per year (it was scattered among several bills before). With that knowledge we were able to cut that bill nearly in half. Spending $70 to buy the Quicken software has more than paid for itself over the past 2 years.

 

[BunsGettingFirm]

"Hey, everyone! Lawrence just left an opening--pile on!"
You've got a full plate at home. The truth is, the performance of your investments will play a big role in your retirement date. Sure, saving more will speed the arrival of the glorious day, but 22% isn't slacker territory. We're a strange mix of hermits, plastic-bag-washers, dryer-sheet hoarders and a few who raked in ungodly incomes in a short period. If you compare your nest egg to those of your officemates you'd probably find you're well ahead of the pack.

Okay, back on your head! Buckle down and pump up those savings! You guys were happy earning and spending $100k, you should be socking away gobs of money now!

To feel better about yourself, check out the Federal Reserve Survey of Consumer Finances. The 2007 report should be coming out soon. I'm sure Laurence will find himself in the top 10% -- for age groups 5-10 years older than he is.

 

[Khan]

Eating out is a big money pit for us.

Is there some reason you can't eat at home?

You know you can change that.

Are you one of those folks who takes your screaming/running around little darlings to restaurants?

Disclaimer: I spent several years working in food service.

 

[beowulf]

A 22% savings rate with two small kids is really fantastic. If you can keep that up through their college years, you can then ramp it up a bit after they are grown and off on their own. We went through all that and weren't really able to save significantly until our late-40's. Having kids when you are young makes it hard to accumulate wealth as your salary is generally just starting to rise. The good part is that they are adults and hopefully self-sufficient just as you reach your peak earnings years.

LBYM means very different things to different people at different times.

 

[firewhen]

I think we are somewhat unusual in that we have never budgeted. Until I came to this board, I did not even know what we spent each year. I since figured that out to have a sense of what we would need to RE.

Our philosophy has been to spend only what was necessary. Some extras, but not many. Essentially, we lived a lower middle class life style on an upper middle class income. As a few others said, your spending does not have to be linked to your income. When DW stopped working, and our income was almost cut in half, our spending did not change (other than child care costs going away). DW joked that we would have to cut back now, but that was a joke because there was little to cut back on.

If you really want to save more, decouple your spending from your income. Ask do I really want to make this purchase? I think the key is, at least for me:

I REALLY HATE TO SPEND MONEY

You would be surprised how an attitude like that can make savings grow.
Not discounting the above, I think it is important, even for us, to have a few indulgences. This helps to take the edge off. We have traveled numerous times to Europe and the Caribbean and live in a nice house in a good neighborhood, but that is about it.

 

[shiny]

Relax, you are doing well. Just think a bit about whether the things you are buying are adding to your joy of life or whether they are being driven by consumer culture or lack of planning. (You know, that Your Money or Your Life stuff)

On a slightly related note... this year DH and I have not even been able to track our spending. In Tokyo things cost so much, sometimes we have to just pretend we are spending monopoly money. Luckily, a lot gets taken out before we see it, but still - we're a bit out of control.

 

[rogersteciak]

When you decide you want to FIRE sooner rather than later, the secret is to start paying yourself first. Each year, contribute the maximum amounts allowed to your retirement plans and an additional 10% (or more) of your gross income to your taxable investments. Then pay your living expenses. Then have fun buying toys.

Because the job market is so volatile in Silicon Valley, I made the decision many years ago that I would rather have financial freedom more than owning a lot of toys. So I achieved financial freedom by cutting my living expenses to the bone and getting out of debt. It takes less investment income this way to become financially independent.

Now I want to increase my investment income so that I can increase my lifestyle (but still retain financial freedom at all times). My rationale is along the lines of the musical chairs game played by children: should the music stop (i.e., Silicon Valley has another bust, which it has every few years), I want to continue not to have to depend on earned income to pay my living expenses (because earned income is sometimes hard to find when Silicon Valley is in its down cycle).

My "music stops" scenario means I don't have to worry anymore about the job market or the economy. This lack of worry is worth more to me than the toys I haven't purchased and enjoyed yet. Your tradeoff may vary.

 

[laurence]

Eating out is a big money pit for us.

Is there some reason you can't eat at home?

You know you can change that.

Are you one of those folks who takes your screaming/running around little darlings to restaurants?

Disclaimer: I spent several years working in food service.

LOL, I should clarify that we get take out a lot, "Honey, can you pick up something on the way home, it's been a day."

While the kids are pretty darn well behaved, we keep it strictly buffet style when we go out with them.

 

[harley]

I had a period in my life where my income increased fairly dramatically (not in your league), and at the same time we finished paying off our 30 year mortgage after 10 years. So, lot's more money, much lower bills should have equaled a lot more savings. But it didn't. We were dripping money everywhere we went. I had always considered myself very frugal, but then again I'd never had so much disposable income.

What I ended up doing, and I credit it with most of my success in becoming FIREd, was to buy a new house and take out a mortgage. I then invested the cash I got for the old house. This sort of forced me to be saving, because just paying the mortgage equated to saving/investing. Once I saw how well that worked, I set up other "automatic" forced savings methods. Over the years it paid off for me. It was so much easier for me to never see the money than it was to touch it then try to let go again. Maybe something like this could work for you.

All that said, I think 22% of $170K isn't bad. Give it a little compounding time and you'll be in great shape. Good luck.

Harley

 

[DangerMouse]

I think the key is finding the balance between saving and spending. Half of the fun of getting to your destination is your journey, and if you have to spend the next 20 years penny pinching and being miserable, well it doesn't sound like much fun.

I think most importantly stop comparing yourself to what everyone else is doing. You do need to look at where your money is going and if you are satisified with that outcome move on. If you recognise areas where you could tighten up without causing stress to anyone in the household and it's something that everyone is on board with, well do it.

The take-away, eating out dilemma is one area where most of us have fallen victim I am sure. For me, I found it helped immensely if I menu planned. Always have some standbys so if it's one of those days there is something to go to in the cupboard. For us it is baked beans on toast, or a bacon sandwich, even a frozen pizza which is half the price of a Pizza Hut pizza.

 

[LOL!]

Sorry, this is not going to be a "feel-good" response. You are basically leaving free money on the table that you should be scooping into your pockets.

You and your spouse should be maxing out your retirement plans because that saves that money from federal and state taxes. That means you contribute $15,500 to your 401(k) and your spouse contributed up to $45k to hers. you can also put money into Roth IRAs while your income is still low enough to let you do so. There was a hint that youi are working on paying off a low interest rate mortgage ahead of time. If you ain't maxing out your retirement plans and saving taxes by doing so, then that's a big mistake.

We have 2 kids. We have all the toys. We take nice oversea vacations. We eat out a lot. We have similar family income. But somehow we save a lot more. I suspect it's because of our lowe cost of living since we pay only about 15% of our income in income taxes despite being in the 33% marginal income tax bracket. Anyways, don't leave free money on the table.

We also charge everything to credit cards andpay them off in full each month. We don't like to keep a budget as well. However, we feel we don't need a budget when savings/investments gets taken out before we see the money. One thing that we do is have different credit cards for different major categories. For example, we have a nice cash-back card that is used ONLY for gas and groceries. We have another card that is used only for eating out. Another card only for travel. Each card thus maximizes the perks associated with that expense category. It turns out that this also makes it trivial to see what we spent on eating out, etc.

Good luck, but have some common sense and grab that free money!

 

[Martha]

We don't have a couple of kids around the house, so I may be way off base Laurence in my comments. Feel free to tell me to shove it.

The take out thing often isn't very healthy and is expensive. You might consider taking some time to make up a bunch of pre-made food and freeze it. Soups can freeze well. Greg makes huge batches of pea soup and veggie soup and freezes some and it tastes great. Lasagna and spaghetti meals freeze well too.

Chop up veggies and keep them in the fridge and eat on them all the time.

Oh, I am jealous of your spa tub.

 

[FinanceDude]

The take out thing often isn't very healthy and is expensive. You might consider taking some time to make up a bunch of pre-made food and freeze it. Soups can freeze well. Greg makes huge batches of pea soup and veggie soup and freezes some and it tastes great. Lasagna and spaghetti meals freeze well too.

I can sympathize with OP. His kids are younger than mine, but I have been down that VERY TIRING long road. For a few years, it seems your kids consume every ounce of energy, you get little sleep, etc. It makes you throw in the towel because after a long crappy day at work, the last thing you want to do is put an apron on and make 5 meals of spaghetti.........

Chop up veggies and keep them in the fridge and eat on them all the time.

I started doing this a couple years ago, works great. In order to get my kids to eat celery, I had to "cheat" and put peanut butter on it. Oh well, I guess that Oprah appearance isn't coming soon..........

Oh, I am jealous of your spa tub.[/quote]

 

[REWahoo]

Oh, I am jealous of your spa tub.

Don't be. Consider how much it would cost you to keep the contents liquid year round.

 

[Martha]

Sandiego sounds nice. Maybe we can come down in our RV, live in their driveway, and cook for the Laurences.

 

[CitricAcid]

Take out taxes out of 170k, and I assume it is, including CA state taxes, federal taxes, social security, property taxes, etc., down to aruond 110-120k... thus 22% or 37k of 110-120k is actually more like 32-36%, which is very good on most metrics. We are as a group, however, perfectionists. There is no need, no matter how well you are doing, to not want tos trive to be better. Know that you are actually doing pretty well, but keep trying to minimize costs on the credit card and eating out, there are always creative ways to save money that adds up over time.

 

[Nords]

Sandiego sounds nice. Maybe we can come down in our RV, live in their driveway, and cook for the Laurences.

The heck with the Laurences, let us know if you're interested in taking your show to Hawaii!

Now that you mention it, during our kid's toddler years in San Diego I remember an awful lot of dinners of frozen pizza, spaghetti with canned sauce, or leftover BBQ burgers... only because it seemed less difficult to haul my butt into the kitchen to reheat in the microwave than to wait 30 minutes for DiMille's to deliver Italian to Kensington.

So Laurence, maybe half the solution is to cook an extra 50-100% on the nights you guys do cook. But you're probably doing that already.

Another entertaining idea might be to get SDG&E and the water company out to your house for audits. They used to give away a lot of CFL bulbs and low-flow showerheads (we still have our free bucket!) and they might be able to kick loose $50-$75/month. Half the fun for the kids, though, is following the guys around the house while they work through the checklist.

 

[brewer12345]

The heck with the Laurences, let us know if you're interested in taking your show to Hawaii!

It might be kind of expensive to ship the RV to Hawaii.

 

[laurence]

Sandiego sounds nice. Maybe we can come down in our RV, live in their driveway, and cook for the Laurences.

Sounds great! We'll try it out on a trial basis - after ten years we'll re-evaluate!

Take out isn't healthy, and we've put some weight on since the second was born. We've been trying to work on that, and have done a few things to improve the snacking. We were throwing out a lot of rotting fruits and veggies and found these green bags that keep them fresh. Now we hardly throw anything out as they stay good enough to eat for quite a long time.

Sorry, this is not going to be a "feel-good" response. You are basically leaving free money on the table that you should be scooping into your pockets..

No need to apologize, I'm trying to get a reality check, definitely. You mention the low cost mortgage - I have a dirty little secret, we have a small HELOC that gyrates wildly on it's interest rate (o.k., it's pegged to Bernake but all signs point "up"). We are paying that off (17k left) and then we have a decision to make. While I understand that in the long term I can beat the 5.125% that I'm paying on the mortgage, it's still a big mandatory payment - almost $2,000 a month (20 year fixed). Our aggresive plan to pay it off has us debt free at 43 years of age, which will afford us some measure of FIRE sooner rather than later. I'm really torn by this one. Right now I just take all the matching they give me, and we max DW's SEP IRA. We are on track to pay off the HELOC in a year, then we'll need to make a decision.

I think what I will do is creep up the 401k contribution and see what happens. I suspect we won't miss the money.

 

[Bimmerbill]

I guess I'm in the same boat. My gov't salary is over $100K less, but I never had a budget. DW and I are pretty frugal, but don't spare the toys and occasional splurges (like $400 to build a new PC).

DD is 2.5 so I expect expenses to increase with her age, but so far been able to hold the line shopping at consignment stores for baby clothing. Shoes are going to be a problem tho! Hard to find shoes of intermediate size.

I'm sure I could do better saving. Currently 18% into my TSP/401K, but have a COLA'd pension already in the bag (starting at age 60) and working on federal pension each year I stay.

I'm trying to slowly increase automatic contributions ($50 a month to Vanguard ROTH) and TSP each time I get a raise. Also doing the debt snowball to erase my last car payment, leaving only mortgage debt.

I think the secret is to pay yourself first thru automatic contributions and only spend what's left!

 

[Nords]

It might be kind of expensive to ship the RV to Hawaii.

[-]Nah, she just has to pay the toll at the Long Beach Tunnel.[/-]

I have the the same response if you offer to ship you and your RV out here with the homebrew equipment-- it's worth it!

Of course you'd have to be in front of your Bloomberg by 3 AM for the market open. But it's a lot easier out here to catch the Tokyo open.

Spouse and I enjoy preparing meals about as much as a sanitation engineer enjoys pumping septic tanks.

 

[Moemg]

When I was a working mother I used the crock pot a lot . I just put all the ingredients in the night before , plugged it in in the morning and came home to dinner . It's much more relaxing to come home to a ready to go meal . I 'd also put chicken in the oven the minute I got in the door and then I had time to chill out while it cooked or a quick stir fry is good . The trick is to have a bunch of quick easy recipes so you will not be tempted by take out .