Eye popping spending and overwhelmed about how to cut down to a reasonable lifestyle

[autonomousdog]

I have a high paying job and we live in a HCOL city. We have 2 kids age 2 and 6. We generally don't worry too much about money and spend what we think we need without a budget, and recently I looked back and saw we spent 300k last year, I haven't yet calculated what it was the year before. My eyeballs about popped out of my head, and I've been overwhelmed the last few days. I really don't even feel like we have a luxurious life, and I'd like to really cut that number down to <100k a year so we can boost our savings rate to >50% of my earnings. I don't even know where to begin to cut down and it's a bit overwhelming. My wife and I are sitting down to go through the expenses and see where we can make changes. We have a >3000 sft house, a fully paid off Tesla and a Toyota SUV. I have . I don't even know if I have a specific question, just looking for advice or tips on how we can start cutting down without us fighting about it and precipitating a meltdown. Should we work with a professional with our level of spendiness, if so who does that kind of thing? Is it too extreme to say we should cut essentially down to zero our CC spending and all discretionary spending for a few months? I have ~150k cash reserves, just under 2m retirement accounts and equity in the home. My income ranges from 350k in a bad year to 450k in a good year, it's pretty variable. This year I'm on track for >500k pretax income, and could earn more by working more, but I don't want to cover up this spending problem by earning more and spinning my wheels harder.
Mortgage 3800 (3% interest rate)
Nanny 2500
School 2000
Insurance (life, disability, umberella, car) - 1000
Credit card 12-15k between both of us per month
(Eating out 500/mo)
(Groceries 1200/mo)

[SecondAttempt]

My suggestion would be to get Quicken and track your spending to identify anything you are not happy with.

The expenses you listed add to $294,000 per year which is consistent with your $300,000 claim.

Given your family situation everything seem pretty reasonable EXCEPT the $12-$15K per month in unexplained credit card expenses. Credit card spending is NOT a cost of living category. It is a method of payment. You need to start with where that card is being used and for what. Quicken will help with that.

I get nothing from Quicken. I'm a decades-long user but not even really a fan these days. But it will help you!

[luckydude]

First thing you need to do is to track your spending and figure out where the money is going. CC spending appears to be the elephant in the room, so start with that. You have CC statements, so go through them and categorize the charges (e.g. clothes, dining out, travel, etc. etc.).

Then you can work with your spouse to figure out what things to cut back on. Don't try to do it in one shot. Do this gradually over time so you can gradually get used to spending less and saving more.

Since you already have $2 million in retirement account + $150k cash in cash, you must have done something right in the past to have accumulated this level of wealth. You already have a very nice sized nest egg + high HHI, so there's absolutely nothing wrong with spending money to enjoy life. You just need to be more disciplined in tracking your spending and set a goal for saving x% of income a year to keep growing your wealth. With some discipline and planning, you can absolutely strike a good balance between saving $ and enjoying fruit of your labor at the same time.

[Montecfo]

You can actually do quite a bit of analysis with your year-end full year statements that you can get electronically at your credit card company website.

I also use Quicken but if I didn't I would begin by using those to identify sources of spending to cut. You can analyze the full year at once.

If you have quite a few credit cards you might simplify by cutting down to one or at most two.

[Dtail]

I was in a somewhat similar situation as you a few years before retirement. I kept track of every penny spent and now spend much less in retirement, but still love our life.
As mentioned, you need to break down the CC expenses.
In also had 45k yearly in alimony, which stopped right before retirement.
What income does your spouse bring in yearly, as you are spending 30k after tax in Nanny costs?

[Amethyst]

I usually counsel to cut back or stop eating out, but $500 a month doesn't seem outrageous in your situation. Neither do the nanny, school, or insurance. I'm not seeing utility costs - are those included in your credit card spending?

So, to echo everyone else: What's going on with the credit card spending? Many of us barely spend $15K in a year, let alone one month. Vacations/travel? Those can be negotiated downward, although it would feel hard to go back from luxury level travel, once you've experienced it.

Oh, and I'm curious: Your list doesn't include help with the housework and yard care - are you really doing your own?

[pb4uski]

+1 Most credit cards provide an annual summary of charges by different categories so that is a place to start. We spend about the $100k that you want to spend and our credit card bill is only $3-4k each month.

Also wondering about the nanny.

[phil1ben]

You don't say how old you are, but given the age of your kids I would assume 30-40. If your job is stable, I would counsel the opposite and continue doing what you are doing. Spend time and money with your kids when they are young. Let them have wonderful memories rather than Dad always trying to save money. My nest egg was made between 40 and 57 when I retired from my own business. You've already started accumulating even with your current expenses which don't appear extreme to me. The only important item which I don't see are 529 plans for your kids college. Although your income is good it is not enough to pay for college out of ordinary annual cash flow unless your income increases substantially.

[Andre1969]

That $1,000/mo for insurance kind of blows my mind, but in the overall scheme of things, $12K per year is just a tiny portion of that $300K spend.

Also, is any of this "double counting?" For example, whenever I eat out or buy groceries, I always put it on the credit card. I also put the car insurance, cell phone, and everything else that I can on the credit card, because I get a pretty good cash back reward.

But like others have said, I'd focus on that credit card bill, and seeing what all goes into that.

For a family of four, the eating out part seems downright reasonable. One of my house mates stopped off at Chipotle the other day and brought something for himself, my other housemate, and me, and just that was $45. I know some people who stay eternally poor because they eat out all the time, and it seems like the correlation is, the poorer they are, the more often they eat out! But you definitely seem to have that under control, and I don't think you could cut much out of your eating out budget. At least not to make much of a dent.

One thing to consider, is that once you're retired, and can spend more time with the kids, would you still need a nanny?

[racy]

An alternate opinion: Determine how much you need to invest/save for a comfortable retirement (lots of calculators on the web for that). Make those investments automatic, monthly. Pay off the full credit card charges monthly. Spend the rest.

[socca]

Quote:

Originally Posted by autonomousdog ... I really don't even feel like we have a luxurious life, and I'd like to really cut that number down to <100k a year so we can boost our savings rate to >50% of my earnings. ...

The first step is to come up with a reasonable estimate for your necessary spending. This is trickier than it sounds because you have to come up with a reasonable estimate for nonrecurring and future expenses (e.g. kid's education). Example nonrecurring expenses:
• home: A/C replacement, roof replacement, misc. repair/replacement
• car: replacement, repair
• computer replacement
• medical: dental, deductible

With your necessary spending estimate in hand, you can then decide how to divide what's left between saving and discretionary spending. I like to keep things simple by declaring a fixed percentage of gross income as 'saving' (25%). In this way, saving just becomes another expense (I'm paying my future self ).

Good luck!

[rmcelwee]

Quote:

Originally Posted by autonomousdog Should we work with a professional with our level of spendiness, if so who does that kind of thing? Credit card 12-15k between both of us per month

There is no way you spend $180K on your credit card per year and you don't know where the money is going.

I'll be your professional! I work on a commission basis and will only charge you 0.1% in perpetuity on what I save you.

[Aerides]

It's the credit card - that's the elephant in the room.

That's like saying "checking account" - you have to break that down first. You can get there, but you don't understand your expenses until you know where that $144k+ per year is really going.

[intent]

All good advice so far. The only thing a bit different I would add is that when you sit down with your wife remember that you are engaging in a relationship management session* as much as you are a financial management session.

Even if she's fully onboard with cutting expenses, be careful about how you approach this, and also how you react yourself as you and her explore the waters. When my wife and I have had these types of sessions it is common for one or both of us to reflexively get defensive about this or that spending item. Phrases get thrown around like, "I had to buy ABC because of XYZ, and you knew that," or "That's just what that sort of thing costs, you just don't understand because you're a wo/man," or "We talked about whether or not we should subscribe to DEF and YOU are the one who convinced ME we should."

Just be careful not to be defensive, and if/when you notice her being defensive be quick to level set. This is not a blaming exercise, this is simply an exploration and learning exercise with the goal of brainstorming ideas as to how and where you both might be able to cut back. The past is the past and you can't change what has already been spent, so no point getting into arguments about it now.

And be sure to place extra focus on target areas where you tend to be the spender. Think hard about how you might be able to change your spending behaviors. It's only natural that your immediate attention will likely be drawn to categories where it seems to you she is spending an awful lot. Notice yourself noticing that and do your best not to draw attention to them first - at least not every time. The first time or two you attempt one of these sessions, treat it like an effort to reign in your own spending - if your wife is like mine, she'll likely pick up on this and will do the same.

Last but not least, recognize that this will require multiple sessions and dedication. This isn't a one and done discussion and everything is fixed. It's a process and both of you will grow and learn and improve your performance over the course of the process so long as you are able to work as a team, and feel like you are a team.

*Disclaimer: IANAPsych, so take everything I've written with a grain of salt. These are just nuggets of "wisdom" I've learned along the way - mostly by having them thrown at my head ... with force.

[FLSUnFIRE]

As everyone else said. Track spending. CC statements can help with look-back as well. Quick and easy way to cut especially for someone that has been coasting is looking for "subscribed" expenses -especially those that you are not getting value out of or even aware of. Some of these are literal subscriptions but others are automatically incurred bills you may not need (these are big wins as they save over and over with a single adjustment):


Magazines/websites/unused gym memberships/etc
Insurance coverage (low deductables? raise them, duplicate coverage)
Cable and streaming media packages you don't need (or shop around/ask for discounts -loyalty is rarely rewarded)

Assets you rarely/don't use that require maintenance/storage costs
Utilities (do lights get turned off when not in use, programmable thermostat, etc)
Choose vehicles that are cheaper to maintain (insurance, maintenance and repairs)
Fees for services that are not needed or could be done yourself or less frequently (lawn, cleaning, massage/hair, laundry services, pool maintenance, etc)
Interest payments... if you have consumer debt that is a huge drain and truly wasted money.



I'd also look at lifestyle habits that add up (Coffee from the coffee shop, always eating lunch out, etc). A busy, high income life can accumulate a lot of these as there is no immediate pain to paying them but the aggregate can add up to real money.

[donheff]

DW and I never budgeted and felt like we were in a similar situation many years back. We had quite a bit of savings in retirement accounts but the spending level felt a bit crazy. I downloaded two years of CC data, reviewed two years of checking account payments (including direct pulls for mortgages, some utilities, etc.). What surprised me when I went over it all was that we were not blowing a ton of money on useless stuff. It all just added up. We had private school tuition, second home expenses, pricey vacations, and a boatload of taxes. We were spending an inordinate amount on restaurants which we reigned in a bit. But overall we just kept saving and over time we got where we needed to be.

The spend analysis was invaluable for tracking what would be essential and discretionary in retirement. There are a lot of essentials that it is easy to forget. And some recurring big ticket maintenance items like roofs, HVAC, house painting, remodeling, won't show up in a two years spending analysis.

Good luck.

[Music Lover]

Quote:

Originally Posted by phil1ben You don't say how old you are, but given the age of your kids I would assume 30-40. If your job is stable, I would counsel the opposite and continue doing what you are doing. Spend time and money with your kids when they are young. Let them have wonderful memories rather than Dad always trying to save money. My nest egg was made between 40 and 57 when I retired from my own business. You've already started accumulating even with your current expenses which don't appear extreme to me. The only important item which I don't see are 529 plans for your kids college. Although your income is good it is not enough to pay for college out of ordinary annual cash flow unless your income increases substantially.

I disagree. The OP wants to spend less than $300,000 a year, it's not like they're hoping to cut back from $60k a year to $40k. $300k is a lot of money, plenty of people here spend a fraction of that without sacrificing time or memories.

[athena53]

Quote:

Originally Posted by FLSUnFIRE As everyone else said. Track spending. CC statements can help with look-back as well. Quick and easy way to cut especially for someone that has been coasting is looking for "subscribed" expenses -especially those that you are not getting value out of or even aware of. Some of these are literal subscriptions but others are automatically incurred bills you may not need (these are big wins as they save over and over with a single adjustment): <snip>

I liked the list that followed in this post. I agree with looking at what you're spending by category and seeing if you're comfortable with it and if you're genuinely enjoying the goods or services you're getting for your money.

My philosophy has been to keep the budget modest in areas that aren't all that important to me. Could I afford a couple more streaming packages in addition to Netflix? Yeah, but Netflix is enough for me. Could I afford to go back to the gym? Yeah, but I'm finding a mix of video workouts and outdoor walks and bicycling work just fine. I'm retired so my clothing budget is tiny compared to what it was before retirement. OTOH, my travel budget and the occasional jewelry splurge are WAY above average and I just bought an $80 bottle of scotch yesterday.

Two things that worked for DH and me: Each of us had checking accounts that were ours individually and didn't need discussion or justification to the other (although our priorities were similar) and without even thinking, we got into the habit of discussing discretionary purchases over $200 or $300. I don't think either of us ever said no to the other on those but we liked keeping each other informed. Your threshold may vary.

[MarieIG]

Autonomousdog - you didn't list taxes as an expense.

You have a lot of good suggestions here. Sit down with DW and go over the credit card bills. They should list the expenses. Some may fall under necessities, i.e. utilities. Agree upon what can be cut - and pre-budget the discretionary expenses.

DW's - ahem, personal maintenance may be more than yours. If you try to send her to a new hairdresser, your life may be in danger.

Have you started, or have plans to start, a college fund? (If not, you can start with a minimal month contribution and when you retire the nanny you have an additional $2,000 to contribute to that.)

Avoid "life-style creep." When you get a raise, put it into retirement savings.

Another "trick" is to pay yourself first. When I was working, I had additional taxes withheld, put money aside for property taxes/ estimated taxes, home owner's insurance, umbrella insurance, took automatic deductions for savings beyond the 401k - and the remainder was discretionary. I kept discretionary to about 5%. DH paid for food, utilities, car insurance, car maintenance, insurance etc. After I paid off the house, I assumed the school tuition. When DH got a big bump in pay, he took over most of the tuition, leaving me to save more for our retirement.

DH or the boys did the yard work.

I don't see you cutting down to 100k while you still have the expenses for a nanny and school. You need a better look at your expenditures before you come up with a livable budget.

[Badger]

Quote:

Originally Posted by phil1ben You don't say how old you are, but given the age of your kids I would assume 30-40. If your job is stable, I would counsel the opposite and continue doing what you are doing. Spend time and money with your kids when they are young. Let them have wonderful memories rather than Dad always trying to save money. My nest egg was made between 40 and 57 when I retired from my own business. You've already started accumulating even with your current expenses which don't appear extreme to me. The only important item which I don't see are 529 plans for your kids college. Although your income is good it is not enough to pay for college out of ordinary annual cash flow unless your income increases substantially.

I think this would be potentially dangerous. What if he dies before he gets a chance to reach 40 to start any meaningful saving? Also jobs are not always as secure as people think they are. Too many other things can change his ability to earn a living. As often pointed out here "Life happens". How would the family survive? He would also be sacrificing the advantage of time and compounding. Memories with Dad don't necessarily require spending money. Time spent with your kids is way more important.



Cheers!