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My $15,000 Middle Class Budget

October 29th, 2014 at 08:30 pm

(I now blog weekly on frugal living, personal finance & earlier retirement at:
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If you think about it, your basic living expense budget is THE crucial factor affecting WHEN you can become financially independent, and HOW MUCH capital you need to become financially independent. The lower your basic living expenses are, the smaller your financial independence stash needs to be, and the sooner you will have it.

But how low a basic living expenses "nut" CAN YOU STAND living with? And for how many years would you have to stand it? How much rice and pasta can you stand to eat? How small a place can you stand to live in? How cold (or hot) can you stand the temperature to be in that place? How much of your income will an acceptable, LIVABLE basic lifestyle cost you? And how much would then be left over for you to apply to your financial independence plan?

My answer to all those questions is that a comfortable and secure lifestyle can very, very definitely be achieved without spending a fortune on it. My basic living expense budget is $15,048 a year, which is about one third of my income. And I am perfectly happy with the kind of daily lifestyle I get for less than $1255 a month (which, by the way, is a lot MORE than really frugal people find necessary to spend). My case is just one more testimonial to the power and joy of modest expense (I won't even call it frugal) living.

In fact, it is not my intent to show that I spend very little. It is, after all not that little. Instead, I want to document by one more example (mine) how much you can have and do -- how good a daily life you can have -- on less money than most (middle class?) people have coming in. To show that financial independence could be a lot closer than generally assumed.

My Basic Lifestyle
The context of my basic daily lifestyle includes owning a large house on 2.5 acres of land located 5 miles from a small town and 25 miles from "the big city"... eating a modified paleo diet heavy on meats and vegetables and low on starches... driving a well maintained older vehicle... being free of an obligatory job and commute... and spending a lot of my time hiking, blogging, reading, taking video courses, doing hobby carpentry, watching DVD movies, playing computer strategy games, and listening to classical music.

I live very comfortably. I enjoy my time on a daily basis free from an obligatory job. And I do it on less than one third of my income. Doing that does not feel to me like a big deal.

So why do so many people find this impossible (or unacceptable) to do?

My Budget Big Picture
That $15,048 a year basic living expense budget of mine works out to $1254 a month. Of that sum, $397 goes to housing expenses, $185 to vehicle costs, $378 to health coverage, $244 to household expenditures, and $50 to federal and state income taxes.

My budget big picture also takes into account that my wife pays for her share of our overall expenses. If I factored her out of my calculations, and I had to pay the entire cost of our indivisible shared expenses (like mortgage), my monthly nut would go up by a net $34 to $1288 a month (or $15,456 a year).

That my go-it-alone costs would go up so little is something that we have already tested out to be true.

We own a smaller rental home on one acre of land that I have lived in by myself before. If I were alone, I would live in that house. From prior experience, my solo housing costs (lower mortgage, lower real estate taxes, lower utilities costs, etc) would then go up a net $34 a month.

My vehicle and health coverage costs would remain unchanged because they are already calculated on a solo basis for me and my 1996 Dodge Dakota. And my household expenditures (food, etc) would not change either because their consumption would be proportional (half) to the number of people doing the consuming (1 instead of 2).

So, living with my wife or living alone, my basic living expenses would still be about $15,000 a year.

Given that, doesn't $15,000 a year (per person?!) sound like a more than generous basic living expenses budget benchmark that anyone could apply if they made up their minds to do so?

My Housing and What It Costs
I share with my wife an 1800-square-feet single-story brick house with 3 bedrooms, 2 baths, a full unfinished basement and an enclosed patio room that adds another 200 square feet to our living space. The house sits on two-and-a-half acres of land, along with a detached two-car garage, a large 400-square-foot metal outbuilding, and a humongous 1000-square-foot pole barn (that my wife has converted into her rabbit-geese-chicken raising place).

If I were living alone, then I would be living in what is currently our rental house. There I would have to myself 2 bedrooms, 1 bath, a living room and an eat-in kitchen in a 1000-square-foot single-story brick house. I would also have a full unfinished basement, an attached oversized one-car garage with enough room for a workshop, plus 2 standard-sized sheds -- all on an acre of land less than 1 mile from a river boat landing and less than 3 miles from a magnificent state park with a very large number of hiking trails.

Either way, this is living in an owned home with ample space for me, lots of privacy and no in-my-face neighbors. So, we are not talking about hovel living.

For either house, large down payments have made the monthly mortgage low. We keep the shared house at 78 degrees F in the summer and 70 degrees in the winter. At the shared house, we pay for 2 Ooma phone lines, have a trash pickup service, and have satellite as our only (and expensive) internet option. If I were alone at the smaller house, I would drop one phone line, do my own trash hauling to a nearby dump station, and enjoy better yet cheaper cable internet service.

So my monthly housing cost breaks down like this (shared house / solo house):
[] $25K mortgage ================>$114 shared ========>$112 solo
[] tax and insurance escrow ========>$ 56 shared ========>$121 solo
[] trash service ==================>$ 14 shared ========> 0 solo
[] home warranty ================>$ 50 shared ========>$ 50 solo
[] internet service ================>$ 45 shared ========>$48 solo
[] phone service ==================>$ 5 shared ========> 0 solo
[] utilities =======================>$113 shared =======>$100 solo

[] TOTAL =======================>$397 shared ========>$431 solo

So either way, it takes around 400 bucks a month (give-or-take) for me to live in a comfortable house on a good piece of ground.

With the right choice of location and a serious down payment, couldn't anyone do just as well or better?

My Vehicle and What It Costs
I think my most powerful budget-lowering tactic is my textbook Mustachian vehicle ownership strategy. In my book too, a vehicle is for safe, reliable and comfortable transportation of people and stuff. Social status preening through one's choice of vehicle is in no way a legitimate basic living expense. So my vehicle is a 1996 Dodge Dakota extended-cab pickup that I have driven since 2003. It is paid for, utterly reliable and totally practical. (I haul a lot of stuff.)

My monthly costs for that vehicle are as follows:
[] insurance (top-of-the-line) ======>$ 35
[] maintenance (and repair) =======>$ 100
[] fuel (for 300 basic miles) ========>$ 50

[] TOTAL ======================>$ 185

(My wife drives and pays for a similarly thrifty 1998 all-wheel-drive Subaru Forester.)

Opting out of a new, fancy-schmanzy vehicle has drastically reduced my monthly outlay for installment payments (I have none), insurance (much cheaper to insure a $4K vehicle) and maintenance (simple systems mean simpler work). AND my older non-status vehicle has reduced my magic FI stash number by about $150,000. (!!)

Ego stroking aside, what justification can there be for hardwiring the monthly costs of a late model status vehicle into one's basic expense budget? How can that be worth the many extra years it adds to reaching financial independence?

My Health Coverage's Big 30% Budget Bite
Even with Medicare, making sure I am covered in case I get seriously sick accounts for a mind-boggling 30% of my basic living expenses.

I have opted for an insurance strategy that is front-loaded with out-of-pocket costs to a maximum of $2435 a year, but then covers me 100% after that. Because those out-of-pocket expenses are sporadic, very variable, somewhat optional and mostly theoretical, I pay for them -- if and when they happen -- out of discretionary funds. So I don't consider them part of my basic living expenses.

That leaves my monthly health coverage "sub-nut" looking like this:
[] hospital and medical insurance ==========>$ 158
[] longterm care insurance ================>$ 188
[] dental insurance ======================>$ 17
[] medications insurance =================>$ 15

[] TOTAL ==============================>$ 378

On a budget percentage basis, this is still a big bite. But affordable (to me). Anyway, it is just about what the lease or installment payment would be on one of those late-model fancy-schmanzy vehicles I poke fun at.

And isn't being able to take care of one's health way more important than vehicular ego preening?

And Here Is The Rest
The remaining $294 per month of my basic living expenses go primarily to "feeding." Feeding myself a modified paleo diet that includes very few starches except for whole wheat bread for lunch sandwiches and rolled oats for breakfast oatmeal. Feeding one dog and 2 cats on mixes of brand name dry and wet foods. And feeding the kitchen, bathroom, laundry room, etc. with all the usual household consumables (paper towels, bath soap, cat litter, what have you). All this feeding eats up $225 a month. (I don't break it down any further because it all gets purchased on the same register receipts at either WalMart, Food Lion or Dollar General and it's not worth it to me to subcategorize the expenses.)

So the monthly basic expenses that I arbitrarily grouped as "household expenditures" earlier tally up like this:
[] food, pets and sundries ==========>$225
[] Sirius internet radio =============>$ 2
[] $1MM liability insurance ==========>$ 7
[] federal income tax ==============>$ 40*
[] state income tax ================>$ 10*

[] TOTAL ========================>$294

(* based on applying the standard deduction and exemption to the gross $15,500 required to meet my basic living expenses.)

I am well fed. My pets are well fed. And I never find myself lacking for anything.

It is all perfectly satisfactory basic living... wouldn't you say?

The Takeaway
I consider this detailing of my $15,500 annual basic living expenses as one more real-life testimonial to what is made possible by astute spending choices without making big sacrifices or a big effort. Without having to grow your own food, repair your own clothes, fix your own stuff, use solar for electric, keep the heat low in winter and high in summer, buy in bulk, ride your bicycle everywhere instead of driving, or any other unusual/special effort.

Take another look at my budget details. I live in a spacious, comfortable house that is kept at a comfortable temperature. I drive a comfortable, reliable and well-maintained vehicle. I drive around like a clown to do everything; I don't ram my bike through snowdrifts or use it to haul refrigerators. I eat great. I keep pets. I am insured up the wazoo against anything and everything. I lack for nothing.

The takeaway is NOT that $15,500 is very frugal (because it really isn't). The takeaway is that it doesn't have to take much more than that (for one adult person) to have a comfortable middleclass life. That it is not a big effort to get expenses down. And that you can then direct the balance of your income to wiping out your debt or building your (early?) retirement stash. You can apply your (newly found!) surplus income to reaching financial independence YEARS SOONER than you had thought possible!

I did that. Covered my basic living expenses with 32% of my gross paycheck. Paid off all the installment debts. And built up enough of a stash in 6 years to let me become financially independent with way more passive income than I need to cover those basic living expenses.

And, since I know I am not a financial genius, I know this IS DOABLE by almost anyone. Without making any big deal sacrifices.

And that is THE real take-away.

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Retired To Win
making the most of my time and my money
I blog weekly on frugal living, personal finance & earlier retirement at:
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Don't Short Sell Life After Retirement

August 26th, 2014 at 07:45 pm

(I now blog weekly on frugal living, personal finance & earlier retirement at:
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Very often, lack of money is not what keeps people from retiring. What keeps them on the job is that they are afraid that they will have nothing to do in retirement. That it will be boring. But I think that's nonsense.

Of course there is life after retirement!

Since I earlier retired some 14 years ago, most of the time I have not even had time to be bored. I've always had a new personal project in the works to get interested in. Or a trip to plan. Or a home improvement project to ramrod. Always there has been something. Usually more than one something.

I really think people who actually become bored in retirement, not knowing what to do with themselves, have sold themselves way short. They just won't sit down to look inside themselves to find the things they would like -- even love -- to do. They just won't give themselves a chance.

And that's a shame. Because they could be having a great time in retirement. Like I am.

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Fiscal Discipline: It Means a Better Future

August 23rd, 2014 at 02:52 pm

Children live in the present. At best they can project themselves into their short-term futures. But adults can hold the vision of a long-term reward in their mind's eye and control their present actions by being able to visualize and live mentally in that future.

Fiscally disciplined grown-ups choose meaningful long-term satisfaction over transitory instant gratification. Children cannot help themselves. They want that treat now. They must have that toy now. Future rewards for self-control hold no attraction for them. A frustrated desire in the present triggers emotional turmoil in a child that can easily lead to pouting, crying and tantrums.

Adults behave differently. They can keep their eyes focused on the more valuable goal ahead. They can keep their heads in the face of spur-of-the-moment temptations.

Imagining myself living in my house worked that way for me. And every debt-lowering payment and every savings account deposit reinforced that vision, making it easier and easier to stick to my financial plan. Until it just became second nature. No new shirt, gadget or night on the town could any longer compete with the emotional highs that came from each lowering of my credit card debt and each increase of my downpayment savings.

In effect, I was already happily living in my future through my fiscally disciplined actions in the present. Anticipated long-term satisfaction had won hands down over instant gratification, And I think that is the hallmark mindset of a fiscally disciplined adult.

The takeaway: The end-game reward for being fiscally disciplined now is to be in control of one's future. The reward, when all is said and done, IS the future.

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Fiscal Discipline: Goals Facilitate It

August 19th, 2014 at 01:39 pm

It is long term goals that facilitate fiscal discipline. In my case, that first big goal was a house. Before that, I really lived financially day to day. I bought on credit and then made payments. I knew enough to keep my spending within my means (to make those payments). I had enough sense not to chase after extravagant whims of the moment. But otherwise I was just financially coasting.

Setting a strategic financial goal of buying a house changed all that. I would need to save for a down payment (which was a requirement back then). And I would need to keep my debt to income ratio low enough to be acceptable to banks. And those 2 tactical motivators kept me on a fiscal discipline course towards my goal.

A reason to save for later instead of spending it all now. Perhaps it is there, at the setting of that first financial goal, that we can find the real beginning of fiscal adulthood. Because the lessons learned from the setting -- and from the achieving -- of that goal have to be tremendously powerful. That we can aim at something better. That we can hold our course towards it. That we can reach it, under our own financial steam and control. Very powerful lessons. Very empowering lessons. IF one actually stays the course by not frittering away one's money on the whims of the moment.

The takeaway: When it comes to actually being fiscally disciplined over the long haul, financial goals are the name of the game.

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Fiscal Discipline: It Has to Have a Purpose

August 12th, 2014 at 06:41 pm

Intellectually, I can see that being fiscally disciplined is in a way its own reward. Being in financial control of yourself is good in and of itself. But when you are embarking on a lifelong journey of fiscal discipline I think you need a destination. A goal. A reason to stay the course. A carrot. A heavy-duty carrot. Without that very strong long-term incentive, it could be too easy to dribble away money on shorter gratifications like lattes, a seventh pair of shoes, or the third vacation of the year.

For me, the first financial discipline goals were easy to define. Get my income to exceed my living expenses so I could stop living on borrowed money. Then build up an emergency reserve to backstop that income. Then save the money to buy for cash a car I could be happy with for a long time and dump the old wreck I was driving. Then move to a decent apartment I could afford and furnish it modestly but comfortably. At which point, about one year into my fiscal discipline journey, I had had the time to decide on my first truly heavy-duty carrot: buy a house and stop paying rent.

Setting those initial goals in sequence and keeping my money in my pocket so I could reach them was an adult thing to do. It required planning ahead and it required financial self-control in the present. And the carrot of those goals made the self-control much easier.

But just about everyone gets that far: job, car, reasonable housing, bills paid on time. Somehow, though, a lot of people seem to get stuck at that point. It just seems that they do not look beyond job, car, and a place to live. So, as their incomes improve, they just keep increasing the amounts they spend on car, housing, and an ever increasing load of consumer installment debt for recreational distractions needed to offset job stress and tedium.

They are living in the "now", not looking very far ahead. Like a child would. It is life caught in a consumerism hamster wheel.

The takeaway: It is terribly difficult to be fiscally disciplined in a vacuum. You need to give yourself a reason to be fiscally disciplined. You need to look ahead, use your imagination and set financial goals.

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Fiscal Discipline: It Is About Looking Ahead

August 8th, 2014 at 05:56 pm

Fiscal discipline is about looking ahead. Because tomorrow does come. And a grown-up knows that more can be done than just sitting in the present waiting for whatever that tomorrow may bring.

A child may keep eating cookies until he or she gets a bellyache. But an adult sees the bellyache coming and knows to stop. Likewise, a grown-up sees the financial bellyache coming and does not just keep spending money until it is all gone. Or just keep charging on credit cards because there is still some available credit not yet used up. An adult looks ahead. Or, perhaps more realistically, an adult should look ahead. So why do so many people behave like children and not look beyond spending more and more in the present?

In my case, increasing income did not automatically result in increasing spending. It is hard to explain why. I loved my well-maintained, gorgeous-looking ten-year-old Thunderbird. I did not covet a newer car. One business suit for each day of the week, with a dozen ties and shirts to vary the look, was enough for me. I did not wish for more. And why would I ever want more than 4 pairs of dress shoes?

Instead of automatically and thoughtlessly continuing to bump up my consumption in the present, I asked myself what could that money do for me in the future. And in that future, I saw myself living in my own house.

I saw myself with no neighbors stomping on my ceiling or banging on my walls. With no daily rides in crowded cramped elevators. With no tedious weekly up-and-down-the-hall laundry trips. With no jogs across the parking lot in the rain to get to my car. With no inevitable rent raises every year. With the freedom to paint my walls, or install a built-in, or play loud music. In short, I saw myself living a much better life. And "all" I had to do to make that future a reality was to keep my wallet in my pocket in the present. To be fiscally disciplined now.

It was an offer I could not refuse. I had a future to look forward to. I had a reason to remain fiscally disciplined.

So why doesn't everyone look ahead? Why do so many people just choose to spend in the present with no thought of the future?

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot in the future to help staying on course today.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. And it is goals that will keeping eyes and mind focused on that long-term satisfaction.

The takeaway: "Some" tomorrow is coming. Fiscal discipline can make it a tomorrow worth looking forward to.

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Fiscal Discipline: It Has to Be Hands-On

August 5th, 2014 at 01:35 pm

An epiphany came to me in 1980, at the age of 33, after 10 years of short-term financial "thinking" that had left me sitting flat broke in a cramped one-room studio apartment with virtually no money, absolutely no credit and just a beat-up old car to my name. I looked around, I looked at the way I was living, and I just said "no." I did not like what I saw. I did not like the direction I was going. And I just rejected it all.

I resolved to have a good financial future, even though I did not yet know what I wanted that to look like. I resolved to use my own skills and energy to steer a course towards that future. And I resolved to get underway even though my eventual destination was not yet defined.

Fiscal discipline starts with assuming responsibility for your financial destiny. I realized that you must resolve to take control. That you have to acknowledge and accept that your financial destiny is up to you and no one else. That you are going to have a financial future -- good or bad -- whether you like it or not. That no one else has any obligation (or even inclination) to do anything for you or about that financial destiny of yours.

And you have to realize that, yes, you CAN do something about how your financial future turns out. That you are not a helpless, rudderless skiff doomed to just drift along out of control. No. You have to discover that you are instead a motor-sailor able to take advantage of favorable financial winds as well as capable of advancing even when you run into the occasional fiscal squall.

But why didn't I just throw my hands up in the air and play financial victim? Why didn't I just blame the economy, fate, or "the rich" for my situation and just keep wallowing in it? Why do some other people do that? Why don't they realize the future is coming? What makes the difference?

Fiscal discipline is about looking ahead. Because tomorrow is coming. Beginning to look to the future will make a difference.

Fiscal discipline has to have a purpose. A goal. A heavy-duty carrot. Setting financial goals will make a difference.

It is those goals / carrots that will facilitate fiscal discipline. And staying on course will make a difference.

Fiscal grownups choose meaningful long-term satisfaction over transitory instant gratification. Keeping eyes and mind focused on the more valuable goals ahead will make a difference.

The takeaway: Fiscal discipline has to be hands-on. And it is some basic but vital actions that make the difference to make fiscal discipline happen.

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