http://www.fatwallet.com/forums/finance/869987/
I didn't always make a lot of money. Nor did I come from a wealthy family. Nope, I started on the bottom rung, worked hard, waited patiently, and finally one day, I woke up, and all of the sudden realized I was finally making some decenet money. Not big shot, second-home, his-and-her-7-series driving money, but better than most of the population, and certainly better than any of my friends or family. Combine that with being married to a fellow college grad with her own professional job, and between the two of us, we pull in around $200k per year. And we're living paycheck to paycheck.
Although this is an alternate name I created to hide the personal details from my usual login, I've been a regular FWF contributor for as long as I can remember. I've posted quite a bit here (I'm not one of the "biggies", but I have a good number of posts to my name, all with their fair share of green). I know all the conventional wisdom. I follow the Boglehead philosophy, know about how to allocate money, know all about the wonders of compound interest, and have read all the books. Tobias' Only Financial Guide You'll Ever Need? Check. Random Walk, check. Millionare Next Door, Your Money or Your Life, and even (sigh) Rich Dad Poor Dad, check check and check. How I got to where I am was both sobering and humbling, and I figured I'd tell the story just in case it might help anyone else. No sob story about medical expenses, divorce, or some scam business opportunity. Nope, my wife and I just let ourselves spend too much. No one to blame but us.
I first noticed a problem about a year ago. I figured that with $200k/year coming in, the budget I had figured we operated within would result in several hundred dollars of savings each month, even with a relatively plush lifestyle. Yet somehow, we always ended up net zero for the month. So a year ago, Quicken was purchased and maintained religiously. This month results in a full 12 months of data.
Like many, our biggest sink is the house. For four years, we lived in a nice little townhouse in a nice little neighborhood. But over time, we filled it with crap. Closets were full. Basement was full. Not enough room for all our stuff, as George Carlin would point out. So rather than curtail the stuff accumulation, we bought a bigger house. Nicer and bigger. Beautiful center hall colonial, with stone walls so thick you can put a large pizza on the windowsills and not have it hang over the edge.
Instantly, our base housing costs tripled. But if you do the math and apply the normal ratios, it wasn't anything we couldn't handle with a standard 30 year mortgage. Also note that we're not in NY or CA; houses and cost of living are middle-of-the-road in my city.
That old furniture? No way that would cut it! We "needed" all new stuff; a new dining room, living room, and bedroom. And while we got by fine with our old furniture, hey, we can afford the good stuff now, right? We dropped $30,000 on furnishing and decorating three rooms.
And so it went with other things. Sure, we were fine before, but a "small upgrade" to the next nicest whatever was well within our grasp. After a few years, what used to be an upgrade became what we were used to, and it isn't long until you decide that a little upgrade from THAT level won't hurt you either. The plain-jane cell phone that served you fine for almost two years begats a RAZR (when they first came out, they were expensive). The RAZR gets boring after about a year and begats an iPhone, with begats a 3g iPhone. Holy crap, now we send $2400/year to AT&T Wireless!
I used to wear clothes from Old Navy and be perfectly happy in them; I am fortunate enough to have friends who like me for me and not the labels on my shirt. But then I got a few things from Gap, and even though they're made in the same sweatshops, the Gap stuff really did look nicer on me. From then on, all new clothes were from the Gap, at 2x the cost. And the next year, I got a few things from J Crew, and they looked REALLY sharp. Now the majority of my clothes are from J Crew, and the cost of covering my ass with a pair of pants is up to $70. Add in some polos, sweaters, and some stuff for her, and our clothing bill was $3000 last year. Closets are already full at the new house.
We used to eat at home a lot and get take-out on occasion. "But we work a lot of hours and don't have time to cook", we said, so that justified getting take-out a lot with occasional trips to chain restaurants, which became frequent trips to non-chain restaurants. Which became trips to fancy restaurants. We spent $5000 on meals out last year. Even the meals we did have at home ballooned in cost- why have cod when you can afford Chilean Sea Bass? Groceries ran $4500 for the year for the two of us.
Happy hour specials at dive bars begat happy hours at sports bars, which begat happy hours at fancy bars in the city. And I know my friends have good jobs, but I have a REALLY good job, and I want to treat them to a round or two while we're out. We spent $4000 at bars last year.
Vacation? Sure, we had fun in Europe when we flew coach and stayed in cheap bed-and-breakfasts. But we can afford the NICE hotels now! And coach really does suck; we can splurge a little on an upgrade (I am a big guy, afterall). Our trip lasted 9 days, but paying off the $9000 the trip cost took a little longer.
Luxuries get sampled and become necessities. And while the pleasures you get from the finer things in life are nice, the pain that you experience if you ever have to give them up becomes huge. It wasn't any one thing, it was a train of connected "upgrades" to our lifestyle. And if you let the upgrade train get away from you, you all of the sudden realize that you're struggling to pay for the ticket.
I let it get away, and as a result, despite our relatively high income, we still haven't gotten our credit card down to 0 all year. It's not terribly high, but much like the horizon, it seems to stay just out of reach.
I'm not looking for advice here; I know that I need to cut the dining budget, the entertainment budget, the clothing budget, and several others, and somehow get used to a lifestyle that I was content with a mere three years ago. I'll ultimately take care of it. But there was no reason for a financially educated person to let himself get into this situation. I have thus far squandered an opportunity for long term security that few people in the world will get, and I feel that I've failed as a longtime FWF'er. And while it won't totally turn around today, or tomorrow, it has finally hit home that there's no income level that you can't spend your way out of.
If you made it all the way here, thanks for reading. Green for you.
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Nice post, and I can relate in a lot of areas. While I have a lot of input from FWFers and my own personal knowledge, all of that is good in theory. The knowledge/education part of being financially responsible isn't so hard as much as it is to actually put it to use.
I think the best thing that has worked for me is when I make paying down debt/saving the #1 priority/goal. Have I always made it the #1 priority? No. But when I have been focused and determined for that to trump all other wants/"needs", it kept me more disciplined. In your case I think it would help if both you and your wife are on board with whatever you value most.
With a 200K income living in a moderate cost area, I think you can find a balance between enjoying some of the nicer things you enjoy and paying down debt/saving. Of course, this comes from someone who doesn't have the level of combined income you do and lives in a mid-high cost area. Ultimately it comes down to needs vs. wants and what you value. This post makes it sound as if you know you need to identify what exactly those things are, and maybe that is something you and the wife need to discuss.
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rated: posted: Nov. 30, 2008 @ 10:07p alert mods Thanks to the OP for posting. It is too his credit that he is at least aware of the problem and working down the path to fix the issue.
I have been blessed the last few years to be well paid, I make it a point to only spend a certain percentage (10%) of any bonus money and keep my spending to 50% max of my take home pay. I'm still very conservative in my spending because I'm just naturally frugal and I realize that it will either take one large mistake (buying too much house is the most common one I see locally in So. Cal.) or many small ones (taking on many or high recurring monthly costs) to wipe me out. I work at trying to not make either. It can be tough and I couldn't imagine doing it if married to someone other than a spouse who has the same ideas on spending and saving. I think the spenders win many battles in marriages.
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