Today I came up with this diagram of life and a way to organize it. Lately I’m the orange, drifting, not moving towards a shitty life, but not expanding or moving towards an amazing potential life either. I added another part to the drawing later “useless” growth which is personal growth not directed towards an amazing potential life.
Anyway, I’m hoping this will help me focus on making use of my time and keeping what’s important in mind.
My June Budget
Wohoo, making great progress on getting my budget down! Unfortunately my car was dying and I bought another (10k after everything), so I basically have zero cash right now. My goal for this past month was 1,000$ and I hit 1090$, July is going to be 900$ and I’m hoping to be under 1,000$. Sub 1,000$ a month budget is a great goal for now, unfortunately it doesn’t include car maintenance, car insurance, or things like that.
Recently I’ve noticed that I have a different definition than afford than my staunchly middle class friends. Actually I probably have a very different view of what middle class means, so let’s start with that.
Growing up I wanted the American dream, now I laugh at it. The American dream is really opportunity, but the connotation is a debt laden, deferred life to raise kids and fitting in anything to keep you sane. Middle class to me is:
For a frame of reference, poor is not having or barely having enough to survive, and rich is interest earning interest. In other words, even if you make a lot less money than someone, you can be richer than them if you’re spending less, saving more, and earning interest instead of paying it. A recurring theme in personal finance blogging is horror stories of the writers when they were younger, and a lot of them mention buying stuff just to keep up with their peers. One particular staff writer at getrichslowly.org mentioned she wondered how all her friends could afford this stuff when it was sending her massively into debt? She later found out there were in the same predicament.
This brings me to my definition of “afford”. Here’s a typical conversation:
When they say “afford” they mean, I make enough money that I have enough to spend on it. If they knew I have something like a 15,000$ credit limit, then what I can “afford” becomes much higher.
But my perspective is different. I don’t see how much I make, I see how much I spend, and the 10,000$ earning 2 dollars a day in interest from my college loans. When I say I can’t afford something, I mean it won’t fit into my budget, which I have slowly been shrinking over the past four months from about 2,000$ per month to 1,000$ per month. Avoiding lifestyle inflation, this means every extra dollar I make is 55 cents (after taxes) more in my bank account. Not avoiding lifestyle inflation, every extra dollar I make means nothing, maybe an extra toy.
So what’s your definition of afford?
I read a few personal finance sites, a few are good like getrichslowly.org and address the issue of life being more than just money… but most don’t. I think for most people, retirement is some far off mystic thing that is just a nebulous idea. Floating in their heads and they can kind of see it, but it has no solid form.
So, let’s make it more definite, ask yourself, why do I work? Are you putting in 40 years between 25 and 65 to retire at 65? And then what? Are you working to support your hobbies or expensive tastes? To get your kids to college?
For me the answer is simple: earn $600,000 to retire off the interest. Now, retirement is a loaded word with all kinds of connotations, for me it just means I don’t need to work anymore. It means I could work as a bartender to meet people for fun and spend all that extra money I earn on anything. It means I could master a new skill for fun. It means I could build fun projects or work for a fun company and get paid almost nothing to do fun things.
So, for me $600,000 represents not having to work and feeling good about it (I could always be homeless and not work too). Just as a frame of reference, this is the price of a decent house in a decent part of southern California, so think about that when you want to sign up for a 30 year mortgage. You’re going to pay x% interest for 30 years, which you could otherwise earn and save for yourself and retire, in much less than 30 years.
$600,000 earning 5% it represents 30 grand a year, my living expenses are less than 20 grand a year and I’m working on getting that down to 15 grand. If I want to retire at 35, I have 7 years from my next birthday, assuming I start my next birthday with $20,000 in the bank, I have $580,000 to go, not including interest. That means I need to save about $83,000 dollars per year, more than I currently make before bonuses. To retire at 40 would be $48,333, much more do-able. These are just ball park figures, but they give me a great reason to be frugal and something to work towards.
So, why do you work?
I’ve been super busy and unable to post, so this will cover the past two months of my finances. I was in China and Singapore for almost all of April, hopefully I get a chance to write about it and post some photos in the coming week.
March went pretty well, As always I overspent on food, shopping went a little over due to some random things I wanted/needed for work.
April was an excellent month. This represents the end of my budget cuts over time. My budget is now 1500$, with an “unbudgeted” category to absorb extra spending/unforseen costs, such as dental costs for April and purchasing a nice travel watch for myself. I was in CA for about 5 days in April and spent my entire food budget by going out when I was home, really shows how much damage going out to eat can do! April also shows the addition of my rock climbing gym membership, definitely worth it as long as I’m home enough to go! It’s really fun, a great exercise, and a great opportunity to meet lots of girls that are in shape, haha.
In the long term view of my finances, things are going stunningly well! The following graph shows how my net worth has been steadily increasing over the past year and is now in the positive, words can’t describe how stoked I am! Unfortunately this includes retirement accounts and I still have debt, so still a little ways to go before I am in the green 🙂
For me the most important graph is of my student loan debt:
Again, very positive! My May payment is scheduled for next week, and will total $6,000, bringing me to about 10k in debt remaining, aka 1/3rd of where I was at when I started working. My goal is to pay it off by August 13th, which is the anniversary of when I started working 🙂 The most interesting part of this graph is that it shows that I didn’t get serious about paying off my debt until January of this year, in other words I worked for about 5 months until I was able to start aggressively start paying down my debt. This is an interesting lesson, it means that coming into some money doesn’t mean immediate effects. Over those months I bought a new laptop, had to move twice, got robbed by a roommate, and bought lots of things for travelling for my job. Now I am finally pretty settled financially (except my car is going to die soon enough).
Time to start thinking about where I want my life to go…