High Lifestyle Family vs. Family Saving To Escape The Rat Race
I got 2 budgets that I’m gonna present to you today. I am thinking of 2 actual families so these are fairly accurate. The Southern Cali family has 3 kids and the frugal family has 2.
I don’t have kids myself, much less a plant, and so I would love to use my own budget here but that might be an unfair advantage. Kids certainly can add a bit of cost to a household but plenty of families have grandpa’s and grandma’s who do a good amount of the babysitting. Also, couples with kids don’t go out to eat as often. They don’t have the clubbing expense of single people, the booze budget, the last-minute Vegas trips where you may have spent $500 on a limo or perhaps you lost it gambling… only Vegas knows.
2 families. Same income. Family 1 bought a house and commutes quite a distance. Family 2 decided to rent and lives within walking distance of work/school and a grocery store.
Rent/Mortgage/Student Loans
$4,900 doesn’t even buy you much in Southern California but that’s the example I’m using. Student Loans are obvious, higher for some but quite a bit lower for others. As of this writing you can refinance your high interest loans into some great low-interest ones. You probably should check out WCI’s website for that info, awesome knowledge bank there.
A big house tends to use more in terms of utilities. Maintenance costs are also higher even though I didn’t account for that. In general you can expect a house to have somewhere between 1-2% in annual maintenance costs. That includes basic upkeep and doesn’t include not major renovations. For a house that costs $750,000 it would be… nearly $940/mo. if you average it out.
Car Expenses
Car payments, car insurance, car maintenance, registration and gas are another very common expense. I like to think of car expense as much more than just the money you have to dish out for your car. It’s the stress of maintaining such a time and money consuming item. It is also the risk of car accidents, the stress of driving, the time you lose in your life sitting in traffic and most important the minutes/days you will lose from your life for every hour that you sit idly in a car.
Family 2 of course has only 1 car, purchased cash and they only use it for emergencies or when taking a longer trip to go camping/hiking or picnicking at the beach. They also rent the car out on Turo which is a peer-to-peer car renting service.
Groceries/Eating Out
With the organic craze it’s easy to spend more than necessary to create a healthy meal at home. Life’s stressful moments also prevent many families from being able to make meals from scratch. A great friend of mind just told me that her family of 4 is saving $350/week by pre-planning their meals for the week and cooking some things ahead of time. They are cutting out the last-minute trips to the grocery store.
Remember, the grocery business makes billions by marketing to you. So most of us don’t stand a chance if we just walk into a grocery store without a mission.
Eating out is a luxury. Family 1 is spending nearly $14,000 a month so for them life is probably all about luxuries. Family 2 has a master plan to get out of the rat race before their kids even start college. They want to accumulate somewhere near $650,000 and then only 1 partner will work half time (you’ll see below that they surpassed their goals by more than 4x that amount). They decided not to eat out.
Vacations/Gifts/Gadgets
Vacations are quite popular here in the States. Planning a 2 weeks stint down to the last-minute, getting on crowded airlines, getting violated by the TSA, complaining about hotel accommodations, taking pictures of landmarks that have more glass lenses pointed at them than retinas and then rushing back home and taking the next week to recover and catch up on stuff they didn’t get done while away.
Family 1 takes 1-2 lavish vacations every year. There is also the occasional urgent flights out to see ill family members, soon to be divorced couples that are getting married and weekend getaways that all quickly add up to far more than the $900/mo that I estimated.
Family 2 also takes vacations. They explore things locally, they go to their local beaches and stay a few nights at a hotel there. They go camping and the couple also spends a few nights a year in a nearby bourgy hotel alone without the kids… praying the Rosary together I’m sure.
Family 1 gets gifts for darn near everyone. After all, if your homies see you sporting a Lexus and a Range as you pull up to their house for the holiday dinner they are going to be expecting something a little more substantial than the heartwarming fuzzy card that family 2 wrote them. Yea, sorry the macaroni necklace your little one made for them won’t get too far either.
Gadgets… oh gadgets. Yes, that new toaster you bought 3x times already is a gadget. The new vacuum cleaner than can turn on a dime – a gadget. The cell phone that the toilet fecculized – an expensive gadget. The phone charger, the phone case, the headphones, the router, the home theater sound system, the extra TV for the monsters in the closet, the little thingy on your bike that tells you how fast you are pedaling and the new electric nose/back/ear trimmer are all gadgets. Give me some props for listing all these because we truly forget all the little things we buy over the year that sadly just fills up our landfills in short order.
Home internet and home cable TV are next on the list. I know, this is a tough one. I was talking to one of my buddies the other day about his expensive cable service and then he mentioned ‘NFL games’ … and stopped. As if the conversation was over… “NFL games dude… I rest my case!” It was one of those moments that I probably wouldn’t have survived if I suggested perhaps choosing a different past time than watching NFL games on TV, so I just shut up.
Remember that you need only 3 mbps to enjoy a streaming Netflix movie. YouTube is a decent source for enjoying what others view on cable TV.
Children’s Activities
When I was a child… no seriously, it won’t be one of those stories… but when I was a child my parents paid for tennis lessons and guitar. The guitar lessons were a huge waste of my parent’s money because I didn’t like going, I didn’t like the guitar teacher and I didn’t like sitting still. And I still turned out fine (I am not citing any sources for this, you just have to take my word for it). The tennis lessons were wonderful but tennis camps were more cost-effective and perhaps even more potent. Neither myself nor my sister are tennis pro’s despite what my mom was expecting. Furthermore, I’m left-handed, why am I playing tennis with my right?? I dunno, let’s ask my coach!
I don’t have children, which I already mentioned. So, I appreciate that this topic is above and beyond my personal experience. However, I talk to my friends with kids and I see a huge difference… financially. My good friend takes his son to the park and practices martial arts with him. My other friend has his 2 kids in every imaginable activity. I assure you these kids are not the renaissance man/woman sorts. I’m not saying they don’t have the capacity to be but taking your child to a few 1-2 hour lessons of a sport/activity every week doesn’t make masters.
$13k vs $7k Of Monthly Expenses
Both of these families have only 1 main income earner. I won’t count any part-time work or on/off work that the other partner does because they are really insubstantial. The household income for both families is the same though.
Family 1 manages to save pretty much just a 401k for the first 12 years of working as a doctor. The next 8 years the couple also saves another $10k every year which they invest in whatever they thought would be wise in their portfolio (they didn’t want to waste money on a financial adviser). By age 50 they had a portfolio of $859,000. Because of minimum student loans payments they also still had $188,000 left on that debt. Their house had 2 nice periods where its value was high enough that selling it would have increased their net worth by quite a bit. However, moving wasn’t a good option because even if they sold the house for a great deal they would have a hard time finding a good home in that particular seller’s market. So the equity in their home by year 20 isn’t much.
Family 2 has a similar income so they manage to max out their 401k, another tax-deferred account from work and they also put extra money towards a separate savings/investment account. This couple is paying down their student loan more aggressively. Any bonuses or windfalls are also sent towards student loan payments. So, by year 10 this couple had $0 housing debt because they continued to rent and only moved 1x in 10 years. Their portfolio was $1,300,000. Their student loans were paid off. More interestingly, at year 12 they hit a housing market slump and so jumped on a great opportunity and purchased a home in cash. They rented out the basement for a little income and started putting the student loan payments towards their investments.
By year 15 they had $2,650,000. Why so much? Because of money momentum. Naturally, before reaching age 50 this couple was able to retire. Not only were they able to retire but they also sold the house they bought for a profit and moved to a much more favorable location where they both found part-time jobs that they truly loved doing. Their $2.6 million was generating $8,000 a month of income, they took the profits of the house they sold and bought a new house within 2 years and therefore avoided paying taxes on the profits.
In Summary
Aw, what a great duel, what a great battle. As all things in life it comes down to a personal choice. But don’t start out by figuring out which lifestyle you would rather have at age 32… instead work backwards. Imagine which lifestyle you would want to have at age 45 (family 2) or age 50 (family 1) and work your way towards that.