How can I spend so much? How my lifestyle has gone this far?
The very first step to financial freedom is definitely to know how much you need to live. This will set the bar and help you establish goals that must be reached if you want to become financially free one day. I’ve shared my thoughts on how I intend to reach financial freedom through 4 different ways. My biggest struggle to reach this has nothing to do with how much I make but rather how much I spend. A friend and fellow blogger, Dividend Growth Investor, asked me for more details about my budget. I thought it would be a good idea to share it with all of you so maybe you can help me find solutions where I didn’t see them.
The Budget
I’ve done some extensive budgeting exercises recently. The reason is that I’m now working day and night to build sustainable income sources from my online ventures to never go back to work for the Man once I arrive home from my road trip. I tried to reduce my expenses to a minimum for a limited time to make sure I can live my dream of being an online entrepreneur. Here’s what I came up with for a “minimal budget”:
As you can see, I’m spending almost $6,000 per month and several categories are at “0” which is unsustainable for a long period of time. For example, I can’t expect to have nothing allocated for savings and debt repayment for a long period of time. I also have a zero budget for traveling and vacations. This means the first year I come back, I don’t plan to go anywhere. It’s a good thing I have an RV so we can do a few weekends that would not cost more than our regular living at home and still do something :-).
Further Analysis
Housing: possible savings $220-250
At first, we can say that living in our current house is expensive. After all, this represents 33% of my total budget. However, I include my internet and mobile phones (2) in this category. The HELOC payment represents the interest only payment on my home equity line of credit. Then again, this is not a sustainable budget as I will need to pay it off at one point. I have a small mortgage as well with a low payment. I currently owe a total of $290K on a $365K house. An interesting solution would be to sell my house and buy a smaller one. I could probably manage to buy something around $250,000 and have enough space for everybody. The mortgage payment would be relatively the same ($800-$900 per month), but I would save about $220-$250 in other fees (taxes, electricity, etc).
Finance: serious need to increase it
The finance section is more about savings and debt repayment acceleration. Once I get back from my road trip, I don’t expect to owe more than $10,000-$15,000 on my personal line of credit. At one point or another, I will need to pay it off and this is why I would like to allocate $500/month in short order.
My older son will go to a private high school. I know this is a big debate, but I take responsibility for my choice of sending my children to a private high school. I’ve seen with my own eyes the difference between both public and private schools while I was a kid and now as a parent. There is a huge difference in terms of resources, attitude and value between the two. I don’t think public school is bad, I think it’s okay. And I also believe private school is better. I know it’s not a great statistic, but all my friends from private school are all making a very good living in jobs they love while my friends from public school are all making less and don’t enjoy their work much.
Food: can’t go any lower
I think that by putting $100 in restaurants and $100 in wine, I can’t really go any lower. Feeding a family of 5 with $1,200 per month is also a minimum. Keep in mind that my two oldest children (soon to be 9 and 11) are eating as much as we do.
Car: possible savings: $500-$550
If I get to sell my RV, I will save on licence, payments and insurance. This would be a pretty good financial move. The only reason I put it in there is because I don’t know how much the RV will be worth. I have a $45K loan on the RV and I don’t know how much I will be able to sell it for once I come back from my road trip. If I can sell it and pay off my loan, I might consider it. On the other hand, the RV could be my means of cheap vacations for a few years. I expect to have one car for the family that I would need to buy and pay roughly $400/month. I might save a few bucks there, but it won’t make a big difference if I pay $30 more or less.
Leisure: minimal expenses
I’m a firm believer that children need to find their passion and enjoy life. This is why I allow my three children to do their activities. My oldest son is playing competitive soccer and my daughter is doing hip-hop dance. I expect a small budget for my 3rd kid as it is less expensive when you are 5 ;-).
Health: can’t cut on this!
I don’t think I can or should cut on health. I assume I’ll have to pay for a private health insurance mostly to cover dental care and a few other things. Since I live in Canada, the main health costs are already covered by my taxes.
In an Ideal World, I Would Need $7,700
While there are some places I can cut in my budget, my FI budget today is more $7,700. The point is not to spend more, but but allocate $1,300 in debt repayment and savings (emergency fund + school funding) per month. The remaining $575 or so would be used for family vacations and a little bit more restaurants 😉
I know I will not need this much forever as the kids will leave the house, the mortgage will be paid and cars as well. I find that being in my 30’s is the worst time to save money since it seems I need to spend it everywhere in my budget. I think that if I can cut down on my expenses while maintaining a high level of revenues, I will be in a very strong position by the age of 40. Now, I want to concentrate on making $7,000 -$8,000 per month and pay down my debts as soon as possible. I’m seriously thinking of selling my house once I come back also, what do you think?
What would be the cost of renting a house that suits your needs? Or do you plan to live in the RV? 😉
We have a far bigger part for maintenance and upgrade per year. Maybe there I can cut some…
Our FI budget is in the planning tool I have is dynamic. It takes the estimated costs for that year and then I see if FI is possible. Over the years, the budget goes down (no mortgage), then u a little when the kids go to university.
Hey ATL,
I think I could rent a house for about $1,500, therefore, I would not save that much (since I would still have to pay for utilities bills).
I’m saving money aside for once kids go to university, I expect it won’t be cheap!
Cheers,
Mike
I think you are wise to aim high in regards to your FI number. The budget seems solid to me, particularly considering the size of your family.
What would the rest of the family think about selling the house?
Hey FS,
Thx for stopping by!
My three children obviously don’t want to leave, their little life has been established here. My wife don’t mind too much, just like me. It’s our third house already (we are in our mid 30’s) so moving again is not a big deal for us.
I guess I’ll have the answer throughout my road trip!
Cheers,
Mike.
It’s not a popular sentiment in the PF/savings crowd, but your expenses can only be cut so far, while income can increase (in theory) forever. On the other hand, saving every month is very important.
Based on my own personal experience (I did all 3 – in the US not Canada):
home school (as long as your kids are getting to be around their peers very often and have an active social life) > private school > public school
Hello Ben,
Yeah… I seriously think I’m better off focusing on increasing my income. The good thing is that I was able to pay lots of personal debts in the past 2 years with a higher income but the same lifestyle 🙂
Cheers,
Mike.
I think there’s a continuity error:
As you can see, I’m spending almost $6,000 per year and several categories are at “0” which is unsustainable for a long period of time.
should read “$6,000 per month”, right? Like the title?
—
You’re obviously not shooting for the Mr Mustache lifestyle !
Hello Respond,
Thx for catching this typo!
Nope, I’m not even close to Mr. Mustache, but I don’t think he has 3 kids either ;-). I can’t live in a small apartment for example. It’s all about making personal choices too!
cheers,
Mike
Hi Mike,
Thank you for sharing your budget with us. Six thousand sounds like a lot of money. On the other hand, you have 5 people to take care of. My budget is roughly $1,500 – $2,000/month, but it is for one person ( and the second person pays for themselves for now, though this will change so the total for two would be roughly $3K plus a few hundred). So I see a few opportunities to cut costs. Perhaps the best opportunity to cut costs would be in a few years, when your kids go to college/university. 😉
My first though is to save on housing by dumping the house and renting. It looks like HELOC + mortgage + HELOC principal payment+ taxes+maintenance is higher than the amount of rent. If you sold the house, you would have some cash, and have more time to spend on your side ventures than say fixing the house. If you decide to keep the house, when do you expect to pay it off?
I would also think that transportation is high – perhaps due to the RV and due to a long commute to work. I think that once you move back to Canada in one year ( assuming you do that), you will sell the RV and reduce your expense by those $420/month. BTW is that $420 monthly cost for cars you pay related to the payment of one/two cars? Do you know when those will be paid off? I am also not sure what this “$100” for monthly license is. The gas at $200 seems like a lot – but then I don’t know how much your drive to/from work is.
In terms of food, do you guys cook from scratch? I have found that cooking my own meals is cheaper and perhaps healthier than buying frozen for example.
In terms of wine, that is a lot of boxes of Franzia we are talking about 😉 But I think your restaurant expenses seem very low.
So I don’t know if I can offer much insight into your budget. Perhaps, I should mirror Ben above and tell you to earn more money. I would also advise to pay off any debt you have.
I wish you good luck in your journey – June is right around the corner!
DGI
Hello DGI,
We are seriously thinking about selling the house when we come back. It would be less expensive (and I would save lots of time too!).
The $100 for license is for 2 license plates (RV + 1 car) + my wife and my driver license. If I can sell the RV when I come back, this would cut lots of expenses off my budget. I might spend less on gas if I work from home, but gas is VERY expensive in Canada compared to US 🙁
As for food, we do everything from scratch. The problem is I have to feed 5 people (and my two oldest children eat as much as you and me!). We rarely go to the restaurant as we both enjoy cooking.
Thx for your insights!
Mike
DivGuy,
Damn… reading your analysis and chart – hard to save money. I think the big areas are your transportation and home. If you focus on those two to slim down the fat there, you’ll be happier/better off – reducing the space with a smaller house would be the route I would go. Get rid of larger debt and try to do analysis on property taxes and other lower utility areas, and then drill it down, to see if you can shave a few hundred bucks a month. Then, you can make your research and trial on the transportation solution. Pumped to see what you end up shaving! Thanks again for sharing.
-Lanny
Hey Lanny!
thx for your advices :-). When my wife had her daycare for 2 years, I felt we were rich ;-). We had the same lifestyle as described but we were paying of debts rapidly!
The year in the RV will enable me to think about how we want to setup our future life !
Cheers,
Mike
Yo Div great work,
I recently posted my expenses to http://retirementrush.com/expenses/ have a look to compare. I reviewed mine with yours and I enjoyed the comparison.
In my quick review: my expenses come in at about $5774/month without RRSP or TFSA contributions.
Differences:
– Our current HELOC is at ~1,000. (balanced with your mortgage as we don’t have one anymore)
– Our insurance is at $178 for cars and our house.
– Our food bill is at about $950 , but we only have one child so your bill seems reasonable.
– I have a miscellaneous section too which I allocate $1,000
Blake: Three Million Dollar Mission
Hello Blake,
it seems that we are in the same boat :-). Don’t worry, your food budget will increase shortly! hahaha!
Cheers,
Mike
About 25% of my income goes to rent and 10-15% for everything else including grocery. Saving rate of 60%. If I have a house and kids then my saving rate will probably drop to 30% or so. Cutting expenses is very tough since we cannot compromise the quality of living. It may be easier to boost top line. Thanks for sharing your detailed budgets and plans. Good stuff!
BeSmartRich