The $50K a Year Budget
If you've done much reading elsewhere in the Financial Independence Community, you'll have seen a lot is made of having a low cost of living. To do the subject justice will require more space than I'm going to take here, but the quick version of it is:
- The less money you spend, the more you can save.
- The smaller your yearly 'happy budget' is, then the less you need to save before you hit Financial Independence.
- Saving a dollar is better than earning an extra dollar. You have to pay tax on the dollar earned, meaning you actually need to earn more like $1.50.
The bottom line is, driving down your annual expenditure is all kinds of good. Not only from a financial stand-point either, but also from an environmental position. Buy less, consume less, throw away less - it all makes a lot of sense.
The Budget
I carried out a review of all of our expenditure between 1st October 2016 to 1st October 2017. We spent about $86k, which was a fraction over our combined income at the time.
This wasn't frivolent spending. We didn't eat out often, we didn't go out for drinks, we didn't buy ourselves the latest clothes or gadgets. However, the spending wasn't very deliberate, and we'd allowed incident expenses to creep up. I'm keen to write a dedicated post on how we plan to get our spending down, and all the changes we made, but ultimately we got a working plan down to $51k.
For reasons to do with plugging these numbers into our Retirement Plan this figure excludes the $26k mortgage payments.
Enough talk, let's see the numbers:
Notes:
- All amounts are in NZD. To understand the equivalent USD amount, reduce the figure by roughly a third.
- New Zealand is a higher cost of living environment that most "western" countries, mainly due to our location. We're literally on the way to no where else, and have a small population
| A | B | C | D | |
|---|---|---|---|---|
1 | 1st Oct 2017 - 1st Oct 2018 - Planned | |||
2 | Item | Annually | Monthly | weekly |
5 | House maintenance amortisation | 10,000.00 | 833.33 | 192.31 |
6 | Groceries, cleaning products | 10,400.00 | 866.67 | 200.00 |
7 | Nappies | 600.00 | 50.00 | 11.54 |
8 | Child Care | 6,760.00 | 563.33 | 130.00 |
9 | Holidays and Events | 2,500.00 | 208.33 | 48.08 |
10 | Gifts and Donations | 500.00 | 41.67 | 9.62 |
11 | Take aways, eating out, drinks with friends | 1,300.00 | 108.33 | 25.00 |
12 | House nik-naks | 800.00 | 66.67 | 15.38 |
13 | Electricity bill | 2,400.00 | 200.00 | 46.15 |
14 | Vehicle and transport (petrol, repair, wof) | 2,000.00 | 166.67 | 38.46 |
15 | Contents Insurance | 600.00 | 50.00 | 11.54 |
16 | Internet bill | 1,116.00 | 93.00 | 21.46 |
17 | Entertainment (cinema, etc) | 1,000.00 | 83.33 | 19.23 |
18 | Mobile Bill | 960.00 | 80.00 | 18.46 |
19 | Medical | 1,000.00 | 83.33 | 19.23 |
20 | Learning and business | 450.00 | 37.50 | 8.65 |
21 | Car insurance | 650.00 | 54.17 | 12.50 |
22 | Clothes and Grooming | 500.00 | 41.67 | 9.62 |
23 | House Rates | 1,500.00 | 125.00 | 28.85 |
24 | Misc | 2,500.00 | 208.33 | 48.08 |
25 | Contingency @ 10% | 3,753.60 | 312.80 | 72.18 |
26 | Total | 51,289.60 | 4,274.13 | 986.34 |
There's Still Some Work To Do
It could be that you're looking at this and thinking that it doesn't seem that much of a saving. I'd agree.
On one hand, it is quite frugal - these figures are supporting a family of four, and a dog. While some costs can be negotiated down by changing contracts or providers (mobile phone contracts, insurance, etc), others are already very low. I've spent more than $500 (around $330 USD) on clothes for just myself in a single shopping trip on many occassions, never mind managing less than that for me, my wife and two children under three.
On the other hand - $200 for food each week, $80 a month for mobile phones, $450 a year for "Learning and Business", $800 for household items (bulbs, candles, etc)! It seems like there is scope for movement here.
I hope there is.
This budget was designed foremost to be achievable based on spend we'd calculated from the previous year. It's going to be very interesting to see how the actual budget pans out. I'll be reporting on that hopefully in just over 12 months.