Russell Nagami's Blog

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:

• 500,000$ in debt on a place to live
• A 30,000$ car you don’t need
• Kids that need to go to expensive private schools their whole lives, totalling more per year than the median American household earns before taxes.
• A yearly vacation that leaves one more stressed coming home than leaving.

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:

• Friend: You should have bought X car/let’s eat Y for dinner/why are you still using that instead of buying new Z product.
• Me: I can’t afford X, Y, or Z.
• Friend: You make 70,000$, you can afford it.
• Me: No, I can’t.

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?