Petty Finances - Our Philosophy, Goals, and the "Why" behind it

Many people have asked Melissa and I how we handle our finances and why we do it the way we choose to.  This blog post is an attempt to answer some of their questions in a concise posting that provides a few links.

Our Philosophy

Finances – Many philosophies on how to handle them, but few of those found online preach the true urgency of saving.  Over time, I’ve become a big fan of Mr. Money Mustache (MMM) – an early retiree/financial independent that, through aggressive savings and successful after college incomes, retired at age 30.  Although Melissa and I fall short of what MMM demands, we strive to meet his some of his basic goals:

1.     Focus on happiness itself

2.     Spend less – you (and we) already have a luxury life when compared with 90% of the world.

3.     Invest the excess in index investing.

Now, let me repeat this.  We are not perfect at this.  I’m certain that all my family and friends can highlight this, but I believe our family and friends can also speak to our frugal spending in less important spending categories.

Our Goal

Melissa and I have a goal to be Financially Independent (FI) by age 45.

Wikipedia defines FI below:

Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.

Now, this in by no way means that I will quit working completely at age 45.  Working for the State Department now is undoubtedly the most meaningful job I could have.  I make a difference.  I’m able to strengthen my abilities.  I continue to learn and have incredible professional growth.  Quite literally, I’m excited to go to work 98% of the time.  I don’t think too many people can say that!

I am happy to report that Melissa and I are on track for our goal!

How do we do it?

This is all great, but how can we do this?  Here are a few things that we do.  Maybe you can get some ideas for your family.

1.     Budget, track spending, and review weekly financial position on mint.com

a.     Make a budget with realistic, but disciplined estimates.

b.     Cut money out of places that don’t make you happier.

c.      Normally we complete this review on Mondays as a precursor to our Family Home Evening.

2.     Talk about nearly all expenses

a.     I have to convince Melissa that my expense is good and she has to do the same.

b.     With the exception of a very modest “personal” budget, the rule above applies.

                                               i.     For me, this has blocked unnecessary electronic purchases, going out to eat too often, and other stupid, male-typical purchases.

                                              ii.     For Melissa, this means home décor, occasional baby stuff, and a few other stereotypical female purchases.

3.     Does it cost over $1000?

a.     You have to get these purchases right.  Take them seriously and ensure you’re not going to take huge depreciation when you don’t have to.  Can you get the same purpose without losing your shirt?

4.     Forgetting about “big wins”

a.     A few times, I’ve received extra money due to a major project at work or a major award at work.  Instead of spending the money on anything, we throw it immediately into our investments.

5.     Stay at home

a.     From entertainment to dining, we do our best to keep activities at home.  It is nearly always cheaper and is just as fun. Things that we do outside of our house are generally are free or very inexpensive.

6.     Travel

a.     Although flights and rental cars always get us, we generally try to avoid lodging costs by staying with family or cheaper AirBnBs.  This is without a doubt one of our excessive spending areas, but when in the Foreign Service, it is a little bit of a necessary evil in an attempt to live a normal life.

Saving that much?  You can too!

In one of my favorite personal finance articles, MMM shares The Shockingly Simple Math behind Early Retirement.  In this article, it explains that retiring is prevented by spending, not saving.  By spending less, saving is automatic.

No doubt though – this is something you have to want.  Sacrifices to convenience and affordable luxuries on sometimes a daily basis feel very real.  And even with an income above the US household average, our savings rate (currently 52.3% of take home pay) brings us much lower than that same household average income.  Many things we would be able to afford, we can’t.  Otherwise, we won’t meet our FI goal.

Hopefully this explains a little more on the position we take.  We’d rather spend an evening with friends at home than out at an expensive venue.  We cherish the simple joys that come free and more often than not, more meaningful than the ones that cost lots of money!

Do you think you could get on-board with an MMM philosophy?  What items do you spend money on that don’t make you legitimate happier?  Check out your projection for FI here.