Capping your lifestyle

**Slug** · 04-05-2013, 09:09 PM

Seems like a reasonable path. With a capped lifestyle and goal to save for, you're in a good position in case any of the rest of your plans encounter troubles. I would just plan to be flexible with the timelines.

**disneysteve** · 04-06-2013, 05:57 AM

I think your plan represents the "holy grail" of personal finance that the vast majority of people can't seem to grasp. Don't let your lifestyle be dictated by your income.

When my wife and I were first married, we were saving 6% of our take home pay. As our income rose, we did bump up our spending some, but we bumped up our savings a lot more. So today, we live very comfortably but we save 25% of our gross income. More than anything else, that has really been the key to our financial success. I think you are on the right track.

**kork13** · 04-06-2013, 06:14 AM

I see one major problem with your plan .... WHAT ARE YOU GOING TO DO WITH ALL THAT MONEY?!?

Seriously, as already stated, your plan is enviable. If you can control your expenses as you increase in income, you'll have the ability to save hoards of money. You're guaranteeing yourself a comfortable lifestyle down the road, because you're happy with lower expenses, and you have more savings available to you. Your options become almost unlimited at that point. Great plan, and if you stick with it (or even if you slowly expand your lifestyle somewhat over time), you'll find yourself in a very comfortable position.

Only other comment I have is that you don't necessarily have to keep an absolute hardline on your present expenses. As another option that many other people use, you can take any pay raises and devote a certain percentage (perhaps 50%-80%) of the pay bump to increased savings/investments, and allow the remainder to be used toward small lifestyle improvements. That allows you to feel the benefit of a pay raise without potentially feeling deprived, and thus more likely to "fall off the wagon". So with your upcoming $1k/mo pay raise, you could save an additional $800/mo, and allow your expenses to rise $200/mo to allow yourself some extra fun, like a weekend trip, home improvements, an extra "date night", or whatever else strikes your fancy. I personally prefer this method, because it's my opinion that you can't just live in anticipation of retirement.... You want to enjoy life today as well! So giving myself a little extra freedom now (while still saving aggressively for down the road) enables a good balance between quality of life today and future security.

**MonkeyMama** · 04-06-2013, 07:13 AM

I have some different input. We put a cap on our spending at a very early age. It really has nothing to do with enjoying life. Quite the opposite. Instead of rolling in money we just can more easily deal with financial challenges. (Like, my spouse has been unemployed for a decade - no biggie to our end long-term financial goals. Stuff like that). Financial freedom like that is priceless. Our focus in life on having kids has shifted so much to the benefits of the non-financial. So, I just no longer equate "spending more money" with being more happy." Some day if our financial luck turns and we actually earn more money, then what would we do with all that money? Pay off our home and RETIRE!

& with 4 kids there is plenty of places for you to spend that money on (college comes to mind). I suppose all this to say, you will be enjoying life plenty. We also make a conscious effort to avoid debt, payments, contracts. But a one-time splurge like a vacation is fine. Something that doesn't keep a monthly income to upkeep. You would tend to spend less money on cable, homes and cars, is all. There are plenty of short-term and one-time expenses to enjoy with all that money. & kids seem to be a lot of that too.

Anyway, I was actually confused reading your post. IT was about putting a cap on expenses, but then about buying a bigger house. I understand the monthly cost would be similar. But is that true for everything? The upkeep, the property taxes, insurance and utilities? To me, moving up in home is not the same as "Capping your lifestyle." That is a potentially big increase in lifestyle. BUT, you do have 4 kids and maybe this is a very reasonable move. {Full disclosure, we doubled our house size when we were 25. Buy moving to a lower cost area we were literally able to keep our costs exactly the same - ALL costs of home ownership}. So, I get it. You can make a big move without increasing your costs substantially, then go for it. But in general, wanting a bigger house would be in direct contrast with the idea of capping your lifestyle. I would think long and hard about what you *want* and what you *need* and what the best balance is for you. (Our culture tends to be blindly buy up and up and up with age, so just make sure you are thinking to what is really best for your family, is all).

My only other advice is to be careful with the new home purchase. It depends on your bigger picture savings and net worth, etc., but I Would not buy a new home without selling my old home first, *unless* I would still be happy with that decision if the home lost considerable value before it sold. Just factor the worst case, you'd be surprise how it can sneak up on you out of nowhere. I speak from experience on that one.

**sarah** · 04-06-2013, 08:26 AM

Great Idea

Would you please post the title of the book. I'd like to read it

**boefixepa** · 04-06-2013, 02:16 PM

Well, it's a really big book and covers lots of topics -- Faith-Based Family Finances, is the title by Ron Blue and Jeremy L. White - and is Christian centered. Like I said a BIG book over 400 pages and I read them all! It seems I always find the gems somewhere I am not looking for it, and this book had a few of them for me. It was a Christmas gift from my mother in law some months back

Dang it, baby's up gotta go.

**sarah** · 04-06-2013, 04:17 PM

Thank you I'll look for it.

**dunnrobert700** · 04-15-2013, 06:03 AM

Good luck! Living below your means is better than living above it and psychologically difficult.

I will say my thinking on this matter has evolved. I (Irish) used to assume living WAY below my means was always best. Now I think the idea is to earn what I can and live AT my means, as long as I have the right definition of "At means". In other words it's all about goals and risks. The problem with the prior strategy is that living below your means can lead you to make pointless sacrifices.

So I define "AT means" as...

- Funded safety net: I want to be able to weather at least a year of unemployment.

- Conservative assumptions about investment returns (a little lower)

- Conservative inflation returns (a little higher)

- Assume I will never see a dime of social security

- Maintain quality health insurance and liability insurances

Then Forecast what I need to save to meet my goals which in my case include kids college and retirement. Leaving a big inheritance isn't really on my list. I already own my house.

All of this plus my income pretty much tells me what I can spend week to week and month to month and he "AT" my means.

**bjl584** · 04-15-2013, 11:49 AM

If you are able to save the increase in pay and not budge your lifestyle, then that is a solid plan. You will thank yourselves when it comes time to retire.

**BMEPhDinCO** · 04-15-2013, 01:32 PM

Sounds like a good plan - I would echo a few others and use $100-200 of that raise for "fun" (trip, family activity, dates, whatever).

I do question your retirement savings - are you close to the max you can do? What are your longer term goals with that (ie, when to retire)? If you aren't putting in at least 15-20% now, you should do that before moving on the house...

**boefixepa** · 04-17-2013, 07:06 PM

Well this is the goal we are looking at

Gross Income - 100%
10% Tithing
10% Taxes of various kinds
10% 401K - With 1% match, not much but something
10% Long term savings
10% Short term savings
50% Living expenses

With that we should be able to get things going. We may just stay in this house and pay it off in big junks...four years is a long time to come to terms with staying in this house....who knows, but I want to hold on to moving to a larger house for the moment.

**Wino** · 04-17-2013, 07:24 PM

I think I would accelerate the new-house-buying plan. Interest rates are going to go up with the end of quantitative easing. There's no way they cannot. Therefore, interest rates are going to rise in the next one to three years according to the federal reserve's telegraphing.

Real estate is coming back now and prices are going up. So, you have one investment that's only going to cost more in four years, and the money you'll borrow to buy it is only going to cost more as well. As long as your payment increase is low enough that you can still max out retirement plans, I suggest that the new house is as valid an investment now as any other retirement fund you can do over the matched fund (assuming 401K with matching).

So, my vote is to sell and move now while you can get low interest rates and not-too-high home values. Note that this assumes you can still put 15% toward retirement (gross income) even after you buy the house, and that your credit score allows you to get the best rates.

Also note that I'm assuming no credit card or car debts. If you have those, then they go to the head of the line, and everything else I said starts after those are paid off and never used again.

**~bs** · 04-17-2013, 08:13 PM

Originally posted by boefixepa View Post

It has been quite a while since I posted, but now with three small children computer time is VERY limited, sleep is such a commodity.....

Anyway, my husband is taking a new job in a few weeks. It represents a 20 to 25% pay raise. We live comfortably without the raise thanks to good planning and budgeting. Right now our plan is to save the increase, about 1k a month. In preparation for keeping the right perspective on things I read a finance book given to me a while back that talked about the concept of capping your life style. The basic jist of it is you self limit what you spend on your life style so that you have a nice savings margin as you advance in life. I really liked the idea of not letting your spending grow with your income.

We currently have a starter home I've owned know for 12 years. It has 20K-ish worth of equity in it even after the fall in real estate values and we make extra principle payments on it every month with a 3% interest rate. Our tentative plans are to save the 1k for 4 years, so approximately 50K for a down payment on a larger home. By then we should have the last of our planned 4 kids and be ready for a bigger home. Honestly, I will want it before then, but I am going to wait so I can do it without stress. So we use the money for the DP, move over the course of a month, fix up the older home a little after over 15 years of one owner and then replace our 1 yr EF with the sale of the old house. Does this seem a reasonable approach? Do you see any pitfalls I am not seeing?

My objective is that the payment on the newer house will be about the same as we are currently paying on this one. Thus, not increasing our lifestyle spending.

Thoughts?

Bo

What is the remaining term on your existing house? If you're going from 15 years left on the old house to 30 years remaining on the new, you are increasing your lifestyle spending regardless of what the monthly payment amount is.

Look at it this way, say you're paying $500/month for a 5 year car loan, and have 1 year left, then swap it for a new car & loan for $500/month for 5 years. Is that not an increase in lifestyle spending? If you sink more money into the new car from the sale of the old car + additional savings, is that not an increase in lifestyle spending?

There's nothing wrong with wanting a bigger/nicer house and being able to afford it, but in all honesty, you're just trying to fool yourself with the above justifications. Capping your lifestyle would be staying in your current home until you pay it off, then once it's paid off continuing to live there while adding the money previously gone towards your mortgage to your savings. Your lifestyle is capped, you're living in the same house, wearing the same level of clothes, buying the same level of food, taking the same level of vacations, etc.

**j33n22** · 04-23-2013, 01:03 PM

I find a tendency in myself to not allow my savings margin to grow with my income, so this is certainly something I need to fight. It's so rewarding to save.

Capping your lifestyle