You know, I had started to write a post about how once you reach that situation in which you have “extra” money – no debt, a fully-funded emergency fund, putting at least 15% into retirement, saving for children’s college – then it’s a matter of determining what your goals are. But then I took another look at the OP, and this popped out at me. Maybe I’ve just been listening to too much Dave Ramsey, but why isn’t your goal for all of this extra money to pay down your student loan debt as quickly as possible? I don’t agree with everything Dave Ramsey says, but I think his advice is very valuable for people who are in debt. You might want to pop over to youtube and check out some of his videos. If you set up your budget to really attack the student loan debt, I think you’ll find that your needs vs. wants will sort themselves out. One of the reasons why my budget determines what I buy is that I put 40% of my paycheck into various types of savings, including retirement, before I ever see it. If you put 40% of your paycheck toward your student loans, you would quickly begin to figure out what you really need to do with the rest of your money.
I did buy two bras today, because the ones I wear are on sale at Nordstrom.
I lost a really beautiful reply to a technical glitch, dammit. Let’s see if I can recreate the magic, but maybe in a way that is less long-winded.
Our financial priorities go in this order:
Having children
Paying off student loans
Extra toward retirement (we opened Roth IRAs in our 20s so we’re pretty much done saving for retirement, but extra never hurts)
We are 34 years old and due to my husband’s chosen profession, (clinical psychology), we’ve spent most of our eleven years of marriage getting his Ph.D. in another state far from home. The student loans are outrageous - $175,000 combined, even at an aggressive rate of savings I estimate they will take 12.5 years to pay off.
I’ve been waiting for a kid for over ten years. We lost our unborn child in 2014 and started the adoption process last year. Now we’re on the waiting list. The complication there is that adopting a child costs an average of $20,000. Can’t do it without the money. So that’s been priority #1. I hate debt, but I hate not being a parent more.
To be honest with you, my FIL was a financial advisor and he periodically reviews our situation to give us some direction. He explained that paying off student loans will cause us to lose money in the long run, given the average rate of return on investments relative to the interest on the loans. We’re still going to do it, because the restricted cash flow is an ongoing obstacle.
So yes, we have gobs and gobs of student loan debt, but we also have no other debt that carries interest (not a mortgage, not a car payment, nothing) and are settled for retirement. Things are not perfect, but they are pretty damned good.
My husband just got his full license to practice without supervision about two weeks ago, which is the final step in the nightmarishly long process of becoming a psychologist. As a result his income will go up, so I’m thinking we will just carry on as before, and all that increased income will go toward savings. Dealing with his variable income is also tough - it differs by as much as $2,000 per month, and it is completely unknown until we get the paycheck.
I do know how lucky we are. I grew up poor, the kind of household where I was instructed, ‘‘once you’re 18, you’re on your own,’’ but I legally emancipated at the age of 17, and experienced ‘‘on my own’’ as a high school student. I was ‘‘scouring the car cushions for quarters so I could pay for gas to get to school’’ poor. I screwed up and by the time I was 20 I had $10,000 in credit card debt, a credit score of 530 and 21 delinquent marks on my credit report. I avoided bankruptcy by working with a nonprofit consumer credit counseling agency, and I actually ended up working for them. When we got married, at age 23, we got a lot of cash so we used it to pay off my credit card debt. I got to start over.
My husband comes from a totally different background, highly privileged, with multiple millionaire family members. Trust me, the level of decadence in his family culture is insanity. But he is less materialistic than I am, appreciates what he has and he has always been very responsible with it. Managing money to him is as natural as breathing. He got his first investment account when he was 16.
Fortunately, despite my imperfections in this arena, we both shared the same values and financial goals and have worked consistently toward those. I have made mistakes. But I never stopped trying to improve. I’ve grown so much, I now manage the household finances to take the stress off of my husband. So when I say, ‘‘I saved $14,000 toward adoption fees in one year,’’ I mean I made the financial and budgetary decisions that got us there. I have a great credit score, too. All this stuff I’m talking about is a huge accomplishment for me. For us. It’s going to lead to us being parents.
Sorry, I think that was even more long-winded than the first reply. It’s getting late.
I am always all for spending money on your exercise gear. For me, that MAKES me use it. I hate the idea of having it sit around! Whatever makes my exercise routine easier makes me more likely to do the exercise and cuts down on excuses.
If you don’t have enough bras, if you get distracted and don’t wash them enough then you find yourself without a bra and with an iron-clad excuse to not get out and exercise.
I’ve done this myself. When I was going to the gym every day I had a bra, a tee and a pair of shorts for every day. Of course I found the best deals on all this stuff but it still cost some money to put it together. It very much helped me make it to the gym without excuse!
As for Amazon spending - have you ever used www.camelcamelcamel.com ? Instead of building your “wants” wishlist on Amazon why don’t you put your items in as alerts on that site, pick a low price for each thing and when that price is hit you get your thing and you save money.
I think don’t this rule is applicable to everyone. It certainly isn’t a rule I should be following.
Suppose I was deciding if I should spend an hour each day cooking all my meals from scratch or pay more for convenience food I could prepare in minutes. I might tell myself I should spend the money for convenience food because it saves me time and my time is worth money.
But to be honest, my time is not worth money. I look at my life and see a lot of slacktime (anyone who wants a cite for this can count the number of posts I make on this board). That hour I’d saved by not cooking wouldn’t earn me any money. I’d just spend an extra hour on the internet.
I’m an example of how there’s no reason to spend money to save time if you’re just going to end up wasting the time. You’re better off spending the time and saving the money. (Except that in my case, I would then waste the money.)
If you have a budget set up that addresses these clear goals, I’m just not sure why you’re having the wants vs. needs issue. You start by putting as much money as you can toward your priorities, and then you budget the rest in the remaining categories. If there’s money available in your clothing category (or personal care, or wherever you would categorize it), you buy bras. No money, no bras, at least until next month.
The bottom line is that you measure each purchase against your priorities. Would you rather have new bras, or put more money toward having children, or toward paying off your student loans?
I don’t know what you mean by “done saving for retirement”. Do you already have enough saved that you can withdraw 4% indefinitely when you retire?
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If you have a budget set up that addresses these clear goals, I’m just not sure why you’re having the wants vs. needs issue. You start by putting as much money as you can toward your priorities, and then you budget the rest in the remaining categories. If there’s money available in your clothing category (or personal care, or wherever you would categorize it), you buy bras. No money, no bras, at least until next month.
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I guess I thought I explained that. The amount of money in some of those budgeted categories is totally arbitrary. For example, $100/month for household expenses. I use the money we have available, but I don’t actually have to use it all. For the most part we’ve been doing just fine living within that arbitrary budget. I just want to be more thoughtful about my purchases and learn to live on even less. It’s the difference between ‘‘saving a lot’’ and ‘‘saving even more.’’
Assuming compound interest does its job at an average rate of return consistent with the last 100 years, yes. According to my FIL, a former financial advisor and businessman, we currently have enough money invested that we do not need to prioritize adding any more. I’ve checked, and so far our investments have been yielding at higher than the required average. That doesn’t mean we’ll never put a penny toward retirement again, but it does take some pressure off.
Ah. You need to do some experimentation. Pick a category in which you think you could do better, and adjust your budget so that less goes to that category and more goes to your savings/debt priorities. Try living with it for a while and see how it goes. If it works, add another category and repeat. If it doesn’t, try switching to a different category. Eventually you will find the level that feels comfortable to you.
What I was trying to say in my earlier posts was that I have found that setting a hard limit and trying to live within it always works better than just attempting to randomly cut spending. Thudlow Boink explained it well. It’s easier to compare Choice A to Choice B than to compare Choice A to Not A, since in that case, spending money will generally win.
Thanks. They’ve actually talked about that with You Need a Budget (I am a little bit obsessed not just with their software, but their content and philosophy), they point out that just putting money into ‘‘savings’’ is a lot more nebulous than, ‘‘paying for next car’’ or ‘‘vacation to the Caribbean,’’ or whatever. That way when you make a choice to spend money on something else, you know specifically at what expense you are doing it.
I thought I would try reducing the ‘‘Household Goods’’ budget and see how it goes.