By my late twenties my spending was almost double my yearly salary. I had been married for a few years, had a young family, and a home partly owned by the bank. The postman was almost a family friend, because he constantly delivered online shopping packages to our house. My wonderful wife never complained, even as the purchases grew in price and size.
When I saw our savings drop below our comfort point, roughly half my net salary, it was time to change. Our finances needed some DIY detective work, but I guessed I was murdering our bank balance. I loved playing with spreadsheets, so I created a budget workbook, then spent a few days combing through our bank statements for the last twelve months.
My online shopping and trips to the hardware store were the major hole in our pocket. I could have tried removing these purchases in the future, but I knew that was unrealistic. I needed to put a straitjacket on my spending, something to stop me from clicking “buy now” when I saw something I liked.
I normally used a credit card for my personal purchases, which I paid off monthly, but I didn’t track the balance during the month. I cut my credit card limit down to $1000, which was enough for most emergencies, and made me check the balance every few days. If I exceeded the credit limit I would be slugged a large processing fee. I hated paying fees, so I had to spending less each month, which forced me to rethink my personal purchases.
If we stuck to our budget we would see our savings grow again. I knew we could be disciplined with our spending, but rethinking every purchase would eventually wear us down. We need some “play money”, some cash to burn without affecting our budget too much, and without feeling guilty about indulging a little. I probably needed this more than my wife, because she was an expert at sending carefully.
The play money became our “personal spending budget”, which was around $200 per month, per person. We could each spend it monthly or spend the yearly total of $1200 anytime during the year. If there were large purchases, like furniture or a family car, we discussed and shopped for it together, and financed it from our savings. I was great because we could spend freely up to $1200 per year on whatever we wanted, and we were still saving a lot of money.
The personal spending budget was so successful for us that we’ve used it ever since, even into retirement. The amount could have changed over the years, but $1200 was enough money to keep us happy. Bonuses and pay increases were comfortably stashed into our savings without feeling like we were missing out. Our savings continued to grow and fund our investing, which really changed our lives.
Joe retired in his mid-thirties to spend more time with his young family. He started this blog to share his story, help others plan their path to retirement, and enjoy retired life.
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