We’ve never had a budget. If I had to explain our previous financial strategy, it would go something like this:
Max out 401k and HSA
Regularly contribute to 529s
Maintain 3-month cash emergency fund
Have no debt outside of mortgages
Buy whatever we want and always put it on a credit card
Never carry a credit card balance and never miss a payment
Move lumps of cash into after-tax brokerage accounts when excess cash available
Use brokerage account for future large purchases or investments
According to our financial planners, we’d be set for retirement by 65 and be able to afford each kid’s tuition (not board) at an in-state, public university. This plan no longer meets our goals, so time for a budget.
This post constitutes our annual budget planning report. We’ll do periodic updates to see how we’re doing.
Hello, You Need a Budget. Regards, 2017.
Author’s Note: Despite this post being published in September, the budgeting process and decisions made took place in March.
2017 started off great for our family, but terrible for our finances. After 6 months of the most hellacious trip planning I’ve ever experienced, we took a week-long trip to Disney World. It was an amazing trip and a place we’ll return. But the happiest place on Earth also happens to be one of the most expensive.
I’ve always passively tracked our income, investments, and spending, but I rarely did anything about it. Then in January 2017, our expenses came in at $15,837, nearly topping our highest spend month the previous year. We followed that up with a $17,864 record-breaking February, exceeding our previous year’s average monthly spend by 50% and setting a two-year record high.
Based on our 2016 effective tax rate, if we maintained this level of spending, we would need to gross $260k annually just to pay for our cost of living. That’s $260k of pre-tax income and not being able to save a single dollar. Not good.
Motivated by the new-to-me Mad Fientist podcast and stories of those on his show, it was time to admit we had a problem.
One month into beginning our journey to financial independence (FI), we nearly liquidated $100,000 of our after-tax brokerage accounts to buy a Tesla Model S. I know I’m new to this, but the financial independence early retirement (FI/RE) community would probably advise against that decision. But… I mean… have you ever driven a Model S? Ultimately, we decided not to buy a Tesla – at least not yet.
This post is the back-half of a two-part series breaking down our experience (part 1) and the numbers (part 2).
Stale Number Disclaimer
It’s guaranteed the second I publish this post the numbers on it will be stale. The numbers I represent are based on Tesla prices when we originally considered purchasing in March 2017, and then based on new prices at time of publishing in September 2017.
Acronyms Suck. The Model S Does Not.
I was going to create a lame acronym to explain the reasons we were a few mouse clicks away from buying a Model S, but then I remembered Elon Musk would not approve.
For us personally, the reasons why we wanted the Model S are:
Safety: It’s really safe, and we value safety when our family’s involved
Innovation: My favorite – over-the-air software updates!
Experience: Particularly the serenity you experience while your car drives you
Maintenance: Less of it
Happiness: The result and culmination of other reasons
Driving the Model S did to cars what our first trip to Napa did to wine… it ruined everything else by comparison. For more on this, read part 1.
Author’s Note: If you work in a corporate environment… actually… if you communicate with people on a regular basis, read and learn from this email to SpaceX employees in 2010 with the subject line “Acronyms Seriously Suck”
Range and Cost = Top Factors
As fun as going 0-60 faster than you can say the first name of everyone in your family was, there was no way we were getting a P100D. We cared about the mileage range and cost.
At the time the S60 was still an option, which as I understand was a software-limited S75. All the same we eliminated it because the range was 208 miles. In comparison, the S75 base was a few thousand more and got you up to 249 miles, 259 miles with the all-wheel drive 75D. At this range, we can make it to Port Aransas on the Texas coast without a stop. South Padre Island is a 46-minute charge at a Tesla Supercharger Station while we eat lunch. Anything longer than that is atypical for us.
One month into beginning our journey to financial independence (FI), we nearly liquidated $100,000 of our after-tax brokerage accounts to buy a Tesla Model S. I know I’m new to this, but the financial independence / early retirement (FI/RE) community would probably advise against that decision. But… I mean… have you ever driven a Model S? Ultimately, we decided not to buy a Tesla – at least not yet.
This two-part post breaks down our experience (part 1) and the numbers (part 2) leading to our decision from the perspective of pursuing FI.
I’m a bit of an Elon Musk fan boy. If you love tech and innovation, I feel like it comes with the territory. What he’s done at PayPal, Tesla, and SpaceX, and now exploring with Hyperloop One and The Boring Company is amazing! He’s disrupting the seemingly non-disruptable and making sci-fi real.
I believe I’ll see someone land on Mars in my lifetime in part due to Musk’s ventures and vision. One of the bedtime stories I tell my five-year old involves her becoming the first human to step on the Red Planet’s surface – I see the sparkle in her eye as she imagines the day it becomes reality. Over time we’ll see developments to support the human race becoming multi-planetary species – his penultimate vision.
Cool, so now how you know how I feel about Musk, let’s get back to the Tesla purchasing experience.
We’re six months in on our journey to become FI/RE community members. And while I do believe we’re six months closer to earlier retirement, the truth is the what and when financial independence and early retirement looks for us is still a moving target. The good news is we’re executing to the plan that we’ve created, we’re tracking and reviewing it, and we’re adjusting as necessary.
An interesting dynamic we’ve discovered is the sharing of our FI/RE plans with close friends. When we share that we hope to retire in about 10 years, reactions vary from astonishment to nonchalant acceptance. However, there’s hardly any follow up or probing to better understand how we could possibly do this. Do they think we’re stupid rich* and just bragging? Out of our mind and don’t want us to feel bad? Or do they just not care? *For the record, we are definitely not stupid rich.
My hunch is most people generally don’t feel comfortable talking about money and finances. While I respect that somethings are better kept private, I also believe that the financial IQ of society is severely lacking. Think about it: we ask our friends and neighbors for advice on all sorts of things – house projects, gardening, service providers, medical providers, places to visit, recipes – but when was the last time you asked them who they bank with, if they use a financial advisor, how they diversify their portfolio, or what their savings rate is. Why is that?
I feel like the lack of conversation on money contributes to the fact that many Americans make bad decisions with their money. And as a result, many struggle paycheck-to-paycheck, and many more will struggle as they approach retirement.