I am being perfectly honest when I say that the 15HWW household has not had a budget in years. For the past few years, we spent whenever we felt the need to and would never put off a purchase just because we “busted” some imaginary budget.
But just to make us more alert of our spending and brush up on our frugality skills, I have actually decided to impose a $42,000 budget for 2017.
1. Lowering it further could be way too tough
$42,000 in a year means $3,500 for a month, a very nice number. That’s a sum that is probably manageable for a household of two. I know there are some big families who manage to do with less, let alone couples.
However, we are aware that we have to pay $11,000 for our mortgage and another $5,000 to our parents as an allowance. That leaves $26,000 for everything else, which includes taxes, insurances, daily expenses, gifts and holidays.
2. It’s a worthy and reasonable challenge
15-20% just means we have to be a bit smarter with our expenses and cut back a little on the frivolous spending in restaurants. Probably spending less time shopping for stuff and more time cooking, which is likely to result in better health and better quality of life.
Basically, forcing ourselves to learn to live better on less.
3. $42,000 is a meaningful number to us
I am confident my income in 2017 will exceed $42,000. It would be comforting to know one income can sustain the household’s expenses.
At the same time, both the Mrs and I have some form of unspoken rule that almost no matter what happens, each of us would always aim to contribute at least $20,000 of active income to the household annually.
$20,000 in a year is not difficult since it would entail earning just slightly more than $1,500 a month. There are lots of part-time work (not to mention full-time) that pays this amount and this is very much in line with our goal of semi-retirement.
Therefore, if we lower our expenses to $42,000, it would further reassure us that the decision to quarter-retire before 30 was a shrewd one.
For example, if we only spend $3,000 in January, the buffer would increase to $5,500 and if we incur $4,000 in January, the buffer would decrease to $4,500. The target is to at least maintain the $5,000 buffer at the end of Dec 2017.
And if at some point we were to use up the entire $5,000 buffer, there had better be a very good reason (like expecting another family member?). Otherwise, draconian belt tightening measures might be in place.
At the very least, we are off to a good start as we have spent <$60 for the first two days of the year. The next step is just to:
We will be posting updates of our expenses every month, as usual. Stayed tuned to our progress! (Especially if you also aim to contain your expenses in this new year. )