Finances: My $18,000 Annual Cost of Living Goal is Coming into Focus

"Wobbles the Mind" (wobblesthemind)
12/16/2018 at 06:07 • Filed to: Finance

I’m chucking money at the WK2 in order to get this rig paid off by April. Once I defenestrate this car payment, I’ll be close to living off of $21,000 a year, all in. That cost of living is still $3,000 too high for me to buy a house. Like a toy Giulia, we’ll do a little break down.

These were my month-to-month expenses during 2018:

Abode, Auto, and Ancillary (AAA)

Abode: $825 month ($9,900 year)

Rent - $754

Utilities - $52

Electricity - $19

Auto: $443 month ($5,316 year)

Car Payment - $373

Fuel - $40

Parking - $30

Ancillary: $295 month ($3,540 year)

Food - $210

Phone - $47

Gym - $38

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Once the Jeep is paid off, my new total will be $1,190 month ($14,280 year) . After that, my car purchases will come out of the Savings portion of my Discretionary Income .

What this doesn’t include are my Incidentals. Those are the mandatory items I pay for during the year but not on a month-to-month basis.

Incidentals

Emergencies (Urgent Care, Fire, White Fudge Oreos, Etc.)

Insurances

Registrations

Maintenance

Repairs

Taxes

Fees

Clothes

Supplies

Cleaning

Other and Suchlike

My Cost of Living (CoL) is made up of the combined totals from AAA and Incidentals annually. The AAA for 2018 was $18,756. I need to sit down and review my 2018 Incidentals but I believe they were around $7,500. Add the two together and my current Cost of Living is around $26,256 a year.

The Jeep will save me $5,000 annually including the lowered insurance premium . Cutting the last $3,250 a year WHILE adding in some new expenses will take me another two years.

My Discretionary Income is what is left over and becomes my savings and investments which support tithes, gifts, and eventually major purchases such as cars and a home. They don’t count towards my CoL, but they are the other half of my complete finances.

Mandatory [AAA + Incidentals = CoL]

Discretionary [Rest of Income]

The only real difference between a purchase coming out of my Incidentals versus at my Discretion is whether or not I need the purchase. If I need it then it comes out of my Incidentals and that counts towards my Cost of Living for the year. If I don’t need it and still end up getting it, then it’s coming out of my Savings and impacts my future (but I do leave room for myself to be happy and passionate rather than miserable and miserly).

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Part Deuce and a Quarter

Yes, I still have plans to nab a Caddy Wagon and a GranCabrio. As long as the CTS is paid in full, I can keep the $18,000 CoL goal for 2019 and 2020. Bad news is that the Maserati would put me over by around $4,500 WITH the car being paid off and about what I’m expecting in upkeep. That would place my CoL at $23,500 a year with a paid off Kia, Jeep, Jaguar, Cadillac, and Maserati. Again, I’m currently at a CoL of $26,256 a year due to having a car payment.

* We’l l talk about the Incidental Value of Vehicles i n another post .

The house problem is this, even if I did a 15 year mortgage on $140,000 at a 4% annual rate, the interest alone for the first three years would be around $5,000 (a hef ty car payment) . Add in the spike in incidentals like insurance, fees, taxes, utilities, furnishing and my CoL will end up rocketing by over $10,000 during the first few years (but rapidly declining afterwards while creating a positive investment ).

Getting my CoL down to $18,000 means I can take on that initial jump to a CoL of nearly $30,000. That jump comes from mortgaging six figures on my own but I’ll still have enough discretionary income to get the house paid off in under 9 years and minimize the time inside that zone.

In a shell station, I’m still working out how much I need to save and how quickly I need to pay off a house. But the potential to own a home and NOT pay rent or a mortgage would allow me to drop my CoL to $18,000 but with an AAA under $900 a month. That gives more room to my incidentals which is the part of finances which tends to be the troublemaker.

The CoL is also important because at $18,000 it takes a 5% annual return on $360,000 to allow for 100% of my income to become discretionary. However, in 20 years that figure will probably be closer to a 3% annual return which would require $600,000 to do the same work.

Daunting but doable.

DISCUSSION (21)

NKato > Wobbles the Mind
12/16/2018 at 06:36

I need you to teach me how to do this shit. So I can get my fiscal house in better shape than it is right now. (It’s in fairly good shape, minimal debt, and a 16.25/hr job starting out as a machinist...)

My most expensive month was in November, with slightly over $7,000 in expenses. (Car repairs/maintenance due to accident in October, new computer, etc...)

Wobbles the Mind > NKato
12/16/2018 at 07:50

This has been what works for me personally, but all lives are different. Cut day-to-day, then week-to-week, then month-to-month, then year-to-year.

Day-to-day is just saying no to one thing.

For week-to-week, I am all about using credit cards and paying them off each month. That alone turns week-to-week living into month-to-month living which is much easier to manage. You go from living off $600 a week to around $2,600 a month. That’s a huge mental relief because lots of things come up that cost $300, but things that cost $1,300 tend to only happen three times a year.

For month-to-month, debt payments and insurance payments are usually the biggest spots to cut from. Simply paying insurance bi-annually or annually can do incredible things in increasing what you have on hand. If you can pay something off, then pay it off. Don’t be these people with $40,000 in savings but $30,000 of debt.

After that, it’s looking at what can you pay off or save on across the entire year (this is where interest on loans and mortgages hit but subscriptions and memberships are also worth looking at). This way, next year you have more room for when really big incidentals come along. If $1,300 incidentals happen about 3 times a year, then you can expect a $2,600 incidental to happen once every one or two years and a $5,200 hit to come up over three years. [I’m actually cool with loans paying off incidents as long as they are paid off quickly or the interest rate is low enough to not hurt you much during the year.]

What you have left over becomes savings and that’s where all the financial gurus come into play the most. You’re kinda on your own for expenses.

But you can’t have savings if you don’t have money on hand even day-to-day. Credit cards, as long as they are paid off monthly, really do allow you to skip the first two steps and start at month-to-month living and looking towards year-to-year.

Quadradeuce > Wobbles the Mind
12/16/2018 at 10:25

This whole financial exercise needs to be a mandatory high school class.

Mid Engine > Wobbles the Mind
12/16/2018 at 10:48

Economics degree and all around cheap ass chiming in... there are a few things I want to point out. The cost side of the equation is certainly worth scrutiny, but so is the income piece. Get a raise in your current gig, quit and go elsewhere , or if need be get a side hustle. Case in point: I quit a “well paying job” in favor of an additional $60k in salary. I also do handy man work on the side to make a few bucks, pays for all the variables day to day.

Even at today’s rates (I kno w firsthand, I just bought a second house) it makes little sense to pay down a mortgage unless there’s no other way to make 4 % on your money (remember , you write off your interest) . Secondly, owning multiple cars makes zero sense financially unless you rea lly have no o the r use for your money. A rapidly depreciating asset isn’t something you want to aspire to. Then again, you can be a gearhead with the best education and common sense and own a Cay ma n, Tacoma, and a Focus. Color me weak, I want a convertible too..

BeaterGT > Wobbles the Mind
12/16/2018 at 11:14

Personal finance on Oppo? Sign me up! I like your perspectives on framing expenses. Many people focus too much on the paycheck coming in rather t han the money getting spent. Pretty jealous of your electricity bill.

You plan on having the full fleet once you get into a house? House expenses can be difficult to forecast but it sounds like you're confident in getting it paid off early.

merged-5876237249235911857-hrw8uc > Wobbles the Mind
12/16/2018 at 11:45

That’s impressive to say the least. Any thoughts on a spouse or kids? Cause that’ll blow up the budget real good.

My wife and I spent the early years of our marriage fixing the past financially irresponsible behavior on my part. I brought a bunch of debt with me to our marriage. But we persisted and got it all paid off and now we just live with at most one car payment, and the house. It’s very liberating not being weighed down by debt. I can appreciate the efforts you’re making, it’s awesome. Bit I did chuckle a bit when thinking about the wife and kids. We’re now on number 4 kid, so thr costs get pretty silly, but we keep our senses about us and do okay sticking to limiting the big stuff and keep the credit cards zeroed our each month. It’s a nice way to live and we are truely blessed. I only wish I had your good senses back when I was just getting into college. Would’ve been miles ahead. But it’s the road that’s brought me to where I am today and I sure can’t complain.

Keep at it, living in debt is BS of It can be avoided.

B_dol > Wobbles the Mind
12/16/2018 at 12:03

I find outlining a budget, identifying areas for improvement and target goals to be the easiest part. It is much harder to keep consistent month to month, year over year and allow compounding to work in your favor.

There is also very little flexibility put into your budget, what about unexpected expenses, weddings or vacations?

Mid Engine > merged-5876237249235911857-hrw8uc
12/16/2018 at 12:11

Five kids, the last one graduates college in June. We paid 100% of their college, they graduate with no debt whatsoever. It’ s really hard to pull off but if you eliminate meals out, coffee on the go, and scrutinize every expense it’s proven to be doable. That said I’m gonna party like it’s 1999 when Rob gradu ates!

Dr. Zoidberg - RIP Oppo > Wobbles the Mind
12/16/2018 at 12:25

If you can still get 4% on a house, you should be on that like ugly on an ape. If you have any plans of adding a home in the near future, hold off on any additional auto purchases.

Paying off vehicles sooner is good, but don’t let it eat too deep into your savings. 20% down on a home prevents you from paying PMI (in additional to lowering your monthly principle and interest) , effectively an added fee that lit on fire monthly. Your costs of living are quite low so maybe the PMI would be so lo w miniscule you wouldn’ t even notice.

In a general reply: good Lord your costs of living are so freaking cheap compared to here.

nermal > Wobbles the Mind
12/16/2018 at 12:45

How the eff do you get utilities for $71 / month?

$40 in fuel means you only drive ~75 miles / week if my math is correct. Work from home, or just walk to work?

The Dummy Gummy > nermal
12/16/2018 at 12:50

How are you getting 75 miles a week on that? Is that for a super fuel in efficient car?

A lot of cars get 25mpg on average. Assuming the average is around $3/gallon; that’s 13 gallons * 25 = 325 miles a week - if not more.

nermal > The Dummy Gummy
12/16/2018 at 13:31

It’s listed as $40 in fuel per month.

That’s 325 miles per month using your math, assuming that the Jeep can manage 25 mpg.

~75 miles per week.

fintail > Wobbles the Mind
12/16/2018 at 13:36

$750 rent and a 140K house, you’re posting this from 1991, right? :)

The Dummy Gummy > nermal
12/16/2018 at 13:51

T ouche, I didn’t realize that fuel price was for the month. Damn, that’s insane - less than 11miles per day or less than 5.5 miles each way per day .

Wobbles the Mind > fintail
12/16/2018 at 14:13

Lol! Actually, parts of Albuquerque would be lucky to be that modern .

Wobbles the Mind > BeaterGT
12/16/2018 at 14:16

Keeping the cars is part of the goal! The $18,000 CoL is just where I need to be before I buy a home if I want to keep the lifestyle I currently have (which I do, even though it’s an odd little life ).

RPM esq. > Wobbles the Mind
12/16/2018 at 14:18

Where do you live that electricity is $19 a month? How do you eat for $50 a week? The mind boggles. Where I live, $140,000 is a down payment, not a plausible mortgage. I need to sit down.

Wobbles the Mind > B_dol
12/16/2018 at 14:22

Those come out of my yearly savings. My CoL isn’t my total inc ome so there is actually a lot more flexibility than it appears. I'm glad you brought that up!

Wobbles the Mind > Quadradeuce
12/16/2018 at 14:24

Sooner! I bet there are a surprising number of kids making bank off Social Media before they even make it out of Middle School.

Wobbles the Mind > Dr. Zoidberg - RIP Oppo
12/16/2018 at 14:29

I always appreciate your insights! Home buying is the process I’m the most uncomfortable with so your old updates were always helpful.

Dr. Zoidberg - RIP Oppo > Wobbles the Mind
12/16/2018 at 14:31

I bet it will actually be easier for you because the your market is probably reasonable, plus you're not married. So you literally have no constraints, you can buy whatever you feel like.