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Monday, April 24, 2017

Spending More on the Right Things

Posted by Tim Stobbs on April 1, 2017

I swear some people think my life must be like a monk.  They confuse the fact that I don’t spend a lot with not spending anything at all.  So to clear that up: yes I spend money.  When you think about it, everyone does it so that isn’t so odd.  Yet perhaps the major difference between a lot of my spending and other people’s spending is I’m usually thoughtful on what I spend my money on.

Yet this does not mean I never impulse buy.  In fact, yes I splurge on impulse items once in a while.  Just once every few months rather than twice a week.  For example, my latest one was I was at the bank to deposit a cheque and I recalled that the local HMV location near me was shutting down soon.  So I wandered over there saw a sign stating that it was it’s last week and all the DVDs and Blu-rays were 50 or 60% off.  So I walked around the store and found a few items and bought them (Mr Robot Season 2, Contact and I Robot..if you were wondering).  Did I need them? Nope.  Did I plan for them? Nope.  Did I want them like a two year wants a piece of candy? Hell yes!  Yet prior to that I really can’t really recall a similar impulse spending event for the last six months.  At the very least I usually have a 24 hour cooling off period prior to buying something.

Then on the other hand I sometimes think things out too much.  I recently had decided to seek out a faster internet speed package from my telecom provider since after months of trying to deal with the issue I came to the conclusion: our internet is too slow for what our house uses it for.  Prior to that I had done numerous technical troubleshooting sessions to see if I could squeak more speed out of out internet, but didn’t improve things all that much. Yet in the end I decided I wanted a faster connection it comes down to this…my kids grew up and spend a lot more time online and my wife started to watch Netflix more.  So I was increasingly battling my family for times to download some files or watch Netflix myself.  So I called in and confirmed my options and found out that I could increase my internet speed from a max speed of 1.5 MB/s to 5.0MB/s (yes nearly 3 times faster)  for an additional $3/month.  After that I turned to my wife and said, “I’m a bloody idiot. I should have found that out ages ago and just upgraded.”  Now I can download a large file in a fraction of the time prior and while my wife watches her show on Netflix.  I was just in the habit of making do with what I had that it took me a while to realize the solution would be to pay the extra monthly fee and upgrade.

So in the end there are two sides of spending: the not thinking about it all all for impulse buying and over thinking something for months that costs next to nothing.  Either end isn’t particularly useful so try to stay somewhere in the middle to achieve a happy balance. That is usually where I spend the most of my time but even I screw up. So where do you tend to fall on that scale for your spending?

Using What You Already Own

Posted by Tim Stobbs on February 10, 2017

My wife and I use our spending cash to handle all the little things your typically buy yourself like a cup of coffee or a lunch out.  We both get $200/month each to fund whatever we want and if you don’t use it we are free to save it up for something else.  Essentially, it our way to ensure we have some money to spend guilt free without having to check in with it other.  The only expectation between us it we will use it to buy the odd bit of groceries for the house.  For example, some milk, eggs and bread.

Now January usually is a low spending month, after all, you just got a lot of stuff after Christmas so you typically don’t need much, but this month I have by accident taken it to extreme.  I have spent less than $25 of my spending cash for almost the entire month.  How did I do this?

Well I can tell you I wasn’t doing some super controlled spending challenge, or pinching my pennies till they squeaked.  Nope, it happened partly by accident and the other part of it was on purpose.

The first reason this low spending occurred is: my default state in life is to not spend money.  Pardon?!? I know it’s a bit odd, but perhaps I should approach this from the other side.  I know many people who consider that you have to spend money to have fun in life.  For example, to have fun with friends you must go out to a restaurant, pub, movies, etc.  Or to enjoy time as a family you must go out swimming or go to a movie at the theater.  Our lives are basically the opposite of that: how do I do things I enjoy without spending money (or very little money).  So to hang out as a family we go sledding with the kids at a local hill that is a five minute drive away and then we have hot chocolate with way too many marshmallows when we get home. Or we have friends over for supper and play games afterwards while the kids watch a movie in the other room.

The second reason is a bit of conscious exercise that I plan to do this year which is simple put: use the stuff I already own.  It may seem odd, but I noticed people tend to have the habit of always seeking out things they don’t have.  We want the new shirt or shoes; we want the latest movie, video game or a new book.  Yet we tend to ignore the huge pile of stuff we ALREADY own and don’t use much (if at all).

So to show a bit more respect to those previously spent dollars I’m making an effort this year to use what I already own.  I want to reread my favorite books, re-watch my favorite movies and TV shows, and use the recreation gear I already have (like roller blades and golf clubs).  I want to use our good dishes for the occasional Sunday supper.  I want to dig around my house and rediscover what I have forgotten we own (like the old Wii games or the video games that are already on my hard drive) and do projects with materials I already have.  Or cook with those spices and other food items I bought for one or two recipes and largely forgotten about.

Rather than looking for more without, I’m going to look for more within.  If nothing else, it should be a fun year.  So do you remember to use what you own?  If so, do you find it helps you spend less without much effort?

Overly Optimized Spending

Posted by Tim Stobbs on January 10, 2017

As many of you already know I have a very optimized plan when it comes to us spending our money each year.  I don’t spend more than I have to on my water bill, we borrow books from the library prior to buying them and will gladly spend money on buying a wine kit to brew at home instead of buying a bottle from the store.  Over all this results in us having a very good life on far less than most people would for a similar lifestyle.  Our spending is highly optimized to our particular wants and needs.

So for years I’ve generally considered optimized spending a strength of our plan after all when you are reducing your spending the you have more money for savings each month and you also can reduce your overall retirement goal.  For example, if you need $1 million to retire with a $40,000 per year expenses, if you drop your expenses to $30,000 you only need $750,000.  So you don’t have to save that extra $250,000 in the first place.  I always considered this a good thing.

Except when it isn’t.  Oddly enough I came across the idea it can also be a weakness to your retirement plan.  Which I thought was a bit silly at first until I realized what they were getting at (sorry I don’t recall where I read this or I would link back to the source).  Having overly optimized spending also means you don’t have much fat in your budget to cut as the core spending (like your property taxes, home heating, power or water) takes up a greater percentage of your overall budget.  It also means any jumps in those core expense have greater impact on your budget as you have less optional spending elsewhere that you can cut to cover it.  After all, when you are overly optimized you already cut most of the optional spending out years ago.

So let’s compare two cases to demonstrate this:  let’s say family A is spending $40,000 a year and they retire with $1 million saved.  Then the stock market drops 40% and inflation spikes so their core spending goes up $1000 per year.  So being reasonable people they look to cut $1000 per year out of their spending (or 2.5% of their yearly budget) and they go after a few things they haven’t optimized before and make up the difference.  Then we have family B with $30,000 a year spending and only $750,000 saved.  They have the same event and $1000/year increase in core spending from inflation.  Now they have less to cut in the first place and they have the added bonus of the increase being a higher percent of their spending at 3.3% of their yearly budget.  Over all family B’s ability to cut spending is more limited and the increased core spending dollar amount has a greater impact overall.

Hence the point that overly optimized spending can also be a weakness during your early retirement beyond being a help to get you their sooner.  So how do you deal with this issue?  Well me personally I don’t plan on changing my plan because of this, but I would suggest the idea of making sure you do have some buffer in your budget.  You might not really need that buffer most of the time, but even if you don’t use it initially that extra money could be spent on a one off event later on if you aren’t using the buffer.  For example, take an extra trip every five years if you aren’t using that buffer amount.  The size of that buffer is a personal choice and will shift with how much slack you have in your overall budget.  The more optional spending you have, the less buffer you may need and vice versa.

So do you have overly optimized spending?  What would you do to resolve the risk of higher inflation and a lower market?