Our Formula for Happiness: 2014 Spending

Spring has finally arrived! It’s time to say goodbye to the cold and snowy winter and hello to warmer weather. Many people have abandoned their New Year’s resolutions by now, but not you! You’ve decided to make changes in your life! And you’re going to stick with it the same way we’ve committed to bringing you this blog.  

We didn’t want to end the first quarter without delving into what can be a frightening subject for many. We’re going to strip down financially for you! That’s right, this family will reveal their happiness-spending formula.

To give you a better picture of our finances, we are a working couple with middle-class salaries and no children (yet). We are also very good savers. We can live on much less and still be happy, and when we do splurge, it’s usually on experiences rather than materialistic possessions.

You may be wondering why we chose to make our expenses public. Although some people are happier with even less than we spend, we want to demonstrate that the vast majority of Americans can live happy lives on much less. Some of our friends, family, and coworkers are perplexed as to how we manage to travel “so much” when they can barely afford one lavish vacation per year. It all comes down to priorities and the decisions you make. If you succumb to peer pressure and feel the need to have certain things to appear rich, you will struggle regardless of how much money you make.

2014 was a fantastic financial year for us. It was also our first full year of marriage. As we discussed in a previous post, our spending should reflect our values and bring us true happiness. We are aware of our spending because it represents our life energy.

One of the primary goals of spending consciously is to achieve financial independence as soon as possible without sacrificing the present. Our formula for happiness is to live in the present while keeping an eye on the future. After all, how can you shoot in the right direction if you don’t have a target to aim at? Knowing how your money is spent is one way to accomplish this.

2014 Spending

Now it’s time to talk numbers and reveal our 2014 spending. Our expenses are divided into three categories: essential, discretionary, and gifts/donations.

Essential Expenses

Our essential expenses accounted for $12,976, or 28% of our total spending. These are the expenses we consider necessary for survival. Essentially, if all hell breaks loose, these are the expenses that must be met in order for us to survive. We’re relieved to learn that we could have lived on less than $13,000 last year! Do you know how much money you spend in this category? We’ll do a quick exercise at the end of this blog post to get your creative juices flowing.

This is the most boring aspect of your expenses: the goods and services that you may not want to pay for but must. The good news is that if you decide to pursue financial independence, those who have done so say that all of this will be background noise once you achieve it.

Rent

We technically spent more than $3,585 on rent. We use this figure because the profits from the rental property are used to offset the rent. We believe that having a rental property rather than purchasing a home is a better investment at this time. We consider it a wash, and a very good one at that, because it keeps us mobile-friendly.

Our rental property’s tenants handle the lawn/snow removal, and our landlord handles all maintenance in our apartment, so there’s no lawn mowing or driveway snow plowing for us to do. Who said renting couldn’t be more advantageous than owning a home?

Discretionary Expenses

We spent 53% of our budget, or $24,646, on discretionary expenses. Although these expenses were not necessary, the majority of them added to our happiness. This is where the majority of us can get into trouble. The return on extra purchases diminishes over time and, more than anything, can cause stress.

There could be many wants in this category that people mistake for needs. The key point here is to avoid spending money you do not have. According to a “FI” standard, if you spend a lot of money on discretionary items while not saving and investing a significant portion of your income, you’re living beyond your means.

Restaurants

We expect this expense to be lower in 2015 because we have reduced our commute time and have more time to cook delicious food at home. By default, our grocery bill will rise, but this will be offset by a decrease in restaurant spending because we will eat out less.

When it comes to The Dirty Dozen, we eat organic. We would rather spend more money on healthy eating now than on prescriptions later in life as a result of poor eating habits. When compared to pills, healthy meals are far more delicious and have no side effects. We also eat fish and have a very low dairy intake.

I admit that our restaurant spending exceeds that of many others. We go to restaurants that serve a variety of international cuisines and have excellent food and service. That, by definition, is more expensive.

Entertainment

We are fans of Latin music. Although many of our favorite artists were not on tour last year, we did enjoy some acts. The King of Bachata, Romeo Santos, came to Philadelphia, and it was incredible. We also ended the year on a high note, dancing merengue until 6 a.m. in the Dominican Republic to the beat of Fernando Villalona.

The video below shows Romeo performing bachata, a Dominican Republic-born rhythm.

Fees, Interest, and Bank Charges

Oh fee… a blot on anyone’s budget. I’d rather continue talking about music. Last year, we paid $3 in fees. This is because my debit card expired and an automatic debit charge did not go through. To avoid a fee, we set up this automatic charge on this debit card so that we get a monthly transaction on our bank account. When there is no monthly activity on the debit card, our credit union charges $2.95.

Fees are blood sucking vampires that can sap your life energy without your knowledge. You don’t want to pay another penny in fees after you’ve paid off your debts.

The beauty of finally getting out of debt is that you get to be on the other side of the equation. Because you no longer have to pay interest, compound interest begins to work in your favor rather than against you. Your money begins to earn interest for you. It’s an investor’s reality. It is a transition from being a consumer to being a producer.

Travel

We love to travel, so it is an important part of our budget. It gives us life experiences that make us better people. When we travel, we meet new people, places, and cultures. I thought differently about it. I reasoned that purchasing a tangible item would be a better use of my money than going on a trip because, in the end, I would still have the object with me.

Was I ever wrong! Everything changed when I realized that life experiences added more value and happiness to my life. We also learn from travel that learning about each other’s differences and similarities makes us stronger.

Wedding

We celebrated our destination wedding in the Dominican Republic this year with close friends and family. We didn’t have all the bells and whistles, but we did have the essential items. Everyone had a great time and partied a lot. We were able to break even after everything was set and done! For the price of zero, we had the equivalent of a $25,000 American wedding. Yay!

Last year, we spent $37,622 on essential and discretionary expenses.

Gifts and Donations

This one means a lot to us. Last year, 19% of the budget, or $8,980, was allocated to this category. We are grateful to be at a point in our lives where we can assist others and make a difference. Nobody gets anywhere on their own. We got here because others helped us along the way. Our parents made significant sacrifices in order for us to earn a degree.

Also, if we hadn’t received college scholarships, it would have been extremely difficult for us to attend college. It is critical that we lend a helping hand and pay it forward. We also started a college graduation gift bucket for our nieces and nephews last year. Their college graduation cash gift is based on pay for performance. The higher the cumulative GPA at graduation, the more money they get.

Aside from gifts for friends and family, a large portion of this money is used to assist our parents and make charitable contributions. I wasn’t always able to provide financial assistance to my parents. It wasn’t because I didn’t make enough money, but because I was living the typical American lifestyle, which can drain your bank account and leave you with little money to help others. At one point, I thought to myself, “If I don’t help them now, when will I?” When Tatiana and I first met, we made it a point to help our parents live a more comfortable life. We began with what we could at the time and gradually increased our contributions.

We’re hoping that once we reach financial independence (estimated for March 2019), we’ll be able to contribute more to charitable causes through this blog.

Our total spending in 2014, including gifts and donations, was $46,602. We feel very accomplished because the total is less than what we budgeted for. Every year on January 1st, we plan our spending. We sit down for brunch, discuss our goals, and challenge ourselves to cut the budget if necessary. It’s minting time in heaven!

Taxes

Aside from property taxes, we purposefully left out the rest of the taxes in this report to keep things simple. We discovered that we pay significantly more in taxes than we thought, and our goal is to find legal strategies to cut the bill.

Financial Samurai, a personal finance blogger, does an excellent job of explaining the true size of the American tax burden. We strongly advise you to read it. It’s eye-opening!

Your turn!

Are you ready for the exercise we discussed earlier?

If you haven’t already, we challenge you to keep track of your expenses. You can use money management software such as Mint, Personal Capital, or any other that you prefer. After you’ve tracked them, categorize them, and see how much you actually spend in each category, particularly in the essential category.

How much money would you need to live on if you lost your primary source of income for a year? Do you have sufficient savings and liquid investments to cover in that scenario?