Tuesday, October 11, 2011

Notes on budgets

Let me be explicit here and for the record state that we don't have a budget.  I don't have a budget.  Sure I check in on my spending once and a while and I have an idea of how much money will go to general categories of expenses but I don't have targets for each months much less a written budget or an Excel sheet.  I don't worry about blowing a budget I just worry about spending imprudently.

Anyway, there's definitely a fairly consistent level of spending around here. Between the two of us it's a grand total of low $2k-2.5k a month-ish.  There's a lot of variance, but that's the ball park we've averaged over the last couple years.  So we're solidly under $30k a year, closer to $20-$25k.  With that as context, I found this note from ERE pretty interesting:

The Wheaton Eco-scale explains this in a brilliant way. Consider people living at different budgets, e.g. $100k, $80k, $60k, $50k, $40k, $30k $20k, $15k, $10k, $7.5k, $5k, $2.5, $1k, and $0k. Now, what Wheaton observes is that people who spend one or two levels below you are inspiring to you in terms of budget reductions. People who spend three levels below you are slightly nutty and people who spend four or more levels below your are crazy or downright extreme. This holds no matter where you are. If you spend 60k, then 50k and 40k is inspiring, 30k is nutty and 20k is crazy. If you spend 30k, then 20k and 15k is inspiring, 10k is nutty, and 7.5k is crazy. Conversely, people who spend at levels above you are considered prodigal or wasteful.  Early Retirement Extreme

I'm seeing this on two levels.  First, and most obviously, some of my classmates' spending is slightly eye-popping to me.  $60 party ticket plus another $60 in drinks and a $25 cab ride makes for an entire month's worth of going out spend for me (or more), but is a regular night on the town for a more than a few folks I know.  And I am completely guilty of judging them.  Can't say I'm proud of it, but I definitely do judge.  Never mind that many of these same kids are sponsored by their employers or are eligible for reimbursement if they go back for two years.  That's potentially $50,000 a year less in tuition that they're on the hook for.  That buys a lot of parties.

On the other hand right now I'm not sure how I would further reduce our expenses, much less be able to Jacob of ERE's $7,000 a year budget.  For two the budget becomes $14,000 a year, just under $1,200 a month.  And he's paying out of pocket of his own health insurance.  We'd have to slash an average of $800 a month to get there, possible if we stuck to very bare bones and had no surprises or irregular expenses.  But that seems completely unrealistic and, to be honest, completely miserable to pursue for us.

I imagine many of my classmates might say the same of my budget.  So while I'm not making any changes to our spending (there's neither the time nor the energy right now - I'm giving us twenty thumbs up for pretty much maintaining) it does have me thinking about what we consider possible versus ridiculous in our spending and in our lifestyle as a whole. 

What would be a budget or spending level you'd consider crazy?  Wasteful?  Do you judge others' spending habits?

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  1. I think it's hard to determine a budget level that I think is crazy because everyone's situation is different. However, for a family just like mine, I would think that a budget of $20-25K is slightly crazy. I'd want to know how they do it, but I still think it's a little crazy.

  2. Really enjoyed this post. I think your distinction between possible and ridiculous is very true and also wise. I've seen people get so wrapped up in achieving a certain level of frugal that they are missing the entire point. We should strive to do our best, but we shouldn't strive to entirely stop living or feel obligated to endure misery to achieve it.

    I try really hard not to judge other people's spending habits, but sometimes I do lift an eyebrow or two. Though, I think those people probably judge me too just in opposite way. Our priorities and lifestyle are really different.

  3. $50k/year we spend on living including kid and mortgage. About 1/3 of our income.