I have been looking at my year to date expense tracking for 2012.
I think some valve must have been loosened in me this year, because I have been spending a lot more this year compared to the last two. I have currently overrun the 2012 by about 5K and there is still over a month to the end of the year. Although my 13th month bonus in December may lower that by half. But still…
I have also finished planning the budget for 2013 (What can I say? Budgeting is my favourite PF activity) and loosened things up a bit compared to the stricter budgets for the period 2010 to 2012. The higher than expected rental income for 2013 will help quite a bit in this respect.
Throughout it all, I keep telling myself I can afford it on my income. And I can. The budget overrun exists only if we consider that I have made a 25K additional payment on my mortgage this year and paid about 30K in cash for all the one-off costs associated with renting out the condo. Next years’ budget was also made without consideration of the bonuses and share options that will be exercised, so I have anything between a 20K to 40K buffer.
But somehow, something feels off, even though the mathematics seems to work out. I keep having this feeling that somehow I shouldn’t be able to afford the excess spending, even if my monthly income is averaging out to 15K a month, all things considered. I also met my savings obligations. Just what is wrong?
And then, I read this Mr Money Moustache article and the light bulb went on when I came to this paragraph:
“You just need a new definition of “can I afford it?”
If you still need to work for money, or at the very least, if you’re not saving at least 50% of your take-home pay, you can not afford it. Where “it” is anything.”
I think this is what has been bothering me. I have been operating on the old paycheck-to-paycheck definition of “can I afford it?” and that obviously didn’t gel with my early retirement mindset. Yet, I have felt that I was being too strict on myself and needed to let go a bit. Mr Money Moustache’s new definition of affording it gave me my new balance point.
So, what could I have afforded what I did in so far in 2012 and what can I “afford” to spend in 2013? First, I need to determine my savings rate, which is a conundrum in itself. Do I get to consider payments to mortgage principle? How about whole life insurance premium payments, since there is a cash value associated with it, unlike term policies?
Personally, I think it is legitimate to include mortgage principle payments for investment property as well as life insurance premiums that contribute to the increase in cash value, since both add to my personal net worth.
Based on this, my savings rate for 2012 to date is about 54.6%, just over the 50% mark, so I guess I can technically afford the spending, but not much more for the year. My more generous budget in 2013 puts me at 60% if I don’t have any vacancies for the condo next year, and 41% if I have a 2 months vacancy, but does not include any bonuses which I may receive. I guess this means I have still have a bit of space for guiltless spending next year.
No, I am not going out on a shopping spree starting Jan 2013, but it does make me feel relieved to realise that I “can afford” it by both matrices. Am I over thinking things? Maybe, but I rather err on the conservative side.