Rich Reviews Where His Money Went in 2016 — His Future Self Will Be Proud

Dear Penny Pincher,

Unlike you, I have no problem spending! Especially when that spending aligns with my philosophy of money and the meaning of life. I set aside savings first, but as long as I’m on track with savings goals, I see little value in hoarding money for my future self.

In his book Stumbling on Happiness, Dan Gilbert argues that people are really bad at predicting what their future selves will want. Moreover, studies often show that older people wish they had traveled more when they were younger rather than saving for a hypothetical trip in retirement. Mrs. Rich and I have taken these ideas to heart, especially since we’re not trying to retire super early like Mr. Facial Hair and the FIRE crowd. (Note: I love the FIRE crowd and their blogs, it’s just not my destiny.)

I think the future Mr. and Mrs. Rich will be proud of how we spent money in 2016. Before I reveal the numbers on expenses, let’s talk income. Our gross income was $250,000 (not including illiquid investment earnings). We worked hard and had our best year so far. I’m not sure why, but I think income often gets lost in personal finance articles. It’s hard to manage money if you don’t have any, and education + career choices matter when it comes to income.

Here’s a chart showing our expenses by category, such as Investments, Travel, Food, Taxes, etc. Can you guess what the percentages are referring to?

Rich’s 2016 Expenses By Percentage

Rich’s 2016 Expenses By The Numbers

Voila! Surprised? A few quick notes on this, from largest to smallest.

  • The largest category was Taxes (federal and state) and other Payroll Deductions (Social Security, Medicare, etc). I’m not complaining — these are valid contributions to society. Quite a chunk. You’re welcome.
  • The blue categories are all Savings and Investments, adding up to 29.6%, or $74,000. So, you could say saving and investing is our 2nd largest “expense”. Pretty good.
  • We spent $36,000, or 14.4%, on Travel — a lot in absolute terms but a priority for us. In 2016 we visited France, Cyprus, England, Ireland, and Greece — 5 separate trips for a family of 4 covering 35 days. We also paid for 4 family members to visit us overseas.
  • Next up, preschool for 2 kids = $30,000. Living overseas, we’ve paid for them to go to a private international school (and camp in the summer). No regrets here. Between childcare and preschool, we’ve averaged $30k per year since the twins were born. Next year they start public Kindergarten in the US, so this will change.
  • The remaining 3 categories (Food, Clothes, Car) are just Life. Add them up and it’s $40k, around 16%. This includes toilet paper and Internet. You know, the essentials.
  • You’ll notice something missing here, and that’s Mortgage / Rent. Get ready to groan, but our overseas housing is paid for by our company. In the US next year, rent will be one of our largest expenses.

Believe it or not, 15 years ago I was making $40,000 a year, just like your own Mr. Penny. Now that we have a high household income, we try to be thoughtful about where the money goes without stressing out. In fact, it’s more than that. We intentionally avoid stress in budgeting by not budgeting at all.

Wait … what? A personal finance blogger with no budget? Yep, no budget. Have you ever read The Automatic Millionaire by David Bach? Our key takeaway from that book was to automate our savings and pay ourselves first. Any additional spending is just noise. This is the first time I’ve written out our spending categories in years.

I’ve said that life’s meaning and personal happiness comes from relationships, personal growth / work, and freedom / experiences. When I look at the pie chart, I can’t say I’m frugal, but I don’t see wasted money. The 3 biggest expenses after taxes are Savings, Education, and Travel, which all contribute to my family’s financial security, freedom, experiences, and relationships. I’m anti-frugal, with a purpose.

None of this guarantees happiness, but I think it sets the stage as much as a financial plan can. You don’t see a big category for material things. We do have some debt, which I’ll pay off in 2017, but you don’t see money going toward interest charges (our debt is all at 0%).

So Penny, you said you don’t know how to spend money. When most people say they have a spending problem, it means they spend too much, but you, my friend, are a rare bird. Where do you think this aversion to spending comes from? Is it a habit built over time, or is it part of your essential nature?

How did you spend your money in 2016? Now pretend you didn’t have student loans — how would you spend the extra? Better yet, let’s say Mr. Penny’s business takes off. How would you spend $250,000 (or $180,000 after taxes and deductions) to maximize your happiness?



2 Replies to “Rich Reviews Where His Money Went in 2016 — His Future Self Will Be Proud”

  1. Hi Rich, great post! Love the focus on travel and experiences, you’re effectively leveraging the covered housing costs by your company to really take advantage of that unique opportunity. I 100% agree that it would be a shame to just bank those savings and not really live it up. Great balanced approach!

    1. Max – thanks and congrats on being our first commenter! If I had a promotional mug, I’d send you one. But yeah, my wife and I talk about the present / future trade off all the time. The reality is that if we saved that money, we would just be postponing some trips in favor of our older selves, and we’d be missing opportunities to show our kids the world while they are young. At the same time, a healthy savings rate helps us to do these things without feeling irresponsible. Balance is a good way of looking at it. –R

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