Our Spending Budget is $500,000 This Year!

Gen Y Finance Guy Smart Spending 13 Comments

WARNING: This post is about to get ridiculous and maybe even border on preposterous. I realize that we have reached a level of finances and spending that is not relatable to the average person but I can’t let that stop me from sharing my journey. I’ve always written under a policy of full transparency and I won’t let that stop now.

With that out of the way let’s jump into how and why we plan to spend $500,000 in 2022. First, I must remind everyone that proportional to our income this amount only represents 14%, which is a far lower percentage of income than what the average person spends; we practice relative frugality and continue to ensure we follow the law of 50/50 at a bare minimum.

I’m aware that this income chart is absolutely ludicrous…I still pinch myself from time to time to make sure I’m not dreaming. Honestly, I grew up on welfare, and six figures was considered an insane amount of money that only “rich people” were able to earn. I was fortunate to blow past my pre-programmed set point and reprogram my mindset to one of abundance and unlimited possibility. That said, I don’t go a day without reminding myself where I came from and how grateful I am for my family’s financial success.

Although 2022 is a projection, this is what we believe will be our minimum income for 2022 based on known income sources (there could be significant upside from this number). I felt compelled to share the income side of the story in order to provide the right context for our spending but there is other information needed to understand why we have decided to spend such a lofty figure in 2022 when in years past our spending (back to 2015) has ranged between $115,000 and $200,000.

There are two main drivers that are responsible for this one-time step-up in spending. This is not a level of spending we plan to continue past this year, and in fact, we fully expect our spending to drop back down to the $150,000 to $200,000 range in 2023.

Driver #1: We bought and moved into our dream home. When we bought our previous home eight years ago (2014) we did so with the intention of trading up one more time. We actually started looking at properties in 2018 and even empty land as we considered building from scratch. The problem was that we compared every home and its view to that of my in-law’s property in wine country – where we ultimately wanted to end up. None of the houses came close to the quality, style, and view. Simultaneously, my in-laws had begun thinking about retirement and the need to downsize but hated the idea of selling the house they built 32 years ago, and had expressed interest in wanting to keep in in the family.

My wife and I talked about it and then floated the idea of us buying the property and them moving into the guest house as they transitioned to retirement and into a smaller space. They were thrilled at the idea of remaining on the property (with three generations) and the house staying in the family. This was in the summer of 2018 and it was an ongoing conversation until we made it official in early 2020 before the pandemic broke out by agreeing on the valuation ($1.6M) and putting 25% down in the form of a convertible note – just in case they changed their mind we wanted them to have an out. I tend to be the go-to guy when it comes to everything financial and they had shared their goals with me so I set up a very unique structure where we would only buy 50% of the property and they would continue to own 50%, with our 50% interest locked in at a purchase price of $800,000.

The initial 25% we put down went to pay off a 2nd mortgage that was on the property and the remaining 25% was a 1st mortgage that we didn’t assume until we started to remodel the property in late 2021 to prepare for our planned January 2022 move-in date (we ended up moving in 12/28/21).

Driver #2: We made a decision to pay for a lot of help and convenience in 2022. House cleaners came once a week to our prior home and that hasn’t changed but the weekly cost has increased because we moved from a 3,300 square foot house to a 5,400 square foot house. We welcomed our second child in August of 2021 and made the decision to hire a full-time nanny (actually two that split the day for a total of 54 hours a week). We continue to have our almost-four-year-old in daycare.

Forecast Spending for 2022 through 2024

Below is the forecast I recently pulled together that really falls into nine major expense buckets. I provide 2023 and 2024 to show that we fully anticipate our spending to normalize to a much lower amount as some of the one-time expenses fall off. I’m not a huge fan of locking us into a lot of recurring expenses, which is why you will notice that almost 50% of our spending in the outer years really falls into the discretionary bucket (travel, entertainment, other discretionary).

Let’s review each of the nine major expense categories for 2022 starting with the largest and working our way down to the smallest.

#1 Home Improvement ($291,647) – We budgeted $400,000 in improvements to the house on top of the $800,000 that we agreed to pay for our 50% stake. The reason we are not budgeting for this amount in 2022 is that we started making improvements in late 2020. There is a laundry list of improvements that we are making:

  • HVAC ($57,000) [Completed]– the entire system needed to be replaced as it was 30 years old and barely limping along.
  • Full Kitchen Remodel ($65,000) [Completed] – We’re lucky that my father-in-law is a contractor and didn’t charge us for his labor, otherwise this would have been twice as expensive. That said, I did end up buying him an e-foil board as a thank you…and I got myself one as well so we have something fun we can do together.
  • Paint ($12,500) [Completed] – Entire inside and outside of the house needed to be painted. We had actually expected to spend double this amount but a friend of a friend was young, hungry, and really talented.
  • New Garage Doors ($10,000) [Waiting for Quote] – This is an estimate for two new garage doors and operators.
  • Home Gym / Wellness ($12,000) [50% Complete] – You could argue that the Bathroom Remodel should be included here and you wouldn’t be wrong but it is broken out as its own item (as is the pool). We always imagined having all the amenities you can get at a really good spa paired with an epic home gym. The good news is that we already had some of the pieces to get this started. When we are done, the home gym will have all of the following: Squat Rack (PRX Performance – allows for squats, bench press, dips, pulley system, pull-up bar, etc), Select Tech Bowflex weights, Reverse Hyper, Rowing Machine, Stationary Bike, TV for guided workouts, Sonos Speakers for music, Ice Barrel for Cold Plunge, Sauna, and gym floor with a couple of mirrors.
  • Pool Remodel ($100,000) [In Progress] – As I mentioned, the pool was never permitted so we are taking care of that, but while we are at it we are adding a hot tub and re-doing the pool deck. We are also adding bi-fold or accordion-style doors that will lead from the family room/kitchen out to the pool. This estimate also includes the new patio furniture that we have already ordered. The pool itself needs to be refinished as well.
  • Outdoor Kitchen ($40,000) [Not Started] – There is currently an outdoor bbq but we are going to add a range, pizza oven, sink, and overhead cover to make this usable rain or shine.
  • Bathroom Remodel ($20,000) [Not Started] – We are converting our guest bathroom to a Steam Room Shower.
  • Furnishings & Other Misc. ($30,400) – This is a catch-all for anything not covered in the other major buckets. For example, we had to buy chairs, a dining room table, two bed frames, and a coffee table.
  • Replace and Upgrade two fireplaces ($20,000) [Not Started] – The fireplaces are tired and ready to be replaced and so we want to take this opportunity to put in larger units and update the tile work to something more modern.
  • Solar & Batteries ($60,000 > $18,100 net of tax credits and rebates) [Under Contract – Deposits Made] – We have actually been under contract since November of 2020 but hit a snag on pulling permits because the pool we have was never permitted so we have been working through that process. The good news is that we have a pool contractor involved and we are very close to having this done so we can get this installed. We will get the 26.5% tax credit ($15,900 in savings) as well as the State of California rebate for the batteries ($26,000). So the real cost of this net of those two items is $18,100 (we expect a ~4 year pay back on this).
  • New Gate Operators ($15,000) [Completed] – We have two entries to the property. One goes to the guest house where my father-in-law lives (my mother-in-law passed in 2021) and the other to the main house that we live in. These have built-in video calling and can be opened remotely from our phones.

Sub-Total = $441,900

Tax Credits & Rebates = ($41,900)

Total = $400,000


#2 Childcare ($82,112) – We have our son in daycare (~$12K/year) and have committed to a nanny ($70K) for 2022 for our now six-month-old daughter. We had trouble finding a reliable nanny when we first started looking in late 2021 so eventually, we decided to go through an agency. Although that added $7,500 to the annual cost we are very happy with the two nannies that now split the day for us. One nanny is with us from 8am to 2pm and the other takes the 2pm to 6pm shift.

In addition to taking care of our daughter, they cook, do light housekeeping (laundry, dishes, sweeping, picking up kid’s rooms), and run to the store for us as needed. We also get a date night every week, which is so good for our relationship and mental health. We also get one weekend a month that allows Mrs. GYFG and me to get away for a night or two – we have our first trip planned in early March.

This is a very large expense but we are grateful for the help and for the ability to afford it. We did make it very clear to the nannies that this was only a year-long position and that we would be putting our daughter in daycare after the year was up.

This expense will drop by more than $50,000 in 2023 when we have both kids in daycare and only need additional childcare for our weekly date nights and occasional weekend getaways. It will drop even more in 2024 when our son goes to school (yep, good ole FREE public school).


#3 Travel, Entertainment, Other Discretionary ($56,800) – We like to rent nice houses and stay at nice hotels. We don’t expect to hop on any airplanes this year but hope that is in our not too distant future. This also includes all other discretionary spending for things like eating out at restaurants vs. cooking at home, shopping for clothes, gifts for others, etc. In 2023 and beyond, we expect this to be our largest expense category.


#4 New House ($21,580) – As we have allowed for lifestyle inflation in our long-term plan we have always been careful and diligent to not lock ourselves into an expensive lifestyle with lots of fixed costs. Besides putting 25% down in early 2020, we have and will continue to pay cash for all the improvements, and by the end of March 2022, we will have closed on the sale of our old home and used those proceeds to wipe out the $400,000 mortgage that we assumed on the property.

This move will make the property free and clear and we will once again be 100% debt-free as we had achieved in the summer of 2018 when we paid off our mortgage for the first time. Some of you may be shaking your head about locking up $1.2M of cash into this property, especially when money is so cheap. I hear you and I completely understand the math but choose to ignore it in favor of peace of mind and ultimate optionality.

Note: the house was professionally valued at $1.6M when we signed our formal agreement – yes, we made it all official. Today, only two years later, the house is worth somewhere between $2.4M and $3M. The way we structured the deal the property taxes didn’t reset and with no debt the carrying cost of a house and property this big is minimal – property taxes, homeowner’s insurance, and regular maintenance (luckily my father-in-law is the resident contractor and comes with the deal). 


#5 Utilities ($15,000) – This will cover electricity (soon to mostly be free from the sun once solar and batteries are installed), water (which is much cheaper than I expected due to the efficiency of the drip system and agricultural pricing, since we grow avocados and lemons), propane, and waste management (trash and sewer).

Note: I’m probably light here in the outer years because I forgot to include a pool maintenance person and water will certainly be more expensive in the summer months. My father-in-law takes care of the help that keeps the property maintained (there are about 100 avocado trees, a dozen citrus trees, apple trees, and plenty of other landscaping to take care of on the five-acre property). I won’t know until the end of the year but this might actually be more like $15,000 per year in 2023 and beyond.


#6 Groceries ($12,000) – We now have a family of four to feed. We eat most of our meals at home. We buy organic and try to stay away from processed foods as best we can – although we are not perfect by any means.


#7 House Cleaning ($8,640)  – We’ve had house cleaning for years now and it has been worth every penny. Mrs. GYFG and I work plenty and want to spend the time we are not working with our kids and the things that bring us joy around the house. Our cleaners come weekly and this lifts a huge burden off of us vs. spending our nights and weekends trying to keep the place clean.


#8 Auto ($6,000) – Our cars are fully paid for and we really only spend money on gas, insurance, and regular maintenance. Most of this expense falls on Mrs. GYFG’s car since I drive very little working from home full-time since 2019.

Note: Since I haven’t been tracking our expenses for a couple of years now, I wouldn’t be surprised if I’m short here by $2,000 to $4,000 per year.


#9 Old House ($6,221) – The house is currently in escrow with an expected close date of mid-March. It was a good house and we’ve doubled our money on it after eight years of ownership.

Note: we will be killing two mortgages at the close of escrow on our old home, freeing up almost $50,000 a year in cash flow.


As you can see after a detailed review of the expenses, there are certain areas that are total estimates, and rather than going back to adjust the forecast I shared at the top of the post, I prefer to just call out where I think I’m light. That said, I think overall we are directionally correct with puts and takes across the categories (within a margin of error of +/- 10%).

Although we are going to be pretty spendy in 2022, somewhere in the neighborhood of $300,000 to $340,000 is what I would consider as one-time non-recurring expenses, some of which will actually be saving us money in the long run. The end goal is to make the property so nice that we never really have to leave – it’s like living in a resort with no checkout date!



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Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a 30-something C-Suite executive. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More

Comments 13

  1. Nothing shocking about that income or spending. I’ve got some billionaire friends and they spend that much on just keeping their personal jet ready to fly them to any one of their several luxury abodes around the country. And even with seven figure annual spends they are unlikely to ever spend even one percent of their annual income. I’d say you are relatively frugal, as are they. My wife and I will spend nearly as much as you this year and we have no active income to speak of. However I would categorize spending on real estate as more of an alternative investment than actual spending. You could, in a worst case situation, get that money back with additional appreciation as well.

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      Author

      Hey Steveark,

      Friends in the Billionaire club…interesting. Conversations must be interesting too say the least. I only have relationships with other entrepreneurs that tell me stories about their billionaire friends and riding on their jets 🙂

      I agree that the spending on improvements on the house long term in the worst case are really just a balance sheet transfer and have the potential to appreciate. As long as you don’t go crazy with improvements and you stay put long enough (or the market is crazy enough) you make your money and then some.

      We are closing on the sale of our old home today and we bought for $370K, put about $100K worth of improvements over eight years, and sold for $750K. We are already deep in the money in terms of equity from our agreed purchase price on this house that I have little doubts that we will make a lot of money on this house if we ever decided to sell.

      You mentioned that you and your wife would spend close to $500K this year with no active income but I assume you do have some passive income to offset some of the spending? My goal has always been to never touch the principal and only spend income whether active/passive and continue adding to the compounding engine. We should have about $250K/year in passive income in terms of run rate by the end of the year, but the goal is $500 to $600K per year.

      Cheers,

      Dom

      1. They never let me ride on their jets, usually they are asking me to work on one of their projects for free. Maybe that’s why they have so much more money than I do?

        1. Oh, I didn’t see the question. I made six figures a year doing a tiny bit of consulting the first five years of retirement. That covered 100% of our costs. Last year I stopped most of that, so only a token amount of active income now. We are withdrawing about 3% from our portfolio now and will continue that for four years until we take Social Security. SS will pay us $72K in 2022 dollars when we start to take the benefit and our withdrawal rate will drop to 1% from then on. I don’t distinguish between growth and dividend or interest income, I only look at withdrawal rate and 1% is safer than safe. We could safely double our spending, we just don’t have a desire to spend more.

  2. This is awesome Dom!

    A couple things:
    1 – After reading your post about the Self Generation Incentive Program nearly 2 years ago I sent an application off to PG&E for my parents and after a year and a half wait today was the day that 2 Tesla Powerwalls were installed! They are beyond stoked and I wanted to give you a HUGE thank you for that $26k win.

    2 – I’d love to hear more (perhaps a future post?) about the specifics of your home gym/wellness center. What equipment did you buy, how big is your space, did you go with an infrared sauna etc? I’ve been taking notes on everything I’d want in a home gym for some time now but it’ll be a while yet before I own my forever home. I’m also glad you purchased a reverse hyper! I recall you mentioning back pain in a post way back, and that machine is amazing for back health. I purchased the Rogue Westside Scout Hyper last summer for just under $500 and use it 5x a week now. It’s one of those non-negotiables for me. I also found a knockoff of the 10-90lb Bowflex adjustable dumbbell set on Facebook Marketplace for $400 too. It really doesn’t take too much to put together a pretty decent setup, though going with Rogue for everything can quickly get to that $25-$35k home gym price tag.

    I’m looking forward to seeing this dream resort house come to fruition!

    1. Post
      Author

      Keenan,

      I’m so happy to hear that you were able to take advantage of the SGIP program for your parents….nothing like getting two Tesla batteries for almost free!

      I fully intend to write a post to share the details of not only the gym but the rest of the property.

      The gym space will occupy about 400 sqft of the 600 sqft space available. The remaining 200 sqft will become my office with a boardroom style table.

      I linked the sauna above.

      Cheers,

      Dom

  3. Gym / wellness area sounds legit!!! 😁. Glad to see sauna included, definitely the secret weapon when it comes to fitness / wellness – clearly a man of good taste.

    Separatel, I think that there’s no point in having money if you don’t use it for things that make you happy. As you point out at the start of the post, the spending is small in comparison to your income. More importantly, the spending is small in comparison to your net worth / assets – I think many high income individuals in the past have made spending commitments only to see their income evaporate due to an economic upset (you’re clearly not in that position).

    Sure you’ll be relieved once all the renovations are finished.

    HH

    1. Post
      Author

      Thanks, HH.

      If you or anyone is interested her is the link to the 4 person barrel sauna that we ordered and are anxious to receive.

      I totally agree that money needs utility vs. just being a number on a scorecard…otherwise what is the point?

      For me personally it is first and foremost there to provide optionality for me and my family to do what brings us the most joy, while providing a level of security that gives us one less thing in life to not stress about – for the remainder of our days.

      Lifestyle has always been a part of the grand plan. You know well from as long as you’ve been a part of this blogs community that extreme frugality is not my game.

      Cheers,

      Dom

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      Author
  4. pretty incredible to see the income growth!

    My wife and I actually may be experiencing something like this as well (not even close in magnitude), but with a meaningful swing upward this year and next from our earlier years. I started a new job last year and we may have a liquidity event in the next 60 days or so… fingers crossed!

    My individual income trend is something like this, estimating in 2023 assuming we don’t sell the company again and have another windfall, haha, and also excludes my wifes income ~$130k/yr since we married in 2020):
    2012: $60k
    2013: $76k
    2014: $91k
    2015: $99k
    2016: $115k
    2017: $120k
    2018: $120k
    2019: $130k
    2020: $125k
    2021: $145k
    2022: $205k (could add another $250k if my company’s liquidity event goes through in the next couple months)
    2023 – est: $240k

    Kind of crazy to think without the company sale, I’ll make almost as much this year as I did in my first 3 years of working combined. If I include the equity payout, would be more than my first 5 years of income combined!

    My first kid on the way too so shaping up to be a great year all around.

    1. Post
      Author

      Rub – that income trend is great! What kind of business do you have? Is the potential liquidity event a partial or full exit? Will you stay on after the transaction closes?

      Congratulations on the pending new addition to the family.

      Wishing you and your family much success and happiness.

      Cheers,

      Dom

      1. Thanks for the wishes.

        Actually I’m an employee in software company and we’ve got equity as part of compensation, and a liquidity event would accelerate some of the initial grant.

        The event would be an ownership change (current owner selling to another company). Fingers crossed, there’s a good role for me in the new combined company, but I’m also in admin (finance/accounting) in a senior role, so time will tell how many of us they need, and also what the new role would even be and if it’s a fit.

        Honestly, worst case I’ll stay on for a few months for transition, and then take some time with my newborn for a few months and find another job.

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