Merry Christmas to me! Lifting the budget

Once upon a time I decided I wanted to retire early just like Mr. Money Mustache. I was convinced I would get my spending down below $30k a year, and have hundreds of thousands saved by the time I ticked over 30.

I was sure I would be a DIY queen, and flip houses like Mr. 1500. I'd make amazing food like Mr Tako, and retire to the countryside like the Frugalwoods.

Alas, as I sit here at (almost) 28, it is clear that these things take longer than anticipated. If I want to kick my FIRE into overdrive, I should be cutting back costs so I can save and invest more.

Instead, my Christmas gift to myself is permission to spend more.

In what might be seen as a frugal fail, I think it's time to cut myself a bit of slack, and loosen the purse strings. There are a few reasons why...

Inflation

Firstly, let's talk inflation, specifically Consumer Price Inflation. We're all affected by this, and it's a strange economic phenomenon where the exact same loaf of bread that used to cost me $3.40 a loaf is now costing me $3.50. It's the baffling part where my energy efficient changes haven't made a dent in my power bill, despite my usage rates having dropped by 15%. It's seeing clothes on special that cost more than you paid for them at full price five years ago.

There are many reasons why inflation happens (and if you want to dig into it, you can start here) but for the sake of this post let's just agree that it does happen. It's the reason most employers give you a small pay rise every year - so that you can maintain the same lifestyle. 

For the last three years inflation has fluctuated between 1% and 2%, mostly towards the upper end. This means that something that cost you $100 three years ago will probably cost you $106 now. Or on the flip side, spending $100 now should get you the same product as spending $94 three years ago.

Putting this into perspective, three years ago I set my budget for $40,000 a year. That same amount of money now only buys me $37,650 worth of goods.

Business Expenses

Once upon a time I strove to do just as well as the personal finance gurus. MMM and family lived on $30,000 a year in the early days of his journey, and Mr 1500 planned for his family of four to live on $40,000 a year. The first thing I noticed about this was a significant difference in living costs between Australia and the US. The second thing I noticed was that this didn't include business expenses. However, given that I was just spending for myself, and not for a family, surely I could reach those levels.

Here I stand three years later to say that maybe that was ambitious. However, it's not because I lack self control (I just spend a week debating with myself the value of spending $7.50 on a video game that was on super special). It's because I'm trying to cover the costs of an investment property with that money, including $8,500 a year in interest repayments.

The biggest expense in the Holy Trinity of Big Expenses is housing, and I'm paying for two of them! In fact, my annual budget is $15,000 for house number 1 (that we live in), another $15,000 for house number two (that I rent out) and a measly $10,000 left over for myself - that needs to cover medical, groceries, my phone bill, and still have some left to Have A Life.

Reductions in costs

But, wait! I hear you saying. If my biggest expense is paying two mortgages, then surely over three years since setting a $40k budget, my interest repayments have reduced as I paid down the principal. I am paying principal and interest on my loan, but I'm only paying the minimum, because I'm a firm believer in using the equity in your home to build wealth elsewhere. 

As an employee of the bank, I enjoy fee free loans and I've taken full advantage by restructuring my loans twice, and pulling out as much equity as I can. Coupled with that, while the Reserve Bank interest rates have not changed, all the major banks have snuck their interest rates up in the last couple of years. As a result, I paid $732 interest in October 2016, and $708 in October 2018 - a whopping reduction of twenty-four dollars!! Wow! A whole $288 over the year.

Except remember that according to my (very rough) inflation calculations above, my spending power has reduced from $40,000 to $37,650. I'm down $2,350 in spending power, but up $288 in interest savings!! That's... not brilliant.

Life is calling

Here though, we come to the crux of the issue. Life is calling me. I can throw up all the numbers I want, and I can come up with inventive ways to lower my costs. And while I will continue to do so, certain things defy even the most frugal of magicians. Here's a couple of pieces of life I want to experience, before I'm too old to enjoy them.

The grass is always greener

Have you seen grass? Smelt freshly cut grass? Have you lain in a hammock under a shady tree on a warm day drinking a glass of champagne and reading while the hours drift by? I haven't... because I have no grass. Our house is small, we have approximately 15m2 of dirt that is split between my chickens and my vegetable garden. I love both of these things, and wouldn't sacrifice them for a small patch of grass, but I'm keen for a bigger garden.

I want to step out my back door and gaze over the lawn. To see my chickens scratching in the near-distance. To see bees buzzing around the flowers. I want some space to stretch out, and of course...

It's time for a dog

When I was young I dreamed about all the pets I would have when I moved out of my parents house. Right now it's packed to the rafters with Mr. FIRE, FIRE-cat, four chickens, seven quail and a budgie. 

Mr. FIRE and I coo over pictures of puppies. We debate whether our dog will run mountain biking trails with him, or learn to do tricks and agility competitions with me (it's both right? definitely both). We tease the cat about how she's going to hate us when she has to share the couch with a dog. FIRE-cat ignores us, because she's a cat.

Realistically, we probably won't get a puppy. I've worked in shelters in the past and I know that puppies are noisy, and stinky, and they cry, and they poop and they chew things. We'll probably bring home an adult that's settled into themselves. But regardless of the age, we're so keen to have a dog. A big one.

This is not me. But hopefully,
soon it will be

I believe I can fly

This is an odd one, but I really want to hang-glide. And I've been watching the budget for years and there's never enough wiggle room. As inflation takes hold, the purse strings get tighter and hang-gliding gets further and further away. 

What's in a game?

Lastly, and least importantly - I miss the relaxed childhood of video games. I can't ever recapture a time when I could play games for hours on end, only taking a break to eat the dinner mum had cooked, which was generally my first meal of the day. 

I have responsibilities, see above for a cat, four chickens, seven quail and a budgie.. all of who like to be clean and fed. On top of that, I've sold 40 hours a week of my life to an employer. But I still sneak in a game here or there, and on my current budget each one I purchase sends me into an overspend-shame spiral. 

What now?

While staying accountable for my spending will keep me on the road to FIRE, my current level of tightness is getting too restrictive. I'm finding it hard to agree to events with friends, because while I don't resent spending on them, it means I have nothing left for the rest of the month. 

While it hasn't really hit yet, I'm not interested in being miserly-FIRE. I've been chasing the finish line for three years, and it's still at least 7-8 years away. I don't intend to spend those years refusing to spend on things I know will make me happy, because it might shift the finishing line by a year.

Based on the numbers above, I could raise my budget to $42,500 without feeling a smidgeon of guilt. It's the equivalent of 2% a year since I first set the budget. However, I have also been reducing my spending in the last three years - at first I recorded $46,000 in a year, then $44,000, and then down to $42,000. While it would be nice to assume the downward trend will continue, there's no signs that I'll hit $40k this year. In fact, it looks like I'll spend a bit higher, while still feeling pinched.

So, I'm giving myself another $924 a year to play with. It might seem like an oddly specific number, but that's because I'm shifting my monthly allowance from $3,333 up to $3,400. A nice round number. 

Of that $77 a month, $40 is being split between my properties, $10 into groceries, $10 into pets (in preparation for a doggo!) and $10 into travel, with the odd leftover $7 going into the 'Other' category (where most fun stuff is bought).

While this isn't a hugely exciting splurge, it's a healthy update. I'll still be striving to reduce boring spending like utilities, mortgage payments, and groceries by seeking better deals and inventive approaches. But hopefully I'll stop eyeing off the categories that pay for living a good life.

There's no point in reaching FIRE if I don't enjoy the journey there.

Afterpay (is not) for dummies

When I first saw Afterpay spring up, I thought it was the dumbest way to scam people into spending money they didnt have. With slogans like "Broke AF but strongly support treating yourself? Afterpay" this was clearly a stupid trap for stupid people. A highly effective trap, but a stupid one nonetheless.

If you don't have money to spare, you sure as heck shouldn't be 'treating yoself'. But then I got to thinking, if you already have the money, and already intend to spend it, is Afterpay any worse than a credit card? Time for a quick review.

First things First, how is Afterpay making money?

At a glance you'd assume that Afterpay is making money from you via fees. In fact, if you're on top of your payments, Afterpay doesn't make a cent from you. Instead, they collect fees from the retailer. (Side note: If you really want to support a business, don't Afterpay with them, you're cutting into their profits)

Afterpay uses an age-old 'debt purchasing' model. When lenders are tired of chasing people for money owed, they can sell that debt to a different, more ruthless company. The original lender will sell your debt for less than you own, recoup most of their money and wash their hands of you. The debt collector then hounds you to make the payments, and collects a small profit.

Afterpay is like that, but friendly, and they do it at point of purchase.

For example, you purchase something for $100. You now owe the retailer $100. This is a debt.

Afterpay purchases that debt from the retailer for $96 (specifically, they charge 30cents, plus 4-6% of the transaction value)

The retailer accepts 4% less for an immediate sale. They're hoping that you'll spend money you wouldn't normally. The retailer would be better off if you paid them directly, but hopefully with the lure of Afterpay you've spent extra to close that gap.

Afterpay then collects $100 from you over 4 payments. They make $4 on the transaction.

The important part is, as long as you don't miss the payments Afterpay isn't going to cost you a dime.

Just like a credit card

In a sense, using Afterpay is just like using a credit card. You walk away with the item, and a debt to be paid later. To use Afterpay well, you need to follow three simple rules: 

1. Don't spend money you don't have.
2. Don't spend money you don't have.
3. Don't. Spend. Money. You. Don't. Have.

Got it? Good. If you are worried about your self control you can set up a secondary account for Afterpay transactions. When you make the purchase, move the required amount of money into the Afterpay account and leave it there.

Using it to your advantage

If you Afterpay something, you get to hold on to your money for a little bit longer. Just like with a credit card, this 'spent, but not gone' money can be placed in an offset account against a much loved mortgage, or a high interest savings account. The money can keep working for you before you make the required payment.

Say you make a $400 payment on your credit card and you don't need to pay the balance until 30 days later. You leave $400 in your offset account for those 30 days, against a 4% home loan. In 30 days, you save 75.6cents off your loan. While it's a small amount, it's free money.

Afterpay works even better, because the payment is stretched over a longer period, 42 days from the first payment to the last. Over 42 days, you accumulate an 88.8cent saving, even accounting for the incremental payments across those 42 days.

Combining these two delayed payment options,  you could take two whole months to pay back that $400, and reap the rewards, including credit card rewards points.

After quickly reviewing the numbers, it turns out that if I make a $400 purchase on the 1st of November with Afterpay, instruct Afterpay to take the money from my credit card, and hold the money in my offset account, I can save $1.578, equivalent to getting a 0.4% discount on my purchase.

Here's how it works:

1st November. Set up a $400 purchase with Afterpay, linked to my credit card. Afterpay immediately takes the first payment of $100.
I owe $300 to Afterpay, $100 on my credit card, and have $400 in my account. 

15th of November. Afterpay takes it's next $100.
I owe Afterpay $200, plus $200 outstanding on my credit card. I have $400 in my account, and in the past two weeks, I've saved 61.4cents. 

29th of December, Afterpay takes another $100.
I owe Afterpaty $100, plus $300 outstanding on my credit card. I still have $400 in my account, and in the month since making my purchase (that I still haven't paid for!) I've reduced the interest on my home loan by $1.227 

1st December, the party starts to die down... I make a payment on my credit card.
I owe Afterpay $100, my credit card balance is zero, and I'm down to $100 in my account. So far I have saved $1.249 worth of interest. 

13th December, Afterpay takes it's final $100
I owe $100 on my credit card, and I'm holding $100 in my account. Savings so far: $1.381 

1st January, I make the final payment.
I owe nothing on my credit card, and I'm not holding any extra money in my offset account. Savings over this period: $1.578

Is it worth it?

I hear you pointing out that I've just built an elaborate system for a measly $1.578 savings. The saving is so small I'm pushing my reported number out to another decimal point. It sounds like a lot of effort for such a minuscule return.

I'm here to tell you it's absolutely worth it.

When I shop online, I typically use PayPal. It used to take me 2-3 minutes to type in my details (forgetting my password a couple of times..), confirm that I was targeting the correct account, and hit 'Go' on the payment.

When I set up my first Afterpay payment, it took me less than 10 minutes, including the screen timing out while I wandered down the other end of the house to find my wallet and pat my cat. Any future payments (assuming I use the same credit card) will take me the same amount of time as logging in to PayPal. Just like that, I had a cat tree on the way for FIRE-cat, and I wasn't making the final payment for two months.

If this was a difficult, laborious task, I'd tell you to throw it away, and just make the damn payment. However, this is money on the table. For a couple of minutes of one-time set up, you can reap the (small) rewards forever more.

But, and I cannot stress this enough, don't spend money you don't have. Afterpay and credit cards are not a way to 'treat yoself' when you're 'broke AF'. These delayed payment tools are tricks that wily spenders can use to get ahead. They are also bear-traps that set you up for failure.

Missing an Afterpay payment will cost you $10, plus another $7 a week until the payment is made, regardless of the transaction size. Thankfully the fees are capped at $68, but a $20 pair of jeans could cost you $88 if you stuff up the payments.

If you've got a good hand on your finances, Afterpay can be an easy way to squeeze that extra bit out of each dollar. If you've got even the slightest concerns about keeping on top of your payments, stay away.

So there you have it, Afterpay (is not) for dummies.

Adult Goals: November 2018

After the financial whirlwind of October, it was nice to settle down to some more balanced spending in November. The sun came out and we caught a brief glimpse of summer before being hit with some yo-yo storms and heavy rains.

Thankfully the sun triggered a 'spring cleaning' reflex in me, and for a time I felt like a proper adult, kicking goals and cleaning dust.

Adulting

The November goal was to organise things. While I can confirm that absolutely nothing was alphabetised, so many things were tidied and thrown out. A hoard of moths moved into my pantry which inspired a clean out and a rearrange where I found three different packages of cocoa powder, as well as multiple packets of sugars and flours. While the moths were infuriating, my cupboard is much more streamlined now.

Not only that but I pulled every, single, damn, tupperware container out of the cupboard and matched lids with bases. It's tidy and beautiful. It was not a fun time, but the results are amazing.

November Adulting: Success

For December, I planned to do yoga. And I think I'll stick to yoga. I've been taking better care of my body for the last few weeks, and getting some regular yoga in will be the real icing on the cake.

Savings

Five months down, one month to go, and I can absolutely guarantee I won't meet this goal.

A few days in November sat above the goal line, which was great. Unfortunately it didn't last, those big drops show my mortgage and credit card payments.

Thankfully November was back to normal spending levels after the craziness that was October. A couple of bills were due, and I bought a couple of things I'd been saving for, but nothing overwhelming happened.

This experiment has shown that I'm not great at saving money. I find 'don't spend' to be a very unexciting goal. It doesn't give me a thrill or a challenge, and as such falls quickly to a brainless auto-pilot mode. Contrast that with the Year of Investing where I increased my investment accounts by almost $40,000 in a year. Each week I was investing a bit more into my accounts to take advantage of Dollar Value Averaging. It kept me on track, and engaged. It was fun. Saving cash is... not fun.

My projected total at the end of 2019 will be a cash saving of just under $4,000 in six months, which is only two-thirds of my goal of saving $6,000 in six months. While it's disappointing, it's not a show stopper. I may only end up saving $4,000 in cash in this time, I'm on track to have collectively saved, invested and paid down mortgage debt by over $20,000 (wow!!).

Expenses

For the sake of curiosity, here's what I spent in November, which includes the save-to-spend amounts.

Category	Spent	Budgeted	12 Month Average
Home	$1,310.25	$1,312.50	$1,327.77 (down $25.95)
So technically the water and electricity bill were due, but since I paid a big amount towards the household bills a few months ago to meet the minimum spend on a card, Mr. FIRE has been paying the bills since then to balance out how much we've each put in. Therefore my average is coming down quite nicely.
Investment Property	$792.16	$1,166.67	1,307.54 (up 7.66)
A mortgage only month. Very nice after last months massive bills.
Personal Bills	$126.60	$126.67	$143.79 (down $1.69)
New lower phone bill! Woo!
Groceries	$284.29	$180.00	$205.80 (up $5.32)
This number is actually a lie. At the start of the month I bought a $100 Coles gift card for $95. It's valid for three years and seemed like an easy way to save 5%. The very next day I got an offer saying I would receive 5% cashback on all spends on my Coles credit card for a month. So I packed the gift card away for later. Unfortunately it blew up how much I spent this month.
Pets	$93.08	$35.00	$47.48 (up $5.71)
I made a lot of sales this month - $20 worth of Chicken eggs, and $6 worth of quail eggs. I then turned around and spent all that plus more on Black Friday to buy my cat a much needed (and very awesome) cat tree. And then I fed everyone - who knew food was so expensive!
Roller Derby	$171.49	$185.00	$228.04 (down $4.59)
Most of this cost was for camp, and then some money put aside for safety gear. All reasonable spending :)
Travelling	$110	$108.33	$39.17 (up $9.17)
Next year I'm hoping to go to Canada! I figured I better start putting money aside.
Comfort Food	$66.20	$40	$66.28
Hello, and welcome to a new category called "how much money do you waste on tasty food?". The answer is too damn much.
Other	$410.20	$180.00	$260.17 (down $50.91)
Well, despite spending a lot more than budgeted, I spent a lot less than last November and brought my average way down! I also moved comfort food out of this category and into it's own for better control. Apart from buying a Playstation 4 (which I had been saving for, and got during a Black Friday sale), this month spend was reasonably controlled - I restocked the wine rack at a significant discount and went to the dentist. Otherwise, not much was spent.
Total	$3,364.27	$3,300.83	$3,626.02 (up $10.99)
It is so nice to be back at normal spends after October. Still sitting above the desired spend, and above the desired average, but on a whole we're doing pretty okay. Buckle up for the festive season! I already have 5 events to attend, and even with my no gifts policy I still have a couple of gifts that will sneak in.