I love seeing how other people budget, getting down to the nitty-gritty of their categories and numbers, but I don’t feel it is fair to gain value out of what others are contributing without contributing something ourselves. As promised, here is the eighth and final Budget Breakdown for the Enough Time Machine. This represents how much we budget per month, not necessarily how much we spend. In this concluding week we are looking at Savings and Investment.
Savings vs. Investment
The way that I allocate money to our savings/investment buckets is by thinking of them in terms of timeframe and known spending. Savings are for particular, identified items, and the money is to be spent as soon as we have saved up enough for the item (the now). Investments are for the future – and are not to buy items – they are to buy our freedom. That’s not to say that we won’t put some longer term savings into an investment vehicle, but it will still be considered savings, to be spent when the time comes. I invest half of our money into savings for now, and half of our money into investing for the future (Ratio 1:1).
According to Money Smart, women are more likely than men to save for multiple things at once. That worked to our advantage when some items we had planned on saving for suddenly moved up in the queue for importance. We were (and now still are) saving for a new oven and stove. Unfortunately, all of our roller shutter controllers began fatally failing at the same time, which meant living in perpetual twilight. We had to shell out to replace them all, which was expensive. Luckily, we were able to reassign the money that was just sitting there. Saving for multiple things at once meant that our other savings could stay on track, so we were still able to go on holidays to Tasmania, and replace the broken kitchen light fittings.
We have three buckets for savings:
- things that cost Less Than One thousand dollars (LTO)
- things that cost One To Ten thousand dollars (OTT)
- things that cost Greater Than Ten thousand dollars (GTT) (We also lump holidays in here, no matter the cost).
The ratio of saving into these buckets is 1:1:2 (I started out as 0.5:1.5:2, but discovered we have so many more things in the lower cost bucket, we wouldn’t have achieved them, so I changed.)
Earlier I stated that saving for now and the future is in a ratio of 1:1, however there is an addendum. Saving for investments is actually a ratio of 1:(1+$100). I’m proud of that extra $100, because it represents a small pay rise that I received in July. That’s right – for the first time in nearly a decade, we did not succumb to lifestyle inflation. Instead we put the money to where it needed to go, our future freedom! We will do the same when Mr. ETT gets a similar small pay rise at the end of the year.
The amounts listed are the absolute minimum budgeted each month – this is the aspect of “pay yourself first”. We would cut back other categories before these If we didn’t have enough money in a month. However, we usually find we can contribute extra each month. It is fun to sit down on the last day of the month, reconcile the budget fully, the see what is left over and add it to the categories – how much extra did we manage to save? Have we reached an amount where we can afford to purchase the next thing on our list? How many days of freedom have we bought ourselves?
$100; This year we have purchased: car battery charger, loungeroom lights, kitchen lights, cat door, and replaced our worn locks.
We are saving for: building inspection, termite check, small freezer, curtains, home NAS, will, pre-heater hot water, mulch, new lounge, new front & back doors. A lot of this crosses over with our House category, so we may even be able to achieve some things faster.
$100; This year we have: replaced controllers for our roller shutters, installed netting for the backyard to keep the cats in.
We are saving for: new oven & stovetop; picture frames.
$200; This year we have: travelled to Tasmania.
We are saving for: England & Germany, Adelaide, Japan, New Zealand, Tassie, Canada, Perth, car, new laundry
$0; We have reached a level of emergency fund we are happy with. There will be no more contributions until either we have to replace some, or we reach a few years from retirement and have to build up a 3 year cash buffer.
I will write more details about this in an upcoming post.
$83.33; This was so I would have $1,000 sitting there ready to take advantage of their next investor purchase offer.
$100; Has been running completely hands off for nearly 20 years. Not surprisingly for a fund that was entered into mostly in ignorance, it hasn’t done very much.
$500; This is to begin investing in ETFs before the end of the year.
All up, our minimum budgeted Savings represents 5.3%, and Investment 9% of our total budget. In this final graph, I’ve also included a Needs and Wants filter – which shows our spending is almost 50/50 between the two. Yes, now that Frank and Jelly live with us, Pets is considered a Need category as we have obligations to look after them. You can also move the % slider to watch the bubbles disappear depending on the category’s place in our budget.