[Editor's Note: This is part two of a two part series talking about how my wife and I make decisions about spending large amounts of money on stuff we want, but don't necessarily need. It will make a lot more sense if you go back and read part 1 first.]
The Expensive Vacation
Your next major 2014 purchase was your 15th anniversary trip to France that cost you the better part of $10K. Your thoughts on that?
Her: We had a fantastic time. We could have done it on less money, but we went and did what we wanted to. We saved money where we could, but we weren't trying to do this trip “on the cheap.”
Climbing in Chamonix France
Him: I don't regret a dime I spent on this. Easily the most enjoyable $10K spent in the last decade and well worth 2 1/2 beat-up Durangos. We knew it was going to be expensive when we spent $2200 a piece on direct flights from SLC to Paris. Even the flights were awesome though. I caught 5 “free” movies going each way. What a pleasure compared to domestic travel! We basically did this trip without ever looking/caring about the price of anything. If we wanted to do something, we did it.
We didn't have the kids, we saw a ton of sights we had always wanted to see (Normandy beaches, Carcassonne, Paris, the Riviera, Chamonix-Mont Blanc), did some climbing, ascended some via ferratas, and realized just how much better French food is than English.
Expensive Vacation Number Two
Although you had a lot of cheaper road trips, you also took the family to Hawaii for Christmas the same year the two of your went to France. That couldn't have been cheap. Your thoughts on that splurge?
Her: That trip has been years in the making and was 90% paid for a year ago. It was actually a family reunion for my widespread family. I have siblings in Guam, Mauritania (Africa), Hawaii, Louisiana, and Oklahoma, along with parents and grandparents in two other states. Hawaii was as central as any other place to meet. This trip was a big deal because everyone was able to make it and we haven't been all together for at least 5 years.
Hawaii at Christmas
Him: Christmas in Hawaii? What's not to like? Lava and sea turtles on the Big Island? Boogie boarding, hiking, snorkeling, and hanging out with the kids and the Obamas on Oahu? As you'll notice, we have a lot lower threshold to spend a lot of money on a trip than on stuff. We find that makes us happier, and that's certainly consistent with all the financial happiness studies out there. Again, you'll notice a few key principles behind these “splurges”- paid for with saved money, well-researched and shopped, and purchased with an intent to increase our happiness. We generally also try to spend “extra money” on one time purchases, rather than ongoing expenses like a leased car or a fancier home.
The Fancy Bike
Jim bought a mountain bike that cost more than his old beater Durango this year. What was the thinking behind that?
Fancy new bike
Him: I love mountain biking and have been doing it for a long time. It's something nearly every one of my partners do. We've actually had quite productive business meetings while out on the trails. However, my old bike was 20 years old and breaking frequently. In fact, I've replaced nearly every part on it, including the frame, at some point or other in the last 20 years. There are actually only three original components still on it- the two derailleurs and the front rim. It was a classic case of “use it up, wear it out, make it do, or do without.” Not only did this bicycle provide lots of fun recreation, but it was also my main transportation for 8 of those years. I commuted on it to college classes, to residency, and to my first job out of residency. But it was time to replace it so I'd quit being left in the dust by my partners. I saved up for it for a year, spent a few months shopping for it, then bought it in the off-season for a significant discount. I got tons of features that weren't invented when I bought my last bike- carbon fiber frame, full suspension, disc brakes, tubeless wheels, 29 inch wheels etc. I don't regret buying it at all.
Her: He bought it with his allowance money, so I can't complain. Each month any money left over from the lump sum we allocate to our variable expenses (food, gas, kid's activities etc) in our budget is split between us and put into our personal allowance fund. We're allowed to spend that money without having to answer to the other person for it. I plan to buy a bike this year too with mine.
The Furnace
You had to replace a furnace this year. What was that process like?
Her: The furnace went out. We couldn't blame it, since it was 25 years old and you can only really expect 15 years out of them. It was pretty cold for a couple of weeks while we waited for it to be replaced. Luckily, our house has two, so we slept warm, but we had two space heaters going in the kitchen for a while. Clearly the furnace replacement was a need, but we didn't need the fancy new one we bought. A bare-bones one (70% efficient) was $2500. After $600 of rebates from the manufacturer and our local gas supplier, the fancy one (98% efficient and much quieter) was $4000. We figured that it wouldn't take 15 years to make up $1500 with lower energy costs.
Him: I had a beautiful experience buying this furnace. The furnace saleswoman came over and showed us 30 furnaces in a brochure. It is a wonderful thing to only have to ask a single question with a purchase like this- “Which one is the best?” She pointed it out, and I said, “Let's get that one.” Having a good income, a solid emergency fund, and an optimized financial situation provides for lots of financial freedom, like buying any furnace you want without having to worry about whether you'll be able to put food on the table that month.
The Boat
Okay, let's talk about the boat. What's going on there?
Him: We bought a $6K boat 5 years ago as I was leaving the military. Actually, it was only a $3K boat, since the military subsequently paid me $3K (about a dollar a pound) to drive it across the country as part of our moving allowance. It has been a ton of fun, despite fulfilling the old adage that “a boat is a hole in the water that you throw money into.” We go to Lake Powell once or twice a year to explore, canyoneer, wakeboard, waterski, camp, and just relax, and use it on the local lakes as well. Despite the cost, these are some of our favorite family days of the year. However, our 17 foot, 135 hp boat doesn't quite do everything I want it to do, especially as our family gets older. We'd like to be able to take more stuff and people (we boat into remote sites and camp at Lake Powell) without having to worry about whether the boat will get out of the hole upon exiting the marina.
The boat is also 13 years old and a little less reliable than I would like when 50 miles away from the nearest marina. (Although I've learned a lot of neat tricks, like how to get water out of an engine block, how to hotwire a boat, and how to repair a starter with a cotter pin.) Not to mention it doesn't throw much of a wake. I want a big fancy wakeboat that will haul more people and allow us to catch some air and wakesurf behind it. Unfortunately, those are really expensive. The manufacturer's suggested retail price (MSRP) on the biggest, fanciest wake boats these days is pushing $150K. Even the “price-point” brands (think Toyota vs Lexus) are going to be $60-80K for a nice, new boat. Unfortunately, the whole wake surfing system thing is pretty new, so if you want one, you're looking at something 2013 or newer, so the used option isn't really there for what I'm looking for. So we've been shopping for the last 6 months and will be purchasing one in the next few weeks, hopefully getting a pretty good discount for buying it in the middle of the winter.
Her: The boat we have doesn't allow us to take very many others outside of our immediate family on our adventures. I'm happy enough with the boat we have but I can see the benefits of getting a bigger, nicer boat. I've got some home renovation projects on the long-term list that I'm more interested in than a boat upgrade, although I confess I don't really enjoy boat breakdowns 50 miles away from a marina. It seems extravagant to spend 10 times as much on a boat as the last one we bought, but if we're going to buy a boat, we might as well buy the one we want in the long-term. Plus, I know if I let him buy “his boat” he'll have no room to complain about more house renovations.
Loosening the Purse Strings
Robert Doroghazi, author of The Physician's Guide to Investing, said this about splurging:
If you do wish to “splurge” a little, to loosen up, do it after there is $1 million in the bank and after the mortgage has been paid.
Well, the mortgage isn't quite paid yet, but more on that in a couple of weeks. We're certainly at that point where by any reasonable measure we can afford to loosen the purse strings. Despite all of these expensive, unnecessary purchases in the last year, we're still saving 25-30% of our income (maxing out all retirement accounts,) giving 10% of it away, and paying almost a quarter of it in taxes. Our “mandatory” (fixed + reasonable variable) monthly spending is just 10-20% of our income. I see these “splurges” as the benefits of a well-planned financial life and expect to continue to do them from time to time going forward. We want to be just as deliberate about how we spend our money as we are about budgeting it, investing it, and giving it away. Here are a few guidelines to use when deciding whether you should buy expensive stuff like we have this year.
10 Questions to Ask Yourself (and your spouse) Before Splurging
1) Are you keeping your fixed expenses as low as possible, so that in the event of economic downturn you can rapidly pare back your lifestyle?
2) Have you honestly determined your needs versus your wants?
3) How many months have you been considering this purchase for?
4) Do you have the money, in cash, to purchase this item?
5) Is this item going to make you happier than any other use of this amount of money?
6) Are you already saving 20% of your gross income for retirement and enough to meet your other investing goals?
7) Do you have any consumer or student loan debt at all?
8) Do you have a plan to pay off your mortgage in less than 15 years total?
9) Are you buying this item at the best time of year to purchase it?
10) How much time have you spent researching and shopping around for this purchase?
Now it's time for you to weigh in readers. What do you think about our reasoning for purchases? What did you spend money on in 2014? Do you regret any of it? What other rules for spending would you add to this list? Comment below!
Fun blog! Finally! 🙂
My teenage children think that I am odd because I make them get their books, music, and movies at the library, basic clothes at Target, I sell old stuff on eBay, constantly gripe about the lights being left on, and keep the home a little warm in the summer and a little cool in the winter. Dad also drives a Prius, which in our neck of the woods, is the greatest way to embarrass a teen. 😉 They do not understand the importance of paying off a mortgage, but they live in a house that was paid off in 11 years (5 years ago).
They also do not understand that behaving like this not only has resulted in each child having about $140k in a 529 account AND about $100k in an UTMA, the latter to hopefully be used after college to get started in life. No educational or life experience for them is neglected, when possible.
Not only that, last year the entire family went to Paris for New Year’s on a trip where no expense was spared and not once did I suggest the cheaper option. 🙂 A similar two week trip to Northern Italy is planned this summer. And we also did the A/C and furnace replacement last year, an $11,000 unexpected project, for which I could have paid cash, but they offered “12 months same as cash” and so the balance, about $3000, is the only debt I carry.
As my son is turning 16 next month, we prepared to bequeath my wife’s ten year old SUV to him. I could not talk my wife into a Prius, but after looking at the luxury SUV line, we settled for the lowest trim level of 2015 Volvo XC60, which has all of the modern features and gets surprisingly good gas milage. When we told the dealer we were paying cash for it (“Are you leasing or financing the car?”), they acted like they did not know how to complete the transaction. I allowed her to splurge on the car, but as nice as it is, I truly prefer the simplicity , ease of driving, and economy of the Prius–even if gas were 25c per gallon.
So, yes, targeted splurges make sense when you can afford them, have little and manageable debt, and so long as life is not one big splurge-a-thon.
Thanks for sharing Dr and Mrs. WCI. This is so useful: Loosen the purse strings once your fixed expenses are at the lowest you can make them!
My wife and me are constantly faced with this question of some minor needs that can are actually major “wants”.
I just copied your list of 10 questions to a word document and are going to use this as a worksheet every time we have a major purchase planned – oh and between me and my wife we have way too many!
But this is going to be our “evidence-based cheat-sheet” for our major purchases.
The 10 questions list is a great help, thank you Dr. and Mrs. Dahle. Nice to have this while my wife is still in residency, we’re young, and continue to “shape” our spending habits.
Ahmen to “I see these ‘splurges’ as the benefits of a well-planned financial life and expect to continue to do them from time to time going forward.”
Lastly, that carbon fiber 29″er looks awesome, good work!
Non financial questions for WCI. Who did the kids stay with for the Europe Trip, and how long was it, and was it long enough? That is something we would love to do in the future and 15 years anniversary sounds great.
Grandma. 13 days was the perfect length for the trip for us as we were ready to go home when it was time to go home. On our next trip we’ll spend more time playing in the mountains and less time seeing sites. But that’s because we’ve now seen the sites.
love that pivot mtn bike you got! i was back and forth between the pivot and the devinci. its crazy how far technology has come in the mountain bike world. its so fun blasting down the trails.
wci – have you hit the crest trail on the pivot? that’s the trail i miss the most.
great post. thank you to the both of you for sharing. experiences are worth the cash. i lump bikes, skis, etc in that category. nothing beats a day out in the utah mountains with friends and family!
Haven’t done the Crest on that bike yet, as I bought it after the snow had flown this Fall (right time of year and all that.) It has been awesome at the lower elevations so far though.
I love the “allowance” idea. We haven’t done that since residency and I might sit down and talk with the wife about that tonight. It might make personal splurges less “grumbly” as I like to say.
In residency we had “allowance” accounts but she spent hers mostly on personal care stuff and then I went out and blew a years worth on a Kayak and supplies (man I miss that Kayak). She went ballistic because she insisted that I had to have used our joint funds (I didn’t). Just so happens that she spent her “allowance” almost every week and I had spent a total of $200 in my first year (bought a PS3, which I still own and rarely used, now its just an expensive blue ray player..).
I don’t remember the blog being silent for 13 days straight so I hope that didn’t mean you were still blogging while in France?
Most posts are written weeks in advance these days. I have guest posts scheduled through March. I confess I logged in a handful of times to approve comments from France and checked for emails from people needing referrals, but that was it. It’s pretty rare for me to away from internet access for more than 5 days.
This blog just got even better!
Getting ready to buy the 27.5 pivot myself….
I thought I was going to get the 27.5, but am really glad I got the 29er. I was worried it would be less maneuverable, but don’t notice the additional length much and the extra ability to roll over stuff compared to my 26er is phenomenal.
If you are looking at inboard boats…Malibu is the way to go…by far, in my opinion
I like Malibus. May get an Axis. Axis/Malibu is a lot like Toyota/Lexus.
Good for you! I plan on doing a Grand Canyon rafting trip with my son in a couple years, I should be done with the loans by then.
Definitely on my tick list. Hard to get permits to run it yourself, but not too bad to hire a guide. Are you going to do it the slow way or do one of the trips where they motor through the flat sections?
I think we will probably do the oar raft trip, 14-17 days. We will use one of the companies with guides, I know my limitations :D.
I’ve been thinking about this a lot recently as I thought about making a major purchase in the form of an engagement ring.
I went and got a nicer one than I had originally thought because it gave me more peace of mind knowing she would be wearing a better diamond. The whole exercise made me realize that I do save enough and from the perspective of lifetime earnings, it was a tiny amount I was toiling over.
Get the G23!
I’m way too frugal for that. Great boat though.
How much to save vs spend has always been a battle for me.
The 15-20% rule is for people working 30 years at an average salary. This rule is very different for physicians who may not work 30 years or may not require 75% of their salary in retirement. This leads to so many more questions on if we are saving enough.
For example:
When do we want to retire? Many docs these days are getting fed up with medicine and retiring earlier and earlier. Is this our future also? I am an ER doctor and I can’t imaging hustling like I do 15-20 years from now as I do today. Which means that in the future my income will probably be less than today. I may start burning out and be forced to work part time, or even retire early.
What if we make less in the future? In this ever changing world of medicine, reimbursement in a field can get cut by 25% within just a few short years. This can happen to anyone. You create a certain lifestyle for yourself only to find out that you can’t quite afford it and save for retirement as well.
I think WCI has it right. Get rid of bad debt and save up a solid nest egg, and only then consider splurging on some luxuries. If I remember correctly, WCI made a post a few months back about how his retirement savings today are large enough that if left alone with no further contributions, he could still retire comfortably. It is that kind of security that will allow spending on luxuries without much worry. There is nothing wrong with living like a “doctor” once you can finally afford it.
Right. At 65 or 70. I’m essentially saving now for either a more luxurious retirement or an earlier one. If I don’t have to touch my savings for 30 years, I’ve got enough already.
You have relatives in Mauritania?! Neat.
As a guy who has done it wrong for the last 20 yrs I feel like I am playing catch-up. My father was a poor mentor when it came to this kind of stuff. He was the kind of person that who was always leveraged and would tell me to buy the expensive house “because I deserve it”.
I have always made a very good living and I have always maxed out my 401k but not much else. I have always felt like I was always playing catch up. I have never carried consumer debt and have never had a car payment but have never had extra (seems pretty ridiculous now). But it is the other expenses that have never gone away. I have four kids in private school. I have purchased a practice so most of my extra goes into trying to pay down debt (I am a big believer in the borrower is “slave to the lender”).
So since I have been on my own, everything has been on the cheap. We might go on vacation but we will drive and stay with a friend. I might get a new”er” car but it will be 4 yrs old. I might get a theater room but half of the stuff will bought from craigslist.
So I identify with you when it comes to saving but this kind of spending just makes me, for lack of better word, uncomfortable.
Even when I think I am “good” financially, I dont think I could spend like that. That kind of spending kind of gets ingrained in you. I can’t spend one way for 20 yrs then just flip a switch. I feel like I might always buy from craigslist. I know you try to find the best deals but the thought of buying a $5000 bike or an $11,000 dining room set would send me into defib. I want to get there but I don’t know what it will look like when I do.
Defib isn’t so bad. It’s fib you’ve got to worry about!
My wife and I were talking last night. I think the key is to be generally frugal and selectively extravagant. Figure out what you care about the most (for you it sounds like private school for the kids) and spend your money there. Then be frugal with your other purchases. Buy the $300 table and the $1000 bike.
Moderation in all things. You don’t get a prize for dying with the most money in the bank. If you don’t fly first class, your kids will.
Me too – so I got a buddy (who is financially set) to buy one!
This exchange is sure fun to read — including the comments from other doctors with rich tastes. I’m a “doctor” too — of the PhD variety, a retired professor, and it makes me wonder about a few things. Why was it necessary to buy a house with six rooms you could not even furnish? Most of the homes I’ve owned over a period of nearly 50 years have been about 6-7 rooms total, which is more than a huge number of Americans can ever afford to rent or buy. My wife and I like to go to Europe, and $2,200 will about pay our fare from mid-America for both of us (thank goodness we are slim, with those tiny seats). What you’re expecting to spend on a boat would buy about three of the very adequate sedan I drive. I can understand why a doctor needs a substantial income to pay off huge education costs and the expenses of running a practice, but this lifestyle is hard to swallow, when the costs of medical care have become astronomical. When you will people get real?
That car you drive would buy 6 of what I drive. Why do you buy such darn expensive cars? No wonder college tuition is going through the roof! 🙂 If I could have gotten a ticket to Europe from mid-America for $1100 I would have spent $300 to fly there to get that flight. I think the cheapest flight we could find was less than $100 less than what we paid for a direct flight.
This is exactly the point of the post. It wasn’t necessary to buy a big fat house. It wasn’t necessary to go to Europe, buy a $20K car, buy a boat etc etc etc. Until 1 year ago, the most expensive thing I’d ever bought brand new in my life was <$1000. At a certain point, you've got to wonder what you're working so hard and saving so much for.
My car cost under $20K . . . in 2005. Still going strong, nine years and $150,000+ miles later, with almost no repairs. If you can find a car that can match that for $20K/6, let me know, because I want one, too. Before this one, I had a 14-year-old Nissan that had similar reliability. I probably could have traded sooner, but why — when it’s still running well. My daughter went to a pricey eastern college, which was a strain on the family finances. The quality of her education was worth it. Never applied for a scholarship, though she was offered some at other places. I figured poor kids needed aid, not mine. Frankly, it was much better than the low-cost state university where I taught. Not sorry at all. BTW, I observed on several campuses that tuition was going up rapidly, but faculty salaries were not. Several reasons — declining state support, more administrators, added services unrelated to education, etc. I’m not really complaining — I live modestly but well, have enough means to last another 20 years or more. Working conditions are declining in academe, and I have advised younger people to avoid it, but it was a satisfying way to make a decent, not flashy, living. I enjoyed it enough to work until I was nearly 69. The two sailboats I have owned left no wakes, would not hold more than four people, but together cost two grand or less. Don’t have a million in the bank (or anywhere), but we have our modest splurges. No conspicuous consumption.
In 2006 I bought a Mazda 626 for $1850. I sold it four years later, with a new battery and windshield wipers (only “repairs”), for $1500 only because my wife refused to let me sell it for $1850. Good luck topping that one. My current car cost $4K….5 years ago.
Isn’t it great how we each get to choose how we want to spend our money? You wanted to send your kids to an expensive university and drive expensive cars. We apparently wanted to buy a table.
Can’t top that, and I commend your ability to find a reliable used car bargain. I don’t have confidence in my ability to do so, and I prefer the long warranties that now come with new ones. So I figure that for me it is cost effective, and fewer headaches, to buy a moderately priced new car, then drive it for about 200,000 miles. In about two years (my car will then be 12+ years old), I plan to buy a new one — for cash. BTW, I fully subscribe to your 10 questions to ask before splurging. That’s why, when I do go to Europe (our only real splurge), I prefer shoulder season, and do a lot of watching of the airfares. Too bad you live near a high cost airport (I presume Salt Lake City). Same nonstop flight from Houston on Delta/Air France would cost you about $500 less. However, for the inconvenience of spending an hour or so between flights in Philly (pleasant little airport), you probably could have saved more than that. Being retired, I prefer to stay more than two weeks on a Europe trip after that investment in transportation. And you’re right — get out of the city, see the countryside and meet some locals. Much cheaper than Paris, too. (Same goes in any country in Europe.) You can probably even rent bikes, which probably cost less than a grand in USD. Cheers.
I’m not sure we’re nearly as different as your first post made us seem. 🙂
WCI, I’m curious. At what point did you or will you decide to aggressively pay off your mortgage? I assume you have a 15 year mortgage based on the recommendations you’ve provided? Will your pay it off earlier? I currently have a 30 yr mortgage with a very low interest rate, but I’m not sure if I should begin to aggressively pay it off. Right now my plan is to save aggressively until a few years before retire then focus on paying off mortgage.
Nice bike by the way. I have a cervelo R3 road bike that I love and like you have been saving my allowances so I can purchase a nice mountain bike. I want a Yeti but the carbon fibers are really expensive. I’m doing research now to find something in my price range that I can keep for 10+ years.
https://www.whitecoatinvestor.com/a-scheme-to-pay-off-my-mortgage-early/
Thanks for the feedback. At this point, I think I will continue to save and revisit the idea of paying off the mortgage when I’ve saved more than double the amount of equity I would have in my home if I paid it off. I’m a few years from reaching that point. Like you, I now have to decide if I should sell my investment property. Any rules of thumb regarding when one should sell an investment property? I bought a foreclosure in 2010 and it has appreciated well over the years? It also cash flows well which is why it’s I’m having a hard time making a decision.
What a tough choice- an investment property with good cash flow or cashing in on an investment that has appreciated quite a bit. The longer you hold, the more years you spread the transaction costs over, so I’d be inclined to hold for a while. But if you have a better use for the equity, then I’d say go for it.
I’m putting mine on the market shortly for several reasons- it’s 10 states away and it was not purchased as an investment property, the tenant is leaving and I already fired the property manager, and I have much better uses for the money. Plus, mine is neither appreciating like crazy (although it’s almost back to what I bought it for in 2006) nor particularly cash flow positive.
What do you mean when you say spreading out the transaction costs over a few years?
For example, when you buy and sell a house there is ~ 15% in transaction costs, 5% to buy and 10% to sell. If you sell after 1 year, you need 15% appreciation to break even. If you sell after 10 years, you only need 1.5% per year appreciation to break even. That’s “spreading out the transaction costs over a few years.”