[Founder's Note: Those who are familiar with our financial journey are aware that my wife and I decided to forgo spending a great deal of our income in our first few years out of residency in order to put ourselves into a better financial position and speed our journey toward financial independence. Although we wished to grow into our income slowly, our aim was never to accumulate money for the sake of accumulating money. We fully intend to eventually spend the vast majority of the money we earn and save. Over the last year, my wife and I have had a lot more discussions about spending money than we used to. Part of this is because we are now at “peak earnings” from a medical career standpoint. It is highly unlikely that my earnings from my medical practice will ever go up significantly from where they are at now, aside from some possible growth with inflation, and in fact are likely to go down as I cut back on night shifts (which pay more in my group) and in total number of shifts.
Aside from that income, we also had a nice bonus income from The White Coat Investor. So this year we made more than we ever have before, saved more than we ever have before, paid more taxes than we ever have before, gave more to charity than we ever have before, and spent more than we ever have before. We have definitely reached the light at the end of the tunnel that consists of the long medical training pipeline and the first few years afterward when debts are being paid off, the fancy doctor home is being purchased, and the initial nest egg is being accumulated. We're ready to start enjoying the good life, and for us, that looks a little differently from that of Mr. Money Mustache. It turns out that while I like bicycling, the environment, and conscious spending, I also like SUVs, expensive hobbies, and fun vacations. So over the last year or so, we've had a lot of very interesting discussions about how to spend the excess money after we've put away enough and then some to reach our financial goals. This post, however, grows out of a condition I placed on my wife when we decided she could buy the fancy-schmancy dining room table she always wanted—she had to write a post about it. As noted on her previous guest post, we have serious financial conflicts of interest between us.]
By Dr. James M. Dahle, WCI Founder
Lucky you, you get to hear from WCI’s wife a second time! This was a post I promised a year ago and I’m finally forcing myself to sit and write it. WCI gets two gifts (posts) for Christmas this year! When we moved into our new home we had very little furniture and the vast majority of it consisted of hand-me-downs. In fact, 6 rooms were completely devoid of furniture. Though we’re lucky that many of our hand-me-downs are good quality due to downsizing of family members. The only furniture we had purchased on our own up this point was a small kitchen table, a coffee table, and a bed frame when we got married 15 years ago. So buying new furniture obviously hasn’t been a major priority for us.
Since we frequently entertain large numbers of family and friends, one of the first furniture purchases I wanted to make for our home was a large dining room set with a matching china cabinet. I would check the classifieds on occasion but rarely would find something in the size or style I wanted. At one point I found a set that met the bill but we decided that was not where we wanted to put our money at that given moment. As we had some extra money in the budget we would add to the furniture fund over several years. Finally we had a sizable amount in the furniture fund so we started getting serious about looking. We had a few dates to go shop at the furniture store (WCI’s least favorite thing to do!) but there weren’t many options in the size of table we wanted.
I wasn’t happy with the quality of construction of many of the pieces so continued to look on my own. I wanted something that was solid wood (no veneers), well made, and simple styling. WCI just wanted something flat on top with four legs and didn’t really care what it looked like, so we obviously had very different priorities. One day I stepped into a shop that sold furniture made by a local company. I loved many of their styles, could custom order whatever size I wanted, and could order a matching china cabinet. I contacted the company to see if I could order direct from them but that wasn’t an option.
So I waited until the store had a good sale on the furniture and went to get a price quote. After I had a price quote, I called another local dealer of this brand to see if they could beat the price. They said it was a great deal and offered a little bit off which the first store then matched. For just under $11K I was able to purchase a 10 ft. long solid cherry wood table with 12 chairs and matching china cabinet.I love the set and it will last for many years and likely be passed on to our kids. WCI thought it was way too much money to spend on a piece of furniture as his priorities could be met with much less money, however he realized this was important to me so we agreed to spend the money. We have had many fun dinners and game nights with family and friends around this table and we have had no regrets about spending the money on it. In contrast, we also needed to replace the 15 year old kitchen table at the time as it was falling apart. [Not true- it was quite stable after I put lots of extra screws into it. It was flat on top and had four legs to boot! Of course, I can't complain since she sold it for $100 and we only paid $150 15 years earlier.-ed] I found a great cherry wood set in the classifieds for $200 to replace that table. We decided to splurge in one area but were thrifty with the other piece we purchased. Now we’ll have to get WCI to write a post about that new boat he wants to purchase which makes this table look cheap in comparison!
[Founder's Note: I thought this post would be a great opportunity to talk about when to splurge on stuff you want that you can afford to buy. We have saved up for and purchased a ton of expensive stuff this year. The first item was the table, but we also purchased two high-four-figure vacations, an expensive home remodeling project, a fancy mountain bike, and a new furnace in 2014. We're currently shopping for a new boat. None of these items was a need, or anything close to it. But each of them illustrates important principles of spending that are worth talking about. The format will be a back and forth discussion.]
The $11K Table Set
The first item was the table. Why did you think the table was a wise purchase?
Her: As noted above, we both come from large families, have frequent house guests and family dinners and other social events and frankly need the seats. For example, over a recent one month period we had 16 people in addition to the 5 of us stay here, and hosted two dinners with over 50 people.
Him: We're at that point in life where there is no point to buying crap. Now if we're going to buy something, I want it to last. Although I didn't really care enough about a dining room set to spend a 5 figure amount on it, I knew that she did; it was important to her. She also researched and shopped it well. We had the money saved up, we could afford it, and it was something we had talked about and planned getting for years. Hardly a splurge.
The Home Remodel
Your next major 2014 expense was a major home remodel. You basically spent $15K to have the entire back wall of the main floor of your home replaced with very high quality windows and a door. Why did you think that was a good way to use your money and how did you go about that purchase?
Her: We had water running down the inside of the windows during bad storms. The windows were 25 years old and had to be replaced; the wood floor inside was starting to be damaged. I wanted to move the windows a bit to make room for some built-in cabinets and change the configuration of the door. The windows were very high quality, but we definitely paid a premium for it. I really detested the sales tactics of the window guy, but was happy with the eventual finished product. All in, it took 6 months from ordering until completion of the project. But we did like the fact that the window company warrantied the whole project and addressed all the issues that came into play when the stucco guys subsequently damaged the windows.
Him: We had the window salesman out to the house. We had him give us a quote to replace every window and door in the house. He then applied all the discounts he could give us and the total came to $83K. I about had a heart attack. We didn't have anywhere near that amount of money saved up for this, plus I wasn't looking forward to what seemed like having the entire house rebuilt. Some of the little changes my wife wanted (making round windows into square windows for instance) were really expensive, and I didn't see much value there. Sure, some of our windows were leaking, BUT NOT ALL OF THEM. So we decided to take this project a piece at a time and had them replace the worst section on the North wall of the main floor. These are the windows I care about anyway, since that's where we spend most of our time and we have a 180 degree, 100 mile view all the way across The Great Salt Lake out of those windows. I was really glad we did a smaller project first, to see what kind of issues we had not yet thought about, before forking out major cash. We'll likely end up replacing everything in the long run anyway, but will do it over a handful of years. Like the table, only a small part of this purchase was a need, the rest was just a big want, so we don't need to finance it or use our emergency fund for it.
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.”
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.
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?
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.
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.
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
- 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?
- Have you honestly determined your needs versus your wants?
- How many months have you been considering this purchase for?
- Do you have the money, in cash, to purchase this item?
- Is this item going to make you happier than any other use of this amount of money?
- Are you already saving 20% of your gross income for retirement and enough to meet your other investing goals?
- Do you have any consumer or student loan debt at all?
- Do you have a plan to pay off your mortgage in less than 15 years total?
- Are you buying this item at the best time of year to purchase it?
- 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!