In our budget, we currently set aside between 42%-48% of our after-tax income. It is also worth pointing out that 10% of both our salaries is taken out pre-tax and put into our pension funds. So on the surface, it looks like were are living on a fairly small portion of our income. But just because we aren’t spending it, doesn’t mean we’re actually saving it. Or does it?
Currently, 16% of that money is being funneled into extra mortgage payments. That doesn’t include any side hustle income that also gets thrown towards our mortgage. That side hustle money is too irregular to account for in our budget*. I know the invest-your-money versus pay-off-the-mortgage-early debate will rage on in perpetuity in the blogosphere. For us, the peace of mind and the guaranteed shaving off of interest is what makes the most sense for that slice of our money right now.
So what about the other 27-35%? That’s where things get really tricky. We’re actually technically spending 8% of that money every month to pay for Mr. P’s graduate degree–because the only way to get a raise in education is to
learn stuff buy your next degree. His contract is so garbled that it probably wouldn’t do any good to explain it in depth here. Basically, he gets a small portion of some credit hours added to his current pay as retro-pay. Then, he’ll see a partial increase in his salary next school year and another increase for the full degree the following year…even though he is done with the program this summer. Still, the degree essentially pays for itself within two years and will help him push further over on the pay scale. So, this isn’t conventional savings by any means. But it is an investment of sorts. It will just take another year or two to really reap the benefits of the return.
That leaves another 18-24% that is transferred into actual savings. A portion of that gets put into our Roth IRAs every year. Since we now have a fully-funded emergency savings account at Discover (yes, I created the account for the $20,862!), the next task is figuring out what else to do with the other portion of savings. I’m still working on that particular goal, but it looks like the majority of it will be going toward investment accounts, since we try to pay for travel and home renovations with side hustle funds.
A big part of me wants to let my chest swell with pride when I think of the fact that we are able to put aside so much money every month, in addition to already diverting 1/10th of our income to our pensions. The part of me that really likes round numbers wishes we’d get a little more serious about reducing expenses or land raises beyond the 0.8% cost-of-living increase I get every year**. And another part of me that spends way too much time reading about FIRE has major anxiety that this doesn’t even seem like a drop in the bucket. No matter how I slice it, the quest continues to find more ways to save money and make money.
*I know there are plenty of people who have mastered the art of the zero-sum budget and all sorts of other clever strategies for flexible income, but $100-$400 isn’t worth the trouble to me right now. So it goes in a separate “top off” category.
**Teachers live the dream. Don’t let anyone else tell you otherwise.
So Tell Me…How do you distinguish between saving and not spending?