Are You Working for “Needs” Money or “Wants” Money?

Freddy with his friends at Bayona in New Orleans

Sometimes You Want to Do Something Special

I have been fortunate in life to have a few special splurges and last week we went to New Orleans to celebrate turning fiddy!  We were also lucky to be joined by old friends in that special place, some who came from out of town and were able to go out for a few nice meals and some debauchery on many levels.

Certainly if we were not able to make this kind of trip it wouldn’t be the end of the world and I wouldn’t cause to to burst into tears or drink Drain-O, but it’s a reason why I keep working for our “wants” side of retirement savings.  We didn’t work hard and do well just in order to survive this life.  Although we could still enjoy life on a simpler and more local level or just meet up for po-boy sandwiches and Cokes we enjoy doing things like this and if that means working a couple of extra years at something I don’t mind then that’s what I’ll do (until I won’t).  It’s a real treat to be able travel and do exactly what you want, knowing you’ve done the work ahead of time to make it all possible without any debt or sacrificing your needs like food and shelter.  The only sacrifice is maybe not being able to get a fancy car upgrade or a stupid iPhone or something else we don’t care about.  Other people might decide something different as a priority but for us those are easy trades.

Do You Know How Much Your Needs Cost?

A couple of months ago I did a little thumbnail of our present absolute needs.  It looked like this with a paid off house per year:

  • Housing (Taxes/ Fees/ Insurance/ Maint.)      8060
  • Food                                                                       5000
  • Clothes                                                                     500
  • Utilities                                                                  2400
    •                                                 Total           15960  x 25 = 399,000

One popular method for calculating how much you would need to cover that in perpetuity in retirement is to use the 4% withdrawal rule.  Google it if you’ve never heard of it.  The other way to get to the amount you would need saved/invested using the 4% rule is to multiply the annual expense by 25.  So 15960 x 25 = 399,000 to cover basic living expenses forever.  Our number for this is less due to our late start and being closer to Social Security age than some early retirees (more to come on this in a future post).  Of course we could maybe lower this expense my moving to a cheaper state with lower heating costs than Buffalo.  As I’ve said we really get shafted by taxes by living here.  We could also lessen the food bill by eating cheaper food but for the calculation I’ll leave it alone.  I also left out the health insurance wildcard but I’ll estimate that at around 4000/year for now.  This article does a nice job explaining it.

What Do These “Wants” Cost That Most People Consider Needs?

I broke our expenses into 3 categories.  Many people consider this 2nd category to be in the absolute needs group and in some cases that might be true.  If you live in a rural area you likely need one car minimum in a household.  This calculation is for 2 paid off cars and as you can see those things are still expensive even without a payment, and we don’t even drive much and use much fuel!  My point is that a lot of folks think these are absolute necessities but I doubt you would die without any one of them.  See more about the cost of cell phones here.

  • 2 Cars (Insurance/ Maint./ Gas)                  3400
  • DirectTV                                                          1200
  • Cell Plan (Mrs. Smidlap)                              1200
  • Internet                                                             600
  •                                                        Total          6400  x 25 = 160,000

We might get rid of the TV bill at some point and that would go to zero but I enjoy it and I might be inclined to cut something else instead.  Of course in an emergency like job loss or major recession it would all be negotiable.  I’m sure Mrs. Smidlap will end up with a cheaper cell phone setup at some point but I don’t push too hard on that either (yet).  The thing that sticks out here is the high cost of driving a car.  1700/ year per car is about 142 per month and that doesn’t account for the fact that you have buy the damned thing in the process.  Even if you spent 10,000 on your used car that’s 1000 a year in cost for 83/month on top of the 142 for each car.  So the cost of driving one car is really around 225 a month.  We need at least one right now due to our winter climate and having to get to work but I would like to go down to one and maybe a scooter if we can go south one day.

Frivolous Luxuries That Keep Me Working (Until I Won’t)

Pets are expensive and so are travel and the wine I like to drink.  If you’ve read any of my other posts you might realize how fond I am of the mighty boxer dog and especially of my boxer dog.  He costs a fair amount every year between veterinary checkups, medication, and food.  He also went to some training classes due to some fear aggression rehabilitation (which worked but was pricey).  We are also wine enthusiasts in my house and that is a big budget item.  I have vacation and gifts in the same category.  Our vacations in general have gotten more economical since Mrs. Smidlap  stopped working full time last year.  I’ve grown tired of air travel and it takes a really good reason to get on a plane or to a godforsaken airport so we’ve been driving to getaways where we can take our dog more often.  Here’s the yearly costs of our Wants:

  • Dog (Food/ Vet/ Meds)                                  800
  • Wine                                                              9600
  • Vacation/ Gifts                                             5000
    •                                        Total            15400  x 25 = 385,000

So, the present cost of our life is 37,760 /year without health insurance, which I still have through my job, but closer to 40,000 if we had a lower income and had to buy it.  That also doesn’t include investments in Roth IRA’s and taxable brokerage accounts.  It’s money spent only.  We could naturally cut down any of this and drink cheaper wine or stay home more or go without a pet when Banjo’s time is up.  When that time comes I’ve even thought of being a paid pet sitter and getting on income side of the ledger instead of the cost side while still having dogs in our life.  There’s plenty of wiggle room to cut out luxury but I’m not ready to do that yet when we’re getting by fine on one income, a very part-time one, and some eBay sales.  I’m willing to work for wine and a dog!

So, What Good is Knowing Any Of This?

Let’s say you or your partner is on your last nerve at your job and you think you just can’t take another bite of the shit sandwich they’re feeding you at work.  An exercise like this one gives you some idea how much these areas of your life are costing you and whether or not you can still fund the necessities of your life while you or your partner make a move.  You can also get a feel for what you might need to reduce in a pinch.  For instance, we could rent 2 spare rooms in our house if times got very tough and still keep up our lifestyle but for me the choice is to keep working for now and not have anyone in our house.  It’s a personal choice but it’s good to know what would be some of the different options in funding your big life.  Can you also see how much life’s luxuries can cost?  You can also see how much you would need to pay for a basic “needs” life versus some of the other add-on’s and options.

Have you ever done an exercise like this to see where you stand?  Do you have other non-negotiable categories?  Are your luxuries worth working longer?  Let me know.

Willing to work for wine!



8 Replies to “Are You Working for “Needs” Money or “Wants” Money?”

  1. Loved the post! Our numbers are slightly higher. I haven’t really calculated our needs, but I guess it will be higher than yours. Our property tax alone comes to around 9000 dollars, but we will sell the house in 9 more years. Without including that and health care (which is subsidized heavily by our employers), we get to around 40,000 dollars a year.

    How many more years do you think you will take to get to 25 times your ‘wants’ number?

    1. thank you. 9k in property tax sounds rough, but i’ll bet you get a decent public school and the things that come with that amount at least. our wants number depends on several things. first is how are the investments going to do in the next few years? second: i expect a pension buyout offer this next year as my company is splitting into 3 entities. i’m hoping for 2-3 years is the short answer. we have the advantage that one of us can get social security within 8 years and then another in 12 so it changes the math a little when we start getting those payments. it’s the advantage of getting a late start! i appreciate you following along.

      1. Yes, the public school is great. And that is the reason we are here.

        2-3 years is not too bad. Social security is one reason we have to work for five more years. We won’t be eligible otherwise.

  2. It looks like we are pretty similar expense-wise, except we spend more on housing, food and pets, and way less on wine! We do end up around $36k every year, not including mortgage payments.

    When planning for retirement, I imagine our house is paid off, but then also throw another thousand a month or so onto that $36k a year to account for health insurance and “fun money.” We also have a two rental properties for income, but we could quit our jobs in probably three years (age 39) and maintain our standard of living. I usually throw a few more years onto my projections to add more spending money and make it extra luxurious.

    1. hey norm, thanks for stopping by. we surely benefit from cheaper housing in western ny. the ability to quit at 39 means your killing it to me! how do you like landlording? i’ve heard both sides of it from coworkers. one guy has more expensive places in the suburbs and does well with those. a few others have horror stories of lower cost city properties in not as nice ‘hoods.

What do you think? You must think something. This is the place to let it fly or just say hello.