Lifestyle creep. We have been pretty good about keeping lifestyle creep to a minimum over the years. When I was unmarried, I lived on $25K in Manhattan. This went up to $30K in the Bay Area — I guess inflation — then $50-55K as a married couple without any kids. My friends sometimes teased me about the apartments I rented because some were old and others came with eccentric roommates. But keeping expenses low allowed me to save a big chunk of my paychecks, from when I was making $80K out of college, $200K out of law school, and $350-650K as a junior partner.
During all these years of saving, I was focused on my FI number, a number arbitrarily derived from my current annual savings divided by some notion of a safe withdrawal rate, sometimes 4% other times 3%. When I was single, marriage still seemed far down the line and I remember thinking that I only needed $750K to be financially independent. Then we got married and with the new level of expenses I thought we would need $1.7M to be financially independent. Ah, the moving goalposts.
This year we bought a house and had a baby. Our expenses have skyrocketed. Hopefully this is temporary, but the average after the dust settles will still be much higher than before. Here is a chart of after-tax expenses for the entirety of our married life, plus a few months. Note: this chart does not include car purchases or house closing costs, which makes it that much worse.
The two spikes in 2013 and 2014 represent our honeymoon to Asia and another blowout vacation to Europe, respectively. The heady days of Biglaw… Those months were anomalies for six years, but have been overshadowed in the past few months. We’re already at $89k in expenses for 2019, again not including closing costs.
Convergence of Major Life Events
We’ve always kept our expenses low by sticking to a baseline standard of living — i.e., just the essentials plus a small margin. When we were renting, we could scale up or down between rentals, as needed. But with a baby on the way, we thought it would be a good idea to settle down and buy a house. Since transaction costs to buy / sell a house are high, we wanted to buy a place we could foresee living in for a long time — one that we’d want to live in and be happy to own.
So we have two major expenses – a new house and a baby.
As I documented in a prior post, we spent about $20k in the first few months on home improvement items and furnishings. We’re easily up to $25k now with several electrician visits in the past few weeks and continued upgrades throughout the house. That said, we’re getting pretty close to where we want it. I still want to upgrade the recessed and flush-mount lighting and then do some patch-up painting and we’re good for now.
On the baby front, we started to receive hospital bills in August. A C-section and 2-day NICU stay are not cheap. We have a high deductible health plan so there is quite a bit of burden sharing between us and our insurer. We’ve paid about $9,500 for the birth and follow-up care — getting close to our annual out-of-pocket maximum.
Those are the really big ticket items. There are a multitude of one-time expenses too, such as a weeklong vacation to Hawaii in September ($2,500) and attorney fees for estate planning ($3,500 so far).
Beyond these one-time costs, our recurring costs are also going up. The PITI for our house is $1,750/month more than our prior rent; we have another $80 in HOA fees and we pay $80 a month for a gardener to maintain our lawn and garden. Plus, our utilities are more expensive now that we have to pay for water, trash, and sewer. We hired a nanny to look after our baby for 20 hours a week at $20 an hour. Workers’ comp for our nanny costs another $500 a year, and we have to pay federal and state employer taxes on her wages. Our health insurance premiums are also going up as we’re jumping from “employee + spouse” to “employee + family,” although this increase is much less than if we had to self-insure using an ACA plan.
It’s still too early to project how much we’ll be spending in any given year, and that amount is certain to go up yet even more if we have a second child.
Fortunately We Have Buffers
Admittedly, these levels of expenses would be hard to stomach if we were full-on FIRE, as we were in 2016. I guess we are like barista-FIRE. My after-tax income has been sufficient to cover the latest spike in expenses (although some months, we’re almost living paycheck to paycheck!). In addition, the stock market has been helpful — our net worth YTD is up about $450k with $75k coming from savings and the rest from the market.
As someone who values security, I’m glad to have a financial tailwind as we hit this period of increased spending. It does come at a great expense though — freedom. Working 75 hours a month plus helping care for a baby takes a lot of time, effort, and energy. Our schedule has gone from freewheeling to rigid. We wake up at 5:30 am (or whenever the baby wakes us up) and go to bed at 9 pm, with the expectation that we’ll be awakened several times throughout the night. I’ve only played 5 rounds of golf this year, with my last round in June. I’ve been to the gym 3 times since our baby’s birth (the Dad bod phenomenon is real!).
But All Is Good
We have a nice support structure in place. My entire immediate family has now relocated to our area. My parents have been here for a few months as they retired. My brother just moved because he got a new job in the area.
Our baby is growing up quickly and he is healthy and happy. He enjoys spending time with so many different people and loves his new nanny. I have a great video from earlier today where he’s just cracking up at a song our nanny is singing to him.