It took a lot of lucky breaks for me to retire from my engineering career before 40. I was able to find a well paying job right out of school and started investing right away. I had some trouble with investing at first, but I settled on a long term strategy and was able to steadily increase our net worth over the last 20 years. I also have a great partner in Mrs. RB40. She values financial security and shares most of my goals. We wouldn’t be where we are if we hadn’t worked together.
I’m very grateful for my good fortunes, but one thing that was always under our control was our lifestyle. We continue to live modestly and have never accumulated any consumer debt. Our income rose steadily throughout our 20s and 30s, but we always lived below our means. We had years when we were very frugal and some where we loosened up a bit.
But what exactly does it mean to live a modest lifestyle? It’s in the eye of the beholder. My definition of a modest lifestyle might look like living in poverty to some people. I’m sure others would view our lifestyle as luxurious. The important point is to live below your means so you have money left over to invest. Anyway, I thought I’d share our modest lifestyle with you. I’d love to hear what you think.
To start off, let’s take a look at the nifty Family Budget Calculator from the Economic Policy Institute. It measures the income a family needs in order to attain a modest yet adequate standard of living. It will be a useful comparison point for us since location can make a huge difference in the cost of living.
RB40 Household Modest Lifestyle
Housing – $2,300
We live in a 2 bedroom, 2 bath condo. It’s around 970 square feet and it’s just about the perfect size for the two of us. Oh wait, we have a kid now… We are a little squeezed at the moment, but we’re managing it. I’m sure we’ll need a little more space when RB40Jr is a bit older. Right now he doesn’t mind timesharing his room as our office. My mom visits frequently so that puts a little more strain on the housing situation as well. Whenever I think our space is too small, I’d remember that my family of 5 lived in a 2 bedroom apartment (or smaller) when I was a kid. Also, one of our neighbors has 3 kids, a dog, and a grandma living in a similar sized unit. That’s really tight.
We spend about $2,300 per month on our housing. That includes mortgage, property tax, insurance, HOA, and utilities. This is pretty expensive, but we love living here. It is centrally located and we save a lot of money on transportation and entertainment. Besides, we have a million dollar view right outside our window. Eventually, we’ll move into our rental home and our housing cost should decrease a little bit. It’ll be hard to give up this place, though.
I think the EPI’s $922 estimate is way off. You can’t rent a 2 bedroom apartment for under $1,000 in Portland. You’d have to go out to Gresham or maybe Beaverton. It’s already pretty tough to find a 1 bedroom apartment under $1,000 in inner Portland. The cost of living here is rising very quickly.
Food – $500
We usually spend about $500 per month on food. We mostly cook at home and go out once a week at the most. We shop at WinCo and Safeway, and rarely patronize expensive stores like Whole Foods. When we go out, we usually go to family friendly ethnic restaurants. RB40Jr’s table manners are terrible and we can’t bring him to fancy restaurants. We rarely eat fast food unless we’re on the road. I think we’re doing pretty well in this category because both of us know how to cook. One of us can always pick up the slack if the other doesn’t feel like cooking.
Childcare – $500
We spend about $500 on RB40Jr every month. Childcare is expensive in Portland for some reason. Next year he’ll start kindergarten so our childcare cost should drop significantly. We’ll probably enroll him in some lessons, but it should be much cheaper than paying for preschool.
I think full time daycare would cost over $1,000. If I was working fulltime, that would be our best option. Luckily, I don’t have a traditional job anymore so he can spend the afternoon with me.
Transportation – $60
This is a great category for us. We share one car that we paid for in cash 5 years ago. We don’t drive much and fill up only once or twice a month. Portland’s traffic has been getting worse and it won’t get better anytime soon. I loathe traffic jams so I avoid driving during rush hour. That’s one reason why we love living downtown. We have great public transportation options and we can walk everywhere. Mrs. RB40’s employer provides her with an annual public transportation pass and that’s perfect for her since she can avoid driving to work.
Healthcare – $100
We’re pretty lucky because we’re all on Mrs. RB40’s employer sponsored health insurance. Once she retires, we’ll have to go with Obamacare. This is a good category for us right now and we only spend about $100/month here.
Other necessities – $800
“Other necessities include apparel, entertainment, personal care expenses, household supplies (including furnishings and equipment, household operations, housekeeping supplies, and telephone services), reading materials, school supplies, and other miscellaneous items of necessity as reported for the second quintile from the Bureau of Labor Statistics Consumer Expenditure Survey.” I think we’re okay in this category as well. Our biggest miscellaneous expense is travel. Now that RB40Jr can travel, we’ll try to take an international trip once a year. It will broaden his horizon and remind us how lucky we are.
We don’t spend much on clothes. I’m still trying to wear out all my old clothes. We have to spend more on RB40Jr’s because he is very hard on his clothes. Also, nothing lasts more than a year because he’s growing so quickly. Mrs. RB40 spends more on clothing, but that’s mostly so she could be presentable at work. We average about $800 per month in this category.
Taxes – $??
This one is highly dependent on your income. I’m not sure why they include it here.
Overall – $4,300
Overall, we spend about $4,300 per month on our modest lifestyle. That’s right around EPI’s estimate, not including taxes. It’s pretty interesting because we spend more on some items, but less on others. It’s easy to see that our biggest problem is housing. Even if we move into the rental, the housing expense won’t decrease that much. We’ll probably have to move out of Portland to see a big decrease.
It’s hard to define a modest lifestyle. This lifestyle feels very comfortable to us. I don’t feel like we’re depriving ourselves of anything. Our lives are pretty comfortable. Sure, we could spend more money on luxury, but it doesn’t seem worth it to me. Let’s put some of what we do in bullet points.
- We rarely buy new things. Our condo is pretty small so we don’t have a lot of storage. Replacement is the current policy. Junior is slowly taking over the whole condo, though.
- Avoid luxury goods. Luxury goods just don’t excite me. I value financial security much more than luxury.
- Forget about comparing ourselves with our neighbors.
- Use things until they break/worn out.
- Go with free/cheap entertainment. There are a ton of fun things to do that don’t cost a lot of money.
- Pick affordable hobbies. I’ll never buy a sailboat…
- Avoid collections. Books, music, and movies can all be borrowed from the library. I rarely buy knick knack anymore. They just collect dust.
As you can see, our modest lifestyle is comfortable for us. We’ve managed to use what we have without feeling like we need to accumulate more things. We splurge on international travel once a year, but I think that’s well worth it.
Do you live a modest lifestyle? How do you compare to the EPI’s estimate?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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