Have you ever wondered what you could have (and do) if you spend every cent you made? I never really thought about this before in detail until this weekend. So what if we had a 0% savings rate? What kind of house could we have lived in, what car(s) could we be driving? What sort of holidays could we be doing? How could we live?
Here is to a thought experiment of when we would be the opposite of frugal and careful with our money. A thought experiment of what our golden cage could have looked like. A golden cage that would have tied us to our work because we would not have any savings or significant emergency buffer. We would thus be living pay-cheque to pay-cheque. We’d be a bunch of donkeys 😉
Without revealing our actual (past) income here is a bit of framing for you. Two highly educated individuals (both a Master degree and some post graduation education), jobs in engineering and business administration/accounting, late thirties/early forties.
Based on education level, we are already in the top 10-11% of the Dutch population. Based on age and occupations, the overall household income should be in that same category. If you look at the statistics in the Netherlands, the median household disposable income in that top 10% is €87,1k per year.
Since I like round numbers I’m going to assume €90.000 per year in disposable income for this thought exercise (as a reference, gross household income should be somewhere around €130.000-145.000). That is thus a monthly spending allowance of €7.500.
So what if we had a 0% savings rate? If we would spend all that €7.500 per month, what could it look like?
Let’s assume we spend 33% (or €2.5k/month) on housing. That would give us about €2000/month for a mortgage and €500 for utilities, taxes and maintenance. Based on a 20 year fixed annuity mortgage with a 100% financing of the house, you’d be looking at around 2.6% interest today. With this you could afford a home of about €630.000.
To mimic our situation, we would buy something in the western part of the Netherlands. Something a bit rural, with a yard and close to water. Something similar to this:
It’s a detached house (“villa”) with garage. It’s located in Mijdrecht a small town south of Amsterdam in the middle of the polder. In short, crappy public transport and you would be in need of a nice car to get to work. Well, make that two cars actually!
If you are of the non-savings type, I bet you like fancy new cars. In short, you probably lease them so you have a new car every couple of years. Or you have a company car and the associated taxable benefits (i.e. “bijtelling”). For sake of this argument, let’s assume a private lease of a BMW 3 series with 24K km per year and the fancy package.
Let’s assume the lady of the house is not that picky, but still want’s something nice. Let’s assume she drives a little less (18.000km/year), but is the “sporty type” and a soccer mom. So she will have something like this:
Add in some fuel for about €300/month and we are at €1.463 in transport costs.
The house and the two new cars will set you back €3.963, so we have another €3.537 to go!
Food and groceries
We currently typically spend €375/month on groceries and perhaps another €25 on going out to dinner as a family. That’s not going to be enough of course, so let’s go with €900 per month on food an restaurants. That’s doable right? I personally would not know how, but I bet it’s possible!
So, that’s €4.863 down and €2.637 to go!
We have one little muppet, who wil have to go to afterschool care 4 days per week (let’s assume grandma/pa will want to have an afternoon too!) since we will both work. Based on income and current costs, this will be around €650 net per month.
The kid will be “spoiled” too and will have sports and drama classes (or something similar, just not a horse!) at least 3 days per week too. Let’s assume this will set us back another €150. Add in another €100 per month for cloths, toys and other bribery. Adding to a full €900 per months in expenses.
Now we are up to €5.763 in expenses and have €1.737 left.
Travel and holidays
As a fancy couple we would have to travel at least 3 times per year, right? That is one skiing trip in the winter of at least €800pp for a week. Then the spring break trip to something warm, say Greece, all-inclusive of course! That’s another €800pp for a week. Next we would do a safari or extensive summer trip of about 17 days. That would be another €2.200pp. Gosh, are we really already up to €11.400 per year?
Ok, so that’s another €950 in average monthly expenses! Yay, doing great here 🙂 Now we are up to €6.713 per month, whoop whoop!! Just €787 to go… we can do this.
Ok, how to burn through that remaining money? I assume something like this:
- €200 for a house cleaner
- €300 for cloths and shoes
- €100 for gifts
- €100 for phone plans
- €87 in cash (cash disappears well, right?)
What if we had a 0% savings rate? We would be wasting money left, right and centre. No debate here. I
sincerely doubt that know for sure that it would not make us any happier than we already are. Not to even mention the additional damage we would do to the environment that our kiddo needs to grow up and live in.
Granted, if you would be really “efficient” or “creative” with your money, you could live even more comfortable and luxurious with that same yearly amount. But not saving a single Euro (or dollar) is never a bright idea. I don’t even want to know how it feels to be this stuck financially! It’s a golden cage indeed.
We have never spent all the money we made in any given year. We always saved some money. I can’t imagine how you could do this and still be comfortable with the notion that you have nothing to fall back on. I really don’t want to ever live from pay-cheque to pay-cheque! It would give me great stress.
Have you ever considered what you could do if you’d spend all the money you earn?