A Case Study of Lifestyle Inflation

Day 107 | $50,944 paid | $39,773 till freedom

I’ve been beating myself up about my lack of spending discipline in November and even, to a certain extent, this month  (e.g., the tow bill, New Years’ Eve party ticket & hotel, Christmas gifts, etc.). Then I started looking at past spending, and I realized that my spending hasn’t been that bad. With this post, I’m hoping to put things in perspective  for myself by contrasting my spending levels these days with my spending habits before and directly after I graduated from Harvard. It’s a story with visual aids like charts and pictures. Buckle up.

The first couple of pictures are me about to embark on what turned out to be a 22-hour, straight-through, no-sleep drive from Michigan to Austin in August 2005 to start my first real-world job. I had just graduated from Michigan debt-free (thanks to my parents) and was moving to Austin to take a job with a $52k annual salary + bonus, but I bought a 2002 Ford Focus for about $10k. I was very focused on my spending habits at that point in time, and I had successfully fought the very strong urge to buy a slightly used Mustang GT convertible that was calling out to me on Autotrader like the Sirens.

Those are all my worldly possessions–just enough to fit into a compact hatchback. I was the definition of “mobile workforce.”

 

I got to Austin and moved into a one-bedroom apartment for about $500/month. All of the  furniture in the pictures below except for the bed was free from my aunt and uncle living in Fort Worth.

Note the following:

  • Lack of nightstand next to bed
  • My desk doubled as my dresser
  • Lack of dining room table–I literally ate all my meals on my couch

 

   

I stayed there only for a year, then I got rid of the couches, coffee table, and end table and rented a room in my buddy’s house to save money and be less lonely–I had lived with seven friends at Michigan, and I just wasn’t cut out yet to live completely alone. I had gotten a raise and was making $67k/year, but my frugal self decided $500/month for a lonely rent was too high a price.

I sacrificed when I moved into the room below–for example, my closet was across the hallway rather than in my room. But I was still happier there–and paying less–than I was at the apartment.

(I did end up selling the Ford Focus and getting a red Honda S2000 for $18k, so I wasn’t a completely innocent consumer.)

Below is a pic of all of my worldly possessions packed up in August 2007, almost exactly two years since I had moved from Michigan to Austin.  The boxes were staged for my colleague to put them in his rented U-haul truck on the way to Boston. He was also headed to HBS, but I couldn’t drive with him–I had to take a flight to visit my family for the weekend before heading to Boston. Note the lack of car that I had sold a week before this pic was taken.

I graduated from HBS in May of 2009 and moved back to Austin, and that’s when the spending really kicked into gear. I ended up moving back to the same apartment complex I lived in when I initially moved to Austin in 2005 (I’ve since bought a house), and the result is a before/after portfolio that is pretty darned poetic–I ended up spending a good chunk of my signing bonus on new furniture when I graduated. I had not one, but two nightstands, a real desk, and even a place to eat meals.

    

Oh, yeah, I also got a 2004 BMW M3 the same month I graduated in May. Then I got a motorcycle in October. Then I got a house in July 2010. Then I sold the M3 and got a Murano and an S2000. During this time, I also got a huge LCD TV, a surround sound stereo system, gadgets, more furniture, and I also went on trips.

What the hell happened to the guy renting a room from his buddy who owned just a car and some clothes? And who, by the way, was pretty content to live that lifestyle (but did wonder what it would be like if he had more money).

I want to take a second to stress that all of my spending was in complete control. I never carried a balance on my credit card, and I always had at least $15k in savings. I was buying stuff that I could afford and spending at a sustainable rate–not at a “retire-by-age-35″ sustainable rate, but sustainable nonetheless.

But seriously, why did I buy all of that stuff? What was I thinking? I’m only in my fourth month of NMHD of living a relatively frugal lifestyle, but looking back at my spending history, I cringe.

And it’s not like the stuff made me happy. Far from it. I remember how much stress the furniture purchase caused me. The morning after I bought it all, I woke up at 4 AM in a panic and couldn’t fall back asleep. I called the furniture place as soon as they opened and asked what their return policy was, which turned out to be quite lenient, and I came within an inch of cancelling the entire order.

The thing was, I had been quite content to be a guy renting a room out of a house, then a guy living in a dorm, always able to cut ties a moment’s notice and do what I wanted, go where I chose. I had freedom. And then, just like that, I was grounded. Tied down. Completely trapped.

At the time, I was able to talk myself off the ledge and convince myself that I was doing what “adults” do. This was all about growing up and being a responsible, contributing member of society. The argument worked; I kept the furniture, and I went on to consume more stuff.

Now I’m not so sure anymore.

I prefaced this post by explaining that it was an attempt to put my so-called lack of spending discipline in November and this month in perspective, and it’s sort of working. I don’t know that I deserve a pat on the back or anything, and I’m far from out of the woods, but I think I’m doing alright–I’m doing better, at least, which is something I think we can all agree on. A couple of data points that support that claim are the sales of the Murano and the motorcycle.

Other supporting data can be found in the charts below. I started NMHD at the tail end of August and my spend for Sept-Nov in 2009, 2010, and 2011 is graphed below. My min/max spend pre-NMHD was $15,831/$4,002 with an overall average of $7,911. Those same data points for the NMHD period-to-date are $3,420/$2926 with an overall average of $3,196. In other words, during the past three months, I spent, on average, $4,715 less per month than the same time period a year ago and a year before that.

Below is my consumption rate from the past 18 months, including average indicators. The Pre-NMHD average is $7,754 versus the NMHD average of $3,196 for a delta of $4,558/month. The peaks, from left to right, are 1) down-payment on the house, 2) Murano purchase, and 3) S2000 purchase. Even when I wasn’t buying big things like a house or a car, I still managed to throw down $7k in a single month, and on more than one occasion. (All expenses in both charts exclude student loan payments.)

 

I was a certain consumer when I drove down my parents driveway in the Ford Focus in August 2005. I was a similar consumer when I packed my bags for Boston in August 2007. When I came back in 2009, I was…different. It sounds weird, but I’m trying to get re-acquainted–on a certain level–with the guy I was before I came back from Boston.

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10 Comments

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10 responses to “A Case Study of Lifestyle Inflation

  1. insrq

    It’s like Tyler Durden says in Fight Club, the things you own end up owning you. I’ve been following your story with interest as my wife and I have a similar situation (mountains of debt from college). The house that we rent is similarly loaded with stuff we probably don’t need that has been following us around for years. I’m hoping that reading your story will inspire my wife to stick to our budget, sacrifice, and let go of some of our “stuff” that really should go. She had a difficult childhood, so having lots of “stuff” now helps her feel secure, but gets in the way of making any real progress in paying down our loans. I wish you the best of luck in continuing your journey of getting to “zero” at the end. With the new spending habits firmly in place and no debt load, you’ll have lots of opportunity to buy more “toys” later if you want to, and total freedom to use them. If you decide that those aren’t what really make you happy, you’ll have that much more to invest, donate, use for travel, or partying harder than ever before. :)

    • Dude…yes…all of those Fight Club quotes were running through my head that morning!

      Good luck on your own mission…I hope the wifey comes around and realizes there’s more security in freedom than in stuff.

      Loved the last part of your last sentence. Well said!

  2. Arti K

    Hi!

    Unrelated to your post here, can I just say that your charts really bug the heck out of me? Are you using Excel 2000? 2003? I’m a spreadsheet-queen myself, and I’m sorry, I just get distracted from the content of the post every time I see a yesteryear chart :) Upgrading to Excel 2010 is probably, ironically, out of your NMHD budget.

    About your journey – I think you are brave for taking on the debt reduction journey but even more so for being introspective and objective about how you got here, warts and all. And I see that you are not hyping up only the bad side of it – who you are today is not so bad, and you know exactly how it could be better. That’s a great place to be!

    • Fail. It’s a chart. I’m sorry it’s not as aesthetically pleasing as what you’re used to or what you’d like to see, but it serves its purpose—to communicate trends–just as flawlessly and effectively as 2010.

      Truth be told, the first time I posted a chart on this blog, I was still in consumption mode and stuff mode and I was embarrassed by the dated look of the chart. Now I don’t give a damn because I saved a ton of money by not buying something that’s brand new and only slightly more polished.

      You probably buy new cars, too, don’t you? And get the latest iPhone?

      Sorry to lash out at you, but this is precisely what’s wrong with our society today. We’re spending money to fix things that aren’t broken!

      By the way, I’m just making an example out of you. I know you meant for your comment to be as innocuous as possible :)

      In regard to the second part of your post, thanks for the encouragement and support. I appreciate it.

  3. Not that it’s really relevant (the charts do what they need to do), but for the curious it’s actually easier to make charts look good in 2003 than 2007/2010. See http://peltiertech.com/Excel/Charts/ChartIndex.html for the technical and Edward Tufte’s Visual Display of Quantitative Information http://amzn.com/0961392142 for the visual (get this book from library or borrow it, no need to purchase).

    Summary of the lessons:
    – reduce non-data “ink” (fewer gridlines, tick marks, background colors)
    – make sure the data display tells the truth (NMHD scores fine here)

    Definitely no need for powerpoint phluff that is available in Excel 2007/10.

    Good job attacking your student loan debts.

  4. brian

    I love this blog and only wish I could aquire a minimilist lifestyle to reach financial freedom or even to cut costs to save for larger purchases such as a home and to be debt free aside from a mortgage. Like the guy above, I have a signifigant other that puts personal status on expensive things and values many things that cost money in life. She does not mind a car loan, because she likes to drive a nice car. She does not see anything wrong with using credit cards for vacation because she sees friends vacationing and wants to herself. If I canceled the cable, did not go out to dinner or entertainment it would make her unhappy, so I continue to live the life that we think ‘adults’ do. Sadly, our situation is her mountain not mine ($70K) in student loans, yet I am the one who worries about them more.

    Looking forward to the day her loans are more managable (currently $900/mth) and we can use her income to better use to fund a retirement, mortgage, vacations and not just rely on my income for all the living expenses and savings.

    Your pictures were enlightening, and while I wish for the minimilist lifestyle to save money, it’s a tough thought trading in all the luxuries that society thinks are important and judges you on, for the college dorm lifestyle.

    You’re also correct in how society problem is spending and upgrading things that are not broke. I’m always judged at for my 4 year old cellphone with the cheap bill and asked why I dont get an iphone. I’m sure the same comments will come when in 5 years when I’m still driving a 10+year old car.

    • ew, your car is 5 years old? what’s wrong with you? are you poor??

      hahaha…we are an absolutely ridiculous society.

      • brian

        Indeed. I’m sure it’s everywhere but here in New York many 20-somethings will see someone who drives a BMW,Mercedes, Range Rover as someone who has made it. It’s the society of this country that even in a day where status symbols are more attainable they still hold the same image as always.

        Most can lease a luxury car, and for all anyone knows they’re in debt and struggling to make the payments.

        Most can put the designer handbags on credit cards, yet be in debt and have no savings.

        If you save your money, fund retirement, drive your car as long as you can, not put yourself in huge amounts of debt for things not seen as valauble to you……people get this opinion that you’re a tight-wad cheapo.

        Your friends seem to get your goals, and maybe it’s because you’ve achieved so much and hold value being a harvard mba and not just some cheapo. Seems your friends don’t judge you for carrying a flask and ordering cokes at the bar.

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