I got a really interesting comment/question from a reader last week. It was to do with something I wrote in a post where I said that my family has achieved ‘financial security’. I summed up ‘financial security’ in this way:
“I have never wanted to be ‘rich’, I just want to have money in the bank so if the washing machine breaks down and needs to be replaced, it’s not going to rock my whole world”
Em wrote in the comments: “I would really like to hear more of your thoughts on the balance of money and stress and drive. How much is enough? Do you have to have paid off the mortgage to feel secure? To what extent should you have a budget and stick to it? What is to be considered a ‘necessary luxury’ to enjoy life (going out once a week or once a month, movies or theatre, alcohol or chocolate)? To what extent is being frugal in order to pay off the mortgage sooner or have cash for a rainy day a good thing? Or is the answer… everybody’s different?”
Whew! Nice question Em – and the short answer is of course that ‘everyone is different’. I am pretty sure Em’s not looking for the short answer though so what I am going to give is an answer that fits with my own life philosophy and lifestyle. Here goes …
With regard to money, I subscribe to the mantra that “money can’t buy happiness, but it can buy me time.” A large chunk of my personal happiness goals centre around time.
I need quality time to spend with my husband and child. For me ‘quality’ means that my mind is not elsewhere while I am hanging with them.
I need adequate time to do the things that feed my soul – write, read, exercise. Being able to do these three things ensures my mental health is good and my general happiness is assured. This is not just good for me, it is good for everyone around me.
I need adequate time to do my work. I have work to do in my home (ie running the household) and work to do with our businesses. I want to be able to do all this work on weekdays so that my weekends can be all about hanging out with my husband and child.
I define ‘financially secure’ as not having to stress about money/having enough to money to support our desired lifestyle. So for us that means we need:
Enough money to pay our mortgages (we have a home and two investment properties).
Enough money to pay for food.
Enough money in the bank to cover life’s little surprises (for instance both our cars needed new sets of tyres last week – ouch)
Enough money to pay these people to free up our time: we have a lawnmower man, a property agent to look after our rentals and finance guys to keep us on track with our spending and things like super, life insurance, wills etc. When I get my act together, I am also going to get myself a cleaning lady.
Enough money to pay for child care five days a week. Again I am paying for time here. It may seem selfish and I am sure I will draw disapproving frowns for this, but having J in childcare every day gives me stress free time to do all the stuff above that needs doing. Paid work, running a household, writing and exercise are not luxuries, they are necessities and doing any of them with a toddler in tow is not fun for anyone – not for him, not for me. I get my work done while he is at daycare so I can enjoy the time I DO have with him in the mornings, afternoons and on weekends.
Enough money for ‘luxuries’. We don’t lead a lavish lifestyle. Neither myself or X are big shoppers so we don’t really spend a lot of money on clothes. We don’t go on big holidays to faraway countries. We don’t have expensive cars. What we do like to do is go out for breakfast or lunch on weekends and we buy an awful lot of books. We also try to have one week long holiday a year – usually in WA. (NB If things get tight however, all of these luxuries get dropped from the rotation quick smart. Instead of going out for lunch, we go out for coffee, we buy less books and we don’t go on our long holiday.)
So that’s my definition of ‘enough’ – the amount where you get to enjoy life without worrying about money – because we’ve all worried about money. Getting to this point in our life (where we are are ‘comfortably off’ and not worrying about money) has taken 8-10 years of hard graft and hard-core stress. As mentioned at the top of this post, we don’t want to be ‘rich’ because that would require us to work obscene hours and welcome bulk stress back into our lives. This is 100% something we are not interested in.
To answer Em’s questions specifically
(NB this is of course according to my personal philosophy – I don’t expect it to be anyone else’s)
Regarding the balance of money and stress and drive: Stress is an insidious little bastard and needs to be used with caution (especially if you are a Type A personality like me). It is a necessary part of achieving most time-sensitive goals in life, but if it’s not getting you to your goals, re-assess its place in your life. Harness drive to help you achieve your goals. If your drive tries to take you beyond your goals, think twice! As a highly driven person, I am constantly needing to think twice! Having ‘enough’ money makes life easier and reduces stress.
How much is enough money? For me ‘enough’ is the amount I need to live my desired lifestyle and minimise stress (as detailed above).
To what extent should you have a budget and stick to it? Unless you’re earning more money than you’ll ever be able to spend, you should have a budget and stick to it as much as possible. Twice a year we sit down with our brilliant finance guys, and chat about anything unusual we want to do this year (go on two holidays instead of one), next year (maybe move to a bigger house with a backyard) and future years. They work out whether our current and future earnings can finance these things within the constraints of our preferred lifestyle and life goals. From these workings come the budget that we stick to.
What is to be considered a ‘necessary luxury’ to enjoy life (going out once a week or once a month, movies or theatre, alcohol or chocolate)? I think this is highly personal. As mentioned above, we like going out for meals on the weekends and buying books. Childcare for us could also be considered a ‘necessary luxury’. Whatever your necessary luxury is – so long as you can afford it, then do it. Life needs to be fun and fun reduces stress levels 
To what extent is being frugal in order to pay off the mortgage sooner or have cash for a rainy day a good thing? I have typed four answers to this question and have deleted them all because they all sounded like I was giving financial advice. So I will stick with this – we have mortgages on all our properties. We can service these mortgages and still live the life we want to lead. So having mortgages works for us. Cash in hand for a rainy day? I am a huge fan of having 1-3 months’ worth of salary sitting in a savings account (offset against your mortgage of course!) You never know what life is going to dish up to you. If life decides to blindside you and deal you a shitty card, then having money in the bank gives you room to breathe.
So there you go, that is probably more than you will ever need to know about our family finances. Ant is not a fan of oversharing so hopefully I have kept the above general enough to fly under his radar while giving enough detail to answer Em’s question thoughtfully!