Do you know where your money goes?
At the beginning of last month a reader got in touch with me to share his spending habits. I thought it was so interesting it deserved to be featured on the blog, and thankfully Bob very kindly agreed to write everything up. Enjoy!
Ben has recommended at various times to pencil out your spending to get a decent idea of where money was going. I have been putting 25% away every month while helping pay for my wife’s grad school. I had already taken Ben’s advice and switched to a low cost carrier for my cell phone. I had cut spending here and there and increased savings. I was patting myself on the back thinking I didn’t need to pencil out my spending.
Well, I finally did and it surprised me for a number of reasons. It brought not only clarity to some bad spending habits and ways I can easily cut down in 2018, but also about life here in Japan versus the possibility of moving back to the USA.
To create the visual I used http://sankeymatic.com/
So let’s jump into the breakdown:
The pre-tax and taxable income figures come straight from my paycheck stub. Some expenses you see are actual recurring monthly expenses, others are expenses from all of 2017 simple averaged out to a monthly number. For example Netflix and Humble Bundle are recurring monthly. Computer parts was simply two very large purchases that I added up and divided by 12. My wife is a listed as a dependent on my taxes so that brings down my income tax a good bit. She is also covered under my medical insurance, so that is a bit higher. I cover rent and my wife covers food, electricity and internet. If we have a BBQ or dinner party I will throw in extra for food. If I understand correctly my work subsidizes some of my health insurance, and that is not reflected in my take home amount. My rent is subsidized and is reflected in my take home. We get about 45% rent, which is simply added to my pay. What you see is full rent, not the subsidized amount. Because we get about 45% rent covered, if we moved to a place 10,000 yen cheaper it would only save us about 5,000 due to the rather complex formula they use. We receive max rent subsidy, so getting a more expensive place would not increase my pay, and getting a cheaper place would not really be worth the savings, in our opinion. We are really happy with our place. We live in a massive 2 story place with room to park 3 kei cars and a couple motorcycles. We don’t have all that, but it’s nice to have the space. Storage shed. Back veranda for BBQs and parties. A couple walk in closests. We live in city of about 250,000 people and we live less than 5 minute drive to ekimae.
About a year and half ago I was diagnosed with a rather serious chronic autoimmune disease. It is listed as a rare condition in Japan and because of that any medical costs related to that condition are capped at 20,000 yen a month and starting from 2018 they are now capped at 10,000 yen a month. I really can’t express how amazing this is and is the main reason why I will never move back to the USA. As you can see I average 20,000 yen a month for medical expenses. For 2017, this includes 15+ doctor visits, 2 ER visits, a combined 3 week stay in a hospital and a year’s worth of medicine that would be about 7,500,000 yen without any insurance. The bi-monthly infusions I get are only made in the USA by one company and that alone costs about 50,000 USD a year. So even with good (and expensive) insurance in the USA my deductibles would be shot within in the first few months, if not the first month.
“Tattoo”. Yes you read that right. That actually is a monthly expense. I go once a month like clockwork. It is something I started when I first moved to Japan. I never thought I was going to be here forever or stay half as long as I did, so it just became a habit, a ritual of sorts. I am at a point where I am going to call it quits for the foreseeable future. I should be at a stopping point by next April or May.
“Parking” is at work. They take that straight out of my paycheck.
In the past few years we have received increased income without increasing spending habit, we merely increased saving habits. We also made a lot of lifestyle changes to decrease spending. We got rid of one car. My wife drives her kei car 98% of the time. I downsized to a motorcycle. The 13,000 yen on the chart is the purchase price divided by 12. I had to buy a new used bike this February. This saves so much on insurance, maintenance, gas, tax, and there is no shaken. I have already taken Ben’s great advice about using a low cost carrier for my cell phone. This also saves so much money.
Where to cut down? Boy was I surprised when I saw how much I spent on music. This is because I got into vinyl. A dumb and expensive hobby. This can easily be reduced to something like 5,000 or 3,000 yen a month. There are still some records I won’t be able to say “no” to, but I don’t have to get everything I see. Star Citizen is a crowdfunded PC game that is still very much in alpha. It is something I support but supported a little eagerly. It was a regret to see it all added up. I don’t know what I was thinking. That will be 0$ from this point forward. I can probably cut down on electronics a little. This a few purchases averaged out over the year. My Kindle broke and needed to be recalled. I am a big audiophile and while I am done collecting and building up my headphone collection, one of my daily use sets broke and I needed to replace that. There were a couple dumb purchases like a 300$ joystick that I didn’t need and hardly use simply because I was back in the USA, had extra cash in my pocket, and it was on sale. It was a dumb purchase. “Miscellaneous expenses” include things like a pair of shoes I bought in February, gifts for people, souvenirs, knick knacks, and other things I can’t really account for. Other than the shoes, I don’t recall buying any big ticket clothes this year. No new suits or winter jackets. I am probably a little too frugal on clothing and let my wife gift me nice things like ties and jackets or wait until absolutely necessary to replace a suit or dress clothes.
The “eating out” and “alcohol” were very rough estimates. I honestly have no idea exactly how much I spend on those two things, so that along with things that might fall into miscellaneous expenses are somethings I am going to keep much closer track of in 2018.
I am in my mid 30’s and was living paycheck to paycheck pretty much until I was 30. I had a lot of catching up to do. At around 30 I started to invest some, but was paying for grad school and wasn’t making much in my full time job. It has only been the last 3 or 4 years that I have made a serious effort to not only realistically save for retirement, but do some serious catching up. Thanks to Ben’s blog and /r/personalfinance I have found lots of good inspiration and advice.
Thanks Bob! That’s really interesting, and I love the sankey diagram.
I’m really pleased to have been able to kick off the year with a Reader Profile. These are one of my favourite types of post on the site, and I’d love to run more. If you would like to share something, or would be willing to answer our standard reader profile questions, please get in touch! I’d also like to see more spending breakdowns like Bob’s.
Always interesting stuff. Although I confess to not quite understanding couples that have ‘I pay for this’ and ‘my wife pays for that’. When I live with something and we have separate budgets, that’s a roommate. But different strokes, etc.
Anyway, our monthly budget breaks down as follows:
Tax / deductibles 30.5%
Living expenses 17.8%
Food 9.0%
Utilities 2.3%
Internet, TV etc 3.0%
Transport / car 2.0%
Property-related 3.0%
Insurance 2.1%
Education etc 2.0%
Leisure / hobbies 5.0%
Savings 23.3%
Living expense includes food & eating out, daily necessities, newspaper subscription, pet, haircuts and clothing.
Utilities is gas, electricity and water/sewage.
Internet/TV is our TV subscription, Nuro internet, NHK, Netflix, land line and mobile phones for my wife and myself.
Transport/car is any train fare and monthly gas & insurance etc for the car.
Property related includes fire insurance and property tax for the house, any furniture expenditure, plus we earmark money each month for eventual renovation.
Insurance is mostly life insurance.
Leisure & hobbies covers free-spend money for my wife and myself, after-school activities for the kids and we allocate a bit of money each month for upcoming family trips.
This is a basic monthly budget spreadsheet – I use this for our annual cash flow plans, tweaking as necessary. My spreadsheet covers currently covers the next 20 years, and we include expected bigger expenses such as the possibility of major renovation and larger education expense for the kids when they enter junior / senior high and university. The spreadsheet tracks all our expenses and investments. I should probably make a vlog about putting it together at some point…
Very interesting! I’m quite jealous of people that manage to track everything. The only thing I track is how much we save/invest each month/year. It’s over 50% of net income, so I can’t be bothered to try and figure out what we do with the rest. If our spending suddenly shot up I would probably take a look at it though.
I get the couple thing too. My wife and I both earn, have separate credit cards and separate investment accounts (I run all of them, but my wife’s are in her name). I pay the mortgage, she pays the mansion fees. Groceries go on my credit card, the cars are owned by her business. We didn’t set out to design this, it just ended up this way and works for us for now.
What’s the thinking behind having tax as an item in the budget as opposed to working with after-tax income? Wondering if I am missing something (I usually am).
> I pay the mortgage, she pays the mansion fees.
Right – I mean, certainly in Japan some things will come out of different accounts and such because of convenience or points or whatever. I’m referring more to how families view the overall budget, not specifically who pays for what. The guest poster’s chart didn’t include things like food and such, so it isn’t really a complete picture of the household’s finances. Just my $0.02.
Being able to save over 50% of gross salary is pretty impressive; between tax and food alone our family of four + dog is already at roughly 40% of planned gross income, although with side hustles and such we usually end up saving around 35% each month.
Sorry, forgot this:
> What’s the thinking behind having tax as an item in the budget as opposed to working with after-tax income? Wondering if I am missing something (I usually am).
No real reason, just a data point. Obviously it’s pretty hard to dramatically change how much of your money goes to taxes, but just in terms of the breakdown of where each paycheck goes. When we first set up the budget we of course based everything on disposable income, although keeping track of tax and such is important for me as a US citizen living overseas and assets all over the place.
Cool. I just find it easier to work with take-home. I’ll continue doing that when we (eventually) get to the point where we are living off our dividends…
#optimistic #utopia
Hey Dragon,
Thanks for the comments on the post. As for the I pay for this and she pays for that, it’s honestly just easier that way. We split pretty much every cost 50/50 (other than most things in the entertainment and shopping category). Computers, trips, tv, car. She paid for half my grad school, I am paying for half of hers. As for the rent, food stuffs, and utilities it just worked out that monthly utilities and food pretty much equals rent. Since joint bank accounts aren’t a thing in Japan it’s just easier to balance the books this way. That’s why if we ever have a party or I BBQ I pay for the food. We really just try to keep everything 50/50. The difference in our income right now simply goes to savings for the both of us.
Hi Bob, thanks for the post. One question: how is your tax bill so small? From what you list, your tax calculates to something like 13%.
I just had a look at my salary for last year, and it seems like my taxes (income and local) only came to about 7.8% of my salary, bonuses, and work allowances.
I don’t have any dependents (my wife makes too much and our kids are all independent now) so I was pretty surprised to see that…
I’ve been using You Need a Budget for a few years now and I used Moneydance before that. With the YNAB website and app it’s very easy to track all of your money and assets, especially if you combine it with Moneytree and keep your Japanese bank balances up to date.
In fact, a quick glance just now shows that since I started using it to track all income/expenses my net worth has increased by more than 180%. I have no doubt that that’s because tracking everything makes you aware of where you can cut back and helps you prepare for upcoming expenses etc.
I’ve been able to eliminate many unnecessary expenses just by being more aware of them.
That is fantastic progress. Congratulations!
@Bob, I also have recently been diagnosed with a less then desirable medical issue. Would it be possible to learn some more about the medical insurance, monthly cap, or other benefits we can use to our advantage here in Japan?
Hi Alan
I’m sorry to hear that. I hope things go well.
NHI would be a good topic for the blog so I will try to put together a post in the near future.