Pay no attention to that man behind the curtain
I’m not the most frugal person, and I am certainly not particularly good at budgeting or finding tax loopholes. I don’t have a ridiculous income, and I don’t sit at home typing this under candlelight while waiting for my home-made soap to set. People like that don’t need this blog post, but maybe people like the person I was ten years ago might find it useful.
I currently work full-time for a national university as a lecturer (講師). I’ve been there for nine years and have had small regular pay raises each year. I also get biannual ‘bonuses’ (withheld salary). My take-home pay (after taxes and social insurance contributions) is just under 300,000 yen a month, and about 1.4m a year in bonuses.
So here is my regular saving plan:
1. 12,000 yen a month to iDeCo. This is taken directly out of my paycheck, reducing my income taxes and local taxes at source. The preferential tax treatment on iDeCo accounts means that it is a good idea for most people to max this out.
2. 40,000 yen a month to THEO. I set up the new withdrawal function for this so that they take the money from my account once a month and I don’t have to worry about the furikomi fee.
3. 1.2 million yen a year to NISA. I use pretty much all my bonuses for this, so we just live off my monthly salary and invest the bonuses in June and December. I never consider the money as mine so don’t miss it. My previous jobs didn’t have bonuses so this was an easy habit to start.
4. Random bits of money into my taxable account in Rakuten. Whenever I have extra cash I throw it into my Rakuten account.
So of my take-home pay of about 5 million a year, I invest about 2 million of it, for a 40% saving rate.
My wife runs her own business (a language school I help out with sometimes) and has a higher saving rate (over 60%). Between us we comfortably save well over 50% of our income.
Why can we do this? I think there are several important reasons.
1. We increased our income over time.
I came to Japan on the JET Programme, but since the second year have always had some side work, from teaching English part-time in the evenings to being a wedding celebrant at weekends, writing materials for publishers, consulting and presenting, and running our school. My wife was working for a national chain English school when I met her (the Bing Bang Boom club) but after they closed down she started her own school and has built it up into a business with revenues of 30 million yen a year.
2. We are now DINKS.
My wife has three kids from her previous marriage, so we had some very expensive years as they went through school and university. Our youngest daughter finished university last year and moved out, so we now have much lower expenses than we used to.
3. We don’t spend much on the ‘big three’.
We live in a 3LDK manshon we bought last year for 9 million yen. We have a 30-year mortgage on it at 0.5% floating rate, this is currently just under 30,000 yen a month (25,612 on the principal, 4,007 in interest). We also pay manshon fees of about 20,000 yen a month, and our utility bills are around 30,000 yen a month. This is less than we’d pay renting the same place.
We have one car that we bought second-hand for 1.5m in cash 13 years ago. It still runs fine so we’ll keep it until something goes drastically wrong with it (I hope it lasts at least another couple of years so I can get an electric car to replace it). We pay parking, insurance, shaken, petrol, and maintenance for this.
I cycle the 14km to work some of the time, and drive or take the train the rest of the time.
We don’t do anything particularly special with food, just cook at home and go out once or twice a week. We live next to a Kappa Sushi, so we end up there about half the time 🙂
4. We’ve been very lucky.
We’ve been able to find work we enjoyed and were good at, and we haven’t had any major setbacks in life. I got into personal finance and dragged my wife along for the ride.
Luckily we have similar values (neither of us is very consumer-y, we both enjoy eating and travelling) and we broadly agree on our goals, although I am definitely more motivated to save and invest.
So that is a snapshot of where we are at. My wife and I have separate accounts (this feels natural to us) and I actually manage her investments even though they are in her name. We share major expenses like holidays and the new air-conditioner we bought last week. I pay most of our bills.
My goal is for us to be financially independent eventually, ie we won’t have to work to pay the bills. If all goes to plan and we continue being lucky this could be as soon as five years from now, if not it will take a bit longer. Either way we are enjoying life and don’t feel at all deprived money-wise.
How about you? Are you happy with your finances? What’s your saving rate and how are you able to save that much?
It’s crazy that your monthly management fees for your condo are almost as much as your mortgage! Housing is (or can be) cheaper in Japan than most people think, but Y9 million for a condo is still pretty amazing.
DINKS definitely helps jack up the savings rate especially if you’re not that concerned about trying to ‘keep up with the Jones’. We’re currently driving a 16-year old car (!) that runs just fine. We still have two small kids so won’t be at 40% savings for a bit yet.
But I think the most important factor – that you really exemplify – is that you actually have a plan, you stick to it, and you and your wife do it together (even if you might be the main driver). Really well done, you guys. Congrats are in order.
Aw, thanks! That’s a really kind comment 🙂
Maintenance and repair fund fees are the worst thing about manshons. The scary thing is that they can rise over time! Apparently they were much lower when the building was new, but have been increased as it needs more work.
That is so generous of you to be so honest about your situation. To be honest, I don’t even know my situation because my hubby likes to be in charge of that. But, since frugality is his mantra, and saving for our son’s education is our only priority right now, I am guess we are surely doing better than a couple of years ago when we also had three mortgages! Live like that for a while, and you eventually get used to living sparsely. As long as I have my computer and food in the fridge that I can cook up, I am happy. We are going to have to replace my car, which we bought at 3 years old right before my son was born (he is thirteen). Apparently, shakken goes way up, and it no longer makes financial sense to pay it. That is the Japanese government’s plan to make us buy more cars. Anyway, I will be sad to see it go because I took really good care of it and there is NOTHING wrong with it. No idea what we will buy. Hubby’s plan is to let his friend, the used car shop owner, keep an eye out for a good car that meets our requirements. He knows more about the market, and that frees us up from having to do the homework. When I get involved, everything gets super complicated because I have to look forever and think about every minute detail. I just hate buying something I am not completely sure of. But, since shakken is up in August, I am guessing a new car will be waiting for me when I return from holiday in the States. Five more years for son to go to university. Once that is sorted, I guess we shall consider the retirement situation. No doubt hubby is already on that plan. Nice to be married to someone a lot like you, Ben. I can relax and just work on my school and some creative projects. Personal freedom and a no hassle life is my main priority.
Ha, ha, not sure my wife would agree with you, Cynthia 😉
We had a good discussion about buying cars on the forum a while back. From that, getting one used via a dealer seemed like the best choice: http://www.retirejapan.info/forum.html#/20160927/buying-cars-in-japan-5302085/
Though Japanese friends and family may look at you crazy-eyed; there is a thing called “user shaken”. It means you drive up and take your car through the inspection yourself, paying only the tax. I got a shaken estimate of 150000 for our 3 year old Honda and ended up doing it by myself, with quite limited Japanese skills. It takes 3 hours at most and costs only the 35000 in vehicle tax. I highly recommend it! If your car doesn’t pass the test they will tell you where you failed and you can go and fix that and come back to try again!
Wow, sounds like the hardcore option 🙂
I think someone did that for me with my motorbike once…
Besides doing shaken by yourself, there are few other ways to save/earn 7-10man with 3 hours of work, compound that cost every 2 years for 30+ years of driving… it’s a significant amount of money. There is no special skill involved – drive to the inspection Center, fill out forms, drive into a warehouse, flash your high beams and tap the brake, signal left and right, steer straight and accelerate up to 30, then pay… If you can drive, you have all the skills you’ll ever need to take the shaken yourself and invest your freshly pressed savings! Please try it and tell us about it, it’s a great investment.
Very true! For the blog, I may well do it. Have to check when our next shaken is due (as the car is 16 years old, I fear the process will be less straightforward than with a newer vehicle). On the plus side, I know where the center is 🙂
I hesitate to respond, and apologies in advance if this comes across as preachy – and every couple is different, and there’s every possibility you and your husband are the exception that proves the rule….but the odds are against it <g> based on my half a century going around the sun. One half of the relationship being in the dark about the household’s financials is not good- and this isn’t even an issue of ‘trust’. Even if he’s happy making all those decisions on his own, even if you’re happy for him to do so and would rather not worry about it – you’re a couple, not roommates.
I really do strongly recommend the two of you sit down together at regular interviews and go over the household financials. What if there’s a 0.01% chance you get to retirement age and find out money you thought was there isn’t there? What if your husband is injured and can’t work and now you suddenly forced to handle all the household finances on your own?
It almost certainly isn’t an issue in your specific case, but just in general, the number one cause of marital problems is money – and while ‘lack of’ is usually the issue, often it’s a different attitude towards money that means couples don’t talk about it together as much as they should have.
The more things couples have to talk about, the closer they usually are, and your household finances, your family’s future, spending your twilight years together – what could bring you more closer together as a couple than talking about that? <g>
That’s a good point. I sit down with my wife every 2-3 months and go over what we have where, what it’s for, and what I think will happen going forward.
She’s not particularly interested, but it only takes about ten minutes 🙂
I also maintain a document with all the account details, etc. (not passwords) so that my family will be able to find everything if I get hit by a bus.
I am very happy with our saving rate but not with our investments. Over the last few years we have focussed on getting rid of all debt and so that meant paying off the mortgage and leaving us completely free to do with income as we please. Not having kids means we can avoid a lot of expenses, but so far I haven’t done a lot of sensible investing. I have one of those dreadful offshore plan things taken out before I knew anything (but only has a few years to go and is currently about 11% up so probably hang on to it) and my wife and I both pay into the small business owner plan thing, but we still haven’t set up NISA or iDeco or even THEO. (I know!) So that is the plan for 2018. Get all that stuff sorted and hopefully we will be okay!
I do find as I get older I need less and less. There’s not a lot I want to buy, really
I would do iDeCo next!
Definitely agree about the things. Books, coffee, and internet, and I’m happy 😀
We currently save about 5 million a year. Of that, 1.2 million goes into Theo (10man a month) and the rest is accumulating in our bank account. We’ve been saving for 3 years now, so we have about 3 years worth of living expense saved up.
We make just under 10 million a year, before any taxes, so that means we save about 50% of our revenue and a higher percentage of our actual take-home pay. From the 5 million we spend, a big chunk is mortgage (1.5 million) as well as the various taxes for owning a property, and national health insurance is our second biggest expense. Our electricity and water together are just 1.5man a month, and since we run our business (school) from our house we are actually using less for ourselves. And with our business being on the first floor of our house it is by magnitudes more convenient to just cook up lunch and dinner at home than it is to go out, so we barely eat out. Our monthly food expense hovers at about 3man yen including eating out. With no commute, we only use our car on weekends, usually for shopping, cutting our gas consumption to nearly zero (apart from weekend trips). Our biggest leisure expense is the two international vacations a year we take, and we don’t actively try to be “cheap”, but we are always looking for the best deal by nature.
Though my wife buys more clothes than I think reasonable, it’s still just once a month or less that she actually goes shopping… not too often I guess!
Also, we don’t see the value in buying luxury brand items, but we do buy high-quality items that last long even if they cost more.
Before stumbling across this blog and getting into investing I thought we’d just save up our income and pay for our mortgage as quickly as possible, but since I found that what I can earn by investing may be more than the interest on our mortgage I am reconsidering. So far it’s just a matter of trying to convince myself to touch that chunk of money we’ve saved up and moving it from the “secure” location at the bank to somewhere where its value may fluctuate… a scary thought!
We are hoping to have kids in the future, so I am not sure what that will do to our savings rate.
Sounds like you’re in a good place (not that I am surprised from a man who does his own shaken).
Happy to chat about investing options 🙂
Wow, I can’t even fathom how even a family of two can eat on Y30,000 a month including eating out. We’re a family of four but definitely spend much more than double that amount, and my wife cooks pretty much everything from scratch. She doesn’t pinch every single penny when shopping for groceries – it’s not like we’re on rice & beans all month – but neither does she splurge on fancy steaks and stuff either. Heck, our dog (golden retriever) costs Y10,000 a month in food!
Some other data points: Water, electricity and gas come to about Y20,000-25,000 a month. Internet Y5,000. TV about Y5,000. I have a subscription to the Nikkei and Nikkei Veritas so that’s about Y5,000 a month or so (bit less as I got a two-year deal for Veritas). My wife and I each have a mobile phone, about Y5,000 a month each. I pay about Y12,000/month for home insurance and property tax. We budget for vacations (family of four means going back to the States usually costs Y400,000 just for airfare).
My 15-year plan has us saving about 30-35% of our disposable income on average. I have a pretty extensive family financial planner in a series of spreadsheets to track everything, mainly because I’m an Excel / math geek….
Great post. It’s good to use your current situation as a reference to my own. I’m surprised by your income if I’m honest. Based on your previous posts I was expecting you to be earning a lot more 😉
I’m self-employeed and run two small English schools with my wife. I’d like to increase income but if I’m totally honest I don’t want to commit more of my time to working when I could be enjoying my time in other ways. Our schools contribute to the local community and we get a steady but modest income that allows us to live comfortably, so that is enough at the moment.
We have a 10-year old car but I hardly ever use it as I cycle everywhere (literally everywhere as I’m an avid cyclist).
When our current car dies on us we might not buy another.
We built a house in 2015 and was given the land by my father-in-law which means that we are paying less for our mortgage than we were for renting our previous apartment, which is nice 🙂
I max out iDeco at ¥68,000 a month and my wife pays ¥15,000 into her account.
I put about ¥30,000 a month into THEO.
We both pay into Kokumin Nenkin.
I have just started some Matsui Shoken mutual funds and have been adding about ¥30,000 to those.
Like a lot of people I got stitched with one of those offshore investment plans back in 2006, but as someone else here already mentioned, the return is OK so I’ve decided to keep it.
We also have solar panels which earns about ¥10,000 per month. We paid for it with mortgage money so it kind of reduces our mortgage by ¥10,000 a month.
I have a few shares in the S&P 500 and am waiting for the prices to drip considerably before buying more. They are in a standard account but I have an application form to open a NISA which I should really get around to opening.
I aslo try and save ¥150,000 cash a month.
Despite all that I still worry that I’ve left things a little too late!
Ha, ha, sounds like I wrote this post just in time.
Was expecting some flak for being in an uncharacteristic situation, but I guess it’s not that unusual. I certainly make a lot less than people I know in the US or the UK!
It’s not what you earn, it’s what you keep that matters 🙂
You seem to be doing great. I’m planning a post on solar panels on Wednesday, so would be great if you could let me know if I get anything wrong…
Two questions:
1) Why do you have 4 investment accounts (iDeco, THEO, NISA, and Rakuten)? Is it because there is a cap on how much you can invest per month/year on each account? If you could just invest in 1 account that didn’t have a cap, would you do that?
2) “My goal is for us to be financially independenteventually, ie we won’t have to work to pay the bills.”
Could you go into more detail about this? How exactly would you be able to live off of your investments? What is the breakdown? Do you expect to make, say, 1,000,000 yen per year off of dividends from your NISA account, 2,000,000 yen a year off of your THEO account by selling the stocks as they go up, etc.? (I’m not really sure how this works, just giving an example)
Great questions.
1. As you guessed, iDeCo has a monthly maximum based on your employment situation. For me the max is 12.000 a month. NISA has a yearly max of 1.2 million. If I could put most of my money into iDeCo I would 😉
Also, three of those accounts are with Rakuten (THEO is a different company). Rakuten also has a robo-advisor, but when I tried it I didn’t like it as much as THEO.
In an ideal world I would spread these accounts around different companies to reduce risk (either that something happens to the company or that my account gets hacked), but my laziness won out this time.
2) iDeCo will give me a lump sum at some point after I turn 60. THEO doesn’t produce income, so I would have to sell it off to get money. My holdings in my NISA and taxable accounts produce dividends, so I am planning to live off the dividends and use iDeCo and THEO for emergency spending or cash reserves. When I get my iDeCo funds I will probably invest them in something that produces income.
Hope that helps. Let me know if anything isn’t clear 🙂
If you don’t mind me asking… how much do you think you’ll be able to get dividends at the time you retire?
I’m myself investing right now 1.2M/y to NISA and 23k/m to ideco but I have no other plans. I’ll be 60 in 18 years and that’s the end of the ideco. I think I’ll still be paying 200k/mo for mortgage at that point…
Hi TL
I’m working off a really rough estimate of 3% for dividends. We’ll have things that don’t produce anything (mainly iDeCo and THEO, but well either use them as cash reserves or replace them with indexes).
Together with our pensions I think we should be okay 🙂
Ben, you can’t be thanked enough for this tremendous service you’re offering to the foreign community. I regret not knowing more about iDeCos, NISAs, and THEOS until this time. Otherwise, I would certainly have taken advantage of the savings that they offer. My wife are in an enviable position in that we both work fulltime (myself at a university, and with 6 or 7 years from retirement) I am pulling in a substantial salary, 14 million, so even at a high tax rate, we are able to save her salary, and travel twice a year, and do all the things people like to do, though we have no car. We are planning to retire within 1-2 years, retiring early to the shock of my colleagues.
If I may mention a few points that haven’t been brought up in this discussion. First, people should thoroughly investigate whatever pension they may draw on from the UK (as you’ve mentioned in an earlier post, Ben), or the U.S., or CPP in Canada, all of which can be determined. Secondly, if people are going to be a house, then they should do as you have done, buying a used property, again and again we have told friends to do this as we have done, and almost every time, their in-laws offer the downpayment, or the wife wants a new house, and the couple ends up with a huge expense. But I would go further here and suggest that people buying a used property go for a house with property. Mansion fees can be unpredictable, and their re-sale also, an unknown, but if you’ve bought in a reasonably good area, you may be able to sell later at your purchase price which means that you’ve lived in your house almost for free. As well, I’ve seen friends who’ve rented parts of a large house to foreign students or other longterm sojourners in Japan. Because it’s such a hassle to rent here, and people can be turned away just because of their nationality, this is a financial opportunity, not to mention airbnb, something more difficult to do with a condo.
The other point I would mention is not only the importance of a couple working together and trying to come to terms with differences in spending and saving (a huge issue for some couples), and life plans (ie. where do they hope to retire), but also play to their strengths. So, if your wife or husband is Japanese, then there are a lot of great property investments to be made in Tokyo. But it’s important to do your homework, have a house inspection, work out your mortgage costs, research the rent you could expect, choose your tenants carefully, take a damage deposit, and plan on a few months where your rental may be empty.
Alternately, if you and your wife plan to retire in another country, or your home country, then if you make frequent trips to that place, and know some things about the area, meet with a banker, go out with a realtor, and buy some property there. But avoid buying cottages, and for “lifestyle” for we know a number of people who have a house which they keep unoccupied, so that they can store stuff in it, and stay there for a month each year. Besides being very extravagant, in countries such as the UK or Australia, maintaining a residence for your own use, without a rental contract actually makes use liable for national taxes —
Ever since 2008, with interest rates so low, mortgages have been relatively, and in major urban centers in Australia, N.Z., and Canada, property values have risen a great deal.
At any rate, I wish everyone the best with their investment and planning, and hope we can get the word out and help other people to make better decisions, to ensure that they have a more comfortable future. I know many teachers, most working part-time, who have made little or no plans for retirement. I’m hoping, through this post, and through mentioning Ben’s website to friends and associates to help people toward that end.
Thanks, Mason! That comment pretty much deserves its own guest post 🙂
Would you be interested in doing a Reader Profile?
http://www.retirejapan.info/blog/category/reader-profile
Hi, Ben, sure — but I’d need about 10-14 days as I have a few deadlines coming up and I’d have to refer to some of my notes. Also, some of the guest posts are Q & A and some are not. Do I have a choice? Mason
Hi Mason
Of course! We have two types of guest post: one is free-form and basically whatever the author wants to write and the other is our Reader Profile series with the set questions. I’d be more than happy to receive either 🙂
And there is also no expectation that you will take the time and trouble to write something! If you feel inspired and have time some day that would be wonderful.