Travel Budgeting – III

Part-III Financial Discipline

I was watching a Youtube video related to finance few months ago and an advice from that video stuck me forever ” If you want to be good at managing your finances, you need to be financially disciplined “. This is true not only of money but anything you want to achieve in life. This blog is going to explain how we disciplined ourselves in this unique set of rules to prioritize our expenditure on things we care about. This blog is less about travel budgeting and more about how we manage our finances to make travel a reality. I consider this the most crucial of all the 3 blogs and unlike the rest, it benefits everyone equally no matter where you are geographically located. This blog explains how it was possible to accomplish some of the materialistic things mentioned in blog 1 like a house in Austin Suburbs (with 15% debt balance), 2 cars (fully paid off), fly every other month to a new destination (for 2 years), fully paid off massive education loans in US, savings decent enough to buy a condo in Bangalore, US tour for parents and in-laws from India and all this in a short span of 4 years . So without any further ado lets get started.

Invest Time to grow money

As a kid growing up in a small town in India, I remember my parents, my school and the society always focused on doing well at studies, they wanted me to be the school topper because they believed the better you are at studies, the more focused you are in your life and better employment opportunities. The reasoning behind such a approach could be several things and they were definitely not wrong but its not enough. During their generation, a good majority of the population was not lucky enough like us to go to school and the number of jobs were very scarce – earning decent money to feed family was their motive. Because of this mentality that we grew up with, even now we put all our energy and time into doing well at studies and work, to improve ourselves technically everyday while putting in less or no time/effort to manage money because we were taught that if you focus on work, the job will take care of you. Well I don’t think its enough.

No school today teaches how to manage your finances, no one teaches you how to do your taxes, or to invest money or manage debts. If you care about money you need to invest time into it to grow, its not going to happen on its own like everything else. Its time we stop taking money for granted.

Financial Analysis

When we came to this country we knew we would have to repay a huge education loan back home. So our mindset was always to clear that loan off because of its insane interest rate of 11-14%. So soon after we started working in Feb of 2016, we started noting our expenses by categories on an excel sheet at the end of each month. We would then analyze the info to understand what should be our monthly limits in each category (ex. Restaurants ) without adding a toll on what I call our standard of living. Every time we failed in a particular category, we would try to make it better the next month. This stopped after a couple of months but we learned a valuable lesson from this exercise- ” To not stop the damn exercise” , to always be aware of where we spend our money. Our methods have become more sophisticated now, we use the free tool – Mint by Intuit to do the analysis which saves us tons of time. This tool syncs the info from all of our financial accounts (Bank accounts, credit card accounts, 401k, Venmo etc.), analyses the expenditure and provides us a simple readable report at the end of each month. We can set threshold for every category and the tool alerts us every time we cross the limits. The tool is not as perfect as the excel sheet we used to create manually but it serves the purpose.

We live and work in Austin Suburbs so our monthly expenditure in 2018 for the month of June looked like this :

Our Monthly Expenses combined (2 people)
Item	Amount
Rent/mortgage	$1,068.92
Electricity	$23.61
Gas	$68.29
Cell phone	$52.00
Internet	$41.33
Groceries	$219.75
Car maintenance (2 cars)	$148.61
Water bill + trash (included in rent)	$0.00
Restaurant	$403.24
Movies	$0.00
Auto insurance (2 cars)	$61.16
Stuffs for home	$397.27
Entertainment	$148.38
Miscellaneous	$52.91
Total	$2,685.47

The table above is actual expenditure for both of us combined and not the threshold set by us. This analysis helped us understand how much money we can save each month to pay towards the education loan, when would we finish our loan, set threshold for each category, if we should cut down our expenses in a particular category and most important of all – is travel possible?

For example: When you are young you like to party every weekend and drinks at pubs aren’t cheap. Each drink is equivalent to a meal at a restaurant. A couple of drinks plus an expensive cab to and fro each weekend can add up very quickly to empty your pockets in no time. If you don’t analyse your expenditure you will probably never realize that you are overspending on parties.

Even now, every vacation of ours ( irrespective of group or solo) is linked to a Splitwise group of its own which has all the transactions including the ones paid for self which help in understanding the overall expenditure for a trip.

Prioritize your expenses

We all are limited from accomplishing goals faster by 2 major factors- time and money. What do we do when we fall short of time, we prioritize our list of things to do. If we can do that with time, why do we take money for granted ? Its probably because we never had a major financial breakdown.

Luxury Car

After a long struggle to get into this country for higher education, all that slogging for 2 years to graduation and job hunt, one is easily tempted to buy a new luxury car that they can afford now. There is nothing wrong with buying fancy cars, but we both are not into cars and paying off education loan/ buying a house and travel was our priority. So looking at my analysis below, I realized that a luxury car would be a major toll on our savings and it is not something we should buy right now especially when we plan to travel so much. Let us look at the amount we delayed spending.

Price difference: Min of 35k USD for a new luxury car for each (70k for 2) V/S 9k for 4 year old Ford Focus Sedan + 7k for 8 year old Nissan Sentra.

Min. delayed expenditure: 54k USD

Luxury has no limit, I chose minimum values of luxury to show the impact on us could have been much larger.

New non-luxury sedan

If you have ever visited Texas, you would know that its almost impossible to survive on 1 car for 2 people if both work at different places. So lets compare prices now:

Price difference: 20-30k USD for a new non luxury sedan (40-60k for 2) V/S 9k for 4 year old Ford Focus Sedan + 7k for 8 year old Nissan Sentra.

Min. delayed expenditure: 24k-44k USD

Auto Insurance

Considering that you are new to US like us and have no driving history in US, let us calculate the auto insurance difference:

New Luxury Car: 1900$ for 1 year of insurance ( 3800$ for 2 cars) V/S 600$ for 2 old cars combined. Savings over 4 years: 12,800$ USD.

Why am I calculating for 4 years ? Since its been close to 4 years we started working, all the accomplishments mentioned above took 4 years.

New Non-luxury Sedan: 1560$ for 1 year of insurance (3120$ for 2 cars) V/S 600$ for 2 old cars. Savings over 4 years: 10,080$ USD.

Those insurance prices are ridiculous, who is your insurance provider ?

Over last 4 years we have had auto insurance with AAA, Progressive, Geico and root – All popular brands (except root). These are probably the same companies you have had insurance with. The reason why our insurance price is far less is because our cars are far less valuable in case of accidents. After some point it becomes unnecessary to buy collision and comprehensive coverage thereby further pulling down the insurance prices.

Rent

Irrespective of which city you live in, a major chunk of your salary goes into rent. Texas is very economical when it comes to rent and one can afford to rent a complete 1 bedroom apartment by himself/herself. However remember that this is a luxury only available in few cities in US. While its a personal preference to live by yourself or have a roommate, you should be aware that it can make a huge difference on your savings. Both I and Akshata preferred renting out a 2 bedroom apartment and staying with a roommate. Let us look at the money we saved by sharing a 2 bedroom apartment and utilities.

	Renting an apartment by oneself + utilities	Sharing a 2 bedroom apartment + utilities
Cost per month	1200	600
Cost per year	14400	7200
Cost over 4 years	57600	28800
Savings over 4 years	N.A	28800$ USD per person

As you can see from the above table that we saved at least 57,600$ USD by sharing a 2 bedroom apartment as compared to living alone.

Avoid luxury apartments

Luxury apartments are expensive for a reason which could be their location, build quality, inbuilt security systems or a gated community. Unless you truly appreciate or feel the apartment is worth the extra price, there is no point living in one. Ex. Rent of 2 bedroom apartment in Austin Suburb is approx 1300$, but the same sized apartment 15 mins away at Domain is probably 2000+$ because Domain is a very happening place. Unless you truly take advantage of this, it doesn’t make sense to live in there paying 700 more every month because you can also drive there anytime you want to.

Restaurants

Most people when they start earning are bachelors and not married. The reason I point this out is because bachelors tend to eat outside a lot more than married folks and outside food isn’t cheap and healthy at the same time. It might seem like a 10$ meal every time but this can add up quite quickly. Both me and Akshata used to cook at home most of the times and eat out only a couple of times every month when we used to hangout with friends. Let us look at the amount each of us saved over 4 years.

	Eat out everyday	Eat out ocassionally
Avg Price per meal	10	15
No. of meals per month	60	10
Cost per month	600	150
Cost per Year	7200	1800
Cost over 4 years	28800	7200
Savings over 4 years	N.A	21600$ per person

As you can see from the above table we saved about 43,200$ USD over 4 years by choosing to eat outside occasionally.

Choose your city wisely

A city like New York or San Francisco is very expensive to live in but they also have a lot to offer. Unless you are making enough money or taking advantage of what the city has to offer like working for a startup, it doesn’t really make sense to live pay check to pay check in those cities. Think long term and move to more affordable neighborhood or city if you have to. The salaries in Texas are generally much lower than bay area which has plenty of opportunities for software engineers but the cost of living is significantly lower as well and hey there is no state or county tax here. So I do believe that living in Austin has saved us much more money than living in California as entry level software engineers can earn more money for the cost of living here.

Don’t underestimate summer internship

Internships during masters is a great time to make a decent money before starting full-time because you get back most of the taxes you paid, your standard of living is little to nill as you have no money in your bank and a huge debt to payoff. I did my summer internship at Juniper Networks in 2015. Even though my pay was very low as an intern and the cost of living was ridiculously high in bay area, my savings from those 3 months was an easy 15000$ USD, the reason being I stayed with 5 other like minded students from bay area in a 2 bedroom apartment paying low rent, cooking my own food everyday, taking the public transport paid for by the company and paying negligible federal and no state tax.

How is your electricity bill so low ?

The average electricity bill for an apartment in Austin is probably 70+$ per month considering the need for AC and heater most of the year. While we have paid 23-29$ for the past 4 years for a usage less than or equal to 1000 KWh per month. we have used http://powertochoose.org/ to find the cheapest provider in our area for the longest term possible. The electricity providers have monopoly over certain areas and this website may not come to use at all times. There is no quality when it comes to electricity other than customer service in case of rare problems so paying less than half the average the public pays is totally worth it. After we moved to a house we pay 70-90$ per month because we don’t have a choice here.

I do not agree with a lot of above thoughts as this means I am not living my life ?

Unless you are very rich, we all cannot afford everything we want in our lives. So it is important to prioritize our expenditure to spend on things we value the most. If luxury car is your dream then definitely buy one but know that you would probably have to sacrifice elsewhere to make it possible. Being blindfolded to your own expenditure can lead to digging your own grave of debt without your knowledge.

High yield Savings Emergency Account

I have had to deal with a lot of visa issues in this country and if there is something that I have learned the hard way, then it is to always have a backup plan in case things don’t go as expected. So its important to have a liquid emergency fund enough to survive for 6 months and continue paying any debts that you may have during that period until you find another job for yourself. Either for emergency purpose or for other, always have a high yielding savings account. If you are in US, make sure you have a savings account with 2% interest like Discover and not something which offers 0.1% interest.

Financial Goals

Life without a goal is like a race without a finish line, you are running nowhere. Just like life, have practical short term and long term financial goals and work towards it. Our vague short term goal was to buy a fully paid off house in Texas, pay off all existing education loans and a retirement condo for parents in India before we turn 30. This goal may be very easy for some, very hard for others. So create your own practical ambitious goal and work towards it based on the analysis of your expenditure.

Misleading US currency

US dollars are small in numbers but high in value. This can often add up quickly not realizing where you spent all your money. For example. the cost of one way toll road to office from our house is 3.5$ and this cuts down 50% of the travel time during peak hours. Assuming we took the toll everyday, we would be spending 2500$ every year on tolls which is equal to 2 months of apartment rent. Small amounts like this everyday add up very quickly. So I like to call the US currency very misleading.

Monthly Installment Plan

Almost everything in US is smartly designed to make you spend money without your knowledge. Is there anything in here that you cannot buy on an installment plan ? Have you ever heard this from an apple salesman “Sir, you have the iphone from last year and you could upgrade to the latest by paying only 5$ more every month, that is the cost of 1 starbucks coffee” Its surprising that customers still do actually buy it even after knowing all the installments that they paid until now for their old phone(400+$) is lost because they are excited by the fact that they could buy the latest one for 5$ more per month. Do you actually realize what you signed up for ? You not only spent 400$ on a phone which you gave away but signed up to spend another 1200$ on a new phone !! ssh don’t show the bigger picture, its only 35$ a month.

Reduce your taxes

I see that a good majority of folks want to spend the least amount of time on their tax returns and get it over with. I look at tax returns as a gold mine, the more you dig the more you get back, the smarter you dig the better it gets. All successful companies earn in billions but pay lower income tax percentage than most of us. In fact last year General Electric (GE) got back more returns than it paid. So let us not be lazy when it comes to taxes and spend some time on it. Find ways to reduce the taxes that you pay every year. If you have quite a bit on your portfolio, then its time to find a good tax consultant who can advice you on ways to reduce tax. Even if it means savings a few hundred $ or a couple of 1000s, its your hard earned money.

Travel in groups

Travelling in small groups has lots of advantages. You get to catch up with old friends who stay at a different place, vacations have a new meaning, stay and travel is a lot cheaper since you are splitting up costs, you learn how to manage working in groups etc. We spent most of 2017 and 2018 travelling in groups and we had a lot of fun.

Take advantage of low mortgage rates in US

We were always taught debt is bad! That is so not true! There is good debt and bad debt. Mortgage rates in US are currently at an all time low in its history. 15 yr fixed rate is approx 3% or lower and 30 yr fixed rate is 3.5% approx. There is no better time to buy a house in US when it comes to mortgage rates. While you are tempted to pay off that home loan quickly, resist yourself from doing so. These interest rates are at an all time low, which means the money you earn can be invested in stocks and mutual funds to easily earn almost twice the mortgage interest rate (going by all time average). In addition to this, the interest paid every year towards the loan is tax deductible.

Does it make sense to buy a house or rent a house?

Its not a simple question, there is a lot of math involved behind it which is a separate blog of itself.

Take care of your money, it will take care of you later

Money not invested depreciates faster than you think. So stop holding up all the money in a savings account which pays you negligible interest and start investing early. It could be stocks, mutual funds, bonds, traditional and roth 401k, traditional and roth IRA, property or even a business but do invest your money wisely, else the 1000$ you earned today could only be worth 500$ by the time of retirement.

Conclusion

The intention of this blog series on travel budgeting is to help readers with new information that they may not be aware of, create an awareness among the younger crowd and the next gen to work on money management early in their career. These 3 blogs have been very time consuming and I would appreciate if you could provide your honest feedback in comments on any of the platforms this is shared. If you want to apply for any of the credit cards I mentioned in blog 1 please do ping me for referral. Truly appreciate taking your time off to read this. Hope you learned something new today.