Still not the correct pic. One more chance to get it right.

Last week we introduced you to Brandon, the guy who lives a rich and fulfilling life on a $32,000 salary.

Notice we didn’t remark about how well he “stretches a dollar”. Brandon isn’t one of these twits who resharpens disposable razor blades and makes his guitar strings out of dead neighborhood cats. At least, we hope not. Instead, he’s made a few forthright, intelligent decisions about how to spend and invest his money, and is sitting about as prettily as someone in his situation can.

Brandon proves that you don’t have to be born rich to avoid being poor. He buys assets, he sells (or never incurs) liabilities, and he lives better than plenty of people who make 3 times as much.

We originally planned to break Brandon’s story over 2 posts, but his methods are so detailed and his rationales so logical that we’re going to need yet another post. Read this, and sit tight for Thursday:

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I don’t do Goodwill or anything like that, maybe one day. I don’t need pricey work clothes. I do the shoe deal thing when I need shoes. You can find some great deals on shoes if you have a 5-year horizon. (Ed. Note: The man has a 5-year horizon for shoes?) I do have a couple of nice Indochino* suits**.

Last year I maxed my Roth. This year I added the 10% payroll contribution to my public employee retirement account.  I have a long-term care policy that grows by 5% a year that I’m thinking of dropping. I have paid-for whole life insurance, enough to cover all loans, funeral, etc. My grandparents took it out when I was 2.***

The key is to not use credit, and keep an eye on purchases. Self-discipline is sometimes still challenging, until I remember the sinking feeling I used to have. I was determined to never feel that way again.  I suppose I could always get a slightly better paying job, or finish my degree, but I don’t feel like I need anything more and I’m concerned I wouldn’t like my job as much.  I’m content – I travel with family and friends, save lots of my income, have fun hobbies and side jobs that don’t feel like jobs, and even enjoy my main job.  I know when I get married or have kids I’ll be set financially. We might even be able to have one parent stay at home, or fully fund colleges with the second income.  I plan on retiring early, not sure how early though – aiming for 57 if I stay with my current employer, sooner if I can take my future extra income and invest it how I want.

My favorite financial tools are Mint, SmartyPig, and auto-deductions.  It helps to impose a bit of discipline with the auto-deductions, which only takes a nudge, while making it fun and/or easy to do.  I like watching things grow toward my goals at Mint and SmartyPig.  I avoid using my debit card because I have to manually assign categories in Mint (how amusing is that excuse?), so I use my credit card for the cash back. SmartyPig gives a good return on my envelope-style accounts for various funds (property taxes, condo insurance, vacation, house maintenance, cash reserve, etc). I keep $1k in my credit union savings account, $1k-2k in my checking account.  I try to keep my cash reserve around $15k, but it’s down now because I just spent $8400 on HVAC. It won’t be back up until I get rebates in, and my maintenance fund catches up to its virtual 3-year negative. I budget 1% of my home’s purchase price annually for maintenance.

I’m a few years ahead overall, due to a $20k inheritance from my grandfather. $3k went to the cash reserve, $3500 to the HVAC install and the rest to a modest non-retirement investment. Here are my monthly expenses:

And my monthly savings:

(Ed. Note: We didn’t ask Brandon to separate the expenses half of his personal income statement into real expenses and savings. But that he did shows that he comprehends the enormous difference between the two. Again: buy assets, sell liabilities. That starts with putting them in different tables.)

Finally, my income:

All those numbers are after-tax. The wage income excludes abnormal overtime/holidays, which usually runs $3-4k pre-tax. My total was $33k last year, $32k the previous year. Nor does that include any tax refund, (Ed. Note: sigh) mortgage interest credit, or interest income.  That adds up to a fairly conservative $4k post-tax, for Christmas charity (we stopped doing gifts) (Ed. Note: yeah!), new stuff, more vacation, extra car/house fund, savings, other investments, dinners/anniversaries/weddings/etc.

I’m honestly wondering what I’m going to do with additional income from teen court or a raise. Paying off my mortgage isn’t a bad return, but it’s not great. My work’s other retirement plans (457s) are horrid for investing in given their expense ratios. I could go into taxable accounts.  I’ll probably donate some, put some towards more exotic trips, or fund my next car.  All else being equal, I might do a mix – it won’t take that much to pay my mortgage off in 10-15 years if I wanted to, and still do the above.

*What’s Indochino?
**What’s a suit?
***Life insurance for a 2-year old? We’d love to know the grandparents’ financial situation.

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Next installment, Brandon’s investments.

**This article is featured in the Carnival of Financial Planning-Edition #157**