I always assumed my friends were quietly accumulating savings for retirement. That they were only broke because their play money for that paycheck allotment had run out. Then, one of my friends filed for bankruptcy. How did it happen? I asked a few questions because I’m a nosy MFer. The top 4 differences were money spend on their wedding, extravagant vacations, financing ridiculous vehicles, and bad debt on credit cards.

I finished my Bachelor’s degree in 2006. Over the past decade, I noticed all my friends in their 20’s and 30’s are broke. All the time. Payday comes, they make frivolous financial decisions over the weekend and BAM! broke until next payday.

Ladies: shopping sprees, pedicure, manicure and hair do.

Men: newest Xbox game, electronic toy, and party all weekend.

Back to those top 4 debt categories! Which are:

  1. Wedding: $17,000
  2. Extravagant vacations: $12,000
  3. Two Financed Gas guzzling vehicles: $23,500
  4. Bad debt credit cards: $18,000

What? What happened? Where did all the debt come from? A few years later their debt total was in excess of $70,000. This story is not that unusual.

After getting married to the tune of $17,000 in debt, they financed a house with an 80/20 loan requiring extra PMI insurance and paid extra interest over the entire lifetime of the loan. While making minimum payments on the wedding debt, an extravagant vacation to Europe to visit family was financed with credit cards. Upon the return from vacation, the married couple decided they needed new vehicles and fully financed over $40,000 for vehicles which did not get over 20mpg on the highway. Shopping trips for the wife and gaming consoles for the husband continued to rack up their credit card debt.

 1. Addressing Wedding Debt

This past year I got married to MrF. Leading up to our Celebration and doing research into what price was “normal” shocked my frugal self. The average for a couple getting married in the United States is $28,000. If you live is an area like Manhattan, this cost skyrockets to $82,000! Average wedding cost price break down:

  • Venue, Rentals and Catering: 12,000-20,000
  • Engagement ring: 5,800
  • Photography/videographer: 2,500
  • Flowers/Decorations: 2,400
  • Reception musicians: 2,000
  • Dress: 1,500
  • Rehearsal Dinner: 1,100
  • Invitations: 500
  • Ceremony musician: 500
  • Cake: 400

Alternately, my husband and I spent the following on our casual Celebration of Marriage:

  • Venue: free venue
  • Tent rental: 675
  • Catering was DIY: 2,500
    • We were complimented for months on the deliciousness of our food!
  • Engagement ring: 1,500
  • Photographer: 525
  • Flowers DIY: 34
  • Reception musicians: 0
  • Dress (free) alterations: 200
  • Rehearsal Dinner: 0
    • We had no wedding party and a very, very casual Celebration
  • Invitations DIY: 58
  • Ceremony musician: 0
  • Cake: 0
    • I don’t like cake, we had a fruit bar instead
      • My brother made watermelon helmets and they were a huge hit with the kids!

Bringing out total to just under $5,500 for the whole Celebration!

Savings vs Average spender = $22,500

2. Addressing the Extravagant Vacation Debt

An average honeymoon lasts 8 days and costs around $4,000.

We spent approximately $3,500 for a 2-week honeymoon in Costa Rica. We took our honeymoon the week of the Master’s golf tournament, rented our primo location house out during this time and recouped all of the amount we spent on our honeymoon! Net honeymoon cost $0.

Savings above average cost to $4,000!

Recap of Savings vs Average Spender: 

Wedding 22,500 + Honeymoon 4,000 = Savings $26,500.

3. Addressing Vehicle Debt

I will admit I fell into the trap of financing a vehicle – once! Currently, I own a 2007 Honda Civic and plan on having this vehicle for several more years maybe even a decade. I also ride my bike to work, a 10-mile round trip, 80% of the year. Saving money on gas, depreciation, tires and maintenance, increasing the life of my vehicle and increasing my overall happiness by spending time exercising.

Commuter Bike loaded down with food and an awesome Death Star popcorn maker gift from a co-worker.
Commuter Bike loaded down with food and an awesome Death Star popcorn maker gift from a co-worker.

My husband and entered our marriage with the bad habit of financing vehicles. Once he realized that this was an early retirement no-no. We paid off his current gas guzzling vehicle, sold it, then used the cash to upgrade to a much, much friendlier miles per gallon vehicle (a used Prius) for his 34-mile round-trip commute to the manufacturing plant where he works.

  1. Financing 2 vehicles for five years approximating $40,000 owed. Using this handy calculator assuming a loan amount of $40,000, an interest rate of 3%, over 5 years. Hit calculate and expand the Amortization Schedule. This shows the total interest paid over the lifetime of the loan = $3,124.86
  2. Insurance Savings over 5 year period not having a lien: $22 every 6 months. Bringing the 5 year total to = $220
  3. Gas mileage savings over 5 years of driving gas guzzlers vs fuel efficient vehicles. We will be generous to the gas guzzlers and assume 20 mpg. My husband averages 49 mpg and my civic averages 32. My husband drives a considerable amount more than I do, approximately 85% of the driving in our household. So, our household mpg is around 45mpg. Average household miles per year 26,000. Assuming the price of a gallon of gasoline at $2.00.
    • Average household:26,000 miles/ 20 mpg = 1300 gallons x $2 per gallon = $2,600
    • Fuel efficient: 26,000 miles/ 45 mpg = 577.8 gallons x $2 per gallon = $1156
    • 5 year difference in savings: 2,600 – 1,156 = $1,444 x 5 years = $7,220

Savings between the three categories: 3,124.86 + 220 + 7,220 = $10,564.86

Recap of Savings vs Average Spender: 

Wedding and Honeymoon 26,500 + Vehicle 10,564.86 = Savings $37,064.86 

4. Bad Debt on Credit Cards

The average credit card debt in America for households is $15,000. Using this handy calculator you can see the true cost of paying the minimum amount. For this scenario, let’s have the amount owed $15,000, interest rate 18%, and a fixed monthly payment of $375. Assuming you DO NOT add to your debt and continue to pay a monthly payment of $375, you will pay off your debt in 62 months

An average household has a total interest accumulation payment due of $8,079.34!

The thought of carrying a balance on a credit card makes my physically ill. I have never carried a balance on a credit card. I think it is a supreme waste of my time and hard earned money. Instead, I keep my oldest credit card open which happens to be a decent card and have two rewards cards which I charge everything I possibly can. I then rake in the rewards dollars like the MFing money whore that I am.

The MF’s credit cards:

  • Oldest card: Bank of America
    • I didn’t use this card much until this year. Costco switched to VISA and they introduced 2% cash back at Wholesale stores and 3% on gas. I now use it exclusively at Costco until I reach the $2,500 limit and whore previously listed annual gas consumption for points
      • Annual cash back: 2,500 x 2% = $50 at Costco; 1,156 x 3% = $35 on Gas = $85
  • Groceries: American Express Blue Cash Preferred Annual Fee $75
    • My husband and I love food. It makes sense to have a rewards card that, well, rewards our love of food and cooking. AMEX has the best rewards program for grocery stores (this does NOT include wholesale stores!) at a hefty 6% for the first $6,000! Also, if you
      • Annual cash back $360 – $75 (membership fee) = $285
      • Note on annual membership fees: If you spend $1000 the first 3 months, you receive a $150 statement credit which essentially gives you 2 years with no annual fee…bringing your rewards back up $360/year. You could use the card for 2 years, cancel said card, then reapply a week later…essentially starting the free two-year period again, and again, and again…not that I would know anything about this infinite loop of annual rewards of 6,000 x 6% = $360
  • Everything Else: Capital One 1.5% cash back
    • Between the two above cards my husband and I spend approximately $10,000 per year
    • We still purchase miscellaneous things that ring up to 7,500 throughout the year
      • Annual cash back 7,500 x 1.5% = $112.50
  • MF’s free money cash back from credit cards annually: 85 + 360 + 112.50 = $557.50
  • 5 year cash rewards: 557.50 x 5 = $2,787.50

Total savings keeping bad debt off credit cards and whoring out spending for rewards: Bad debt interest savings $8,079.34 + 2787.50 = $10,866.84

Conclusion of Savings vs Average Spender:

Wedding, honeymoon, and vehicle 37,064.86 + credit card rewards 10,866.84

= Total Savings $47,931.70

Two couples, average one $70,000 in debt, the other with no debt and saving almost $48,000 over the average financial scenario in the United States.

Average is not the MF way to financial freedom.

Two Spending Budgets: One Bankruptcy and One Savings for Retirement

2 thoughts on “Two Spending Budgets: One Bankruptcy and One Savings for Retirement

  • November 22, 2016 at 10:15 am
    Permalink

    It’s amazing how people can look like they’re doing well, but everything is financially falling apart behind the scenes. I have a friend that I thought was doing fine, but found out this year that his family was on food stamps and they had taken out a loan to go on a vacation to Disney and Universal Studios.

    My wedding was also not very traditional but very inexpensive-it cost only $2k (this was 15 year ago though). We used the savings to go on our honeymoon, which cost about the “average” but was to Japan instead of a more traditional destination. We’ve always been different and it sure pays off!

    Reply
    • November 22, 2016 at 10:50 am
      Permalink

      Hey Liz!
      Food stamps and a loan to go to Disney. Wow. The different perspectives on financial priorities always amazes me!
      You are absolutely right. Being different has huge rewards!

      Reply

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