On The Verge of More Disposable Income & Choosing NO Lifestyle Inflation

  • DH = Dear Husband
  • DD2 = Dear Second Daughter

The “big expense” we took on 2 years ago

Two years ago over at Prudence Debtfree, I wrote a post explaining the significant new expense that DH and I had decided to take on. We would support our second daughter in moving out of our house so that she could live downtown – close to her university and closer to where she trains for track.

It was a tough decision to make. It so obviously went against our focus on paying off all debt. But it has worked out very well in every way, and we’re glad we made the choice we did. For the last two years, we’ve given DD2 enough per month to cover rent and food. This expense was softened by a few factors:

  1. We had reached a milestone in our debt repayment: All $102,000 of our non-mortgage debt was gone (as well as $27,000 of our mortgage).
  2. We had passed the half-way mark in our debt reduction. Our $257,000 grand total was now down to a $128,000 mortgage.
  3. We would save some money in our own household expenses because of the food, utilities, car insurance and gas that DD2 would no longer be needing.
  4. With our decreased debt, we had decreased interest payments. By June of 2015, we were paying half the interest we’d started out with June of 2012.

All of these factors meant that we were at a new stage of financial health and that we were in a position to support DD2’s move.

No more “big expense”

We have made the last of our payments to DD2. We agreed from the beginning that our support would last for two years, and that time has passed. DD2 is going to finish off her last couple of courses to graduate, and she has big decisions to make about work, study, and track. She’s in a good place to be choosing her future path.

For us, the end of this expense has the potential to make a big difference. A few factors add to its significance:

  1. We have reached a new milestone in our debt repayment. Our mortgage is now less than the largest of our non-mortgage debts was when we started our journey out of debt in June of 2012. The business debt that we had at that time was $80,800. Now, our mortgage is $77,200.
  2. We will continue to save money in our own household expenses because DD2 will continue to live on her own.
  3. Our interest payments have continued to decrease. We are at about half of our monthly interest payments from June of 2015 – one quarter of what we were paying in June of 2012.

So what are we going to do?

Here is our plan: We will first of all use the money to ensure that we max out on our monthly mortgage payments. We are allowed to double our regular payment without penalty, and while we have been able to do this most months even with our support of  DD2, for some months – like April and May – we haven’t.

The second part involves the yearly lump sum payment we’re also allowed to make against our mortgage without penalty. Hopefully this year, we’ll be in a position to make one.

Of course, things could go wrong … but they could go right!

I think the best antidote to the temptations of lifestyle inflation, when disposable income goes up, is to be proactive and have a plan for paying off debt or increasing savings. I’m a bit reluctant to make bold statements about our plans – because things can always go wrong. There are no guarantees about DH’s business. We have an 18-year-old van that could die at any time. The unexpected happens, and something I can’t even think of now could well change our scenario completely. So I don’t hold tightly to our plans, but there they are. I’m hopeful that our debt-reduction rate will increase from here to our finish line.

Have you ever had an increase in disposable income – either through a raise, a windfall, or the end of a regular expense? Did use it to decrease your debt or increase your savings? Or did it get absorbed into lifestyle inflation? Your comments are welcome.

*Image courtesy of Pexels

20 comments on “On The Verge of More Disposable Income & Choosing NO Lifestyle Inflation

  1. I take whatever I need out from my business to sustain my lifestyle. On top of that, I take 1% of my profits each year and designate that to doing something that’s fun or buying something that’s “cool”. You gotta reward yourself every once in a while.

    1. I’m with you on rewards : ) We have rewarded ourselves at two different milestone moments, and we budget discretionary money on a regular basis too. For me, it’s important to define the amount for “rewards” or discretionary spending, because on auto-pilot, I spend way too much.

  2. The only thing that keeps me from spending like a sailor on shore leave is that I have so few wants and desires. Having a minimalist nature helps. Now, the hubby on the other hand, still needs constant reining. So happy for you Ruth! Your goal is so close now, I’m betting you can visualize that finish line. 🙂

    1. I can definitely visualize the finish line! Interesting what you say about having a minimalist nature. I could use one of those! I wonder to what extent that can be developed?

  3. Ruth- First of all, Congrats on DD2 getting ready to cross the finish line! Good for her!

    Second, love that you have an 18 year old van. Mine is 11 years old, and still worth driving.

    In the past, Mr. Money Tree and I would have used an increase for more spending/debting. Probably would have justified a new car payment or some other type of longer term debt. Glad that we both have changed! These days we stick any extra into our financial plan, using it as fuel to reach our goals. When we get closer to our completing our goals, we might take that extra and use it for a special trip or to help someone in need. I am so thankful to have that “extra” in our finances to focus on preparing for retirement. Great post!

    1. We’re the same Anne. Any extra would be eagerly earmarked for an expense/indulgence that actually exceeded the extra. Ugh! So glad that’s in the past. May your van last another 11 years!

    1. Thank you, Money Beagle. We’re going to put it aside so that we don’t even think about it – until it’s time to make that lump sum payment.

  4. I think it’s great that you were able to help your daughter out! I love your plan – you are going to have that mortgage debt gone in no time now. 🙂

    We used to give into lifestyle inflation. About a decade ago, we had an increase in income, and it just seemed to disappear. When we finally decided to kick all the debt to the curb, we reined it in. And when we realized we could attain FI sooner than we thought, we reined it in even further (though we still have a sizable mortgage). Right now, any tax returns or windfalls get invested – either in retirement accounts or savings for rental properties. The desire for FI is pretty strong, so it really keeps lifestyle inflation in check.

    1. “The desire for FI is pretty strong” – that’s important. I find it impossible to maintain disciplined finances without a desire for something that’s greater than any lingering wasteful consumer want. Keep your eyes on that FI prize, Amanda.

  5. That’s awesome you have the financial flexibility to support your daughter this way. It is very generous.

    Our extra income is first going to making a double mortgage payment, but, we are also replenishing our savings for future expenses (& taking the occasional working vacation).
    We too have an older family car to that we hope doesn’t need to be replaced as soon as our mortgage is paid off in five years. We are planning to set aside enough to buy a decent replacement in cash so we don’t have to borrow.

    1. How amazing that you’ll be mortgage-free in 5 years! It’s great that you are putting aside savings at the same time – especially to replace your car when the time comes. I suspect you’ll be in a very good position to support your children in the same way when they’re older, Josh.

  6. So great that you’ve been able to help DD2. What has she taken away from this experience? Our windfall was short lived. We became debt free, began building wealth and then suffered a job loss. We have not returned to income levels we had in the past but are enjoying a better work/life balance. So there are certainly tradeoffs.

    1. DD2 benefited from the convenience of living close to campus and not having to spend hours per day on public transit. Moving out has also given her some adult life experience. She’s had to cook for herself, grocery shop, budget money, and find inner discipline to keep on top of everything. Like you, we have not returned to income levels we had in the past, but like you, we’re also doing a whole lot better with the income we do have than we ever did in the past.

  7. It is nice that you were able to help out your daughter financially while still maintaining your commitment to debt-reduction. And wow, only $77,000 left on your mortgage? That’s awesome! The finish line is definitely in sight! 🙂

    1. It slowed down our efforts, but it was worth the slow-down. As for that finish line, I sometimes think it’s in sight – but then, while $77,000 is small for a mortgage, it’s still a lot of money.

    1. You were so supportive of our decision regarding DD2, Laurie. Thank you for that. As you said, it really did all work out.

    1. Owen, that’s a point I was thinking about too: setting a timeline for support. It’s a concept that’s worthy of a whole post I think.

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