Welcome to Thought Experiment #11.
A question is posted with the hope that many bloggers will join in and answer with their own post, creating a series of different view points to a single question. Below is the question asked for this Thought Experiment.
You’ve decided that you no longer want to save any of your income toward FIRE each month. Instead, you’re going to spend it. How would you use your new disposable income?
Tweet @SavingNinja if you have participated and I’ll add your post to the list below!
Thought Experiment #11
After moving from the UK to Sweden to live in a very affluent suburb of Stockholm, I’m surrounded by million dollar homes. Nestled in between mammoth sea-front properties is my cheap in comparison, £315k, 69 sqm ‘mini-villa’.
The 6 properties in front of me are triple in size and double in price. Surprisingly, some of the owners are not much older than myself and Mrs SavingNinja, they all have young kids and work as accountants or in the IT industry. I always think, “Could it be our family living in those 200 sqm, sea view properties if we didn’t save 75% of our salaries toward FIRE ?”
I’ve always wondered what life would be like if I spent a lot more of my income. If I threw away all of my financial independence and frugality ideals and thought, “Fuck it!” I’m going to live a normal, spendy-pants life.
What would that life look like?
Savings… What Savings?
First things, first. I need to find out how much extra income I have to spend. Luckily, the SavingNinja household recently created a Swedish Budget spreadsheet for the post Sweden Vs UK ; let’s open that.
The budget spreadsheet says that as a household, if we saved nothing toward retirement and FIRE, we could spend almost £5000 extra per month. That sounds like a lot, but how far can 5 grand really go? Writing this I realise I have no idea! I’ve never spent more than minimum wage before, this should be interesting.
To make things more realistic as there are probably some discrepancies within our budget, I’m going to bring the extra spending limit down to £4000; better safe than sorry. (I can’t help myself can I!?)
A Big House
A big house is the one thing that I’m lusting over more since moving to my neighbourhood. So, the first point of spending, and I’d suspect the largest, is a house! What could I buy with my disposable income in Sweden?
My bank told us last year that they would be willing to lend us up to 8,690,000 SEK. If we had £250k to spend on a deposit, that’s almost a £1 million budget for a property.. If we sold all of our assets (excluding our pension,) and both of our properties, we’d just about have enough to have that as a deposit; luckily there is no stamp duty here, otherwise we’d have no chance!
I’ll set 11,690,000 SEK as a maximum budget and go window shopping. Be right back!
8,000,000 SEK (£660k) would get us this Downton Abbey-esque property about 5 hours north of Stockholm. 450 square meters of living space sat on 5 hectares of land. A little too big, maybe.
Up on the maximum end of the budget at 11,500,000 and it buys this beautiful farm-style property very close to the city of Uppsala.
It has one 283 square meter main house with three double garages, a gym, and a pool, and a whole separate 123 square meter rental house. This might actually pay for itself!
Check out this bathroom…
Alright, could we actually afford this?
Looking at a mortgage calculator for Handlesbanken, it would cost us 6,570 SEK (£542) in interest and 28,297 SEK (£2,336) together with repayments. That is insanely cheaper than I thought it would be… My budgeting self is thinking, “What!?” we’d only lose £542 per month to live in a £1 million property!? We’re getting severely ripped off for our UK BTL mortgage at £300 interest.
Of course, this is for the really low rate of 1.39%, but even if it went up by double; it’s really not as bad as I thought it would be. Let’s buy it!!
Currently, we spend 10,500 SEK (£867) per month on our property, so taking that off our new home cost of £2,336 leaves us with an increased spending of only £1,469. That leaves us with £2,531 left to spend_._
That has blown my mind. I thought getting a house this big would leave us with almost nothing each month. We haven’t even spent half. And the fact that there is a rental unit that is 2 times the size of our current house would cover all of the property maintenance and bills (maybe even more).
This has made me rethink how much we really should be spending on property, especially if you can make some money with rentals. But of course, remember that this doesn’t take into account the opportunity cost of not investing the £250k deposit.
A Fancy Car
The best way to spend a shit ton of money? A private car lease. Let’s go for the best of the best, a Tesla Model S with all of the trimmings, 21” ‘special’ alloys, extended insurance. A 3 year lease for 14,695 (£1,216) per month. My stomach just hurt thinking of spending that much. How is it almost 3 times more expensive than the interest on a £1 million house? People actually spend this much on cars?
Alright, I need to rein that in a little bit and go for a Model 3 instead at 6,730 SEK (£557); cars are more expensive in Sweden than the US or the UK, I’m not a millionaire!
Let’s throw in a Range Rover lease for my wife for 6,995 SEK (£579). I couldn’t find an American-style truck to lease in Sweden, which is what she would prefer.
Taking off £1,136 for the family cars and that leaves us with £1,395 left to spend.
Here in Sweden there are a lot of sophisticated wine bars in food market halls and shopping centers. They’re always packed full of people drinking white wine in the middle of the day, we’ve never stopped at one of these places as for a small glass of wine, it’s about 120 SEK (£10) which is mind bogglingly expensive to us.
Although, in this Thought Experiment, I’m spending it all! So, it’s only natural that I join all of the other Swede’s and drink expensive wine in the middle of the day when I go shopping.
Allocating two £10 wines per week for both myself and my wife comes to £160 per month, a small price to pay for feeling special whilst shopping; £1,235 left.
We’ve not tasted real Parmegiano Reggiano since moving to Sweden, at £30 per kilo it’s just way more expensive than what we’re willing to pay. I’m adding in £100 per month for artisan cheeses, meats, and other food treats. £1,135 left.
Increasing The Holiday Budget
Our current holiday budget is £3000 per year and we’ve managed to go on a winter snowboarding trip, as well as a summer holiday at this budget. Spending more would allow us to go on more trips, and stay in nicer places, tripling the budget to £9000 sounds like a reasonable spendy-pants number for a spend-it-all type of couple. That’s £500 per month extra. £635 left, almost there!
£635 per month seems like a reasonable figure to leave free. With our new £1 million house, there are sure to be a lot more expenses cropping up; we’ll certainly have a lot more space to fill with things, a lot more things to repair and maintain.
There are other things that the money could be spent on if nothing else came up. We could upgrade our wardrobes, shop in more expensive places and buy more designer clothes. I definitely don’t feel like I cheap out; I buy clothes for their quality and durability, not the price, but you can always spend more.
We could also buy a couple of horses to go on our property as we really enjoyed horse riding last summer. After the initial payment for the stables and horses, it would cost around £250 per month for both and would cover feed, insurance, and vet bills.
A large £1m house, two fancy lease cars, multiple luxury holidays per year, expensive cheeses, wine whilst shopping, and horses.
That sounds like a pretty extravagant lifestyle.
But I can never imagine myself spending this much.
I was under the impression that this Thought Experiment would be pretty realistic and that it would portray an accurate representation of what I would spend my income on, but it turns out that it’s pretty damn hard to spend it all. Sure; I can see us increasing our holiday spending, there have been some pretty nice hotels that we have ditched in favour of a cheap AirBnB. I can see us buying that Parmigiano Reggiano; but I can’t see us spending £160 per month on food market wine, or spending £1,136 per month on car leases.
I can’t see us buying a £1 million house any time soon, I’m definitely not going to be selling all of my investments just to cover the deposit. But I could see us buying a £500k house. Especially if it had rental potential on the plot, or if it’s our “forever home”. I’m really shocked at how little extra it costs in mortgage interest to go all of the way up to £1 million; it almost seems silly to not get a bigger place.
All in all, I’m grateful for this Thought Experiment as it has made me realise that I shouldn’t keep idolising my neighbours in the big sea-front properties in front of me. We could easily afford the same properties, or bigger; we just choose not to. Instead, we’re pursuing something that we believe will bring us greater happiness: financial independence. When we’re ready for our ‘forever home’, we won’t hold back, and we’ll go for a property that ticks all of our boxes, and when that moment comes, we’ll be thankful for saving more earlier when we were able and willing!