On July 15, 2009, I introduced the Go Broke To Win Big budgeting system to help readers better manage their money. Today, having a strong budgeting system is more important than ever. There is so much uncertainty in the world, having a financial plan is supremely important!

The Go Broke To Win Big budgeting system enabled me to leave the rat race in 2012. It also enabled my wife and I to remain disciplined financially, despite a raging bull market that ensued.

Now that economic uncertainty has returned, the budgeting system has provided us much-needed calm. Perhaps this budgeting system will help you boost your finances over the years as well.

There are plenty of positives that have come out of the coronavirus pandemic: better health, less pollution, more time with family, an acceleration in the work from home trend, and the chance to buy stocks at large discounts, to name a few. The U.S. personal saving rate could be the most positive of them all.

Thanks to the lockdowns, the U.S. personal saving rate surged to an incredible 33% in April 2020! Although it has gradually faded throughout the year as confidence resumes, a 33% saving rate is still very impressive. It means that when Americans need to save, we will.

What Is A Personal Saving Rate?

The personal saving rate is defined as savings as a share of personal disposable income. Personal disposable income is defined as income less taxes.

If your income stays the same, the higher your personal saving rate, the stronger your household balance sheet. The stronger your household balance sheet, the more financially secure you will feel. The more you save, the quicker you will achieve financial independence. Love it!

Our household plan has been to cut our spending by 32%. The cut is to match the 32% decline in the stock market from peak to trough. If the stock market and our income rebounds, we will have increased our cash flow and our wealth. If the stock market and our income stay depressed, then we will have continued to protect our financial freedom.

As evidenced by the latest personal saving rate data, I’m pleased to see tens of millions of Americans do the same.

In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year. Thanks to inflation, $300,000 may be required for you to live a middle class lifestyle today.

You can certainly raise a family earning less as many do. But it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent, and actually retire by a reasonable age.

Although $300,000 is a lot compared to the median household income in the United States of ~$68,000 in 2021, it’s not an outrageous sum of money once you look at the realistic income statement I’ve put together for this article.

A Middle Class Lifestyle Is All We Really Want

All expenses in my example use current prices. I’ve also cross checked the expenses with my family’s monthly expenses now that we have a son to make sure they are within reason.

I use $300,000 in this post because I also believe it is close to the ideal income for up to a family of four to experience maximum happiness.

At $300,000, you aren’t paying an egregious amount in taxes. You probably aren’t killing yourself at work if both parents are working. At the same time, you’re still earning enough to live a comfortable lifestyle anywhere in the world. A middle-class lifestyle is all we really want.

Half the US population lives on the coasts, therefore, this post is directly targeted at folks who need to live on the coasts because of their jobs, schools, or families.

Finally, this post should also provide insights to non-coastal city residents on how good you’ve got it if you enjoy living where you are. $100,000 – $150,000 is a rough non-coastal city household income equivalent.

Are you looking for some great things to buy with your massive investment gains? This article will provide some good ideas thanks to an extraordinary rebound in the stock market since its March 2020 sell-off.

With the NASDAQ and S&P 500 hitting new record-highs, despite a pandemic, many people are feeling richer and looking for great things to buy. Coming close to the edge and surviving does that to people!

We Should Spend More Of Our Money

After about 13 years of diligently saving 50% – 75% of my income, I started to lose steam. No longer was I obsessed with growing my wealth as large as possible. Instead, I wanted to find ways to start spending money for a better life. I was 35 years old in 2013 and tired of living so frugally.

It’s hard to spend money when you’re so used to saving and investing aggressively for so many years. In a big way, growing your money pot gets addicting, especially since the estate tax exclusion amount is now $11.58 million per person for 2020. But it’s important to consumption smooth, otherwise, you’ll likely die with way too much.

The main way I’ve forced myself to increase my spending is to review my investment gains for the year and take some profits on positions I think have limited upside potential. I then use these profits to pay for a better life.

One idea is to follow my 10X Investment Consumption Rule, which states that if you want the latest $1,000 iPhone, then you best make at least a $10,000 return on an investment to pay for that unnecessary item.

Another way to go about spending your money is to take 10% of your annual investment returns and blow it on whatever you want. This way, you’ve still got 90% of your investments hopefully working for you, you’re not paying a lot of taxes, you’re rebalancing your portfolio, and you’re actively using your money for a better life.

If you tether consumption to investment returns you will never go broke. You will also likely eradicate any money guilt you have for spending money. Finally, if you want to spend more money, you will be motivated to invest more money for hopefully greater returns.

Paying down debt is quite satisfying. Having no money can actually be quite addicting and thrilling. Let me explain.

When you have no money, your body’s survival instincts are triggered. Without money, your risk of starvation and being homeless increases. Therefore, you tend to do everything you can to make more money.

Debt puts you into this financial hole that makes you try to get out. With each debt payment, you get a little closer to the surface. The thrill of debt is partially why taking on a mortgage to buy a home is so rewarding.

Debt enables you to buy a nicer home than you can afford with cash. Every time you pay your mortgage, you’re building more equity until you one day own the home outright. Further, the home has the potential to appreciate. No wonder why mortgage is considered the best type of debt to have.