Expenses, expenses, expenses

This week, I read a post from my pal Finanza Cafona on how he manages his money and budget. I call this type of content “finance porn” because I think in many cases the author wants to humblebrag how successful (?) they are and draw attention to their public persona. It is ego-boosting content masked as educational. I am the first sucker in this game because I fall for it every. single. time. I understand why they do it because it works.

Obviously this is not FC case, because the guy is broke AF 🙂

On a more serious note, I think it takes guts to expose yourself to the public in this manner…provided you are 100% honest. One Saturday morning I was wandering around Zurich looking for a CBD shop (I am so old that I do not do it for the fun anymore, I just need to sleep…nothing to be proud of I guess) and thought if I had to do the same exercise as Mr Rip does every month by detailing his expenses on the internet. If we were all forced to the same level of transparency in a Black Mirror-esque type of world, how many things we would like to hide? And how much “tax alpha” are you giving up by being transparent about your investments? Because once it is out, you better be sure your position with the tax man is kosher.

Anyway, back to FC. After what I expected as a quick and casual read, my brain jumped to this conclusion: in one month, I spend 33% MORE than what he is planning to spend in an entire year. My family in 20 days spends what he spends in 365.

How is it possible?!?

From what I read on his blog, he looks like a normal person; we even chatted a couple of times, he wasn’t like some of the guys I was playing Magic with back in the day, who were definitely saving a boatload on shampoos and water bills. On the other side, I am not like those NYers meme, lads who complain that after private school bills, holidays in Europe twice per year and some investments…they do not manage to save anything. I really do not do anything fancy (that I pay for) anymore in my life.

The distance between Rome and Zurich is less than 1.000 km, 9 hours by car. We do not live on two different planets. 20 days vs 365…wtf?

I had to go back and check his analysis three times (and probably counting from now till I finish this post): there are plenty of details and necessary assumptions behind these accounting exercises that highlight how the devil is often in the details. It is easy to get splintered by an emotional bomb and then you take a breath, read it again, and find out that many things have an explanation.

We are family

In a relatively short period of time, I went from “what is in my account is mine” to “what it is in my account has to provide for 4”. FC listed HIS expenses alone.

I never had a shared account with my wife. We have always split shared expenses like bills and rent more or less proportionally to the relative level of our salaries, with the goal of ending up with the same “fun budget” at the beginning of each month. Since we arrived here in Switzerland, we moved to the “shared account” model by contingencies more than by choice. The idea is still that we would go back to our previous arrangement once my wife works again (I should say once my wife has a salary again, since she is working more than me right now with the kids).

Just to say that I am not 100% stupid and I know I am comparing apples with oranges; still, there are valid considerations here to be made. We need time to adapt to a new reality, it is normal that we react, emotionally!, based on what was familiar to us just months ago.

I wrote a post about lifestyle creep because I try as much as I can to give myself an objective picture of where I stand compared to where folks around me are. Government stats offices usually publish figures about salaries aggregated by household; does it make sense to me? Not really. But I had to train my brain to read those numbers that way…and here I am doing the reverse.

We tend to anchor too much on what is our present situation and discount too much future volatility. If anything, the only sure thing is that our future selves will face a different reality, financially speaking, compared to today. If in ten years you are in the same situation you are today, congrats you are the exception.

A pet peeve of mine is those interviews with lads that FIREd with 100.000 quids and a banana under their names. Monevator just published another one. At least the guy admits he was really lucky, he managed to achieve a great (self-calculated) CAGR stock-picking (!!) while the market went up and up (note for example the switch to small cap value just before the GFC). The lesson here is that even what he ignored, the sequence of return risk for example, worked in his favour.

Even after an impressive sequence of lucky draws, who has more optionality, him or me? Not only he lives in a country that has no future (good luck dealing with the NHS lad), he also lives in a spot that no one else wants to touch, even people who were born there. Why spend 89k on a house when you can get one in Blackpool for 1 quid then? Not everything is market arbitrage. Most of the time, things are cheap for a reason.

Yesterday evening I watched some episodes of the Netflix doc about the blue zones (I forgot the correct title, it is the one about centenarians). For sure I ingest an inordinate amount of stress on a daily basis for no gain. So far the Monevator guy had, at least in part, the life I would have wanted to have. And he might end up living longer than me. Did I choose the sucker path?

Maybe I am digressing too much. The point is, you can live on a string, optimised budget as long as things are going fine. But even in that case, you are sacrificing a boatload of optionality, desired but also required. I can switch and live your life tomorrow; you cannot do the same. As long as we remind ourselves that there is a lot of survivorship bias at play in those stories, the great content-maker of interviewing the Powerball winner while ignoring everyone else who’s a perma-loser, we are fine? It is a bit annoying that he concludes the interview with the “see, anyone can do it” message; no Greg, it is not just about “time, application, and a fair wind“, there is a reason why you lived your adventure, your parents weren’t as… selfish (?) as you…to mention one thing.

Taxes

The Swiss system has some unintuitive quirks. If you live in Switzerland, it is mandatory to have private health insurance. In my mental accounting, that’s an expense but from a conceptual point of view, it is effectively a tax. In Italy, part of your taxes go to fund the public health system, it is simply not as explicit.

I currently do not have a car. In Switzerland you pay a one-off, pretty irrelevant amount, if you want to drive on highways for a year. In Italy, you literally “pay as you go”. The Swiss highway system is practically funded by foreigners who drive through the country, you might consider it as a fixed, albeit non-material, expense while in Italy this is a 100% discretionary cost.

In the city of Zurich, they found a clever way to incentivise citizens to recycle: everything that is not recycle-able materials (aluminium, glass, PET, you name it) and disposed of in the correct public bins, has to go in a special plastic bag that costs a fortune. In other words, everyone is free to generate any amount of trash but pays for it proportionally. It is a tax (a regressive one, if you want to find a defect in its design) like VAT. So far, we have been rigorous and organised ourselves around it but if you are not careful, you can easily spend 50 to 100 CHF a month just on those bags.

I have lived in four countries so far and I got pretty good at comparing (or at least understanding) what the net salary would be not only from a post-tax or currency conversion point of view but also from a purchase-parity angle. Going back to the Swiss “trash tax”, in the UK you have the council tax and in Italy the TARI, both conceptually closer to each other: the amount you pay is based on the size of the place where you live. In Luxembourg all the above items were “free”, i.e. included in the standard income tax.

Rent

We recently had a friend visiting. The commute from the airport to our place took her just 20 minutes by train because we live close to a station that is directly connected to the airport. Over three days, she spent 0 on public transport (which is notoriously expensive in Switzerland) because we live in the city centre: we walked to the lake, to restaurants and all the other places we visited during the weekend. We do not have a third room but our living room could fit a queen size mattress for her (and we didn’t even have to move any furniture around).

Our rent costs an unreasonable amount. Maybe not, if I consider how much I charge my tenant in London. Anyway, it is difficult to quantify the cost vs the opportunity that the particular location offers you. Are we exploiting it to the fullest? Would we be better off living in a cheaper situation? The Swiss rental market is very illiquid, meaning if the optimal point might be to go live some km further out, there might not be a suitable accommodation available for the next three years. And our ability to “test” a location is limited anyway.

When it comes to budget, the shelter part is a big component of it and yet I feel most of the time is dealt with approximately at best. Can it be otherwise though? Even if we moved around a lot, I and wife value our relationship with our “community”, people who live close to us. In our building, there is this Welsh guy who accidentally moved from London to Zurich at the same time as we did. Turns out that in London he was living a 10-minute walk away from our apartment. We both loved that area of London and, not so accidentally, we both decided that this was the right area of Zurich for us. Did we develop a particular spider-sense?

Finding the right community when you move to a new city is a guessing game. “the closer you get to the city centre, the higher the chances of a diverse community” is a rule of thumb that definitely worked for us (close but…not too close ;)). Anyway, this sets the bar for our shelter budget quite high but I do not think it can be otherwise. Maybe once we retire we can save something by moving to Lisbon? By then, my kids would already speak Italian, French, English and German…surely they would not mind adding Portuguese? (yes, they would most likely kill me). If you add the “career beta” component, barring a career jump my salary will always struggle against rent costs in whichever country we are, there is not much I can do on this fixed cost.

Fixed Costs

Once you start to consider your shelter cost in terms of “Rami Sethi rich life”, i.e. a kind of non-negotiable, then you add the fact that you want to eat well to hopefully stay healthy the longest possible, then you add your guilty-but-somehow-expensive pleasure of ONE cigarette a day…are we still talking about fixed costs? 🙂

What about visiting friends and family? Now that we are 4 and airlines discovered they have pricing power, it costs us slightly less than CHF 1k per trip…and we are talking about European destinations. This should not be a fixed cost and yet it feels like it. If it is not every month, at least every one and a half we have to pay a visit to the airport. Would I accept to go back to flying Ryanair and EasyJet? F NO. Seriously, I would rather fight with my wife for a week on why we should skip the trip than go that way.

The more I think about this, the more I feel lost. Am I a NYer meme after all and I do not even realise it? Shall I start to, at least mentally, account 50% of my rent as a fixed cost and the other 50% as pleasure/rich life?

Sometimes I feel like, if I have a salary raise tomorrow, I would still have fixed costs I would like to cover. But those are mainly things that would make me freer (like a cleaning lady) so, should I chase that raise and maybe end up working even more to get it or…should I go the other way? If/when my wife would start to work again, a big chunk of her salary would effectively go to pay someone else to look after our kids. Is it still a matter of costs or it is related to how fulfilling is what we do for a living?

Is my job providing me with optionality or is sucking it away?

Is this optimisation process ultimately only about my main occupation instead of how I spend it?

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One last consideration about those personal income and costs analysis you find around. As with anything else on the internet, you should be careful to interpret what you read. Apply an appropriate dose of scepticism but do not become (overly) cynic. In real life, you just see what others decide to do, not what they gave up to do it. You see the fancy car and not the lousy apartment, or the debt pile, or the parents, or the 80hr/week at the office + therapy. At least, those analyses provide, or should, a more complete picture.

This post is not about “I am better than you” or “he is better than me”. I wanted to show how hard it is this type of exercise. Nonetheless, if you take the right person, there is a lot to learn…in the sense that you can put your experience in a more informed context. I only have a very very limited group of friends with whom I can have this exchange for obvious reasons. I am not sure how feasible it is to go to the pub and then each of us takes out their own Excel and we start to have fun…

What I am reading now:

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