15 July 2016 –
I recently received the following email from a reader, based in Perth Australia*, and I’d like to throw it out there to the personal finance community to give this lady some helpful advice.
At last someone in Australasia doing what all those great US bloggers are doing. I am addicted to many blogs incl Mr MM but I am continually dismayed by them managing to live on much smaller amounts than I can.
In NZ, 20 years ago, we lived on NZ$24,000 a year. Then 6 years ago, in Christchurch NZ$34,000 but now in Perth, the last 6 years we cannot get below AU$55,000. We don’t even have a mortgage!
We spent $50 on clothes last year (family of 4), bike everywhere, get Hungry Jacks (Burger King here in Oz) once a month, spent $115 a week on groceries and cut our own hair, so we kind of feel like we are really frugal.
But every year I do the maths and it’s a shocker. Bloody health insurance $4,000 (would never pay this in NZ but get taxed if I don’t), water rates $2,500, Council rates $2,000, and much more. I feel like the cost of living is so much higher than in the US.
I guess I live in a capital city but our budget doesn’t even include housing costs.
I agreed with your post on insurance and worked out a few years ago we were spending $9,000 a year on insurance. I have cut this down to $6,000 (at least Income Protection Insurance is tax deductible).
It’s depressing as I could see retirement as a possibility in the next 3-4 years but with this sort of annual spend, the money would never last.
I have scoured the internet over the last year to find comparable budgets of Aussie or NZ families but there is not much out there. The blogs I follow in the US seem to spend between 30 and 50 for a family of 4-5.
What are we doing wrong? What do you think is a reasonable amount to aim for? Do you have any advice?
Thanks, Perth Kiwi
On digging deeper, Perth Kiwi has given me some further information and her family’s annual expenditure.
She work fulltime in healthcare and partner is full-time home dad. They moved to Perth, from NZ for her work which she enjoys and feels that the work conditions are far better than if they moved back to NZ.
Her 7 year old at public primary school and her 3 year old spends 6 hours a week at kindy for socialisation and learning.
Perth Kiwi’s last year’s expenditure
Wow, that’s a big chunk of the family income going out each year.
In terms of retirement savings, Perth Kiwi is counting on her employer’s super contribution but nothing else at this stage. In Australia, it is required that your employer pays a minimum 9.5% of your salary into an approved scheme.
In addition, a lot of the super schemes have life and TPD insurance policies as an option that can be cheaper than going through an insurance company. Checking this out may be a worthwhile way to save a few more bucks.
As you can see, there are some expenses that should, hopefully, be a one-off which puts $21,200 back into the household budget.
Also, the professional expenses and Income Protection insurance should be tax deductible so in a round-about way, that puts another $8,950, along with any other deductibles, back in Perth Kiwi’s pocket at the end of the tax year.
That’s a total of $30,150 that, as long as those pesky, unexpected expenses don’t come along again, can be put into the investment pool.
This brings her expenditure down to $33,586 for the last year.
Besides maybe cutting back on the entertainment and house minding expenses, I can’t see that there are many other ways to reduce costs other than moving to a lower cost region. In fact, I think Perth Kiwi is doing pretty well. Especially when you compare her family’s annual expenditure with others, such as The Practical Saver, who’s frugal family of three spends US$31,000 a year living in an area he describes as ‘astronomically high’.
What do you think folks. Are there any suggestions you have for Perth Kiwi to help reduce her annual budget?
*For those of you that don’t know anything about Perth, it’s one of the most remote cities on Earth. In fact, it’s closer to Singapore than it is to Sydney (go ahead, look it up on a map). Perth and the State of Western Australia have enjoyed significant growth as a result of the mining boom occurring over the past 30 years. This and Perth’s remoteness have contributed to it having a very high cost of living compared to other parts of Australia.