My Rich Ratio

Deep down inside I'm convinced that I'm an utter fool about money. I'm also convinced that I'm actually quite a lot better about it than a lot of folks. Certainly better than most musicians. We're a bunch of nincompoops about money on the whole. That's partly because we don't make very much of it, but it's also for the wonderful and compelling reason that we have other fish to fry. We aren't in it for the money, after all. If we were, we wouldn't be in it.

My suspicions as to my own fiduciary naiveté have led me to adopt some practices that have stood me in good stead. They're the thinking of an inherently cautious person, somebody who prefers not to leap into things, somebody who always looks ahead – at least a little bit.

The Rich Ratio is a totally handy calculation that tells you at a glance how you're doing on a month-to-month basis. It's very simple: you take your take-home monthly income, i.e., after-tax income, and then divide that by the amount of money you need to make your basic expenses for the typical month – all of it, including groceries and the like. Thus income $1000 and expenses of $1000 results in a rich ratio of 1.0, good news since it means you have just enough money to cover. Income $2000 and expenses of $1000 = 2.0. Each higher increment means that you have just that much left over, money that you can put aside for a rainy day or rainy year, or just money that means you can relax a bit. Higher ratios are even better.

At present I'm almost at 3.0 for my 'rich ratio', which puts me in very rare company. It means that in any given month I don't actually need 2/3 of my take-home income. I can save it (my usual practice) or have it around for stuff that might come up (such as a new windshield for my car, thanks to an errant rock on the freeway), or just to give me the peace of mind that extra money brings. It means that I don't worry about money, period. I read about people who couldn't cover a $400 extra expense, or $1500, or whatnot. That's not me. I can handle pretty much anything that might come along, and with ease.

A 'rich ratio' below 1.0 is bad news indeed. It means you're not making enough money to make ends meet, so you're going to be robbing Peter to pay Paul while you play Russian Roulette with the monthly bills. That's never been me, and it never will be.

So how do I maintain my oh-so-enviable almost-3.0 rich ratio? Read on:

Item: Basic Spending

Even in my early years as a mostly freelancing musician I tried really hard to keep my expenses to no more than half my take-home income. That wasn't always easy since I didn't usually make very much money. As a result, some months I had to allow that I just wasn't going to make the goal. But with any luck I could make it up the next month. It was aspirational, to be sure, but more often than not I got there. I had a good friend who made a lot more money than I did, but he was always broke. I wasn't. As far as I was concerned I was the rich one, because I was the one not living paycheck-to-paycheck.

I am reminded of Wilkins Micawber's advice to David Copperfield: annual income 20 pounds, annual expenditure 19 pounds: result, happiness. Annual income 20 pounds, annual expenditure 21 pounds: result, misery.

Mr. Micawber would have coveted my rich ratio of nearly 3.0. His was somewhere hovering around zero, after all, which was why he gave the above advice to David while he was waiting to be transported to Australia for debt.

Item: Cars

I enjoy automobiles but I have a solid head on my shoulders about them. Over the course of my adult life I have owned only three 'daily driver' main cars – a Ford Mustang, a Honda Civic, and a Toyota Camry, and only one at a time. The Mustang wasn't much of a vehicle, but the Civic and the Camry have both been impeccable paragons of automotive excellence. At present I'm at year 11 with the Camry, and I plan to make it to 20 at the bare minimum, barring the unforeseen.

I also bought myself a 'fun' car at one point, a Mazda MX-5 Miata two-seater roadster. I enjoyed it for a while. But I wasn't using it much, and the insurance was expensive, so I sold it while it still had plenty of value. I'm back to only one car at a time, and I plan to remain there.

Life's better when you don't have a car payment. And I have absolutely no interest in buying something expensive. Given my 'rich ratio' I certainly could do so. But I'm not going to.

Item: House

I live in the full bloom of the American Dream. I own a 30-year-old suburban house with 4 bedrooms, 3 baths, and the full monty of niceties – front and back yards, patio, deck, 3-car garage, central air and heat, modern kitchen, the works at 3000 square feet on a 6000 square-foot lot. Yes, it's just your basic tract house on a suburban cul-de-sac, but it's my basic tract house and I couldn't be happier with it.

I could have bought something fancier. My budget would have allowed me to go as high as the mid-700s when I was house-hunting back in 2015. That would have bought me a bigger, newer, and fancier house – but it would have left me house-poor in the sense that I would have had to strain my budget to keep up the payments and upkeep. So I bought for $440K instead. I live in a less elevated, but still good, neighborhood. There aren't really any bad neighborhoods in this distinctly affluent small city. I like my cul-de-sac; people are friendly and most of us are homeowners, so there's a good sense of permanence. There have been some age-related issues with the house but I've fixed them. I've got a disgusting slob next door, but I've been able to block him out mostly via shrubbery and raised fences.

The most important thing is that my monthly house payment – which includes property taxes and homeowner's insurance in addition to principal and interest – is no strain whatsoever. I'm not house poor at all. In fact, I'm moderately house rich, truth be told.

Item: Food and Drink

It's a good thing that I'm a good cook and enjoy cooking. About 99.99% of the time I eat at home, and I'm not at all big on convenience foods, which are way too salty or sugary and inevitably contain no end of weird chemical stuff that makes me wonder if I'm going to wind up glowing in the dark. I tend to cook from scratch, using basic ingredients. I take my lunch with me to work in San Francisco.

The end result is a much better diet and a much lower budget for food. Yet, I eat very well indeed. And because I am so cautious about eating out or buying takeout, I can splurge on some of the nicer items in the grocery store without worry or guilt.

Item: Entertainment

I'm not big on going out. For one thing, I live in an outlying suburb and getting into the city is a real bother. But I don't even like going out here in my suburban city, even though we have movie theaters and all that. I'm much more of a stay-at-home guy for my own personal entertainment: books, movies on TV, music on my first-class sound system.

Item: Travel

It's my great good fortune to be aversive to travel in all forms. My travel budget for the past five years has been precisely $0.00. I don't go places. I don't fly in airplanes. I'm really not interested, period.

The Upshot

So it's a cautious yet comfortable existence, financially speaking. I could be living a lot higher on the hog. But I can't really see the point. Those hog-higher items are mostly things I don't want. I'll allow that a more posh house would be fun – but I would be living in it with the same homebody resolution with which I live in this house, so it wouldn't actually be all that much of a difference, all things considered.

And in the final analysis, it's all about comfort. Money is not a worry, period. I always have enough, and then some, for anything and everything I want, including a decent eventual retirement. Thus my rich ratio of nearly 3.0, a little number that speaks volumes as to security, and even more importantly, peace of mind.