Time to open up the books on how much money I spent last month.
Managing expenses is absolutely critical to becoming financial independent and retire at a young age.
In fact, I’d argue it’s much more important to be an excellent saver than an excellent investor in this regard.
And in order to save, you must limit expenses.
Making more money is great, but not locking down the appropriate lifestyle first by adopting a scarcity mindset will almost surely result in lifestyle inflation.
Someone earning $100,000 per year but spending $90,000 per year will probably never retire (and certainly not early), but someone earning $40,000 annually and spending just $20,000 of it per year will become financially independent in a reasonable amount of time (likely within a decade or so).
I consistently saved well over 50% of my net income in order to go from below broke in 2010 to financially independent and retired in 2016. In fact, I was routinely hitting monthly savings marks above 70%.
And I was working a regular, middle-class job during much of that period.
Everything was hinged upon my ability to live below my means, enjoy most elements of frugality and minimalism, and totally believe in a future me who was already financially independent and taking advantage of that freedom.
While I no longer have to (or really even attempt to) maintain a high savings rate, keeping my expenses low is still vital to maintaining my financial freedom.
You can’t get to a point to where your passive income starts to cover expenses, then suddenly ramp up spending. You have to more or less maintain the same spending that got you there.
That all said, I could technically spend much more than I do.
I earn five-figure dividend income from my FIRE Fund.
Average monthly passive income exceeds average monthly personal essential expenses.
That’s my definition of FIRE.
It’s a pretty wonderful life position to be in.
I’m very fortunate. And very grateful.
My overall passive income is north of $1,500 per month – and growing.
But that’s not all.
I also earn a rather significant amount of active income from my ongoing writing and coaching efforts.
As such, the early retirement math has been rendered moot for me (as it will be for almost anyone who’s achieved FIRE).
However, I don’t ever want to regularly rely on that active income.
If I were to rely on it, I wouldn’t be financially independent any longer. In addition, relying on that income would likely negate a lot of the enjoyment I get out of writing, turning work into a job.
I may sometimes use some of that excess income for travel or other extraordinary personal spending, but this is a complementary and voluntary addition to my everyday life that’s supported by passive income.
That everyday life, by the way, is fun, free, and functional. There’s no sacrifice. Even though I don’t spend very much, I don’t ever wake up and feel like I’d be much happier if I suddenly spent a lot more money. That’s not how happiness works.
While my ability to live on relatively little and still feel happy has been built on an overall life philosophy, that ability has been further bolstered in a major way by relocating to Chiang Mai, Thailand indefinitely as a dividend expat. I’ve taken maximum advantage of geographic arbitrage.
Because the cost structure here is so much lower than what exists in the US, I don’t have to watch and stress over every penny in order to get my spending down to a level that’s roughly in line with my passive income.
If anything, I spend exactly zero effort in managing my expenses these days. The “effort” has been replaced by a structural realignment of expectations and beliefs, along with a major move abroad that takes advantage of geographic arbitrage.
I’m living my best life these days. This is what it costs.
With that introduction out of the way, let’s get into my real-life spending for February 2020…
|Rent & Utilities||$419|
*The Everything Else category includes expenses I don’t have a regular budget for. In this case, it was a laptop charger and a new laptop. My five-year-old laptop crashed right as I was leaving Kuala Lumpur. It intermittently wouldn’t accept a charge, among other issues. I thought that might have been a problem with the charger and/or the battery. But I was unable to fix it on tremendously short notice. After buying a new charger, and after troubleshooting the battery, I realized it was finally time to let the ol’ girl go and get a new computer. I spent ~$450 on a new laptop, which is similar to what I paid five years ago for my old laptop. Averaging less than $100/year on a computer isn’t bad at all. I’m fortunate the computer took a dive in Kuala Lumpur, where computers are significantly cheaper than in Thailand.
Boy, it’s not often there’s a two handle on one of my monthly budget reports.
January was unique and cheap, whereas February was unique and expensive.
I say unique because there were so many extraordinary expenses that all hit at the same time.
If I wouldn’t have needed a new computer, February’s budget would have only been slightly higher than usual. But the laptop is what allows me to do everything I do, so it’s an extremely worthwhile investment.
The Health/Personal/Toiletries category was high this month. That was due to the fact that I had to order some new shaving gel and oil from the States. The cost of the actual goods are in this report. Next month’s report will reflect shipping costs to Thailand (because they arrived to my US address late in February).
Travel partially relates to a two-nights’ stay at a hotel in Kuala Lumpur. After my Airbnb host assaulted me, which forced an immediate evacuation from the condo I was staying at, I had to quickly book a stay at a local hotel until I could regain my bearings. I stayed at a decent place right in the center of Bukit Bintang for less than $30/night. The rest of the spending in this category is the plane ticket from KL to Chiang Mai.
Spending on Gym came in very high. That’s because I recognized the remainder of the spending for a three-month membership at a gym in KL. I left KL at the beginning of February and promptly signed up for a membership at a gym in Chiang Mai. So this is basically three total months of spending on two different gym memberships. This category will obviously be back to normal starting in March.
Gifts includes spending on Oh for both Valentine’s Day and her birthday.
And the Visa expense was for an extension on my 30-day exemption that I received when I landed in Chiang Mai.
I think all of the other categories are more or less in line with historical norms.
This will likely be the most expensive month I have all year. It’s not often that I spend this much in a single month. But that’s how it goes sometimes. The good news is, FIRE does not require covering every single expense with passive income.
It’s looking like March will mark a quick return to normalcy in regard to spending. I’m on cruise control thus far. I can already see how the next six or so months will be pretty impressive, even without trying to live frugally. I have a very low base of spending on essentials.
The low Rent & Utilities budget line, in particular, gives me a very nice glimpse of things to come for the remainder of 2020. Oh and I are loving our minimalist condo in Chiang Mai. The value for money is outrageous.
Keeping a tight lid on housing, which is typically the largest monthly outlay, allows me to live carefree. I don’t have that feeling of anxiety about money that I used to have when I lived in the States. It’s really nice to be rid of that.
Unless some kind of emergency were to befall me, the next few months are smooth sailing. Other than some occasional visa concerns, the budgets should be solid. I’m settled back into Chiang Mai and feeling really good about the remainder of the year.
Let’s continue to make the most of every dollar and every second!
Please note that this report factors out any outgoings that wouldn’t exist if I didn’t have an online business (business expenses, business taxes, philanthropy, investing, student loans, etc.).
This level of spending on the essentials is a comfortable base for me. I suspect that I’ll be more or less in this range of spending most months, outside of occasional travel and the annual visa concerns. Of course, I could spend less (especially on housing), but I have no desire or need to. Likewise, it’s easy to spend quite a bit more, but I equally lack that desire and need.
How much did you spend during the past month? Did you meet your expectations? Why or why not?
Thanks for reading.
Image courtesy of: imgflip and Warner Bros. Pictures.
P.S. If you’re interested in becoming financially independent at a young age, which will involve controlling expenses, check out some amazing tools and services that personally helped me become financially free at 33.