Time to open up the books on how much money I spent last month.
Managing expenses is absolutely critical to becoming financial independent 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 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 just 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 and growing dividend income from my FIRE Fund.
Dividend income covers my essential expenses.
It’s a pretty wonderful life position to be in.
I’m very fortunate. And very grateful.
My overall passive income is north of $1,400 per month – and growing.
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 in 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.
With that introduction out of the way, let’s get into my real-life spending for July 2019…
|Rent & Utilities||$538|
A very solid result here.
I’m not at all unhappy with this budget.
The only spending category that was notably high was Gifts. This was by choice. An old friend recently moved across the United States to start a new life in a new city, and I wanted to offer my best wishes with a small financial gift. So that’s what happened there.
Otherwise, it was business as usual. If you factor out that financial gift, spending came in at under $1,400 for the month. That’s pretty much right in my normal range.
Not too much to break down or dissect here, which is great. I’m excited by the unexciting.
But there is something noteworthy about this particular budget.
This was the first month in which Oh has lived with me full time.
Interestingly, it hasn’t materially changed anything. Coming in at under $1,400 is fairly typical. I’ve been oscillating between $1,300 and $1,400 per month for quite a while now.
And that’s amazing when you consider this is a dream life – for two people. We do whatever we want, whenever we want. I feel blessed.
My financial goal/definition for FIRE was always for my passive income to cover my essential personal expenses. It was never designed to cover two people, nor was I trying to fit luxuries in there. The fact that I’m able to swing this kind of lifestyle with passive income is, in short, incredible.
Looking forward, August appears to be coming in within a similar range – albeit without the big Gift spending.
The only extraordinary expense I foresee in August is related to the fact that I’ll have to very soon (like, within the next few days) buy a new pair of gym shoes. I wear gym shoes in the daytime six days per week. Since I walk almost everywhere, and since I’m exercising almost every day, shoes for me are like cars for other people. Except my “car” costs about $60.
I hope all of you had a great July in terms of sticking to your budgets. It’s so important to manage those expenses, both before and after retirement.
Let’s continue to make the most of every dollar and every second!
I’ll quickly point out that there’s no visa expense in this report. I’m staying in Thailand on a one-year ED visa, which was settled earlier this year. As such, there are little ongoing costs to maintaining that. But I think you could go ahead and add $100 or so (based on the visa costs stretched out over a year) to the above expenses to get a full look at what life is costing me here.
And, of course, this factors out any outgoings that wouldn’t exist if I didn’t have an online business (business expenses, business taxes, philanthropy, 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 was your spending for 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.