Our August Spending

Well, it is possible that writing this blog is good for our budget. I have been keeping track of how much we spend for several years now and this is our lowest spending month in recorded history! Which shows that way too much of our spending is really discretionary. Our average monthly spending for 2019 was almost $5000 a month excluding property taxes and donations which we tend to do on an annual basis.

Shopping this month included printer supplies (about $150 worth) due to the fact that we are both working from home and homeschooling, some clothes for me ($110, I did really need the clothes) and homeschooling workbooks for the Child. Kid expenses included the Child’s violin lessons (which she takes over Zoom) and school fees (public school). We made a small amount of donations as our area was hit by a major storm so we donated to some local charities.

One significant reason our spending is down is COVID and the fact that both of us are working from home. That decreases our transportation expenses (normally I pay $6-$7 per day for parking and we both drive to work) but it also decreases my random and totally optional daily purchases. When I am at work, I often end up buying lunch or buying coffee and these things add up!

During the first weeks of COVID, our spending didn’t go down, it shifted. I tried to buy things that I hoped would protect my family from the dangers. I stocked up on food, toilet paper, soap, and Clorox wipes. I also bought various masks that I hoped would be good enough to keep us healthy. I have reached the point where I have bought everything that can possibly be useful. All of these things are sitting in our basement as at the moment we simply don’t leave the house but I feel slightly better knowing they are there.

Our low spending (for us) is of course largely due to luck – nothing went wrong this month. The pets didn’t get sick, no appliances failed, no storms damaged our roof or flooded our basement. It is easier not to spend money when there are no emergencies. Still, I do think that writing about money helps me be more thoughtful about how I spend it. It’s a win!

Can we bring our spending lower and is it worth it? Probably we can and probably it is worth it.

Our main financial goal is to be financially independent. That means to be able to live entirely on the passive income generated by investments. The common rule is that to be financially independent, you need to have investments equal to 25 times your annual income. Making some reasonable (everyone hopes) assumptions about the return on stocks, this should allow you to live on passive income forever. I tend to be more conservative, so I am taking 30 times our annual spending to be our financial independence number. Small changes in your annual spending, can have a big effect on this number. For example, if we can live on $40K per year (an average of $3,300 a month) then we need $1.2 million in investments (this doesn’t count money that is not invested such as the value of your home, cars, or money you like to keep in cash). If we need $73K per year (the amount we spent last year), then we need $2.2 million. That is a big difference! In general, cutting your spending by $1000 a month, translates into a decrease of $360,000 in your financial independence number. And of course if you are spending less, you are saving more to reach that smaller number even faster.

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